Good morning and welcome to the DLH Fiscal 2025 Second Quarter Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, our Investor Relations Advisor. Please go ahead.

Thank you and good morning everyone. On the call with me today is Zach Parker, President and Chief Executive Officer; and Kathryn JohnBull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on Slide 3 of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2025 and beyond. These statements are subject to various risks and uncertainties, which could cause actual results and events to differ materially from such statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the SEC. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP financial measures. A reconciliation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the investor presentation on DLH's website. President and CEO, Zach Parker, will speak next; followed by CFO, Kathryn JohnBull, after which we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach.

Thank you Chris, and good morning everyone. Welcome to our second quarter fiscal 2025 Conference Call. I'm pleased with the opportunity to report our financial results and several important accomplishments for the second quarter. First, let me acknowledge that our truly skilled team throughout this year and throughout this period have continued to do a fantastic job. Throughout this period, a significant disruption in the government services industry we have had -- they have continued to demonstrate what sets DLH apart, and that is the delivery of innovative solutions, strong capability and efficiencies and the commitment to our customers and their passion for our collective missions. Now, turning to Slide 4. I'll provide an overview of our financial results. Our performance this quarter was in line with our expectations and on par with the performance in Q1 for revenue and EBITDA. With respect to cash flow generation and debt pay down, we've made significant progress this quarter as we reduced our debt by 15.3 million from the previous quarter. As you may recall, we experienced some collection delays last quarter, leading to $11.5 million of cash usage and a short-term increase in our debt. This quarter, by contrast, we generated strong operating cash of 14.5 million and concurrently reduced debt as Kathryn will further describe in a moment. Throughout the first quarter of Q3, we have continued -- I'm sorry, throughout the first half, we have continued to reduce debt and expect that trend to continue throughout the balance of the fiscal year. As of today, we have made all mandatory debt payments through March of 2026, a year ahead of schedule. We continue to benefit from the support of our bank group as they provide additional financial flexibility with the November 2024 amendment to our credit facility as we…

Thank you Zach, and good morning everyone. We're pleased to report our second quarter results for fiscal 2025. Turning to Slide 7, I'd like to provide a high-level overview of some key financial metrics for the 3 months ended March 31, 2025. We reported revenue of 89.2 million in the second quarter versus 101 million in the prior year period, reflecting contributions from recent contract awards and business delivery timing, offset by the conversion of certain VA and DoD programs to small business set aside contracts as discussed in the past. Notably, our revenue was nearly in line sequentially with Q1 levels, even though we finished the quarter with 1 less CMOP site under management. That means our key technology services revenue grew over first quarter results. In total, revenue contraction due to small business set aside conversions including CMOP versus 2024 was approximately 11.8 million in the quarter, accounting for our total decrease in revenue. We are under contract to manage 5 of the remaining CMOP locations through the end of October 2025, so beyond the current fiscal year and 1 location through the end of August. Award decisions for these services appear to be trending towards mid-fiscal 2026 and could extend further as procurement strategies are shaped by the policies of the new administration. We reported EBITDA of 9.4 million for the second quarter versus 10.2 million last year. EBITDA was down primarily due to the lower overall revenue level, partially offset by managing indirect support costs as we scale the business. Notably, EBITDA as a percent of revenue was 10.5% this year versus 10.1% in fiscal 2024. From a cash standpoint, we generated approximately 14.5 million of operating cash during the quarter as Zach mentioned, due to increased collections of receivables, leading to operating cash flow of…

[Operator Instructions] Our first question will come from Joe Gomes with NOBLE Capital. Please go ahead.

Good morning, Kathryn, Zach.

Good morning Joe.

I wanted to start out, I guess just kind of long-running saga here with CMOP contracts. Good news is we got them, sounds like through like you said, at the end of this fiscal year. But the one that you've lost, I guess, kind of figure out where we -- on a revenue run rate on those contracts, it's through the back half of this year. The first quarter you did about 34 million of revenue. I haven't seen the Q yet, so I don't know what has been for the second quarter. I'm assuming it's somewhat less because of the -- one less contract. But just trying to figure out for the rest of the year, what contribution that might be able to have?

Yes. We're expecting the quarterly run rate to be around 23 million to 25 million for the remaining locations that we expect to extend. And it is obviously helpful in terms of visibility, and you deal with this more than -- as I'm just trying to bring the report out. But the visibility moving from the 1-month and 3-month arrangements to now a 6-month extension gives us better assurance that the third and fourth quarter will have a revenue contribution from CMOP, somewhere between 23 million and 25 million.

Okay. Perfect. Thank you for that. And I know you mentioned some of the things that have been going on. I just -- I saw one article talking about over the NIH, where they were shutting down a long-term women's health study. And I was wondering, a, were you guys involved in that study? And how much more of that NIH type of business that you think is potentially going to be impacted by some of these -- those efforts?

Yes. As you might imagine, Joe, we spend a great deal of time with NIH. We're in a large number of those -- their operating divisions and paid very close attention to both signal and noise that's coming out with regard to them. We -- first of all, to answer your question, that was not work that we have been performing. And so we had no impact in regard to that. But they are -- the administration has been sending their signals with regard to their priorities going forward, both in terms of budget as well as actions that have been taken in the recent quarter. And so we -- that still is well within our position. We still remain well within our position that we have described over the last couple of quarters that we feel overall that the budgetary impact of the new administration will be neutral to slightly positive to us overall. But you are hitting in the area where I think we have probably some of our risk exposure around the research side that is the funding that will go -- continue to go forward that may have been funded in some cases by research grants. Administration has taken a very tough decision on grant-funded studies and research. And that has been a part of -- we continue to be from time to time, part of our book of business. And that's largely, almost exclusively, I should say, in NIH for us. But we still continue to see overall positive -- net positive including NIH from our waterfall that includes current contracts and new business growth.

And I think some of the initial reaction of what the things you see focused on as the one that you mentioned suggests, it got a bit swept up in some of the -- maybe AI-enabled kind of identification of programs and their affiliation with the DE&I and the political overhangs, if you will. My understanding of that program specifically is that the -- once communicated how relevant that was to scientific disease and health conditions management, that program was restored. And so we do think that there'll be some bit of a herky-jerky kind of -- or a little bit of a maybe some initial responses made -- decisions made that with the benefit of better context and information provided at the program level will help protect those programs that are really related to the overall [indiscernible] objectives of studying and delivering healthier lifestyles through studies of chronic conditions and lifestyle management and these conditions and surveillance of -- the really core missions of a health organization. So, it will be -- maybe some bumps here and there. And as Zach said, I'm sure there will be some mix in programs as we go. But materially, the programs that we're connected to, we see being of very limited impact from these initiatives of reduction.

Okay. And one more for me, if I may. How far through are we with the small business set asides and the loss of existing acquired small business. When do we think that, that's kind of peter out as being something to call out on the quarterly calls.

Yes, I think it's going to probably be -- we'll see in our pipeline, we'll probably see it go through Q3. And I think it will settle out in terms -- the opportunities that we have in our pipeline. Revenue-wise, of course, that would be trailing. But there is still some pressure there. There's for some of the opportunities that have not -- some that have already been in motion and some of that have not been awarded. And with this administration has taken some actions to stop some acquisitions that have been going forward in a manner that's not consistent with their strategy as Kathryn said, work as DE&I is one of those factors. If they are unbundling some contracts, it doesn't make sense to unbundle it and get the efficiencies and the cost efficiencies of keeping the bundle. This administration is putting halts on some of those. And so we think there's some potential upside around some of the things that coming from the previous administration were being set aside and/or unbundle that there maybe some cessation in that work. But for us right now, I think as we look at our book of business as we have it today, we see that largely running out at the end of the Q3 time frame and stepping out revenue-wise by Q4.

Great, thanks for that. I’ll get back in queue.

[Operator Instructions] There appears to be no further questions in the queue. It appears Joe Gomes has come back. So, Joe Gomes, please go ahead.

We'll do a couple of more. So, the $76 million Navy award contract that you got not too long ago. I was just wondering if you might be able to give us update on how that is progressing?

Yes. It's continuing to grow. We continue to phase in certain aspects of that work. I think we may have said before, it was not going to be a fully staffed upfront and just run it out accordingly. We don't see any dips, but we do see continued expansion. There's some -- some of it is tied to programs, and certain platforms that will receive the command and control systems that we're managing and continuing to do the software updates. And so some of those are coming on, ship schedules vary, and we're making sure we're responsive to that. And so we do anticipate that some of the work and particularly, I believe Norfolk, Virginia, with the Navy's presence up there, we expect to start to level off with us identifying the targets and move those additional resources in the coming months. We also have had some work out in the Pacific side associated with that contract down in the San Diego area. That level of effort, still, I believe we still have some potential growth there, in the early part of FY 2026 potentially. Those are still subject to change. The government's taking a look at some contract vehicles and which are the appropriate ones. We believe our vehicle might be appropriate one for the new things coming out of the Department of Navy.

Okay. And then one last one. We talked about this in the past, and I think we're starting to see some more additional movement here. You got a couple of these large [IDIQs] [ph]. And you've talked about 1 billion awards you think coming in the second half. Is it most of that related to these [IDIQs] [ph]? Are we seeing some more RFPs being released under these vehicles?

Yes, we are. We're continuing to see that. One of the more notable ones, of course, is that when we were awarded and announced at the beginning of this year is the OASIS+ that has continued to have some activity that germane to our pipeline. And we do -- we are still seeing some continued commitments. In many cases, the governments, they give you what we call [heads up] [ph]. They'll ask for a request for information. So it's not quite an RFP, but once they do, issue those RFIs as an indicator to us that sometime within the coming months, they issue those RFPs. We've seen -- I will say that this administration's -- one of the effects of this administration has been to provide more oversight before they release request for proposals or even allow the contract folks to award contracts. So, while they haven't canceled any material wins for us, it has had an effect of slipping things to the right of late. Just because of the administrative process of going up higher in the organization. Some cases, they want to make sure that our political appointee has eyes on procurement before they commit to dollars. And that has slowed some things for our customers. And I would probably also add that, as you may have seen in the headlines, a number of agencies and particularly within our -- market has taken a large [indiscernible] already with regard to incentivize retirements and forced retirements, if you will, to the acquisition folks, the contract administration folks. And so that has affected also delay in just about all types of contract actions, in some cases, even getting funding on contracts. We've not suffered from that materially, but we've had peer companies that have. So, things are slowing down as a function of this. So the thing -- I don't want to have folks as well as our folks panic on that. It's just that things seem to be sliding to the right just because of the reduced resources. We're hopeful that with some implementation of some new best practices that will be mitigated in the future.

Right. And it's really a point in time status right now, Joe, as -- in the relatively short run, I think the administration's goals of simplifying procurement, consolidating procurement. There's a whole lot out there in the executive orders around consolidating contract activities, particularly for -- the civilian agencies. Probably, would be likely to happen in defense and intel. But I think in the civilian agencies, as a general view that consolidating under the GSA is going to be helpful to make the procurement process more standard and more efficient. But getting from here to there is the challenge, right? So at this point in time, right now, what we know is a lot of our counterparts been used to engaging and working with and the agencies have been given a time frame that they're exiting. And I'm clear how many of them are going to end up at GSAs, how many of them are going to -- how that's all going to roll out. So, we certainly have to keep our eye on that ball on a daily basis and make sure that we're tracking where the paper is flowing to and with how the processes are changing, but I do think it's a noble goal as an outcome to just simplify and shorten the procurement cycle. We all know how frustrating it is to wait on some of these things that seem to take quite a long time. So, that's kind of the state of ability to get contracts awarded at the moment.

Great, thanks for that.

There's no further questions in the queue. This will conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Parker for any closing comments.

Thank you, and thank you all again to our shareholder community and interested investors. We appreciate you taking the time to hear our story. Kathryn and I, again, do remain available over the coming weeks to be available to add any clarity that you might need as we move forward in this journey together. I want to thank you all again, and have a wonderful blessed and productive day. Bye for now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.