Dycom Industries, Inc. 2027 Q2 Earnings Call

Please go ahead. Thank you, operator, and good morning, everyone.

Welcome to Dycom's fiscal 2027 second quarter results conference call. Joining me today are Dan Peyovich, our President and Chief Executive Officer, and Drew DeFerrari, our Chief Financial Officer. Earlier this morning, we released our fiscal 2027 second quarter results, along with certain outlook information. The press release and accompanying materials are available in the investor relations section of our website, including the outlook expectation summary document, which provides additional outlook metrics beyond what will be discussed on today's call. These materials, which we will discuss during today's call, include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our discussion and these statements reflect our expectations, assumptions, and beliefs regarding future events and are subject to risks and uncertainties that could cause actual results to differ materially.

A detailed discussion of these risks and uncertainties is included in our filings with the SEC. Forward-looking statements are made as of today's date, and we undertake no obligation to update them. Additionally, we will reference certain non-GAAP financial measures during today's call. Explanations of these measures and reconciliations to the most directly comparable GAAP measures can be found in our press release and accompanying materials. With that, I will turn the call over to Dan Peyovich.

Thank you, Callie. Good morning, everyone, and thank you for joining us. Our strong results reinforce the power of our strategy as a leader in digital and critical infrastructure. We delivered record organic first-half revenue, increased profitability, and continued above-market growth. We also secured significant new awards, supporting continued confidence in our growth trajectory. Across our portfolio, Dycom brings together the national reach, local knowledge, and skilled workforce required to execute end-to-end work safely, reliably, and at the pace our customers demand. They recognize the unmatched certainty we bring to their most strategic and complex builds, allowing us to win quality work that returns to reflect our high level of service. This combination of scale, local expertise, and operational focus differentiates Dycom as an essential partner. Our leadership is readily apparent in our Q2 results.

We achieved record quarterly revenue at $2.01 billion, growing 45.6% year over year and 16.7% organically. Total Adjusted EBITDA of $315.5 million grew 54% year over year, exceeding the high end of our outlook and representing 15.7% of revenues. This performance reflects the continued strength of our revenue and quality of our backlog. Adjusted EPS of $5.29 grew 45% year over year, also exceeding the high end of our outlook and demonstrating our commitment and ability to deliver attractive returns for shareholders as our platform scales. Demand across our portfolio remains robust. We see heightened activity across fiber-to-the-home, long-haul, data center interconnects, and data center electrical and structured cabling systems.

Customer demand on all these fronts is just as strong and in many cases stronger than a quarter ago. This generational deployment of infrastructure is projected to go well into the next decade, and we have line of sight to and are in discussions on builds many years out. Dycom continues to be well-positioned to capitalize on the growth drivers across our enterprise. Shifting to segment performance. In communications, fiber in the home increased nearly 60% in the first half of this year compared to the first half of the prior year. We are clearly differentiating ourselves in this market and continue to receive awards that further expand our reach. Concurrently, cloud migration, AI workloads, and data center growth are driving unprecedented demand for long-haul fiber corridors and high-strand interconnects, as evidenced by the wave of major nationwide builds announced publicly.

Each validating and even expanding the $20 billion addressable market we identified more than a year ago. Having entered this market early, we have a significant operational head start, an expanding backlog, and clear line of sight toward marked acceleration in overall industry activity in calendar 2027. Dycom is well-positioned to benefit from this massive investment cycle as hyperscalers, cloud providers, and carriers scale their infrastructure. On BEAD, we recognized revenue this quarter for field engineering in the Northeast. We continue to expect nominal engineering work through the back half of this year, with construction starting in earnest next year. In service and maintenance, we continue to execute across our broad and growing footprint, providing a large base of recurring revenues while uniquely positioning Dycom for builds across other demand drivers. Finally, our wireless equipment replacement program remains on track for a FY 2028 completion.

Overall, this program has performed above expectations, providing outstanding returns on our wireless acquisition. It is not uncommon for large-scale deployment schedules to adapt over time, and we now anticipate approximately $150 million of wireless revenues to shift from the second half of this fiscal year into FY 2028. Importantly, overall program scope and backlog are unchanged. Dycom remains well-positioned to support ongoing service and maintenance needs and to capitalize on future wireless densification and upgrade opportunities. Moving to the Building System segment, Power Solutions delivered another quarter of substantial growth. The strategic fit of this business is clearly reflected in its performance, contributing to an exceptional segment margin of 24.5% for the quarter, well above its historical average. With data center demand as strong as ever, we remain focused on scaling the critical workforce required to execute on significant builds in the D.M.V. region.

We also officially welcomed National Technology Integrators into the Dycom family during the quarter. Integration is progressing smoothly, and we are already benefiting from the expanded reach and customer diversification they bring. Demand for inside plant structured cabling is very strong, and we are well positioned to leverage our collective footprint, including active cross-selling opportunities with Power Solutions and our communications operating companies. We finished the quarter with record total backlog of $12.2 billion, representing a total book-to-bill of 1.2 times and 1.1 times on an organic basis. This quarter, we secured additional awards for long-haul and data center interconnect, bringing total contracted backlog for long-haul, middle-mile and inside the fence fiber to over $1 billion. With hundreds of millions of dollars of work already performed, we are highly confident in our positioning to drive sustained growth across this burgeoning opportunity set.

Our robust, diversified backlog underpins our confidence in this year's performance and our ability to generate sustained long-term growth. Reflecting strong execution, the wireless deferral, and the addition of National Technology Integrators, we are raising our full-year outlook to a range of $7.48 billion to $7.66 billion. At the midpoint, this represents 36.5% total revenue growth and 11.3% organic growth year-over-year. Moving to strategy. We continue to make progress on our key priorities. First, talent and workforce development. Our workforce is Dycom's primary growth engine, and we are on an intentional journey to continuously improve how we support our people. As part of these broader efforts, we recently introduced key benefit enhancements across our operations with further initiatives ahead to ensure Dycom remains the employer of choice. Our strategy is yielding results as we continue to grow our teams across the country.

Central to this commitment is investing in the skills and safety of our people, and construction is well underway on our new flagship training facility in Georgia, which is on track for an opening in the first half of calendar 2027. Second, expansion of building systems. Power Solutions integration continues to progress, and the strength of the business is visible in both its revenue and margin growth. We are incredibly pleased with this performance, which clearly shows Dycom's ability to attract, integrate, and grow quality businesses. This is also clear with National Technology Integrators, whose initial contributions have exceeded expectations. As integration continues, we are confident in our combined ability to further enhance the business and capitalize on the opportunity set. As Dycom continues to diversify, we see opportunities to expand into other geographies and markets through additional M&A, a path we are actively pursuing.

We believe that our culture and proven track record position us well for continued success. Third, margin expansion continued this quarter with Adjusted EBITDA margin reaching 15.7%, an 81 basis point improvement over the prior year. In communications, reduced operating leverage stemming from the shift in wireless, combined with the investments to ramp across customer fiber infrastructure programs, is expected to result in slight pressure on Adjusted EBITDA margins year-over-year. The benefits of our diversification strategy are clearly taking hold, highlighted by exceptional margins from our Building System segment, which we expect to range from the high teens to low 20s. Across all operations, we remain disciplined in managing our backlog and execution to maintain and grow what we believe are industry-leading margins in each segment while investing in both technology and training to drive long-term operating leverage. Fourth, cash flow enhancement. We continue to show rigorous working capital discipline, with DSOs coming in at 101 days, a seven-day improvement year-over-year.

Fundamental enhancements across our business have transformed our cash flow profile over the past year. Operating cash flow and free cash flow both expanded in the quarter, with trailing 12-month free cash flow increasing nearly 200% compared to the prior year period. In summary, Dycom is effectively capitalizing on unprecedented demand and positioning our business for continued growth and diversification. We are executing with massive growth in fiber-to-the-home revenues, strong delivery and growing backlog of long-haul, middle-mile, and inside the fence fiber, increasing consolidated Adjusted EBITDA margins, and disciplined investment to ensure Dycom remains a leader in digital and critical infrastructure and a relentless partner for our customers.