falsedesktopDLHC2020-06-30000162828020011819{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "New Jersey (State or other jurisdiction of incorporation or organization)\t22-1899798 (I.R.S. Employer Identification No.)\n3565 Piedmont Road NE Building 3 Suite 700 Atlanta Georgia (Address of principal executive offices)\t30305 (Zip Code)\n", "q10k_tbl_1": "\tPage No.\nPart I - Financial Information\t3\nItem 1. Financial Statements\t3\nConsolidated Statements of Operations for the three and nine months ended June 30 2020 and 2019 (Unaudited)\t3\nConsolidated Balance Sheets as of June 30 2020 (Unaudited) and September 30 2019\t4\nConsolidated Statements of Cash Flows for the nine months ended June 30 2020 and 2019 (Unaudited)\t5\nConsolidated Statements of Shareholders' Equity for the three and nine months ended June 30 2020 and 2019 (Unaudited)\t6\nNotes to Consolidated Financial Statements (Unaudited)\t7\nItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\t20\nItem 3. Quantitative and Qualitative Disclosures about Market Risk\t29\nItem 4. Controls and Procedures\t29\nPart II - Other Information\t30\nItem 1. Legal Proceedings\t30\nItem 1A. Risk Factors\t30\nItem 2. Unregistered Sales of Equity Securities and Use of Proceeds\t31\nItem 3. Defaults Upon Senior Securities\t31\nItem 4. Mine Safety Disclosures\t31\nItem 5. Other Information\t31\nItem 6. Exhibits\t32\nSignatures\t33\n", "q10k_tbl_2": "\t(unaudited)\t\t\t(unaudited)\n\tThree Months Ended\t\t\tNine Months Ended\n\tJune 30\t\t\tJune 30\n\t2020\t2019\t2020\t2019\nRevenue\t51459\t38700\t158495\t106208\nCost of Operations:\t\t\t\t\nContract costs\t39615\t30038\t123895\t82744\nGeneral and administrative costs\t6323\t4811\t18497\t13462\nAcquisition costs\t0\t1247\t0\t1391\nDepreciation and amortization\t1721\t914\t5340\t2037\nTotal operating costs\t47659\t37010\t147732\t99634\nIncome from operations\t3800\t1690\t10763\t6574\nInterest expense net\t813\t562\t2659\t1284\nIncome before income taxes\t2987\t1128\t8104\t5290\nIncome tax expense\t863\t325\t2352\t1532\nNet income\t2124\t803\t5752\t3758\nNet income per share - basic\t0.17\t0.07\t0.47\t0.31\nNet income per share - diluted\t0.16\t0.06\t0.44\t0.29\nWeighted average common stock outstanding\t\t\t\t\nBasic\t12354\t12036\t12246\t12011\nDiluted\t13228\t13077\t13050\t13048\n", "q10k_tbl_3": "\tJune 30 2020\tSeptember 30 2019\n\t(unaudited)\t\nASSETS\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t658\t1790\nAccounts receivable\t29635\t23226\nOther current assets\t3772\t1831\nTotal current assets\t34065\t26847\nEquipment and improvements net\t3769\t5343\nOperating leases right-of-use assets\t22276\t0\nDeferred taxes net\t358\t2345\nGoodwill\t52758\t52758\nIntangible assets net\t37594\t41208\nOther long-term assets\t620\t757\nTotal assets\t151440\t129258\nLIABILITIES AND SHAREHOLDERS' EQUITY\t\t\nCurrent liabilities:\t\t\nOperating lease liabilities - current\t1768\t0\nAccrued payroll\t9488\t8852\nAccounts payable accrued expenses and other current liabilities\t24253\t20633\nTotal current liabilities\t35509\t29485\nLong-term liabilities:\t\t\nDebt obligations - long term net of deferred financing costs\t42542\t53629\nOperating lease liabilities - long-term\t21686\t0\nOther long-term liabilities\t0\t573\nTotal long-term liabilities\t64228\t54202\nTotal liabilities\t99737\t83687\nShareholders' equity:\t\t\nCommon stock $0.001 par value; authorized 40000 shares; issued and outstanding 12354 and 12036 at June 30 2020 and September 30 2019 respectively\t12\t12\nAdditional paid-in capital\t85496\t85114\nAccumulated deficit\t(33805)\t(39555)\nTotal shareholders' equity\t51703\t45571\nTotal liabilities and shareholders' equity\t151440\t129258\n", "q10k_tbl_4": "\t(unaudited)\t\n\tNine Months Ended\t\n\tJune 30\t\n\t2020\t2019\nOperating activities\t\t\nNet income\t5752\t3758\nAdjustments to reconcile net income to net cash provided by operating activities:\t\t\nDepreciation and amortization expense\t5340\t2037\nAmortization of deferred financing costs\t551\t799\nStock based compensation expense\t566\t591\nDeferred taxes net\t1987\t1253\nNon-cash gain from lease modification\t(121)\t0\nChanges in operating assets and liabilities\t\t\nAccounts receivable\t(6409)\t(925)\nOther current assets\t(1941)\t(376)\nAccrued payroll\t636\t(68)\nAccounts payable accrued expenses and other current liabilities\t3620\t4107\nOther long-term assets/liabilities\t726\t(23)\nNet cash provided by operating activities\t10707\t11153\nInvesting activities\t\t\nBusiness acquisition net of cash acquired\t0\t(66520)\nPurchase of equipment and improvements\t(152)\t(29)\nNet cash used in investing activities\t(152)\t(66549)\nFinancing activities\t\t\nBorrowing on senior debt\t0\t70000\nRepayments of senior debt\t(11500)\t(11646)\nPayment of debt financing costs\t(3)\t(3347)\nRepurchase of common stock\t(211)\t0\nProceeds from issuance of common stock upon exercise of options\t27\t39\nNet cash (used in) provided by financing activities\t(11687)\t55046\nNet change in cash and cash equivalents\t(1132)\t(350)\nCash and cash equivalents at beginning of period\t1790\t6355\nCash and cash equivalents at end of period\t658\t6005\nSupplemental disclosures of cash flow information\t\t\nCash paid during the period for interest\t2207\t645\nCash paid during the period for income taxes\t432\t675\n", "q10k_tbl_5": "\tCommon Stock\t\t\t\tTreasury Stock\t\tAdditional Paid-In Capital\tAccumulated Deficit\t\tTotal Shareholders' Equity\n\tShares\tAmount\tShares\tAmount\t\t\t\t\t\nNine Months Ended June 30 2020\t\t\t\t\t\t\t\t\t\nBalance at September 30 2019\t12036\t12\t0\t0\t85114\t(39555)\t\t\t45571\nCumulative-effect adjustment for adoption of ASC 842\t0\t0\t0\t0\t0\t(2)\t\t\t(2)\nExpense related to director restricted stock unit\t90\t0\t0\t0\t260\t0\t\t\t260\nExpense related to employee stock options\t0\t0\t0\t0\t306\t0\t\t\t306\nExercise of stock options\t345\t0\t0\t0\t27\t0\t\t\t27\nRepurchases of common stock\t0\t0\t28\t(113)\t0\t0\t\t\t(113)\nCancellation of common stock\t(117)\t0\t(28)\t113\t(211)\t0\t\t\t(98)\nNet income\t0\t0\t0\t0\t0\t5752\t\t\t5752\nBalance at June 30 2020\t12354\t12\t0\t0\t85496\t(33805)\t\t\t51703\nThree Months Ended June 30 2020\t\t\t\t\t\t\t\t\t\nBalance at March 31 2020\t12354\t12\t0\t0\t85314\t(35929)\t\t\t49397\nExpense related to director restricted stock unit\t0\t0\t0\t0\t87\t0\t\t\t87\nExpense related to employee stock options\t0\t0\t0\t0\t95\t0\t\t\t95\nNet income\t0\t0\t0\t0\t0\t2124\t\t\t2124\nBalance at June 30 2020\t12354\t12\t0\t0\t85496\t(33805)\t\t\t51703\n", "q10k_tbl_6": "\tCommon Stock\t\t\t\tTreasury Stock\t\tAdditional Paid-In Capital\tAccumulated Deficit\t\tTotal Shareholders' Equity\n\tShares\tAmount\tShares\tAmount\t\t\t\t\t\nNine Months Ended June 30 2019\t\t\t\t\t\t\t\t\t\nBalance at September 30 2018\t11899\t12\t0\t0\t84285\t(44879)\t\t\t39418\nDirectors' stock grants and expense\t102\t0\t0\t0\t395\t0\t\t\t395\nExpense related to employee stock options\t0\t0\t0\t0\t196\t0\t\t\t196\nExercise of stock options\t35\t0\t0\t0\t39\t0\t\t\t39\nNet income\t0\t0\t0\t0\t0\t3758\t\t\t3758\nBalance at June 30 2019\t12036\t12\t0\t0\t84915\t(41121)\t\t\t43806\nThree Months Ended March 31 2019\t\t\t\t\t\t\t\t\t\nBalance at March 31 2019\t12036\t12\t0\t0\t84716\t(41924)\t\t\t42804\nExpense related to director restricted stock unit\t0\t0\t0\t0\t199\t0\t\t\t199\nNet income\t0\t0\t0\t0\t0\t803\t\t\t803\nBalance at June 30 2019\t12036\t12\t0\t0\t84915\t(41121)\t\t\t43806\n", "q10k_tbl_7": "\t(in thousands)\t\n\tJune 30\tSeptember 30\n\t2020\t2019\nContract assets\t10216\t4302\nContract liabilities\t41\t92\n", "q10k_tbl_8": "\t(in thousands)\t\t\t(in thousands)\n\tThree Months Ended\t\t\tNine Months Ended\n\tJune 30\t\t\tJune 30\n\t2020\t2019\t2020\t2019\nDepartment of Veterans Affairs\t24783\t23056\t74402\t68563\nDepartment of Health and Human Services\t23312\t14297\t73263\t34987\nOther\t3364\t1347\t10830\t2658\nTotal revenue\t51459\t38700\t158495\t106208\n", "q10k_tbl_9": "\t(in thousands)\t\t\t(in thousands)\n\tThree Months Ended\t\t\tNine Months Ended\n\tJune 30\t\t\tJune 30\n\t2020\t2019\t2020\t2019\nTime and materials\t36315\t33426\t110918\t98841\nCost reimbursable\t13841\t4545\t43887\t5791\nFirm fixed price\t1303\t729\t3690\t1576\nTotal revenue\t51459\t38700\t158495\t106208\n", "q10k_tbl_10": "\t(in thousands)\t\t\t(in thousands)\n\tThree Months Ended\t\t\tNine Months Ended\n\tJune 30\t\t\tJune 30\n\t2020\t2019\t2020\t2019\nPrime contractor\t47649\t36882\t147464\t103947\nSubcontractor\t3810\t1818\t11031\t2261\nTotal revenue\t51459\t38700\t158495\t106208\n", "q10k_tbl_11": "(in thousands)\tRef\tSeptember 30 2019\tASC 842 Adjustments\tOctober 1 2019\nLong-term assets:\t\t\t\t\nOperating leases right-of-use assets\t\t0\t17398\t17398\nCurrent liabilities:\t\t\t\t\nDeferred rent liability - short-term\t(a)\t44\t(44)\t0\nOperating leases liabilities - current\t\t0\t3645\t3645\nLong-term liabilities:\t\t\t\t\nDeferred rent liability - long-term\t(b)\t276\t(276)\t0\nUnamortized tenant improvement allowance\t(c)\t297\t(297)\t0\nOperating leases liabilities - long-term\t\t0\t14372\t14372\nShareholders' equity:\t\t\t\t\nAccumulated deficit\t\t(39555)\t(2)\t(39557)\n", "q10k_tbl_12": "\t(in thousands)\n\tJune 30 2020\nOperating lease right-of-use assets\t22276\nOperating lease liabilities current\t1768\nOperating lease liabilities - long-term\t21686\nTotal operating lease liabilities\t23454\n", "q10k_tbl_13": "\t(in thousands)\t\n\tThree Months Ended\tNine Months Ended\n\tJune 30 2020\tJune 30 2020\nLease Costs:\t\t\nOperating\t834\t3350\nShort-term\t30\t133\nVariable\t28\t51\nTotal lease costs\t892\t3534\n", "q10k_tbl_14": "For the Fiscal Year Ending September 30\t(in thousands)\n2020 (Remaining)\t758\n2021\t3156\n2022\t3244\n2023\t3264\n2024\t3215\nThereafter\t17776\nTotal future lease payments\t31413\nLess: imputed interest\t(7959)\nPresent value of future minimum lease payments\t23454\nLess: current portion of operating lease liabilities\t(1768)\nLong-term operating lease liabilities\t21686\n", "q10k_tbl_15": "\t(in thousands)\t\n\tThree Months Ended\tNine Months Ended\n\tJune 30 2020\tJune 30 2020\nCash paid for amounts included in the measurement of lease liabilities\t336\t2803\nLease liabilities arising from obtaining right-of-use-assets\t0\t245\n", "q10k_tbl_16": "\t\t(in thousands)\t\n\t\tJune 30\tSeptember 30\n\tRef\t2020\t2019\nBilled receivables\t\t19419\t18924\nContract assets\t\t10216\t4302\nTotal accounts receivable\t\t29635\t23226\nLess: Allowance for doubtful accounts\t(a)\t0\t0\nAccounts receivable net\t\t29635\t23226\n", "q10k_tbl_17": "\t(in thousands)\t\n\tJune 30\tSeptember 30\n\t2020\t2019\nPrepaid insurance and benefits\t833\t495\nOther receivables\t1407\t301\nOther prepaid expenses\t1532\t1035\nOther current assets\t3772\t1831\n", "q10k_tbl_18": "\t\t(in thousands)\t\n\t\tJune 30\tSeptember 30\n\tRef\t2020\t2019\nFurniture and equipment\t\t1262\t1262\nComputer equipment\t\t1171\t1043\nComputer software\t\t4008\t3985\nLeasehold improvements\t\t1595\t1595\nTotal equipment and improvements\t\t8036\t7885\nLess accumulated depreciation and amortization\t\t(4267)\t(2542)\nEquipment and improvements net\t(a)\t3769\t5343\n", "q10k_tbl_19": "\t\t(in thousands)\t\n\t\tJune 30\tSeptember 30\n\tRef\t2020\t2019\nIntangible assets\t(a)\t\t\nCustomer contracts and related customer relationships\t\t45600\t45600\nCovenants not to compete\t\t480\t480\nTrade name\t\t2109\t2109\nTotal intangible assets\t\t48189\t48189\nLess accumulated amortization\t\t\t\nCustomer contracts and related customer relationships\t\t(10010)\t(6590)\nCovenants not to compete\t\t(200)\t(164)\nTrade name\t\t(385)\t(227)\nTotal accumulated amortization\t\t(10595)\t(6981)\nIntangible assets net\t\t37594\t41208\n", "q10k_tbl_20": "Estimated amortization expense for future years:\t(in thousands)\nRemaining Fiscal 2020\t1205\nFiscal 2021\t4819\nFiscal 2022\t4819\nFiscal 2023\t4819\nFiscal 2024\t4819\nThereafter\t17113\nTotal amortization expense\t37594\n", "q10k_tbl_21": "\t(in thousands)\t\n\tJune 30\tSeptember 30\n\t2020\t2019\nAccounts payable\t11827\t10054\nAccrued benefits\t2963\t2252\nAccrued bonus and incentive compensation\t1819\t1951\nAccrued workers' compensation insurance\t4888\t4007\nOther accrued expenses\t2756\t2369\nAccounts payable accrued expenses and other current liabilities\t24253\t20633\n", "q10k_tbl_22": "\t(in thousands)\t\n\tJune 30\tSeptember 30\n\t2020\t2019\nBank term loan\t44500\t56000\nLess unamortized deferred financing cost\t(1958)\t(2371)\nNet bank debt obligation\t42542\t53629\nLess current portion of term loan debt obligations\t0\t0\nLong-term portion of bank debt obligation\t42542\t53629\n", "q10k_tbl_23": "\t\t(in thousands)\t\t\t(in thousands)\n\t\tThree Months Ended\t\t\tNine Months Ended\n\t\tJune 30\t\t\tJune 30\n\tRef\t2020\t2019\t2020\t2019\nInterest expense\t(a)\t(635)\t(297)\t(2229)\t(485)\nAmortization of deferred financing costs\t(b)\t(178)\t(265)\t(551)\t(799)\nOther income (expense) net\t(c)\t0\t0\t121\t0\nInterest expense net\t\t(813)\t(562)\t(2659)\t(1284)\n", "q10k_tbl_24": "Arrangement\tLoan Balance\t\t\tInterest\t\tMaturity Date\nSecured term loan $70 million (a)\t44.5\tmillion\tLIBOR* + 3.5%\t\tJune 7 2024\nSecured revolving line of credit $25 million ceiling (b)\t0\tmillion\tLIBOR* + 3.5%\t\tJune 7 2024\n", "q10k_tbl_25": "\t\t(in thousands)\t\t\t(in thousands)\n\t\tThree Months Ended\t\t\tNine Months Ended\n\tRef\tJune 30\t\t\tJune 30\n\t\t2020\t2019\t2020\t2019\nDLH employees\t\t95\t67\t306\t196\nNon-employee directors\t(a)\t87\t132\t260\t395\nTotal stock option expense\t\t182\t199\t566\t591\n", "q10k_tbl_26": "\t\t\t\t(in years)\t\n\t\t\t\tWeighted\t\n\t\t\tWeighted\tAverage\t(in thousands)\n\t\t(in thousands)\tAverage\tRemaining\tAggregate\n\t\tNumber of\tExercise\tContractual\tIntrinsic\n\tRef\tShares\tPrice\tTerm\tValue\nOptions outstanding September 30 2019\t\t2134\t4.36\t5.9\t4815\nGranted\t(a)\t250\t4.17\t0\t0\nExercised\t\t(345)\t1.05\t0\t0\nCancelled\t\t(160)\t1.29\t0\t0\nOptions outstanding June 30 2020\t\t1879\t4.60\t6.5\t7280\n", "q10k_tbl_27": "\t\t\t\t\t\tVolatility\n\t\t\t\t\t\t50%\n\t\t\t\tVesting\tExpected\t\n\t\tStrike\tStock\tThreshold\tTerm\tCalculated\nGrant Date\tRef\tPrice\tPrice\tPrice\t(Years)\tFair Value\nOctober 18 2019\t(a)\t4.17\t4.17\tService\t10\t2.54\nOctober 18 2019\t\t4.17\t4.17\t8.00\t10\t2.56\nOctober 18 2019\t\t4.17\t4.17\t10.00\t10\t2.53\nOctober 18 2019\t\t4.17\t4.17\t12.00\t10\t2.51\nNotes:\t\t\t\t\t\t\nResults based on 100000 simulations\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n", "q10k_tbl_28": "\t\t(in thousands)\t\n\t\tJune 30\tSeptember 30\n\tRef\t2020\t2019\nVested and exercisable\t(a)\t1072\t1300\nUnvested\t(b)\t807\t834\nOptions outstanding\t\t1879\t2134\n", "q10k_tbl_29": "\t(In thousands except per share amounts)\t\t\t\n\tThree Months Ended\t\t\tNine Months Ended\t\t\t\t\t\t\n\tJune 30\t\t\tJune 30\t\t\t\t\t\t\n\t2020\t2019\t2020\t2019\nNumerator:\t\t\t\t\nNet income\t2124\t803\t5752\t3758\nDenominator:\t\t\t\t\nDenominator for basic net income per share - weighted-average outstanding shares\t12354\t12036\t12246\t12011\nEffect of dilutive securities:\t\t\t\t\nStock options and restricted stock\t874\t1041\t804\t1037\nDenominator for diluted net income per share - weighted-average outstanding shares\t13228\t13077\t13050\t13048\nNet income per share - basic\t0.17\t0.07\t0.47\t0.31\nNet income per share - diluted\t0.16\t0.06\t0.44\t0.29\n", "q10k_tbl_30": "\t\tPayments Due by Period\t\t\t\n\t\tNext 12\t2-3\t4-5\tMore than 5\n(Amounts in thousands)\tTotal\tMonths\tYears\tYears\tYears\nDebt obligations\t44500\t0\t0\t44500\t0\nFacility leases\t31313\t3100\t6415\t6329\t15469\nEquipment operating leases\t100\t34\t44\t22\t0\nTotal obligations\t75913\t3134\t6459\t50851\t15469\n", "q10k_tbl_31": "\t(in thousands)\t\t\t\n\tNine Months Ended\t\t\t\n\tJune 30\t\t\t\n\t2020\t\t\t2019\n\tRevenue\tPercent of total revenue\tRevenue\tPercent of total revenue\nDefense/VA\t75353\t48%\t70026\t66%\nHuman Services and Solutions\t31563\t20%\t29421\t28%\nPublic Health/Life Sciences\t51579\t32%\t6761\t6%\nTotal revenue\t158495\t100%\t106208\t100%\n", "q10k_tbl_32": "\t(in thousands)\t\t\t\n\tNine Months Ended\t\t\t\n\tJune 30\t\t\t\n\t2020\t\t\t2019\n\tRevenue\tPercent of total revenue\tRevenue\tPercent of total revenue\nDepartment of Veterans Affairs\t74402\t47%\t68563\t65%\nDepartment of Health and Human Services\t73263\t46%\t34987\t33%\nCustomers with less than 10% share of total revenue\t10830\t7%\t2658\t2%\nTotal revenue\t158495\t100%\t106208\t100%\n", "q10k_tbl_33": "\tThree Months Ended\t\t\t\t\t\n\tJune 30 2020\t\t\tJune 30 2019\t\tChange\nRevenue\t51459\t100.0%\t38700\t100.0%\t12759\nCost of operations:\t\t\t\t\t\nContract costs\t39615\t77.0%\t30038\t77.6%\t9577\nGeneral and administrative costs\t6323\t12.3%\t4811\t12.4%\t1512\nAcquisition costs\t0\t-%\t1247\t3.2%\t(1247)\nDepreciation and amortization\t1721\t3.3%\t914\t2.4%\t807\nTotal operating costs\t47659\t92.6%\t37010\t95.6%\t10649\nIncome from operations\t3800\t7.4%\t1690\t4.4%\t2110\nInterest expense net\t813\t1.6%\t562\t1.5%\t251\nIncome before income taxes\t2987\t5.8%\t1128\t2.9%\t1859\nIncome tax expense\t863\t1.7%\t325\t0.8%\t538\nNet income\t2124\t4.1%\t803\t2.1%\t1321\nNet income per share - basic\t0.17\t\t0.07\t\t0.10\nNet income per share - diluted\t0.16\t\t0.06\t\t0.10\n", "q10k_tbl_34": "\tNine Months Ended\t\t\t\t\t\tChange\nConsolidated Statement of Income:\tJune 30 2020\t\t\tJune 30 2019\t\t$\t\nRevenue\t158495\t100.0%\t106208\t100.0%\t52287\t\nCost of Operations:\t\t\t\t\t\t\nContract Costs\t123895\t78.2%\t82744\t77.9%\t41151\t\nGeneral and administrative expenses\t18497\t11.7%\t13462\t12.7%\t5035\t\nAcquisition costs\t0\t-%\t1391\t1.3%\t(1391)\t\nDepreciation and amortization\t5340\t3.4%\t2037\t1.9%\t3303\t\nTotal operating costs\t147732\t93.2%\t99634\t93.8%\t48098\t\nIncome from operations\t10763\t6.8%\t6574\t6.2%\t4189\t\nInterest\t2659\t1.7%\t1284\t1.2%\t1375\t\nIncome before income taxes\t8104\t5.1%\t5290\t5.0%\t2814\t\nIncome tax expense net\t2352\t1.5%\t1532\t1.4%\t820\t\nNet income\t5752\t3.6%\t3758\t3.5%\t1994\t\nNet income per share - basic\t0.47\t\t0.31\t\t0.16\t\nNet income per share - diluted\t0.44\t\t0.29\t\t0.15\t\n", "q10k_tbl_35": "\tThree Months Ended\t\t\tNine Months Ended\n\tJune 30\t\t\tJune 30\n\t2020\t2019\t2020\t2019\nNet income\t2124\t803\t5752\t3758\n(i) Interest expense net\t813\t562\t2659\t1284\n(ii) Provision for taxes\t863\t325\t2352\t1532\n(iii) Depreciation and amortization\t1721\t914\t5340\t2037\nEBITDA\t5521\t2604\t16103\t8611\n", "q10k_tbl_36": "\tThree Months Ended\t\t\t\t\tNine Months Ended\n\tJune 30\t\t\t\t\tJune 30\n\t2020\t2019\tChange\t2020\t2019\tChange\nNet income\t2124\t803\t1321\t5752\t3758\t1994\nAcquisition costs\t0\t1247\t(1247)\t0\t1391\t(1391)\nTax effect of excluding acquisition costs\t0\t(362)\t362\t0\t(403)\t403\nNet income adjusted for acquisition costs\t2124\t1688\t436\t5752\t4746\t1006\nNet income per diluted share\t0.16\t0.06\t0.10\t0.44\t0.29\t0.15\nImpact of acquisition costs\t0\t0.07\t(0.07)\t0\t0.08\t(0.08)\nNet income per diluted share adjusted for acquisition costs\t0.16\t0.13\t0.03\t0.44\t0.37\t0.07\n", "q10k_tbl_37": "\tNine Months Ended\t\n\tJune 30\t\n\t2020\t2019\nNet cash provided by operating activities\t10707\t11153\nNet cash used in investing activities\t(152)\t(66549)\nNet cash (used in) provided by financing activities\t(11687)\t55046\nNet change in cash and cash equivalents\t(1132)\t(350)\n", "q10k_tbl_38": "Arrangement\tLoan Balance\t\tInterest*\tMaturity Date\nSecured term loan $70 million (a)\t44.5\tmillion\tLIBOR* + 3.5%\tJune 7 2024\nSecured revolving line of credit $25 million ceiling (b)\t0\tmillion\tLIBOR* + 3.5%\tJune 7 2024\n", "q10k_tbl_39": "\t\tPayments Due by Period\t\t\t\nContractual obligations\t\tNext 12\t2-3\t4-5\tMore than 5\n(Amounts in thousands)\tTotal\tMonths\tYears\tYears\tYears\nDebt Obligations\t44500\t0\t0\t44500\t0\nFacility Leases\t31313\t3100\t6415\t6329\t15469\nEquipment operating leases\t100\t34\t44\t22\t0\nTotal Obligations\t75913\t3134\t6459\t50851\t15469\n", "q10k_tbl_40": "Exhibit\t\tIncorporated by Reference\t\t\t\tFiled\nNumber\tExhibit Description\tForm\tDated\tExhibit\tHerewith\n10.1#\tEmployment Offer Letter between the Company and Jeanine M. Christian\t\t\t\tX\n10.2#\tEmployment Offer Letter between the Company and Jacqueline S. Everett\t\t\t\tX\n10.3#\tChange in Control Severance and Covenant Agreement between the Company and Jeanine M. Christian\t\t\t\tX\n10.4#\tChange in Control Severance and Covenant Agreement between the Company and Jacqueline S. Everett\t\t\t\tX\n10.5#\tLetter Agreement dated July 15 2020 between the Company and Kevin H. Beverly\t\t\t\tX\n31.1\tCertification of Chief Executive Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)\t\t\t\tX\n31.2\tCertification of Chief Financial Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)\t\t\t\tX\n32\tCertification of Chief Executive Officer and Chief Financial Officer pursuant to 17 CFR 240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code\t\t\t\tX\n101\tThe following financial information from the DLH Holdings Corp. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to the Consolidated Financial Statements.\t\t\t\tX\n"}{"bs": "q10k_tbl_3", "is": "q10k_tbl_2", "cf": "q10k_tbl_4"}None
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-18492
DLH HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
22-1899798
(I.R.S. Employer
Identification No.)
3565 Piedmont Road, NE, Building 3, Suite 700
Atlanta, Georgia
(Address of principal executive offices)
30305
(Zip Code)
(770) 554-3545
(Registrant’s telephone number, including area code)
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
DLHC
Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller Reporting Company x
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,354,406 shares of Common Stock, par value $0.001 per share, were outstanding as of July 31, 2020.
The accompanying notes are an integral part of these consolidated financial statements.
3
DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value of shares)
June 30, 2020
September 30, 2019
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
658
$
1,790
Accounts receivable
29,635
23,226
Other current assets
3,772
1,831
Total current assets
34,065
26,847
Equipment and improvements, net
3,769
5,343
Operating leases right-of-use assets
22,276
—
Deferred taxes, net
358
2,345
Goodwill
52,758
52,758
Intangible assets, net
37,594
41,208
Other long-term assets
620
757
Total assets
$
151,440
$
129,258
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Operating lease liabilities - current
$
1,768
$
—
Accrued payroll
9,488
8,852
Accounts payable, accrued expenses, and other current liabilities
24,253
20,633
Total current liabilities
35,509
29,485
Long-term liabilities:
Debt obligations - long term, net of deferred financing costs
42,542
53,629
Operating lease liabilities - long-term
21,686
—
Other long-term liabilities
—
573
Total long-term liabilities
64,228
54,202
Total liabilities
99,737
83,687
Shareholders' equity:
Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,354 and 12,036 at June 30, 2020 and September 30, 2019, respectively
12
12
Additional paid-in capital
85,496
85,114
Accumulated deficit
(33,805)
(39,555)
Total shareholders’ equity
51,703
45,571
Total liabilities and shareholders' equity
$
151,440
$
129,258
The accompanying notes are an integral part of these consolidated financial statements.
4
DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
June 30,
2020
2019
Operating activities
Net income
$
5,752
$
3,758
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
5,340
2,037
Amortization of deferred financing costs
551
799
Stock based compensation expense
566
591
Deferred taxes, net
1,987
1,253
Non-cash gain from lease modification
(121)
—
Changes in operating assets and liabilities
Accounts receivable
(6,409)
(925)
Other current assets
(1,941)
(376)
Accrued payroll
636
(68)
Accounts payable, accrued expenses, and other current liabilities
3,620
4,107
Other long-term assets/liabilities
726
(23)
Net cash provided by operating activities
10,707
11,153
Investing activities
Business acquisition, net of cash acquired
—
(66,520)
Purchase of equipment and improvements
(152)
(29)
Net cash used in investing activities
(152)
(66,549)
Financing activities
Borrowing on senior debt
—
70,000
Repayments of senior debt
(11,500)
(11,646)
Payment of debt financing costs
(3)
(3,347)
Repurchase of common stock
(211)
—
Proceeds from issuance of common stock upon exercise of options
27
39
Net cash (used in) provided by financing activities
(11,687)
55,046
Net change in cash and cash equivalents
(1,132)
(350)
Cash and cash equivalents at beginning of period
1,790
6,355
Cash and cash equivalents at end of period
$
658
$
6,005
Supplemental disclosures of cash flow information
Cash paid during the period for interest
$
2,207
$
645
Cash paid during the period for income taxes
$
432
$
675
The accompanying notes are an integral part of these consolidated financial statements.
5
DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(unaudited)
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Nine Months Ended June 30, 2020
Balance at September 30, 2019
12,036
$
12
$
—
$
—
$
85,114
$
(39,555)
$
45,571
Cumulative-effect adjustment for adoption of ASC 842
—
—
—
—
—
(2)
(2)
Expense related to director restricted stock unit
90
—
—
—
260
—
260
Expense related to employee stock options
—
—
—
—
306
—
306
Exercise of stock options
345
—
—
—
27
—
27
Repurchases of common stock
—
—
28
(113)
—
—
(113)
Cancellation of common stock
(117)
—
(28)
113
(211)
—
(98)
Net income
—
—
—
—
—
5,752
5,752
Balance at June 30, 2020
12,354
$
12
—
$
—
$
85,496
$
(33,805)
$
51,703
Three Months Ended June 30, 2020
Balance at March 31, 2020
12,354
$
12
$
—
$
—
$
85,314
$
(35,929)
$
49,397
Expense related to director restricted stock unit
—
—
—
—
87
—
87
Expense related to employee stock options
—
—
—
—
95
—
95
Net income
—
—
—
—
—
2,124
2,124
Balance at June 30, 2020
12,354
$
12
—
—
$
85,496
$
(33,805)
$
51,703
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Nine Months Ended June 30, 2019
Balance at September 30, 2018
11,899
$
12
$
—
$
—
$
84,285
$
(44,879)
$
39,418
Directors' stock grants and expense
102
—
—
—
395
—
395
Expense related to employee stock options
—
—
—
—
196
—
196
Exercise of stock options
35
—
—
—
39
—
39
Net income
—
—
—
—
—
3,758
3,758
Balance at June 30, 2019
12,036
$
12
—
$
—
$
84,915
$
(41,121)
$
43,806
Three Months Ended March 31, 2019
Balance at March 31, 2019
12,036
$
12
$
—
$
—
$
84,716
$
(41,924)
$
42,804
Expense related to director restricted stock unit
—
—
—
—
199
—
199
Net income
—
—
—
—
—
803
803
Balance at June 30, 2019
12,036
$
12
—
$
—
$
84,915
$
(41,121)
$
43,806
The accompanying notes are an integral part of these consolidated financial statements.
6
DLH HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of DLH Holdings Corp. and its subsidiaries (together with its subsidiaries, "DLH" or the "Company" and also referred to as "we," "us" and "our"), all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain figures presented for comparative purposes have been reclassified to conform to the presentation adopted on Form 10-K for the year ended September 30, 2019. The Company implemented this reclassification as it determined that including these indirect overhead costs within the category of “contract costs” rather than “general and administrative expenses” better reflects the relationship of these overhead costs to contract performance, as these costs are generally variable based on fluctuations in business volume. This reclassification does not result in any changes to the Company’s total operating costs and previously reported operating income, income before income taxes, or net income.
In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020. Amounts as of and for the periods ended June 30, 2020 and June 30, 2019 are unaudited. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 filed with the Securities and Exchange Commission on December 11, 2019.
2. Business Overview
The Company is a full-service provider of technology-enabled health and human services, providing solutions to three market focus areas: Defense and Veterans' Health Solutions, Human Solutions and Services and Public Health and Life Sciences. We deliver domain-specific expertise, industry best-practices and innovations to customers across these markets leveraging seven core competencies: secure data analytics, clinical trials and laboratory services, case management, performance evaluation, system modernization, operational logistics and readiness, and strategic digital communications. The Company manages its operations from its principal executive offices in Atlanta, Georgia, and we have a complementary headquarters office in Silver Spring, Maryland. We employ over 2,000 skilled employees working in more than30 locations throughout the United States and one location overseas.
At present, the Company derives essentially all revenue from agencies of the Federal government, primarily as a prime contractor but also as a subcontractor to other Federal prime contractors. A major customer is defined as a customer from whom the Company derives at least 10% of its revenues.
Our two largest customers are the Department of Veteran Affairs ("VA") and the Department of Health and Human Services ("HHS"). The VA comprised approximately 47% and 65% of revenue for the nine months ended June 30, 2020 and 2019, respectively, and HHS comprised approximately 46% and 33% of revenue for the nine months ended June 30, 2020 and 2019, respectively.
3. New Accounting Pronouncements
In February 2016, the FASB issued an Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), to improve financial reporting about leasing transactions. This accounting standard requires organizations that lease assets, referred to as "Lessees", to recognize on the balance sheet right-of-use assets and lease liabilities. Per the ASU, we determine if a contract contains a lease by identifying an asset and determining if we have the right to control the use of the identified asset for a period of time in exchange for consideration. A contract conveys the right to control the use of an identified asset when the lessee has the right to direct the use of the identified asset and obtain substantially all economic benefits from its use throughout the period of its use. We also determine if a lease qualifies as an operating or finance lease. All Company leases at standard adoption were operating leases. The ASU also require lessees to identify and separate lease and non-lease components. The Company elected not to separate lease and non-lease components per the practical expedient provided in ASU 2018-11. Upon lease commencement, the lease liability and right-of-use asset are recorded on the balance sheet. The lease liability is measured as the
7
present value of future minimum lease payments, including all probable renewals, to be made during the lease term. The right-of-use asset is measured as the present value of future minimum lease payments to be made during the lease term, including all probable renewals, plus lease payments made to the lessor before or at commencement and indirect costs paid less lease incentives received. DLH adopted this standard on October 1, 2019 and recognized initial right-of use assets and lease liabilities of $17.4 million and $18.0 million, respectively. At adoption, the Company elected several practical expediencies to facilitate the implementation of the new standard and did not recast comparative prior year information. As such we did not reassess and include initial direct costs in the measurement of right-of-use assets, capitalize leases with terms of 12 months or less, nor reassess lease classification of existing leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires companies to record an allowance for expected credit losses over the contractual term of certain financial assets, including short-term trade receivables and contract assets. Additionally, it expands disclosure requirements for credit quality of financial assets. ASU 2016-13 becomes effective for the Company in the first quarter of fiscal year 2021. We do not expect a material impact to our operating results, financial position or cash flows as a result of adopting this new standard.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new standard is effective for fiscal years beginning after December 15, 2019 for both interim and annual reporting periods. The Company adopted this standard in the first quarter of fiscal 2020 and adoption did not have an impact on the Company's consolidated financial statements.
4. Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of goodwill and intangible assets, interest rate swaps, stock-based compensation, right of use assets and lease liabilities, valuation allowances established against accounts receivable and deferred tax assets, and measurement of loss development on workers’ compensation claims. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current and expected future outcomes, third-party evaluations and various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. We revise material accounting estimates if changes occur, such as more experience is acquired, additional information is obtained, or there is new information on which an estimate was or can be based. Actual results could differ from those estimates. In particular, a material reduction in the fair value of goodwill could have a material adverse effect on the Company’s financial position and results of operations. We account for the effect of a change in accounting estimate during the period in which the change occurs.
Fair value of financial instruments
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, contract assets, accrued expenses, and accounts payable approximate fair value due to the short-term nature of these instruments. The fair values of the Company's debt instruments approximated fair value because the underlying interest rates approximate market rates that the Company could obtain for similar instruments at the balance sheet dates.
8
Goodwill and other intangible assets
The Company continues to review its goodwill and other intangible assets for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value.
At September 30, 2019, we performed a goodwill impairment evaluation on the year-end carrying value of approximately $53 million. We performed both a qualitative and quantitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test. Based on the results of the work performed, the Company has concluded that no impairment loss was warranted at September 30, 2019. For the nine months ended June 30, 2020, the Company determined that no change in business conditions occurred which would have a material adverse effect on the valuation of goodwill. Our assessment incorporated effects of the COVID-19 pandemic, which is not expected to have a meaningful impact on our financial results. Notwithstanding this evaluation, factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to future periods’ results of operations.
Equipment and improvements
Equipment and improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful asset lives (3 to 7 years) and the shorter of the initial lease term or estimated useful life for leasehold improvements. Maintenance and repair costs are expensed as incurred.
Income taxes
The Company accounts for income taxes in accordance with the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the consolidated balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. We had no uncertain tax positions at either June 30, 2020 or September 30, 2019. We report interest and penalties as a component of income tax expense. In the three and nine months ended June 30, 2020 and June 30, 2019, we recognized no interest and no penalties related to income taxes.
Stock-based equity compensation
The Company uses the fair value-based method for stock-based equity compensation. Options issued are designated as either an incentive stock or a non-statutory stock option. No option may be granted with a term of more than 10 years from the date of grant. Option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued common shares. All awards to employees and non-employees are recorded at fair value on the date of the grant and expensed over the period of vesting. The Company uses a binomial simulation option pricing model to estimate the fair value of each stock option at the date of grant. Any consideration paid by the option holders to purchase shares is credited to capital stock.
Cash and cash equivalents
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits held with financial institutions may exceed the $250,000 limit.
Earnings per share
Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common stock outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method.
9
Treasury Stock
The Company periodically purchases its own common stock that is traded on public markets as part of announced stock repurchase programs. The repurchased common stock is classified as treasury stock on the consolidated balance sheets and held at cost. As of June 30, 2020, the Company did not hold any treasury stock.
Interest Rate Swap
The Company uses derivative financial instruments to manage interest rate risk associated with its variable rate debt. The Company's objective in using these interest rate derivatives is to manage its exposure to interest rate movements and reduce volatility of interest expense. The gains and losses due to changes in the fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the underlying debt. Offsetting changes in fair value of both the interest rate swaps and the hedged portion of the underlying debt both are recognized in interest expense in the Consolidated Statements of Operations. The Company does not hold or issue any derivative instrument for trading or speculative purposes.
5. Revenue Recognition
We account for a contract when both we and the customer approve and commit; our rights and those of the customer are identified, payment terms are identified; the contract has commercial substance; and collectability of consideration is probable. At contract inception, we identify the distinct goods or services promised in the contract, referred to as performance obligations. Then we determine the total transaction price for the contract; which is the total consideration which we can expect in exchange for the promised goods or services in the contract. The transaction price may include fixed or variable amounts. Due to our contracts being predominantly time and material, the Company does not have variable consideration. The transaction price is allocated to each distinct performance obligation using our best estimate of the standalone selling price for each service promised in the contract. The primary method used to estimate standalone selling price is the hourly billing rate for each labor category identified in the contract with the customer. Revenue is recognized as the performance obligation is satisfied.
We recognize revenue over time when there is a continuous transfer of control to our customer. For our U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the U.S. government to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. When control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. For services contracts, we satisfy our performance obligations as services are rendered. We use a cost-based input method to measure progress.
Contract costs include labor, material and allocable indirect expenses. For time-and-material contracts, we bill the customer per labor hour and per material, and revenue is recognized in the amount invoiced since the amount corresponds directly to the value of our performance to date. We consider control to transfer when we have a present right to payment. Essentially, all of our contracts satisfy their performance obligations over time. Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications impact performance obligations when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue and profit cumulatively. Furthermore, a significant change in one or more estimates could affect the profitability of our contracts. We recognize adjustments in estimated profit on contracts in the period identified.
For time-and-materials contracts, revenue is recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. Revenue for cost-reimbursable contracts is recorded as reimbursable costs are incurred, including an estimated share of the applicable contractual fees earned. Contract costs are expensed as incurred. Estimated losses are recognized when identified.
Contract assets - Amounts are invoiced as work progresses in accordance with agreed-upon contractual terms. In part, revenue recognition occurs before we have the right to bill, resulting in contract assets. These contract assets are reported within receivables, net on our consolidated balance sheets and are invoiced in accordance with payment terms defined in each contract. Period end balances will vary from period to period due to agreed-upon contractual terms.
Contract liabilities - Amounts are a result of billings in excess of costs incurred.
10
The following table summarizes the contract balances recognized on the Company's consolidated balance sheets:
(in thousands)
June 30,
September 30,
2020
2019
Contract assets
$
10,216
$
4,302
Contract liabilities
$
41
$
92
Disaggregation of revenue from contracts with customers
We disaggregate our revenue from contracts with customers by customer, contract type, as well as whether the Company acts as prime contractor or subcontractor. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.The following series of tables presents our revenue disaggregated by these categories:
Revenue by customer:
(in thousands)
(in thousands)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2020
2019
2020
2019
Department of Veterans Affairs
$
24,783
$
23,056
$
74,402
$
68,563
Department of Health and Human Services
23,312
14,297
73,263
34,987
Other
3,364
1,347
10,830
2,658
Total revenue
$
51,459
$
38,700
$
158,495
$
106,208
Revenue by contract type:
(in thousands)
(in thousands)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2020
2019
2020
2019
Time and materials
$
36,315
$
33,426
$
110,918
$
98,841
Cost reimbursable
13,841
4,545
43,887
5,791
Firm fixed price
1,303
729
3,690
1,576
Total revenue
$
51,459
$
38,700
$
158,495
$
106,208
Revenue by whether the Company acts as a prime contractor or a subcontractor:
(in thousands)
(in thousands)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2020
2019
2020
2019
Prime contractor
$
47,649
$
36,882
$
147,464
$
103,947
Subcontractor
3,810
1,818
11,031
2,261
Total revenue
$
51,459
$
38,700
$
158,495
$
106,208
6. Leases
11
We have leases for facilities and office equipment. Our lease liabilities are recognized as thepresent value of the future minimum lease paymentsover the lease term. Our right-of-use assets are recognized as the present value of the future minimum lease payments over the lease term less unamortized lease incentives and the balance remaining in deferred rent liability under ASC 840 at September 30, 2019. Our lease payments consist of fixed and in-substance fixed amounts attributable to the use of the underlying asset over the lease term. Variable lease payments that do not depend on an index rate or are not in-substance fixed payments are excluded in the measurement of right-of-use assets and lease liabilities and are expensed in the period incurred. The incremental borrowing rate on our credit facility was used in determining the present value of future minimum lease payments. The Company does not have any finance leases.
Upon the adoption of ASC 842, we recorded operating lease right-of-use assets of $17.4 million, current and long-term operating lease liabilities of $3.6 million and $14.4 million, and a $2 thousand cumulative adjustment to accumulated deficit.
The impact of adopting the standard on our consolidated balance sheet at October 1, 2019 is as follows:
(in thousands)
Ref
September 30, 2019
ASC 842 Adjustments
October 1, 2019
Long-term assets:
Operating leases right-of-use assets
$
—
$
17,398
$
17,398
Current liabilities:
Deferred rent liability - short-term
(a)
44
(44)
—
Operating leases liabilities - current
—
3,645
3,645
Long-term liabilities:
Deferred rent liability - long-term
(b)
276
(276)
—
Unamortized tenant improvement allowance
(c)
297
(297)
—
Operating leases liabilities - long-term
—
14,372
14,372
Shareholders' equity:
Accumulated deficit
(39,555)
(2)
(39,557)
Ref (a): The balance of short-term deferred rent liability was presented in our most recent annual 10K report within accounts payable, accrued expenses, and other accrued liabilities on our consolidated balance sheet at September 30, 2019.
Ref (b): The balance of long-term deferred rent liability was presented in our most recent annual 10K report within total long-term liabilities on our consolidated balance sheet at September 30, 2019.
Ref (c): The balance of unamortized tenant improvement allowance was presented in our most recent annual 10K report within total long-term liabilities on our consolidated balance sheet at September 30, 2019.
The Company executed a modification of a lease during the fiscal quarter ending December 31, 2019 and recognized adjustments to the right-of-use asset and lease liabilities in accordance with ASC 842. As a result of the modification, a gain of $0.1 million was recognized. The gain represents the difference between the change in values of the right-of-use-asset and lease liabilities, which were $7.3 million and $7.2 million, respectively. For the nine months ended June 30, 2020, the increase to right-of-use assets and lease liabilities was $24.7 million and $25.2 million, respectively. For more information, refer to Note 6, Supporting Financial Information.
As of June 30, 2020, operating leases for facilities and equipment have remaining lease terms of 0.8 to 10.8 years.
The following table summarizes lease balances in our consolidated balance sheet at June 30, 2020:
12
(in thousands)
June 30, 2020
Operating lease right-of-use assets
$
22,276
Operating lease liabilities, current
$
1,768
Operating lease liabilities - long-term
21,686
Total operating lease liabilities
$
23,454
The Company's lease costs are included within general and administrative costs and for the three and nine months ending June 30, 2020, total lease costs for our operating leases are as follows: