Q1 2021 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Dot Com results conference call. At this time, all participants are to listen only mode. Later, we will conduct a question and answer session and I will give you instructions at that time, if you should require assistance during the call. Please press Star then zero.
And as a reminder, I'd like to let you know that the call is being recorded I would now like to turn the conference over to our hosts President and Chief Executive Officer, Bob So even Nielsen. Please go ahead Sir.
Thank you Dan Good morning, everyone I'd like to thank you for attending this conference call to review, our first quarter fiscal 2021 result.
Going to slight to during this call we won't be referring to a slide presentation, which can be found on our web sites Investor Center main page relevant slides will be identified by number throughout our presentation.
Today, we have on the call drew Deferrari, our Chief financial Officer at Ryan or NASCAR General Counsel now I will turn the call over to Ryan or dash.
Thank you Steve the statements made during this call maybe forward looking in nature and our provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These forward looking statements include all comments, reflecting our expectation assumptions or beliefs about future events are performing that do not relate solely to historical periods.
Forward looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current projection.
Putting those risks described in our annual report on form 10-K filed March 2nd 2020, and our other filings with the U.S. Securities and Exchange Commission, we assume no obligation to update any forward looking statements.
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Thanks Ryan.
As we refer to our results. Please note that organic revenue was eight non-GAAP measure, but excludes revenues from storm restoration services and our comments today and then the accompanying slide we reference this and other non-GAAP measures. We refer you to the quarterly report section of our web site for a reconciliation of these non-GAAP measures to.
Their corresponding GAAP measures.
To begin I want to express my sincere hope that everyone listening to this call as well as their families are healthy and say.
We are living and truly unprecedented time for our country on our world. During my 21 years. This dichotomy CEO I've never witness anything like the dislocation we are experiencing as a country.
The impacts of 911, the dotcom kras and the great financial recession.
Pale in comparison to the speed and severity of the effects. The cobot 19 pandemic is having on society and the nations economy.
They come first tangibly experience for Pandemics effects in our business during the week of March 15th.
Unlike calendar quarter reporting companies almost half of our first quarter occurred after the pandemic became a reality.
As dike on came to grips with a pandemic our people demonstrated real fortitude as we made daily changes to the business I couldn't be prouder of our employees field technician served our customers 24, seven helping grow network capacity and maintaining network choose functioning has never been more necessary for daily.
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They work safely and Unstintingly.
In addition, during the quarter, we transitioned over 2000 employees to work from home arrangements, while maintaining our financial closing deadlines and reporting calendar together, we made the hard calls necessary to adjust our operating plan to the pandemic environment.
Now going to slide four.
For employees keeping them safe was our first priority we quickly adopted enhance proto protection protocols and BP guidelines for all employees in facilities, we instituted work from home policies and responded rapidly to the limited number of into incidence we have experienced.
With customers, we remained intensely focused on their businesses, we continue to serve as our customers provide critical infrastructure.
We are generally considered a central business provider understate local pandemic mitigation orders and we experienced at limited impact on our operations from sporadic geographically disparate and limited municipal issues.
Finally, we decisive William proactively adjusted our operating plans by reducing general and administrative expenses, including executive compensation and overall headcount.
We aggressively improved working capital efficiency through re norming of vendor payment terms and improving dsos and tightly manage capital expenditures.
Altogether, we significantly enhance our operational and financial flexibility this quarter.
Now moving to slide five for our view of the impacts of the pandemic on our industry.
In the intermediate to longer term, we believe that prior investments by major industry participants to construct or upgrade wireline networks have enabled astounding increases in peak demands on telecommunications network.
These programs are likely to accelerate.
Not a surprise our customers continued commitment to wireline and wireless network investments is evident and recent customer commentary.
Social distancing measures of tangibly highlighted the cost of physical proximity and connection throughout the economy high capacity low latency networks are key to enabling safe virtual connection throughout society, increasing the value of our customers networks and further creating additional possible new drivers for network investment.
At a pandemic world and a post pandemic world, we believe social equity will demand that access to distance learning telemedicine and other newly a central applications be unencumbered by rural geography or socioeconomic status.
In the near term, we believe macroeconomic uncertainty over the balance of this year may influence some customer plans customers are focused on the possible direct impacts of their businesses.
Increased consumer and enterprise demand, resulting from work from home and shelter in place protocols.
SMB dislocations due to business closures.
Potential decline in new housing formation.
Overall consumer credit deteriorate deterioration due to increased unemployment and reduce churn and new subscriber additions due to a reduced retail presence.
In general some disruptions may be expected within the overall municipal environment as the parties reengineer application and inspection processes and way needed job site access against increased social economic openness.
On balance we expect to cope with pandemic will reinforce and eventually accelerate prepay endemic industry trends, including deployment of fiber deeper into existing telecommunications network significant investment in converged wireless wireline networks and increased wireless capacity and capability through the ROI.
Rollout of Fiveg technologies.
In sum, we believe the pandemic highlights that telecommunication networks are crucial infrastructure for our country and key to its future success at the same time, we are mindful of the potential near term impacts on the nations economy at our customers businesses as well as potential impediments to job site access that may.
Result from pandemic.
Now going to slide six revenue was $814.3 million a decrease of 2.3%.
Organic revenue, excluding storm restoration services, a 4.7 million as a year ago quarter decreased 1.8%.
As we deployed one gigabit wireline networks wireless wireline converged network and wireless networks. This quarter reflected an increase in demand from two of our top five customers.
Gross margins were 16.5% of revenue, reflecting improved performance relative to our expectations and general and administrative expenses were 8.1%.
All of these factors produced adjusted EBITDA of 69.9 million or 8.6% of revenue.
And adjusted diluted earnings per share of 36, as compared to 53 cents in the year ago quarter.
Living liquidity was ample as cash and availability under our credit facility was 390.1 million an increase of $52.8 million during the quarter.
Oh, no net debt declined by $86.9 million during the quarter and over the last two quarters by over $263 million.
Now moving to slide seven.
During the quarter, we exceeded our revenue expectations with increased demand from two of our top five customers organic revenue decreased 1.8% our top five customers combined produced 78.5% of revenue decreasing 3.9% organically, while all other customers increased 7% organically.
Verizon was our largest customer 21.6% of total revenue or 176.1 million.
ATP was our second largest customer at 18.9% of revenue or 154 million.
Revenue from Centurylink was 148.8 million or 18.3% of revenue.
Centurylink was die come third largest customer grew 40.8% organically.
Comcast was our fourth largest customer at 118 million or 14.5% of revenue and finally revenue from Windstream was 42.2 million or 5.2% of revenue Windstream was our fifth largest customer and grew 26.1% organically.
No. This is the fifth consecutive quarter, where all of our other customers in aggregate, excluding the top five customers have grown organically over.
Over the last several years, we believe we have meaningfully increased the long term value of our maintenance and operations business, a trend, which we believe will parallel our deployment of one gigabit wireline direct and wireless wireline converged networks as those deployments dramatically increased the amount of outside plant network that must be extended and maintained.
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Now moving to slide eight.
Backlog at the end of the first quarter was 6.442 billion versus $7.314 billion at the end of the January 2020 quarter, a decrease of over 872 million.
This backlog approximately 2.512 billion is expected to be completed in the next 12 months.
The decline in backlog during the quarter reflected in part at customers Reprioritization of the components of a large program.
For Centurylink, we receive engineering services agreements in Oregon, Montana, Arizona, New Jersey, Pennsylvania, Virginia in North Carolina.
From a TNT a construction services agreement in Alabama.
The Verizon engineering and construction services agreements in various locations.
From charter construction of maintenance services agreements for California, Texas, North Carolina and Florida.
Locating services agreement for Portland General Electric in Oregon.
And rural fiber services agreements in Oklahoma, Wisconsin, Arkansas and Tennessee.
Headcount decreased during the quarter to 14000 to 92, reflecting adjustments we made to our operating plan.
Now I will turn the call over to drew for his financial review and outlook.
Thanks, Steve and good morning, everyone going to slide nine.
Contract revenues for Q1, 21, or 814.3 million, which was above the high end of our expectations. Despite a challenging economic backdrop.
Organic revenue declined 1.8%, but we had solid growth from two of our top five customers.
Adjusted EBITDA was 69.9 million or 8.6% of revenue.
Gross margins were at 16.5% and were approximately 80 basis points above the high end of our expectations for the quarter from improved operating performance at higher revenue levels.
Adjusted DNA expense decreased 18 basis points compared to Q1 20.
During the quarter, we took actions to reduce administrative costs responsive to the current economic conditions. Additionally, there was a reduction of performance based compensation compared to Q1 20.
Non-GAAP adjusted income per share in Q1, 21 was 36 cents per share.
Excluded from this non-GAAP result was the impact of a goodwill impairment charge of 53.3 million for reporting unit that provides installation services inside third party premises.
In response to the impact to covert 19, certain customers have modify their protocols to increase the self installation of customer premise equipment by their subscribers.
This reporting unit generated less than 4% of annual revenue did not incur losses in fiscal 2020.
Now going to slide 10.
Our balance sheet and financial position remains solid.
Since Q3 of 20, we've reduced net debt by 263.3 million in.
In Q1 of 21 net debt was reduced by 86.9 million from solid free cash flow and by purchasing 167 million of principal amount of our convertible senior notes at a discount for 147 million.
We ended the quarter was 643.9 million of cash and equivalents and 675 million of outstanding borrowings on our revolving line of credit.
These borrowings were made in March and deposited as cash balances on hand, as a protective measure to preserve financial flexibility in light of general economic and financial market uncertainty, resulting from the coven 19 outbreak.
As of the end of Q1 21, we also had 438.8 million of term loans outstanding and 293 million principal amount of convertible senior notes outstanding.
In May 2020, we announced a tender offer to purchase any and all of the $293 million of convertible senior notes outstanding we expect to use cash on hand to fund the purchases.
Cash flow from operations were robust at $85.2 million. During Q1, we made solid progress invoicing collecting balances during the quarter and the combined dsos of accounts receivable and net contract assets sequentially improved by five days from Q4 20 to 125 days at the end of Q.
One.
Capital expenditures were 18.3 million during Q1 net of disposal proceeds and gross Capex was 20.7 million.
For fiscal 2021, we anticipate capital expenditures net of disposal proceeds to range from $60 million to $70 million a reduction of 60 million from our prior outlook.
As of Q1 21, our liquidity with ample at 390.1 million.
In summary, we continue to maintain strong balance sheet and ample liquidity.
Going to slide 11.
To date during the Cold 19 pandemic, our services have generally been considered to be essential in nature and have not been materially interrupted the company is closely monitoring the impact of the pandemic on all aspects of our business.
We have taken proactive measures to maintain business continuity manage costs and preserve the solid financial position of our company.
We're encouraged by the Q1 performance since the onset of pandemic.
At the current time, we are seeing stable overall demand for our services as we look ahead to Q2 2021, and we anticipate non-GAAP adjusted EBITDA percentage of revenue, which is broadly consistent with the Q2 2021 outlook. We provided in February 2020.
However, given the difficulty to project our revenues and results of operations. During this period of greater economic uncertainty, we're not providing detailed financial guidance for Q2 2021 or subsequent quarters at this time.
The ultimate impact of our future operating results cash flows and financial condition is likely to be determined by factors, which are uncertain unpredictable and outside of our control now I will turn the call back to Steve.
Thanks drew moving to slide 12.
Within a challenge the economy, we experienced from end market activity and capitalized on our significant strikes.
First and foremost we maintained strong customer presence throughout our markets.
Second our extensive market presence has allowed us to be at the forefront of evolving industry opportunities.
Fiber deployments, enabling new wireless technologies are underway in many regions with the country.
Wireless construction activity in support of expanded coverage and capacity continued to grow through the deployment of enhanced macro cells and new small cells. In fact, we've received recently completed or begun work associated with several thousand fiveg small cell sites across 13 stage.
Telephone companies are deploying fiber to the home to enable one gigabit high speed connections cable operators are deploying fiber to small and medium businesses and enterprises. A portion of these deployments are in anticipation of the customer sales process.
Fiber deep deployments to expand capacity are underway.
Dramatically increase speeds that consumers are being provisioned and consumer data usage is growing dramatically.
Customers are consolidating supply chains, creating opportunities for market share growth at increasing the long term value of our maintenance and operations business. In addition, we are increasingly providing integrated planning engineering and design procurement and construction and maintenance services for wired and converge wireless wireline network.
Works.
As our nation and industry contend with the Cobot 19 pandemic, we remain encouraged that our major customers are committed to multiyear capital spending initiatives and we are confident in our strategies the prospects for our company the capabilities of our dedicated employees and the experience of our management team as we navigate challenging.
Thanks.
Doug Tammy, we will open the call for questions.
Ladies and gentlemen, if you wish to ask your question. Please press. The line then zero on your phone you may withdraw your question that anytime by repeating one zero command. If you are using speakerphone. Please pick up the handset before passing the numbers and once again if you have a question you May press, one then zero.
And we do have a question coming from Sean Eastman with Keybanc. Please go ahead.
Hi, gentlemen, thanks for taking my question. So everybody is well on your end I just wanted to start.
On the decision.
Not to provide guidance overall I understand the uncertainty, but it just seems like disruption is.
Pretty limited here.
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Near term and demand trends are stable. So I'm, just trying to get a little more color on where the big unknown is and what visibility is like around order flow.
Near term.
So Sean look we had a good quarter the trends are stable into may.
We're confident in the business today, but we have all of our major customers, who are not providing guidance to their investors.
We just weren't comfortable or presumptuous to get in front of that approach from the customers.
You know clearly there is always different approaches to providing guidance and uncertain times.
But first and foremost as your current period performance and that was good.
Mhm.
Got it.
All right, so really nice improvement on the cash generation last two quarters here.
Just.
Wondering if you could help us with.
Expectations around.
Conversion of free cash flow.
From an EBITDA this year maybe relative to.
Diatoms normalized.
Trends and or whether there's some moving parts.
We should be considering.
As we move through the rest of the fiscal year here.
Well clearly we had dsos come in we re norm to number of our vendor relationships to get more in line with what I'd call industry benchmarks.
We continue to work hard to tighten our collections process managed capex and manage.
Working capital more broadly.
And so we we were pleased with the reduction in net debt. We were pleased with the reduction in leverage.
And we expect those to continue.
Once again, given the uncertainties of the environment that we're operating in.
Got it and I'm going to sneak one last one and so the Capex flex down is trading notable.
I'm, just curious whether that should be an indication to us on where revenue is trending just in terms of.
Capital intensity and whether a component of a component of that capex is sort of being deferred into fiscal <unk> 22.
Just how to think about that.
So we have always had an aggressive replacement cycle, where depending on the residual value of the equipment. We can sell it earlier than most people do any industry because we've seen good returns.
In a way it's the arbitrage the discounts we get when we buy equipment new to what it's worth in the in the aftermarket.
And typically in periods of uncertainty, we're we're able to extend the useful life of the equipment with a modest if any increase in our maintenance cost and once again in periods of uncertainty, we're just managing that cash.
Clearly we had good revenue performance.
In this quarter.
We don't see any impediments based on our capital plan.
Continuing to grow the business when it makes sense.
Got it I appreciate the time thanks.
Our next question comes from the line I wouldn't allow dealt with Stifel. Please go ahead.
Hi, guys. Good morning, good morning Noel.
So.
Thanks supplement for my first question I was hoping.
If you give us a little bit more detail on the large customer program that you've discussed in the in the past.
You've talked about moving from phase, one which has been a little bit more challenged into phase two curious if the timing there that you've kind of previously communicated has changed at all and you also mentioned reprioritization about large customer program.
Just to clarify a little bit what that what that means that would be helpful.
So no Noelle, we really don't have anything to add to what we've talked about in February in terms of our expectation the rail moving through the initial portions of that large customer program.
So so nothing.
Real noteworthy there in terms of the rate Reprioritization of a large customer program. It was for a portion of the work.
The customer reprioritized until when we evaluated the realize ability of the backlog.
It's more uncertain and so we reduced that it's not of concern to us.
Okay. Thank you that's helpful. And then just in terms of your employee count and your head count could you talk about how much of that the reduction was let's permanent versus temporary how youre thinking about ramping the workforce backup when that's when the work back any.
Any thoughts there on kind of how to manage through these these changes sure. Joe if you look of the headcount reduction of call. It just north of 900 employees sequentially.
About a third of those war non revenue producing.
Positions, we've had a number of efficiency.
Initiatives underway, we took a hard look given the uncertainty what we needed on the DNA side and other non revenue.
Producing positions and we made some hard calls and so we were able to reduce those folks.
In a period of uncertainty on the revenue producing side to roughly the other two thirds.
A good portion of those relate to what I'll call our short cycle businesses.
Where they are they're almost exclusively performed in house and were seasonally we typically have lots of trainees.
At this in during this quarter and when we looked at the activity of those short cycle businesses being depressed.
We released.
A number of folks that were in training.
Yes.
The work appears to have bottomed in those short cycle businesses towards the end of April.
We'll bring them back as we need them.
But we.
May be adjustment, because we didnt have the business at the time that they were in training.
Thanks that makes sense.
Thank you and our next question comes from the line of Alex Rygiel with B. Riley. Please go ahead.
Well as Steve.
Good morning, Alex.
Steve Your backlog was down due to a customer reprioritizing a large program.
The in house customer premise work shift.
No. It was really as I just said on the answer to know well. It was really just a shifting priorities and so when we looked at the Realizability. The backlog we took a we made an adjustment.
I mean, the work's been cancel just means from up backlog perspective, we needed to be more conservative.
Given the Reprioritization.
And can you quantify the negative impact on revenue and EBITDA from Covidien the first quarter.
So I think the the impacts were.
Generally limited to the short cycle business and it was pretty insignificant.
And how does your activity in may compared to April.
Again, as I told no well in the in those and we don't have a lot of business that short cycle, but in those short cycle businesses. It appears that activity bottom kind of somewhere in the weeks of April 18th the April 20, Fiveth and it's up slightly coming into May.
Thank you rest of the business was unaffected.
Material in any significant way.
Thank you.
Thank you. Our next question comes from the line of Brent Thielman with D.A. Davidson. Please go ahead.
Hi, Thanks, good morning.
Good morning, Brett.
Hey, Steve I know you guys and providing a sales outlook I know, there's a lot of factors in play there, but it does look like you guys feel pretty good.
Dave a rising the margins with this quarter in Trinidad commentary around the second quarter is is that fair.
Yeah, I think if you look back as the guidance we provided in February as a whole we feel for the July quarter, we're comfortable with that but we're not providing any detailed guidance given the factors we've talked about.
With earlier questions.
Okay.
Okay, and I, just bigger picture I mean, a lot of excitement here.
This year sprint T mobile kind of merger merge.
Addition to enters the four areas.
Talk about.
Our discussion progressing with any of those customers you expect their E. Com customers are bigger customers per year, maybe anything that's happening behind it seems that might give us some flavor.
What is ramping up here.
Well look we're clearly aware of the programs, we're having some discussions I would say just generally in wireless.
It represented about 10.5% of this quarter's revenue.
So kind of on a run rate basis approaching 350 million in revenue, we had good growth with a TNT.
And so I think we feel good about our opportunities there.
I think it's taking some time to develop theres been some industry commentary.
About that but we're we're still confident overall in the wireless business.
Okay, maybe maybe one quick one just on the progress on cash growing the Eric I.
I know you guys been kind of targeting this ninetys level do you think you can get there this year versus.
Maybe we're having to wait DAF 21, which I think we talked about last quarter. I think we continue to make progress whether we get there. This this fiscal year or not we'll be moving in the right direction.
Okay Thats great. Thank you guys.
Thank you and our next question comes from the line of Jennifer 15 without firewall.
Great. Thank you for taking my question Q, if I may.
Just this morning Centurylink.
I think that's the most growth many of your customers and now.
And as today to put out an additional 400000 homes, let's get that speed.
I guess, maybe I'll ask did that surprise you do you expect them continued Geraldine then you're on the offensive and their Fiberplus and then secondly.
Paul I noticed you hadn't new contract from charter charter is not appeared in your cap I touched on my list is that something we could expect to see them comment anymore offensive in aggressive way. Thank you.
So with respect to Centurylink, Jennifer we've been actively participating with them and their fiber to the home initiative now for probably going back to 2015 2016.
We weren't surprised in the listed markets.
That were identified.
We are encouraged that they feel good about the program.
And believe that its successful.
And so up so we're happy with the progress we made with them as you identified we grew got a 40% plus organically year over year, and then with respect to card charter those are not new contracts those are contracts we have in place.
And have active work under.
I think in general what I would say about cable is clearly they had a great subscriber addition quarter.
The the work from home and the and the and the amount of video conferencing and other bandwidth intensive applications.
That have been exposed.
Or increased by the pandemic I think that's overtime going to be supportive.
Continued expansion of capacity in the in cable networks and all networks.
In general.
Steve If I may can I, just add on that last point on cable from what I've read it seems like the link is really being challenged here for that Jim and his team et cetera is that something that can be held true more fiber deep architecture from cable.
Sure. So there's a number of ways a cable can provision more upstream bandwidth, but the most basic is the reduced the number of subscribers that connect to an individual fiber at an old location and Argo pushing fiber deeper.
Certainly helps with that on a shorter term basis. There can certainly be nodes blending activities that I think one of our customers that talked about at of which we've been been very active in supporting those efforts.
Thank you.
Thank you and once again, ladies and gentlemen that is one his new role for question and we do have a question from the line of Blake Hirschman Kim. Please go ahead.
Hi, Good morning, guys. Good morning Blake.
Steve It sounds like the short cycle pieces are really once all.
Any kind of an impact can you.
Kind of frame up what percentage of the overall mix.
You know would fall under that short cycle that's mission.
Let's have drew give the split between cable telco and locating and I think we can frame our answer that way yeah.
Good morning, Blake, So telco was at 72.1% table was 17.1%.
Facility locating was at 6.5%.
And electrical and other was at 4.3%.
Sure Joe Blake typically the short cycle businesses that we're referring to are really around the locating and the cable installation business and as you can tell.
Between our disclosures there they are less than 10% that doesn't mean they stopped they just had slower activity.
So so a minor impact.
Okay got it right.
And then on.
80 on it looks like in Bose.
Payable went up a bit.
Hi, This is not a bad thing at all just trying to get us unsure how much of that might be more kind of timing versus sustainable kind of as we as we look for it.
Got it drove as Steve mentioned Blake just around the payables.
We looked at vendors and.
Three norm.
Where the payment terms are on those more in line with what Steve referred to as industry standard. So that's something that Weve spent time on during the quarter and we'll continue to look at that.
Got it sounds great.
Hi back in queue. Thanks.
Thank you and our next question comes from the line of Alan Mitrani with Sylvan Lake Asset management. Please go ahead.
Hi, Thank you.
Just a couple of quick ones, Steve can you talk about how work from home for I'm, assuming a lot of your employees did work from home this past quarter, but how technology and work from home is going to change the business over the next year or two or maybe just talk about some of the software packages you put in or or is it not and this is just going to be a standard normal outdoor business. The same way, it's always been to 20 years.
Joe I think Alan as we said in our comments, we moved over 2000 people I think it was actually north of 2400 people to the working off site or work from home.
We're going to be very thoughtful and not in a hurry to come back on site. Because we found good productivity, we thing generally employees like it and we think it's been good for the business. So clearly the investments we made around moving applications to the cloud.
Making sure that we were ready with sufficient capacity.
Move Beauchamp site I think was a was good investments over the last several years.
We suspect that were not the only company thinking that way and so we think there are going to be more demands on residential that works where actually.
What has traditionally been in in facility or in office activity goes to the edge of the network.
On the residential side. So we think that's good I think.
The other.
Trend that I think is just emerging and probably will accelerate over time as it is all numbers of industries thinking about how they deal with social distancing and using Fiveg networks everything from warehousing to logistics to.
Manufacturing I, just think theres going to be substantial.
New applications developed that that take advantage of Fiveg technology and fiber deeper into the networks.
And.
I like the comment one of our customers made.
But even in this period of slow time people pay their phone bills there they're up.
Wireless bills.
When they're skip and rent payments of mortgages right Joe It says how important the networks that we work on our to the country.
Great. Thank you and then can you talk about the competitive dynamic as it relates to Fiveg, we haven't really seen I mean, there's no fiveg handsets nobody's really doing anything with Fiveg do you think.
The work from home dynamic the fact that everybody needs cable or what kind of activity will push people to invest even faster maybe through an infrastructure bill if it comes through or do you think that the delay in handsets that might come out from a five year people buying anything might delay any sort of consumer application for it because I'm just wondering why some of your customers.
Might not either might accelerate or decide to pull off the gas in terms of spending capex for the next year or so.
Yeah, I mean, certainly on the capacity side right, they've all highlighted that they're investing to create capacity.
I think in terms of Fiveg Allen, there's there's lots of preparatory work that has to be done that is well underway. We're working on thousands of sites across.
13 state. So we think it's real I think if anything.
Particularly on the industrial side and on the other residential side that all of the changes in the economy.
Only will reinforce.
The trends around deployment.
I think the other thing that we highlighted in our comments is I think when you look at.
Work from home telemedicine distance learning all of the things that we rolled out rapidly as a country to contend with a pandemic.
Access is absolutely crucial.
All those applications and so.
You know where we are.
Hopeful the that's reflected in and.
Future infrastructure bills, certainly we've done lots of rural.
Telecom deployments.
Over long period of time, but we did lots coming out of the last recession.
That were funded in part by federal dollars and so.
As I think thats up the repair paying close attention to.
Okay, and then and then lastly, if I can the sequential drop in backlog is it your biggest in a long time is there something that you pulled out of backlog or is it just people didnt will be some of the work can you just remind us or what's your thinking in terms of what that reflects so Alan as we said earlier roughly a third of the decline was his review.
Uhhuh Asia or of this reprioritization of the backlog one cancelled, but it was reprioritized enjoyed a probability basis.
We just marked it down the rest of the business had a normal burn it in fact subsequent to the end of the quarter, we had a pretty substantial renewal and our small cell business within key customer.
We've renewed some other business and so we are not concerned.
About that trend.
Thank you.
Thank you and our next question comes from the line of Adam Tolmar with Thompson Davis. Please go ahead.
Hey, good morning, Steve Hey, good morning out I'm, just curious what what's the impact of.
I guess the virus on kind of short term trends from the standpoint of I mean, as they're almost a fair amount of emergency work as.
Customers struggling to keep up.
Yes look I wouldn't I wouldn't call. It emergency work I think our customers networks are performing well the number them have provided lots of disclosure about the rapid growth I think what I would say is it's as if a year or a year and a half's worth of normal network growth guy to accelerate.
It into a two week period or three week period.
So I think the networks have done well that being said, we've had a fair amount of activity.
In in different geographies across the country to create some capacity.
Backfill that acceleration of the of the growth.
Does that make you it's kind of make you feel more confident about yes your customers.
Economically sensitive and they can cut capex, if they get nervous about the economy after cash flow gets impacted but I've got to think that.
The importance of networks and this time kind of insulate you a little then.
Yeah, I think as always and we said this in our Conmeds rate. The we view is what we work on these networks that our customers provide as essential.
The full a sense for the country.
And I think thats been more evident over.
Over the last two months than maybe it has been in several years right. So I think this is it's absolutely crucial.
I think they will continue to invest you just have to be aware that in a up in the economy that had some short term challenges that there may be some effect on their behavior, but intermediate long term I think this makes.
All of the drivers of our business.
Ever clearer and stronger Okay can you talk about the decision to pull in that converts now.
And then how that impacts.
Quarterly DNA and interest expense going forward.
Alright drew wanted to take the DNA and interest expense yet. So so just on the on the interest side of it had them. The converts there's two elements to it one of those we add back which is a noncash.
Amortization, and then theres, the coupon, which as a 0.75.
And where the where the senior credit facility is now and where LIBOR is at a low rate its it certainly attractive.
Debt currently and there is capacity within the facility.
To repurchase those nodes and so we anticipate using cash on hand to do that yes, I think in terms of I mean, the way, we think about the repurchase as the tender offer is the investors have other opportunities in the marketplace to invest capital.
It may be more attractive than holding this convert to maturity in to the extent that we could provide liquidity for them at the right return for us.
It just was a proactive way to manage the.
Capital structure.
Okay, I guess I was hoping drew it make it easy for us and give us some targets for cute on DNA and interest expense.
Well, we'll see how many of the notes come in and then we'll consider helping folks out wasn't where that Doug.
Understood. Thank you.
Thank you. Our next question comes from the line of John Lopez Whats vertical group. Please go ahead.
Okay.
Hi, guys. Thanks, so much.
Good morning, John Good morning.
I just want a couple I sorry, I've a couple just quick ones on the backlog stuff just just to clarify to make sure. It's I'm just I'm clear on on the moving pieces. So the first thing was there anything explicit or specific related to just lower ontime installation activity is that its specific contributor here in anyway.
So John I'm not sure I follow the question I mean, we certainly had less in home activity.
That was not a primary driver of the of the change in the backlog, but certainly.
As all of our most of our customers of have identified.
'cause to their customers or not.
Particularly comfortable understandably with happen folks come into their homes and show there's been an impact on that business.
Okay understood.
In that context, if I, just look and I don't know what your comment was quarter to quarter year to year, but.
You have kind of 870 million.
Alan from prior quarter.
Just to be clear, you're saying that there wasn't a specific portion of that were in home just gets removed.
No because we continue to have some levels of activity, it's at reduced levels of third or a little better of that was his reprioritization dynamic which is not a concern to us the rest of it was ordinary course, and we've we've talked about this John before.
Our backlog is an estimate using a number of methodologies that are consistent over long period of time.
It correlates over the intermediate and long term with revenue, but quarter to quarter. It's not all that meaningful made had we've gotten the renewal in three days earlier than we did it would've been a different number on the based on the small cell activity.
No that's I understood that's understood. Thank you.
The second just to come back to that to the Remeasurement part I think what I hear you, saying areas.
That activity likely resurfacing and I know you don't want to put a timeframe on it but I mean is it fair to say that that likely be re becomes backlog for lack of a better term in like calendar 21 or at some point well it hasn't been canceled it was reprioritized and it was reprioritized with an up uncertainty that we just didnt feel comfortable.
I'm not making some adjustments to the backlog, but is not that it was not a material driver to the overall company. It's just something that we had to do in the ordinary course based on new information.
Gotcha.
The last part on this it sounds as though.
Any of these changes they don't really seem like they're having much of an impact on your view of what working capital improvement can look like as we get to the back half of the calendar year is that a fair assessment and I guess, maybe my question then what spin off that is maybe like why if you're having this remeasurement now like why would that have no impact on your on your cash flow.
Capabilities in the back half the year, so John I'm not sure I follow the with respect to the backlog. It's an estimate it's different than our view in terms of working capital I mean, the working capital is gonna be a function of the revenue levels. The EBITDA margin and then the way we manage accounts receive.
Bubble and payables and we think that we will continue to de lever the business through the balance of the year based on those factors.
Right. Okay. No. That's helpful. I guess, what I was just kind of driving that it doesn't it doesn't seem like this change in backlog is really.
Driving much of a change in your view of the business over the intermediate term, maybe I could just simplify and that way I think that I think that's exactly correct that is [laughter] alright, great very good sorry, one last question here and you've talked around this a little bit in response to other questions but.
Yeah. This is kind of the 56 quarter of year on year decline at one of your key cable customers.
I guess I'm just wondering if you know again, you talked a little bit but is that a vertical that you would expect to invert from kind of tailwind or headwind as we look out over the next 18 24 months.
Well look I think we've talked about this before we were encouraged that Comcast grew sequentially.
We've talked about and they've talked about there.
Increasing deployment of fiber deeper into their networks I think there was some focus on on dealing with near term capacity.
They are clearly committed to pushing fiber deeper into the that work and we were encouraged that sequentially. The revenue went up as opposed to the declining trend that has been off so.
I think in general we were we were pleased with where that business was.
Very good thanks, Charlie I'm, sorry for the tortured questions.
Not a problem.
Thank you and our next.
Given the line of Neal Miller private investigator. Please go ahead.
Hi.
Ill.
In your opening comments, you referenced latency and I'm kind of I'm wondering whether that was off small microcell commentary or a node splitting or a fiveg overlay or just kind of how fluids why the emphasis on latency well I think Neal latency standards are key to the Fiveg standards.
And I think latency. If you think about it is is crucial to all of these deployments around.
Around whether its video conferencing or industrial applications I mean, the return cycle of the signal in the network is really important and becoming even more important as we think about autonomous vehicles at other.
The future applications that need the network they need a network that has a quick response time.
Great. Thanks.
Okay.
See please go ahead with Wells Fargo.
Hi, Steve just one last question.
You know depending on what you believe coming in from Washington, It doesn't seem debatable that if there isn't far stimulus broadband is going to be a part of that I know you saw some benefit in Alaska, amulets, which I believe 2009, I mean any thoughts there I'm not asking you to predict what's going on in Washington, but just would love your thoughts.
Sure. So Joe as you mentioned Jennifer into 2009 stimulus there was a roughly $7 billion that was.
Allocated to broadband rural broadband deployments and between the Datacom business at the time as well as the businesses that we acquired from others subsequent.
If you put those two together we did just short of $600 million of that stimulus work show kind of an interesting number almost 10% of what was was in the Vale eventually wound up as revenue to us.
And so clearly as we said in our comments if you think about distance learning and tell them Madison and all the things that have become essential.
Yeah, I think it's a reasonable.
Area that will look to Georgia as as future investment in a in a stimulus there's already the rural digital opportunities fund, which is underway, but I think clearly with the magnitude of the federal expenditures.
In the first stimulant first stimulus bills. My guess is it would be bigger if it were involved than it was.
10, 12 years ago, and I think that would be a good opportunity for us not no guarantees, but but we have a broad.
World presence across the country.
Thank you.
And we have a follow up question with Alan.
Please go ahead.
Steve how did your subcontractor workforce head count change in the quarter and can you also help us understand the cadence of completion of a large project for a particular customer.
Sure. So Alex this is always a back end level loaded quarter seasonally until April was a good month.
And so our usage of subcontractor certainly increased month to month throughout the quarter.
And and we had plenty of availability there show. So we we have we feel good about that.
And that I as we said earlier I think we're in the same place where we were.
Three months ago in terms of our progress and working through the that large customer program and the initial phase.
Thank you.
And so nothing there are no questions in the queue. Once again that is one then you're out.
Okay. Tammy thanks, everybody for attending this call we look forward to speaking to you again on our.
Our next earnings call the end of August.
I hope everybody stays healthy and say thank you.
[laughter] for today. Thank you for your participation of for you.
Income from service you may now disconnect.
Okay.
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