DLH Holdings Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 100 ) 35 Consolidated Statements of Operations for the years ended September 30, 2024 and 2023 38 Consolidated Balance Sheets as of September 30, 2024 and 2023 39 Consolidated Statements of Cash Flows for the years ended September 30, 2024 and 2023 40 Consolidated Statements of Changes in Shareholders' Equity for the years ended September 30, 2024 and 2023 41 Notes to Consolidated Financial Statements 41 34 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of DLH Holdings Corp.: Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of DLH Holdings Corp. and Subsidiaries (the “Company”) as of September 30, 2024 and 2023, the related consolidated statements of operations, cash flows, and changes in shareholders’ equity for each of the years in the two-year period ended September 30, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of September 30, 2024, based on the criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of September 30, 2024 and 2023, and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria established in 2013 Internal Control—Integrated Framework issued by COSO. Basis for Opinion The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 35 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition Critical Audit Matter Description As described in Note 4 to the consolidated financial statements, the Company’s consolidated revenues for the year ended September 30, 2024 were $395.9 million. As described in Note 1 to the consolidated financial statements, the Company generally recognizes revenue over time as services are provided, as most of its contracts involve a continuous transfer of control to the customer. The Company accounts for a contract when there is a commitment by both parties (customer and Company), payment terms are determinable, there is commercial substance, and collectability is probable. When control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Company satisfies performance obligations as services are rendered. For time-and-materials contracts, revenue is recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. Revenue for cost-reimbursable contracts is recorded as reimbursable costs are incurred, including an estimated share of the applicable contractual fees earned. For firm-fixed-price contracts, the consideration received for performance is set at a predetermined price. Generally, the Company’s firm fixed price contracts are a fixed fee for monthly services and therefore recognized using a straight-line method for recognition as progress is made towards the completion of the performance obligations. Contract modifications are reviewed to determine whether they should be accounted for as part of the original performance obligation or as a separate contract. Contract modifications can occur throughout the life of the contract and can affect the transaction price, extend the period of performance, adjust funding, or create new performance obligations. Contract modifications impact performance obligations when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue and profit cumulatively. Amounts are invoiced as work progresses in accordance with agreed-upon contractual terms. In part, revenue recognition occurs before the Company has the right to bill, resulting in contract assets. These contract assets are reported within Accounts receivable, net on the consolidated balance sheets and are invoiced in accordance with payment terms defined in each contract. Period end balances will vary from period to period due to agreed-upon contractual terms. The principal consideration for our determination that performing procedures relating to revenue recognized over time is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition, including testing of contract assets. Response: The following are the primary procedures we performed to address this critical audit matter. To test the recognition of revenue, our audit procedures included among others, the testing of internal controls over the proper accumulation of labor costs by contract. This testing covered the review and approval of timesheets, the review and approval of vendor invoices, the processing of the labor hours utilized in the sales invoices, the review and approval of sales invoices, the review and approval of sales contracts, and the review and approval of project setup in the general ledger system for the related revenue contracts. Our control testing on contracts focused on inspecting the key provisions and deliverables within customer contracts. We evaluated management’s application of their revenue recognition policies in the determination of revenue recognition conclusions. We selected a sample of revenue transactions and performed the following procedures: for time and material contracts, we examined the recorded timesheet data related to the selected invoices, which corroborated management's assessment towards the completion of the performance obligation; and we inspected the signed contract related to the selected invoice, noting each task has an agreed upon unit price per contract and the unit price matched what was shown on the invoice. For cost reimbursable contracts, we examined the recorded timesheet data related to the selected invoices, which corroborated 36 management's assessment towards the completion of the performance obligation; and we inspected the signed contract related to the selected invoice, noting each task has an agreed upon unit price per contract and the unit price matched what was shown on the invoice. We also inspected the supporting evidence for any non-labor costs that are included in the transaction price. For firm fixed price contracts, we examined the recorded timesheet data related to the selected invoices, which corroborated management's assessment towards the completion of the performance obligation; and we inspected the signed contract related to the selected invoice, noting the period of performance was within the period of performance in the contract. We also tested for proper revenue recognition cut off in relation to revenue in which recognition occurred before the Company had a right to bill. To test the contract assets, we selected a sample of balances and reviewed the signed contract, timesheet data related to the contract assets, and invoices billed subsequent to year-end that related to the contract assets that existed as of September 30, 2024. /s/ WithumSmith+Brown, PC We have served as the Company's auditor since 2007. East Brunswick, New Jersey December 4, 2024 PCAOB ID Number  100 37 DLH HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share amounts) Year Ended September 30, 2024 2023 Revenue $ 395,937 $ 375,872 Cost of Operations Contract costs 317,026 296,016 General and administrative costs 36,959 37,795 Impairment loss of long-lived asset — 7,673 Corporate development costs — 1,735 Depreciation and amortization 17,052 15,562 Total operating costs 371,037 358,781 Income from operations 24,900 17,091 Interest expense 17,153 16,271 Income before provision for income taxes 7,747 820 Provision for income tax expense (benefit) 350 ( 641 ) Net income $ 7,397 $ 1,461 Net income per share - basic $ 0.52 $ 0.11 Net income per share - diluted $ 0.51 $ 0.10 Weighted average common shares outstanding Basic 14,169 13,704 Diluted 14,405 14,431 The accompanying notes are an integral part of these consolidated financial statements. 38 DLH HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands except par value of shares) September 30, 2024 September 30, 2023 ASSETS Current assets: Cash $ 342 $ 215 Accounts receivable 49,849 59,119 Other current assets 2,766 3,067 Total current assets 52,957 62,401 Goodwill 138,161 138,161 Intangible assets, net 108,321 124,777 Operating lease right-of-use assets 6,681 9,656 Deferred taxes, net 6,245 3,070 Equipment and improvements, net 1,830 1,590 Other long-term assets 186 186 Total assets $ 314,381 $ 339,841 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 25,290 $ 29,704 Accrued payroll 12,848 13,794 Debt obligations - current, net of deferred financing costs 12,058 17,188 Operating lease liabilities - current 2,652 3,463 Other current liabilities 394 638 Total current liabilities 53,242 64,787 Long-term liabilities: Debt obligations - long-term, net of deferred financing costs 137,316 155,147 Operating lease liabilities - long-term 12,789 15,908 Other long-term liabilities 902 1,560 Total long-term liabilities 151,007 172,615 Total liabilities 204,249 237,402 Shareholders' equity: Common stock, $ 0.001 par value; authorized 40,000 shares; issued and outstanding 14,391 and 13,950 at September 30, 2024 and 2023, respectively 14 14 Additional paid-in capital 100,270 99,974 Retained earnings 9,848 2,451 Total shareholders’ equity 110,132 102,439 Total liabilities and shareholders' equity $ 314,381 $ 339,841 The accompanying notes are an integral part of these consolidated financial statements. 39 DLH HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended September 30, 2024 2023 Operating activities Net income $ 7,397 $ 1,461 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,052 15,562 Amortization of deferred financing costs charged to interest expense 1,839 2,182 Stock-based compensation expense 1,898 1,922 Deferred taxes, net ( 3,175 ) ( 4,604 ) Impairment loss of long-lived asset — 7,673 Changes in operating assets and liabilities Accounts receivable 9,270 6,845 Other assets 3,276 1,757 Accrued payroll ( 946 ) ( 3,477 ) Accounts payable and accrued liabilities ( 4,414 ) ( 75 ) Other liabilities ( 4,831 ) 1,787 Net cash provided by operating activities 27,366 31,033 Investing activities Business acquisition, net of cash acquired — ( 180,572 ) Purchase of equipment and improvements ( 836 ) ( 625 ) Net cash used in investing activities ( 836 ) ( 181,197 ) Financing activities Proceeds from revolving line of credit 361,720 205,268 Repayment of revolving line of credit ( 359,208 ) ( 195,721 ) Proceeds from debt obligations — 168,000 Repayments of debt obligations ( 27,313 ) ( 20,188 ) Payments of deferred financing costs — ( 7,666 ) Proceeds from issuance of common stock upon exercise of options and warrants 261 1,108 Payment of tax obligations resulting from net exercise of stock options ( 1,863 ) ( 650 ) Net cash (used in) provided by financing activities ( 26,403 ) 150,151 Net change in cash 127 ( 13 ) Cash - beginning of year 215 228 Cash - end of year $ 342 $ 215 Supplemental disclosures of cash flow information Cash paid during the year for interest $ 16,043 $ 14,153 Cash paid during the year for income taxes $ 3,264 $ 5,604 Supplemental disclosures of non-cash activity Common stock surrendered for the exercise of stock options $ 2,822 $ 238 The accompanying notes are an integral part of these consolidated financial statements. 40 DLH HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended September 30, 2024 and 2023 (Amounts in thousands) Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at September 30, 2023 13,950 $ 14 $ 99,974 $ 2,451 $ 102,439 Expense related to director restricted stock units — — 618 — 618 Expense related to employee stock-based compensation — — 1,280 — 1,280 Stock issued for director restricted stock units 62 — — — — Exercise of stock options 760 — 261 — 261 Common stock surrendered for the exercise of stock options ( 381 ) — ( 1,863 ) — ( 1,863 ) Net income — — — 7,397 7,397 Balance at September 30, 2024 14,391 $ 14 $ 100,270 $ 9,848 $ 110,132 Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at September 30, 2022 13,047 $ 13 $ 91,057 $ 990 $ 92,060 Issuance and fair value adjustment of common stock in business combination 527 1 6,538 — $ 6,539 Expense related to director restricted stock units — — 718 — 718 Expense related to employee stock options — — 1,204 — 1,204 Stock issued for director restricted stock units 50 — — — — Exercise of stock options 393 — 1,107 — 1,107 Common stock surrendered for the exercise of stock options ( 67 ) — ( 650 ) — ( 650 ) Net income — — — 1,461 1,461 Balance at September 30, 2023 13,950 $ 14 $ 99,974 $ 2,451 $ 102,439 The accompanying notes are an integral part of these consolidated financial statements. DLH HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41 September 30, 2024 1. Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of DLH Holdings Corp. and its wholly-owned subsidiaries (together with its subsidiaries, "DLH" or the "Company" and also referred to as "we," "us" and "our"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The most significant of these estimates and assumptions relate to costs including valuing and determining the amortization periods for long-lived intangible assets, interest rate swaps, stock-based compensation, right-of-use assets and leases liabilities, and loss development on workers' compensation claims. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current and expected future outcomes, third-party evaluations, and various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. We revise material accounting estimates if changes occur, such as more experience is acquired, additional information is obtained, or there is new information on which an estimate was or can be based. Actual results could differ from those estimates. Revenue The Company's revenues from contracts with customers are derived from offerings that include technology-enabled business process outsourcing, program management solutions, and public health research and analytics, substantially within the U.S. government and its agencies. The Company has various types of contracts including time-and-materials contracts, cost-reimbursable contracts, and firm-fixed-price contracts. We consider a contract with a customer to exist when there is a commitment by both parties (customer and Company), payment terms are determinable, there is commercial substance, and collectability is probably in accordance with Accounting Standards Codification ("ASC") No. 606, "Revenue from Contracts with Customers" ("Topic 606"). We recognize revenue over time when there is a continuous transfer of control to our customer as performance obligations are satisfied. For our U.S. government contracts, this continuous transfer of control to the customer is transferred over time and revenue is recognized based on the extent of progress toward completion of the performance obligation. We consider control to transfer when we have a right to payment. In some instances, the Company commences providing services prior to formal approval to begin work from the customer. The Company considers these factors, the risks associated with commencing work, and legal enforceability in determining whether a contract exists under Topic 606. Contract modification can occur throughout the life of the contract and can affect the transaction price, extend the period of performance, adjust funding, or create new performance obligations. We review each modification to assess the impact of these contract changes to determine if it should be treated as part of the original performance obligation or as a separate contract. Contract modifications impact performance obligations when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue and profit cumulatively. Furthermore, a significant change in one or more estimates could affect the profitability of our contracts. We recognize adjustments in estimated profit on contracts in the period identified. For service contracts, we satisfy our performance obligations as services are rendered. We use cost-based input and time-based output methods to measure progress based on the contract type. 42 • Time and material - We bill the customer per labor hour and per material, and revenue is recognized in the amount invoiced as the amount corresponds directly to the value of our performance to date. Revenue is recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. • Cost reimbursable - We record reimbursable costs as incurred, including an estimated share of the contractual fee earned. • Firm fixed price - We recognize revenue over time using a straight-line measure of progress. Contract costs generally include direct costs such as labor, materials, subcontract costs, and indirect costs identifiable with or allocable to a specific contract. Costs are expensed as incurred and include an estimate of the contractual fees earned. Contract assets - Amounts are invoiced as work progresses in accordance with agreed-upon contractual terms. In part, revenue recognition occurs before we have the right to bill, resulting in contract assets. These contract assets are reported within Accounts receivable, net on our consolidated balance sheets and are invoiced in accordance with payment terms defined in each contract. Period end balances will vary from period to period due to agreed-upon contractual terms. Contract liabilities - Amounts are a result of billings in excess of costs incurred or prepayment for services to be rendered. Fair Value of Financial Instruments The carrying amounts of the Company's cash and cash equivalents, accounts receivable, contract assets, contract liabilities, accrued expenses, and accounts payable approximate fair value due to the short-term nature of these instruments. The fair values of the Company's debt instruments approximate fair value because the underlying interest rates approximate market rates that the Company could obtain for similar instruments at the balance sheet dates. Long-lived Assets Our long-lived assets include equipment and improvements, intangible assets, right-of-use assets, and goodwill. The Company reviews its long-lived assets for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Equipment and improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful asset lives ( 3 to 7 years) and the shorter of the initial lease term or estimated useful life for leasehold improvements. Maintenance and repair costs are expensed as incurred. Intangible assets (other than goodwill) are originally recorded at fair value and are amortized on a straight-line basis over their estimated useful lives of 10 years. Right-of-use assets are measured at the present value of future minimum lease payments, including all probable renewals, plus lease payments made to the lessor before or at lease commencement and indirect costs paid, less incentives received. Our right-of-use assets include long-term leases for facilities and equipment and are amortized over their respective lease terms. Lease Liabilities The Company has leases for facilities and office equipment. Our lease liabilities are recognized as the present value of the future minimum lease payments over the lease term. Our lease payments consist of fixed and in-substance fixed amounts attributable to the use of the underlying asset over the lease term. Variable lease payments that do not depend on an index rate or are not in-substance fixed payments are excluded in the measurement of right-of-use assets and lease liabilities and are expensed in the period incurred. The incremental borrowing rate on our secured term loan is used in determining the present value of future minimum lease payments. Some of our lease agreements include options to extend the lease term or terminate the lease. These options are accounted for in our right-of-use assets and lease liabilities when it is reasonably certain that the Company will extend the lease term or terminate the lease. The Company does not have any finance leases. As of September 30, 2024, operating leases for facilities and equipment have remaining lease terms of less than 1 year to 6.5 years. 43 Goodwill The Company performs impairment evaluation at least annually and between annual tests whenever there is an indication of impairment. We performed a qualitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test. Based on the results of the work performed, the Company has concluded that no impairment loss was warranted at September 30, 2024, as no change in business conditions occurred which would have a material adverse effect on the valuation of goodwill. Notwithstanding this evaluation, factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to future periods’ results of operations. Similarly, there were no impairments during the prior year ended September 30, 2023. Income Taxes The Company accounts for income taxes in accordance with the asset and liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the consolidated balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. We had no uncertain tax positions at either September 30, 2024 and 2023. We report interest and penalties as a component of provision for income taxes. For the years ended September 30, 2024 and 2023, we recognized no interest and no penalties related to income taxes. Stock-based Compensation The Company uses the fair value-based method for stock-based equity compensation. Options issued are designated as either an incentive stock or a non-statutory stock option. No option may be granted with a term of more than 10 years from the date of grant. Option awards may depend on the achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued common shares. All awards to employees and non-employees are recorded at fair value on the date of the grant and expensed over the period of vesting. The Company uses the Monte Carlo method to estimate the fair value of each stock option at the date of grant. Any consideration paid by the option holders to purchase shares is credited to capital stock. Stock-based Compensation expense for the portion of equity awards for which the requisite service has not been rendered is recognized as the requisite service is rendered. The stock-based compensation expense for that portion of awards has been based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. For options that vest based on the Company’s common stock achieving and maintaining defined market prices, the Company values the awards with a Monte Carlo method that utilizes various probability factors and other criterion in establishing fair value of the grant. The related stock-based compensation expense is recognized over the service period. Stock based compensation is reliant on continued employment with the Company. These arrangements are forfeited upon employee separation and accounted for as they occur. Cash We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. Deposits held with financial institutions may exceed the $250,000 limit. Accounts Receivable Receivables include amounts billed and currently due from customers where the right to consideration is unconditional and amounts unbilled. Both billed and unbilled amounts are non-interest bearing, unsecured, and recognized at an estimated realizable value that includes costs and fees, and are generally expected to be billed and received within a single year. We evaluate our receivables for expected credit losses on a quarterly basis and determine whether an allowance for expected credit losses is appropriate based on specific collection issues. No allowance for doubtful accounts was deemed necessary at either September 30, 2024 or September 30, 2023. 44 Earnings Per Share Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common stock outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method. Treasury Stock The Company periodically purchases its own common stock that is traded on public markets as part of announced stock repurchase programs. The repurchased common stock is classified as treasury stock on the consolidated balance sheets and held at cost. As of September 30, 2024 and 2023, the Company did not hold any treasury stock. Preferred Stock Our certificate of incorporation authorizes the issuance of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors up to an aggregate of 5,000,000 shares of preferred stock. As of September 30, 2024 and 2023, the Company has not issued any preferred stock. Interest Rate Swap The Company uses derivative financial instruments to manage interest rate risk associated with its variable debt. The Company's objective in using these interest rate derivatives is to manage its exposure to interest rate movements and reduce volatility of interest expense. The gains and losses due to changes in the fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the underlying debt. Offsetting changes in fair value of both the interest rate swaps and the hedged portion of the underlying debt are recognized in interest expense in the consolidated statements of operations. The Company does not hold or issue any derivative instruments for trading or speculative purposes. Risks and Uncertainties Management evaluates the impact of global markets and economic factors on our industry and the potential for adverse effects on the Company's consolidated financial position and its operations. As of September 30, 2024, there was no indication of any global or economic impacts to our industry. 3. New Accounting Pronouncements In November 2023, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which provides guidance intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, and each reported measure of segment profit or loss. The ASU requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 280. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. We are currently evaluating the impacts of the single reportable segment disclosures. In December 2023, FASB issued ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which provides guidance on the requirements such as the requirement that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. DLH is a public company that reports income tax disclosures and therefore this ASU applies to the Company. ASU 2023-09 is effective for public business entities for fiscal years beginning after Dec. 15, 2024. We are currently evaluating the impacts of the improvements to income tax disclosure. In March 2024, FASB issued ASU No. 2024-01, "Scope Application of Profits Interest and Similar Awards". The ASU clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. We are currently evaluating the impacts of the improvements to our disclosure. 45 In March 2024, the Securities and Exchange Commission ("SEC") has released a final rule that requires registrants to provide comprehensive climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2027, for smaller reporting companies ("SRC"). Registrants must disclose climate-related financial metrics and impacts on their financial estimates and assumptions in a footnote to the audited financial statements. The disclosures will also need to be addressed as part of management’s internal control over financial reporting ("ICFR") and will be subject to the financial statement and ICFR audit (if applicable) of an independent registered public accounting firm. We are currently evaluating the impacts of the improvements to our disclosure. 4. Revenue Recognition The following table summarizes the contract balances recognized in accounts receivable within the Company's consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Contract assets $ 23,945 $ 20,542 The change from prior period is primarily due to invoice timing and increased revenue volume. Disaggregation of revenue from contracts with customers We disaggregate our revenue from contracts with customers by customer, contract type, as well as whether the Company acts as prime contractor or subcontractor. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following series of tables presents our revenue disaggregated by these categories: Revenue by customer for the years ended September 30, 2024 and 2023 (in thousands): 2024 2023 Department of Health and Human Services $ 184,544 $ 161,311 Department of Veterans Affairs 139,945 138,862 Department of Defense 64,128 70,325 Other 7,320 5,374 Revenue $ 395,937 $ 375,872 Revenue by contract type for the years ended September 30, 2024 and 2023 (in thousands): 2024 2023 Time and Materials $ 215,341 $ 209,951 Cost Reimbursable 79,481 81,797 Firm Fixed Price 101,115 84,124 Revenue $ 395,937 $ 375,872 Revenue by whether the Company acts as a prime contractor or a subcontractor for the years ended September 30, 2024 and 2023 (in thousands): 2024 2023 Prime Contractor $ 355,147 $ 356,792 Subcontractor 40,790 19,080 Revenue $ 395,937 $ 375,872 46 5. Leases The following table summarizes lease balances presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Operating lease right-of-use assets $ 6,681 $ 9,656 Operating lease liabilities, current $ 2,652 $ 3,463 Operating lease liabilities, long-term 12,789 15,908 Operating lease liabilities $ 15,441 $ 19,371 For the years ended September 30, 2024 and 2023, total lease costs for our operating leases are as follows (in thousands): 2024 2023 Operating $ 3,841 $ 3,911 Short-term 290 287 Variable 92 95 Sublease income (a) ( 269 ) ( 282 ) Lease costs $ 3,954 $ 4,011 (a): The Company subleases a portion of one of its leased facilities. The sublease is classified as an operating lease with respect to the underlying asset. The sublease term is 5 years and includes two additional 1 -year term extension options. The Company's future minimum lease payments as of September 30, 2024 are as follows (in thousands): Fiscal year ending: 2025 $ 3,536 2026 3,305 2027 2,706 2028 2,557 2029 2,646 Thereafter 3,788 Total future minimum lease payments 18,538 Less: imputed interest ( 3,097 ) Present value of future minimum lease payments 15,441 Less: current portion of operating lease liabilities ( 2,652 ) Long-term operating lease liabilities $ 12,789 At September 30, 2024, the weighted-average remaining lease term and weighted-average discount rate are 5.8 years and 6.3 %, respectively. The calculation of the weighted-average discount rate was determined based on borrowing terms from our secured term loan. Other information related to our leases is as follows for the years ending September 30, 2024 and 2023 (in thousands): 2024 2023 Cash paid for amounts included in the measurement of lease liabilities $ 4,572 $ 4,468 New lease liabilities, net of new right-of-use-assets — 120 Other lease information $ 4,572 $ 4,588 47 6. Supporting Financial Information Accounts receivable The following table summarizes accounts receivable presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Billed receivables $ 25,904 $ 38,577 Contract assets 23,945 20,542 Accounts receivable $ 49,849 $ 59,119 Other current assets The following table summarizes other current assets presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Prepaid licenses and other expenses $ 1,315 $ 1,330 Prepaid insurance and benefits 545 743 Other receivables 906 994 Other current assets $ 2,766 $ 3,067 Goodwill The balance of goodwill was $ 138,161 as of September 30, 2024 and September 30, 2023. Intangible assets, net The following table summarizes intangible assets, net presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Intangible assets Customer contracts and related customer relationships $ 113,622 $ 113,622 Backlog 37,249 37,249 Trade names 13,034 13,034 Covenants-not-to-compete 637 637 Total intangible assets $ 164,542 $ 164,542 Less accumulated amortization: Customer contracts and related customer relationships ( 41,297 ) ( 29,929 ) Backlog ( 10,994 ) ( 7,273 ) Trade names ( 3,488 ) ( 2,185 ) Covenants-not-to-compete ( 442 ) ( 378 ) Total accumulated amortization $ ( 56,221 ) $ ( 39,765 ) Intangible assets, net $ 108,321 $ 124,777 Amortization expense for the years ended September 30, 2024 and 2023 was $ 16.5 million and $ 14.8 million, respectively. As of September 30, 2024, the estimated annual amortization expense is as follows (in thousands): 48 For the Fiscal Year Ending September 30, 2025 $ 16,456 2026 15,722 2027 14,694 2028 14,694 2029 13,734 Thereafter 33,021 Total amortization expense $ 108,321 At September 30, 2024, the weighted-average remaining amortization period in total was 7.4 years years At September 30, 2024, the weighted-average amortization period for customer contracts and related customer relationships, backlog, trade names and covenants-not-to-compete was 7.3 years, 7.6 years, 7.7 years, 5.5 years respectively. 49 Equipment and improvements, net The following table summarizes equipment and improvements, net presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Furniture and equipment $ 1,832 $ 1,790 Computer equipment and software 7,273 6,479 Leasehold improvements 1,614 1,614 Total equipment and improvements 10,719 9,883 Less: accumulated depreciation and amortization ( 8,889 ) ( 8,293 ) Equipment and improvements, net $ 1,830 $ 1,590 Depreciation expense was $ 0.6 million and $ 0.8 million for the years ended September 30, 2024 and 2023, respectively. Accounts payable and accrued liabilities The following table summarizes accounts payable and accrued liabilities presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Accounts payable $ 13,421 $ 12,603 Accrued benefits 4,519 6,414 Accrued bonus and incentive compensation 3,641 4,719 Accrued workers' compensation insurance 1,528 2,369 Accrued interest 619 1,309 Other accrued expenses 1,562 2,290 Accounts payable and accrued liabilities $ 25,290 $ 29,704 Accrued payroll The following table summarizes accrued payroll presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Accrued leave $ 8,569 $ 9,621 Accrued payroll 3,070 2,487 Accrued payroll taxes 981 1,173 Accrued severance 228 513 Accrued payroll $ 12,848 $ 13,794 50 Debt obligations The following table summarizes debt obligations presented on our consolidated balance sheets at September 30, 2024 and 2023 (in thousands): 2024 2023 Secured term loan $ 142,500 $ 169,813 Secured revolving line of credit 12,058 9,546 Less: unamortized deferred financing costs ( 5,184 ) ( 7,024 ) Net bank debt obligations 149,374 172,335 Less: current portion of debt obligations, net of deferred financing costs (a) ( 12,058 ) ( 17,188 ) Long-term portion of debt obligations, net of deferred financing costs $ 137,316 $ 155,147 As of September 30, 2024, we have satisfied mandatory principal payments on our secured term loan. (a) As of September 30, 2024, the current portion comprises the $ 12.1 million outstanding balance on the secured revolving line of credit. All fiscal 2025 mandatory loan amortization payments have been satisfied by voluntary prepayments. Interest expense The following table summarizes interest expense presented on our consolidated statements of operations for the years ended September 30, 2024 and 2023 (in thousands): 2024 2023 Interest expense (a) $ 15,352 $ 14,153 Interest income (b) ( 38 ) ( 64 ) Amortization of deferred financing costs (c) 1,839 2,182 Interest expense $ 17,153 $ 16,271 (a): Interest expense on borrowing (b): Interest earned from customer payments received after the due date. (c): Amortization of expenses related to secured term loan and secured revolving line of credit. 7. Credit Facilities A summary of our credit facilities as presented on our consolidated balance sheets as follows (in millions): September 30, 2024 September 30, 2023 Arrangement Loan Balance Interest Arrangement Loan Balance Interest Secured term loan (a) due December 8, 2027 $ 142.5 SOFR 1 + 4.1 % Secured term loan (a) due December 8, 2027 $ 169.8 SOFR 1 + 4.1 % Secured revolving line of credit (b) due December 8, 2027 $ 12.1 SOFR 1 + 4.1 % Secured revolving line of credit (b) due December 8, 2027 $ 9.5 SOFR 1 + 4.1 % 1 Secured Overnight Financing Rate ("SOFR") as of September 30, 2024 and September 30, 2023 was 5.2 % and 5.3 %, respectively. (a) Represents the principal amounts payable on our term loan, which is secured by liens on substantially all of the assets of the Company. The principal of the term loan is payable in quarterly installments with the remaining balance due on December 8, 2027. 51 On January 31, 2023, we executed a floating-to-fixed interest rate swap with First National Bank ("FNB") with FNB which has a notional amount of $ 80.0 million at September 30, 2024 , a fixed interest rate of 4.10 % and a maturity date of January 31, 2026. As a result of entering interest rate swap agreements, for the twelve months ended September 30, 2024, interest expense has been decreased by $ 1.3 million, respectively. The Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain quarterly financial covenants including: (i) a minimum fixed charge coverage ratio of at least 1.25 to 1.00, and (ii) a total leverage ratio not exceeding the ratio of 4.50 :1.00 to 2.00 :1.00 through maturity. The total leverage ratio is calculated by dividing the Company's total interest-bearing debt by net income adjusted to exclude (i) interest and other expenses, (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) non-cash charges, losses or expenses, including stock-based compensation, and (v) non-recurring charges, losses or expenses to include transaction and non-cash equity expense. We are in compliance with all loan covenants and restrictions as of September 30, 2024. We are required to pay quarterly amortization payments, which commenced in December 2022. The annual amortization amounts are $ 14.3 million for fiscal year 2024, $ 19.0 million each for fiscal years 2025 and 2026, and $ 23.8 million for fiscal year 2027, with the remaining unpaid loan balance due at maturity in December 2027. The quarterly payments are equal installments. The Company made voluntary prepayments of $ 19.0 million during the twelve months ended September 30, 2024 bringing the outstanding principal balance on the secured term loan to $ 142.5 million. We have satisfied the mandatory principal payments through September 30, 2025. In addition to quarterly payments of the outstanding indebtedness, the loan agreement also requires annual payments of a percentage of excess cash flow, as defined in the loan agreement. The loan agreement states that an excess cash flow recapture payment must be made equal to (a) 75 % of the excess cash flow for the immediately preceding fiscal year in which indebtedness to consolidated EBITDA ratio is greater than or equal to 2.50 :1.00; (b) 50 % of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 2.50 :1.00 but greater than or equal to 1.50 :1.00; or (c) 0 % of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 1.50 :1.00. In addition, the Company must make additional mandatory prepayment of amounts outstanding based on proceeds received from asset sales and sales of certain equity securities or other indebtedness. Due to the voluntary prepayment of term debt, there was no excess cash flow payment required. For additional information regarding the schedule of future payment obligations, please refer to Note 1 0 Commitments and Contingencies . (b) The secured revolving line of credit has a ceiling of up to $ 32.5 million; as of September 30, 2024, we had unused borrowing capacity of $ 18.1 million, which is net of outstanding letters of credit. Borrowing on the secured revolving line of credit is secured by liens on substantially all of the assets of the Company. The Company accessed funds from the secured revolving line of credit during the year, which had a $ 12.1 million outstanding balance at September 30, 2024. As part of the secured revolving line of credit, the lenders agreed to a sublimit of $ 10.0 million for letters of credit for the account of the Company, subject to applicable procedures. 8. Stock-based Compensation and Equity Grants Stock-based compensation expense Options issued under equity incentive plans were designated as either an incentive stock or a non-statutory stock option. No option was granted with a term of more than 10 years from the date of grant. Exercisability of option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued shares. As of September 30, 2024, there were 1.1 million shares available for grant. Total stock-based compensation expense, presented in the table below, is recorded in general and administrative expenses included in our consolidated statements of operations for the years ended September 30, 2024 and 2023 (in thousands): 52 2024 2023 DLH employees (a) $ 1,280 $ 1,204 Non-employee directors (b) 618 718 Stock option expense $ 1,898 $ 1,922 (a): Included in this amount are equity grants of restricted stock units ("RSU") to Executive Officers, which were issued in accordance with the DLH long-term incentive compensation policy in this fiscal year, and stock option grants to employees during prior fiscal years. The RSUs issued and outstanding totaled 316,863 and 211,228 at September 30, 2024 and 2023, respectively. During the fiscal year ended September 30, 2024, 169,544 RSUs were granted to Executive Officers. Of the RSUs granted, 84,773 have performance-based vesting criteria and the remaining 84,771 have service-based vesting criteria. At a 50 % volatility and assumptions of a 3-year term and the performance vesting criteria results in an indicated a fair value. The RSUs granted during the fiscal year ended September 30, 2024, as follows using the Monte Carlo Method. Volatility 50% Grant Date Performance Vesting Base Performance Vesting Criteria (Years) Calculated Fair Value December 15, 2023 Revenue Revenue increase at the end of the performance period as compared to the year ended September 30, 2023 3 $ 3.82 December 15, 2023 Stock price Stock price is at least $ 25.65 per share average for the 30 days prior to the end of the performance period 3 $ 5.36 January 27, 2023 Revenue Revenue increase at the end of the performance period as compared to the year ended September 30, 2022 3 $ 3.51 January 27, 2023 Stock price Stock price is at least $ 33.21 per share average for the 30 days prior to the end of the performance period 3 $ 2.92 Notes: Results based on 100,000 simulations (b): Equity grants of RSUs were made in accordance with DLH compensation policy for non-employee directors and a total of 61,525 and 50,367 restricted stock units were issued and outstanding at September 30, 2024 and 2023, respectively. These grants have service-based vesting criteria and vest at the end of this fiscal year. Unrecognized stock-based compensation expense Unrecognized stock-based compensation expense is presented in the table below for the years ending September 30, 2024 and 2023 (in thousands): 2024 2023 Unrecognized expense for DLH employees (a) $ 4,417 $ 7,107 Unrecognized expense $ 4,417 $ 7,107 (a): On a weighted average basis, this expense is expected to be recognized within the next 2.98 years. Stock option activity for the year ended September 30, 2024: The aggregate intrinsic value in the table below represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates. This amount will change based on the fair market value of the Company’s stock. A summary of the Company's stock option awards is as follows: 53 Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Term Value (in thousands) (in years) (in thousands) Outstanding, September 30, 2023 2,278 $ 8.40 5.8 $ 8,693 Exercised ( 760 ) 4.12 — — Cancelled ( 282 ) 14.73 — — Outstanding, September 30, 2024 1,236 $ 9.28 6.1 $ 1,313 Vested and exercisable, September 30, 2024 1,177 $ 9.37 6.0 $ 1,313 Stock options shares outstanding, vested and unvested for the years ended September 30, 2024 and 2023 (in thousands): Number of Shares 2024 2023 Vested and exercisable 1,176 1,608 Unvested (a) 60 670 Options outstanding 1,236 2,278 (a): Certain awards vest upon satisfaction of certain performance criteria. 9. Earnings Per Share Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method. Earnings Per Share information is presented in the table below for the years ending September 30, 2024 and 2023 (in thousands except for per share amounts): 2024 2023 Numerator: Net income $ 7,397 $ 1,461 Denominator: Denominator for basic net income per share - weighted-average outstanding shares 14,169 13,704 Effect of dilutive securities: Stock options and restricted stock 236 727 Denominator for diluted net income per share - weighted-average outstanding shares $ 14,405 $ 14,431 Net income per share - basic $ 0.52 $ 0.11 Net income per share - diluted $ 0.51 $ 0.10 54 10. Commitments and Contingencies Contractual Obligations as of September 30, 2024 (in thousands): Payments Due Per Fiscal Year Total 2025 2026 2027 2028 2029 Thereafter Debt obligations $ 154,558 $ 12,058 $ 19,000 $ 23,750 $ 99,750 $ — $ — Facility operating leases 18,538 3,536 3,305 2,706 2,557 2,646 3,788 Contractual obligations $ 173,096 $ 15,594 $ 22,305 $ 26,456 $ 102,307 $ 2,646 $ 3,788 Legal Proceedings As a commercial enterprise and employer, the Company is subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-related matters, other commercial disputes arising in the course of its business, and inquiries and investigations by governmental agencies regarding our employment practices or other matters. The Company is not aware of any pending or threatened litigation that it believes is reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows. 11. Related Party Transactions The Company has determined that for the years ended September 30, 2024 and 2023 and through the filing date of this report, there were no related party transactions that have occurred which require disclosure through the date that these consolidated financial statements were issued. 12. Provision for Income Taxes The significant components of provision for income taxes from continuing operations are summarized as follows for the years ending September 30, 2024 and 2023 (in thousands): 2024 2023 Current expense $ 3,525 $ 3,823 Deferred expense ( 3,175 ) ( 4,464 ) Income tax expense (benefit) $ 350 $ ( 641 ) The following table presents the significant differences between our income taxes at the federal statutory rate and the Company's effective tax rate for continuing operations for the years ending September 30, 2024 and 2023 (in thousands): 2024 2023 Income taxes at the federal statutory rate $ 1,654 $ 187 State taxes, net ( 200 ) ( 536 ) Other permanent items ( 1,104 ) ( 292 ) Income tax expense (benefit) $ 350 $ ( 641 ) 55 An analysis of the Company's deferred tax assets and liabilities at September 30, 2024 and 2023 is as follows (in thousands): 2024 2023 Deferred tax assets: Net operating loss carry forwards, net $ 1,903 $ 855 Stock based compensation 732 708 Accrued compensation 2,204 2,094 Capitalized transaction costs 532 973 Right-of-use 1,682 1,669 Interest limitation 6,313 2,601 Total deferred tax assets $ 13,366 $ 8,900 Less: valuation allowance ( 1,894 ) ( 847 ) Total deferred tax assets, net $ 11,472 $ 8,053 Deferred tax liabilities: Depreciation on fixed assets ( 402 ) ( 418 ) Amortization on identified intangibles and goodwill ( 4,364 ) ( 4,050 ) Accrued expenses ( 461 ) ( 515 ) Total deferred tax liabilities $ ( 5,227 ) $ ( 4,983 ) Net deferred tax assets $ 6,245 $ 3,070 13. Employee Benefit Plans As of September 30, 2024, the Company maintains a 401(k) Plan (the "401(k) Plan"), a defined contribution and supplemental pension plan for the benefit of its eligible employees. The Company may provide a discretionary matching contribution of a participant's elective contributions under the 401(k) Plan. The Company recorded related expense of $ 3.4 million and $ 2.6 million for the years ending September 30, 2024 and 2023, respectively. Participants are always fully vested in their elective contributions and vest in Company matching contributions over a four-year period. 14. Subsequent Events On November 6, 2024, the Company completed an amendment to its credit facility. The amendment modified certain financial covenants thresholds for future measurement periods. The modification did not change the financial covenants thresholds for September 30, 2024. The amendment was approved by the Company's Board of Directors and Executive Management and the credit facility lenders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.