Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased year over year to $1.203 billion, an increase of 15.5%.
- Gross margin improved to 20.8% of revenue, up 52 basis points compared to the second quarter of fiscal 2024.
- Liquidity remains strong at $622 million.
- Completed the acquisition of Black & Veatch’s public carrier wireless telecommunications infrastructure business, expected to contribute $250 million to $275 million of revenue in fiscal year 2026.
- Backlog increased to $6.834 billion, with approximately $3.83 billion expected to be completed in the next 12 months.
Negative Points
- Wireless revenues were down 10-12% year over year, reflecting broader industry trends.
- General and administrative expenses increased to 8.3% of revenue, up from 8.1% in Q2 '24.
- Higher depreciation and amortization costs, which increased by $8.6 million.
- Higher interest expense, which increased by $2.4 million.
- Organic revenue growth is expected to decelerate in Q3, partly due to a wet August and potential slower activity from one customer.
Q & A Highlights
Q: Steve, your commentary on AI seemed very bullish, particularly about intercity networks. Can you talk about how Dycom is positioned in the intercity opportunity?
A: We have had exposure to intercity work, having placed over 2,000 miles of intercity fiber in recent years. We are experienced in this market and anticipate significant opportunities ahead. The AI opportunity, particularly the importance of low latency to AI, will create opportunities around moving data processing to the edge of the network.
Q: Total backlog increased nearly $500 million sequentially in the quarter. What was the catalyst for this increase? Are you starting to see BEAD awards built into your backlog?
A: There is no BEAD in the backlog yet. We expect BEAD opportunities next year. The increase in backlog was due to a broad set of opportunities that came to fruition this quarter.
Q: Do you see any risk to BEAD awards given the pending presidential election?
A: While it's hard to forecast government actions, BEAD was part of the Infrastructure Act passed with bipartisan support. Historically, rural fiber deployments have enjoyed support from both parties. We believe the support for rural fiber is deep and irreversible at this point.
Q: Organic revenue growth seems to decelerate from 9% in Q2 to maybe half of that in Q3. Is this analysis correct? Are there specific customers that take a step back in Q3?
A: Last year in Q3, we had acquired revenues and a change order that boosted results. Adjusting for these, organic growth is expected to be mid to high single digits. We also factored in a wet August and one customer potentially slowing down.
Q: Can you discuss the strategic rationale behind the Black & Veatch acquisition, especially given the growth on the wireline side?
A: We surfaced and approached Black & Veatch for this acquisition. It enhances our wireless business and aligns with our strategy to be a better partner for customers who do both wireline and wireless. We see significant synergies and potential opportunities from this acquisition.
Q: What actions are needed at Black & Veatch to get margins up to the corporate average? Are there big investments required?
A: The necessary investments in people and systems are already in place. It's primarily a matter of execution. We have complete familiarity with the customer's administrative systems and expect to achieve corporate average margins.
Q: When do you expect to see construction timing for BEAD opportunities? Are there any incremental investments needed in labor or subcontractors?
A: We expect BEAD opportunities to impact the business by the third quarter of calendar year 2025. We have a broad footprint and a long history in rural America, so we will make prudent investments as needed but typically don't make speculative investments before seeing the size of the opportunity.
Q: How do you view the data center and AI fiber opportunities over time? Are they more one-off projects or something more recurring?
A: Given the size of the orders, these are likely to be large network builds that serve most of the country. The trend towards reducing latency and increasing capacity suggests a significant and ongoing opportunity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
