ATLANTA, Aug. 5, 2019 /PRNewswire/ -- 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 third
quarter ended June 30, 2019.
Highlights
- The Company completed the acquisition of Social &
Scientific Systems ("SSS") of Silver
Springs, Maryland on June 7,
2019; SSS contributed $4.5
million of revenue and $0.2
million of operating income in the quarter
- Fiscal third quarter revenue was $38.7
million versus $36.1 million
in the third quarter of fiscal 2018
- Fully diluted EPS of $0.06 for
the quarter; excluding transaction expenses, fully diluted EPS of
$0.13 for the quarter
- For the quarter, DLH generated $4.4
million of cash from operations and paid down $3.9 million of new debt (associated with the
acquisition of SSS)
Management Discussion
"The third quarter of fiscal
2019 was clearly a busy one for DLH, as we closed a strategic
acquisition, posted strong gross margins, and pursued numerous
business development opportunities," stated DLH President and Chief
Executive Officer Zach Parker. "We
believe Social & Scientific Systems is an excellent addition to
DLH, greatly expanding our position in the public health & life
sciences arena and providing new avenues for top line growth. We
are rapidly integrating SSS into our corporate culture and business
enterprise, as we look for ways to collectively serve our customers
while leveraging our administrative organization to remain
competitive on costs. SSS – with a backlog of some $340 million – brings a great deal of
complementary technology, credentialed staff, and expertise in data
analytics that will strengthen the entire DLH organization and help
drive solid, long-term financial results.
"We generated $4.4 million in cash
from operations during the quarter and paid down $3.9 million on our new term loan. We remain
committed to using our cash generation to de-lever the Company,
bolster our balance sheet and improve our financial flexibility.
Given the recent budget outline agreed to by Congress for fiscal
2020 – including higher funding for key agencies including the
Department of Defense, Health and Human Services, and the Veterans
Administration – we believe we are well positioned for the quarters
to come."
Results for the Three Months Ended June 30, 2019
Revenue for the third
quarter of fiscal 2019 was $38.7
million versus $36.1 million
in the prior-year period. The increase in revenue is due primarily
to the revenue contribution of approximately $4.5 million by SSS since the acquisition date,
partially offset by workload volume timing on key contracts.
Gross profit was $9.9 million for
the quarter, an increase of approximately $1.6 million, or 19.0%, over the third quarter of
fiscal 2018. As a percent of revenue, the Company's gross margin
was 25.6% in 2019 versus 23.1% in the prior-year period. General
and Administrative ("G&A") expenses were $6.1 million for the quarter compared to
$5.1 million in fiscal 2018, with the
increase principally due to the addition of SSS operations.
Depreciation and amortization was $0.9
million versus $0.6 million in
the third quarter of fiscal 2018.
Income from operations was $1.7
million for the quarter versus $2.6
million in the prior-year period, and income before taxes
was $1.1 million for the quarter
versus $2.4 million in fiscal 2018.
The decrease in income from operations was primarily due to the
transaction costs of $1.2 million
from the SSS acquisition. Interest expense in the current quarter
was $0.6 million, an increase from
$0.3 million for the three months
ended June 30, 2018. Included in the
$0.6 million of interest expense for
this quarter is $0.2 million from the
write-off of deferred financing costs associated with closing the
previous credit facility.
For the three months ended June 30,
2019 DLH recorded a $0.3
million provision for tax expense versus $0.7 in the prior-year period. The Company
reported net income of approximately $0.8
million, or $0.06 per diluted
share, for the third quarter of fiscal 2019 versus $1.6 million, or $0.13 per diluted share, for the third quarter of
fiscal 2018.
On a non-GAAP basis, Earnings Before Interest Tax Depreciation
and Amortization ("EBITDA") for the three months ended June 30, 2019 was approximately $2.6 million versus $3.2
million in the prior-year period. The year-over-year
decrease was primarily attributable to $1.2
million of transaction expenses related to the acquisition
of SSS. As presented in the reconciliation of GAAP net income
to net income adjusted for the effect of The Tax Cuts and Jobs Act
of 2017 and the acquisition of SSS, adjusted net income improved
year over year after excluding the impact of these events.
Balance Sheet and Cash Flow
The Company's balance
sheet as of June 30, 2019 reflects
the impact of the SSS acquisition. Cash was $6.0 million, and the Company's senior debt was
$66.1 million, versus cash of
$6.4 million and senior debt of
$7.7 million as of September 30, 2018. Regarding cash flow, for the
nine months of fiscal 2019 DLH generated approximately $11.2 million in cash from operations, versus
$8.0 million last year, reflecting
higher net income and improved working capital.
Conference Call and Webcast Details
DLH management
will discuss second 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 tomorrow, August 6,
2019. 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
100127619.
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 seven core
competencies include secure data analytics, clinical trials and
laboratory services, case management, performance evaluation,
system modernization, operational logistics and readiness, and
strategic digital communications. DLH has over 1,900 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 refer to expectations, projections or other
characterizations of future events or circumstances or 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. Forward-looking
statements in this release include, among others, statements
regarding benefits of the acquisition, estimates of future
revenues, operating income, earnings, earnings per share, backlog,
and cash flows. These statements reflect our belief and assumptions
as to future events that may not prove to be accurate. Our actual
results may differ materially from such forward-looking statements
made in this release due to a variety of factors, including: the
risk that we will not realize the anticipated benefits of the
acquisition of SSS; the diversion of management's attention from
normal daily operations of the business and the challenges of
managing larger and more widespread operations resulting from the
acquisition; the inability to retain SSS employees and customers;
contract awards in connection with re-competes for present business
and/or competition for new business; compliance with new bank
financial and other covenants; 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 SSS 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 not
historical facts, but rather are based on current expectations,
estimates, assumptions and projections about our industry and
business. Such forward-looking statements 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,
except as may be required by law.
CONTACTS:
INVESTOR
RELATIONS
|
Contact: Chris
Witty
|
Phone:
646-438-9385
|
Email:
cwitty@darrowir.com
|
TABLES TO FOLLOW
DLH HOLDINGS
CORP.
|
CONSOLIDATED
STATEMENTS OF INCOME
|
(Amounts in thousands
except per share amounts)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
38,700
|
|
$
|
36,131
|
|
$
|
106,208
|
|
$
|
100,747
|
Direct
expenses
|
|
28,777
|
|
27,793
|
|
80,424
|
|
78,429
|
Gross
margin
|
|
9,923
|
|
8,338
|
|
25,784
|
|
22,318
|
General and
administrative expenses
|
|
6,072
|
|
5,136
|
|
15,782
|
|
14,700
|
Transaction
expenses
|
|
1,247
|
|
—
|
|
1,391
|
|
—
|
Depreciation and
amortization
|
|
914
|
|
588
|
|
2,037
|
|
1,654
|
Income from
operations
|
|
1,690
|
|
2,614
|
|
6,574
|
|
5,964
|
Interest expense,
net
|
|
562
|
|
262
|
|
1,284
|
|
801
|
Income before
income taxes
|
|
1,128
|
|
2,352
|
|
5,290
|
|
5,163
|
Income tax
expense
|
|
325
|
|
738
|
|
1,532
|
|
5,084
|
Net
income
|
|
$
|
803
|
|
$
|
1,614
|
|
$
|
3,758
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
Net income per share
- basic
|
|
$
|
0.07
|
|
$
|
0.14
|
|
$
|
0.31
|
|
$
|
0.01
|
Net income per share
- diluted
|
|
$
|
0.06
|
|
$
|
0.13
|
|
$
|
0.29
|
|
$
|
0.01
|
Weighted average
common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
12,036
|
|
11,889
|
|
12,011
|
|
11,875
|
Diluted
|
|
13,077
|
|
12,884
|
|
13,048
|
|
12,872
|
|
|
|
|
|
|
|
|
|
DLH HOLDINGS
CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(Amounts in thousands
except par value of shares)
|
|
|
|
June 30,
2019
|
|
September
30,
2018
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
6,005
|
|
$
|
6,355
|
Accounts
receivable
|
|
24,024
|
|
10,280
|
Other current
assets
|
|
2,715
|
|
760
|
Total current
assets
|
|
32,744
|
|
17,395
|
Equipment and
improvements, net
|
|
5,674
|
|
1,566
|
Deferred taxes,
net
|
|
2,885
|
|
4,137
|
Goodwill
|
|
51,777
|
|
25,989
|
Intangible assets,
net
|
|
41,156
|
|
13,365
|
Other long-term
assets
|
|
778
|
|
89
|
Total
assets
|
|
$
|
135,014
|
|
$
|
62,541
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Debt obligations -
current
|
|
$
|
787
|
|
$
|
—
|
Accrued
payroll
|
|
8,290
|
|
4,983
|
Accounts payable,
accrued expenses, and other current liabilities
|
|
19,093
|
|
10,950
|
Total current
liabilities
|
|
28,170
|
|
15,933
|
Debt obligations -
long term, net of deferred financing costs
|
|
62,844
|
|
6,958
|
Other long term
liabilities
|
|
194
|
|
232
|
Total long term
liabilities
|
|
63,038
|
|
7,190
|
Total
liabilities
|
|
91,208
|
|
23,123
|
Shareholders'
equity:
|
|
|
|
|
Common stock, $0.001
par value; authorized 40,000 shares; issued and outstanding
12,036 and 11,899 at June 30, 2019 and September 30, 2018,
respectively
|
|
12
|
|
12
|
Additional paid-in
capital
|
|
84,915
|
|
84,285
|
Accumulated
deficit
|
|
(41,121)
|
|
(44,879)
|
Total
shareholders' equity
|
|
43,806
|
|
39,418
|
Total liabilities
and shareholders' equity
|
|
$
|
135,014
|
|
$
|
62,541
|
DLH HOLDINGS
CORP.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Amounts in
thousands)
|
|
|
|
(unaudited)
|
|
|
Nine Months
Ended
|
|
|
June
30,
|
|
|
2019
|
|
2018
|
Operating
activities
|
|
|
|
|
Net income
|
|
$
|
3,758
|
|
$
|
79
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Depreciation and
amortization expense
|
|
2,037
|
|
1,654
|
Amortization of
deferred financing costs
|
|
799
|
|
202
|
Stock based
compensation expense
|
|
591
|
|
1169
|
Deferred taxes,
net
|
|
1,253
|
|
4,764
|
Changes in operating
assets and liabilities
|
|
|
|
|
Accounts
receivable
|
|
(925)
|
|
(508)
|
Other current
assets
|
|
(376)
|
|
(259)
|
Accounts payable,
accrued expenses, and other current liabilities
|
|
4,039
|
|
897
|
Other long term
assets/liabilities
|
|
(23)
|
|
(5)
|
Net cash provided
by operating activities
|
|
11,153
|
|
7,993
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
Business acquisition,
net of cash acquired
|
|
(66,520)
|
|
—
|
Purchase of equipment
and improvements
|
|
(29)
|
|
(571)
|
Net cash used in
investing activities
|
|
(66,549)
|
|
(571)
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
Borrowing on senior
debt
|
|
70,000
|
|
—
|
Repayments of senior
debt
|
|
(11,646)
|
|
(5,730)
|
Deferred debt
financing costs
|
|
(3,347)
|
|
(70)
|
Repayments of capital
lease obligations
|
|
—
|
|
(8)
|
Proceeds from stock
option exercise
|
|
39
|
|
46
|
Net cash provided
by (used in) financing activities
|
|
55,046
|
|
(5,762)
|
|
|
|
|
|
Net change in cash
and cash equivalents
|
|
(350)
|
|
1,660
|
Cash and cash
equivalents at beginning of year
|
|
6,355
|
|
4,930
|
Cash and cash
equivalents at end of year
|
|
$
|
6,005
|
|
$
|
6,590
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
Cash paid during the
period for interest
|
|
$
|
248
|
|
$
|
619
|
Cash paid during the
period for income taxes
|
|
$
|
406
|
|
$
|
630
|
Supplemental
disclosures of non-cash financing activity
|
|
|
|
|
Derivative warrant
liability reclassified as equity
|
|
$
|
—
|
|
$
|
(306)
|
Noncash issuance of
stock upon exercise of options
|
|
$
|
—
|
|
$
|
25
|
Revenue
Metrics
|
|
|
|
|
|
|
|
Nine Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2019
|
|
2018
|
Market
Mix:
|
|
|
|
|
Defense/VA
|
|
66
|
%
|
|
63
|
%
|
Human Services and
Solutions
|
|
28
|
%
|
|
33
|
%
|
Public Health/Life
Sciences
|
|
6
|
%
|
|
4
|
%
|
|
|
|
|
|
Contract
Mix:
|
|
|
|
|
Time and
materials
|
|
93
|
%
|
|
97
|
%
|
Cost
reimbursable
|
|
5
|
%
|
|
2
|
%
|
Firm fixed
price
|
|
2
|
%
|
|
1
|
%
|
|
|
|
|
|
Prime vs
Sub:
|
|
|
|
|
Prime
|
|
98
|
%
|
|
99
|
%
|
Subcontractor
|
|
2
|
%
|
|
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.
For fiscal 2019 and the comparative period of fiscal 2018, the
Company's net income was impacted by The Tax Cut and Jobs Act of
2017 as well as the transaction costs incurred for the acquisition
of SSS. The Tax Cut and Jobs Act of 2017 reduced corporate tax
rates and revised rules regarding the usability of net operating
losses. These changes resulted in a discrete charge to the first
quarter tax provision for fiscal 2018 of $3.4 million due to revaluing the benefit of our
net operating losses. Additionally, for comparability, the tax
provision for the prior year periods has been restated using the
current year rate of 29%. In fiscal 2019, DLH incurred $1.4 million of acquisition-related expenses
during the nine months ended June 30,
2019 for the acquisition of SSS. The Company is excluding
acquisition-related expenses from this measure because they were
incurred as a result of a specific event, do not reflect the costs
of our operations, and can affect the period-over-period assessment
of operating results. In addition, the non-GAAP financial measure
we are including for net income adjusted for the effect of the Tax
Cut and Jobs Act and the acquisition of SSS, in total and on a per
share basis, is presented on a tax-effected basis. We are reporting
this non-GAAP metric to demonstrate the impact of these events.
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 (loss) to EBITDA, a non-GAAP
measure:
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Net income
|
|
$
|
803
|
|
$
|
1,614
|
|
$
|
(811)
|
|
$
|
3,758
|
|
$
|
79
|
|
$
|
3,679
|
(i) Interest
expense
|
|
562
|
|
262
|
|
300
|
|
1,284
|
|
801
|
|
483
|
(ii) Provision for
taxes
|
|
325
|
|
738
|
|
(413)
|
|
1,532
|
|
5,084
|
|
(3,552)
|
(iii) Depreciation
and amortization
|
|
914
|
|
588
|
|
326
|
|
2,037
|
|
1,654
|
|
383
|
EBITDA
|
|
$
|
2,604
|
|
$
|
3,202
|
|
$
|
(598)
|
|
$
|
8,611
|
|
$
|
7,618
|
|
$
|
993
|
Reconciliation of
GAAP net income to net income adjusted for the effect of The Tax
Cuts and Jobs Act of 2017 and the acquisition of SSS, a non-GAAP
measure:
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Net income
|
|
$
|
803
|
|
$
|
1,614
|
|
$
|
(811)
|
|
$
|
3,758
|
|
$
|
79
|
|
$
|
3,679
|
Write-down of
deferred tax assets
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,365
|
|
(3,365)
|
Pro-forma impact of
tax rate change
|
|
—
|
|
56
|
|
(56)
|
|
—
|
|
222
|
|
(222)
|
Transaction
expenses
|
|
1,247
|
|
—
|
|
1,247
|
|
1,391
|
|
—
|
|
1,391
|
Tax effect of
excluding transaction expenses
|
|
(362)
|
|
—
|
|
(362)
|
|
(403)
|
|
—
|
|
(403)
|
Net income,
adjusted for the effect of The Tax Cuts and Jobs Act of 2017 and
the acquisition of SSS
|
|
$
|
1,688
|
|
$
|
1,670
|
|
$
|
18
|
|
$
|
4,746
|
|
$
|
3,666
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
$
|
0.06
|
|
$
|
0.13
|
|
$
|
(0.07)
|
|
$
|
0.29
|
|
$
|
0.01
|
|
$
|
0.28
|
Impact of write-down
of deferred tax asset
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.26
|
|
(0.26)
|
Pro-forma impact of
tax rate change
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.02
|
|
(0.02)
|
Impact of transaction
expenses
|
|
0.07
|
|
—
|
|
0.07
|
|
0.08
|
|
—
|
|
0.08
|
Net income per
diluted share, adjusted for the effect of The Tax Cuts and Jobs Act
of 2017 and the acquisition of SSS
|
|
$
|
0.13
|
|
$
|
0.13
|
|
$
|
—
|
|
$
|
0.37
|
|
$
|
0.29
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/dlh-reports-third-quarter-fiscal-year-2019-results-300896516.html
SOURCE DLH Holdings Corp.