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Operator
Good day and welcome to the DLH Holdings Corporation third quarter earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone 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, the investor relations advisor. Please go ahead.
Chris Witte
Thank you and good morning everyone. On the call with me today is Zach Parker, President and Chief Executive Officer, and Katherine Jambal, 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 10K and in our other filings for 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. Every conciliation of our non-GAAP results to our reported GAAP results is included in the earnings release and in the investor presentation on DLH's website. President and CEO Zach Parker will speak next, followed by CFO Katherine Jambal, 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.
Zach Parker
Thank you, Chris, and good morning everyone. Welcome to our third quarter conference call. I couldn't be more pleased with our performance, and we're on track with our best year ever with even greater plans in place for fiscal 2022. I remain very proud of our tremendous employees across the globe who continue to deliver top quality services and solutions to our clients despite very challenging times. Starting with slide three, I'll first provide a high-level overview of the quarter and some color on the outlook for the rest of 2021. Revenue rose nearly 20% -over-year to 61.6 million as we benefited from the acquisition of IBA along with organic growth across the enterprise. We posted operating margins of 8% reflecting a strong mix of programs and earnings of 2.9 million or 21 cents per share. We also generated some 9.3 million of cash from operations and used this to pay down approximately 9 million of debt during the quarter. Near the date, we've paid down roughly 16.2 million of debt due to the company's strong cash-generating ability. We continue to de-labor and improve our overall financial flexibility, as Catherine will discuss more in a moment. We previously announced that we had won the VA's CMOP Medical Logistics Award in the third quarter, which was expected to add over 200 million in contracted value over a five-year period to our backlog. During the quarter, this contract was protested by a small business bidder, and the government continues to work through their standard process, addressing the concerns, and to proceed to a resolution and award. In the meantime, the company's Medical Logistics CMOP contract was extended through November 2021, and our backlog remains robust even as we await resolution on this contract, for which, of course, we expect a favorable outcome. Now, turning to slide four, I'd like to update our investors on our long-term strategy of success, which includes and continues to evolve as we grow the company. Given our track record of successfully integrating acquisitions, delivering excellent performance on large nationally dispersed programs, and expanding our healthcare technology capabilities, we believe that DLH has enhanced its position for growth within the markets that we serve. While several long-term anchor contracts give us visibility and stability regarding a portion of our revenue base, our diversification strategy has given us a presence across all, across the full range of federal health and military health systems and services with key programs and agencies in our sights. We continue to serve the citizens, the soldiers, the service members, and our veterans. However, even as we've expanded, we've remained focused on our formula for success, serving clients where they can truly bring value-added, real-world solutions to address the healthcare needs of today and tomorrow. Our services are leveraging an expanded set of technology solutions, but our targeted agencies are largely the same, as this is our dedication to our strategy and to the utmost in customer service. We continue to hire the best and the brightest, leveraging talent that we bring from a variety of healthcare-related industries and companies. We've built a foundation for strong, long-term growth with a professional, highly credentialed workforce that can compete and win against the most respected names in the industry. Therefore, we've been able to see revenue rise to a level of nearly $250 million annually, and we are confident that we are well-positioned to grow to our next revenue target of $500 million based on our existing platform, including research, technology, healthcare delivery, and performance management. The past year during a pandemic has shown that our services are more valuable than ever and that our workforce is flexible, committed, and can adapt to rapidly changing requirements in terms of working remotely, interacting with customers in new ways, and winning business that leverages our expertise in digital transformation, artificial intelligence, advanced analytics, cloud-based applications, modeling and simulation, telehealth systems, and more. And we've accomplished all this in a sensible way in terms of capital deployment. By accessing our credit lines to make acquisitions and invest in the business, we prevent frequent equity dilution of our existing shareholders. We then use our prodigious cash flow generation to pay down debt and strengthen our balance strategy, which enables us to replicate this process. We've used this strategy consistently, leading to a refined acquisition process that maximizes shareholder returns and growth on capital deployment. We remain well-positioned to take advantage of the opportunities ahead and are confident that as we near fiscal 2022, the company will continue posting solid financial results. Our backlog remains strong and we will capitalize on the increasing need for technology-enabled healthcare solutions for which we are so well known and respected. I feel confident in our ability to provide the returns our shareholders have come to expect, just as I am proud of our staff and partners in performing so well during such unusual times. With that, I'd like to turn the call over to our Chief Financial Officer, Katherine Joplin. Katherine?
Katherine Joplin
Thank you, Zach, and good morning, everyone. We're pleased to have once again posted solid results this quarter. Turning to slide six in the presentation, we posted revenue of $61.6 million for the -month-ended June 30, 2021, versus $51.5 million in the prior year's third quarter. The variance reflects the impact of roughly $7.3 million in revenues tied to the acquisition of IBA, along with organic growth across a variety of existing programs that saw increased activity this year. We anticipate such trends to continue in the fourth quarter and into fiscal 2022. As Zach mentioned, our CMOP Logistics Award is being protested, so we're operating under an extension of the prior award through at least November. We remain optimistic about favorable outcome of the award. Turning to slide seven, income from operations was $4.9 million for the fiscal 2021 third quarter versus $3.8 million last year. Operating margins improved to 8% from .4% in fiscal 2020, reflecting favorable program mix and greater operating leverage. We reported net income of approximately $2.9 million or $0.21 per deleted share versus $2.1 million or $0.16 a share last year. DLH recorded a provision of $1.2 million and $0.9 million for tax expense during the fiscal 2021 third quarter and fiscal 2023 third quarter respectively. Interest expense in the current year quarter increased to $0.9 million versus $0.8 million for the three months ended June 30th, 2020 due to higher outstanding debt levels reflecting the acquisition of IBA. Turning to slide eight, EBITDA for the third quarter of fiscal 2021 was $7 million versus $5.5 million in the prior year period. As a percent of sales, EBITDA rose to 11.3 this quarter versus 10.7 last year. A reconciliation of gap net income to EBITDA is provided in our earnings statement and in the back of this presentation. Slide nine gives an updated snapshot of our debt position at the end of the third quarter. As of June 30th, we had $53.8 million of debt outstanding under our credit facilities versus $62.8 at the end of last quarter. We generated approximately $9.3 million of operating cash flow during the quarter and paid down roughly $9 million of debt. We estimate debt below $50 million at the end of fiscal 2021, reflecting a stronger balance sheet and much lower leverage ratio than at the beginning of the year. This concludes my discussion of financial statements. With that, I would now like to turn the call over to the operator to open for questions.
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question will be from Joe Gomez of Noble Capital. Please go ahead.
Joe Gomez
Good morning. Nice to have you here. Thank you for my questions. How are you doing, Joe? Doing well here. We are doing well. Hopefully the same for you guys this summer. Absolutely. First question, you saw some organic growth in the quarter. The last year or so, you pointed out the absence of travel-related pass-through revenues. I was just wondering, have they returned that help pump up the organic growth? Are we still waiting for those types of revenues to come back?
Zach Parker
Those are still slow to come back. We are starting to see some plans that were predetermined before the Delta variants started to come into place. We are starting to see plans where later this year we will start to do more of that travel. Even though mobility has substantially increased in our country, we are still looking at, since ours involves inspections and being around some of our clients and ultimately some of our team members, we are still proceeding very cautiously that way. The majority of the organic growth has been with delivery of key talent for our customers and we are pleased to see that.
Joe Gomez
Great. Thanks for that. On the logistics contract, maybe you can give a little more color as to what exactly caused the VA to cancel that contract. I know you had some verbiage in there in the press release, but maybe we can get a little more color there. When do you know when you are going to get the award?
Zach Parker
I think it
Joe Gomez
is
Zach Parker
a pretty common course now that when there are large contracts such as this one for the VA that the government will frequently see an incumbent on the VA to get the award. When you have a large number of potential bidders as well that have made the investment to pursue work of this magnitude, they are very focused on seeing if there is an opportunity for them to have a shot at it. It is a pretty normal course of action nowadays to see a protest that is going to rise on contracts of this magnitude. Regarding the process, the VA is consistent with all of the federal agencies that they have to run through the due course to evaluate, to treat seriously any protests. This particular one happened to be from a small business, a service disabled veteran owned small business. They are going through their normal course of action to adjudicate and ultimately make sure that they can make an award that is consistent with the requirements. We, however, remain pretty optimistic that our proposal and commitments in that effort will prevail, but it is going to have to run as usual course. We are going to have to get into it now a couple of months.
Katherine Joplin
The basis of our confidence is a couple of fold. Firstly, the nature of the procurement is the best value of procurement. In the best interest of the government from our perspective, our strong performance and the quality and cost effectiveness that we have introduced over many years of working in support of the VA from our perspective represents the best interest of the government. That is the basis of our confidence in a
Joe Gomez
successful outcome. Great. Thanks for that update. Last quarter, you talked about some of the opportunities set that you are seeing over the next couple of years. I was wondering if you might be able to give us a little more update as to what are you seeing in the near term that could be coming up for an award that you are pretty confident or hope to see winning those awards.
Zach Parker
Yes, great recall there. We still remain optimistic that the bids coming out of our pipeline will mature. This has been a very heavy proposal development quarter for us, one of the largest we have seen in a while. A couple of our strategic opportunities that really position were great examples of positioning the DLH as a result of the capabilities we acquired over the last few years have just now hit. There are a couple of large scale indefinite quantity, multiple award contracts that will determine the opportunities of the next two years that are releasing out. One for the defense health agency which involves military health research. Obviously the capabilities that were derived from IBA and S3 were critical towards raising our We are also in the flows as we speak of one of the large IDIQs associated with biomedical research and IT systems. It now is on the street. And anticipating having the proposal delivered and completed We have identified a large number of task orders that we think are very In addition to that, the normal course of regular opportunities, we continue to see some of our major ones slip to the right. However, we are still optimistic that we will see even more this remaining fiscal year. We do expect a continuing resolution in all indications, the budget process while moving along. The seminal is still very active in doing the write-ups. And just not optimistic that with the infrastructure bill everything will be resolved by 30 September. Having said that, we do think there is still a good number of opportunities for us to have some continued organic wins. And that will lead to a good launch point in FY 22.
Joe Gomez
Thank you for that. Let me ask one more and I will jump back into Q. In your Q you kind of mentioned here, we are leading right into about the potential for continuing resolution for the budget. And in the Q you talk about some of the budgeting proposals being made for some of the various budget proposals. For example, for the VA and Health and Human Services, looking at the potential budget proposals there, anything that jumps out as a huge positive in your guys' view or anything that would be on the flip side, kind of disappointing from your viewpoint, looking at the proposed budget proposal for today?
Katherine Joplin
Yeah, our general assessment of the budget proposals is that they are not surprisingly extremely favorable to the agencies that really support Health and Human Services initiatives. So from our perspective, we think that while we understand there is quite a bit of the process to still play out to get to the final number, we think the general sentiment is that those programs are highly, highly supported and from a bipartisan perspective and of course the veterans always enjoy strong support from both sides of the aisle and they did get a very nice proposal for an estimated increase in their budget. But in addition to that, not surprisingly, there is a substantial increase in the NIH funding, of course in the ongoing, as we said consistently for the last several months. We are just exiting phase one triage critical response and sadly we may end up having to go back there a little bit just given what's going on with the variants. But naturally we expect that there will be a long tail for scientific analysis and study of the impact of the coronavirus, COVID-19, both independently and its effect on comorbidities for the public health populations that we study. So we're not surprised to see the increase, but we do think it validates that the country is positioned to really focus on those sustaining health issues that really affect so many people. And we think we are extremely well positioned with the skills required to respond to those opportunities. Just going back and doubling back a little bit on those IDIQs that Zach mentioned, really very gratifying. It was the intent of our first phase acquisition program to build a full set of capabilities to be prepared to fully respond even without reliance on teammates, though of course real team were appropriate, but our own independent capability to fully respond to those very large IDIQ vehicles and be positioned to have the hunting license as the task orders mature is a key part of our fundamental strategy over the last few years. And it's validated by now our response to those large RFPs. So we're certainly bullish on the opportunities we enjoy both organically and those things that will evolve out of the budget plus ups that we see evolving.
Joe Gomez
Great. Thank you for answering my questions. I'll jump back and queue. Oh, it's great to hear from
Katherine Joplin
you,
Joe Gomez
Joe. Yeah, thank you, Joe. Thank you.
Operator
The next question will be from Brian Kinslinger of Alliance Global Partners.
Brian Kinslinger
Hey, Brian. Thanks for taking my questions. How are you?
Zach Parker
Good,
Brian Kinslinger
and yourself? Doing great. One of the questions I had, maybe I missed it, is can you provide the basis for the small business that protested? Was it not enough small businesses being evaluated? Was it they thought they had the best value? What was the basis that was upheld?
Zach Parker
Yeah, there's a little bit of information that's publicly available on the basis of the protest. You can usually find those at gao.gov. And so we really just don't get into specifics. We know nothing more than what's publicly available in that regard. But we do know that the VA has started to operate in this due course to win their opinion. And each one of our previous proposals on these CMOP contracts, they've always sustained a protest. The VA has gone through this process and ultimately prevailed. And the optimist states that the same will occur here.
Brian Kinslinger
Okay, but just to be clear, the protest was upheld. And so it's going through a new proposal or they're still evaluating that?
Zach Parker
No, yeah. They always find some way to suspend the award so that we're not starting on new contracts until such time that they go through what's usually a 120- or 180-day process depending on the nature of it.
Brian Kinslinger
Sorry, when you said cancel the contract, I get it. That was the wording that confused me of whether it was upheld and being repurposed. And so the answer is no, it's not being repurposed, yet they're evaluating the protest.
Zach Parker
That's correct. Is that
Brian Kinslinger
right? Okay, good. And then my second question for Judy, as you pay down debt with cash flow, at what point, again, do you get comfortable in evaluating M&A opportunities?
Katherine Joplin
We remain active in that space regardless of transactions that we've just closed, so we never really stop looking. But certainly once we flip below three times leverage, which we're well, well below right now, we would expect that we've got capacity to execute on a deal. Having said that, even if we were over three times, we have an extremely supportive lending group that is responsive to opportunities as they come up for us. Okay, thanks so much. Thank you for joining us, Brian.
Operator
Again, if you have a question, please press star, then one. At this time, there appears to be no further questions in the queue. I would like to turn the conference back over to Zach Parker for any closing remarks.
Zach Parker
Thank you, Kari. And once again, thank you all for your attention and interest and continued support of DLH. We look forward to following up with you as we approach our year end and to give you some color not only around the results for FY21, but our future forecast and our vision for what's yet to come. Thank you again. Have a blessed day. Bye for now.
Operator
Thank you. The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.
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