Dycom Industries, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended July 28, 2012 (52 weeks), with comparative fiscal years ended July 30, 2011 and July 31, 2010. The filing is an annual report, not a standalone “2011 Q4” filing; fourth-quarter figures are identified below where provided.
Business context
Dycom provides engineering, construction, maintenance, installation and underground utility-locating services, primarily to telecommunications customers in the U.S. and Canada. Telecommunications generated 84.5% of FY2012 revenue; locating services 10.9%; electric and gas utilities and other customers 4.6%. The five largest customers represented 59.6% of revenue.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $1,201.1 million | $1,035.9 million |
| Operating income | $65.5 million | $41.6 million |
| Operating margin | 5.4% | 4.0% |
| Net income | $39.4 million | $16.1 million |
| Diluted EPS | $1.14 | $0.45 |
| Cash from operations | $65.1 million | $43.9 million |
FY2012 gross profit, defined as revenue less cost of earned revenue before depreciation and amortization, was $232.2 million, or 19.3% of revenue. Fourth-quarter FY2012 revenue was $318.0 million and net income was $13.3 million; diluted EPS was $0.39.
At year-end, cash and equivalents were $52.6 million, working capital was $262.4 million, and current assets/current liabilities implied a current ratio of approximately 3.3. Debt was $187.5 million, consisting primarily of 7.125% senior subordinated notes due 2021. There were no revolver borrowings; $38.5 million of letters of credit were outstanding and reported additional borrowing availability was up to $186.5 million. Capital expenditures were $77.6 million, partly offset by $24.8 million of asset-sale proceeds.
Changes versus the prior year
- Revenue increased 16.0%; acquired businesses contributed $54.5 million of FY2012 revenue, versus $33.8 million in FY2011.
- Telecommunications revenue rose 19.3% to $1,014.6 million, while underground locating revenue declined 9.2% to $131.3 million following terminated contracts and a planned reduction in technician-intensive work. Utilities and other revenue increased 35.6% to $55.2 million.
- Operating margin improved as cost of earned revenue and general and administrative expenses declined as percentages of revenue. Net income more than doubled, aided by higher operating income and other income; FY2011 included an $8.3 million debt-extinguishment loss.
- Operating cash flow rose by $21.3 million, although growth in unbilled contract costs and estimated earnings used $35.7 million of cash. Net accounts receivable was $141.8 million and costs and estimated earnings in excess of billings were $127.3 million.
Outlook, risks and unusual items
Management described the industry outlook as steady despite slow economic growth and market volatility. It cited fiber-network expansion, rural broadband projects supported by federal funding expected to continue into FY2014, and wireless-network upgrades as demand drivers. The company expected FY2013 capital expenditures, net of disposals, of $55 million to $60 million and expected to complete 58% of its $1.565 billion year-end backlog during FY2013. Backlog includes estimated work under agreements that may not commit customers to minimum volumes.
Key risks include customer and telecommunications-sector concentration, cancellable master service agreements, competitive pricing, economic and customer spending cyclicality, labor and subcontractor availability, weather seasonality, fuel costs, and uncertainty in contract-cost estimates and insurance reserves. UtiliQuest had $35.6 million of goodwill and a $4.7 million indefinite-lived trade name; its estimated fair value exceeded carrying value by less than 30%, creating sensitivity to weaker demand or execution. No FY2012 goodwill impairment was recorded.
Other exposures include $48.8 million of accrued insurance claims, $224.8 million of performance and surety bonds, and the IRS examination of a recent federal tax return. The filing reports the wage-and-hour class action settlement was approved and paid in December 2011; management considered other pending matters not material. The company reported compliance with debt covenants and unqualified audit opinions on its financial statements and internal controls.
Investor verification priorities
- Check whether reported backlog converts to awarded work and revenue on schedule, particularly given non-guaranteed volumes under many agreements.
- Monitor spending and contract awards from major customers, including AT&T, CenturyLink, Comcast, Verizon and Windstream, and the impact of customer concentration.
- Track cash conversion and working-capital requirements, especially unbilled costs and estimated earnings, as revenue grows.
- Assess FY2013 capital spending, asset-sale proceeds, and the use of cash for repurchases against operating cash generation.
- Review UtiliQuest performance and goodwill valuation headroom, insurance-claim reserve developments, and the outcome of the IRS examination.