DLH Holdings Corp. Q4 FY2025 earnings call

• Employees were highlighted as crucial to DLH's success over the past year.
• Achievements included CMMC Level 2 Certification, an award with the National Institute of Health, and an extension of a VA IDIQ contract to continue pharmaceutical and medical logistics services.
• DLH has made progress with tools like DLH Cyclone, an AI/ML-powered data science engine, and has a strong pipeline of opportunities north of $3 billion.
• The company has reduced debt by $10.7 million during the quarter, with all mandatory term debt payments made through September 30, 2026, a year ahead of schedule.

In the fourth quarter of fiscal 2025, DLH Holdings Corp reported revenue of $81.2 million, down from $96.4 million in the prior year period. The decline was due to contract awards, program timing, contract unbundling, and conversion of certain programs to small business set-aside contracts. For the full year, revenue was $344.5 million. EBITDA in the fourth quarter was $6.6 million vs. $10.7 million last year, with EBITDA as a percent of revenue at 8.1% compared to 11.1% in fiscal 2024. Cash generated during the quarter was approximately $10.7 million, leading to a year-end debt balance of $131.6 million after a $10.7 million reduction during the quarter. Full year EBITDA was $34 million, and free cash flow was $23 million.

• Optimistic about growth opportunities in the addressable market for fiscal 2026 and beyond.
• Pipeline of qualified opportunities is north of $3 billion over a 24-plus month period.
• Expectation to return to historical gross and EBITDA margins as growth in defense and nondefense work, particularly in digital transformation and cybersecurity, materializes.

• Impact of government contract set-aside changes, including contract unbundling and transition to small business set-aside contractors, which affected revenue from certain contracts.
• Uncertainty around timing and outcome of contract awards, particularly with respect to CMOP and other potential contracts.

Q: Regarding the Head Start program, whether DLH protested and the status?

A: DLH was not a participant in the protest effort as the Biden administration's executive order led to the direction of moving Head Start to small business set asides, and DLH wasn't involved in protests for that work.

Q: On CMOP, best guess on when remaining 2 awards are made and if DLH could get subcontracts?

A: Decisions on remaining CMOP awards anticipated in coming quarter or 2; DLH removed bids from joint venture on CMOP and supported small business partners on some, but details on remaining awards pending.

Q: When would DLH return to historical gross and EBITDA margins?

A: Optimistic due to growth in defense and nondefense work, including digital transformation and cybersecurity. Anticipates some awards in calendar Q1, with pipeline of proposals and potential awards, though contract structures will impact margin generation.

Q: Size of the pipeline today?

A: Pipeline is very strong, north of $3 billion, consisting of qualified opportunities over a 24-plus month period