Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 1, 2021, the first quarter of Dycom’s fiscal 2022. Comparisons are with the three months ended April 25, 2020. Dycom provides specialty contracting, construction, maintenance, engineering, and facility-locating services, primarily for telecommunications customers.
Financial performance and position
| Metric | Quarter ended May 1, 2021 | Prior-year quarter |
|---|---|---|
| Contract revenue | $727.5 million | $814.3 million |
| Costs of earned revenue, excluding depreciation and amortization | $620.0 million; 85.2% of revenue | $680.2 million; 83.5% of revenue |
| General and administrative expense | $67.0 million; 9.2% of revenue | $65.9 million; 8.1% of revenue |
| Operating income (loss), calculated from reported line items | $1.4 million | $(30.9) million |
| Net income (loss) | $0.9 million; $0.03 diluted EPS | $(32.4) million; $(1.03) diluted EPS |
| Adjusted EBITDA (non-GAAP) | $44.1 million; 6.1% of revenue | $69.9 million; 8.6% of revenue |
| Cash provided by operating activities | $41.5 million | $85.2 million |
| Capital expenditures | $31.6 million | $20.7 million |
Revenue declined approximately 10.7% year over year. Management attributed the decrease mainly to reduced work for two large telecommunications customers and lower rural-services revenue, partly offset by growth from other customers, including a cable operator. Reported net income improved from a loss, but the prior-year quarter included a $53.3 million goodwill impairment charge and a $12.5 million gain on debt extinguishment. Adjusted EBITDA declined year over year.
Cash and equivalents were $330.6 million at May 1, 2021, versus $11.8 million at January 30, 2021. Debt carrying value totaled $896.7 million, including $61.5 million current; cash less reported debt carrying value was approximately $566.1 million. Working capital, excluding current debt as defined by the company, was $1,123.5 million. Revolver availability was $452.1 million, and Dycom reported compliance with its credit agreement covenants. DSO was 128 days, compared with 125 days a year earlier.
Material changes and financing
- On April 1, 2021, Dycom issued $500 million of 4.50% senior notes due 2029. It used financing proceeds in part to repay revolving borrowings and term loans; financing cash flow was $305.9 million.
- The credit agreement was amended: maturity extended to April 2026, maximum revolving commitment reduced to $650 million, and term loan facility reduced to $350 million. The company had $350 million of term loans outstanding at quarter-end.
- $58.3 million principal amount of 0.75% convertible notes remained outstanding, maturing in September 2021. Dycom stated it intended to settle the principal in cash.
- Backlog was $6.528 billion at May 1, down from $6.810 billion at January 30. The company estimated 42.1% would be completed over the next 12 months; much of the work is under agreements without committed minimum volumes and may be cancelled or rescheduled.
Outlook, commentary, and risks
Management described opportunities from fiber-network deployments, 5G-related construction, and potential rural network investment following the FCC Rural Digital Opportunity Fund auction. No quantified revenue or earnings guidance is provided in the filing. Dycom expects fiscal 2022 capital expenditures, net of disposals, of $105 million to $125 million for growth opportunities and fleet replacement. It said existing cash and credit availability should be sufficient for obligations and expected operating needs for at least the next 12 months.
Management noted that seasonality, weather, customer spending and priorities, permitting delays, project timing, labor and subcontractor costs, and COVID-19-related disruptions can affect results. Services generally continued without material interruption during the pandemic, but future effects remain uncertain. Customer concentration is significant: the top five customers accounted for 68.2% of quarterly revenue; Verizon represented 35.1% of accounts receivable and contract assets, net.
Costs of earned revenue increased as a share of revenue, primarily because of work mix and higher labor and subcontracted labor costs as a percentage of sales. The company recorded a $2.8 million provision for bad debt during the quarter. It also disclosed preliminary settlement agreements, subject to finalization and court approval, for shareholder litigation and a California wage-and-hour class action; the latter has a stated preliminary settlement value of $2.1 million. A subsidiary disputes a pension withdrawal-liability demand of approximately $13 million; arbitration remains unresolved, and the filing says the potential loss cannot be estimated.
Most important facts for investors to verify
- Whether revenue and Adjusted EBITDA stabilize or recover, and whether margin pressure from labor mix persists.
- Conversion and collectability of receivables and contract assets, particularly given 128-day DSO and customer concentration.
- Liquidity and repayment or settlement of the $58.3 million convertible notes due September 2021, alongside debt service and planned capital spending.
- How much backlog converts to revenue, given the decline in backlog and customers’ ability to cancel or defer work.
- Final outcomes and financial effects of the preliminary litigation settlements and disputed pension withdrawal liability.