Quick10K

DLH Holdings

Price	6.55		EPS	0
Shares	13		P/E	16
MCap	85		P/FCF	5
Net Debt	54		EBIT	9
TEV	140		TEV/EBIT	16
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-05 Print
10-Q	2020-03-31	Filed 2020-05-06 Print
10-Q	2019-12-31	Filed 2020-02-05 Print
10-K	2019-09-30	Filed 2019-12-11 Print
10-Q	2019-06-30	Filed 2019-08-05 Print
10-Q	2019-03-31	Filed 2019-05-07 Print
10-Q	2018-12-31	Filed 2019-02-13 Print
10-K	2018-09-30	Filed 2018-12-12 Print
10-Q	2018-06-30	Filed 2018-08-06 Print
10-Q	2018-03-31	Filed 2018-05-15 Print
10-Q	2017-12-31	Filed 2018-02-13 Print
10-K	2017-09-30	Filed 2017-12-12 Print
10-Q	2017-06-30	Filed 2017-08-10 Print
10-Q	2017-03-31	Filed 2017-05-11 Print
10-Q	2016-12-31	Filed 2017-02-09 Print
10-K	2016-09-30	Filed 2016-12-09 Print
10-Q	2016-06-30	Filed 2016-08-10 Print
10-Q	2016-03-31	Filed 2016-05-16 Print
10-Q	2015-12-31	Filed 2016-02-09 Print
10-K	2015-09-30	Filed 2015-12-16 Print
10-Q	2015-06-30	Filed 2015-08-05 Print
10-Q	2015-03-31	Filed 2015-05-06 Print
10-Q	2014-12-31	Filed 2015-02-04 Print
10-K	2014-09-30	Filed 2014-12-10 Print
10-Q	2014-06-30	Filed 2014-08-06 Print
10-Q	2014-03-31	Filed 2014-05-07 Print
10-Q	2013-12-31	Filed 2014-02-05 Print
10-K	2013-09-30	Filed 2013-12-10 Print
10-Q	2013-06-30	Filed 2013-08-13 Print
10-Q	2013-03-31	Filed 2013-05-14 Print
10-Q	2012-12-31	Filed 2013-02-12 Print
10-K	2012-09-30	Filed 2012-12-14 Print
10-Q	2012-03-31	Filed 2012-05-15 Print
10-Q	2011-12-31	Filed 2012-02-14 Print
10-K	2011-09-30	Filed 2011-12-02 Print
10-Q	2011-06-30	Filed 2011-08-15 Print
10-Q	2011-03-31	Filed 2011-05-16 Print
10-Q	2010-12-31	Filed 2011-02-17 Print
10-K	2010-09-30	Filed 2011-02-14 Print
10-Q	2010-06-30	Filed 2010-08-16 Print
10-Q	2010-03-31	Filed 2010-05-17 Print
10-Q	2009-12-31	Filed 2010-02-16 Print
10-K	2009-09-30	Filed 2010-01-19 Print

8-K	2020-10-07	Earnings, Regulation FD, Exhibits
8-K	2020-10-01	Other Events, Exhibits
8-K	2020-09-30	Enter Agreement, M&A, Off-BS Arrangement, Shareholder Rights, Exhibits
8-K	2020-09-15	Exhibits
8-K	2020-08-31	Amend Bylaw, Exhibits
8-K	2020-08-05
8-K	2020-07-31	Exhibits
8-K	2020-07-21	Regulation FD, Exhibits
8-K	2020-07-13	Other Events, Exhibits
8-K	2020-05-06
8-K	2020-03-25
8-K	2020-03-17
8-K	2020-02-11
8-K	2020-02-05
8-K	2019-12-17
8-K	2019-12-16
8-K	2019-12-10
8-K	2019-10-21
8-K	2019-10-16
8-K	2019-10-15
8-K	2019-09-09
8-K	2019-07-31
8-K	2019-07-01
8-K	2019-06-10
8-K	2019-06-07
8-K	2019-05-06
8-K	2019-03-21
8-K	2019-03-21
8-K	2019-02-14
8-K	2018-12-28
8-K	2018-12-13
8-K	2018-11-15
8-K	2018-08-06
8-K	2018-06-04
8-K	2018-05-15
8-K	2018-05-10
8-K	2018-02-08
8-K	2018-02-06

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Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

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PART I — FINANCIAL INFORMATION

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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.

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 than 30 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.

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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.

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.

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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.

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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.

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.

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        The following table summarizes the contract balances recognized on the Company's consolidated balance sheets:

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									(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:

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						(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:

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						(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:

Copy History

						(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

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We have leases for facilities and office equipment. Our lease liabilities are recognized as the present value of the future minimum lease payments over 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:

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(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:

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Copy History

			(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:

Copy History

(in thousands)

Three Months Ended

Nine Months Ended

June 30, 2020

June 30, 2020

Lease Costs:

Operating

$

834