DLH Holdings Corp.

Good morning and welcome to the DLH Holdings Fiscal 2022 Fourth 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 from the queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Chris Whitty, 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 Catherine John Bull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website on the 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 2023 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. The reconciliation of our non-GAAP results to 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 Catherine 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, everyone. Welcome to our fiscal year 2022 fourth quarter conference calls. Earlier this morning, we posted our quarter and year-end earnings. I am pleased to report that the end of the fiscal year came with record results that position us very well for the future. I must say that the employees, the leadership, and partners of DLH have remained incredibly focused and committed to our clients' missions to allow us to achieve these results. Beginning with slide three, I will first provide a high-level overview of the quarter and year, starting with the top-line results. During Q4, we grew revenue by 3 percent year-over-year to 67.2 million, reflecting organic growth and increased overall demand for our diverse range of programs and services. For the full fiscal year, revenue climbed to $395.2 million, reflecting the COVID-19-related FEMA contracts in Alaska they completed earlier in 2022. The fiscal year was certainly a standout one in terms of top-line performance, yet we are most excited by the numerous opportunities which still lie ahead. I will discuss the outlook more in a moment. We posted fourth quarter operating income of 4.7 million, or 7 percent of sales, and for the full year, 33.4 million, or 8.4 percent of sales. EBITDA was 6.6 million for Q4 and 40.9 million for fiscal 22 as a whole, while we reported EPS of 24 cents per share for the fourth quarter and $1.64 for the year. In addition, we paid down $6.5 million of debt during the quarter, ending the year with $22 million outstanding. Our backlog entering fiscal 2023 was $482.5 million, reflecting seven new multiple award IDIQ wins and three strategic recompete during the year. Turning to slide seven, I wanted to show our track record of performance over the past 10 years. While fiscal 2022 benefited from the contribution of our turnkey FEMA contracts in Alaska, the growth and consistency of our EBITDA margins speak for themselves. I am so proud that we have such a talented, dedicated workforce which leveraging our in-demand advanced technology services and solutions has driven DLH to the high level of operating results that we now enjoy. In addition, the future continues to look bright. If you look at slide five, it provides an overview of current market conditions, which we believe bode very well for the company going forward. It's reassuring to note that our programs and the agencies that we serve, focusing on public health, Department of Defense, veterans, and digital transformation services, continue to enjoy solid, longstanding support in Washington on both sides of the aisle. So while the government is still operating under a continuing resolution, which we expect to be extended, We do not anticipate any major changes to the outlook for FY23. There have been an obvious shift from COVID to Ukraine-related activities for our federal government during the year, as well as expanded regulatory reporting requirements. However, we are confident that this demand, that the demand within our core markets remain very, very strong. There continues to be a commitment throughout the federal government for technology upgrades and overall modernization of agencies and programs within them. This includes, for example, digital transformation and a focus on cloud computing, incorporating cybersecurity, and particularly with regard to health-related information and the Department of Defense. Federal clients are looking for exactly the type of services in which we have been strategically aligned, agile-based innovation and cost-effective solutions to enhance science, research and development, and policy deployment to support critical missions for our nation. While the outside world has had to deal with additional challenges this year, including supply chain constraints and inflationary pressures, the government market for our services has remained quite stable. There has been an increased focus on equitable adjustments leading to higher competition and greater use of multiple award contract IDIQ vehicles. We are effectively managing through these minor headwinds well. and winning new contracts in tandem. In addition, while the tight labor markets continue, we have in place and continue to attract top-notch research and engineering talent to the company. Of this, I am especially proud. I'd like to talk a bit more about the opportunities which lie ahead for DLH. While the federal government's fiscal 2023 budget has yet to be finalized. As we mentioned, we feel confident due to the fact that historically our work has proven to be strong bipartisan support programs. Our business solutions align well with spending priorities in Washington with increased funding expected for the Department of Veterans Affairs, Defense, and Health and Human Services. Importantly, During the past year, DLH was selected as a competitor for future task orders across seven domains of three multiple award IDIQ programs, a $665 million ceiling with the VA, one with a $320 million ceiling with the National Institute of Health, and a large 10-year, $10 billion ceiling omnibus program with the Department of Defense and its health agency. These give us a seat at the table for some very attractive opportunities in the future for which we expect to be bidding during FY23. Such awards with multiple participants are not included in our backlog number, but provide us with meaningful paths to accelerate growth in the quarters to come. So even without affordable budget in place, we remain very optimistic about FY23's continued growth and beyond. At the same time, we have a solid pipeline of strategically aligned M&A transactions that could further improve our market position and offer up new pathways for capability expansion and profitability growth. Our balance sheet remains strong due to the company's robust cash generation and ability to pay down debt, providing the financial flexibility needed for our future success. And yes, while we continue to enjoy excellent free cash flow. With that, I'd like to turn the call over to our Chief Financial Officer, Catherine Johnwell. Catherine?