DLH Holdings (DLHC) – Government Assistance
DLH Holdings (DLHC) provides healthcare and social services and health solutions to government agencies such as the VA, Department of Health & Human Services, Department of Defense. The company’s core competencies and consulting services include assessment and compliance monitoring, program management, health IT systems integration, data analytics and medical logistics, and pharmacy solutions.
In early-August, the company reported Q3 earnings in which it posted revenue $51.5M versus 38.7M in the prior year’s third quarter. The revenue increase derived largely from the impact of their S3 acquisition**, which was reported for the full quarter in 2020 versus three weeks in the prior-year period.
“Social & Scientific Systems (S3) provides an array of services including epidemiology studies, health data management and associated IT services to key public health stakeholders including HHS, the GSA and the NIH.” Canaccord Genuity said that DLH’s acquisition of S3 is seen as being accretive to the company’s performance and overall contract win rate with these agencies going forward. Management has moved aggressively to leverage S3’s data management and analysis services to increase its scope of offerings during the contract bidding process. While we expect an increase in near-term opportunities, we expect the tailwinds for public health funding in response to COVID-19 will continue well into FY21-FY22.”
Also, in the press release, management highlighted that they recently received contracts to assist the National Institutes of Health in their fight against infectious diseases – in this case, COVID-19. With recent awards expected to generate approximately $15 million in calendar 2020, they will evaluate multiple therapeutic products and manage a consortium of partners to conduct trials in a rapid and efficient manner. “Wins like this not only underscore the value of our expertise and relationships with key government agencies, they bolster the outlook for our company at a time when the U.S. – and world – are seeking leadership in identifying and producing treatments to battle the continuing pandemic. I’m proud of DLH’s role in this fight and the assistance we’re providing towards getting a cure to market as soon as possible.”
Besides COVID tailwinds, here are a couple of other items to put on watch:
Head Start – The Office of Head Start (OHS) promotes the school readiness of young children from low-income families through local programs. Head Start and Early Head Start programs support the mental, social, and emotional development of children from birth to age 5. DLH, the prime contractor for the Head Start Monitoring Support Project since 1999, is responsible for all facets of the monitoring process, including recruiting reviewers, scheduling Head Start monitoring reviews, conducting reviews, and producing monitoring review reports.
A few months ago, Canaccord Genuity highlighted that in June, much of the recent Head Start work was complete in the October-March period, so the required travel and reviews were less impacted by the current COVID restrictions. That being said, the ability of DLH’s employees to resume travel and reviews later in 2020 was uncertain. Ideally, the higher revenue volume and margin growth from both VA contracts and public health research studies will serve as an offset to this in FY20/21.
Then, on August 26th, DLH Holdings announced that it was awarded a contract to continue providing national monitoring support services to the Administration for Children and Families’ Office of Head Start. The award covers project management, compliance and performance monitoring reviews, logistic support, data collection, utilization and analysis, technology systems and subject matter expertise in the areas of program management and quality improvement. The contract includes a base period of eight months, with four one-year options, valued at $150M including the option periods. Under the contract DLH’s extensive network of early reviewers and subject matter experts will evaluate over 2,000 grantees providing services to children throughout the U.S
“DLH is honored to continue our support of the ACF’s Office of Head Start in its missions to ensure vulnerable young children throughout the United States are prepared to succeed in school, and families receive the support they need to work to enhance school readiness,” said Zach Parker, President & CEO of DLH.
IBA – Last Thursday, DLH announced that it had acquired privately-held Irving Burton Associates of Falls Church, Virginia for $32M. The firm, with approximately 115 employees, provides research, systems development, and other technology-enabled solutions to the Defense Health Agency, the Telemedicine & Advanced Technology Research Center of the US Army’s Medical Research and Development Command, and other agencies within the U.S. Department of Defense.
Canaccord Genuity was out yesterday saying that given DLH’s recent focus on software offerings, including in its previous acquisition of S3, the acquisition of IBA is unsurprising. IBA’s core business is primarily software-based, making it an attractive target for DLH to boost the company’s margins. Additionally, the IBA purchase increases DLH’s overall portfolio of services, which likely improves the company’s contract bid prospects relative to competitors in the government healthcare services space.
Noble Financial analyst Joe Gomes was also out with a note saying that IBA brings new opportunities to DLH, especially through its two key contracts: DHA and TATRC, both of which were renewed over the last year. DLH has minor presence in the Defense health segment at present. Management indicated there is room for growth at both the DHA and TATRC. IBA should add to DLH’s ability to deliver technology-enabled services to its federal government clients.