Q3 2021 Dycom Industries Inc Earnings Call

And on the amount of after the speaker presentation. The the question and answer session. After the question during the session you'll need the pets star one on your telephone is the acquired any part of their systems. Please press star zero.

There will be a brief pause as I transition on the call to your host Mr., Steve Nielsen. Please go ahead Sir.

[music]. Thank you operator, good morning, everyone I'd like to thank you for attending this conference call to review our third quarter fiscal 2021 result.

Going to slide two.

During this call we will be referring to a slide presentation, which can be found on our website <unk> 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, and Ryan or Das our General counsel.

I will turn the call over to Ryan or Nash.

Thank you Steve the.

The statements made during this call maybe forward looking in nature and are 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 expectations assumptions or beliefs about future events or performance that do not relate solely to historical periods of forward.

Forward looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current projections include.

Including 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 Steve.

Thanks Ryan.

Now moving to slide four and a review of our third quarter results.

As we review our results. Please note that in our comments today and in the accompanying slides we reference certain non-GAAP measures. We refer you to the quarterly report checks on of our website for a reconciliation of these non-GAAP measures to the corresponding GAAP measures.

The begin I want to express my sincere hope that everyone listening to this call as well as their families. Your help the unsafe we're living and truly unprecedented in trying times per country I could not be prouder of our employees as they continue to serve our customers with real fortitude in difficult times. They have my thanks.

Now for the quarter.

Revenue was 810.3 million a decrease of 8.4%.

Organic revenue, excluding 8.9 million of storm restoration services on the quarter declined 9.4% of.

We deployed one gigabit wireline networks wireless wireline converged networks and wireless networks. This quarter reflected an increase in demand from one of our top five customers.

Gross margins were 18.7 per cent of revenue, reflecting solid overall performance offset in part by the continued the impacts of the complexity of the large customer program.

General and administrative expenses were 7.7 per cent, reflecting tight cost controls and all of these factors produced adjusted EBITDA of 92.8 million or 11.5 per cent of revenue.

The adjusted diluted EPS diluted earnings per share of the dollar six compared to 88 cents in the year ago quarter.

[noise] liquidity was strong as cash on availability under our credit facility was 587.1 million. This amount represents our highest level of liquidity ever.

Finally, we made significant progress in reducing net leverage as notional net debt declined $110 million during the quarter. The 558.7 million a reduction of over 467 million in just the last four quarters.

Now going to slide five today major industry participants are constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are generally designed to provision one gigabit networks beach, the individual consumers and businesses either directly or wireless where the using fiveg technology.

Allergies.

The additional industry participants of recently stated their belief that a single high capacity fibre network and most cost effectively deliver services, the both consumers and businesses, enabling multiple revenue streams from the single investment.

The few appears to be increasing the appetite for fiber deployments and we believe that the industry effort to deploy high capacity fibre network continues to meaningfully broaden our set of opportunities as we look forward the calendar 2021.

[noise] access to high capacity telecommunications has become increasingly crucial to society and the time of the COVID-19 pandemic, especially in rural America the.

The FCC art off auction currently underway reflects the view of some of that the needs of work from home telemedicine distance learning and other new we have central applications require dramatically increased rural network investment.

We are providing program management planning engineering and design aerial underground the wireless construction of the fulfillment services for one gigabit deployments the.

The services are being provided across the country in dozens of metropolitan areas. The several customers, including customers was stated aspirations to initiate broad fiber deployments as well as customers who appear to be contemplating the resumption of broad deployments and with whom current activity is increasing.

These deployments include net worth consisting entirely of wired network elements as well as converged wireless wireline multi use network potential fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging suicidal incentives.

Our ability to provide the integrated planning engineering of design procurement and construction and maintenance services is of particular value. The several industry participants net.

The term macroeconomic effects on uncertainty may influence on customer plans customers continued to be focused on the possible macroeconomic effects of the pandemic on their business with particular focus on small and medium business dislocations and overall consumer confidence and credit worthiness.

We see some uncertainty in the overall municipal environment as authorities continue to manage the general effects of the pandemic on permitting and inspection processes.

And the impact of potential business limitations of due to the recent nationwide increase in COVID-19 infections.

Overall, we remain confident that our scale and our financial strength position us well to deliver valuable service to our customers.

Moving to slide six.

Despite the effects of the code of 19 pandemic on the overall economy, we performed well during the quarter, we experienced increased demand from one of our top five customers organic revenue decreased 9.4% our top five customers combined produced 71.6% of revenue decreasing the.

18.4% organically, while all other customers increased 11.1% organically.

The reason was our largest customer of 17.9% of total revenue or 144.8 million revenue from Comcast was the $143.6 million or 17.7 per cent of revenue Comcast.

Comcast was day come second largest customer and grew 9% organically.

Lumen, formerly known as Centurylink was our third largest customer chicks, 18.6% of revenue were 134.4 million.

18 on T. was our fourth largest customer the $118.9 million or 14.7 per cent of revenue and finally revenue from Windstream was $38.9 million or 4.8% of revenue.

Windstream was our fifth largest customer.

This is the seventh consecutive quarter, where all of our other customers in aggregate, excluding the top five customers have grown organically.

Of note fiber construction revenue from electric utilities exceeded $31 million in the quarter approaching just less than 4% of total revenue.

We have expanded our geographic reach and expanded our program management network planning services in fact over the last several years, we have meaningfully increased the long term value of our maintenance on operations business, a trend, which we believe will parallel our deployment of one gigabit wireline direct and wireless wireline converged on that.

At work as those deployments dramatically increase the amount of outside plant network that must be extended and maintained.

Going to slide seven.

The backlog at the end of the third quarter was 5.412 billion versus 6.441 billion at the end of the July 2020 quarter declining approximately 1 billion.

This backlog of approximately $2.339 billion is expected to be completed in the next 12 months.

The decline in backlog largely reflects further communications during this quarter regarding the reprioritization of re scoping of the components of the large program and our assessment of the expected pace of another component of the same program.

Freight TNT, we were awarded maintenance service agreements in Indiana, Ohio, Kentucky, Tennessee, All the Alabama, Georgia and Florida.

Also from a TNT of locating services agreement for Georgia for Frontier and Engineering and construction services project in New York and rural fiber services agreements of Minnesota, Oklahoma, Tennessee and Mississippi.

Headcount increased during the quarter to 14154 in.

In addition, subsequent to the end of the third quarter, we executed contracts that resulted in our bookings in excess of $740 million of backlog. These bookings will be incorporated in our fourth quarter calculation.

Now I will turn the call over to drew for his financial review and outlook. Thanks.

Thanks, Steve and good morning, everyone going to slide eight cash.

The contract revenues for Q3 were $810.3 million and organic revenue declined 9.4% for the quarter Storm work performed in Q3, 21 was $8.9 million compared to non in Q3 20.

Adjusted EBITDA was 92.8 million or 11.5 per cent of revenue, reflecting on a 108 basis point improvement over Q3 20.

Gross margins were at 18.7% in Q3 and increased 68 basis points from Q3 2008.

Compared to our expectations for the quarter gross margins were approximately 100 basis points below the midpoint.

This variance reflected impacts from customers, whose capital expenditures were weighted towards the front half of the calendar year, including a large customer program offset in part by improvements across the services performed for several of our top customers.

Good day expense improved 17 basis points compared to Q3 20 non.

Non-GAAP adjusted EPS was the dollar six in Q3 21 compared to 88 cents in Q3 20.

The increase resulted from higher adjusted EBITDA, lower depreciation and interest expense and higher other income from asset sales offset in part by higher income tax expense.

Now going to slide nine our balance sheet and financial position remained solid over the past four quarters, we have reduced notional net debt by 467.4 million included in this decline was a 110.1 million reduction in Q3 from solid free cash flow.

We ended the quarter with $12 million of cash and equivalents $85 million of a revolver borrowings $427.5 million of term loans and 58.3 million principal amount of convertible notes outstanding.

As of Q3 of our liquidity was strong at 587.1 million cash.

Cash flows from operations were above the 111.9 million, bringing our year to date operating cash flow to $279.4 million from prudent working capital management.

The combined Dsos of accounts receivable and net contract assets was at 127 days, which was in line with Q3 20.

Capital expenditures were 3.5 million during Q3 net of disposal proceeds and gross Capex was $9.4 million.

For the full fiscal year 2021, we expect net capex to range from $45 million to $55 million, which is a $15 million reduction from our prior outlook.

In summary, we continue to maintain the strong balance sheet and strong liquidity.

Going to slide 10.

For Q4, 2021, which includes an additional week of operations due to the company's 50 253 week fiscal year. The company expects modestly lower contract revenues with margins that range from inline to modestly higher as compared to Q4 2020.

The company believes the impact of the COVID-19 pandemic on its operating results cash flows and financial condition is uncertain unpredictable and could affect its ability to achieve these expected financial results now I will turn the call back to Steve.

True moving to slide 11.

Within the challenge the economy, we experienced solid end market activity and capitalized on our significant strength first.

First and foremost we maintained strong customer presence throughout our markets.

The extensive market presence has allowed us to be at the forefront of the evolving industry opportunities.

Labour deployments, enabling new wireless technologies are underway of many regions of the country telephone companies are deploying fiber to the home to enable one gigabit high speed connections cable operators of deploying fiber to small and medium businesses and enterprises. A portion of these deployments are in anticipation of the customer sales process.

Deployments to expand capacity as well as new build opportunities are underway.

Dramatically increased speeds the consumers are being provisioned and consumer data usage is growing particularly upstream cash.

The customers are consolidating supply change, creating opportunities for market share growth and increasing the long term value of our maintenance on operations business.

In addition, we are increasingly providing integrated planning engineering and design procurement and construction of maintenance services for wired and converged wireless wireline networks.

As our nation and the industry continued to contend with the code of 19 pandemic. We remain encouraged that our major customers are committed to multiyear capital spending initiatives. 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 channel.

Alleging times.

Now operator, we will open the call for questions.

Thank you.

Reminder, to ask the question you on the the press Star one on your telephone switch.

Let's try a question press the pound key please standby of all the composite can and they lost day.

Our first question comes from Adam Thalhimer with Thompson Davis. Your line is now open.

Hey, good morning, Steven true good morning out of running so the biggest kind of question I've gotten this morning is just on the backlog.

And I'm curious if the 749.

Million just represents renewals that the maybe got pushed out a couple of weeks or if there is some larger programs in that number.

So add on I mean, we'll obviously give you the full readout on net incremental backlog subsequent to the quarter on the next call, but it was renewals.

So so certainly with respect to the next 12 months in particular.

It had an impact on the of the calculation.

Okay and then.

I guess related to that Steve what can you tell us about the bidding environment.

Out there and kind of how that might relate to.

Year end backlog.

I think I would say generally this year there has been plenty of opportunity out there. The they have it has for the the processes of per she did a little bit more slowly because I think of the impacts of the pandemic.

But we're encouraged with what we're seeing and hope we have more to talk about in the future.

All right and then the last question I wanted to ask about customer number six.

It was 20 million of revenue this quarter up from 8 million last quarter.

I am curious I think the peak for that customer was more like 50.

Quarter, So I'm curious where revenue from the customer might be going and then also how the incumbents might react.

Yeah, I guess add on what I would say is as we said on the comments.

The there clearly were clearly encouraged that there are some customers that are appearing that appear to be kind of playing the resumption of broad deployments.

And that we see current activity increasing with those customers. So it's not just that customer there. There is the there are others. So I think in general we're we're.

Encouraged.

With developments around fiber to the home.

Yes, Steve I'll turn it over thank you.

Thank you on our next question comes from Brent Thielman with D.A. Davidson. Your line is now open.

Great. Thanks, good morning.

Good morning growth.

Maybe just on the on the fourth quarter.

From the qualitative outlook of the comment about margin in line or slightly ahead from last year, Steve still implies a pretty steep drop from what you've been doing the last couple of quarters I understand there's some seasonality in there, but anything else, we ought to be considering in that outlook.

Sure. So I think if you look at the last two January quarters. They they weren't anything to write home about so we want to make sure that we're taking a you know a view that of.

The has had history as part of the outlook I think the other thing I would say and who knows where this goes but we are seeing more pandemic or COVID-19 related impact.

On the business not so much around business limitations, but just the number of employees.

That are.

Indirectly or directly impacted.

We hope we hope we're turning the corner there were encouraged by the vaccine and the therapeutics, but we just want to make sure that given the record number of cases that we're seeing right now.

The we reflect that.

Incineration and how were looking at this quarter.

Got it Okay, and then the some of the issues with permitting.

Google wellness in the.

Local level of municipal level.

The inroads there you see processes of the ball a little more quickly.

Just curious.

How much in the segment talking on the.

Sure I think theres been a a year law almost hard to say it almost a year long.

Evolution in the number of processes that have gone from analog to digital to the things that can be done on line rather than in person.

I don't think anything in particular to call out.

Recently, I, just think that the the infections. Unlike the last two player on the initial flare up and then the one over the summer are very broadly distributed geographically.

So we're just reflecting that in the in the near term outlook.

Okay, and any any updated thoughts on just the ability to work down DS notes from here I know there are still above where where you'd like them to be just curious any thoughts there.

Yes, Brian I think what I would say is look we were encouraged the if you look at the the trailing four quarters October call at $470 million of operating cash flow.

In the end of the current quarter, we were able to get the the working capital tied up in the large customer program down a little better than 40 million.

So I think we'll continue to work hard over the next year to get back to.

You know more normal levels across all of the working capital.

Okay, great. Thank you guys.

Thank you. Our next question comes from Sean Eastman with Keybanc Capital. Your line is now open.

Hi, Tim Thanks for taking my questions.

Hey, Sean.

Hey, guys.

Could you provide a little more color on the adjustment to backlog in the current or I'm, just curious, what's what's happening under the hood around you.

Your estimates in there.

So Sean we've talked now it seems longer but it's been about two years that we've been talking about the evolution around objectives and priorities and the large customer program and so we received some new communications in the quarter.

That affected.

You know the Reprioritization of one component of the program the caused us to.

Assess the realize the ability of the backlog there were some scope adjustments for another component.

And then a third component where the run rates currently are just not those that left us comfortable.

With the with the prior estimates on the backlog.

Backlogs on estimate we there's a number of methodologies we use to assess it at estimated.

And you know based on the New communications, we got in the quarter.

It's really what triggered the.

Okay, Gotcha, and and just higher level.

I mean, what does the message around the growth trajectory in the business I think.

I'm just trying to.

Look at how the backlog this could just look this quarter relative to the.

The qualitative commentary remaining very from and strong around expanding opportunities. So if you could just help us from a high level.

I understand how to put those two things together and just trying to understand how the growth trajectory is looking.

Over the next year or two that would be really helpful. Steve.

Yes, Sean and I think we've covered this in prior calls so so 70 to.

The 75% of the the revenue in any given quarter.

Typically come from Master service agreements those are subject to.

The calculation methodology, where we take the trailing 12 months revenue, we take that times the number of months remaining.

And that is the backlog right. So it's a backward looking estimate so even as activity may pick up.

The there will be a period of time, where that does not get fully reflected in backlog.

And on the on the same way when do you have a couple of customers like we did this quarter that in the near term, we're down sequentially and down year over year that will cause that long term backlog calculation to be revalued. So the as I always say over the intermediate to long period of time backlog.

I think is is broadly consistent with the growth profile of the company on the scale of the company from quarter to quarter, it's subject of timing.

And.

In a different year the the the awards that we got subsequent to the end of the quarter and a non pandemic year, they might very well of happened in October.

On that it would have been a different number so so there's always timing issues.

Okay Fair enough I guess sneak one last one and I'm just curious how you think about assuming you guys do grow next year or the year after.

We should think about the operating leverage in the business you know I think clearly.

The strange operating environment this year, but at the same time.

You've talked recently about some cost measures and efficiency initiatives being accelerated interest.

Into next year or so.

On just pulling that together trying to think about the operating leverage on the business would be helpful discussion.

Yes, Sean I think as we as we've always said, we when we have a growth average broadly distributed across a number of customers that is helpful. With respect operating leverage when we have growth the gen side and established footprint, we get good operating leverage and I think as we've talked about in the comments we.

We have customers that we're working for now that are looking to expand programs and so that's helpful. The operating leverage.

I think the other thing to your comment about this year.

If you if you think about the impact of this large customer program pull that on the business.

As we've commented before this is a little better than the average year and I think given all that's going on in the business.

Having that as the foundation looking forward is encouraging though the.

No no guarantees we got to work hard to make it happen.

But but we are we're looking ahead.

From a price strong financial base on an encouraging outlook.

Helpful. Thanks, very much of the time.

Thank you on our next question comes from Eric loved share with Wells Fargo. Your line is now open.

Great. Thanks for taking the question Steve can you talk about the wireless business this quarter kind of the percentage of revenue and then the.

Growth rate and then looking out whether you see opportunities going into next year on wireless with the Fiveg upgrade cycle.

And the latest that have you seen the growing backlog of business for fiber backhaul or front haul, which I believe is recorded as wireline, but does generally support wireless applications.

Sure so with respect to wireless it was a slower quarter. So drew keep the straight it represented about the put her on the just over 6% just over 6% of the business and I think we talked about that on the on the August call, Eric the with the C band auction.

The comment shortly I think all of the carriers are trying to incorporate new spectrum availability into their planning cycles show that the intermediate to long term. Good the wireless business has always been a function of deploying new spectrum.

Certainly had a great.

Period of growth.

As first net spectrum got deployed for example by a TNT.

So I just think that we're seeing that the.

Preparation and then with with respect to.

Fiveg I think we continue to see lots of fiber deployments of small cell deployments.

I think.

The continued commitment.

The deploying more small sales that will support Fiveg spectrum.

And so I don't I don't know that we have anything new recently on that.

Great. Thanks for that and then just one more for me I guess on the cable side nice to see compact pickup in the quarter.

The other pretty good pipeline as you look forward with them doing full duplex DOCSIS.

Which I believe requires kind of more fiber related spend and then any notable trends of from.

The other cable players on low comp passed in terms of kind of network upgrade paths from here. Thanks.

Sure. So I think you know clearly all of the cable operators are thinking about the best way to continue to per vision. The the growth on net network traffic I mean, just really amazing I think the the average consumer took something like just under 400 gigabytes per month, which is up call it 40% year.

Over the year.

Upstream traffic the latest day to that I've seen was up about 40%, which was actually of the highest rate of growth this calendar year.

So I think all of the operators are thinking through whether its duplexer expend of spectrum or just the additional loads splits the.

They're they're creating more capability it was on great subscriber quarter.

For cable operators and the phone companies everybody is growing high speed.

Connections in fact, I think it was a.

I just read one of the smaller cable operators was at a conference last week and said when they offered one gigs or when one gig service was offered about 40% of people signing up took that speed tier.

So I think all of that is is helpful. Around the cable business I think the other development that we'll have to see is our GAAP auction is underway as of all the cable operators are talking about expanding the number of homes that they pass.

With high capability that works and that's also helpful going forward also.

Great. Thanks, Steve.

Thank you. Our next question comes from Alex Regal with B. Riley. Your line is now open.

Thank you good morning, Steven True Hey, Alex.

New backlog awards after the quarter close were $740 million, what was the mix of that between the next 12 month and total backlog.

I mean, Alex we just got the award Jan that's part of our normal quarterly analytic process. So we know the total value. They were renewals. So you can imagine the you know divide by some estimate of duration.

And so the you know good portion of it but not not auto line with the rest of the.

Book of business.

So maybe to ask that question in another way.

Do you think your I missed the backlog as of today sort of the day or two before Thanksgiving.

His flat down or up versus sort of exactly a year ago.

You know Alex I don't have the analytics in front of the me to the the show that I would say the that activity is been.

Been good I think we're encouraged about the opportunities that we're seeing I think we've said the this year has been a little bit slower.

To get things concluded I think thats just the you know up an effect of the pandemic. So.

I'd like the answer, but I'm not sure that I could within a rigor.

I mean, we don't we feel comfortable with what the opportunities in the business.

At the moving from your historic in from your historical experiences.

When customers consider the resumption of investment.

How important is sort of the flip of the new calendar year into a lot of their decision processes.

Yeah. So.

Once again speaking historically the these are we we work for very large companies. They go through our budget process that often starts mid summer concludes right around the our first week of December.

Ed and typically for large initiation as you begin to get some visibility.

In the fourth quarter, and then as they get budget approvals than day.

Move.

Strongly starting the beginning of the year with with with consideration for the fact that you have holidays on the hot weather and you've got those other things that normally impact first couple of months of the year.

But there can be what I would call of gathering phase, where as they initiate new new strategies or resumed strategies. The they get ready for in the back half of the year and execute the next year.

It's helpful. Thank you.

Thank you. Our next question comes from the lot of Jeff with Stifel. Your line is now open.

Thanks, Good morning, and hope.

I hope you all are seeing healthy.

We are now well thank you.

Right.

So my first question I, just wanted to touch on the $15 million reduction in Capex relative to your previous expectations on Im just curious if that's more reflective of how you're thinking about activity levels over the medium term or if there's sort of a shift in how you're utilizing and thinking about your current assets. Thanks.

Go ahead true yeah, Noelle so year to date, we have spent just under $25 million and so in the quarter, obviously is a little bit less.

The than we had been running so as we looked out the Q4.

We've got some new awards that are the air that we're spending on and some other.

Normal replacements as well so.

No nothing unusual there.

Okay.

And then circling back to your large customer program.

On earlier in the year, you talked about that being kind of 90% complete by early calendar 2021 on.

Kind of curious how you're thinking about that right now and you know the big theme. We've talked about here is that you are kind of shifting from the more challenging phase one into the more profitable sales to you I feel like we've seen some evidence of that in margin improvement over the past few quarters, a little bit tougher to see guidance, but are you just curious because it's hard to see on the numbers. If you can give us an update on how that's progressing.

Yeah, I don't think way of a whole lot to add with respect to the initial arrangement that we talked about with 90% of the geographic markets being substantially complete early on the next calendar year.

I think we're still on track with that it may be a month or two but it's essentially on that trajectory.

I I I. This program has gone through a number of reprioritization that evolutions and up.

I I think that will probably continue.

But beyond that I don't know that we have a whole lot the ad.

To what we've said before Noel Okay.

Thank you.

Thank you as a reminder to ask a question you on need to press star one on your telephone.

Our next question comes from John Lopez the site.

Okay. Your line is now open.

Hey, good morning. Thank you how are you guys, Hey, John Good morning, Hey, Hey, Steve.

So.

I wanted to circle back to the backlog on I want to ask the question this way.

If that's okay, which is if we take the 740.

That came in after the quarter end, we add it back to the current period backlog, it's still kind of down low single digits and I apologize because I know you've talked to the couple of times, but from your perspective does that inform us at all as to what we can expect from the business in fiscal 2002 calendar 21.

So John like we said last quarter and what we said earlier today right in the intermediate to long term.

The the backlog tends to track the overall scale of the company from quarter to quarter.

Subject of timing, specifically around renewals and new business and and occasional.

Changes from the customer.

And so we don't look to the backlog most of the time as being all that indicative over the next 234 quarters, obviously of your renewal.

That's important because if you don't get the renewal that could impact the the business, but generally other than those renewals in the short term, it's not highly correlated.

With the business.

Gotcha helpful.

Two other quick follow ups, if I could the first one is are you guys, making or do you in general make any.

Options about storm activity within the fiscal Q4 outlook.

John We don't and that's why we always call out the storm work. It is so hard one you can't forecast. It communications networks generally are less impacted by storms and say electrical systems and so we always think about organic growth is X. The storm work because we.

Just can't forecast as well.

Yes, we net.

Adjusted at all it just yeah of course.

The possible no no yeah, I, just didnt know if anything it spilled over like from the last quarter on to the current one but but that's that was my assumption the last.

So on Steve.

I'm wondering if we just take a step back we have there's a bunch of stuff going on so you have fiveg. Tom you mentioned C band Theres also CBR EPS.

There is also you know I'm, assuming some amount of initial planning work around the art off.

Whether that's on the implementation or people figuring out the I want to participate I suppose my high level question is do you think it's possible that this kind of combination of events or activities is it possible those are acting as headwinds to the business perhaps.

Perhaps temporarily that as your customers sort out what they want to do around those perhaps on wine as we look out into 2021.

Well, John I think we talked about it last quarter and I said it earlier on this call the.

Specifically with respect to wireless.

When you have an event like of spectrum auction in the end the spectrum that's available cash.

Can influence the way I'm carriers per vision additional capacity and capability over a multi year period.

I think theres always a period of time, where they're thinking through do I add capacity today with the current spectrum, that's available or do I figure out some way to take advantage of what.

Could be available to me at some point in the near future and so I think thats clearly something that we don't do a lot of wireless, but I follow the industry for a long time and others, who have done more than we have had pointed to that dynamic in the past.

The the there can be some slowing going into a spectrum auction, but coming out of it it's only valuable to the people who bought it if they deploy on.

And I do think that on other programs, particularly as people reach right Reprioritized and reassess budgets and move moneys around to attract due to address.

New programs at sometimes that will impact the business again, because they just want to be efficient.

Don't spend it today, if there is a new program coming along next quarter.

That that should be part of the planning process. So I think they're going to be an element to that sure.

Got you very helpful. Thanks, a lot I appreciate it.

Thank you on our next question comes from Alan Mitrani with sales and asset management. Your line is now open.

Hi, Thanks.

Steve you've generated the most free cash of seeing the last four quarters of you haven't got years, and you're going into your slowest quarter of the year.

Can you talk about your comfortability with the balance sheet, and where do you want to see debt leverage where you are in terms of M&A talks on the stock buybacks on your thoughts regarding that.

Yep, So Alan it it has been an encouraging four quarters on operating cash flow on free cash flow and that is due to the hard work of everybody across the enterprise from me there were a lot of things that we put into place of.

The last spring that people have of maintaining discipline on through the through the balance of this year.

Joe So first and foremost thanks to all of those folks that Didnt just happen because we sat here in headquarters and make it happen.

I think as we said on the last quarter.

We've always operated with the thought that target leverage in the business like this is somewhere in the two area.

Clearly, we have ticked down below that that gives us optionality to consider.

What we always do which is highest and best use of capital is organic growth. We're encouraged with some customers that seem to be.

Contemplating.

Pretty good opportunities for us.

The to grow.

Then we will look at what's available from an M&A perspective to the grow the the scale of the enterprise versus.

The returns that are available to us in share repurchases and you know that depends on what's available it's an opportunistic approach.

And I think we will continue to use the same discipline that we always have.

Okay. So thank you I appreciate that and it sounds like from your answer it wasn't just the fact of the business. The shrinking your and also the maybe you're doing a little better on Dsos. It's also the theres certain processes you put in place and efforts you put in place that you think could be maintained as the business increases in the next year or so yeah.

Yeah, I think we've talked about it a couple of quarters ago, We took a fresh look at the way, we managed accounts payable and move to a more industry standard timeframe.

We have put new processes in place around inventory management, so that were working across business units to make sure that we're increasing our turns right. So that we're carrying less inventory for any given the level of activity.

And and I think we've also been.

We've had tight cost controls around GE, a day use of contractors and other things that we could do.

To get better in the way we run the business.

Okay and also some of your customers I had to go back 15 years to see some of these low levels of revenues from the cable customers and stuff do you think you know we haven't seen the fruition of really the fiveg, putting an impact on some of the cable businesses to upgrade speeds at least on a broad basis do you think thats coming in the next year year.

And a half as fiveg becomes a little more pervasive in small cell.

And small cell densification happens.

Alan It's certainly possible I think I would point more to what we said earlier, which is the the the cable industry has had great subscriber growth. This year, there's been pretty substantial growth in upstream traffic.

And so folks are talking about.

Okay.

About what that means for their networks of where they have to invest in and we think that creates some opportunities going forward.

Okay. Thank you.

Thank you. Our next question comes from Adam tall high level of Thompson Davis. Your line is now open.

Thanks, Steve I wanted to ask about.

The rise in high level in 22, considering some of the moving pieces within the backlog commentary.

I mean out of at this point, we're just not going to provide any guidance for next calendar year fiscal 22.

Just the at this point, we were just not in the position to do that.

What do you think the I wanted to ask on our Das question. What do you think the actual of timing of construction is for that.

So Adam debt to the that's a great question. So it depends on who the winners are so so the auctions on going I think there will be some visibility early next year as to who the winners are to the extent that.

The we have winners who are new entrants you were thinking about using their own capital as part of the deployments certainly.

Certainly possible that they could start in anticipation of the funding that's coming from the government.

I think we mentioned last quarter and a continued this quarter were actually working in a couple of states for some rural.

Companies that are actually using cares act money to get started.

And we'll see if they are successful.

On the art off to the extent they are I think they'll probably continue.

Okay.

And then just lastly, how much did co the impact of the Q4 outlook Steve.

And it's just hard to speculate on that I would just tell you that we track the number of reported cases every day.

And they you know not surprisingly they've ticked up kind of in a similar fashion to what we've seen across the country and so we just need to be you know we need to be cognizant of that as we as we think about the outlook.

Okay. Thanks.

Thank you. Our next question comes from the Alan Mitrani with sales and asset management. Your line is now open.

Hi, sorry, I just wanted to ask about inflation, we're seeing it all across the board on commodities and the many other areas and it seems like wage inflation is going to be coming back, especially with the new government coming in how are you, making sure when you're bidding contracts that you're putting in a number of a cushion from a wage inflation perspective on are you seeing compare.

Deters being.

Being a little more competitive to try to get some work in this in between periods. The may lock in lower prices. The then maybe you sorry with about a year or so from now.

Yeah add on might look I mean, we're in a competitive industry and trying to evaluate people.

Peoples.

Thoughts.

At a high level is probably not something we spend a lot of time thinking about I would tell you that we have not seen any per announced trends.

In in wages.

For our folks.

The typical trend line that.

That we've seen throughout the year.

Thanks.

Thank you Ashley on minded to ask the question you on need to press star one on your telephone.

I'm not showing any further questions at this time I would now like to turn the call back over to Steve Nielsen for closing remarks, Inc.

Okay, well, we thank everybody this holiday week and before we go I think drew has won what other I'll just run through the customer split the telco was at 66%.

Well with the 23% facility locating was 7.3% and electrical and other was at 3.7% growth. So we want to just make sure we get that out there, but the but thanks for everybody's time and attention on the call and and wish you all a.

The safe Thanksgiving. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Yes.

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