Financial Performance Overview

DLH Holdings Corp. (DLH) is a government services provider that primarily focuses on delivering solutions and services to federal agencies such as the Department of Health and Human Services (HHS), Department of Veterans Affairs (VA), and Department of Defense (DoD). The company’s revenue is derived from a diverse mix of contract vehicles, including time and materials (53.1%), firm fixed price (25.9%), and cost reimbursable (21.0%) contracts.

For the six months ended March 31, 2025, DLH reported total revenue of $179.9 million, a decrease of $18.9 million or 9.5% compared to the same period in the prior year. This decline was primarily due to the conversion of certain VA and DoD contracts to small business contractors, which was partially offset by contributions from new contract awards.

Profitability Trends

Despite the revenue decrease, DLH maintained solid profitability. For the six months ended March 31, 2025, the company reported:

• Income from operations of $10.8 million, a decrease of $2.0 million or 15.7% compared to the prior year period.
• Net income of $2.0 million, a decrease of $2.0 million or 49.7% compared to the prior year period.
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $19.3 million, a decrease of $1.9 million or 9.1% compared to the prior year period.

The decrease in profitability was primarily driven by the lower revenue volume, partially offset by reductions in contract costs and general and administrative expenses.

Table 1: Summary of Financial Results

Metric	Six Months Ended March 31, 2025	Six Months Ended March 31, 2024	Change
Revenue	$179.9 million	$198.9 million	-9.5%
Income from Operations	$10.8 million	$12.8 million	-15.7%
Net Income	$2.0 million	$4.0 million	-49.7%
EBITDA	$19.3 million	$21.3 million	-9.1%

Strengths and Weaknesses

Strengths:

• Diversified contract portfolio across key federal agencies (HHS, VA, DoD)
• Expertise in critical service areas such as digital transformation, cyber security, scientific research, and systems engineering
• Strong backlog of $646.9 million, including $106.2 million in funded backlog, providing revenue visibility
• Investments in credentials and capabilities (e.g., CMMI Level 3) to support customer needs

Weaknesses:

• Significant revenue concentration in major customers (HHS, VA, DoD account for 98.7% of revenue)
• Exposure to potential changes in federal contracting policies and small business set-asides
• Declining profitability due to revenue decreases, though cost management efforts have partially offset the impact

Outlook and Future Considerations

The federal budget outlook for fiscal year 2026 presents both opportunities and challenges for DLH. The administration’s proposed 7.6% reduction in discretionary spending is expected to be offset by increases in the DoD and VA budgets, which are key customers for the company. However, the proposed decrease in the HHS budget may present headwinds.

Additionally, the federal government’s small business contracting goals and policies, such as the VA’s “Rule of Two” for service-disabled veteran-owned small businesses, could limit DLH’s ability to compete for certain prime contractor positions. The company may need to adjust its strategy, potentially by partnering with eligible small businesses as a subcontractor, to maintain its presence in these programs.

Despite these challenges, DLH believes it is well-positioned to win new business in its large addressable market by aligning its capabilities with well-funded budget priorities. The company’s track record of success and past performance provide a competitive advantage, and it intends to continue pursuing growth opportunities that fit its core markets and corporate strategy.

Conclusion

DLH has demonstrated its ability to navigate the complex federal contracting landscape, delivering critical services and solutions to key government agencies. While the company has faced revenue and profitability declines due to the conversion of certain contracts to small business contractors, its diversified contract portfolio, strong backlog, and investments in capabilities position it to capitalize on future opportunities. However, DLH must closely monitor changes in federal contracting policies and small business set-asides, and be prepared to adapt its strategy accordingly to maintain its competitive edge and drive long-term growth.