Good day, and thank you for standing by. Welcome to the Dycom Industries, Inc. Third Quarter Fiscal 2024 Results Conference Call. [Operator Instructions] Today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Steven Nielsen, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Thank you for attending this conference call to review our third quarter fiscal 2024 results. Going to Slide 2. During this call, we will be referring to a slide presentation, which can be found on our website's Investors Center main page. Relevant slides will be identified by number throughout our presentation. Today, we have on the call Drew DeFerrari, our Chief Financial Officer; and Ryan Urness, our General Counsel. Now, I will turn the call over to Ryan Urness.

Thank you, Steve. All forward-looking statements made during this conference call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events. These forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from current projections, including those risks discussed in the company's filings with the U.S. Securities and Exchange Commission. Forward-looking statements are made solely as of the original broadcast date of this conference call, and we assume no obligation to update any forward-looking statements. Steve?

Thanks, Ryan. Now moving to Slide 4 and a review of our third quarter results. As we review our results, please note that in our comments today and in the accompanying slides, we reference certain non-GAAP measures. We refer you to the Quarterly Reports section of our website for a reconciliation of these non-GAAP measures to their corresponding GAAP measures. In addition, the impacts of the change order and the closeout of several projects increased contract revenues by $26.5 million during this quarter. After the impacts of certain other costs, all of these items contributed $23.6 million to both gross margin and adjusted EBITDA. As a result, reported gross margin was increased by 1.6% and reported adjusted EBITDA was increased by 1.8%, both as a percentage of contract revenues. On an after-tax basis, these items contributed approximately $17.5 million to reported net income or $0.59 per common share diluted. Now for the quarter. Revenue increased year-over-year to $1.136 billion, an increase of 9%. Organic revenue grew 4.6%. As we deployed gigabit wireline networks, wireless/wireline converged networks and wireless networks, this quarter reflected an increase in demand from 4 of our top 5 customers. Gross margin was 22% of revenue, increased 358 basis points compared to the third quarter of fiscal 2023. General and administrative expenses were 7.7% of revenue, and all of these factors produced adjusted EBITDA of $166.8 million or 14.7% of revenue and earnings per share of $2.82 compared to $1.80 in the year ago quarter. Liquidity was ample at $464.1 million. And finally, during the quarter, we completed the acquisition of Bigham Cable Construction. Now going to Slide 5. Today, major industry participants are constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are generally designed to provision gigabit network speeds…

Thanks, Steven. Good morning, everyone. Going to Slide 8. Contract revenues were $1.136 billion, and organic revenue increased 4.6%. Revenue from our recently acquired business was $45.2 million in the current period. Adjusted EBITDA was $166.8 million or 14.7% of contract revenues compared to $114.6 million or 11% of contract revenues in Q3 '23. The impacts of a change order and the closeout of several projects increased contract revenues by $26.5 million in Q3 '24. After the impacts of certain other costs, these items contributed $23.6 million to both gross margin and adjusted EBITDA. As a result, reported gross margin was increased by 1.6% and reported adjusted EBITDA was increased by 1.8%, both as a percentage of contract revenues. On an after-tax basis, these items contributed approximately $17.5 million to reported net income or $0.59 per share. Compared to Q3 '23, gross margins increased 358 basis points, resulting from the 160 basis point impact of the change order and the close out of several projects and from improved operating performance. G&A expense was 7.7% of revenue compared to 7.6% in Q3 '23. Net income was $2.82 per share compared to $1.80 per share in Q3 last year. The increase in earnings reflects higher adjusted EBITDA and higher gains on asset sales, partially offset by higher depreciation and amortization, stock-based compensation, interest expense and taxes. Going to Slide 9. Our financial position and balance sheet remains strong. We ended Q3 with $500 million of senior notes, $319.4 million of term loan and $154 million of revolver borrowings. Cash and equivalents were $15.7 million and liquidity was ample at $464.1 million. Our capital allocation prioritizes organic growth, followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage. Going to Slide 10. Cash flows used in…

Thanks, Drew. Moving to Slide 12. This quarter, we experienced solid activity and capitalized on our significant strengths. First and foremost, we maintained significant customer presence throughout our markets. We are encouraged by the breadth in our business. Our extensive market presence has allowed us to be at the forefront of evolving industry opportunities. Telephone companies are deploying fiber-to-the-home to enable gigabit high-speed connections. Rural electric utilities are doing the same. Dramatically increased speeds for consumers are being provisioned and consumer data usage is growing, particularly upstream. Wireless construction activity in support of newly available spectrum bands continues this year. Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration. Cable operators are increasing fiber deployments of rural America. Capacity expansion projects are underway. Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance and operations business. As our nation and industry navigate economic uncertainty, we remain encouraged that a substantial number of our customers are committed to multiyear capital spending initiatives. We are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team. Now, operator, we will open the call for questions.

[Operator Instructions] And our first question will come from Adam Thalhimer from Thompson Davis.

Steve and Drew. Great quarter. Steve, did I hear you say at a high level, it feels like the concerns around cost of capital are easing?

Yes. I think what I would say, Adam, is if we roll it back a year ago, I don't think people anticipated as significant an increase in interest rates. I think that's basically baked into people's outlooks today. And because they have a clearer view and less uncertainty about where that is and perhaps where it may be in the future, hopefully lower, that things just feel better.

Okay. And then is Bigham Cable performing better than expectations? $50 million of revenue in the winter quarter seems significant. I wonder if you acquired that while they also had a program ramping up?

Well, look, we were pleased with their performance in the October quarter. They came in a little bit better than what we expected when we talked in August. The momentum in the business continues. I think the 1 thing to keep in mind is their service territory is primarily Southeast, so somewhat less seasonal. Not totally immune to seasonal FX, but certainly probably a little bit less than if they were in Minnesota.

Okay. And you're probably going to punt on this, but for modeling purposes, I'm curious where the change order closeout revenue had an impact by customer?

Good prediction, Adam. We're not going to break it down by customer, but I think what we would say is that we've been working through closing out a large customer program, that's been a challenge. And that as we close it out, we think we're going to -- hopefully, we're going to perform better and hopefully, we're going to see less volatility.

Great. Congrats again.

Thank you.

And our next question will come from Brent Thielman from D.A. Davidson.

Great quarter as well. Steve, the gross margin's still up 200 basis points. In fact, we called out change ordering close out this quarter on relatively modest...

Brent, we're having a little difficulty hearing you. If you could speak up a little bit?

How's that?

Much better. Yes, Brent, go ahead.

It looks like Brent is actually disconnected, so we will move on to our next question. And our next question will come from Frank Louthan from Raymond James.

A couple of quick questions. What are you seeing from preorders and so forth from the BEAD programs? Any color there? Anyone feeling confident about that? And then I'm not sure if you'll go into this detail, but Lumen had said they intend to sort of flatline their fiber overbuild at the current rate. If you were -- that's obviously ramped as the year has gone on. What would you consider to be sort of a normalized level of business for them if they were keeping it relatively flat with this year? Would this past quarter be a good baseline for that?

Yes. Frank, with respect to BEAD, we're having lots of conversations with customers about the demand for resources that BEAD will create. I think it's a little premature to get into details. Only a couple of states have kind of navigated their way all the way through the initial process, but it's certainly a topic for conversation. I think the other thing that I would add more broadly about government funding is we continue to see more federal and state dollars committed to the space. I'm sure you're following this enhanced A-CAM program where it looks like the FCC is going to be a fairly substantial amount of capital, something like $17 billion, $18 billion, into at least what we've seen is something like 6,000 or 7,000 additional homes. So I think there's lots of opportunity on the federal and state side not only with BEAD but more broadly. And then I guess what I would say with Lumen, we're not going to go into detail on any particular customer. But based on what they've said publicly in our activity levels, we feel good about next year. There'll be plenty to keep us busy on current plan.

And our next question will come from Alex Waters from Bank of America.

Steve and Drew. Maybe just the first one. With the $26.5 million of the kind of onetime revenue bump, any puts and takes you can provide? And was it a specific customer? Could you give us a little bit more color there? And then maybe just looking into 2024, I think Frontier noted CapEx spend kind of 1 half weighted. Should we expect that as well from some of the other customer conversations you've been having?

Yes, Alex. With respect to the change order, we're not going to provide any detail by customer other than we're pleased that we're working through closing out projects on a large program. And I guess what I would focus on is if you exclude the effect of that activity, we're still at, call it, 12.9% EBITDA margins, a place where we haven't been in a long time, and we feel good about that trend continuing as we close that program out. And as I said earlier, I hope the results get better and less volatile. I think when we get into timing of CapEx by quarter or by year, I think every customer is a little bit different. They have different seasonality in their business, where we work for them seasonally can be a little bit different. And I'm not sure I would extend 1 customer's comments to more broadly for the entire industry. We see plenty of things to do next year.

And our next question will come from Alex Rygiel from B. Riley Securities.

Very nice quarter, Steve. A couple of quick questions. A lot of equipment vendors have seen, anticipated a notable decline in demand for fiber and conduit products. Some of it's obviously likely due to channel inventory corrections. Are you seeing any kind of softness out there that kind of reconciles with what the equipment vendors are saying? And if not, sort of what's your take on that?

Alex, it's a hard one. We certainly pay attention to what goes on on that space. I think your suspicion that it's largely channel-related makes sense. I mean 1 of the interesting and notable numbers for this quarter is if you exclude a couple of customers who were more front half loaded this year and you pull them out of this quarter and the year ago quarter, everybody else was up 30% organically. That everybody else is $900 million, $950 million of revenue. So I think we're seeing a pretty broad level of activity. Clearly, the pandemic changed order patterns for equipment, and I guess the good news for us is we don't import labor so we don't have to figure out what's stuck in the logistics supply chain like they do.

And then on a kind of apples-to-apples basis, comparable basis, sort of excluding maybe a large program that may have been completed now. How do you think about profit margins today? Obviously, your guidance is very strong in the upcoming quarter as it relates to profit margins year-over-year. Is that sustainable? And can we grow from that level?

I think, Alex, another interesting number is if you look at our trailing 4 quarters EBITDA, it's at 11.9%. We have talked for a number of years about getting back to what we had said is a long-term average. We're through it, and I think as we've said before, we're not aspiring to be average so we're going to keep working on improving margins. There's always things that we can do better. There's always new opportunities. And I think that, again, if you look at the demand backdrop -- and maybe take a longer view. It's interesting that as a public company, sometimes we get lots of -- and we, ourselves, think about the business a little bit short term. But if you take a longer view and go back 10 years ago to the 4 quarters ended October of 2013, the company had less than $1.8 billion of revenue and right at $200 million of EBITDA, and for this most recent 4 quarters, it's over $4.1 billion of revenue and almost $500 million of EBITDA. And the EBITDA grew faster than the revenue, which would tell you that margins can grow over time when we take a longer view.

And our next question will come from Eric Luebchow from Wells Fargo.

Steve, you touched a little bit on this in the transcript and you talked about this. You had 2 of your large telco customers that had pulled forward CapEx in early calendar 2023, and you mentioned you saw some telcos that we're starting to see some signs of them ramping. Maybe you could talk about the timing of that? Do you kind of see the Q3 numbers as effectively the bottom and you see activity levels picking up into next year? Or is it still a little bit tough to predict with those 2 customers that we've talked about the last couple of quarters?

Yes. I won't speak specifically to those 2 customers, but I would tell you that we see indicators of growth into next year already in the business. Now we're only halfway through the quarter, but we're seeing projects that are getting released that have been service dates next year, so I think we feel good about that. And again, I think in an environment where people may not like exactly the absolute level of what cost of capital is, but they have a pretty good idea of what it is and what it's going to be and some hope that it may decline over the next 12 months, I think they're feeling good about plans for next year.

Okay. I appreciate that. And I also wanted to touch on -- I know you don't typically speak about specific customers, but you had a big increase in revenue from Charter. I assume the majority of that was from the Bigham Cable acquisition. But maybe you could talk about opportunities for that customer above and beyond acquired revenues in terms of they have a large [indiscernible] program that they're building out in rural America over the next couple of years and they seem to be ramping up CapEx? Is that a customer that we think you have future growth opportunity with above and beyond the Bigham transaction?

Yes. On an adjusted basis, Eric, so excluding the acquired revenues, the growth with Charter was just over 97%, so we're certainly executing well in both the legacy business and the acquired business. We're working hard to meet their expectations, and they have some big plans.

[Operator Instructions] And our next question will come from Avi Jaroslawicz from UBS.

On for Steve Fisher. So you said that as the cost of capital stops increasing so much that you're expecting that the CapEx plans are going to fluctuate less, can you remind us if that's something that you're hearing from customers themselves or just based on your experience?

I think it's primarily based on our experience. But I think when people set budgets, like they did last year, and then for whatever reason, rates increase more than maybe some expected or certainly was at the higher range of expectations, so that makes a tougher year. I think in those -- in that climate, Avi, if you have better weather and you get a little bit ahead of budget, you probably have to work yourself back to the budget line just because costs are a little bit higher on the capital side. I think -- in the current environment, I think people have a good handle on how to budget. I think they're expecting less volatility around cost of capital, and so I think there's more confidence as they move into next year as they execute their plans. Now there's no guarantees. But I think when we highlighted this issue last year, I think we more or less had a view that was borne out by how the year played out, and we're feeling good about the view that we have now.

Got it. Okay. Appreciate that. And then in terms of what you're seeing in the supply chain and labor force, so -- continued to call out limited equipment availability. Has that actually been a constraint on growth or a generalized risk statement? How should we think about that? And I guess also on your -- how's the ability to ramp up labor then?

Yes. I think it's a generalized risk. We have been -- we have done a good job of managing through that risk, so I wouldn't say that we've been constrained. That may not be true for everybody in our industry. And right now, as of the end of October, we have a little over $100 million worth of equipment on order, and we'll be pleased when it comes in. And we continue to place new orders so that we can support the growth in the business that we see.

Our next question will come from Alan Mitrani from Sylvan Lake Asset Management.

Can you give us a sense of where CapEx will be in the next -- for the rest of the year and into next year? Gross and net?

Yes. Alan, on a gross basis, it was a little over $60 million in the quarter. Now we had a good quarter for proceeds, so it was less than we expected on a net basis. It's a little bit hard for us to forecast based on timing. We have a lot on order. But I would say, Alan, it's probably somewhat less than what our original expectation was for the year not because we don't need it, but we're taking it in as quickly as we can get it.

And where do you think gross CapEx could be for the next year in terms of growth? And how much spend you might need to upgrade some of their CapEx?

Yes. I don't see anything beyond what our historical relationships have been. If we can grow faster, we'll buy more.

Can you talk about -- you seem very confident about the government programs, I guess, that are coming in finally after the normal bureaucratic delays. Is that what's lending, giving you a lot of confidence in terms of the outlook going forward? Besides the customers, obviously, getting used to the cost of capital and just sort of adjusting.

I mean, Alan, I think what I'd start with is we have the impacts of earlier vintage federal programs that are impacting the business today such as RDOF, ARPA and CARES Act. We have state broadband funds that are separate and apart from federal dollars that are in the business, and so we continue to see -- we see BEAD and other programs as a continuation of an increasing trend, not necessarily as a new trend in and of themselves. I mean, this is a big movement. There's lots of capital being deployed. Sometimes, we'll work for customers where a single project will have a state funding source and a federal RDOF source. And in fact, 1 of our customers just relayed on a recent earnings call that above and beyond what they had originally identified for eligible passings, which for this customer was about 1.1 million for RDOF, they had found [300,000] adjacent passings that were enabled by the RDOF program. So I don't know if you call that federal, state, private capital, it just is up and to the right for rural broadband.

Are you able to tell how much of your current revenues or incremental revenues are related to some of these programs? Or does it come through just general MSAs and other work so it's hard to tell?

It's a mix, Adam -- excuse me, Alan. It's a mix. Some we can see. Some of the customers won't tell us, and we'll just see it flow through the actual MSA that we have with that customer.

And I am showing no further questions from the phone lines. I'd now like to turn the conference back over to Steven Nielsen for any closing remarks.

Well, we thank everybody for your time and attendance this holiday week and wish you all and your families a happy Thanksgiving, and we'll talk to you at the end of February. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.