Q1 2024 DLH Holdings Corp Earnings Call

Good day and welcome to the DLH Holdings fiscal 2024 first quarter earnings Conference call.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

So it was all your question. Please press Star then two.

Please note today's event is being recorded.

I would 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 Zach Parker, President and Chief Executive Officer, and Katherine John Bull, Chief Financial Officer, the company's earning 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 three of the.

Sure.

This call May include forward looking statements that relate to the company's outlook for fiscal 2024 and beyond.

These statements are various subject to various risks and uncertainties, which could cause actual results and events to differ materially from such 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 reconciliation of our non-GAAP results. Our reported GAAP results is included in our earnings release, and an investor presentation on Dlh's website.

President and CEO Zach Parker will speak next followed by CFO, Kathryn <unk> 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.

Thank you, Chris and good morning, everyone.

Welcome to our 2024 first quarter conference call.

Once again, thanks to the dedication collaboration and innovation of our talented DLH workforce. We're on track for another year of solid performance here at DLH.

Their dedication to our customers' vital missions.

Combined with the organizations overriding commitment to performance excellence and improve results.

Continues to drive value for our DLA shareholders.

We rely on our people to stay at very high standards of excellence each year.

As we continue to build a world class provider.

Emerging technology enabled solutions and services.

They continue to rise to the challenge and we're very proud of their accomplishments.

Now turning to slide four.

I'll provide an overview of the quarter's financial results.

We reported first quarter revenue of $97 9 million and EBITDA of $11 1 million, while generating operating cash of $5 1 million during the period.

We also.

Continue to Delever the company as Kathryn will review momentarily by paying off another $5 million of debt and then ending the quarter with only $174 4 million of total debt outstanding.

With our organic growth.

Which has endured federal budget.

Our headwinds.

Due to the timing of a new Uh huh.

Budget decisions.

We continue to see some delays and business development opportunities. However, we remain confident in our ability to generate new business through our robust our robust broker channels, both existing and New award contract.

Turning to slide five let me summarize a few key industry and environmental factors currently influencing our position in the market.

First as I just noted the federal government is still operating under a continuing resolution, which typically slows down decision, making both on current <unk> contracts and potential new business opportunities.

The most recent resolutions keep the government running through March 1st with some departments funded through March eight.

As a reminder.

This is the third set of stop GAAP measures that Congress has passed since September.

And as a result, our clients have limited budget certainty, which is restricting their ability to make new awards.

That's it.

Remaining cautiously optimistic.

That both the recent and near term progress.

Good result, and funding flow for a major agencies through the remainder of fiscal 'twenty four paving the way for efficient contract implementation and awards.

Yeah.

We continue to build upon our strong pipeline of high value opportunities across our broad customer base as well as key large multi award <unk> IQ platforms opening additional channels for the company.

Our enhanced technical capabilities highly credentialed workforce in science and technology platforms are ready to meet the evolving demands of our customers and to provide innovative value propositions.

Our ability to attract and retain industry, leading talent is critical to providing uninterrupted support for our clients' missions.

Employers solve challenging complex problems and their program execution results are unmatched and delivering customer satisfaction.

So it was truly an honor to receive.

Great place to work certification.

And award entirely based on what current employees stay about their workforce.

This achievement is assigned to customers.

And prospective new hires alike that DLH creates an outstanding employee environment.

Now turning to slide six.

We have provided an overview of our business base to illustrate the diverse set of customers we support.

This broad customer base, which spans agencies within the federal military and civilian markets offers many opportunities to deliver a differentiated services to an array of new and existing customers.

Building a portfolio of work that supports mission critical programs that have traditionally received broad bipartisan support is a long standing strategic goal of our corporate and business development organizations.

45% of our current business portfolio lives within the department of health and human services.

Key clients under this umbrella include the agency for children and families center for disease control and prevention and of course, the National Institute for Health.

Our capabilities in research and development systems integration and big data analytics have allowed DLH to provide unmatched value to our HHS clients and penetrate new programs across the board.

The VA comprises approximately 35% of our new app of our revenue.

Vietnam Veterans Health agents administration this.

Operator: day. And welcome to the conference. If you have a question, you may press star more than one. Enjoy!

This includes our longstanding Cmos operations.

We have a long history of supporting the VA and.

And we currently are looking forward to expanding our services inside the agency to deliver for those who so deserve our nations excellence.

And thirdly today defense agencies comprise roughly 17% of DLH revenue.

Unnamed Speaker: Now I'd like to turn the conference over to you, relations. Thank you and good morning everyone. On the call with me today is Zach Parker, President and Chief Executive Officer, and Catherine John Bull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the investor section.

Including the work across a broad array of programs in the defense Health agency and the military services.

This book of business is poised to see substantial growth over the coming years.

As D O D looks to invest in health I T digital transformation data analytics, cyber security and AI enabled research and numerous health related platforms.

Given that our client relationships spanned decades, we can leverage this intimacy to shape customized solution and expand our contract portfolio to new business development opportunities as well as growth on existing programs.

Unnamed Speaker: I would now like to provide a brief safe harbor statement, which is also shown on slide three of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2024 and beyond. These statements are subject to various risks and uncertainties, which could cause actual results and events to differ materially from those indicated. 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 for.

As government agencies continue to expand their commitment to cyber security data analytics I T modernization artificial intelligence and the like.

All directly aligned with our strengths our company's addressable markets continue to grow.

Unnamed Speaker: On today's call, we will be referencing both GAAP and non-GAAP financial measures and reconciling our non-GAAP results. As a result, our reported GAAP results are included in our earnings release and in the investor presentation on DLAT. President and CEO Zach Parker will speak next, followed by CFO Katherine Donville. Afterwards, we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach.

Our innovative offerings remained in the sweet spot of of agency technology upgrade initiatives.

As evidenced by a white house and Federal agency strategic plans.

By integrating our highly differentiated digital transformation capabilities with research domain expertise. This serves as a relatively unique platform to address broader range of solutions than ever before helping our clients reach higher and perform even better every day. These will include exacting.

Zach Parker: Thank you, Chris, and good morning, everyone. Welcome to our 2024 First Quarter Conference Call. Once again, thanks to the dedication, collaboration, and innovation of our talented DLH workforce, we're on track for another year of solid performance here at DLH. Their dedication to our customers' vital mission, combined with the organization's overriding commitment to performance excellence and improved results, continues to drive value for our DLH shareholders. We rely on our people to set very high standards of excellence each year, as we continue to build a world-class They continue to rise to the challenge, and we're very proud of their accomplishments. Now, turning to slide four, I'll provide an overview of the quarter's financial results. We reported first quarter revenue of $97.9 million and EBITDA of $11.1 million, while generating operating cash of 5.1 million during the period.

Our objectives of precision medicine, all of our studies and evaluations strides initiatives for cloud security and many more.

With that.

Now I'd like to turn the call over to our Chief Financial Officer, Kathryn Jumbo Kathryn.

Thank you Zach and good morning, everyone. We're pleased to report our first quarter results for fiscal 2024.

Turning to slide eight I'd like to provide a high level overview of some key financial metrics for the three months ended December 31, 2023 compared to the prior year period, we reported revenue of $97 nine in the first quarter versus $72 seven in the prior year period, reflecting the addition of.

Our strategic acquisition in December 2022.

We reported EBITDA of $11 1 million for the first quarter versus $8 1 million last year as adjusted for corporate development costs supporting acquisition.

And generated cash from operations of $5 1 million compared to 8 million. He fiscal 2023 with the variance primarily related to customer to vendor payment timing. If it does not negatively impact our expectations for cash flow generation. This year are planned debt reduction.

Zach Parker: We also continue to de-lever the company, as Katherine will review momentarily, by paying off another $5 million of debt, ending the quarter with only $174.4 million of total debt outstanding. Our Organic Growth, which has endured federal budget CR headwinds due to the timing of new budget decisions, continues to see some delays in business development opportunities. However, we remain confident in our ability to generate new business through our robust growth channels, both existing and new award contracts. Turning to slide five, let me summarize a few key industry and environmental factors currently affecting our position in the market. First, as I just noted, the federal government is still operating under a continuing resolution, which typically slows down decision making, both on current IDIQ contracts and potential new business opportunities. The most recent resolutions keep the government running through March 1st, with some departments funded through March 8th. As a reminder, this is the third set of stopgap measures that Congress has passed since September, and as a result, our clients have limited budget certainty, which is restricting their ability to make new awards.

Speaking of which if you'll turn to slide nine I'll provide an update regarding our deployment at the company's cash to reduce debt strengthen our balance sheet and lower interest expense, we paid off approximately 5 million of our higher interest rate floating rate debt in the first quarter ending the period with 170.

$4 4 million of total debt outstanding as a reminder, approximately $6 million of quarterly interest expense is non cash amortization of financing arrangement fees.

Our cash generation ability reflects our focus on efficient and timely cash collections, resulting in day sales outstanding of 51 days for the period versus the industry peer group average of 61 day.

We remain on track to reduce debt to between one and 153 and $157 million at the end of the fiscal year, resulting in a debt leverage ratio below 3.3, and a half times EBITDA by the end of the fiscal year, we will continue utilizing the favorable tax.

The attributes of our acquisitions along with <unk>.

Compensation deductions to minimize cash income tax payments going forward.

This concludes my discussion of the financial statements and with that I would like to turn the call over to our operator to open for questions.

Zach Parker: That said, remaining cautiously optimistic that both the recent and near-term progress could result in funding flow for our major agencies through the remainder of fiscal 24, paving the way for efficient contract implementation and awards. We continue to build upon a strong pipeline of high-value opportunities across our broad customer base, as well as key, large, multi-award IDIQ platforms, opening additional channels for the company. Our enhanced technical capabilities, highly credentialed workforce, and science and technology platforms are ready to meet the evolving demands of our customers and to provide innovative value propositions. Our ability to attract and retain industry-leading talent is critical to providing uninterrupted support for our client's mission. DLH employees solve challenging, complex problems, and their program execution results are unmatched in delivering customer satisfaction. So it was truly an honor to receive a Great Place to Work certification, an award entirely based on what current employees say about their workforce. This achievement is assigned to customers, partners, and prospective new hires alike as DLH creates an outstanding employee environment. Now turn on the slide show.

Thank you.

I'd like to ask a question. Please press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

My question has been addressed and you would like to withdraw your question. Please press Star then two.

Once again, ladies and gentlemen that stars and Wonder if you have a question.

Okay.

Today's first question comes from Joe Gomes with Noble capital. Please go ahead.

Good morning, and thanks for taking my questions.

Good morning, Joe Good morning, Joe.

I wanted to start off with the revenue line and kind of get a feel for what you guys were.

And going into the quarter, a little lighter than what we had expected I understand that you know the continuing resolution.

Hum.

It represents a headwind.

For you guys, but I'm just kind of wanted to get a little better feel for what you were expecting going into the quarter and what you think that means for the rest of the year.

Yeah, that's a great question, Joe and I would say it did turn out a little softer than what we had expected largely due to certain customers certain of our customer sets that are really being throttled by the by the budget uncertainty.

No we have a we have a few very large 100 million dollar contracts.

Zach Parker: We've provided an overview of our business base to illustrate the diverse set of customers we support. This broad customer base, which spans agencies within the federal military and civilian markets, offers many opportunities to deliver our differentiated services to an array of new and existing customers. Building a portfolio of work that supports mission critical programs that have traditionally received broad bipartisan support is a long-standing strategic goal of our corporate and business development organization. Forty-five percent of our current business portfolio lies within the Department of Health and Human Services. Key clients under this umbrella include the Agency for Children and Families, the Center for Disease Control and Prevention, and, of course, the National Institute for Health.

They didn't ball.

<unk> extra new scientific research around health.

Challenges and we've just seen that Oh four.

Consecutive quarters several quarters now.

That you know without budget certainty, there's some been some reluctance to do some of the funding. So its trailed what we've what we were really expecting for this year and then a couple of anomalies that they just had some seasonality effects.

Right right, that's and as I said that there has been some slowness in turning new orders that as he he's indicated although I and as you might expect Q1 is historically, a soft or a lighter quarter just the way it just based on where it falls on the calendar and the impact of a.

Lead times are around the holidays, so from that perspective.

Spector from from our planning perspective, it's pretty in line, though are we.

Zach Parker: Our capabilities in research and development, systems integration, and big data analytics have allowed DLH to provide unmatched value to our HHS clients and penetrate new programs across the board. The VA comprises approximately 35% of our revenue, via the Veterans Health Agents Administration. This includes our longstanding CMOP operations. And we have a long history of supporting the VA, and we are currently looking forward to expanding our services inside the agency to deliver for those who so deserve our nation's excellence. And thirdly, today, defense agencies comprise roughly 17% of DLH revenue, including work across a broad array of programs in the Defense Health Agency and the military services.

We are we do see some slowness in the orders that we expected to give us some left exiting the quarter and coming into Q2.

Yeah.

Okay. Thank you for that.

Hum.

If we if we take a look at the V E.

Contracts, we now have been extended into February all of its kind of looks like a little bit short of an extension than you normally see I think they are normally a little bit longer than two months.

And just does that give us any or giving you guys any insight.

Insight as to what the V a might be planning here in the near term or do you think these contracts are just.

We bought in the past continue just be extended out.

Zach Parker: This book of business is poised to see substantial growth over the coming years, as DoD looks to invest in health IT, digital transformation, data analytics, cybersecurity, AI-enabled research, and numerous health-related platforms. Given that our client relationships span decades, we can leverage this intimacy to shape customized solutions and expand our contract portfolio to new business development opportunities, as well as growth on existing programs. As government agencies continue to expand their commitment to cybersecurity, data analytics, IT modernization, artificial intelligence, and the like, all directly aligned with our strengths.

Yeah, well yeah as you pointed out we are when we started out we started out on what we refer to as bridge contracts. They were usually going at a.

What we would call six months, they were really kind of pairing of a two to three months bundled together et cetera.

And it is customary for the acquisition community and the federal government to as you get further along in the these kind of extensions and you have procurements on the table right now to shorten their cycles.

In the event that the.

They are able to make some progress on new awards.

<unk> said that though we think there's nothing to really read into that.

We still are are really strongly believing that we see no material impact your FY 'twenty fours plan and results.

Zach Parker: Our company's addressable markets continue to grow, and our innovative offerings remain in the sweet spot of agency technology upgrade initiatives, as evidenced by White House and federal agency strategic plans. By integrating our highly differentiated digital transformation capabilities with research domain expertise, this serves as a relatively unique platform to address a broader range of solutions than ever before, helping our clients reach higher and perform even better every day. These will include exacting objectives of precision medicine, all of us, studies, evaluations, strides, initiatives for cloud security, and many more. With that, I'd now like to turn the call over to our Chief Financial Officer, Katherine Jongel. Thank you, Zach, and good morning, everyone.

Just based upon the timing and the potential evolution of the <unk> acquisition Jim.

Okay.

Okay great.

And then on a H H S.

Quarters.

Eminem anymore, not didn't need to break that out in the queue.

I was just wondering you know how that a big contract performed.

In the in the first quarter compared to last year.

Yeah very consistently.

Because.

Because we've returned to a normal operating cadence as opposed to the variation that happened during the code the code.

But the challenges are we do have a comparable results year to year from that program.

Okay, Great and then one last one for me and I'll drop back in queue.

There was a nice drop in SG&A as a percent of revenues.

Katherine John Bull: We're pleased to report our first quarter results for fiscal 2024. Turning to slide 8, I'd like to provide a high-level overview of some key financial metrics for the three months ended December 31st, 2023 compared to the prior year period. New reported revenue of 97.9 in the first quarter versus 72.7 in the prior year period, reflecting the addition of our strategic acquisition in December 2022. We reported EBITDA of $11.1 million for the first quarter versus $8.1 million last year as adjusted for corporate development costs supporting that acquisition, and generated cash from operations of $5.1 million compared to $8 million in fiscal 2023, with the variance primarily related to vendor payment time.

I was just wondering is that sustainable or is that a good number to use going forward or do you think that's cost, we'll well begin to edge back up over the rest of the year.

I do think that it's going to be a function of the timing of BD costs, and so given that congestion around rfps getting issued it's our DNA.

Constant currency in the quarter were a little lighter than we expected.

So that that you know you get you get the what are good and the bad side of that coin I guess, if you wanted to think about it that way, but well you know we'd be happy to spend that money for the long term value and deleveraging the company and our growth our growth strategy, but I think I don't see that as a as arent delivering a permanent reduction in.

Katherine John Bull: This does not negatively impact our expectations for cash flow generation this year nor our planned debt reduction. Speaking of which, if you'll turn to slide nine, I'll provide an update regarding our deployment of the company's cash to reduce debt, strengthen the balance sheet, and lower interest expense. We paid off approximately $5 million of our higher interest rate floating rate debt in the first quarter, ending the period with $174.4 million of total debt outstanding.

SG&A cost to scale yet.

You know until until we get on that track of that front end investment in business development.

On the back end in the form of awards.

That helps from a modeling your outlook.

Okay, great. Thanks for taking the questions I'll get back in queue.

Thank you for joining.

And as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press Star then one our next question comes from Brian <unk> with Alliance Global Partners. Please go ahead hi.

Katherine John Bull: As a reminder, approximately $6 million of quarterly interest expense is non-cash amortization of financing arrangement fees. Our cash generation ability reflects our focus on efficient and timely cash collections, resulting in day sales outstanding of 51 days for the period versus the industry peer group average of 61 days. We remain on track to reduce debt to between 153 and 157 million at the end of the fiscal year, resulting in a debt leverage ratio below 3.3 and a half times EBITDA by the end of the fiscal year. We will continue utilizing the favorable tax attributes of our acquisitions along with stock compensation deductions to minimize cash income tax payments going forward. This concludes my discussion of the financial statements, and with that, I would like to turn the call over to our operator to open the call for questions. If you would like to ask a question, please press star then 1 on your telephone. Speaker, time, your question has been addressed, y'all, for a start. Once again, ladies and gentlemen, that star is going to want to... Next question comes from Joe Gohm. Good morning, and thanks for taking my question. Good morning, Joe. Good morning, Joe.

Morning, guys. Thanks for taking my questions.

Can you talk about hey, Brian on Facebook.

And hi, Catherine.

Can you talk about the bookings and proposal submission trends I joined the call late if not from a quantitative perspective didn't at least at a high level have they each of them have they been strengthening that had been weakening are they stable just high high level discussions. So we can understand the market conditions.

Yeah, No you I missed the first part you said that bookings in most of the other proposal submissions.

Yeah, Yeah, I think my Kathryn said they are the data that contributed to the softer.

Softer SG&A as an indication of the little lighter than anticipated proposal development period.

There are a number of programs that the government has issued.

They are continuing to extend to the right you know probably the most notable one that we've given color to is one of our large multiple award <unk> contracts of which.

We will open up channels for us to bid a number of.

Contracts that we referred to that one is the CIO S. Before we believe that the evidence indicates that the government is getting very very close to resolving all of the protests that they've encountered over the last year now.

We should see.

Or would.

And in our minds potentially by the end of Q2.

Which would create those bidding opportunities for us in Q3 and for some of those are going to be large term long term.

Joe Gohm: I wanted to start off with the revenue line and kind of get a feel for what you guys were expecting going into the quarter. It's a little lighter than we had expected. I understand the continuing resolution, which represents a headwind for you guys, but I just kind of wanted to get a little better feel for what you were expecting going into the quarter and what you think this means for the rest of the year. Yeah, that's a great question, Joe.

Opportunity some of those will be quick turnarounds, and so we've positioned ourselves to be able to to do both.

You know as they come forward, but again Lou little disappointed that we haven't had the opportunity to bid on those as yet.

The booking continues to slip to the right.

But having said that we are still continuing to develop our value propositions, we believe theyre going to be winning value propositions.

On some of our existing <unk> contracts provided the funding comes as well.

So.

Unnamed Speaker: I would say it did turn out a little softer than we had expected, largely due to certain customers, certain of our customer sets that are really being throttled by the budget uncertainty. As you well know, we have a few very large $100 million contracts that involve intramural and extramural scientific research around health challenges. And we've just seen that for consecutive quarters, several quarters now, that without budget certainty, there's been some reluctance to do some of the funding. So it's trailed what we were really expecting for this year, and then a couple of anomalies that just have some seasonality impacts. Right, right. That said, as Zach said, there has been some slowness in turning out new orders, as he'd indicated. Although, as you might expect, Q1 is historically a softer, lighter quarter, just based on where it falls on the calendar and the impact of leave time around the holidays.

I'm curious.

Cash coverage, where I've covered some of the more defense related I T guys. The win rates were around 25% to 30%, 30% would be excellent mhm I'm not sure. If it was similar for DLH C or not but if it is I'm wondering are you casting a wide enough web outside of your existing book of business to drive growth and if not.

What can you do to increase that you know that web to drive stronger growth.

Sure.

You are actually a great straight man for US yeah. So we have we have we.

We have as a result of.

Some of the capabilities that came in at the end of last calendar year.

In part with our acquisition and also with some key investments and hires that we've made.

We have been very active over the last order.

Quarter to accelerate the diversification of our addressable market.

So there are some agencies that we felt were a little far for us before.

Before that are now within our schwinn waves, we've expanded our pipeline development in areas that.

Unnamed Speaker: So from that perspective, from our planning perspective, it's pretty in line, though we do see some slowness in the orders that we expected to give us some lift exiting the quarter and coming into Q2. If we take a look at, V.A. contract. Now I've been extended into February. Oh, this kind of looks like a little bit shorter of an extension than you normally see. I think they're normally a little bit longer than two months.

Leveraging stronger cyber security, our enhanced cyber security calls.

On behalf of.

Vacations.

And our pipeline of new business pipeline is beginning to really reflect that.

Those opportunities of course are things that we hope to see in this fiscal year.

And then of course the mix.

Spector.

Exit exit.

Very very strong with the with the ability to just get some of those awards in place you're also very accurate with regard to our industry. We generally look at.

Unnamed Speaker: And just does that give us any insight or give you guys any insight as to what the VA might be planning here in the near term, or do you think? Contacts, just, thought in the past, continue to be extended out. Yeah, we, as you well know, when we started out, we started out on what we refer to as bridge contracts; they were usually going at what we would call six months; they were really kind of a pairing of two, three months bundled together, etc. As you know, it is customary for the acquisition community and the federal government to, as you get further along in these kind of extensions, and you have procurements on the table right now, to shorten the cycles in the event that, you know, they are able to make some progress on the awards.

At a 30% win rate on new business has been very very good. We are we expect a lot higher than that as close to a 100, an IRR on our re competes that we choose to stay in that in that business, but 30% would be an industry standard top of line.

Win rate.

And 20% is still good we've had we also kind of bucket those into three areas. When there's a multiple award <unk> <unk> as they call them, which generally have a zero booking the way in which we treat them, but you should open up a huge opportunity for organic growth and then we have.

Small to medium sized bids, which had been our sweet spots and it had been.

And prior stages than before our last phase of the acquisitions those are again things ranging anywhere from $10 million to $50 million and then.

Unnamed Speaker: Having said that, though, we think there's nothing to really read into that, you know; we still are really strongly believing that we see no material impact to FY 24 plan and results just based upon the timing and the potential evolution of the acquisition chain. Great. And then on HHS... Now this, we don't need to break that out in the cue.

Medium size to larger being north of north of 50%.

And much like the last six or $700 million win so where are we kind of look at each of those is now we feel that we can swing the bat on some of those larger opportunities that before we had to partner with and.

And we're now.

Stablish and news.

Those opportunities into our pipeline.

And that's really the opportunity for productive use of that delayed time.

Unnamed Speaker: So just wondering how that contract performed in the first quarter compared to the last. Yeah, very consistently. Because we've returned to a normal operating cadence as opposed to the variation that happened during the COVID challenges, we do have comparable results year to year from that program. Great. And then one last one for me, and I'll drop back in queue.

No no one desires the delays that the industry is experiencing but for us, particularly probably more so than most it's an opportunity to really have that client called plans working and really raised awareness and really to your point I opened the aperture and not even that far adjacent for where we've been but more so real.

For people, who don't necessarily think of DLH and certain capability sets because it.

They haven't seen it there yet, but really having them understand how we have resident in the company.

The breadth of capabilities that can really respond to new things and really giving those proof points and building awareness before they bid opportunities come out so you've never run never ran a run out of ideas on how to raise profile and build awareness and so in some respects, we're I think making the best use of that delay time to really.

Unnamed Speaker: There was a nice drop in SG&A as a percent of revenue. I just wonder, is that sustainable, is that a good number to use going forward, or does your cost well? begin to edge back up over the rest.

Continue to improve our position for when the opportunity to bid comes in right.

Unnamed Speaker: I do think that it's going to be a function of the timing of BD costs. And so given the congestion around RFPs getting issued, our GNA costs incurred in the quarter were a little lighter than we expected. So you get the good and the bad side of that coin, I guess, if you want to think about it that way.

Great.

And in shaping our accumulated deficit.

That pipeline shaping activity will be in part, reflecting the answer to that Catherine gave to Joe earlier right. So we're doubling down on the positioning opportunities, whether the rfps come out or not from the customer.

Unnamed Speaker: But, you know, we'd be happy to spend that money for the long-term value it delivers for the company and our growth. Our growth strategy. But I think I don't see that as our delivering permanent reduction in SG&A costs to scale yet, you know, until until we get on that track of that front end investment and business development and the yield on the back end in the form of awards, that helps with modeling your outlook. Okay, great. Thanks for taking the questions. I'll get back in the queue.

From us, which will which would lead to BNP investment on the SG&A side, So you'll see.

Would expect that.

Judy the next quarter's results will be more reflective of that that portfolio expansion.

Great. My last question revolves around the <unk> transaction I'm curious.

If you provide numbers are high level again, whichever if you look at their 2023 revenue is it growing over 20 did it grow over 2022 did it shrink is it the same.

And then I'm curious if you evaluated where you hope to be at this point in terms of its revenue contribution again from the I T side are you, where you would hope to be or was it more impacted as well by what's going on in the broader market and so maybe you're a little bit behind plan.

Operator: Thank you for joining us. And as a reminder, ladies and gentlemen, if you'd like to ask... Next question comes from: Hi, good morning guys. Thanks for taking my question. Can you talk about... Hey Brian, thanks for doing this. Thanks.

Sure we'll tag team that one great question, Yeah regarding our 'twenty two to 'twenty three and beyond.

Brian David Kinstlinger: Can you talk about the bookings and proposal submission trends? I joined the call late. If not from a quantitative perspective, then at least at a high level, have they, each of them, been strengthening? Have they been weakening? Are they stable?

As you May recall, the first of all Dave.

That acquisition has delivered all that we would have expected in terms of enhancing.

<unk>, our capabilities and channels with growth and expanding.

Zach Parker: Just high-level discussions so we can understand the market. Yeah, I missed the first part. You said the bookings and what was the other proposal submission. Yeah, I think, like Catherine said, the data that contributed to the software SGNA is an indication of a little lighter than anticipated proposal development period. There are a number of programs that the government has issued that are continuing to extend to the Reich.

Markets. So it's been a very very very <unk>.

In that regard you may also recall that in the in the existing book of business.

The existing when we close the acquisition in December as it was still a fair amount of contracts that we considered.

<unk>.

That were had been small business set aside.

And it was worth it.

You know there is a degree of uncertainty as to whether or not we would be able to retain that work within the <unk> side and.

Zach Parker: You know, probably the most notable one that we've given color to is one of our large multiple award IDIQ contracts, which will open up channels for us to bid on a number of contracts, and we refer to that one as the CIO SB4. We believe that the evidence indicates that the government is getting very, very close to resolving all of the protests that they've encountered over the last year now and that we should see an award, you know, in our minds, potentially by the end of Q2, which will create those bidding opportunities for us in Q3 and 4. Some of those are going to be large-scale, long-term opportunities. Some of those will be quick turnarounds, and so we've positioned ourselves to be able to do both, you know, as they come forward. But again, I'm a little disappointed that we haven't had the opportunity to bid on those as yet, as the booking continues to slip to the right.

And most in most cases that would mean as a minimum we would likely a likely get.

50% of any arrangements with 49% of any arrangements that we have in the small business partner. So those are starting to those.

The schedule and the timing of those had been a little bit different from what we had expected going forward, but they're obviously, they're having what kathryn and I fully anticipated.

The type of erosion in that market area while.

While the company is doing very good in a position to that.

One a couple of those that were Oh.

We're not terribly optimistic on but again it would net.

Net terms in terms of do we have a net negative.

On the revenue, but that was all anticipated because it's those capabilities.

Allow us to win in the unrestricted market that we saw the value.

And where we're comfortable seeing some of that.

Erosion for the small business set aside works with Catherine you want to add to that yeah, absolutely right. So the strong EBITDA contributors were locked in really protected and have continued to deliver there's been some erosion at the lower end work is back described block lower I'm from a just from a numbers perspective, not no disrespect to the work being performed in the <unk>.

Zach Parker: But having said that, we are still continuing to develop value propositions. We believe we're going to be winning value propositions on some of our existing IDIQ contracts, provided that the funding comes as well. So, um... I'm curious about past coverage where I've covered some of the more defense-related IT guys, and it up. You're actually a great straight man for us.

<unk> being served well obviously, but.

But and from a growth perspective tenant to your second point, you know naturally Jr.

G. Rsi has been equally if not more so impacted by the delays in decisions around particularly that large IDI cues as Zach mentioned C. O S. Before they worry so as many of you remember we talked about on former.

Prior calls they are schedule holder on Italia OSP three so unlike D. L. H, the heritage DLH, which which really did not have the resident technical capabilities to bid on C. O S. B three.

Katherine John Bull: Yeah, so we have, we have, we have, as a result of some of the capabilities that came in at the end of last calendar year, in part with our acquisition, and also with some key investments and hires that we've made, we have been very active over the last quarter and the last few quarters to accelerate the diversification of our addressable market. So there are some agencies that we felt were a little far for us before that are now within our swim lanes. We've expanded our pipeline development in areas that are leveraging stronger cybersecurity or enhanced cybersecurity calls, or stronger health IT qualifications. And our pipeline, the new business pipeline, is beginning to really reflect that. Those opportunities, of course, are things that we hope to see in the in the in this fiscal year.

He was preparing itself through its acquisition program to be credible and see how it was before.

In contrast.

G. G. Rsi was answer I O S. P. Three but that's a small business and they've obviously grown out of that so they've kept the work they had but their opportunity to get to to really brain there with <unk>.

Banded talents that they've built over time into the large scale operations that we expect as part of their forward opportunities. That's been delayed. So so the growth strategy for Drs I has that that bit of an overhang that the whole business and the industry is experiencing.

In terms of relevance to our journey ahead, and really ability to contribute to our.

Talents in addressing the market. They they are everything we expected them to be yeah, let me add a piece to that though.

Our strategy was built was not just to come on.

Zach Parker: And then, of course, we expect to, you know, exit very, very strong with the ability to get some of those awards in place. You're also very accurate with regard to our industry; we generally look at a 30% win rate on new business, and it has been very, very good. We, we expect a lot higher than that, close to 100 on our recompetes that we choose to stay in that business. But 30% would be an industry standard, top of the line win rate.

Those qualifications, we have been very very active in driving collaboration across the business. We really looking at one plus one equals three so we were not looking at their existing business base and capabilities alone.

We are seeing and what excites us most is the synergy of.

Our pursuit of these opportunities based upon our heritage NIH work as well.

Which is heavily based in the.

Zach Parker: And we've, and 20% is still good. We've had, you know, we also kind of bucket those into three areas. One is the multiple award IDIQs, GWACs, as they call them, which generally have zero booking the way in which we treat them, but open up a huge opportunity for organic growth. And then we have, you know, small to medium-sized bids, which had been our sweet spots in the prior stages before our last phase of the acquisitions. Those were again things ranging anywhere from 10, you know, to 50 million, and then, you know, medium sized to larger being, you know, north of north of 50. And, much like our last six or $700 million win.

Science.

And security side of the business with the I T aspects that came with the acquisition. When you put when you put those together you have some of the some of the world renowned epidemiologists and research scientists together with the technology capabilities.

Capabilities.

It came in where it came along with the acquisition we are seeing some innovations and opportunities to provide you know past performance references that customers not seen very much on the competitive landscape. So we're excited about the synergy and what that has opened up in terms of not only value propositions, but cros.

Agency stomach.

Okay. Thanks, so much for your time.

Zach Parker: So we're, we're, we're, we kind of look at each of those now and now we feel that we can swing the bat on some of those larger opportunities that before we had to partner with. And we're, we're now, you know, establishing those, those opportunities into our pipeline. And that's really the opportunity for productive use of that delay time. No, no one desires the delays that the industry is experiencing.

Thank you Barry kept Brian.

Thank you and as we have no further questions in the queue I would like to turn the conference back over to Zach Parker for any closing remarks.

Well. Thank you all we really appreciate your continued support and interest in DLH.

We ask you to look forward to a couple of dates in the future, where we will meet you again not to in the not too distant future that first of all it will be March 14th we will have our annual shareholders meeting we were actually physically be in New York, So come on by Kathryn and I and our board of Directors would love to see you there and also.

Katherine John Bull: But for us, particularly, probably more so than most, it's an opportunity to really have the client call plans working and really raise awareness and really, to your point, open the aperture. Not even that far adjacent from where we've been, but more so really for people who don't necessarily think of DLH and certain capability sets because they haven't seen us there yet, but really having them understand how we have resident in the company, the breadth of capabilities that can really respond to new things and really giving those proof points and building awareness before the bid opportunities come out. So you never run out of ideas of how to raise the profile and build awareness.

Stay tuned we will be participating in an emerging technology Investor conference largely from small caps at the alliance Global partners events on February 7th we can read the details on our website and there will be disclosing a little bit more color around some of the technology evolution.

Company has gone through and we see that being a key part of driving value. So thank you very much and we'll look forward to Uh huh.

To hearing and seeing you soon with that have a blessed day bye for now take care.

Katherine John Bull: So in some respects, we're, I think, making the best use of that delay time to really continue to improve our position for when the opportunity to bid comes in. That pipeline shaping activity will be, in part, reflecting the answer that Katherine gave to Joe earlier, right?

Thank you. This concludes today's conference call. We thank you all.

All for attending today's presentation.

You may now disconnect your lines and have a wonderful day.

Okay.

Okay.

Okay.

Brian David Kinstlinger: So we're doubling down on the positioning opportunities, whether the RFPs come out or not from the customer, which would lead to BNP investment on that SG&A side. As you will see, we would expect that the next quarter's results will be more reflective of that portfolio expansion. Great. My last question revolves around the GRSI transaction. I'm curious. I don't know if you provide numbers or a high level again, whichever. If you look at their 2023 revenue, is it growing over 20? Did it grow over 2022? Did it shrink?

[music].

Zach Parker: Is it the same? And then I'm curious if you have evaluated where you hope to be at this point in terms of its revenue contribution, again from the IT side, are you where you would hope to be, or is it more impacted as well by what's going on in the broader market? And so maybe you're a little bit behind. Sure, we'll tag team that one. Great question.

Zach Parker: Yeah, regarding 22 to 23 and beyond, as you may recall, first of all, Dave, that acquisition has delivered all that we have expected in terms of enhancing our competencies, our capabilities, and channels for growth and expanding markets. So, it's been very, very, very strong in that regard. You may also recall that in the existing book of business that existed when we closed the acquisition on December 8th, there was still a fair amount of contracts that we considered that had been small business set aside. And that was work that, you know, there was a degree of uncertainty as to whether or not we would be able to retain that work within the GRSI. And in most cases, that would mean, at a minimum, we would likely get 50% of any arrangements or 49% of any arrangements that we had with a small business partner.

Zach Parker: So, those are starting to, you know, the schedule and the timing of those have been a little bit different from what we had expected going forward. But they're obviously having what Catherine and I fully anticipated, the type of erosion in that market area, while the company is doing very well in the position that we've won a couple of those that we're not, you know, we're not terribly optimistic about. But again, in terms of, it would have a net negative effect on revenue.

Zach Parker: But that was all anticipated because it's those capabilities that allow us to win in the unrestricted market that we saw the value in, and we're comfortable seeing some of that erosion for the small business set aside work. So, Catherine, do you want to add to that? Yeah, absolutely.

Katherine John Bull: Right. So, the strong EBITDA contributors were locked and really protected and have continued to deliver. There's been some erosion of the lower end work, as Zach described, lower end from a numbers perspective, no disrespect to the work being performed and the customers being served, obviously.

Katherine John Bull: But from a growth perspective to your second point, you know, naturally, GRSI has been equally, if not more so, affected by the delays in decisions around, particularly that large IDIQ that Zach mentioned, CIO SP4. They were, as many of you remember, we talked about on previous or prior calls; they are a schedule holder on CIO SP3. So, unlike DLH, the Heritage DLH, which really did not have the relevant technical capabilities to bid on CIO SP3, but was preparing itself through its acquisition program to be credible in CIO SP4, GRSI was on CIO SP3, but as a small business, and they've obviously grown out of that. So, they've kept the work they had, but their opportunity to really bring their expanded talents that they've built over time into the large-scale operations that we expect as part of their forward opportunities has been delayed. So, the growth strategy for GRSI has that bit of an overhang that the whole business and the industry is experiencing, but in terms of relevance to our journey ahead and really ability to contribute to our talents in addressing the market. They are everything we expected them to be.

Zach Parker: Yeah, let me add a piece to that, though. We, you know, our strategy was built not just to count on those qualifications. We have been very, very active in driving collaboration across the business. We really are looking at one plus one equaling three. So we were not looking at their existing business base and capabilities alone.

Zach Parker: What we are seeing and what excites us most is the synergy of pursuing these opportunities based upon our heritage in our work as well, which is heavily based on the science and security side of the business with the IT aspects that came with the acquisition. When you put those together, you have some of the world's renowned epidemiologists and research scientists together with the technology capabilities that that came and what came along with the acquisition. We are seeing some innovations and opportunities to provide, you know, past performance references that the customer is not seeing very much in the competitive landscape. So we're excited about the synergy and what that has opened up in terms of not only value propositions but cross agency selling. Thanks so much for your time.

Zach Parker: Take care, Brian. Thank you. And as we have no further questions in the queue, I'd like to turn the conference back over to Zach Parker. Well, thank you all. We really appreciate your continued support and interest in DLH. We ask you to look forward to a couple of dates in the future where we'll meet you again in the not too distant future. That's first of all, March 14th, where we'll have our annual shareholders meeting. We will actually be physically in New York. So come on by. Catherine and I and our board of directors would love to see you there. And also stay tuned. We will be participating in an emerging technology investor conference, largely featuring small caps, at the Alliance Global Partners events on February 7th.

Zach Parker: You can read the details on our website, and there will be a little bit more color around some of the technology evolution that the company has gone through and how we see that being a key part of driving value. So thank you very much. And we'll look forward to hearing from and seeing you soon with that. Have a blessed day. Bye for now. Take care, concludes today's conference. You may now disconnect your lines and have