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DLH Holdings (DLHC)
NASDAQ:DLHC
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DLH Holdings
(NASDAQ:DLHC)
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Rating:53Neutral
Price Target:
$6.00
▲(4.17% Upside)
Action:ReiteratedDate:02/10/26
The score is driven primarily by pressured financial performance—declining revenue, compressed margins, and elevated leverage—partly offset by solid cash generation. Technical signals are broadly neutral, while valuation is a meaningful headwind due to the high P/E. The latest earnings call adds modest support from improving visibility, cost actions, and a deleveraging plan, but near-term revenue and EBITDA declines remain significant.
Positive Factors
Strong cash generation
DLH's trailing twelve-month operating cash flow (~$30M) and free cash flow (~$31.1M) with strong FCF growth (+30.8%) demonstrate durable cash conversion. Reliable cash generation supports working capital, funds capex and debt reduction, and provides flexibility during revenue volatility, underpinning execution of strategic initiatives.
Defensive federal contracting footprint
DLH's core business serving federal health and defense agencies via long-term contracts creates recurring revenue and high switching costs. Exposure to modernization and healthcare mandates gives structural demand, making its business model resilient to cyclical commercial downturns and attractive to agencies requiring continuity and compliance.
Clear deleveraging and cost actions
Management's explicit plan to allocate roughly half of FY2026 EBITDA to debt reduction, together with phased indirect cost reductions and AI efficiency initiatives, is a durable governance signal. If executed, it should lower leverage, improve interest coverage and sustain margin recovery over the medium term while preserving covenant compliance.
Negative Factors
Revenue decline and margin compression
Sustained revenue declines and significantly compressed gross margins materially weaken DLH's earnings power. Lower top-line volumes and margin erosion reduce free earnings available for deleveraging or reinvestment, increasing sensitivity to contract timing and making margin recovery necessary to restore durable profitability.
Elevated leverage
Despite improvement, debt-to-equity near 1.28 is elevated relative to current profitability. High leverage constrains strategic flexibility, raises interest and covenant risk if earnings falter, and makes the company reliant on successful cash conversion and asset performance to avoid refinancing stress during prolonged revenue weakness.
Program transitions and weak pipeline
Structural shifts of programs to small-business set-asides and muted bid activity reduce DLH's addressable pipeline and prime contracting opportunities. Losing scope or prime positions on vehicles and delayed awards can permanently lower revenue run-rate and hinder scale benefits, making growth recovery more uncertain over the medium term.
DLH Holdings (DLHC) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$83.48M
Dividend YieldN/A
Average Volume (3M)27.65K
Price to Earnings (P/E)―
Beta (1Y)1.24
Revenue Growth-12.99%
EPS Growth-81.86%
CountryUS
Employees2,400
SectorIndustrials
Sector Strength72
IndustrySpecialty Business Services
Share Statistics
EPS (TTM)-0.09
Shares Outstanding14,493,035
10 Day Avg. Volume37,306
30 Day Avg. Volume27,646
Financial Highlights & Ratios
PEG Ratio-0.73
Price to Book (P/B)0.72
Price to Sales (P/S)0.24
P/FCF Ratio3.54
Enterprise Value/Market Cap2.79
Enterprise Value/Revenue0.72
Enterprise Value/Gross Profit3.86
Enterprise Value/Ebitda8.28
Forecast
1Y Price Target
$10.00Price Target Upside73.61% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering1
EPS Forecast (FY)-0.35
Revenue Forecast (FY)$234.89M
DLH Holdings Business Overview & Revenue Model
Company DescriptionDLH Holdings Corp. provides technology-enabled business process outsourcing, program management solutions, and public health research and analytics services in the United States. The company offers defense and veterans' health solutions, including healthcare, technology, and logistics solutions to the VA, Defense Health Agency, Tele-medicine and Advanced Technology Research Center, Navy Bureau of Medicine and Surgery, and the Army Medical Research and Material Command. It also provides a range of human services and solutions, which consists of monitoring and evaluation, electronic medical records migration, data collection and management, and nutritional and social health assessments; and IT system architecture design, migration plan, and ongoing maintenance services. In addition, the company offers public health and life sciences services, such as clinical trials, epidemiology studies, and disease prevention; and health promotion to underserved and at-risk communities through development of strategic communication campaigns, research on emerging trends, health informatics analyses, and application of best practices. It primarily serves the federal health services market. The company was formerly known as TeamStaff, Inc. and changed its name to DLH Holdings Corp. in June 2012. DLH Holdings Corp. was incorporated in 1969 and is headquartered in Atlanta, Georgia.
How the Company Makes MoneyDLH Holdings generates revenue primarily through government contracts and service agreements. Key revenue streams include providing healthcare services, logistics support, and technology solutions tailored to the needs of federal agencies. The company often engages in long-term contracts with governmental entities, which provide a steady revenue base. Additionally, DLH may benefit from partnerships with other contractors and technology firms, enhancing its service offerings and market reach. Factors contributing to its earnings include the increasing demand for healthcare services in the federal sector, ongoing government investments in health and wellness programs, and the company's expertise in managing complex service delivery models.
DLH Holdings Earnings Call Summary
Earnings Call Date:Feb 09, 2026
(Q1-2026)
| % Change Since: |
Next Earnings Date:May 06, 2026
Earnings Call Sentiment Neutral
The call conveyed a mixed but constructive outlook. Short-term financial results show meaningful year-over-year revenue and EBITDA declines (revenue down ~24.1%, adjusted EBITDA down ~34.3%) driven primarily by program transitions to small-business set-asides and limited bid activity. Offsetting factors include improved budget clarity for fiscal 2026, sequential margin improvement to 9.5%, significant year-over-year free cash flow improvement (reduction in cash usage of ~$7.3M), active indirect cost reductions, and a clear deleveraging plan (targeting conversion of ~50%–55% of FY2026 EBITDA to debt reduction). Management emphasized market positioning in modernization, cybersecurity and AI, and expects more stable procurement activity going forward. On balance, positives (improved visibility, cost actions, cash improvement and debt-reduction plan) temper but do not fully offset the sizable near-term revenue and profitability headwinds.Q1-2026 Updates
Positive Updates
Improved Budget Clarity and Funding for Fiscal 2026
Congress enacted a fiscal 2026 budget that increased funding capacity and provided improved visibility for clients; key federal health agencies received funding increases versus fiscal 2025, which management expects to support organic growth and modernization-driven awards.
Sequential Margin Improvement and Cost Reduction Actions
Adjusted EBITDA margin improved sequentially to 9.5% in Q1 FY2026. Management implemented phased indirect cost reductions and initiatives (including AI/ML efficiency projects) during the quarter; costs and savings from these actions are reflected in the Q1 financials and further reductions are expected to be more evident in Q2.
Free Cash Flow Significantly Improved Year-Over-Year
Q1 used approximately $4.8 million of free cash flow versus a $12.1 million use in the prior-year period — an improvement of $7.3 million (≈60.3% reduction in cash usage), primarily due to better receivables collection and timing effects.
Deleveraging Plan and Compliance
Debt increased modestly during the quarter to $136.6 million due to seasonal working capital and shutdown timing, but the company remains ahead of its mandatory term repayment schedule and in full compliance with financial covenants. Management expects to convert ~50%–55% of FY2026 EBITDA generated to reduce debt by year-end.
Strategic Market Positioning and Technical Capabilities
DLH emphasizes strengths in C6ISR, cloud migration, zero trust cybersecurity, AI adoption, digital sandboxes and advanced data science — capabilities that management says position the company competitively for modernization-driven opportunities across defense, intelligence and federal health agencies.
Operational Visibility on Contract Transitions
Management reports improved cadence on CMOP transitions and expects CMOP wind-down/ramp completion near Q3 FY2026, enabling more precise cost scaling and resource planning.
Negative Updates
Material Revenue Decline Year-Over-Year
Revenue for the quarter was $68.9 million versus $90.8 million in the prior-year period, a decline of $21.9 million (≈-24.1%). Management attributed approximately $18 million of the decline to conversions of programs (primarily CMOP and Head Start) to small business set-aside contracts.
Adjusted EBITDA Decline
Adjusted EBITDA decreased to $6.5 million from $9.9 million year-over-year, a decline of $3.4 million (≈-34.3%), driven primarily by lower revenue volumes despite partial offset from indirect cost management.
Debt Increased and Q1 Seasonal Cash Use
Debt rose to $136.6 million during the quarter driven by first-quarter working capital needs and the timing of labor/payroll tax payments; the company used $4.8 million of free cash flow in the quarter (seasonal), so near-term leverage and cash conversion remain a focus area.
Pipeline and Award Activity Headwinds
Bid and award activity remained muted (management noted only one small bid opportunity in January); the cancellation of a major vehicle (CIOS) and movement of some work to vehicles where DLH is not prime eroded parts of the pipeline, delaying expected revenue generation from certain IDIQ/MAC opportunities.
Short-Term Disruption from Government Shutdowns and Funding Gaps
The quarter was impacted by the longest government shutdown in U.S. history followed by a short-term funding gap, which increased uncertainty, delayed solicitations/awards and contributed to the timing-driven working capital pressures experienced in Q1.
Sundry Small Project Completions
Approximately $4 million of additional revenue decline resulted from smaller impacts (contract unbundling, completion of a small international USAID project and other sundry items) beyond the principal small-business set-aside conversions.
Company Guidance
DLH said Q1 (ended Dec. 31, 2025) results and guidance reflected a transition year: revenue was $68.9M (down from $90.8M a year ago) with adjusted EBITDA of $6.5M (vs. $9.9M) and adjusted EBITDA margin improving sequentially to 9.5%; free cash flow used was about $4.8M (vs. $12.1M LY); debt increased modestly to $136.6M but the company remains ahead of mandatory term repayments and in compliance with covenants and expects to convert roughly 50–55% of fiscal 2026 EBITDA to reduce debt by year‑end; management attributed about $18M of the revenue decline to CMOP and Head Start small‑business set‑aside conversions (plus roughly $4M of other smaller impacts), expects CMOP transitions to be in a wind‑down phase with completion/ramp‑down into Q3, and said ongoing cost‑scaling actions will continue into Q2 with more benefit expected then—while noting recently enacted FY‑26 budget increases vs. FY‑25 improve visibility and should support organic growth and modernization opportunities.DLH Holdings Financial Statement Overview
Summary
Cash flow is the main strength (TTM operating cash flow ~$30.0M, free cash flow ~$31.1M, FCF growth +30.8%), but fundamentals are pressured by declining revenue (-6.4% TTM), margin compression (gross margin ~13.9% vs. ~18–21% prior years), and slightly negative TTM net income (-$1.1M). Leverage remains elevated (debt-to-equity ~1.28), increasing sensitivity if profitability does not improve.Income Statement
TTM (Trailing-Twelve-Months) revenue declined (-6.4%) and profitability has compressed versus prior years: gross margin is ~13.9% (down meaningfully from ~18–21% in FY2021–FY2024) and net results slipped slightly negative (TTM net income -$1.1M). While operating profitability remains positive (TTM EBIT margin ~4.6% and EBITDA margin ~9.6%), earnings quality appears pressured by higher costs and/or non-operating items, creating a weaker near-term earnings trajectory.44
Neutral
Balance Sheet
Leverage is elevated with debt-to-equity around 1.28 (improved from ~1.87 in FY2023 but still high), which can limit flexibility in a softer revenue environment. Equity is stable (~$112M) and total assets are steady, but returns are currently low (TTM return on equity ~1.2%) given weak net income. Overall, the balance sheet is workable but carries above-average leverage risk for the current profitability level.52
Neutral
Cash Flow
Cash generation is a relative strength: TTM operating cash flow (~$30.0M) and free cash flow (~$31.1M) are solid and free cash flow growth is strong (+30.8%). Cash conversion is favorable, with free cash flow staying close to reported earnings in the periods provided, suggesting disciplined working-capital and capex needs. The main watch item is that cash flow is supporting performance while earnings are under pressure, highlighting a gap between cash generation and reported profitability.67
Positive
| Breakdown | TTM | Sep 2025 | Sep 2024 | Sep 2023 | Sep 2022 | Sep 2021 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 322.61M | 344.50M | 395.94M | 375.87M | 395.17M | 246.09M |
| Gross Profit | 60.26M | 65.16M | 77.49M | 79.86M | 72.29M | 51.48M |
| EBITDA | 28.13M | 32.29M | 40.15M | 30.54M | 40.30M | 24.55M |
| Net Income | -1.08M | 1.36M | 7.40M | 1.46M | 23.29M | 10.14M |
Balance Sheet | ||||||
| Total Assets | 283.51M | 290.66M | 314.38M | 339.84M | 169.01M | 197.17M |
| Cash, Cash Equivalents and Short-Term Investments | 257.00K | 125.00K | 342.00K | 215.00K | 228.00K | 24.05M |
| Total Debt | 149.80M | 144.97M | 164.81M | 191.71M | 39.11M | 66.27M |
| Total Liabilities | 171.32M | 177.71M | 204.25M | 237.40M | 76.95M | 131.56M |
| Stockholders Equity | 112.19M | 112.96M | 110.13M | 102.44M | 92.06M | 65.61M |
Cash Flow | ||||||
| Free Cash Flow | 30.26M | 22.98M | 26.53M | 30.41M | 371.00K | 45.56M |
| Operating Cash Flow | 29.98M | 23.22M | 27.37M | 31.03M | 1.24M | 45.66M |
| Investing Cash Flow | 272.00K | -241.00K | -836.00K | -181.20M | -872.00K | -44.00K |
| Financing Cash Flow | -30.45M | -23.19M | -26.40M | 150.15M | -24.19M | -22.93M |
DLH Holdings Technical Analysis
Neutral
5.76
Price Trends
5.73
Positive
5.80
Negative
5.67
Positive
Market Momentum
<0.01
Negative
50.17
Neutral
84.31
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DLHC, the sentiment is Neutral. The current price of 5.76 is above the 20-day moving average (MA) of 5.73, above the 50-day MA of 5.73, and above the 200-day MA of 5.67, indicating a bullish trend. The MACD of <0.01 indicates Negative momentum. The RSI at 50.17 is Neutral, neither overbought nor oversold. The STOCH value of 84.31 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for DLHC.
DLH Holdings Risk Analysis
DLH Holdings disclosed 44 risk factors in its most recent earnings report. DLH Holdings reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
DLH Holdings Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
53 Neutral | $83.48M | -77.32 | 1.22% | ― | -12.99% | -81.86% | |
47 Neutral | $92.53M | -1.73 | ― | ― | -41.55% | -249.30% | |
46 Neutral | $65.19M | -1.21 | -210.92% | ― | 3.73% | 3.56% | |
44 Neutral | $27.45M | -13.78 | -13.00% | ― | 2.52% | 45.76% | |
44 Neutral | $18.65M | -0.85 | -93.99% | ― | -35.72% | -277.39% | |
41 Neutral | $32.19M | -0.37 | -99.29% | ― | -20.49% | 25.95% |
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.