Good day, ladies and gentlemen, and welcome to the First Quarter 2013 DLH Holdings Corporation Earnings Conference Call. My name is Anne, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Donald Weinberger. Please proceed.

Thank you, Anne. Good morning and thank you for joining us for today's conference call. I am Don Weinberger, Managing Member of Wolfe Axelrod Weinberger Associates, Investor Relations Counsel on behalf of DLH Holdings Corp. On the call with me today is Mr. Zach Parker, President and Chief Executive Officer; and Ms. Kathryn Johnbull, Chief Financial Officer. Before I turn the call over to our host, let me take a moment to read the forward-looking statements. This conference call may contain forward-looking statements as defined by the federal securities laws. Statements in this conference call regarding DLH Holdings Corp.'s business, which are not historical facts are forward-looking statements that involve risks and uncertainties. DLH's actual results could differ materially from those described in such forward-looking statements as a result of certain risk factors and uncertainties, including, but not limited to: Our ability to continue to recruit and retain qualified temporary and permanent health care professionals and administrative staff on acceptable term; our ability to enter into contracts with government entities and agencies on terms attractive to us and to secure orders related to those contracts; changes in the timing of customer orders for placement of temporary and permanent health care professionals and administrative staff; the overall level of demand for our services; our ability to successfully implement our strategic growth, acquisition and integration plans; the effect of existing or future government legislation and regulation; the loss of key officers and management personnel that could adversely affect our ability to remain competitive; other regulatory and tax developments; and the effect of other events and important factors disclosed previously and from time to time in DLH's filings with the U.S. Securities Exchange Commission. 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. The information in this conference call should be considered accurate only as of the date of the call. DLH expressly disclaims any current intention to update any forecast, estimates or other forward-looking statements contained in this call. As part of today's call, we've created a slide show presentation, which can be accessed on the DLH website at www.dlhcorp.com. Go to the Investor Relations tab towards the right side of the page and click on Presentations under the drop-down menu. To begin our discussion this morning, I will turn the call over to Zachary Parker, President and CEO of DLH Holdings Corp. Zach, please proceed.

Thank you, Don, and good morning, and welcome to everyone on the call, and thank you for your interest in DLH. Joining me on today's call is Kathryn Johnbull, our Chief Financial Officer. Together, we will take you through our Q1 first quarter results and also provide a brief update on some of the strategic initiatives and an update on the government services budget environment and our particular position with respect to the uncertainties and challenges imposed by it. DLH announced our first quarter FY '13 results earlier this morning. Our first quarter results reflect our continued progress in executing our strategy and driving value back into the company. During the quarter, we delivered solid revenue growth and positive cash flow from operations as our margins have improved, in part from our enhanced program management and performance excellence initiatives. We managed to grow our revenues by 13% and improve upon our gross margin, which enabled us to record positive adjusted EBITDA of $29,000 for the quarter. We're entering a promising time in DLH's journey, and we continue to build momentum as we define our future as a premier provider of health care and logistic services to the Department of Defense and Federal Government. Our management team entered this fiscal year with the assumption that the Federal Government would not have an approved budget and would continue to operate on a continuing resolution, or CR. As such, we anticipated that most government customers would have no new funding for new contract awards and reduced spending. This has basically been the case. Combined with the uncertainties surrounding the sequestration, we believe there will continue to be a funding gridlock, restricting new business contract awards within most federal agencies including, again, the Department of Defense. Notwithstanding this log jam, we continue to see…

Thank you, Zach, and good morning, everyone. We're pleased with our results for the first quarter. Revenue for the 3 months ended December 31, 2012, increased 13% to $13 million compared to $11.5 million in the same period in fiscal 2012. The increase in revenue is due primarily to expansion on current programs, as well as the full year full-quarter impact of new business awards received during this quarter in the prior year period. Gross profit for the 3 months ended December 31, 2012 and 2011 was $1.8 million and $1.6 million, respectively, which represents an increase of $0.2 million or 14.1%. Gross profit, as a percent of revenue, was 13.8% and 13.6%, respectively, for the 3 months ended December 31, 2012 and 2011. The gross profit rate benefited from additional revenue and from improved -- overall improved contract performance. G&A expenses for the 3 months ended December 31, 2012 and 2011, were $1.85 million and $1.76 million, respectively, an increase of 5.4%. This increase is principally due to the timing of expenses for outside professional services in the respective periods. Loss from operations for the 3 months ended December 31, 2012, was $0.1 million as compared to loss from operations for the 3 months ended December 31, 2011, of $0.2 million. Loss per share, both basic and diluted, was limited to $0.01 per share in the first quarter of fiscal '13, as compared to $0.06 per share in the same quarter a year ago. Adjusted EBITDA for the 3 months ended December 31, 2012, was $29,000 as compared to a loss of $16,000 for the 3 months ended December 31, 2011, due principally to the improvement in gross profit described above. Moving on to the company's capital structure. As of December 31, 2012, the company had $3.2 million in cash and $0.2 million in unused availability under its credit facility. During the first quarter, the company improved upon its liquidity by generating $731,000 in operating cash flow, and the company believes that it has adequate liquidity resources to fund operations over the next 12 months, in view of its existing cash position, the additional funding available under the company's credit facility and the forecasted cash flow from operation. We believe we're on track to meet our Q2 and FY '13 objective. Our Project LEAN initiatives, combined with on-contract growth are improving our trends and our financials. That concludes my discussion of the financial statements. I'll now turn it back over to Zach.

Thank you, Kathryn. To conclude, DLH remains well-positioned to weather the storms and uncertainties that many of our peers are experiencing due to the sequestration and continuing resolution. The exemption of the Department of Veteran Affairs from the damaging effects of both the sequestration and the CR bodes well for companies such as DLH with a strong contract backlog within this agency. Our strategy remains aligned with the government's priorities to provide significant and substantial support to the war fighter throughout their years of service and beyond. As always, we remain focused on the long-term goal of improving our shareholder value. That concludes my formal remarks. I would now like to open the call for any questions. Operator, please proceed.

[Operator Instructions] And our first question comes from the line of Richard Greulich with REG Capital Advisors.

Zach, a couple of questions. You're quarter-to-quarter revenue growth of about $0.5 million, would seem pretty large relative to the environment going on. What caused that?

Well, it's driven by a couple of things. There are a couple of drivers. First of all, we had some fairly good new business wins one year ago during this quarter. As you may recall, we started up about mid-quarter of '11, one of our major new contracts, and we've also had substantial improvements in project management that provided substantial lift on our margin. Those are the 2 driving factors primarily for the growth. We're continuing to leverage some of our existing contracts. We refer to those as on-contract growth. As you may recall, John Armstrong had bid and win in a number of what we call IDIQ or Indefinite Quantity type contracts. And even within our VA contracts, we had several of them that offered room for internal marketing and growth. And we've been able to realize some of that as well.

In the SG&A cost, Kathryn referred to some timing, I guess, factors of some fees paid. But as I recall, your March quarter is usually kind of a seasonally higher expense quarter, isn't it, for your SG&A?

Kathryn, why don't you go ahead and respond to that. I'll lead with -- I think what you're referring to is that, historically, we used to have a spike around the payroll tax period.

Right.

Generally, that hits more in the second quarter, though, than the first quarter. But Kathryn, you may want to add some color to that.

Yes. And from an SG&A perspective, I think you did put your finger on one of the key drivers, Rich. And what has tended in the past to make Q2 heavier in terms of fees is some of the -- offset [ph] the activities that required outside service support. And much of that activities has been pulled forward. So we've gotten the cost already behind us in Q1. And so we do expect that, that accounts for that timing that you're identifying, the [indiscernible]

So would you expect the SG&A sequentially to be down somewhat then in March quarter?

We certainly do expect it to be favorable as compared to prior year, although it'll be pretty comparable to Q1.

Yes. In that context, Rich, we -- one of the things that's very important about the manner in which we're achieving our alignment between our operating cash and our expenses is to ensure that the actions taken are sustainable, so that we're not just poking our head up during 1 quarter and then having some volatility. Of course, there's always some unknowns in the business that we have to manage, but we're really taking steps to ensure that these changes become sustainable and will continue in the trend in the proper direction.

And do you -- given the environment that's happening right now, I mean, what are the -- what is the likelihood of getting substantial -- any substantial new business, really, for the next couple of quarters?

Well, we have not pulled off from continuing to pursue those. We're optimistic that there's some initiatives that we have going forward that will still break through some of the funding challenges. As we reported last quarter, coming out of our year end, not only do we have a healthy pipeline, but there's still a number of programs that, while they're not new to the government, there may be other incumbent contractors, and we have a fair amount of those that are still pending an award decisions. So there's still a degree of optimism that even though we treated a very conservative view from our internal forecasting standpoint, we are still very optimistic that there's still some opportunities for additional top line impact to FY '13.

And finally, what is your thinking in terms of the convertible debenture. It's small, but -- or do you intend to wait for its maturity and then pay it off? Or are you -- do you want to try to pay it off before with the premium?

Good question. Kathryn has been in close communications with some of our principals involved there, as well as we actually have a Board of Directors meeting tomorrow. She's teed up strategies there. Kathryn, I'm not sure how much you can share with regard to that, but please feel free to give Rich a little color.

Well, I think it is a bit premature to state definitively which strategy we'll go on, but we do have those options, and then ,of course, it does have a conversion feature.

[Operator Instructions] And we have no further questions.

Awesome. Well, thank you again to everyone for participating in today's conference call. Should you have any additional questions, please feel free to contact myself or Kathryn or Don Weinberger of Wolfe Axelrod Weinberger Associates. Thank you, and we look forward to chatting with you in the not-too-distant future, when I'm giving our report of our FY '13 Q2 results. Bye for now.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.