Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended April 28, 2012, Dycom’s fiscal 2012 third quarter. The request metadata says “2011 Q3,” which does not match the period in the filing.
Business context
Dycom provides telecommunications engineering, construction, maintenance and installation services; underground facility locating; and construction and maintenance services for electric and gas utilities. For the nine-month period, telecommunications accounted for 84.3% of revenue, locating 10.9%, and electric and gas utilities and other customers 4.8%.
Financial performance
| Metric | Three months ended April 28, 2012 | Prior comparable quarter | Nine months ended April 28, 2012 | Prior comparable period |
|---|---|---|---|---|
| Revenue | $296.1 million | $252.4 million | $883.1 million | $732.2 million |
| Net income | $9.6 million | $1.5 million | $26.1 million | $3.1 million |
| Diluted EPS | $0.28 | $0.04 | $0.76 | $0.09 |
| Gross margin before depreciation and amortization* | 18.5% | 18.0% | 18.8% | 18.3% |
*Calculated as revenue less costs of earned revenues, excluding depreciation and amortization, divided by revenue.
- Quarterly revenue rose 17.3%; nine-month revenue rose 20.6%. Telecommunications work drove most of the increase. Nine-month revenue also included $41.8 million from the Communication Services and NeoCom businesses acquired in fiscal 2011.
- Quarterly net income increased to $9.6 million from $1.5 million. Results included $7.4 million of gains on asset sales, compared with $3.3 million in the prior-year quarter. Nine-month gains on asset sales were $12.6 million, versus $6.8 million.
- For the quarter, costs of earned revenues were 81.5% of revenue, down from 82.0%; general and administrative expense was 9.1%, down from 9.4%. For nine months, these measures were 81.2% versus 81.7% and 8.7% versus 9.3%, respectively. Management attributed the improvements mainly to operating efficiency and leverage, partly offset by higher materials costs.
- Net cash provided by operating activities was $68.5 million for nine months, up from $52.1 million. Capital expenditures were $62.8 million, versus $32.3 million; operating cash flow less capital expenditures was approximately $5.7 million, versus $19.8 million. Investing cash outflow was $41.7 million, and financing cash outflow was $4.8 million.
Balance sheet, debt and liquidity
- At April 28, 2012, cash and equivalents were $66.7 million, compared with $44.8 million at July 30, 2011. Working capital was $242.0 million, versus $211.8 million.
- Total debt was approximately $187.6 million, principally $187.5 million of 7.125% senior subordinated notes due 2021. The company had no revolving-credit borrowings and reported $185.9 million of additional borrowing availability, after considering outstanding letters of credit and the most restrictive covenants.
- Dycom reported compliance with its credit-agreement and note covenants. The revolving facility requires a maximum leverage ratio of 3.00:1 and an interest coverage ratio of at least 2.75:1 for the period then ended; the minimum coverage requirement rises to 3.00:1 for the quarter ending July 28, 2012 and thereafter.
- Current assets were $352.8 million and current liabilities were $110.8 million. Accrued insurance claims totaled $47.7 million, including $22.5 million expected to be paid beyond one year.
Outlook, risks and notable items
- Backlog was $1.744 billion at April 28, 2012, up from $1.412 billion at July 30, 2011. Dycom expected to complete 55.1% within the next 12 months. Backlog includes estimates of future work under requirements agreements; customers may not be contractually committed to specific volumes.
- Management said existing cash and credit availability were sufficient for financial obligations, working capital and normal equipment replacement for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Customer and contract concentration are significant: the five largest customers represented 59.1% of nine-month revenue. Dycom identified customer spending, project timing, economic conditions, weather, competition, insurance claims, and contract renewals or terminations as factors that can affect results.
- Outstanding performance and surety bonds were $225.6 million; no customer had exercised rights under them. Standby letters of credit totaled $39.1 million and supported the insurance program. Management said other pending claims were not expected to have a material effect; there were no material legal-proceeding developments or material changes to previously disclosed risk factors.
- The company repurchased 495,500 shares for $10.9 million during the nine months and authorized a further $40.0 million of repurchases through September 15, 2013. It reported no expected cash dividends in the foreseeable future.
- Quarterly results were affected by asset-sale gains. In the prior-year period, debt refinancing generated an $8.3 million nine-month loss on debt extinguishment; there was no such loss in the current period.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for the quarter ended April 28, 2012, not 2011 Q3.
- Assess how much of the revenue and earnings growth reflects sustainable customer demand versus acquired-business contributions and gains on asset sales.
- Review backlog conversion, since portions of master-service-agreement backlog are estimates rather than committed purchase volumes.
- Monitor major-customer spending and concentration, particularly as telecommunications customers accounted for most revenue.
- Track capital spending, cash conversion, insurance claims and covenant headroom alongside the $187.5 million of fixed-rate notes and revolving-credit availability.