DLH Holdings Corp. Q2 FY2025 earnings call

• Zach Parker acknowledged the team's performance and mentioned financial results were in line with expectations, with debt reduced by $15.3 million. - Highlighted new business pipeline over $1 billion in contracts under review, and a win with the U.S. Army's Medical Research and Development Command. - Kathryn JohnBull discussed revenue, EBITDA, cash flow, debt paydown, and that DLH is contracted with at least 5 CMOP locations through October 2025. - Emphasized alignment with the administration's priorities on efficiency, cost-cutting, and digital transformation.

In the second quarter of Fiscal 2025, DLH reported revenue of $89.2 million, down from $101 million in the prior year period. Revenue contraction due to small business set aside conversions was approximately $11.8 million. Key technology services revenue grew sequentially. EBITDA was $9.4 million for the quarter, down from $10.2 million last year, with EBITDA margin at 10.5% compared to 10.1% in fiscal 2024. The company generated approximately $14.5 million of operating cash during the quarter, reducing debt by $15.3 million to end the period with $151.7 million outstanding. Year-to-date operating cash flow was $3 million versus $10.3 million last year.

• Expect award decisions in the second half of the fiscal year from over $1 billion in contracts under review. - CMOP locations are under contract through the end of 2025, with quarterly revenue run rate expected to be around $23 million to $25 million for remaining extended locations. - Q3 activities continued clearing receivable backlogs, and the de-levering strategy puts DLH comfortably ahead of debt covenants. - Bid activity is accelerating as the government's fiscal year nears.

• Collection delays last quarter led to cash usage and short-term debt increase. - Uncertainty around small business set asides and unbundling/rebidding of contracts. - Administrative process delays in contract awards, including political appointee oversight and agency resource changes affecting contract actions.

Q: How much contribution might CMOP have for the rest of the year?

A: Kathryn JohnBull said the quarterly run rate for remaining extended CMOP locations is expected to be around $23 million to $25 million.

Q: Were DLH involved in the NIH women's health study shutdown?

A: Zach Parker said DLH was not involved, and the administration's actions on grant-funded studies have limited impact on DLH's book of business.

Q: When might small business set asides peter out as a quarterly call item?

A: Zach Parker said it will likely peter out around the end of Q3, with revenue trailing after that.

Q: Update on the $76 million Navy award contract?

A: Zach Parker said the contract is continuing to grow, with phased-in aspects, expansion in Norfolk and San Diego areas, and potential growth in early FY 2026.

Q: Are most $1 billion awards in the second half related to IDIQs and RFPs?

A: Zach Parker said they are seeing activity with IDIQs, RFIs being issued, but administrative processes are causing delays in contract awards