DLH Holdings Corp 10-Q for FY2023 Q3

DLH Holdings Corp. (DLHC)

10-Q 2023-08-02 For: 2023-06-30

Added on April 08, 2026

About this 10-Q

DLH Holdings Corp filed this 10-Q on August 2, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $102.24M; up 53.9% from $66.44M a year earlier
Net income: $1.74M; down 64.3% from net income of $4.86M a year earlier
Diluted EPS: $0.12; down 64.7% from $0.34 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	DLHC	Nasdaq	Capital Market


			Page No.
Part I — Financial Information			3
Item 1. Financial Statements			3
Consolidated Statements of Operations for the three and nine months ended June 3 0 , 2023 and 2022 (Unaudited)			3
Consolidated Balance Sheets as of June 30 , 2023 (Unaudited) and September 30, 2022			4
Consolidated Statements of Cash Flows for the nine months ended June 30 , 2023 and 2022 (Unaudited)			5
Consolidated Statements of Shareholders' Equity for the three and nine months ended June 3 0 , 2023 and 2022 (Unaudited)			6
Notes to Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			35
Part II — Other Information			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Mine Safety Disclosures			36
Item 5. Other Information			36
Item 6. Exhibits			37
Signatures			38


	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue	$	102,241	$	66,440	$	274,385	$	327,940
Cost of operations:
Contract costs	80,919		49,668		216,779		271,184
General and administrative costs	9,935		7,535		27,670		22,178
Corporate development costs	—		250		1,735		250
Depreciation and amortization	4,280		1,873		11,281		5,740
Total operating costs	95,134		59,326		257,465		299,352
Income from operations	7,107		7,114		16,920		28,588
Interest expense	4,917		512		11,512		1,739
Income before provision for income taxes	2,190		6,602		5,408		26,849
Income tax expense	452		1,738		1,318		7,003
Net income	$	1,738	$	4,864	$	4,090	$	19,846

Net income per share - basic	$	0.13	$	0.38	$	0.30	$	1.55
Net income per share - diluted	$	0.12	$	0.34	$	0.28	$	1.40

Weighted average common stock outstanding
Basic	13,854		12,812		13,638		12,779
Diluted	14,539		14,235		14,421		14,205



	June 30, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets:
Cash	$	530	$	228
Accounts receivable	67,882		40,496

Other current assets	4,082		2,878
Total current assets	72,494		43,602
Equipment and improvements, net	1,690		1,704
Operating lease right-of-use assets	17,911		16,851

Goodwill	138,301		65,643
Intangible assets, net	128,891		40,884

Other long-term assets	88		328
Total assets	$	359,375	$	169,012

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Operating lease liabilities - current	$	3,478	$	2,235
Accrued payroll	17,545		9,444

Debt obligations - current, net of deferred financing costs	28,716		—

Accounts payable and accrued liabilities	25,602		26,862
Total current liabilities	75,341		38,541
Long-term liabilities:
Deferred taxes, net	1,203		1,534
Operating lease liabilities - long-term	16,485		16,461
Debt obligations - long-term, net of deferred financing costs	159,379		20,416
Other long-term liabilities	1,801		—
Total long-term liabilities	178,868		38,411
Total liabilities	254,209		76,952

Shareholders' equity:

Common stock, $0.001 par value; 40,000 shares authorized; 13,900 and 13,047 shares issued and outstanding at June 30, 2023 and September 30, 2022, respectively	14		13
Additional paid-in capital	100,072		91,057

Retained earnings	5,080		990

Total shareholders’ equity	105,166		92,060
Total liabilities and shareholders' equity	$	359,375	$	169,012


	(unaudited)
	Nine Months Ended
	June 30,
		2023		2022
Operating activities
Net income		$	4,090	$	19,846
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		11,281		5,740
Amortization of deferred financing costs charged to interest expense		1,540		497
Stock-based compensation expense		2,020		1,952
Deferred taxes, net		—		(1)
Changes in operating assets and liabilities:
Accounts receivable		(1,918)		(16,890)
Other current assets		130		(152)
Accrued payroll		274		4,032
Deferred revenue		—		(22,273)
Accounts payable and accrued liabilities		(4,221)		2,380
Other long-term assets and liabilities		1,801		110
Net cash provided by (used in) operating activities		14,997		(4,759)
Investing activities
Business acquisition, net of cash acquired		(180,711)		—
Purchase of equipment and improvements		(580)		(244)
Net cash used in investing activities		(181,291)		(244)
Financing activities
Proceeds from revolving line of credit		144,697		—
Repayment of revolving line of credit		(128,204)		—
Proceeds from debt obligations		168,000		13,500
Repayments of debt obligations		(10,688)		(31,750)
Payments of deferred financing costs		(7,666)		—
Proceeds from issuance of common stock upon exercise of options and warrants		1,107		543
Payment of tax obligations resulting from net exercise of stock options		(650)		(281)
Net cash provided by (used in) financing activities		166,596		(17,988)

Net change in cash		302		(22,991)
Cash - beginning of period		228		24,051
Cash - end of period		$	530	$	1,060
Supplemental disclosure of cash flow information
Cash paid during the period for interest		$	10,006	$	1,195
Cash paid during the period for income taxes		$	4,055	$	6,403

Supplemental disclosure of non-cash activity
Common stock surrendered for the exercise of stock options		$	238	$	256


	Common Stock			Additional Paid-In Capital			Retained Earnings			Total Shareholders' Equity
(unaudited)	Shares	Amount
Nine Months Ended June 30, 2023
Balance at September 30, 2022	13,047	$	13		$	91,057		$	990		$	92,060
Issuance and fair value adjustment of common stock in business combination	527	1			6,538			—			6,539
Expense related to director restricted stock units	—	—			539			—			539
Expense related to employee stock options	—	—			1,481			—			1,481
Exercise of stock options	393	—			1,107			—			1,107
Common stock surrendered for the exercise of stock options	(67)	—			(650)			—			(650)
Net income	—	—			—			4,090			4,090
Balance at June 30, 2023	13,900	$	14		$	100,072		$	5,080		$	105,166
Three Months Ended June 30, 2023
Balance at March 31, 2023	13,793	$	14		$	98,584		$	3,342		$	101,940
Expense related to director restricted stock units	—	—			179			—			179
Expense related to employee stock options	—	—			489			—			489
Exercise of stock options	107	—			820			—			820
Net income	—	—			—			1,738			1,738
Balance at June 30, 2023	13,900	$	14		$	100,072		$	5,080		$	105,166


	Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total Shareholders' Equity
(unaudited)	Shares	Amount
Nine Months Ended June 30, 2022
Balance at September 30, 2021	12,714	$	13		$	87,893		$	(22,298)		$	65,608

Expense related to director restricted stock units	—	—			486			—			486
Expense related to employee stock-based compensation	—	—			1,466			—			1,466
Exercise of stock options	224	—			343			—			343
Common stock surrendered for the exercise of stock options	(31)	—			(281)			—			(281)
Exercise of stock warrants	54	—			200			—			200
Net income	—	—			—			19,846			19,846
Balance at June 30, 2022	12,961	$	13		$	90,107		$	(2,452)		$	87,668
Three Months Ended June 30, 2022
Balance at March 31, 2022	12,794	$	13		$	89,664		$	(7,316)		$	82,361
Expense related to director restricted stock units	—	—			162			—			162
Expense related to employee stock-based compensation	—	—			481			—			481
Exercise of stock options	198	—			81			—			81
Common stock surrendered for the exercise of stock options	(31)	—			(281)			—			(281)
Net income	—	—			—			4,864			4,864
Balance at June 30, 2022	12,961	$	13		$	90,107		$	(2,452)		$	87,668


Purchase price for GRSi	$	187,997



Purchase price allocation:
Cash	747
Accounts receivable	25,468
Other current assets	1,354
Accounts payable and accrued expenses	(2,449)
Payroll liabilities	(7,826)
Other current liabilities	(325)
Equipment and improvements, net	463
Other long-term assets and liabilities	(781)
Intangible assets	98,688
Total identifiable net assets acquired	115,339

Goodwill	$	72,658


	(unaudited)				(unaudited)
	(in thousands)				(in thousands)
	Three Months Ended				Nine Months Ended
	June 30,				June 30,
Pro forma results	2023		2022		2023		2022
Revenue	$	102,241	$	94,326	$	301,481	$	407,795

Net income	1,738		4,603		4,683		15,455

Number of shares outstanding - basic	13,854		12,812		13,638		12,779
Number of shares outstanding - diluted	14,539		14,235		14,421		14,205

Basic earnings per share	$0.13		$0.36		$0.34		$1.21
Diluted earnings per share	$0.12		$0.32		$0.32		$1.09


	June 30,		September 30,
	2023		2022
Operating lease right-of-use assets	$	17,911	$	16,851

Operating lease liabilities, current	$	3,478	$	2,235
Operating lease liabilities - long-term	16,485		16,461
Total operating lease liabilities	$	19,963	$	18,696


For the Fiscal Year Ending September 30,
2023 (remaining)	$	1,165
2024	4,611
2025	3,928
2026	3,700
2027	2,627
Thereafter	8,672
Total future lease payments	24,703
Less: imputed interest	(4,740)
Present value of future minimum lease payments	19,963
Less: current portion of operating lease liabilities	(3,478)
Long-term operating lease liabilities	$	16,485




	2023	2022
Cash paid for amounts included in the measurement of lease liabilities	3,317	$	2,566


Lease liabilities arising from obtaining right-of-use assets	2,052	$	—


2023 (remaining)	$	4,096
2024	16,386
2025	16,385
2026	15,652
2027	14,624
Thereafter	61,748
Total amortization expense	$	128,891



Balance at September 30, 2022	$	65,643
Increase from GRSi acquisition (a)	72,658
Balance at June 30, 2023	$	138,301




	2023		2022
Unrecognized expense for DLH employees (a)	$	7,358	$	5,498
Unrecognized expense for non-employee directors	155		162
Total unrecognized expense	$	7,513	$	5,660





	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Department of Veterans Affairs	$	35,898	$	33,344	$	104,489	$	92,270
Department of Health and Human Services	44,536		27,741		115,528		78,452
Department of Defense	21,003		8,272		50,802		25,227
Department of Homeland Security	256		(4,908)		639		126,397
Other	548		1,991		2,927		5,594
Total	$	102,241	$	66,440	$	274,385	$	327,940



	June 30,		September 30,
	2023		2022
Intangible assets
Customer contracts and related customer relationships	$	113,622	$	47,044
Covenants not to compete	637		522
Trade name	13,034		3,051
Backlog	37,249		15,237
Total intangible assets	164,542		65,854
Less: accumulated amortization
Customer contracts and related customer relationships	(27,087)		(19,731)
Covenants not to compete	(362)		(316)
Trade name	(1,859)		(1,048)
Backlog	(6,343)		(3,875)
Total accumulated amortization	(35,651)		(24,970)
Intangible assets, net	$	128,891	$	40,884


				(in years)
				Weighted
		Weighted		Average	(in thousands)
	(in thousands)	Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value




Options outstanding, September 30, 2022	2,392	$	7.05	5.40	$	13,566
Granted (a)	400	11.66		—	—
Exercised (b)	(393)	3.42		—	—

Cancelled	(158)	9.07		—	—
Options outstanding, June 30, 2023	2,241	$	8.36	5.92	$	6,499



	June 30,	September 30,
	2023	2022
Vested and exercisable (a)	1,616	2,117
Unvested (b)	625	275
Options outstanding	2,241	2,392


			Payments Due Per Fiscal Year
			(Remaining)
	Total		2023		2024		2025		2026		2027		Thereafter
Debt obligations	$	195,760	$	3,563	$	14,250	$	19,000	$	19,000	$	23,750	$	116,197
Facility operating leases	24,636		1,148		4,561		3,928		3,700		2,627		8,672
Equipment operating leases	67		17		50		—		—		—		—
Total contractual obligations	$	220,463	$	4,728	$	18,861	$	22,928	$	22,700	$	26,377	$	124,869


	Three Months Ended
Consolidated Statements of Operations:	June 30, 2023				June 30, 2022				Change
Revenue	$	102,241	100.0	%	$	66,440	100.0	%	$	35,801
Cost of operations:
Contract costs	80,919		79.1	%	49,668		74.9	%	31,251
General and administrative costs	9,935		9.7	%	7,535		11.3	%	2,400
Corporate development costs	—		—	%	250		0.3	%	(250)
Depreciation and amortization	4,280		4.2	%	1,873		2.8	%	2,407
Total operating costs	95,134		93.0	%	59,326		89.3	%	35,808
Income from operations	7,107		7.0	%	7,114		10.7	%	(7)
Interest expense	4,917		4.9	%	512		0.8	%	4,405
Income before provision for income taxes	2,190		2.1	%	6,602		9.9	%	(4,412)
Income tax expense	452		0.4	%	1,738		2.6	%	(1,286)
Net income	$	1,738	1.7	%	$	4,864	7.3	%	$	(3,126)
Net income per share - basic	$	0.13			$	0.38			$	(0.25)
Net income per share - diluted	$	0.12			$	0.34			$	(0.22)


			Payments Due by Period
			Next 12		2-3		4-5		More than 5
(in thousands)	Total		Months		Years		Years		Years
Debt obligations	$	195,760	$	14,250	$	36,813	$	144,697	$	—
Facility operating leases	24,636		3,501		7,963		5,668		7,504
Equipment operating leases	67		17		50		—		—
Total contractual obligations	$	220,463	$	17,768	$	44,826	$	150,365	$	7,504


	DLH HOLDINGS CORP.






	By:	/s/ Kathryn M. JohnBull
		Kathryn M. JohnBull
		Chief Financial Officer
		(On behalf of the Registrant and as Principal Financial and Accounting Officer)

Date: August 2, 2023


1	I have reviewed this quarterly report on Form 10-Q of DLH Holdings Corp.;

2	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


/s/ Zachary C. Parker
Zachary C. Parker
Chief Executive Officer (Principal Executive Officer)


/s/ Kathryn M. JohnBull
Kathryn M. JohnBull
Chief Financial Officer (Principal Accounting Officer)



			(1)			The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

			(2)			The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.