Q1 2025 Dycom Industries Inc Earnings Call
[music].
Operator: Good day, and thank you for standing by. Welcome to Dycom Industries' first quarter fiscal 2025 results conference call. At this time, all participants are in the 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 to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Steven Nielsen, President and Chief Executive Officer. Please go ahead, sir. Thank you, Opera.
Good day, and thank you for standing by.
Welcome to die Com industries first quarter fiscal 2025 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 to press star one on your telephone.
You will then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your host today, Mr. Steven Nielsen President and Chief Executive Officer. Please go ahead, Sir thank.
Steven E. Nielsen: Thank you, operator. Good morning, everyone.
Steven E. Nielsen: Thank you operator, good morning, everyone. Thank you for attending this conference call to review, our first quarter fiscal 2025 results.
Steven E. Nielsen: Thank you for attending this conference call to review our first quarter fiscal 2025 results. I'm 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 numbers throughout our presentation. Today we have on the call Drew Deferrari, our Chief Financial Officer, and Ryan Urness, our General Counsel. Now, I will turn over the call to Ryan Urness.
Going to slide two.
Steven E. Nielsen: 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.
Speaker Change: Today, we have on the call drew that Ferrari, our Chief Financial Officer, and Ryan Urness, Our General Counsel now I will turn over the call to Ryan or Das.
Ryan F. Urness: All forward-looking statements made during this conference call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events. These forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from current projections, including those risks discussed in the company's filings with the U.S. Securities and Exchange Commission. Forward-looking statements are made solely as of the original broadcast date of this conference call, and we assume no obligation to update any forward-looking statements. Steve.
Speaker Change: Thank you Steve.
Speaker Change: All forward looking statements made during this conference call are provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements include all comments, reflecting our expectations assumptions or beliefs about future events.
Speaker Change: These forward looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from current projections.
Speaker Change: Including those risks discussed in the company's filings with the U S Securities and Exchange Commission.
Speaker Change: Forward looking statements are made only as of the original broadcast date of this conference call and we assume no obligation to update any forward looking statements.
Steven E. Nielsen: Steve? Thanks, Ryan. Now moving to slide four for a review of our first quarter results. As we review our results, please note that in our comments today and in the accompanying slides, we reference certain non-GAAP measures. We refer you to slides 14 through 19 for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.
Speaker Change: Thanks, Ryan now moving to slide four and a review of our first quarter results.
As we review our results. Please note that in our comments today and in the accompanying slides we reference certain non-GAAP measures. We refer you to slides 14 through 19 for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.
Steven E. Nielsen: Now for the quarter. Revenue increased year over year to $1.142 billion, an increase of 9.3%. Organic revenue increased 2.5%. As we deployed 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 margin was 19.3% of revenue and increased 95 basis points compared to the first quarter of fiscal 2024. General and administrative expenses were 8.3% of revenue, and all of these factors produced adjusted EBITDA of $130.9 million, or 11.5% of revenue, and earnings per share of $2.12.
Speaker Change: Now for the quarter.
Speaker Change: Revenue increased year over year to 1.142 billion, an increase of nine 3% organic revenue increased two 5% as.
Speaker Change: As we deploy gigabit wireline networks wireless wireline converged networks and wireless networks. This quarter reflected an increase in demand from two of our top five customers.
Speaker Change: Gross margin was 19, 3% of revenue and increased 95 basis points compared to the first quarter of fiscal 2020 for.
Speaker Change: General and administrative expenses were eight 3% of revenue and all of these factors produced adjusted EBITDA of 139 billion or 11, 5% of revenue and earnings per share of $2 12.
Steven E. Nielsen: Liquidity was solid at $573.6 million, pro forma for our recently closed five-year extension to our senior credit facility. In May, we completed an acquisition that extends our geographic footprint to Alaska, and finally, during the quarter, we repurchased 210,000 shares of our common stock for $29.8 million. Now going to slide five.
Speaker Change: Liquidity was solid at $573 6 million pro forma for our recently closed five year extension to our senior credit facility liquidity was $707 million.
Speaker Change: May we completed an acquisition that extends our geographic footprint to Alaska and finally during the quarter, we repurchased 210000 shares of our common stock for $29 8 million.
Speaker Change: Now going to slide five.
Steven E. Nielsen: Today, major industry participants are constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are generally designed to provide gigabit network speeds to individual consumers and businesses either directly or wirelessly using 5G technology. 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 deployments, and we believe that the industry's effort to deploy high-capacity fiber networks continues to meaningfully broaden the set of opportunities for our industry.
Speaker Change: Today major industry participants are constructing or upgrading significant wireline networks across broad sections of the country.
Speaker Change: These wireline networks are generally designed to provision gigabit network speeds to individual consumers and businesses either directly or wirelessly using <unk> technologies.
Speaker Change: Industry participants have stated their belief that a single high capacity fiber network and most cost effectively deliver services to both consumers and businesses.
Speaker Change: Enabling multiple revenue streams from a single investment.
Speaker Change: This view is increasing the appetite for fiber deployments and we believe that the industry's effort to deploy high capacity fiber networks continues to meaningfully broaden our set of opportunities for our industry.
Steven E. Nielsen: We are encouraged that a number of our customers are pursuing strategic transactions aimed largely, in part, to increase access to capital and expand fiber deployment programs. Increasing access to high-capacity telecommunications continues to be crucial to society, especially for rural America. The Infrastructure Investment and Jobs Act includes over $40 billion for the construction of rural communications networks in unserved and underserved areas across the country under the B program. This represents an unprecedented level of support and meaningfully increases the rural market that we expect will ultimately be addressed. All states and territories have submitted their initial B proposals.
Speaker Change: We are encouraged that a number of our customers are pursuing strategic transactions aimed largely in part to increased access to capital and expand fiber deployment programs.
Increasing access to high capacity telecommunications continues to be crucial to society.
Speaker Change: Actually for Rural America, the infrastructure investment and job Jack concludes over $40 billion for the construction of rural Communications networks in Unserved and underserved areas across the country under the <unk> program.
Speaker Change: This represents an unprecedented level of support and meaningfully increases the rural market that we expect will ultimately be addressed.
Speaker Change: All states and territories have submitted their initial b proposals as of early this week eight states and territories have completed all required steps, while 45, others have completed nine of the tab.
Steven E. Nielsen: As of early this week, eight states and territories have completed all ten required steps, while forty-five others have completed nine of them. Once all 10 steps are completed, a state can request 20% or more of its allocated feed funding. To date, approximately $6 billion, or 14% of the program total, has received initial proposal approval. In addition, substantially all states have commenced programs that will provide funding for telecommunications networks, even prior to the initiation of funding under the Infrastructure Act.
Speaker Change: Once all 10 steps are completed a state can request, 20% or more of its allocated feed funding.
Speaker Change: To date, approximately $6 billion or 14% of the program total as received initial proposal approval.
Speaker Change: In addition, substantially all states have commenced programs that will provide funding for telecommunications networks, even prior to the initiation of funding under the infrastructure Act.
Steven E. Nielsen: We are providing program management, planning, engineering, and design, aerial, underground, wireless construction, and fulfillment services for gigabit deployment. These services are being provided across the country in numerous geographic areas to multiple customers. These deployments include networks consisting entirely of wired network elements and converged wireless wireline multi-use networks.
Speaker Change: We are providing program management planning engineering and design aerial underground and wireless construction and fulfillment services for gigabit deployments.
Speaker Change: These services are being provided across the country and numerous geographic areas to multiple customers.
Speaker Change: These deployments include networks, consisting entirely of wired network elements and converged wireless wireline multi use networks.
Steven E. Nielsen: 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 conditions appear stable.
Speaker Change: Fiber network deployment opportunities are increasing in rural America, as new industry participants respond to emerging societal initiatives.
Speaker Change: We continue to provide integrated planning engineering and design procurement and construction and maintenance services to several industry participants.
Steven E. Nielsen: In addition, the market for labor has improved in many regions around the country. Automotive and equipment supply chains are also improving, although the supply of mid-duty chassis is still somewhat constrained. Prices for capital equipment continued to increase, but at a moderating rate. For several customers, we expect the pace of deployments to increase this year, including two significant customers whose capital expenditures were more heavily weighted toward the first half of calendar year 2023. Within this context, we remain confident that our scale and financial strength position us well to deliver valuable services to our customers. Moving to slide six.
Speaker Change: Macroeconomic conditions appear stable. In addition, the market for labor has improved in many regions around the country.
Speaker Change: Automotive and equipment supply change are also improving although the supply of mid duty chassis is still somewhat constrained.
Speaker Change: Prices for capital equipment continue to increase but at a moderating rate.
Speaker Change: For several customers, we expect the pace of deployments to increase this year, including two significant customers, whose capital expenditures were more heavily weighted towards the first half of calendar year 2023.
Speaker Change: Within this context, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers.
Speaker Change: Moving to slide six.
Steven E. Nielsen: During the quarter, revenue increased 9.3%. Our top five customers combined produced 56.4% of revenue, which was essentially flat organic. Demand increased from two of our top five customers. All other customers increased 5.7% organically. AT&T was our largest customer at 18.9% of revenue or $215.5 million. AT&T grew sequentially for the second consecutive quarter. Lumen was our second largest customer, 13.7% of total revenue or $156.8 million. Lumen grew organically by 15%.
Speaker Change: During the quarter revenue increased nine 3% our top five customers combined produced 56, 4% of revenue, which was essentially flat organically.
Speaker Change: Demand increased from two of our top five customers all other customers increased five 7% organically.
Speaker Change: <unk> AT&T was our largest customer at 18, 9% of revenue or $215 5 million.
Speaker Change: AT&T grew sequentially for the second consecutive quarter.
Speaker Change: Aluminum was our second largest customer 13, 7% of total revenue or $156 $8 million loom.
Steven E. Nielsen: This was our ninth consecutive quarter of organic growth with Lumen. Revenue from Comcast was $105 million, or 9.2% of revenue. Comcast was Dycom's third largest customer. Charter was our fourth largest customer at $89.1 million, or 7.8% of revenue. Charter grew 121.8% organically. And finally, Verizon was our fifth largest customer at 78.2 million, or 6.8% of revenue. This is the 21st consecutive quarter where all of our other customers, in aggregate, excluding the top five customers, have grown organically.
Speaker Change: <unk> grew organically, 15% this was our ninth consecutive quarter of organic growth with Loopnet.
Revenue from Comcast was $105 million or nine 2% of revenue Comcast was <unk> third largest customer.
Speaker Change: Charter was our fourth largest customer at $89 1 million or seven 8% of revenue.
Speaker Change: Charter grew a 121, 8% organically.
Speaker Change: And finally, Verizon was our fifth largest customer at $78 2 million or six 8% of revenue.
Speaker Change: This is the 20 <unk> consecutive quarter, where all of our other customers in aggregate, excluding the top five customers have grown organically.
Steven E. Nielsen: Of note, fiber construction revenue from electric utilities was $96 million in the quarter. Additionally, 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 trend which we believe will parallel our deployment of gigabit wireline direct and wireless wireline convergence networks as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Now I'm going to slide seven.
Speaker Change: Of note fiber construction revenue from electric utilities was $96 million in the quarter.
Speaker Change: We have extended our geographic reach and expand expanded our program management network planning services.
Speaker Change: In fact over the last several years, we believe we have meaningfully increased the long term value of our maintenance and operations business, a trend, which we believe will parallel our deployment of gigabit wireline direct in wireless wireline converged networks as those deployments dramatically increase the amount of outside plant network that must be extended.
Speaker Change: And maintained.
Speaker Change: Now going to slide seven.
Steven E. Nielsen: Backlog at the end of the first quarter was $6.364 billion versus $6.917 billion at the end of the January 2024 quarter, a decrease of $553 million. Of this backlog, approximately $3.863 billion is expected to be completed in the next 12 months. Backlog activity during the first quarter reflects solid performance as we book new work and renew existing work. We continue to anticipate substantial future opportunities across a broad array of our customers.
Speaker Change: Backlog at the end of the first quarter was 636 4 billion versus $6 $91 7 billion at the end of the January 2024 quarter, a decrease of $553 million.
Speaker Change: Of this backlog approximately 386 3 billion is expected to be completed in the next 12 months.
Speaker Change: Backlog activity during the first quarter reflect solid performance as we booked new work and renewed existing work, we continue to anticipate substantial future opportunities across a broad array of our customers.
Steven E. Nielsen: During the quarter, we received from Frontier a construction and maintenance agreement in Illinois; for Comcast, a construction agreement in Washington; various rural fiber construction agreements in Washington, Arizona, Tennessee, and Georgia; and various utility line locating agreements in California, Virginia, and Georgia. Headcount was 15,689. Now I will turn the call over to Drew for his financial review and outlook.
Speaker Change: During the quarter, we received for frontier, a construction and maintenance agreement in Illinois for Comcast or construction agreement in Washington.
Speaker Change: Various royal fiber construction agreements, and Washington, Arizona, Tennessee, and Georgia, and various utility line locating agreements in California, Virginia, and Georgia head Count was 15689.
Drew Ferrari: Now I will turn the call over to drew for his financial review and outlook.
Drew Deferrari: Thanks, Steve, and good morning, everyone. I'm going to slide 8. Contract revenues were $1.142 billion, and organic revenue increased 2.5%. Revenue from our recently acquired businesses was $71.2 million in Q1. Adjusted EBITDA was $130.9 million, or 11.5% of contract revenues, compared to $113.5 million, or 10.9% in Q1-24, an increase of 60 basis points. Gross margin improved 95 basis points to 19.3% of revenue compared to 18.4% in Q1'24. G&A expense was 8.3% of revenue, compared to 7.9% in Q1'24.
Drew Ferrari: Thanks, Steve and good morning, everyone.
Drew Ferrari: Going to slide eight.
Drew Ferrari: Contract revenues were 114 2 billion and organic revenue increased two 5%.
Drew Ferrari: Revenue from our recently acquired businesses were $71 2 million in Q1.
Drew Ferrari: Adjusted EBITDA was $130 9 million or 11, 5% of contract revenues compared to $113 5 million or 10, 9% in Q1 24, an increase of 60 basis points.
Drew Ferrari: Gross margin improved 95 basis points to 19, 3% of revenue compared to 18, 4% in Q1 dollars 24.
Drew Ferrari: G&A expense was eight 3% of revenue compared to seven 9% in Q1 'twenty four the increase in G&A reflects higher stock based and performance based compensation as well as an increase in professional fees, including costs related to acquisitions.
Drew Deferrari: The increase in G&A reflects higher stock-based and performance-based compensation, as well as an increase in professional fees, including costs related to acquisitions. Net income was $2.12 per share compared to $1.73 per share in Q1 last year. Results for the quarter include income tax benefits resulting from the vesting and exercise of share-based awards of $5.9 million, or $0.20 per share, compared to $2.7 million, or $0.09 per share in the year-ago quarter. Including these benefits, the change in net income reflects the $17.4 million increase in adjusted EBITDA and higher gains on asset sales, offset by $7.9 million of higher depreciation and amortization, I'm going to slide nine.
Net income was $2 12 per share compared to $1 73 per share in Q1 last year.
Drew Ferrari: Results for the quarter include income tax benefits, resulting from the vesting and exercise of share based awards of $5 9 million or <unk> 20 per share compared to $2 7 million or <unk> <unk> per share in the year ago quarter.
Drew Ferrari: Including these benefits the change in net income reflects the $17 4 million increase in adjusted EBITDA and higher gains on asset sales offset by $7 9 million of higher depreciation and amortization $1 5 million of higher interest expense and higher stock based.
Drew Ferrari: <unk> and income tax expense.
Speaker Change: Going to slide nine.
Drew Deferrari: Our financial position and balance sheet remain strong. We ended Q1 with $500 million of senior notes, $310.6 million of term loans, and $55 million of revolver borrowings.
Speaker Change: Our financial position and balance sheet remains strong we ended Q1 with $500 million of senior notes $310 6 million of term loan and $55 million of revolver borrowings outstanding.
Drew Deferrari: Cash and equivalents were $26.1 million, and liquidity was $573.6 million. In May, we amended our senior credit facility to expand capacity and extend the maturity to January 2029. Under the new facility, we now have $450 million of term loan outstanding and an undrawn $650 million revolving credit facility. On a pro forma basis, if the new facility had been in place as of April 2024, total liquidity would have increased by approximately $133 million to $707 million, reflecting increased cash on hand and higher revolver availability. Our capital allocation continues to prioritize organic growth, followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage. Moving to slide 10.
Speaker Change: Cash and equivalents were $26 1 million and liquidity was $573 6 million.
Speaker Change: In May we amended our senior credit facility to expand capacity and extend the maturity to January 2029.
Speaker Change: Under the new facility, we now have $450 million of term loan outstanding and an undrawn $650 million revolving credit facility.
Speaker Change: On a pro forma basis, if the new facility was in place as of April 2024.
Speaker Change: Total liquidity would have increased by approximately $133 million to $707 million, reflecting increased cash on hand, and higher revolver availability.
Our capital allocation continues to prioritize organic growth followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage.
Drew Deferrari: Cash flows used in operating activities were $37.4 million to support sequential growth in Q1. The combined DSOs of accounts receivable and contract assets were 110 days, a reduction of 10 days sequentially reflecting normal seasonal impacts and collections from customers during the quarter. Capital expenditures were $29.3 million, net of disposal proceeds, and gross capex was $42 million. During Q1, we acquired a telecommunications construction contractor based in the Midwest United States for $13 million, net of cash acquired.
Speaker Change: Going to slide 10.
Speaker Change: Cash flows used in operating activities were $37 4 million to support sequential growth in Q1.
Speaker Change: The combined Dsos of accounts receivable and that contract assets were 110 days a reduction of 10 days sequentially, reflecting normal seasonal impacts and collections from customers during the quarter.
Speaker Change: Capital expenditures were $29 3 million net of disposal proceeds and gross capex was $42 million.
Speaker Change: During Q1, we acquired a telecommunications construction contractor based in the Midwest United States for $13 million net of cash acquired.
Drew Deferrari: Additionally, during Q2, we acquired another telecommunications construction contractor for $20.8 million net of cash acquired that expands our geographic footprint to Alaska. During Q1, we repurchased 210,000 shares of our common stock for $29.8 million. Going to slide 11.
Speaker Change: Additionally, during Q2, we have acquired another telecommunications construction contractor for $20 8 million net of cash acquired that expands our geographic footprint to Alaska.
Speaker Change: During Q1, we repurchased 210000 shares of our common stock for $29 8 million.
Drew Deferrari: As we look ahead to the second quarter ending July 27, 2024, we expect organic contract revenues to grow by high single digits as a percentage of contract revenues compared to Q2-24. In addition to the organic revenue growth, we expect approximately $70 million of acquired revenues. We also expect the non-GAAP-adjusted EBITDA percentage of contract revenues to increase 25 to 75 basis points as compared to Q2 of last year, with $6 million of amortization expense. $14.9 million of net interest expense, a 26.5% effective income tax rate, and 29.4 million diluted shares.
Speaker Change: Going to slide 11, as we look ahead to the second quarter ending July 27, 2024, we expect organic contract revenues to grow by high single digits as a percentage of contract revenues compared to Q2 'twenty four.
Speaker Change: In addition to the organic revenue growth, we expect approximately $70 million of acquired revenues.
Speaker Change: We also expect non-GAAP adjusted EBITDA percentage of contract revenues to increase 25% to 75 basis points as compared to Q2 of last year.
Speaker Change: $6 million of amortization expense $14 9 million of net interest expense of 26, 5% effective income tax rate and $29 4 million diluted shares now I will turn the call back to Steve.
Drew Deferrari: Now, I will turn the call back. Thanks, Drew.
Steven E. Nielsen: Thanks Drew. Moving on to slide 12.
Steve: Thanks drew moving to slide 12, this quarter, we experienced solid activity and capitalized on our significant strengths.
Steven E. Nielsen: This quarter, we experienced solid activity and capitalized on our significant strength. First and foremost, we maintain a significant customer presence throughout our markets. We are encouraged by the breadth of 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 gigabit high-speed connections, and rural electric utilities are doing the same. Dramatically increased fees for consumers are being charged, and consumer data usage is growing, particularly upstream.
Steve: First and foremost we maintained significant customer presence throughout our markets. We are encouraged by the breadth in our business.
Steve: Our extensive market presence has allowed us to be at the forefront of evolving industry opportunities.
Steve: Telephone companies are deploying fiber the home to enable gigabit high speed connections rural electric utilities are doing the same.
Steve: Dramatically increased speeds for consumers are being provisioned and consumer data usage is growing particularly upstream.
Steven E. Nielsen: Wireless construction activity in support of newly available spectrum bands continues this year. Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration. Cable operators are increasing fiber deployments in rural America.
Steve: Wireless construction activity in support of newly available spectrum bands continues this year.
Steve: Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration.
Steve: Cable operators are increasing fiber deployments of rural America capacity expansion projects are underway.
Operator: Capacity expansion projects are underway, and customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance and operations business. We are pleased that many of our customers are committed to multi-year capital spending initiatives as our nation and industry experience stable economic conditions. 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.
Steve: Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long term value of our maintenance and operations business.
Steve: We are pleased that many of our customers are committed to multiyear capital spending initiatives as our nation and industry experience stable economic conditions, we are.
Steve: We're confident in our strategies the prospects for our company the capabilities of our dedicated employees and the experience of our management team.
Speaker Change: Now operator, we will open the call for questions.
Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question will come from Alex Riegel from B Reilly Securities. Your line is open.
Speaker Change: Thank you as.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, we compile the Q&A roster.
Speaker Change: And our first question will come from Alex Regal from B Riley Securities. Your line is open.
Alexander John Rygiel: Morning, Steve and Drew. A very nice quarter.
Alexander John Rygiel: Good morning, Steven drew very nice quarter.
Alexander John Rygiel: Quick questions here.
Speaker Change: Watson development talking about AI and data center demand on the electric grid, but can you talk about how this megatrend has or it may impact your telecom business.
Steven E. Nielsen: A couple quick questions here. Lots of development talk about AI and data center demand and the electric grid, but can you talk about how this mega trend has or may impact your telecom business? And how would you frame AI relative to other communication infrastructure megatrends over the past, you know, few decades?
Speaker Change: And how would you frame AI relative to other communication infrastructure Mega trends over the past few decades.
Steven E. Nielsen: I think, Alex, the way I would start is there's a direct opportunity that as they create more data center capacity, and I'm not an expert in this, but we do monitor the trends, sufficient grid power is hard to find. And so we are seeing more data centers located in parts of the country that historically have not had the backbone fiber access that the more traditional geographies for data centers have. So certainly, there's an opportunity there.
Speaker Change: I think Alex.
Alexander John Rygiel: I would start is theres, a direct opportunity that as they create more data center capacity.
Speaker Change: And I'm, not an expert invest but but we do monitor the trends.
Speaker Change: Sufficient grid power is hard to find and so we are seeing more data centers located in parts of the country that historically have not had the backbone fiber access.
Speaker Change: The more traditional geographies for datacenter. So certainly certainly there is an opportunity there.
Steven E. Nielsen: I think more broadly about the second half of your question. If we think about any application that learns from and requires ever increasing amounts of data, you've got to collect it, then you've got to process it, and then you've got to send it somewhere to be used. And so anything that increases demand on the network has historically been good for our business. A little early to tell what the magnitude of that may be, but certainly something to pay attention to.
Speaker Change: More broadly into the second half of your question, if we think about.
Speaker Change: Any application that that learns from and requires ever increasing amounts of data.
Got the collective and then you've got to process. It and then you've got a send it somewhere to be used and so anything that that increases the bands.
Speaker Change: The network has historically been good for our business.
Speaker Change: Early to tell.
Speaker Change: What's the magnitude of that may be but certainly something to pay attention to.
Steven E. Nielsen: Second question, your adjusted EBITDA margin showed some nice improvement, and your guidance continues to reflect expansion. Can you remind us where your long-term target is and then talk about some of the things you are doing that are a tailwind to this margin improvement? Yeah, Alex, as we've
Speaker Change: And then second question your adjusted EBITDA margin showed some nice improvement in your guidance continues to reflect expansion.
Speaker Change: Remind us what are your long term target is and then talk about some of the things you are doing that as a tailwind to gross margin improvement.
Steven E. Nielsen: Yeah, Alex, as we've said before, we have seen in periods of time when we have had broad geographic and customer diversification that we get good operating leverage. And so as we have better, as we have better distribution across customers and geographies, we think that's an opportunity. I mean, we continue to roll out a number of technologies to simplify the field administration of the business to focus on increased productivity. And, as I always say, we had good performance this quarter, but half the business was less than the average, and so we could always add things to work out.
Alexander John Rygiel: Yeah, Alex as we've said before we have seen in periods of time, where we've had broad geographic.
Alexander John Rygiel: And customer diversification.
Alexander John Rygiel: But we get good operating leverage and so as we as we have better.
Alexander John Rygiel: As we have better distribution across customers and geographies, we think that's an opportunity.
We continue to roll out a number of technologies to simplify the field administration of the business to focus on increase increased productivity.
Alexander John Rygiel: As I always say, we got we had good performance this quarter.
Alexander John Rygiel: But half the business.
Alexander John Rygiel: Was less than the average and so we could always add things to work out.
Speaker Change: Thank you very much.
Adam Robert Thalhimer: Our next question will come from Adam Thalhimer from Thompson Davis. Your line is open.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Adam Tal Hammer from Thompson Davis Your line is open.
Adam Robert Thalhimer: Hey guys, nice quarter. Hey Steve, in the prepared remarks, you referenced cable capacity expansion projects. Can you unpack that for us a little bit and how could that impact your largest cable customer?
Speaker Change: Hey, good morning, guys nice quarter Hey.
Speaker Change: Steve.
Steve: In the prepared remarks, you referenced cable capacity expansion projects can you unpack that for us a little bit and could that impact your largest cable customer.
Steven E. Nielsen: Look, I think more broadly, that was talking about the cable industry focusing on moving to DOCSIS 4.0, either through a mid-split or a high-split approach, as well as through full-duplex. And I think as that technology becomes more settled and becomes more available throughout this year, there will certainly be opportunities for growth. The cable industry, broadly, is also building out, edging out of its existing footprint, and that's certainly a good opportunity for us to grow also.
Look I think more broadly that was talking about the cable industry focusing on moving the DOCSIS four <unk>.
Speaker Change: Through our mid split or a high split approach as well as through full duplex and I think as that technology becomes more settled and becomes more available throughout this year that will certainly be opportunities.
Speaker Change: Therefore growth.
Speaker Change: The cable industry.
Speaker Change: Broadly is also building.
Speaker Change: Building out.
Speaker Change: Edging out of their existing footprint.
Speaker Change: It is also certainly a good opportunity for us to grow also.
Steven E. Nielsen: On the share repurchase activity, $59 million over the past two quarters, how would you characterize that? Is this just in line with your normal capital allocation, or do you see the shares as undervalued? I think we can first say that the...
Speaker Change: Yes.
Speaker Change: Alright, and then.
Speaker Change: On the share repurchase activity 50.
Speaker Change: <unk> $59 million in the past two quarters.
Speaker Change: Would you characterize that as this just in line with your normal capital allocation or do you see the shares is undervalued.
Speaker Change: I think we can first say that we are in the money.
Steven E. Nielsen: I think we can first say that we're in the money. But beyond that, I think we've always focused on a balanced approach that says, first and foremost, we're going to make sure that we have sufficient capacity to support the growth of our customers and of the industry. I mean, we're a substantial portion or a good portion of the industry, and we want to make sure we can always support industry and customer growth.
Speaker Change: But beyond that I think we've always focused on.
Speaker Change: A balanced approach that says first and foremost.
Speaker Change: We're going to.
Speaker Change: Make sure that we have sufficient capacity to support the growth of our customers.
Speaker Change: And of the industry everywhere, a substantial portion or a good portion of the of the industry and we want to make sure we can always support.
Speaker Change: Industry and customer growth.
Steven E. Nielsen: And then we're going to look at acquisitions versus a share repurchase. I think we've been encouraged on the acquisition side; we've always had an opportunistic approach to acquisitions, and we're seeing more opportunities. I think, a little bit counterintuitively, with the normalizing of interest rates, we see value that we didn't see a couple years ago, and so we're going to take advantage of those opportunities. When we can, and of course, the last thing which supports all of it is that if you look at our EBITDA, over the last couple of years, it's doubled, leverage has come in, and so we have more financial capacity to explore all the options across organic growth, M&A, and share repurchase.
Speaker Change: And then we're going to look at acquisition versus.
Speaker Change: Share repurchase I think we've been encouraged on the acquisition side, we've always had an opportunistic approach.
Speaker Change: The acquisitions.
Speaker Change: And we're seeing more opportunities I think a little bit counterintuitively with the normalizing of interest rates, we see value that we didn't see a couple of years ago.
Speaker Change: Yeah.
Speaker Change: And so.
Speaker Change: We're going to we're going to take advantage of those opportunities.
Speaker Change: When we can and of course, the last thing which supports all of it is if you look at our EBITDA.
Speaker Change: Over the last couple of years, it's doubled.
Speaker Change: Leverages come in and so we have more financial capacity to export to explore all the opposite so across organic growth M&A and share repurchase.
David: Great. Thanks, David.
Sangita Jain: Our next question will come from Sangita Jain from KeyBank Capital Markets. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Sangeeta chain from Keybanc capital markets. Your line is now open.
Sangita Jain: Yes, thank you. Hi Steve, good morning. I had a couple questions. One on the backlog. I understand it's a seasonally slow quarter, but just trying to get a sense of the backlog versus the dynamics of the strong revenue growth forecast that you gave us. If you could help us there,
Steve: Thank you hi, Steve Good morning.
Sangeeta: I had a couple of questions one on the backlog.
Sangeeta: I understand it's a seasonally slow quarter, but just trying to get a sense of.
Sangeeta: The backlog versus the dynamics of the strong revenue growth forecast that you gave us if you could help us there.
Steven E. Nielsen: Sure. So it was a quiet quarter with customers. That's not unusual for that part of the year. I think the other thing to keep in mind, Sangita, is if you look at the next 12 months, basically in line with the January quarter, even though we do have some contracts that are annual and renew, you know, at the end of each calendar year. And so I guess what I would say is right now we're focused on the next 12 months and the Organic Revenue Guide, and Duration and Total Backlog are always important, but in this current environment. Something we pay attention to, but we're much more focused on the next 12 months.
Speaker Change: Sure. So it was a quiet quarter with customers that's not unusual for that part of the year I think the other thing to keep in mind Sangeeta is if you look at the next 12 months.
Speaker Change: Basically in line with the January quarter, even though we do have some contracts that are annual been renewed.
Speaker Change: At the end of each calendar year.
Speaker Change: So I guess, what I would say is right now we're focused on the next 12 months and the organic revenue guide.
Speaker Change: And duration and total backlog is always important but in this current environment.
Speaker Change: Something we pay attention to but we're much more focused on next 12 months.
Sangita Jain: Got it. That's helpful. And also, on the Alaska acquisition that you announced, is that in any way you are looking out for the BEAD opportunity because it looks like Alaska got a decent amount of funding from BEAD? Or are there any other drivers for that acquisition?
Speaker Change: Got it that's helpful and also on the Alaska acquisition that you announced is that.
Speaker Change: <unk>.
Speaker Change: Is that in any way you are looking out at the beach opportunity because it looks like Alaska about a decent amount of funding on bead.
Speaker Change: Are there any other drivers for that acquisition.
Steven E. Nielsen: Well, first and foremost, Sangita, we like the folks that we bought the business from. One of them, there are two partners. One of the partners actually worked for us a little less than 20 years ago. The other partner was a customer a little less than 20 years ago.
Speaker Change: Well first and foremost sangeeta, we like the folks that we bought the business from one of the two partners one of the partners actually work for us a little less than 20 years ago. The other partner was a customer or a little less than 20 years ago. So we're pleased with the opportunity to get together with folks that we've known for a long time.
Sangita Jain: So we're pleased with the opportunity to get together with folks that we've known for a long time and have great established reputations and track records. And then, as you point out, Alaska received a little over a billion dollars of B money. They've also received some USDA money. And it's just an opportunity to grow where that funding is going to become available with people that we know and respect.
Speaker Change: Have great established reputations and track records.
And then as you point out Alaska received a little over $1 billion of beef money. They have also received some USDA muddy.
Speaker Change: And it's just we think it's an opportunity.
Speaker Change: To grow where that funding is going to become available with people that we know and respect.
Steve: Got it that's very helpful. Thank you Steve.
Alexander John Waters: Our next question will come from Alex Waters from B of A. Your line is open. Hey, good morning. Thanks for taking my question.
Alexander John Waters: But that's very helpful. Thank you, Steve. Thank you. Our next question will come from Alex Waters from B of A. Your line is open. Hey, good morning. Thanks for taking my question.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Alex waters from Bofa. Your line is open.
Alexander John Waters: Hey, good morning, Thanks for taking my question, maybe first Steve can you maybe talk about any impact you see from the Uniti and Windstream merger I know windstream as a top 10 customer for you guys and then secondly, pretty strong performance from the electric utilities this quarter.
Alexander John Waters: Could you just maybe give a little bit more color on that and what the runway associated is thanks.
Steven E. Nielsen: Thanks. Good morning, Alex.
Sure.
Alex: Good morning, Alex So so yes, we have worked for Windstream for decades.
Steven E. Nielsen: So, so yes, we have worked for Windstream for decades, and so we are certainly encouraged that when they when Unity announced the merger, that they identified that in part, the merger is motivated by the desire to do more fiber to the home, up to a million additional passing. And so, yes, we think that Unity Windstream, as well as EQT, T-Mobile Lumos, and other strategic activity in the industry is all around how do they raise more capital, how do they become more financially flexible so that people can deploy more capital expenditures on the things that we do, build fiber to the home.
Alex: And so we are certainly encouraged that when they when unity announced the merger.
Alex: That that they identified that in part the merger is motivated by the desire to do more fiber to the home up to 1 billion additional passing.
Alex: So, yes, we think that Uniti windstream as well as EQT T mobile lubos and other strategic activity in the industry is all around how do they raise more capital out or they become more financially flexible so that people can deploy more capital.
Steven E. Nielsen: So, yeah, we are encouraged by Windstream and Unity. And I think, with respect to the electric utilities, it's a nice segment. It's grown substantially for us over the last six, seven, eight years. And it just shows how strong the trend is in rural America and how many participants see value in deploying fiber, and we think that's going to continue.
<unk> on the things that we do build fiber to the home. So yes, we are encouraged by Windstream and year to date.
I think with respect to electric utilities, it's a nice segment, it's grown substantially for us over the last 678 years.
Alex: And it just shows how strong the trend is in rural America, and how many participants see value in deploying fiber.
Alex: And we think thats going to continue.
Speaker Change: Thank you.
Speaker Change: Thank you.
Steven Fisher: And our next question will come from Steven Fisher from UBS. Your line is open.
And our next question will come from Steven Fisher from UBS. Your line is open.
Steven Fisher: Thanks. Good morning.
Steven Fisher: Thanks, Good morning.
Steven Fisher: I just wanted to ask you about growth and availability of resources, obviously strong quarter I'm curious, how you're thinking about the stars are lining up on timing of a lot of these funding programs.
Steven E. Nielsen: I just wanted to ask you about growth and the availability of resources. Obviously, Strong Quarter. I'm curious how you think the stars are lining up on the timing of a lot of these funding programs and customer demand. I'm wondering if you think fiscal 26 is going to require a much broader level of contractor resources, and are the resources available to handle strong double-digit growth if that's how it lines up. And should we think about that, will we start to see it more in your hiring ahead of that, or will you turn to more subcontracting? And just essentially, I guess, are we on the edge of much faster growth here, and is the industry ready to handle it?
Speaker Change: And customer demand I'm wondering if you think your fiscal 'twenty six is going to require a much broader level of contracts of resources than our the resources available to handle strong double digit growth. If that's how it lines up and should we think about that.
Speaker Change: That will start to see it more in your hiring ahead of that.
Speaker Change: Or will you turn to more.
Some contracting.
Speaker Change: And just essentially I guess are we on the edge of much faster growth year end.
Speaker Change: Is the industry ready to handle it.
Steven E. Nielsen: Yeah, Steve, I guess what I would say is that labor supply has been improving. We've identified that, I think, for the last two or three quarters.
Steve: Yes, Steve I guess, what I would say is that that labor supply has been improving we've identified that I think for the last two or three quarters.
Steve: So as the.
Steve: As we get bigger and as the industry get bigger it's ability to add resources on the margin increases.
Steven E. Nielsen: So as we get bigger, and as the industry gets bigger, its ability to add resources on the margin increases. And so I think that that's encouraging. As we've talked about before, over the last three years, we've added, you know, in excess of a billion dollars of organic growth. And as you get bigger, your ability to do that gets better.
Steve: So I think that's encouraging.
Steve: As we've talked about before over the last three years we've added.
Steve: In excess of $1 billion of organic growth.
Steve: And as you get bigger your ability to do that to get gets better.
Steven E. Nielsen: So it won't be easy, it never is, but we feel confident that with the right customers, applying ourselves to the right opportunities where we can be most helpful, we can continue to grow. There will always be a mixture of in-house hires, depending on the line of business and geography, and what's available through subcontractors. But I think we're also perceived as a good partner to our subcontractors, and I think as opportunities develop, we'll be able to get our fair share.
Steve: So it won't be easy never is but we feel confident that with the right customers applying ourselves to the right opportunities where we can be most helpful.
Steve: That we can.
Steve: <unk> to grow.
Steve: There will always be a mixture of in house of hires depending on the line of business and geography.
Steve: What's available through subcontractors.
But I think we're also perceived as to be a good partner to our subcontractors and I think as opportunities develop will be able to get our fair share.
Steven E. Nielsen: Okay, and then it looks like you're starting to add some consistency in the 25 to 75 basis points of year-over-year margin improvement. But how should we think about what's really driving that? Is that really just general operating leverage as your revenues grow, you get just a little bit more absorption, or is there better pricing going into backlog relative to what you're reporting on a trailing basis versus some of the initiatives you talk about?
Speaker Change: Okay, and then it looks like you're starting to add some consistency in the 25 to 75 basis points of year over year margin improvement.
Speaker Change: How should we think about what's really driving that is that really just general operating leverage as your revenues grow you get just a little bit more absorption or is there better pricing going into backlog relative to what you are reporting on a trailing basis versus some of the initiatives you talk about productivity things and.
Steven E. Nielsen: Productivity things and some of the sort of back office. So how do we think about what's really within that 25 to 75 basis points of margin improvement? And is there anything that would take it up or down from here in the next handful of quarters?
Speaker Change: Some of the sort of the back office. So how do we think about what's what's really within that 25% to 75 basis points of margin improvement.
Speaker Change: There anything that would take it up or down from here in the next handful of quarters.
Steven E. Nielsen: Yeah, Steve, I think you touched on the way we think about the business. I mean, clearly, when you get good organic growth and you get broadly distributed growth across customers and geographies, that's your best recipe for operating well. And so, clearly, that's probably first and foremost.
Steve: Yeah, Steve I think you've touched on the way, we think about the business I mean, clearly when you get good organic growth and you get broad lead distributed growth across customers and geographies that you're best recipe for operating leverage and so clearly.
Steve: That's probably first and foremost second I think given the scale of the enterprise now and it's our geographic coverage, we work hard to make sure that we're committing resources to customers in areas, where we can perform for them.
Steven E. Nielsen: Second, I think given the scale of the enterprise now, and its geographic coverage, we work hard to make sure that we're committing resources to customers in areas where we can perform for them and for ourselves. So we want to make sure that where we commit, we do a really great job for the customer. And usually, when we do a really great job for the customer, we're able to perform better for ourselves.
Steve: And for ourselves. So we wanted to make sure that where we commit that we'll do a really great job for the customer it usually when we do a really great job for the customer we're able to perform better for ourselves.
Steven E. Nielsen: And then I think we're always going to continue to work hard on taking costs out of the business. We're using lots of tools that we connect with crews now wirelessly. We try to move data electronically rather than in the old way. And again, based on our scale, we're making investments there that, frankly, I don't see other people making at the same level. So I think a combination of good operating leverage, the ability to make sure we only commit in places where we can do a good job for the customer, and then investing at scale in things that you have to have our scale to be good at.
Steve: And then.
Steve: I think.
Steve: We're always going to continue to work hard on taking cost out of the business.
Steve: We're using lots of tools that we connect with crews now wirelessly, we try to move data.
Steve: Electronically rather than the.
Steve: The old way and again based on our scale, we're making investments there.
Steve: Frankly, I don't see other people, making.
Steve: At the same level, so I think a combination of good operating leverage.
Steve: The ability to make sure we only commit in places where we can do a good job for the customer.
Steve: And that investing at scale and things that.
Steve: But you have to have our scale to be good at.
Speaker Change: Very helpful. Thank you.
Frank Garrett Louthan: Our next question will come from Frank Louthan from Raymond James. Your line is open.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Frank Louthan from Raymond James Your line is open.
Rob Warren: Hey guys, good morning. This is Rob Warren for Frank.
Rob: Hey, guys. Good morning. This is Rob one for Frank Congratulations on the quarter. So from a recent contact with the states. It doesn't appear there will be any bead related construction being done this year.
Steven E. Nielsen: Congratulations on the quarter. From our recent contact with the states, it doesn't appear there will be any bead-related construction being done this year. Is that your expectation as well? And then, as a follow-up, based on what you're seeing in the location business, what's your outlook on how the U.S. economy is faring so far this year relative to how it looked coming into January? You see more activity, but less overall. Any color you can provide us with would be appreciated. Thank you. Yeah, on B, Rob, I think what I would do.
Speaker Change: Is that your expectation as well and then as a follow up based on what Youre seeing in the locate business. What's your outlook on how the U S economy is bearing so far this year relative to how it looked coming into January <unk> seen more activity less overall any color you can provide us with would be appreciated. Thank you.
Steven E. Nielsen: Yeah, on B, Rob, I think what I would tell you is that there has been a pickup in the number of states that have gotten first-step approval, or actually second-step approval. So, there are actually eight states that are ready to start the subgrantee process, including four that have over a billion dollars. So, I think incrementally, we feel more positive than we did three months ago. Obviously, we have lots to do. It's interesting, Rob.
Rob: Yes.
Rob: Rob I think what I would tell you is that there has been a pickup in the number of states that have gotten.
Rob: First step approval or actually second step approval. So theyre actually eight states that are ready to start the sub grant process, including four that have over $1 billion. So I think incrementally we feel more positive than we did three months ago, obviously lots to do it's interesting right those eight states.
Steven E. Nielsen: Those eight states have about $6 billion in funding. Of course, there's a required 25% match, so call it $7 or $8 billion. That's bigger than the 2009 stimulus that kept us quite busy for a couple, three years. So, it's amazing, you know, just the scale of it.
Matt: We have about $6 billion of funding of course, there's a required 25%, Matt so call it seven or $8 billion, that's bigger than the 2009 stimulus that kept us quite busy for a couple three years.
Matt: So it's amazing just the scale of that I think next year I think youre right I guess, the first half of next year first quarter, but there are some states here that are moving rapidly and we're having some conversations with so hopefully it will be a little bit sooner, but I think it will be worth the way based on everything that we know.
Steven E. Nielsen: I think next year. I think it's the first half of next year, the first quarter. But there are some states here that are moving rapidly, and we're having some conversations with them. So, hopefully, it'll be a little bit sooner, but I think it will be worth the wait based on everything that we know today. And then, I would tell you that just kind of our own internal indicators turned positive in that business fall of last year, and they've continued to improve, and we'll hope that continues.
Matt: Today.
Matt: And then I would tell you that just kind of our own internal indicators.
Matt: Turned positive.
Matt: And that business fall of last year, and they've continued to improve.
Matt: And we'll hope that continues.
Speaker Change: Okay, great. Thank you.
Brent Edward Thielman: Our next question will come from Brent Thielman from D.A. Davidson. Your line is open.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Brent Thielman from D. A Davidson your line is open.
Brent Edward Thielman: Great, thanks. A couple on the quarter. The other income item below the operating line seemed to be a larger than usual benefit and then, similarly, a much lower tax rate this quarter. Can you just clarify what those items are related to?
Brent Edward Thielman: Great. Thanks.
Brent Edward Thielman: Couple of just on the quarter. The other income items below the operating line seem to be at.
Brent Edward Thielman: Larger than usual benefit and then similarly at much lower tax rate. This quarter can you just clarify what those items are related to.
Drew Deferrari: Yeah, Brent, this is Drew. So the other income you'll see the gain on sale was a little bit higher this quarter. So that's from disposal proceeds on assets as we're buying new and selling existing ones. And then on the tax rate, we did call out in the comments, and you'll see it in the slides as well, we did have a benefit of about 20 cents per share, which was related to the vesting and exercise of share-based awards.
Brent Edward Thielman: Yes.
Drew Ferrari: Yes, Brendan this is drew so in the other income Youll see the gain on sale was a little bit higher this quarter. So that's from disposal proceeds.
Drew Ferrari: On assets as we are buying new and selling existing and then on the tax rate, we did call out in the comments and Youll see it in the slides as well we.
Drew Ferrari: We did have a benefit of about <unk> 20 per share.
Drew Ferrari: Which was related to the vesting and exercise.
Drew Ferrari: <unk>.
Drew Deferrari: And so that comes through as a benefit on the tax line. So I think if you strip that out, the rate, the effective tax rate for the quarter was a little over 26 and a half percent. And that's where I've got it in the outlook as well.
Drew Ferrari: Share based awards.
Drew Ferrari: So that comes through as a benefit on the tax line. So I think if you strip that out.
Drew Ferrari: The rate the effective tax rate for the quarter was a little over 26, 5%.
Drew Ferrari: And that's where I've got it in the outlook as well.
Steven E. Nielsen: Okay, I appreciate that Drew. And then Steve, I guess just to follow up on the overall data center opportunity for Dycom. I mean, a lot of these projects seem to be well underway, obviously more potentially to come in terms of planning. Could you just help us understand what's been the benefit to the business directly or indirectly to date? Understand that, you know, you'll need more backhaul in the future, but presumably you'll need that sooner than later. So I just wanted to get my head wrapped around how you're looking at this and what's actually been the impact. Yeah, Brent, I...
Speaker Change: Okay I appreciate that through and then Steve I guess, just a follow up on the.
Speaker Change: Overall data center opportunity.
Speaker Change: <unk> Com I mean, a lot of these projects seem to be well underway, obviously more potentially to come in terms of planning could you just help us understand what what's been the benefit to the business directly or indirectly to date.
Speaker Change: Understand that you need more backhaul in the future, but presumably you don't need that sooner than later.
Speaker Change: I wanted to get my head wrapped around how youre looking at this and whats actually been the impact to your business so far.
Steven E. Nielsen: Yeah, Brent, I know it's the topic of the day on the street, but I would say the impact's been modest on the business, so it's all upside depending on how it develops, but this is not an area where we've seen a material impact on the business as yet.
Brian: Yes, Brian I know, it's the topic of the day on the street, but I would say the impact has been modest on the business. So it's all upside depending.
Brian: And how it develops but it is not an area, where we've seen a material impact on the business as of yet.
Brent Edward Thielman: Okay. All right. Fair enough. Thanks.
Speaker Change: Okay, Alright fair enough. Thanks.
Eric Thomas Luebchow: Our next question will come from Eric Luebchow from Wells Fargo. Your line is now open.
Speaker Change: Thank you.
Our next question will come from Eric <unk> from Wells Fargo. Your line is now open.
Eric Thomas Luebchow: Thanks for taking the question. So, Steve, you talked about two of your top customers starting to increase the pace of deployments versus a bit more of a pull forward into the first quarter last year. So, is your expectation that with those two customers, they'll kind of grow sequentially from here? We'll see the growth path be a little bit steadier versus what was a little bit more of a volatile quarterly pace last year.
Eric: Got it thanks for taking the question.
Speaker Change: So Steve you talked about two of your top customers starting to increase the pace of deployments versus.
Speaker Change: A bit more of a pull forward into the first quarter last year. So is your expectation with those two customers though.
Speaker Change: Grow sequentially from here, we'll see the growth path to be a little bit steadier versus.
Speaker Change: What was a little bit more of a volatile.
Speaker Change: Quarterly pace last year.
Steven E. Nielsen: Yeah, I think we're pleased with how both of those customers developed from the January quarter into the April quarter, and we feel good about the year, and we think they're growing as we lap the easier comps in the back half of last year. And I think they both have large programs, and we're pleased that we're able to participate.
Yes, I think we're pleased with how both of those customers developed.
Speaker Change: From the January quarter into the April quarter, and we feel good about the year and we think they're growing as we lap that.
Speaker Change: The easier comps in the back half of last year.
Speaker Change: And I think they both have large programs and.
Speaker Change: And we're pleased that we're able to participate.
Steven E. Nielsen: And you had a comment in your prepared remarks about wireless CapEx to support new spectrum deployments. I'm just curious if you're seeing any green shoots or inflection points. I know wireless spending broadly has slowed quite a bit in the last couple of years, but I don't know if you're seeing any opportunities to deploy new spectrum or densify existing sites that could, you know, improve the trajectory of that business for you. Yeah, I guess what?
Speaker Change: And you had a comment in your <unk>.
Speaker Change: In your prepared remarks about wireless capex to support new spectrum deployments.
Speaker Change: Curious if youre seeing any green shoots or inflection points I know wireless spending broadly has been has slowed quite a bit the last couple of years.
Speaker Change: If youre seeing any opportunities to deploy new spectrum or densify existing sites that could.
Speaker Change: To improve the trajectory of that business for you.
Steven E. Nielsen: Yeah, I guess what I would say, Eric, is it's less than 4% of revenue now, and right now, we don't anticipate any return to growth anytime soon. The carriers continue to do a great job of deploying Spectrum pretty efficiently, and so we have not seen any significant change since last year.
Speaker Change: Yes, I guess, what I would say Eric is it's less than 4% of revenue down and right now we don't anticipate any returned to growth anytime soon.
Speaker Change: The carriers continue to do a great job of deploying spectrum pretty efficiently.
And so we have not seen any significant change.
Speaker Change: Since last quarter.
Eric Thomas Luebchow: Great. Now I'll sneak one more in, Steve.
Speaker Change: Great and I'll sneak one more in Steve.
Steven E. Nielsen: Just as you look at some of these, the BEAD and the rural fiber programs that are coming up, do you think there'll be any real kind of margin differential in building fiber in those more rural areas versus more urban ones? And does it depend on whether the incumbents are, you know, planning to build within or adjacent to their ILEP footprints versus outside of their footprints, which I know can be a lot more challenging for them?
Speaker Change: As you look at some of the beat in the rural fiber programs that are.
Speaker Change: Are coming up.
Speaker Change: Do you think there'll be any real kind of margin differential on building fiber in those more rural areas versus more order abandoned does it depend on whether the incumbents are.
Speaker Change: Planning to build within or adjacent to their ILEC footprint versus out of footprint, which I know can be a lot more challenging for them.
Steven E. Nielsen: Eric, there's nothing inherent in any build, whether it's rural, urban, or suburban as to what the margins are. It's always a function of the capital that's required on the program and the complexity of managing it with the customer.
Speaker Change: Okay.
Eric: Yes, Eric there is there is nothing inherent in any built whether its rural urban or suburban as to what the margins are it's always a function of the capital that's required on the program of the complexity of managing it with the customer.
Steven E. Nielsen: We do lots of rural work today, and we're pleased with the results. And so we're not, you know, we're not thinking that the shift will have a material impact one way or another on our overall sense of the margin directory of the company. Clearly, as you identified, to the extent that incumbents are able to utilize their existing pole attachment agreements, central offices, or headends, or, you know, other facilities that they already have sited there, that will be helpful.
Eric: We do lots of rural work today, and we're pleased with the results.
Eric: And so we're not we're not thinking that this shift will have a material impact one way or another on our overall sense of the margin trajectory of the company.
Eric: Clearly as you identified to the extent that incumbents are able to utilize their existing pole attachment agreements central offices or head ends or other facilities that they already have cited there.
Steven E. Nielsen: And then I would say, and we've talked about this before, we serve on maintenance master service agreements. We serve broad sections of rural America right now, and it'll be great to have more to do through those footprints.
Eric: That will be helpful. And then I would say and we've talked about this before we serve.
Eric: For maintenance Master service agreements, we serve broad sections of Rural America, right now and it'll be great to have more to do.
Eric: Through those footprints.
Steven E. Nielsen: Great. Thank you Steve.
Christian David Schwab: Thank you. Our next question comes from Christian Schwab from Craig Hallam Capital Group. Your line is now open.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from Christian Schwab from Craig Hallum Capital Group. Your line is now open.
Christian David Schwab: Hey Steve, just a follow-up on Bede. I know that the Commerce Secretary has been telling Congress that they want all the states to be approved and the money to start being disbursed as soon as this fall. So I want to go back to your feeling better about that market than you did 90 days ago. Do you think we'll be in a really strong, broader position? I know you talked about, you know, $9 billion in just a handful of states, plus or minus, but do you think as we go into 25, you know? I'm just wondering if you could add a little bit more color to your enthusiasm for worth the wait.
Speaker Change: Okay.
Speaker Change: Just a follow up on <unk> I know that the Commerce Secretary has been telling Congress that they want all the states to be approved in the money to start being disbursed as soon as this fall.
Speaker Change: So I wanted to go back to your feeling better about that market than say you did 90 days ago.
Speaker Change: We will be in a really strong broader position I know you talked about.
Speaker Change: $9 billion of just a handful of states plus or minus but.
Speaker Change: Do you think as we go into 'twenty five.
Speaker Change: I was just wondering if you could just add a little bit more color on your enthusiasm for worth the wait.
Steven E. Nielsen: Yeah, Christian. I think we've always taken an appropriately conservative view as to how quickly any government program will start up. But I think this is a classic example, Christian, of sometimes we over-anticipate but then really under-appreciate.
Christian David Schwab: Yes, Christian I think we've always taken an appropriately conservative view as to how quickly.
Christian David Schwab: Any government program will start up but I think this is a classic example, kristian sometimes we over anticipate but then really underappreciated I mean this is a big program. If it starts in the fourth quarter of 'twenty for the first quarter 2005, and 2026, I don't think anybody's got to remember because of the.
Steven E. Nielsen: I mean, this is a big program. If it starts in the fourth quarter of 24, the first quarter of 25, in 2026, I don't think anybody's going to remember it because of the magnitude of the program. As I said earlier, if you think about this relative The most comparable program 15 years ago, the money that's awarded now for eight states is larger than the amount of money that was dedicated to the entire country.
Christian David Schwab: The magnitude of the program.
Christian David Schwab: As I said earlier, if you think about this relative to.
Christian David Schwab: The most comparable program 15 years ago.
Christian David Schwab: The money that's awarded out four eight states is larger than the amount of money that was dedicated to the entire country.
Steven E. Nielsen: And just to remind everybody, on that earlier program that was about $6 and a half billion, when it was all said and done through our own efforts and then with the companies that we acquired in 2012 on a pro forma basis, we did about 8 or 9% of that entire program. So this is a big opportunity.
Christian David Schwab: And just to remind everybody on that earlier program that was about $6 5 billion.
Christian David Schwab: When it was all said and done through our own efforts and then where the companies that we had acquired in 2012 on a pro forma basis, we did about eight or 9% of that entire program. So this is a big opportunity.
Christian David Schwab: And that is a great segue to my next question, Steve, which is, you know, given the tremendous amount of infrastructure dollars, not only in fiber but elsewhere, do you feel like there's less competition or the potential for fewer new entrants to come into the marketplace to chase after those dollars that are kind of used to getting dirty and dealing with heavy equipment that you might have expected, you know, previously.
Speaker Change: And that is a great segue to my next question Steve is.
Speaker Change: Given the tremendous amount of infrastructure dollars.
Speaker Change: Not only in fiber, but elsewhere do you feel like there is.
Speaker Change: Less competition.
Speaker Change: Or the potential for less new entrants that come into the marketplace.
Speaker Change: Chase after those dollars debt.
Speaker Change: Kind of used to.
Speaker Change: Getting dirty and dealing with heavy equipment.
Speaker Change: You might have expected.
Speaker Change: <unk> previously.
Steven E. Nielsen: I mean, Chris, in my view on competition, we're in a highly competitive industry. As we do well, we're going to attract competition. That is true today as it was 20, 25 years ago. So it's just something that we're going to deal with. What I do, and what I think we can say is, as programs become larger and more complex, we think there's a real return to the singular focus on this industry that we have, and that helps us to perform better and win our fair share against those who might be more diversified.
Christian: Alright Christian My view on competition is we're in a highly competitive industry as we do well we're going to attract competition. That's as true today as it was 2025 years ago. So just something that we're going to deal with.
Christian: What I do what I think we can say is as the programs become larger and more complex, we think theres a real return to the singular focus on this industry that we have and that helped us to perform better and win our fair share.
Christian: Against those who might be more diversified.
Christian David Schwab: Great. No other questions. Thank you.
Speaker Change: Great no other questions. Thank you.
Alan Mitrani: Our next question comes from Allen Mitrani from Sylvan Lake Asset Management. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Alan <unk> from Sylvan Lake Asset management. Your line is now open.
Alan Mitrani: Hi, thank you. A couple of questions if I can. You said on CapEx. Can you give us, maybe I missed it, an updated guide for the year and also why is it that your CapEx missed what you thought it would be this quarter?
Alan: Hi, Thank you.
Alan <unk>: Couple of questions. If I can you said on Capex can you give us maybe I missed it can you give us an update updated guide for the year and also why is it that your capex missed what you thought it would be this quarter.
Drew Deferrari: Go ahead, Drew. Yeah, Alan, we haven't updated the CapEx from where we were. We still anticipate the 220 to 230. You know, if you look at the net number for the quarter, and to add on to Brent's earlier question, we did have higher disposals in the quarter, so that's netted into that number.
Speaker Change #102: Yes, Alan we haven't updated the Capex from where we were we still anticipate that $2 20 to $2 30.
Speaker Change #102: If you look at the net number for the quarter.
Speaker Change #103: Add on to Brad's earlier question, we did have higher disposals in the quarter, that's net into that number.
Steven E. Nielsen: On a growth basis, Alan, it was in line with our expectations. And as quick as we can get it, we're putting it to work.
Speaker Change #103: On a gross basis Alan it was in line with our expectations.
Speaker Change #103: Okay as quick as we were putting it to work.
Alan Mitrani: Question for you, on the two acquisitions, can you give us the revenue run rate for each of those acquisitions, either trailing 12 or past calendar year?
Speaker Change #104: No problem, maybe I just missed my expectation that's fine.
Speaker Change #105: Question for you the two acquisition acquisitions can you give us the revenue run rate.
Speaker Change #106: For each of those acquisitions, either trailing 12 or past calendar year.
Steven E. Nielsen: I mean, Alan, we provided in Drew's comments the purchase price. We're not going to drill down into the revenue on something that's a bolt-on other than to say that we're pleased with both those acquisitions as well as the one that we did last year. And to the extent that there are more available, we'll continue to look at them.
Speaker Change #107: I mean, Alan we provided Andrew's comments, the purchase price, we're not going to drill down into the into the revenue on supplements are both up other than to say that we're pleased.
Speaker Change #107: With both those acquisitions as well as the one that we did last year and to the extent that there are more available we'll continue to look at them.
Alan Mitrani: And then on SG&A, the numbers seem, the absolute dollar numbers seem pretty high relative to the increase in revenues year over year, 10 million increase. I realized a little bit, the million and change was, let's say, non-stock comp, but is there something else, like a meaning, like some non-recurring besides some of the professional fees that were in there that made that so much higher?
Speaker Change #107: Okay.
Speaker Change #108: And then on SG&A the numbers seemed the absolute dollar numbers seem pretty high relative to the increase in revenues year over year $10 million increase I realize a little bit million in change of it was.
Speaker Change #109: <unk> was let's say non stock comp, but is there something else that percentage of revenue was fairly high versus the past is there something else there.
Meaningfully some nonrecurring besides some of the professional fees that were in there that made that so much higher.
Drew Deferrari: So, Alan, you know, obviously, we had better than expected organic revenue growth this quarter, and then we expect that, as you look at the outlook, to increase in the next quarter as well, and then when our results increase, both the performance-based stock comp as well as regular performance compensation increases, and that impacts G&A. As you highlighted, there were some, you know, M&A-type costs that hit the number as well. Yeah.
Speaker Change #109: So.
Speaker Change #110: Obviously, we had better than expected organic revenue growth this quarter and then we expect that.
Speaker Change #110: Look at the outlook the increase in the next quarter as well and then when our results increase.
Speaker Change #110: Both the performance based stock comp as well as regular performance compensation increases and that impacts G&A.
Speaker Change #111: As you highlighted there was some M&A type costs that hit the number.
Steven E. Nielsen: Yeah, and I think the other thing I would add, Alan, is that as we look at our growth outlook, we're going to make sure that we invest in the right program controls and the right G&A processes to make sure that when we get them, we achieve the margins that we anticipate.
Speaker Change #111: As well.
Speaker Change #111: Yes.
Speaker Change #112: The other thing I would add.
Speaker Change #112: Alan as we look at our growth outlook, we're going to make sure that we invest.
Speaker Change #112: And the right program controls and the right G&A processes to make sure that when we get them that we achieve that.
Speaker Change #112: Margins that we anticipate.
Alan Mitrani: Okay, thank you. And then there is one final question. Relative to the stock, to the repurchase of shares, I saw in your annual letter that you highlighted, over the last, since you've been CEO, way back, how you guys have bought back stock at pretty good prices, clearly, and it's been a good investment. But I still look at your stock, even though it's hitting all-time highs here and doubled since October; you still trade, whether everybody's overvalued or not, you still trade at anywhere from a 30 to 100% discount to most other comps that I would look at, either specialty contractors or other contractors, and yet your margins are higher than most of them, and your leverage is lower. Do you have a thought process on that relative to what you're seeing in the market or what valuations are?
Speaker Change #113: Okay. Thank you and then one final question relative to the stock to the repurchase of shares I saw in your annual letter you highlighted over the last since you've been CEO and we back how you guys have bought stock back at pretty good prices clearly and it's been a good investment, but I still look at your stock even though.
Speaker Change #114: Hitting all time highs here and doubled since October you still trade, whether everybody is overvalued or not you still traded at anywhere from a 30% to 100% discount to most of most other comps that I would look at either specialty contractors or other contractors and yet your margins are higher than most of them in your leverages lower do you have a thought.
Speaker Change #115: <unk> on that relative to what youre seeing in the market or what evaluations are.
Steven E. Nielsen: Alan, it's like that old statement, right? In the short term, the market is a weighting machine. I forget what the saying is, but look, we're going to run the business fundamentally in the way that has been successful over a long period of time. To the extent that the market gives us opportunities to allocate capital, to reduce ownership claims on the future, and we think the future's bright, then we'll do that. I've been doing it a long time; everything rotates around, but at the end of the day, you run the business as best you can, and the market will take care of itself.
Steven E. Nielsen: Alan, it's like that old statement, right?
Alan <unk>: Alan it's like that old statement right in the short term that market is a weighing machine I forget what they're saying is but look we're going to run the business fundamentally in the way that has been successful over a long period of time.
Alan <unk>: Extent that the market gives us opportunities to allocate capital to reduce ownership claims on the future and we think the future's Bright then we're going to do that.
Alan <unk>: I've been doing it a long time.
Alan <unk>: Everything rotates around but at the end of the day.
Alan <unk>: You run the business as best you can and the market will take care of itself.
Speaker Change #116: Thank you.
Speaker Change #116: Yes.
Speaker Change #116: Thank you.
Steven Fisher: And our next question will come from Steven Fisher from UBS. Your line is open.
Speaker Change #117: And our next question will come from Steven Fisher from UBS. Your line is open.
Steven Fisher: Thanks, just a couple of quick follow-ups. I'm not sure if I missed it, but the $55 million of revolving facility that you added in the quarter, what was that for? Was that related to the buybacks and acquisitions you already did, or was that something for more of what's to come?
Thanks, just a couple of quick follow ups.
Steven Fisher: I'm not sure if I missed it but the $55 million.
Steven Fisher: Revolving facility that you added in the quarter.
Steven Fisher: What what was that for was that related to the buybacks and acquisitions you already good or was that something more.
Drew Deferrari: No, I think, Steve, and this is Drew. Seasonally, we consumed some working capital, so if you look, we did use some operating cash flows in the quarter, and that just funded the business. We also did close an acquisition, or one of the acquisitions, in the quarter as well, which was the one with the $13 million purchase price.
We're more of what's to come.
Drew Ferrari: No I think Steven this is drew so.
Speaker Change #118: Seasonally we consume some working capital so if you look.
Speaker Change #119: We did use some operating cash flows in the quarter and that just funded the business under the business. We also did close the acquisition that we are one of the acquisitions in the quarter as well.
Speaker Change #120: Which was the one with the $13 million purchase price.
Steven E. Nielsen: Yeah, and Steve, I guess what I would add is that we have had a long practice here to renew credit facilities a couple years before the maturity dates, and so we had a maturity date of April 26, and so we've now extended that out to April 29. January 29. January 29. Drew, correct me, January of 2029, and that just, you know, just ordinary course and... And so that's why we did what we did on the credit facility.
Speaker Change #120: Yes.
Speaker Change #121: Steve I guess, what I would add is that we have had a long practice here to renew credit facilities. A couple of years before the maturity dates and so we had a maturity date in April of 2006, and so we've now extended that out to April of 'twenty nine.
Speaker Change #122: January 2029.
Drew Ferrari: Drew correct me in January of 2029.
Drew Ferrari: And that just just ordinary course and.
Drew Ferrari: And so thats.
Drew Ferrari: Why we did what we did on the credit facility.
Speaker Change #123: Okay, Yeah, I thought it might be working capital that last year's Q1, you did not have a draw on it so but anyway and just to follow up on Alan's question on the.
Steven E. Nielsen: Okay. I thought it might be working capital, but in last year's Q1, you did not have a draw on it. So, but anyway, and just to follow up on Alan's question on the acquired revenues, is there any puts and takes to the expectation for Q2? Because it seems roughly steady at about $70 million with Q1, but presumably you'll have, you know, more acquisitions in this quarter than you had last quarter. So, I'm just curious if there are some puts and takes that are keeping that from being higher.
The acquired revenues.
Is there any puts and takes to the expectation for Q2, because it seems roughly steady at about $70 million with Q1, but.
Speaker Change #123: Presumably you'll have.
Speaker Change #123: More acquisitions in this quarter than you had.
Speaker Change #123: Last quarter. So just curious if there is some puts and takes that are keeping that from being higher.
Steven Fisher: Steve, I think all of the businesses are performing well. However, when they're smaller businesses, they tend to have a little more volatility quarter-to-quarter, and we don't want to get ahead of ourselves in giving you that kind of non-organic expectation. The Alaska Acquisition, believe it or not, hasn't really gone to work yet. That's kind of a June thing. And so they're not going to be a significant contributor this quarter until we get deeper into June and July.
Steven E. Nielsen: Okay, that makes sense. Thank you.
Speaker Change #123: Steve I think all of the businesses are performing well when they're smaller businesses. They tend to have a little more volatility quarter to quarter that we don't want to get ahead of ourselves and giving you that kind of not organic expectation.
Speaker Change #123: Bob.
Speaker Change #124: The Alaska acquisition and believe it or not Hasnt really gone to work yet thats kind of a June thanks.
Speaker Change #124: So so they're not going to be a significant contributor this quarter until we get deeper into June and July.
Speaker Change #125: Okay makes sense. Thank you.
Operator: Thank you, and I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Steven Nielsen for any closing remarks.
Speaker Change #126: Thank you and I am showing no further questions from our phone lines I would now like to turn the conference back over to Steven Nielsen for any closing remarks.
Steven E. Nielsen: Well, we thank everybody for your time and attendance and interest, and we look forward to speaking with you again in our next quarter, which will be the third week of August.
Well, we thank everybody for your time and attendance.
Speaker Change #126: And interest and we look forward to speaking with you again on our next quarter, which will be the third week of August.
Speaker Change #126: Thank you.
Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change #127: Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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