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DLH Reports Fourth Quarter and Fiscal Year 2018 Results
Fourth Quarter Gross Margin 24.3%; $6.1 Million Operating Cash Flow
Atlanta, Georgia – December 13, 2018 - DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading provider of innovative healthcare services and solutions to federal agencies, today announced financial results for its fiscal fourth quarter and the fiscal year ended September 30, 2018.

Highlights
Fiscal fourth quarter revenue was $32.5 million, up 6.9% over the fourth quarter of fiscal 2017
Income from operations was $2.8 million for the quarter versus $2.1 million last year
Diluted earnings per share were $0.14 for the quarter versus $0.08 per share in the prior-year period
DLH generated operating cash flow of $6.1 million for the quarter and $14.1 million for the fiscal year
The Company reduced its senior debt to $7.7 million as of September 30, 2018, with a cash balance of $6.4 million

Management Discussion
"In fiscal 2018, revenue, EBITDA, and operating cash flow reached their highest levels in over a decade, reflecting expansion in levels of service on our key contracts,” stated DLH President and Chief Executive Officer Zach Parker. “Sales rose to over $133 million, gross profit topped $30 million, and pretax income exceeded $7.6 million. We generated $14 million of operating cash flow for the year, supporting repayment of $12 million of senior debt.

“We are pleased that – for the first time in years – our core markets of HHS, the VA, and the Department of Defense were already fully funded as the fiscal year began. We believe that the addressable pipeline continues to provide substantial opportunities for growth, even as we work diligently to address and mitigate any recompete-related issues as they arise.”

Results for the Three Months Ended September 30, 2018
Revenue for the fourth quarter of fiscal 2018 was $32.5 million, up $2.1 million, or 6.9%, over the prior-year fourth quarter, reflecting activity levels and expansion of services across multiple programs.

Gross profit was $7.9 million for the quarter, an increase of $0.6 million, or 8.7%, over the fourth quarter of fiscal 2017. As a percent of revenue, the Company's gross margin was 24.3% in 2018 versus 23.9% in the prior-year period.




General and Administrative ("G&A") expenses were $4.5 million for the quarter compared to $4.6 million in fiscal 2017. As a percent of revenue, G&A expenses were 13.8% in the current fiscal fourth quarter versus 15.2% last year. Depreciation and amortization was $0.6 million in fiscal 2018 and $0.5 million last year.

Income from operations was $2.8 million for the quarter versus $2.1 million in the prior-year period, reflecting the $0.6 million increase in gross profit year-over-year. Income before taxes was $2.5 million for the quarter, up approximately $0.7 million over the prior-year period.

For the three months ended September 30, 2018 DLH recorded a $0.7 million provision for tax expense, versus $0.8 million for fiscal 2017. The tax provision for 2018 reflects the impact of the prorated tax rate reduction from the Tax Cuts and Jobs Act enacted in December 2017.

The Company reported net income for the fiscal fourth quarter of approximately $1.8 million, or $0.14 per diluted share, versus $1.0 million, or $0.08 per diluted share, in the prior-year period. On a non-GAAP basis, Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) for the three months ended September 30, 2018 was approximately $3.4 million versus $2.6 million in the prior-year period. Growth was attributable to increased revenue and gross profit, as described above.

Balance Sheet and Cash Flow
Cash as of September 30, 2018 was $6.4 million, and the Company’s senior debt was $7.7 million, versus cash of $4.9 million and senior debt of $19.7 million as of September 30, 2017. Regarding cash flow, for the fiscal fourth quarter DLH generated approximately $6.1 million in cash from operations, reflecting its financial results and working capital management.

Conference Call and Webcast Details
DLH management will discuss fourth quarter results and provide a general business update, including current competitive conditions and strategies, during a conference call beginning at 11:00 AM Eastern Time today, December 13, 2018. Interested parties may listen to the conference call by dialing 888-347-5290 or 412-317-5256. Presentation materials will also be posted on the Investor Relations section of the DLH website prior to the commencement of the conference call.

A digital recording of the conference call will be available for replay two hours after the completion of the call and can be accessed on the DLH Investor Relations website or by dialing 877-344-7529 and entering the conference ID 10124455.





About DLH
DLH (NASDAQ:DLHC) serves federal government clients throughout the United States and abroad delivering technology enabled solutions in key health and human services programs. The Company's core competencies and consulting services include assessment and compliance monitoring, program management, health IT systems integration, data analytics and medical logistics, and pharmacy solutions. DLH has over 1,500 employees serving numerous government agencies. For more information, visit the corporate website at www.dlhcorp.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or DLH`s future financial performance. Any statements that are not statements of historical fact (including without limitation statements to the effect that the Company or its management “believes”, “expects”, “anticipates”, “plans”, “intends” and similar expressions) should be considered forward looking statements that involve risks and uncertainties which could cause actual events or DLH’s actual results to differ materially from those indicated by the forward-looking statements. Those risks and uncertainties include, but are not limited to, the following: failure to achieve contract awards in connection with re-competes for present business and/or competition for new business; the risks and uncertainties associated with client interest in and purchases of new services; changes in client budgetary priorities; government contract procurement (such as bid protest, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the ability to successfully integrate the operations of our recent and any future acquisitions; and other risks described in our SEC filings. For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s periodic reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as well as interim quarterly filings thereafter. The forward-looking statements contained herein are made as of the date hereof and may become outdated over time. The Company does not assume any responsibility for updating forward-looking statements.

CONTACTS:
INVESTOR RELATIONS
Contact: Chris Witty
Phone: 646-438-9385



TABLES TO FOLLOW







DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share amounts)

 
 
(unaudited)
 
 
 
 
Three Months Ended
 
Year Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenue
 
$
32,489

 
$
30,390

 
$
133,236

 
$
115,662

Direct expenses (exclusive of depreciation and amortization shown below)
 
24,604

 
23,137

 
103,034

 
89,812

Gross margin
 
7,885

 
7,253

 
30,202

 
25,850

General and administrative expenses
 
4,478

 
4,615

 
19,178

 
17,466

Depreciation and amortization
 
588

 
489

 
2,242

 
1,754

Income from operations
 
2,819

 
2,149

 
8,782

 
6,630

Interest expense, net
 
315

 
340

 
1,116

 
1,228

Income before income taxes
 
2,504

 
1,809

 
7,666

 
5,402

Income tax expense, net
 
747

 
769

 
5,830

 
2,114

Net income
 
$
1,757

 
$
1,040

 
$
1,836

 
$
3,288

 
 
 
 
 
 
 
 
 
Net income per share - basic
 
$
0.15

 
$
0.09

 
$
0.15

 
$
0.29

Net income per share - diluted
 
$
0.14

 
$
0.08

 
$
0.14

 
$
0.27

Weighted average common shares outstanding
 
 
 
 
 
 
 
 
Basic
 
11,899

 
11,502

 
11,881

 
11,345

Diluted
 
12,873

 
12,528

 
12,873

 
12,352








DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)



September 30,
2018

September 30,
2017







ASSETS

 


 

Current assets:

 


 

Cash and cash equivalents

$
6,355


$
4,930

Accounts receivable

10,280


11,911

Other current assets

760


598

Total current assets

17,395


17,439

Equipment and improvements, net

1,566


1,391

Deferred taxes, net

4,137


9,639

Goodwill

25,989


25,989

Intangible assets, net

13,365


15,127

Other long-term assets

89


139

Total assets

$
62,541


$
69,724








LIABILITIES AND SHAREHOLDERS’ EQUITY

 


 

Current liabilities:

 


 

Debt obligations - current

$


$
6,518

Derivative financial instruments, at fair value



306

Accrued payroll

4,983


3,723

Accounts payable, accrued expenses, and other current liabilities

10,950


10,895

Total current liabilities

15,933


21,442

Total long term liabilities

7,190


12,427

Total liabilities

23,123


33,869

Commitments and contingencies






Shareholders' equity:






Common stock, $.001 par value; authorized 40,000 shares; issued and outstanding 11,899 and 11,767 at September 30, 2018 and 2017, respectively.

12


12

Additional paid-in capital

84,285


82,687

Accumulated deficit

(44,879
)

(46,844
)
Total shareholders’ equity

39,418


35,855

Total liabilities and shareholders' equity

$
62,541


$
69,724















DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)



Year Ended
 

September 30,


2018

2017
Operating activities






Net income

$
1,836


$
3,288

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization expense

2,242


1,724

Amortization of debt financing costs as interest expense

275


268

Change in fair value of derivative financial instruments



102

Stock based compensation expense

1,375


662

Loss on retirement of equipment



31

Deferred taxes, net

5,502


1,776

Changes in operating assets and liabilities






Accounts receivable

1,631


(5,274
)
Other current assets

(162
)

(56
)
Accounts payable, accrued payroll, accrued expenses and other current liabilities

1,314


3,945

Other long term assets/liabilities

64


58

Net cash provided by operating activities

14,077


6,524








Investing activities






Acquisition, net of cash acquired



(250
)
Purchase of equipment and improvements

(654
)

(1,064
)
Net cash used in investing activities

(654
)

(1,314
)







Financing activities






Repayments on senior debt

(11,979
)

(3,750
)
Repayments of capital lease obligations



(86
)
Payment of deferred financing costs

(65
)


Proceeds from stock option exercise

46


129

Net cash used in financing activities

(11,998
)

(3,707
)







Net change in cash and cash equivalents

1,425


1,503

Cash and cash equivalents at beginning of year

4,930


3,427

Cash and cash equivalents at end of year

$
6,355


$
4,930








Supplemental disclosures of cash flow information






Cash paid during the period for interest

$
800


$
883

Cash paid during the period for income taxes

$
876


$
337

Non-cash issuance of stock upon exercise of options

$
25


$

Derivative warrant liability reclassified as equity

$
(306
)

$











Revenue Metrics





Three months ended

Year Ended


September 30,

September 30,


2018

2018
Market Mix:




Defense/VA

69
%

65
%
Human Services and Solutions

26
%

31
%
Public Health/Life Sciences

5
%

4
%





Contract Mix:




Time and Materials

93
%

95
%
Cost Plus Fixed Fee

5
%

3
%
Firm Fixed Price

2
%

2
%





Prime vs Sub:




Prime

100
%

99
%
Subcontracts

%

1
%



Non-GAAP Financial Measures
The Company uses EBITDA as a supplemental non-GAAP measure of our performance. DLH defines EBITDA as net income excluding (i) interest expense, (ii) provision for or benefit from income taxes and (iii) depreciation and amortization.

Beginning with the first quarter of fiscal year 2018, the Company commenced reporting EBITDA, rather than adjusted EBITDA, as a key non-GAAP financial measure of our business. The Company believes that due to the growth and maturation of its business, this change will improve the transparency of its business performance and increase the comparability of its results with peers. Non-GAAP measures for prior periods have been recast to conform to this change in the Company’s reporting.

In addition, we are also reporting our net income excluding the impact of the Tax Cut and Jobs Act of 2017. On December 22, 2017, the Tax Cut and Jobs Act was enacted, which, among other things, reduced corporate tax rates and revised rules regarding the usability of net operating losses. These changes have resulted in a tax provision of $3.4 million associated with revaluing the benefit of our net operating losses. For comparability, the tax provision for the prior year periods has been restated using the reduced tax rates passed in December 2017.

These non-GAAP measures of performance are used by management to conduct and evaluate its business during its regular review of operating results for the periods presented. Management and the Company's Board utilize these non-




GAAP measures to make decisions about the use of the Company's resources, analyze performance between periods, develop internal projections and measure management performance. DLH believes that these non-GAAP measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance.

Reconciliation of GAAP net income to EBITDA, a non-GAAP measure:



Three Months Ended

Year Ended


September 30,

September 30,
 

2018

2017

Change

2018

2017

Change
Net income

$
1,757


$
1,040


$
717


$
1,836


$
3,288


$
(1,452
)
(i) Interest expense

315


340


(25
)

1,116


1,228


(112
)
(ii) Provision for taxes

747


769


(22
)

5,830


2,114


3,716

(iii) Depreciation and amortization

588


489


99


2,242


1,754


488

EBITDA

$
3,407


$
2,638


$
769


$
11,024


$
8,384


$
2,640



Reconciliation of GAAP net income to net income adjusted for the effect of the 2017 Tax Act, a non-GAAP measure:



Three Months Ended

Year Ended


September 30,

September 30,


2018

2017

Change

2018

2017

Change
Net income

$
1,757


$
1,040


$
717


$
1,836


$
3,288


$
(1,452
)
Write-down of deferred tax assets







3,365




3,365

Pro-forma impact of tax rate change



145


(145
)




527


(527
)
Net income, adjusted for the effect of the 2017 Tax Act

$
1,757


$
1,185


$
572


$
5,201


$
3,815


$
1,386















Net income per diluted share

$
0.14


$
0.08


$
0.06


$
0.14


$
0.27


$
(0.13
)
Impact of write-down of deferred tax asset







0.26




0.26

Pro-forma impact of tax rate change



0.01


(0.01
)



0.04


(0.04
)
Net income per diluted share, adjusted for the effect of the 2017 Tax Act

$
0.14


$
0.09


$
0.05


$
0.40


$
0.31


$
0.09