What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-12-10 compared with 2024-12-04 · 221 added, 136 removed, 533 unchanged (40% of the section changed)

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DLH Holdings Corp.:

Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of DLH Holdings Corp.

and Subsidiaries (the “Company”) as of September 30, 2025 and 2024, 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, 2025, 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.

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, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2025, in conformity with accounting principles generally accepted in the United States of America.

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.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements 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.

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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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

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.

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.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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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.

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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.

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.

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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:

To test the recognition of revenue, our audit procedures included among others, selecting a sample of revenue transactions and performing 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

management's assessment towards the completion of the performance obligation;

For cost reimbursable 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.

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.

For firm fixed price contracts, we inspected the signed contract related to the selected invoice, noting the period of performance was within the period of performance in the contract, and we recalculated the revenue to be recognized based on the contract terms.

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.

To test 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, 2025.

Goodwill and Intangible Asset – Impairment Assessment

Critical Audit Matter Description

As described in Note 2 to the consolidated financial statements, management evaluates goodwill and intangible assets on an annual basis, or more frequently if impairment indicators exist.

The Company estimates the fair value of the equity by weighting the results from the income approach and two market approaches.

The income approach incorporates the use of cash flow projections.

The cash-flow projections are based on financial forecasts developed by management that include revenue, weighted cost of capital (“WACC”), and gross margin projections.

The market approach utilizes the Company’s market capitalization with the inclusion of a control premium, as well as guideline public company market multiples.

Additionally, the fair value of the intangible assets was valued using an undiscounted cash flow.

The determination of fair value involves significant judgment and estimation.

Based on the methodologies described above, management concluded that no impairment of goodwill or intangible assets existed as of the measurement date.

The principal considerations for our determination that performing procedures relating to the goodwill and intangible assets assessment as a critical audit matter was the significant judgment by management to determine the fair value estimates, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating management’s significant assumptions in determining fair value, including the involvement of professionals with specialized skill and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

Our audit procedures included, among others, obtaining an understanding of and evaluating management’s process for identifying and evaluating potential triggering events.

For the market approach, we performed procedures to test the control premium.

Additionally, we evaluated the guideline public companies used for market multiples and analyzed the consistency of external market data and verified the completeness and accuracy of the underlying data.

For the income approach, we evaluated management's forecasts for revenue, WACC , and gross margin.

We evaluated management’s forecasting capabilities by comparing projections to the Company’s historical and current results and tested the reasonableness of these forecasts to ensure alignment with historical performance.

Finally, we utilized professionals with specialized skills and knowledge to assist in (i) evaluating management’s methodology to determine fair value (ii) testing the mathematical accuracy of the models;

and (iii) evaluating the reasonableness of the significant assumptions.

/s/ WithumSmith+Brown, PC

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General and administrative costs 31,199 35,538

Impairment loss of long-lived asset — 7,673

Corporate development costs — 1,735

Depreciation and amortization 17,179 17,052

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Income before provision for income taxes 1,755 7,747

Provision for income tax expense (benefit)

Provision for income taxes

Net income $ 1,362 $ 7,397

Net income per share - basic $ 0.52 $ 0.11

Net income per share - diluted $ 0.51 $ 0.10

Net income per share

$ 0.09 $ 0.52

$ 0.09 $ 0.51

Weighted average common shares outstanding

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Operating lease right-of-use assets 8,764 6,681

Deferred taxes, net 6,245 3,070

Deferred income taxes, net 7,947 6,245

Equipment and improvements, net 1,274 1,830

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Deferred taxes, net ( 1,702 ) ( 3,175 )

Impairment loss of long-lived asset — 7,673

Changes in operating assets and liabilities

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Other assets ( 3,190 ) 3,276

Accrued payroll ( 946 ) ( 3,477 )

Accounts payable and accrued liabilities

( 6,043 ) ( 4,414 )

Accrued payroll ( 697 ) ( 946 )

Other liabilities 1,646 ( 4,831 )

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Investing activities

Business acquisition, net of cash acquired — ( 180,572 )

Purchase of equipment and improvements ( 241 ) ( 836 )

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Repayment of revolving line of credit ( 257,171 ) ( 359,208 )

Proceeds from debt obligations — 168,000

Repayments of debt obligations ( 19,000 ) ( 27,313 )

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Payment of tax obligations resulting from net exercise of stock options — ( 1,863 )

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 23,192 ) ( 26,403 )

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Common stock surrendered for the exercise of stock options $ — $ 2,822

Lease liability recognized to acquire a right-of-use asset $ 4,187 $ 839

The accompanying notes are an integral part of these consolidated financial statements.

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Expense related to employee stock-based compensation — — 846 — 846

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 )

Issuance of Common Stock upon vesting of restricted stock awards 123 — — — —

Common shares surrendered for stock option exercises and restricted stock unit vesting ( 16 ) — — — —

Net income — — — 1,362 1,362

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13,950 $ 14 $ 99,974 $ 2,451 $ 102,439

Issuance and fair value adjustment of common stock in business combination 527 1 6,538 — $ 6,539

Expense related to director restricted stock units — — 618 — 618

Expense related to employee stock options — — 1,204 — 1,204

Stock issued for director restricted stock units 50 — — — —

Expense related to employee stock-based compensation — — 1,280 — 1,280

Issuance of Common Stock upon vesting of restricted stock awards

Exercise of stock options 760 — 261 — 261

Common stock surrendered for the exercise of stock options ( 67 ) — ( 650 ) — ( 650 )

Common shares surrendered for stock option exercises and restricted stock unit vesting

( 381 ) — ( 1,863 ) — ( 1,863 )

Net income — — — 7,397 7,397

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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.

The accompanying financial statements have been prepared in accordance with U.S.

generally accepted accounting principles ("GAAP") and with the instructions to Form 10-K, Regulation S-X, and Regulation S-K.

Certain prior year amounts have been reclassified to conform to the fiscal 2025 presentation.

Significant Accounting Policies

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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.

The most significant of these estimates and assumptions relate to estimating costs including overhead and its allocation, valuing and determining the amortization periods for long-lived intangible assets, interest rate swaps, stock-based compensation, goodwill, and right-of-use assets and lease liabilities.

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.

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Actual results could differ from those estimates.

Segment Reporting

The Company reports operating results and financial data in one operating and reportable segment.

The Company provides technology-enabled business process, program management, and digital transformation solutions primarily to U.S.

government agencies, which share similar economic characteristics, production processes, customer bases, and regulatory environments.

The Chief Executive Officer serves as the Chief Operating Decision Maker ("CODM") and evaluates performance and allocates resources based on consolidated financial results.

Significant expense categories regularly provided to the CODM to manage operations are those disclosed in the consolidated statements of operations.

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.

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Costs are expensed as incurred and include an estimate of the contractual fees earned.

Contract costs incurred for U.S.

government contracts, including indirect costs, are subject to audit and adjustment by various government audit agencies.

Historically, our adjustments have not been material.

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.

These contract assets are reported within accounts receivable 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.

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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 carrying amounts of the Company's cash, accounts receivable, contract assets, 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.

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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.

The Company continues to review 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.

Specifically related to goodwill, if the qualitative analysis indicates a quantitative assessment is necessary, the Company utilizes multiple methods to determine its implied fair value.

Each method utilizes a significant amount of judgment and may not be indicative of the Company's fair value on its own and therefore multiple methods could be combined to determine an implied fair value.

Each method utilizes relevant publicly available information as well as observable market conditions.

If the book value of goodwill exceeds its fair value, then an impairment is recognized and goodwill is written down to fair value.

The impairment loss would be recognized as an operating expense.

Equipment and improvements are recorded 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.

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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.

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.

As of September 30, 2025, operating leases for facilities and equipment have remaining lease terms of less than 1.3 years to 7.3 years.

The Company performs impairment evaluation at least annually at the end of the fiscal year and between annual tests whenever there is an indication of impairment.

The assessment at September 30, 2025 indicated a triggering event had occurred requiring that the Company perform additional quantitative assessments.

The triggering event was primarily due to the decrease in the Company's share price resulting in a decline in market capitalization.

Management then performed a series of quantitative assessments utilizing multiple evaluation methods.

Those assessments included both market and income-based methods utilizing level 1 observable market data and level 3 estimates.

Significant estimates in the market-based methods included identifying similar companies with comparable business factors such as service offerings, customers, size, growth, profitability, risk and return on investment, as well as assessing comparable market multiples and control premiums in estimating the fair value of the Company.

For the market-based methods, the Company used the market capitalization with the inclusion of a control premium as one estimation of fair value.

The other market-based method used publicly available market multiples of relevant publicly traded companies applied to our Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and revenue for fiscal 2025 to estimate the Company's fair value.

The income-based method is a discounted cash flow analysis and the significant estimates included expected growth rates, profitability and the weighted average cost of capital.

The Company used a weighted average blend of these methods to assess its fair value.

The results of those assessments indicated that the Company's fair value was in excess of the Company's book value and therefore its goodwill was not impaired.

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.

There were no impairments during the years ended September 30, 2025 and 2024, respectively.

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.

Deferred tax assets are reflected on the consolidated balance sheets 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.

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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.

During the years ended September 30, 2025 and 2024, 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.

The Company issues stock-based compensation through option and restricted stock unit ("RSU") grants and uses the fair value-based method to estimate stock-based compensation expense.

Options issued are designated as either an incentive stock option 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.

Option and RSU awards may depend on achievement of certain vesting criteria determined by the Compensation Committee of our Board.

Shares issued upon RSU vesting and 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.

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

The Company uses a Monte Carlo method to estimate the fair value as of the grant date for each grant that vest based on market or performance based criteria.

Any consideration paid by the option holders to purchase shares is credited to common stock.

The Company considers 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.

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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.

Our certificate of incorporation authorizes the issuance of "blank check" preferred stock with 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, 2025 and 2024, the Company has not issued any preferred stock.

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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 November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires public entities to disclose significant segment expenses that are regularly provided to the Company’s Chief Operating Decision Maker (“CODM”) and included in the measure of segment profit or loss.

The standard also requires disclosure of the title and position of the CODM, as well as a description of how the CODM uses segment profit or loss information in evaluating performance and allocating resources.

The Company adopted ASU 2023-07 in its Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

DLH operates as a single reporting segment.

Accordingly, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In December 2023, FASB issued ASU 2023-09 "Income Taxes (Topic 740):

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ASU 2023-09 is effective for public business entities for fiscal years beginning after Dec.

We will adopt ASU 2023-09 in our Annual Report on Form 10-K for the fiscal year ending September 30, 2026.

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.

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.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income (Subtopic 220-40):

Expense Disaggregation Disclosures”.

To enhance transparency in financial reporting by requiring public business entities to disclose disaggregated information about expenses in their financial statements.

The guidance mandates disclosure of specific cost components, such as inventory purchases, employee compensation, depreciation, and amortization, within relevant income statement expense captions, along with qualitative descriptions of any remaining undissected amounts.

Entities must also disclose total selling expenses and define these annually.

Effective for annual reporting periods beginning after December 15, 2026, and interim periods in 2027, the ASU allows prospective or retrospective application and permits early adoption.

We are currently evaluating the impacts of the improvements to our disclosure.

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Contract assets $ 22,000 $ 23,945

The change from prior period is primarily due to invoice timing and increased revenue volume.

Contract assets are included as part of accounts receivable on the consolidated balances sheets.

The change from prior period was primarily due to invoice timing.

There were no contract liabilities as of September 30, 2025 and September 30, 2024.

The opening balance for contract assets for the fiscal year ended September 30, 2024 was $ 20,542 .

Disaggregation of revenue from contracts with customers

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Time and Materials $ 177,067 $ 215,341

Cost Reimbursable 79,481 81,797

Firm Fixed Price 93,746 101,115

Cost Reimbursable 73,684 79,481

$ 344,497 $ 395,937

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$ 16,940 $ 15,441

As of September 30, 2025, operating leases for facilities and equipment have remaining lease terms of less than 1.3 years to 7.3 years.

The non-cash increase in both lease liabilities and right-of-use assets during the current period was primarily attributable to an extension of an existing operating lease.

The non-cash increase to lease liabilities from the lease extension was $ 4.2 million.

For the years ended September 30, 2025 and 2024, total lease costs for our operating leases are as follows (in thousands):

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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):

Other information related to our leases was as follows for the years ending September 30, 2025 and 2024 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities $ 3,782 $ 4,572

New lease liabilities, net of new right-of-use-assets — 120

Lease liabilities arising from obtaining right-of-use assets 4,187 839

Other lease information

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Accounts receivable $ 38,394 $ 49,849

The opening balance for accounts receivable for the fiscal year ended September 30, 2024 was $ 59,119 .

Other current assets

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Other current assets $ 4,018 $ 2,766

The balance of goodwill was $ 138,161 as of September 30, 2024 and September 30, 2023.

There were no changes in goodwill for the year ended September 30, 2025.

The balance of goodwill was approximately $ 138.2 million as of September 30, 2025 and 2024.

Intangible assets, net

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Amortization expense for the years ended September 30, 2025 and 2024 was $ 16.5 million and $ 16.5 million, respectively.

As of September 30, 2024, the estimated annual amortization expense is as follows (in thousands):

As of September 30, 2025, the estimated annual amortization expense was as follows (in thousands):

For the Fiscal Year Ending September 30,

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Total amortization expense

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.

The weighted-average remaining amortization period at September 30, 2025:

Intangible assets Weighted-Average Remaining Amortization Period

Customer contracts and related customer relationships 6.5 years

Backlog 6.4 years

Trade names 6.8 years

Covenants not to compete 5.4 years

Equipment and improvements, net

The following table summarizes equipment and improvements, net presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Furniture and equipment $ 1,832 $ 1,790

Computer equipment and software

$ 4,217 $ 7,273

Leasehold improvements

Furniture and equipment

Total equipment and improvements 6,961 10,719

2 unchanged sentences

Depreciation expense was $ 0.7 million and $ 0.6 million for the years ended September 30, 2025 and 2024, respectively.

During the year ended September 30, 2025, the Company disposed of $ 3.9 million of equipment and improvements, primarily within the computer equipment and software category.

All assets were fully depreciated and no longer in use.

No cash proceeds were received as part of the disposal of these assets.

Accounts payable and accrued liabilities

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Long-term portion of debt obligations, net of deferred financing costs $ 119,966 $ 137,316

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.

Through September 30, 2026, we have satisfied mandatory principal payments on our secured term loan.

(a) As of September 30, 2025, the current portion was comprised of $ 8.1 million outstanding balance on the secured revolving line of credit.

All fiscal 2025 mandatory loan amortization payments have been satisfied by voluntary prepayments.

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The principal of the term loan is payable in quarterly installments with the remaining balance due on December 8, 2027.

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.

On January 31, 2023, we executed a floating-to-fixed interest rate swap with First National Bank which has a notional amount of $ 74.0 million at September 30, 2025 , 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, 2025, interest expense has been decreased by approximately $ 0.2 million.

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

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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 annual amortization amounts are $ 19.0 million for fiscal year 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.

The outstanding principal balance on the secured term loan was $ 123.5 million as of September 30, 2025 .

We have satisfied the mandatory principal payments through September 30, 2026.

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For additional information regarding the schedule of future payment obligations, please refer to Note 10 Commitments and Contingencies .

(b) The secured revolving line of credit has a ceiling of up to $ 32.5 million;

(b) As amended, the secured revolving line of credit has a ceiling of up to $ 50.0 million;

as of September 30, 2025, we had unused borrowing capacity of $ 23.6 million, which is net of outstanding letters of credit.

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As of September 30, 2025, there were 1.2 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):

Total stock-based compensation expense, presented in the table below, was recorded in general and administrative expenses included in our consolidated statements of operations for the years ended September 30, 2025 and 2024 (in thousands):

DLH employees (a)

Non-employee directors (b) 618 718

Stock option expense

$ 846 $ 1,280

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.

Non-employee directors

Stock-based compensation expense

$ 1,464 $ 1,898

(a) 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, 2025, as follows using the Monte Carlo Method.

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 20, 2024 Revenue Revenue increase at the end of the measurement period as compared to the year ended September 30, 2024 3 $ 0.65

December 20, 2024 Stock price Stock price is at least $ 23.04 per share average for the 30 days prior to the end of the performance period

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

December 15, 2023 Revenue Revenue increase at the end of the measurement 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

Results based on 100,000 simulations

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, 2025 and 2024 (in thousands):

Unrecognized expense for DLH employees (a) $ 4,417 $ 7,107

Unrecognized expense

Unrecognized expense for stock compensation expense (a)

$ 3,292 $ 4,417

On a weighted average basis, this expense is expected to be recognized within the next 2.3 years.

Restricted Stock Unit ("RSU") activity for the year ended September 30, 2025:

Performance Vesting

Outstanding, September 30, 2024 185,574 131,289 316,863

156,453 235,009 391,462

— ( 122,897 ) ( 122,897 )

Cancelled ( 109,566 ) ( 10,941 ) ( 120,507 )

Outstanding, September 30, 2025 232,461 232,460 464,921

Equity grants of RSUs were made in accordance with DLH compensation policy for non-employee directors and a total of 67,615 and 61,525 restricted stock units were issued and outstanding at September 30, 2025 and 2024, respectively.

These grants have service-based vesting criteria and vest at the end of this fiscal year.

Stock option activity for the year ended September 30, 2025:

2 unchanged sentences

A summary of the Company's stock option awards is as follows:

Weighted Average

Average Remaining Aggregate

Number of Exercise Contractual Intrinsic

Shares Price Term Value

(in thousands) (in years) (in thousands)

Weighted Remaining Aggregate

Number of Average Contractual Intrinsic

Shares Exercise Term Value

(in thousands) Price (in years) (in thousands)

Outstanding, September 30, 2024 1,236 $ 9.28 6.1 $ 1,313

2,278 $ 8.40 5.8 $ 8,693

Exercised — — — —

1 unchanged sentence

Outstanding, September 30, 2025 937 $ 9.65 5.6 $ 10

1,236 $ 9.28 6.1 $ 1,313

Vested and exercisable, September 30, 2025 902 $ 9.59 5.5 $ 10

1,177 $ 9.37 6.0 $ 1,313

Stock options shares outstanding, vested and unvested for the years ended September 30, 2025 and 2024 (in thousands):

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Current expense $ 2,095 $ 3,525

Deferred expense ( 3,175 ) ( 4,464 )

Income tax expense (benefit)

Deferred benefit

( 1,702 ) ( 3,175 )

Provision for income taxes $ 393 $ 350

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, 2025 and 2024 (in thousands):

1 unchanged sentence

State taxes, net ( 25 ) ( 200 )

Other permanent items ( 1,104 ) ( 292 )

Income tax expense (benefit)

Permanent differences

Prior year tax provision adjustments

( 260 ) ( 574 )

State tax rate changes

Provision for income taxes $ 393 $ 350

An analysis of the Company's deferred tax assets and liabilities at September 30, 2025 and 2024 is as follows (in thousands):

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Capitalized transaction costs 587 532

Lease liability

Interest limitation 9,185 6,313

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Accrued expenses ( 723 ) ( 461 )

Right-of-use asset

Total deferred tax liabilities ( 8,739 ) ( 5,227 )

1 unchanged sentence

$ 7,947 $ 6,245

As of September 30, 2025 the Company had gross state net operating loss carryforwards of approximately $ 51.2 million.

The state net operating losses will not expire and can be carried forward indefinitely.

The state net operating loss carryforwards have been reviewed and a net valuation allowance of $ 3.0 million has been recorded against those that are not likely to be utilized.

The increase in the valuation allowance is attributable to additional state net operating losses generated during the year ended September 30, 2025.

The One Big Beautiful Bill Act that amended Section 163(j) of the Internal Revenue Code introduced a change to the calculation of Adjusted Taxable Income ("ATI") that generally allows for a larger deduction of business interest expense.

The primary change that makes the deduction more favorable and is likely to increase the company's deductible interest expense is the permanent reinstatement of EBITDA-based ATI.

Quarterly Financial Data (Unaudited)

During fiscal year 2025, the Company made reclassification adjustments that resulted in certain transactions previously reported within general and administrative cost being reclassified to contract costs.

These adjustments were applied to fiscal 2024 to conform to the current period presentation.

The reclassifications did not impact total operating income, net income, or earnings per share for any period presented.

The Company will continue this presentation convention in fiscal 2026.

Management believes that these reclassifications enhance the presentation of the Company’s financial results by providing improved transparency and a clearer understanding of the nature of its costs of operations.

A summary of quarterly information for each fiscal year with the reclassified transactions is as follows (in thousands, except per share data)

2025 Quarters

First Second Third Fourth

Revenue $ 90,782 $ 89,212 $ 83,343 $ 81,160

Contract costs 72,771 71,594 67,649 67,319

General and administrative costs 8,067 8,238 7,631 7,263

Depreciation and amortization 4,307 4,265 4,308 4,299

Income from operations

5,637 5,115 3,755 2,279

Interest expense 4,133 3,877 3,540 3,481

Income (loss) before provision for income taxes

1,504 1,238 215 ( 1,202 )

Provision for income tax expenses (benefit from)

389 360 ( 74 ) ( 282 )

Net income (loss)

$ 1,115 $ 878 $ 289 $ ( 920 )

Earnings per share:

Basic $ 0.08 $ 0.06 $ 0.02 $ ( 0.06 )

Diluted $ 0.08 $ 0.06 $ 0.02 $ ( 0.06 )

2024 Quarters

Revenue $ 97,850 $ 101,007 $ 100,694 $ 96,386

Contract costs 79,443 79,487 82,025 77,492

General and administrative costs 7,335 11,335 8,634 8,234

Depreciation and amortization 4,253 4,243 4,272 4,284

Income from operations

6,819 5,942 5,763 6,376

Interest expense 4,658 4,190 4,143 4,162

Income before provision for income taxes

2,161 1,752 1,620 2,214

Provision for income tax expenses (benefit from)

10 ( 60 ) 481 ( 81 )

Net income $ 2,151 $ 1,812 $ 1,139 $ 2,295

Earnings per share:

Basic $ 0.15 $ 0.13 $ 0.08 $ 0.16

Diluted $ 0.15 $ 0.12 $ 0.08 $ 0.16

Employee Benefit Plans

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The Company recorded related expense of $ 4.2 million and $ 3.4 million for the years ending September 30, 2025 and 2024, respectively.

Participants are always fully vested in their elective contributions and vest in Company matching contributions over a four-year period.

Participants are always fully vested in their elective contributions and immediately vest in Company matching contributions.

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.

Management has evaluated subsequent events through the date that the Company's unaudited consolidated financial statements were issued.

Based on this evaluation, the Company has determined that no subsequent events have occurred which require disclosure through the date that these consolidated financial statements were issued.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data