DLHC - NASDAQ

Good morning, and welcome to the DLH Holdings Corp. Fiscal 2023 Fourth Quarter Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead.

Thank you, and good morning, everyone. On the call with me today is

Thank you, Chris, and good morning, everyone. Welcome to our 2023 fourth quarter conference call. I am very pleased with the way that we have finished the year and with our strong position heading into fiscal 2024. But first, let me take a minute to once again thank our dedicated employees for their passion, the commitment and the performance excellence that they have delivered in support of all of our customers' missions and to our corporation. This has been a transformative year for our company and without the steadfast contribution of our team members at every level, DLH would not be the leading technology solutions and services provider that it is today. In all three channels, our digital transformation and cybersecurity, our science and research and development and our systems engineering integration, all of our members have really shined. So thank you. Now turning to Slide 4. I'll first provide a high-level overview of the financial highlights for the quarter and the fiscal 2023. Fourth quarter revenue was $101.5 million, reflecting the impact of our acquisition as well as organic growth across our existing business. For the full year, revenue rose nearly $376 million from an adjusted $269 million in fiscal 2022, which, of course, excludes the short-term turnkey contract with FEMA to support Alaska's response to COVID-19. Given our sizable backlog, increased addressable market and access to bid on various task orders through our several large contracts, we believe that the future continues to look bright for DLH. Adjusted operating income was $7.8 million for the quarter and $26.5 million for the fiscal 2023, while adjusted EBITDA rose to $12.1 million for Q4 and $42.1 million for the year. In addition, we generated $31 million in cash from operations over the past 12 months and exited the quarter with an approximate $179.4 million in debt. That is down $207.6 million after our December '22 acquisition. As Kathryn will discuss further in a moment, we plan to continue using our company's strong cash flow generation to reduce debt in the coming year as we work towards further delevering our balance sheet. Our adjusted EPS was $0.16 per diluted share for the quarter and $0.55 for the full year, and our backlog as of September 30, 2023, was just under $705 million. We continue to operate in an active bid environment, even if the government still works its way through the current continuing resolution circumstance. We remain very upbeat about the opportunities ahead and the path to accelerate top line growth forward organically. On that point, Slide 5 provides an update on certain key market conditions and metrics that have the potential to impact the Company in the quarters to come. First, the Company has worked diligently to align our business structure with our expanded capabilities and technology-based go-to-market strategy. Our highly credentialed staff are dedicated to providing the most advanced solutions that address the needs of each of our clients, positioning us to compete for more higher-value opportunities going forward. As customers continue to utilizing the professional services contractors, we can leverage our expertise, our experience and applications to further penetrate agencies and to add to our book of business and accelerated growth. Second, the federal government remains committed to expanding the role of cybersecurity, given the crucial ongoing need to protect sensitive information and big data networks as well as the personal records of millions of Americans. The use of cloud-based computing only increases cybersecurity's criticality and importance to protecting sensitive government systems and data. This aligns well with our intellectual property, our secure data platforms and technology-driven solutions. Third, as I mentioned a moment ago, the federal government continues to operate under a continuing resolution with certain agencies funded through January 19 and others through February 2. While this does at times restrict and hamper certain decision-making across some of the federal agencies, particularly with regard to awarding of new contracts, it is not expected to materially impact DLH's current book of business nor the near-term outlook. Our wide array of programs and services provide a solid bedrock for the Company's top line over the coming months. In addition, the core agencies which we support, those include, of course, the Department of Defense, including its DHA, Defense Health Agency; Veteran Affairs; and Health and Human Services organizations, they typically receive broad bipartisan support, which we anticipate will continue. The White House in its fiscal 2024 preliminary budget called for historic investments in research, artificial intelligence, machine language and digital transformation, which would all play very well to our growing and somewhat unique capabilities and increase the opportunity for further top line expansion along strong underlying performance. And lastly, our expanded capabilities and expertise provide the opportunity for us to bid on task orders from several new large IDIQ contracts and remain -- and those that remain on the horizon. There's every indication that the government will continue to award a growing volume of work through these prescreened arrangements. Strategic contracts that are under consideration applicable to us include our CBIIT contract relatively recently announced, the major CIO-SP4 supporting biomedical research coming out of National Institute of Health, OASIS and several other highly very large ceiling multiyear contract vehicles. These multiple award IDIQ contracts offer numerous opportunities for high-value work over the coming years that can substantially raise the revenue base of the Company and task orders as they are awarded. We are confident in our ability to win task orders on these vehicles, which we expect to impact the Company's growth trajectory for years to come. Given our advanced solutions, highly engaged customer relationships and the unparalleled expertise of our amazing staff, we are very optimistic for FY '24 and beyond. With that, I'd now like to turn the call over to our Chief Financial Officer, Kathryn JohnBull. Kathryn?

Thank you,

[Operator Instructions] And our first question will come from Joe Gomes of NOBLE Capital Markets. Please go ahead.

This is Justin filling up for Joe. So, I just wanted to start off with just looking at the IDIQ contract. Obviously, in the presentation, you guys having some priority IDIQs remain pending. I just want to ask, like, is the Company starting to see this opportunity sort of bidding on new awards like as the environment has gotten better from what it was the previous quarters?

I missed. You were breaking up on the last part there with regard to -- before the environment, what was that, Justin?

I was saying is the environment gotten better from the previous quarter?

Yes, a little bit. We're seeing signs that -- our biggest one that's pinning for us is one we refer to as CIO-SP4. We've had probably eight or nine opportunities over the last 1.5 years that we've been looking at that were -- we had earmarked for post-CLS award and so time has not been helping. But we are seeing some indications that the government is working their way through all of the protest information. We're hearing good signs just as recently as the last 1.5 weeks that they may finally get off top dead sooner and get an award in the near term. So that will bode well. We obviously have missed some opportunities. But we also have been looking strategically ahead, and we think there are still several opportunities that could be early part of this fiscal in '24. They could still yield some bookings during this fiscal. So yes, that big one is really looking like we're expecting to see. And we currently do not have a prime seat in the unrestricted CIO-SP3.

Right.

This bid went in over a year ago and government was really conveying that they were going to have an award quite some time ago. So, we would have those task orders being bid again. So, it's taken a while, but the tea leaves are looking better this quarter than last quarter.

Yes. Great. Can you just provide us a little update just on the VA contract side? I know last quarter, you guys -- nothing really seems have changed, but you guys were a little optimistic. Any update, any color on that would be great?

Which contract was that our VA contract?

The VA side.

Yes, there's been very little activity still. We continue to be the incumbent. We are continuing to be very excited around the opportunity to work and to continue doing this period while they're still making acquisition decisions. Our best estimate is that we do not see a material effect even if they progress with their decisions -- we did not see a material effect this fiscal could be subject to change. But we've continued to really work very closely, continue to deliver the results. And our workforce is doing a tremendous job in not getting too distracted with the acquisition side.

Great. And then last one, if I may. Last quarter in regards to the proposal backlog, you guys mentioned that the non-IDIQ area was kind of trending positively. Can you kind of see that going into the new year?

Yes. We do -- the biggest wildcard on that from -- is really how agencies respond to that CR decision the last one, of course, being February 1. There are some agencies that have been reluctant to put new contracts in place largely because of uncertainty about their full year budget impact. But our leadership team has been really working very hard to work with those customers, encourage them to issue those task orders on our current work, the National Cancer Institute. We're starting to see some signs that they may start to leverage the multiple award IDIQ we have there. We're starting to see signs that the Defense Health Agency also is moving forward. They've got -- in our minds, they've got a lot more budget certainty than some of the other agencies as it relates to the non-weapons and systems. So, we're really optimistic that we'll see some more base flow come through over the next quarter, and we'll get our share.

[Operator Instructions] Seeing no further questions at this time, this concludes our question-and-answer session. I would like to turn the conference back over to Mr.

Thank you, Andrea, and thank you all for your participation and steadfast support of DLH. We're really, really pleased as we closed the year that we are so well positioned to now execute that next leg of our strategy with respect to both organic growth and performance excellence. So thank you for your participation. Of course, next calendar quarter, we will be having our annual meeting with shareholders. So, we look forward to having a little deeper dive and some further engagement with you all. So, thank you. Have a blessed day, and we'll chat with you soon. Bye for now.