Q3 2022 Dycom Industries Inc Earnings Call

November 23, 2021

Good day and walked into the Dotcom third quarter results conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question answer session.

I'll ask a question. During this session you will need to buy Star then one on you touched on the telephone.

If anyone should require assistance during the conference. Please press star zero to reach an operator.

As a reminder, this conference maybe recorded.

I would like to hand, the conference over to your host today.

Mr. Steve Nielsen, President and Chief Executive Officer. Please go ahead Sir.

Yeah.

Thank you operator, good morning, everyone I'd like to thank you for attending this conference call to review our fiscal third quarter 2022 result, going to slide two during this call we will be referring to a slide presentation, which can be found on our <unk>.

Website's Investor Center main page relevant slides will be identified by number throughout our presentation.

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

Thank you Steve.

All forward looking statements made during this call I 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 five 2021.

With our other filings with the U S Securities and Exchange Commission.

We assume no obligation to update any forward looking statements Steve. Thanks.

Thanks, Ryan now moving to slide four and a review of our third quarter results.

As we review our results. Please note that in our comments today and in the accompanying slides we reference certain non-GAAP measures. We refer you to the quarterly report 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 now.

Now for the quarter.

Revenue was 854 million, an organic increase of six 6%.

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, three 4% of revenue, reflecting the continued impacts of the complexity of a large customer program.

<unk> declined year over year with other large customers and fuel costs.

General and administrative expenses were seven 8% of revenue at all of these factors produced adjusted EBITDA of $83 1 million or nine 7% of revenue.

Adjusted earnings per share of <unk> 95, compared to earnings per share of $1 six in the year ago quarter.

Included in adjusted earnings per share are incremental tax benefits of <unk> 10 per share for credits related to tax filings for prior periods.

Liquidity was solid at $314 7 million in operating cash flow was strong at $104 3 million, reflecting a sequential DSO decline of 12 days.

During the quarter, we repaid our remaining 2021 convertible notes in full and subsequent to the end of the third quarter. We received three year awards for construction services in a number of states valued in excess of $500 million in total.

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 and most cost effectively deliver services to both consumers and businesses, enabling multiple revenue streams from a single investment.

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

Increasing access to high capacity telecommunications continues to be crucial to society, especially in Rural America. The recently enacted infrastructure investment and jobs Act includes over $40 billion for the construction of rural Communications networks in Unserved and underserved areas across the country.

This represents an unprecedented level of support.

In addition, an increasing number of states are commencing initiatives that will provide funding for telecommunications networks, even prior to the initiation of funding under the infrastructure Act.

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 to multiple customers.

These deployments include networks, consisting entirely of wired networks element 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 initiatives.

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 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 of 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 increased six 6% our top five customers combined produced 65, 4% of revenue decreasing three 5% organically demand increase for two of our top five customers all other customers increased 32, 5% organically.

AT&T was our largest customer at 23, 4% of total revenue or $199 5 million.

AT&T grew 68, 3% organically this was our third consecutive quarter of organic growth with AT&T revenue.

Revenue from Comcast was $121 million or 14, 2% of revenue Comcast was <unk> second largest customer.

Lumen was our third largest customer at 12, 1% of revenue or $103 million.

Horizon was our fourth largest customer at $93 4 million or 10, 9% of revenue and.

And finally revenue from frontier was $41 3 million or four 8% of revenue frontier grew a 118, 6% organically.

This is the 11th consecutive quarter, where all of our other customers in aggregate, excluding the top five customers have grown organically.

Of note fiber construction revenue from electric utilities was $53 7 million in the quarter and increased organically 75, 3% 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 believe we have meaningfully increased the long term value of our maintenance and operations business a.

A 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 third quarter was $5 $8 96 billion versus $5 895 billion at the end of the July 21 quarter essentially flat.

Of this backlog approximately $2 93 8 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.

During the quarter, we received from.

From frontier fiber construction agreements in California, Texas, Indiana, New York, Connecticut, and Florida for consolidated Communications, a construction and maintenance agreements for.

For New Hampshire.

Im Windstream construction agreements for Ohio, Pennsylvania, New York, Kentucky, and Alabama.

From lumen construction and maintenance agreements in Oregon, Minnesota, and Iowa, and various rural fiber deployments in Arizona, Colorado, Missouri, Indiana, Arkansas, Mississippi, Tennessee, and Georgia.

Headcount increased during the quarter to 14905.

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 were $854 million and organic revenue increased six 6% for the quarter Storm work performed in Q3 of last year was $8 9 million compared to none in Q3 dollars 22.

Adjusted EBITDA was $83 1 million or nine 7% of revenue.

Gross margins of 17, 3% decreased 140 basis points from the year ago period.

As expected this decrease reflected higher fuel costs of approximately 50 basis points as well as the impact from revenue declines from several large customers.

G&A expense was at seven 8% of revenue and came in approximately 40 basis points better than our expectations from improved operating leverage.

Non-GAAP adjusted net income was <unk> 95 per share compared to $1 six per share in the year ago period Q.

Q3 dollars 22 included approximately $3 million or <unk> 10 per share of incremental tax benefits for credits related to tax filings for prior periods.

Total variance in net income 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 and income taxes.

Now going to slide nine.

Our financial position and balance sheet remained strong in September we repaid the final balance of $58 3 million of the convertible notes at maturity we.

We ended the quarter with $500 million of senior notes $350 million of term loan and no revolver borrowings.

Cash and equivalents were $263 7 million and liquidity was solid at $314 7 million.

Our capital allocation prioritizes 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 strong at $104 3 million in the quarter capital expenditures were $44 1 million net of disposal proceeds and gross Capex was $45 1 million.

For the full year of fiscal 2022 capital expenditures net of disposals are now expected to range from 135 million to $150 million, an increase of 10 million to $25 million compared to the high end of approximately $125 million in the prior outlook.

Mark provided in Q2 'twenty two.

The combined Dsos of accounts receivable and net contract assets were at 113 days an improvement of 12 days sequentially from Q2 2002, as we've made substantial progress on a large customer program.

Now going to slide 11.

Each year, our January quarterly results are impacted by seasonality, including inclement weather fewer available work days due to the holidays reduced daylight work hours and the restart of calendar payroll taxes.

These and other factors may have a pronounced impact on our actual results for the January quarter compared to our expectations.

Q4 of last fiscal year included 14 weeks of operations due to the company's 50 253 week fiscal year and also included $5 7 million of revenues from storm restoration services.

Non-GAAP contract revenues adjusted for these amounts in Q4, 'twenty, one with $691 8 million.

For Q4 of fiscal 'twenty, two there will be 13 weeks of operations and the company expects contract revenues to increase modestly as compared to the non-GAAP organic contract revenues of $691 8 million in Q4 'twenty one.

The company expects non-GAAP adjusted EBITDA to range from in line to modestly higher as a percentage of contract revenues as compared to Q4 'twenty one.

Total interest expense is expected at approximately $8 8 million during Q4, and we expect a non-GAAP effective income tax rate of approximately 27% now I will turn the call back to Steve. Thanks.

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

First and foremost we maintained significant customer presence throughout our markets. We are encouraged by the 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.

<unk> are doing the same 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.

And state support for rural deployments of communications networks is dramatically increasing in scale and duration.

Cable operators are deploying fiber to small and medium businesses and enterprises.

Portion of these deployments are in anticipation of the customer sales process.

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

Customers are consolidating supply chains, creating opportunities for market share growth and increasing the 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.

As a reminder to ask a question. Please press Star then one.

Question has been answered and we'd like to remove yourself from the queue plus the pound key.

First question comes from Sean Eastman with Keybanc capital markets. Your line is open.

Hi team. Thanks, Thanks for taking my questions.

So I just wanted to start on the margins if we build in the fourth quarter guidance. It looks like you guys are trending somewhere around 8% for fiscal 'twenty two.

And I just wanted to check back in on the bridge from there to that historical average that we've been anchored to.

It is.

That entire roughly 400 basis points tied to the challenged customer program or is there another component of that bridge that we need to be contemplating in our forecasts.

Over the next year.

Yes, I think Sean we've always thought about kind of the long term EBITDA margin in the mid elevens and I think in this quarter and in this year. If you can if you control for that large customer program Youre in line with that long run average.

Okay, and how did the receivables and contract assets balance trend on that challenge program in the third quarter.

Yes, as Youll see when we file the Q with that customer the.

Accounts receivable and contract asset came in about $100 million. So we actually had.

About $100 million of free cash flow out of that one.

Customer and program.

Okay very helpful and last one if you just look back over the last 12 months.

How much would you say D wise three to five year total addressable market has grown around these fiber commitments and of course, the rural broadband funding that we've seen come through.

And I'm just curious.

Are you seeing.

Those.

That incremental activity reflected in bid activity currently or have we not yet seen.

The big inflection in and bid opportunities.

Uh huh.

That should be following through from from what we're seeing in the.

Infrastructure deployment commitments that are coming through.

Sure lots in that question, we'll try to break it down into pieces. So if you think about in the end.

The core telco cable world over the last year, we've talked about this last quarter.

Yes.

Since fiber to the home.

It really became a real way to deploy networks, there's been something on the order of the.

Call. It 45 million homes that have been passed with fiber.

If you take all of the programs that have been announced let's say to be completed over the next five to eight years you get to a similar number right. So what took 17 years to accomplish customers would like to get accomplished in the next five to eight years I think what was also interesting about that is.

In the last 90 days, we've had a number of smaller customers.

Who have actually.

Taken up their their long term plans to pass more homes than even they expected in the past say six months ago and in one case.

<unk> that it had a fixed wireless program decided to convert that to a fiber deployment program.

So that's before we get too.

The impact on the addressable market of the.

Federal and state support.

So there so there's really three pieces, there one which is not as widely heralded but a number of states have kicked off their own broadband support programs.

<unk> grants available we've already seen that impact the business probably the largest program is one that California enacted last summer, which is something like four or $5 billion. So you have state level programs that are significant.

You have the <unk> program, which so far has just gone through a phase one theres another $16 billion.

Left for phase two and beyond and then of course, the Big number you have is is coming out of the infrastructure investment.

Infrastructure Investment Act.

Is it depends on how you calculate it but lets call it <unk> 40 billion plus.

Support and so I think the highest level way to think about this is to say in rural America. The industry said without historically the industry has said that without support 20% of America didn't make sense to deploy high capacity networks.

I think if you look back from 10 years from now that the government support will effectively have addressed.

If not all of it the vast majority of it so that market that's never been in the industry.

<unk> is now going to be funded.

Then I think you also see in <unk>.

The rest of the other 80%.

That that the telcos in particular and the cable operators all go through different technologies.

Have all acknowledged that that high capacity, one gig plus networks.

Where the world will be in all of those initiatives require services from people like us.

Very helpful. Steve I'll turn it over there.

Our next question comes from Alex Rygiel with B Riley financial your line is open.

Good morning, Steve very nice quarter.

Thanks, Alex.

The accounts receivable still running a bit higher than historically do you think you can continue to monetize accounts receivable for additional cash.

The company had a sort of a new norm.

So Alex if you look at excluding the working capital tied up in the large customer program that remains although we've made great progress on that in the third quarter. If you look at the DSO and the rest of the business it kind of runs in that mid nineties.

And Thats also in the quarter were sequentially, we had about call it $70 million of growth.

So Joe I think that that's in line, we did make good progress our great progress, we expect that progress to continue in the fourth quarter and then I think as we get into the next fiscal year.

<unk>.

We don't see any reason in the rest of the business to be outside of our normal range.

That's great and then 12 month backlogs up real strong.

Can you talk a little bit about if you're seeing a mix shift away from the top five customers.

How that could impact margins moving forward.

Yes. So I think we had we certainly had great growth with frontier and AT&T and when you have your largest customer growing call it 68% in the quarter.

Think that augurs well looking ahead I mean, if you if you deconstruct that AT&T.

<unk>.

Wireless was still down a little over 10% with the wireline portion of the business was up over 110%.

So so I think we see good opportunities across the top five but that being said the businesses is broad now as it's ever been about 35% of revenues from other than top five customers.

And I think we feel good about those growth opportunities the electric utilities grew about 75% and I think there are others.

We also see.

Real opportunity with.

Thank you.

Our next question comes from Adam Paul Reimer with Tom.

Thompson Davis your line is open.

Hey, good morning, guys nice quarter.

Good morning, Adam.

Steve what's the chance to a large customer program as is.

Is flushed before fiscal 'twenty three.

Fiscal 'twenty three so look we made good progress in the third quarter, we expect that progress to continue in the fourth quarter there'll be some.

Continued margin impact we believe in the fourth quarter, but we really do think that diminishes.

Pretty significantly as you work through next year.

Okay.

Earlier this year, we were a bit concerned about.

Windstream in sourcing that you had some new contracts from Windstream.

This quarter. So I was just looking for an update on.

The outlook for that customer.

Yes, we continue to have opportunities there I think we talked last quarter that we had signed an agreement last quarter, we signed some additional agreements this quarter.

We like to be part of their forward.

Solutions, they've got a lot of work to do and so we're encouraged.

We're encouraged.

With the activity we had within this quarter.

And then lastly can you give us a little more color on the.

The $500 million of incremental awards in October.

Yeah. It was across a number of states with a single client so so a nice sized.

Expansion with that customer.

Primarily geographically.

Okay and existing top five customer.

Yes.

Okay.

I'll turn it over thanks.

Our next question comes from Brent Thielman with D. A Davidson your line is open.

Hey, thanks.

Hey, Steve.

Talk as much about fiber supply constraints in this call maybe you could just update us where you're seeing the impacts in the business you had nice growth year with a couple of key customers.

What's holding them back, but where are you seeing that impact you the most.

Yes, so look customers are working hard to get in front of their supply chain issues.

And so there are extended lead times on fiber, but they're carrying more inventory.

They're ordering earlier and we're working hard with our customers is as quick as the cable comes in.

We put it in service so.

I think the whole industry is working hard to contend with those issues.

But if you haven't got your order in today and haven't planned for that it may be a while before you see it.

Okay. Maybe then just flip that I guess im wondering if youre seeing some signs in the business.

And the broader supply chain constraints plus inflation.

Are you getting new awards, new wins because of your scale, maybe because some of the smaller regional can't compete with what you can provide there just curious have you seen any evidence in the business to that.

Yeah. It certainly Brent I mean, managing in a period of inflation means you better stay hunt type of moment to moment, what's happening in the supply chain and the capacity to grow labor.

And I think we have probably the advantage. We have there is really that we have a national perspective on what's going on I think last quarter I talked about where we were literally moving resources from one quarter of the country to another.

Help the customer get a program.

Program started.

So.

Don't know that Theres a particular.

Advantage of scale in a period of inflation other than we've got an experienced organization that sees lots of inputs and I think we see emerging trends across the industry.

As quick as anybody.

Okay and are you.

You're going to see lumen ramped back up it looks like some new award activity in a couple of quarters here sequential sale.

Great.

Look we we were encouraged that we had some sequential growth with lumen that's a good thing.

We're also encouraged about the recent announcement from Apollo who's acquiring a portion of that footprint.

We have we work extensively throughout the footprint that lumen.

<unk> two will follow and we think thats future opportunities as you can see by the recent announcements.

Okay and last one Steve just any color around the increased Capex and also should.

Should we start to see an increase in <unk>.

DNA at some point here.

While certainly Capex will drive DNA, Brent so thats right from a modeling perspective.

We will follow.

Look we started off the year, basically where we where we're ending the year in terms of our Capex expectations. We were pleased that during the quarter that our suppliers were able to deliver.

Probably a little bit earlier than they had forecast for us.

Four or five months ago, I think that's a testament to the to the scale that we have and the relationships and the history with our suppliers.

It's still it's still uncertain, we order equipment today.

We know we're going to get it when exactly we're going to get it.

Still.

A little bit of a guessing game and so we're just happy we we got what we did in <unk>.

Yeah.

Okay. Thank you.

Our next question comes from Eric <unk> with.

Wells Fargo. Your line is open.

Great. Thanks for taking the question Steve.

Maybe you could talk about your cable business. So Comcast was down for the <unk>.

Straight quarter.

I guess, how much of it do you think is timing related how much of it might be related to some of the pivots away from fiber deep towards some of the mid and high splits as they've talked about.

And do you have any thoughts on cable spending in your footprint, maybe picking back up particularly.

These fiber overbuild, there has come into new markets and start competing for sure.

The cable operators.

But we're still pleased I mean, I think the Comcast revenue was in line sequentially, where we where we were last quarter as you highlighted they've certainly been.

Public in there.

Evolving plans on how to create more upstream capacity on their path.

To two gig five gig and.

They and others in the industry are all working through kind of similar technology changes at the same time.

Yes fair enough.

On the wireless side I think you said it was down.

Maybe it was just with AT&T, 10% I'm just wondering if you could just aggregate what percentage of revenue. It was then.

There have been some recent announcements about.

E band deployments being delayed at least a month in some question whether that elongate have you seen any impact.

On the FAA just view on the CDN side within your business or nothing to note.

Yeah, I think Eric we continue to have good levels of activity in wireless it's certainly down as they look they look ahead to the C band deployments, we have begun C band deployments for a number of customers, we see that as a good opportunity.

With respect to the.

The discussion of between the FCC and the FAA.

Our customers seem to be confident that thats going to resolve itself in the near term and we really don't have anything to add.

Fair enough and just one last one for me Steve on the on the cost inflation side, you had talked before about <unk>.

Looking at the forward cost curves and trying to appropriately account for future cost inflation in your business. Just wondering if you have any color on recent contract awards, how those discussions have gone and if customers are generally understanding if you have to kind of reset rate.

To account for some of the higher labor cost inflation and component cost inflation, that's come through the industry.

Sure sure so because it is coming through the industry I think everybody is looking at those impacts.

On everybody's business I think we owe it to customers to make sure that we have the right economics to sustainably attract employees that are new to the industry.

As well as encourage sub contractors to grow with us and I think as we're booking new work, that's our objective and.

Not a perfect science, but we feel pretty good about where we've been coming out.

Great. Thanks, Steve.

Our next question comes from Jon Lopez with vertical your line is open.

Hey, thanks very much.

I had three hopefully quick ones. The first one I'm wondering just in the second half of your fiscal year. If theres anything unusual that you would want to call out and I guess why I ask it is because fiscal Q3 came in pretty strong.

Relative to the seasonal pattern like best in several years, but fiscal Q4 guide implies some deceleration organically is there any like logic to that or anything you'd highlight.

Yes, John I think the growth as you can see with the customer data that we provided was pretty broad based not everybody group, but we had certainly substantial growth in two of the top five and then everybody else.

<unk> forecast trends organic growth John.

We have five holidays, we have the week between Christmas and new year's.

It's highly sensitive to weather, particularly at the end of January.

Work always gets done but it may not get done in this quarter and so we don't see any diminished appetite across any of the customers to get less work done it just the uncertainty around our ability to get it done given the seasonality in the quarter.

Got it helps the second one I just wanted to come back to something I think I heard you say, but just to make sure I'm clear I think historically, you've had a pretty good presence in the footprint that that one customer is in the process of divesting.

Alright, I guess those assets as they change hands next year is that an opportunity you feel pretty comfortable that you'll be attached to or you have the opportunity to be attached to.

Yeah, John we're not going to go into discussions with specific customers other than to say that we've been through lots of mergers and acquisitions.

And as long as we continue to provide good service to the new owners, we think we'll get fair consideration and win our fair share of the work no guarantees but.

We know the new management team and so.

We will work hard to do alumina good job until it transfers and then hope that that continues with the new owners.

Got you that's helpful. My last one is the obligatory backlog question, so I'm going to come at you. This way if I look at pre pandemic to NASA and the 2019 to now Youre short term backlog as highlighted earlier higher like $200 million higher and it's actually pretty close to the highest nominal level it's ever been.

Not the case with your long term backlog, that's down like 1 billion and a half versus the end of 2019 that seems counterintuitive when we consider what your customers are planning and committing to.

Walk us through like what are the puts and takes there just re centered on why that makes sense.

John is a good example, right we have highlighted on this call. The two year awards with frontier I don't think that they just have two years' worth of work they've actually laid plans out but for them and for US two years was the right.

Duration for the initial agreement and so that's what's in there.

I don't think in that for that particular client as an example, given that they got four year objectives. That's all of the opportunity as it just that's all we could record in backlog right now.

Got it and sorry, just to be clear on one thing in my own mind does the inflationary environment that we're operating now operating in now excuse me does that change at all the mechanics of backlog like does that make you less willing or the customers less willing to engage longer term is that a factor at all.

Well it doesn't change the mechanics of the calculation John but it does tell you I mean, it's a good question.

<unk>.

We owe it to our customers to make sure that we've got the economics to perform during the term of an agreement and so we've got to make sure that we can contemplate future cost inflation and so if a customer wants to do with two year contract versus what another.

Another customer might do three years, we're fine with that.

We will.

We will do our best to perform and meet their expectations of when the contract comes up for renewal, we hope that we'll be successful.

Understood.

Pushing duration.

And in an inflationary environment, unless we've got the right terms.

To handle future cost increases.

Yes, no that makes sense I appreciate the thoughts thanks, Steve.

Our next question comes from Noelle Dilts with Stifel. Your line is open.

Hi, Thank you.

Steve You mentioned in your comments that your customers.

Just generally with the federal money coming into the market that the amount of work.

And the next slide to eight years is essentially more than double.

I think you said 17.

I'm just curious you know given the supply.

When constraints that we're seeing right now around chassis and obviously, the well known labor challenges like how realistic is it that the industry can scale to.

To meet that demand on curious how youre thinking about that from an industry standpoint, and then.

<unk> ability to ramp as well.

Well I think anytime that you have kind of a.

Part of announced.

Priority placed on certain economic activity by the government that that as long as the economics are right you could create supply I mean, this is a country where people will be attracted to opportunity as long as the economics work for them to grow capacity.

We've had we had the ability to grow head count year over year call it 5%.

We think that we can continue to do that.

But the challenges are OE, such that there's lots of things in the industry that have to work together to grow the capacity.

Maybe near term, sometimes people overestimate how much it can grow but I think long term.

Programs get built.

As long as the economics are right.

Okay, and then along the same lines in the past you've talked about during these types of periods, where there is.

A lot of work to pick from that the company that you tend to be a little bit more focus on returns and just revenue. So could you speak to how youre thinking about sort of.

Balancing revenue growth versus margin expansion.

Over the next few years.

Yeah.

I think noelle, we've always been much.

Much more focused on margins and topline we know that growing the business is important to create value, but we got to make sure.

That we're earning proper returns, but again it goes back to when you're trying to create or where you need to create capacity you want to create an environment that is sustainably attractive.

For new employees and for subcontractors that either enter the market or grow.

And I think it's.

I think that's what we're focused on.

And we're not sitting here just kind of picking through the opportunities. What we're try based on returns what were trying to say is where can we do the customer the best job to meet their needs and do it in a sustainable way.

Makes sense. Thanks.

Our next question comes from Christian Schwab with Craig Hallum. Your line is open.

Hey, guys solid quarter.

I'm just wondering what you guys just current thoughts are.

On potential M&A, given consolidating supply chain.

And the fact that labor is extremely tight large equipment is extremely tight.

Have you guys had any new thoughts about.

To your point that people will file a substantial opportunities, but it's tough to file substantial opportunities. If we don't have strong relationships with the leading customers spending all the money who are consolidated in a supply chain. So it seems like it's a market.

That.

Given especially the labor tightness might be.

Time to make more acquisitions or am I thinking about that wrong.

So Christian we always think about acquisitions first and foremost about acquiring.

Good relationships and good management teams, we can buy equipment as well as anybody I think this quarter, we spent something like $44 million on capex.

So it's primarily looking for those attributes.

And we've always been opportunistic about that I think were encouraged in the current quarter that we've been able to grow organically as well as we have been I think as well as anybody of our size in the industry. So if you think about it.

Revenue with At&t's up about $80 million year over year, if you annualize that theres not a lot of M&A opportunities that would be attractive to us at that level and those all come at a multiple of earnings and we'd much rather just invest in.

And our people and equipment.

To really build on the relationships that we have and that doesn't mean that we don't we won't contemplate some because we've done lots of M&A here over the years.

But we always think about capital as an opportunity to invest in our customers or invest in ourselves and.

And we'll just.

Let's see where that leads us.

Great no other questions. Thanks, Steve.

Again to ask a question. Please press Star then one.

Our next question comes from Alan <unk> with Sylvan Lake asset management. Your line is open.

Hi, Thank you.

Wanted to be clear on one thing you talked about a long term average call. It in mid elevens in terms of EBITDA, which is that's accurate spend your long term average that's not your peak right I mean, you've had much higher peaks since then and since we're coming out of a meaningful downturn in the last few years and starting to head into what seems like a very big expansionary.

The next few years.

I want to know that shareholders can be comforted that you have plenty of ability to go above what your long term call. It 20 year average has been on EBITDA.

Well, Alan we've certainly had EBITDA in periods of sustained and broad growth in the mid teens and we're not sitting here, saying mission accomplished if we get back to average we try not to be average we'd like to be better than average so we're going to keep working on it.

But we have gone through a difficult period of time, we're encouraged that the cash has come in cash creates opportunity.

And so we and we do think all of the ingredients are in place.

Broad growth given the number of both public and privately funded opt.

Opportunities that we see.

Okay, and then can you can you talk a little bit more specifically about.

How inflation is impacting you at all.

Obviously your main cost is labor just can you tell us what youre seeing in terms of what competitors are doing hiring crews new people coming into the industry and then have you made any changes in your ordering patterns as it relates to buying Capex sooner Ford F 150, as other things ipads things like that that youre doing sooner or how you've changed in.

Thanks to the inflationary environment.

I mean certainly in.

In most regions not all regions of the country, it's a tight labor market, particularly on the entry level.

<unk>.

The semi skilled or or.

Entry level workers. So we're addressing we're offering more money I mean, we're doing what we have to to be attractive we're ramping up our recruiting efforts. We continue to get lots of applications in every week.

We're still an attractive place to work.

But I think we're doing what everybody else is doing.

My experience that's the way these things work at have worked out in the past and then on Capex at one I think you hit it right on the head we're doing we're doing what everybody else is doing we're carrying more inventory.

We're ordering earlier, we're providing visibility out we've even talked about with some of our equipment suppliers. What if we gave you two years' worth of visibility because we know what we own we know what we need to replace not only next year, but the year after.

And I think we've generally been a good partner.

Our capex suppliers.

And so I think.

They appreciate that and they're working with us.

Okay, and then lastly can you just update us on the share buyback how much do you have left and what did you do this quarter.

Go ahead drew.

Hey, Alan So there's 100 million that remains through August of 'twenty two.

There were no repurchases in Q3.

Okay. Thank you.

There are no further questions I'd like to turn the call back over to Steven Nielsen for closing remarks, well. Thanks before we have closing remarks drew just a couple of statistics to to add sure. Thanks, Steve So for the customer split telco was at 68, 4% cable was at 24%.

<unk> facility locating was at seven 9% electrical and other was three 3%.

Alright, Thanks drew thanks for everybody for joining the call and again, thanks to all of our employees and the hard work. This year, it's been a tough year for everybody and we really appreciate what you've done and wish everybody a happy Thanksgiving.

And look forward to the new year. Thank you.

This concludes the conference you may now disconnect everyone have a great day.

Okay.

Yes.

[music].

Yes.

[music].

Good day.

Because the dotcom third quarter results conference call at this time, all participants are listen only mode.

After the Speakers' presentation there'll be a question answer session.

Ask a question during the session. When he departs Star then one on you touched on the telephone.

If anyone should require assistance during the conference. Please press star and then see what else we can operator.

As a reminder, this conference maybe recorded.

I'd now like to hand, the conference over to your house today.

Mr. Steve Nelson, President and Chief Executive Officer. Please go ahead Sir.

Be identified by number throughout our presentation.

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

Thank you Steve.

All forward looking statements made during this call I 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.

Assume no obligation to update any forward looking statements Steve Thanks.

Thanks, Ryan now moving to slide four and a review of our third quarter results.

Our customers with real fortitude and difficult times now for the quarter.

Revenue was 854 million, an organic increase of six 6%.

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, three 4% of revenue, reflecting the continued impacts of the complexity of a large customer program revenue declines year over year with other large customers and fuel costs.

General and administrative expenses were seven 8% of revenue at all of these factors produced adjusted EBITDA of $83 1 million or nine 7% of revenue and adjusted earnings per share of <unk> 95, compared to earnings per share of $1 six in the year ago quarter.

Included in adjusted earnings per share are incremental tax benefits of <unk> 10 per share for credits related to tax filings for prior periods.

Liquidity was solid at $314 7 million in operating cash flow was strong at $104 3 million, reflecting a sequential DSO decline of 12 days.

During the quarter, we repaid our remaining 2021 convertible notes in full and subsequent to the end of the third quarter. We received three year award for construction services in a number of states valued in excess of $500 million.

In total.

Now going to slide five.

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.

Increasing access to high capacity telecommunications continues to be crucial to society.

Specially in Rural America.

The recently enacted infrastructure investment and jobs Act includes over $40 billion for the construction of rural Communications networks, and Unserved and underserved areas across the country.

This represents an unprecedented level of support.

In addition, an increasing number of states are commencing initiatives that will provide funding for telecommunications networks, even prior to the initiation of funding under the infrastructure Act.

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

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 initiatives.

We continue to provide integrated planning engineering and design procurement and construction and maintenance services to several industry participants.

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 of 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 <unk>.

<unk> was our largest customer at 23, 4% of total revenue or $199 5 million.

<unk> AT&T grew 68, 3% organically this was our third consecutive quarter of organic growth with AT&T.

Revenue from Comcast was $121 million or 14, 2% of revenue Comcast was <unk> second largest customer.

Lumen was our third largest customer at 12, 1% of revenue or $103 million.

Verizon was our fourth largest customer at $93 4 million or 10, 9% of revenue.

And finally revenue from frontier was $41 3 million or four 8% of revenue frontier grew a 118, 6% organically.

This is the 11th consecutive quarter, where all of our other customers in aggregate, excluding the top five customers have grown organically.

Of note fiber construction revenue from electric utilities was $53 7 million in the quarter and increased organically 75, 3% year over year.

Now going to slide seven backlog at the end of the third quarter was $5 $8 96 billion versus $5 895 billion at the end of the July 21 quarter essentially flat.

Of this backlog approximately $2 93 8 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.

During the quarter, we received from.

From frontier fiber construction agreements in California, Texas, Indiana, New York, Connecticut, and Florida for consolidated Communications, a construction and maintenance agreement for.

For New Hampshire.

From Windstream construction agreements for Ohio, Pennsylvania, New York, Kentucky, and Alabama.

Head count increased during the quarter to 14905, now I will turn the call over to drew for his financial review and outlook.

Adjusted EBITDA was $83 1 million or nine 7% of revenue.

Gross margins of 17, 3% decreased 140 basis points from the year ago period.

As expected this decrease reflected higher fuel costs of approximately 50 basis points as well as the impact from revenue declines from several large customers.

G&A expense was up seven 8% of revenue and came in approximately 40 basis points better than our expectations from improved operating leverage.

Non-GAAP adjusted net income was <unk> 95 per share compared to $1 six per share in the year ago period Q.

Q3 dollars 22 included approximately $3 million or <unk> 10 per share of incremental tax benefits for credits related to tax filings for prior periods that.

The total variance in net income resulted from the after tax decline in adjusted EBITDA higher interest expense and lower gains on asset sales.

Offsetting by lower stock based compensation, depreciation and amortization and income taxes.

Now going to slide nine.

Our financial position and balance sheet remained strong in September we repaid the final balance of $58 3 million of the convertible notes at maturity.

We ended the quarter with $500 million of senior notes $350 million of term loan and no revolver borrowings.

Cash and equivalents were $263 7 million and liquidity was solid at $314 7 million.

Our capital allocation prioritizes 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 strong at $104 3 million in the quarter capital expenditures were $44 1 million net of disposal proceeds and gross Capex was $45 1 million for.

For the full year of fiscal 2022 capital expenditures net of disposals are now expected to range from $135 million to a $150 million, an increase of 10 million to $25 million compared to the high end of approximately $125 million in the prior outlook.

<unk> provided in Q2 'twenty two.

The combined Dsos of accounts receivable and net contract assets were at 113 days an improvement of 12 days sequentially from Q2 'twenty two as we made substantial progress on a large customer program.

Now going to slide 11.

Each year, our January quarterly results are impacted by seasonality, including in climate weather.

We're available work days due to the holidays reduced daylight work hours and the restart of calendar payroll taxes. These and other factors may have a pronounced impact on our actual results for the January quarter compared to our expectations.

Q4 of last fiscal year included 14 weeks of operations due to the company's 50 253 week fiscal year and also included $5 $7 million of revenues from storm restoration services.

Non-GAAP contract revenues adjusted for these amounts in Q4, 'twenty, one with $691 8 million.

The company expects non-GAAP adjusted EBITDA to range from in line to modestly higher as a percentage of contract revenues as compared to Q4 'twenty one.

Total interest expense is expected at approximately $8 8 million during Q4, and we expect a non-GAAP effective income tax rate of approximately 27% 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 and foremost we maintained significant customer presence throughout our markets. We are encouraged by the 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 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.

Federal and state support for ROE deployments of communications networks is dramatically increasing in scale and duration.

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.

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

Now operator, we will open the call for questions.

As a reminder to ask a question. Please press star and then what.

If your question has been answered and we'd like to remove yourself NICU.

Our first question comes from Sean Eastman with Keybanc capital markets. Your line is open.

Hi, Dan Thanks for taking my questions.

So I just wanted to start on the margins if we build in the fourth quarter guidance. It looks like you guys are trending somewhere around 8% for fiscal 'twenty two.

I just wanted to check back in on the bridge from there to that historical average that we've been anchored to.

Is that entire roughly 400 basis points tied to the challenged customer program or is there another component of that bridge that we need to be contemplating in our forecast.

Over the next year.

Okay, and how did the receivables and contract assets balance trend on that challenge program in the third quarter.

Yes, as Youll see when we file the Q with that customer.

Accounts receivable and contract asset came in about $100 million. So we actually had.

About $100 million of free cash flow out of that one.

Customer and program.

Okay very helpful and last one if you just look back over the last 12 months, how much would you say D wise three to five year total addressable market has grown around these fiber commitments and of course the rural broadband funding.

That we've seen come through.

And I'm just curious.

Are you seeing.

Those.

That incremental activity reflected in bid activity currently or have we not yet seen.

The big inflection in and bid opportunities.

Yes.

That should be following through from from what we're seeing in the.

Infrastructure deployment commitments that are coming through.

Joe Shan lots in that question, we'll try to break it down into pieces. So if you think about in the core telco cable world over the last year, we've talked about this last quarter.

Yes.

Fiber to the home.

It really became a real way to deploy networks, there's been something on the order of.

Call. It 45 million homes that have been passed with fiber.

In the last 90 days, we've had a number of smaller customers.

Who have actually.

Taken up there they are long term plans to pass more homes than even the expected the past say six months ago and in one case.

Estimate that had had a fixed wireless program decided to convert that to a fiber deployment program.

So that's before we get too.

The impact on addressable market of the.

Federal and state support.

So theres really three pieces, there, one which is not as widely heralded but a number of states have kicked off their own broadband support programs.

And made grants available we've already seen that impact the business probably the largest program is one that California enacted last summer, which is something like four or $5 billion. So you have state level programs that are significant.

You have the <unk> program, which so far has just gone through a phase one there is another $16 billion left for phase II and beyond and then of course. The Big number you have is is coming out of the infrastructure and investments.

Infrastructure Investment Act.

Which is it depends on how you calculate it but lets call. It <unk> 40 billion plus.

Support and so I think the highest level way to think about this is to say in rural America. The industry said without so historically the industry has said that without support 20% of America didn't make sense to deploy high capacity networks.

If you look back from 10 years from now that the government support will effectively have addressed.

If not all of it the vast majority of it so that market thats never been in the industry.

<unk> is now going to be funded.

And then I think you also see in the rest of the other 80%.

That that the telcos in particular and the cable operators all go through different technologies.

Have all acknowledged that that high capacity, one gig plus networks.

Where the world will be in all of those initiatives require services from people like us.

Very helpful. Steve I'll turn it over there.

Our next question comes from Alex Rygiel with B Riley financial your line is open.

Good morning, Steve very nice quarter.

Thanks, Alex.

The accounts receivable still running a bit higher than historically do you think you can continue to monetize accounts receivable for additional cash.

The company had a sort of a new norm.

And Thats also in a quarter, where sequentially, we had about call it $70 million of growth.

So Joe I think Thats in line, we did make good progress our great progress, we expect that progress to continue in the fourth quarter and then I think as we get into the next fiscal year.

We don't see any reason in the rest of the business to be outside of our normal range.

That's great and then 12 month backlogs up real strong.

Can you talk a little bit about if youre seeing a mix shift away from the top five customers.

How that could impact margins moving forward.

Yes. So I think we had we certainly had great growth with frontier and AT&T and when you have your largest customer growing call it 68% in the quarter.

That augurs well looking ahead I mean, if you if you deconstruct that AT&T number.

Wireless was still down a little over 10% with the wireline portion of the business was up over 110%.

So so I think we see good opportunities across the top five but that being said the businesses is broad now as it's ever been about 35% of revenues from other than top five customers.

And I think we feel good about those growth opportunities the electric utilities grew about 75% and I think there are others.

That we also see.

Real opportunity with.

Thank you.

Our next question comes from Adam Paul Reimer with Thompson Davis Your line is open.

Hey, good morning, guys nice quarter, Hey, good morning, Adam.

Steve what's the chance to large customer program as is flushed before fiscal 'twenty three.

Fiscal 'twenty three so look we've made good progress in the third quarter, we expect that progress to continue in the fourth quarter there'll be some.

<unk> continue to be margin impact, we believe in the fourth quarter, but we really do think that diminishes.

Pretty significantly as you work through next year.

Okay.

Earlier this year, we were a bit concerned about.

Windstream in sourcing, but you had some new contracts from Windstream.

This quarter. So I was just looking for an update on.

The outlook for that customer.

Yes, we continue to have opportunities there I think we talked last quarter that we had signed an agreement last quarter, we signed some additional agreements this quarter.

We like to be part of their forward.

Solutions, they've got a lot of work to do and so we're encouraged.

We're encouraged.

With the activity we have within this quarter.

And then lastly can you give us a little more color on the.

The $500 million of incremental awards in October.

Yeah. It was across a number of states with a single client so so a nice sized.

Expansion with that customer.

Primarily geographically.

Okay and existing top five customer.

Now yes.

Okay.

I'll turn it over thanks.

Our next question comes from Brent Thielman with D. A Davidson your line is open.

Hey, thanks.

Hey, Steve.

Talk as much about fiber supply constraints in this call maybe you could just update us where you're seeing the impacts in the business you had nice growth year with a couple of key customers.

It appeared is holding them back, but where are you seeing that impact you. The most.

Yes, so look customers are working hard to get in front of their supply chain issues.

And so there are extended lead times on fiber, but they're carrying more inventory.

They're ordering earlier and we're working hard with our customers is as quick as the cable comes in.

We put it in service so.

I think the whole industry is working hard to contend with those issues.

But if you haven't got your order in today and haven't planned for that it may be a while before you see it.

Okay, maybe the flip that I guess im wondering if youre seeing some signs in the business.

Yes in the broader supply chain constraints plus inflation.

Yeah, certainly Brian I mean, managing in a period of inflation means you better stay on top of moment to moment, what's happening in the supply chain and the capacity to grow labor.

Our program started.

Joe.

I don't know that Theres, a particular <unk>.

Advantage of scale in a period of inflation other than we've got an experienced organization that sees lots of inputs and I think we see emerging trends across the industry.

As quick as anybody.

Okay and are you starting to see lumen ramped back up it looks like some new award activity in a couple of quarters here sequential sales growth.

Look we we were encouraged that we had some sequential growth with lumen that's a good thing.

We're also encouraged about the recent announcement from Apollo who is acquiring a portion of that footprint.

We have we work extensively throughout the footprint that lumen.

Selling through Apollo and we think thats future opportunities as you could see by their recent announcements.

Okay and last one Steve just any color around the increases in Capex and also.

Should we start to see an increase in DNA at some point here.

While it certainly Capex will drive DNA brand to that right from a modeling perspective.

It certainly will follow.

Look we started off the year, basically where we where we're ending the year in terms of our Capex expectations. We were pleased that during the quarter that our suppliers were able to deliver.

Probably a little bit earlier than they had forecast for us.

Four or five months ago, I think that's a testament to the to the scale that we have and the relationships and the history with our suppliers.

It's still it's still uncertain, we order equipment today.

We know we're going to get it when exactly we're going to get it.

As Phil.

A little bit of a guessing game and so we're just happy week, we got what we did in <unk>.

Okay.

Okay. Thank you.

Our next question comes from Eric <unk> with.

Wells Fargo. Your line is open.

Great. Thanks for taking the question Steve.

Maybe you could talk about your cable business. So Comcast was down the <unk>.

Straight quarter.

I guess, how much of it do you think is timing related how much of it might be related to some of the pivots away from fiber deep towards some of the mid and high splits as they've talked about.

And do you have any thoughts on cable spending in your footprint, maybe picking back up particularly as <unk>.

These fiber overbuild, there has come into new markets and start competing for sure.

The cable operators.

Look we're still pleased I mean, I think the Comcast revenue was in line sequentially, where we where we were last quarter as you highlighted they've certainly been.

Public in there.

Evolving plans on how to create more upstream capacity on their path.

To two gig five gig and.

They and others in the industry are all working through kind of similar technology changes at the same time.

Yes fair enough.

On the wireless side I think you said it was down.

Maybe it was just with AT&T, 10% I'm just wondering if you could just aggregate what percentage of revenue it was and then.

There have been some recent announcements about you may end up.

Appointments being delayed at least a month in some question whether that elongate have you seen any impact.

From the FAA dispute on the C band side within your business and where nothing to note.

Yeah, I think Eric we continue to have good levels of activity in wireless it certainly down as they look they look ahead to the C band deployments, we have begun C band deployments for a number of customers, we see that as a good opportunity.

With respect to the the discussion of between the FCC and the FAA.

Our customers seem to be confident that thats going to resolve itself in the near term and we really don't have anything to add.

Fair enough and just one last one for me Steve on that on the cost inflation side, you had talked before about.

To account for some of the higher labor cost inflation and component cost inflation, that's come through the industry.

Sure sure so because it is coming through the industry I think everybody is looking at those impacts.

On everybody's business I think we owe it to customers to make sure that we have the right economics to sustainably attract employees that are new to the industry.

As well as encourage subcontractor to grow with us and I think as we're booking new work, that's our objective and.

And it's not a perfect science, but we feel pretty good about where we've been coming out.

Great. Thanks, Steve.

Our next question comes from Jon Lopez with vertical your line is open.

Hey, thanks very much.

I have three hopefully quick ones. The first one I'm wondering just in the second half of your fiscal year. If theres anything unusual that you would want to call out and I guess why I ask it is because fiscal Q3 came in pretty strong.

Relative to the seasonal pattern like best in several years, but fiscal Q4 guide implies some deceleration organically is there any like logic to that or anything you'd highlight.

And I think it's always difficult in this January quarter.

<unk> forecast trends for organic growth John.

We have five holidays, we have the week between Christmas and new year's.

It's highly sensitive to weather, particularly at the end of January.

Got it that helps the second one I just wanted to come back to something I think I heard you say, but just to make sure I'm clear I think historically, you've had a pretty good presence in the footprint that that one customer is in the process of divesting.

Alright, I guess those assets as they change hands next year is that an opportunity you feel pretty comfortable that youll be attached to or you have the opportunity to be attached to.

Yeah, John we're not going to go into discussions with specific customers other than to say that we've been through lots of mergers and acquisitions.

And as long as we continue to provide good service to the new owners, we think we'll get fair consideration and win our fair share of the work no guarantees but.

We know the new management team and so.

We will work hard to do alumina good job until it transfers and then hope that that continues with the new owners.

Not the case with your longer term backlog, that's down like 1 billion and a half versus the end of 2019 that seems counterintuitive when we consider what your customers are planning and committing to.

Walk us through like what are the puts and takes there. It's just re centered on why that makes sense.

Duration for the initial agreement and so that's what's in there.

I don't think in that for that particular client as an example, given that they got four year objectives. That's all of the opportunity is and just that's all we could record in backlog right now.

Well it doesn't change the mechanics of the calculation John but it <unk> tell you I mean, it's a good question.

<unk>.

Again, we owe it to our customers to make sure that we've got the economics to perform during the term of an agreement and so we've got to make sure that we can contemplate future cost inflation and so if a customer wants to do a two year contract versus another.

Another customer might do three years, we're fine with that.

Will.

We will do our best to perform and meet their expectations of when the contract comes up for renewal, we hope that we will be successful.

Understood.

Pushing duration.

And in an inflationary environment, unless we've got the right terms.

To handle future cost increases.

Yes, no that makes sense I appreciate the thoughts thanks, Steve.

Our next question comes from Noelle Dilts with Stifel. Your line is open.

Hi, Thank you.

Steve You mentioned in your comments that your customers.

Just generally with the federal money coming into the market that the amount of work.

And the next slide eight years is essentially more than double.

I think you said 17.

I'm just curious given the.

<unk>.

When constraints that we're seeing right now around chassis and obviously, the well known labor challenges like how realistic is that the industry can scale.

To meet that demand on curious how youre thinking about that from an industry standpoint, and then tyco.

So let me turn to ramp as well.

Well I think anytime that you have kind of a.

A pronounced.

<unk> announced.

Priority placed on certain economic activity by the government that that as long as the economics are right you could create supply I mean, the specific country, where people will be attracted to opportunity as long as the economics work for them to grow capacity.

We've had we had the ability to grow head count year over year call it 5%.

We think that we can continue to do that.

But the challenges are OE, such that there's lots of things in the industry that have to work together to grow the capacity.

May be near term, sometimes people overestimate how much it can grow but I think long term.

Programs get built.

As long as the economics are right.

Okay, and then along the same lines in the past you've talked about during these types of periods, where there is.

A lot of work to pick from that the company that you tend to be a little bit more focus on returns and just revenue. So could you speak to how youre thinking about sort of.

Balancing revenue growth versus margin expansion.

Over the next few years.

Yes.

I think noelle, we've always been much.

Much more focused on margins and top line, we know that growing the business is important to create value, but we got to make sure.

That we're earning proper returns, but again it goes back to when you are trying to create or where you need to create capacity you want to create an environment that is sustainably attractive.

Four new employees in four sub contractors that either enter the market or grow.

And I think it's.

I think that's what we're focused on.

And we're not sitting here just kind of picking through the opportunities. What we're based on returns. While we're trying to say is where can we do the customer the best job to meet their needs and do it in a sustainable way.

Makes sense. Thanks.

Our next question comes from Christian Schwab with Craig Hallum. Your line is open.

Hey, guys solid quarter.

I'm just wondering what you guys just current thoughts are.

On potential M&A, given our consolidating supply chain.

And the fact that labor is extremely tight large equipment is extremely tight.

Have you guys had any new thoughts about.

Your appointment that people will file a substantial opportunities, but it's tough to file substantial opportunities. If we don't have strong relationships with the leading customers spending all the money who are consolidated in a supply chain. So it seems like it's a market.

That.

Given especially the labor tightness might be.

Time to make more acquisitions or am I thinking about that wrong.

So Christian we always think about acquisitions first and foremost about acquiring.

Good relationships and good management teams, we can buy equipment as well as anybody I think this quarter, we spent something like $44 million on capex.

So it's primarily looking for those attributes.

Revenue with AT&T is up about $80 million year over year, if you annualize that theres not a lot of M&A opportunities that would be attractive to us at that level and those all come at a multiple of earnings and we'd much rather just invest in.

And our people and equipment.

To really build on the relationships that we have and that doesn't mean that we don't we won't contemplate some because we've done lots of M&A here over the years.

But we always think about capital as an opportunity to invest in our customers or invest in ourselves and.

And we'll just.

Let's see where that leads us.

Great no other questions. Thanks, Steve.

Again to ask a question. Please press Star then one.

Our next question comes from Allen Ms. Ronnie.

With Sylvan Lake asset management your line is open.

Hi, Thank you.

Wanted to be clear on one thing you talked about a long term average call. It in mid elevens in terms of EBITDA, which is that's accurate figure long term average that's not your peak <unk>.

<unk> had much higher peaks since then and since we're coming out of a meaningful downturn in the last few years and starting to head into what seemed like a very big expansionary period. The next few years.

I want to know that shareholders can be comforted that you have plenty of ability to go above what your long term call. It 20 year average has been on EBITDA.

But we have gone through a difficult period of time, we're encouraged that the cash has come in cash creates opportunity.

And so we do think all the ingredients are.

Our in place for broad growth given the number of both public and privately funded.

<unk> that we see.

Okay, and then can you can you talk a little bit more specifically about.

How inflation is impacting you.

Your main cost is labor just can you tell us what youre seeing in terms of what competitors are doing hiring crews new people coming into the industry and then have you made any changes in your ordering patterns as it relates to buying capex sooner at Ford F $150. Other things iPad things like that that youre doing sooner or how you've changed in.

As to the inflationary environment.

I mean, certainly in in most regions not all regions of the country, it's a tight labor market, particularly on the entry level.

<unk>.

The semi skilled or or.

But I think we're doing what everybody else is doing in my experience. That's the way. These things work have worked out in the past and then on Capex out one I think you hit it right on the head we're doing we're doing what everybody else is doing we're carrying more inventory.

We're ordering earlier, we're providing visibility out we've even talked about with some of our equipment suppliers. What if we gave you two years' worth of visibility because we know what we know what we need to replace not only next year, but the year after.

And I think we've generally been a good partner.

Our capex suppliers.

And so I think.

They appreciate that and they're working with us.

Okay, and then lastly can you just update us on the share buyback how much do you have left and what did you do this quarter.

Go ahead drew.

Hey, Alan So Theres, a 100 million that remains through August of 'twenty two.

There were no repurchases in Q3.

Okay. Thank you.

There are no further questions I'd like to turn the call back over to Steven Nielsen for closing remarks.

Thanks before we have closing remarks drew just a couple of statistics to to add sure. Thanks, Steve So for the customer split telco was at 68, 4% cable was at 24% facility locating was at seven 9% electrical and other was three 3%.

And look forward to the new year. Thank you.

This concludes the conference you may now disconnect everyone have a great day.

Q3 2022 Dycom Industries Inc Earnings Call

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