Q1 2025 DLH Holdings Corp Earnings Call
Good day and welcome to the D. L. H Holdings Corp fiscal 2025 first quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: Please also note. This event is being recorded I would now like to turn the conference over to Chris witty Investor Relations adviser. Please go ahead.
Exact Parker: Thank you and good morning, everyone on the call me today exact Parker, President and Chief Executive Officer, and Kathryn <unk> Chief Financial Officer.
Exact Parker: Company's earnings release, and Powerpoint presentation are available on our website under the Investor page.
Exact Parker: I'd like to provide a brief safe Harbor statement, which is also shown on slide three of the presentation.
Exact Parker: This call May include forward looking statements that relate to the company's outlook for fiscal 2025 and beyond.
Exact Parker: 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.
Exact Parker: On today's call, we will be referencing both GAAP and non-GAAP financial measures a reconciliation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the Investor presentation on Dlh's website.
Speaker Change: President and CEO Zach Parker will speak next followed by CFO, Kathryn Jumbo 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.
Exact Parker: Thank you.
Exact Parker: Thank you Chris.
Exact Parker: And good morning, everyone and welcome to our first quarter conference call.
Exact Parker: As we began fiscal 2025 I'd like to take a moment.
Exact Parker: To thank our talented employees for being so dedicated to the future of DLH. During this transformation transformational time in our country's history.
Exact Parker: Just your thorough dedication and commitment to excellence that allows us to succeed.
Exact Parker: Even as industry conditions change your steadfast passion for our customers critical missions drives DLH toward a bright future.
Speaker Change: Now turning to slide four I'll provide an overview of our financial results.
Speaker Change: Performance excellence and accelerating organic growth remain our highest priorities as a company.
Speaker Change: And recent developments.
Speaker Change: Illustrate the strength of our transformed new business pipeline.
Speaker Change: Our recent award to provide six ex ISR and advanced IP services to the Navy.
Speaker Change: Expand our information warfare systems engineering portfolio, covering from Norfolk, Virginia to San Diego, California.
Speaker Change: This recent award has been key to our organic growth campaign of opportunities, particularly those that leverage intelligence surveillance expertise in mission critical readiness related services to our clients.
Speaker Change: We remain confident about our long term vision bearing fruit and this and then near term fiscal years as our bidding posture with our strategic clients has really been strong.
Speaker Change: A new administration brings both challenges and opportunities, but we have always based our portfolio of business around enduring programs, which obtain broad bipartisan support in Congress.
Speaker Change: And I'm happy to say this continues to be the case.
Speaker Change: Our services and solutions are focused on.
Speaker Change: Improving technology in your utilization enhancing productivity and efficiency for our clients that has been at the core all that we do.
Speaker Change: These are values directly align with this administration stated priorities and overall our initial assessment of this administration impact on Dlh's current book of business and future opportunities still remains at neutral to slightly positive and we still have that belief as we look.
Speaker Change: For the long view.
Speaker Change: To date, we have not had any material impact from the recent executive orders.
Speaker Change: We reported first CT reported first quarter revenue of $90 8 million and EBITDA of $9 9 million, representing an EBITDA margin of 11% on revenue.
Speaker Change: We used cash during the quarter due to short term growth in receivables.
Speaker Change: An increase of debt accordingly.
Speaker Change: We expect strong cash flow in the fiscal second quarter and a continuation of our deleveraging strategy as Kathryn will review in a moment.
Speaker Change: Slide five provides a snapshot of our go forward growth strategy as reviewed last quarter, while the company will likely continue to feel the effects of small business set aside unbundling of contracts in the coming quarters. Our growth is squarely focused on the opportunities which leverage our digital transformation.
Speaker Change: Cyber security research and development and systems engineering capabilities.
Speaker Change: We have a strong pipeline of qualified and well positioned.
Speaker Change: We anticipate a half a dozen or so of those to be awarded this year.
Speaker Change: Our qualified pipeline has several opportunities with contract values in excess of 100 million and more that should substantially offset the eventual small business set aside erosion.
Speaker Change: As I mentioned our.
Speaker Change: Our focus on differentiating technology and innovation is yielding results.
Speaker Change: Both expanding our footprint with existing customers as well as opening new channels for growth such as the new contract vehicles. The multiple award IDI cues.
Speaker Change: Our platform for generating new business has never been stronger.
Speaker Change: Slide six showrooms.
Speaker Change: That's strictly a example.
Speaker Change: A case study of how we expect to leverage our existing work and broadened capabilities to win new business in the near term and long term.
Speaker Change: Each step in the process provides a new building blocks for which we can establish franchise programs across the health and readiness marketplace.
Speaker Change: This graph graphic illustrates a girl campaign are selected opportunities that pooled together attributes from across our company's capability sets.
Speaker Change: The opportunities vary by total contract by total contract value and customer, but each requires the differentiated capabilities and solution DLH can offer.
Speaker Change: We remain well positioned for organic growth going forward and believe the federal marketplace offers us opportunities to expand our technology powered solutions, we remain focused on accelerating the company's top line leveraging our credentials.
Speaker Change: E mail, a highly enhanced capabilities and over time will more than make up for any of the again the small business set aside erosion.
Speaker Change: We continue to believe the best is yet to come and are building a stronger digital age to serve the needs and challenges of our clients.
Speaker Change: With that I'd like to turn the call over to.
Speaker Change: Catherine Jon Ball, our Chief Financial Officer Kathryn.
Speaker Change: Thank you Zach and good morning, everyone. We're pleased to report our first quarter results for fiscal 2025, 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 2024.
We reported revenue of $90 8 million in the first quarter versus $97 9 million in the prior year period.
Speaker Change: Reflecting contributions from recent contracts awards offset by the conversion of certain D. A N D O D programs to small business set aside contracts as well as service deliberate timing or key HHS contracts.
Speaker Change: Revenue contraction due to small business set aside conversions within our D. O D portfolio was approximately $5 million in the quarter. This amount is comprised of approximately three and a half million of non labor lower margin pass through revenue from a contract that was unbundled in this past quarter.
Speaker Change: And approximately one and a half million from the winding down of acquired small business contracts in the prior year period.
Speaker Change: While we remain focused on winning new programs that bode well for future growth small business set aside conversion headwinds are likely to impact our results for the upcoming quarters.
Speaker Change: Second Cmos side has transitioned to a small business contractor as of January 31st 2025.
Speaker Change: Dislocation averaged approximately $7 million in revenue per quarter over the last 12 months.
Speaker Change: We are under contract to perform services at the remaining locations through at least April and we expect to provide services on these locations while the customer continues to execute its procurement strategy.
Speaker Change: We reported EBITDA of $9 9 million for the first quarter versus $11 1 million last year.
Speaker Change: <unk> was down primarily due to the lower overall revenue level offset in part by reductions in certain variable indirect cost as we scale the business.
Speaker Change: From a cash standpoint, we used approximately 11 5 million of operating cash during the quarter versus cash generation of $5 1 million last year first quarter. As a reminder, the prior year period was positively impacted by delayed payments from the fourth quarter of fiscal 2023.
Making it an unusual comparison.
Speaker Change: In addition, our first quarter collections. This year were impacted by collection delays on one significant significant account, which has already begun clearing in the second quarter, we anticipate Q2's cash generation to more than offset the first quarter shortfall and therefore lead to a reduction in debt.
Speaker Change: Turning to slide nine we ended the quarter with total debt of $167 million versus $154 6 million at the start of the fiscal year, reflecting short term borrowings.
Speaker Change: As a current update that today is slightly under 161 million.
Speaker Change: As I mentioned, a moment ago, we anticipate utilizing approximately 50% to 55% of EBITDA to pay down debt during the remainder of fiscal 'twenty 'twenty five as always using cash to Delever. The company is a top priority going forward.
Speaker Change: Our amended credit facility continues to provide excellent financial flexibility as we navigate through the changing business climate climate. This year. It provides enhanced borrowing capacity to satisfy short term working capital needs as well as our others, our strategic focus on new business initiatives.
Speaker Change: We will continue to invest in organic growth and believe our strong portfolio of technology powered solutions puts us at the table for more programs than ever before.
Speaker Change: Has that previously mentioned our pipeline of qualified new business opportunities now stands at approximately 4 billion, representing a diverse mix of existing and new customers with budgets and priorities expected to be aligned with the new administration.
Speaker Change: This concludes my discussion of the financial statements and with that I would now like to turn the call back to our operator to open up for questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Joe Gomes: And our first question will be from Joe Gomes from Noble capital. Please go ahead.
Speaker Change: Good morning, Zach and Kathryn Thank you for taking my questions.
Speaker Change: Hey, Joe Good morning, Brian and us.
Speaker Change: So I wanted to start out you mentioned in your remarks and in the press release, you know probably like for a specific items for the revenue decline, while recompete that we lost for the small business set asides.
Speaker Change: You know, there's just a small business transitions out some non strategic projects winding down can you talk a little bit about some of the numbers I was just wondering if you could kind of rank or give a.
Speaker Change: What percentage of those.
Speaker Change: Those items.
Speaker Change: That impacted the revenues what was the greatest down to what was the least impactful.
Speaker Change: Yeah sure Joe happy to do that right. So the the key impact of elite that most it most significant impact to the quarter was.
Speaker Change: <unk> derived from the unbundling of one of our Recompete as we've shared in prior calls the the prior administration had a had a commitment.
Speaker Change: To small business set aside and.
Speaker Change: Really ran contrary to the couple of decades long a practice of consolidating contracts under a prime contractor that would really number one.
Speaker Change: Drive integration efficiencies from the program, then secondarily really transfer from the government to that prime contractor that performance risk, it's really trying to manage a series of contractors, but you know even though that was a couple of decades trend Nonetheless, the prior administration.
Speaker Change: Really provided a mandate that that that certain things beyond bundle and so we experienced that in the quarter that one of our I T. O D programs was unbound dog and I I S.
Speaker Change: As we mentioned in our comments in the call largely that was derived from subcontractors. We had on the heart team, where we were absorbed.
Speaker Change: We're assuming that integration responsibility. So so that's why it had less of an impact to our gross margin deliberate because it's relatively low volume low margin work.
Speaker Change: Secondarily, there as we've talked about on a number of calls there was a tail of small business revenue that we acquired and sometimes those tails pick a long time.
Speaker Change: But throughout the quarters of 'twenty 'twenty four we mentioned some of those are small business acquired contracts that were wrapping up but as a comparison point quarter to quarter year over year in the first quarter that that transition hadn't really started much until later later quarters from 24, so that was about.
Speaker Change: A million and a half that was present in Q1 of 'twenty four exiting throughout Q2 and two to four of 2024 and not present in Q1 of 2025 sort of year over year comparison is impacted by about a million and half dollars mm thirdly, theres about a million and a half.
Speaker Change: Related to <unk>.
Speaker Change: Winding down or having completed the exit from international work.
Speaker Change: Which is of course to getting a lot of attention. These days in the headlines.
Speaker Change: Without commentary to the merits of that work, we made our business assessment.
Speaker Change: A couple of years ago that that work international work with.
Speaker Change: A distraction for US you can't really do that work you have to be either all in or all out and and the work that we had there was a limited number of contracts that we viewed as really not our approach not our focus not strategic to us and so we have made a decision to exit and now that ex that has also been taking place throughout the <unk>.
Speaker Change: Quarters of 'twenty, 'twenty, four or so year over year with Q1, you'll see about a million and a half variation from that and there'll be a tail of it.
Speaker Change: Right this quarter, but that's right acyclic dawn will wrap up the extra on that probably in the may timeframe.
Speaker Change: And then and then finally finally, there was about $2 million of just timing of services, we would've expected to perform in Q1 that slipped into Q2, and we expect to pick it back up in Q2.
Speaker Change: Okay. Great. Thanks, Thank you for that overview very good.
Speaker Change: Just I know you know in the 'twenty three 'twenty four you guys did win some seats at the table so to speak on some large IDI cues.
Speaker Change: Or are we starting to see a steady stream of task orders come out from those or are we still waiting for those to kind of ramp up.
Speaker Change: Yeah, Great point, Joe Yeah.
Speaker Change: Yes, good interesting that.
Joe Gomes: You mentioned that was because we did find was one of those opportunities as large IDI cues the way in which.
Speaker Change: It was awarded.
Joe Gomes: By the government.
Speaker Change: <unk> was replacing a previous contract, but they were gapped.
Speaker Change: And during that gap period, the government move that work to a different vehicle and many of those contracts were three year contracts right and many of those are now coming back around for competition.
Speaker Change: And are some of the work and is that we've moved well and it's got was moved to a vehicle called Oasis.
Speaker Change: And of course, we just recently won Oasis. So we are now finding some of those opportunities that we had anticipated bidding now on the other would be a contract vehicle and DHA omnibus.
Speaker Change: Pacific.
Speaker Change: We are now looking at and bidding on Oasis is fortunate timing wise for us that we are well wishes. Just finally made the award decision and we were successful and into you know right out of the gate [laughter], we've got suddenly because we've been posh.
Speaker Change: <unk> four 2 billion over the course of the next few a few months. So yeah. We're excited to now have that Oasis idea Q4.
Speaker Change: For work that we were anticipating on the other vehicles, but the good news is now we can find those opportunities rather than having to take a back seat.
Speaker Change: To someone else on the Oasis.
Speaker Change: Great and then one of the things that we talked about you know in previously, but I haven't really heard a whole lot about lately.
Speaker Change: Your incentive by cloud product.
Speaker Change: I was wondering if you could just kind of give us a.
Speaker Change: Later on on that product.
Speaker Change: Yeah No great question, Yeah. We are in the process of you first of all I've been to buy cloud happens to be our fed route and federal marketplace opportunity yet a capability.
Speaker Change: That platform, we have built and designed for large scale.
Speaker Change: Data <unk> analytics services around largely around health and.
Speaker Change: In health care solutions.
Speaker Change: With the advent of our expanded capabilities with <unk> with cloud they came in with our acquisition.
Speaker Change: We completed the integration in 2020 three we have now been taking a look at our intent to buy cloud to point out and so we're in that process right. Now we expect that we're doing some investment as we speak to expand the versatility of that platform and then to buy cloud.
Speaker Change: Oppens be designed for the most secure type programs and projects.
Speaker Change: In order to do that are required by the federal government. It is it is not suited for a lower a level security items and so we've got a team that is developing a again a very broad cloud based platform to you.
Speaker Change: Expand or instead of by the offering so we're pretty excited about that we think it.
Speaker Change: It will continue to give us some great versatility.
Speaker Change: It needs to evolve because as you probably know the cyber security environment and public health security environment is.
Speaker Change: Is evolving.
Speaker Change: And folks are leveraging a variety of tools that still must also be managed in a secure environment.
Speaker Change: The government is very concerned as has the industry around how do you leverage tools such as AI ml, while also operating in a secure environment and so we're leaning forward to evolve.
Speaker Change: Bye.
Speaker Change: They can operate and tomorrow's environment.
Speaker Change: And there's a heavy overlap between if you followed the.
Speaker Change: The issuing of the CMC the Cyprus maturity model our regulations in late October there's a there's a pretty good overlap not not not entirely not 100%, but pretty darn close between fed ramp and see them themselves. So we think that gives us a good head.
Speaker Change: I'll start on that credential.
Speaker Change: Credentials that we expect to start making its way into contracts.
Speaker Change: Okay, and then one more for me you'll get in the press release, you talk about you know the little about $800000 increase in SG&A, reflecting investments in organic growth. It sounds like some of that was could have been right here for the instead of buy it we just talked about.
Speaker Change: Yeah.
Speaker Change: So that you could point out.
Speaker Change: Oh, no not a lot that we can disclose very much you know as we've talked about our organic growth past differentiators are very important and send them by cloud and secure cloud capabilities is a very material and we're also doing some development will share some more at our upcoming upcoming Uh huh.
Speaker Change: Meeting, but we do we're developing some additional cyber security capabilities systems engineering modeling and simulation capabilities and were bringing on and the appropriate type of talent.
Speaker Change: Across the business to help us deliver that.
Speaker Change: So we're going to continue.
Speaker Change: And then I said over the recent quarters.
Speaker Change: To make sure that we're accelerating our organic growth profile and making sure we're investing to ensure that 25 and 26.
Speaker Change: Can realize those in a differentiating way and so you elevate your win probability not by just building a larger qualified pipeline, but a better position quantified Firefly actually so we continue to make those investments for organic differentiator.
Speaker Change: Great I'll get back in queue. Thank you for taking the question.
Speaker Change: You bet you.
Speaker Change: And once again, if you would like to ask a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: Once again, if you would like to ask a question. Please press Star then one.
Speaker Change: Yeah.
Mr. Gums: Alright, well move back to Mr. Gums for his follow up from Noble capital. Please go ahead.
Speaker Change: Okay.
Speaker Change: Thanks, again, I'll I'll I'll ask a couple of more here you bet.
Speaker Change: I don't see Marc.
Speaker Change: Just wanted to make sure I'm understanding everything here. So there are.
Speaker Change: There was seven.
Speaker Change: Hum.
Speaker Change: That you had under your belt that you were still servicing.
Speaker Change: That you are still servicing I think for those who had to have their bids.
Last year three of them haven't yet to I guess go out for bid or have their timetables sat.
Speaker Change: I was wondering of those how many have you partnered with data on.
Speaker Change: You know what what are you thinking in terms of the capability of your partner of winning any of these awards.
Speaker Change: Well, we are so we remain.
And the very competition sensitive environment, there Joe I can tell you that we have not been at all of them.
Speaker Change: You know our partner there has been a small business.
Speaker Change: We've worked collaboratively to make sure that.
Speaker Change: That are the big backlog.
Speaker Change: C math is one that our small business part and I feel very very comfortable and confident that they have the bandwidth to execute with our support.
Speaker Change: And and yes, I can I can tell you that you.
Speaker Change: You know we have not we're not bidding on all of those that are remaining.
Speaker Change: And but but we do believe that it'll be a very material.
Speaker Change: If we're successful with it.
Speaker Change: Partners successful.
Speaker Change: There will be a material retention of.
Speaker Change: Business for us, but it'll be a again as a subcontractor.
Speaker Change: At best.
Speaker Change: And one of them, which are you.
Speaker Change: You know when.
Speaker Change: We'll evaluate the win probabilities unless they start to.
Speaker Change: The issue you have some final rfps, they're not with D. A I say that because it is not done with that acquisition in any way shape or form any and all of those that are still remaining outside of exclusive.
Speaker Change: As Kathryn indicated Chicago.
Speaker Change: Karl Heinz any of those are still subject to have RFP changes and amendments that could lead us to even changing a bit posture on those so it remains fluid Joe until they get to.
Speaker Change: The government makes some some of those decisions are the good news is the.
Speaker Change: The VA now as they are moving forward with their new leadership.
Speaker Change: The new administration and the Doge community has recently.
Speaker Change: With the V a.
Speaker Change: We anticipate that as per usual.
Speaker Change: We will have an opportunity to.
Speaker Change: Too.
Speaker Change: How about executive visit by the New Secretary and probably within the next couple of weeks and this new administration, you know still could put their finger on the acquisition and the approach. So it remains so so fluid and so competition sensitive.
Speaker Change: And you know we've got to respect the Nondisclosure agreement that we have with our with our prime partner.
Speaker Change: Fair enough and then one more.
And I think we're still operating under a continuing resolution you guys seen any impact from that on the business.
Speaker Change: Well, we're fortunate right now it was Catherine give me some of the details as far as so what we have in the way of contracted months et cetera.
Speaker Change: But we do anticipate that.
Speaker Change: That will be in our CRM, though Joe.
Speaker Change:
Speaker Change: I spent last week this past week with many of our peer companies as a as a professional services Council leadership summit.
Speaker Change: We're anticipating that coming months there'll be quite a bit of an impact.
Speaker Change: Impact with regard to the longer term budget.
Speaker Change: We still would not only do we have to see <unk>. We've got some some caps it'd have to be resolved.
Speaker Change: Some of those ratios are the caps from Vod to civilian we've got a debt limit ceiling that we're spending to the right coming up which always had holds an eminent potential for shutdowns really duration. So we expect a lot of noise over the coming quarter or so.
Speaker Change: At the executive level. The good news is we try to make sure we manage that signal to noise ratio right and what we see in terms of stability in that signal is that Fortunately a motion. It's not all of our programs are appropriate it already which means there'll be cut.
Speaker Change: Annuity against some of the.
Speaker Change: Some of the potentials of shut down.
Speaker Change: We also are expecting in everything that we have in our pipeline.
Speaker Change: And it's pretty solid and supported by both sides of the aisle right. As you see we have a lot of defense military health health and health in areas that again are also remain really quite strong on both sides of the aisle. So the veteran community as you well know as long as this T O continues to run out of.
Speaker Change: Both of these administrations are very supportive of our veteran health in the sort of work that we do so we feel pretty good about the.
Speaker Change: The impact of CRE.
Speaker Change: Most of the business, we have in our pipeline of new business pipelines are recurring work so they're not subject to the restrictions of new business awards. So as long as we can have customers that are focused on the acquisitions.
And the commitment to the awards, we feel really pretty confident that we won't see any materially erosion associated with budget constraints.
Speaker Change: Great. Thanks for that exact God. That's it for me. Thank you very much again.
Speaker Change: You bet Yeah. Appreciate it thank you.
Speaker Change: And ladies and gentlemen. This concludes today's question and answer session I would like to return the conference back to Zach Parker for any concluding remarks.
Speaker Change: Once again I'd like to thank you for your support and interest in our digital age and I look forward to chatting with you next month as we have our annual shareholder meeting.
Speaker Change: And until then be blessed and have a wonderful productive day bye for now.
Speaker Change: You Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].