Q3 2020 DLH Holdings Corp Earnings Call
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Thank you and good morning, everyone on the call me today is that Parker, President and Chief Executive Officer, Kathryn Johnbull, Chief Financial Officer, the company's earnings release, and Powerpoint presentation are available on our website under the Investor page.
Did you provide a brief safe Harbor statement, which has also shown on slide two and the presentation.
This call May include forward looking statements that relate to the companys outlook for fiscal 2020 and beyond.
These forward looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements. Please refer to the risk factors contained in the Companys annual report on form 10-K and in our other filings with the Securities and Exchange Commission, we does not undertake any duty to update any forward looking statements.
On today's call will be referencing both GAAP and non-GAAP financial never measures have reconciliation of our non-GAAP results to our reported GAAP results included in our earnings release, and any investor presentation on DHS website.
President and CEO stack Parker will speak next followed by CFO, Kathryn Johnbull after which we'll open it up for questions with that I'd now like to turn the call over This act. Please go ahead.
[noise], Thanks, Chris and good morning to everyone and welcome to our fiscal 2023rd quarter Conference call.
I like to begin.
I wish you all do you and your family as well during these difficult they use a depend damage.
Please know that you are in our thoughts and prayers.
[noise], we'll modify or data format, a little bit so that we can provide you an update on how we're doing as a company as we deal with the unusual challenges associated with coordinate the corporate 19 buyers and the awakening of social and diversity issues attributed to the murder of George floor.
Which occurred during the middle of the quarter.
[noise], starting with slide three let me begin by providing a high level overview of our financial performance and some color on the outlook for the remainder of fiscal 2020.
I'm pleased to report.
That could we have continued solid results even in the midst other global pandemic social unrest.
The company posted.
Revenue of 51.5 million for the quarter, reflecting another period of an excellent in client delivery.
We attribute all of that to just the tremendous attitude and credentials and capabilities of our workforce.
Operating income.
Just a 3.8 million in Q3, and we posted EBITDA up 5.5 million both consistent with the result of the second quarter results [noise].
We generated 10 million operating cash in the quarter in paid down 10.5 million of debt.
Our strong performance from a cash flow perspective was aided by the collection of receivables this quarter as we indicated would occur last earnings call [noise].
[noise], we'd now be down over 25 million of senior debt since the S. Three acquisition last year as we continue to de lever the company strengthen the balance sheet and reduced interest expense [noise].
I'm also pleased that after they ended the quarter.
No the delayed should want a series of competitively awarded projects related to covert 19 testing and clinical trials, which in aggregate expected to contribute over 15 million in revenue during the coming quarters, depending upon the resilience of the various therapeutics evaluated by our team.
I will discuss this more in a moment.
With regard to the pandemic, we continue to do everything possible to safeguard the health of our employees as we as well as our customers.
We are grateful for the professionalism and dedication of our staff this year.
It is pushing bids outstanding [noise].
[noise] now turning to slide four.
I'd like to take a moment to talk about two new additions to our leadership team.
Janine question as President of our S. Three operating unit, which includes the business acquired last year and Jackie ever it.
As our de LH Chief growth Officer.
[noise] Janine scientific expertise, our longstanding customer relationships and our leadership skills maker, a fantastic fit to lead this business for us.
We're thrilled to have our joined from our prior role at Battelle Memorial Institute, where she led a team of over 300 scientists clinicians researchers in data analysts.
And turning scientific data and technology advances into distinct benefits for variety of government and commercial clients.
She has already lane, Dan and has begun making valuable contributions for her team.
Customers and the shareholders for the business going forward.
[noise] Jackie every there's another great addition to our company and somebody recognized throughout our industry as an accomplished dynamic and results oriented leader.
Or drive and motivation and experience are expected to enable our company to win new business and execute our strategic vision.
I am pleased also with her initial contributions.
As she evolve.
Gross organic growth profile.
Both of these.
Individuals will make tremendous contributions to enhancing our performance excellence and growth trajectory.
Turning to slide five I want to provide an update on cobot 19, and its impact to deal H. internally.
First and foremost our most valuable asset is our people.
They bring not only their experience credentials and subject matter expertise.
But as we have learned this year there courage.
We have over a thousand employees entering government production and distribution center facilities to ensure that over a half a million vital medical supplies and prescriptions guitar nations that dreams, each and every day.
We take this pandemic very seriously and while it has provided some new business opportunities for us and again, we'll revisit revisit those in a moment.
Yes, there's also Matt we've had to change the ways in which we do business.
Accomplish our strategic objectives I am proud of my leadership team, our staff and the way that they have all adapted to the situation.
Demonstrating a level of commitment in business continuity.
Almost unbelievable, we have implemented a course of work at home directive.
Currently the.
Scheduled to go throughout the end of the year.
To ensure that our workers that work from our facilities work safely.
And although this could change overtime.
In the months to come we're committed to ensuring their safety first.
Although work includes monitoring evaluating compliance with government funded requirement.
Involving actual physical onsite inspection of facilities, both large and small.
Cost of country.
As well as well as collaboration and interviews with onside personnel covering a range of disciplined.
As you would expect most all of these facilities where either at a shutdown mode.
Operating with skeleton crews or implementing virtual measures to try to keep afloat.
As such.
Our onsite inspection workforce was impacted heavily which resulted in a portion of our workforce being furloughed in accordance with the cures Act during the quarter.
We are coordinating with the appropriate agencies that we serve to provide the most responsiveness to their needs and our factoring in implementation of those federal provisions and finally, we have formed an in house task Force which include.
Our.
Positions and health care experts that allow us to monitor and manage all aspects of the disease as it relates to our business.
We hold weekly assessments as a t. as a task force, we determine plans and procedures for the future.
We're constantly staying abreast with the.
Evolving CDC guidelines as it pertains to our people our workforce in our facilities.
We're doing everything in our power to keep the company moving forward, even in such strange in challenging times.
Turning to slide six.
We are proud from a service perspective to be involved in several initiatives in clinical trials associated with Goldman 19.
We have a longstanding history of providing analytics.
No and assessment support to the National Institute of Health and the center for disease control a provision in the fight against infectious diseases and within the NIH.
We also have built a long term close relationship with the National Institute of allergy and infectious diseases under Dr. Bob.
As NIH leads the national response to combating the spending and finding relevant vaccines, we've been called on to leverage our contract research organization experience to rapidly evaluating multiple therapeutic products.
Our epidemiological experienced and working and work managing clinical trials has set us apart isn't it has and will set us apart as an organization.
We possess deep deep experience in leading a consortium of partners securing the necessary patients in subjects and conducting clinical trials to achieve success, which I'm very very proud.
In addition, our technology enabled cloud based solutions continue to see growing interest in agencies, we serve and we've invested in new business development initiatives to Patel penetrate.
Programs and fuel topline growth.
I don't think delays has ever been more relevant to address these kind of.
Several challenges.
These create opportunities and currently in the healthcare market.
As well as our longstanding relationships with the Veterans Administration Department of defense, and the health and human services agencies.
These position us very well for F why 21 and beyond.
For investors delays has proven to be a company with stable and predictable performance.
Even in the midst of a global pandemic.
Grew at all delays continues to deliver on our plans and our commitments and are demonstrating our resilience and business continuity.
Before turning the call over to Catherine I'd like to address how it relates just responding to the social issues of today and how we are committed to being a diverse and inclusive.
Organization.
We want to lead through example.
If you'll turn to slide seven.
You'll notice that we have joined.
Our local and national communities, and bringing the issue of diversity inclusion and social injustice into our conversations communications and actions.
Up and down across our organization there had been quite a number of engagement.
And we are putting our words into action.
In short walking the talk.
These are included virtual open Mike with the CEO, many town halls engagements with the Gulf Con community.
And we are partnering.
With with historically black colleges and universities to further invest in research and understand they help disparities pervasive upon the communities of color.
Researching and dissecting such complex issues is a core competency of the company.
Secondly, we have launched the giving campaign to support two organizations that have a longstanding history of fighting social and justice the equal Justice initiative and the end HCP legal defense fun.
Caring for our community and given back or part of the latest foundation.
This is the time a time in our nation's history that calls for thoughtful.
Reached and integrity, driven leadership Ngls is ready to be an agent for change growth and progress in that domain.
With that I'd like to turn the call over to our Chief Financial Officer, Kathryn Johnbull Kathryn.
Thank you Jack and good morning, everyone. We're pleased to report another quarter of solid performance.
Turning to slide eight we posted revenue for the three months ended June Thirtyth, 2020, 51.5 million versus 38.7 million in the prior years third quarter.
The revenue increase derived largely from the impact of our Asthree acquisition, which was reported for the full quarter in 2020 versus three weeks and the prior year period.
As that lets you probably want a considerable amount let me work related to cover 19 research and testing this will be reported as revenue in the coming quarters.
Turning to slide nine.
Come from operations Rose to 3.8 million for the fiscal 2023rd quarter from 1.7 million last year, reflecting operating margins at 7.4% at 4.4% respectively.
The greater operating income reflects increased revenue.
Margins also rose due to improve operating leverage.
We reported net income of approximately 2.1 million or 16 cents per diluted share versus point 8 million or six cents a share last year. The company recorded a 9 million put 9 million provision for tax expense. This third quarter versus point 3 million in fiscal 2019.
Interest interest expense was point 8 million in fiscal 2020 basis point 6 million last year, a year over year increase in interest expense was due to higher outstanding debt balances from our fiscal 2019 acquisition. However, we continue to pay down debt as expeditiously as possible as I'll review further in them.
Moment.
Turning to slide 10, EBITDA for the three months ended June Thirtyth 2020 was 5.5 million versus 2.6 million in the prior year period, reflecting the S. Three acquisition and improved operating leverage.
As a percent of sales EBITDA rose to 10.7% this quarter versus 6.7% last year.
A reconciliation of GAAP net income to EBITDA is in our earnings statement and the back of this presentation.
Slide 11, once again illustrates the progress we've made reducing our senior debt since 2019 as Jack mentioned, we've continued our practice of using operating cash to pay down debt, reducing it by 10.5 million in the third quarter.
As of today, we've paid down 25.5 million of senior debt since they asked three acquisition in June 2019.
We generated 10 million of cash from operations during the quarter, which was unusually strong given the outstanding receivables at the end of Q2.
With the current outlook for the coming quarter, we anticipated debt balance of between 40 to 42 million at fiscal year end.
This concludes my discussion at the financial statements with that I'd now like to turn the call over to our operator to open for questions.
We will now begin the question and answer session to ask a question you made frac them long that's concurrent.
Regarding your question is can address and get who like to be there are your question. Please and then.
The first question is some can have met with Canaccord. Please go ahead.
Hi, Good morning, I can't I can Catherine.
Hi, good morning.
Good morning.
Good morning.
Catherine I just wanted to ask over the last three years, you've typically seen.
Finally, pretty nice sequential improvements in your EBITDA margins from the third of the fourth quarter fiscal third fourth quarter Im just curious as you looked with with the recent bookings and strains should we expect similar type of sequential improvement in EBITDA margins into the fourth quarter. This year.
Oh, I think that we are well, while we've been building sustained improvement I think that's become sustaining.
Oh, I I'm not expecting a significant bump in Q4, though I am expecting us to sustain the levels we delivered in Q3.
Okay. That's very you're certainly starting from a for me more elevated position are coming out of a third quarter.
That's great and and all the 15 million you've called out you know the recent bookings covert related in the wins. There can you talk about timing of when we should expect those recognize those revenues to get recognized.
The next few quarters.
Yes, Tim let me comment on that.
Before I go there. Let me also just add to catherines comment or at least your question with regard to the quarter quarterly.
Quarter sequential trends I didnt want to reiterate again as Katherine mentioned and I mentioned briefly in our and our introductory portion.
Over the recent couple of quarters in particular, there's been some some.
Unique onetime kind of hits.
And we're going to probably continue to see some varying aspects of the.
Over the coming quarter some of which.
Thats, a much of which is outside of our AR.
Our control. So there will continue to be some volatility as there has been from Q2 Q3, where Q2 had some unique things that Vicki.
They gave it that sort of help so we'll continue to try to do our best to keep in color around.
Those areas that are do offer some variability, but as Katherine indicated the overwhelming more portion of our business does continue to have that annuity kafeel.
With regard to our co bid work in our clinical trials is nature of that work right in the early phases, what our nation is doing in a bid way big way through NIH is taking a look at a variety of types potential therapeutics and or vaccines in various.
Stages in many cases as is.
Oh newly awarded work.
We're going to be try on multiple.
Deferred multiple types of.
There are few takes to see what curious what can carry forward in many cases several of these may drop off very early after.
50 subjects tested and we may seem okay, let's drop that one of those move onto to another prospect and so we are in east rave mode as a nation right now still searching for right.
Mix of up some of these therapeutics and we are going to get there and so when you're operating in that kind of environment and we're standing up by launching our initial set of subjects and testing this month in fact with.
With one of our partners here in Atlanta Emery.
Medical University Medical Research Center.
And we're going to be replicating this throughout the country as we deal with this constantly moving changing virus. So it's really going to be difficult for us to really ascertain a you know exactly what that revenue flows because the virus is dictating that as well as the impact upon hospitals and clinics and medical research.
Centers, which is largely the source of the subject for us that were built building together.
So we're going to ask that you.
Obviously recognize that there'll be some volatility on that 15 million.
Under a new Jeanine, we've also got two or three a near term bids in place for some quick reaction responsibilities. So we'll continue to give you some.
Color around that but do bear with us on on what that revenue flows going to look like.
The virus is just not given Catherine I enough [laughter].
To give you that context, but no no that.
We expected to be a good strong flow revenue because this.
Page and our team a consortium partners are committed.
Defining the the therapeutics in June so.
Oh, yes, all that it's gonna continued to be a at tension between urgency of response and safety and frankly competing right now if everything is urgent nothing's or just right. So all things that are happening on front of covered response, our urgent and so how you're working with other people to have to more interest.
They have to review everything that's happening so, but I think our positioning and communicating at what's really trying to.
At the understanding that unlike our classic model, where when we get into award it tends to be our typical engagement is over a five year duration. This is clearly not of that bill. This is clearly over there a relatively short duration everybody is motivated to add to access the capabilities that will conduct that research.
Research and response as quickly as possible, but have to counterbalance as that said with yes development and the virus itself as well the accounting mandating imperative that safety.
So that's not that well continue to get more visibility as we get it but that I hope that gives you some sense of how to think about it.
No. That's that's very helpful.
Okay and.
And just on that note. So just one final follow up.
There is there more in the pipeline.
Hi, good related considering the sense of urgency that could come through.
I guess.
Without putting numbers on it how much more beyond the 15 million or you are you bidding for today and is out there.
You know that could be further further opportunities for the near term considering your sense of.
Going on today.
Yeah, Yeah, Janine has a approve a team that is has built a pretty good surveillance. If you will relationship with our customer with NIH.
And.
And there's probably not been in the course of the last quarter, there's probably not been a two or three week period.
Where.
We have had to take a look at a new challenges posed by covert 19 right. So if you think about it very early on.
There was assist assessment that it doesn't affect children and children have been exposed and weve in the so there are some tests now that are.
Particularly trying to get a population base that is focused around children as opposed to just a general population.
Then as some therapeutics you you've heard of our success early on with with Red Desert here.
Listing on the clinical trials.
That has led to further testing looking at different types of environmental and different type of populations. So yes. There. There's again, we expect that things aren't going to change in the coming quarters, where.
The NIH is going to be task to address different types of.
Of aspects of the of combating this disease and we stay very closely engaged with them to look at what is the next challenge and in some cases, you know you're standing down testing on certain therapeutics that have proven that they have not been either.
Corporate level of efficacy or safety, right and and as such once you make those determinations you close those out and our team Discontinues activity. There. However, it would be unusual for us not see another variant.
That needs testing as a result of those so it's going to continue to be a dynamic.
Effort and as I indicated just in.
In a couple of short weeks.
Janine as her team aligned with the.
Developing an approach.
That we'll see if it if the gains Merritt on tackling some other aspects of the covert 19.
Challenge it will be a unfolding picture for many quarters to comment as you remember it was only last quarter yet right. It was covered with new when we're talking about tree arash.
Really just trying to save critically ill people now we're in.
The early stages of response and orderly responses that will sustain and but then following that much who knows how long that phase will take but then of course there were already lots of discussions about long term effects for people come through quite a bit in our fortunate enough to survive, but then have scarring on airlines and if they were already SCR.
PD patient, what's the impact of that to their recovery plan for that so there that will be I would think it's reasonable to expect there will be called that impacts in the public health care system for years to come.
So that's why we're so keen to get position what the public health a segment of our business related.
Missions and this important enough also to recognize that.
NIH as the lead on on looking at developing matures.
We're pretty well position in our MSS arena with the center for disease control and prevention to really start to look at.
Prevention measures communication method measures and so forth with the.
With respondents pandemic. So yes announced last ended last year entering this this fiscal year. There would have an idea Q and we're expecting to see some evolution of some opportunities present themselves there and of course as we've talked about the DJ and department at and D.A.J. Department defenses health agencies, we think there are no.
Number of areas, where there is opportunities and maybe longer term opportunities to stem from.
Addressing the challenges to our veterans and our service members as well so we're going to continue to lead into our our legacy competencies that we've had for the last decade or two and see if we can build upon those relationships.
To help with.
Other aspects of dealing with the disease prevention and control.
Thank you very much for all the detail.
You bet you folks Kim.
As a reminder, if you have a question. Please press Star then one.
Again, if you have a question. Please press Star then one.
Are you kind of appears to be now that you get the second the next question from Joe Goldman now, but capito. Please go ahead.
Hi, good morning, just to fixing pergo.
Thanks for taking the call.
Just a couple of question.
We wanted to ask hardly hear about schedule.
Excuse us.
Sorry.
You're breaking up little bit can you get a little closer to your.
All right can you hear me better now it's Chris that's better. Thank you yes. Thank you.
For Joe.
Can you talk about the revenues in the quarter they were a little bit lighter bar estimate.
Sure, Yes, so as we've talked about mentioned the typical five year contract in the typical last <unk> Gulf Coast services work.
They often described that as the as that ongoing annuity. If you will if you think about will assembled workforce all of our direct labor primarily more comfort alone and in some cases by subcontractors that work is sustaining and generally carries forward period to period.
Very little variation.
But for locus of workdays open slight things like that.
But that represents about 90, 395% of our revenue.
Quarter over quarter out the remaining two 5% to 7% is it's comprised of what we would call accommodation revenue. So things that you would not independently seek to bid on a they are necessary in order to conduct the services and a classic example that would be travel. So a lot so that variability does it come.
Nation revenues are tend to not be particularly.
Margin contributing there are things that you do that you get compensated for Asher perform your services, but they're not key to evaluate you've delivered at the customers that that accommodation revenue can be variable in that was that the number one contributable contributor to the variability from Q2.
You three we had a pretty strong.
Come from Altera accommodation revenue in Q2, and a pretty light in Q3, and so that got little component of our revenues not material to the total, but it's going to tend to vary quarter to quarter at that.
Does that help.
Yes. It does thank you very much and then.
Second question can you just talked about accounts accounts receivable they seem.
A little bit elevated still any discussion there.
Sure. It is as as you remember from our prior quarters, we talked about our integration efforts and just the the transition effective getting customers onto the system and no your business system. It clearly as we expected we would make some significant headway with that in Q3, and we did indeed, we still have some work.
Doing what we expect to be at a normalized level by the end of this fiscal period.
Okay, great. Thank you.
And.
Can you give us an estimate of what organic growth.
Would've been in the quarter.
You say would have been in the core.
Organic growth.
Yeah, well we.
We all of the quarter.
Okay, I think you referred to the quarter this quarter versus the prior year quarter, correct, Yes and.
That was get back to you because we had really good substantial organic growth I know one earlier comment we address Katherine addressed apart that component that.
The acquisition, which started in June of last year was a contributor but please make no mistake about it okay organically our can.
Continued operations had.
Good growth during the from quarter to.
Fiscal quarter.
To this fiscal quarter, largely driven by some of our expansion with some of our work in our HLS operating unit associated with services to the veterans.
So we can quantify that for you we think that.
That will start to that can do that has had continued continued growth over the course of the last year. We think it will be leveling off by by the end of this fiscal and become more of a norm, but real proud of the organic growth as well. So we'll we'll try to break that number for you a little bit later.
Okay, great. Thank you.
All my question.
Thank you.
This is going to kind of question and answer session and would like to turn the conference tobacco not can you could pockets for any closing remarks.
Oh.
Thank you. Thank you Francesca and get it off the mute here again I want to thank everyone for your interest and participation in the quarter's results.
Please again, please be sure that you and your family's maintain all of the social distancing and health and safety guidance from.
Center for disease control in that what you hear from us and some of other peer companies.
We look forward to engaging with you again on Q4 as we close out.
This fiscal year.
Please stay tuned also pay attention to some of the virtual town halls, and conferences that will be setting up over the course of the coming quarters. So thank you and with that have a bless day and we'll look forward to chatting with you soon again high for now.
The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
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