Q2 2020 Earnings Call

Ladies and gentlemen, thank you very much for standing by and welcome to the Guy Com results Conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will be given to you at that time.

If you should require assistance during todays call. Please press Star then zero and an operator will assist you off line.

Also as a reminder, today's conference is being recorded I would now like to turn the call over to your host Mr. Steven Nielsen. Please go ahead.

Thank you operator.

Good morning, everyone I'd like to thank you for attending this conference call to review, our second quarter fiscal 2020 results.

Going to slide two during this call we will be referring to a slide presentation, which can be found on our websites Investor Centre main page relevant slides will be identified by number throughout our presentation.

Today, we have on the call Tms as our Chief operating Officer drew Deferrari, our Chief Financial Officer, and Ryan or Nash, Our general counsel.

Now I will turn the call over to Ryan Ernesto.

Thank you Steve the statements made by company management. During this call may be forward looking and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

These forward looking statements, including those related to the company's outlook are based on management's current expectations estimates and projections and are subject to risks and uncertainties, which may cause actual results to differ materially from current estimates.

These risks and uncertainties are more fully described in the company's annual report on Form 10-K filed March 4th 2019, and its other filings with the US Securities and Exchange Commission.

The company assumes no obligation to update these forward looking statements.

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

As we discuss our results. Please note that the provision for income taxes. During this quarter included $1.1 million related to a previous tax year filing.

Also for the quarter ended July 28, 2018 organic revenue amounts exclude revenues from storm restoration services.

During our comments and in the accompanying slides, we exclude these items and other 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.

In addition, the company has entered into a contract modification that increases the revenue produced by a large customer program. As a result, the company recognized $11.8 million of contract revenues for services performed in prior periods and $1.8 million of related performance based compensation expense.

On an after tax basis. These items contribute approximately $7.3 million to net income or 23 cents per common share diluted for the quarter ended July 27 2019.

Revenue was 884.2 million an increase of 10.6%.

Organic revenue, excluding storm restoration services of $3.8 million in the year ago quarter increased 11.1%.

As we deployed one gigabit wireline networks wireless wireline converged networks and wireless networks. This quarter reflected an increase in demand from four of our top five customers gross margins were 18.5% of revenue, reflecting the continued impact of the complexity of a large customer program discussed previously on our first quarter fiscal 2020 call and general and administrative expenses were 7.36%.

All of these factors produced adjusted EBITDA of $100.2 million or 11.3% of revenue and adjusted to alert diluted earnings per share of one dollar nine compared to one dollar five in the year ago quarter.

Liquidity was ample is cash and availability under our credit facility was $289.1 million.

Now moving 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 wireless Lee using fiveg technologies.

We believe wireline deployments are an integral element of what is expected to be a decades long deployment of fully converged wireless wireline networks that will enable high bandwidth low latency fiveg applications.

The industry effort required to deploy these converged networks Conns continues to meaningfully broaden our set of opportunities total industry opportunities in aggregate are robust.

We are providing providing program management planning engineering and design aerial underground of wireless construction fulfillment services for one gigabit deployments. These services are being provided across the country in more than a dozen metropolitan areas to several customers.

Deployments include networks, consisting entirely of wired network elements as well as converged wireless wireline Multiuse networks.

Potential wired network construction opportunities are increasing outside of traditional customer franchise boundaries.

Customers are pursuing multiyear initiatives that are being planned to managed on a market by market basis, our ability to provide integrated planning engineering and design procurement and construction and maintenance services is of particular value to several industry participants. We expect some normal time will timing volatility and customer spending modulations as network deployment strategies and technologies evolve tactical considerations may also impact timing.

We remain confident that our competitively unparalleled scale and our financial strength position us well to deliver valuable service to our customers.

Going to slide six we continued to experience the effects of a strong overall industry environment during the quarter with increased demand from four of our top five customers.

Organic revenue, excluding storm restoration services increased 11.1%.

Our top five customers combined produced 78.6% of revenue increasing 12.7% organically.

While all other customers increased 5.5% organically Verizon was our largest customer 23.2% of total total revenue or $205 million.

Verizon grew organically 39.1%.

Revenue from ATM T was $183.3 million or 20.7% of revenue.

TNT was datacom second largest customer and grew 13.5% organically.

Centurylink was our third largest customer at 15.7% of revenue were $138.7 million Centurylink grew 29% organically Comcast was our fourth largest customer at $133.2 million or 15.1% of revenue and finally revenue from Windstream was $34.7 million or 3.9% of revenue Windstream was our fifth largest customer and grew 20.7% organically.

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

We are encouraged with our fourth consecutive quarter of double digit organic growth and have continued to extend our geographic reach and expand our program management network planning services.

In fact over the last several years, we have meaningfully increased the long term value of our maintenance and operations business, a trend, which we believe will parallel our deployment of 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 moving to slide seven.

Backlog at the end of the second quarter was 6.691 billion versus $7.051 billion at the end of the April 2019 quarter, a decrease of over $360 million of this backlog of approximately $2.639 billion is expected to be completed in the next 12 months. The total backlog calculation reflect solid performance as we book New work and renewed existing work, we continue to anticipate substantial future opportunities across a broad array of our customers.

Great TNT, we were awarded construction services agreements in Kentucky, Tennessee, North Carolina, and South Carolina from Centurylink construction services agreements in Wyoming, Colorado, Nebraska, Iowa, Missouri, and Florida for Comcast for fulfillment services in Michigan, and Illinois from Frontier, our construction services agreement in California, and finally, we secured construction services agreements with Tds in Wisconsin.

Headquarters headcount increased during the quarter to 15301.

Now I will turn the call over to drew for his financial review and outlook. Thanks, Steve and good morning, everyone going to slide eight contract revenues for Q2, 20 were $884.2 million and organic revenue growth was 11.1% with strong increases from four of our top five customers.

The company entered into a contract modification that increases revenue produced by a large customer program.

As a result, we recognized $11.8 million of contract revenues for services performed in prior fiscal quarters in years as well as $1.8 million of related performance based compensation expense.

On an after tax basis. These items contributed 23 cents per common share diluted for the second quarter.

Including the benefit of the contract modification adjusted EBITDA was 100.2 million or 11.3% of revenue.

Gross margins were at 18.5%.

Gross margins included approximately 100 basis points of benefit from the contract modification.

Compared to Q2 19, the net decline in gross margins was 112 basis points due to impacts of a large customer program during the quarter.

Gionee expense improved by 71 basis points compared to Q2 19.

Our lower financial performance. This year resulted in a decrease in share based compensation.

Our provision for income taxes included incremental expense of $1.1 million related to a tax filing for a previous tax year.

We expect our effective tax rate at 27.5% for the remainder of fiscal 2020 before any tax effects of the settlement of share based awards.

Our non-GAAP adjusted diluted EPS in Q2, 20 was $1 nine per share.

Now going to slide nine.

Our balance sheet reflects the strength of our business. We ended the quarter with $450 million of term loans outstanding and $65 million of revolver borrowings liquidity is ample at $289 million at the end of the July quarter, consisting of availability from our credit facility and cash on hand.

Cash flow used for operating activities was $53.6 million, which funded the sequential growth in revenue and working capital.

The combined Dsos of accounts receivable and net contract assets were 117 days, reflecting growth on the large customer program.

Capital expenditures were $32.8 million net of disposal proceeds and gross capex was $38.2 million.

We anticipate capital expenditures net of disposal proceeds to range from $140 million to $150 million for the full fiscal year. This is a $10 million reduction in our expected ranges capital spending from our previous outlook.

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

Going to slide 10.

For the quarter ended October 2019, we currently expect total revenue to range from 820 million to $870 million.

non-GAAP adjusted diluted EPS to range from 60 cents to 80 cents per share and non-GAAP adjusted EBITDA per cent of contract revenues, which decreases from the Q3 19 result.

Other expectations include depreciation of $41.8 million to $42.6 million and amortization of $5.3 million.

Share based compensation included in DNA of $2.5 million to $3.3 million.

Adjusted interest expense of approximately $7.9 million to $8 million.

Excluding $5.1 million of interest for the noncash debt discount amortization on our notes.

Other income net is expected to range from 0.9 to 1.5 million.

The effective tax rate is expected at 27.5% before any tax effects of the settlement of share based awards.

Now going to slide 11.

The January quarter of last fiscal year included $20.4 million of storm restoration services for comparative purposes, non-GAAP organic revenues that quarter were $728.2 million.

Looking ahead to the January 2020 quarter. We currently expect organic revenue ranging from inline to low single digit percentage growth compared to the 728.2 million of non-GAAP organic revenues in Q4 and 18.

And we expect non-GAAP adjusted EBITDA margin percent of contract revenue ranging from inline to a slight increase from Q4 19, now I will turn the call back to Steve. Thanks drew moving to slide 12.

Within a growing economy, we experienced the effects of a strong industry environment and capitalized on our significant strengths first and foremost we maintain strong customer presence throughout our markets.

Second our extensive market presence has allowed us to be at the forefront of evolving industry opportunities. The end market drivers of these opportunities remain firm and are strengthening.

Fiber deployments, enabling new wireless technologies are underway in many regions of the country wireless construction activity in support of expanded coverage and capacity has begun to accelerate through the deployment of enhanced macro cells, a new small cells telephone companies are deploying fiber to the home to enable one gigabit high speed connections.

Cable operators are deploying fiber to small and medium businesses and enterprises portion of these deployments are in anticipation of the customer sales process fiber deep deployments to expand capacity as well as new build opportunities are underway.

Dramatically increased speeds to consumers are being provisioned in consumer data usage is growing.

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

In addition, we are increasingly providing integrated planning engineering and design procurement and construction and maintenance services for wired.

And converged wireless wireline networks, we remain encouraged that our major customers are committed to multi year capital spending initiatives and we are confident in our strategies the prospects for our company the capabilities of our dedicated employees and the experience of our management team as we grow our business now operator, we will open the call for questions.

And ladies and gentlemen, if you wish to ask a question. Please press Star then one.

And our first question comes from the line of Sean Eastman with Keybanc capital market. Please go ahead.

Our team thanks for taking my questions.

I guess firstly for me, it's great to see you guys have a handle on the near term outlook here.

But you know looking at the fiscal fourth quarter flat to up low single digit revenue growth relative to the kind of qualitative commentary on end market demand.

It seems to indicate that there is a stronger growth trajectory on the horizon here. So I'm just wondering how you guys would characterize visibility on reacceleration in growth here.

Has it improved or is that kind of inflection point still kind of tough to call at this point.

So Sean I think specifically to the fourth quarter as always that's the quarter that has four or five holidays in the week between Christmas and new years as well as.

Yes, unpredictable weather and handle I think thats always one that is not all that important to understand relative to near and intermediate term trends Theres just.

So much going on.

Outside the businesses control I think look we had good progress this quarter in terms of organic revenue growth.

We have the.

One customer who is committed their regulatory completed their regulatory commitment on fiber deployment, but yet they are happy with those customers and were optimistic that there will be opportunities not only there but in other parts of the business. So.

I think we're looking ahead to.

To better times.

Okay, Thanks, and when I look at the fiscal fourth quarter flat to slightly up margins from a year over year perspective.

Can we extrapolate that into the longer term just in terms of getting to a point where margins have stabilized to potentially improving.

In the quarters beyond that and.

Or are there some other kind of considerations we should.

Take note of.

For example, I'm wondering about this contract modification here in the second quarter, and just making sure. We are thinking about that correctly as it relates to the kind of margin comparable for the fiscal second quarter of next year.

Yes, so we talked about in the last couple of quarters, we've talked about the effects of a large customer program.

On margins and I think what we said last quarter and we can say that again is that if you excluded that program that our margins were in line with how we've executed and passionate about the best year, we've ever had but okay and I think that this modification.

Does provide some.

Increased revenue going forward, it's much appreciated, but theres still plenty of work to do on that program.

And then that once again to look at trends in the fourth quarter, given the weather holiday.

The amount of daylight is that just a tough quarter for for anybody to evaluate against near term or intermediate term trends.

Okay, all right I will turn it over thanks, Steve.

Thanks, Sean.

Thank you and our next question comes from the line of Adam Thalhimer with Thompson Davis. Please go ahead.

Hey, good morning, guys good morning, Adam.

Hey, Steve Real peak revenue yet on that large program.

So Adam we were asked that question last quarter, we don't comment on individual programs.

But we're comfortable that theres plenty of growth opportunities across the entirety of the business.

Okay and the all other customers.

You made a note that.

You're finally, seeing some nice growth outside of your top five what can you give some additional color there what's driving that how sustainable is that.

So we're seeing that trend across all of our customers not only the top five to deploy more fiber expand their fiber footprints and deeper into their networks and we've talked on past calls about this emerging rural fiber deployments, primarily for electric co ops and we actually looked at those and said if we the aggregate of those.

Together, because they are typically smaller entities, but they're they're very active it probably would have been our six or seven customer.

And as grown very quickly over the last.

Four to five quarters, so I think thats a good portion.

Of the growth in that part of the business. We also were pleased to see.

Tds who's been a longtime customer whose indicated that there.

Pretty aggressively deploying fiber both inside there I like footprint and outside.

So we're seeing more.

Outside of franchise opportunities.

Not only from from them, but it was interesting to see that windstream.

Actually bought some millimeter wave spectrum in the last auction both inside their footprint and outside so I think we see some.

More fiber opportunities.

Even outside of traditional customer franchises from from those folks and others.

Okay, and then last one from me on the cable side of the business, obviously, a big revenue decline in the first half of the year, what what's your thought on the back half for just cable in general.

So we had one of our customers that on their call spoke specifically that there.

Spending on on.

Scalable infrastructure and line extensions was down in part due to the timing.

Of planned construction and other investments and so I think if you look at kind of where we see the third quarter right now compared to where we saw it in may.

That really explains kind of the change in the slight change in view.

But they I think they're seeing.

Pretty dramatic growth in consumer.

Data consumption. There was a report just yesterday that one one of our customers is now seeing an average of 300 gigabytes per month the consumption per effort broadband subscriber they have pretty stunning number compared to three or four years ago.

So while it's a little bit slower this year, I think thats been well understood.

On the Street, we look forward to better year next year.

Understood. Okay. Thanks, Steve I will turn it over thank you.

Thank you and our next question comes from the line of Gregg Hillman with D.A. Davidson. Please go ahead.

Hey, Thanks, Good morning, good morning, Brett.

Thanks, Steve the increase in Dsos I understand associated with this this large program. When do you think that starts to plateau, and we kind of see some normalization in cash conversion.

I think we'll see normalization.

Through the end of this fiscal year I mean, we're working hard at it.

There there has been some modifications in terms of adding some opportunities for us to more timely invoice completed work.

That have been offered.

So we're working hard at that and we're working hard at getting better as we've talked about for the last couple of quarters.

Okay. That's helpful and then it looks like business with Windstream picked up from last year I was just curious if you're seeing.

Post petition.

I guess payments come in through that.

Yes their payments in as they are undergoing.

Restructuring.

Are quite good and we're encouraged that not only are they.

Paying well, but they are also investing in their business deploying more fiber had a good subscriber.

Not only quarter, but expect to grow broadband subscribers for the year.

So we're encouraged.

Currently and we're encouraged.

Looking ahead.

Okay and my last question, Steve is more just thinking about kind of the value datacomm brings to the customers in terms of the.

The national footprint kind of large and growing capacity as you look at the head count.

Look at some of these awards in the presentation Slide where you are in multiple states are those is that it.

Are those individual awards to you within those individual markets or this collective awards again, just trying to kind of think about this in terms of the contract negotiations you have with these customers with year round.

Your scale, what typically the contracts are still described regionally sometimes for the entirety of the state sometimes for half of the state.

Typically all of the contract sizes over the last 10 or 15 years have grown geographically so as customers have suit.

Have simplified their administrative organizations they've gone with larger.

Territories.

So they are typically.

Individual regions or individual states, but we have comprehensive discussions with our customers as we work through renewals.

And backlog was burned off a little bit in the current quarter.

Mostly as a kind of a re estimate of a of a long term contract where the revenues down a little bit this year, but we expect it to be higher next year.

And how that flowed through through backlog, but.

We feel good for the balance of the year in terms of.

Of renewal and growth in backlog.

Okay. Appreciate the color. Thank you.

Thank you and our next question comes from the line of Alex Mandel with B. Riley. Please go ahead.

Whereas Steve driven Tim Hey, Alex.

Hi, Andrew could you help us to possibly quantify the dollar.

Value opportunity that you could pull out of receivables and working capital over the next six months.

I mean, Alex I'll jump in here drew and I have talked about this I mean, we are working hard to normalize this.

If you looked at DS so year over year and excluded this program. It's just up slightly so the rest of the customer base and the rest of the revenue is in line with past performance.

You could probably do the math to figure out how much cash that would release as we drive the DSO from where it is back to normal.

It's a big program it's complex.

And so we're going to be careful as we've talked about the last couple of quarters again ahead of ourselves on that but I can assure you the entire companies working on the on the project.

And then.

Great and I'm talking about fourth quarter guidance as it relates to the third quarter revenue guidance looks like its down somewhat from your previous guidance anything in particular that I called out there.

Yes, Alex as we said on an earlier question. It real if you if you look to the Msos in a particular one that cited.

A being a little bit slower on their spending in part due to timing.

Planned construction is really just a timing question and that was.

The difference in the way we saw things in May and we see them now.

And that's a customer that has has substantial plans and identify that investing in their network is strategic Theres. Just every once a while there's one of these modulations.

That we have with the customer.

And as it relates to the contract modification and your commentary over the last number of quarters about the complexity of.

Look certain large customer program, how should we think about gross margins today relative to a more normalized level at Alex. It's the same comment that we made.

Before with respect to EBITDA, but would also apply to gross margin. If you pull this program.

Out the rest of the business is performing reasonably well, it's not the best that we've ever done, but certainly in line with prior performance.

So as we as we work hard to.

This program, there's opportunity and as we've said in prior quarters, we pointed to that complexity arising from evolving.

Objectives processes and priorities I think on the objectives and the priorities were more settled we still have work to do on the processes and we're spending lots of time and attention to pull the cost out associated with that those evolutions.

Very helpful. Thank you.

Thank you and our next question comes from the line of Todd with Deutsche Bank. Please go ahead.

Hi, Good morning, guys good morning Jed.

So if I look back at me it looks like the July quarter marked at the slowest at least six sequential increase in labor since 2012.

I mean should we take that as a sign that late labor ramp is has reached a plateau or how should we think about that.

Well, Chad I think as always right as we've said before we utilize subcontractors for portions of our construction activity and so headcount to revenue is kind of loosely correlated. So if you think about it we grew revenue sequentially 50 million.

Essentially a slight increase in head count and we grew at 85 million year over year at a greater percentage than head count. So I think as we get into.

A different mix of business and more construction going forward, we'll we'll see headcount grow we hope it continues to grow we see opportunities to grow the business.

But I think as we get more heavily into construction, we will see more subcontractor use resources utilized rather than additional headcount gotcha and just to kind of continue on that I mean.

Based on what you're seeing your business mean, when do you start to see that tipping point evolve where you do see a greater mix of construction going forward.

Yes part one.

And our two says as it pertains to.

Your your backlog can you give us a little bit more color on what you're seeing on the wireless side. I mean are you seeing backlog growth accelerate.

Any color would be very helpful. Sure. So if we look at wireless in total it was just short of 75 million of revenue in the quarter, which is the largest number we've ever had so kind of a 300 million.

Dollar run rate. So we're pleased with the growth in that business.

Grew both year over year and sequentially double digits.

So that was a that was helpful.

I think we are pleased with opportunities in that business. We are just beginning to see.

Actual fiveg deployments, we have in one large metropolitan market. We have just short of 100 sites that we've done site acquisition have gotten backhaul to and power and just waiting for radios to come in in the next four to eight weeks so.

We're actually beginning to see.

Opportunity and revenue driven by Fiveg.

And just one more question so I realize that the ramp of one customer has resulted in complexity and lower margins and thats been.

Going on for I guess several quarters now.

I realize that you know there is some that you can control, but there is probably some that you can.

Vicki So can you just talk about that part that you can.

You know what levers do you have to pull.

Second actually I can mitigate the margin impact here.

Yes, so Chad as we've discussed previously right and at least as incrementally versus the last quarter, it's really around the processes and not the.

The objectives and priorities and so as we look at the processes as we've talked about it before we implement systems first we get ahead of it with what resources, we have to to get ahead of it.

Then we implement systems to take that cost out and it's a large growing program and so we're having to do.

Both at once and were working on reversing the working capital build associated with that complexity also.

So we'd love to go into more detail, it's a pretty detailed project plan theres lots of teams working on it but I think thats what were comfortable sharing.

Today.

Great. Thanks, I'll hop back in queue.

Thank you and our next question comes from the line of Jennifer for T. with Wells Fargo. Please go ahead.

Great. Thank you for taking the question a few if I may.

Steve You mentioned, the electric collapse, becoming a larger customer or an aggregate one of the main theme from our five key conference in June with the lack of access to power and how that's kind of a tricky part a psyche is that is that what you're helping with there can you just comment on that and then just one follow up after that so Jennifer clearly powering of all of the hundreds of thousands if not millions of small cells associated with Densification and by GE is clearly an issue I think the industrial figured out it always does and as I said, we're actually starting to bring some fiveg sites on air between now and the end of the year, what we referred to with the co op to these are actually in Rural America, where there is often not cable service.

Often only dial up service from.

From an incumbent telco and these co ops are actually building on their own facilities fiber to the home networks.

So is that it is literally it and I think the number that I've seen is there something like 12 million electric meters that are served by these co ops across the country and not only have they been doing this with their own funds, but we expect that there will be active.

In the rural up are there the rural digital opportunity fund.

But its upcoming from the FCC.

Got it and then if I may add that Centurylink Centurylink has it that publicly announced that they hired an advisor to sell their consumer business.

No nothing happened there yet, but if we went down that rabbit hole if that were to happen you've had a nice acceleration of growth with Centurylink can't it belongs to the relationship with the consumer side or can you just talk about that a little bit.

So you know it's hard for us to comment a hot on that anything that has to do with the strategic.

Effort by a customer I guess, what we're seeing is that they are focused on fiber that theyre aggressively growing the fiber footprint and that we're seeing opportunities not only in the in the traditional I like business, but outside the breadth outside of that I like business.

As they and everybody else continues to focus to getting.

Service on their own facilities, rather than leased facilities. So I think we're seeing broad opportunities.

And we can always do better we're working hard but I think we've been pleased with the access we've seen broader parts of the business beyond consumer.

Perfect. Thank you very much.

Thank you and our next question comes from the line of Blake Hirschman with Stephens Inc. Please go ahead.

Hi, Good morning, guys. Thanks for taking my questions.

As a follow up on the large customer program contract modifications are these conversations that are ongoing with.

The potential for further benefit going forward or is this more of a one time deal that's come to an end with the benefits already kind of flowing through so I think Blake just to be clear as we said in our comments. This increase the revenue both retrospectively and going forward.

We still lots of work to do we're appreciate appreciative of it but it has both.

Past benefit and a and a future benefit.

Beyond that we're not going to comment.

On our discussions with our customers I think as we said last quarter as as we improve the business.

On this large customer program, we're working hard and the best way to prove it is to show it in the numbers and that's still our perspective on the program.

And for the fiscal Threeq and Fourq guide.

Benefit.

The situation there that's been incorporated into the guidance that was yes as once again, we appreciate it on a retrospective basis. It was a number that we needed that to provide to you folks would understand current period performance.

It's certainly helpful.

And it's incorporated in the outlook.

Going forward.

Got it and then on 18 keys fiber to the home build out that's why didn't the summer did the cadence or magnitude of that age anti fiber spend impact.

You guys in the quarter over and above what you expected coming into it or what's your kind of inline with what you were thinking no I think it was completely in line with what we're thinking.

We're we're encouraged by their commentary that they continue to see good uptake of the services they sell into that footprint.

And their comments in the past about continued to invest in fiber going forward.

The real effect as Weve said.

So in answer to prior questions is just really around this planned.

Timing.

With me on the MISO side.

Got it and then lastly on the Capex you didn't come down too much for the year, but it did come down is there anything to point to there as far as why the range I mean, we're being disciplined Blake we got work to do as I said the company is focused on.

Getting these dsos in line and we're going to manage the other levers in the business as appropriate without hurting the business I think we've always had a.

Discipline capital plan.

So that if we need to make adjustments as we've done that we can do it without hurting the business and so that's what we're doing.

All right makes sense, thanks, a lot I'll turn it over.

Thank you. Our next question comes from the line of Noelle Dilts with Stifel. Please go ahead.

Thanks, guys good morning.

Good morning Noelle.

So just another quick question on the contract Amendment can you just tell us the exact.

Retrospective time period that the.

The change covered and on can you remind us of when this contract on concludes.

So so so two things noelle so in the current period than in the first quarter just call. It roughly just a little bit over 2.9 million in each of those quarters, if theres a tail that goes back to the prior fiscal years.

But thats the that if that helps you understand kind of the current year.

Impact.

As we continue to work on the program, there's plenty of work to do and we continue to work through it with there may be.

Other opportunities and so we're not going to get into the actual end of the of the contract because if we do our job hopefully will be there for a long time.

Okay understood.

And second.

We've heard from some other folks in the industry that small cell deployments or maybe just taking a bit longer to turn this over it then folks expected on some of that associated with things you've talked about you know, citing challenges engineering et cetera.

Any chance you could give us a sense of how much work you're doing around small cells today and and.

How you're thinking about the cadence of deployment I think Howard.

So we have a number of customers that we do small cell activity with.

It's growing it's not a significant piece of the business at this point.

But as we look out probably over the next two or three years I think it will be an increasing proportion of of everybody's wireless spending.

Because particularly at millimeter wave frequencies, you've got to have lots of antennas given the the the price the propagation properties are those.

Spectrum bands.

So we think it's going up and look Noelle I always look at the popular press and when they start talking about something being a problem that usually about the time the industry is starting to get some clarity on how it's going to get better and I don't see the the the conversation around citing difficulties today any different than what would have occurred 2025 years ago for macro sites.

The technology is going to provide lots of value and if a technology provide lots of value, we'll figure out how to get it deployed as a country.

Okay. Thanks, and finally, any 10th street could round out top customers on and and other.

Utility and other.

Sure and no Allied point, everyone on the call that and.

Following us on to slide six where we've got the other top customers in the top 10.

And then for the split telco was at 73.6%.

Cable was at 17.4%.

Facility locating was at 6.1% and electrical and other was 2.9%.

Thanks.

Thank you.

Thank you and our next question comes from the line of questions Bob recruit.

Craig Hallum Capital Group. Please go ahead.

Hey, good morning, guys. Thanks for taking my question, Steve I just want to.

Confirm that the contract modification work with your large customer is complete and we should expect no more modifications in the future.

There is nothing to confirm because that's not what we said Chris did what we said is there was a modification in a piece of that program that had a retrospective benefit and we'll continue to have an increased revenue benefit going forward as we work through that program.

Okay.

Another question along the same lines stated, possibly different way then it whether its gross margins or EBITDA margins, we talked about ex this large customer program. The rest of the business being in line with historical trends. So.

Just said, if we just want to take it.

Whichever you want to discuss but if we want to think about your opportunity to return to 20% plus gross margins.

Is is that opportunity base more heavily on future contract modifications or would that be.

Better.

Control of costs and processes.

As an opportunity to get there I encouraged and we're not going to outline kind of the way we are having discussions with with any customer around those topics.

We are appreciative of this modification weve got a number of efforts underway to improve our performance on the contract.

And and.

There's there's lots of work to do we're making progress but the program is more settled today than it was three months ago, we're encouraged by that but theres still lots to do.

All right. One last question along the same lines, if I can beat it to death and.

Can we return that customer in the aggregate.

By a better process control to return to historical.

Margin profile of the rest of your business.

So we're working hard on the business broadly and I wouldn't characterize it as one particular effort or dimension, because we've invested a lot we need to earn a return on that for our investors and we're working hard to get back to that.

To the profile, we've not accepted that where we are today is acceptable because it is.

We're working hard to change it.

Great no other questions. Thank you.

Thank you and we have a follow up question from the line of General Jennifer CTG with Wells Fargo. Please go ahead.

Great. Thank you.

Well I know the focus has been on the customer.

The larger customer with the changing terms, but I think one area that I didn't hear come up and I. Just wanted to confirm is this how our das as I think it's called the rule of the development opportunity fund, which is going to be a substantial amount of money going to some of these were all providers. How do you view that I mean, I remember when we talk about Caf two you talked at one time about that becoming I think the top type customer and aggregate any initial thoughts there I know, it's still in process well I think a couple of things down upper so one that at little over 2 billion. A year is an increase from where cap two was for our customers.

It's clearly a good thing from our perspective, it broadens the opportunity set because there may be other participants as we highlighted some of these.

Non traditional.

Co ops electric co ops may may be able to participate and what's interesting and this shows how wrong. This movement to fiber is in rural America, We've actually seen a limited number of instances just recently where customers that we did rural stimulus work for funded through the through the Federal program back in 2010, 11, and 12 have actually come back with more work to do in the remainders of their systems.

So I just think this rural deployment as well as some of the comments, particularly from Windstream not only about fiber, but also millimeter wave spectrum.

In there I like and then 3 million homes adjacent.

I just think it's a very strong trend and we don't see that.

In any way.

As a as hurting I think it helps the business.

I'm sorry, Steve If you said this earlier, but this does require a faster speed crack than what we saw from cap. Yes. So one of the interesting things as Caf two required 10 megabits down in one megabit up that now the rules not final whats out for comment as I understand it but its centering now on 25 megabit down three megabit up although there is a sliding scale with which to the extent that you propose higher bandwidth up to one gig that you actually are weighted more heavily as you go through the auction and it's a fairly.

Just a quick read it's a fairly complicated.

Process, but clearly the government is willing to prioritize higher speeds, even than 25 down and three up.

Great. Thanks.

Thank you and just a reminder, you can press Star then one for any further questions.

Okay, operator, if we have no more questions. We appreciate everybodys.

Time and attention on the call and we look forward to seeing you.

On the next call the week of Thanksgiving. Thank you.

Thank you, ladies and gentlemen that does conclude your conference for today. Thank you very much for your participation you may now disconnect.