DLH Holdings Corp. (DLHC) Earnings Call Transcript & Summary

This is the 2022 Annual Meeting of Shareholders of DLH Holdings Corp. I am Rick Wasserman, Chairman of the Board of the company. I would like to take this opportunity to introduce Zachary C. Parker, the President and Chief Executive Officer of DLH Holdings, who will be acting as the Chairman of this meeting.

Thank you, Rick, and good morning, everyone. I am Zachary Parker, President and Chief Executive Officer of DLH Holdings Corporation. At the time is now tuned in and the meeting will please come to order. First, I would like to thank Fatema, Nelson and the other shareholders who are here in attendance at this annual meeting. We decided to hold this annual meeting as a hybrid meeting, primarily to accommodate shareholders that are unable to attend in person. And as such, we'll cover them through the Internet. We hope that by hosting our annual meeting in this manner, we can increase access and participation. We will begin today's meeting with the formal agenda, which will be immediately followed by a presentation on the company's business and a question-and-answer session. I will now introduce the directors, nominees and members of the senior management of DLH who are meeting with us today, either remotely or in-person. James Allen.

Good morning.

Martin Delaney here with us in-person. Dr. Elder Granger.

Good morning.

Dr. Frances Murphy.

Good morning. Thank you, everyone for joining us.

Our Chairman, Mr. Rick Wasserman.

Hello.

Mr. Austin Yerks.

Good morning, everybody, and thank you.

And also here with us, Mr. Stephen Zelkowicz.

Good morning.

And, of course, I am Zachary Parker. Kathryn JohnBull?

Good morning, and welcome.

And to my right, Jackie Everett, our Chief Growth Officer.

Good morning, everyone.

And joining us online, our Chief Human Capital Management Officer, Maliek Ferebee.

Good morning, everyone.

Also attending the meeting on behalf of WithumSmith+Brown is Fatema Raza, you're a listen person as well. They are our independent accountants for the current fiscal year. We will also be available to respond to appropriate questions during the general question-and-answer period. And thank you, Bert, also for. Also joining us today is Michael Goldstein of Becker & Poliakoff, our outside Corporate Counsel to my left.

Good morning, everyone.

We will now proceed with the formal business of the annual meeting. Kathryn JohnBull, the Assistant Secretary of the company, will act as Secretary of the meeting. The agenda items for this meeting are as follows: First, determining the presence of a quorum; second, electing 8 nominees to the Board of Directors to serve as until the next annual meeting of the shareholders or until their respective successors shall have been duly elected and qualified; third an advisory vote on the compensation of our named executive officers; fourth, ratifying the appointment of WithumSmith+Brown as the company's independent registered properly brought before this meeting. Shareholders attending in person are requested to ask questions at the appropriate time during this meeting. Shareholders attending virtually, will have an opportunity to submit written questions via the Internet at any time during this meeting by following the directions on the meeting website. To submit written questions, shareholders must have their control number. The Q&A session will include both questions submitted in advance of and during the meeting. As indicated, the first order of business is to determine the presence of a quorum. Pursuant to the action of the Board of Directors.

Mr. Chairman, I wish to report that I have examined the list of shareholders of common stock entitled to vote at this meeting and have determined that the number of shares of common stock outstanding at the record date, January 19, 2022, and entitled to vote is 12,767,888 shares. I am advised by the Inspector of Elections that the number of shares of common stock represented at this meeting in person or by proxy is not less than 6,383,945 shares and a quorum is therefore constituted. Accordingly, the meeting is legally convened.

On the basis of the report of the secretary, a quorum is in attendance. Michael Goldstein of Becker & Poliakoff has been appointed as Inspector of Election and has sworn to the oath of Inspector of Election. The next order of business is the election of the directors of the company. The Board has nominated 8 individuals to serve as directors of the company for a term of 1 year or until their respective successors to have been duly elected and qualified. Are there any nominations to the Office of Director of the company in accordance with the bylaws of the company?

I nominate the following persons to hold office as Directors of the company: James P. Allen, Martin J. Delaney, Dr. Elder Granger, Dr. Frances Murphy, Zachary C. Parker, Frederick Wasserman, Austin Yerks III; and Stephen J. Zelkowicz.

I second the nominations.

As no other nominations have been received in accordance with the company's bylaws, it is ordered that the nominations be closed. The next order of business is the nonbinding advisory vote to approve the compensation of the company's named executive officers as described in our proxy statement for this annual meeting, more commonly known as Say-on-Pay. As discussed in our proxy statement, we believe our executive compensation programs and policies provide fair, reasonable and competitive levels of compensation to our executive officers. Accordingly, our Board of Directors recommends a vote in favor of this proposal. The secretary will now present a resolution approving the adoption of the proposal by the shareholders.

Resolved that the company's compensation of its named executive officers is hereby approved, and it is further resolved that the officers of the company are hereby authorized and directed to take any and all actions as such officers of the company shall deem reasonable and necessary in their discretion in order to implement these resolutions.

Will someone move for adoption of the resolutions?

I so move.

I second the motion.

The next order of business is the proposal to ratify the appointment of WithumSmith+Brown as the company's independent registered public accounting firm for the fiscal year ending September 30, 2022. The secretary will now present a resolution approving the adoption of the proposal by the shareholders.

Resolved that the company's appointment of WithumSmith+Brown PC as its independent registered public accounting firm for the fiscal year ending September 30, 2022, is hereby ratified and approved in all respects.

Will someone move for the adoption of the resolutions?

I so move.

I second the motion.

Thank you. We continue little after the clock again and the polls for voting on these proposals are now open. All DLH stockholders entitled to vote at this meeting have the ability to do so online or in first. All the shareholders who wish to vote in-person and who have not voted, please do so via the website used to access this meeting by using the control number of signed by Continental Stock Transfer and Trust Company. Please remember that if you have already voted by proxy, it is not necessary to vote again. We will now entertain any questions that have been submitted in advance of and/or during the meeting related to the election of directors and other proposals discussed in our proxy statement for this annual meeting. Questions not relevant to these proposals but relating generally to the business of the company will not be entertained at this time. Please hold such inquiries for the question-and-answer period that follows our presentation. Substantially similar questions will be answered once to avoid repetition and to allow more time for other questions. If time does not permit us to address each question, the company's answers will be posted to the Investors page of our corporate website after the meeting. Are there any questions from anyone participating in today's meeting regarding the proposals under consideration?

It's appeared, there are no questions regarding the proposals that have been submitted in the portal.

As there were no questions submitted regarding the proposals, we will move to the next order of business.

Mr. Chairman, I am in possession of the alphabetical list of shareholders of the company at the close of business on the record date who are entitled to vote at this meeting. This list of shareholders has been available for inspection at the offices of Counsel, Becker & Poliakoff, located at 45 Broadway, 17th Floor, New York, New York, for a period of 10 days before the annual meeting during ordinary business hours and electronically on the company's annual meeting webpage.

Each shareholder of record entitled to vote at this meeting was provided with notice of this meeting and has received a copy of the notice of intent availability of proxy materials, which was distributed to the shareholders commencing on January 28, 2022, as evidenced by an affidavit of mailing by an authorized agent of Continental Stock Transfer & Trust Company, the transfer agent for the company's common stock. I suggest that a reading of the notice be waived. As the polls will close momentarily, so if you have not yet voted, please do so now. I now declare the polls closed. The votes will now be tabulated. Is the inspector of the election ready to report the preliminary results of the voting on the proposals? If so, please announce the preliminary results.

Thank you, Mr. Chairman. So Chairman, I have tabulated the preliminary results of the votes cast on the proposals at this annual meeting. The preliminary results of the votes cast are as follows: At least 87 -- each of the nominees for Director have received more than 87% of the votes cast in favor of his or her election and has been elected as a director of the company to serve for a 1-year term or until their respective successors have been duly elected and qualified. The resolution as on an advisory basis for the compensation of our named executive officers has received more than 97% of the votes cast in favor of the proposal and has been approved. The ratification of the appointment of WithumSmith+Brown as the company's independent registered public accounting firm has received approximately 99% of the votes cast, and the appointment has been ratified. Thank you.

As indicated by the report of the inspector, all of the matters voted on by the shareholders has been approved. We will file the report of the inspector of election with the records of this meeting. We expect the report -- to report the results of the voting on a Form 8-K to be filed with the SEC within 4 business days of this meeting. The Secretary will file the report of the Inspector of Elections as part of the records of this meeting. For the purpose of reference, the Secretary is directed to file the following additional papers with the records of the company. Number one, a list of shareholders of common stock entitled to vote at this meeting. 2, notice of intent availability of proxy materials and the proxy statement; number 3, affidavit of mailing, 4, ballots and proxies presented to this meeting; 5, Inspector's oath and finally, 6, report of the inspector of election. I will now report on the business of the company, which will be followed by a question-and-answer period. For shareholders attending remotely, please follow the instructions on the Annual Meeting webpage to submit questions. Shareholders are attending in-person will have an opportunity to ask questions at the allotted time. Also, a copy of the presentation material is available on our Investor page, that is the Investor page at our corporate website as well as the webpage for this annual meeting. So I will begin with an overview of the company. If you will turn to Slide #3, or I should say, following the introductory slide. I'd like to start to talk a little bit about the environment that we're in today. Of course, some things are very emerging -- emergent as the federal government space is highly -- impacted highly by a number of things happening throughout the world. And of course, as of today, we are still operating under the continuing resolution. But I will say that the recent weeks and days and hours has given an increase in the degree of optimism that I and my peers in the federal GovCon industry have with regard to a budget finally being approved. Having an improved budget will certainly reduce the budget uncertainties. And as we were chatting with some of our friends at Wynnefield just last night, it has an effect of really reducing the risk of obligation of funds for major programs by a lot of our current clients and our targeted agencies as well. So we see this as a net positive for our industry. We've been operating on CR for a number of years consecutively through multiple administrations. So we think, ultimately, this could be a positive. And Jackie can give you greater context around that on its implications with regard to DLH. I would also draw your attention to the fact that, as everyone is aware, the Ukraine crisis is having a substantial impact on Department of State and obviously, the Department of Defense. All of our work -- most of our work for the Department of Defense has to deal with the health of our soldiers, airmen and marines. And we are very, very much supported on both sides of the aisle and with all the aspects of what we see coming along in this budget. We're going to talk a little bit about what we see coming forward on the budget. More importantly, how stable we believe that this market continues to be for us. I would also be remiss if I didn't indicate mentioned that throughout the pandemic, we've had over 1,000 employees that have exhibited a tremendous amount of courage in committing to do their work for the veterans and the health of our veterans. -- all right? These are folks that are working in highly automated production environments with condensed workspaces in many cases. They've dealt with a lot of evolving protocols that we and the Veterans Administration and our clients have all dealt with throughout this evolution. Those protocols evolved in some cases, weekly, but our folks remain true to the mission of ensuring that we could take care of the health practices for our customers. And those uncertainties are things that we are very much indebted to our -- dealing with those uncertainties really has led us to have a great amount of debt indebtedness to our workforce. On the next slide, as we talk about that federal workforce, you'll see that our primary agencies continue to have stability when it comes to federal budget growth. We're expecting, if anything, that the current -- the skinny budget has to be evolved into an improved budget in the near term, we'll even augment that what you see on the current slide. Not only does the federal government continue to grow with regard to the areas we focus, but each of those 3 major agencies you see to the left at the Department of Defense, Health and Human Services Agency and the VA are all demonstrating stability not only for long-term, but in particular, as it relates to today's events. So we will -- Jackie will give you some additional color a little bit later with regard to what does that mean in terms of our opportunities and specifically the agencies that we're targeting. The next slide, I'll give you an overview again of the solutions that we have been creating over time, very heavily focused on the health as it relates to the -- to our society, our service members and our veterans. On the left-hand side, you'll see that we have really continued to execute on our long-range strategy that we communicated 4 to 5 years or so ago. That strategy has been -- is intended to move us up the food chain that is with regard to highly complex challenges, mission-critical services for our agencies and exacting science -- applications of science. And we've continued to deliver that and expanded our portfolio of business. You also see here that data is at the core of everything we do, whether it's applying to the full range of agencies you see below as well as internally. We believe that our ethos of measure, manage and optimize our performance and outcomes will permeate everything we do, whether it's value proposition for targeted agencies and customers as well as internal delivery of our products and seeking performance excellence. And that performance actually this is a key value of ours. These apply to scientific research and the discovery services that we provide, and apply to predicting success of our grantees, as well as enhancing productivity and quality initiatives in areas where we're delivering high-volume, high transaction services to these agencies. And then lastly, on the right-hand side, you'll see that we have continued to apply a disciplined approach to the services and solutions that we offer to our clients, applying best practices. And there's some demonstration of some of the certifications that are very germane to our ability to provide these services. These -- having these certifications increases our customers' confidence. In some cases, differentiates us as a customer and creating new value propositions. And also, just as importantly, given what's happening in today's world, our ability to attract and retain top talent as a good place to work. And so those are very key. These expanded capabilities have allowed us to not only open the aperture of our addressable market, again, which Jackie will talk to a little bit later, but while at the same time, deepening our competencies in what we deliver to today's agencies. Next slide, gives a little bit of a context again around that evolution of the last 2 years that COVID has created in our industry as well as how we have taken advantage of that, taking hold of that -- those challenges and really leverage this to be a component of developing our strength associated with such infectious diseases. COVID-19, of course, has evolved in a bit. And our role has been to be agile as a company to be able to attack and approach the pandemic's challenges for a variety of agencies. And we think then Jackie will give you some context around some successes we've had there. But suffice it to say, as you can see on this slide, in addition to how the industry responded to the immediate COVID-19 responses, we're really heavily focused on positioning ourselves for the ultimate transition from pandemic to endemic. And that will be a key competency as we talk about the long-term value of the things that you saw us lean into over the course of the last 1.5 years to 2 years. We think that, that affects not only our ability to conduct scientific research and et cetera, but also to develop and help implement countermeasures for various forms of disaster response and preparedness for those things. One of those areas that I'm excited about -- most excited about is -- if you turn to the next slide, where we talk about having continued to build upon our contract research organization capabilities and capacities. We've done this both with bringing on some of the best talent -- most talented researchers and experts in clinical trials, monitoring, data analytics that industry can find, right? It allowed us to provide support to agencies such as NIAID and USAID to deploy these resources. The scientific and clinical research, we believe, will continue to expand in the federal space as it addresses the endemic phase for the next generations to come. Much like many of you, you have seen -- as Rick and I were chatting about just the other day, the HIV investigations, et cetera, are also very, very strongly -- still found to be very strong in a number of agencies, including our company as you go forward. We think that there will be a long tail in the endemic phase of the things that we've been able to build in over the last 1.5 years and 2 years and our developing expertise for this business. We're expanding our global network in this regard that as key -- as COVID-19 transitions from the pandemic to endemic, and it will create long-term opportunities, which Jackie can talk to also a little bit later. So in short, a variety of therapeutics that we've been building upon here, not only the infectious diseases, but also the emerging infectious diseases, chronic diseases, such as oncology, bronchology, respiratory tract diseases, of which COVID-19 was the primary attack as well as pediatric implications as we go forward. So we're really excited about continuing to build out that capability organically, and we'll continue to look to build that expertise downstream. And then lastly, as many of you know, as things continue to evolve over the last couple of years as a publicly traded company, there's been increased focus around diversity, equity, inclusion and additional reporting requirements around ESG. We've -- we're proud to say that we've embraced these values for a number of years. It's actually not only been a core value as stated on our website, it is something that lives and breathes throughout the ethos of how we operate as a company, both at the deck plate level for working and all the way up to and including our Board of Directors -- our executive leadership and Board of Directors, which is typified on the screen today. We have leveraged D&I as an asset. We don't view it as a requirement coming down from the government. We embraced deployed a lot of these tools in our business to help drive better decision-making and increasing our value propositions for our engagements with customers. We run EPFGs or employee perspective focused groups and affinity groups and listening sessions to make sure that, that feedback gets up to and through me and yields -- manifests itself into shaping the way in which we operate on a day-to-day basis. And then it also just creates a better workplace for us. And as you all know, we have a number of challenges in the industry with regard to workforce. In November of last year, you noted -- you may have noticed that we brought on a Chief Human Resources and Human Capital Management Officer, okay, Maliek Ferebee. It's very important because the headwinds today impacting our industry as well as full society are very, very different from what they were 10-15 years ago. The challenges are really accelerated by the things that we've seen environmentally here in this world. These include the "great resignation", which Maliek tackling for us. The gig workforce environment and its implications on our space. The COVID-19 accelerated virtual workplace. All these we're dealing with telecommuting and virtual work beforehand, it's been on steroids in the last 2 years and the ability to be able to still operate in a collaborative way and a mentorship way is going to continue to be important for us to build differentiating capability. And then also next-generation compensation and incentives. Those are very different as we look at the generations coming into today's workforce than they were in my generation. So all of these sort of things are keen to Maliek in helping to lead the company and my leadership team into those directions. And that reporting, as I discussed around ESG, is something that our Board, of course, is looking at adopting. And for that, I'd like to turn it over for a moment to Maliek to give you some context around how we're addressing that in the marketplace. Next slide, please. And I'll turn it Maliek. I'll turn it over to you.

Thank you, Zach, and Good morning, again, everyone. As Zach had mentioned earlier, DLH has a long-standing commitment to diversity, equity and inclusion. And with that commitment, it's reflected in not only in our Board makeup, in our leadership makeup, but it's also reflected in our employees and the values that we have with our employees and that we see within our employees. To further that level of evolution in the DE&I, we have to ensure that diversity of thought and diversity thought in what all we do as a DLH organization is also reflected. Therefore, as we continue to mature our DE&I efforts, the maturing of those efforts will also spawn into our procurement practices -- how we leverage and create partnerships and teams within the business and how we continue to engage our workforce. The workforce itself continues to change and evolve. We're challenged with a multigenerational workforce that we've never seen before. No industry has ever seen this many different generations in any workforce. And the needs of those workforce and that -- those employees are differing dependent upon generations. So it's for DLH to continue our efforts in DE&I and ESG to underscore what we believe our value for diversity is. And underscoring that is to leverage the internal capacities and our external views of DE&I, which means how do we look at the analytics of our own data to further create conditional analysis of what does it mean to be an equitable organization or an inclusive organization. How do we look at employee resource groups and affinity groups to ensure that we keep our arms around the groundswell of ideas that come directly from employees and how we leverage those ideas into how we operate as an organization. And then finally, how do we formalize a D&I Council to maintain our focus, not only internally but externally on benchmarks of what is happening in DE&I across the organization and across our marketplace. So the advent of my position, as Zach had indicated, is a testament of our continued commitment to DE&I and ESG within DLH. That commitment, we hope to make sure it's related in how we leverage and generate our resources, our resources, our most important resources, which is our people, we have to make sure that our focus around that is paramount. With the advent of what is being considered the "great resignation", some call it the "great renegotiation." It is really a focus on retention for any business and how our organization is planning to work through that. And how we look at the impacts of COVID, which, as Zach had said earlier, has really pushed the launch from telecommuting to hybrid working to remote working. I can tell you now, DLH has been an organization -- continues to be an organization to leap forward at these challenges, and we continue to implement solutions around those challenges from a retention standpoint, and also from an affinity group, and ESG standpoint and also to ensure that the values of what we do in our organization is reflected each and every day with our employees. So with that, I again thank the leadership team for their efforts -- their continued efforts and the efforts that the human capital management team will leverage going forward with not only the analytics of looking at our data, but also with the processes, procedures and infrastructure we're looking to establish to make the values of DE&I more paramount in our organization. With that, I'll hand it over to our Chief Growth Officer, Jackie Everett. Thank you.

Great. Thank you, Maliek. And I want to thank everybody for being here. It's nice to in-person and see if they've resume working. Thank you. So first of all, I want to start off with -- I'm going to go to the next slide. Is talk a little bit about our '21 success. And last year was restructuring part of the new business engine and enhancing our processes. And while that was going on, we've continued to prosecute the business, and we were rewarded with some very early successes. And our -- the emergency response program and the medical countermeasure programs with FEMA really showed how quickly this organization could respond and deploy solutions to help our clients in critical need. The group did a great job and I'm very proud of the fact that our DNA is pushing these things forward. The data management programs with CDC and the multiple sclerosis registry program continues to demonstrate the depth and desire of our scientific research and the data analytics accounts that DLH has been building capacity in for several years. And so with this foundation of '21, we get to move forward to what we're going to be doing in '22 and beyond. Next slide. So here, we have an addressable market that we look at with our 3 top clients from a budget in the yellow is from FY '19, and we see the growth that's moving forwards in FY '22. And you can see that we have quite a bit of opportunity within our top 3 plans. On the right-hand side, we look at roughly some capabilities that we have been building and investing in over the 18 months or so that I have been here to help us really slice this marketplace a little differently and to really grow our capabilities. So a lot of this work in the government is around research and development, information technology and around professional and health services. That's the way the buckets of the federal government work. And if you look at our capabilities, we span across all 3 of those in depth. And so if we look at the research and development area across these agencies, DoD and HHS really being the largest of these, there are other pockets -- that are out there. But it talks about the advanced development of medical countermeasures, how we protect our citizens, how we deal with health security threats. And it also shows the areas of life sciences and clinical research operations that we bring to the table. And these investments that the government are making will -- are including various long-term efforts and that brought this up earlier around the infectious disease area. COVID-19 is kind of running away with the money at this point, because there are so much long-term effects there that we see quite a bit of spending in. We also see big buckets of money in cancer and the infectious disease and in DoD, where we see the ability to speed the advancement of scientific research and knowledge of evidence-based practices for the diagnosis and treatment of diseases and conditions that impact our military personnel and their families. And this is a very big, high priority, both in DoD and with Veterans Affairs. There's also investments being made in medical devices and medicine for the unique requirements that our military personnel, which is different than what we do on the civilian side of our business. We're carefully monitoring a new proposed agency that will help -- that's being proposed in government today, that has not been formally approved yet to speed the development of biomedical research and improved health for all Americans all through advanced research private agency portfolio. And this will be a model that they'd like to see set up that DoD has done with DARPA and what Department of Energy has done as well. So should that be approved this year, that will advance some more investment dollars in research and development for us. What we're also seeing, as we move through this paradigm is an investment made with the convergence of operations and information technology. There's a huge emerging area and the advancements of technologies that are creating a way for us to deliver our services a little differently. So as these delivery models are changing, especially with the shift of care, they go to alternative sites. And so telehealth and these new technologies such as Internet of Things or -- yes, Internet of Things, security and data analytics, advantages of a cloud environment and the bioinformatic program and artificial intelligence and machine language, predictive analytics, and even those related to modeling, simulation and training. These are big pushes in how we start bringing the convergence of the mission work and the IT work to help accelerate and bring information to our government counterparts. There are still systems out there that are tightly coupled with legacy systems that severely needs system modernization to keep up with the commercial world and to operate more efficiency that we also are looking at as we start developing our pipeline. Professional and health services area, which is also a new segment, is how the services are delivered. And we are embedded in a couple of these missions, what we do in our scientific research as well as what we do in delivering for the VA, where they are very dependent upon DLH to deliver superior service at high volume. And so there are still government dollars that are being spent on the well-being of these veterans and these are high priority programs as well as with DoD. We're seeing increases coming into this year on behavioral health and nonmedical readiness and services to address social determinants of health as well. So we are monitoring that as we go forward because that's another area in which we can bring expertise and capabilities. There will be additional dollars to support emergency and nonemergency activities to strengthen the public health infrastructure. It was pretty clear within the government space -- the last couple of years that our public health infrastructure was not where it needed to be growth engine. So they are looking at investing to enhancing that, and that comes into an area that we would call preparedness. Should have another pandemic, all those agencies that would be involved with that will be able to various data analytics to help with modeling and simulation to predict what the movements are and how we can be better prepared. So we believe and I believe that we have an incredible addressable market that continues to expand as we continue DLH's increase differentiating capabilities, and it provides several new targeted opportunities across the federal market. Next. So I'd like to touch briefly on our qualified pipeline. And we have roughly a $2 billion pipeline that we are working with, and we continue to grow and expand this on a weekly basis, as we look at these new areas that I just talked about. And essentially, the subject gets approved that we think quickly start moving into. We have over $800 million that are in the proposal process that we expect to have is in for this year and awards. I just want to clarify that. And we continue to build upon the federal market space and the adjacency agencies where we can bring our capabilities to agencies. We've responded the various statistical analysis up in other areas that we're hoping to expand that work and not just within the top 3 agencies. We're also building partnerships with other organizations that either have products or offerings that help us enhance our capabilities, and we continue to build that out as a way to build our capability. Next slide. So the areas that we continue to work on our business development discipline so that we can drive sustainable growth. I mean that's about building embedding larger programs to sustain the growth of the company. We're also expanding our -- what I call our contract vehicle portfolio. The government operates in a world where they like to have these umbrella contracts. They don't really have any dollars until you build these task orders. And we are now of the size and mass where we can be bidding those kind of opportunities to build easy assets for the government in R&D and information technology, as well as the professional and health side of the business. And then the last part is we want to build on the investments in differentiated capabilities the IBA acquisition and now that it's fully integrated, it gave us a great wealth, and you know that I look forward to Kathryn JohnBull and our corporate development discussion, she's really aware of where we want to build more capacity and information technology in professional health and clinical research areas to grow. So with that, if you go to the next slide, I'd like to introduce Kathryn JohnBull, our Chief Financial officer.

Thank you, Jackie and welcome again to everyone. I'm pleased to share a brief update on our corporate development process. Corporate development continues to be a strong priority for DLH to augment, complement the organic growth initiatives that Jackie just outlined. So let me give you some quick recap of the trends in the corporate development market in general within our market. 2021 was a year that registered record M&A transaction volume, largely driven by people apply to beat what they expected to be a tax increase in 2022, didn't ultimately materialize, but that didn't mean that people didn't race to try to beat it. And so record transaction volume in 2021. But really, even putting that aside, that has slowed things a bit for the start of 2022, but we expect 2022 over the course of the calendar year to recover and be in line with strong volumes that we had in 2018 through 2020. So it's a consolidating business and transaction -- acquisition transactions are plentiful. There is -- as most of you probably know, there's substantial capital swimming around in the markets. And the private equity firms have some deep resources. They have -- there are several that are very successful in this marketplace, and they've continued to grow the share of the transaction activity that they capture. So we're competing in that marketplace. The valuation premiums, the multiples for acquisitions appear to be cooling ever so slightly, although they're still substantially higher than historic levels. And the average deal size has been trending up for the last 5 years. Next slide, please. So in the context for DLH and our capacity to do acquisitions, we have, over the course of our Phase 1 acquisition program developed a lending team that is very steeped in the industry. They have strong experience and interest in the government services sector, and so they're able to be very responsive to deals and understand how to evaluate them quickly. We've been able, because of that strong lending group to accomplish all of our prior acquisitions with the support largely solely of senior debt and very minimal dilution, less than 2% of our cumulative deal values over the last 5 years. But given our -- looking forward, given our anticipated operating cash flow and our very low CapEx requirements, we think we've got tremendous capacity to continue to execute on our acquisition plan. Next slide. So just revisiting. This is my favorite slide. Revisiting the prints of our Phase 1 acquisition program. As we shared with you back in 2015 and '16, we defined our 3 markets. And if you remember, at that time, we were present in half of one of them. And so our challenge was really to use the acquisition program to really establish a presence in all of those 3 markets, while at the same time, really driving the company's results in a way through leverage -- operating leverage of our infrastructure and through, as Zach mentioned earlier, moving up in the value chain and began taking on increasingly complex and differentiated work. In combination of all that, through that growth process to really drive DLH to a place where the EBITDA margins we were delivering were right in line with our competitive benchmark group. And so this chart shows you that journey. And so obviously, we're quite proud of that, but yet we think the best is yet to come. So for the next slide, we'll show you what we see going forward. Now that we've achieved our stable operating model, our goal now is to really leverage our capabilities, leverage our market presences and our financial capacity and continue to focus on acquiring capabilities that are really going to complement and augment our ability to grow in the organic marketplace that Jackie laid out for you. Our acquisition strategy is going to continue. It's past practices of being deliberate and strategic. We're not doing acquisitions just to get at a higher top line number. These acquisitions need to be filtered in a way that makes sense with our overall context of where we're trying to take the company for the capabilities and markets that we've developed. So we're confident in our ability to continue to compete for growth. And with that, I'm going to hand it back over to Zach for closing comments.

Thank you, Kathryn. Thank you, team. We will now entertain questions concerning the general business of the company. First, we will take questions on the floor, Fatema, Nelson, Bert, numbers of our team, Martin, Steve. Floor is open for any questions you might have. And then we'll follow that up with the questions that might be posted on the Annual Meeting webpage. First, any questions or comments from the floor.

I was just curious about depreciation. Is $8 million a year, what is that really depreciated?

Can you repeat the question?

Yes. So the question is what's included in our $8 million a year depreciation and amortization line. It is very little B and mostly A. So because we have very little CapEx, the depreciation of CapEx is not a particularly significant number generally less than $0.5 million a year. The A is amortization of the acquired intangibles that we pick up through acquisitions. So our backlog of contracts, our customer relationships, the trade names that we acquire. All that is -- we go through a valuation process to assign purchase price to the acquired intangibles and then we amortize them generally over 10 years.

So these are the contracts that we assume when you made the acquisition?

Right. That's right.

Anything new in this area. Don't show up as after.

That's right.

That's really triggered by [indiscernible].

Exactly. And of course, it's noncash.

Correct. [indiscernible].

That is correct. And you're a great straight name for that. It is the case that we have been successful in structuring all of our acquisitions to provide deductible purchase price. And so we do get a tax deduction for the acquired value over a 15-year period according to the tax rules.

And it's worth noting that we have leveraged the benefit of those NOLs that existed before Kathryn and I got to take. So we do declare a bit of success that we now be coming in -- that is no longer going to be a value asset for us, but clearly, we've positioned the company to be in see where cash is today that we're well suited. Kathryn did indicate also that we are -- we're going to remain disciplined with our capital, very selective and disciplined on ensuring that those strategically aligned with the type of organic focus that Jackie has described. So we're excited that, I would say, that trendline on the EBITDA is great. We think we're -- that trajectory will not continue beyond because we have achieved that period with a higher value type of business. But we do expect to accelerate the trajectory on that combination of organic and inquisitive growth during this next 3 to 5-year period. Nelson, did that answer any of your question? Bert, did you have anything to add?

Looking forward to the next acquisition, Kathryn, you mentioned you saw deal sizes turning upwards in their valuations clearly.

A smidge. Don't get too excited.

Yes. [indiscernible]

Yes. So if I look, I, of course, get summaries from the investment banking community frequently. And I would say they might have nudged down not quite one turn on EBITDA. So as you probably saw in 2021, they were pretty superheated. -- things were in the 12% to 14% range. I think now you could probably look in the 11% to 12%, 12.5% kind of range. On the higher end of the technology spectrum, if that's the kind of opportunity you're pursuing.

What's the range? I didn't...

I would say 11% to 12.5%.

And is the EBITDA the driver there?

It generally is. I wouldn't say that it would be only thing we -- it's obviously not the only thing we look at. but it's the primary thing we would use to determine value.

And Bert, one of the things that's probably came across a little bit in Jackie's presentation is, we believe now that we can really open our aperture a little bit around some of those markets. We were very intentional, higher driving the value chain up to where we are right now. Things that are now more fundamental to systems engineering, integration, that may not have the same health criteria that we had before that we were very selective. Most of the teammates that Kathryn refers to, the investment bankers have always seen I think Kathryn has been incredibly disciplined in that regard. So we're going to maintain the discipline, but the aperture can open up, because when Jackie started about modeling and simulation, today, we do that for research and development. But that modeling and training and modeling and simulation for application to how to do continuous response like what we've had to do in Alaska to continue to see response in training, FDA experts on how to anticipate and look at predictive analytics to make determinations of next-generation sort of solutions. Those are things that we're looking at now employing into other agencies -- adjacencies, if you will. So we'll open that aperture. Some of those, as Kathryn was describing have a little bit of a different margin profile. We've been on the high end for the most part before. We're going to look at some things that may be even high single digits multiples of EBITDA.

Just wondering, as you pointed out. How do I evaluate us when we're to finish the project -- contract.

Just repeat the question.

So they -- how they evaluate this is, they do schedule a customer rating…

Repeat the question?

Repeat question.

Oh, yes. The question is when we complete a project, how do our customers rate us. So the technical part is they fill out a form and they rate us at the close a that and again it's called SUPAR. And it's very important that our delivery managers work with us and grow and as well as our presidents. We all align and make sure that we accurately reflect the information that's being put there, and that is used to help us win new business.

Repeat that part.

Yes.

And that helps us win new business. So that's how -- and so we get rated fairly well with our government. We -- because we can't use past performance to win it. We have to use past performance to win new business, and they want to see these ratings. And so if we're not performing well, we can't use those programs, which means you can't get this kind of work. So it's specific, right? So we need to be making sure that we have the programmers.

Are there interim around the…

No, they're annual -- they're supposed to do it annually. That doesn't always happen, but that's we are all working to see if we can't get that compete with us.

Any other questions here from the floor before we move to the website. Very good. Thank you. Are there any questions available on the website?

There are no questions.

There appears to be no other business to come before the meeting. We will now move to adjourn the meeting. A motion to adjourn is in order.

I move the meeting be adjourned.

I second the motion.

Moved and seconded that the meeting be adjourned. All in favor say aye. [Voting]

All opposed say, nay. This concludes the business for the meeting. I declare DLH's 2022 Annual Meeting of Shareholders adjourned. Thank you for your attendance to today's meeting. We are adjourned.