Revenue Recognition

9 Months Ended

Jun. 30, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

We recognize revenue over time when there is a continuous transfer of control to our customer. For our U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the U.S. government to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. When control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. For services contracts, we satisfy our performance obligations as services are rendered. We use cost-based input and time-based output methods to measure progress.

Contract costs include labor, material, and allocable indirect expenses. For time-and-material contracts, we bill the customer per labor hour and per material, and revenue is recognized in the amount invoiced since the amount corresponds directly to the value of our performance to date. We consider control to transfer when we have a present right to payment. Essentially, all of our contracts satisfy their performance obligations over time. Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications impact performance obligations when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue and profit cumulatively. Furthermore, a significant change in one or more estimates could affect the profitability of our contracts. We recognize adjustments in estimated profit on contracts in the period identified.

For time-and-materials contracts, revenue is recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. Revenue for cost-reimbursable contracts is recorded as reimbursable costs are incurred, including an estimated share of the applicable contractual fees earned. For firm-fixed-price contracts, the consideration received for our performance is set at a predetermined price. Revenue for our firm-fixed-price contracts is recognized over time using a straight-line measure of progress or using the percentage-of-completion method whereby progress toward completion is based on a comparison of actual costs incurred to total estimated costs to be incurred over the contract term. Contract costs are expensed as incurred. Estimated losses are recognized when identified.

Contract assets - Amounts are invoiced as work progresses in accordance with agreed-upon contractual terms. In part, revenue recognition occurs before we have the right to bill, resulting in contract assets. These contract assets are reported within receivables on our consolidated balance sheets and are invoiced in accordance with payment terms defined in each contract. Period end balances will vary from period to period due to agreed-upon contractual terms.

Contract liabilities - Amounts are a result of billings in excess of costs incurred.

The following table summarizes the contract balances recognized on the Company's consolidated balance sheets (in thousands):

		June 30,		September 30,
	Ref	2022		2021
Contract assets		$	8,467	$	7,307
Contract liabilities	(a)	$	200	$	22,473

Ref (a): Contract liabilities are primarily due to contract start-up funding provided under a contract awarded at the end of fiscal year 2021, for which all performance obligations were completed by March 31, 2022.

Disaggregation of revenue from contracts with customers

We disaggregate our revenue from contracts with customers by customer, contract type, as well as whether the Company acts as prime contractor or subcontractor. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following tables present our revenue disaggregated by these categories:

Revenue by customer (in thousands):

		Three Months Ended				Nine Months Ended
		June 30,				June 30,
	Ref	2022		2021		2022		2021
Department of Homeland Security	(a)	$	(4,908)	$	184	$	126,397	$	523
Department of Veterans Affairs		33,344		27,496		92,270		83,010
Department of Health and Human Services		27,741		23,245		78,452		66,748
Department of Defense		8,272		7,601		25,227		22,103
Other		1,991		3,029		5,594		8,529
Total Revenue		$	66,440	$	61,555	$	327,940	$	180,913

Ref (a): The results for the three months ended June 30, 2022 include final closeout activities related to the short-term FEMA COVID support contracts and the related agreements between DLH and its subcontractors. Reconciliation of estimated pass-through travel and accommodation expenses to the final reimbursable expenses resulted in a reduction to expenses, and a corresponding reduction to revenue, previously accrued and pending payment. This reduction reflected the value of in-kind expenses furnished by the State in support of the contract.

Revenue by contract type (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Time and Materials	$	44,672	$	46,790	$	263,072	$	137,492
Cost Reimbursable	11,979		12,070		34,364		35,796
Firm Fixed Price	9,789		2,695		30,504		7,625
Total Revenue	$	66,440	$	61,555	$	327,940	$	180,913

Revenue by whether the Company acts as a prime contractor or a subcontractor (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Prime Contractor	$	58,743	$	53,407	$	304,862	$	159,059
Subcontractor	7,697		8,148		23,078		21,854
Total Revenue	$	66,440	$	61,555	$	327,940	$	180,913