Good morning. Welcome to the DLH Holdings fiscal 2022 Q4 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 Witty, investor relations advisor. Please go ahead.
Thank you, 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 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 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, everyone. Welcome to our fiscal year 2022 Q4 conference call. 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 3, 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% 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 that completed earlier in 2022. The fiscal year was certainly a standout one in terms of top-line performance. We are most excited by the numerous opportunities which still lie ahead. I will discuss the outlook more in a moment. We posted Q4 operating income of $4.7 million or 7% of sales. For the full year, $33.4 million or 8.4% of sales. EBITDA was $6.6 million for Q4 and $40.9 million for fiscal 2022 as a whole, while we reported EPS of $0.24 per share for the Q4 and $1.64 for the year.
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 recompetes during the year. Turning to slide 7, 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, have driven DLH to the high level of operating results that we now enjoy. The future continues to look bright.
If you look at slide 5, 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, long-standing support in Washington on both sides of the aisle. 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 FY 2023. 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 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 in 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 Institutes of Health, and a large 10-year, $10 billion ceiling Omnibus program with the Department of Defense and its Defense 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 FY 2023. 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. Even without a formal budget in place, we remain very optimistic about FY 2023'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 profitable 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. 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, Kathryn JohnBull. Kathryn?
Thank you, Zach. Good morning, everyone. We're pleased to report another quarter of solid results and a great end to fiscal 2022. Turning to slide 8. We posted revenue of $67.2 million for the three months ended September 30th, 2022, versus $65.2 million in the prior year's fiscal Q4. The 3% increase year-over-year reflects higher demand for services across many of our existing programs. Excluding the $1.7 million derived from FEMA contracts in Q4 of fiscal 2021, revenue increased 6% year-over-year. Given high bidding activity levels in our current backlog, we are optimistic about solid organic growth heading into fiscal 2023 and beyond. Moving to slide 9. Income from operations was $4.7 million for the quarter versus $4 million in the prior year period.
As a percent of revenue, the company reported an operating margin of 7% in fiscal 2022 versus 6.2% in fiscal 2021. The increase in margins resulted from a higher portion of our revenue in fiscal 2022 deriving from contracts with stronger margins. Interest expense was $0.5 million in the fiscal Q4 of 2022 versus $0.8 million in the prior year period, reflecting lower debt outstanding. DLH recorded a provision of $0.8 million and $0.3 million for tax expense during the Q4s of fiscal 2022 and 2021, respectively. We reported net income in the Q4 of approximately $3.4 million or $0.24 per diluted share, versus $2.9 million or $0.21 a share last year.
As a percent of revenue, net income was 5.1% for the Q4 of fiscal 2022 versus 4.4% for the prior year period. Turning to slide 10, EBITDA for the three months ended September 30, 2022 was approximately $6.6 million versus $6 million in the prior year period, or 9.8% and 9.3% of revenue, respectively. A reconciliation of GAAP net income to EBITDA is provided in our earnings statement at the back of this presentation. Slide 11 gives an updated snapshot of our debt position at the end of the year. As of September 30, we had approximately $22 million of debt outstanding under our credit facilities, versus $46.8 million at the end of fiscal 2021. Our leverage ratio remains well under 1 x.
We continue to use our substantial cash generation to pay down debt and de-lever the balance sheet, leaving us in a strong position for any future opportunistic transactions during fiscal 2023. This concludes my discussion of the financial statements. With that, I would now like to turn the call over to our operator to open for questions.
Thank you very much. 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Joe Gomes with Noble Capital. Please go ahead.
Good morning, Zach and Kathryn. Nice end to the fiscal year.
Hey, Joe.
Thank you, Joe.
Thanks for joining.
I wanted to follow up. You know, Zach, you talked about, you know, obviously the potential M&A and having a nice backlog of potential opportunities. One of the things you talked about was capability expansion. I was wondering if you give us a little more color on, you know, what kind of capabilities would you be looking at, you think to expand into through some M&A?
Yes. As you know, we've talked a lot, at least Kathryn and I, while we've been on the road this year, around having really established pretty much a well-rounded platform across the three market focus areas, once we completed the full integration of the IBA team. Our emphasis going forward has been really to focus on the digital transformation and cybersecurity aspects of delivering greater value propositions for our current customers, as well as our clients, in areas supporting our scientific research and development, and other systems and engineering work. They'll largely continue to find good opportunities in both the health IT component, Department of Defense and other clients that really emphasize our digital transformation and cybersecurity capabilities.
Okay. Thanks for that. On kind of a follow-up, you talked about obviously the government's, you know, operating under continuing resolution. You think that will be extended. Just looking at that, you know, maybe kind of you can refresh our memory. In the past when this has happened, you know, what kind of impact, if any, has it had on the company? Do you see this, you know, kind of as the biggest challenge here in the near term, or is there something else that you think is the biggest challenge the company is facing right now?
Well, I do think, across our industry, you know, the continuing resolution generally restricts the amount of brand-new programs and new work that will be contracted out. Fortunately, probably 90% or north of 90% of the organic opportunities for new business growth for us are with recurring work. Things that there's a current incumbent or multiple parties for which we'll compete. We're hopeful that with the acquisition community across the federal government that those will still come forward. I do think that while there's some programs such as our VA new technology IDIQ that are looking for new funding might slow a little bit of the acquisition pace there. Other than that, we really feel pretty comfortable that, the recurring work across the agencies that are well supported by the Hill will continue.
Great. Thanks for that. I will get back in queue.
Thank you, Joe.
The next question today comes from Brian Kinstlinger with Alliance Global Partners. Please go ahead.
Hi, guys. Thanks so much for taking my questions. The first question I had, I'm hoping you can give some more detail regarding the pipeline and maybe planned submissions over the next 12 months versus the trailing 12 months, as I'm trying to gauge your ability to accelerate or sustain organic growth.
Great question, Brian. As we featured in our discussion, you know, we've been waiting for a few of these multiple award IDIQs for, you know, a couple of years now. It was great to see that they were competed in FY 2022. Even more importantly, that we were successful on the awards that we did secure. Every expectation is that we will start to see task orders in Q2 across, you know, these agencies. The Defense Health Agency, you know, has expressed indication that they are gonna be having opportunities to compete. The other one which we've talked about is with the National Institutes of Health and particularly the National Cancer Institute. We expect to see those this year.
As we alluded to the VA one, which is largely new technology innovations, great and important strategic win for us, might slip a bit before we start to see those task orders. Outside of those multiple award contracts, we do still continue to have a pretty strong pipeline of new business opportunities, both single awards which deliver immediate revenue, as well as a couple of more major IDIQs that we've had our sights on. You know, we've talked quite a bit around the CIO-SP4 for now two years. The government has continued to see, more than a dozen protests against that opportunity. It's continued to slip it to the right.
We're hopeful of seeing some success, and awards on that, during this fiscal year, which will create opportunities hopefully late in the fiscal, or certainly it launches into a pretty good, position going forward into FY 2024.
Great. My follow-up, kind of similar. Kathryn, you mentioned high number of bids awaiting, sorry, high bid submissions in your prepared remarks. Can you say either what bids awaiting adjudication, the value of that is? If you can't share that number, can you talk about how it compares maybe to a year ago, excluding anything that includes FEMA, that particular FEMA award?
Sure, of course. The trend does continue to reflect forward momentum. As we've talked about the process of adding a corporate or Chief Growth Officer and really getting our full access to the three market sets that we completed at the end of fiscal 2020. We believe all of that helps to provide the momentum that allows us to engage on a broader set of opportunities and to increase the level of opportunities that we're submitting. From our perspective, we believe there's reason to be optimistic about our ability to continue to compete favorably on a growing set of opportunities.
Just one last follow-up. Sorry. You mentioned a Chief Growth Officer. As you guys have looked at the business, the market opportunity, is there a need for more business development folks? Is there planned hires coming to add to the business capture team?
Great. Great question. Yes, you know, we made that move strategically because it was very important for us first to be able to have a vision and a view of an integrated one DLH, right? We didn't really have that when we had both our existing heritage business development team as well as those as the new capabilities across our new, newly acquired companies. The CGO really allowed us to look across the enterprise. That was, quite frankly, extremely instrumental in our ability to win, you know, both of the domains that we bid for the Defense Health Agency. During this year, we have committed to in the past year to growth in that in our growth organization.
It includes business development, capture, and proposal operations. We have a good budget going into this year to continue expansion there because that organic growth is now continuing to be a very, very top priority for us. Yes, you'll see, you know, a fair amount of continued expansion in our investment for organic growth.
Okay. Thank you.
Thanks for joining.
As a reminder, if you have a question, please press star then one. Our next question comes from Debra Fiakas with Crystal Equity Research. Please go ahead.
Thank you. Good morning, thank you for taking my questions. I would like to perhaps return again to the pipeline question that was asked previously and maybe take a look at it from a little different vantage point. You had a very good organic growth rate, if you wanna call it that. The growth rates excluding the FEMA contract this last year. I wonder, do the bidding opportunities and the programs that you've been talking about this morning, do they provide for that same pace of growth, higher, lower?
Thanks for joining us, Debra. It's good to have you, have you, join the crowd of interested parties for DLH. Those pipeline opportunities do help. They are a channel for organic growth. Of course, the easiest and first channel for us is to grow our presence on our existing set of contracts, and we actively work that path of organic growth every day as we interact with our customers and look for additional opportunities to be of service and support for them. In addition to that, of course, these pipeline opportunities really provide a significant and accelerator to organic growth because they're additive to the base of contracts that we have in hand presently.
You know, while we are enjoying, as you said, an industry very competitive to the industry, organic growth rate, it is deriving mostly from expansion on current contracts and some meaningful incremental awards. Our expectation is that the pursuit of these additional awards that are in our pipeline are going to really accelerate that meaningfully, particularly, as Zach mentioned earlier, leveraging those IDIQ vehicles that we've recently secured as task orders start to flow underneath those IDIQs.
Okay. Thank you. If I could just ask that follow-up question, and this is in regard to, again, to the top line, but from the vantage point of the backlog. There seemed to be, to me, a pretty significant portion that's not funded. Is this something to be concerned about or does it speak less to the magnitude of sales and more perhaps to the pace you have to wait for funding in order to get started on a program? Thank you.
Yes. It is not something that we're concerned about. It's a required disclosure. It is really a function of the behaviors of the particular customers we have that some of them choose to fund annually, and of course, That's administratively most efficient and effective. Some of them choose to fund on quarterly intervals. Depending on where they are in that funding cycle, whether they get it done right before the end of the quarter or immediately thereafter, that's what's gonna affect how much moves out of unfunded and into funded. Generally speaking, the customer inclination is in support of programs and represents t he backlog, I should say, represents their expectation of the services they need in order to execute the programs. it's highly probable that dollars will move from the unfunded bucket to the funded bucket, based on whatever administrative cycle they choose to adopt.
Yeah. Debra, we just a few years, several years ago, we were intentionally conservative on making sure that we published that way, because as Kathryn indicated, there are agencies as well as peer companies that will look at the full contract period of performance ceiling, but we wanted to make sure that we were really giving the shareholders the funded piece in the most conservative fashion.
Thank you. I'll get back in the queue.
Thank you.
The next question comes from Joe Gomes with Noble Capital. Please go ahead.
Thanks. A couple of quick follow-ups here, maybe more directed towards Kathryn. In the quarter, there was a, you know, a pretty substantial both sequentially year-over-year jump in G&A expenses. One, wondering what was behind that? Two, is that elevated level something you're looking at going forward or you think it goes back to a more normalized, you know, percentage of revenue in the out periods?
Thank you, Joe, for that question. A couple of factors impacting it for the year. Most probably top of that list is just the non-cash stock compensation expense component. So that is really a function of our having brought on an additional named executive officer and having a stock compensation award to that at a time when our stock price, well, you know, was high enough to cause a pretty significant book charge related to that, non-cash charge related to that. Additionally, this is, you'll see this in our 10-K as it's filed. We have for the first time in the company's history, become subject to full review for SOX purposes. We've always self-certified our internal controls as a public company.
Because of the company's success and increase in equity value, we have become subject to the requirements of an external review of our internal controls. We did accomplish that for the fiscal year ended 2022, and you can imagine that that took some resources to get through that cycle the first time. Of course, it's an ongoing requirement, so it will have ongoing incremental resources. I dare say they won't be as substantial as they were in the first cycle through. Thirdly, and to the point Brian asked earlier about investments in organic growth, you do see some peaking of that requirement in Q4 as we were in pursuit of these pipeline submissions that Zach talked about earlier.
Okay. Thanks for that insight. One more. You know, last couple of years, there's been, you know, going into the Q1 or so, maybe even bleeding into the second, you know, some delay, let's call it, in the accounts receivable getting paid. Just wondering, you know, how you're comfortable you are where the accounts receivable are today. Is everything kind of up to date, or is there any concern there, here in the near term on the accounts receivable end? Thank you.
Sure. I think that I'm certainly comfortable with where we ended up for the quarter, end of September. There's a normal congestion that's happened post-year-end, as is always the case when the government fiscal year flips over. Exiting fiscal 2022, I was satisfied where we were, notwithstanding that we consumed a bit of working capital by growth in receivables. As we've talked about many times over the years, the nature of our work moves away from the trades-based oriented work that's billing on very favorable terms to a more traditional net 30. Our day sales is gonna creep up a little bit, but we're still very competitive at a day sales of about 54. We're converting to cash very quickly.
That doesn't mean I'm done, and it doesn't mean that we're not paying daily attention to looking for ways to kind of still continue to improve that cycle. I don't see anything in the September numbers that gives me any concern, and I'm satisfied with where we are as indicating our ability to generate cash flow.
Great. Thanks for taking the follow-ups.
Thank you for joining, Joe.
At this time, there are no further callers in the queue. I'll turn it back to Mr. Parker for any closing remarks.
Thank you, MJ. Once again, I'd like to thank you all for your continued interest and support for DLH. We look forward to following up with you as we address our at the annual meeting of the shareholders, and in preparation for the launch of FY 2023. Thank you all, and have a blessed day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.