- --------------------------------------------------------------------------------
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
CORPORATE PARTICIPANTS
Steven Nielsen
Dycom Industries, Inc. - President & CEO
Mike Miller
Dycom Industries, Inc. - General Counsel & Secretary
Richard Dunn
Dycom Industries, Inc. - SVP & CFO
CONFERENCE CALL PARTICIPANTS
Gina Gordon
Merrill Lynch - Analyst
Alex Rygiel
Friedman Billings - Analyst
Paul Russell
PR Capital - Analyst
Alan Mitrani
Copper Beech Capital - Analyst
Mark Degenhart
Oppenheimer Capital - Analyst
Mark Bishop
Boston & Company - Analyst
David Lieberman
South Point Capital - Analyst
Michael Miller
PRESENTATION
Operator
Ladies and gentlemen thank you for standing by. Welcome to the Dycom earnings
conference call.
[Operator Instructions].
I would now like to turn the conference over to your host, Steven Nielsen,
President and CEO. Please go ahead.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Thank you Linda. Good morning everyone. I would like to thank you for attending
our second quarter fiscal 2005 Dycom earnings conference call. With me we have
in attendance Richard Dunn, our Chief Financial Officer and Mike Miller, our
General Counsel. Now I will turn the call over to Mike Miller. Mike.
- --------------------------------------------------------------------------------
Michael Miller
Thanks Steve. Statements made in the course of this conference call that state
the Company's or management's intentions, hopes, beliefs, expectations, or
predictions of the future are forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
projected in such forward-looking statements. Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Company's SEC
filings, including but not limited to the Company's report on Form 10-K for the
year ended July 31,2004, and the Company's quarterly report on Form 10-Q for the
quarter ended October 30, 2004.
Additionally during this call there will be references to certain non-GAAP
financial information. This information has been reconciled to GAAP in the
Company's press release of yesterday that has been posted on the Company's
website. Steve?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Thanks Mike. Yesterday we issued a press release announcing our second quarter
2005 earnings. Included in last year's earnings was a non-recurring gain of
$11.4 million before taxes related to the sale of a long-term accounts
receivable. To ensure meaningful comparisons, all references I will now make to
the second quarter of 2004 will exclude this gain. The reconciliation of our
earnings with and without this gain is attached to yesterday's press release
that has been posted to our website. For the quarter ended January 29, 2005,
total contract revenues were $224.5 million versus $196.4 million, an increase
of 14%.
Net income was $7.4 million versus $9.6 million, a decrease of 23%, while fully
diluted earnings per share was $0.15 versus $0.20, a decrease of 25%. Backlog at
the end of the second quarter was $1.442 billion versus $1.376 billion at the
end of the first quarter of 2005, a sequential increase of $66 million. Of this
backlog approximately $851.1 million is expected to be completed in the next 12
months. Our second quarter results while at the lower end of our expectations
and in some respects disappointing continued to demonstrate the fundamental
health of our business.
Gross margin declined from the year ago quarter by 404 basis points. However,
this negative impact was in turn offset by a
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 1
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
decline in G&A of 118 basis points. The decline in gross margin was a result of
several factors: increased over-time training and recruiting expenses generated
by our ramp up for FTTP related locating, engineering and construction activity.
Expenses associated with the ramp down of several cable TV upgrade projects and
several large projects whose management requires relatively higher local cost of
sales overhead versus traditional corporate G&A expenses.
Liquidity increased significantly during the quarter. Net cash and short-term
investments increased $35 million to over $62 million despite capital
expenditures to support our growth totaling $19.5 million net of disposal. Days
sales outstanding declined appreciably to 68.6 days, down 6.1 days from the
first quarter after adjusting for working capital acquired in the RJE
transaction. During the quarter we continued to experience the effects of a
growing overall economy, major telephone company expenditures, which grew
substantially year-over-year and growth from some video providers.
Most significantly we performed work for Verizon's Fiber to the Premise buried
plant initiative in the states of Massachusetts, New York, Pennsylvania,
Maryland, Virginia, California and Florida. Revenue from Verizon was $55.6
million during the quarter, up from $2.7 million in the year ago quarter. At
over 24% of revenue, Verizon is now our largest customer. Additionally during
the quarter we have negotiated updated pricing for Verizon's 2005 plan
necessitated by the need to attract resources adequate to complete this year's
program.
Organic revenue from BellSouth increased over 32% compared to the year ago
quarter and BellSouth was our second largest customer. Revenue from Comcast was
$25.3 million. Comcast was Dycom's third largest customer for the quarter at
$11.3% of revenue, down from 19.4% in the previous quarter. Year-over-year
revenue as expected was down for Comcast while revenue for both Charter and
DIRECTV increased.
Employee head count decreased during the quarter by 480 to 7982 at the end of
the quarter, reflecting normal seasonal patterns. During the quarter we
continued to book new work. For BellSouth, multi-year extensions to our Rome,
Savannah and Atlanta, Georgia contracts as well as our Birmingham, Alabama
contract. For Verizon, FTTP work in the Portland, Oregon area, as well as work
in New Hampshire. For Cox business projects in Southern California and for
Charter projects in Texas and New Mexico. Dycom demonstrated our continued
stability and our ability to profitability respond to emerging growth
opportunities.
First and foremost we maintain solid customer relationships throughout our
markets. Secondly the strength of those relationships and the value we can
generate for our customers has allowed us to be at the forefront of rapidly
evolving industry opportunities. We remain encouraged by a growing and
accelerating commitment by three RBOC's to deploy fiber deeper into their
networks. We see these commitments as evidence of a sustained cycle of dramatic
increases in growth capital expenditures is commencing.
In fact it is increasingly evident that we're seeing the real beginning of the
oft foretold rewiring of the nation's telecommunications infrastructure in order
to dramatically expand the provisioning of bandwidth and the delivery of new
service offerings. And finally we've maintained our superior relative financial
strength. As the economy continues to expand and our industry begins to see an
upsurge in growth, we believe Dycom's fundamental strength will allow us to
remain one of the best-positioned firms in our industry, able to exploit
profitable growth opportunities where others may be constrained.
Having been prudently managed during our industry's downturn, we look forward to
the prospect of a potentially significant growth. After weighing all the factors
we have discussed today, we have updated our forecast as follows. For the third
quarter of fiscal 2005, we anticipate earnings per share of $0.23 to $0.28 on
revenues of $235 million to $250 million. This outlook anticipates continued
solid growth in the US economy, normal seasonal weather. Sarbanes-Oxley 404
implementation expenses of approximately $0.02 per share, declining spending by
Comcast as it has completed its AT&T broadband upgrades, and a prudent
assessment of increasing revenues and margins from our Verizon fiber to the
premises opportunity.
Looking beyond the third quarter we anticipate earnings of $0.35 to $0.45 per
share on revenues of $275 to $295 million for the fourth quarter of fiscal 2005.
Our expectation for the fourth quarter is based upon the continued impact of
those factors cited above. At this point I will turn the call over to Dick Dunn,
our CFO. Dick.
- --------------------------------------------------------------------------------
Richard Dunn - Dycom Industries, Inc. - SVP & CFO
Thanks Steve. Before I begin, let me point out that during the second quarter of
the prior fiscal year we recorded an after tax gain on the sale of certain
long-term receivables of $6.8 million or $0.14 per share fully diluted. Unless
otherwise
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 2
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
noted, my discussion will eliminate the impacts of this gain. A reconciliation
of these amounts to our GAAP net income including the gains has been provided
in the table in yesterday's press release which is available on our website.
Contract revenues for the current quarter were $224.5 million, up 14.3% from
last year's Q2 of $196.4 million. Organic revenues for the quarter were down
3.1%.
Contract revenues for the 6-month period ended January 29, 2005; increased 24.3%
to $487.7 million versus fiscal year 2004 revenue of $392.4 million. Organic
revenue activities for the 6-month period was up 1.5%. For the quarter, the top
5 customers accounted for 64.3% of contract revenues versus 66.8% for the prior
year's second quarter. For the 6 months ended January 29, 2005 sales for the top
5 customers as a percent of the total was 63.6% versus 68.2% for the prior year.
The top 5 customers and their respective percentages for Q2 of fiscal year '05
and 2004 are as follows. For fiscal year '05, for Verizon 24.8%, BellSouth
16.7%, Comcast 11.3%, Sprint 7.4% and Quest 4.2%. And for Q2 of fiscal year
'04, Comcast at 30.1%, BellSouth 13.2%, Sprint 11.0%, Adelphia of 7.2%, and
Quest 5.9%. Net income for the second quarter was $7.4 million versus $9.6
million in fiscal year '04. Net income for the 6 months ended January 29, 2005
was $23.0 million versus last year's $23.6 million. Fully diluted earnings for
the quarter were $0.15 per share versus $0.20 per share in the prior year's
second quarter. Fully diluted EPS for the 6 month period ended January 29, 2005
was $0.47 per share versus last year's $0.48 per share.
Operating margin for the second quarter decreased 296 basis points coming in at
4.82% versus last year at 7.78%. This decrease was due to a 404 basis point
increase in cost of revenues a 10 basis point increase in depreciation and
amortization offset by a 118 basis point decrease in general and administrative
costs. Operating margin for the 6 month period decreased 213 basis points,
coming in at 7.40% versus last year's 9.53%. This decrease was due to a 408
basis point increase in cost of revenues partially offset by 170 basis point
decrease in general and administrative costs and a 25 basis point decrease in
depreciation and amortization.
The effective tax rates for the quarter and 6 month period were 39.5% for both
and 38.2% and 39.4% respectively for the prior year's period. Net interest
income for the quarter and 6 months period was $192,000 and $146,000
respectively versus net interest expense for the prior year's quarter of
$284,000 and net interest income for the prior year 6 month period of $34,000.
This change was primarily due to increased cash and investment balances. For the
quarter, our cash flow from operating activities was $51.8 million. The primary
components of this cash flow were net income of $7.3 million, depreciation and
amortization of $12.8 million, and reduction to working capital and other assets
of approximately $32.7 million.
Investing activities consisted of capital expenditures of $20.9 million
partially offset by proceeds from the sales of assets of $1.5 million resulting
in a net use of $18.7 million. Financing activities for the quarter generated
$1.3 million. The components of this amount were proceeds from the exercise of
employee stock options of $2.4 million, partially offset by principal payments
on note payable of $1.1 million. Cash and short-term investments at the end of
the quarter were $71.2 million, up $33.7 million from the prior quarter.
During the quarter receivables dropped from $158.6 million to $115.6 million
resulting in a DSO of 46.9 days versus 54.8 at the end of the first quarter, a
decrease of 7.9 days. Net unbilled revenue balances dropped in the quarter from
$63.8 million to $53.7 million, resulting in a DSO of 21.8 days, essentially
unchanged from Q1's figure of 22.1 days. On a cumulative basis, the combined DSO
for our trade receivables and unbilled revenues decreased from 76.9 days to 68.6
days, a decrease of 8.3 days.
At January 29, 2005 accruals for our self-insured casualty programs decreased to
$48.3 million from $48.8 million at October 25. During the current quarter,
revenue from multi-year master service agreements represented 55.4% of contract
revenues versus 47.1% for Q2 of the prior year. Revenues from long-term contract
and multi-year master service agreements represented 87.9% of contract revenues
versus 87.7% for Q2 of the prior fiscal year. Steve.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Now Linda, we will open the call for questions.
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
Operator
Thank you.
[Operator Instructions].
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 3
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Our first question will come from the line of Genet Gordon (ph) from Merrill
Lynch. Please go ahead.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Good morning.
- --------------------------------------------------------------------------------
Richard Dunn - Dycom Industries, Inc. - SVP & CFO
Good morning.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Good morning.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Hi. The guidance going forward implies that margins in the second half of the
year, while they will be recovering, will be down year-over-year. Is this all
really related just to the ramp up costs for Verizon?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think it's related to the ramp up and the fact that the magnitude of the
program that the guidance implies is very substantial. And so we're going to
have some expenses to grow the business.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Okay and how much training was has been -- cost for training has been incurred
year-to-date? How was expected in the future?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, we don't break out the isolated impact of training expenses, and we don't
do that because it really has two impacts. One it's a part of growing the work
force and two, the issue is not only the direct training expenses but their
impact on productivity, which is harder to quantify and because we have been in
this business and we have been through growth cycles before, we know that over a
6 month to 9 month period that those expenses will regress back to a normal
level. But to sit there and say that it was "x" basis points or "y" amount of
dollars as an isolated impact, I do not think that is important to understand
because it is hard to isolate out the impact on productivity.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Is it fair to assume that the third quarter will be the last quarter that the
training expenses will be incurred?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We're ramping revenues, so there is always an element of training expense. We
think those expenses will be offset as we get into the best part of the
construction season in the fourth and first quarters of next year.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Where do think margins can go? You talked about 24. Is that a realistic goal?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We feel comfortable with the level of pricing that we have been able to secure
for 2005. That is a reasonable expectation.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Okay. My last question, how much of an impact was weather?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
You know my sense was that while it was pretty wet on the west coast and there
was some impact in California, the rest of the country experienced what I would
call normal seasonal weather. It does not help when you get a snowstorm and the
ground construction is halted as folks in the mid-Atlantic and Northeast
probably understand today. Our sense was that it was not significantly different
from what we expected.
- --------------------------------------------------------------------------------
Gina Gordon - Merrill Lynch - Analyst
Thank you.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 4
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Operator
Our next question will come from the line of Alex Rygiel from Friedman Billings.
Please go ahead.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Good morning. Steve very early in your opening comments, you suggested or stated
that in some respects the quarter was disappointing. Could you expand upon what
was disappointing in your mind?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think the expenses we saw it as we ramp down some of the Comcast work was more
than we expected. We had a sequential decline in revenues from Comcast that was
expected, but when you drop from $57 million to $25, $26 million, there were
some costs associated with that that I wish we had done a better job of
anticipating. The offset to that is the amount of capital spending that we did
and the organic growth that we did with BellSouth was encouraging.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
With regards to Verizon, you mentioned you negotiated pricing with them. Does
this lead to any business that had been in your backlog to be pulled out of
backlog?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
The backlog, other than using the same methodology to calculate it, was
consistent with the same list of projects. As we also mentioned, we were able to
secure some additional work in Oregon.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
You mentioned in the last conference call that your backlog is not related to
Verizon was through 2005 and you were including November and December of 2004 in
the 12 months of 2005. How are you calculating Verizon in terms of backlog
today?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We're calculating it at the same way. As for the end of the January quarter,
there were 11 months of expected backlog from Verizon. Nothing that extended
past that.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Can you provide an update on SBC and BellSouth for their fiber and communicating
with the company? Have they let any project work out?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
With BellSouth, our best information at this point and certainly the level of
activity that we are experiencing and the number of crews that we had to add
during the quarter and we're continuing to add is indicative that their capital
spending plans are up. They are up for the type of work you expect to see to
support fiber to the node but they are also up to support regional economic
growth. There were essentially no market share gains year-over-year, so when you
see this same set of contracts produce over 30% revenue growth, that is a
significant ramp up in BellSouth activities.
Secondly, with regard to SBC, the pace of activity that they are generating
through their normal channel for securing outside services has increased. We
have seen that impact in those limited areas where we participate in that
market. We have also seen some expense-- expected or have had some discussions
about some expansion in their central office work but also support fiber to the
node. I think interestingly, a couple of weeks ago, Sprint indicated that while
they are not committing to a wholesale node build out, they're working on a
trial project somewhere in the country to commence shortly. It seems like all of
the fiber to the node activity is picking up.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
On the last conference call you referenced to customers, MCI and Adelphia. MCI
as it related to fiber reinforcement project in Arizona. Can you give us an
update on that and how it relates to the potential of it being acquired by
another entity and with regards to Adelphia you mentioned that projects are in
the mid phase. Can you give us an update on that?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 5
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Yes, with regards to MCI, the project is moving right along. There have been
some incremental additions to the scope of work. There will be other projects
that we will be bidding from MCI for this fiber reinforcement during this
quarter. Without getting in the middle of who should be the owner of the MCI
assets, I think it's safe to say that the integration of MCI's networks with
whoever winds up as the owner will require them to also spend some additional
CapEx. I know that in their acquisition announcement it was very clear that they
had anticipated a couple billion dollars of capital spending on the MCI
infrastructure.
I think that we would participate in that effort through outside plant and also
through the transmission equipment and installation business that we do with MCI
in a limited way, although that was a much larger business several years ago.
With respect to an Adelphia, there were some projects that they proceeded with
and we picked up what we considered to be our fair share. I think that it played
out as expected. At this point in time, it appears that the auction process may
take somewhat longer than expected, so we do not expect to see a significant
burst of activity in the near term.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
One last question. With regards to the re-negotiated pricing with Verizon, is
that for all of your markets or is that only new incremental markets? When is
the pricing going to affect?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
No that was effective for all of the markets nationally. It was effective with
new projects that commenced after January 1, new work orders.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Thank you.
- --------------------------------------------------------------------------------
Operator
We have the question now from the line of Paul Russell (ph) from PR Capital.
Please go ahead.
- --------------------------------------------------------------------------------
Paul Russell - PR Capital - Analyst
Good morning. A little bit different take here as I am a hedge fund manager. My
concern is with the stock. Your issue is down 30% from November and you're going
to take another 8% to 10% haircut on the opening. What precludes you from
implementing a buyback or paying a dividend to at least give some confidence to
the street that you think this currency is undervalued?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
There is nothing that precludes us from a share repurchase or dividend. Our
board is always looking at both of those initiatives as appropriate. I think
Paul from our perspective, as we look forward to the business that we see going
out and the organic growth that we anticipate for both of third and fourth
quarters and hopefully in to our next fiscal year, we're going to have adequate
uses of the capital internally that will generate returns that will eventually
be reflected in the share price.
- --------------------------------------------------------------------------------
Paul Russell - PR Capital - Analyst
Thank you.
- --------------------------------------------------------------------------------
Operator
[Operator Instructions].
Our next question comes Alan Mitrani from Copper Beech Capital. Please go ahead.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Thank you. Can you give us the rest of the top-10 customer list-maybe DIRECTV,
Charter, some of the others?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Dick will give us the top 10 for the quarter.
- --------------------------------------------------------------------------------
Richard Dunn - Dycom Industries, Inc. - SVP & CFO
Below Quest we had DIRECTV at 8.2 million, Charter at 7.9, Alltel at 9.4,Texas
Utilities at 3.2, and Adelphia at 2.7.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 6
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
I'm sorry, 2.7?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
2.7.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Did you do any additional work for Bright House this quarter?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think they were number 11 Alan, the normal run rate for us with them, about
1.7 million.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
On the Verizon pricing increase, what percentage increase did you get
year-over-year?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We're not going to get into the substance of the negotiations with Verizon.
Other than to say that we felt that it was set at a level that would allow us to
earn acceptable margins and attract the necessary resources to get a very
substantial program.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
On Sprint sequentially went down about $5 million, up 25%. It seems a little
more than seasonality given some of the business you picked up last year. Was
there a slowdown from Sprint spending given the merger?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Yeah. I do not know if it was due to their merger. They have indicated in their
communications with the street that they see lower local telephone spending in
the near term. That may be impact in part coupled with the growth initiatives
that they have disclosed that they are analyzing. There were no changes in
market share. It was just a somewhat slower quarter based on what they wanted to
get done.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
In response to the other question, you have talked about margins going up. A
similar thing happened last time we came around with a big company transition.
You talked about 24.5% gross margins. Did you say calendar 2005 for that?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
No, I believe-- and I do not exactly recall what the exact question was, but in
terms of the margin expectation, when we get to a steady, solid business that is
an expansion phase, which we see, if not by the fourth quarter, by the first
quarter of fiscal 2006, there is nothing about this business that would imply
that it has a lower margin embedded in it than anything else that we have done.
The focus from our perspective internally was managing the downturn in Comcast
during the quarter when we had a $25 million plus sequential decline more than
the expenses associated with the ramp up, particularly after the adjustment to
pricing that we received in January.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Using a fiscal number somewhere around $115 million or so for Comcast, is that
good, dropping from 51 the first to 25 and leveling out at about 17 to 20 per
quarter?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We have said before that we would look at $15 million to $20 million as a run
rate. Based on what we see, that seems reasonable.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
CapEx-- this is the biggest CapEx quarter I think I've seen in years for you.
You are up about 140% on top of 100% increase last year on a calendar basis. Can
you give us your sense on what you see CapEx for this year and maybe next year?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We had talked about $35 million to $40 million net of disposals. That implies
that as we rotate to more underground construction that will be surplusing some
of the aerial construction equipment that we use primarily for Comcast. Based on
what we're seeing for growth out of BellSouth and
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 7
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Verizon, there may be a slight upward bias to the fiscal year number in terms of
what we expect to spend for CapEx. We never felt bad about any CapEx that we
ever had to make to support growth with BellSouth, and we feel comfortable that
the same will be true with Verizon.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
I will get back in queue. Thank you.
- --------------------------------------------------------------------------------
Operator
Our next question comes from the line of Mark Degenhart from Oppenheimer
Capital. Please go ahead.
- --------------------------------------------------------------------------------
Mark Degenhart - Oppenheimer Capital - Analyst
Good morning. I wondered if you could talk about your top 3 customers and give a
sense of trends with regard to how much work of this nature they are doing
internally compared to out sourcing to larger companies like yours compared to
sending to mom-and-pop? Could you give us a sense of the mix of that for each
of the 3?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We will do our best. There are no published numbers on any of the information
you are requesting. We will do what we can. With respect to Verizon primarily on
the fiber to the premise program that we're performing for them, what was
historically in the old Bell Atlantic prior to the GTE merger, they
predominantly outsourced all of the Underground Construction, a portion of the
engineering, and a minor amount of aerial construction. That has generally gone
to larger firms such as ourselves or some regional private firms. In what
historically was GTE, where they have more flexibility in terms of the work
rules, they outsource a substantial portion not only of all the other activities
that were listed but also fiber placement and splicing.
In that area, they tend to use large firms and what I would call mid-size
regional firms. They do not use traditional mom-and-pop companies. With respect
to BellSouth, they do not perform for the most part any underground construction
or placement of poles or the placement of aerial cable, and they have outsourced
that historically to not only ourselves, to other public companies, and a series
of private regional firms. In terms of aerial construction, they do not do any
of that with outside sources because of their union agreement. With respect to
Comcast, for preconstruction, they do very little if any of that internally. In
terms of new build, a planned extension, and other capital activities, they also
do a very little of that with their own work force. Does that answer your
question, Mark?
- --------------------------------------------------------------------------------
Mark Degenhart - Oppenheimer Capital - Analyst
Could you just add SBC into the equation?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Yeah, SBC once again because they have different work rules from the acquired
entities, the historic Southwest Bell used contractors for all activities.
Essentially all of the underground and a portion of the aerial and splicing. In
California, they do all of the underground historically with outside vendors.
Less with outside vendors with aerial construction. And in Ameritech, it is
similar to the historic California arrangement. That portion of what they have
that is underground historically has always been done by outside vendors.
- --------------------------------------------------------------------------------
Mark Degenhart - Oppenheimer Capital - Analyst
And with that portion, what is your sense of mix between the larger versus
mom-and-pop?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think there are several things that are going on that have encouraged
generally the use of larger vendors because the programs are significantly
larger than they have been in the past. Given some of the industry difficulties
over the past 3 or 4 years where there has been both capacity and private firms
that have exited the business, I think they are using larger vendors. The
general exception to that rule would be that SBC has generally used a channel
that relied more on small mom-and-pop.
They've been very comfortable with that; it works for them in their view. We
will see as their needs increase significantly if that changes.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 8
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Mark Degenhart - Oppenheimer Capital - Analyst
Last question. To what extent do mergers in the industry-- to what extent have
they had any impact on your forward guidance?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
In terms of any of the long-distance mergers, and our view is that those events
will have no impact on their growth initiatives with regard to broadband or
video. Because I just do not think that anybody who is participating there from
Verizon or SBC has capital constraints to execute on their 2005 or 2006 plans.
It does not seem to be an issue in our view.
- --------------------------------------------------------------------------------
Mark Degenhart - Oppenheimer Capital - Analyst
Thank you.
- --------------------------------------------------------------------------------
Operator
We have a question now from the lineup Mark Bishop from Boston & Company. Please
go ahead.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
A couple of things. First, just to clarify, you said you get normal margins by
the first quarter, first fiscal quarter of 2006.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think we can expect-- when we say normal margins, what we're talking about is
given the level of the activity in the ramp up, we think that those kinds of
margins are attainable. We would like to do better. And historically in the
right environments we have done better.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
What you consider to be a range of normal margins?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
It depends on where we are in expansion cycle. Normal margins historically have
been anywhere from 24 to 25% on the gross margin line. We have added locating
business, which has somewhat less gross margins because it is not near as
capital intensive. On the other hand, we feel comfortable that given the
magnitude of the programs, we will be able to see margins as we did in prior
expansion cycles in the 1990's.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
Your G&A is kind of flatish year-over-year. Is there any reason why as revenue
grows or ramps up in the next couple of years, how much higher does General and
Admin have to go up to support that?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
You have to grow your G&A to make sure you maintain tight control over the
business. The bigger issue in the near term is going to be the implementation
costs that we have going for 404 implementation costs. We have factored that in.
Once that process is over, and it becomes part of the regular framework, we
would hope that we would grow G&A sufficiently to keep tight control of the
business. But that it would not grow as quickly as revenue. You should be able
to get some G&A leverage in this business.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
All right. So if revenue were to grow 30%, after you get rid of the 404 stuff,
if revenue grew 30%, does G&A have to grow more than a couple million dollars?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Are you talking on a quarter basis?
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
Yes.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
That is reasonable. When we pull more revenue through our existing business
units, we're not going to add any essential subsidiary corporate costs. We're
going to add some additional safety people and other things that we need to do
to make sure that it is kept tightly under control. But I would hope-- if you
look Mark, at our fiscal 2004 compared to fiscal 2003, we grew the business over
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 9
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
$50 million in revenue and G&A went up 5 million on an annual basis.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
Okay that is great. And then the other thing is on depreciation and
amortization, as you ramp the revenue I guess you have to spend a little bit
more money. I was wondering if that has already happened or if there is a good
slug of more D&A growth that is coming from your recent planned expenditures?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Certainly we're going to spend some more money to do it because we generally
depreciate assets over a 60 month period. There is some lag from when you buy to
when they show up in the full quarter. It is not going to grow as dramatically
as the CapEx is. We also have assets that we acquired in 2000 that will be
rolling off over the next couple quarters also.
- --------------------------------------------------------------------------------
Mark Bishop - Boston & Company - Analyst
Okay. That's great. Thanks very much.
- --------------------------------------------------------------------------------
Operator
We have a question now from David Lieberman from South Point Capital. Please go
ahead.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Good morning. I was wondering, which quarter do you expect Verizon revenue to
sort of reach a peak?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
That is a function of the number of homes passed that they decide as the
corporate goal. As I understand their public statements on that, they would like
to continue to grow the number of homes passed each week throughout the year. We
certainly will have a seasoned impact due to the fact that--seasonal impacts due
to underground activities in certain parts of the country have to be reduced or
stopped during the winter. Based on what Verizon has indicated in the last
couple of months, I think they would like to have that number accelerate
throughout the year.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
When you characterize that Q4 work you did for Verizon as a 1 million households
workload, or was that more of a 2 million household workload?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
As best we can tell, that number will have to expand, the amount of work we
completed during that quarter will have to expand significantly in order for
them to hit their current expectation for homes passed for 2005.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay. What percent of your backlog is Verizon?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We have generally David, not commented on specific customers in the backlog
because there are of varying maturities of the contract. There has been some
Wall Street estimates that would look at numbers that are reasonably close to
what we would expect. We cannot get into comparing 11 months of backlog with
Verizon compared to 50months on a new BellSouth contract.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Understood, and was the Verizon work won through a Bid process?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, we originally went through a process in the fall of 2003 that culminated
in a contract in 2004. That contract had a provision for revisiting pricing to
reflect market conditions. That is what we did in the November/December period.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay, so there's work there that was not inside the contract and therefore some
work had to be rebid?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 10
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, I mean there was a process by which we jointly established what the fair
market price was. But it was within the confines of that agreement.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay, great. The last question, the sequential guidance. About $10 million to
$20 million in growth, is that just a seasonal move, or what is the expectation
there? Is it Verizon growing?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
You have more workdays in April. So you certainly have some seasonal impact.
Generally our customers like to get out of the gate on the telephone side of the
business early in the year to address their capital spending plans. We continue
to see that based on what we see as a run rate with Comcast. We will see that
continuing to decline, offset by an expansion in the revenue earned hopefully
with Verizon.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay. Thank you very much.
- --------------------------------------------------------------------------------
Operator
You have a follow-up question from the line of Gordon (ph) from Merrill
Lynch. Please go ahead.
- --------------------------------------------------------------------------------
Gordon - Merrill Lynch - Analyst
How much did RJE Telecom contribute to the quarter?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Once we own them, we have not generally broken out by individual subsidiary what
they have contributed. I think we can safely say that organic growth was down
about 3% year-over-year. So when you back out the impact of R.J. E along with
the partial year for First South, we are about flat for year-over-year.
- --------------------------------------------------------------------------------
Gordon - Merrill Lynch - Analyst
Thanks a lot.
- --------------------------------------------------------------------------------
Operator
We have a follow-up question from the Alan Mitrani Copper Beech Capital. Please
go ahead.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Thank you, I missed it earlier. What was your backlog from Verizon for this
coming year?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Alan, we have not commented publicly about that portion. Suffice it to say since
overall backlog was up slightly, although we had some significant new bookings
with BellSouth, the fact that we are only using Verizon through December 31,
2005, and the overall backlog did not command that the number of months in the
calculation went down, one can assume that it held steady.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Last time this happened when Comcast ramped up from 40 million to 55 million a
couple of years ago, your margins bottomed at 18.8% and then jump a couple
hundred basis point as you got the project going. You've got a lot of wire
centers open. It seems like your guidance anticipates the same thing, margins
bottoming at 19% with a couple basis point expansion of Verizon is up into the
50s and hopefully 60s or more and Comcast is taken down. Do we need to wait a
quarter or 2 more, or is it similar to a couple of years ago?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think the only issue that is somewhat different is when we came out of the
recession in to the Comcast contract, the rest of the business had contracted
too so that all of the upside of Comcast came through. In this case, what we had
to manage in this quarter and will have to manage year-over-year, we have
rotation where Comcast rotation is coming down and Verizon and BellSouth and
other phone companies are going up. We did not have any customers a couple of
years ago that were still declining.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 11
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
That is better here or worse?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
It just means that we have got to get to the steady run rate with Comcast. On a
year-over-year basis, we will have to work through that. It just means that the
growth that you are seeing on the telephone side is not as apparent as it was a
couple years ago with Comcast.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
On DIRECTV, can you give us our sense of the battle between satellite and cable.
Are you seeing DIRECTV expand their base and getting more business? Can you just
give us a sense what you are seeing from this satellite?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, we have limited involvement with them. It has been a good business for us.
You can look at the subscriber ads in the fourth calendar quarter that have been
disclosed publicly. They seem to be adding customers.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Can you talk about-- I realize uses of cash have gone to acquisitions and CapEx
and rarely to buy back stock. It seems like your stock is trading, if you
believe the outlook, at about 6 times EBITDA. Can you give us a sense of what
your cash needs may be in the future? Do you need to make more acquisitions to
get exposure to SBC or other vendors?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, we're going to be opportunistic about acquisitions. We do not have to do
anything. We have a good nationwide footprint and feel like we can be responsive
to our customers if the right acquisition comes along. We certainly have the
cash and the balance sheet to accomplish a good acquisition. From that
perspective, I do not think that where our share price is at is going to
influence our long-term strategic view of what acquisitions make sense. We do
see organic growth of the base business for the out quarters and then into next
fiscal year that will require us to spend capital dollars. While I think that we
are very pleased that the DSO is below 70 days, which we have not seen in almost
8 years in our mix of business and mix of receivables, I do not want a quarter
where sequentially we have declining revenues so we were able to bring our
working capital back in this case to necessarily be confused with an opportunity
where we're going to have the ability to grow the business but we will also use
working capital as we do it.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
And lastly, normally you accrue for bonuses in the fourth quarter. Given your
expectations, it looks like you may only grow earnings fiscal year-over-year
less than 10%. Would that result in large bonuses in the fourth quarter?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We are missing-- what you're missing is we accrue for bonuses throughout the
fiscal year. To the extent the results are less supportive of wherever the
accrual is, it is adjusted on a quarterly basis. It is not like we wait until
the end and then take it all through. I would not necessarily think that you
would see any G&A adjustments driven one way or the other in the fourth quarter
for the whole year. Does that answer your question?
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Yes, it does. Thank you.
- --------------------------------------------------------------------------------
Operator
We have a follow-up question from Alex Rygiel from Friedman Billings. Please go
ahead.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Few questions. First, Steve as it relates to Comcast you mentioned you expect it
to be down in the fiscal third quarter. Do expect it to be down sequentially?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 12
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Yeah, absolutely. If we are implying a run rate of 15 to 20 million and we did
almost 26 in the January quarter, it is going to be down.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Fair enough. And then secondly, your stock is trading around 22 today. It has
not been at this level since August of 2003, which was way before Verizon's
fiber to the premise initiative was announced from Verizon. Can you comment on
what you think is missing as it relates to your business today?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
For me to try to figure out what the market is missing or seeing or
overemphasizing. The way we look at it, we have got a great business here that
while we have had to manage through transition, we have a good outlook, a
substantial piece of the largest program that our industry has ever seen. We
have margins that while lower than we would like to see have every opportunity
to expand. When we make money, we throw off cash.
From my perspective, since we get to look at it from a long-term view and not
where it is trading at the moment, this is a better time to manage this company
than we have seen in a 5, 6, 7 years. From that perspective, we will let the
market figure out how to appropriately discount the future from today. From our
perspective, particularly on a relative basis to our peers, we feel pretty good
about where we sit right now in the industry.
- --------------------------------------------------------------------------------
Alex Rygiel - Friedman Billings - Analyst
Thank you.
- --------------------------------------------------------------------------------
Operator
You have a follow up question from the line of David Lieberman from South Point
Capital. Please go ahead.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Just on the Comcast work, did they give you that stability, that kind of revenue
that can come from them, or is that your best guess?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
They are a big company and have lots of operations around the country. This is
the locating business we do with them, some of the recurring maintenance and
planned extension business, based on what we are seeing from them on a local
basis every day that is how we have developed the estimate.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Got you. What may be granular, but how much, what percent could locating be of
the ongoing revenue stream from Comcast?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Probably 2, 3 million. I think I have that number. 2 Million to 3 million of
quarter.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
17 to 20?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
15 to 20.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Sorry. On the big project to one from Verizon, was that based on the full
rollout for 5 years, your market share staying the same with them?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
In terms of backlog or forecast?
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
In terms of ongoing work.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
They have a 5-year view to the program. The term of the underlying contracts
have been 5 years. But our view as to backlog has been limited to this calendar
year just to be
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 13
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
prudent because it does not do anybody any good to look at the out years of a
project where they basically are overbuilding their existing infrastructure with
a new network until we get more comfortable as they go through their annual
budget cycle.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Understood. The heart of my question would be, it looks like you have a very
substantial share of their work this year. Is that the kind of market share we
can hope for if the Verizon's project continues going forward?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, with regard to market share, you know obviously if the project does not go
forward, market share will be zero along with everybody else's. But we are very
comfortable that as long as we do our jobs every day, and this is an execution
business, but if we do our jobs everyday that we will be able to sustain a fair
portion of the work that they have to get done and it will be substantial.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
And the last question do they bid -- have they continuously just put out more
work as the year goes on?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
The issue with a program this large is that there is a substantial portion of
work for engineering and permitting that has to be done before we see the
construction activities and so those are activities that they have to ramp up
both through the use of outside vendors and their own people. And they work hard
at it every day, but it's a large task all over the country. And the permitting
is to some degree -- relies upon their relationships with a lot of different
municipal and county governments. And it sometimes takes a bit of time to build
up pipeline.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay is it possible just because of work -- it sounds like we got updated
pricing. Did that make us maybe more or less competitive on any you know new
work that was coming out from Verizon?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
We feel comfortable that the level of unit activity was not impacted one way or
another by the pricing.
- --------------------------------------------------------------------------------
David Lieberman - South Point Capital - Analyst
Okay. Thank you very much.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Linda, we will take one more question if there is one.
- --------------------------------------------------------------------------------
Operator
All right. Then our last question will come again from the line of Alan Mitrani
from Copper Beech Capital. Please go ahead.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Hi, obviously sometimes I feel like I am the only guy on the call, but I know
this time I am not. Do you view '05 maybe just a different question but do you
view '05 as a transition year on your way out of fiscal '06 and '07, or do you
feel that, looking at your competitors, that maybe some of them are better
positioned to win work from you and you're just going to grow with the market?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, I think we have got a pretty substantial market share of '05. I think the
market itself is going to continue to grow. And then over time, we have been
able to strike the right balance between market share and margin. And I mean we
will continue to do that going forward. But I don't perceive that there are any
dynamics in the marketplace that are impacting you know negatively our
competitive position. If anything if you look at our ability to generate
operating cash flow, the balance sheet and the amount of available credit
facility that you know we have more liquidity for growth than anybody else does.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Are you finding that, that matters?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 14
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I think on the margin it does matter. I think these programs are large. I don't
think that customers necessarily you know look at somebody's income statement
before they put them on a bid list. But you know there are fundamental issues
when you see significant growth but you have to have the availability of capital
to fund both the working capital and the equipment purchases and cost of capital
ultimately matters. It may not matter you know one day, but it certainly matters
over a period of time.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
And last question if I can. It looks like given your good working capital
management; it looks like free cash flow will be greater than net income for
this year. Am I wrong to think that?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
It depends Alan if the offset to the Comcast receivables' coming in is offset by
the working capital buildup that the higher revenue guidance implies.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
And you have not gotten paid this year on the Touch America settlement yet?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
No actually we have received that cash.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
I hope you received that cash. How much was that?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
I don't know that we ever publicly disclose the number Alan, but it was about
$6.5 million. Dick.
- --------------------------------------------------------------------------------
Richard Dunn - Dycom Industries, Inc. - SVP & CFO
That's correct.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
And did that come in this quarter or was that last quarter?
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
That came in this quarter.
- --------------------------------------------------------------------------------
Alan Mitrani - Copper Beech Capital - Analyst
Thank you very much.
- --------------------------------------------------------------------------------
Operator
And Mr. Nielsen we have no further questions at this time. Please continue.
- --------------------------------------------------------------------------------
Steven Nielsen - Dycom Industries, Inc. - President & CEO
Well, Linda I want to thank everybody for their participation on the call. And
we will talk to you again at the end of May with our April results. Thank you.
- --------------------------------------------------------------------------------
Operator
And ladies and gentlemen that does conclude our conference for today. We thank
you for your participation and for using the AT&T executive teleconference
service. You may now disconnect.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 15
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
F I N A L T R A N S C R I P T
- --------------------------------------------------------------------------------
DY - Q2 2005 Dycom Industries Earnings Conference Call
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
D I S C L A I M E R
------------------------------------------------------------------------------
Thomson Financial reserves the right to make changes to documents, content, or
other information on this web site without obligation to notify any person of
such changes. In the conference calls upon which Event Transcripts are based,
companies may make projections or other forward-looking statements regarding a
variety of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a number
of important factors and risks, which are more specifically identified in the
companies' most recent SEC filings. Although the companies may indicate and
believe that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate or incorrect and,
therefore, there can be no assurance that the results contemplated in the
forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF
THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE
AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR
INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO
WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY
FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED
ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE
APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC
FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
-------------------------------------------------------------------------------
(c)2005, Thomson Financial. All Rights Reserved.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THOMSON logo] streetevents@thomson.com 617.603.7900 www.streetevents.com 16
- --------------------------------------------------------------------------------
(c) 2005 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.