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

This is the 2025 Annual Meeting of Shareholders of DLH Corporation. I want to welcome everybody. 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 Corporation, who will be acting as the Chairman of this meeting. But before we continue with the formalities of the meeting, I would like to thank for the Board but also deeply personal, I would like to thank Martin Delaney for his many valuable contributions to the company as a member of the Board since 1998. As we previously announced, Martin has decided not to stand for reelection to the Board at this meeting. We will miss -- Martin, we will miss your presence on the Board and all of your efforts to support the company's mission and to grow shareholder value. We wish you the very best going forward. I will say personally, many of you know I've served on a lot of public company boards. I think it's 11. And therefore, I've met a lot of directors. And I will say that working with Martin has been the utmost pleasure. His support of the shareholders and their aims and goals as a director has been exemplary, and it's been just a tremendous experience working with Martin over the past, I think it's 18 years now. So Martin, thank you very much for your support of me and of the company. We appreciate it very much. And with that, I'll hand it over to Jack.

Good morning. I am Zach Parker, President and CEO of DLH. It is now 10:02 and the meeting will come to order. First, I would like to thank all the shareholders who are here in person this morning in attendance at this annual meeting, Nelson, Will, Matt, as well as those that are joining us online. As described in our proxy statement, we are holding this annual meeting as a hybrid meeting, meaning that shareholders are able to attend in person or via the Internet. We hope that by hosting our annual meeting in this matter, it will -- it will offer a positive user experience for all participants. We will begin today's meeting with the formal agenda, which will be immediately followed by a short 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 in attendance at the meeting today, either remotely or in person. Martin Delaney; myself, Zach Parker, of course, Rick Wasserman. Attending remotely are Judith Bjornaas, Dr. Elder Granger, Dr. Fran Murphy, Mr. Austin Yerks; and Steve Zelkowicz. For management, I'm joined here by my Chief Financial Officer, Kathryn JohnBull; and our Senior VP and Corporate Controller, Steve Oroho. Also attending the meeting here are Fatema Raza and Lauren Raspa of Withum Smith & Brown, our independent accountants for the current fiscal year. She will also be available to respond to appropriate questions during the general Q&A session this afternoon. Thank you. Also joining us today are Victor DiGioia and Michael Goldstein of Becker & Poliakoff, our outside corporate counsel. At this time, I, too, would like to extend a special recognition to Martin Delaney, who after over 25 years of service to the company and 15 for me personally, decided not to stand for reelection at this meeting. Thank you again, Martin. We'd like to thank Martin for his tremendously valuable contributions to the company and our shareholders over the years, and we wish him nothing but the best in his endeavors going forward. We will now proceed with the formal business of the annual meeting. Kathryn JohnBull, the Assistant Secretary of the company, will also today act as Secretary of the meeting. The agenda items for this meeting are: determining the presence of a quorum, electing seven nominees to the Board of Directors to serve until the next Annual Meeting of the Shareholders or until their respective successors shall have been duly elected and qualified; an advisory vote on the compensation of our named executive officers, an advisory vote on the frequency of future advisory votes on the compensation of our named executive officers; approving the 2025 equity incentive plan; ratifying the appointment of Withum Smith & Brown, PC as the company's independent registered public accounting firm for the fiscal year ending September 30, 2025. And finally, transacting such other business as may be properly brought before this meeting. Shareholders attending in-person are requested to ask questions at the appropriate time during today's 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 those submitted during the meeting. The first order of business is to determine the presence of a quorum, as I had indicated. Pursuant to action of the Board of Directors, only holders of the record of the common stock of the company at the close of the business on January 22, 2025, are entitled to vote at this meeting.

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 22, 2025, and entitled to vote is 14,386,468 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 7,193,235 shares and a quorum is therefore constituted. Accordingly, the meeting is legally convened.

Thank you. On the basis of the report of the Secretary, a quorum is in attendance. Michael Goldstein of Becker & Poliakoff has been appointed as the 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 7 individuals to serve as the directors of the company for the term of 1 year or until their respective successors have been duly elected and qualified. I will now entertain nominations for the 7 directors of the company in accordance with the company's bylaws. Are there any nominations to the office of the Director of the company in accordance with the bylaws of the company?

Mr. Chairman, I nominate the following persons to serve as directors of the company: Judith L. Bjornaas; Dr. Elder Granger; Dr. Frances M. Murphy; Zachary C. Parker; Frederick G. Wasserman; Austin J. 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 the 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 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 nonbinding advisory vote of the frequency of future advisory votes on the compensation of the company's named executive officers. Shareholders may indicate whether they would prefer to hold the say-on-pay vote every 1, 2 or 3 years. As discussed in our proxy statement, the Board of Directors recommends holding the say-on-pay vote on an annual basis. The Secretary will now present a resolution approving the adoption of the proposal by shareholders.

Resolved that it is hereby approved that the company hold advisory votes on executive compensation on an annual basis, 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 the adoption of the resolution?

I so move.

I second the motion.

The next order of business is the proposal to approve the 2025 equity incentive plan. The proposed equity incentive plan provides for the grant of up to 1,231,554 shares of the company's common stock pursuant to equity awards to employees, directors and other eligible persons. The Secretary will now present a resolution approving the adoption of the proposal by stockholders.

Resolved that the 2025 equity incentive plan be and hereby is adopted, and it is further resolved that the officers of the company are hereby authorized and directed to take any and all action, including changes to the form of the 2025 equity incentive plan as such officers of the company shall deem reasonable and necessary in their discretion.

Someone move for the adoption of the resolution?

I so move.

I second the motion.

The next order of business is the proposal to ratify the appointment of Withum Smith & Brown as the company's independent registered public accounting firm for the fiscal year ending September 30, 2025. The secretary will now present a resolution approving the adoption of the proposal by the shareholders.

Resolved that the company's appointment of Withum Smith & Brown PC as its independent registered public accounting firm for the fiscal year ending September 30, 2025, is hereby ratified and approved in all respects.

Will someone move for adoption of the resolution?

I so move.

I second the motion.

It is now 10:13 in the morning, and the polls for voting on these proposals are now open. All DLH shareholders entitled to vote at this meeting have the ability to do so online or in person. All the shareholders who wish to vote in person and who have not voted, please raise your hand to so indicate so we can provide you with a ballot. Please remember that if you have already voted by proxy, it is not necessary to vote again. [Voting]

We will now entertain any questions that have been submitted in advance of and during the meeting relating to the election of directors and other proposals suggested that are 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 session to follow our presentation. Substantially similar questions will be answered once to avoid repetition and allow more time for other questions. If time does not permit us to address each question, the company's answers will be posted in the Investors tab of our corporate website after the meeting. Are there any questions from anyone participating in today's meeting regarding proposals under consideration?

No questions regarding the proposals have been submitted.

As no questions were 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. The 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 10006 for a period of 10 days before the annual meeting during ordinary business hours and electronically on the company's annual meeting web page.

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 Internet availability of proxy materials, which was distributed to shareholders commencing on January 28, 2025, as evidenced by the 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, if you have not voted, please do so now. [Voting]

I now declare the polls closed at 10:16 a.m. The votes will now be tabulated. Is the inspector of election ready to report the preliminary results of voting on the proposals? If so, please announce the preliminary results.

I am ready, Mr. 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: each of the nominees for director has received more than 90% 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 on an advisory basis for the compensation of our named executive officers has received more than 80% of the votes cast in favor and also has been approved. With respect to the resolution on an advisory basis concerning the frequency of future advisory votes on the compensation of our named executive officers, the proposal for an annual frequency has received more than 90% of the votes cast and has also been approved. The resolution to approve the 2025 equity incentive plan has received more than 86% of the votes cast in favor and has been approved. The ratification of the appointment of Withum Smith & Brown as the company's independent registered public accounting firm has received more than 90% of the votes cast in favor, and that appointment has been ratified.

As indicated by the report of the inspector, all matters voted on by the shareholders have been approved. We will file the final report of the Inspector of Election with the records of this meeting. We expect to report the results of the voting on 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. First, the list of shareholders of common stock entitled to vote at this meeting; second, a notice of Internet availability of proxy materials and the proxy statement; third, the affidavit of mailing; and fourth, ballots and proxies presented to this meeting; fifth, the inspector's oath; and finally, sixth, 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 session. For shareholders attending remotely, please follow the instructions on the annual meeting web page to submit questions. Shareholders attending in person will have an opportunity to ask questions at the allotted time. A copy of the presentation materials might be available on the Investor page of the corporate website as well as our website for this particular annual meeting. Let's begin the presentation. On the slide -- for those of you that are here on the slide in front of you here, I thought I wanted to take a little bit of time to be able to address, if we can reposition the slides. There no hard copies available. So as many of you know, I also serve on the Board of Directors for our industry association and Professional Services Council. We just had our executive committee yesterday. This is a body and organization that represents 400 member companies, which include all of our peers, competitors and partners. And the headline for our -- all of the publicly traded companies in our industry is how are we -- how do we fit within the administration's changes to. One of the most significant factors impacting us, of course, has been the executive orders and then what we had anticipated would be enabling regulations. While there have been several hundred executive orders issued through Tuesday of this week, we feel as an industry, about 80 are targeting us or have an impact, material impact upon us as an industry. My assessment is there are 8 to 10, which relate to DLH. Now of course, the impact of the USAID and international work is very profound on a number of organizations within our industry. However, for us, it has had a minor impact, negligible with regard to materiality of the company. But we are still plugged into a number of aspects of the new administration's guidelines, some of which could have a potential positive effect upon DLH in the relatively near term. We consider most of the transition impact to be neutral to slightly positive in the long run. So I want to make sure we give some context around that and certainly open that up to interpretation and questions. So what we're showing here on the screen is an impact of how we feel that we're really embraced and positioned very well for dealing with a number of the immediate and near-term impacts of the administration and the DOGE organization. We've been in consult with folks that are on both the DOGE and administration teams and still have meetings in the coming days and weeks with members, both on the committee as well as on the Hill. A few key points we've listed here. On the left-hand side, you'll see some of the key initiatives coming out of the administration. One is to identify, reduce inefficiency waste and to cut spending. They want to have very material cuts, as you well know, with regard to spending on the federal government and to ultimately have the spending reflect a major reduction in the federal government. They want to focus on modernizing and enhancing enterprise IT network systems and increase efficiency through leveraging such IT technology. To ensure accountability of funding to mission-critical objectives across the agencies and very specific protocols that are coming out of this administration to be -- to have a net effect on revising those from prior administrations. And then, of course, there's a major push. You've seen a lot of that, I think, in the headlines. to reform the regulatory posture that we have today. In our world, it nets out in the federal acquisition regulations in the CAS, cost accounting standards, et cetera, tied to those agency -- those companies doing business with the federal government and so on in order to increase the pace of delivery and innovation to be realized. In my 1.5 decades of working with DLH, these really aligned very much with a number of our implementations and our values. As most of you know, our legacy system with the VA happens to be one where we implemented our spot-in methodology in our second year in 2012, our second year since we stood up DLH as a fully government-funded government organization. And we've -- and that spot in yielded a lot of savings for our government. We used to provide a monthly report identifying the amount of savings by us having implemented this differentiating methodology and tool suite within DLH. It embodied data analytics. It embodied supply chain management optimization, Lean Six Sigma methods to drive cost efficiencies for productivity as well as a range of performance incentives, both positive and negative for execution on the shop floor. It substantially reduced the per capita cost for prescriptions for the veterans such that it was materially below any others outstanding in the industry, if not even the world, including those of Express Scripts, substantially below -- hovering substantially below $4 per prescription which was unheard of. We continue to set productivity records because productivity was also heavily incentivized and managed, leveraging the data analytics tool and supply chain management processes. We continue to then use that as a differentiator as we bid other contracts. We won three other contracts, a couple within the VA arena, one with the Army that were largely a function of that value proposition of our ability to take an existing process, drive out inefficiencies, elevate the application of technology and analytics, data analytics to drive efficiencies for the government. And so we're seeing that legacy and heritage of ours. We're looking at leveraging even substantially more qualified and capable tools and technology as well as resources to apply that to the challenges in our current book of business and what's exciting us is in our organic new business pipeline as well. So we really believe we're well suited to assist this in a number of areas. Another example would be where we developed a new -- we converted a legacy IT system for one of our clients, implementing the development modernization and enhancement methodologies or DME, as we refer to it, applying commercial best practice agile systems development methodologies and standing up a brand-new system to execute management and oversight of government funds associated with grantees. That program evolution of developing that system netted out at nearly a $10 million per year savings for the government agency by leveraging this modernized system that we developed using today's technologies, et cetera. We believe that, that is wholly consistent with what DOGE and a number of administration agency heads are looking to do. And then, of course, we started to tailor using those tools for identification of fraud, waste and abuse for one particular client. We also believe this is something we can export that will help a number of agencies. Some of those right now that are undergoing transformation, such as major changes, of course, in Department of Education, major changes in other agencies, both from a reduction and ultimately, what might be a consolidation process over the coming months. And clearly, we're taking a hard look at what's surviving in the CR as well as what's expected when we get the President's budget submit in the early parts of -- a little bit later in the year. And then, of course, we've acknowledged throughout the current year or to how we're continuing to apply artificial intelligence, large language model methodologies as well as robotics process engineering in forums where we apply modeling and simulation to drive efficiencies and explore accelerated means of delivery for things on the research table. We believe that those are tools and talents that as we continue to get these in front of agencies in the near term, will offer great opportunities for us as well. Some of these, as you well may know, may also net out as our entry into some adjacent markets. Over the years, we've continually indicated that we're largely and almost exclusively federal government. In some cases, some of these funding and some of these challenges are going to be from this administration redeployed to give greater autonomy for states. So we're taking a hard look at how do we now leverage relationships to break into the state and local community where, again, our swim lane has us with a strong offering to date, on which the administration and the particular agencies will leverage us making these developmental tools available to the state operations. So we're not looking to, again, open -- become a whole new channel for that, but there are cases where some of our programs may be distributed to state opportunities, and we think we're in a great position to be able to support the states downstream. So we'll have more on that as things evolve, of course, with this administration and the continued evolution as we go forward. But we're pretty excited about what that holds. We think those are great offsets to some of the story we've been describing for you over the recent years with some of the contraction from small business set aside commitments from the prior Biden administration. And then as we've touched a little bit on the SPOT-m methodology that we originated and support for our veterans and then took that to Department of Defense. We're also looking at our full range of the differentiators that we're continuing to invest in and how they will also apply now given that we have an administration that is heavily focused around exactly what we design these tools for. And in particular, there are two that we wanted to feature today a little bit for you. These are tools that we have been developing, been in our development plan for a little over a year. As you may recall, we stood up an in-house independent research grant program to really make sure that our engineers and our scientists had money that would allow us to develop new technologies, new capabilities in order to help us differentiate against a very strong competitive landscape. So really to help us drive organic growth in areas where there's research and development, training and really honing in on methodologies for broad exercise development and training for our various customers. Two of those we wanted to just touch on a little bit today in reverse order are [ Nexus Labs ]. Nexus is where we really are creating a secure cloud-based digital sandbox to allow various customers as well as various engineers and technologists on our staffs, operational staff to plug and play and to test out new applications and emerging technology of tools. As you might imagine, there's a wide variety of generation -- generative AI out there to try to solve things. Some customers are leery about whether or not you can do so in a secure environment. We can plug and play those. There's a lot of emphasis on improving processes and process flow, leveraging tools today such as ServiceNow and the like. These sort of applications be -- can also be tested and pushed so that we can determine how to implement, leverage some of these emerging tools, many of them COs, commercially off-the-shelf products available that the government is making a large investment in. So they'll have a large installed base, but not an ability to really test how do you push the envelope for applying these so that they can net out as cost reductions, et cetera. So that Nexus lab environment for us, we've created out of our headquarters operation in Bethesda, Maryland, and we're starting to use that with great success in finding a number of opportunities as well. Other agencies are asking for us now to develop a smaller model of that for whether it's on the defense side, whether it's on the health side and otherwise. So we're really excited about that, something we're going to be starting to take to market pretty formally in and around the July time frame of this year. So stay tuned a little bit for that. The other is one, we call it [ Neura ]. Neura happens to be an environment which we're creating that really leverage our extensive modeling and simulation and virtual reality design applications capabilities. If you know anything about the modeling and simulation community, you probably know that's the center of the universe for model simulation and training happens to be right near Disney World in Orlando, Florida. For us, we've used these tools for research and development of new medical devices over the last decade or so. It just so happens that the majority of the assets were government assets. So we chose to make some investment ourselves, pull together an integration, leveraging some strategic partners, whether it be on the hardware or software side to build and create an environment that we have parked in the research laboratory side of Orlando, Florida Research Park in our incubator laboratory environment. And so we're going to welcome folks. We're going to start to develop a capability to really be able to show those capabilities and build a site there that will allow us to bring customers through as well. We have taken it on the road. Neura is really consists largely on the hardware side of a simulation, I think it is kind of a gaming environment where folks are highly instrumented, right, for testing and pulsing a range of human dynamics, right, from operating on a treadmill, multidirectional 360-degree type treadmill, so you can simulate work going through a disaster response scenario. We create virtual reality maps of a combat theater environment where folks are in combat in a particular theater environment where you've got to have medics to be able to do certain things while you're also at the same time, having to respect that there's a combat scenario and operational plan in motion. As well as looking at how do we assess things on the ground where -- and convey that data for decision-making in a command center, whether it be for the National Information Management community, the Center for Disease Control, the [ Aster ] community or the military commanders in theater. So Neura is really a platform that we're creating that really takes passive taps. And we have an extensive but very unique innovative data science component cell that's going to take that data in a way that can convey immediate after-action reviews, provide feedback for those under training as well as support decision-making. It's been very, very well received thus far, still in early stages. But these are two examples of some differentiating capabilities that we think are going to continue to resonate not only with our current customers, but also be a feature to help us in our organic growth profile for a number of opportunities that we're seeing in our new business pipeline. And then lastly, we want to address in the coming quarters and certainly at our upcoming quarterly briefing, we'll talk a little bit on how we translate these into wins on our organic growth. With that, we'll turn it over to any questions. Rick?

Any questions from -- have we received any questions online?

We have not.

Anyone here who have questions they'd like to ask? Go ahead, Will. Just say your name out loud so people who are online.

I was just hoping for an update on CMOP and VA.

Yes. So CMOP presently is, as we've described before, continuing to bridge our current contract until such time that they can get awards in place. To date, as of to date, as you well know, they've made a commitment on two awards, the first being the small contract in Chelmsford. And then the most recent having been the work in at the [ high-end ] facility, which is in Chicago. We believe that the next one up is very likely to be the Leavenworth facility, could be -- we could start a transition phase as early as next month. And then we anticipate that the others will again continue to operate in series at some pass. Our current contract continues to be bridged in that arena to be able to allow for an effective path for single implementations. And Kathryn, can you give us the latest on the contract amendments and anticipated adjustments?

Yes, sure. So we have two -- we have six locations remaining, of which two are under contract through April, and they're at work. As Zach said, Leavenworth is one of those, and it appears that they are targeting to have that awarded by the expiration of that period of performance. The other one, they expect to extend at least through June. . And then the four other locations are already extended through June. They have begun talking with us about further extensions beyond June. So that does appear to us, as Zach said, right now, the visibility we have is that within fiscal '25, we see Leavenworth converting. We don't have a schedule for anything else converting within fiscal '25.

What does Leavenworth represent as a percentage of revenue of that are impaired?

Yes, it's very small. It's a smaller one on magnitude of a Chelmsford size.

Just a follow-up question. For the approach to the Trump administration to the VA, has that materially changed since they took over?

Well, I can say that the Trump administration is far more proponent of consolidation as opposed to breaking things apart. As you know, this current acquisition, the VA under the Biden administration chose to break apart the consolidated program into each individual site. This administration has really shown more as well as -- do more of a propensity to consolidate and draw upon economies of scale and save costs. So -- but thus far, the acquisition organization with the VA has not gotten in the line with the new Trump administration. And so we'll see if anything happens there. In addition, there's less of an emphasis to make awards to disadvantaged organizations, small disadvantaged organizations by the new administration. That too is counter to the existing acquisition strategy and implementation by the VA. We have no knowledge that there's been a change at the VA acquisition shop to date. But one certainly would think that this administration would -- should they intercede, would probably intercede in a way that's more in line with the way in which the administration before put out the acquisition, which, of course, we would welcome that as well.

Are we still in the game as a subcontractor in any of the...

Not much. We are still in the game, right? But as they -- the model of which for drawing value and increasing efficiencies, et cetera, that have been deployed before, we're highly dependent upon multisite, good large site components. So we do still have some skin in the game. We're not quantifying which ones publicly that we are in as a partner to a small business. But yes, we are still involved with some, Nelson. Any other questions? Yes, Will.

Just an update on the set aside that Biden put in place about a year ago. 15 months ago, what the current administration think about?

Yes. So the administration has sent out a couple of executive orders that were -- while they didn't specifically undo that particular statement because Biden's was a memo guideline as opposed to an executive order. The first thing he did was start to undo the executive orders. But they have set out their guidelines with regard to how they feel about those set asides. And as I indicated to you earlier, they are not proponents of a set asides. They're not proponent of certain socioeconomic disadvantaged organizations in that small business ecosystem. They have shown a friendliness to some extent for women-owned small businesses. But how that's then going to translate into the OMB and federal regulations is still to be determined, right? So very often, some agencies start to operate when they hear directions from The White House. Others wait for the enabling regulations to work their way through so that they have a sound ground on a regulatory basis to execute. But we see it as opening a greater opportunity for us to pursue opportunities where we can prime instead of having to come in as a partner to small businesses, which has just not been a huge part of our organic growth strategy.

And then you mentioned a bit of attrition possible on head start given the set aside work there. Do you think that potentially is table given.

Right now, it's still evidence it is still moving forward with potential small business set aside. We're very hopeful that this administration may intercede in that regard. We think we've communicated to the head start. They had asked for under RFI request for information, they had asked for industry feedback. We conveyed to them pretty specifically as well as others as to how we think it would hurt the program if they were to lose the integrated capability of executing the way in which they do today. Today, it ties together a data analytics component with an IT infrastructure component, along with a major deployment of resources nationally, including territories, integrating all that data in order to try to drive efficiencies, identify compliance with funding, fraud, waste and abuse. If you break those apart, we think you increase the risk profile of not being able to execute that very efficiently. We're trying to get that message, make sure that message is continuing to be heard for folks making decisions on the future budgeting side. As far as the contract acquisition side right now, we've not seen any traction that they're lining up with the administration's stated guidelines to try to bundle, integrate and engender the cost savings that come from that.

What is that decision going to be?

Well, there's no evidence to date that they're going to change the acquisition strategy. We believe that every day that moves forward without the administration putting a freeze on those particular strategies, contracting strategies are supporting -- are going to allow some of that work to be set aside.

And what portion of revenue does that represent?

I think it's going to be less than 50%. But Kathryn, do you have a ROM on referring to just a head start...

Your question is what portion of revenue is -- of the head start revenue?

[indiscernible] set aside.

Yes. So I think the conventional wisdom is maybe 1/3 of it.

How big is that contract? [indiscernible] disclosed.

Yes, that's in our footnotes. It's roughly 35-ish a year.

Any other questions?

Just on the existing base of business, what other attrition do you think can be affected, if any?

We're still modeling -- obviously, we don't give guidance, but we're still modeling as we've continued to share with you that those will be the more material ones. There's continuing to be some. Like I said, we have some smaller ones. Our USAID contract is essentially at zero revenue, I think, today. And of course, in our plan, we had it running out small amounts up to about May. But those are the more material ones. I think the CMOP is going to really define our fiscal year head start is probably the most material one. If it takes -- starts to take effect sometime in Q3, we would start to see some of that runoff. But the commitment to the small business set asides and how and when they'll be impacted and/or changed throughout the next 6 to 9 months is going to be very material to our ability to have a strong posture exiting '25 and going into '26. We're hoping that we'll see the budget, the FY '26 budget coming out of -- of course, we've gotten the votes already that we saw from yesterday, things are still working through the other side. Good likelihood that we'll have some version of a probably this weekend, if you were to ask me, probably signed. But what we're more interested in is the impact of the budget and the changes that are going to affect the contracting strategy. So we'll stay tuned on that, but we do still see that the -- that the effect on '25 will be negligible for -- other than, I say, those that we've identified. Any others? Any other questions?

Just in terms of the procurement on new contracts, can you kind of just give me an update on whether the Trump administration -- is causing a delay in the procurement in the process?

No, it's a great question. I can tell you that in our industry, I've got some peer companies is huge, right? So the administration has given guidelines that affects all of us that says we want agencies to review any new contracting -- contracts that are going to go out. Some agencies have chosen to have -- and they want that by letter done at the agency leadership level. Some agencies have further delegated that authority down so it doesn't become too much of a delay, but that only serves to delay things. So they put a pause on a number of contracts -- and for huge contracts that they see having a material commitment over the 5 years in terms of some of the contracts that could be in the neighborhood of $1 billion over $5 billion or $10 billion, they've got a pretty large pause on. For many of them, they will bridge the existing contractor, right, until such time as they'll get a resolution on whether or not they'll let that contract go forward or are they going to modify it. Ideally, their objective is to reduce it. And so that will bode okay for the incumbents and -- but at the same time, cause a lot of challenges because the agencies and sometimes the incumbents are having reduced resources. effect on us. Right now, we don't see a material amount of our current book of business being paused. As you just heard Kathryn indicate, we're expecting the CMOP ones to move forward rapidly and without a pause. But there are opportunities in our new business pipeline that we have submitted or in the process of preparing proposals that we've seen some indications from their agencies that there will be a pause on the awards, right? And in some cases, we have factored in some time delays from standard government processes and potential protests and things of that nature. But we're evaluating on a case-by-case basis, each of ours to see whether some of those new business awards that we're really counting on by Q3, Q4 to be affected by any pause. So we'll have that better information on that as we approach next quarter's review.

Is the -- you had some really nice disclosure in the last earnings call on the potential procurement possibilities in '25. Is that more or less pushed out a quarter or 2? Or do you think that...

Well, that's what we're evaluating right now. Like I said, some of those have been submitted. We've had some guidelines from some agencies indicating that there's a pause while they review what's going forward. Thus far, everything that we have in our bid pipeline right now, we have a high degree of confidence will be awarded, just may be delayed. And some may still operate on time. It's just we're looking at those on a case-by-case basis. On the net, though, yes, we're right now in a position knowing that the government is putting a pause in on any major new awards that, that process is slowing down most agencies and their new contracts rather than -- and none of them are speeding up. So yes, so we'd see some of the things that we would have anticipated in Q3. We will be updating our Board and the shareholders in the coming month or 2. But right now, there's more pressure to slip to the right will than coming out on schedule. And that's pretty much across the board. The reason I say that is we have a fair amount of those that are military and some are civilian. Each of those have different degrees of delegated authority. Sec, defense side is moving out a little bit faster with less constraints than some of the others. But they are looking at major shipbuilding type programs, et cetera, that would be paused, which are not in our book of business.

Are we pretty much done the risks?

Well, the government risks are still ongoing. And it's a great point, Nelson, because while those are very difficult and challenging times for folks that are extremely well competent people in the federal government and their families. As you well know, a large number of those folks were on the probationary list that was Phase 1 of executing the plan, right? And the plan was very well documented. Most of us have seen the plan. This administration did an incredible job about really having identified the key things that they are expecting to happen. And so they're happening in accordance with the plan. What was not anticipated was some of the disruptive manner of which some of those reductions are ongoing. But having said that, since they have miscalculated what -- as an example, what probationary meant, right, where usually in the commercial industry, usually, that means somebody is a problem performer, you're going to be put on probation before termination for 3 months or 6 months or something of that nature. Within most of our customer sets, those are people that are doing great work may have been promoted into new positions or taking a new lateral in the government's default approach as you put them on probationary status for a year, sometimes as much as 2 years. So we're finding some really great talent, some young super cybersecurity engineers, strong IT professionals and government agencies, some government resources that otherwise would not have been available, but for the highly incentivized incentive retirements, coupled with forced risk and terminations. So it does create some opportunities for those contractors who are ready to lean forward. There's some free agent quarterbacks that you ordinarily wouldn't see that -- and which you wouldn't expect for 2 to 3 years as a result of this. So we see some positive signs that we're leaning into being very selective and leaning into having engagements with some of the top talent that otherwise would not be available.

Can we find we can find places for these people?

That's part of what we believe -- I believe not all my peer companies are taking that approach. But I believe it's a tremendous opportunity that it would be -- I would rather not have our competition at this top talent in the coming 2 to 3 years. So we have to make some business decisions in that regard. And yes, we're fortunate enough to have -- to be able to have access and resources kind of beyond our size in the industry and to be able to have access to some of this talent. Any other question?

First question I have on procurement again. So given what you know about potentially pushing to the right on the process of the procurement do you think you can still see material contract wins in '25?

Well, it's a great point. So two things. Yes, there is a potential slippage to the right, including a reduction in the procurement workforce. And one of the things that we're doing well is in addition to new contract wins, we're incentivizing and encouraging organic growth through some of our existing IDIQ contracts. So putting more of a marketing focus on low-hanging fruit to help offset this slippage period. We've got a number of our operators that are very active in looking at multiple tools to be able to pursue that organic growth. in ways that we had not done so before. I might add that part of that toolkit is what I just described in response to Mr. Obus' question with regard to talent. And so yes, we're trying to apply force on target. We're also trying to look at as casualties come out from the administration's changes and reduction in certain agencies, how can that translate into opportunities for us to bring some of that business into our IDIQ contracts. And fortunately, we've expanded our GSA-based IDIQ contracts portfolio quite a bit with the recent win of the Oasis contract. And so that allows, we believe, for some also low-hanging fruit that is below the $250 million window where there seems to still be some good traction from the acquisition folks to be able to push some of those opportunities. Any others? Quite all right.

I know you just renegotiated the covenants, Kathryn, but maybe just an update on that and where those stand, whatever they may be.

Yes. So we're comfortably within the covenants, particularly given the extended duration of the CMOP programs. So that was -- that was not programmed or forecasted into the modeling. So that's given us some nice performance against the covenants. So I think we're in a good position for that to offset the impact of the delays in the growth.

And as we talked about before, Will, we've always been incredibly focused on being transparent on the downside and conservative when it comes to our forecasting and predicting for -- particularly for material programs such as the CMOP and others. We're going to continue that. I do believe that as you continue to hear some of that sort of story, et cetera, it's not having a positive effect necessarily on our stock price. But I do think that in the long run, that degree of transparency and that conservativeness is going to bear well for us. The CMOP extensions right now are providing stronger support for the business than we had in our plan, right? And again, we did have more organic growth starting to show up in Q2 and around now, et cetera. So we're continuing to toggle those throttles to say, okay, how do we -- in addition to the mainstream new business pipeline, how do we toggle getting some additional growth so that we're not counting on that CMOP through the rest of this fiscal year. And that's a large portion of our pivot in terms of attention by our executive and organic growth team, including me and it's involving Capitol Hill, it's involving DOGE and to some extent, involving our customers. So each of those levers, we think is important to be one of those contractors that says there's a great opportunity here. It's consistent with the alignment you saw on our slide with regard to our ability, and we just need to make sure we get that word out and start taking some actions to be able to help them reduce costs at the same time, drive value for our nation, and of course, our shareholders. So treating that as the last question. If there are no further questions, we will move to the next order of business. If there appears to be no other order of other business to come before the meeting. We'll now move to adjourn the meeting. A motion to adjourn is in order.

I move the meeting to be adjourned.

I second the motion.

Moved and seconded that the meeting be adjourned. All in favor, say aye.

Aye.

Aye.

Aye. All opposed, say nay. This concludes the business for the meeting. I now declare that DLH's 2025 Annual Meeting of the shareholders adjourned. Thank you all for attending today's meeting. It's now adjourned.