Dycom Industries, Inc. — Form 10-Q Summary
Business and period: Dycom provides specialty contracting services, principally for telecommunications networks, as well as utility locating and electric and gas utility services. The filing covers the quarter ended January 23, 2016—fiscal 2016 second quarter—and the six months then ended. The user-supplied “2015 Q2” label does not match the filing period.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding prior-year periods.
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $559.5, up 26.8% from $441.1 | $1,218.7, up 28.1% from $951.5 |
| Net income | $15.5, up 64.1% from $9.4 | $46.3, up 53.1% from $30.2 |
| Diluted EPS | $0.46, versus $0.27 | $1.37, versus $0.86 |
| Net margin | 2.8%, versus 2.1% | 3.8%, versus 3.2% |
| Costs of earned revenue as a share of revenue | 80.5%, versus 80.6% | 78.5%, versus 79.8% |
- Cash flow: Six-month operating cash flow was $46.5, down from $83.3. Investing used $137.4, including $90.9 of capital expenditures and $48.8 for the TelCom acquisition. Financing provided $89.8; cash declined $1.1 to $20.2.
- Liquidity: Working capital was $564.9, compared with $469.9 at July 25, 2015. The company reported $289.1 of additional borrowing availability under its credit agreement, subject to the most restrictive covenant limits.
- Debt: Debt totaled $618.1 at January 23, 2016, including $485.0 principal amount of 0.75% convertible notes, $150.0 term debt, and $103.3 revolving borrowings, less the notes’ accounting discount and issuance costs in their carrying value. Cash was $20.2. The company remained in compliance with credit-facility covenants.
Changes, outlook, and risks
- Revenue growth reflected 1-gigabit network deployments, new customer awards and acquired businesses, including TelCom. Management also cited expanded fiber, cable-network and rural-service work. The top five customers accounted for 66.7% of six-month revenue, up from 59.8%.
- Six-month results included a $16.3 pretax loss on extinguishing the 7.125% senior subordinated notes. The refinancing replaced those notes with 0.75% convertible notes due 2021; interest expense also includes noncash amortization of the convertible debt discount.
- Backlog was $5.056 billion, up from $3.680 billion at fiscal year-end; management expected to complete 39.5% within the next 12 months. Backlog is not a GAAP measure, can change, and includes agreements that may not commit customers to specific service volumes.
- Management expected fiscal 2016 capital expenditures, net of disposals, of approximately $175 million. It said available cash and credit resources should meet obligations for at least the next 12 months. The filing provides no specific revenue or earnings forecast.
- Management cited weather and seasonal work patterns, customer spending and contract timing, labor and subcontractor costs, project delays, and customer concentration as factors that can affect results. The company’s largest customers include AT&T, CenturyLink, Comcast and Verizon; agreements are generally terminable by customers with notice.
- Other items to monitor include higher CIEB days-sales-outstanding (47 days versus 40 a year earlier), a pending patent-related dispute with a March 2016 bench trial scheduled, and potential dilution or share-price effects from the convertible notes, warrants and hedge transactions. The company also authorized an additional $50 million share-repurchase program after quarter-end, bringing total authorization to $100 million.
Important facts for investors to verify
- Whether revenue and backlog growth convert into sustainable operating cash flow, given six-month operating cash flow declined and capital spending increased.
- Customer concentration, contract renewal and cancellation terms, and the collectability and billing timing of receivables and costs in excess of billings.
- The economics and potential dilution of the convertible notes, related hedge and warrant transactions, and the company’s future share repurchases.
- Execution of the $175 million fiscal 2016 capital-spending plan and the conversion of backlog into completed, billable work.
- Developments in the patent litigation and the adequacy of insurance-claim reserves and other contingencies.