Business context and reporting period
Dycom Industries, Inc. provides U.S. telecommunications network engineering, construction, maintenance and installation services, along with utility locating and electric and gas utility services. This 10-K covers fiscal 2022, the 52 weeks ended January 29, 2022; the comparable fiscal 2021 had 53 weeks. Fiscal Q4 ended January 29, 2022. Quarterly figures are unaudited.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Contract revenue | $3,130.5 million | $3,199.2 million |
| Gross profit | $496.6 million; 15.9% margin | $557.2 million; 17.4% margin |
| Net income | $48.6 million; 1.6% margin | $34.3 million; 1.1% margin |
| Diluted EPS | $1.57 | $1.07 |
| Adjusted EBITDA (non-GAAP) | $244.3 million; 7.8% of revenue | $311.0 million; 9.7% of revenue |
| Operating cash flow | $308.7 million | $381.8 million |
| Capital expenditures | $157.0 million | $58.0 million |
Revenue fell 2.1% year over year; net income rose, while gross margin and Adjusted EBITDA declined. The prior year included a $53.3 million goodwill impairment charge and a $12.0 million debt-extinguishment gain. Fiscal 2022’s 8.0% effective tax rate included about $5.0 million of tax benefits for prior-period credits.
Fiscal Q4 revenue was $761.5 million versus $750.7 million a year earlier. Net income was $0.8 million versus a $4.2 million loss. Gross profit was $104.8 million, compared with $105.2 million.
At year-end, cash and equivalents were $310.8 million, working capital was $991.8 million, and debt had a net carrying value of $840.8 million: $500 million of 4.50% notes due 2029 and $350 million principal on the term loan. There were no revolver borrowings; revolver availability was $326.3 million, subject to covenants. The company reported covenant compliance. DSO improved to 108 days from 136.
Material changes versus the prior comparable period
- Revenue excluding storm restoration decreased by $57.9 million. Lower revenue from several large customers was partly offset by growth from other telecommunications customers.
- Costs of earned revenues rose to 84.1% of revenue from 82.6%, mainly reflecting work mix and higher labor, subcontractor, fuel and equipment-maintenance costs.
- Operating cash flow declined by $73.1 million, while capital expenditures increased by $99.0 million.
- Backlog fell to $5.822 billion from $6.810 billion; management estimated 52.8% would be completed in the next 12 months.
- The company issued $500 million of 4.50% senior notes due 2029, amended and extended its credit agreement to April 2026, and repaid the remaining $58.3 million of convertible notes at maturity.
- Dycom repurchased 1.23 million shares for $106.1 million. A new $150 million repurchase authorization was announced after year-end.
Outlook, risks and unusual items
Management cited long-term demand drivers including fiber-to-the-home, rural broadband, wireless network upgrades and 5G. The Infrastructure Investment and Jobs Act includes more than $40 billion for rural communications networks. The company expects fiscal 2023 capital expenditures, net of disposals, of $180 million to $190 million. The filing does not provide clear revenue or earnings guidance.
Management noted near-term constraints from tight labor markets, fiber and equipment lead times, and higher capital-equipment prices. Other key risks include concentrated customers (the five largest represented 66.2% of fiscal 2022 revenue), cancellable or variable-volume contracts, weather and seasonality, inflation and cost overruns, COVID-19 impacts, and the ability to hire workers and subcontractors. Most work is outdoors, and the January and April quarters are typically weaker.
Fiscal 2022 had no goodwill impairment; fiscal 2021 included a $53.3 million charge related to the Broadband reporting unit. A California wage-and-hour class action and related PAGA action filed in 2021 were at early stages, with potential loss not estimable. A subsidiary also continues to dispute a claimed $13 million multiemployer pension withdrawal liability; the company states the outcome cannot be estimated. Insurance claims are partly self-insured, with accrued insurance claims of $85.0 million at year-end. Management believes available cash and credit resources are sufficient for obligations and expected operations for at least 12 months.
Key facts for investors to verify
- Whether backlog converts to revenue as expected, given its decline and customers’ ability to cancel, defer or change work.
- Whether labor, fuel, materials and equipment costs can be managed without further margin erosion.
- Customer spending trends and concentration, particularly changes in work volumes from the largest telecommunications customers.
- Cash conversion, receivables and contract-asset collections, capital spending, and compliance with debt covenants.
- Developments in the wage-and-hour litigation, pension withdrawal-liability arbitration and self-insured claims.
- Execution of the announced fiscal 2023 capital plan and the new share-repurchase authorization.