Q3 2021 DLH Holdings Corp Earnings Call
Good day and welcome to the DLH Holdings Corporation third quarter earnings Conference call. All participants will be in listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then 1 on your Touchtone phone.
So let's draw your question. Please press Star then 2 please note. This event is being recorded.
I'd now like 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 that Parker, President and Chief Executive Officer, and Catherine Jon Bell Chief Financial Officer, The company's earnings release, and Powerpoint presentation are available on our website under the Investor page.
I would now like to provide a brief safe Harbor statement, which is also shown on slide 2 of the presentation.
This call May include forward looking statements that relate to the company's outlook for fiscal 2020, 1 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 company's annual report on form 10-K and in our other filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statements on today's call.
We 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 the earnings release and on the Investor presentation on DLH website.
President and CEO Zach Parker will speak next followed by CFO, Kathryn John Ball after which we'll open it up for questions with that I'd now like to turn the call over to Zach. Please go ahead debt.
Thank you, Chris and good morning, everyone.
Welcome to our third quarter conference call.
Couldn't be more pleased with our performance and we're on track with our best you.
With even greater plans in place for fiscal 'twenty 2.
I remain very proud of our tremendous employees across the globe, who continued to deliver top quality services and solutions to our clients despite very challenging times.
Starting with slide 3.
First provide a high level overview of the quarter and some color on the outlook for the rest of 2021.
Revenue rose nearly 20% year over year.
The $61.6 million.
As we benefited from the acquisition of <unk>.
Along with organic growth growth across the enterprise.
We posted operating margins of 8%, reflecting a strong mix of programs and earnings of $2.9 million or 21 cents per share.
We also generated from 9.3 million of cash from operations and use this to pay down approximately $9 million of debt during the quarter.
Year to date, we paid down roughly $16.2 million of debt due to the company's strong cash generating ability.
We continue to Delever and improve our overall financial flexibility as Kathryn will discuss more in a moment.
We previously on previously announced that we had won the day.
Yeah, He's Seamark medical Logistics award in the third quarter.
Which was expected to add over $200 million in contract value over a 5 year period turned back on.
During the quarter.
Contract was protested by.
Small business better and the government continues to work through their standard process addressing their concerns and to proceed to a resolution and award.
In the meantime.
Company's medical logistics team on contract was extended through November of 'twenty, 'twenty, 1 and our backlog remains robust even as we await resolution on this contract.
Of course, we expect a favorable outcome.
Now turning to slide 4.
I'd like to update our investors on a long term strategy of success, which includes force and continues to evolve as we grow the company.
Given our track record of successfully integrating acquisitions delivering excellent performance on large nationally dispersed programs.
And expanding our health care technology capabilities.
We believe that DLH has enhanced its position for growth within the markets that we serve.
While several long term anchor contracts give us visibility and stability regarding a portion of our revenue base. Our diversification strategy has given us a presence across all across the full range of federal health and military health systems and services.
Key programs and agencies in our sites.
We continue to serve the citizens.
Soldiers service members and our veterans.
However.
Even as we've expanded we remained focused on our formula for success.
On clients, where they can truly bring value added real world solutions to address their health care needs of today and tomorrow.
Our services on leveraging an expanded set of technical technology solutions.
But our targeted agencies on largely the same.
As this is our dedication to our strategy into the utmost in customer service.
We continue to hire the best and the brightest leveraging talent that we bring from a variety of health care related industries and companies.
We built a foundation for strong long term growth with a professional highly credential workforce that can compete and win against the most respected names in the industry.
Therefore, we've been able to see revenue rise to a level at nearly $250 million annually.
And we are confident that we're well positioned to grow drive net revenue target of $500 million based on our existing platform, including research technology health care delivery and performance management.
The past year during a pandemic has shown that our services on more valuable than ever and that our workforce is flexible committed and can adapt to rapidly changing requirements in terms of working remotely.
Interacting with customers in new ways, and winning business that leverages, our expertise in digital transformation artificial intelligence advanced analytics cloud based applications modeling and simulation telehealth systems anymore.
And we've accomplished all this in a sensible way in terms of capital deployment.
By accessing our credit lines to make acquisitions and invest in the business.
We prevent frequent equity dilution.
Existing shareholders.
We then use a prodigious cash flow generation to pay down debt and strengthen our balance sheet, which enables us to replicate this process.
We've used this strategy consistently.
Moving to our refined acquisition process that maximizing shareholder returns and growth capital deployed.
We remain well positioned to take advantage of the opportunities ahead and are confident that as waiting here in fiscal 'twenty to 'twenty 'twenty 2 the company will continue posting solid financial results.
Our backlog remains strong and we will capitalize on the increasingly protecting the largest technology enabled health care solutions from <unk>.
We are so well known and respected.
Feel confident in our ability to provide the returns our shareholders have come to expect just as I am proud of our staff and partners is performing so well during such unusual times.
With that I'd like to turn the call over to our Chief Financial Officer, Kathryn Johnson Kathryn.
Thank you Zach and good morning, everyone.
We're pleased to have once again posted solid results this quarter.
Turning to slide 6 on the presentation, we posted revenue of 61.6 million per the 3 months ended June 30th 2021 versus $51.5 million in the prior year's third quarter.
The variance reflects the impact of roughly $7.3 million on revenue tied to the acquisition of <unk>, along with organic growth across a variety of existing programs. That's all leased activity this year.
We anticipate that such trends to continue in the fourth quarter and fiscal 2022.
Jack mentioned, our Cmos Logistics award is being protested that we're operating under an extension of the prior awards through it at least know that.
We remain optimistic about favorable outcome of the award.
Turning to slide 7 income from operations was $4.9 million for fiscal 2020, 1 third quarter versus $3.8 million last year on.
Operating margin improved to 8.8% from 7.4% from fiscal 2020.
Favorable program mix and greater operating leverage.
We reported net income of approximately $2.9 million on 21 cents per diluted share versus $2.1 million or 16 cents per share last year.
<unk> recorded a provision of $2 million.
9 million.
Tax expense during the quarter.
2020, 1 third quarter interest about 2023rd quarter, respectively.
Interest expense in the current year quarter increased $2.9 million versus 28 million for the 3.
Non scented jewel 13th 2020, due to higher outstanding debt levels, reflecting the acquisition of IBM.
Turning to slide 8 slide 8 EBITDA for the third quarter of fiscal 2020, 1 by $7 million versus $5.5 from the prior year period.
As a percentage of sales EBITDA was $11.3 this quarter versus $10.7 last year.
A reconciliation of GAAP net loss on debt to EBITDA is provided in our earnings statement and in the back of this presentation.
Slide 9 gives an updated snapshot of our debt position.
Sure.
As of June 30th we had 53.8 million net debt outstanding under our credit facilities versus $62.8 at the end of last quarter. We generated approximately 9.3 million net operating cash flow during the quarter on pay downs.
Your line.
With that we.
We estimate we estimate that they love.
At the end of fiscal 'twenty 1.
Collecting on selling their balance sheet on much lower leverage ratio debt at the beginning of the year.
This concludes my discussion on financial statements with that I would now like to turn the call over to the operator to open for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
The first question will be from.
Joe Gomes of Noble capital. Please go ahead.
Good morning.
Good morning, Thank you my questions.
Yes, breaking yeah have you been Joe.
Doing well here, we're doing well on the same for you guys. This summer.
Absolutely.
The first question you know you saw some organic growth in the quarter.
You know the last day.
So your point.
Pointed out the absence of travel related pass through revenues. So I was just wondering.
Have a day return did that help on pump up the the organic growth or are we still waiting for that those types of revenues to come back.
Yeah. Those are still slow to come back we are starting to see some plants that are.
The debt of course, we are pretty.
Determine before the Delta there on that started to come into place, where we're starting to see plans where later this year, we'll start to do more of that.
Even though on mobility has substantially increased caution me.
And on the country.
Country, we're still looking at since since ours involves inspection and who's in and being around some of our claims and ultimately on some of our.
Team members.
We're still proceeding very cautiously that way so the majority of the organic growth has been with delivery of <unk>.
Key talent.
For our customers and we're pleased to see that.
Great Thanks for that and on the logistics contract.
Contract, maybe you can give a little more color as to you know what exactly.
Cash.
Cause the VA to cash.
Cancel that.
Contract I know you had some verbiage in there.
And in the press release, but maybe we get a little more color on air.
When do you think timing and you know why.
Why are you confident debt.
You know you you will ultimately be successful in getting this award.
You bet. Thank you Joe for the question Yeah, I mean, it is a pretty oh come on Unfortunately pretty common course now on debt.
When there's large contracts such as.
This 1 for the day that the government will frequently come on.
Protest when you are a large number of potential bidders as well.
That have made the investment to pursue work of this magnitude.
They're very they're very focused on on seeing if theres an opportunity for them to do it.
I have a shot at and so it is pretty normal course of action nowadays to see it.
Protest arise.
1 on contracts of this magnitude.
Regarding the process it.
This is consistent with.
All of the federal agencies that they've got a relative to the due course.
Value added to treat seriously.
Protest. This particular, 1 happened to be from a small business a service disabled veteran on small business.
And so they're going through their normal course of action to.
[noise] adjudicate.
And to ultimately make sure that Oh.
They can make an award is consistent with the requirements.
However.
We however remain pretty optimistic.
That oh that proposal.
Our commitments are met.
Uh huh.
We will prevail.
But it is going to have to run as usual course.
Intuit now a couple of months.
And really the basis of our company on too is that a couple of flow.
Firstly that the nature of the procurement is the best value procurement. So in the best interest of the government debt from our perspective on our strong cash performance and the quality and cost effectiveness that we've introduced over many years of working in support of EBITDA from our perspective represents the best in the best interest of the government so that.
That's really the basis of our confidence.
Successful outcome.
Okay, great. Thanks, Thanks for that update and last quarter.
You talked about.
Some of the opportunity set that you're seeing you know over over the next couple of years I was wondering if you might be able to give us a little more update as to you know what do you see it and seeing in the near term.
That could be coming up for award a debt that you're you're you're pretty confident our hope from hope hope to see winning those awards.
Yeah, no great recall, there we are.
We still remain optimistic that our debt.
Our bid.
The bids coming out of our pipeline.
Mature.
This has been.
It's very heavy proposal development poorly for US 1 of the largest we've seen in a while a couple of our very strategic opportunities.
Debt.
Early position were great examples of positioning DLH as a result of the capabilities. We acquired over the last few years have just now.
There are a couple of large scale indefinite quantity.
The IQ multiple award contracts.
Yeah.
On the opportunities over the next 2 years debt.
We shouldn't out 1 for expense.
So agency.
Which involves the military health research.
Obviously, there are capabilities that are that were derived from our I V. A S.
That's great.
Pretty critical towards raising our profile and on wind probability.
That has gone in as an idea on key.
This quarter, we're also in the flows.
1 of the large IDI cues for the National Institute of Health associated with Biomedical research and I T systems reported.
Jewish Crs before it now is on the street.
And I'm anticipating having a proposal deliberated on completed this month. So those are 2 large government wide type access contracts.
Thank God.
So our representatives now on the current state as a company being able to do you have a high degree of success for lunch those again.
Sure.
Hunting license type vehicles, if you will.
We have identified.
On a large number of task orders.
We think a very addressable by us.
But in addition to that.
The normal course of.
Regular opportunities.
Continuing to see some of our major on slip to the right. However, we're still optimistic that.
We'll see more of the day that we made in fiscal year.
And we do expect a continuing resolution.
And all indications.
In the budget process, while moving along.
As soon as still very active even do it on their write ups and.
Just not optimistic.
With the infrastructure build that everything would be resolved by 30 September.
He said that we do think that there is still a good a good number of opportunities for us to have some.
Continued organic wins.
And that will lead to a good launch point in FY 'twenty 2.
Thank you for that let me ask 1 more on I'll jump back into queue.
In your Q you you kind of mentioned here, we're leaning right into about the continuing potential for continuing resolution from the budget and in the Q you talk about some of the and the budgeting proposals.
Being made for some of the various you know from the VA and health and human services.
Looking at the potential budget proposals there you know.
Anything that jumps out as a huge positive in your guys view or anything that would be on the flip side, you know kind of disappointing.
From your viewpoint.
At the proposed budget.
Today.
Yeah, our general assessment of the budget proposal that they are they are not surprisingly extremely favorable to the agencies that really that support helping day services initiatives.
So from our perspective, we think that the well, while we understand that there's quite a bit on the process to still play out to get to the final number we think the general sentiment is that those programs are tiny tiny.
Supported and from a bipartisan perspective and of course it does.
Net earnings always enjoy strong support on boats from both sides of the island and they they they've got a very nice.
Proposal for estimated increase in their budget, but in addition to that I'm not surprisingly.
Essential increased from the NIH funding of course, and the ongoing as we speak.
That's consistent based on the last several months.
We're just exiting phase 1 on triage critical response on Saturday, We May we may end up having to cut back their little back just given what's going on with the variance but.
Naturally we expect that there will be a long tail for scientific analysis and study on the impact of the Corona virus.
The COVID-19.
At both independently and its debt.
The effect on Comorbidities for that.
Public health population study, so we're not surprised to see the increase.
We do think it validates that.
Country is.
And to really focus on those sustaining health issues that really affects so many people and we think we are extremely well positioned with the skills required to respond to those opportunities and just going back a doubling back a little bit on this idea of acute Zach mentioned really very gratifying and it was the intent of our per space acquisition per.
Grant to build a full set of capabilities to be prepared to fully respond even without reliance on teammates.
Horse field team, where appropriate, but but are really independent capability to fully respond to those very large idea IQ vehicles and be positioned to have the hunting license as the task order. It's mature. It's it was part of a key part of our fundamental strategy over the last few years and it's it's it's it's valid.
By now all of our response to those large RFP itself.
We're certainly bullish on the opportunities we enjoyed growth organically and those things that will evolve out of the budget plus ups that we see evolving.
Great. Thank you for answering my questions and I'll jump back in queue.
Always great to hear from your channel. Thank you Joe Thank you.
The next question will be from Brian can singer on Alliance Global partners.
Hey, Brian Thanks for taking my questions on where are you.
Good and yourself.
Doing great.
The questions I had maybe I missed it.
Can you provide the basis for the.
Oh from where I was looking for a vote for the small business net protests did was it not enough small businesses.
Being evaluated and why can't they thought they had the best value what what was the basis that was upheld.
Yeah.
But there's a little bit of information that's publicly available on the basis of the book as you can usually find news at GAA.
For.
And so we really just don't get into specifics on that.
More than what's publicly available in that regard, but we do know that.
Started to operate in due course.
In your opinion.
And.
Each 1 of our previous proposals on.
These cmos contracts they've always sustain the protest.
On the VA has gone through this process.
Okay.
2 day out.
And optimistic at the same water here.
Okay.
Dish on parity the pro Cashways upheld and so it's going to a new a new proposal are there still value adding that.
Yeah, they would they do that they always find some way to suspend the award so that we're not starting on news.
Until such time as they go through what's usually 100 until we are 180 day process from the Navy.
Yeah.
Sorry, when you said canceled the contract guidance.
I get it that was the wording that confused me of whether you have that wasn't always on powder being re propose and show. The answer is no. It is not being where you could probably get there evaluating a protest out that's correct correct right. Okay. Good and then my second question from Judy.
And as you pay down cash.
Debt with cash flow.
At what point again, do you get comfortable in evaluating M&A opportunities. Thanks.
We remain active in that space.
<unk> lifestyle transaction debt that we've just closed so we never really stopped looking at that.
Certainly once we slipped below 3 times, levered, which were well below right now.
We would expect that we've got capacity to execute on a deal, but having said that even if we were over 3 times, we have an extremely supportive lending growth that <unk>.
It's responsive to opportunities as they come.
Coming on for Us.
Right. Okay. Thanks, so much.
Thank you for joining us Brian.
Again, if you have a question. Please press Star then 1.
Okay.
Yeah.
Okay.
At this time there appears to be no further questions in the queue I would like to turn the conference back over to the Sac Parker for any closing remarks.
Thank you Carrie.
And once again, thank you all for your attention and interest and continued support of DLH. We look forward to following up with you as we approach year end in and to give you some color on not only around the.
The results for Oh, So that's why a 'twenty 1.
But on a future forecasts and our vision to what.
What's yet to come. Thank you again have a blessed day bye for now.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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