Q4 2020 DLH Holdings Corp Earnings Call
Thursday
Good day, and welcome to the DLH Holdings fiscal fourth-quarter earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing start 0 after today's presentation that will be an opportunity to ask questions to ask a question. You may press * then 1 on a touch-tone phone to withdraw your question, please press * then two please note Back event is being recorded. I would like now to turn the conference over to Chris witty investor relations adviser, please go ahead.
Thank you and good morning. Everyone on the call with me. Today is Zac Parker president and chief executive officer and Katherine Jaan Bol Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the investor page. I would not like to provide a brief Safe Harbor statement, which is also shown on slide two of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal took a $21 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 containing the company's annual report on form 10-K and in our other filings with the Securities Exchange Commission, we do not undertake any duty to update any forward-looking statements on today's call will be referencing both gaap and non-gaap financial measures a Reconciliation of our non-gaap results to our reported gaap results is included in our earnings release and an investor presentation on dlhs website.
presidency
Speak next followed by CFO Catherine Jambo after which will open it up for questions with that. I now like to turn the call over to Zack, please go ahead Jack.
Thanks, Chris and good morning to our friends and shareholders Welcome to our fourth quarter and year-end conference call the last twelve months have been very active time for a company setting the stage for continued solid operating performance in fiscal 2021 first. However, as we all know 2020 has been a tough year for our nation as well as our DLH employees throughout the world one which saw major social and civil unrest ignited by a series of high-profile killings and black communities and of course the onset of the coronavirus which has become the worst Global pandemic in a century
I'd like to take a moment to praise are courageous and truly Mission focused employees who throughout these difficult times to the services that that we provide to the underserved our military and our veterans throughout the pandemic. We have had over a thousand essential Personnel entering government facility on a daily basis braving the challenges not braving the various challenges to deliver high-quality and highly productive services to our customers throughout the country and doing so with complete adherence to CDC and DLH guidelines resulting in an infinitesimal number of cases.
Enter the several hundred employees assigned to our DLH offices, but adhering to our stay-at-home directive. Thank you. You have done a tremendous job of adjusting to the many challenges of the quarantines and telework without skipping a beat. We realize this can be taxing and look forward to the days where your choice become can become the driver for our workplace decisions. We are indebted to you all.
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 coming year the company posted revenue of 50.7 million for the quarter as Catherine will review in a moment and 209.2 million for the fiscal year in total this represents an increase of more than 30% year over the year-over-year reflecting recent acquisitions new contract Awards and solid results across our core programs and services. Despite the global pandemic.
Operating income was 13.5 million for the year and we posted earnings of $0.54 per share while either. Rose to twenty point five million in fiscal 2020 with 13.9 Million last year. We also completed the acquisition of Irving Burton Associates 432 million on September 30th. Bring it back. I T Solutions and strong credentials with the defense health agency and the medical research and development command to DLH.
We do.
19.5 million in cash from operations during the year, which we used to pay down $19 billion of debt prior to the acquisition of IPA. So while boosting f y 21 with seventy million of indebtedness, you can rest assure that we plan to once again use the same recipe going forward utilizing free cash flow. You'll ever the company as Captain will go over momentarily as shown on slide for a record backlog of nearly seven hundred million provides a strong foundation for the long-term health of the company posted by new ends related to COVID-19 a stronger position within the markets we serve and greater opportunities for growth than ever before long technology Innovations to drive program efficiencies contributed to our recompute award of $150 office at Head Start system contract during the quarter.
We have benefited from the recent actions of the VA on our heritage Sima programs with determinations leading to cancellation of the small business set-aside solicitation while while remaining in contention for Associated medical Logistics work accordingly. I feel real proud about the company's performance and our Outlook going forward.
As I mentioned earlier in the year DLH as well positioned within our key spending areas and we believe strongly that the recent election has not changed that fact we address to address it as neutral to positive turning the slide five. We show that we normally state that our key markets and specific programs enjoy widespread support from both sides of the aisle. I would also add one positive note given the election results. We believe that several healthcare-related spending items will be higher the higher priority under the new Administration resulting in greater access to health care and new spending opportunities on health-related priorities. Not only for the general public wage also for our military and veterans community.
We expect that depend demek preparation will also take a larger role going forward and that the Affordable Care Act may be enhanced and adjusted during the next month. Assuming that Congress concurs. The bottom line is that we anticipate that the agencies we serve will likely operate at current or better spending levels over the next several years again, underscoring both the strength and stability of the markets. We served. Of course, we expect that the the BCA caps will expire during FY twenty one, but the potential of a continuing resolution provides good stability as we enter FY 21 turning to slide six. I want to provide an update on the pandemic and its impact to DLH.
As we have said in the past our portfolio of mission-critical healthcare.
It is Services across key federal agencies provide numerous opportunities to assist the government in addressing the challenges based due to COVID-19 though. As always there are some headwinds in the Government Contracting Market when facing the outbreaks in the like we remain cautiously optimistic about the continuing opportunities for DLH to be at the Forefront of combating a threat and working feverishly alongside our clients toward mitigation.
We won new Awards this year in that realm during FY twenty and we will continue to conduct trials for the safety and efficacy of investigational Therapeutics. Welcome sleep with the agency there thought leaders regarding policies and approaches to respond to the pandemic. I'm sure our listeners are well aware of the fact of going Dynamics regarding COVID-19 with a positive news about vaccines off of offset by increases in infections worldwide is still a very fluid situation involving the partnership of government and Industry and DL hdls remains. Well poised to continue support in a variety of these programs.
We have an active pipeline of opportunities across the entire business platform and overall such growth areas are far more offsetting than the near-term head and created by certain opportunities associated with program delays travel restrictions and potential cancellations while we can't eliminate or why we can't elaborate further just yet. We do expect that additional work and anticipated task borders could increase organic growth rate in F. Right twenty. One two thousand level than this past year. These are very critical times and DLH is playing a vital role in moving the nation forward addressing many near-term health-related priorities off.
Turning to slide seven. I'd like to review our current strategic Visions before handling and handing it over to Catherine. We've come a long way since I came on board ten years ago, and we wanted to celebrate the fact that deal has just completed his transition into a strong differentiated company with broad unique capabilities spanning across all three of our Lounge areas in the uh on Market Focus areas and our recent acquisitions including Danya S3, and I be a have continued to bolster a strategic direction. We're also rapidly developing our Market presence and data analytics artificial intelligence and machine learning and secure systems. The cyber community will also continue to be key as we position our infinite by Cloud solution to to expand in the digital transformation technology.
she's we are at the next stage of our development and we'll
Forward to organically growing as well as through Acquisitions into an even greater technology leading Enterprise that can serve the health-related customers throughout the full life. Cycle of modernization is an exciting time. If you're a d l h but we won't be looking to grow just for growth's sake rather new capabilities and Market Pursuits will continue to be strategically aligned and continue to diversify the business base will improve the lives of millions of Americans and ultimately increase the returns for our shareholders off of course will continue to utilize our operating cash flow to pay down the debt to deliver the balance and reduce the interest expense while investing appropriately in business development job opportunities and Technology enhancements. We're focused on the next decade during in which we were build upon what we have accomplished. That's far further transforming dlm.
Into the leader into its into a leader and healthcare-related technology-enabled cloud-based solutions for key agencies in the federal government, given our accomplishments in 2028 Investments coming in 2021 during this pandemic and global economic downtown. We are upbeat about the future and the opportunities for tomorrow, I'd like to turn the call over to financial officer Catherine Catherine.
Thank you, Jackie. Good morning. Everyone. We're pleased to end the year on a strong note turning to slide eight. We posted revenue for the 3 months ended September 30th, 2020 a fifty point seven million versus fifty four point two million in the prior Year's fourth-quarter this year-over-year Revenue variance largely reflects deferrals in monitoring and compliance programs and a reduction of non labor cost from the changing business conditions due to the ongoing pandemic. We anticipate Revenue to grow organic in fiscal 2021 due to our you COVID-19 contracts and tax quarter timing.
Turning to slide nine income from operations with two point seven million for the fiscal twenty twenty fourth quarter versus three point four million last year adjusting for 9 a.m. In the back was an expense current current. Operating income improved year-over-year notwithstanding the revenue delays previously mentioned this reflects improved operating leverage on G&A costs and and reduce depreciation and amortization. We reported net income of approximately 1.4 million or ten cents per diluted share versus one point six million or $0.12 a share of last year.
adjusted for acquisition expense nine million
that income would have been two point three million and earnings per share would have been $0.15 the company recorded a point six million provision for tax expense in the fourth quarter of both 2020 and 2019 interest expense declined 2.8 million in 2020 versus 1.2 million last year due to lower interest rates and lower outstanding debt for most of the period prior to the acquisition of IBA.
It's like 10:00, even after the 3 months ended September 2020 was 4.4 million and adjusted for acquisition cost was five point three million in line with the prior year. As a percent of sales acquisition adjusted ebitda Rose to 10.4% disc order versus 9.8% last year reconciliations have got net income to ebitda and adjusted ebitda our in our earnings statement and at the back of this presentation.
Slide 11 shows the growth of our backlog since fiscal 2018 our backlog grew over 66% in fiscal 2020 and we're pleased that is not only reflects recent acquisitions, but also speaks well of our base business organic backlog growth was fueled by the Headstart recompete as I mentioned earlier CMOS, extensions and other Awards long as that indicated. We now have a much more diverse and balanced portfolio of programs and services and stronger Revenue visibility for the upcoming fiscal periods.
Y-12 gives a snapshot of our debt position at the end of the fiscal year reflecting the closing of our recent acquisition of ID a last day of June nineteen point five million in operating cash during fiscal 2020 versus $18 million last year and we reduced our senior Bank debt by $19 million during the past twelve months off in a remaining balance of $37 million prior to closing the active the IBA acquisition on September Thirty, even with the new debt are improved operating performance. And I either moves that our leverage ratio is calculated under our credit agreement is approximately 2.8 times ebitda a substantially lower leverage ratio on similar net debt levels be done after our last acquisition in June of 2019.
SF mentioned will continue our practice of using operating cash to pay down debt and expect levels debt levels of fifty-two fifty-two million at the end of fiscal 2021
this concludes my discussion of the financial statements with that I would now like to turn the call over to our operator for questions we will now begin the question-and-answer session to ask a question you may press * then 1 on your touchtone phone if you're using a speaker phone please take up your handset before pressing keys if at any time your question that been addressed and you would like to withdraw your question please press * then two at this time we will pause momentarily to assemble our roster
Our first question comes from Joe Gomes with Noble Capital, please. Go ahead.
Good morning. Good morning, Joe. How are you?
First question. I was wondering if you might be able to quantify for the quarter a baby for the full year what the impact on the top left and was for some of the past through revenues and the delays that occurred in the fourth quarter.
Impacted I'm sorry impact of which revenues of the the the absence of the pass-through revenues and somehow delaying that occurred in the fourth quarter. What was that impact, you know in the top line for the quarter and the in the full-year? Yeah. Yeah. Yeah. Let me just Begin by indicating it as you know, we did address it as it into our book of business in Q3 and it has continued Bap sa also into the fourth quarter has had some impact as well as that currently into our our current quarter as well. So Catherine, can you give some a romper? Yep exactly that we're we're running that at 278 million dollars Joe.
I'll seven eight million to eight.
Okay, that's very helpful. Hopefully some of these restrictions are able to lift some of these restrictions sooner rather than later so we can get back to a normalized state and fitness. Yeah. Well, well keeping my fingers crossed there as you well know it's you know presence that we do expect that came with the activities of the Thanksgiving holiday. We we're really forecasting as are the most models that this week and next. We'll see greater spikes. Uh, and potentially the same following the end of December so probably won't be seeing much much regaining of that 421 and Q2 and hopefully we'll start to see some rebound after
Okay, and and if I was looking I took a quick look at the K here, you know, if I look at year-over-year growth, you had really nice growth in a really nice growth in the VA Logistics part of it. But Revenue year-over-year at Health and Human Services was dead was down about 14% Can you just kind of break that out? And as you guys are looking forward the expect the same type of growth rate of the VA type of business and and you know, can we expect our anticipate a rebound in the Health and Human Services side? Yes. Yeah. I think you've accurately describe the model that expect to continue for at least another quarter to I think we'll continue to see that veterans will be held out of the the dog.
you know areas and all of the
Hospitals and Clinics throughout the country and us be uh, far more dependent upon the mail order of versions of satisfying their prescription needs potentially even additional box as we look at distributions to Veterans, uh, once vaccines and expanded Therapeutics come online. Similarly, of course on the public health and Life Sciences Arena and we're continuing to invest in double down towards the potential of expanding our large network of of support team to get really, you know tackle and build a large sample base for COVID-19 Therapeutics. And so we we hope to see that part grow. I think it'll be relatively flat still in the market around rhhs related business just because again the nature of the business and how it seemed to carry the brunt of the restrictions aspect in our book of business dead.
Okay, and to clarify that that that that flat is in the human services and solutions, correct? Okay, and you mentioned it a little bit Zach on the call, but we are operating Under A continuing resolution at least for a couple of more Tay's has you you seen any negative hopefully positive impact here in the in the current quarter of operating out of the continuing resolution. Yeah, the the CR is really took our friend as much as I hate to Hate to describe that sort of State of Affairs, you know, there's a tremendous risk associated with of course closure tremendous risk of going into the the uh, the caretaker state that the federal government could do. So we're really excited to see both the president and the and the two sides of the other two sides of the governor support.
Uh see are of course. We have some things that are expiring in December eleventh and Twelfth that we're optimistic, you know, the folks that we're engaged with on the hill. Give us a great reason to believe that certainly some continuation there and even the potential of some form of stimulus May mitigate some of the risks associated with this quarter off and potentially the first part of FY twenty one. So we'll stay tuned there. But the CR is our friend from the standpoint of retention of our business has the ability to suck the these kinds of extensions that have been important to not only us but some of our peers and the company in the in the industry. It has had an effect of slowing down new work. That's usually one of the first casualties of a c r and a new in the lack of a new budget and that is that the acquisition folks in the Gulf con are really really restricted from birth.
issuing new
Types of awards and new types of contracts so we've we've got one or two of those in our crosshairs and they just continue to slip to the right but we're benefactors of that as well as we look up some of the extensions in our recompete work as well one more for me and then I'll hop back in and Q accounts receivable ball cap and you might be able to talk a little bit too that you know, I know that's something we're been something you've been working on and and reducing that and it looks like it went up sequentially from the third quarter to fourth quarter. So just trying to get a little more insight into the accounts receivable situation. Yes, so some of that so there was a warrant out some sequential growth attributable to translate to two factors one is of course the acquisition so our fourth-quarter number and includes the effect of the accounts receivable wage.
Acquired about 3 and 1/2 million. Additionally, we we had a switch in the disbursing office when we in as a part of the Head Start read compete and so just getting that long process transitioned caused a little bit of build it accounts receivable, but all that in proper context. We still have a Day sales outstanding that's a 60, but it is an opportunity as you as you imply that for us to derive some additional operating cash flow. And so we we know where that will go in Athens right? Thanks for the Insight great year and look forward to hopefully a better current year and I'll get back in line.
Thanks for your support Joe.
As a reminder. If you have a question, please press * then 1 to be joined into the question.
Again to join the queue it is * then 1 our next question comes again from Joe Gomes with Noble Capital, please. Go ahead.
Well, if nobody else going to ask any questions, I'll ask a couple more correct can count on you. So just I know it's early days. But how is the Irving Burton integration going off? What do you guys see there? If you could talk a little bit about opportunities for new business on that platform sure know I have very excited to use my straight man today Joe cuz we are tremendously tremendously excited about the dishes the new additions to the DLH family in the form of the I be 8 a.m. Mary is proving to be a really good leader and has been integral to our transition efforts across the company. We haven't said it publicly.
that was
Organization, uh is integral component of our mission services and solutions operating unit under Helene Fischer. And of course many of you know, how long that has the army background and the Army Health IT background to really help Infuse the type of uh potential for expansion that uh, that the folks that I've just been really poised for now. We're excited about what the customer the customer base brings to our platform. I've had an opportunity to speak with some of our our cores and practical customers today and we just think that there's a real good opportunity not only to continue about with the current work, but they really position as well in three or four key strategic areas, you know that the company has been focused on over the last couple of years. And again Mary and the team has just not only do they had great credentials, but really really tremendous Talent off.
Kind of expertise that we really looking forward to to build our R&D platform are AIML components. It's going to be a tremendous tremendous assets to expand the Home Health telephone until til Med Marketplace, uh, go to market strategy. So we're just really really excited about it. No, no no major issues at all with regard to integration Catherine and her team or AB slated to fully complete the Erp component by the first of the year. So we're in the testing phase now and thus far no no unexpected, uh issue. So we're real excited about it, and we think it's coming along well,
Great news, and one more on the Infiniti Cloud. I mean if you could just talk a little bit about more as you know, where you see that that product of knowing are we making sales today on that or is it still like kind of more of a trial type phase? I mean sounds sounds like there's huge potential here. Just trying to get more of an idea of when we might start seeing that potential realize be careful, Joe people are going to start thinking thinking that I put you up to these questions here pretty soon. Just woke this is this is really an exciting one on players. You know, we're leaving at now is the time to invest in adult down on our nation's commitment to secure environment, uh, secure large-scale data analytics platforms. And instead of iCloud is is our entry there as you know, we secured appropriate approvals as wage.
Fedramp Marketplace provider earlier this year and they're just uh a number of opportunities that we think we can offer it especially in the upcoming future to answer the second part of your question. Yes, we've actually been providing it for some customers already. We are in the process of starting wage implement it for another client. We've received requests for some other firms that do not have the capability that also have a commitment to support our Target agencies including the VA and HHS. So we're we're the potential there are also a number of major life you major idiq for government-wide, uh agencies coming up in the next, you know, three to six months and months.
You know, they will be.
Drivers for help secure Health it Solutions in the Cyber realm for ten years for the next ten years and it's critical that we have a seat at that time and instead of biters is our is our tool to get there. We're investing today and developing, uh Solutions and approaches to increase our win probability their home and we'll continue those Investments over the coming months. So we think that while there's a uh, there's some certainly some near-term opportunities and substantial Investments going on right now with that the cyber community and the secure data analytics and the Health Arena are going to be huge over the next 24 months that we want to be substantial players. They're so we're excited about where it's going. We have a great team under Jeff. She and Ann Allen and and Alan Selwyn and and the Gang that have been really really helping us to feel to a Superbowl.
For two to be an enterprise-wide capability. We also think IBA has areas and bring some areas with some customers sets that are looking for that type of secure platform and we think it's really really a great opportunity for us to really take it as enterprise-wide, uh asset
Great. Thank you for that Insight back. And thanks again you Catherine for answering my questions. We'll we'll be talking to next quarter again. I'm sure you bet you we appreciate your support girl.
Back to you Matt.
At this time, there are no further questions in the queue. So I'll turn it back to mister Parker for any closing remarks. Thank you. Well again, we just want to wish everyone on the call a tremendous holiday season. We realize that it's the time to be to be very very careful and that you may have to modify your plans, but we're really committed to ensuring that we get everyone through this this pandemic and these difficult times and look forward to a brighter days. We will be communicating with further over the next coming months with with first day investor conference tomorrow, and and then we've got participation Janine Christian will be participating in the beard conference for on the panel for health care and COVID-19 related panel. So we may give some added color around some of the offerings and a Q&A session and then yep.
And I am the executive team are looking to put together a summary annual report that should all proceed our annual shareholder annual meeting of the shareholders next calendar wage order still stay stay tuned. Please keep looking out for additional DLH color because we're real excited about that, which is going on today with that when it asks everyone should have a blessed day and we'll look forward to catching up with you soon. Bye for now.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Thursday