DYCOM INDUSTRIES INC - 10-Q Summary
Business Context and Reporting Period
Company: DYCOM INDUSTRIES INC
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 24, 2010 (Three and Nine Months)
Business Overview: A leading provider of specialty contracting services, including engineering, construction, maintenance, and installation for telecommunications providers, underground facility locating for utilities, and construction/maintenance for electric and gas utilities. Operations are primarily in the United States with limited presence in Canada.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Apr 24, 2010 |
3 Months Ended Apr 25, 2009 |
9 Months Ended Apr 24, 2010 |
9 Months Ended Apr 25, 2009 |
|---|---|---|---|---|
| Contract Revenues | $231,636 | $257,719 | $707,082 | $837,209 |
| Net Income (Loss) | $1,648 | $7,597 | $1,206 | $(59,808) |
| Diluted EPS | $0.04 | $0.19 | $0.03 | $(1.52) |
| Operating Cash Flow | N/A | N/A | $48,682 | $96,128 |
| Cash & Equivalents | $116,155 | $104,707 | $116,155 | $78,762 |
| Total Debt (Long-term + Current) | $135,500 | $136,303 | $135,500 | $136,303 |
| Working Capital | $221,595 | $217,177 | $221,595 | $217,177 |
Note: Working Capital calculated as Total Current Assets ($319,344) minus Total Current Liabilities ($97,749).
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 10.1% ($26.1M) for the quarter and 15.5% ($130.2M) for the nine months compared to the prior year.
- Telecommunications: Decreased 7.7% (quarter) and 14.0% (nine months) due to reduced customer spending on fiber deployment and network upgrades, and the absence of storm restoration work present in the prior year.
- Electric/Gas Utilities: Decreased 60.8% (quarter) and 62.2% (nine months) primarily due to the completion of specific gas pipeline projects in the prior year.
- Underground Locating: Decreased 5.9% (quarter) and 7.0% (nine months) due to economic weakness and inclement weather.
- Profitability Improvement: Net income for the nine months ended April 24, 2010, was a profit of $1.2 million, a significant improvement from a net loss of $59.8 million in the prior year period. The prior year loss was heavily impacted by a $94.4 million goodwill impairment charge.
- Cost Management: Costs of earned revenues decreased proportionally with revenue. However, costs as a percentage of revenue increased slightly (2.4% for the quarter, 1.0% for nine months) due to inclement weather impacting productivity and a $1.6 million legal settlement charge included in the nine-month period.
- Other Income: Other income increased due to gains on the sale of fixed assets ($6.1M for nine months), offsetting the absence of debt extinguishment gains seen in the prior year.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management notes continued economic weakness but observes recent indicators of recovery. They are monitoring customer capital expenditure budgets and fuel costs.
- Backlog: Total backlog was $1.024 billion as of April 24, 2010, up from $935.4 million at the end of the prior fiscal year. Management expects to complete 62.1% of this backlog in the next twelve months.
- Liquidity: The company maintains a $210.0 million revolving Credit Agreement with $131.4 million available. No borrowings were outstanding under this facility as of April 24, 2010.
- Legal Contingency: A wage and hour class action lawsuit was settled in April 2010. Approximately $1.6 million was accrued for this settlement.
- Customer Concentration: The top five customers accounted for 65.2% of revenues for the nine months ended April 24, 2010. AT&T, Comcast, CenturyLink, and Verizon each represented over 10% of revenue.
- Stock Repurchase: The Board authorized a $20.0 million stock repurchase program in February 2010. Approximately $15.5 million remains available.
Key Facts for Investor Verification
- Revenue Mix Sensitivity: Verify the stability of the top four customers (AT&T, Comcast, CenturyLink, Verizon) which collectively drive over 50% of revenue, given the high concentration risk.
- Seasonality and Weather Impact: Assess the impact of weather on the "Underground facility locating" segment, which is highly susceptible to seasonal fluctuations and inclement weather.
- Goodwill Valuation: Monitor the carrying value of goodwill ($157.9M) and intangible assets ($51.3M), as the company previously recorded significant impairments and noted that fair value margins for some reporting units remain thin.
- Debt Covenants: Confirm continued compliance with the Credit Agreement covenants (leverage ratio < 3.00, interest coverage > 2.75) and the Senior Subordinated Notes indenture.
- Legal Settlement Finalization: Track the final administration and payment of the $1.6 million wage and hour settlement to ensure no additional liabilities arise.