Dycom Industries, Inc. (DY)

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Dycom Industries (DY)

Q2 2013 Earnings Call

February 27, 2013 9:00 am ET

Executives

Steven E. Nielsen - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Richard B. Vilsoet - Vice President, General Counsel and Corporate Secretary

H. Andrew DeFerrari - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Analysts

Richard S. Paget - Imperial Capital, LLC, Research Division

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Saagar Parikh - KeyBanc Capital Markets Inc., Research Division

Victor W. Chiu - Morgan Keegan & Company, Inc., Research Division

John B. Rogers - D.A. Davidson & Co., Research Division

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

James Kitchell - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Dycom Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. With that being said, I'll turn the conference now to Mr. Steven Nielsen. Please go ahead.

Steven E. Nielsen

Thank you, John. Good morning, everyone. I'd like to thank you for attending this conference call to review our second quarter fiscal 2013 results. During the call, we will be referring to a slide presentation, which can be found on our website, www.dycomind.com, under the heading, Events. Relevant slides will be identified by number throughout our presentation.

Going to Slide 2. Today, we have on the call Tim Estes, our Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer; and Rick Vilsoet, our General Counsel.

Now, I will turn the call over to Rick Vilsoet. Rick?

Richard B. Vilsoet

Thank you, Steve. Referring to Slide 3. Except for historical information, 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 involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. These risks and uncertainties are more fully described in the company's annual report on form 10-K for the year ended July 28, 2012, and other periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements. Steve?

Steven E. Nielsen

Thanks, Rick. Now moving to Slide 4 in the review of our second quarter results. As you review these results, please note that we have included adjusted EBITDA, certain revenue amounts excluding revenues from acquired subsidiaries and storm restoration services, certain expense amounts excluding acquisition-related costs and write-off of deferred financing costs and adjusted earnings per share, all of which are non-GAAP financial measures to our release and comments. See Slide 16 through 20 for a reconciliation of the non-GAAP measures to the GAAP measures in the slide presentation provided for this call. For clarity and to ensure comparability between periods, our comments will now address our non-GAAP results.

Revenues for the quarter increased year-over-year to $369.3 million, an increase of 38.1%. After excluding revenues from acquired subsidiaries of $75.9 million and storm restoration services of $16.7 million, revenue grew 3.5% organically.

Volumes during the quarter were solid from telephone companies as a whole, with some companies growing meaningfully, while all carefully manage routine capital and maintenance expenditures. The spending by cable customers increased year-over-year.

Gross margins increased by 72 basis points year-over-year, reflecting improved operating trends and storm restoration services in part. Despite the integration cost of approximately $1 million, general and administrative expenses declined slightly as a percentage of revenue year-over-year, reflecting continued good cost discipline. All of these factors produced adjusted EBITDA of $37.2 million for the second quarter or 10.1% of revenue.

Results from businesses acquired during the quarter, excluded interest cost, were $800,000 after approximately $6.1 million of depreciation in noncash amortization expense.

Net income of $0.15 per share for the second quarter increased from last year's earnings per share of $0.10, reflecting improved margins, offset in part by less other income as we reduced the amount of assets we sold during the quarter.

After $63.5 million in operating cash flow in the quarter, liquidity was solid with cash and availability under our current credit facility totaling $233.4 million. This operating cash flow enabled us to repay $70 million, which we had borrowed during the quarter to fund the purchase of substantially all of Quanta Services' domestic telecom infrastructure services subsidiaries.

Going to Slide 5. The purchase of these subsidiaries was completed on December 3, 2012, for a purchase price of $275 million and other items totaling $45 million. The transaction was structured to produce attractive tax -- cash tax benefits, it has strengthened our company and created scale as industry announcements indicate customer expenditures are growing. The purchase was funded through borrowings under our new 5-year $400 million credit facility and a $90 million add-on to our existing senior subordinated notes, which mature in January of 2021.

Moving to Slide 6. During the quarter, we experienced the effects of a steady industry environment. Revenue from CenturyLink was $54.2 million or 14.7% of revenue. CenturyLink was our largest customer. AT&T was our second largest customer at 13.6% of total revenue or $50.1 million. AT&T grew 34.9% organically year-over-year. Revenue from Comcast was $40.8 million or 11% of revenue. Comcast was our third largest customer. Verizon was Dycom's fourth largest customer for the quarter at 9.1% of revenue or $33.5 million. Revenue from Windstream was $32.3 million or 8.8% of revenue. Altogether, our revenue grew 3.5%. After excluding revenues from acquired subsidiaries and storm restoration services, this represents our eighth consecutive quarter of organic growth. Our top 5 customers combined produced 57.1% of revenue, growing 9.1% organically, while all other customers decreased 4.4%.

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