DLH Holdings Corp. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking and Cautionary Statements You should read the following discussion in conjunction with the Consolidated Financial Statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended September 30, 2025, and in other reports we have subsequently filed with the SEC. This Quarterly Report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in this Management’s Discussion and Analysis are forward-looking statements that involve risks and uncertainties. Any statements that refer to expectations, projections or other characterizations of future events or circumstances or that are not statements of historical fact (including without limitation statements to the effect that the Company or its management “believes”, “expects”, “anticipates”, “plans”, “intends” and similar expressions) should be considered forward-looking statements that involve risks and uncertainties which could cause actual events or DLH’s actual results to differ materially from those indicated by the forward-looking statements. Forward-looking statements in this report include, among others, statements regarding benefits of acquisitions, estimates of future revenues, operating income, earnings, earnings per share, backlog, and cash flows. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Our actual results may differ materially from such forward-looking statements made in this report due to a variety of factors, including: the failure to achieve the anticipated benefits of any future acquisition (including anticipated 22 future financial operating performance and results); the inability to retain employees and customers; contract awards in connection with re-competes for present business and/or competition for new business; our ability to manage our debt obligations; compliance with bank financial and other covenants; changes in client budgetary priorities; government contract procurement (such as bid and award protests, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; significant delays or reductions in appropriations for our programs and broader changes in U.S. government funding and spending patterns; legislation that amends or changes discretionary spending levels or budget priorities; legal, regulatory, and political changes from the federal government that could result in economic uncertainty; the impact of inflation and higher interest rates; and other risks described in our SEC filings. For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s periodic reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, as well as interim quarterly filings thereafter. The forward-looking statements contained herein are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and business. Such forward-looking statements are made as of the date hereof and may become outdated over time. The Company does not assume any responsibility for updating forward-looking statements. Overview and Background DLH Holdings Corp. ("DLH") delivers improved health and readiness solutions for federal government customers through digital transformation and cyber security, science research and development, and systems engineering and integration. We bring a unique combination of government sector experience, proven methodology, and unwavering commitment to solve the complex problems faced by civilian and military customers alike, doing so by leveraging multiple capabilities, including cyber technology, artificial intelligence, advanced analytics, cloud-based applications, and telehealth systems. Competitive Advantages We believe we are advantageously positioned within our markets through a number of features including, but not limited to: • highly credentialed workforce; • predominantly performing as the prime contractor; • strong past performance record across our government contracts; and • strong bipartisan support for our key contracts. We have invested in leading credentials and capabilities that we expect will deliver value to our customers. These investments include the development of secure Information Technology ("IT") platforms; sophisticated data analytic tools and techniques; and implementation process improvement and quality assurance programs and techniques. We are actively pursuing additional credentials that will support our customers' ever evolving missions. Solutions and Services We primarily focus on improved deployment and efficiency of large-scale health and defense initiatives for multiple agencies within the federal government, including the Department of Health and Human Services ("HHS"), the Department of Veterans Affairs ("VA"), Department of Defense ("DoD"), and many of their sub-agencies. We deliver services primarily through prime contracts awarded by the federal government through competitive bidding processes. We have a diverse mix of contract vehicles with various agencies of the federal government, which supports our overall corporate growth strategy. Our revenue is distributed to time and materials contracts (34.6%), firm fixed price contracts (40.7%), and cost reimbursable contracts (24.7%). We provide the following services and solutions, which are aligned with the long-term needs of our customers: • Digital Transformation and Cyber Security; • Science Research and Development; and • Systems Engineering and Integration Digital Transformation and Cyber Security We provide critical digital transformation and cyber security solutions across the federal civilian and cyber defense communities, leveraging advanced technology to modernize obsolete systems, protect sensitive information, manage large datasets, enhance operational efficiency and implement robotic process automation. Our suite of tools includes artificial intelligence and machine learning, cloud enablement, cybersecurity ecosystem, big data analytics, and modeling and simulation. 23 IT modernization and cyber security maturity are priority initiatives throughout our customer set. Our customers, including numerous institutes and centers within the National Institutes of Health ("NIH"), the Defense Health Agency ("DHA"), The U.S. Army Institute of Surgical Research ("USAISR"), and US Navy, rely on our information technology support to enable their vital missions. We work with these customers to reduce risk and build resilience to cyber and physical threats to the federal government’s infrastructure, providing the full spectrum of cyber capabilities, cryptographic and true cyber engineering, Certified Information Security Officer ("CISO") / Information System Security Officer ("ISSO") support, risk management frameworks, Continuity of Operations ("COOP") / Disaster Recovery, services under Cybersecurity Maturity Model Certification ("CMMC") Level 2, and enterprise infrastructure and cloud governance focused on designing and implementing zero trust architecture. Science Research and Development We advance scientific knowledge and understanding through our extensive research portfolio and domain expertise. We primarily provide large-scale data analytics, testing and evaluation, clinical trials research services, and epidemiology studies to support multiple operating divisions within HHS, including NIH and the Centers for Disease Control and Prevention ("CDC"), as well as the Military Health System. Our employees support innovative, cutting-edge research on emerging trends, health informatics analyses, and the application of best practices including mobile, social, and interactive media. We leverage evidence-based methods and web technology to drive health equity to our most vulnerable populations through public engagement. Projects often involve highly specialized expertise and transformative R&D support services. Our decades of experience designing, conducting, and analyzing studies for our diverse customer base, and our full-service clinical research solutions are designed for each customer’s specific research and development program. Our employees provide expert knowledge and experience that supports the missions of our customers' mission. Systems Engineering and Integration Our employees specialize in delivering engineering solutions that support our customers' evolving needs by rapidly deploying resources, solutions, and services. This includes specialized engineering expertise, encompassing areas of Command, Control, Communications, Computers, Cyber-Defense, Combat Systems, and Intelligence, Surveillance, and Reconnaissance ("C6ISR"), modeling, simulation & training, performance based logistics, system modernization, technology-enabled health solutions and software engineering on behalf of the US Navy, HHS, VA, and other federal customers. We utilize automation to accelerate infrastructure innovation and help customers define a lifecycle for automation assets, as well as set standards for version control, testing, and release processes that proved a robust foundation for their customers. DLH delivers IT operational resilience and efficiency in parallel with technology innovation integration, via hybrid and multi-cloud solutions, leveraging integrated services, process automation, advanced tool stacks, and mature quality processes. Our employees engineer, implement, and operate solutions that demonstrate measurable results to satisfy our customer’s management requirements, thus helping customers to confidently deploy secure platforms and technologies that reduce operational costs. We have invested in agile software development credentials for our technical staff, and have achieved Capability Maturity Model Integration ("CMMI") level 3. Our enterprise lifecycle logistics support services encompass military systems deployed worldwide, as well as scientific and IT systems and peripherals for Federal civilian agencies. Major Customers Our revenues are from agencies of the U.S. Federal government. A major customer is defined as a customer from whom we derive at least 10% of our revenues. The following table summarizes revenue by customer as follows (in thousands and percent): 24 Nine Months Ended June 30, 2026 2025 Revenue Percent of total revenue Revenue Percent of total revenue Department of Health and Human Services $ 98,381 57.1 % $ 129,834 49.3 % Department of Veterans Affairs 52,938 30.7 % 89,774 34.1 % Department of Defense 20,666 12.0 % 40,788 15.5 % Other customers with less than 10% share of total revenue 398 0.2 % 2,941 1.1 % Total revenue $ 172,383 100.0 % $ 263,337 100.0 % We remain dependent upon the continuation of our relationships with our major customers as a significant portion of our revenue is concentrated in each of them. Our results of operations, cash flows and financial condition would be materially adversely affected if we were unable to continue our relationship with any of these customers, if we were to lose any of our material current contracts, or if the amount of services we provide to them is materially reduced. Major Contracts We operate primarily through prime contracts awarded by the government through competitive bidding processes. We have a diverse mix of contract vehicles with various agencies of the U.S. government, which supports our overall corporate growth strategy. A major contract is defined as a contract or set of contracts from which we derive at least 10% of our revenues. The revenue attributable to the VA was derived from separate task orders covering the Company's performance of pharmacy and logistics services at various regional locations, in support of the VA's Consolidated Mail Outpatient Pharmacy ("CMOP") program. • CMOP pharmacy and logistic services represent approximately $6.3 million and $27.0 million of revenues for the three months ended June 30, 2026 and 2025, respectively, and $52.9 million and $89.8 million of revenues for the nine months ended June 30, 2026 and 2025, respectively. As previously reported, the VA has been soliciting proposals for new contracts covering this work with a requirement for a Service-Disabled Veteran Owned Small Business, or SDVOSB, to perform as the prime contractor. At the start of the third quarter, DLH performed services at two CMOP locations, both of which transitioned to new contractors during the quarter. Backlog At June 30, 2026, our backlog was approximately $408.5 million of which $66.7 million was funded backlog. At September 30, 2025, our backlog was approximately $514.3 million, of which $114.1 million was funded backlog. We define backlog as our estimate of remaining future revenue from existing signed contracts, assuming the exercise of all options relating to such contracts. Included in backlog are executed standalone contracts, single award IDIQ contracts, and task orders procured under multi-award IDIQ contracts. We define funded backlog as the portion of backlog for which funding is appropriated and allocated to the contract by the customer and authorized for payment by the customer, once specified work is completed. Funded backlog does not include the full contract value as customers often allocate funding for contracts on a yearly or quarterly basis. Circumstances and events may cause changes in the amount of our backlog and funded backlog, including the execution of new contracts, extension of existing contracts, non-renewal or completion of current contracts, early termination, and adjustments to estimates. Changes in funded backlog may be affected by the funding cycles of the government. While no assurances can be given that existing contracts will result in earned revenue in any future period, or at all, our major customers have historically exercised their contractual renewal options. Backlog value is quantified from management's judgment and assumptions about the volume of services based on past volume trends and current planning developed with customers. 25 Forward-Looking Business Trends As we continue to align the Company’s capabilities with well-funded budget priorities and the current budgetary environment, we believe we are well positioned to win new business in our large addressable market. We are focused on increasing organic growth across our addressable market and delivering robust cash flow. We believe these priorities position the Company to expand within key national programs and mission-critical areas of health and national security. However, additional factors that could affect federal government spending in our addressable market include changes in set-asides for small businesses, changes in budgetary priorities associated with the current administration, and the effect of initiatives aimed at improving governmental efficiency, on limiting or reducing federal government spending in general. Further, the changing priorities of the new administration may have an adverse impact on our results and, as such new priorities are implemented, it may be difficult for us to accurately predict the effect they will have on our results. Federal budget outlook for fiscal year 2027: The U.S. budget and regulatory landscape remains uncertain, and this uncertainty is expected to continue. While full-year appropriations have been enacted for a significant portion of federal agencies, the Company’s performance continues to depend on overall federal spending levels and the extent to which its capabilities align with government priorities. The administration is reviewing agency spending to improve efficiency and productivity, which has resulted in contract reductions, cancellations, and price renegotiations for the Company. Ongoing and future reviews may lead to additional adjustments or cost reduction mandates. In April 2026, the Administration released its proposed fiscal year 2027 budget, reflecting a continued emphasis on higher defense spending relative to previous levels. These increases in defense and national security funding are partially offset by reductions in certain civilian agency spending. While the Administration's budget provides insight into their policy initiatives and spending priorities, the federal budget is subject to Congressional appropriations authority. The Company closely monitors federal budget, legislative, and contracting developments to adapt its strategies accordingly. While defense and national security spending continue to receive bipartisan support amid ongoing global tensions, uncertainty remains regarding future budget priorities, funding levels, and the potential for further legislative or administrative actions affecting federal spending. We continue to align the Company’s capabilities with well-funded budget priorities and maintain a competitive cost structure in line with expectations of future business opportunities. Based on these actions and the current budgetary environment, we believe the Company is well positioned to continue winning new business within its addressable market. The Company does not expect the funding disruptions described above to have a material impact on its operations or financial performance. Potential impact of federal contractual set-aside laws and regulations: The Federal government has an overall goal of 23% of prime contracts flowing through small businesses and various agencies within the federal government have policies that support small business goals. The effect of set-aside provisions may limit our ability to compete for prime contractor positions on programs that we recompete or that we have targeted for growth. In these cases, the Company may elect to join a team with an eligible contractor as prime for specific pursuits that align with our core markets and corporate growth strategy. 26 Results of Operations The following table summarizes results of operations for the three months ended June 30, 2026 and 2025 (in thousands except for per share amounts, and percentage of revenue): Three Months Ended June 30, Consolidated Statements of Operations: 2026 2025 Change Revenue $ 44,225 100.0 % $ 83,343 100.0 % $ (39,118) Cost of operations: Contract costs 36,819 83.3 % 67,649 81.2 % (30,830) General and administrative costs 7,337 16.6 % 7,631 9.2 % (294) Depreciation and amortization 4,001 9.0 % 4,308 5.2 % (307) Total operating costs 48,157 108.9 % 79,588 95.5 % (31,431) Income (loss) from operations (3,932) (8.9) % 3,755 4.5 % (7,687) Interest expense, net 3,082 7.0 % 3,540 4.2 % (458) Income (loss) before provision for income taxes (7,014) (15.9) % 215 0.3 % (7,229) Provision for income taxes (benefit) 9,773 22.1 % (74) (0.1) % 9,847 Net income (loss) $ (16,787) (38.0) % $ 289 0.4 % $ (17,076) Net income (loss) per share Basic $ (1.16) $ 0.02 $ (1.18) Diluted $ (1.16) $ 0.02 $ (1.18) Revenue Revenue decreased $39.1 million for the three months ended June 30, 2026 over 2025 , primarily reflecting the conversion of certain contracts in our contract portfolio to small business contractors across our customer base. Cost of Operations Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs decreased $30.8 million for the three months ended June 30, 2026 over 2025; the decrease was primarily due to the decrease in revenue volume. General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development, accounting, and human resources. These costs decreased $0.3 million for the three months ended June 30, 2026 as compared to 2025. As a percentage of revenue, general and administrative costs increased to 16.6% from 9.2%, primarily due to the decrease in revenue volume. During the quarter, we made additional reductions to general and administrative costs to align more closely with our expected revenue volume. The impact of the cost scaling initiatives is described in more detail in the Non-GAAP Financial Measures section. For the three months ended June 30, 2026, depreciation and amortization expense were approximately $0.2 million and $3.8 million, respectively, as compared to approximately $0.2 million and $4.1 million for the three months ended June 30, 2025, respectively. 27 Interest Expense, net Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense decreased $0.5 million for the three months ended June 30, 2026 over 2025, primarily due to the prepayment of debt and a decrease in the floating interest rate. Provision for Income Taxes (Benefit) Provision for income taxes increased by $9.8 million for the three months ended June 30, 2026 over 2025. The effective tax rate for the three months ended June 30, 2026 and 2025 was (139.4)% and (34.2)%, respectively. The Company's effective tax rate differed from the federal statutory rate of 21.0% for the current period, primarily due to the establishment of a valuation allowance against deferred tax assets. During the current period, the Company concluded that it is more likely than not that its deferred tax assets would not be realized based primarily on cumulative losses in recent periods. The effective tax rate was also impacted by state income taxes and permanent differences. See Note 6. Supporting Financial Information , Income Taxes, for additional information regarding the valuation allowance. The following table summarizes results of operations for the nine months ended June 30, 2026 and 2025 (in thousands except for per share amounts, and percentage of revenue): Nine Months Ended June 30, Consolidated Statements of Operations: 2026 2025 Change Revenue $ 172,383 100.0 % $ 263,337 100.0 % $ (90,954) Cost of operations: Contract costs 140,229 81.3 % 212,014 80.5 % (71,785) General and administrative costs 22,104 12.8 % 23,937 9.1 % (1,833) Depreciation and amortization 12,600 7.3 % 12,880 4.9 % (280) Total operating costs 174,933 101.5 % 248,831 94.5 % (73,898) Income (loss) from operations (2,550) (1.5) % 14,506 5.5 % (17,056) Interest expense, net 9,617 5.6 % 11,549 4.4 % (1,932) Income (loss) before provision for income taxes (12,167) (7.1) % 2,957 1.1 % (15,124) Provision for income taxes (benefit) 8,479 4.9 % 676 0.3 % 7,803 Net income (loss) $ (20,646) (12.0) % $ 2,281 0.9 % $ (22,927) Net income (loss) per share Basic $ (1.42) $ 0.16 $ (1.58) Diluted $ (1.42) $ 0.16 $ (1.58) Revenue Revenue decreased $91.0 million for the nine months ended June 30, 2026 over 2025, primarily reflecting the conversion of certain contracts in our contract portfolio to small business contractors. Cost of Operations Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs decreased $71.8 million for the nine months ended June 30, 2026 over 2025. The decrease was primarily due to the decrease in revenue volume. General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development, accounting, and human resources. These costs decreased $1.8 million for the nine months ended June 30, 2026 over 2025. As a percentage of revenue, general and administrative costs increased to 12.8% from 9.1%, with the increase being primarily due to the change in revenue volume. During the quarter ended June 30, 28 2026, we made additional reductions to general and administrative costs to align more closely with our expected revenue volume. The impact of the cost scaling initiatives is described in more detail in the Non-GAAP Financial Measures section. For the nine months ended June 30, 2026, depreciation and amortization expense were approximately $0.6 million and $12.0 million, respectively, as compared to approximately $0.5 million and $12.3 million for the nine months ended June 30, 2025, respectively. Interest Expense, net Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense decreased $1.9 million for nine months ended June 30, 2026 over 2025, primarily due to the prepayment of debt and a decrease in the floating interest rate. Provision for Income Taxes (Benefit) Provision for income taxes increased by $7.8 million for the nine months ended June 30, 2026 over 2025. The effective tax rate for the nine months ended June 30, 2026 and 2025 was (69.7)% and 23.0%, respectively. The Company's effective tax rate differed from the federal statutory rate of 21.0% for the current period, primarily due to the establishment of a valuation allowance against deferred tax assets. During the current period, the Company concluded that it is more likely than not that its deferred tax assets would not be realized based primarily on cumulative losses in recent periods. The effective tax rate was also impacted by state income taxes and permanent differences. See Note 6 . Supporting Financial Information , Income Taxes, for additional information regarding the valuation allowance. Non-GAAP Financial Measures The Company is presenting certain non-GAAP measures regarding its financial performance. The measures presented are Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), Adjusted EBITDA, and Adjusted Income from Operations. Adjusted EBITDA is calculated by excluding from EBITDA certain costs associated with scaling indirect costs to revenue volume and Adjusted Income from Operations is calculated by excluding such costs associated with scaling indirect costs to revenue volume from Income from Operations. These resulting measures present our financial performance compared to the results delivered in the prior year period. On a non-GAAP basis, EBITDA for the nine months ended June 30, 2026 and 2025 was approximately $10.1 million and $27.4 million, and Adjusted EBITDA for such periods was $15.2 million and $27.4 million, respectively. On a non-GAAP basis, Adjusted Income from Operations for the nine months ended June 30, 2026 and 2025 was approximately $2.6 million and $14.5 million, respectively. The year over year decrease in the foregoing measures primarily reflects the conversion of certain contracts in our contract portfolio to small business contractors across our customer base. These non-GAAP measures of performance are used by management to conduct and evaluate its business during its review of operating results for the periods presented. Management and the Company's Board utilize these non-GAAP measures to make decisions about the use of the Company's resources, analyze performance between periods, develop internal projections, and measure management performance. We have prepared Adjusted Income from Operations and Adjusted EBITDA to eliminate the impact of cost scaling initiatives that we do not consider indicative of our ongoing operating performance due to their inherently unusual nature. We believe that these non-GAAP measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance. These supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other companies in our industry. Adjusted Income from Operations, EBITDA, and Adjusted EBITDA are not recognized measurements under accounting principles generally accepted in the United States, or GAAP, and when analyzing our performance investors should (i) evaluate each adjustment in our reconciliation to the nearest GAAP financial measures and (ii) use these non-GAAP measures in addition to, and not as an alternative to, revenue, operating income, net income or diluted EPS, as measures of operating results, each as defined under GAAP. We have defined these non-GAAP measures as follows: “Adjusted Income from Operations” represents income from operations before the costs associated with scaling indirect expenses within contract and general and administrative costs to revenue volume, referred to below as “Cost scaling initiatives”. "EBITDA" represents net income before income taxes, interest, depreciation and amortization. 29 “Adjusted EBITDA” represents net income before income taxes, interest, depreciation and amortization, and the costs associated with scaling general and administrative costs to revenue volume. Below is a reconciliation of Adjusted Income from Operations, EBITDA, and Adjusted EBITDA reported for the three months ended June 30, 2026 and 2025 to its most directly comparable financial measure calculated and presented in accordance with GAAP as follows (in thousands): Three Months Ended Nine Months Ended June 30, June 30, 2026 2025 Change 2026 2025 Change Adjusted Income (Loss) from Operations Income (Loss) from Operations $ (3,932) $ 3,755 $ (7,687) $ (2,550) $ 14,506 $ (17,056) Cost scaling initiatives⁽¹⁾ 3,283 — 3,283 5,174 — 5,174 Adjusted Income (Loss) from Operations $ (649) $ 3,755 $ (4,404) $ 2,624 $ 14,506 $ (11,882) EBITDA and Adjusted EBITDA Net income (loss) $ (16,787) $ 289 $ (17,076) $ (20,646) $ 2,281 $ (22,927) Depreciation and amortization 4,001 4,308 (307) 12,600 12,880 (280) Interest expense, net 3,082 3,540 (458) 9,617 11,549 (1,932) Provision for income taxes (benefit) 9,773 (74) 9,847 8,479 676 7,803 EBITDA $ 69 $ 8,063 $ (7,994) $ 10,050 $ 27,386 $ (17,336) Cost scaling initiatives⁽¹⁾ 3,283 — 3,283 5,174 — 5,174 Adjusted EBITDA $ 3,352 $ 8,063 $ (4,711) $ 15,224 $ 27,386 $ (12,162) (1) Cost scaling initiatives represent expenses the Company has incurred as it scales its operations to align with its current contract volume, driven by the previously disclosed transition of programs from the Company's role as prime contractor to small business contractors. These costs are reported within the contract costs and general and administrative line items. Liquidity and capital management Cash was approximately $0.2 million and $0.1 million as of June 30, 2026 and September 30, 2025, respectively. Available borrowings under our revolving credit facility were approximately $5.0 million and $23.6 million for the periods ended June 30, 2026 and September 30, 2025, respectively. The decrease is primarily due to a lower outstanding receivables balance at June 30, 2026. A summary of the change in cash is presented as follows (in thousands): Nine Months Ended June 30, 2026 2025 Change Net cash provided by operating activities $ 3,219 $ 12,536 $ (9,317) Net cash used in investing activities (39) (213) 174 Net cash used in financing activities (3,070) (12,471) 9,401 Net change in cash $ 110 $ (148) $ 258 Cash flows provided by operating activities totaled approximately $3.2 million and $12.5 million for the nine months ended June 30, 2026 and 2025, respectively. The decrease in cash provided by operating activities is primarily due to a decrease in revenue volume as compared to the prior year. Cash used in investing activities totaled $39.0 thousand and $213.1 thousand for the nine months ended June 30, 2026 and 2025, respectively. The cash utilized was predominantly due to capital expenditures in the nine months ended June 30, 2026 and 2025, respectively. 30 Cash used in financing activities during the nine months ended June 30, 2026 and 2025 were approximately $3.1 million and $12.5 million, respectively. The cash used in financing activities was primarily due to prepayment of term debt. Sources of cash As of June 30, 2026, our immediate sources of liquidity include cash, accounts receivable, and access to our secured revolving line of credit facility. This credit facility provides us with access of up to $50.0 million, subject to certain conditions including eligible accounts receivable. As of June 30, 2026, we had unused borrowing capacity of $5.0 million , which is net of outstanding letters of credit. The Company's present operating liabilities are largely predictable and consist of vendor and payroll related obligations. We believe that our current investment and financing obligations are adequately covered by cash generated from operations and that planned operating cash flow should be sufficient to support our operations for twelve months from the date of issuance of these consolidated financial statements. Credit Facilities A summary of our credit facilities for the period ended June 30, 2026 is as follows (in millions): Arrangement Loan Balance Interest* Maturity Date Secured term loan (a) due December 8, 2027 $ 115.0 SOFR 1 + 4.1% December 8, 2027 Secured revolving line of credit (b) due December 8, 2027 $ 13.7 SOFR 1 + 4.1% December 8, 2027 1 Secured Overnight Financing Rate ("SOFR") as of June 30, 2026 wa s 3.7%. On January 31, 2023, we executed a floating-to-fixed interest rate swap with FNB which had a notional amount of $74.0 million, and a fixed interest rate of 4.10%. The swap matured on January 31, 2026. As of June 30, 2026, no interest rate swaps were outstanding and all debt is subject to floating interest rates. (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. (b) As amended, the secured revolving line of credit has a ceiling of up to $50.0 million and a maturity date of December 8, 2027. The Company has accessed funds from the revolving credit facility during the quarter and has a balance outstanding at June 30, 2026 of $13.7 million. The secured term loan and secured revolving line of credit are secured by liens on substantially all of the assets of the Company. The provisions of our credit facilities are fully described in Note 7. Credit Facilities to the consolidated financial statements. Contractual Obligations Contractual obligations as of June 30, 2026 are as follows (in thousands): Payments Due by Period Next 12 2-3 4-5 More than 5 Total Months Years Years Years Debt obligations $ 128,749 $ 23,061 $ 105,688 $ — $ — Facility operating leases 17,590 3,796 6,992 5,823 979 Total contractual obligations $ 146,339 $ 26,857 $ 112,680 $ 5,823 $ 979 31 Critical Accounting Policies and Estimates Our critical accounting policies and estimates are disclosed in the Critical Accounting Policies and Estimates section in Part II, “Item 7. Management's Discussion of our Annual Report on Form 10-K for the year ended September 30, 2025. There have been no significant changes to the Company’s critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended September 30, 2025. For a detailed discussion on the application of accounting policies, refer to Note 2. Significant Accounting Policies. Goodwill Impairment Testing The qualitative assessment of goodwill at June 30, 2026 determined a triggering event occurred requiring that we conduct additional quantitative analyses. The triggering event was primarily due to the decrease in the Company's share price resulting in a decline in market capitalization. Management's assessment was that the market capitalization at the end of the third quarter was not indicative of the Company's fair value. The Company performed a quantitative assessment to determine its fair value. The quantitative assessment blended multiple methods so as to have a reasonable and complete assessment of fair value. The methods used included both market and income-based approaches with all methods utilizing publicly available information in their respective calculations. Management assessed the relevance and reliability of the information utilized in each method. Significant estimates in the market-based method 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. 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. For the market-based methods, the Company used the market capitalization over the current quarter 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. For the income-based method, the Company calculated its expected future cash flows. Those cash flows were then discounted to present value using a weighted average cost of capital. The weighted average of the three assessments indicated that the Company's fair value was greater than its book equity value. As a result of these quantitative assessments, the Company determined that its goodwill was not impaired at the end of the quarter. Management will continue to evaluate market conditions and perform qualitative interim assessments to determine if a triggering event has occurred. Should a triggering event occur, the Company will perform a quantitative assessment to estimate fair value.