• Revenue: $90.8 million for the first quarter, down from $97.9 million in the prior year period.
• EBITDA: $9.9 million, representing an EBITDA margin of 11% on revenue.
• Revenue Impact: $5 million contraction due to small business set aside conversions within the DOD portfolio.
• Operating Cash Flow: Used approximately $11.5 million during the quarter, compared to cash generation of $5.1 million in the prior year first quarter.
• Total Debt: Ended the quarter with $167 million, up from $154.6 million at the start of the fiscal year.
• Debt Reduction Strategy: Plan to utilize approximately 50% to 55% of EBITDA to pay down debt during the remainder of fiscal 2025.

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

Release Date: February 06, 2025

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

Positive Points

• DLH Holdings Corp (NASDAQ:DLHC) reported first quarter revenue of $90.8 million and EBITDA of $9.9 million, representing an EBITDA margin of 11%.
• The company secured a significant contract to provide C6 ISR and advanced IT services to the Navy, expanding its information warfare systems engineering portfolio.
• DLH Holdings Corp (NASDAQ:DLHC) has a strong pipeline of qualified bids, with several opportunities having contract values in excess of $100 million.
• The company is investing in organic growth, focusing on digital transformation, cybersecurity, research and development, and systems engineering capabilities.
• DLH Holdings Corp (NASDAQ:DLHC) anticipates strong cash flow in the fiscal second quarter, which will aid in debt reduction and support its key leveraging strategy.

Negative Points

• First quarter revenue decreased from $97.9 million in the prior year period, primarily due to small business set aside conversions and service delivery timing on key contracts.
• The company experienced a $5 million revenue contraction due to small business set aside conversions within its Department of Defense (DOD) portfolio.
• DLH Holdings Corp (NASDAQ:DLHC) used approximately $11.5 million of operating cash during the quarter, compared to cash generation of $5.1 million in the previous year's first quarter.
• The company faces headwinds from small business set aside conversions, which are likely to impact results in upcoming quarters.
• Total debt increased to $167 million from $154.6 million at the start of the fiscal year, reflecting short-term borrowings.

Q & A Highlights

Q: Can you provide a breakdown of the factors contributing to the revenue decline, particularly regarding small business set-asides? A: Kathryn JohnBull, CFO, explained that the most significant impact was from the unbundling of a DOD program due to small business set-asides. This resulted in a $5 million revenue contraction, primarily from low-margin subcontractor work. Additionally, there was a $1.5 million impact from winding down acquired small business contracts and another $1.5 million from exiting international work. Lastly, about $2 million in services expected in Q1 were delayed to Q2.

Q: Are you seeing a steady stream of task orders from the large IDIQ contracts won in previous years? A: Zachary Parker, CEO, noted that some opportunities initially expected on other vehicles are now being bid on the recently awarded OASIS contract. This timing is fortunate as it allows DLH to prime these opportunities rather than subcontract, enhancing their competitive position.

Q: Could you provide an update on the By Light cloud product? A: Zachary Parker, CEO, stated that By Light is being enhanced to expand its capabilities, particularly in secure environments for federal projects. The focus is on evolving the platform to meet the changing cybersecurity and public health security needs, leveraging AI and machine learning while maintaining security.

Q: What is the impact of the continuing resolution on your business? A: Zachary Parker, CEO, mentioned that while there is noise around budget constraints, most of DLH's programs are already appropriated, ensuring continuity. The company's pipeline remains strong and supported across political lines, minimizing potential impacts from budgetary issues.

Q: How are you addressing the increase in SG&A expenses? A: Zachary Parker, CEO, explained that the increase in SG&A is due to investments in organic growth, particularly in differentiating capabilities like cybersecurity and systems engineering. These investments are aimed at enhancing DLH's competitive position and ensuring future growth.

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