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| 8-K - 8-K - DLH Holdings Corp. | dlhc8kfy18q3erjune30.htm |
DLH Reports Third Quarter Fiscal Year 2018 Results
23.5% Revenue Growth; $0.13 EPS; $4.0 Million Operating Cash Flow
Atlanta, Georgia - August 6, 2018 - 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 and the nine months ended June 30, 2018.
Highlights
• | Fiscal third quarter revenue of $36.1 million, up 23.5% over the third quarter of fiscal 2017 |
• | Income from operations of $2.6 million for the quarter versus $1.8 million in 2017 |
• | Diluted earnings per share of $0.13 for the quarter versus $0.08 per share in the prior-year period |
• | Generated operating cash flow of $4.0 million for the quarter |
• | Reduced senior debt to $14.0 million at quarter end; cash balance at $6.6 million |
Management Discussion
"We are pleased to report very strong growth in the fiscal third quarter, along with solid financial results,” stated DLH President and Chief Executive Officer Zach Parker. “Revenue rose nearly 24% year-over-year, driven by a final surge in the FY18 review schedule on a key program as well as significant expansion in other core focus areas. Gross profit increased to $8.3 million, up almost 31% over the prior-year period, and we generated $4.0 million of cash from operations, while continuing to utilize legacy net operating loss carryforwards to offset the majority of the Company’s tax payments.
“While there have been some delays in new award activity and changes in certain recompete parameters, we are actively bidding on a sizable array of opportunities across the agencies we serve. At the same time, we continue to drive internal performance enhancements and invest in long-term strategic initiatives to bolster our capabilities in telehealth systems and data analytics.”
Results for the Three Months Ended June 30, 2018
Revenue for the third quarter of fiscal 2018 was $36.1 million, up $6.9 million, or 23.5%, over the prior-year third quarter, reflecting high activity levels on key programs and expansion of services on existing contract vehicles.
Gross profit was $8.3 million for the quarter, an increase of $2.0 million, or 30.6%, over the third quarter of fiscal 2017. As a percent of revenue, the Company's gross margin was 23.1% versus 21.8% in the prior-year period. General and Administrative ("G&A") expenses were $5.1 million for the quarter, reflecting higher business development
activity, versus $4.1 million in fiscal 2017. As a percent of revenue, G&A expenses were 14.2% in the current fiscal third quarter versus 14.1% last year. Depreciation and amortization was $0.6 million in fiscal 2018 and $0.5 million last year.
Income from operations was $2.6 million for the quarter versus $1.8 million in the prior-year period. This increase reflects gross profit improvement of $2.0 million, partially offset by the higher G&A expenses noted above. Income before taxes was $2.4 million for the quarter, up approximately $0.9 million over the prior-year period.
For the three months ended June 30, 2018 DLH recorded a $0.7 million provision for tax expense versus $0.5 million in fiscal 2017. The effective tax rates were 31.4% and 36.3% for the fiscal third quarters of 2018 and 2017, respectively, reflecting the prorated impact of the tax rate reduction from the Tax Cuts and Jobs Act enacted in December 2017.
The Company reported net income for the fiscal third quarter of approximately $1.6 million, or $0.13 per diluted share, versus $0.9 million, or $0.08 per diluted share, in the prior-year period. On a non-GAAP basis, Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) for the three months ended June 30, 2018 was approximately $3.2 million versus $2.3 million in the prior-year period. Growth was attributable to increased revenue and gross profit, partially offset by additional G&A expenses as described above.
Balance Sheet and Cash Flow
Cash as of June 30, 2018 was $6.6 million, and the Company’s senior debt was $14.0 million, versus cash of $4.9 million and senior debt of $19.7 million as of September 30, 2017. Regarding cash flow, for the fiscal third quarter DLH generated approximately $4.0 million in cash from operations, reflecting its financial results and working capital management.
Conference Call and Webcast Details
DLH management will discuss third 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 today, August 6, 2018. 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 10122346.
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 core competencies and consulting services include assessment and compliance monitoring, program management, health IT systems integration, data analytics and medical logistics, and pharmacy solutions. DLH has over 1,400 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 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. Those risks and uncertainties include, but are not limited to, the following: failure to achieve contract awards in connection with re-competes for present business and/or competition for new business; 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 our recent 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, 2017, as well as interim quarterly filings thereafter. The forward-looking statements contained herein 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.
CONTACTS:
COMMUNICATIONS | INVESTOR RELATIONS | |
Contact: Tiffany McCall | Contact: Chris Witty | |
Phone: 404-334-6000 | Phone: 646-438-9385 | |
Email: tiffany.mccall@dlhcorp.com | 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, | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Revenue | $ | 36,131 | $ | 29,256 | $ | 100,747 | $ | 85,272 | |||||||||
Direct expenses | 27,793 | 22,871 | 78,429 | 66,805 | |||||||||||||
Gross margin | 8,338 | 6,385 | 22,318 | 18,467 | |||||||||||||
General and administrative expenses | 5,136 | 4,122 | 14,700 | 12,722 | |||||||||||||
Depreciation and amortization | 588 | 510 | 1,654 | 1,264 | |||||||||||||
Income from operations | 2,614 | 1,753 | 5,964 | 4,481 | |||||||||||||
Interest expense, net | 262 | 269 | 801 | 888 | |||||||||||||
Income before income taxes | 2,352 | 1,484 | 5,163 | 3,593 | |||||||||||||
Income tax expense, net | 738 | 539 | 5,084 | 1,345 | |||||||||||||
Net income | $ | 1,614 | $ | 945 | $ | 79 | $ | 2,248 | |||||||||
Net income per share – basic | $ | 0.14 | $ | 0.08 | $ | 0.01 | $ | 0.20 | |||||||||
Net income per share – diluted | $ | 0.13 | $ | 0.08 | $ | 0.01 | $ | 0.18 | |||||||||
Weighted average common shares outstanding | |||||||||||||||||
Basic | 11,899 | 11,299 | 11,875 | 11,250 | |||||||||||||
Diluted | 12,884 | 12,445 | 12,872 | 12,417 | |||||||||||||
DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)
June 30, 2018 | September 30, 2017 | ||||||||
(unaudited) | |||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 6,590 | $ | 4,930 | |||||
Accounts receivable | 12,420 | 11,911 | |||||||
Other current assets | 856 | 598 | |||||||
Total current assets | 19,866 | 17,439 | |||||||
Equipment and improvements, net | 1,630 | 1,391 | |||||||
Deferred taxes, net | 4,875 | 9,639 | |||||||
Goodwill, net | 25,989 | 25,989 | |||||||
Intangible assets, net | 13,805 | 15,127 | |||||||
Other long-term assets | 139 | 139 | |||||||
Total assets | $ | 66,304 | $ | 69,724 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
Current liabilities: | |||||||||
Debt obligations - current | $ | 3,633 | $ | 6,518 | |||||
Derivative financial instruments, at fair value | — | 306 | |||||||
Accrued payroll | 5,034 | 3,723 | |||||||
Accounts payable, accrued expenses, and other current liabilities | 10,475 | 10,895 | |||||||
Total current liabilities | 19,142 | 21,442 | |||||||
Total long term liabilities | 9,707 | 12,427 | |||||||
Total liabilities | 28,849 | 33,869 | |||||||
Commitments and contingencies | |||||||||
Shareholders' equity: | |||||||||
Common stock, $.001 par value; authorized 40,000 shares; issued and outstanding 11,899 at June 30, 2018 and 11,767 at September 30, 2017 | 12 | 12 | |||||||
Additional paid-in capital | 84,079 | 82,687 | |||||||
Accumulated deficit | (46,636) | (46,844) | |||||||
Total shareholders’ equity | 37,455 | 35,855 | |||||||
Total liabilities and shareholders' equity | $ | 66,304 | $ | 69,724 | |||||
DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited) | (unaudited) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Operating activities | |||||||||||||||||||||
Net income | $ | 1,614 | $ | 945 | $ | 79 | $ | 2,248 | |||||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||||||||||||
Depreciation and amortization expense | 588 | 509 | 1,654 | 1,264 | |||||||||||||||||
Amortization of debt financing costs as interest expense | 70 | 67 | 202 | 194 | |||||||||||||||||
Change in fair value of derivative financial instruments | — | (3) | — | 49 | |||||||||||||||||
Stock based compensation expense | 241 | 64 | 1,169 | 613 | |||||||||||||||||
Deferred taxes, net | 598 | 362 | 4,764 | 1,004 | |||||||||||||||||
Changes in operating assets and liabilities | |||||||||||||||||||||
Accounts receivable | (81) | 247 | (508) | (1,987) | |||||||||||||||||
Other current assets | 88 | 137 | (259) | (78) | |||||||||||||||||
Accounts payable, accrued payroll, accrued expenses and other current liabilities | 928 | 133 | 897 | 1,519 | |||||||||||||||||
Other long term assets/liabilities | (49) | 21 | (5) | 145 | |||||||||||||||||
Net cash provided by operating activities | 3,997 | 2,482 | 7,993 | 4,971 | |||||||||||||||||
Investing activities | |||||||||||||||||||||
Acquisition, net of cash acquired | — | — | — | (250) | |||||||||||||||||
Purchase of equipment and improvements | 17 | (111) | (571) | (785) | |||||||||||||||||
Net cash used in investing activities | 17 | (111) | (571) | (1,035) | |||||||||||||||||
Financing activities | |||||||||||||||||||||
Repayments on senior debt | (937) | (938) | (5,730) | (2,813) | |||||||||||||||||
Deferred debt financing costs | (70) | — | (70) | — | |||||||||||||||||
Repayments of capital lease obligations | (3) | (22) | (8) | (62) | |||||||||||||||||
Proceeds from issuance of stock upon exercise of options | — | 99 | 46 | 113 | |||||||||||||||||
Net cash used in financing activities | (1,010) | (861) | (5,762) | (2,762) | |||||||||||||||||
Net change in cash and cash equivalents | 3,004 | 1,510 | 1,660 | 1,174 | |||||||||||||||||
Cash and cash equivalents at beginning of period | 3,586 | 3,091 | 4,930 | 3,427 | |||||||||||||||||
Cash and cash equivalents at end of period | $ | 6,590 | $ | 4,601 | $ | 6,590 | $ | 4,601 | |||||||||||||
Supplemental disclosures of cash flow information | |||||||||||||||||||||
Cash paid during the period for interest | $ | 192 | $ | 228 | $ | 619 | $ | 662 | |||||||||||||
Cash paid during the period for income taxes | $ | 52 | $ | 90 | $ | 630 | $ | 390 | |||||||||||||
Derivative warrant liability reclassified as equity | $ | — | $ | — | $ | (306) | $ | — | |||||||||||||
Noncash issuance of stock upon exercise of options | $ | — | $ | — | $ | 25 | $ | — | |||||||||||||
Revenue Metrics
Three Months Ended | Nine Months Ended | |||||||||||
June 30, 2018 | June 30, 2018 | |||||||||||
Market Mix: | ||||||||||||
Defense/VA | 62 | % | 65 | % | ||||||||
Human Services and Solutions | 34 | % | 32 | % | ||||||||
Public Health/Life Sciences | 4 | % | 3 | % | ||||||||
Contract Mix: | ||||||||||||
Time and Materials | 95 | % | 97 | % | ||||||||
Cost Plus Fixed Fee | 4 | % | 2 | % | ||||||||
Firm Fixed Price | 1 | % | 1 | % | ||||||||
Prime vs Sub: | ||||||||||||
Prime | 99 | % | 99 | % | ||||||||
Sub | 1 | % | 1 | % | ||||||||
Non-GAAP Financial Measures
The Company uses Earnings Before Interest Tax Depreciation and Amortization ("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.
Beginning with the first quarter of fiscal year 2018, the Company commenced reporting EBITDA, rather than adjusted EBITDA, as a key non-GAAP financial measure of our business. The Company believes that due to the growth and maturation of its business, this change will improve the transparency of its business performance and increase the comparability of its results with peers. Non-GAAP measures for prior periods have been recast to conform to this change in the Company’s reporting. It is important to note that GAAP results and the presentation of GAAP metrics do not change, and the reporting of EBITDA has no effect on the Company’s business nor how the business is managed.
In addition, we are also reporting our net income excluding the impact of the Tax Cut and Jobs Act of 2017 on the valuation of our deferred tax assets. On December 22, 2017, the Tax Cut and Jobs Act was enacted, which, among other things, reduced corporate tax rates and revised rules regarding the usability of net operating losses. These changes have resulted in a tax provision of $3.4 million associated with revaluing the benefit of our net operating losses.
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. By providing this non-GAAP measure as a supplement to GAAP information, DLH believes this enhances investors’ understanding of its business and results of operations.
Reconciliation of GAAP net income to EBITDA, a non-GAAP measure:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||
Net income (loss) | $ | 1,614 | $ | 945 | $ | 669 | $ | 79 | $ | 2,248 | $ | (2,169) | ||||||||||||
(i) Interest expense | 262 | 269 | (7) | 801 | 888 | (87) | ||||||||||||||||||
(ii) Provision for taxes | 738 | 539 | 199 | 5,084 | 1,345 | 3,739 | ||||||||||||||||||
(iii) Depreciation, amortization | 588 | 510 | 78 | 1,654 | 1,265 | 389 | ||||||||||||||||||
EBITDA | $ | 3,202 | $ | 2,263 | $ | 939 | $ | 7,618 | $ | 5,746 | $ | 1,872 | ||||||||||||
Reconciliation of GAAP net income to net income excluding the effect of the 2017 Tax Act, a non-GAAP measure:
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||||||||||||||||||||||
Net income | $ | 1,614 | $ | 945 | $ | 669 | $ | 79 | $ | 2,248 | $ | (2,169) | |||||||||||||||||||||||||
Write-down of deferred tax assets | $ | — | $ | — | $ | — | $ | 3,365 | $ | — | $ | 3,365 | |||||||||||||||||||||||||
Pro-forma impact of tax rate change | $ | — | $ | 145 | $ | (145) | $ | — | $ | 350 | $ | (350) | |||||||||||||||||||||||||
Net income, excluding effect of the 2017 Tax Act | $ | 1,614 | $ | 1,090 | $ | 524 | $ | 3,444 | $ | 2,598 | $ | 846 | |||||||||||||||||||||||||
Net income per fully-diluted share | $ | 0.13 | $ | 0.08 | $ | 0.05 | $ | 0.01 | $ | 0.18 | $ | (0.17) | |||||||||||||||||||||||||
Impact of write-down of deferred tax asset | $ | — | $ | — | $ | — | $ | 0.26 | $ | — | $ | 0.26 | |||||||||||||||||||||||||
Pro-forma impact of tax rate change | $ | — | $ | 0.01 | $ | (0.01) | $ | — | $ | 0.03 | $ | (0.03) | |||||||||||||||||||||||||
Net income per fully-diluted share, excluding effect of the 2017 Tax Act | $ | 0.13 | $ | 0.09 | $ | 0.04 | $ | 0.27 | $ | 0.21 | $ | 0.06 | |||||||||||||||||||||||||