Dycom Industries, Inc. (DY)

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Dycom Industries Inc. (DY)

F1Q09 Earnings Call

November 25, 2008; 9:00 am ET


Steven Nielsen - Chairman, President and Chief Executive Officer

Tim Estes - Chief Operating Officer

Drew DeFerrai - Chief Financial Officer

Rick Vilsoet - General Counsel


Jack Kasprzak - BB&T Capital Markets

Mark Carroll - Morgan, Keegan

John Rogers - D. A. Davidson

Min Cho - FBR

Alan Mitrani - Sylvan Lake Asset Management



Ladies and gentlemen thank you for standing by. Welcome to the Dycom 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 at that time. (Operator Instructions) I would now like to turn the conference over to Steven Nielsen; please go ahead.

Steven Nielsen

Thank you, Mary. Good morning everyone. I’d like to thank you for attending our first quarter fiscal 2009 Dycom results conference call. During the call we will be referring to a slide presentation, which can be found on our website, www.dycomind.com under the heading Investors and subheading Event Details. Relevant slides will be identified by number throughout our presentation.

Going to slide one, today we have on the call Tim Estes our Chief Operating Officer; Drew DeFerrai our Chief Financial Officer; and Rick Vilsoet our General Counsel. Now I will turn the call over to Rick Vilsoet; Rick.

Richard Vilsoet

Thank you, Steve. Referring to slide two, expect for historical information, the statements made by company management during this call maybe forward-looking and our made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements 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 periodic filling with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements. Steve.

Steven Nielsen

Thanks Rick. Yesterday we issued press release announcing our first quarter 2009 results. As you review this release, it is important to note the following. During the first quarter we wrote-off deferred financing cost of $0.6 million in connection with the replacement of our existing credit facility with a new credit facility.

For clarity and to enable comparability between periods, my comments will be limited to results from continuing operations, excluding this item. A reconciliation of the non-GAAP results to our GAAP results has been provided with our press release, as well as on slide 12.

Moving to slide three; result of $0.28 per share for the first quarter exceeded the upper end of our earnings per share expectations. Revenue increase sequentially by 3.7% and organic year-over-year growth was 1.3% for the quarter, including $15 million of hurricane restoration work.

Volumes were mixed from telephone companies as some customers’ deployed capital for new network initiatives, while all customers tightly manage routine capital and maintenance expenditures.

Constructions spending by cable customers were generally stable. Installation activity firm throughout the first two months of the quarter, but it was pressured in October as the overall economy slowed noticeably.

Margins continue to improve sequentially, but remain pressured year-over-year. Cost of earned revenues was positively impacted by fuel costs that decreased over 60 basis point sequentially from the fourth quarter, but increased over 50 basis points from the year ago quarter.

G&A expenses reflected increased legal and professional fees and payroll costs, as well as a sequential increase in incentive compensation as financial results improved. Cash flow from operation was inline seasonally, reflecting the payment of our year-end incentive compensation and the semiannual interest on our rates.

Additionally, we deployed working capital during October to support our hurricane restoration efforts and paid our previously disclosed wage in our work class action settlement. Share repurchases were suspended in the quarter due to the uncertainty in the financial markets.

Going to the slide four; during the quarter we experienced the effects of an overall economy, which deteriorated in the latter half of October. Revenue from Verizon was flat sequentially and up year-over-year. At $64.8 million or 19.4% of revenue, Verizon was our largest customer.

Revenue from AT&T was down sequentially and down year-over-year. AT&T was our third largest customer at $52.4 million or 15.7% of total revenue. Revenue from Comcast was $53.8 million. Comcast was Dycom’s second largest customer for the quarter at 16.1% of revenue.

Time Warner Cable was our fourth largest customer with revenues of $26.3 million or 7.9% of total revenue reflecting mixed upgrade activity and instillation volumes. Revenue from Embarq was up sequentially by $2.5 million and down slightly year-over-year. Embarq was our fifth largest customer at 5.5% of total revenue.

Altogether our top five customers represented 64.6% of revenue and were up organically 2.8%. All other customers declined organically 1.3%. Interestingly our seventh and eighth largest customers, Windstream and Qwest grew at a combined rate of 58% year-over-year reflecting increased capital spending.

Now moving to slide five; backlog at the end of the first quarter was $1.15 billion versus $1.313 billion at the end of the fourth quarter, a decrease of approximately $163 million. Of this backlog, approximately $715 million is expected to be completed in the next 12 months.

During the quarter, we continue to book new work and renew existing work. From AT&T we received three year extensions to our Orangeburg, South Carolina

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