Dycom Industries, Inc. — Fiscal 2021 Form 10-K
Reporting period: Fiscal year ended January 30, 2021 (53 weeks), compared with fiscal 2020 ended January 25, 2020 (52 weeks). The filing is an annual report; the fourth-quarter figures are included below where notable. Amounts are in U.S. dollars.
Business context and reporting period
Dycom provides telecommunications engineering, construction, maintenance, installation and facility-locating services, primarily in the United States. Telecommunications accounted for 89.1% of fiscal 2021 contract revenue. Long-term master service agreements and other long-term contracts represented 90.0% of revenue. The five largest customers generated 74.1% of revenue; Verizon, Lumen, AT&T and Comcast each contributed approximately 16.7%–18.8%.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Contract revenue | $3,199.2 million | $3,339.7 million |
| Gross profit (revenue less costs of earned revenues) | $557.2 million; 17.4% margin | $560.0 million; 16.8% margin |
| Operating income, including goodwill impairment | $68.2 million; 2.1% margin | $117.8 million; 3.5% margin |
| Net income | $34.3 million; diluted EPS $1.07 | $57.2 million; diluted EPS $1.80 |
| Adjusted EBITDA (non-GAAP) | $311.0 million; 9.7% of revenue | $310.0 million; 9.3% of revenue |
| Cash provided by operating activities | $381.8 million | $58.0 million |
| Capital expenditures | $58.0 million | $120.6 million |
| Cash and equivalents at year-end | $11.8 million | $54.6 million |
| Total debt at year-end | $583.3 million | $866.9 million |
| Backlog at year-end | $6.810 billion | $7.314 billion |
Fiscal 2021 revenue declined 4.2% and net income declined 40.0% year over year. Operating cash flow less capital expenditures was approximately $323.7 million, versus negative $62.6 million in fiscal 2020; this simple calculation is not a company-defined non-GAAP measure. Working capital, excluding current debt, was $801.9 million, down from $957.8 million. Revolver borrowing availability was $558.7 million, and the company reported compliance with its credit agreement covenants. DSO increased to 136 days from 130 days.
Material changes versus the prior comparable period
- Revenue fell by $140.5 million despite the extra fiscal week. Management cited lower work for two large telecommunications customers, partly offset by growth from a cable operator, rural services and other customers.
- Costs of earned revenues declined to 82.6% of revenue from 83.2%, improving gross margin by about 0.6 percentage points. G&A rose to 8.1% of revenue from 7.6%.
- A $53.3 million goodwill impairment charge reduced earnings. The charge followed weaker expected installation work at the Broadband reporting unit as customers restricted in-home access and increased subscriber self-installation.
- Net interest expense fell to $29.7 million from $50.9 million. Dycom repurchased $401.7 million principal amount of its 0.75% convertible notes, leaving $58.3 million outstanding, and recorded a $12.0 million gain on debt extinguishment.
- Operating cash flow improved substantially, primarily reflecting working-capital movements, including lower contract assets and increases in accounts payable and accrued liabilities. Capital expenditures also declined.
- Dycom repurchased 1,324,381 shares for $100.0 million during fiscal 2021. After year-end, the board authorized a further $150 million repurchase program.
Guidance, outlook, risks and unusual items
- Management expects continuing demand for high-capacity broadband, fiber deployment and wireless network upgrades, and cited the FCC Rural Digital Opportunity Fund auction as a potential driver of rural investment. It cautioned that pandemic-driven demand levels may not persist.
- Fiscal 2022 capital expenditures, net of disposals, are expected to be $150 million–$160 million. The company gave no specific revenue or earnings forecast in the filing.
- COVID-19 had not materially interrupted most operations, but customer limits on access to third-party premises, self-installation practices and permit delays adversely affected certain work and contributed to the Broadband impairment. Future effects remain uncertain.
- Backlog declined 6.9% to $6.810 billion; management expects 40.9% to be completed within 12 months. Backlog is an estimate, not a GAAP measure, and customers may cancel or defer work, including under agreements without committed purchase volumes.
- Customer concentration is significant, and customer capital budgets, contract renewals, competitive bidding, labor availability, weather, project costs and permitting can affect revenue and margins. The company also highlights safety, environmental, cybersecurity, insurance and debt-covenant risks.
- Fiscal fourth-quarter revenue was $750.7 million and net loss was $4.2 million (diluted loss per share $0.13). Fiscal first-quarter net loss of $32.4 million included the $53.3 million goodwill impairment.
- Contingencies include a preliminary $2.1 million class-wide settlement agreement in a California wage-and-hour matter, subject to finalization and court approval; shareholder derivative and securities-related litigation for which the loss range was not estimable; and a disputed multiemployer pension withdrawal-liability claim of approximately $13 million, with monthly payments continuing during arbitration.
- The company does not anticipate cash dividends in the foreseeable future. The $58.3 million remaining convertible notes mature in September 2021; management stated it intends to settle their principal in cash.
Important facts for investors to verify
- Whether major customers sustain or increase spending, and how customer concentration and contract renewals affect awards and margins.
- Whether backlog converts on the expected timetable, given cancellation rights, permitting delays and the absence of committed volumes under many agreements.
- Whether in-home installation demand recovers, and whether Broadband or other reporting units face further impairment.
- The sustainability of fiscal 2021 operating cash flow, including working-capital timing, higher DSO and collection of receivables and contract assets.
- Repayment or conversion of the remaining convertible notes, variable-rate debt exposure, covenant headroom and the effect of share repurchases on liquidity.
- Developments in the wage-and-hour settlement, shareholder litigation and pension withdrawal-liability arbitration, plus changes in self-insured claims and insurance reserves.