DLH Holdings Corp. (filing identifies registrant as TeamStaff, Inc.) — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2011; unaudited. The filing describes a federal-government services provider focused on logistics, healthcare and technical services. The company had divested its commercial staffing business and operated through TeamStaff Government Solutions.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 | Nine months ended June 30, 2011 | Nine months ended June 30, 2010 |
|---|---|---|---|---|
| Revenue | $10.58 | $10.08 | $31.60 | $30.67 |
| Gross profit / margin | $1.51 / 14.3% | $1.34 / 13.3% | $4.34 / 13.7% | $3.67 / 12.0% |
| Operating loss | $(0.28) | $(0.48) | $(0.63) | $(2.00) |
| Continuing-operations loss | $(0.41) | $(0.58) | $(0.93) | $(2.21) |
| Net loss | $(0.14) | $(0.58) | $(0.66) | $(3.37) |
| Net loss per share | $(0.02) | $(0.11) | $(0.12) | $(0.67) |
- For the nine-month period, operating cash flow was negative $2.34 million, compared with negative $1.48 million a year earlier. The company cited slower collections, higher receivables and lower accrued liabilities. Cash declined to $0.71 million from $1.19 million at September 30, 2010.
- At June 30, 2011, current assets were $14.15 million and current liabilities $16.55 million, a $2.4 million working-capital deficit. Net accounts receivable was $12.50 million, including approximately $9.3 million of unbilled DVA retroactive-billing receivables.
- Debt included $2.17 million drawn on the revolving facility, $1.70 million of notes payable and about $0.01 million of current capital-lease obligations. Only $188,000 was available under the revolver, which is limited by eligible receivables. The revolver rate was 5.2% at quarter-end, plus applicable fees.
Material changes and notable items
- Nine-month revenue rose 3%; gross profit increased 18% and gross margin improved 1.7 percentage points. Management attributed the margin improvement to higher-margin business mix and additional work.
- Nine-month SG&A fell 7.5% to $4.88 million, reflecting cost reductions. The prior-year period included $310,000 of officer severance.
- Interest expense increased to $218,000 for nine months from $100,000, principally due to greater borrowing. The $270,000 net-income contribution from discontinued operations in 2011 was a one-time recovery of Florida-held escheated funds related to former operations; the funds were received after quarter-end.
- In May 2011, the company received a DVA Blanket Purchase Agreement for pharmaceutical services, with a stated maximum potential value of approximately $140 million over five years, subject to task orders; work was expected to begin by October 1, 2011. The company also received a Navy SeaPort-e prime contract that permits it to compete for task orders, but does not assure revenue.
Liquidity, outlook and risks
- Management believed available cash, operating cash flow, credit availability, cost reductions and committed financing would support operations for 12 months from the financial-statement date. It cautioned that failure of these assumptions could materially impair liquidity and could require further cost cuts, extended supplier terms, asset sales or curtailed programs.
- After quarter-end, the company received $350,000 from convertible debentures affiliated with its largest shareholder. The debentures bear interest at the greater of prime plus 5% or 10%, mature 27 months after issuance and convert initially at $1.30 per share. Warrants for 53,846 shares were also issued. Proceeds were partly intended for the RS Staffing settlement.
- After quarter-end, the RS Staffing dispute was settled for $200,000 cash and 300,000 new shares, with resale limits and company guarantees of minimum proceeds on shares held or issued to the former owners. The filing says the accounting impact, including the guarantees, would be assessed in the September 2011 quarter.
- The company depends substantially on federal contracts, particularly the DVA. Government procurement delays and funding constraints, contract-renewal uncertainty, and potential reductions in federal spending could affect results. The $140 million agreement is a ceiling, not committed revenue.
- Government approval remained pending for approximately $0.4–$0.6 million of additional revenue and gross profit on retroactive billing adjustments; collection and timing were uncertain. The related DVA receivable and accrued direct costs were approximately $9.3 million and $8.7 million, respectively.
- An IRS payroll-tax matter had a recorded remaining liability of approximately $1.3 million, including about $0.5 million of estimated penalties and interest. Management expected no significant adverse effect but noted that timing, additional charges and a payment plan remained uncertain and could affect liquidity. Goodwill of $8.6 million and tradenames of $2.6 million were also subject to impairment risk if major contracts or valuation assumptions deteriorated.
- No specific earnings or revenue guidance was provided. The filing cited government budget and acquisition delays, possible defense-spending pressure, and dependence on contract awards and renewals. Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Confirm the issuer and filing identity: the request metadata names DLH Holdings Corp., while the supplied 10-Q identifies TeamStaff, Inc.
- Track collection and government approval of the $9.3 million DVA retroactive-billing receivable and the additional $0.4–$0.6 million claim.
- Verify actual task orders, revenue and margins under the DVA agreement and Navy contract; maximum contract values do not guarantee business.
- Assess liquidity after the $350,000 financing, the revolver’s receivables-based availability, operating cash use and the RS Staffing settlement guarantees and dilution.
- Monitor resolution and payment timing of the IRS liability and any resulting cash-flow impact.