Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: Second quarter of fiscal 2015, three months ended January 24, 2015; six-month results are also compared with the period ended January 25, 2014. The filing is unaudited. Dycom provides specialty contracting services, principally for telecommunications networks, across the U.S. and Canada.
Financial performance
| Metric | Three months ended Jan. 24, 2015 | Prior-year quarter | Six months ended Jan. 24, 2015 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $441.1 million | $390.5 million | $951.5 million | $903.2 million |
| Net income (loss) | $9.4 million | ($3.1 million) | $30.2 million | $15.6 million |
| Diluted EPS | $0.27 | ($0.09) | $0.86 | $0.45 |
| Net margin | 2.1% | (0.8%) | 3.2% | 1.7% |
- Quarterly revenue increased about 13%; six-month revenue increased about 5%. Management attributed growth to better weather, 1-gigabit network deployments, and higher work for certain large customers. Acquisitions contributed $9.5 million of quarterly revenue and $19.6 million for the six months.
- Cost of earned revenue declined to 80.6% of revenue for the quarter from 83.8%; for six months it was 79.8%, versus 81.6%. Management cited better productivity and work mix, lower equipment and fuel costs, partly offset by higher materials costs.
- General and administrative expense was $41.8 million for the quarter and $86.5 million for six months. It rose in dollars, primarily from payroll and performance costs, professional fees, acquisitions, and stock compensation.
- Net interest expense was $6.7 million for the quarter and $13.5 million for six months. Other income was $1.7 million and $3.5 million, respectively, primarily from fixed-asset sale gains.
Cash flow, balance sheet and debt
- Six-month operating cash flow was $83.3 million, up from $67.9 million. Investing used $45.1 million, including $38.8 million in capital expenditures and $9.8 million for acquisitions. Financing used $40.4 million, including $17.1 million of share repurchases. Cash declined $2.2 million to $18.4 million.
- At January 24, 2015, working capital was $406.2 million. Current assets were $584.4 million and current liabilities were $178.2 million. Accounts receivable was $267.3 million; costs and estimated earnings in excess of billings were $212.3 million.
- Reported current and long-term debt totaled $433.9 million, including a $3.0 million notes premium; this compares with $457.8 million at July 26, 2014. Debt included $277.5 million of 7.125% notes due 2021 and borrowings under the credit agreement. The company reported $176.6 million of additional borrowing availability and compliance with credit covenants.
- Accounts receivable DSO was 55 days, versus 54 a year earlier; CIEB DSO was 40 days, versus 37. Management said longer billing and customer invoice-approval processes contributed to the increases.
Outlook, risks and notable items
- Backlog was $2.986 billion at January 24, 2015, versus $2.331 billion at July 26, 2014; Dycom expected to complete 52.4% within the next 12 months. Backlog is not a GAAP measure, and many customer agreements may be canceled or do not guarantee specific work volumes. No formal earnings or revenue guidance is provided in the filing.
- Management identified demand drivers including fiber deployment, higher network capacity needs, wireless data growth, and rural network projects. Results remain exposed to customer spending decisions, seasonal weather, project timing, and industry cyclicality.
- Customer concentration is substantial: the top five customers represented 59.8% of six-month revenue. AT&T contributed 21.6%, CenturyLink 13.5%, and Comcast 12.9%.
- A customer on a rural project owed approximately $20.1 million in past-due receivables; Dycom had stopped work and filed liens covering approximately $17.7 million. Recovery depends on the customer’s plan, lien value and priority, and other creditors; management said the outcome was too early to assess.
- Other matters include a workplace-death lawsuit with claimed economic damages estimated by the plaintiff’s expert at up to $2.6 million, exclusive of emotional-distress damages, and a California employment case for which final settlement approval was granted after quarter-end. The company had accrued $0.6 million for the settlement in fiscal 2014.
- Insurance claims reserves were $72.5 million. Outstanding surety bonds were $393.2 million, and standby letters of credit were $54.4 million. The company also disclosed risks from concentrated customers, weather, project execution, insurance claims, and possible goodwill impairment if reporting-unit outlooks deteriorate.
- On February 24, 2015, the board authorized a new $40 million share-repurchase program through August 24, 2016; the full authorization remained available when announced.
Important facts for investors to verify
- Collection progress on the $20.1 million past-due rural-project balance and the status and priority of Dycom’s construction liens.
- Whether backlog converts to revenue as expected, given cancellation rights and the absence of guaranteed work volumes under many agreements.
- Customer spending trends and concentration, particularly among AT&T, CenturyLink, and Comcast.
- Future operating margins and cash conversion as weather, project mix, materials costs, and working-capital requirements change.
- Debt repayment, available revolver capacity, covenant compliance, and the pace of share repurchases.