Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 29, 2023. Dycom provides specialty contracting, engineering, construction, maintenance and locating services, primarily for telecommunications customers. It reports one operating segment.
Financial performance
| Metric | Three months ended July 29, 2023 | Year-over-year change | Six months ended July 29, 2023 | Year-over-year change |
|---|---|---|---|---|
| Contract revenue | $1,041.5 million | +7.1% | $2,087.0 million | +12.9% |
| Net income | $60.2 million | +37.4% | $111.8 million | +76.3% |
| Diluted EPS | $2.03 | From $1.46 | $3.76 | From $2.11 |
| Adjusted EBITDA (non-GAAP) | $130.8 million | From $104.7 million | $244.3 million | From $168.4 million |
| Adjusted EBITDA margin | 12.6% | From 10.8% | 11.7% | From 9.1% |
For the quarter, costs of earned revenues declined to 79.7% of revenue from 82.1%; general and administrative expense rose to 8.1% from 7.5%. Net income margin was 5.8%, versus 4.5%. For the six months, costs of earned revenues declined to 80.7% from 83.5%, while general and administrative expense increased to 8.0% from 7.7%; net income margin was 5.4%, versus 3.4%. Higher revenue and improved direct-cost ratios supported profit growth, partly offset by higher administrative costs and interest expense.
Cash flow and liquidity: Six-month operating cash flow was negative $28.8 million, improving from negative $76.9 million. Working-capital and other balance changes used $234.4 million, including a $148.7 million increase in receivables and a $32.0 million increase in net contract assets. Capital expenditures were $93.9 million; investing cash outflow was $73.6 million. Cash and equivalents were $83.4 million at period-end, down from $224.2 million at January 28, 2023. Working capital, excluding current debt, was $1,113.3 million.
Debt: Total debt carrying value was approximately $816.9 million, including $323.8 million of term loans and $500.0 million principal of 4.50% notes due 2029; no revolver borrowings were outstanding. The term-loan rate was 6.95%. Revolver availability was $602.5 million, and the company reported compliance with its financial covenants. Debt principal payments were $8.8 million during the six-month period.
Business developments, outlook and risks
- Revenue growth was driven principally by fiber deployment work, with increases across several telecommunications customers offset partly by declines at other large customers. Telecommunications generated 89.4% of six-month revenue.
- Management cited ongoing fiber and rural-network deployment opportunities, including public funding programs, but noted customer demand and spending vary. Some customers were increasing deployments into the following year; others were managing budgets closely for the rest of 2023. No numerical financial guidance was provided.
- Management identified macroeconomic and cost-of-capital conditions, tight labor markets, equipment and truck-chassis supply constraints, and rising equipment prices as factors that may affect execution. Outdoor work is seasonal and exposed to adverse weather.
- Customer concentration remains material: the top five customers contributed 61.5% of six-month revenue. Lumen accounted for 24.7% of receivables and contract assets, net, at July 29; management stated significant customers were not known to be experiencing material collection difficulties. DSO was 111 days, versus 107 a year earlier.
- Backlog was $6.207 billion, up from $6.141 billion at January 28; Dycom estimated 56.7% would be completed within 12 months. Backlog is not a GAAP measure, and customer work orders may be canceled or delayed.
- After quarter-end, Dycom acquired Bigham Cable Construction for $127.0 million on August 18, 2023, and announced a new $150 million share-repurchase authorization on August 23. The acquisition and repurchases may affect cash, debt and capital allocation.
- Contingencies include a disputed multiemployer pension withdrawal-liability claim; the company says the possible loss cannot currently be estimated. The company was also under IRS audit for fiscal 2020. Outstanding performance and other surety contract bonds were $353.8 million.
Important facts for investors to verify
- Whether strong revenue and margin trends continue as customer spending shifts and large-customer concentration remains high.
- Receivable collection, DSO, and working-capital needs, given negative operating cash flow and rising receivables.
- Post-acquisition funding and integration of Bigham, and the extent of future share repurchases under the new authorization.
- Exposure to variable interest rates, insurance claims, surety obligations, and the unresolved pension and tax matters.
- Backlog conversion and cancellations; reported backlog is an estimate and customers generally are not committed to specified purchase volumes.