DLH Holdings Corp, a leading provider of innovative healthcare services and solutions to federal agencies, announced financial results for its fiscal fourth quarter and year ended September 30, 2017. 

Highlights

• Fourth quarter revenue of $30.4 million, up 12.1% over the fourth quarter of fiscal 2016, representing the first quarter of fully comparable results following 2016 acquisition

• Full fiscal year 2017 revenue of $115.7 million, up 35.1% year-over-year

• Gross margin of 23.9% for the fourth quarter and 22.3% for the fiscal year versus 23.0% and 20.8%, respectively, for the fourth quarter and full year of fiscal 2016

• Diluted earnings per share of $0.08 for the quarter, $0.27 for the fiscal year

• Cash flow from operations of $6.5 million in fiscal 2017

Management Discussion
"Fiscal 2017 was another successful year for DLH and one in which we expanded margins, posted top line growth, and positioned the Company for continued solid financial results in the quarters to come," stated DLH President and Chief Executive Officer Zach Parker. "We surpassed $30 million in revenue for the fourth quarter, up 12% year-over-year, highlighting the underlying strength of our core healthcare-related services as well as the key federal agencies we serve. We also generated $6.5 million of cash from operations this past year even as we invested in business development initiatives to grow the Company. The actions we've taken - and continue to take - should result in incremental customer penetration, higher-value contracts and, ultimately, revenue acceleration going forward. Given the opportunities that we're currently bidding on, and the overall demand dynamics of the markets we serve, we are optimistic about the potential for strong operating performance in fiscal 2018." 

Results for the Three Months Ended September 30, 2017
Revenue for the fourth quarter of fiscal 2017 was $30.4 million, up $3.3 million, or 12.1%, over the prior-year fourth quarter. This top line growth reflects the expansion of services on existing contract vehicles throughout the business and small new contract awards.

Gross profit was $7.3 million for the quarter, an increase of $1.0 million, or 16.4%, over the fourth quarter of fiscal 2016.  As a percent of revenue, the Company's gross margin was 23.9% versus 23.0% in the prior-year period. General and Administrative ("G&A") expenses were $4.6 million for the quarter, an increase of $0.5 million over the fiscal 2016 fourth quarter. The year-over-year increase reflects the timing of incentive compensation accruals and investment in business development and management resources to grow DLH's business. As a percent of revenue, G&A expenses were 15.2% in both periods.

Depreciation and amortization for the quarter was $0.5 million versus $0.8 million in the prior year period, due to the impact of completing the Company's valuation and purchase price allocation for its 2016 acquisition.

Income from operations was $2.1 million for the quarter versus $1.3 million in the prior-year period. This increase reflects gross profit improvement of $1.0 million, partially offset by higher expenses as described above. Income before taxes was $1.8 million for the quarter, an improvement of approximately $1.0 million over the prior-year period.

Net income for the fourth quarter of 2017 was approximately $1.0 million, or $0.08 per diluted share, versus $2.4 million, or $0.20 per diluted share, in the prior-year period. DLH recorded a $0.8 million provision for tax expense during the quarter, versus a tax benefit of $1.6 million in fiscal 2016, with the latter reflecting the release of a portion of DLH's valuation allowance in connection with its deferred tax assets expected to be realized in future years.

On a non-GAAP basis, Earnings Before Interest Tax Depreciation and Amortization ("EBITDA") adjusted for other items ("Adjusted EBITDA") for the three months ended September 30, 2017 was approximately $2.7 million versus $2.2 million in the prior-year period.

Results for Year Ended September 30, 2017

DLH posted revenue for the full year ended September 30, 2017 of $115.7 million, an increase of $30.1 million, or 35.1%, over the prior-year period. This increase was primarily due to the acquisition completed in May 2016 and the expansion of services on existing contract vehicles.

Gross profit was $25.9 million, an increase of $8.0 million, or 45.0%, year-over-year on higher revenue and improved operating performance. As a percent of revenue, the Company's gross margin was 22.3% in fiscal 2017 versus 20.8% in fiscal 2016. The higher gross margin was primarily due to the impact of more complex contracts acquired in 2016, and overall effective program management. 

G&A expenses were approximately $17.5 million, up $4.9 million, or 39.5%, versus fiscal 2016. As a percent of revenue, G&A expenses were 15.1%, as compared to 14.6% last year, reflecting the impact of the acquisition as well as investment in business development and management resources to grow the Company's business. 

Income from operations for the year ended September 30, 2017 was $6.6 million, an increase of approximately $2.6 million versus fiscal 2016.  This improvement was primarily due to $8.0 million of higher gross profit, partially offset by the increase in expenses previously described. Income before taxes for the 2017 fiscal year was $5.4 million compared to $2.4 million for fiscal 2016, which included approximately $0.8 million of acquisition-related expenses.

Net income for the year ended September 30, 2017 was $3.3 million, or $0.27 per diluted share, compared to $3.4 million, or $0.30 per diluted share, for fiscal 2016. The decrease year-over-year was attributable to the higher tax provision in fiscal 2017. For the twelve months ended September 30, 2017 the Company recorded a $2.1 million provision for tax expense versus a tax benefit of $0.9 million in the prior-year period, when a portion of DLH's valuation allowance was released in connection with its deferred tax assets expected to be realized in future years. The majority of this benefit was recorded in fiscal 2014 and 2015, with a smaller, residual adjustment in fiscal 2016.

Adjusted EBITDA for the year ended September 30, 2017 was $9.0 million, an improvement of approximately $3.3 million, or 56.7%, over the prior-year period.  Growth was attributable to increased revenue and gross profit partially offset by additional G&A expenses as described above.

Balance Sheet and Cash Flow

Cash as of September 30, 2017 was $4.9 million, and the Company's senior debt was $19.7 million, versus cash of $3.4 million and senior debt of $23.4 million as of September 30, 2016.  Regarding cash flow, for the fiscal year DLH generated $6.5 million in cash from operations, including the impact of $1.8 million in utilization of tax net operating losses.  It is expected that the Company's cash flow will continue to be positively impacted by utilizing tax net operating losses for the next six to seven years based on current business volumes.  

Non-GAAP Financial Measures

The Company believes that providing Income from Operations per share is useful to investors in comparing year over year operating results for 2017 compared to 2016.  Income from Operations per share excludes the impact of other income (expense) and income tax benefits, independent of operating results.  By providing this non-GAAP measure, we believe that an investor can more easily compare year over year performance.

The Company uses Earnings Before Interest Tax Depreciation and Amortization ("EBITDA") adjusted for other items ("Adjusted EBITDA") as a supplemental non-GAAP measure of our performance. DLH defines Adjusted EBITDA as net income adjusted to exclude (i) interest and other expenses, including acquisition expenses, net, (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) G&A expenses - equity grants.

This non-GAAP measure of our performance is used by management to conduct and evaluate its business during its regular review of operating results for the periods presented. Management and the Company's Board utilize these non-GAAP measures to make decisions about the use of the Company's resources, analyze performance between periods, develop internal projections and measure management performance. DLH believes that these non-GAAP measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance. By providing this non-GAAP measure as a supplement to GAAP information, DLH believes this enhances investors' understanding of its business and results of operations.

Reconciliation of GAAP net income to Adjusted EBITDA, a non-GAAP measure: