Business context and reporting period
Dycom Industries, Inc. provides specialty contracting, construction, maintenance, engineering and locating services, primarily for telecommunications customers. This Form 10-Q covers the third quarter and first nine months of fiscal 2024, ended October 28, 2023; comparisons are with periods ended October 29, 2022. The company reports one operating segment.
Financial performance and position
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Contract revenue | $1,136.1 million | $1,042.4 million | $3,223.1 million | $2,891.0 million |
| Net income | $83.7 million | $54.0 million | $195.5 million | $117.4 million |
| Diluted EPS | $2.82 | $1.80 | $6.58 | $3.91 |
| Adjusted EBITDA, non-GAAP | $166.8 million | $114.6 million | $411.1 million | $283.0 million |
| Adjusted EBITDA margin | 14.7% | 11.0% | 12.8% | 9.8% |
Revenue increased approximately 9.0% in the quarter and 11.5% for the nine months. Net income rose approximately 55% and 67%, respectively. Costs of earned revenues declined as a share of revenue: 78.0% versus 81.6% for the quarter and 79.7% versus 82.8% year to date. Net income margins were 7.4% and 6.1% in the current quarter and nine-month period, respectively, versus 5.2% and 4.1% in the prior-year periods.
Operating cash flow was negative $66.1 million for the nine months, compared with negative $81.5 million. Investing cash outflow was $253.5 million, including $161.1 million of capital expenditures and $122.9 million paid for the Bigham acquisition, net of cash acquired. Financing provided $111.1 million. Cash and equivalents were $15.7 million at period-end, down from $224.2 million at fiscal year-end. Management attributed cash use in operations chiefly to working-capital needs, including a $361.1 million increase in accounts receivable. DSO was 121 days, up from 112 days a year earlier.
At October 28, 2023, debt had a net carrying value of $966.9 million, including $154.0 million drawn on the revolving facility, $319.4 million on the term loan and $495.0 million on the 2029 notes. The company reported $448.5 million of revolver availability and compliance with its credit agreement covenants. Working capital, excluding current debt, was $1,237.4 million. Interest expense rose to $37.6 million for the nine months from $29.1 million, reflecting higher rates on funded debt, partly offset by higher interest income.
Material changes versus prior periods
- Revenue growth reflected higher fiber deployment and other services for several customers, partly offset by lower work for two large telecommunications customers. A $26.5 million change order and project closeouts also contributed to current-period revenue.
- Current-quarter revenue included $45.2 million from acquired operations. Dycom acquired Bigham Cable Construction on August 18, 2023, for $131.2 million; its preliminary allocation included $37.4 million of goodwill and $42.2 million of intangible assets.
- Other income included $23.7 million of gains on asset sales for the nine months, compared with $14.0 million. These gains supported reported earnings but are not recurring operating revenue.
- The top five customers generated 57.9% of nine-month revenue, down from 67.0% a year earlier. Telecommunications remained the principal customer type, at 89.6% of revenue.
- Debt increased from a net carrying value of $824.9 million at January 28, 2023, as the company funded acquisition and operating needs; interest rates on credit-facility borrowings also increased.
Outlook, risks and contingencies
The filing provides no numerical revenue or earnings guidance. Management cited continued opportunities in fiber deployments, rural broadband and wireless construction, including anticipated federal and state broadband funding. It noted that deployment pace is increasing for some customers heading into the next year and expressed confidence in the company’s scale and financial position.
Management also highlighted customer capital-spending decisions and cost of capital, a tight labor market, equipment and truck-chassis supply constraints, rising equipment prices, seasonality and adverse weather as factors that can affect operations. Many customer agreements do not guarantee minimum work volumes and may be terminated or have work orders cancelled. The business is concentrated: Lumen represented 25.2% of accounts receivable and contract assets, net, at quarter-end.
The company faces variable-rate exposure: a 50-basis-point rate change would alter annual interest expense by approximately $2.4 million at current variable-rate borrowings. A disputed multiemployer pension withdrawal-liability claim, originally approximately $13.0 million, remains under appeal; the filing says the possible loss range cannot be estimated. The company is also under IRS audit for fiscal 2020. Outstanding performance and other surety contract bonds totaled $382.8 million; these are contingent obligations, not reported debt.
Dycom authorized a $150 million share-repurchase program through February 2025. No shares were repurchased in the quarter; $150 million remained available at October 28. Management said capital resources should be sufficient for expected obligations and operations for at least the next 12 months.
Important facts for investors to verify
- Whether revenue growth, margin improvement and customer deployment activity continue, and how much reflects the nonrecurring change order, project closeouts and asset-sale gains.
- Receivables, unbilled balances and DSO trends, including the collection profile of the concentrated Lumen exposure and the effect of working capital on operating cash flow.
- Debt levels, borrowing costs, revolver availability and continued covenant compliance as cash balances remain low and variable-rate debt is outstanding.
- Bigham’s final purchase-price allocation and contribution to results; the reported allocation remains preliminary.
- Developments in the pension-liability dispute and IRS audit, as well as customer spending, weather, labor, equipment availability and cancellable backlog. Backlog was $6.613 billion, but customers generally are not committed to specific volumes.