Q1 2022 Dycom Industries Inc Earnings Call
Good day, and thank you for standing by and welcome to the Dicom Industries, Inc. Q1, 2022 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Jonathan's question. During the session you will need to press star 1 on your telephone please be advised.
On today's conference is being recorded if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Steve Nielsen President and Chief Executive Officer. Please go ahead go ahead.
Okay.
Okay.
Thank you operator, good morning, everyone I'd like to thank you for attending this conference call to review, our first quarter fiscal 2022 result.
Going to slide 2.
During this call we will be referring to a slide presentation, which can be found on our website's Investor Center main page relevant slides will be identified by number throughout our presentation.
Today, we have on the call drew debt Ferrari, our Chief Financial Officer, and Ryan Urness, Our General Counsel now I will turn the call over to Ryan Urness.
Thank you Steve the statements made during this call may be 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 the comments, reflecting our expectations assumptions or beliefs about future events or performance 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 projections, including those risks described in our annual report on form 10-K filed March 5th 2021, 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 4 and a review of our first 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 section of our website for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.
To begin I want to express my sincere thanks to our employees, who have served our customers with real fortitude and difficult times over the last 15 months now for the quarter.
Revenue was $727.5 million a decrease of 10, 7% organic revenue, excluding $3.9 million of storm restoration services in the quarter declined 11, 1%.
As we deployed 1 gigabit wireline networks wireless wireline converged networks and wireless networks. This quarter reflected an increase in demand from 2 of our top 5 customers.
Gross margins were 14, 8% of revenue, reflecting the continued impacts of the complexity of a large customer program.
Revenue declines year over year with other large customers and the effects of winter weather in the first half of the quarter.
General and administrative expenses were 9.2% in all of these factors produced the adjusted EBITDA of $44.1 million or 6.1 percentage of revenue and adjusted loss per share of <unk> <unk> compared to earnings per share of <unk> 36 in the year ago quarter.
The liquidity was strong at 477.4 million net operating cash flow was $41.5 million.
Finally during the quarter, we issued $500 million and 4.5% senior notes due in April 2029, and resized and extended our credit facility through April of 2026.
These 2 transactions leave the company solidly financed as we look forward to better performance.
Now going to slide 5.
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 1 gigabit network speeds to individual consumers and businesses either directly or wirelessly using <unk> technologies.
Industry participants of stated their belief that a single high capacity fiber network and most cost effectively deliver services to both consumers and businesses, enabling multiple revenue streams from the single investment.
This view is increasing the appetite for fiber deployments and we believe that the industry effort to deploy high capacity fiber networks continues to meaningfully broaden our set of opportunities.
Increasing access to high capacity of the telecommunications continues to be crucial to the society, especially in Rural America.
The wide and active participation on the completed FCC art of auction augurs well for dramatically increased rural network investment supported by private capital that in the case of at least some of the participants is expected to be significantly more than the FCC subsidy.
We are providing program management planning engineering, and design aerial and underground and wireless construction and fulfillment services for 1 gigabit deployments.
The services are being provided across the country and numerous geographic areas of multiple customers, including customers, who have initiated broad fiber deployments as well as customers who have resumed broad deployments of these.
Of these deployments include networks, consisting entirely of wired network elements as well as converged wireless wireline multi use network fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging societal incentives.
We continue to provide integrated planning engineering and design procurement and construction and maintenance services to several industry participants.
Macroeconomic effects and potential supply constraints may influence the near term execution of some customer plants.
Rod increases in demand for fiber optic cable and related equipment may impact delivery lead times in the short to intermediate term in.
In addition, the market for labor is tightening in some regions of the country, particularly for unskilled Semiskilled new hires.
It remains to be seen how geographically broad these conditions will be and how long they will persist despite.
These factors, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers.
Moving to slide 6 during.
During the quarter organic revenue decreased 11, 1% our top 5 customers combined produced 68, 2% of revenue decreasing 23% organically demand increase for 2 of our top 5 customers all other customers increased 31, 9% organically.
AT&T was our largest customer at 21.4 percentage of total revenue of $155.6 million AT&T grew 9% organically. This was our first quarterly organic growth with AT&T since our July of 2019 quarter.
Revenue from Comcast was $131.1 million or 18% of revenue Comcast was the icon second largest customer and grew organically 10, 7%.
Verizon was our third largest customer at 12, 6% of revenue or $91.5 million.
Lumen was our fourth largest customer at $85.8 million or 11, 8% of revenue and finally revenue from Windstream was $32.1 million or 4.4% of revenue Windstream was our fifth largest customer.
This is the ninth consecutive quarter, where all of our other customers in aggregate excluding the top 5 customers have grown organically in fact, the 31, 9% organic growth rate with these customers is the highest growth rate in at least 9 years.
Of note fiber construction revenue from electric utilities was $47 million in the quarter or 6.5% of total revenue. This activity increased organically 92, 1% year over year.
We have extended 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 and operations business, a trend, which we believe will parallel our deployment of 1 gigabit wireline direct and wireless wireline converged networks.
Of those deployments dramatically increase the amount of outside plant network that.
Must be extended and maintained.
Despite this overall industry trend, we were recently notified by customer representing less than 5% of our revenue.
The decided to in source of portion of the construction of maintenance services that are currently provided for them by us as well as the number of other suppliers.
They expect to implement the decision during the fourth calendar quarter of 2021.
After this initiative is fully implemented we expect to continue working for this customer in several markets under new contracts and perform other work on an ongoing basis. Although it currently appears at lower levels of activity now.
Now going to slide 7.
Backlog at the end of the first quarter was $6.528 billion versus $6.8 1 billion at the end of the January 2021 quarter decreasing approximately $282 million.
Of this backlog of approximately $2.7 and $4.6 billion is expected to be completed in the next 12 months.
Backlog activity during the first quarter reflects solid performance as we booked new work and renewed existing work, we continue to anticipate substantial future opportunities across a broad array of our customers.
From various electric utilities fiber construction agreements in Arizona, Oklahoma, Missouri, Arkansas, Mississippi, Indiana, Kentucky, Tennessee, Georgia, and North Carolina.
For Jetblue fiber construction and maintenance agreements in Washington, Oregon, and Idaho.
For charter of fulfillment of agreement, covering Washington, Nevada, Montana, Wisconsin, Massachusetts, Connecticut, New York, North Carolina, South Carolina, Alabama, and Georgia from.
From frontier of locating services agreement in California, and for consolidated Communications, a construction services agreement in New Hampshire head.
Head count increased during the quarter to 14331, now I will turn the call over to drew for his financial review and outlook.
Thanks, Steven Good morning, everyone going to slide 8 contract revenues for Q1 were $727.5 million and organic revenue declined 11, 1% adjusted.
Adjusted EBITDA was $44.1 million or 6.1% of revenue.
Gross margins were 14, 8% in Q1 and decreased 169 basis points from Q1 'twenty 1.
This decrease resulted from the impact of a large customer program as well as margin pressure from revenue declines for other large customers compared to Q1 'twenty 1 margin.
Margins were also impacted by the adverse winter weather conditions experienced in many regions of the country during the first half of the quarter.
G&A expense increased 112 basis points, reflecting higher stock based compensation and administrative and other costs non.
Non-GAAP adjusted net loss was <unk> <unk> per share in Q1 dollars 22 compared to net income of 36 per share in Q1 'twenty 1 the <unk>.
<unk> resulted from the after tax decline in adjusted EBITDA, offset by lower depreciation and lower interest expense and higher gains on asset sales.
Now going to slide 9.
Our financial position remained strong over the past 4 quarters, we have reduced notional net debt by $185.2 million.
During Q1, we issued $500 million of 4.5% senior unsecured 8 year notes due April 2029, we repaid $105 million of revolver borrowings and $71.9 million of term loan borrowings and we resized and extended our senior credit.
Facility through April of 2026.
Cash and equivalents were $330.6 million at the end of Q1.
$58.3 million is expected to be used to repay our convertible notes due September 2021.
We ended the quarter with $500 million of senior unsecured notes $350 million of term loan no revolver borrowings and $58.3 million principal amount of convertible notes.
Our capital allocation prioritizes organic growth, followed by opportunistic share repurchases and M&A within the context of our historical range of net leverage as of Q1, our liquidity was strong at $477.4 million and we continued to maintain a strong balance sheet.
Going to slide 10 on.
Operating cash flows of remained strong and totaled $41.5 million in the quarter. The combined dsos of accounts receivable and net contract assets were at 128 days on improvement of 8 days sequentially from Q4 'twenty 1.
Capital expenditures were $28.6 million during Q1 net of disposal proceeds and gross Capex was $31.6 million.
Capital expenditures net of disposals for fiscal 2022 are expected to range from 105 to 125 million of.
The reduction of $40 million, when the midpoint as compared to the midpoint of the prior outlook. This deferral reflects short to medium term manufacturer supply constraints.
Going to slide 11 for Q2.2022, the company expects contract revenues to range from in line to modestly lower as compared to Q2, 2021, and expects non-GAAP adjusted EBITDA as a percentage of the contract revenues to decrease compared to Q2.2000.
'twenty 1.
We expect the year over year gross margin pressure of approximately 200 basis points from the impact of a large customer program and from revenue declines for other large customers that are expected to have lower spending in the first half of this calendar year.
We expect approximately $8.7 million of non-GAAP adjusted interest expense for the components listed as well as zero point $7 million for the amortization of the debt discount on convertible notes for total interest expense of approximately $9.4 million during Q2, we.
We expect the non-GAAP effective income tax rate of approximately 27% and diluted shares of $31.3 million now I will turn the call back to Steve. Thanks true moving to slide 12 within a recovering economy, we experienced solid activity and capitalized on our significant strengths.
First and foremost we made.
The significant customer presence throughout our markets. We are encouraged with the emerging breadth in our business. Our extensive market presence has allowed us to be at the forefront of evolving industry opportunities telephone companies are deploying fiber to the home to enable 1 gigabit high speed connections increasingly rural electric utilities are doing the same.
Cable operators are deploying fiber to small and medium businesses and enterprises of 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 to consumers are being provisioned and consumer data usage is growing particularly upstream of <unk>.
Labour deployments, enabling new wireless technologies are underway in many regions of the country.
Customers are consolidating supply change, creating opportunities for market share growth and increasing the long term value of our maintenance and operations business.
As our nation and the industry recover from the COVID-19 pandemic, we remain encouraged that a growing number of our 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 now.
Now operator, we will open the call for questions.
Yeah.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please stand by while we compile the Q&A roster.
Our first question comes from the line of Sean Eastman from Keybanc capital markets. Your line is now open.
Good morning, Steven drew.
Thanks for taking my questions.
Wanted to start on the comments on supply chain constraints on how the.
That could potentially have a near term impact on on customer deployment kind of phasing.
I'm just curious is that something youre seeing.
Slow down activity today or something you are.
Trying to get out in front of.
Since its a big topic these days.
What exactly in the supply chain do we need to be monitoring Steve.
Sure.
So Sean I think it is a big topic.
I think the way we see it in the business. So far is that the trajectory of growth as customers kickoff new programs.
<unk> could be a little bit faster if the.
If the inputs were a little more available that's not unusual we saw that 10 years ago.
We've seen that at other times in the business and so I just think it's in some ways it's of little counterintuitive, but obviously would be better where all the inputs freely available, but it's also indicative of how much.
Upturn in demand that we can see.
See in the industry.
Okay. Okay. Thanks, and then in terms of the margin guidance for the second quarter.
200 basis points year over year.
The lower year over year of gross margins.
Of that is from the challenged customer program.
It would just be helpful. The get some more color on why.
The challenge program is still having such a pronounced impact from a year over year perspective.
If you could give us some indication of how that drags on.
Looks into the third quarter fourth quarter.
Even directionally it would be really helpful. Steve.
Go ahead drove the sure thing Sean So, yes, as we've talked about on the comments.
We anticipate year over year impacts of about 200 basis points. There were several things that we talked about it on there the.
The large customer program and we've also had a few customers that debt.
The appeared to be spending less at the in the first half of the year and so there is some absorption around that.
Component as well.
I think Sean with respect to the the large customer program look it's a smaller part of the business Theres lots of closeout activity that's associated with.
Completing markets there are cost associated with that and we just got a job through them.
And everyday that goes by we're chopping through more and we're on a path to do to make this.
You know a much smaller effect on the business, but we got to get through it.
So I guess just a follow up on that I mean, how much of the 200 basis points as the challenge customer program versus absorption on the on the remaining balance of customers. It's a significant factor Sean but it's not the only factor I mean, the other thing that was clear in the revenue that we had in the comments that we heard from Lou.
<unk> is that they got off to a slower start to the year.
The they expect that to continue but when you have year over year revenue declines on the order that we have there.
And we're still serving the same geography, there can be of some absorption issues.
On the other hand, we have other customers that are picking up quite nicely.
And so it's just the balance of taken a prudent view of what that does the margin.
In total.
Okay. Thanks, Thanks, guys I'll turn it over.
Yeah.
Thank you. Our next question comes from the line of Eric Love Chow from Wells Fargo. Your line is now open.
Great. Thanks, Thanks for taking the question, Steve you mentioned that the labor market, we're starting to tightening the market as well so.
Are there any notable changes the pointed out in terms of wage inflation are building any of that into your near term guide that we should be aware of.
Sean what we or excuse me, Eric what we've seen is in our core workforce.
We're monitoring the situation, but we don't see big changes in labor cost, it's been more as we look to hire unskilled and semi skilled people in the marketplace and probably those that are most affected by some of some of the government policies that are out there it's not everywhere. So it's regional so.
That's why we highlighted it it's not something that's a tremendous impact on the business at the moment, but it's something that we're paying careful attention to.
Okay, Great that's helpful.
You are still down about 900 total employees in terms of head count versus pre pandemic.
A lot of those kind of administrative costs that you've made the employees that are revenue producing that you don't need to bring back or should we expect that continues to continue to ramp as the next wave of demand.
This year well.
We certainly made some adjustments on the G&A side as growth picks up in the business. Looking ahead, there will be some increase there, but we're not back to where we were that's for sure.
Then.
As we as we see growth opportunities across a number of customers per fiber construction of its going to be a mix of what we do ourselves versus what we sub contract.
The the net of that will we will probably see some employee growth.
But not not as we've seen in the past it doesn't have to grow as rapidly as the top line.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Brent Thielman from D. A Davidson your line is now open.
Great. Thanks, good morning.
Steve could you remind us the timing the law.
Large customer program and sort of phasing associated with that and when you when you sort of expect this day.
The more of a transition on that program.
We're actively closing out a number of markets as we've talked about there's not.
A portion of the original expectation, there's not a whole lot left but there is still lots of activity that has to occur.
To close out the projects to get the final documentation done and the work through all of the invoicing.
So it's just the cost that we have to bear to get through the program. This year.
Okay.
And then.
Steve I was just trying to reconcile some of that.
The the near term challenges supply constraints labor constraints and things of that nature relative to what looked like a nice bump up in the next 12 months backlog versus the total backlog this quarter.
I mean any thoughts relative to that.
Well I think as always you know we were encouraged if you look at our other than top 5 customers the grew organically almost 32%.
We have a combination of frontier on Jetblue that you're on a half ago, where the same entity that would have been a top 5 customer.
And so I think it's just a question of working through some of the challenges.
While we're doing that within the context, where lots of customers are kicking off.
The large fiber programs.
And the largest of which of course is AT&T.
I think we are.
The hard to be anything other than encouraged given their commentary as late as yesterday of how they are re prioritizing capex.
Capex and focused on spending money on wireless and fiber.
So just.
Just something we have to work through.
Okay, maybe just lastly, the fiber construction revenue from utilities continues to be at small, but really fast growing component of the revenue for you and you also highlighted at quite a few new awards. This quarter from those types of customers, maybe just Steve your thoughts on on what Youre seeing there.
Can this can be can this be much more impactful kind of segments of the company.
On the near future.
Future sure Joe. So we certainly were encouraged with the award activity both its breath and then the rate of growth that we saw.
In the work for those.
Customers.
I think what's interesting is that the the art off process.
Has not finalized so so we're seeing customers that are making decisions that these programs are strategic enough for them to begin on their own capital confident of course that there are the off applications actually do get through the final approval process, but I think that tells you how important it is and what an opportunity.
For those.
The types of entities and so we're pleased with the exposure that we have.
To that customer set of the industry.
It's almost as if if you think about it we've created a brand new top 5 customer in the last 12 months to 18 months.
Yes.
Great. Okay. Thank you.
Thank you. Our next question comes from the line of Adam Thalheimer Thompson Davis. Your line is now open.
Oh, Hey, good morning, guys, Hey, Steve the the AT&T revenue came in above what we were looking for are you starting to see the benefit of that fiber build and speaking of phasing. How do you expect that to kind of phase in over the course of the day.
Well really I guess the next 2 years.
So Adam we were encouraged that we returned back to organic growth with AT&T.
The wireless business overall was down about 35% and for the most part debt was AT&T and we offset that.
Most of entirely with the increase on the fiber program and it's just getting started so I think we're encouraged with AT&T, we think it.
<unk> to ramp.
There are always in a program that size it's distributed across.
A number of geographic locations force.
I think it will continue to ramp through the balance of the year. We were encouraged last week and then of getting yesterday when AT&T reiterated.
Their objective to double approximately double the number of homes passed.
Over the next through the end of 2025, and then in some comments they made yesterday, they talked about potentially extending it.
10 million homes beyond that so it's a big program, we're serving them in a number of geographies.
We're growing we're growing pretty rapidly.
The the charter fulfillment awards of those related to Argos.
No Thats just part of the core business that we've had with charter for <unk>.
Literally decades at this point.
Okay, and then lastly can you help us understand the customer.
Who is in sourcing I mean, theyre talking about hiring 1000 people on buying a bunch of equipment.
And I'm just curious how that's kind of how are they going to do that given the challenges that you've addressed for your business.
Well.
The their business is there to run.
We had discussions with them as we said on our comments, we're going to enter into some new agreements that covers work for next year and beyond we expect activity levels will be somewhat lower.
But but they continue to remain a good customer.
And as as they move forward, we'll support them in that decision and see how it plays out alright.
Alright, I'll turn it over but I just wanted to say.
Terms of that large customer program, it's not like we do on 1 of the industry seeing that how do you think the customers being somewhat unfair thanks for the time.
Thank you. Our next question comes from the line of Alex <unk> from <unk>.
Your line is now open.
Thanks, Good morning, Steve first question.
Your organic growth was the negative 11% backlog growth was somewhat limited.
Suspect those 2 data points are not really telling us the story of what you see in steel on the ground today can you help us better understand that.
Sure Alex I mean, if you just think about the organic growth calculation for this quarter.
And then you know drews guidance implied for.
The next quarter, we actually see the the organic growth improving.
But it was really in the current quarter was really focused on on 2 clients, 1 who started the year slow and the other 1 who clearly has pivoted spending away from a large program and is much more focused in the second half of the year of getting or this half of the year to get ready in the second half of the year to deploy C band.
I think the C band auction certainly had an impact on on the way. The 2 largest participants have planned about their network, but I think we're encouraged we've already received small.
Initial allocations of C band work to prove up the took performed for both AT&T and Verizon So.
It's just 1 of the pivot periods.
And their plans.
That's helpful. And then what does your net Capex revision suggest about sort of near to intermediate term.
The revenue outlook and New project Awards.
So what it really reflects is that we have lots of orders out we've had continuing discussions with all of our suppliers from pickup trucks, the directional drills the bucket trucks and the microchip issue is a problem on deliveries and so what we will do we got ahead of it a little bit with order.
<unk> last fall and.
In winter and so what will take on the equipment that we do get in.
And we will dedicate that to growth opportunities and then we will extend the lives of the rest and when when the supply becomes available.
At the end of the year, then we will take receipt of the debt.
It's helpful. Thank you.
Thank you. Our next question comes from the line of Noelle Dilts from Stifel. Your line is now open.
Yeah.
Yeah.
Yeah.
Pardon me Noelle your line is now open.
Can you hear me Hello, Yes go ahead Noelle.
You find out you were breaking up before.
Okay.
Great. So yeah I just wanted to put something on this will touch on the labor tightness issue a little bit more.
I believe the kind of part of your business.
The suppliers of labor so.
Hugh.
And we've talked about this before.
Some of these situations where for that kind of medium to long term that kind of hit you on.
It sounds like this could be a little bit more of that headwind in the near term. So how should we be thinking about that.
Balance.
Yeah.
Yes, yes no.
Regarding when there is scarcity of labor we think.
There are times of that is helpful.
And then just Steve if you want to touch on yes. So look Noelle I think what we've seen and theres lots of speculation about the impact of enhanced benefits.
Which are set to expire in September so I don't want to overreach, but I don't also want to underplay debt on the unskilled and Semiskilled side of the business for us to get new new employees through the door.
In certain parts of the country not everywhere, we're having to pay more money.
Can see the growth rate that we had with the number of customers and obviously, we have the ability to put more field forces in the field or we could kind of grown.
32% of our business, 32% organically year over year. So there is an ability to do it.
I think what it does say is that we're going to be careful where we commit our resources make sure that we've got returns right.
And that's what you always do on a period of time, where the industry looks ahead to more demand than what they currently have.
Then what resources are currently available.
<unk> been through this before the doesn't mean.
But it won't be an issue, but it is something that we have managed true before.
Okay.
And then on.
At the high constraints.
It's important day several times on that deal.
Okay.
No no well youre breaking up we may want to operate the go to the next person in queue of Noel if you can get a little better reception will come back to you.
Operator, thank you.
As a reminder, task of question you will need to press star 1 on your telephone.
Our next question comes from the line of Alan Johnny on Sylvan Lake Asset management. Your line is now open.
Hi can you speak to the SG&A expense it was higher than I was looking for and the highest you've had even though your revenues for the <unk>.
Louis <unk> had in the wild could you speak of is there something specific in there or is this just inflation of getting price of giving salary increases and what's your guidance would be going out.
Thanks.
Yes drew go ahead, I mean Allen there was some increase in stock comp that obviously, we call out.
There were some administrative and some other expenses that ran through the quarter.
I don't I don't think we don't really have anything to add.
We understand it was a little bit above trend, but but.
We think it's manageable.
I mean, its manageability of revenue start going up I mean, that's really what needs to happen. Obviously, so in looking at it and go through I look forward to that thing, but can we fast forward a year, where maybe things are a little better you cut your comparisons get a little better with Verizon and some of the stuff is all in the.
On the rearview mirror in terms of the in between time between when all of these guys start spending and maybe an infrastructure bill might be passed what does the industry look like a year out from now you said theres not enough capacity to handle things, but the way. It works with you guys as your top 5 customers really represent the bulk of the business I realize collectively theyre not growing but theres a couple of <unk>.
<unk> for that in between but underneath the hood things look a little better you got to parse the data I just want to understand where you see the next couple of years going so once we get through this.
Well clearly if we start with AT&T al and they could not have been any more clear about what their plans around the strategic deployment of fiber in their consumer network and in other parts of their network and we think that obviously this year.
On essentially a restart of the program. They expect it to grow next year and they expect it to continue at least through 25, although some comments yesterday that debt as long as the the program performing well that it continues.
I think the I think the the.
The.
The Euro a year ahead are 2 years ahead Allen Whats interesting is all of the ILEC phone companies for the most part of fiber to the home programs.
Or at least maintaining if not growing right. So so clearly lots of growth with AT&T frontier has been very clear that they look at.
On the deployment of fiber of strategic.
Smaller companies like ZIP Lee, we actually as we mentioned in our comments, we've started with consolidated communications.
Which is a smaller customer, but but an interesting 1 in that they've been very clear the they expect to build out over the next 5 years about 70% of their footprint or about $1.6 million homes of fiber or.
Fiber to the home.
So I just think there is a clarity around the business strategies around network.
Particularly on the phone company side, but that has never been clearer both on the wireline side, so fiber, but also on the wireless side with respect to C band.
There were comments yesterday at the conference where.
There's a there's an appetite.
4 of 4.1 of our large customers to really deploy a wireless broadband prada.
Product throughout the country, including Rural America.
And I think on the cable side of the business I think they've also been very clear that they have very healthy broadband businesses that they are willing to invest in.
Particularly to grow upstream capacity.
On to remain true.
To maintain their competitive advantage over fiber. So I think the themes are all there we got to work through this large customer program, we've got some absorption issues.
The slow first half of our top 5 customer but.
We havent been at 68% of revenue for the top 5 or 32% for everybody else on a very long time, and we think that's a good sign for the future.
Thank you for that instead of I appreciate it.
Can you just give maybe drew can you give us maybe just a follow up on the horizon what was since we're going to see it in the Cumulus likely anyway can you give us what the what.
The 8% of total <unk> for Verizon I know it had been going down as you work through this in terms of where they stand due to the $390 million.
Last quarter on the receivables and contract assets do you have that number for this quarter. The island. It will when we publish the Q tomorrow, we will have all of that detail I would say that the the balance tied up in this large customer program is down about 25% year over year, we're making progress we understand everybody, including us would like it.
Be faster, but it is moving in the right direction.
Great. Thank you.
Thank you. Our next question comes from the line of wound Jones from Stifel. Your line is now the thing.
Hi.
Yes.
No.
It's a little bit better we will do our best go ahead.
Well.
Cash.
This of getting kind of cash.
Cash.
In addition, the prepared.
No way.
You know we will just have the follow up with you.
On our end, we're getting every other word.
Okay.
Alright. Thank.
Thank you.
Yeah.
Thank you. Our next question comes from the line of John Lopez from vertical group. Your line is now open.
Yeah.
Hey, thanks very much.
I'm, sorry, I'm wondering if we could come back to the to the Verizon the situation of real quick and maybe if you could help me this way.
At this point, if we look relative to sort of the interim peak your revenue with the customers down like over 50%.
I guess the thing I'm still wrestling with is what is the baseline if we can call. It that with this customer relative to the unfavorable contract stuff that sounds like you are kind of in the late stages of working through here.
Can you maybe tease those things apart like how much left before we get to a run rate with that customer.
Or is kind of of the whole 13%.
Deemed stuff that you need to work out.
Well John the there's really 3 elements. So there's a portion of the work that we're working through.
That's been challenging there's another portion of the work which is around their small cell deployment of network extensions.
That as I work through their C band priorities has slowed this year and that was the the portion of the program debt last year was more supportive because there was more work there and then there's the <unk> portion the.
The challenge portion is not all of the work, but it's a significant part of the work, but it's coming down.
Sequentially as we worked through the year.
And the cost associated with it to a degree of operating cost, but they are really more focused around the closeout costs.
And it's just something that we got to work through.
Okay, Okay that helps.
My second question again, just conceptually around not this customer so much, but but but sort of the surrounding element. So I guess my understanding was the idea here was you can work out this revenue and then there is enough.
Other project revenue other customer related revenue that would be significantly more margin friendly that you can replace this with over some.
Not in terminal the amount of time is that still right is that still the right concept here or have factors either labor capex, otherwise, perhaps the constrained the ability to replace this revenue and maybe the same way that you had previously intended.
So John it's not a it's not an input it's not of labor or material constraint is the customers made clear at a number of presentations with the advent of C band and the focus on deploying that spectrum.
The the portion of the Bill that was was going to do more network extensions. The more small cells is at a level that is lower than I think what everybody expected a year ago.
On the same hand, AT&T is at a level that nobody dreamed of a year ago and Joe as always it's a mix in the business of making adjustments as customers adapt their plans to changing priorities.
No I get that 100% seat, but just follow up on that last statement. So is the increase in the second bucket sort of Uncork asked on foreseen in your view is that larger than the decrease in the first bucket on forecast on foreseen.
Okay, John I, maybe didn't keep track of first bucket in the second bucket, what I would say is that the portion of the work that's in support of extending the network. This year is currently slower, but I think everybody expected a year ago and I think in part that's because of the result of the of.
Of the C band results.
Sure sure no, but if you think 2.3 years out bucket 2 was now with the extension bucket 1 with small cell related I guess my question is as you think out of year Q3.
Are the increase is the increased appetite for that second cohort larger than the drop in the first cohort.
Yes.
John again, I got to make sure I'm clear on your term so show network extensions on small cells are 1 driver of the program right because youre deploying fiber off of the core to pick up new endpoints.
Look see C band requires a coverage layer it will require of capacity layer and I think as they figure that out there'll be opportunities.
Around doing that this just is not the year that it turned out to have been as busy as I think people expected a year ago and that's not just us that's everybody.
No I got you, Okay, sorry, and just 1 last clarification on the on the Capex stuff is your view that that is the limiter industry wide or would there be some reason that you're unable to.
Procure some of those items, whereas say peers and our customers maybe in a more advantageous place with this.
So show with respect of the cable on the equipment that is a factor of what the customers are doing theres a portion of the business.
And rural where we might supply some material, but that's not the real driver. The driver is the uptick in demand.
That everybody has to deal with on the automotive side.
We enjoy as good or as a relationship with all of the suppliers as anybody else and we don't think we're getting things any slower in fact, I think we're probably blessed that we had a pool of assets that we had on order from last fall.
Puts us on a good.
As good of position as we can be given the supply constraints.
Okay I got you. Thanks for all of his thoughts I appreciate it.
Thank you. Our next 1 comes from the line of Alan The Johnny on Sylvan Lake Asset management. Your line is now open.
I wanted to follow up on the backlog issue did you already pull out of whatever expectations of backlog for that customer thats the in sourcing the maintenance.
There's no need to adjust the backlog Alan because we have contracts through the end of the period and we expect to enter into new contracts that cover next year and beyond.
Okay Theres no adjustment required.
Okay and then.
What's your expectation for backlog growth going forward in terms of I mean normally the way I look at your business, obviously revenues arent going to trail the backlog growth. When do you expect to start seeing some of these contracts that you're talking about with fiber or do you expect the just to come through regular maintenance contracts and what you have.
Let's say for example increase on AT&T or others that will just be in your normal of.
Geographic of geographic position.
Certainly Alan Theres, a portion of the just flow through the Master agreement. So for example, the the projects that we've received around C band I mean, they're just blowing through the standard of turf agreement that we have and so the they'll reflect in backlog is the run rates increase.
With respect to the fiber again, we had a pretty strong quarter last quarter. As an example, with AT&T, we announced a number of states, where we extended our master agreements and included the scope of work to cover the fiber deployment and so thats subject to estimate revisions as we go through that 3 year Pearce.
But it's essentially reflected in the backlog that there may be some opportunities to grow geographically and when those are book then we'll add to backlog.
I think the other thing Alan.
Again, we've had this discussion about backlog before it is not highly correlated to our growth rates.
In the near to intermediate term and there are certain elements of the industry that are going to be a little bit different.
The than the traditional.
Top 5 customers. So for example on all of those rural work were doing they typically issue working phases.
Put the phase when we receive it in backlog, we completed they give us another 1 but there's not a contractual commitment to do that we could book of a big number if we wanted to torture the way we think about the definition.
But I mean, we've got north of $1 billion in the pipeline just on the rural stuff that's not reflected in backlog.
May never be reflected in backlog as of just come through the business.
That's helpful. Thank you and then lastly on the weather you mentioned that February obviously, we all know weather was bad this quarter can you just detail a little better maybe the of how that how that played out of the quarter. How much do you think that impacted you.
Al on February was as bad of February as we've had it on a long time I mean, it was a big impact through the middle of the country.
Okay. Thank you.
Thank you at this time line of showing no further questions I would like to turn the call back over to Steve Nielsen for closing remarks, well, we thank everybody for your time and attention and before I go I just want to express my thanks. The <unk> Tim is retiring effective today as our CLO after 27.
Years of service.
He has not been visible all of these calls, but he's been visible on growing the company from what it was when he came out of $150 million in revenue to $3 billion today plus.
We wish him well on his retirement and then drew has 1 more housekeeping items to get out just to close out the call.
The break out the customer split telco was at 64, 9% cable.
Cable was at 23%.
Facility locating was at 8.9% and electrical and other was at 3.2% Steven.
Thanks drew and thanks, everybody for your time on potential will speak again on our next quarter's call at the end of August. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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