Dycom Industries, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended July 26, 2014 (52 weeks), compared with fiscal 2013 ended July 27, 2013. The request labels the period “2013 Q4,” but this filing reports FY2014; its fourth-quarter figures are identified below where relevant.
Business context
Dycom provides telecommunications engineering, construction, maintenance, installation and underground utility-locating services, plus construction and maintenance for electric and gas utilities. The company operates primarily in the United States and has limited Canadian operations. It reported one aggregated operating segment. Growth drivers cited by management include fiber and broadband network expansion, wireless 4G upgrades and rural network investment.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $1,811.6 million | $1,608.6 million |
| Operating income (revenue less reported operating expenses) | $81.9 million; 4.5% margin | $76.9 million; 4.8% margin |
| Net income | $40.0 million | $35.2 million |
| Diluted EPS | $1.15 | $1.04 |
| Operating cash flow | $84.2 million | $106.7 million |
| Cash and equivalents at year-end | $20.7 million | $18.6 million |
| Working capital | $409.2 million | $341.3 million |
- Revenue increased 12.6%. Net income rose 13.6%; diluted EPS rose 10.6%. Operating margin declined from approximately 4.8% to 4.5%, while net margin was about 2.2% in both years.
- Costs of earned revenue were 81.4% of revenue versus 80.8% in FY2013. Management attributed pressure in part to adverse second- and third-quarter weather and a greater share of jobs requiring Dycom to supply materials.
- Operating cash flow fell by $22.6 million, with working-capital changes using $43.3 million. Accounts-receivable DSO rose to 51 days from 48; costs-and-estimated-earnings-in-excess-of-billings DSO rose to 41 from 36.
- Capital expenditures were $89.1 million; investing cash outflow was $91.1 million. Management expects FY2015 capital expenditures, net of disposals, of $80–$85 million.
- Year-end debt included $277.5 million of 7.125% notes due 2021, $114.1 million of term-loan principal and $63.0 million of revolver borrowings. The balance-sheet debt carrying amount was $457.8 million, including the note premium. Additional borrowing availability under the credit agreement was $162.6 million; the company reported compliance with its covenants.
Changes, outlook and notable items
- FY2014 revenue included $499.3 million from businesses acquired in FY2013 and FY2014. Excluding the acquired subsidiaries from both periods, revenue increased $41.6 million. Acquisitions included Watts Brothers for $16.4 million and a Canadian contractor for $0.7 million.
- Backlog was $2.331 billion, up from $2.197 billion; management expected 57.7% to be completed in FY2015. Backlog is not a GAAP measure, and many customer agreements may be canceled or do not guarantee work volumes.
- Management described long-term demand opportunities from fiber deployment, higher network capacity needs, wireless data growth and rural broadband projects. It provided no specific FY2015 revenue or earnings guidance in the supplied filing text and cautioned that demand depends on customer budgets, economic conditions and project timing.
- Other income rose to $11.2 million from $4.6 million, primarily reflecting gains on asset sales ($10.7 million in FY2014). This supported reported earnings and is an item to distinguish from recurring operating performance.
- Customer concentration remains significant: the top five customers generated 58.3% of FY2014 revenue; AT&T alone generated 19.2%. A rural-project customer had $20.1 million of past-due receivables; Dycom stopped work and filed liens covering about $17.7 million. Competing lien-priority litigation was pending, and recovery was uncertain.
- A proposed settlement of a California wage-and-hour class action was awaiting court approval; $0.6 million was accrued. Total accrued insurance claims increased to $66.0 million from $56.3 million. Goodwill impairment testing indicated no impairment, although three acquired reporting units had fair values less than 25% above carrying value.
- Dycom had $446.8 million of outstanding performance and other surety bonds and $49.4 million of standby letters of credit. It had not paid cash dividends since 1982 and did not anticipate doing so in the foreseeable future.
Key facts for investors to verify
- Confirm the period intended: the filing is FY2014, not a standalone 2013 fourth-quarter filing.
- Track receivable aging, collection progress and lien recovery on the $20.1 million rural-project balance, including the lien-priority dispute.
- Assess whether backlog converts to revenue and earnings, given cancellation rights, non-guaranteed work volumes and customer concentration.
- Evaluate cash conversion and margin trends, including weather effects, acquisition integration and gains from asset sales.
- Review debt covenant headroom, variable-rate exposure and the scheduled term-loan repayments; verify progress against management’s FY2015 capital-expenditure range.
- Monitor the California settlement approval, insurance-reserve development and impairment sensitivity at the three closer-margin reporting units.