DLH, LLC (DLHC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to a special DLH conference call to discuss its acquisition of GRSi. [Operator Instructions] As a reminder, this conference is being recorded today, December 13, 2022. I would now like to turn the conference over to Chris Witty, the Investor Relations Adviser.

Thank you, and good morning, everyone. On the call with me today is Zach Parker, President and Chief Executive Officer; and Kathryn JohnBull, Chief Financial Officer. A powerpoint presentation is available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on Slide 2 in the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2023 and beyond. These forward-looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP measures including projected pro forma financials. A reconciliation of non-GAAP to GAAP information is included in our earnings release and this -- the release related to this event and the investor presentation on DLHC's website. President and CEO, Zach Parker will speak next; followed by CFO, Kathryn JohnBull, after which we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach.

Thank you, Chris, and good morning, everyone. We are truly excited to discuss our recent acquisition of GRSi. Beginning with Slide 3, I will first provide a high-level overview of the transaction. which we believe creates significant shareholder value for DLH. We acquired privately held Maryland-based Grove Resource Solutions generally known as GRSi, bolstering our digital transformation capabilities and expanding our mission-oriented customer portfolio, consistent with our long-standing vision. We are seeing a close cultural fit with our new DLH family members and are truly excited about the future. This transaction with a purchase price of $185 million expands our ability to address a broad range of our clients' needs with innovative solutions ranging from tackling our public health and life sciences clients as well as our Department of Defense focus. Together, this combination of 1 plus 1 will surely equal or exceed 3. As Kathryn will review in further detail, we funded the transaction through a $260 million credit facility along with $7 million in DLH stock. Our total debt leverage is now approximately 3.7x our fiscal 2023 forecasted EBITDA. Although we expect to use our prodigious cash flow to rapidly pay down debt, in the quarters to come, just as we have in our recent past. The purchase price represents a multiple of approximately 10x 2023 pro forma EBITDA or about 8.5x after including tax benefits from the acquisition. With GRSi as part of DLH, our combined contract backlog is now approximately $1 billion, granting us significant forward financial visibility. Overall, it is a great fit for us with an organization, which we are quite pleased to have as part of our portfolio for the future. Turning to Slide 4. I would like to provide some of the larger strategic rationale for the acquisition. Not only does GRSi offer significant expansion opportunities, it does so by broadening our capabilities thus providing access to mission-critical programs expected to accelerate growth, both near term and long term. I think most of our investors are quite aware that we have been moving into the digital transformation space, and this is an area where GRSi has unique proven experience as well as a strong track record. Combining GRSi's technical capabilities with DLH's research expertise creates a highly differentiated solution offering, which can deleverage for business development initiatives. GRSi also enhances our cybersecurity offerings, further diversifying our operations, opening new markets and it brings an attractive book of business. As I mentioned a moment ago, the combined enterprise has a total backlog of approximately $1 billion and annualized adjusted EBITDA of approximately $50 million. Slide 5 includes a pictorial of DLH going forward. On the research side, you can see that our capabilities now support everything from clinical trials to data analytics while our Systems Engineering & Integration portfolio includes health IT, full life cycle management and unique technology-based enterprise solutions. Our clients remain a cadre of well-funded, broadly supported federal agencies, which require such capabilities and experience as well as a foundation in cybersecurity, cloud computing, digital modernization and secured data analytics platforms, much like our FedRAMP certified Infinibyte. We offer seamless turnkey end-to-end solutions for customers seeking technology enhancements now across healthcare and mission-centric focus areas. Turning to Slide 6. The transaction is one which is strategically aligned with our long-term vision and targeted areas of expansion. GRSi brings numerous opportunities for us to further penetrate the public health markets as well as the defense area and functional areas that are expected to be continued budgetary priorities on the hill for years to come. This will ensure our success into the future including the levels of cash flow generation that our investors have come to expect from DLH. While already benefiting from a record $1 billion backlog as well as our recent IDIQ wins, bidding activity remains high, leading us to be confident about top line organic growth, along with solidifying underlying performance excellence. Slide 7 provides greater detail regarding strong capabilities that GRSi brings to the table. As a recognized leader in analytics, the firm is experienced in integrating large sets of disparate data so that customers can access accurate information automatically, displaying it in unique ways that leverage artificial intelligence and machine learning. It is these skills, and GRSi's expertise in systems engineering, that serves as a foundation for IT modernization and digital transformation. They are able to -- they are able to enable cloud computing with enhanced cybersecurity, making the company invaluable to clients looking for reliable big data solutions. GRSi's capabilities are inherently scalable and suitable for an entire enterprise's infrastructure. Their technology offerings complement our existing ones while strengthening and broadening them. Slide 8 summarizes how DLH has been preparing for this transformational transaction over the last few years. First, we have built an experienced executive leadership team, which is prepared to manage this expanded company and lead its accelerated growth trajectory. This leadership team will now include key executives of GRSi which have operated their business unit successfully over many years, including a decade worth of consistent organic growth. Secondly, DLH has developed a shared service support infrastructure that is prepared to operate at a $400 million to $600 million revenue level, having expressed our intention to grow to that mid-tier level through organic and acquisitive growth. Third and finally, just over 12 months ago, we announced to you the addition of a Chief Human Resources Officer, signaling our commitment to our #1 asset, our human capital. This team consists of human capital operations, organizational design talent acquisition development and change management expertise. So when it comes to supporting the successful infusion of GRSi, we are ready. In fact, we have already commenced our integration activities with teammates from throughout the company, including our members from GRSi. And with that, I will now turn the call over to Kathryn to review the related financials in greater detail. Kathryn?

Thanks, Zach. Starting with Slide 9. Let me run through some high-level aspects of the acquisition. As mentioned earlier, we currently have a record backlog of approximately $1 billion due to the fact that GRSi brings roughly $550 million to the table. As Zach mentioned, the diverse array of contracts that GRSi brings provides excellent revenue visibility as well as opening doors to new business development opportunities. As always, we anticipate strong cash flow generation going forward with minimal CapEx requirements and significant potential for top line growth going forward through expansion of current contracts, growth in current markets as well as cross-selling into each other's respective markets. Now before getting into the nitty gritty of the transaction, I'd point our investors to Slide 10, which provides some parameters to our analysis including non-GAAP and pro forma considerations. Please review this and other supporting material, which can be found at the end of this presentation and in our filings with the SEC, as Chris previously mentioned. We expect GRSi to contribute approximately $140 million in revenue during fiscal 2023 on a pro forma basis. Slide 11 provides a summary of the business diversification achieved through this transaction. The combination of DLH and GRSi transforms our portfolio and delivered key strategic capabilities, as Zach mentioned, elevating our position as a top provider of health IT & systems engineering services. As you can see, we have substantially balanced our dependence on VA as compared to 5 years ago and we have significantly expanded our footprint across various HHS and DoD agencies. Turning to Slide 12. Our projected pro forma revenue for fiscal 2023 is approximately $420 million. Please note that this is not guidance per se. We do not provide guidance in the way that term is used on the street. Rather, these are pro forma expectations, illustrating the addition of GRSi to our base business as if the transaction were present for all of fiscal '23. It shows that operating margins expand through this transaction before consideration of noncash depreciation and amortization. While bottom line results are impacted by financing costs, the acquisition is expected to be accretive by fiscal 2024. This reflects the deployment of our robust free cash flow to reduce leverage throughout the coming year. While not yet giving a projection for fiscal 2023 year-end debt levels, Slide 13 shows our strong record of historical performance in delevering the company following acquisitions. Investors should expect the same discipline and focus in terms of paying down debt as expeditiously as possible going forward. In support of this statement, turning to Slide 14, we depict mandatory payments, debt service, taxes and CapEx for fiscal '23 through fiscal '26 in the left bars versus EBITDA for the respective periods in the right bars. EBITDA for the succeeding years was based on a 5% growth assumption, which is well within our historical performance trend. This chart demonstrates that there is substantial headroom between EBITDA and mandatory payments to support prepayment of debt, consistent with our past practices. We're very proud of our track record in this regard. Slide 15 provides information on our new expanded credit facilities. The acquisition was primarily funded with senior debt provided by an amendment to our syndicated financing arrangement led by First National Bank of Pennsylvania. Our bank group was very supportive and instrumental in the completion of this large transformational transaction. We appreciate their conviction in the company and its future. Slide 16 has additional details with regard to the new facilities. With this transaction in place, DLH expects to have a leverage ratio of approximately 3.7x pro forma FY '23 adjusted EBITDA. And with that, we'll open the call for questions. Operator, please go ahead.

[Operator Instructions] The first question today comes from Joe Gomes with NOBLE Capital.

Congrats on the acquisition. I wanted to start with maybe a little background on the acquisition itself. Why was the Grove management team looking to sell today? And how many of the management team is going to stay under the combined entity?

Yes. I appreciate the question, Joe. And yes, we are really one of the things that really hit us strongly during our discussions, during the acquisition process was how important it was for this company to enter an environment where they had greater access to capital, things have become somewhat stagnant in that regard, and they really felt like and a lot of discussions with David. He really, really believe that over the last year or 2, they were very, very well positioned to leverage a parent such as ourselves to continue to create growth opportunities for their leadership, their managers and their workforce. So we really felt like it was a great union. And I think David also expressed a bias for a company that was publicly traded and our size were relatively unique as you might imagine, being publicly traded, full GovCon in less than $1 billion. And so they felt like that, that was an advantage for us as we go forward. We are intending to retain all of their senior management team. Obviously, folks will make choices on their side as time goes on. But we are particularly attracted by the team that has been leading this business. We think there's a lot of good traction there. And we are really, really looking to bring them into the executive leadership team for DLH.

Okay. Thank you for that additional detail. I wanted to switch to the contracts and the client base, is there substantial crossover on contracts and clients? Are you just not really competing. So it's all complementary. And maybe you could just touch briefly on a gross contract base, what percent of that we need to be worried about on the re-compete basis?

Sure. I'll cover the first part, and I'll hand over to Kathryn for the latter part. We're really excited about a number of the client sets and really truly how compatible we are. To your point, Joe, we looked at -- if you look at their health business, a substantial amount of their digital transformation capability is with the National Institute of Health. And as you know, they have been a signature growth area for us within our public health life sciences business led by Jeanine Christian. The great compatibility between our entities is really best reflected by the fact that the -- the biomedical science community is really being challenged with technology to allow the scientists, the researchers, the epidemiologists, those folks that we have been building organically to really have a technology platform that allows them to do very, very innovative things for the future. And the National Institute of Health has been looking to expand in that arena. Their #1 go-to company in that arena has been GRSi, and it truly has been -- is very consistent and complementary with the work that we have been building and looking to expand. So now as we look for partners to help us with the bandwidth of the digital transformation side, along with research, scientific and medical health care research partners, that partner is now a member of the DLH family. We have not competed with one another in that regard which will be -- which is even further indication of our compatibility and the flip side of that is, while they've done a great deal of security work, they bring differentiating cybersecurity capabilities with that client as well. They have not develop a private and/or a FedRAMP certified secure platform. So their leadership is very, very interested in getting a look under the hood for our Infinibyte solution and see where we can collectively take that to market as well. I'll put it over to Kathryn for the latter part of that.

Thanks, Zach, and thanks for joining, Joe. And as Zach indicated, the businesses are beautifully complementary and really allow us, we think, to offer a pretty unique offering that has full range of capabilities, both in the mission support as well as the technology delivery that our customers need. Coming to the re-compete question you had, this GRSi is a bit different from our past acquisitions that tended to have 1 or 2 very large anchor contracts that represented the bulk of the business. GRSi's contract base in contrast is much more diversified pretty consistent with what you would expect on a technology offering that is more project-oriented. So they do have a larger set -- larger number of contracts that are of course, going to be subject to re-compete over time. There are no big pending re-competes that have a near-term immediacy in terms of when we need to address them, but there will be a cycle of re-competes. And one thing that's similar in GRSi to all of our acquisitions previously as they -- their contract base derived heavily from relationships that they've had for over a decade. And so they are deeply entrenched with our clients and understood and trusted by their clients as a key partner in addressing the customers technology needs. So that's what I can tell you about their contract base in addition to it being roughly 60-40 T&M and CPS.

Okay. Great. And one last one, if I may. So they talk about their website at least for the first quarter of 2022, they were on track for their eighth straight year of record results. I was wondering now further, obviously, into the year, were they still on track for another year of record results? And what kind of growth rates have they been experiencing on the top line and has the EBITDA margin been growing? Or has that been somewhat flat?

Yes. They have -- I'm happy to say that this -- the -- on par, we're closing this year as a record year as well. Just before we closed, they had a meeting with all of their leadership team to celebrate the consecutive -- the next consecutive year of organic growth. Over the decade, it's like us. It's varied year-to-year depending upon the type of contracts, the type of mix of work that they've had. But it has been in our industry, to have withstood all of the headwinds that have been thrown across our industry over the last 10 years. We found that to be a really, really good stand with focusing on or delivering on existing contracts as well as winning new business as well. And they have, like Kathryn said, they have a large portion of their business has been in the -- the overwhelming majority of the business has been time and material and cost plus contract types. And they've been executing within those ranges really quite well from an industry perspective, not a lot of fixed price book of business there, but they've been doing very, very well given the nature of the work and the acquisitions of their clients.

They have -- just to augment that a little bit. They have, as Zach suggested earlier, and you saw in your own observation from their website, they have a well-established, highly successful track record of growth year-on-year. Whereas we present historically DLH in mid-single digits, they would tend to be in the low double digits in terms of their annual growth rate, absent -- just like DLH in this regard, absent a very disruptive single new incremental award. But other than -- besides the disruptive effect of the special new award, there are general annual year-over-year growth rate would tend to be in the low double digits.

Okay. great. Again, congrats on another transformative acquisition. Look forward to seeing where we grow from here.

The next question comes from Brian Kinstlinger with Alliance Global Partners.

Congrats on the acquisitions. First, you talked about the diversification that GRSi has. I'm just curious, is there a contract or 2 that is more than 10% of revenue? And if so, if you can add some details. And then I think, Kathryn, you mentioned more project-based work. Does that suggest shorter average duration? I wouldn't think so looking at the backlog. I just want to make sure.

Yes. I guess starting with the diversification. As we look at the pro forma -- as you look at the pro forma organization, I am not seeing -- we're not seeing that we have -- that they will have a material in terms of materiality, assuming that's your question on the 10%, individual contract because they have really done a pretty good job, as Kathryn was describing earlier, and you'll see a little bit also in our deck that they've had contract diversification even within a certain agency where they'll have multiple contracts, whether it's Department of Defense, with the Navy or the [indiscernible] community, which we're very attracted to or in NIH and other agencies. So no material individual contractors we look at the company pro forma going forward from GRSi. Kathryn?

Yes. And to put a finer point on that. So there is no contract within GRSi that would represent 10% of consolidated revenues or even 10% of the revenues that they bring to the company. But as Zach suggest, there's a variety of projects that they have with those customer sets. And one of the key points that we would really want you to understand in terms of the value they bring to DLH. As Zach mentioned, NIH has long been a key customer of DLH's, but the presence and the range of coverage that GRSi has within NIH is really very attractive to us. They have connect points and a significant contract presence with 14 of the centers at NIH. And so that significantly broadens the funnel for us in terms of past performance connection to the centers at NIH.

And then on the backlog, just when I hear the word project, I think short term, but when I look at your -- their backlog compared to revenue, it suggests much longer term. So should I not read in the project meeting short term? Just to help us with the average duration.

Yes. So apologies for that confusion. When I say project, I would say, as contrasted to mission support work that's the traditional DLH base, where we're operating a -- basically, we're functioning at the operating contractor for a core program on a BPO basis. There is as much more technology delivery focus and the typical duration of those contracts will range between 3 and 5 years. So some of them are shorter than our traditional 5-year model, but the bulk of their contract revenue derives from 3- to 5-year arrangement.

And then I'm not sure I heard is the majority of GRSi's role as a prime or are they a subcontractor if you can provide any mix? And if you did, I'm sorry if I missed it.

It's almost solely on contract revenue.

Great. And then you mentioned the EBITDA margin is expected to be similar in '23 compared to '22. Well, the first question was about to retain everybody. I guess my question more is around are there synergies that you see? Or is that not really going to be a focus of this transaction?

Yes. We actually have modeled this deal with zero synergies required as you heard from Kathryn, we're looking at by the end of the first year being accretive without the book. However, we are always looking for continuous process improvement. We also always expect that folks will hit certain degrees of seniority. There's a natural attrition rate, and we'll see some of those things happen. But we really have no takeouts planned or forecast from the target in order to get this deal going forward.

Great. One last question, and that's it for me. You mentioned that a lack of capital was one of the, at least, reasons that GRSi was looking to sell. I'm sure there's many other reasons, of course, and you mentioned them. But that lack of capital, did that lead to lower bid proposal, do that lead to them not be able to make M&A. What was the constraints that they have with the lack of capital that now with you that they can do something better and what would that be?

I think maybe a better way to think about it is really -- it is, as you know well, Brian, it's a consolidating industry and really a mid-tier provider really means that breadth of operating base and scale in order to be competitive. So much as we are looking to continue to grow our base for leveraging the cost of operating the businesses. Similarly, they were as well.

And they had been over the recent years, looking seriously at trying to do an acquisition themselves and from a leadership perspective, they felt that was not in their best interest and the best interest of the business would be to flip that strategy and execute on it.

The next question comes from Debra Fiakas with Crystal Equity Research.

I wanted to return to the pro forma that you provided us with the $140 million contribution in revenue from GRSi. I was wondering if you could maybe give us a little idea of what the foundation is for that figure. Does it come from their backlog? Were you looking at the current contracts that they're working on? Or maybe this is a historic run rate.

Thanks, Debra, and thanks for joining us. Yes, that is derived from their current backlog projected forward for wins that occurred throughout fiscal '22. And it is consistent with their the low double-digit growth rate that we described earlier in the call.

Okay. And then I very much appreciated your Slide 5 in your presentation, which explains quite a bit in why you might be interested in this company. It's quite a longer list of things that their systems and engineering and -- systems engineering and integration folks are involved with this through longer list of opportunities. Is that something -- are those things that you've seen in the past as you were bidding for your own contracts, say, for example, with NIH? Or would this simply be the kinds of things that they're already doing with those agencies that you have in common.

Yes, Debra. Thank you for that question. You have my straight person here. I'm most excited about this. First of all, this slide does represent the combination of all of the -- all aspects of the DLH organization, including that which comes from GRSi. As you may recall, we began to really have strong capabilities associated with technology readiness levels as well as systems engineering when we brought on the IBA team in 2019, 2020, right? And we also started to build some of the AI/ML capabilities with that acquisition. Prior to that, we built our secure data analytics and our InfiniByte Cloud solution for largely the NIH client as well as few others with the capabilities that were derived from our acquisition of Social & Scientific Systems, and so this does represent a combination of those capabilities that we have as a company. And Kathryn and I, on the investor roadshow had really described as we finalized the integration of the IBA operation that we now have all 3 legs of the stool that you're seeing here with some capability, not all with the scale that we wanted. And so we're really going to be focused both organically and acquisitively in these type of technologies to build the capability so that we can leverage that digital transformation as we continue to organically go after the 2 columns that you see surrounding that. So this has been consistent with our strategy communicated over the last couple of years. The areas that we are most excited about will come from GRSi is the basic core of the fundamental digital transformation down at the bottom. What they have in cybersecurity is very differentiating, both for the military and civilian clients, what they bring in terms of data science and analytics really complements what we have been building in our public health and life sciences arena as well as the work we've done in the human solutions and servicing arena. So we're really thrilled about how well it fits with this model that you see here, and it certainly is consistent with the type of capabilities that we're looking to grow organically.

And Debra, as you and I talked, if you were getting familiar with our story, our first phase acquisition program was really very market focused on really establishing at least a foothold in those key markets that we identified. And I think our investors understand well now that we while not declaring complete victory on that because we continue to want to grow those markets and as we mentioned earlier, for example, having established a presence in public health with our S3 acquisition, we nonetheless augmented significantly are the number of agencies and NIH were addressing by the addition of GRSi, which added to our presence there in the NIH very substantially. But nonetheless, our focus has pivoted from a market focus to a capability focus to really continue to round out our service offerings in a way that allows us to be fully -- be able to fully address those markets that we work so hard to establish. And so one of the key gaps we identified when we pivoted to a capabilities focus was really depth in technology capability. And we were looking -- we've spent the last 2 years in the interval since our last acquisition, looking for what I describe as the one and certainly, that's how we think of GRSi in terms of really offering a broad range of technology capabilities in very relevant markets that align well with where DLH already is. And so from that perspective, it just fits so nicely that once we saw that book, I think the very first [indiscernible] saw that book, I was like, okay, yes, this is the one we've been looking for. So we're just delighted to really be able to add them to the team.

I guess my next and last question is really an integration question, if you will. But it does speak to this opportunity that you've outlined. How the current management team of GRSi is going to stay on board, which I'm sure is going to be very helpful. But how are you going to integrate or how do you meld the prospecting, bidding, contracting practices of your company with what they're doing. Is the GRSi management group going to take some of DLH's activities under its umbrella as well?

Yes, that's a great question and one that each year, we take a look at what's the most cost-effective way of going forward with organic growth team. I would -- the good news, as you heard Kathryn described as both of our organizations have been operating with organic growth and a good -- have had a good history of building a strong new business pipeline and executing on it, right? And so we believe that while both companies organically have done really a great job that way, that this now elevates our ability to have the scale to go after even much larger deals. So we're going to look at what's the right way to leverage that. But we have been really focused over the recent years on approaching every opportunity from a one DLH perspective. So that will bring together the integrated capabilities of the enterprise as we go to market. And so we hold a standing session where all of our business development capture resources and each of the managers and in this case, both Diane and Kelly, who are leading the businesses within GRSi. We have great visibility to what opportunities and programs we're looking at. And as we submit those bids, we're going to submit them with the totality of the DLH opportunities. And in each case, regardless of which business unit operating unit or which individual management team is going to pursue that, they will have the complete capabilities and resources of DLH to pursue those. So we do expect there to be that type of synergistic relationship across the businesses, and they'll continue to pursue opportunities from a complete DLH perspective.

The next question comes from Jeff Bronchick with Cove Street Capital.

So just maybe a little bit and if some of GRSi on the call, how looking at their last 8 years, have they also been an acquisition oriented company or they've been organic? Are they one GRS or they also a series of hub space by capability and I guess, government area, maybe a little bit more discussion on them.

Sure. To come to your initial question, they have accomplished their growth organically. They have not pursued an acquisition. As Zach mentioned, when they got to this point to decide to sell the company, one of the options they evaluated was whether they should instead pursue an acquisition and they concluded that their best interest was in being acquired for further growth and scale. They have, as you can see, based on their growth rate they've done an excellent job of staying abreast and really understanding where the market is moving and evolving their capabilities from more traditional modes of digital transformation to now the current, of course, the current lead in terms of cloud and fiber and AI/ML and the things that customers are looking for now. That's why digital transformation and IT implementations are kind of -- they have a specific start and stop date, but you never really kind of done transforming the digital operations of these agencies because technology keeps moving. And so they've done an excellent job. They have a very substantial number of best practices in terms of really keeping their teams current and connected to market trends. And many of those already as we talked to them through the diligence process, we will be adopting for the company as a whole and they'll, of course, be in a leadership position in driving that emphasis on technology.

Got it. And was this a development of a longer-term relationship? Or was this more of a standard bidding process and competitive situation?

Yes. They were a part of Baird's acquisition team -- they had aligned with Baird, who is one of the -- one of our partners also in the investment banking community. And so there was -- there were a number of other bidders in this pipeline. This was not what we considered in a sole-source approach from our perspective. So we did have to compete with a number of other potential products.

And again, when you look at their website, I mean, is there any specific contractual things with the listed David, Diane, Kelly as far as their continued involvement?

Yes, yes. We expect all 3 of them to be involved with us for the long haul. They've expressed the same -- we think there's -- there are roles for them long term for the company. They're excited about it. The -- as you probably well noticed that David is highly incentivized because there's -- as Kathryn indicated, there's an equity stake in the offer. So I spoke with David yesterday, and or we are very well in sync and excited about what all 3 of them will be able to contribute for the future acceleration of GRSi as part of the DLH family.

And to just put a finer point on that, Jeff, to your question about contractual arrangements, each of them has executed an employment arrangement with DLH specifically that does represent their intent to remain with the organization.

Well, they all look younger than someone I know.

Some of us use our high school prom pictures.

And my last question, again, I -- smaller companies in your space have and had been successful of doing acquisitions and aside from some basic shared services of essentially leaving them alone and whether it's a contract or a capability or a relationship between a particular branch of the government and attempts at making this a one DLH have been had mixed issues. And so it looks like, if I'm just reading what they do, what you do really looking out over the next multiple years is leave them be and let them continue to contribute on that. And is that possibly develop the ability to, hey, let's cross bid on this or let's offer a solution versus this and this in the past. Is that the right way to look at it?

Jeff, [indiscernible]. No, I think you're pretty close to the market there, Jeff. There are areas where they have been leading the market and if it ain't broke don't fix it kind of thing applies. So we have -- we spent a lot of time over the last month plus around cultural fit. We do know that, that was extremely important to them as it is with us. And that cultural fit really knocks down some of those obstacles as we have seen it from other companies, like you said, smaller. Now in their case, they've been $135 million-ish for quite some time, right? So it has not been terribly small, which is, quite frankly, pretty comparable to our professional business and our book of business as well. And that's where we see a lot of the compatibility, as Kathryn was describing earlier, not really competitive aspects. And they immediately accelerate our technology enablement approaches. So they were going to continue to have some of the leaders in that arena. We've got some real good young and senior managers that we're looking to help lead enterprise-wide value propositions across the company. So yes, we will -- they'll be very prominent in supporting our executive leadership team as we look across the company in organic growth and satisfying existing customers.

Next question comes from Walter Schenker with MAZ Partners.

You raised their incentive going forward. There isn't -- I missed it a full description of the sale, et cetera, beyond the 8-K. Only $7 million of the total price was paid in stock. Broadly speaking, how much of the cash payments went to senior management and the $7 million in equity went to multiple senior management people, one, it hasn't been disclosed, but I just want some general sense of it? And then I have a second question.

Yes. As you probably know, we will have further disclosures to fully satisfy the disclosure obligations. Some of the information will continue to evolve. But in our minds, there's clearly a meaningful share for the leadership that's going to stay on board to keep a genuine interest in the growth. And we're really looking forward to, like I said, evolving our overall structure to take advantage of that. Kathryn, anything to add with regard to incentives?

Yes. Echoing your comment that we believe we have a very competitive and responsive and properly constructed incentive structure at DLH that we are, of course, including the senior managers as a part of, and we expect that to be motivational in the same way that it is for the current the people that were with DLH prior to this deal.

And just to give you a little context, a little further context. It goes beyond just the 1 or 2 folks from a seller's perspective, it goes to a number of the folks that have been involved with GRSi building and running GRSi's business. Not all of them have been fully notified as yet. As you know, we just closed end of last year. So we'll respectively hold off a little bit to give you specific numbers, but we will be disclosing the sizes of that block sometime in the not-too-distant future.

And second question, in looking at your business, there are basically 2 types of contracts. There's time and materials and fixed price, which have different risk parameters and somewhat different margins. Given that their margins, just trying to understand are a couple of hundred plus basis points more than yours. Are there -- is their business broadly fixed contracts, so it has higher margins as opposed to time and materials? Or is there just more technology involved and therefore, they're able to generate higher margins.

Yes. It's really the latter, Walter. They have essentially no fixed price work, which if you're in technology development, that's a great risk mitigator. But they have 60% of the work derives roughly from time and materials work and 40% from cost reimbursable with a fixed fee.

And as we laid out our strategic plan, we talked about both organically and acquisitively, we wanted to continue to move up the food chain in the binocular, which really meant mission-critical, high technology leverage sort of programs because in the T&M environment, while highly competitive, if you manage those programs well, you can still do fairly well on that margin increase. And that has continued to be a part of our strategy. I think you're starting to see when you look at our full book of business, that we're pretty much at market across an enterprise of our size. And so they've been a positive contributor to that.

At this point, there are no further callers in the queue. So I'll turn the call back over to Mr. Parker for any closing remarks.

Well, I want to thank you all for your interest and participation with DLH for the long haul. Great set of questions. And we look forward to providing some additional color at our Annual Shareholder Meeting coming up early part of next year. So with that, everyone have a Merry Christmas and Happy New Year, and stay tuned for additional communications on scheduling. Thanks all. Have a blessed day. Bye for now.

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