DLH Holdings Corp.

Good day and welcome to the DLH Holdings Fiscal 2021 Second Quarter Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Chris Witte, Investor Relations Advisor. Please go ahead.

Thank you, and good morning, everyone. On the call with me today is Zach Parker, President and Chief Executive Officer, and Kathryn JohnBull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on slide two of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2021 and beyond. These forward-looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP financial measures. and reconciliation of our non-GAAP results for our reported GAAP results is included in our earnings release and in the investor presentation on DLH's website. President and CEO Zach Parker will speak next, followed by CFO Kathryn JohnBull, after which we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach.

Thank you, Chris, and good morning to everyone. And a special thanks to the troops within DLH that continue to drive Great performance, productivity, and quality to our customers, our managers, and to our shareholders. During these difficult times, I just can't say enough about the courage experienced and delivered by our workforce. I'd like to welcome the shareholders to the second quarter conference call. We've continued to post solid results this fiscal year, and I remain optimistic about the quarters to come. Starting with slide three, I'll first provide a high-level overview of the quarter and some color on the outlook for fiscal 21. The second quarter was certainly one of accomplishment, with revenue rising 12% to a new record $61.5 million, as we continue to benefit from strong performance from our recent IVA acquisition, Our AMS business unit and solid results across the board. The sales increase was followed by higher operating margins at 7.5% and earnings of 2.6 million or 19 cents per share. We were also able to resume our debt prepayments this quarter as Kathryn will review in a moment. and closed out the period with a backlog just shy of 610 million. And then, of course, shortly after the end of the quarter, we announced that DLA had once again won our VA CMOP medical logistics contract, adding over 200 million in contracted value over a five-year period. With that in tow, we will have a backlog in and around 800 million This will certainly set the foundation for growth beyond. Turning to slide four, I'd like to update our investors on DLH's business outlook given the variety of issues impacting our industry. Again, first of all, I want to expand on the comment I made a moment ago about the CMOP and our recent award. As many of you likely already know, we have served this program under the VA for over two decades, so the win was certainly not unexpected by us. However, the award had been delayed due to several reasons during the procurement process. at the VA considered proposals from various tiers of small businesses for potential set-aside contract. Ultimately, they moved through each of those set-aside tiers from consideration and evaluated proposals from large business, only the large business tier. That competition was eventually awarded to DLH. As a reminder, this program functions as a virtual extension of the VA's Medical Center Pharmacy. Last year, we processed over 120 million prescriptions from seven locations nationwide. While this mail-order service has always been important for our veterans, the COVID-19 pandemic has continued to demonstrate its value at a level that the VA had not experienced before, and we are thrilled to continue to provide Prescriptions, medications, and med-surg products to our various service members in this fashion. We're of course waiting for the VA to make a decision on the other part of the pharmacy support for the CMOT and that acquisition has not restarted. The contract when finalized will likely also be worth in the neighborhood of 250 mil over five years. So we look forward to that acquisition beginning. On another front, as you know, as the country continues to make progress with COVID-19 vaccinations and, of course, various states move towards reopenings and increased mobility, several of our programs that have experienced revenue erosion over the recent year attributed to COVID-19 may begin to see a resurrection in the fall timeframe. As you may recall, Our digital transformation team under Helene Fisher's operation had implemented a new system that reduced costs, increased efficiencies through a major business process reengineering effort. While that achievement reduced our Head Start-related revenue once implemented entering the fiscal year, We did not anticipate further reduction due to COVID-induced reductions in a couple of very key processes. Both of those key processes involve travel, site reviews, inspections, and things of that nature. The program will truly benefit as restrictions are eased. and we're again hopeful that perhaps by fall timeframe we'll start to recover that revenue stream and help to deliver a higher quality to our grantees across the nation. In the meantime, we continue to qualify and pursue a strong set of growth opportunities from strategically small opportunities to very large opportunities.