What changed in this filing

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Item 1A. Risk Factors

2024-12-04 compared with 2023-12-06 · 49 added, 27 removed, 369 unchanged (17% of the section changed)

14 unchanged sentences

A significant portion of our revenue is concentrated in a small number of contracts, and we could be seriously harmed if we were unable to continue providing services under, or unsuccessful in our recompete efforts on, these contracts.

We are dependent upon the continuation of our relationships with the VA and HHS as a significant portion of our revenue is concentrated in contracts with these customers.

A significant portion of our revenue is concentrated in contracts with the VA and HHS.

There can be no assurance as to the actual amount of services that we will ultimately provide to VA and HHS under our current contracts, or that we will be successful in recompete efforts.

As described in greater detail above in "Item 1 - Business - Major Contracts", our contracts with the VA for the provision of services to its CMOP operations are expected to be subject to renewal solicitations.

We believe that our strong working relationships and effective service delivery support ongoing performance for the terms of the contracts and recompete efforts as a prime or subcontractor.

As described in greater detail above in "Item 1 - Business - Major Contracts", our contracts with the VA for the provision of services to its CMOP operations is currently subject to renewal solicitations which have been published as a set aside for a service-disabled veteran owned small business (“SDVOSB”) to perform as the prime contractor.

DLH submitted revised proposals with its SDVOSB partner as prime contractor on certain of the opportunities.

During the fiscal year ended September 30, 2024, the VA awarded one of the task orders to a SDVOSB that is unaffiliated with DLH.

While the acquisition process is being conducted, DLH continues to operate as the prime contractor for the seven CMOP locations that it currently manages.

Our results of operations, cash flows and financial condition would be materially adversely affected if we were unable to continue our relationship with either of these customers, if we were to lose any of our material current contracts, or if the amount of services we provide to them is materially reduced.

17 unchanged sentences

Further, congressional seats may change during election years, and the balance of spending priorities may change along with them.

Historically, our customers’ missions have received bipartisan support from the legislative and executive branches of the federal government.

However, we anticipate that the President-Elect and new Congress will seek to implement their budget priorities, which may impact our customers’ projects and budgets.

A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

1 unchanged sentence

Government entities with which we do business are delayed, decreased or underfunded, our consolidated revenues and results of operations could be materially and adversely affected.

VA programs, which accounted for approximately 36.9% and 31.9% of Company revenue for the years ended September 30, 2023 and 2022, respectively, were exempt from the spending caps established under Federal government sequestration targets enacted in 2013.

VA programs, which accounted for approximately 35.3% and 36.9% of the Company’s revenue for the years ended September 30, 2024 and 2023, respectively, were exempt from the spending caps established under Federal government sequestration targets enacted in 2013.

Because we depend on U.S.

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government does not complete its appropriations before the beginning of the new fiscal year on October 1, government operations are typically funded pursuant to a "continuing resolution," which allows federal government agencies to operate at spending levels approved in the previous appropriations cycle but does not authorize new spending initiatives.

Currently, the government is currently operating under a continuing resolution (CR) which expires on January 19, 2024 for certain departments and February 2, 2024 for others.

Currently, the U.S.

government is operating under a continuing resolution (CR) which expires on December 20, 2024.

When the U.S.

125 unchanged sentences

To the extent that a project does not perform as anticipated, these deferred costs may not be considered recoverable resulting in an impairment charge.

Our profitability could suffer if our cost-management strategies are unsuccessful, and we may not be able to improve our profitability .

Our ability to improve or maintain our profitability is dependent on our being able to successfully manage our costs, including taking actions to reduce certain costs and optimize our business.

Our cost management strategies include maintaining appropriate alignment between the demand for our services and solutions and the workforce needed to deliver them.

If we are not effective in managing our operating costs in response to changes in demand or pricing, or if we are unable to cost-effectively hire and retain people with the knowledge and skills necessary to deliver our services and solutions we may incur increased costs, which could reduce our ability to continue to invest in our business in an amount necessary to achieve our planned rates of growth and our desired levels of profitability.

If we do not accurately anticipate the cost, risk and complexity of performing our work or if third parties upon whom we rely do not meet their commitments, then our contracts could have delivery inefficiencies and be less profitable than expected or unprofitable.

Our contract profitability is highly dependent on our forecasts regarding the effort and cost necessary to deliver our services and solutions, which are based on available data and could turn out to be materially inaccurate.

If we do not accurately estimate the effort, costs or timing for meeting our contractual commitments and/or completing engagements to a client’s satisfaction, our contracts could yield lower profit margins than planned or be unprofitable.

In addition, many of the contracts we perform under require that we utilize subcontractors or that our services and solutions incorporate or coordinate with the software, systems or infrastructure requirements of other vendors and service providers.

Our profitability depends on the ability of these subcontractors, vendors and service providers to deliver their products and services in a timely manner, at the anticipated cost, and in accordance with the project requirements, as well as on our effective oversight of their performance.

In some cases, these subcontractors are small firms, and they might not have the resources or experience to successfully integrate their services or products with large-scale engagements or enterprises.

Some of this work involves new technologies, which may not work as intended or provide anticipated productivity gains, or may take more effort to implement than initially predicted.

Any of these factors could adversely affect our ability to perform and subject us to additional liabilities, which could have a material adverse effect on our relationships with clients and on our results of operations.

Risks Relating to Our Information Technology Systems and Intellectual Property

3 unchanged sentences

They also perform payroll, billing and accounts receivable functions.

As the breadth and complexity of this infrastructure continues to grow, including as a result of the increasing reliance on, and use of, mobile technologies, social media and cloud-based services, as more of our employees continue to work remotely, and as cyberattacks become increasingly sophisticated (e.g.

deepfakes and AI generated social engineering), the risk of security incidents and cyberattacks has increased.

Threat actors may leverage emerging AI technologies to develop new hacking tools and attack vectors, exploit vulnerabilities, obscure their activities, and increase the difficulty of threat attribution.

Such incidents could lead to shutdowns or disruptions of or damage to our systems and those of our clients, business partners and vendors, and unauthorized disclosure of sensitive or confidential information, including personal data and proprietary business information.

Both our client and our company may experience, data security incidents resulting from unauthorized access to our and our service providers’ systems and unauthorized acquisition of our data and our clients’ data including:

inadvertent disclosure, misconfiguration of systems, phishing ransomware or malware attacks.

While we have multiple back up plans for these types of contingencies, our information systems are vulnerable to fire, storms, flood, power loss, telecommunication outages, physical break-ins, cyber-attack, ransomware, and similar events.

If our information systems become inoperable, or are otherwise unavailable, these functions would have to be accomplished manually, which in turn could impact our financial viability, due to the increased cost associated with performing these functions manually.

Unauthorized disclosure or use of, denial of access to, or other incidents involving sensitive or confidential client, vendor, business partner or DLH data, whether through systems failure, employee negligence, fraud, misappropriation, or cybersecurity, ransomware or malware attacks, or other intentional or unintentional acts, could damage our reputation and our competitive positioning in the marketplace, disrupt our or our clients’ business, cause us to lose clients and result in significant financial exposure and legal liability.

Cybersecurity threats are constantly expanding and evolving, becoming increasingly sophisticated and complex, increasing the difficulty of detecting and defending against them and maintaining effective security measures and protocols.

Our systems and networks may be subject to cybersecurity breaches.

Many of our operations rely heavily upon technology systems and networks to receive, input, maintain and communicate participant and customer data pertaining to the programs we manage.

While we have programs designed to protect such information and comply with all relevant privacy and security requirements, the threats that our clients face have grown more frequent and sophisticated.

Any systems failures, whether caused by us, a third-party service provider, or unauthorized intruders and hackers, or due to situations such as computer viruses, natural disasters, or power shortages, could cause loss of data or interruptions or delays in our business or that of our customers.

1 unchanged sentence

Similarly, if our internal networks were compromised, we could be adversely affected by the loss of proprietary, trade secret or confidential technical and financial data.

The loss, theft or improper disclosure of that information could subject the Company to sanctions under the relevant laws, lawsuits from affected individuals, negative press articles and a loss of confidence from our government customers, all of which could adversely affect our existing business, future opportunities and financial condition.

The loss, theft or improper disclosure of that information could subject the Company to sanctions under the relevant laws, remediation costs, contract termination, lawsuits from affected individuals, negative press articles and a loss of confidence from our government customers, all of which could adversely affect our existing business, future opportunities and financial condition.

Further, our property and cyber insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our actual results could differ materially and adversely from those anticipated.

19 unchanged sentences

Although we conduct extensive due diligence in connection with an acquisition, we cannot assure that this diligence revealed all material issues that may be present, that it would be possible to uncover all material issues through customary due diligence, or that factors outside of our control will not later arise.

We have also purchased representations and warranties insurance in connection with the acquisition, but there is no assurance that those policies will cover any losses we might experience from breaches of the sellers’ representations and warranties or otherwise arising from the acquisition.

We have also purchased representations and warranties insurance in connection with the acquisition, but there is no assurance that those policies will cover any losses we might experience from

breaches of the sellers’ representations and warranties or otherwise arising from the acquisition.

Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis.

20 unchanged sentences

Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.

With respect to our acquisition of Grove Resource Solutions (GRSi) in December 2022, the benefits of the acquisition will depend, in part, on our ability to successfully combine our businesses and realize the anticipated benefits, including business

opportunities and growth prospects from combining our businesses.

With respect to our acquisition of DLH, LLC (formerly, Grove Resource Solutions, LLC) in December 2022, the benefits of the acquisition will depend, in part, on our ability to successfully combine our businesses and realize the anticipated benefits, including business opportunities and growth prospects from combining our businesses.

We may not achieve these objectives within the anticipated time frame or may never realize these benefits and the value of our common stock may be harmed.

The acquisition involves the integration of GRSi’s business with our existing business, which has been a costly and time-consuming process.

If we are unable to successfully or timely integrate our operations with those of GRSi, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits resulting from the acquisition, and our business, results of operations, and financial condition could be materially adversely affected.

The acquisition involves the integration of the acquired business with our existing business, which was a costly and time-consuming process.

If we are ultimately unable to successfully or efficiently integrate our operations with those of the acquired business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits resulting from the acquisition, and our business, results of operations, and financial condition could be materially adversely affected.

We have a substantial amount of goodwill on our balance sheet.

6 unchanged sentences

We have incurred debt in connection with acquisitions and we must make the scheduled principal and interest payments on the facility and maintain compliance with other debt covenants.

Following our acquisition of Grove Resource Solution, LLC ("GRSi") in December 2022, we amended and restated our credit agreement with First National Bank of Pennsylvania and certain other lenders (the “Credit Agreement”) and incurred additional indebtedness.

Following our acquisition of DLH, LLC (formerly, Grove Resource Solutions, LLC) in December 2022, we amended and restated our credit agreement with First National Bank of Pennsylvania and certain other lenders (the “Credit Agreement”) and incurred additional indebtedness.

The Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions, including limitations on:

7 unchanged sentences

Accordingly, a portion of our cash flow from operations was dedicated to the repayment of our indebtedness and we expect future cash flow to be used to reduce our indebtedness.

The loan agreement provides for customary events of default, including, among other things, a payment default, covenant default or defaults on other indebtedness or judgments in excess of a stipulated amount, change of control events, suspension or disbarment from contracting with the federal government and the material inaccuracy of our representations and warranties.

If we are unable to make the scheduled principal and interest payments on the Credit Agreement or maintain compliance with other debt covenants, we may be in default under the loan agreement, which if not waived, could cause our debt to become immediately due and payable and enable the lenders to enforce their rights under the Credit Agreement.

The Credit Agreement provides for customary events of default, including, among other things, a payment default, covenant default or defaults on other indebtedness or judgments in excess of a stipulated amount, change of control events, suspension or disbarment from contracting with the federal government and the material inaccuracy of our representations and warranties.

If we are unable to make the scheduled principal and interest payments on the Credit Agreement or maintain compliance with other debt covenants, we may be in default under the Credit Agreement, which if not waived, could cause our debt to become immediately due and payable and enable the lenders to enforce their rights under the Credit Agreement.

Such an event would likely have a material adverse effect on our business, financial condition and results of operations.

8 unchanged sentences

Risks Relating to Our Corporate Structure and Capital Stock

Our stock price may be volatile and your investment in our common stock may suffer a decline in value.

The price of our common stock could be subject to fluctuations and may decline in the future due to risks defined herein, or due to factors beyond our control, including changes in market conditions such as increased interest rates, a recession, or a change in Federal spending priorities.

Our stock price has been volatile and your investment in our common stock may suffer a decline in value.

The price of our common stock has been subject to fluctuations, has declined in value over the past fiscal year, and may further decline in the future due to risks defined herein, or due to factors beyond our control, including changes in market conditions such as increased interest rates, a recession, or a change in Federal spending priorities.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company.

21 unchanged sentences

Among other things, these provisions:

• require certain supermajority votes;

• require certain super majority votes;

• establish certain advance notice procedures for nomination of candidates for election as directors and for shareholders' proposals to be considered at shareholders' meetings.

83 unchanged sentences

Our results of operations could in the future be materially adversely impacted by global, macroeconomic events, such health epidemics, pandemics and other outbreaks, and the response to contain it.

We face various risks related to health epidemics, pandemics, and similar outbreaks, including the coronavirus (COVID-19) pandemic.

The COVID-19 pandemic and the mitigation efforts to control its spread have created significant volatility, uncertainty and economic disruption and adversely impacted the U.S.

We face various risks related to health epidemics, pandemics, and similar outbreak.

The COVID-19 pandemic and the mitigation efforts to control its spread created significant volatility, uncertainty and economic disruption and adversely impacted the U.S.

and global economies.

The extent to which the coronavirus pandemic and recovery activity further impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

The extent to which future health epidemics or pandemics impacts our business, operations and financial results will depend on numerous factors that we may not be able to accurately predict or control, including:

the duration and scope of the pandemic;

governmental, business and individuals’ actions that have been and which may continue to be taken in response to the pandemic, including our ability to fully perform on our contracts as a result of government actions;

the impact of the pandemic on economic activity and actions taken in response;

governmental, business and individuals’ actions that have may be taken in response to such events, including our ability to fully perform on our contracts as a result of government actions;

the impact on economic activity and actions taken in response;

the effect on our customers and customer demand for our services and solutions;

our ability to sell and provide our services and solutions;

and any closures of our and our customers’ offices and facilities, particularly at our pharmacy distribution centers.

and any closures of our and our customers’ offices and facilities.

Furthermore, the significant increase in remote working of our employees may exacerbate certain risks to our business, including an increased demand for information technology resources and the increased risk of malicious technology-related events, such as cyberattacks and phishing attacks.

Government agencies are our primary customers and the long-term impact of increased government spending in response to COVID-19 remains uncertain.

We continue to monitor the effect of COVID-19 on our business, but for the reasons stated above, we cannot predict the full impact of COVID-19.

Any of these events could materially adversely affect our business, financial condition, results of operations and the market price of our common stock.

UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments.

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 1A. Risk Factors