DLH Holdings Corp. (NASDAQ:DLHC) This autumn 2022 Outcomes Convention Name December 5, 2022 10:00 AM ET
Firm Members
Chris Witty – IR Advisor
Zach Parker – President, CEO
Kathryn JohnBull – CFO
Convention Name Members
Joe Gomes – Noble Capital
Brian Kinstlinger – Alliance International Companions
Debra Fiakas – Crystal Fairness Analysis
Operator
Good morning, and welcome to the DLH Holdings Fiscal 2022 Fourth Quarter Earnings Convention Name. [Operator Instructions] Please be aware, this occasion is being recorded.
I might now like to show the convention over to Chris Witty, Investor Relations Advisor. Please go forward.
Chris Witty
Thanks, and good morning, everybody. On the decision with me as we speak is Zach Parker, President and Chief Government Officer; and Kathryn JohnBull, Chief Monetary Officer. The corporate’s earnings launch and PowerPoint presentation can be found on our web site beneath the Investor web page.
I might now like to supply a short secure harbor assertion, which can be proven on Slide 2 of the presentation. This name could embrace forward-looking statements that relate to the corporate’s outlook for fiscal 2023 and past. These forward-looking statements are topic to varied dangers and uncertainties that might trigger precise outcomes and occasions to vary materially from these statements. Please seek advice from the danger elements contained within the firm’s annual report on Type 10-Ok and in our different filings with the Securities and Change Fee. We don’t undertake any responsibility to replace any forward-looking statements.
On as we speak’s name, we can be referencing each GAAP and non-GAAP monetary measures. A reconciliation of our non-GAAP outcomes to our reported GAAP outcomes is included in our earnings launch and within the investor presentation on DLH’s web site. President and CEO, Zach Parker, will communicate subsequent; adopted by CFO, Kathryn JohnBull, after which we’ll open it up for questions.
With that, I’d now prefer to flip the decision over to Zach. Please go forward, Zach.
Zach Parker
Thanks, Chris, and good morning, everybody. Welcome to our fiscal 12 months 2022 fourth quarter convention name. Earlier this morning, we posted our quarter and year-end earnings. I’m happy to report that the tip of the fiscal 12 months got here with report outcomes that positioned us very nicely for the longer term. I need to say that the staff, the management and companions of DLH have remained extremely targeted and dedicated to our shoppers’ missions to permit us to realize these outcomes. Starting with slide three, I’ll first present a high-level overview of the quarter and 12 months, beginning with the highest line outcomes.
Throughout This autumn, we grew income by 3% 12 months over 12 months to 67.2 million, reflecting natural progress and elevated total demand for our various vary of applications and providers. For the total fiscal 12 months, income climbed to 395.2 million, reflecting the COVID-19 associated FEMA contracts in Alaska that accomplished earlier in 2022.
The fiscal 12 months was definitely a standout one by way of high line efficiency, but we’re most excited by the quite a few alternatives which nonetheless lie forward. I’ll focus on the outlook extra in a second.
We posted fourth quarter working earnings of 4.7 million or 7% of gross sales, and for the full-year, 33.4 million or 8.4% of gross sales. EBITDA was 6.6 million for This autumn and 40.9 million for fiscal ‘22 as a complete, whereas we reported EPS of $0.24 per share for the fourth quarter and $1.64 for the 12 months. As well as, we paid down 6.5 million of debt in the course of the quarter, ending the 12 months with 22 million excellent. Our backlog coming into fiscal 2023 was 482.5 million, reflecting seven new a number of award IDIQ wins and three strategic re-competes in the course of the 12 months.
Turning to Slide 7, I needed to point out our monitor report of efficiency over the previous 10 years, whereas fiscal 2022 benefited from the contribution of our turnkey FEMA contracts in Alaska, the expansion and consistency of our EBITDA margins communicate for themselves. I’m so proud that we have now such a gifted, devoted workforce, which leveraging our in demand superior know-how providers and options have pushed DLH to the excessive stage of working outcomes that we now get pleasure from. As well as, the longer term continues to look vibrant.
Look to Slide 5. It offers an outline of present micro circumstances, which we consider bode very nicely for the corporate going ahead. It is reassuring to notice that our applications and the companies that we serve specializing in public well being, Division of Protection, veterans and digital transformation providers proceed to get pleasure from strong, longstanding help in Washington on each side of the aisle. So whereas the federal government remains to be working beneath a unbroken decision, which we count on to be prolonged, we don’t anticipate any main adjustments to the outlook for FY’23. There have been an apparent shift from COVID to Ukraine associated actions for our federal authorities in the course of the 12 months, in addition to expanded regulatory reporting necessities. Nonetheless, we’re assured that this demand with — the demand inside our core markets stay very, very robust. There continues to be a dedication all through the federal authorities for know-how upgrades and total modernization of companies and applications inside them.
This contains, for instance, digital transformation and a deal with cloud computing incorporating cybersecurity, and notably with regard to health-related info within the Division of Protection.
Federal shoppers are on the lookout for precisely the kind of providers by which we have now been strategically aligned, agile primarily based innovation, and cost-effective options to reinforce science, analysis and improvement and coverage deployment to help essential missions for our nation.
The truth is, whereas the skin world has needed to take care of further challenges this 12 months, together with provide chain constraints and inflationary pressures, the federal government marketplace for our providers had remained fairly steady. There was an elevated deal with equitable changes resulting in larger competitors and higher use of a number of award contract IDIQ autos. We’re successfully managing by these minor headwinds nicely, and profitable new contracts in tandem.
As well as, whereas the tight labor markets proceed, we have now in place and proceed to draw top-notch analysis and engineering expertise to the corporate. Of this, I’m particularly proud. I would like to speak a bit extra concerning the alternatives which lie forward for DLH. Whereas the federal authorities’s fiscal 2023 finances has but to be finalized, as we talked about, we really feel assured as a result of the truth that traditionally our work has confirmed to be robust bipartisan help applications.
Our enterprise options align nicely with spending priorities in Washington with elevated funding anticipated for the Division of Veteran Affairs, Protection, and Well being and Human Providers. Importantly, in the course of the previous 12 months, DLH was chosen as a competitor for future activity orders throughout 7 domains of three a number of award IDIQ applications, $665 million ceiling with DA, one with $320 million ceiling with a Nationwide Institute of Well being, and a big 10 12 months — $10 billion ceiling beneath this system with the Division of Protection and its well being company. These give us a seat on the desk for some very engaging alternatives sooner or later for which we count on to be bidding throughout FY ‘23.
Such awards with a number of contributors are usually not included in our backlog quantity, however present us with significant paths to speed up progress within the quarters to come back.
So even with out reasonably priced finances in place, we stay very optimistic about FY ‘23s continued progress and past. On the identical time, we have now a strong pipeline of strategically aligned M&A transactions that might additional enhance our market place and provide a brand new pathways for functionality and enlargement and worthwhile progress.
Our stability sheet stays robust as a result of firm’s sturdy money technology and skill to pay down debt, offering the monetary flexibility wanted for our future success. And sure, whereas we proceed to get pleasure from glorious free money move.
With that, I would like to show the decision over to our Chief Monetary Officer, Kathryn JohnBull. Kathryn?
Kathryn JohnBull
Thanks, Zach, and good morning, everybody. We’re happy to report one other quarter of strong outcomes and an ideal finish of fiscal 2022.
Turning to Slide 8, we posted income of 67.2 million for the three months ended September 30, 2022 versus 65.2 million into prior 12 months’s fiscal fourth quarter. The three% improve year-over-year displays larger demand for providers throughout a lot of our current applications, excluding the 1.7 million derived from FEMA contracts in This autumn of fiscal 2021, income elevated 6% year-over-year. Given excessive bidding exercise ranges in our present backlog, we’re optimistic about strong natural progress heading into fiscal 2023 and past.
Transferring to Slide 9. Revenue from operations was 4.7 million for the quarter versus 4 million within the prior 12 months interval, and as a % of income, the corporate reported an working margin of seven% in fiscal 2022 versus 6.2 in fiscal 2021. The rise in margins resulted from the next portion of our income in fiscal 2022 deriving from contracts with stronger margins. Curiosity expense was 0.5 million within the fiscal fourth quarter of 2022 versus 0.8 million within the prior 12 months interval reflecting decrease debt excellent. DLH recorded a provision of 0.8 million and 0.3 million for tax expense in the course of the fourth quarters of fiscal 2022 and 2021 respectively.
We reported internet earnings within the fourth quarter of roughly 3.4 million or $0.24 per diluted share versus 2.9 million or $0.21 a share final 12 months. As a % of income, internet earnings was 5.1% for the fourth quarter of fiscal 2022 versus 4.4% for the prior 12 months interval.
Turning to Slide 10. EBITDA for the three months ended September 30, 2022 was roughly 6.6 million versus 6 million within the prior 12 months interval, or 9.8% and 9.3% of income respectively. A reconciliation of GAAP internet earnings to EBITDA is offered in our earnings assertion in the back of this presentation.
Slide 11 provides an up to date snapshot of our debt place on the finish of the 12 months. As of September 30, we had roughly $22 million of debt excellent beneath our credit score services versus 46.8 million on the finish of fiscal 2021 and our leverage ratio stays nicely beneath one time. We proceed to make use of our substantial money technology to paydown debt and delever the stability sheet main us in a robust place for any future opportunistic transactions throughout fiscal 2023.
This concludes my dialogue of the monetary statements. With that, I might now like to show the decision over to our operator to open for questions.
Query-and-Reply Session
Operator
[Operator Instructions] At this time’s first query comes from Joe Gomes with Noble Capital. Please go forward.
Joe Gomes
Good morning, Zach and Kathryn. Good finish to the fiscal 12 months. So I needed to observe up, , Zach, you talked about, , clearly the potential M&A and having a pleasant backlog of potential alternatives. And one of many belongings you talked about was functionality enlargement. Simply questioned in case you might give us slightly extra shade on, , what sort of capabilities would you be , you assume to develop into by some M&A?
Zach Parker
Sure, as , we have talked lots, not less than Kathryn and I whereas we have been on the highway this 12 months round having actually established just about a well-rounded platform throughout the three market focus areas. As soon as we accomplished the total integration of the IBA workforce. And so our emphasis going ahead has been actually to deal with the digital transformation and cyber safety features of delivering higher worth propositions for present clients in addition to our shoppers in areas supporting our scientific analysis, analysis and improvement and different methods in engineering work. In order that they’ll largely proceed to seek out good alternatives in each the well being IT element division of Protection and different shoppers that basically emphasize our digital transformation and cybersecurity capabilities.
Joe Gomes
And on type of a follow-up, you talked about clearly the federal government’s working beneath persevering with decision. You assume that can be prolonged simply that perhaps type of you possibly can refresh our reminiscences up to now when this has occurred what sort of impression, if any, has it had on the corporate? And do you see this, , type of as the most important problem right here within the close to time period? Or is there one thing else that you simply assume is the most important problem the corporate’s going through proper now?
Zach Parker
Properly, I do assume, throughout our trade the persevering with decision usually restricts the quantity of brand-new applications and new work that can be contracted out. Luckily, most likely 90% or north of 90% of the natural alternatives for brand new enterprise progress for us are with recurring work, issues that there is a present incumbent or a number of events for which we’ll compete. So we’re hopeful that with the acquisition group throughout the federal authorities, that these will nonetheless come ahead. I do assume that, whereas there’s some applications akin to our VA new know-how, IDIQ which can be on the lookout for new funding, would possibly gradual slightly little bit of the acquisition tempo there. However apart from that, we actually really feel fairly comfy that the recurring work throughout the companies which can be nicely supported by the Hill will proceed.
Operator
The following query as we speak comes from Brian Kinstlinger with Alliance International Companions.
Brian Kinstlinger
The primary query I had, I am hoping you can provide some extra element relating to the pipeline and perhaps plan submissions over the subsequent 12 months versus the trailing 12 months as I am attempting to gauge your potential to speed up or maintain natural progress.
Zach Parker
Brian, as we featured in our dialogue, we have been ready for a number of of those a number of sward IDIQ for a few years now. It was nice to see that they had been competed in FY ‘22, and much more importantly, that we had been profitable on the awards that we did safe. Each expectation is that, we’ll begin to see activity orders. — Q2, throughout these companies, the Protection Well being Company has expressed indication that they will having alternatives to compete. The opposite one, which we have talked about is with the nationwide Institute of Well being, particularly the nationwide Most cancers Institute, we count on to see these this 12 months. After which as we alluded to the VA1, which is essentially new know-how improvements, nice and vital strategic win for us, would possibly slip a bit earlier than we begin to see these activity orders. Exterior of these a number of award contracts, we have lowered a do nonetheless proceed to have a reasonably robust pipeline of recent enterprise alternatives. Each single awards which ship speedy income in addition to a few extra main IDIQs that we have had our websites on.
We have talked fairly a bit round CIO-SP4 now two years, the federal government has continued to see greater than a dozen protests towards that chance. So proceed to slide it to the correct. We’re hopeful to seeing some success in awards on that in this fiscal 12 months, which can create alternatives, hopefully late within the fiscal or definitely a launch us into a reasonably good place going ahead into FY ‘24.
Brian Kinstlinger
Nice. After which my observe up, type of related, Kathryn, you talked about, excessive variety of bids awaiting, sorry, excessive bid submissions in your ready remarks. Are you able to say both what awaiting adjudication the worth of that’s? And if you cannot share that quantity, are you able to discuss the way it compares perhaps to a 12 months in the past, excluding something that features FEMA, that exact FEMA award?
Kathryn JohnBull
Certain, in fact. So the tendencies does proceed to replicate ahead momentum as we have talked concerning the strategy of including a company or Chief Progress Officer and actually getting our full entry to the three market units that we accomplished on the finish of fiscal ‘20. We consider all of that helps to supply the momentum that permits us to interact on broader set of alternatives and to extend the extent of alternatives that we’re submitting. So from our perspective, we consider there’s purpose to be optimistic about our potential to proceed to compete favorably on the — on a rising set of alternatives.
Brian Kinstlinger
And only one final observe up, sorry. In case you talked about a Chief Progress Officer, as you guys have seemed on the enterprise, the market alternative, is there a necessity for extra enterprise improvement people? Is there deliberate hires coming so as to add to the enterprise seize workforce?
Zach Parker
Nice query. Sure, we made that transfer strategically as a result of we had been, it was crucial for us first to have the ability to have a imaginative and prescient and a view of an built-in one DLH, proper? And we did not actually have that after we had each our current heritage enterprise improvement workforce, in addition to these, as the brand new capabilities throughout our new newly acquired corporations. So the CGL actually allowed us to look throughout the enterprise, and that was fairly frankly, extraordinarily instrumental in our potential to win each of the domains that we bid for the Protection Well being Company.
Throughout this 12 months, we have now dedicated to — up to now 12 months to progress in that in our progress group that features enterprise improvement seize and proposal operations. We have now an excellent finances going into this 12 months to proceed enlargement there as a result of that natural progress is now persevering with to be a really, very high precedence for us. So sure, you will see a good quantity of continued enlargement in our funding for natural progress.
Operator
[Operator Instructions] Our subsequent query comes from Debra Fiakas with Crystal Fairness Analysis. Please go forward.
Debra Fiakas
Thanks. And thanks for taking my questions. I want to maybe return once more to the pipeline query that was requested beforehand and perhaps check out it from slightly completely different vantage level. You had an excellent natural progress charge, if you wish to name it that. The expansion charges excluding the FEMA contract this final 12 months. And I ponder, do the bidding alternatives and the applications that you’ve got been speaking about this morning, do they supply for that very same tempo of progress? Greater, decrease?
Kathryn JohnBull
Thanks for becoming a member of us, Debra. It is good to have you ever be a part of the gang of curiosity to events for DLH. These pipeline alternatives do assist. They’re a channel for natural progress. After all, it might be best and first channel for us is to develop our presence on our current set of contracts. And we actively work that path of natural progress day by day as we work together with our clients and search for further alternatives to be of service and help for them. However along with that, in fact, these pipeline alternatives actually present a big and accelerator to natural progress as a result of they’re additive to the bottom of contracts that we have now in hand presently. And so, , whereas we’re, we’re having fun with, as you stated, an trade very aggressive to the trade natural progress charge. It’s deriving principally from enlargement on present contracts and sums the significant incremental awards. However our expectation is that the pursuit of those further awards which can be in our pipeline are going to actually speed up that meaningfully, notably as Zach talked about earlier, leveraging these IDIQ autos that we have not too long ago secured as activity orders begin to move beneath these IDIQs.
Debra Fiakas
Okay. Thanks. After which if I might simply ask that observe up query, and that is in regard to once more to the highest line, however from the vantage level of the backlog, there appears to be, to me a reasonably significant slice that is not funded. Is that this one thing to be involved about or does it communicate much less to the magnitude of gross sales and extra maybe to the tempo it’s important to look forward to funding so as to get began on a program? Thanks.
Kathryn JohnBull
Sure. It isn’t one thing that we’re involved about. It is a required disclosure, however it’s actually a perform of the behaviors of the actual clients we have now that a few of them select to fund yearly. And naturally that makes, that is administratively most effective and efficient. A few of them select to fund on quarterly intervals. And so relying on the place they’re in that funding cycle, whether or not they get it accomplished proper earlier than the tip of the quarter or instantly thereafter, that is what is going on to have an effect on how a lot strikes out of unfunded and into funded.
However usually talking, the shopper inclination is to, the funding is all, is in help of applications and represents, sorry, excuse me. The backlog, I ought to say, represents their expectation of the providers they want so as to execute the applications. And so it is extremely possible that {dollars} will transfer from the unfunded bucket to the funded bucket, primarily based on no matter administrative cycle they select to undertake.
Zach Parker
And Debra, we just some years, a number of years in the past, we had been deliberately conservative on ensuring that we printed that manner, as a result of as Kathryn indicated, there are companies in addition to peer corporations that can take a look at the total contract peer efficiency ceiling. However we needed to make it possible for we had been actually, actually given the shareholders the funded piece in essentially the most conservative trend.
Operator
The following query comes from Joe Gomes with Noble Capital.
Joe Gomes
Couple fast follow-ups right here. Perhaps extra directed in the direction of Catherine. So, within the quarter there was a reasonably substantial each sequentially 12 months over 12 months bounce and G&A bills. One questioning what was behind that. And two, is that elevated stage one thing you are going ahead, otherwise you assume it goes again to a extra normalized proportion of income within the out durations?
Kathryn JohnBull
A few elements impacting it for the 12 months. What likely high of that checklist is simply the non-cash inventory compensation expense element. And so that could be a actually a perform of our, having introduced on an extra named government officer and having a inventory compensation award to that at a time when our inventory worth was excessive sufficient to trigger a reasonably important e-book cost associated to that non-cash cost associated to that. Moreover, and that is — you will see this in our 10-Ok because it’s filed. We have now for the primary time, and the corporate’s historical past turn into topic to full assessment for SOS functions. So we have at all times self-certified our inside controls as a public firm. However we — due to the corporate’s success and improve in fairness worth, we have now turn into topic to the exterior, the necessities of an exterior assessment of our inside controls.
And so we did accomplish that for the fiscal 12 months ended 2022. And you may think about that that took some assets to get by that cycle the primary time. And naturally, it is an ongoing requirement, so it should have ongoing incremental assets, however dare say they will not be as substantial as they had been within the first cycle by.
After which thirdly, and to the purpose Brian requested earlier about investments in natural progress, you do see some peaking of that requirement in fourth quarter as we had been in pursuit of those pipeline submissions that Zach talked about earlier.
Joe Gomes
After which yet another, final couple of years there’s been going into the primary quarter or so, perhaps even bleeding into the second some delay, let’s name it in accounts receivable getting paid. Simply questioning you the way you are comfy you might be, the place the accounts receivable are as we speak? Is every thing type of updated or is there any concern there right here within the near-term on the accounts receivable finish?
Kathryn JohnBull
Certain. I feel that, I am definitely comfy with the place we ended up with 1 / 4 ended September. There is a regular congestion that is occurred publish 12 months finish, as is at all times the case when the federal government fiscal 12 months flips over. However exiting fiscal ‘22, I used to be glad the place we had been however that we consumed a little bit of working capital by progress in and receivables. And as we have talked about many instances over the 12 months on the nature of our work strikes away from the trades primarily based oriented work that is billing on very favorable phrases to a extra conventional internet 30 our day gross sales goes to creep up slightly bit. However we’re nonetheless a really aggressive at a day gross sales at about 54, so we’re changing to money in a short time. And that does not imply I am accomplished, and it does not imply that we’re not paying each day consideration to on the lookout for methods to type of nonetheless proceed to enhance that cycle. However I do not see something within the September numbers that provides me any concern. And I’m glad with the place we’re as indicating our potential to generate money move.
Operator
Presently, there aren’t any additional callers within the queue. I am going to flip it again to Mr. Parker for any closing remarks.
Zach Parker
Thanks, MJ. And as soon as once more, I would prefer to thanks all on your continued curiosity and help for DLH. We sit up for following up with you as we handle our — on the Annual Assembly of the shareholders and in preparation for the launch of FY ‘23. Thanks all, and have a blessed day.
Operator
The convention is now concluded. Thanks for attending as we speak’s presentation. It’s possible you’ll now disconnect.