What changed in this filing

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Item 1. Business

2020-12-07 compared with 2019-12-11 · 102 added, 57 removed, 82 unchanged (66% of the section changed)

DLH Holdings Corp.

is a provider of technology-enabled business process outsourcing and program management solutions, primarily to improve and better deploy large-scale federal health and human service initiatives.

is a provider of technology-enabled business process outsourcing, program management solutions, and public health research and analytics;

primarily focused to improve and better deploy large-scale federal health and human service initiatives.

The Company derives 98% of its revenue from agencies of the Federal government, providing services to several agencies including the Department of Veteran Affairs ("VA"), Department of Health and Human Services ("HHS"), and the Department of Defense ("DoD").

Incorporated in New Jersey in 1969, the Company primarily contracts with its government customers through its subsidiaries DLH Solutions, Inc.

(“DLH Solutions”), Danya International, LLC (“Danya”), and Social & Scientific Systems, Inc.

On June 7, 2019, the Company acquired S3, which provides clinical and biomedical research, epidemiology, health policy, and program evaluation services in the public health space.

S3 utilizes advanced research (including longitudinal studies), data analytics, and secure IT platform services to support public health agencies within the Department of Health and Human Services including National Institutes of Health ("NIH") and Centers for Medicare and Medicaid Services ("CMS").

The acquisition expands our ability to provide complementary services across multiple government markets.

Incorporated in New Jersey in 1969, the Company contracts with its government customers through its subsidiaries.

In recent years we have successfully completed acquisitions to increase future organic growth, diversify our customer base, and to expand into adjacent markets.

On September 30, 2020, we acquired Irving Burton Associates, LLC ("IBA") and in June 2019 we acquired Social & Scientific Systems, Inc.

Our business offerings are aligned to three market focus areas within the federal health services market space.

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• Public Health and Life Sciences

Prospectively, we expect they will represent approximately 45% , 20% , and 35% of our revenue stream, respectively, for our 2020 fiscal year.

Defense and Veterans’ Health Solutions:

DLH provides critical healthcare services and delivery solutions to the VA, Navy Bureau of Medicine and Surgery, the Defense Health Agency and the Army Medical Command.

DLH provides critical healthcare, technology, and logistics solutions to the VA, Defense Health Agency ("DHA"), Tele-medicine and Advanced Technology Research Center ("TATRC"), Navy Bureau of Medicine and Surgery, and Army Medical Research and Material Command ("MRDC").

The VA is responsible for delivering medical, educational, financing and other life event services to an estimated 20.3 million veterans.

There are over 9 million veterans enrolled in the VA health care program which provides services that include the distribution of prescription drugs from the network of regional processing centers.

The Company is at the forefront of ensuring that veterans receive their out-patient prescriptions on time, each day, through the VA CMOP pharmacy program which has been recognized for service excellence, earning the JD Powers evaluation of mail order pharmacies for each of the past nine years.

The Company is also engaged in efforts to alleviate homelessness among veterans by supporting veterans' transition back into the community through mental health evaluations, behavioral readiness, skills assessment, career counseling, and job preparation services.

Further, the Company provides a range of case management, physical and behavioral health examinations, and associated medical administration services to enhance the assessment and transition process for military personnel readiness commands and individual service members.

We deliver clinical drug and alcohol counseling services to Navy installations worldwide as part of the clinical preceptorship program, thereby improving sailor health and readiness.

We are at the forefront of ensuring that

veterans receive their out-patient prescriptions on time, each day, through the VA CMOP pharmacy program which has been recognized for service excellence, earning the JD Powers evaluation of mail order pharmacies for each of the past nine years.

Further, we have supported the VA's efforts to broaden its abilities to reach veterans and their families through telemedicine technology and practices.

The DHA is a joint, integrated combat support agency whose mission is to provide a medically ready force to the Army, Navy, and Air Force.

To execute this mission the DHA supports the delivery of integrated, affordable and high quality health services to the armed forces.

We support their mission by providing leading technology-enabled solutions and services.

These solutions and services encompass new capabilities at the forefront of technology to include artificial intelligence, machine learning, heath informatics, and robotics.

Human Services and Solutions:

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The mission extends to international communities through the prevention of epidemic diseases, response to natural disasters, and development of local economies.

We support our customers by providing a wide range of human services and solutions to HHS, the Department of Homeland Security ("DHS") and the Department of State.

We support our customers by providing a wide range of services and solutions to HHS, the Department of Homeland Security ("DHS"), and the Department of State ("State").

Our range of services support the critical missions of these agencies and their respective operating divisions, to include the Office of Head Start ("OHS"), Administration for Children and Families ("ACF") and the United States Agency of International Development ("USAID").

In this market, the Company provides large-scale program monitoring and evaluation;

In this market, we combine subject matter expertise with our experience in information technology and analytics to provide large-scale program monitoring and evaluation;

electronic medical records migration;

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and nutritional and social health assessments.

Additionally, the Company also provides large-scale data analytics as well as enterprise-level IT system architecture design, migration planning, and ongoing management of system implementation and capacity building using experienced subject matter experts and project management resources.

Additionally, we also provide large-scale data analytics as well as enterprise-level IT system architecture design, migration planning, and ongoing management of system implementation and capacity building using experienced subject matter experts and project management resources.

Public Health and Life Sciences:

In this market, our customers support national interests by ensuring our capability to fight diseases, respond to national and regional medical crises, and support the administration of providing health care benefits to senior and at-risk members of our communities.

In support of this mission, we provide services to multiple operating divisions within HHS, including NIH, the Center for Disease Control and Prevention ("CDC"), and Centers for Medicare and Medicaid Services ("CMS").

The Company's services include clinical trials, epidemiology studies, advancing disease prevention methods and health promotion to underserved and at-risk communities.

In this market, our customers support national interests by ensuring and enhancing our capability to fight diseases, respond to national and regional medical crises, and support the administration of providing health care benefits to senior and at-risk members of our communities.

In support of this mission, we provide services to multiple operating divisions within HHS, including National Institutes of Health ("NIH"), the Center for Disease Control and Prevention ("CDC"), and Centers for Medicare and Medicaid Services ("CMS").

Many of these agencies are engaged to combat the COVID-19 pandemic in a variety of capacities.

Our services include clinical trials, epidemiology studies, advancing disease prevention methods and health promotion to underserved and at-risk communities.

We deliver our services through development of strategic communication campaigns, research on emerging trends, health informatics analyses, and application of best practices including mobile, social, and interactive media.

The Company leverages evidence-based methods and web technology to drive health equity to our most vulnerable populations through public engagement.

We leverage evidence-based methods and web technology to drive health equity to our most vulnerable populations through public engagement.

Projects often involve highly specialized expertise and research methodologies.

The following table summarizes the revenues by market for the year ended September 30, 2020 and 2019, respectively:

(in thousands)

September 30,

Revenue Percent of total revenue Revenue Percent of total revenue

Defense/VA $ 101,656 49 % $ 93,412 58 %

Human Services and Solutions 40,962 20 % 40,679 25 %

Public Health/Life Sciences 66,567 31 % 26,300 17 %

Total revenue $ 209,185 100 % $ 160,391 100 %

Irving Burton Associates, LLC Acquisition

On September 30, 2020, the Company acquired Irving Burton Associates, LLC ("IBA"), a leading provider of innovative healthcare research, services and solutions to the federal government.

IBA specializes in artificial intelligence, IT and program management support, application modernization, and digital transformation.

IBA expands our ability to provide complementary services across multiple government markets including the Defense Health Agency ("DHA"), and the United States Army Medical Research and Development Command ("MRDC").

Further, IBA holds a top secret facility clearance and roughly half of their approximately 115 employees hold a security clearance.

Their unique set of capabilities, certifications and skill sets are expected to expand our reach into the military healthcare community.

Capabilities and certifications

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We are actively pursuing additional credentials that will support our customer's needs in providing a secure cloud computing environment.

Building upon our lean six sigma and ISO 9001 credentials, we have invested further in agile software development credentials for our technical staff, have achieved Capability Maturity Model Integration (CMMI) level 3, and are pursuing industry-leading cyber security certifications.

Our Infinibyte ® Cloud solution has achieved FedRamp ready status, further enhancing our ability to demonstrate our technical expertise and offer our customers a secure cloud environment.

We have invested in agile software development credentials for our technical staff, and have achieved Capability Maturity Model Integration (CMMI) level 3.

We believe that these qualifications will further enhance our value propositions for current programs, as well as future business we pursue.

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These nationally recognized best practices certifications demonstrate our commitment to continuous improvement and performance excellence that is critical to our organic growth objectives.

We also invest in talent development initiatives, to include industry-leading learning management, professional credentialing, and applicant tracking systems.

These will further enhance our highly qualified employee base and augment our efforts to infuse top talent into our operations through world-class recruiting and talent management tools.

Position and Distribution of Services and Solutions in Our Markets

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Power National Pharmacy Study over the past nine years;

targeted expansion in critical national priority markets with Federal budget stability.

The Company operates primarily through prime contracts awarded by the government through competitive bidding processes.

The Company has a diverse mix of contract vehicles with various agencies of the United States Government, which supports our overall corporate growth strategy.

• targeted expansion in critical national priority markets with Federal budget stability to include public health and epidemiological support related to COVID-19.

We operate primarily through prime contracts awarded by the government through competitive bidding processes.

We have a diverse mix of contract vehicles with various agencies of the United States Government, which supports our overall corporate growth strategy.

Our revenue is distributed to time and materials contracts (70%), cost reimbursable contracts (28%) and the remaining are firm fixed price contracts (2%).

We also provide services under IDIQ and government wide acquisition contracts, such as General Services Administration (GSA) schedule contracts.

We also provide services under Indefinite Duration, Indefinite Quantity ("IDIQ") and government wide acquisition contracts, such as General Services Administration (GSA) schedule contracts.

The Company currently holds multiple GSA schedule contracts, under which we provide services that constitute a significant percentage of our total revenue.

These Federal contract schedules are renewed on a recurring basis for a multi-year period.

These Federal contract schedules are renewed on a recurring basis for multi-year periods.

Major Customers

A major customer is defined as a customer from whom the Company derives at least 10% of our revenues.

Our largest customer is the VA, which comprised approximately 57% and 63% of revenue for the years ended September 30, 2019 and 2018 , respectively.

Our second largest customer, HHS, comprised approximately 39% and 34% of revenue for the years ended September 30, 2019 and 2018 , respectively.

The recent acquisition of S3 furthers the Company's reach into HHS, and we expect HHS to surpass the VA as our largest customer in fiscal 2020 as measured in revenue volume.

A major customer is defined as a customer from whom we derive at least 10% of our revenues.

Our two largest customers are the VA and HHS.

The following table summarizes the revenues by customer for the year ended September 30, 2020 and 2019, respectively:

(in thousands)

September 30,

Revenue Percent of total revenue Revenue Percent of total revenue

Department of Veterans Affairs $ 100,204 48 % $ 91,949 57 %

Department of Health and Human Services 95,026 45 % 62,000 39 %

Customers with less than 10% share of total revenue 13,955 7 % 6,442 4 %

Total revenue $ 209,185 100 % $ 160,391 100 %

Major Contracts

The revenue attributable to the VA customers was derived from 16 separate contracts related to its performance of pharmacy and logistics services in support of the VA’s consolidated mail outpatient pharmacy program.

Nine contracts for pharmacy services, which represent approximately $52.5 million and $48.7 million for the years ended September 30, 2019 and 2018, are currently operating under extensions through October 2020 pending completion of the procurement process for a new contract.

A single renewal request for proposal (“RFP”) has been issued for these contracts that requires the prime contractor be a service-disabled veteran owned small business ("SDVOSB"), which precludes the Company from bidding on the RFP as a prime contractor.

The Company has joined an SDVOSB team as a subcontractor to respond to this RFP.

Should the contract be awarded to an SDVOSB partner of DLH, the Company expects to continue to perform a significant amount of the contract’s volume of business.

The remaining seven contracts for logistics services, which represent approximately $39.4 million and $35.7 million for the years ended September 30, 2019 and 2018, have been extended through June 2020.

An RFP for the seven logistics contracts has been issued and provides for evaluation and award of the contract based on the classification of the bidder, with preference given to an SDVOSB prime contractor.

The Company has joined an SDVOSB team to respond to this RFP.

We believe that these contracts will similarly be extended during the procurement process.

The Company's contract with HHS in support of the Head Start program generated $37.6 million and $41.0 million revenue for the fiscal years ended September 30, 2019 and 2018 , respectively.

This contract is on a time and materials basis and consists of a base period of four option periods for a total term of five years through April 2020 and the customer is expected to issue a RFP in fiscal 2020.

The revenue attributable to the VA customers was derived from 16 separate contracts for our performance of pharmacy and logistics services in support of the VA’s consolidated mail outpatient pharmacy program.

Nine contracts for pharmacy services, which represent approximately $56.5 million and $52.5 million for the years ended September 30, 2020 and 2019, are currently operating under a bridge contract through October 2021.

As previously reported, a single renewal request for proposal (“RFP”) had been issued for the nine (9) pharmacy contracts that required the prime contractor be a service-disabled veteran owned small business (“SDVOSB”), which would have precluded us from bidding on the RFP as a prime contractor.

We had joined a SDVOSB team as a subcontractor to respond to this RFP.

However, the government has canceled the previously issued RFP for these contracts.

The government has neither indicated nor announced its future procurement strategy.

Due to the time required to conduct a procurement process, we expect these contracts to be further extended.

The remaining seven contracts for logistics services, which represent approximately $43.7 million and $39.4 million for the years ended September 30, 2020 and 2019, have been extended to June 2021.

A renewal RFP for the seven logistics contracts has been issued and provides for evaluation and award of the contract based on the classification of the bidder.

The RFP initially included award preference for a SDVOSB prime contractor.

The government has since removed that preference thereby making the procurement a full and open acquisition, which allows for us to be evaluated as the prime contractor.

Our contract with HHS in support of the Head Start program generated $32.4 million and $37.6 million revenue for the years ended September 30, 2020 and 2019, respectively.

We were recently awarded a new contract to continue our long standing relationship with the Office of Head Start.

This contract is on a time and materials basis and consists of a base period and four option periods through April 2025.

Backlog represents total estimated contract value of predominantly multi-year government contracts and will vary depending upon the timing of new/renewal contract awards.

Backlog is based upon customer commitments that the Company believes to be firm over the remaining performance period of our contracts.

Backlog is based upon customer commitments that we believe to be firm over the remaining performance period of our contracts.

The value of multi-client, competitive Indefinite Delivery/Indefinite Quantity ("IDIQ") contract awards is included in backlog computation only when a task order is awarded or if the contract is a single award IDIQ contract.

While no assurances can be given that existing contracts will result in earned revenue in any future period, or at all, the Company’s major customers have historically exercised their contractual renewal options.

At September 30, 2019 , our total backlog was approximately $414.1 million compared to $172.2 million as of September 30, 2018, reflecting the impact of the S3 acquisition.

While no assurances can be given that existing contracts will result in earned revenue in any future period, or at all, our major customers have historically exercised their contractual renewal options.

At September 30, 2020, our total backlog was approximately $688.4 million compared to $414.1 million as of September 30, 2019, reflecting current year activity as well as the impact of the IBA acquisition.

Backlog value is quantified from management's judgment and assumptions about the volume of services based on past volume trends and current planning developed with customers.

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We partner and compete with several large and small-business companies in pursuit of acquiring new business.

We built Infinibyte ® Cloud as a platform-as-a-service cloud computing offering.

It delivers a platform to U.S.

government agencies, enabling them to develop, run, and manage applications without the need to build and maintain the underlying infrastructure.

Infinibyte Cloud provides the networks, servers, storage, operating systems, middleware, databases, and other services for hosting government applications and data.

Infinibyte Cloud is currently in process for FedRAMP, the government’s rigorous security compliance framework which provides a standardized approach to security assessment, authorization, and continuous monitoring for cloud service providers who host services used by the U.S.

government, authorization and has received ready status.

The solution is currently available on the FedRAMP marketplace.

Our competitors include operating units within, among others:

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operating under Optum, VSE Corporation, and Westat, Inc.

The Company competes with these companies by leveraging our differentiating suite of tools and uniquely integrating people and processes resulting in highly competitive proposals and a solid track record of past performance.

The Company believes that its proprietary tools and process, including e-PRAT ® and SPOT-m ® , along with its cloud-based management system differentiate the Company from its competitors.

We compete with these companies by leveraging our differentiating suite of tools and uniquely integrating people and processes resulting in highly competitive proposals and a solid track record of past performance.

We believe that our proprietary tools and processes, including e-PRAT ® and SPOT-m ® , along with our Infinibyte ® cloud-based management system differentiate us from our competitors.

We compete for awards through a full and open competition on a best-value basis.

The Company draws heavily from its consistently high-quality past performance ratings, proven and evolving technical differentiators, key personnel credentials and growing market recognition to compete.

The Company believes that its track record, knowledge and processes with respect to government contract bidding represent significant competitive advantages.

We draw heavily from our consistently high-quality past performance ratings, proven and evolving technical differentiators, key personnel credentials and growing market recognition to compete.

We believe that our track record, knowledge and processes with respect to government contract bidding represent significant competitive advantages.

Further, we believe that the range and depth of educational experience and professional credentials and certifications held by our employees allows us to deploy highly-qualified teams to implement solutions to address the needs of our customers.

Our recent and future success in this competitive landscape hinges on our ability to continue to uniquely integrate people, processes and technology tools to deliver best value solutions for our targeted clients (both government and industry partners).

Additionally, the Federal government may elect to restrict certain procurements, including for renewals of our current contracts, to bidders that qualify for certain special statuses such as veteran owned, small, or small disadvantaged businesses.

Additionally, the Federal government may elect to restrict certain procurements, including renewals of our current contracts, to bidders that qualify for certain special statuses such as veteran owned, small, or small disadvantaged businesses.

For those procurements, we would be limited to a subcontractor role.

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We claim copyright, trademark and other proprietary rights in a variety of intellectual property, including each of our proprietary computer software and data products and the related documentation.

The Company holds two registered trademarks, e-PRAT ® and SPOT-m ® , that optimize resource allocation and supply chain management processes in connection with our business process management services.

We hold the registered trademarks, e-PRAT ® and SPOT-m ® , for our offerings that optimize resource allocation and supply chain management processes in connection with our business process management services, as well as the registered trademark, Infinibyte ® , for our cloud-based solution.

We maintain a number of trade secrets that contribute to our success and competitive distinction and endeavor to accord such trade secrets adequate protection to ensure their continuing availability.

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Government contracts.

In addition, many federal and state laws materially affect the Company's operations.

In addition, many federal and state laws materially affect our operations.

These laws relate to ethics, labor, tax, and employment matters.

As any employer is, the Company is subject to federal and state statutes and regulations governing their standards of business conduct with the government.

As any employer is, we are subject to federal and state statutes and regulations governing their standards of business conduct with the government, including that government contracts typically contain provisions permitting government clients to terminate contracts without cause with limited notice or compensation.

The development of additional statutes and regulations and interpretation of existing statutes and regulations with respect to our industry can be expected to evolve over time.

Through its corporate membership with the Professional Services Council and other affiliations, the Company monitors proposed and pending regulations from relevant congressional committees and government agency policies that have potential impact upon our industry and our specific strategically targeted markets.

As with any commercial enterprise, the Company cannot predict with certainty the nature or direction of the development of Federal statutes and regulations that will affect its business operations.

Through its corporate membership with the Professional Services Council and other affiliations, we monitor proposed and pending regulations from relevant congressional committees and government agency policies that have potential impact upon our industry and our specific strategically targeted markets.

As with any commercial enterprise, we cannot predict with certainty the nature or direction of the development of Federal statutes and regulations that will affect its business operations.

See Risk Factors in Part I, Item 1A.

Employee Relations

As of September 30, 2019 , the Company employed over 1,900 employees performing in over 30 locations throughout the U.S.

Human Capital Management and Employee Relations

As of September 30, 2020, we employed over 2,200 employees performing in over 30 locations throughout the U.S.

and one location overseas.

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Management does not expect this agreement to materially impact results of operations.

We seek to attract and retain the best people by providing them with opportunities to grow, build skills, and be appreciated for their contributions as they work to serve our clients.

Our employees are critical to our success and are the reason we continue to execute at a high level.

We believe our continued focus on making employee engagement a top priority will help us provide high quality insights and information to our clients.

To facilitate talent attraction and retention, we strive to make DLH a diverse, inclusive and safe workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs, and by programs that build connections between our employees and their communities.

At DLH, we are committed to the health, safety and wellness of our employees.

We provide our employees and their families with flexible and convenient health and wellness programs, including competitive benefits arrangement to address healthcare needs, including health insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and family care resources.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This includes having our employees work from home when possible and implementing additional safety measures for employees continuing critical on-site work.

We provide competitive compensation programs to help meet the needs of our employees.

In addition to salaries, these programs include annual bonuses, stock awards, and participation in a 401(k) Plan.

We have used targeted equity-based grants with performance-based vesting conditions to facilitate retention of personnel.

We also invest in talent development initiatives, to include industry-leading learning management, professional credentialing, and applicant tracking systems.

These will further enhance our highly qualified employee base and augment our efforts to infuse top talent into our operations through world-class recruiting and talent management tools.

Our principal executive offices are located at 3565 Piedmont Road NE, Building 3 Suite 700, Atlanta, Georgia 30305.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business