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DYCOM INDUSTRIES INC - 10-Q Summary (Period Ended April 30, 2011)

Business Context and Reporting Period

Dycom Industries, Inc. is a leading provider of specialty contracting services, including engineering, construction, maintenance, and installation for telecommunications providers, underground facility locating for utilities, and services for electric and gas utilities. The company operates primarily in the United States with limited operations in Canada. This report covers the quarterly period ended April 30, 2011 (the third quarter of fiscal 2011) and the nine months ended April 30, 2011.

Key Financial Metrics

Note: Revenue margins (Cost of Earned Revenues as % of Revenue) were 82.0% for the three months and 81.7% for the nine months ended April 30, 2011.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 8.9% ($20.7 million) for the quarter and 3.5% ($25.1 million) for the nine-month period compared to the prior year. Growth was driven by acquisitions (Communication Services and NeoCom) and increased fiber deployment work for major telecommunications customers.
• Debt Refinancing: In January 2011, the company issued $187.5 million of 7.125% senior subordinated notes due 2021. Proceeds were used to repurchase and redeem the entire $135.4 million outstanding balance of 8.125% notes due 2015. This resulted in a Loss on Debt Extinguishment of $2.6 million for the quarter and $8.3 million for the nine months.
• Acquisitions: The company acquired Communication Services, Inc. (Nov 2010) and NeoCom Solutions, Inc. (Dec 2010), adding approximately $14.4 million to quarterly revenue and $19.6 million to nine-month revenue.
• Share Repurchases: The company repurchased 4.8 million shares for $55.5 million during the nine-month period, utilizing the previous authorization fully.

Guidance, Outlook, and Risks

• Backlog: Total backlog was $1.373 billion as of April 30, 2011, an increase from $1.114 billion at the end of the prior fiscal year. Management expects to complete 54.3% of this backlog in the next twelve months.
• Capital Resources: The company maintains a $225.0 million senior secured revolving credit agreement. As of April 30, 2011, there were no outstanding borrowings, with $37.8 million in letters of credit outstanding, leaving $127.8 million in additional borrowing availability.
• Legal Proceedings: The company settled several wage and hour class action lawsuits. A $0.5 million settlement was approved in May 2011, and a $0.6 million settlement was reached in May 2011 regarding two other lawsuits. Management believes no other pending claims will have a material effect on financial statements.
• Seasonality: Operations are subject to seasonality due to outdoor work, with potential revenue reductions in the second and third fiscal quarters due to inclement weather and holidays.
• Customer Concentration: The top five customers accounted for 62.3% of revenue for the nine months ended April 30, 2011. AT&T, Comcast, CenturyLink, and Verizon each represented over 8% of revenue.

Key Facts for Investor Verification

• Debt Structure: Verify the impact of the new 7.125% notes on future interest expense compared to the retired 8.125% notes.
• Acquisition Integration: Monitor the contribution of Communication Services and NeoCom to future earnings and the amortization of associated intangible assets.
• Share Count: Note the significant reduction in share count due to $55.5 million in repurchases, which supports EPS despite modest net income growth.
• Legal Reserves: Confirm the final payout amounts for the settled wage and hour lawsuits and monitor for any new litigation.
• Customer Dependency: Assess the risk associated with the top four customers (AT&T, Comcast, CenturyLink, Verizon) comprising a significant portion of revenue.