DLH Holdings Corp. 10-Q

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) DLH HOLDINGS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts) Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Revenue $ 59,265 $ 89,212 $ 128,158 $ 179,994 Cost of operations: Contract costs 47,490 71,594 102,885 144,365 General and administrative costs 7,530 8,238 15,291 16,305 Depreciation and amortization 4,300 4,265 8,600 8,572 Total operating costs 59,320 84,097 126,776 169,242 Income (loss) from operations ( 55 ) 5,115 1,382 10,752 Interest expense, net 3,139 3,877 6,535 8,010 Income (loss) before provision for income taxes ( 3,194 ) 1,238 ( 5,153 ) 2,742 Provision for income taxes (benefit) ( 659 ) 360 ( 1,294 ) 750 Net income (loss) $ ( 2,535 ) $ 878 $ ( 3,859 ) $ 1,992 Net income (loss) per share Basic $ ( 0.17 ) $ 0.06 $ ( 0.27 ) $ 0.14 Diluted $ ( 0.17 ) $ 0.06 $ ( 0.27 ) $ 0.14 Weighted average common stock outstanding Basic 14,493 14,386 14,493 14,386 Diluted 14,493 14,454 14,493 14,454 The accompanying notes are an integral part of these consolidated financial statements. 3 DLH HOLDINGS CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except par value of shares) March 31, 2026 September 30, 2025 Unaudited ASSETS Current assets: Cash $ 131 $ 125 Accounts receivable 33,642 38,394 Other current assets 3,013 4,018 Total current assets 36,786 42,537 Goodwill 138,161 138,161 Intangible assets, net 83,638 91,865 Operating lease right-of-use assets 7,760 8,764 Deferred income taxes, net 9,310 7,947 Equipment and improvements, net 942 1,274 Other long-term assets 115 115 Total assets $ 276,712 $ 290,663 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 12,445 $ 19,246 Accrued payroll 7,181 12,153 Debt obligations - current, net of deferred financing costs 19,450 8,067 Operating lease liabilities - current 3,022 2,918 Other current liabilities 193 287 Total current liabilities 42,291 42,671 Long-term liabilities: Debt obligations - long-term, net of deferred financing costs 110,511 119,966 Operating lease liabilities - long-term 12,595 14,022 Other long-term liabilities 1,045 1,046 Total long-term liabilities 124,151 135,034 Total liabilities 166,442 177,705 Shareholders' equity: Common stock, $ 0.001 par value; 40,000 shares authorized; 14,493 and 14,493 shares issued and outstanding at March 31, 2026 and September 30, 2025, respectively 14 14 Additional paid-in capital 102,905 101,734 Retained earnings 7,351 11,210 Total shareholders’ equity 110,270 112,958 Total liabilities and shareholders' equity $ 276,712 $ 290,663 The accompanying notes are an integral part of these consolidated financial statements. 4 DLH HOLDINGS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Six Months Ended March 31, 2026 2025 Operating activities Net income (loss) $ ( 3,859 ) $ 1,992 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,600 8,572 Amortization of deferred financing costs charged to interest expense 857 880 Stock-based compensation expense 1,264 725 Deferred income taxes, net ( 1,363 ) 1,530 Changes in operating assets and liabilities: Accounts receivable 4,752 ( 1,864 ) Other assets 1,958 ( 638 ) Accounts payable and accrued liabilities ( 6,801 ) ( 7,927 ) Accrued payroll ( 4,972 ) ( 402 ) Other liabilities ( 1,420 ) 97 Net cash provided by (used in) operating activities ( 984 ) 2,965 Investing activities Purchase of equipment and improvements ( 39 ) ( 1 ) Net cash used in investing activities ( 39 ) ( 1 ) Financing activities Proceeds from revolving line of credit 112,030 117,850 Repayments of revolving line of credit ( 109,408 ) ( 116,008 ) Repayments of debt obligations ( 1,500 ) ( 4,750 ) Payments of deferred financing costs — ( 202 ) Payments for taxes related to net share settlement of restricted stock units ( 93 ) — Net cash provided by (used in) financing activities 1,029 ( 3,110 ) Net change in cash 6 ( 146 ) Cash - beginning of period 125 342 Cash - end of period $ 131 $ 196 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 5,276 $ 7,165 Cash paid during the period for income taxes $ 724 $ 508 Supplemental disclosure of non-cash activity Common stock surrendered for the settlement of restricted stock units $ 93 $ — Lease liability recognized to acquire a right-of-use asset $ — $ 1,377 The accompanying notes are an integral part of these consolidated financial statements. 5 DLH HOLDINGS CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited, in thousands) Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at December 31, 2025 14,493 $ 14 $ 102,288 $ 9,886 $ 112,188 Expense related to director restricted stock units — — 97 — 97 Expense related to employee stock-based compensation — — 520 — 520 Net loss — — — ( 2,535 ) ( 2,535 ) Balance at March 31, 2026 14,493 $ 14 $ 102,905 $ 7,351 $ 110,270 Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at September 30, 2025 14,493 $ 14 $ 101,734 $ 11,210 $ 112,958 Expense related to director restricted stock units — — 193 — 193 Expense related to employee stock-based compensation — — 1,071 — 1,071 Common stock surrendered for the settlement of restricted stock units — — ( 93 ) — ( 93 ) Net loss — — — ( 3,859 ) ( 3,859 ) Balance at March 31, 2026 14,493 $ 14 $ 102,905 $ 7,351 $ 110,270 Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at December 31, 2024 14,386 14 $ 100,463 $ 10,962 $ 111,439 Expense related to director restricted stock units — — 130 — 130 Expense related to employee stock-based compensation — — 402 — 402 Net income — — — 878 878 Balance at March 31, 2025 14,386 $ 14 $ 100,995 $ 11,840 $ 112,849 Common Stock Additional Paid-In Capital Retained Earnings Total Shareholders' Equity Shares Amount Balance at September 30, 2024 14,386 $ 14 $ 100,270 $ 9,848 $ 110,132 Expense related to director restricted stock units — — 309 — 309 Expense related to employee stock-based compensation — — 416 — 416 Net income — — — 1,992 1,992 Balance at March 31, 2025 14,386 $ 14 $ 100,995 $ 11,840 $ 112,849 The accompanying notes are an integral part of these consolidated financial statements. 6 DLH HOLDINGS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2026 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 ("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 accounting principles generally accepted in the United States of America ("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. Certain prior year amounts have been reclassified to conform to the fiscal 2026 presentation. Operating results for the six months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending September 30, 2026 or any future period. Amounts as of March 31, 2026 and for the three and six months ended March 31, 2026 are unaudited. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2025 filed with the Securities and Exchange Commission on December 10, 2025. 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 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. 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 7 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. • 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 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 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, 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. Long-Lived Assets Our long-lived assets include equipment and improvements, intangible assets, right-of-use assets, and goodwill. 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. 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. 8 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 March 31, 2026, operating leases for facilities and equipment have remaining lease terms of less than 9 months to 6.8 years. Goodwill 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 March 31, 2026 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 expected EBITDA and revenue for fiscal 2026 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. There were no impairments during the prior year ended September 30, 2025. Income Tax 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 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 asset 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 March 31, 2026 or September 30, 2025. We report interest and penalties as a component of provision for income taxes. During the six months ended March 31, 2026 and 2025, 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 compensation. 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 achievement of certain vesting criteria 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 a 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 common 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 equity awards has been based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. For other equity awards 9 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 compensation expense is recognized over the service period. Cash 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. 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 March 31, 2026 or September 30, 2025. 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 March 31, 2026 and September 30, 2025, the Company did not hold any treasury stock. 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 March 31, 2026 and September 30, 2025, 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 March 31, 2026 and September 30, 2025, there was no indication of any global or economic impact to our industry. 3. New Accounting Pronouncements In December 2023, the 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) 10 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 December 15, 2024. 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, the Securities and Exchange Commission ("SEC") 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. 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. 4. Revenue Recognition The following table summarizes the contract balances recognized on the Company's consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Contract assets $ 15,571 $ 22,000 Contract assets are included as part of accounts receivable on the consolidated balances sheets. The change from prior period is primarily due to reduced revenue volume. Contract liabilities had no balance as of March 31, 2026 and September 30, 2025. 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 present our revenue disaggregated by these categories: Revenue by customer was as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Department of Health and Human Services $ 32,495 $ 44,590 $ 67,125 $ 86,745 Department of Veterans Affairs 19,738 28,696 46,649 62,795 Department of Defense 6,830 14,711 14,056 28,066 Other 202 1,215 328 2,388 Total $ 59,265 $ 89,212 $ 128,158 $ 179,994 11 Revenue by contract type was as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Time and Materials $ 21,348 $ 46,339 $ 51,954 $ 95,741 Firm Fixed Price 23,957 23,291 48,245 46,529 Cost Reimbursable 13,960 19,582 27,959 37,724 Total $ 59,265 $ 89,212 $ 128,158 $ 179,994 Revenue by whether the Company acts as a prime contractor or a subcontractor was as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Prime Contractor $ 54,271 $ 81,755 $ 118,726 $ 164,859 Subcontractor 4,994 7,457 9,432 15,135 Total $ 59,265 $ 89,212 $ 128,158 $ 179,994 5. Leases The following table summarizes lease balances presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Operating lease right-of-use assets $ 7,760 $ 8,764 Operating lease liabilities - current $ 3,022 $ 2,918 Operating lease liabilities - long-term 12,595 14,022 Total operating lease liabilities $ 15,617 $ 16,940 As of March 31, 2026, operating leases for facilities and equipment have remaining lease terms of less than 9 months to 6.8 years. Total lease costs for our leases were as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Operating $ 810 $ 765 $ 1,626 $ 1,611 Short-term 83 214 150 373 Variable 25 28 47 62 Sublease income (a) ( 48 ) ( 48 ) ( 96 ) ( 97 ) Total lease costs $ 870 $ 959 $ 1,727 $ 1,949 (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 remaining sublease term is 5 years. 12 The Company's future minimum lease payments as of March 31, 2026 were as follows (in thousands): Fiscal year ending: 2026 (remaining) $ 2,109 2027 3,591 2028 3,468 2029 3,582 2030 3,194 Thereafter 2,697 Total future lease payments 18,641 Less: imputed interest ( 3,024 ) Present value of future minimum lease payments 15,617 Less: current portion of operating lease liabilities ( 3,022 ) Long-term operating lease liabilities $ 12,595 At March 31, 2026, the weighted-average remaining lease term and weighted-average discount rate were 5.1 years and 6.9 %, 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 was as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Cash paid for amounts included in the measurement of lease liabilities $ 986 $ 982 $ 1,884 $ 1,950 Lease liabilities arising from obtaining right-of-use assets — — — 1,377 Other lease information $ 986 $ 982 $ 1,884 $ 3,327 6. Supporting Financial Information Accounts receivable The following table summarizes accounts receivable presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Billed receivables $ 18,071 $ 16,394 Contract assets 15,571 22,000 Accounts receivable $ 33,642 $ 38,394 13 Other current assets The following table summarizes other current assets presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Prepaid licenses and other expenses $ 2,309 $ 1,892 Prepaid insurance and benefits 32 1,015 Other receivables 672 1,111 Other current assets $ 3,013 $ 4,018 Goodwill There were no changes in goodwill for the six months ended March 31, 2026. The balance of goodwill was approximately $ 138.2 million as of March 31, 2026 and September 30, 2025. Intangible assets The following table summarizes intangible assets, net presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Intangible assets Customer contracts and related customer relationships $ 113,622 $ 113,622 Backlog 37,249 37,249 Trade name 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 ( 58,349 ) ( 52,665 ) Backlog ( 16,575 ) ( 14,714 ) Trade name ( 5,443 ) ( 4,792 ) Covenants-not-to-compete ( 537 ) ( 506 ) Total accumulated amortization ( 80,904 ) ( 72,677 ) Intangible assets, net $ 83,638 $ 91,865 Amortization expense was $ 4.1 million and $ 4.1 million for the three months ended March 31, 2026 and 2025, respectively, and $ 8.2 million and $ 8.2 million for the six months ended March 31, 2026 and 2025, respectively. As of March 31, 2026, the estimated amortization expense per fiscal year was as follows (in thousands): Fiscal year ending: 2026 (remaining) $ 7,493 2027 14,694 2028 14,694 2029 13,734 2030 11,637 Thereafter 21,386 Total amortization expense $ 83,638 14 The weighted-average remaining amortization period at March 31, 2026 is as follows: Intangible assets Weighted-Average Remaining Amortization Period Customer contracts and related customer relationships 6.1 years Backlog 5.9 years Trade names 6.3 years Covenants not to compete 6.0 years Total 6.1 years Equipment and improvements, net The following table summarizes equipment and improvements, net presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Furniture and equipment $ 1,192 $ 1,177 Computer equipment and software 4,241 4,217 Leasehold improvements 1,567 1,567 Total equipment and improvements 7,000 6,961 Less: accumulated depreciation ( 6,058 ) ( 5,687 ) Equipment and improvements, net $ 942 $ 1,274 Depreciation expense was $ 0.2 million and $ 0.2 million for the three months ended March 31, 2026 and 2025, respectively, and $ 0.4 million and $ 0.3 million for the six months ended March 31, 2026 and 2025, respectively. Accounts payable and accrued liabilities The following table summarizes accounts payable and accrued liabilities presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Accounts payable $ 9,432 $ 12,299 Accrued benefits 488 1,214 Accrued workers' compensation insurance 516 750 Accrued bonus and incentive compensation 616 1,527 Accrued interest 911 474 Other accrued expenses 482 2,982 Accounts payable and accrued liabilities $ 12,445 $ 19,246 15 Accrued payroll The following table summarizes accrued payroll presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Accrued leave $ 4,352 $ 8,112 Accrued payroll 2,511 3,701 Accrued payroll taxes 270 340 Accrued severance 48 — Total accrued payroll $ 7,181 $ 12,153 Debt obligations The following table summarizes debt obligations presented on our consolidated balance sheets as follows (in thousands): March 31, September 30, 2026 2025 Secured term loan $ 122,000 $ 123,500 Secured revolving line of credit 10,690 8,067 Less: unamortized deferred financing costs ( 2,729 ) ( 3,534 ) Net bank debt obligations 129,961 128,033 Less: current portion of debt obligations, net of deferred financing costs (a) ( 19,450 ) ( 8,067 ) Long-term portion of debt obligations, net of deferred financing costs $ 110,511 $ 119,966 As of March 31, 2026, we have satisfied quarterly minimum principal payments on our secured term loan until December 31, 2026, and have made a partial payment toward the principal due as of that date. (a) As of March 31, 2026, the current portion comprises term loan amortization of $ 10.4 million and the $ 10.7 million outstanding balance on the secured revolving line of credit, net of $ 1.6 million of unamortized deferred financing costs. Interest expense The following table summarizes interest expense presented on our consolidated statements of operations as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Interest expense (a) $ 2,720 $ 3,486 $ 5,712 $ 7,172 Interest income (b) ( 5 ) ( 33 ) ( 34 ) ( 42 ) Amortization of deferred financing costs (c) 424 424 857 880 Interest expense, net $ 3,139 $ 3,877 $ 6,535 $ 8,010 (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. 16 7. Credit Facilities A summary of our credit facilities as presented on our consolidated balance sheets as follows (in millions): March 31, 2026 September 30, 2025 Arrangement Loan Balance Interest Loan Balance Interest Secured term loan (a) due December 8, 2027 $ 122,000 SOFR 1 + 4.1 % $ 123,500 SOFR 1 + 4.1 % Secured revolving line of credit (b) due December 8, 2027 $ 10,690 SOFR 1 + 4.1 % $ 8,067 SOFR 1 + 4.1 % 1 Secured Overnight Financing Rate ("SOFR") as of March 31, 2026 and September 30, 2025 were 3.8 % and 4.3 % 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. On January 31, 2023, we executed a floating-to-fixed interest rate swap with First National Bank ("FNB") that had an ending notional amount of $ 74.0 million and a fixed interest rate of 4.1 %, which matured on January 31, 2026. As of March 31, 2026, no interest rate swaps were outstanding, and all debt is subject to floating interest rates. 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. On November 6, 2024, the Company completed an amendment to its credit facility. The amendment modified certain financial covenants thresholds for future measurement periods and reduced the amount available under the revolving line of credit, as discussed in further detail below. The amendment was approved by the Company's Board of Directors and Executive Management and the credit facility lenders. The loan agreement also requires us to comply with certain quarterly financial covenants including: (i) a minimum fixed charge coverage ratio ranging from 1.25 :1.00 to 1.05 :1.00 and (ii) a total leverage ratio not exceeding the ratio of 4.75 :1.00 to 4.25 :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 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 March 31, 2026. We are required to pay quarterly amortization payments, which commenced in December 2022. The annual amortization amount is $ 19.0 million for the fiscal year 2026, and $ 23.75 million for fiscal year 2027, with the remaining unpaid loan balance due at maturity in December 2027. The quarterly payments are equal installments. The outstanding principal balance on the secured term loan was $ 122.0 million as of March 31, 2026 . We have satisfied the mandatory principal payments until December 2026. 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 2.5 :1; (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 2.5 :1 but greater than or equal to 1.5 :1; 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 1.5 :1. 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 10. Commitments and Contingencies . (b) As amended, the secured revolving line of credit has a ceiling of up to $ 50.0 million; as of March 31, 2026, we had unused borrowing capacity of $ 9.7 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 $ 10.7 million outstanding balance at March 31, 2026. As part of the 17 secured revolving line of credit, the lenders agreed to a sublimit of $ 5.0 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 March 31, 2026, there were 1.0 million shares available for grant under the 2025 Plan. Stock-based compensation expense shown in the table below, is recorded in general and administrative expenses in our consolidated statements of operations as follows (in thousands): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 DLH employees (a) $ 520 $ 402 $ 1,071 $ 416 Non-employee directors 97 130 193 309 Total stock compensation expense $ 617 $ 532 $ 1,264 $ 725 (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 959,582 and 697,384 shares at March 31, 2026 and 2025, respectively. No grants were awarded during the three months ended March 31, 2026 and 2025. During the six months ended March 31, 2026 and 2025, the Company granted 427,046 and 312,906 shares of restricted stock units, respectively. Of the RSUs granted during the six months ended March 31, 2026, 380,338 shares have performance and market based vesting criteria and the remaining 46,708 shares have service-based vesting criteria. Of the RSUs granted during the six months ended March 31, 2025, 156,453 shares have performance and market based vesting criteria and the remaining 156,453 shares have service-based vesting criteria. 18 The RSUs granted were valued using the Monte Carlo Method, and will be amortized over the 3 -year measurement period. Volatility 50 % Grant Date Vesting Base Vesting Criteria (Years) Fair Value December 17, 2025 Revenue Revenue increase at the end of the performance period as compared to the year ended September 30, 2028 3 $ 1.38 December 17, 2025 Stock price Stock price is at least $ 12.62 per share average for the 30 days prior to the end of the performance period 3 $ 1.74 December 20, 2024 Revenue Revenue increase at the end of the performance period as compared to the year ended September 30, 2027 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 3 $ 1.67 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 67,615 and 61,525 restricted stock units were issued and outstanding at March 31, 2026 and 2025, 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 (in thousands): March 31, 2026 2025 Unrecognized expense for DLH employees (a) $ 3,955 $ 4,567 Unrecognized expense for non-employee directors 193 309 Total unrecognized expense $ 4,148 $ 4,876 (a) On a weighted average basis, the unrecognized expense as of March 31, 2026 is expected to be recognized within the next 2.67 years. Restricted stock unit activity for the six months ended March 31, 2026 Performance Vesting Service Vesting Total Outstanding, September 30, 2025 232,461 232,460 464,921 Granted 380,338 114,323 494,661 Vested — — — Cancelled — — — Outstanding, March 31, 2026 612,799 346,783 959,582 Stock option activity for the six months ended March 31, 2026 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: 19 (in years) Weighted Weighted Average (in thousands) (in thousands) Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Term Value Options outstanding, September 30, 2025 937 $ 9.65 5.6 $ 10 Granted 250 — — — Exercised — — — — Cancelled ( 12 ) 11.66 — — Options outstanding, March 31, 2026 1,175 $ 8.82 6.1 $ 14 Vested and exercisable, March 31, 2026 890 $ 9.56 5.0 $ 14 Stock option shares outstanding, vested and unvested balance as follows (in thousands): March 31, September 30, 2026 2025 Vested and exercisable 890 902 Unvested (a) 285 35 Options outstanding 1,175 937 (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, unless such effect is anti-dilutive. Diluted earnings per share is calculated using the treasury stock method. Earnings per share information is presented in the table below (in thousands except for per share amounts): Three Months Ended Six Months Ended March 31, March 31, 2026 2025 2026 2025 Numerator: Net income (loss) $ ( 2,535 ) $ 878 $ ( 3,859 ) $ 1,992 Denominator: Denominator for basic net income per share - weighted-average outstanding shares 14,493 14,386 14,493 14,386 Effect of dilutive securities: Stock options and restricted stock (a) — 68 — 68 Denominator for diluted net income per share - weighted-average outstanding shares 14,493 14,454 14,493 14,454 Net income (loss) per share: Basic $ ( 0.17 ) $ 0.06 $ ( 0.27 ) $ 0.14 Diluted $ ( 0.17 ) $ 0.06 $ ( 0.27 ) $ 0.14 (a) For the three and six months ended March 31, 2026, stock options and restricted stock units representing approximately 70 thousand shares were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive. 20 10. Commitments and Contingencies Contractual obligations as of March 31, 2026 are as follows (in thousands): Payments Due Per Fiscal Year (Remaining) Total 2026 2027 2028 2029 2030 Thereafter Debt obligations $ 132,690 $ 10,690 $ 22,250 $ 99,750 $ — $ — $ — Facility operating leases 18,641 2,109 3,591 3,468 3,582 3,194 2,697 Total contractual obligations $ 151,331 $ 12,799 $ 25,841 $ 103,218 $ 3,582 $ 3,194 $ 2,697 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 ordinary course of 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 six months ended March 31, 2026 and 2025, there were no significant related party transactions that have occurred which require disclosure through the date that these consolidated financial statements were issued. 12. Subsequent Events 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.