DLH Holdings Corp. (DLHC) Earnings

Management highlights

### Leadership Transition - A planned leadership transition was completed, with Kathryn JohnBull stepping into the role of President and CEO and Steve Oroho becoming CFO; former CEO Zach Parker remains on the board and serves as a consultant supporting strategic growth initiatives - The new leadership's core priorities are disciplined customer execution, organic growth, employee development, and continued shareholder value creation; the transition focuses on sharpening focus on DLH's core strengths rather than an organizational overhaul ### Contract and Operational Updates - The government contracting environment has shown improved clarity and stability compared to fiscal 2025 and early fiscal 2026, when shutdown risks and budget uncertainty significantly slowed federal procurement activity - DLH was awarded a new multiple award IDIQ contract to provide logistics and IT services to the U.S. Navy's Naval Air Systems Command (NAVAIR), a new customer for the firm; the company will compete for task orders under this contract vehicle - The legacy VA CMOP program has fully transitioned to small business contractors, marking the completion of the company's portfolio shift to exclusively technology-powered solutions - Cost scaling initiatives to align indirect costs with current expected revenue volumes are materially complete, with only a small residual tail of activities expected in the fourth quarter ### Financial Strategy - Balance sheet deleveraging remains a core corporate priority; the company is currently nearly nine months ahead of its mandatory term loan repayment schedule and remains in full compliance with all financial covenants

Guidance

- Fourth quarter fiscal 2026 revenue is expected to be at a similar level to third quarter fiscal 2026, around $38 million in technology-powered solutions revenue - Gross margin on technology-powered solutions is expected to return to historical levels of ~20%, with G&A expense expected to run at $4.5 million to $5 million per quarter, equal to roughly 11% to 12% of annualized revenue at the current scale - Total debt levels are expected to remain relatively stable through the end of fiscal 2026, with accelerated debt reduction set to resume in fiscal 2027 following the full realization of cost cutting benefits - The long-term target of 9% to 10% adjusted EBITDA margin remains in place; management expects to reach this target with modest organic growth over the coming quarters - Near-term growth will primarily come from expanding scope on existing contracts and pursuing smaller

Segment performance

After the legacy VA CMOP program completed its transition to small business set-aside contractors this quarter, DLH now operates exclusively through its technology-powered solutions product segment. For the three months ended June 30, 2026: Total company revenue was $44.2 million, with technology-powered solutions contributing $38 million, accounting for approximately 86% of total third quarter revenue. GAAP results included $3.3 million in eliminated recurring costs and one-time costs associated with completed cost scaling initiatives. Adjusted EBITDA for the quarter was $3.4 million, equal to 7.7% of total revenue. The company generated $4.2 million in free cash flow during the quarter, all of which was used for debt reduction. Total debt at quarter end was $128.7 million, down $4 million from the prior quarter end.

Risks & headwinds

- Federal government procurement timelines, award decisions, and strategy remain subject to uncertainty, even with recent improvements in clarity; award outcomes depend on customer timelines and formal procurement processes that are outside of DLH's control - Political and leadership instability at certain federal agencies, particularly the CDC, creates uncertainty around the pace of conversion of opportunities into revenue, leading management to take a cautious near-term view on this segment of the portfolio - The cancellation of the planned CIOS P4 IDIQ vehicle, which DLH had pursued for the civilian agency segment, eliminated a long-expected growth vehicle and required DLH to shift its strategy for this market to existing alternative contract vehicles

Analyst Q&A

• Q: With the VA CMOP program completed and cost scaling initiatives finished, what gross margin and G&A levels can be expected at an annualized revenue level of ~$160 million for technology-powered solutions? /

  A: Management expects gross margin to return to a historical level of ~20%. Cost scaling flattened the organization's management layer, allowing more program profit to flow to the bottom line. G&A expense is expected to run at $4.5 million to $5 million per quarter, which equals roughly 11% to 12% of revenue going forward.

• Q: Can you update on DLH's IDIQ contract strategy, current IDIQ portfolio, and procurement trends for these government contract vehicles? /

  A: Government procurement strategy is still in flux but is gaining clarity after the cancellation of the CIOS P4 IDIQ that DLH had pursued. The government is shifting general services to GSA Schedule contracts, which DLH already holds, and using smaller, more focused IDIQ vehicles with limited competition for specialized work. Quiet IDIQ contracts won in prior years are now starting to release new opportunities, and management welcomes the new clarity driving improved order flow.

• Q: Which federal agencies have the strongest near-term spending outlook, and are any showing divergent procurement trends? /

  A: Civilian agencies including NIH and HHS currently have more stable procurement outlooks. The CDC has more uncertainty due to political and leadership headwinds, so management takes a more cautious view of near-term revenue conversion there. Visibility across all agencies is significantly improved compared to one year prior, even if it has not returned to pre-2025 normal levels.

• Q: Is DLH's long-term target of 9% to 10% adjusted EBITDA margin still in place, and what revenue level is needed to hit this target? /

  A: The 9% to 10% adjusted EBITDA margin target remains intact. Margin will grow incrementally as operating leverage increases with new growth. Management expects to reach this target with only modest growth over coming quarters, with near-term growth opportunities focused on expanding scope on existing current contracts.