• Fourth Quarter Revenue: $96.4 million.
• Full Year Revenue: Nearly $396 million, a 5.3% increase.
• Fourth Quarter Adjusted EBITDA: $10.7 million, down from $12.1 million in the prior year.
• Full Year Adjusted EBITDA: $42 million, roughly flat year over year.
• Fourth Quarter Operating Cash Flow: $12.5 million.
• Full Year Operating Cash Flow: $27.4 million, down from $31 million in 2023.
• Total Debt Outstanding: $154.6 million, with $11.9 million paid down in the fourth quarter.
• New Contract Award: $76 million contract with the United States Navy.
• Day Sales Outstanding: Decreased to 45 days.
• EBITDA Margin: 10.6% for the fiscal year.

• Warning! GuruFocus has detected 4 Warning Signs with DLHC.

Release Date: December 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• DLH Holdings Corp (NASDAQ:DLHC) reported a strong fourth quarter revenue of $96.4 million, contributing to a full-year revenue increase to nearly $396 million, surpassing previous records.
• The company successfully generated operating cash of $12.5 million during the fourth quarter, leading to a total of $27.4 million for the fiscal year.
• DLH Holdings Corp (NASDAQ:DLHC) announced a significant $76 million contract award with the United States Navy, showcasing its competitive edge and ability to unseat long-term incumbents.
• The company has a robust pipeline of qualified opportunities estimated to be worth over $4 billion, positioning it for future expansion and improved operating performance.
• DLH Holdings Corp (NASDAQ:DLHC) has successfully paid down $11.9 million of its higher interest floating rate debt, ending the fiscal year with $154.6 million in total debt outstanding, and has satisfied all mandatory amortization payments through fiscal 2025.

Negative Points

• The company experienced a decline in adjusted EBITDA for the fourth quarter, down to $10.7 million from $12.1 million in the previous year, due to a higher proportion of revenue derived from non-labor costs.
• DLH Holdings Corp (NASDAQ:DLHC) faces headwinds from small business set-aside programs, impacting its revenue and requiring strategic adjustments.
• The ongoing government procurement landscape changes, including continuing resolutions and a new administration, present uncertainties that could affect DLH Holdings Corp (NASDAQ:DLHC)'s addressable market and growth forecasts.
• The company anticipates potential erosion in revenue due to small business transitions and the impact of executive orders encouraging more work to be set aside for small businesses.
• DLH Holdings Corp (NASDAQ:DLHC) expects its EBITDA margin to temporarily decrease to around 9% as it invests in strategic solutioning and business development initiatives to drive organic growth.

Q & A Highlights

Q: Can you provide more details on the impact of the CMO contract on fiscal '25 and how much of the $140 million CMO revenue are you bidding on as a subcontractor? A: Zachary C. Parker, President, CEO & Director, explained that Q1 and Q2 of fiscal '25 are expected to be similar to Q4, with significant changes anticipated in the second half of the year. The company is not bidding on all CMO contracts but is participating with small business partners on a few.

Q: Is the current SG&A expense level sustainable, or do you foresee further reductions? A: Kathryn JohnBull, Chief Financial Officer, stated that SG&A will likely increase as a percentage of revenue due to the CMO exit but will be scaled appropriately. The focus remains on supporting organic growth and maintaining the ability to execute effectively.

Q: How does the new administration and the Department of Government Efficiency (Doge) impact DLH's defense opportunities? A: Zachary C. Parker highlighted that DLH's culture of driving efficiencies aligns well with the new administration's focus. The company is well-positioned in defense, with about 50% of its pipeline related to defense health and intelligence, leveraging its capabilities in cybersecurity and data analytics.

Q: What are your debt reduction goals for fiscal '25? A: Kathryn JohnBull aims for a healthy EBITDA conversion rate, targeting 55% for debt reduction. The timing will depend on the CMO portfolio exit, but the focus remains on smart debt reduction.

Q: How does the small business set-aside impact DLH's other business areas, and is there a timeline for this transition? A: Zachary C. Parker noted that small business set-asides affect various contracts, with some known from acquisitions and others due to recent executive orders. The company anticipates some erosion in 2025 but is optimistic about offsetting this with new business opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.