Q2 2022 Dycom Industries Inc Earnings Call

September 1, 2021

[music].

Good day and thank you for standing by welcome to the <unk> Industries, Inc. Second quarter 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 to ask a question. During the session you will need a press star one on your telephone please be advised that today's conference is being recorded.

If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Steve Nelson President and Chief Executive Officer. Please go ahead.

Thank you operator, good morning, everyone I'd like to thank you for attending this conference call to review our second quarter fiscal 2022 result.

Going to slide two 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 grew that Ferrari, our Chief Financial Officer, and Ryan Urness, Our General Counsel now I will turn the call over to Ryan Urness.

Thank you Steve all forward looking statements made during this call are provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

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.

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, together with 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 second quarter results.

As we review our results. Please note that in our comments today in India 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.

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 18 months.

Now for the quarter.

Revenue was $793.0 million, an organic decrease of four 4% as we deployed one gigabit wireline networks wireless wireline converged networks and wireless networks. This quarter reflected an increase in demand from two of our top five customers.

Gross margins were 17, 2%.

Two 9% of revenue, reflecting the continued impacts of the complexity of a large customer program and revenue declines year over year with other large customers.

General and administrative expenses were eight 2% and all of these factors produced adjusted EBITDA of $81.0 million or nine 4% of revenue and adjusted earnings per share of <unk> <unk> compared to earnings per share of $19.0 in the year ago quarter.

Liquidity was solid at $300.0 million in operating cash flow was $20.0 million.

During the quarter, we repurchased 631638 shares for $50 million.

And subsequent to the end of the second quarter. We received a two year award for fiber construction in a number of states valued at approximately $4 million to $500 million.

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 network speeds to individual consumers and businesses either directly or wirelessly using <unk> technologies.

Industry participants have stated their belief that a single high capacity fiber network can most cost effectively deliver services to both consumers and businesses, enabling multiple revenue streams from a single investment.

This view is increasing the appetite for fiber deployment and we believe that the industry effort to deploy high capacity fiber networks continues to meaningfully broaden our industries set of opportunities.

Over the last year six of our top 10 customers have announced substantial new plans for deployments of fiber to the hull totaling over 40 million passengers.

In fact, one key customer recently announced plans for a strategic divestiture, who stated purpose is to increase fiber investment in both its divested and retained service territories.

Increasing access to high capacity telecommunications continues to be crucial to society, especially in Rural America.

The wide and active participation in the FCC art off auction augurs, well for dramatically increased rollout network investment.

In addition to an increasing number of states are commencing initiatives that will provide funding for telecommunications networks separate from the FCC or dot program.

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

These services are being provided across the country and numerous geographic areas that multiple customers, including customers, who have initiated broad fiber deployments as well as customers who have resumed broad deployment.

These deployments include networks, consisting entirely of wired network elements as well as converged wireless wireline multi use networks.

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 plans.

Increases in demand for fiber optic cable and related equipment may impact delivery lead times in the short to intermediate term and.

In addition, the market for labor continues to tighten in regions around the country. It remains to be seen how extensive these conditions will be and how long they may persist.

Furthermore, the automotive supply chain is currently challenged particularly for the large truck chassis required for specialty equipment.

As we contend with these factors, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers.

Moving to slide six during the quarter organic revenue decreased four 4% our top five customers combined produced 65, 7% of revenue decreasing 18% organically.

<unk> increased for two of our top five customers all other customers increased 39, 9% organically.

AT&T was our largest customer at 22, 5% of total revenue or $182.0 million AT&T.

AT&T grew 31, 9% organically this was our second consecutive quarter of organic growth with AT&T.

Revenue from Comcast was $128.0 million or 15, 5% of revenue Comcast was <unk> second largest customer.

Lumen was our third largest customer at 12, 1% of revenue or $99.0 million Verizon was our fourth largest customer at $98.0 million or 11, 5% of revenue.

And finally revenue from frontier was $40.0 million or 4% of revenue.

Frontier grew 161, 4% organically it was a top five customer for the first time.

This is the 10th consecutive quarter, where all of our other customers in aggregate excluding the top five customers have grown organically in fact to 39, 9% organic growth rate with these customers as the highest growth rate in at least nine years.

Of note fiber construction revenue from electric utilities was $57.0 million in the quarter or six 6% of total revenue. This activity increased organically 92, 1% year over year.

We have extended our geographic reach and expanded our program management and network planning services in fact over the last several years. We believe we have meaningfully increased the long term value of our maintenance and operations business.

Trend, which we believe will parallel our deployment of one gigabit wireline direct and wireless wireline converged networks.

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

Now going to slide seven backlog at the end of the second quarter was $5 $103.0 billion versus six $5 billion to $8 billion at the end of the April 2021 quarter.

Decreasing approximately $633 million of this backlog approximately $2 six by $5 billion.

As expected to be completed in the next 12 months.

We continue to anticipate substantial future opportunities across a broad array of our customers.

For Windstream, a construction and maintenance agreement in Kentucky from AT&T, construction and maintenance agreements in Wisconsin, and Ohio for Comcast, a fulfillment agreement for Washington, Illinois, Michigan, Massachusetts, New Jersey, and Pennsylvania from Lumen and Engineering agreement for Washington, Oregon, Idaho, Montana.

Wyoming, Utah, Arizona, Colorado, New Jersey, Virginia, and North Carolina.

For dish network, a wireless construction agreement in North Carolina, and South Carolina from.

From various electric utilities fiber construction agreements in Missouri, Tennessee, Mississippi and Georgia.

And various rural fiber deployments of Wisconsin, Indiana, Tennessee, South Carolina, and Georgia head count increased during the quarter to 14674 now I will turn the call over to drew for his financial review and outlook.

Thanks, Steve and good morning, everyone going to slide eight contract revenues for Q2 were $793.0 million a decrease of four 4% compared to Q2 of last year.

Adjusted EBITDA was $81.0 million or nine 4% of revenue.

Gross margins of 17, 3% in Q2 decreased 285 basis points from the year ago period.

Gross margins were approximately 85 basis points lower than our expectations as revenue was lower than expected for several large customers and this impacted our operating leverage.

G&A expense was at eight 2% of revenue in line with Q2 'twenty one.

Non-GAAP adjusted net income was <unk> 60 per share in Q2 dollars 22 compared to net income of $19.0 per share in Q2 'twenty one.

The variance resulted from the after tax decline in adjusted EBITDA higher interest expense and lower gains on asset sales offset by lower stock based compensation depreciation and amortization.

Now going to slide nine our financial position and balance sheet remains strong.

We ended the quarter with $500 million of senior unsecured notes $350 million of term loan no revolver borrowings and $61.0 million principal amount of convertible notes.

Cash and equivalents were $270.0 million at the end of Q2.50.

<unk> $61.0 million is expected to be used to repay our convertible notes due September 2021.

Liquidity was solid at $300.0 million at Q2.

Our capital allocation prioritizing organic growth followed by opportunistic share repurchases and M&A within the context of our historical range of net leverage.

Going to slide 10.

Operating cash flows were $20.0 million in the quarter cap.

Capital expenditures were $40.0 million during Q2 net of disposal proceeds and gross Capex was $43.0 million.

During Q2, we repurchased 631638 shares of our common stock at an average price of $95.0 per share for $50 million.

As of the end of Q2, we have a remaining authorization of 100 million for share repurchases through August 2022.

The combined Dsos of accounts receivable and net contract assets were at 125 days an improvement of three days sequentially from Q1 'twenty two.

Now going to slide 11 for.

For Q3 2022, the company expects contract revenues in line as compared to Q3 'twenty one.

And non-GAAP adjusted EBITDA as a percentage of contract revenues to decrease compared to Q3 'twenty one.

We expect year over year gross margin decline of approximately 125 basis points and G&A increase of approximately 50 basis points.

We expect approximately $16.0 million of non-GAAP adjusted interest expense and <unk> $3 million for the amortization of the debt discount on convertible notes for total interest expense of approximately $10.0 million during Q3.

We expect the non-GAAP effective income tax rate of approximately 27% and diluted shares of $36.0 million now.

Now I will turn the call back to Steve.

Thanks drew moving to slide 12 within a recovering economy, we experienced solid activity and capitalized on our significant strengths first.

First and foremost we maintained 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 one gigabit high speed connections increasingly rural electric utilities are doing the same.

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.

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.

Wireless construction activity in support of newly available spectrum bands is beginning and expected to increase next year.

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

As our nation and industry continue to contend with 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 operator, we will open the call for questions.

Thank you as a reminder, if you have a question at this time. Please press Star then one.

Your question. Please press the pound key.

And it looks like our first question is going to come from the line of.

Adam <unk> with Thompson Davis. Your line is open. Please go ahead.

Hey, good morning, guys, Hey, Adam.

Steve how much did the large customer program negatively impact margins in Q2, and what's your thought on when that begins to ease.

So if.

If you look at controlling for that program impact on margins.

The EBITDA margin would have been in line as it has been in other periods with the long term average.

And I would say just an additional color that some of the new programs. We are net positive to that and some of the customers who seem to be a little bit slower.

We're a little bit of drag, but the central tendency was.

Around that long term average controlling for that program.

And then just on the second part of that when do you think that the headwind begins to ease.

We continue to work down and close out the project.

The balance year over year.

We're working on closing out is down about 25% the amount of cash that came in sequentially reduced it in <unk>.

<unk> a $25 million. So I think we continue to make progress.

And we hope to that progress will continue if not accelerate through the balance of the fiscal year.

Okay, and then the 400 to 500 million fiber award can you tell us if that was from an MSL telco customer.

And then sort of.

How do you think about the revenue more to say about it.

<unk> call, but I would say we were encouraged by the breadth of the award geographically.

Okay I'll turn it over thank you.

Thank you and our next question comes from the line of Brent Thielman with D. A Davidson. Your line is open. Please go ahead.

Alright, Thanks, good morning, Steve.

Good morning, Brent.

Hey, Steve some of the supply constraints discussed last quarter.

Again in this call.

What impact do you think that's having on the ramp in deployment right now.

Okay.

So I think as we talked about on the last call Brent I mean, clearly we're able to grow the business. So we're encouraged with AT&T growing.

Success at 31% in total, but probably a bit.

The more interesting number Brent is that on the wireline side of the business. It was in excess of 75% year over year organically.

We're certainly able to grow the business grew the business with frontier, but I would say that there have that rate of growth might have been even higher absent.

The constraints I think the other thing that was more impactful towards the end of the quarter was clearly the Delta variant has had an impact on the number of people that we've had in quarantine.

Unlike the last peak during the winter when we Werent all that busy we're busier now and so that certainly had some impact on what.

We were able to deliver and certainly had some impact on cost with respect to overtime.

Okay, that's helpful and Steve lumen.

And it was expected to slow, but with a little more than I would've expected can you just talk about what youre seeing with that customer.

So with respect to lumen.

Yes with respect to lumen. So so clearly after the end of our quarter.

And that strategic divestiture of a number of their states, primarily east of the Mississippi.

They represent about a quarter of <unk>.

Revenue that we have with that customer.

So.

It was a little bit slow I think in general we are really encouraged by that transaction because I think as they said they.

They've identified kind of an incremental 12 to 13 million homes or potential.

For fiber to the home.

In the service territory, they are retaining and Apollo has spoken the purpose of the transaction was to invest in fiber in the 20 states that they are acquiring so I think may have impacted some of the slowness in the business in the first half of the year with the benefit of the news in hindsight, but certainly in.

<unk>.

As to what the transaction can.

Untapped.

Our unleash.

From the rest of the business.

Right Okay.

Lastly, horizon continues to shrink as a percentage of the business over the near term I mean, I don't see any new award activity our extension risk listed in the presentation here.

Yes, I think Brent we continued to work through closing out programs.

There may be some opportunities as they get into another budget year, but we'll just have to see.

Recently, they've made comments, which were encouraging about revisiting some of their fiber.

Build plans in their existing ILEC service territory. So, we'll just see how they play out.

Okay, great. Thank you.

Thank you and our next question comes from the line of Covid.

Wells Fargo. Your line is open. Please go ahead.

Great. Thanks for taking the question.

So Steve.

Some concerns about labor cost inflation, just generally in the industry. So maybe.

Talk through like any contractual provisions you have.

With your customers to kind of help pass through some of those higher labor expenses and kind of what impact that could have on your margins if you've seen any of that yet or if there is any.

Implied in your guidance for the October quarter.

Right so.

Within the existing book of business. There are some agreements we have that have annual increases some of those are index related or are there just a negotiated amount there are others.

Where there are the opportunity is on the renewal of the agreement.

I think where it's more important that we're focused on is to be careful about how we think about the forward cost curve and so that as we sign up for new business, which is a real important to our customers that we're in a position to be able to successfully supply the labor that they need.

I think we've been able to do that so far, but but we're going to continue to work hard on that.

We've been through these cycles before this one may be a little more pronounced than what I've seen before but it's always a combination of provide valuable service and make sure that as you commit resources to incremental opportunity that you get the price right.

Great Great I guess related to that Steve I mean in other periods of labor market tightness like this.

See any opportunities to actually increase your share in some of your larger customers may be less likely are less able to in source some of their fiber deployment.

You know historically Aragon sourcing has not been a big factor in the business. So I don't I don't know that we've seen that in prior periods.

I do think that it certainly.

Gives every incentive to continue to focus on building a broad labor pool through outsourcing.

Where we can reach across the country I mean, we have one program right now where we move resources literally from one quarter the country to the other.

Because that was where the where the opportunity was and we have the ability to shift those resources.

Great and then just one more for you Steve I I might have missed what you said on the wireless business, but I was interested it looks like you got a dish award.

I'm wondering if you've seen more broad opportunities within wireless today, whether that's C band deployment T Mobile's network integration or the dish network Bell just any color on what youre seeing from the wireless side of the business would be helpful.

I think our wireless business in total Eric was still down year over year.

And I think that reflects this what I'll call a gathering phase for C band deployments primarily.

We have received something in excess of 500 sites that are in insight acquisition right now for C band deployments and I think as you know probably better as well as we do.

As we look into 'twenty, two and 'twenty three of those C band deployments will accelerate.

Have to have to understand the geography and when.

<unk> band is where and when it clears.

But clearly I think the entire our entire wireless industry is looking ahead to a better 'twenty two.

Okay, great. Thanks, Steve.

Thank you and our next question comes from the line of John Lopez with vertical group. Your line is open. Please go ahead.

Hey, Thanks, very much good morning, guys.

I had a couple of quick ones if I could the first one I just wanted to clarify on the guidance I think a year ago and it was like eight or $9 million of storm work.

I think Julie you are seeing nominal contract revenue is flat so organically, yes, theoretically up a bit year on year is that the way to think about those things.

Yes, John this is drew.

That's why we haven't slide spoke up yes, and the other thing John is in the current guidance for this October quarter, we have not factored in any storm work is it just too early.

To see the consequences of this hurricane Ida.

There'll be some amount in there.

So drews guidance does not include in accordance with how we've always done it we have no storm in there for the current quarter.

Got you helpful. Second thing I'm wondering if you could spin back I think a couple of questions ago, you mentioned something about the Verizon contract and there was a down 25% referenced that reference is to the sort of troubled portion of that business down 25 year on year in fiscal Q2 do I have those parts right now.

John that was with respect to the.

Working capital tied up in the program.

But we've continued to be able to get working capital back out of that program, we hope that that actually picks up through the balance of this fiscal year. So it's moving in the right direction, we'd all like it to move more quickly, but we are continuing to make progress on the closeout.

Okay got you and then sorry, the last one.

I wanted to ask my obligatory backlog question. So.

Net.

Your 12 month backlog has now increased year on year for three consecutive quarters and sort of high single digits each of the last two.

Great and 12 month backlog is gone the opposite direction.

Why is that.

So John as we've talked about before the total backlog is a function of the duration of the agreements and where we are in these long term agreements.

So you go through renewal cycles.

And the last year of a renewal cycle on a five year agreement.

Right you have 12 months backlog, but you don't have anything in addition for for total.

The other thing I would say as we've talked about last quarter is particularly on this rural work it tends to be.

The projects are quite large, but they tend to be awarded contractually in phases. So you might just.

Illustrative numbers, you might have $100 million project, but you never have more than $10 billion in backlog as you worked through face to face to face. So I just think it is.

It just structurally a little bit different.

Environment that what we've seen.

From other portions of the business.

Got it okay understood thanks very much.

Thank you and as a reminder, if you have a question at this time. Please press Star then one and our next question comes from the line of Noelle Dilts with Stifel. Your line is open. Please go ahead.

Yeah.

Hi, good morning, Stephen Ju.

Good morning.

Morning, I just wanted to start with a question on AT&T.

At a recent conference they talked about.

They kind of lowered their plans.

Hum fiber home passing to two and a half from 3 million in 15.

And they did talk a bit about fiber availability being a factor that's not necessarily something that we're hearing broadly across the industry and it didn't seem to be.

Something that you cited so is that.

A concern.

As it relates to again the pace of the build out.

Fiber availability or.

Not really something you're seeing.

So I think as we said in our comments no well there are certainly some extended lead times around fiber so customers are having to plan farther ahead.

Although I don't think that was the case in At&t's situation. Some so we've talked about in our comments about some potential extended lead times I think to keep the AT&T com.

Comment.

In perspective.

$7.0 million homes in a year from a year, where they were essentially doing very little I think it has been an aggressive ramp I think they continue to grow.

And as you can see in our numbers the business has grown nicely year over year fight a growth wrote a little bit more with a little more fiber, but I think we're pleased.

With our progress with AT&T.

From the outside looking in I am impressed with the sheer mag.

Magnitude of their ambition to grow this year.

Alright, Okay got it.

And then second you mentioned in your discussion about margin some of the <unk>.

<unk>.

Is that positive margin contribution.

Curious do you think at this point industry participants are kind of recognizing what's coming in terms of that.

Work next year and and.

Potential stimulus or are we at a point now.

Participants are looking to secure capacity earlier and they are willing to pay more for capacity or do you think we're still.

Getting to that point.

Yeah look no.

Work for a lot of smart customers. They are always taking in market inputs. They have lots of suppliers beyond us so theyre, forming their own view of where the market's going.

I think whats probably more important than kind.

The supply demand and die.

Dynamic in the industry for our customers is that they are launching a number really strategic initiatives and so when you have a strategic initiative that extends over 5678 years I think you've taken a very intentional approach to how you secured capacity to get the work done.

So Joe.

I think it's really.

I think customers are really driven by how strategic.

Services are in support.

Supported their programs as much as trying to kind of figure out whats it going to cost next Tuesday.

Okay. Thank you.

Thank you and our next question comes from the line of Alex Rygiel with B Riley. Your line is open. Please go ahead.

Thank you good morning, Stephen Ju.

Hey, Alex.

Steve can we come back to you shortly.

Equipment availability and more.

Sort of the equipment that you used to provide the services in Europe.

Equipment and whatnot rolling stock.

Are you seeing being clearly one of the largest out there in the marketplace are you seeing opportunities where you have fleet that's available.

That could possibly take advantage of market opportunities in the foreseeable future.

I think thats always a possibility Alex I mean, we have strong and long term relationships with our suppliers. We're in dialogue with them all the time.

This chip situation is a challenge for everybody.

I think.

There are certainly opportunities given the size of our fleet to extend the operating lives and that can be meaningful in terms of incremental capacity.

I think there are financial opportunities I mean, we got a call about a month ago. When we had a supplier that had an order that was canceled by somebody else and we were their first Paul and we took all of 2014.

Aerial devices.

So I think there are opportunities for us to do that but I don't want to diminish which is why we put it in the comments.

This constraints on the automotive supply chain are real.

And so we've just got to be aware of those as we plan the business.

And then coming back to.

The hurricane that's sort of working its way through the United States right now can you remind us how that.

Initially hurts your business and then possibly offers us opportunities and would you anticipate sort of all the negatives and positives to offset each other in this current quarter or do you think there could be.

Extended negatives or positives that stretch into <unk>.

In future quarters.

Yeah, Alex I think it's too early for us to tell with respect to anything beyond the October quarter.

Communications is always the restoration effort around communications is is not first and foremost when you have.

Electricity that's out for the area is the size of New Orleans and the surrounding areas.

I think it's a little bit too early to tell I would say generally and we've done lots of storm work here over the over the years.

It may provide a benefit in terms of providing restoration services, but it also has.

So some negative effects in the rest of the business and all things being equal we'd adjust soon there not be any hurricanes tornadoes or floods.

That'd be fine by us.

Thank you very much.

Thank you and again if you have a question at this time. Please press Star then one and our next question comes from the line of Alan <unk> with Plain Lake asset management. Your line is open. Please go ahead.

Great. Thanks.

Steven in response to the question about backlog you talked about possibly being in the last year of some of your contracts, but you didn't see that you were is that the reason why backlog hasnt grown more or do you expect more deliver more awards in the next number of months that youre at the end of contracts.

Alan that was an illustrative comment that says there is a portfolio of agreements that go through movements in duration.

And as you may not be the last year of agreement you may have signed a five year agreement and after you booked at initial backlog and.

And had been through two years of it it's going to be down 40%, but it doesn't indicate what the operating run rates are.

<unk> forward, so it's more of a.

Kind of a technical observation than it is anything about the actual.

Portfolio.

No I understand what it is but I'm, just saying you guys are buying back stock.

You're at the bottom of our margin cycle for years and it seems like our new bottom. So I'm just saying it seems like in all the indications we're getting from customers or is it in the next few years. They are going to spend whether that takes a while for them to get started or not depending on an infrastructure bill or <unk> or whatever it is we're closing of a private equity deals.

It is what it is in terms of timing. My question is do you know what's your.

Backlog portfolio. It looks like do you guys feel that you have substantial awards coming in the next 12 to 18 months based on the contracts that you have yes.

Yes so.

I wouldnt necessarily focus with the contracts, we have but I think the contraction prospects. So you mentioned the share repurchase we did buy <unk>.

$50 million worth of stock in the quarter, but I can tell you as we got through the quarter. There were a number of substantial organic growth opportunities that emerged and from a capital allocation perspective, we always focus on making sure that we can meet customer needs and new growth opportunities and so we throttled back on the share.

Repurchase because as we saw these opportunities emerge we wanted to make sure that we're in a great financial position, which we are.

To take advantage of them.

Great and then on Capex can you talk about maybe I missed it what's your guidance for this year in Capex drew has that changed.

It Hasnt changed since last quarter, Alan it's $105 million to $125 million net.

And we did take in about $36 million.

Gross capex in the quarter.

Okay, and then it's a strange question, but it seems like used car prices and obviously F..150 prices are really high I know that's a good portion of some of your.

Some of your vehicle fleet and yet other income for you guys was really low do you have a sense of where that's going to be did you not sell as much fleet. Because there were shortages can you just talk about where you see that line item I mean, it's not an operational line item. So I know it's impacted your earnings a bit this year, but.

I'd, rather see your business grow then that line necessarily move one way or the other.

Yes, as we said earlier, Alan we've been really prudent about making sure that we keep operating assets because of the supply chain has been constraints again, we want to be able to grow when opportunities present themselves and so I don't expect that we will have an active disposal.

Ram.

It's kind of a related loop right, if we could get new assets, we would sell more but the prices wouldn't be as high in the used market.

Okay.

And then one more question if I can just a bigger picture in terms of.

The infrastructure Bill as it relates to your business are you worried that in general guys may push off some spending until the bill was passed and the effects come in <unk>.

Cause they want to take advantage of government money and matching money in others as opposed to spending privately.

So it's an interesting question Alan and it's one that we can really only speculate a path.

But I would say theres really been.

A couple of effects.

We can speculate about I mean, one is remember that the infrastructure money is for unserved and underserved areas and so to the extent that we have customers that are incumbents in those areas and they have plans to upgrade.

The capacity of the networks I think if anything that the prospect of.

Our government funding of those areas may encourage them to go faster so that as the broadband mapping works out that the areas that they serve no longer fall in the area of it's eligible.

For for government funding so so.

So I would think it's the other way.

I think on the other hand, there are a number of statewide programs.

Our operating independent of the infrastructure, Bill and so regardless of whether it passes or in what form.

<unk> seen a number of announcements.

Cancel some at the state level. So for example, in California about a month ago or six weeks ago.

They they passed a law. So it is a law that theyre going to fund 325 billion in middle mile Network construction, and then another 1 billion or two for last mile construction. So.

You think about it in total in California that is call. It $5 billion that state alone is almost as much as what the federal spend what the stimulus was in 2009, so theres a lot of state level programs around the country that I think our customers will be taking advantage of or in the case of California, It's actually.

Dependent new entity.

Great. Thank you.

Thank you and our next question comes from the line of John Lopez with vertical group. Your line is open. Please go ahead.

Okay.

Thanks, very much I had two quick follow ups. The first one is just drew can you give us a sense for.

The gross margin.

Versus a year ago, Youre talking down like 125 basis points. It feels like about flattish sequentially. So like what are the factors year on year that are driving that.

Yes, John I think in part that's going to be fuel driven so if you look back at where the price of gas was a year ago, that's certainly ticked up some.

And then it's really as we talked about last quarter, there's certain customers that have spent less this year than last year.

Got you, Okay that helps and then Steve.

Yeah.

My customer who remains unnamed.

Is kind of in.

At or above $20 million here for a couple of quarters that that Hasnt happened I think if we have our numbers right since like 2015.2016.

Is there anything you can tell us about sustainability or visibility into that activity.

I think John it's just illustrative of the amount of interest.

In deploying fiber networks and the amount of capital that's available.

Across a whole number of suppliers to do it I mean, there is an alignment.

In the industry around fiber to the home.

We've never seen so for example, if you think about what we mentioned in our comments in the slides that we had six of our top 10 customers just in the last year.

Initiate plans for over 40 million homes.

Fiber to the home I think you may have the exact number but I think the approximate number that's been building kind of industry life to date is in the low <unk>.

So you have plans now to double what's been done over the last 17 years and it won't take their plans are not to take 17 years to do the next one.

<unk>.

So it's I think it's more just illustrative of.

Of the appetite.

For companies and capital to invest in fiber to the home.

Got it okay very helpful. Thanks, guys.

Yes.

Thank you and our next question comes from the line of Alex <unk> with Keybanc Capital. Your line is open. Please go ahead.

Hi, guys. This is Alex on for Sean Thanks for taking my questions.

Alex.

So six of the top 10 customers have new fiber build plans 40 million past plant.

Firstly, how does this does this include lumen.

And how would you compare this level of activity planned over the next five years to what you saw over the past five years. So some context there would be helpful.

Yes, I think Alex as I, just said on the last call I mean, one way to think about it is that the plans.

<unk> plans are approximately equal to what the entire industry has built since life to date, which when it started in 2003.2004.

So that's one way to think about it and yes.

<unk> provided an estimate of what they thought was addressable by fiber. They are working on the plan. We don't we're not going to say.

How big it is eventually or how long, but certainly they talked about that it does not include any impact.

From the from the folks that they are divesting to because thats yet to be flushed out but.

I mean, there is other research out there that might get you to even a bigger number than $40 million, but that's what we could.

That's what we could support directly.

Very helpful and secondly, new bookings were light in <unk> was something pulled out of backlog or is this all just due to timing.

It's just due to timing.

The summer months and the increase in that Delta there.

Just what we just didn't see the number of awards.

But summer is not typically a time, where we see a lot of those anyway.

Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to Steve Nelson for any further remarks, well, we thank everybody for their participation on the call just before we go through a couple of other statistics for sure sure. So for the customer split telco was at 66, 6% cable was at.

22%.

<unk> locating was at eight 3%.

And electrical and other was at three 1%.

And wireless grew was about 657% of the time.

Correct.

Okay, well, thanks, everybody for your time and attendance and we'll talk to you again just before Thanksgiving.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yes.

Okay.

[music].

Good day and thank you for standing by welcome to the Dicom Industries' second quarter 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 to ask a question. During the session you will need a press star one on your telephone please be advised that today's conference is being record.

Thank you operator, good morning, everyone I'd like to thank you for attending this conference call to review our second quarter fiscal 2022 result.

Going to slide two.

During this call we will be referring to a slide presentation, which can be found on our website's Investor Center main page.

11 slides will be identified by number throughout our presentation.

Today, we have on the call grew that Ferrari, our Chief Financial Officer, and Ryan Urness, Our General Counsel now I will turn the call over to Ryan Urness.

Thank you Steve all forward looking statements made during this call are provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

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.

Forward looking statements Steve.

Thanks, Ryan now moving to slide four and a review of our second 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 18 months.

Now for the quarter.

Gross margins were 17 two.

Two 9% of revenue, reflecting the continued impacts of the complexity of a large customer program.

Revenue declined year over year with other large customers.

Liquidity was solid at $300.0 billion in operating cash flow was $20.0 million during the quarter, we repurchased 631638 shares for $50 million.

And subsequent to the end of the second quarter. We received a two year award for fiber construction in a number of stage valued at approximately.

<unk> $4 million to $500 million.

Going to slide five.

Industry participants have 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 a single investment.

Over the last year six of our top 10 customers have announced substantial new plans for deployments of fiber to the whole totaling over $40 million pass inks. In fact, one key customer recently announced plans for a strategic divestiture, who stated purpose is to increase fiber investment in both its divested and retain.

<unk> service territories.

Increasing access to high capacity telecommunications continues to be crucial to society, especially in Rural America.

Why did active participation in the FCC art off auction augurs, well for dramatically increased rollout network investment.

In addition to an increasing number of states are commencing initiatives that will provide funding for telecommunications networks separate from the FCC or adopt program.

We are providing program management planning engineering and design aerial underground and wireless construction and fulfillment services for one gigabit deployments. These services are being provided across the country and numerous geographic areas that multiple customers, including customers, who have initiated broad fiber deployments as well as.

<unk>, who have resumed broad deployment.

These deployments include networks, consisting entirely of wired network elements as well as converged wireless wireline multi use networks.

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 plans.

Broad increases in demand for fiber optic cable and related equipment may impact delivery lead times in the short to intermediate term.

In addition, the market for labor continues to tighten in regions around the country. It remains to be seen how extensive these conditions will be and how long they may persist.

Furthermore, the automotive supply chain is currently challenged particularly for the large truck chassis required for specialty equipment.

As we contend with these factors, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers.

Moving to slide six during the quarter organic revenue decreased four 4% our top five customers combined produced 65, 7% of revenue decreasing 18% organically.

<unk> increased for two of our top five customers all other customers increased 39, 9% organically.

AT&T was our largest customer at 22, 5% of total revenue or $182.0 million AT&T grew 31, 9% organically. This was our second consecutive quarter of organic growth with AT&T <unk>.

Revenue from Comcast was $128.0 million or 15, 5% of revenue Comcast was <unk> second largest customer.

<unk> was our third largest customer at 12, 1% of revenue or $99.0 million Verizon was our fourth largest customer at $98.0 million or 11, 5% of revenue.

And finally revenue from frontier was $40.0 million or 4% of revenue.

Frontier grew 161, 4% organically it was a top five customer for the first time.

This is the 10th consecutive quarter, where all of our other customers in aggregate excluding the top five customers have grown organically in fact, the 39, 9% organic growth rate with these customers as the highest growth rate in at least nine years.

Of note fiber construction revenue from electric utilities was $57.0 million in the quarter or six 6% of total revenue. This activity increased organically 92, 1% year over year.

Trend, which we believe will parallel our deployment of one gigabit wireline direct and wireless wireline converged networks.

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

Now going to slide seven backlog at the end of the second quarter was $5 $103.0 billion versus $534.0 billion at the end of the April 2021 quarter.

Decreasing approximately $633 million of this backlog approximately $2 six by $5 billion is expected to be completed in the next 12 months.

We continue to anticipate substantial future opportunities across a broad array of our customers.

Wyoming, Utah, Arizona, Colorado, New Jersey for Junior in North Carolina.

For dish network, a wireless construction agreement in North Carolina, and South Carolina.

From various electric utilities fiber construction agreements in Missouri, Tennessee, Mississippi, and Georgia, and various rural fiber deployments of Wisconsin, Indiana, Tennessee, South Carolina, and Georgia head count increased during the quarter to 14674, now I will turn the call over to drew for his.

Financial review and outlook.