Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 28, 2012; comparisons are to the periods ended January 29, 2011. Unaudited results. Dycom provides specialty contracting services, principally for telecommunications customers, as well as underground utility locating and electric and gas utility work.
Financial performance
| Metric | Three months ended Jan. 28, 2012 | Prior-year quarter | Six months ended Jan. 28, 2012 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $267.4 million | $218.2 million | $587.0 million | $479.8 million |
| Net income (loss) | $3.5 million | $(5.1) million | $16.5 million | $1.7 million |
| Diluted EPS | $0.10 | $(0.14) | $0.48 | $0.05 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $70.9 million | $47.6 million |
- Quarterly revenue rose 22.5%; six-month revenue rose 22.3%. Telecommunications revenue increased 24.5% for the quarter and 26.7% for the six months. Underground locating revenue declined 7.1% and 15.5%, respectively; electric, gas and other revenue grew from a smaller base.
- Costs of earned revenue were 82.4% of revenue in the quarter versus 83.2% a year earlier, and 81.0% for the six months versus 81.5%. Management cited improved labor and subcontractor efficiency, work mix and lower insurance claims costs, partly offset by a higher materials mix.
- General and administrative expense was 9.1% of quarterly revenue versus 10.0%, and 8.5% for the six months versus 9.3%, reflecting operating leverage. Net margin was 1.3% for the quarter versus negative 2.3%, and 2.8% for the six months versus 0.3%.
- Other income included gains on asset sales of $2.2 million in the quarter and $5.1 million for the six months. The prior-year quarter and six-month comparison included $5.7 million of debt-extinguishment costs related to refinancing; this materially affects the earnings comparison.
Cash, debt and liquidity
- Cash and equivalents were $86.2 million at January 28, 2012, up from $44.8 million at July 30, 2011. Working capital was $235.7 million, compared with $211.8 million.
- Six-month operating cash flow was $70.9 million; investing used $33.9 million, including $43.4 million of capital expenditures and $8.9 million of asset-sale proceeds. Financing provided $4.5 million. Capital expenditures were higher than the prior-year $21.2 million, primarily for new work opportunities and fleet replacement and efficiency.
- Debt was $187.5 million of 7.125% senior subordinated notes due 2021, plus approximately $0.2 million of capital leases. No revolving-credit borrowings were outstanding. The $225 million credit facility had $39.1 million of letters of credit and up to $185.9 million of additional borrowing availability; the company reported covenant compliance.
- Contractual obligations totaled $352.7 million, including $187.5 million principal on the notes and $120.2 million of related interest payments across the disclosed maturity periods.
Changes, outlook and risks
- Revenue growth reflected expanded and existing telecom contracts, fiber-to-cell-site work, rural broadband initiatives and acquisitions completed in fiscal 2011. Acquired businesses contributed $13.6 million of quarterly revenue and $28.1 million for the six months. A significant telecom customer reduced spending, partially offsetting growth elsewhere.
- Backlog was $1.819 billion, up from $1.412 billion at July 30, 2011; management expected to complete 53.2% of the January backlog within 12 months. Backlog under master service agreements and requirements contracts includes estimates and is not necessarily a firm customer commitment.
- No specific earnings or revenue guidance was provided. Management stated that cash and credit availability should be sufficient for obligations, working capital and normal equipment replacement for at least the next 12 months, subject to operating performance and other factors.
- Risks include customer concentration (top five customers represented 59.1% of six-month revenue), reliance on customer budgets and contracts that may be terminated for convenience, seasonality and weather, competition, cost and insurance-claim estimates, and potential impairment of goodwill or intangible assets. Management reported no current impairment and no material developments in legal proceedings; wage-and-hour settlements described in the filing had been approved and paid.
- Outstanding surety and performance bonds were $193.3 million; no customer had exercised rights under them. Accrued insurance claims totaled $47.6 million. Management described other pending claims as not expected to have a material financial-statement effect.
Investor verification points
- Assess the quality and durability of backlog, particularly estimated future work under agreements without committed volumes.
- Track revenue exposure to major telecom customers, customer capital spending and the ongoing decline in underground locating work.
- Evaluate cash conversion and whether elevated capital expenditures persist; distinguish operating performance from asset-sale gains and prior-year refinancing costs.
- Review debt-service capacity, credit-facility covenants and availability, and the timing and assumptions underlying insurance-claim reserves and surety obligations.
- Monitor seasonal operating volatility and the recoverability of goodwill and intangible assets if customer demand or economic conditions weaken.