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DH

DLH Holdings Corp. (DLHC)·Q4 2020 Earnings Summary

Executive Summary

  • Q4 2020 revenue was $50.7M and diluted EPS was $0.10; results reflected pandemic-related deferrals and reduced non-labor costs, with acquisition costs ($0.9M) further weighing on margins .
  • Full-year FY2020 revenue reached $209.2M and EPS $0.54; backlog expanded 66% to $688.4M on Head Start recompete and IBA acquisition, strengthening forward visibility .
  • Management guided FY2021 non-operational items: interest expense ~$3.0M, total amortization ~$6.3M (including $1.5M from IBA) and tax rate ~29%; intent to continue deleveraging to $50–$52M debt by FY2021 year-end .
  • Strategic catalysts: IBA acquisition (DoD health IT footprint, $143M acquired backlog) and COVID-19 clinical trial awards ($15M), plus FedRAMP-approved Infinibyte Cloud positioning in secure health data analytics .

What Went Well and What Went Wrong

What Went Well

  • Backlog reached $688.4M (+66% YoY), driven by Head Start recompete and IBA; funded backlog $121.3M, unfunded $567.1M, enhancing multi-period revenue visibility .
  • FY2020 operating cash flow was $19.5M; senior bank debt reduced by $19.0M during the year (to $37.0M pre-IBA), demonstrating balance sheet discipline .
  • Strategic expansion: IBA broadens DoD health IT and AI/ML capabilities; management: “we believe we have successfully transformed DLH into a well-rounded, advanced technology enterprise” . CEO on AI/ML: “rapidly developing our market presence in data analytics, artificial intelligence and machine learning and secure systems” .

What Went Wrong

  • Q4 revenue fell to $50.7M from $54.2M YoY due to deferrals in monitoring/compliance and reduced non-labor costs amid COVID-19; EBITDA margin compressed to 8.6% vs 9.8% .
  • Acquisition-related costs ($0.9M) reduced operating income and diluted EPS; GAAP diluted EPS was $0.10 vs adjusted $0.15 excluding acquisition costs .
  • Pass-through revenue delays impacted top line by ~$7–$8M spanning Q3 and Q4, creating near-term headwinds in HHS-related programs .

Financial Results

MetricQ4 2019Q3 2020Q4 2020
Revenue ($USD Millions)$54.183 $51.459 $50.691
Net Income ($USD Millions)$1.565 $2.124 $1.363
Diluted EPS ($USD)$0.12 $0.16 $0.10
Operating Income ($USD Millions)$3.394 $3.800 $2.698
Operating Margin (%)6.3% 7.4% 5.3%
EBITDA ($USD Millions)$5.313 $5.521 $4.362
EBITDA Margin (%)9.8% 10.7% 8.6%
Interest Expense ($USD Millions)$1.190 $0.813 $0.781
Tax Provision ($USD Millions)$0.639 $0.863 $0.554

Adjusted (non-GAAP) Q4 metrics:

  • Adjusted EBITDA: $5.3M; Adjusted EBITDA margin 10.4% .
  • Adjusted net income: $2.023M; Adjusted diluted EPS: $0.15 (excludes $0.9M acquisition costs, tax-effected) .

Segment/Market Mix (FY 2020):

MixFY 2019FY 2020
Defense/VA (%)58% 49%
Human Services & Solutions (%)25% 20%
Public Health/Life Sciences (%)17% 31%
Prime vs Sub (%)Prime 96%, Sub 4% Prime 92%, Sub 8%
Contract Mix (%)T&M 84%, CR 14%, FFP 2% T&M 70%, CR 28%, FFP 2%

KPIs and Balance Sheet (as of 9/30/2020):

KPIValue
Backlog ($USD Millions)$688.4 total; $121.3 funded; $567.1 unfunded
Operating Cash Flow (FY 2020)$19.5M
Cash and Cash Equivalents$1.357M
Debt Outstanding$70.0M (term loan $70.0M; zero revolver)
Accounts Receivable$32.541M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Interest Expense ($USD Millions)FY2021—~$3.0M New disclosure
Amortization of Acquired Intangibles ($USD Millions)FY2021—$6.3M total; $1.5M from IBA New disclosure
Tax Rate (%)FY2021—~29% Maintained level indication
Year-End Debt ($USD Millions)FY2021$40–$42M (FY2020 expected at Q3) $50–$52M (post-IBA) Reset higher baseline, deleveraging plan maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2020 and Q3 2020)Current Period (Q4 2020)Trend
COVID-19 Clinical TrialsNew awards expected to contribute ~$15M; leveraging NIH/NIAID relationships Continued trials and pipeline; expect higher organic growth in FY2021 from anticipated task orders Positive momentum; increasing opportunity set
VA/CMOP Logistics DemandVA canceled small-business set-aside RFP; expected contract extensions Veterans remain dependent on mail-order prescriptions; anticipate continued strength Stable-to-positive near term
AI/ML & Secure Cloud (Infinibyte Cloud)Investment in secure, cloud-based health solutions FedRAMP status; active customer implementations; pipeline across VA/HHS and upcoming ID/IQs Building commercial traction
Pass-Through/Accommodation RevenueVariability in travel/other non-core revenues impacted Q2→Q3 ~$7–$8M impact across Q3/Q4 from delays Near-term headwind; expected to normalize post-pandemic
Accounts Receivable/DSOIntegration effects improving AR; normalization by year-end AR up sequentially on IBA ($3.5M) and dispersing office change; DSO <60 Operational improvement expected
Continuing Resolution (CR)Not explicitly guidedCR viewed as supportive for retention and extensions; slows new awards Mixed: stability with slower new work
DeleveragingProjected FY2020 debt $40–$42M Start FY2021 with $70M debt (post-IBA); plan to use FCF to de-lever Strategy maintained despite higher debt base

Management Commentary

  • CEO: “The company posted revenue of $50.7 million for the quarter… and $209.2 million for the fiscal year in total… We also completed the acquisition of Irving Burton Associates for $32 million… We generated $19.5 million in cash from operations during the year… plan to… utilize free cash flow to de-lever the company” .
  • CEO on market positioning: “We are also rapidly developing our market presence in data analytics, artificial intelligence and machine learning and secure systems… position our… cloud solution to expand in the digital transformation technologies” .
  • CFO: “Revenue for the three months ended September 30, 2020 was $50.7 million versus $54.2 million… largely reflects deferrals… due to the ongoing pandemic… reported net income of approximately $1.4 million or $0.10 per diluted share… adjusted EPS would have been $0.15” .
  • CFO on backlog/debt: “Backlog grew over 66% in fiscal 2020… leverage ratio… ~2.8x EBITDA… expect debt levels of $50 million to $52 million at the end of fiscal 2021” .

Q&A Highlights

  • Pass-through/accommodation revenue impact: CFO quantified $7–$8M top-line impact spanning Q3/Q4 delays .
  • Continuing Resolution: CEO views CR as supportive of extensions/retention, though it slows new awards; monitoring potential stimulus .
  • Accounts receivable: AR increased sequentially due to ~$3.5M from IBA acquisition and Head Start dispersing office change; DSO remains <60 .
  • IBA integration: “No major issues… ERP component slated to be fully complete by first of the year” .
  • Infinibyte Cloud: FedRAMP-approved; already deployed for some customers and implementing for another; pipeline across VA/HHS and upcoming government-wide ID/IQs over next 3–6 months .

Estimates Context

  • S&P Global consensus (EPS, revenue) for Q4 2020 was unavailable due to access limits at the time of retrieval; therefore, we cannot definitively assess beat/miss vs Wall Street estimates for the quarter [Values retrieved from S&P Global unavailable due to Daily Request Limit].
  • Given the pandemic-related deferrals ($7–$8M impact) and acquisition costs ($0.9M), Street models likely need to reflect lower accommodation revenues and non-GAAP adjustments in Q4, and incorporate FY2021 interest/tax/amortization guidance .

Key Takeaways for Investors

  • Near-term revenue softness was primarily pandemic-driven (deferrals and pass-through reductions), not core program execution; adjusted profitability held up better than GAAP as acquisition costs weighed on margins .
  • Backlog strength and COVID-19 clinical research awards support FY2021 organic growth, offsetting timing headwinds from CR-related delays in new awards .
  • IBA accelerates DLH’s DoD health IT and AI/ML capabilities with ~$143M acquired backlog; integration progressing smoothly, positioning for cyber-secure health analytics demand .
  • Balance sheet discipline continues: strong FY2020 operating cash flow and ongoing deleveraging strategy, with clear FY2021 non-operational cost guidance (interest, amortization, tax) aiding model transparency .
  • Watch for recovery in HHS-related monitoring/compliance work and normalization of pass-through revenues post-peak pandemic; HHS segment expected relatively flat near term, VA logistics stable-to-strong .
  • Infinibyte Cloud (FedRAMP) and secure data analytics are emerging differentiators; success in upcoming government-wide ID/IQs could be a multi-year growth catalyst .
  • Monitoring points: award timing under CR, AR normalization post-dispersing office change and IBA integration, and progression of COVID-19 trial revenues as therapeutics/vaccines evolve .