Q3 2025 DLH Holdings Corp Earnings Call
Good day, and welcome to the DLH Holdings. Fiscal, 2025, third quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions to ask a question. You may press star then 1 on your touchtone phone and to withdraw your question please press star then to please note this event is being recorded. I will now like to turn the conference over to miss Chris Whitty to Mr. Chris Whitty, investor relations advisory, please go ahead sir.
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 in 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 3 of the presentation.
This call may include 4 looking statements, that relate to the company's outlook for fiscal 2025 and Beyond. 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 10K and in our other filings with the SEC, we do not undertake any duty to update any 4 looking statements.
For today's call, we will be referencing both gaap and non-gaap financial measures. I reconciliation of our non-gaap results. Through our reported Gap. Results is included in our earnings release and in the investor presentation on dh's website.
President and CEO. Zach Parker will speak next followed by CFO Katherine John bull 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.
Thank you, Chris and welcome everyone. Um, yeah. Welcome to our third quarter conference call and I'm pleased to have the opportunity to report on our financial results and provide an update about the current environment and the Outlook
First and foremost, I'd like to begin by thanking our stellar employees for their steadfast dedication to our customers' missions.
It's been a tumultuous period, as we entered, uh, fiscal 26 for technical companies, uh, solution companies like us.
Yet our employees continue to rise to the occasion leading with Innovative uh and and productive uh projects and solutions supporting our customers with excellent results.
Their performance.
Is why I'm so confident about the future of Doh.
Now, if you'll turn to slide 4, I'll provide an overview of our Q3 results.
Starting with Revenue.
And small business set aside from the prior Administration is continuing on plan.
Uh, you know, I'm also pleased that how effectively our team has managed through uh this period and Katherine will give some added color to that a little bit later.
Uh the new Administration has added layers of funding review and approval cycles that have slowed our Revenue stream and this is from work from our existing contracts.
that being compounded by the effect of
You know, both of those 2 features has tremendously stalled, the flow of new business growth for DLH.
This of course, uh, will be as reflective uh at relative to Prior quarters.
Our pipeline conversion has been slowly. Uh, had been impacted and slowed.
RFP flow over the recent quarter to has been slowed our delivery of proposals and material proposals that things like over 25 and over 100 million, uh, much slower than uh, anticipated. Uh, and the same for contract Awards.
However, having said that I have had uh, I have had an opportunity along with some of my industry colleagues to have met with, uh, appropriate influencers on the hill. Uh, and I really feel optimistic that uh, anticipated changes, uh, will be productive and on their way soon.
And I'll discuss this a little greater um a little bit later.
With respect to margin delivery, cash flow, generation and debt payday we've made significant progress. Again, this period, our operating expenses continue to decrease, as we scaled operations to meet the changing Revenue volume and protect margin delivery. While we prioritize our investments. Continue to prioritize our investment in growth initiatives.
We reduced debt by 9.4 million compared with Q2.
Our debt to close. The quarter was 142.3 million and we are a year ahead of our mandatory debt payments.
We expect to continue to aggressively deploy capital of pay down debt, manage our leverage and strengthen our balance sheet.
The reconciliation Bill, the fiscal 2025 budget, Bill, uh, and fiscal 2026.
White House, budget request combined to give greater clarity about the administration's, uh, uh, spending priorities in the years ahead, this will help our customers. We are pleased that DLH is capabilities. Continue the line with the federal government's demand and believe that funding increases for our services and core areas.
Of focus, which include technology, integration cyber security, artificial intelligence and machine learning. And the like,
we'll continue to provide opportunities for the company's growth or organically.
I will speak to this in further depth on the following slide.
The fusion of dla's technology and research expertise is continuing to make Mission critical impact for our customers and we see more opportunities in the near term.
Solutions that we have developed and deployed through our internal, uh, R&D program. Along with, uh, collaboration with military health agencies, gives us reason to believe that. Uh, that, uh, our top technology programs seen by our our government peers are well received
Such applications leveraging Technologies spanning AI robotics engineering, unmanned aircrafts and automation demonstrates a crucial life-saving impact of the work carried out by our staff of data scientists engineers. Technologists, Etc. To have such positive impact Upon Our citizens, our service members and our veterans.
Our unique combination of Advanced Technologies world class scientific expertise provides from continued to provide tremendous value for our customers and targeted growth. And we firmly believe that our companies experience and expertise will continue to open new doors. Expand our book of business as we go forward.
Now Mr. Turner's Live 5 for further review of the current federal spending Outlook.
Unities and contract points for us in the medium and long term.
The marketplace remains dynamic, as a federal Workforce is being reshaped. Procurements are being reshuffled based on the administration's priorities and certain departments and programs have undergone significant changes.
our strategic actions this year, focusing on operational, agility, Financial flexibility, uh, and Technology differentiation have proven effective in these market conditions,
This approach has allowed us to navigate industry challenges, and strengthening our long-term position. We remain strong, uh, tremendously committed to our organic growth initiatives, and we are confident in our strategy to increases revenue and margin delivery, in quarters to come given some of the anticipated changes by this Administration.
As mentioned before recent weeks have brought increased Clarity to the programs and initiatives that have been prioritized by the administration.
Modernizing Federal technology maximizing efficiencies integrating artificial intelligence and machine language and both during cyber security while keeping the America at the Leading Edge are consistent. But
The inactive budget for the remainder of fiscal, uh, 25 and the administration's fiscal 2026 budget.
And the 1, big beautiful, bill act provide increased funding uh for each of these initiatives.
I mentioned earlier that anticipated changes seem to support a positive outlook for DLH. This is largely attributed some to some of the acquisition reforms that are in motion that will uh will drive priority shifts in the way in which the car and buys. And this Administration is accelerate is really committed to accelerating the the speed of delivery on these type of New Opportunities and contracts. We believe this provides significant opportunity for DLH
Our company has a strong leg Legacy of making programs more efficient for customers, through the integration of Cutting Edge Technologies, uh, producing millions of dollars in cost savings to the government.
Federal investment in AI and ML systems integration, cloud computing, software development, research and development, data analytics, and other advances have aligned with what we have been building over the last 2 to 3 years and continue to invest in for near-term opportunities.
What we believe the upcoming quarters will have steady procurement activity. The realignment of the, uh, customers Contracting resources, may cause again, uh, contract Awards to slip to Future periods to navigate the market dynamics. Our goals are simple, uh, and 3-fold. First we'll continue to de-lever the company.
Second. We're going to do everything. We can to protect our Revenue base and focus on our new business and organic growth. With key opportunities, that drive and deliver value, uh, for our business line.
And finally, we're going to continue to preserve our margin delivery through proactive scaling initiatives. And as we move past, these challenges created by short-term market dynamics, we believe the company is very, very well poised to once again, become that growth Enterprise that leverages this unique capabilities through differentiation and improved the governance Mission and the lives of those, that it touches.
With that. I'd now like to turn the call over to our Chief Financial Officer. Katherine jungle Catherine.
Thanks Zach and good morning, everyone. We're happy to have you join us for our third quarter results for fiscal 2025
Turning the slide 7. I'd like to provide a high-level overview of some key financial metrics for the 3 months, ended June 30th 2025. We reported revenue of 83.3 million in the third quarter versus 10.7 million. In the prior year, period the change in Revenue, volume reflects,
Contributions from recent contract Awards offset by the expected conversion of certain VA and DOD programs to small business contractors, which accounts for decreases of 8.5 million and 3.2 million respectively. Additionally, government efficiency initiatives narrow, the scope of some of our work resulting in a 2.2 million decrease,
Million in annualized Revenue.
Award decisions for the remaining 5 sites could extend beyond our current current period of performance as procurement. Strategies are shaped by the policies of the new Administration.
We reported ibida of 8.1 million for the third quarter versus 10 million last year, primarily due to the lower overall Revenue. We have successfully, we have successfully navigated our key management priority of appropriately. Scaling operating costs to changes in business volume, while preserving the resources necessary for growth
ibida. As a percentage of Revenue was 9.7 this year versus 10% in fiscal 2024.
From a cash standpoint, we generated approximately 9.5 million of operating cash during the quarter. As Zach mentioned due to increase collections of receivables and sound working Capital Management. We noted a reduction in Day sales outstanding to 46 days from 52 days. At the end of of Q2
The year to today, our operating cash flow was 12.5 million versus 14.9 Million last year and we, again, use Q3 cash generation to deliver the company.
As you can see, on slide 8, we reduced debt by 9.4 million. During the quarter, ending the period with 142.3 million debt outstanding at this point. We've made all mandatory term debt payments through June 30th of 2026, a year ahead of schedule, and we remain on track to convert approximately 50, to 55% of ibida to pay down debt, this fiscal year, given our strong record of using cash flow to deliver the company and strengthen the balance sheet. Combined with the liquidity, provided by our 50 million revolver. We continue to believe. We have sufficient Capital to pursue and support a busy pipeline of opportunities.
We remain. Well, ahead of our debt covenants, supporting our positive outlook for the future.
This concludes my discussion of the financial statements with that. I would now like to turn the call over to our operator to open for questions.
Thank you. We will now begin the question and answer session.
To ask a question, you may press star, then 1 on your touchtone phone.
If you're using a speaker-phone, please pick up your handset before pressing the keys.
If at any time your question has been addressed and you would like to enjoy your question please press star then to and at this time we'll pause momentarily to assemble our roster.
In the first question will come from Joe goes with Noble Capital, please go ahead.
Good morning, Catherine.
Hey, good morning, Joe. Hello, Joe, Joe. I think you're breaking up. Yeah, you may have cut off just a bit. It seems. Yeah, Mr, Mr. Gomez, um, his line has disconnected.
Again, if you would like to ask a question, please press star then 1.
Uh, Mr. Gums, if you are listening, you can press it as well to rejoin.
again, to ask a question, please press star then 1
operator, you indicated that uh, he disconnected
Yes, Chuck. Okay, let's give him a moment.
Yep, there we go.
All right, let's let's proceed and uh, perhaps you'll join us.
Yes, ma'am. Uh, once again, if anyone wants to ask a question, please press star then 1.
I've been waiting for Joe, let me add a little color to a couple of comments, that, uh, we had in the, uh, in the opening presentation. Um, you know, 1 in particular is, of course, the uh, continued evolution of, uh, of our small set aside, uh, business that was
You've been working very closely with the customer, uh, to affect smooth transitions. Uh, it has been a little bit slower than we had anticipated, uh, last year, uh, for uh, that erosion but, uh, by and large. We do see pretty heavy activity on that throughout the remainder of this quarter, uh, and uh, we'll certainly keep you posted on that. Uh, same time, some of the other contracts that were unbundled uh We've uh, those 2 that those that we anticipated as we entered fiscal year. 25 have continued pretty much on track as I indicated earlier. We did, we were expecting to have some of that offset by our our new business pipeline with the uh with the anticipated um rfps flows uh from what what the government was indicating. And our customers were indicating before. And and I did just want to mention that that has slowed uh materially this last quarter.
Uh and and again many of those are attributed to Administration factors 1 factor that I did not uh, specifically indicate is that there were a large number of cuts in the government as Katherine indicated, but it was largely due to contract acquisition people. So it's those folks that put together the rfps those folks that evaluate the uh, contractor's proposals. And then those that award those contracts, um, with a number of that will will work.
Force, uh, participants, uh, cut through Administration activities. Uh, there's just been gaps and resources to be able to move that along. I will say that both through Court action, uh, and, uh, some initiatives from, uh, from our agencies. Some of those are being recalled. Uh, we've seen some of that and some of our agencies over the last month. Uh, and so we're hoping to see that the stability. Uh, start to measurably come back, uh, with regard to the resources that the government needs to to move these uh, solicitations and contracts forward. So, uh, we're optimistic that, uh, that some of that return, uh, will have some positive, uh, impact to our Industries, uh pipeline, but particularly for those areas that we are focused,
Any luck with Joe return?
Yes, sir, not at all.
Problems. Yeah, he's tried a couple of times to get back in, but okay. All right, well operator, uh, if there are no further, uh, further questions, and I think we'll want to take this time to certainly thank those that have participated in in our session today. Continue to feel really, really strong about the, uh, the Outlook of DLH. We, we think that we have a good grasp on the areas that are transitioning from the government. We've got good level of Engagement, uh, with the decision makers and
Influencers. And I feel very, very optimistic that, uh, as we exit, uh, 25, we'll have some good news, uh, in Q4, uh, with regard to the positioning for a very, very strong recovery in 26 with that. I'll, uh, uh, turn it back over to the operator, and we'll look forward to seeing everyone again, soon. Have a blessed day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect