Dycom Industries, Inc. — Q3 FY2022 10-Q
Reporting period: Quarter ended October 30, 2021; comparisons are with the quarter ended October 24, 2020. Year-to-date figures cover nine months. Dycom provides specialty contracting, construction, maintenance and related services, primarily to telecommunications customers.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Contract revenue | $854.0M | $810.3M | $2,369.0M | $2,448.5M |
| Net income | $28.7M | $33.9M | $47.8M | $38.5M |
| Diluted EPS | $0.94 | $1.05 | $1.54 | $1.20 |
| Adjusted EBITDA (non-GAAP) | $83.1M | $92.8M | $201.0M | $265.3M |
| Adjusted EBITDA margin | 9.7% | 11.5% | 8.5% | 10.8% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $163.1M | $279.4M |
Quarterly revenue grew 5.4%, but net income declined 15.4% and adjusted EBITDA declined 10.4%. The filing reports costs of earned revenues at 82.7% of revenue in the quarter, versus 81.3% a year earlier; net income margin was 3.4% versus 4.2%. For the nine months, revenue decreased 3.2%; net income increased, while adjusted EBITDA fell. The prior-year nine-month comparison included a $53.3M goodwill impairment charge and a $12.0M debt-extinguishment gain.
Liquidity, debt and cash flow
- Cash and equivalents were $263.7M at October 30, 2021, compared with $11.8M at January 30, 2021. Working capital, excluding current debt, was $1,069.0M.
- Total debt carrying value was $840.4M, including $500M of 4.50% senior notes due 2029 and a $350M term loan. The remaining $58.3M of convertible notes was repaid at maturity in September 2021. Approximate debt less cash was $576.7M.
- Revolver availability was $289.5M, down from $558.7M at January 30, 2021. Dycom reported compliance with its credit agreement covenants.
- Nine-month operating cash flow was $163.1M, down from $279.4M. Investing used $108.3M, primarily reflecting $113.5M of capital expenditures; financing provided $197.1M, principally reflecting the 2029 notes issuance.
- Days sales outstanding was 113 days, compared with 127 days at the prior-year comparison date. Receivables and contract assets remain material working-capital items.
Changes, outlook and risks
- Quarterly revenue gains from some telecommunications customers were partly offset by declines from others. Year-to-date revenue was lower, despite growth in certain customer programs and among other customers combined.
- Labor and subcontractor costs, equipment and fuel costs, and work mix pressured cost ratios. Management also cited tightening labor markets, inflationary pressures, and constrained availability and lead times for fiber equipment and truck chassis.
- Management described expanding fiber deployment, 5G, rural broadband and utility-network opportunities, including more than $40B in rural communications funding under the Infrastructure Investment and Jobs Act. It cautioned that customer plans and project execution may be affected by supply constraints, labor, permitting and macroeconomic conditions.
- Fiscal 2022 capital expenditures, net of disposals, were expected to be $135M–$150M. The filing states that available cash and credit resources should meet obligations and normal equipment replacement needs for at least 12 months. It provides no specific revenue or earnings guidance.
- Backlog was $5.896B, down from $6.810B at January 30, 2021; 49.8% was expected to be completed within 12 months. Backlog is an estimate, and many customer agreements do not guarantee minimum work volumes and may be cancelled.
- Customer concentration remains significant: the top five customers generated 66.0% of nine-month revenue. COVID-19, customer spending, inflation, supply and labor availability, weather, permitting, and project timing are identified risks.
- Contingencies include new California wage-and-hour class and representative actions for which potential losses could not yet be estimated; a proposed $2.2M settlement in another California matter pending final court approval; and a disputed multiemployer pension withdrawal-liability claim of about $13M. The IRS selected the fiscal 2020 federal tax return for examination.
Investor verification points
- Track whether revenue growth translates into improved margins, given higher labor, subcontractor and fuel costs and lower adjusted EBITDA margin.
- Monitor operating cash conversion, receivables, contract assets and DSO as customer activity and billings change.
- Verify debt reduction, revolver availability and covenant headroom alongside planned capital spending and share repurchases.
- Assess backlog conversion and customer concentration; backlog is not equivalent to committed revenue.
- Follow supply-chain and labor constraints, COVID-19 effects, litigation developments and the IRS examination.