Dycom Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 25, 2014. Amounts are in millions of dollars except per-share data. Dycom provides specialty contracting, installation, maintenance and locating services, primarily for telecommunications customers, in the U.S. and Canada.
Financial results and position
| Metric | Three months ended Jan. 25, 2014 | Prior-year quarter | Six months ended Jan. 25, 2014 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $390.5 | $369.3 | $903.2 | $692.6 |
| Income (loss) before tax | $(5.0) | $2.8 | $26.1 | $22.3 |
| Net income (loss) | $(3.1) | $1.5 | $15.6 | $13.3 |
| Diluted EPS | $(0.09) | $0.04 | $0.45 | $0.40 |
| Operating income, derived | $1.2 | $8.2 | $37.1 | $30.2 |
| Operating margin, derived | 0.3% | 2.2% | 4.1% | 4.4% |
| Operating cash flow | — | $67.9 | $91.2 |
Quarterly revenue rose 5.7%, but the company posted a loss as severe winter weather hurt productivity and margins. Costs of earned revenue were 83.8% of quarterly revenue versus 81.6% a year earlier. Six-month revenue rose 30.4%, while net income increased 17.0%; acquired businesses accounted for $192.6 million of the revenue increase. Excluding acquired businesses, six-month revenue grew 2.9%.
At January 25, cash was $16.3; current assets were $516.4 and current liabilities $165.8, or working capital of $350.6. Total debt was $425.7, down from $452.0 at July 27, 2013; cash less debt was approximately $409.3. The company had $199.3 of additional borrowing availability and reported compliance with credit-facility financial covenants. Six-month capital expenditures were $49.2. Cash declined $2.3 during the period.
Material changes and management commentary
- Quarterly revenue growth included $111.5 from fiscal 2013 acquisitions. Excluding acquired businesses, quarterly revenue declined 4.9%; telecommunications revenue in that comparison fell 6.6%, partly offset by locating and utility work.
- Management attributed quarterly margin pressure to severe weather, reduced productivity and a less favorable work mix. Prior-year storm-restoration revenue was $16.7, compared with no significant storm-restoration revenue in the current quarter.
- Interest expense rose to $6.8 for the quarter and $13.7 for six months, reflecting debt associated primarily with the acquired businesses.
- Backlog was $2.147 billion at January 25, compared with $2.197 billion at July 27; management expected 55.6% of the January backlog to be completed within 12 months. Backlog is not a guarantee of future revenue: many customer agreements permit cancellation and may not require minimum work volumes.
- Management said cash and available credit were sufficient for obligations and normal equipment replacement for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
Risks, contingencies and unusual items
- Customer concentration is significant: the top five customers represented 58.2% of six-month revenue. AT&T contributed 18.0%, CenturyLink 15.0% and Comcast 11.2%.
- Seasonality, adverse weather, customer spending and project timing can cause substantial quarterly fluctuations. Receivables days increased to 54 from 49 a year earlier; costs and estimated earnings in excess of billings days rose to 37 from 30. The company cited slower billing and collection processes at acquired businesses and documentation requirements on some rural projects.
- A California putative class action alleges wage, overtime, meal-break and wage-statement violations at UtiliQuest. The company said it could not yet assess the likelihood or estimate potential loss and intends to defend the matter.
- Accrued insurance claims totaled $63.6. Outstanding performance and surety bonds were $425.6, with estimated costs to complete the bonded projects of $207.9; no material bond claims had been exercised. Standby letters of credit were $49.7.
- The company identified potential goodwill impairment sensitivity at the UtiliQuest reporting unit if customer demand or execution deteriorates, although it reported no impairment indication during the six-month period.
- The board had authorized $40.0 of share repurchases through February 2015; $10.0 was repurchased during the six months, leaving $30.0 authorized.
Important facts for investors to verify
- Whether post-quarter performance recovered from weather-related margin pressure and whether the quarter’s loss reflects temporary disruption or a broader operating trend.
- Organic revenue and margins by customer type, separated from acquisition-related growth, and the durability of major customer programs.
- Progress in acquired-business integration, especially improvements in billing, collections and DSO.
- Backlog conversion, customer cancellation or work-volume provisions, and any subsequent changes in expected project timing.
- Debt reduction, covenant headroom, capital spending and continued capacity to fund operations and repurchases.
- Developments in the UtiliQuest litigation, insurance reserves and potential goodwill impairment indicators.