Q4 2024 DLH Holdings Corp Earnings Call
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Ladies and gentlemen, thank you for standing by the DLH Holdings call will begin momentarily. Please continue to hold and thank you for your patience.
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Speaker Change: Good day and welcome to the DLH Holdings fiscal 'twenty 'twenty four fourth quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This 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 that Parker, President and Chief Executive Officer, and Katherine John Bull Chief Financial Officer.
Speaker Change: Company's earnings release, and Powerpoint presentation are available on our website under the Investor page.
Speaker Change: I mean, Alex variety a brief safe Harbor statement, which is also shown on slide three of the presentation.
Speaker Change: This call May include forward looking statements that relate to the company's outlook for fiscal 2025 and beyond.
Speaker Change: These statements are 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.
Speaker Change: On today's call, we will be referencing both GAAP and non-GAAP financial measures.
Speaker Change: Installation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the Investor presentation on Dlh's website.
Speaker Change: Then the CEO Zach Parker will speak next followed by CFO, Kathryn Dzhambul 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 Zach.
Speaker Change: Okay.
Zach Parker: Thank you very much Chris and welcome to everyone here for joining us on the fourth quarter.
Zach Parker: Acacia I'd like to take a moment to once again.
Express our appreciation to the.
Zach Parker: It's a tremendous commitment that our workforces given during this quarter to be able to deliver great results happens to be a very very strong.
Zach Parker: End of the year.
Zach Parker: And we really are truly.
Blessed to have well are strongly committed.
Zach Parker: Our team of scientists technologists and subject matter experts delivering every day for our customers.
Zach Parker: And we really really appreciate that.
Zach Parker: In addition.
Speaker Change: Yeah, we're going to cover a number of things on today's call.
Speaker Change: As we want to really give some highlights around our differentiating capabilities, but our troops we've really done a tremendous job and I know, we'll continue to do so in the quarters to come now.
Speaker Change: Now turning to slide four I'll provide an overview of our financial results.
Speaker Change: We reported fourth quarter revenue of $96 4 million and for the full year revenue increased to nearly 396 million surpassing our previous record results.
Speaker Change: Our EBITDA for the fourth quarter was $10 7 million and $42 million for the fiscal year.
Speaker Change: We generated operating cash of $12 5 million during the period equating to $27 4 million of operating cash flow for the fiscal year.
Speaker Change: This cash generating ability allowed us to pay down debt.
Speaker Change: 11.9 million in the fourth quarter, ending the fiscal year with $154 6 million and total debt outstanding.
Speaker Change: Catherine will review our results further in a moment.
Speaker Change: If you turn to slide five I'd like to give you an update on our near term outlook as we move into a new year and soon a new administration.
Speaker Change: We're very pleased to announce a new $76 million contract award with the United States Navy at the tail end of the quarter.
Speaker Change: This highly competitive award was won through a competitive procurement process unseating a long term incumbent.
Speaker Change: Under this contract we will provide critical systems engineering and integrated logistics support to support our fleet's C. Five ISR missions.
Speaker Change: Wins, such as this illustrate.
Speaker Change: Really position DLH organic growth posture as we go forward.
Speaker Change: With a focus on leveraging now our technology enabled solutions.
Speaker Change: The implementations are strategically new business organic development capabilities in order to win contracts from across our client base.
Speaker Change: Turning to broader industry trends, we're operating of course under another continuing resolution, which when combined with an election year with changing priorities.
Speaker Change: The new presidential administration.
Speaker Change: This is expected to have a substantial reshaping we believe of the federal government procurement landscape.
Speaker Change: <unk> developed by traditional cabinet secretaries as well as other advisory organization.
Speaker Change: And as such our commissions if you work such as department of government efficiency Doetsch as we referred to it will likely emerge in our fiscal 'twenty five.
Speaker Change: Second and third quarters.
Speaker Change: As we remain very close to the administrations transition team.
Speaker Change: Important that we keep a focus on how we see it impacting our addressable market as DLH.
Speaker Change: I'm happy to tell you that at this stage despite a lot of the headlines.
Speaker Change: Headlines, we see it as neutral to slight slightly positive over the long haul with regard to our addressable market and growth forecast.
Speaker Change: To support our growth plan for fiscal 'twenty five.
Speaker Change: We recently amended our credit facility to provide flexibility, while navigating small business conversion headwinds that we've talked about previously.
Speaker Change: Notably those of course being our Cmos Cmos.
Speaker Change: And with regard to our CMI portfolio were operating under new task orders that currently extend into our services into the second quarter of fiscal 2025 as the VA continues to try to work through its procurement process.
We continue to expect that the VA will conclude these procurements and make award decisions within fiscal 2025.
Speaker Change: And our last discussion.
Speaker Change: During the previous quarter.
We indicated that we're evaluating our Cmos proposal strategy in response to what then where some new amendments to the procurement process that were issued by the VA.
Speaker Change: In short we have not continued our joint venture bids in response to all of those VA acquisition changes.
Speaker Change: We believe those changes will further dilute the performance standards are served to former Duluth performance standards required, which typically results in low bitter awards.
Speaker Change: This however.
Speaker Change: We believe we'll also be concluded during the year.
Speaker Change: Having said that we have selected Sigma selectively participated in some of the sites as a value added subcontractor.
Speaker Change: Turning to slide six let me provide further detail into how we see the future of the company evolving.
Speaker Change: As you may recall over eight years ago, Kathryn I began communicating and implementing and that an acquisition strategy that was designed to.
Speaker Change: Deliver on our strategy, which was to expand and very specific.
Speaker Change: Technology, and scientific capabilities and to diversify into selected markets beyond the VA.
Speaker Change: The DLA issue that you see today is the result of that strategy, having unfolded successfully to assemble a dynamic.
Speaker Change: It's the technology based enterprise.
Speaker Change: A set of capabilities and customers to create an enterprise that was greater than the sum of its parts.
Speaker Change: We're now taking that organization for a spin for organic growth and we're excited about the added business development and Jim said, we've put into place.
Speaker Change: We were intentional about building a company that was capable to addressing the full range of our targeted customers requirements.
Speaker Change: In a way that offers an agile best.
Best practice based high Tech solutions company to compete favorably.
In the organic space.
Speaker Change: We think about our differentiating capabilities in three primary components.
Speaker Change: Digital transformation and cyber security.
Speaker Change: Science research and development.
And systems engineering and integration.
Speaker Change: We internally refer to those as DTC srd and C&I.
Speaker Change: The main reason for.
Having built this capability over the years has been to strengthen the service offerings with regard to these key agencies that have demonstrated strategically a strong interest in those capabilities.
Speaker Change: These happen to be the channels in which we provide our strong capabilities in artificial intelligence and we've talked about machine language and large language systems, we've talked about robotics engineering until it telehealth tools and technologies the application of modeling and simulation.
Speaker Change: <unk> engineering and the like and those are the powerful capabilities that we're able to to leverage and developing winning solutions much like on the recent award.
Speaker Change: Now with these fully assembled our capabilities we are pursuing.
Speaker Change: Nearly $4 billion.
Speaker Change: Pipeline and new business pipeline of opportunities for which.
Speaker Change: For which we have substantially elevated.
Speaker Change: Win probabilities.
As our investors know.
Speaker Change: We already have a seat at the table for many relevant future task orders through existing long term idea IQ contract vehicles, and we will continue to seek more.
Speaker Change: But we're also using.
Our organic growth engine to go after larger.
Speaker Change: Water contracts and again look very much like our most recent win with the Navy.
Speaker Change: These services are in demand and high demand because the federal government is looking to drive efficiencies.
Speaker Change: They're also looking to partner with organizations much like US a company that in its DNA has been rooted on driving efficiencies delivering best value and reducing cost to our clients.
Speaker Change: These require more complex answers how to get things done how to do things differently and more efficiently leveraging tools, such as AI and ml and supportive data analytics, how to leverage digital transformation cloud based secure computing in order to improve system performance and to pursue capabilities such.
Speaker Change: As achieving precision medicine.
Speaker Change: In the out years.
We also look at how to our offer to the customer how to ensure that their networks are safe from cyber security attacks, how to tackle and address the health care challenges of today and most notably for tomorrow.
Speaker Change: Our highly credentialed staff, including our health professionals, a world class team of experts deliver these mission critical solutions and services to our customers every day. The DLH team is recognized as thought leaders within the health and defense markets more and more where we're pursuing.
Speaker Change: Major organic growth opportunities. This is where we are.
And we are looking forward to the future.
Speaker Change: Given our expanded capabilities and focus on these end markets I believe that we're in a at a preface the precipice of a new day at DLH, which will take us much higher levels and stronger values as we achieved top line growth and operating performance.
Speaker Change: This is clearly an exciting time as we navigate through some of these are administrative and and and and.
Speaker Change: Other near term challenges.
Speaker Change: We really appreciate all of our investors who have joined US through this journey and we're even more excited about continuing this successful strategy unfolding. If we have shared with you over the last decade.
Speaker Change: We're excited about what the future holds from a shareholder value for DLH.
Speaker Change: I'd like to turn the call over to our Chief Financial Officer, Kathryn Dzhambul Kathryn.
Speaker Change: Thank you Zach and good morning, everyone.
Speaker Change: Excuse me, we're pleased to report our fourth 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 September 32024, we reported revenue of $96 4 million in the fourth quarter versus one one.
Speaker Change: $5 million in the prior year period, reflecting the conversion of contracts to small business set aside programs, including the first.
Speaker Change: <unk> site as we discussed last quarter.
Speaker Change: We continue to see expansion in wins across our health ITN readiness customers that discussed we believe that future periods will be impacted by additional small business transition.
Speaker Change: We reported adjusted EBITDA of $10 7 million for the fourth quarter versus $12 1 million last year.
Speaker Change: <unk> EBITDA was down due to the overall sales mix of the business, including a higher proportion of revenue derived from non labor cost, which inherently produced at lower margin.
Speaker Change: Now if you'll turn to slide nine I'll review, some key financial metrics for the first fiscal year for the full fiscal year pardon me.
Speaker Change: Revenue rose $5 3 million to just under five 3% to just under $396 million, primarily reflecting the impact from our acquisition in December of 2022, along with growth in our HHS portfolio, partially offset by the small business conversions we've discussed.
Speaker Change: <unk> EBITDA was roughly flat year over year at $42 million and the company generated operating cash of $27 4 million for the full fiscal year down from $31 million in 2023, the decrease year over year was primarily due to the payment of lease liabilities established test part of the December 2022.
Speaker Change: Sure.
Speaker Change: Partially offset by a decrease in days sales outstanding of 45 days.
Speaker Change: Slide 10 provides an update on our deployment at the company's cash to reduce debt strengthen our balance sheet and lower our cash interest expense, we paid off approximately $11 9 million of our higher interest floating rate debt during the quarter ending the period with $154 6 million or <unk>.
Speaker Change: Total debt outstanding as a result, we have satisfied all mandatory amortization payments through fiscal 2025.
Speaker Change: I'm sure. It comes as no surprise that we plan to continue using cash from operations to reduce debt going forward.
Speaker Change: In addition, our amended credit facility and will provide greater financial covenant flexibility.
Speaker Change: As we navigate the conversion of certain contracts to small business contractors.
Speaker Change: Now turning to slide 11, I'd like to review our go forward growth strategy following up on what got that discussed earlier.
Speaker Change: As Jack mentioned, we have a robust pipeline of qualified opportunities estimated to be worth over $4 billion across our core technology and readiness capabilities, which positions us for expansion and improved operating performance in the years to come.
Speaker Change: That said, while timing is still uncertain due to the changing landscape of government decision makers.
Speaker Change: We're confident in our ability to capture new business awards and grow meaningfully organically. This process takes time to complete but nevertheless, it's moving forward and we expect that many of the key decisions will be made in fiscal 2025.
Speaker Change: As Jack mentioned earlier, we began this journey many years ago with our first acquisition in fiscal 2016, as we start to build a diversified technology powered company, we continue to expand our capabilities.
Speaker Change: <unk> in more companies into the DLH enterprise through our acquisition program. We ended fiscal 'twenty four with revenue of $396 million.
Speaker Change: Approximately $140 million was from our Cmos portfolio, leaving roughly $256 million delivered from our technology powered solutions and services.
Speaker Change: Our EBITDA margin was 10, 6% with approximately equal contributions from both components.
Well I'm not providing guidance, we believe that in the near term by targeting growth vehicles and programs within our core technology sectors.
We can drive our technology powered solutions portfolio to $300 million in annualized revenue in.
Speaker Change: In that scenario, we would expect our EBITDA margin to be around 9% as we maintain our investment in strategic solutions and business development initiatives to deliver organic growth.
Speaker Change: We believe that the 9% margin delivery is that transitional balance between our historical and future margins of 10 plus percent.
Speaker Change: That is necessary to maintain our ability to grow in the longer term.
Speaker Change: Over the longer term, we envision future further growth in our technology powered solutions.
In a scenario that encompasses the $500 million annual revenue run rate, we would anticipate EBITDA margins to expand as we leverage economies of scale and improve our overall operating structure again, we're not providing guidance, but rather offering insight to investors on a future focused on the health I T and ready and.
Speaker Change: This portfolio we've assembled.
Speaker Change: In future discussions we expect to continue providing this bifurcated view of the enterprise for clarity to the Investor community.
Speaker Change: In closing I shares acts enthusiasm about the future of C. L. H actually continue to execute our growth strategy and support the critical missions of our customers.
Speaker Change: This concludes my discussion of the financial statements and with that I would now like to turn the call over to our operator to open for questions. Thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed.
Speaker Change: I would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
The first question comes from Joe Gomes with Noble capital. Please go ahead.
Joe Gomes: Thank you and good morning, Zach and Kathryn.
Speaker Change: Good morning, Joe.
Speaker Change: No.
Speaker Change: I just wanted I noticed there's a little bit backwards looking but I just kind of wanted to go a little bit over the C mall.
Speaker Change: It sounds like for fiscal 'twenty five.
Speaker Change: Q1 and Q2.
Speaker Change: We're should be somewhat the same Q4 run rate.
Speaker Change: But then going forward after Q2, when the extended contract or the contract extension is over.
That should drop off somewhat dramatically and so I was wondering what percent of that.
Speaker Change: $140 million of Cmos.
Speaker Change: That you did this past fiscal year are you bidding on as a subcontractor.
Speaker Change: Yeah no. Thanks, great Great first question there Joe.
I think youre not far off.
Speaker Change: Best estimate is as you indicated that.
Speaker Change: Q1, and Q2 will be relatively similar to Q4, obviously there'll be some variances there.
Speaker Change: And then it is our current expectation that and communications with the VA. They are anticipating executing on some of the other awards downstream.
Speaker Change: So we are looking at.
At the.
Speaker Change: The material aspects to be reflected in the second half of the year.
Speaker Change: For FY 'twenty five.
Speaker Change: Which coincides of course with what's the time period with provided there's not too much delay of a paralysis associated with the continuing resolution and the award of new contracts with the with the ramp up hopefully of some decision to be made on the <unk>.
Speaker Change: Bids and proposals that we have in place now.
Speaker Change: With regard to.
Speaker Change: The our commitments on the bus it's still a very.
Speaker Change: Procurement sensitive environment. So we're really not giving very much color. There I can tell you that.
Speaker Change: We've not we're not bidding on all of them there are several of them, which we are.
Speaker Change: Not bid we have elected to participate with.
Speaker Change: Small business partner on on a few.
Speaker Change: I'll leave it at that.
Speaker Change: Okay. Thank you for that.
Speaker Change: And.
Speaker Change: Obviously in the quarter you continue to do a great job.
Speaker Change: On the SG&A side down and I think it was about $8 5 million is that a good run rate or going forward do you think there's more that can be taken out on the SG&A, obviously, putting aside the whole female part of it right. This second.
Speaker Change: Yeah.
Speaker Change: I think our SG&A rate will run around.
Speaker Change: As we indicated in our discussion on slide 11 in the deck.
Speaker Change: Phil.
Speaker Change: Some growth as a percent of topline as that top line.
Speaker Change: I see my Opex at the top line.
Speaker Change: But we do expect to scale the business.
Speaker Change: Appropriately so if you think about.
Speaker Change: Gross margin running out to 'twenty, one 'twenty to 'twenty, 1% rate and EBITDA of nine that implies that SG&A up somewhere between 11 and 12.
Speaker Change: Just as a function of really needing scaling the business, where appropriate but protecting our ability to execute.
Speaker Change: To get to really pursue and develop organic growth itself. So we're not anticipating.
Speaker Change: Yes.
Speaker Change: Scaling that level of effort to the contrary, we think the size of the pipeline, we've identified and worked well.
Speaker Change: Uh huh.
Speaker Change: Focused focused on building means that we should continue to pursue that investment and deliver the topline growth south so there'll be no for a period of time there'll be probably some some bottling up of that percent of SG&A cost. The dollar value will vary depending on where the top line is but.
Speaker Change: Hope that helps you from a modeling perspective, but.
Speaker Change:
Speaker Change: Clearly, we understand the importance of scaling.
Speaker Change: SG&A cost, where we reasonably can but we need to make sure we balance that in the context of protecting our ability to deliver to execute and deliver on our organic growth strategy.
Speaker Change: And then.
Speaker Change: <unk>.
Speaker Change: On the defense.
The presence that you guys have obviously, we're having a new administration come in here in another month or so.
Speaker Change: And then same thing on the dose.
Speaker Change: Maybe you can just give us a little more color or detail on the opportunities that this opens up for you guys and how that fits into some of your your core strength.
Speaker Change:
Speaker Change: And.
Speaker Change: Thanks, John Adobe is going forward.
Speaker Change: Yes, no great question.
Speaker Change: Again.
Speaker Change: Sure.
Speaker Change: I had the pleasure of sitting down multiple times with folks on the transition team.
Speaker Change: Working.
Speaker Change: A variety of the agencies.
Speaker Change: As well as.
Speaker Change: As the Doge Commission as a kind of refer to them.
Speaker Change: What we like about it in terms of our.
Speaker Change: Heritage and DNA as we have been a company. If you look to use. The example of of the Cmos over the course of when we took it over the number one driving.
Speaker Change: Aspect for growth for US was that we were driving efficiencies into the business that they had not accomplish before.
Speaker Change: And as those efficiencies that led to the VA achieving record level.
Per capita costs for delivering their services prescription pharmaceutical services record level right, along with that achieving the highest exacting standards of customer service and satisfaction to our vessels right evidenced by.
Speaker Change: Nearly two decades consistently.
Speaker Change: Winning the JD Power award for Mail order pharmacies against all of the commercial and other countries.
Speaker Change: And so we have.
Speaker Change: Our culture has been that.
Speaker Change: That way all along every time, we've brought in a new family members through acquisitions and organic growth. That's also been a cultural imperative to make sure that we are in alignment and I can chew that our leadership teams.
Speaker Change: And on all the contracts that we execute we're looking to drive best practices in a way that delivers efficiencies.
Speaker Change: And cost savings.
Speaker Change: And.
Speaker Change: Even at the expense of revenue top line revenue for us, but we believe that doing those right things, we usually yield positivity.
Speaker Change: Positivity and it has for us so we're looking forward to being able to two.
Speaker Change: Have a dialogue with them and look for those opportunities where.
Speaker Change: This new administration is looking to accelerate.
Efficiencies and Thats.
Speaker Change: That's just a strong part of our DNA that we think positions us well with a lot of the headlines coming out of there from a deluge and other perspectives.
Speaker Change: And that also is your question with regard to defense and as you well know.
Speaker Change: We are bolstering.
Speaker Change: We are bolstering our commitments to defense as evidenced by a win with the Navy's most recent win with the command control and intelligence surveillance and reconnaissance community, we have seen for quite a while.
Speaker Change: Convergence between the health care.
Speaker Change: Community.
Speaker Change: And the cyber security and data surveillance arena.
Speaker Change: And that that intersection over the last several years has.
Speaker Change: <unk> has made its way into strategic plans of organizations such as HHS.
Speaker Change: Various divisions, there and hugely across the defense and military health services.
Speaker Change: <unk> and.
Speaker Change: And so we're looking to leverage that where we all have <unk>.
Speaker Change: Spansion with the Navy Marine Corps, others much like you saw in our recent tech net win against the large longtime incumbent but our pipeline is also healthy there too I would say today Joe.
Speaker Change: Approximately 50% of our new business pipeline over the next couple of years.
Speaker Change: This is reflective of defense health in defense.
Speaker Change: <unk> community.
Speaker Change: As well.
Speaker Change: Great and then one more if I may I'll turn it over for <unk>.
Catherine I know, it's very fluid situation here, but.
Speaker Change: But do you have any goal for.
Speaker Change: Debt reduction for fiscal 'twenty five.
Speaker Change: You care to share with us.
Speaker Change: [laughter] well I do I do expect to continue at a very healthy EBITDA conversion rate.
Speaker Change: My my internal target of 55% of that.
Speaker Change: It's going to be a function of the timing of when seamark excess of portfolio.
Speaker Change: But whatever.
Speaker Change: Whatever EBITDA, we deliver I do expect us to to convert that smartly to ability to pay down debt.
Speaker Change: Great. Thanks, again for the time and I'll turn it over.
Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Jess.
Speaker Change: The next question comes from Bert Auster, Rice with Austral Wifes business consulting. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Good morning, Zach Kathryn.
Speaker Change: Gratulation has had a solid quarter and year end.
Speaker Change: Question on the.
Speaker Change: Intangible assets number on the balance sheet.
I notice it went down a bit this quarter from last quarter, but am I correct in.
And assuming that that contains a component.
It represents a discounted future cash flow pipeline contracts that we've won but haven't yet executed on and if so.
Speaker Change: What percentage.
Speaker Change: How much did that new Navy contract bump that number up.
Speaker Change: If not then where does that appear on the balance sheet.
Speaker Change: Yes.
Speaker Change: The balance sheet is is really a function of what exists that time of the acquisition. So purchase accounting requires you to value of the business you acquired so.
Speaker Change: And it really only.
Speaker Change: Allows you require a heel.
Speaker Change: Marcel allows you in terms of establishing an asset.
Speaker Change: It really only allows you to establish that for awarded contracts. It doesn't allow you to.
Speaker Change: Value your pipeline of potential other future opportunities, that's kind of inherent in goodwill.
Speaker Change: If you will.
Speaker Change: So the intangible related to the backlog of all the various acquired company. That's all footnoted out for us in the 10-K I apologize I don't remember the footnote.
If you want to reach out to really try to tell you but.
Speaker Change: But those amortized over our average useful lives of the contracts at the time you did the acquisition typically somewhere between seven and 10 years.
Speaker Change: So that navy contract would appear that some component of it what would have bumped the intangible assets.
Speaker Change: No no.
Speaker Change: That was not a contract that the acquired company had at the time, we bought them, it's not a part of that valuation.
Oh, Okay, I Gotcha, alright, thanks, so much happy holiday, if I don't see you before.
Speaker Change: Thank you.
Speaker Change: Bert you and yours and as you know maybe we will see March 13th when we have our annual shareholders.
Speaker Change: I hope so.
Speaker Change: Thanks for joining us.
Speaker Change: Yeah.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Okay.
Speaker Change: The next question comes from Ross Davidson with <unk> capital. Please go ahead.
Speaker Change: Good morning, Randy Hi, Kathryn Good morning, Ross, Thanks for taking the question.
Speaker Change: Yeah.
Speaker Change: I think the.
Speaker Change: My question I have is around just setting aside.
Speaker Change: My understanding is that you face the headwind of small business small business set aside.
Speaker Change: Just in the other parts of the business as well and if I have that right is there is there kind of a known amount or a horizon.
Speaker Change: That transition or is that an ongoing process and you are just you know it depends a lot on procurement processes and you're just not sure when it right.
Speaker Change: Yes, great Great question Ross.
Speaker Change: Yes. Indeed, there is a there is a component that was inherent in we yes, we disclosed to some extent, but as you know just about every one of our acquisitions had a portion of their business that we have described it was contributed to the pro forma that was subject to small it was already a small business set aside and there was zero likelihood.
That we were.
Speaker Change: It would change as they came for turn some of those had a year of live some of them two years' life.
Speaker Change: In the small business right before they came around so those were clearly known.
Speaker Change: And then as we indicated earlier in this year in January of <unk>.
Speaker Change: Calendar 'twenty for the President issued an executive order executive memo.
Speaker Change: That translated into a number of agencies, where they put added pressure on agencies to identify more work.
Speaker Change: Recurring work to have it set aside and so we've been modeling news and we've had our industry.
Speaker Change: <unk> has had.
Speaker Change: Some pretty material impacts from that over the course of the last year. Some very large contracts and we've had we've seen were $1 billion contract.
Speaker Change: There was held by a very large company went to small business set aside and we were not immune to that as well. So we've had.
Speaker Change: Two to three of ours that we've had long term.
Speaker Change: Contracts, where we're finding the government doing is trying to.
Speaker Change: Unbundled or break apart some of those and say hey, here's maybe.
Speaker Change: <unk> 'twenty and $20 million annual contract maybe.
Speaker Change: Maybe 10 of that.
Speaker Change: <unk> can be set aside for small businesses, so let's take an approach and so.
Speaker Change: This approach of breaking those out and so for us on a recurring work. Obviously there is risk that we build into our waterfall on our pipeline and Catherine our modeling windows risks are anticipated to occur we do see some of those occurring.
Speaker Change: In 2025 that we've addressed.
Speaker Change: Addressed.
Speaker Change: At the same time, we've seen some opportunities where some pieces of some very large contracts, where the government's breaking those up from some of the multibillion dollar companies that there are pieces that.
Speaker Change: What's left is still unrestricted where we can now maybe compete very favorably so theres some additions to our our.
Speaker Change: New business pipeline, where we think there is a degree of vulnerability now by some of those long time incumbents, who may have had a proprietary piece forward. It into is that no longer will be in there.
Speaker Change: And that's right now so we do expect some erosion from the small to continue small business set aside work that.
Speaker Change: Again, both that we had planned from the acquisition standpoint, as well as the response to the executive order.
Speaker Change: And we're fortunate that our new business pipeline right position is as good as it's ever been and not just the size you know we never.
Speaker Change: The size of it I rarely even mentioned those sort of things, but it's the quality of that pipeline and our ability to have the technology resources and differentiating capabilities to elevate our win probabilities.
Speaker Change: We've successfully won 100% and fiscal.
Speaker Change: Fiscal 'twenty four of all of our prime eligible recompete and and we're off to a good start with our Navy Tech Net award.
And we're hoping the government is going to be making more and more decisions in a lot of these.
Speaker Change: We really hope, they're going to try to get decided in in the coming quarter or two so that we will have a greater ability to offset some of that erosion.
Speaker Change: And Ross I would just add to that to say of course, what we're describing to you is what we're experiencing.
Speaker Change: Our philosophy and the direction provided by the outgoing administration.
Speaker Change: If you've been in this business for more than.
Speaker Change: Handful of years, you'd know that dependent on swings and each administration wants to provide their own imprint can their own philosophy and all of that so whatever we're describing to you is is really what we've seen and heard the current administration articulate of course were watching carefully what the new administration.
Speaker Change: <unk> well set forward as their goals.
Speaker Change: The key for US is that said, it's always a lot more fun when a new New award it.
Speaker Change: As icing on the cake and completely incremental it's less fun when youre filling a hole, but our job is to really define a set of capabilities that set of markets that provides a robust enough pipeline that you you provide insulation and an offset in the ability to absorb some just some of the ebbs and flows of parts of your business.
Speaker Change: Based on changes in philosophy and strategy for your customers. So we really we're happy with our progress so far about providing enough diversity of our contract base and opportunities to get multiple at bats to offset some of these impacts but clearly we're looking we view the.
Speaker Change: The better part of that opportunity is in front of us and so we're excited about our ability to execute against that $4 billion pipeline and deliver a reasonable part of that four four daylight.
Speaker Change: Got it that's very helpful. I really good color yes.
Speaker Change: Catherine and of course, everything could change kind of January February.
Speaker Change: And thereafter.
Speaker Change: I guess [laughter] kidding.
Speaker Change: And just quick follow up on that so I mean is it fair to think about and is it just kind of more like.
Yes.
Kind of a story to fiscal 2024 is it fair to think about you had this headwind that you're just describing.
Speaker Change: That's helpful to understand like some of it was yes.
Clearly identified.
Speaker Change: When you acquired your resi and I thought it was more driven by executive order.
Speaker Change: Is it fair to think about F 2024.
Speaker Change: Basically that headwind and then the what because of the continuing resolution.
Speaker Change: And just some of the slowness there that you didn't see as much ramp as you might have otherwise.
So you've got this declining.
Speaker Change: Anticipated, but slightly declining piece and you didn't have as much growth as you might have had because of the slow kind of process because I didn't really hear you that theres a theres a large amount in a very it sounds very exciting amount of sort of business to comment on that.
Speaker Change: See that I'm, just curious as you think back on the year with less of a pickup in new business that you might have otherwise hoped.
Speaker Change: That's a great question, yes, I think the right way to look at it.
Ross is that.
Speaker Change: Our new business pipeline is at a record for a couple of reasons.
Speaker Change: As we've gotten really good at identifying and positioning for some really good quality opportunities that now reflect the totality of our capabilities in DTC Sci and Src right. These are the capabilities that.
Speaker Change: Each of our decision makers and our targeted agencies need desperately and those words those type of awards. We will have high value, we'll have best value Awards, and we think will add great value.
Speaker Change: In terms of our financial profile at the same time.
Speaker Change: Theres been a buildup right, we don't count the Recompete and those numbers like Cmos and so forth and of course, you know our status there, but we would love to see more decisions right. So there are things that we have been anticipating.
Speaker Change: We would have submitted proposals.
Speaker Change: By now that still continue to slip to the right.
Speaker Change: That's often a function of budget instability, right, which comes with Crs.
Where customers are just really can't.
Speaker Change: Make decisions in Q1 Q2, not not knowing again, what they will have at their disposal for three and four.
And so.
Speaker Change: It's really a two pronged thing.
Speaker Change: There aren't any things we were missing it's really largely.
Speaker Change: The effect of <unk>.
Acquisitions, whether or not as bad as what we've seen from the VA on Sema. There are a number of other programs that we're chasing where the incumbent is getting an extension like we are but we're really hopeful and starting to see signs that rfps will be coming out.
Okay. Yeah, that's really helpful. Thank you both I appreciate it.
Thanks for joining us Ross.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Zach Parker, President and CEO for any closing remarks.
Speaker Change: Thank you once again I want to thank you all for participating today and for your continued support and interest in DLH.
Speaker Change: Really excited about what the future holds we really appreciate.
Speaker Change: Your continued interest and we will certainly keep you posted with regard to the evolution of not only the impact of the administration.
Speaker Change: <unk>, but the continued evolution of DLH.
Speaker Change: A major part of that of course will be our.
Speaker Change: Descriptions of the business as we approach our annual meeting.
Speaker Change: For the shareholders, which is scheduled for March 13th and once again will be based in New York. So we look forward to.
Speaker Change: Engaging you as we continue to keep you abreast on both Q1 and the implementation of this strategy.
Speaker Change: Again, you all and have a blessed day bye for now.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.