Dycom Industries, Inc. (DY) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Dycom Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. With that being said, we'll turn the conference now over to the President and CEO, Mr. Steven Nielsen. Please go ahead, sir.

Thank you, John. Good morning, everyone. I'd like to thank you for attending our Fourth Quarter 2012 Dycom Results Conference Call. During the call, we will be referring to a slide presentation which can be found on our website, www.dycomind.com, under the heading Events. Relevant slides will be identified by number throughout our presentation. Going to Slide 1. Today, we have on the call Tim Estes, our Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer; and Rick Vilsoet, our General Counsel. Now, I will turn the call over to Rick Vilsoet. Rick?

Thank you, Steve. Referring to Slide 2. Except for historical information, the statements made by company management during this call may be forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations, estimates and projections and involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. These risks and uncertainties are more fully described in the company's annual report on Form 10-K for the year ended July 30, 2011 and the other periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements. Steve?

Thanks, Rick. Yesterday, we issued a press release announcing our fourth quarter results. As you review this release, please note that we have included adjusted EBITDA and certain organic revenue amounts, both non-GAAP financial measures, to our release and comments. See Slide 11 through 14 for a reconciliation of the non-GAAP measures to the GAAP measures in the slide presentation provided for this call. Moving to Slide 3. Revenue for the quarter increased year-over-year to $318 million, an increase of 4.7%. After excluding storm restoration services of $2.3 million from the current quarter and $14.1 million in the year-ago quarter, revenue grew organically 9%. Volumes during the quarter were strong from telephone companies as a whole with most companies growing meaningfully while still carefully managing routine capital and maintenance expenditures, and spending by cable customers also increased year-over-year after excluding storm restoration services. Gross margins decreased by 55 basis points year-over-year, reflecting an increased portion of revenues arising from the provision of materials to customers as well as a year-over-year decline in storm restoration services, offset in part by a decline in fuel expense. General and administrative expenses were essentially unchanged as a percentage of revenue year-over-year, reflecting continued cost discipline. All of these factors produced adjusted EBITDA of $40.5 million for the fourth quarter, an increase of 1.7% from last year. Net income of $0.39 per share for the fourth quarter slightly improved from last year's earnings per share of $0.38. And liquidity was solid in the quarter with cash and availability under our credit facility at the end of the quarter totaling $239 million after repurchasing 102,200 shares of common stock. Going to Slide 4. During the quarter, we experienced the effects of a steady industry environment. Revenue from CenturyLink was $43.2 million or 13.6% of revenue. CenturyLink was our largest customer and grew 27.4%. AT&T was our second largest customer at 12.7% of total revenue or $40.3 million. Revenue from Comcast was $40 million or 12.6% of revenue. Comcast was our third-largest customer and grew over 5% year-over-year. Verizon was Dycom's fourth largest customer for the quarter at 12.2% of revenue or $38.8 million. Verizon grew 16.1%. Revenue from Windstream was $32.1 million or 10.1% of revenue. Windstream was our fifth largest customer and grew over 70% year-over-year. Altogether, our revenue grew 9%, representing our sixth consecutive quarter of organic growth. Our top 5 customers combined represented 61.1% of revenue, growing 9.5%, while all other customers increased 8.3%. Now moving to Slide 5. Backlog at the end of the fourth quarter was $1.565 billion versus $1.744 billion at the end of the third quarter, a decrease of approximately $179 million. Of this backlog, approximately $909 million is expected to be completed in the next 12 months. Both backlog calculations increased significantly year-over-year, reflecting solid performance as we continue to book new work and renew existing work. With Charter, we renewed cable construction and maintenance service agreements for the states of Illinois, Missouri, Tennessee, Alabama and Massachusetts. For Comcast, we renewed a construction and maintenance agreement and cable installation services agreement, both in the state of Illinois. With Verizon, we secured a 3-year facility-locating agreement in California; from Crown Castle, a network construction project in Florida; and finally, we secured rural broadband projects in a number of states including Oregon, New Mexico, Kentucky, West Virginia, Virginia, Vermont and South Carolina. Headcount declined slightly during the quarter to 8,111. Now, I will turn the call over to Drew for his financial review.

Thanks, Steve, and good morning, everyone. In today's conference call materials, there is disclosure of non-GAAP measures such as organic revenue growth and adjusted EBITDA, and there is also a reconciliation of these non-GAAP measures to the comparable GAAP measures. Going to Slide 6. Contract revenues for the fourth quarter of 2012 were $318 million compared to $303.7 million for the fourth quarter of 2011. After excluding storm revenues from each period, revenue increased 9% year-over-year. Telecommunications customers totaled approximately 85% of revenue during the current period, which is up slightly from the prior year. Net income for the current quarter increased to $13.3 million or $0.39 per share compared to net income of $13 million or $0.38 per share for Q4 '11. Turning to Slide 7. Revenue grew within the majority of our top 10 customers, including growth within existing customers and services for rural broadband initiatives. Q4 2012 adjusted EBITDA grew to $40.5 million or 12.7% of revenue, compared to $39.9 million in Q4 '11. On the cost side, margins improved sequentially, but were down 55 basis points year-over-year. Other income decreased to $2.9 million as a result of lower asset sales in the current period. Our year-to-date effective tax rate was at 39% as we benefited from certain tax credits during fiscal '12 such as the impact of stock option exercises. For fiscal '13, we expect our effective tax rate to trend closer to 40% for the full year. Turning to Slide 8. Our financial condition is strong, and our liquidity is robust. We ended the period with approximately $52.6 million of cash on hand, and cash flows supported our sequential growth during the quarter. CapEx net of disposals were $10.6 million for the quarter. Gross CapEx was approximately $14.8 million. For fiscal 2013, we anticipate CapEx net of disposals in the range of $55 million to $60 million. On our $225 million senior credit facility, there were no borrowings outstanding, and we ended the period with full availability of $186.5 million after providing for $38.5 million of outstanding letters of credit. During the current quarter, we repurchased 102,200 shares of our common stock in the open market for approximately $2 million or $19.75 per share. At the end of Q4 2012, we had approximately 33.6 million shares of common stock outstanding. On a fully diluted basis, weighted average shares were approximately 34.4 million shares. Now I will turn the call back to Steve.

Thanks, Drew. Going to Slide 9. In summary, with an improving economy, we experienced the effects of a solid industry environment and capitalized on our significant strengths. First and foremost, we maintained solid customer relationships throughout our markets. We continued to win projects and extend contracts at attractive pricing. Secondly, the strength of those relationships and the extensive market presence they have created has allowed us to be at the forefront of evolving industry opportunities. The end market drivers of these opportunities remain firm. Industry participants continue to aggressively extend fiber networks for wireless backhaul services. Broadband stimulus funding has meaningfully increased rural telecommunications network construction. Recent federal regulatory changes are expected to further support this trend. Cable operators are continuing to deploy fiber to small and medium businesses. Wireless carriers are upgrading to 4G technologies, creating meaningful growth opportunities in the near to intermediate term. And finally, telephone companies are deploying fiber to the home or node technologies to enable video offerings. Across all of these opportunities, we have increased profitable market share as our customers are consolidating vendor relationships and rewarding scale. In sum, we believe that our leading presence enables us to meaningfully take advantage of industry developments. Among service providers of our size or larger, we believe we are uniquely positioned to manage and capitalize to experience a strong industry environment to the benefit of our shareholders. Now moving to Slide 10. As we look ahead to a solid industry environment, our expectations have been tempered and reflect the following views: revenues over the next several quarters which continue to exhibit consistent seasonality and are slightly down to approximately flat when compared to the prior year's quarterly revenue excluding storm restoration services; margins, which increase slightly year-over-year on an annual basis; general and administrative expenses, which increase modestly, also on an annual basis, including approximately $2 million of incremental stock-based compensation expense; other income that decreases approximately 25% compared to fiscal 2012; strong cash flows, which will be dedicated as projected returns direct to accretive acquisition opportunities, which will enhance our scale and service offerings and/or share repurchases; and finally, we are confident that despite moderating our views, solid operations will continue for a sustained period. Accordingly, we expect for the first quarter of fiscal 2013: revenues which range from slightly down to flat year-over-year after excluding approximately $3.7 million from Q1 2012 for storm restoration revenues; gross margins which are sequentially in line as a percentage of revenue; general and administrative expenses which increase slightly on a sequential basis, reflecting higher stock-based compensation expense; depreciation and amortization which is flat on a sequential basis; and other income which decreases sequentially by approximately $1 million from the fourth quarter of 2012. As the nation's economy improves, we remain encouraged that our major customers possess significant financial strength and remain committed to multi-year capital spending initiatives. While our expectations have been tempered in the near term, we remain confident in our strategies, the prospects for our company, the capabilities of our able employees and the experience of our management team who have grown our business and capitalization many times before. Now, John, we will open the call for questions.

[Operator Instructions] And first question will go to Richard Paget with Imperial Capital.

Steve, maybe you could talk about the reasons for these tempered expectations, get a little bit more specifically, whether it's one or 2 of your big customers delaying things or if it's something more inherent throughout the industry?

Sure. So I think the way we think about it, Richard, is we've had -- for the last 12 months, we had about $150 million of organic growth in the business. So pretty robust period in the industry and for the company. And I think, we see, at least at the moment, we see for the back half of this year where customers are continuing to spend, but it doesn't appear that, that pace of spending is going to pick up. And I know that's been a topic across the industry, and it may be different for other folks. But at least for us, we see it as steady through this year, which means on a year-over-year basis, we expect down a little bit to flat.

Okay, so -- but even if looking at your 12-month backlog this year compared to last year, I mean, it's up significantly. So is it just that the pace of awards, is it mix?

Well, the issue around the 12-month backlog, as we've talked about a number of times before, is that, that represents a basket of contracts with different maturities, some of which roll off at the end of the year. It's certainly is supportive of revenue at higher levels than it was a year ago. So the business is bigger. It just is -- at this point, and particularly with a couple of the larger clients, the pace of activity is steady, but not increasing.

Okay, fair enough. And then, I guess, I'll ask the perfunctory question of could you fill out the top 10 customer percentages?

Sure. Richard, this is Drew. Charter was at #6 at 6.5% of revenue; Time Warner Cable, 4.1%; Frontier at 1.8%; Ericsson at 1.3%; and Cablevision at 1.3%.

Our next question is from Simon Leopold with Raymond James.

Great. Just a couple of quick ones. One, just the other housekeeping question. If you could give us the split between the cable and telco?

Sure, Simon. So telco was at 59% and cable was at 26%.

Great. And one of the things I'm looking at here is some of the trending with the customers and noticed that at AT&T, in particular, which had been your largest customer last year, has remained somewhat depressed given their size. Is there anything you can tell us about the nature of the projects you're doing with AT&T this year versus last year? Specifically, is there -- are we seeing essentially the slowdown of U-verse and not a big ramp of wireless exposure? Any color you can give on these specific activities?

Sure, Simon. So, I think, a year ago, particularly in the first half of the calendar year was a strong period for U-verse. So if you look in our fourth quarter, we had strong levels of activity with AT&T on U-verse in the year-ago period and much, much lower levels this year. At the same time, we've been ramping up our wireless program and actually think, as we look ahead over the next couple of quarters, we believe that we'll be close to lapping the low point with AT&T. Also subsequent to the end of the fourth quarter, we were able to secure additional wireline master contracts with AT&T, and so we'll actually be starting some work up this quarter. So it clearly has slowed down. But I think for the most part, the bulk of the slowdown has occurred. And as we look forward going ahead, we actually see, if we look through the balance of the fiscal year, we see AT&T probably troughing in the back half of this year, calendar, and then growing next year. We're pleased with our performance on wireless. It's a big program, takes a while to fill up the pipe, but they continue to issue us work and it's going well.

And not specific to AT&T, but more generically, I know it's a little challenging for you to quantify your business that comes from wireless versus wireline. Is there some indications you can give us to help us understand the trend of wireless as a driver for revenue?

Yes. We had talked, Simon, when we first secured the AT&T turfing agreement that we thought it would be a $50 million to $100 million agreement run rate by the end of the year. I think it will be at the lower end. I think, by the third quarter, the likelihood that it's at the mid or above the mid is pretty high. That's a little bit slower than we expected. But when it's going as well as it is, we're just happy that our performance is good, and that's picking up. I think there are other projects that are wireless-related that we're picking up. I think, we had noted in the quarter that we received a project from Crown Castle in Florida. That's a DAS project, and that's clearly an area that we see picking up. We are also seeing activity picking up out of the Sprint Network Vision's project through a number of the OEMs. Our primary focus there is in the southeast. So I think wireless continues to be robust. We're relatively new to the business, but it's performing well, and we continue to see that ramping over the next 12, 24, 36 months.

And just one quick clarification. You mentioned Sprint, and we see Ericsson in the top 10 list. Is the Ericsson revenue reflective of T-Mobile, Sprint, both? How do we think about that?

I would say that Ericsson has relationships with all of the large OEMs or all the large carriers and there's a mixture there. But clearly, the fastest-growing piece at the moment is on the Sprint Network Vision's project.

Our next question is from Adam Thalhimer with BB&T Capital Markets.

Steve, what are your customers telling you in terms of why they're pulling back a bit? Is it just the economy?

Well, let's be careful. I don't think our customers would indicate that they're pulling back. I mean, I think, in some, for example, Charter, on their recent earnings call, they actually increased CapEx guidance for this year and probably going into next year. I think more of what we see is that, at least at the moment, and this is -- does occur in the industry generally, that it is a period of time where they've had lots of growth and it's becoming more steady, not where they're pulling back. So I -- we don't think about it as pulling back, more as just moderating after a significant period of growth.

So as it relates to kind of your thoughts on the cycle, I guess that would mean that you would characterize this as more of a mid-cycle pause?

Yes. I think, historically, we have seen periods of time where there's lots of growth, lots of new initiatives. That makes everybody work hard, us and our customers. There's periods of time where -- I don't know that I would call it a pause, but it moderates. But the drivers here are still tremendous, right? I mean, we're pleased in -- with what our customers are doing. They're still looking forward about what new technology rollouts can do for their businesses, and I just think it's just a question of moderating, not something where the business is going to decline in any material way.

Okay. And then lastly, does it feel to you -- I mean, how does the economy feel to you? Clearly, you've experienced some kind of moderating in your business over the last couple of months...

I think, Adam, the way when we talk to our folks, we don't have a lot of housing in the business yet, but it feels like housing is bottoming. Clearly, just locally here in South Florida, it is, without a doubt. But even the Case-Shiller numbers that came back showed a real bottoming prices there, so I think our folks are cautiously optimistic that, that will pick up. I mean, clearly, there are some confidence issues, and that may coincide with the electoral cycle, but that's all going to get resolved. And I think, in general, our folks are reasonably optimistic about their businesses.

And next, we'll go to Saagar Parikh with KeyBanc Capital Markets.

First, looking at the book-to-bill, your book-to-bill has been under 1 for 2 quarters now, but that follows 5 tremendous quarters that you guys had on the book-to-bill front. Is that general lumpiness in the award cycle for you guys? I know you said that sponsors could be moderating spending, but it's been a pretty big drop-off over the last 2 quarters. I just want to make sure that kind of what the trend is going there.

I think, as we've explained before, the issue with a business that's primarily has master service agreements is that they have terms and that the backlog can decline over the term without indicating what the overall growth rate is for that customer in the balance of the contract or in the out years. So we had discussed in January that we were able to renew the vast majority of our work with CenturyLink for a 2-year period, covering calendar '12 and calendar '13. When that contract comes in, clearly, we're going to have a step-up in backlog. As we burn it off, it doesn't necessarily imply what their plans are for '13, it just means that we're halfway through the contract term. And so there's always this, as you termed it, lumpiness, as the mix of contracts come in. I mean, we have other -- every quarter, we have some contracts that come up for renewal. Some quarters more than others. When you have those quarters, you get a step-up in backlog. But, generally, we're pleased with the outlook that we have to support kind of what our expectations are in revenue.

Perfect. And then one follow-up on the employee count, down around 100 people sequentially, first drop that you guys had in a few quarters there. Is that more on account of a large project or MSA rolling off or just you guys kind of tightening the belt a little bit?

Don't forget that we utilize subcontractors for a portion of the direct labor that we provide clients. And so a move of 100 employees one way or another is really not indicative, because, obviously, the headcount went down sequentially, but the revenue went up. So clearly, both from a utilization and number of hours and other things, it's just not something that we get concerned about on a quarter-to-quarter basis.

And next, we'll go to John Rogers with D.A. Davidson.

Steve, the pause or slower revenue growth that you're seeing over the near term, a couple of years ago, it really, as I remember, kind of fell off a cliff at one point at the beginning of the year. Did orders drop off through the quarter? Or I mean, are you concerned about CapEx spending plan as they roll out with the calendar year? I'm just trying to understand.

I'm not thinking about which year you're referring to. I mean, clearly we had -- this was several years ago where...

Yes, right. I just wanted to understand how the cycles compare, I guess.

Yes. I mean, in no way does this feel like kind of an '08, '09, '10 period, right? More like kind of an '04, '05 period. Because clearly in the '08, '09 period, in the recession, you had Verizon, in particular, dramatically ramping down spending on FiOS and it actually has picked up for us subsequently. But in that period of time, it came down. So I don't see it that way. I think, the other thing is, John, as we've talked about, in that period of time, you had housing coming out of the business, which drove household formation, business form -- new business formation. And here, we have no housing in the business. The housing market is firming. We expect that to be supportive of the business going forward, not a negative. So it just -- yes, I don't see those as comparable, at least at this point, based on everything we know.

Okay, good. And in terms of how the market develops, and I'm thinking more over the next couple of years -- I mean, you have mentioned before the wireless business and the opportunity there to build out that infrastructure. What are the other sort of primary drivers that you see? Is it going to continue to be the fiber installations? And I assume, cable, there's very -- that loses share continually over time. What are the other sort of initiatives out there that we should be thinking about?

Well, clearly, wireless, John, and then if you think about -- CenturyLink has talked pretty openly on their last call about their IPTV initiative, their desire to be able to deploy a video offering over their own infrastructure that requires deploying fiber deeper. We continue to see the cable companies, and this is a long trend, John, deploying fiber to small and medium enterprises. I think all the cable operators would tell you that that's a huge opportunity for them for which they're going to address over a multi-year period. And then I think, also on the rural, while we have the stimulus projects which continue to -- we continue to book new backlog there, you have stimulus-related projects, but you also have regulatory changes where the Universal Service Fund has become the Connect America Fund. At a high level, we're in the connection business, and so we think that's supportive of that segment of the industry. So I think, overall, there's still plenty of activity, plenty of initiatives. And I would also underline that as housing recovers, that stresses infrastructure and network providers. And so that's just generally supportive as a tailwind to the business. It's not a stiff tailwind at this point. But as the housing market recovers -- and I've been through housing recoveries before, when they get going, they tend to go quickly. That can be a very helpful backdrop to the business.

Okay. And then lastly, if I could. Regionally, are there any major differences in business trends?

I don't think so, John. And I think, in part, that's because and it's different than it was 10 or 15 years ago because our customers have become so large and have consolidated in their respective industries that they tend to take a national outlook to initiatives. So regionally, all across the country for Comcast, they're focused on small or medium enterprise. So yes -- no, we don't see any particular regional trends other than to say in those areas that have energy, shale plays and those other things, there are certainly better local economies that would be supportive of local housing and local business formation trends. But from a technology perspective, I think our clients think about their markets pretty consistently across the country.

Our next question is from Min Cho with FBR Capital Markets.

A couple of questions here. So it sounds like there's really not any fundamental change in the industry outlook across kind of the fiber front segments of the businesses that you're looking at. Do you think that, longer term, you can still sustain the kind of high-single-digit percentage revenue growth, excluding this near-term kind of pause?

I think the industry has gone through periods of time where it grows rapidly, it consolidates and then it grows again. And once again, we're growing in what's a pretty mediocre economic recovery. If we got any reasonable recovery, any kind of pickup in housing, clearly, our customers would have to respond to that. So I don't see it as a fundamental change in the outlook. I think short term, the other thing it does just inside our business is we will generate a lot of liquidity. As we're not growing as quickly, the working capital would come back, and we'll certainly have plenty of investable cash for things that make sense.

Okay. And then you also mentioned that on AT&T wireless that the rollout was a little slower than you had expected. Is that due to the customer scheduling, or is it more just like taking more time to ramp up right now for you?

It has nothing to do with the customer other than to say this is a big program where we provide everything from the site acquisition all the way through construction. It's a big project. When they release work, they release hundreds of sites at a time, and it just takes time to fill the pipe up. We're very pleased with how our folks have done so far. And so we think this is a -- we're in a good place in that particular opportunity.

Okay. It sounds like you're still comfortable with the kind of $50 million to $100 million run rate by the end of this calendar year.

Yes. We'll definitely be there in the low end and we think we can be above the midpoint by the first half of next calendar year. With work that we have in hand, the timing of it from a quarter-to-quarter perspective is you'd fill the pipe with new projects, just takes a little bit of time.

Okay. And then 2 more just quick questions. In terms of the gross margins this quarter, last quarter, you had suggested that it would be relatively flat on a sequential basis, and it was obviously down a little bit. What was -- was there any negative surprise? Was it more material than you'd expected? Kind of what led to the decline in margins?

We had a little more growth with those customers that we supply material and inventory, so that certainly was part of it. And I think, in hindsight, the year-ago period had a little more storm in it. Just had a little bit less storm, it tended to be small and at the end of the quarter. And all things being equal, I would think about margins as in line. We wished they'd have been 40 or 50 basis points higher, but it's -- in the big scheme of things, we think about it as an in-line quarter.

Okay. And then just finally, did your repurchase any additional shares subsequent to the end of the quarter?

We don't provide disclosure about what we do other than quarter-to-quarter. So we're not going to say one way or another, Min.

[Operator Instructions] And we'll go to Noelle Dilts with Stifel, Nicolaus.

Just a couple of questions. First, Windstream was pretty -- just going through the CapEx commentary at all of your major customers, Windstream was pretty vocal on its call about a lower CapEx outlook for calendar 2013 because they're completing some of their ARRA projects and talked about a lot of progress on some of their cellular backhaul work. so could you -- and this has been a customer where you've had a lot of growth. Can you talk about, right now, your mix of business with Windstream, how much is cellular backhaul versus some of these stimulus projects and your thoughts there for the rest of the year?

Noelle, there's clearly been a lot of growth with Windstream primarily focused around the stimulus, and don't forget that they have both fiber to the cell site that they do out of their geographic footprint through the CLEC that they acquired and inside. And in the kind of the commentary we've provided, we fully incorporated Windstream's comments in how we think about things. So I don't think there were any surprises to us in what they have said.

Okay. And then you lay out market share gains or consolidation of territory as one of your long-term drivers. This has been something you've been talking about for a few quarters. So could you maybe just -- when you talk about your current awards and extensions, could you let us know which are maybe within existing territories or -- and which are you would consider an expansion of share, I guess I would say.

Yes. So I think, in this quarter the bulk of... [Technical Difficulty]

Yes, Noelle, if you're still on, I apologize for the technical difficulty. We had a lot of rain associated with this tropical storm. So I don't if it impacted the network on our end, but go ahead.

So I was just still asking if you could go through and talk about which of your awards and extensions in the quarter were...

Yes, and I think what we said is the first 3 on the list on Slide 5 were renewals, the last 2 were all new -- were new projects. And we will continue to see opportunities on a quarterly basis to extend the footprint. Sometimes you do better than others. I think, the other thing we had said in our comments, Noelle, is that subsequent to the end of the quarter, this will be in the first quarter's results, we did extend our wireline footprint in South Carolina with AT&T. So some other footprint extension already in the quarter.

Okay, great. And then, I know this is a stretch, but just given the decline in the backlog from the peak we're down $254 million, is there any way to give us a little more granularity on how much is the work off of some of these bigger contracts and how much is maybe a bit of a slowdown in orders?

That's extremely difficult to do, Noelle, because, once again, the order flow impacts the estimate of what the balance remaining on the contracts. But you have to balance that off of the bleed-off at the time. And I just think it's one of those things where we go through a renewal cycle and at the end at some periods -- for last fall, with CenturyLink, we were down with a couple of months and then in January, it springs up to 23 months, and then it settles. That's just the way the industry operates. We're like a project-based business where when we complete a project, we got to go find another one. Here we just got to renew a contract, and that, effectively, is find another one.

And we'll go to Alan Mitrani with Sylvan Lake.

Can you explain -- you say your customers have moderated, but it seems like their moderation results in you having down revenues for 12 months out or flat to down revenues, could you tell me why their moderation and still growth results in you guys feeling the brunt of it?

Well, I mean, I don't -- I think our outlook is in line with where we see their plans, at least through the back half of this year. Now they're still formulating plans for '13. We don't have visibility around that. I'm not sure that anybody else does. We want to make sure, in particular, in this environment that we signal folks to take a reasonable view looking ahead. We'll hope to do better, but we don't want to be tilting against doing better quarter-after-quarter. We'd rather reset the expectation to slightly down to flat and then see where 2013's budgets come in, because there are certainly some opportunities for increases that clients have talked about, but it's too early for us or anybody else to have visibility around that.

Okay. So that was my next one. Basically, 6 months ago, if I would have asked you are you going to have to show me down revenues in the back half of 2012, you probably would have said, given where your backlog was growing, that wasn't a good possibility. Similarly, if I asked you where you're going to be 6 to 9 months from now, you probably also don't have a strong clue, as most of corporate America can't see that far out. So you're just basically trying to be conservative and looking out into next fiscal year because you have to give a guidance.

Yes. Well, I mean, we've chosen here because we understand that where we are is a little different than where the Street was prior to the call, and we just want to make sure that we clearly communicate. The economy feels slow, but it doesn't feel recessionary. And so we think this is the appropriate way to kind of re-base expectations in a year that follows a year where we had a lot of growth. And we just thought that was the right thing to do.

Okay, that's fair enough. In terms of just one line on the other income, just from a modeling perspective. I know in the third quarter of 2012, you sold an asset and you generated about $7.6 million of other income, which was the most you'd had in a long time and you're talking about this year being down 25% roughly year-over-year for the full year. And the first quarter seems to be starting out, you said $1.8 million, around down 40%. Can you give us a sense -- obviously, you're not going to have that asset sale again. How much was that asset sale, and is that the main difference between the 25% decrease in other income?

Yes, Alan. I think that was about $6 million in proceeds and I think we broke it out for you at the time. That particular quarter had some other asset sales in it, too. We have -- we've had a pretty good cycle of capital spending. We expect to -- that's going to be in line, maybe a little bit down from this year. And so when we buy less, we have less to sell. And that's really that, and combined with the -- with us not having this non-core asset to sell, that's really the down guidance we're providing.

And Alan, that $6 million was the proceeds number. The other income on that was only a small portion of that.

Got it, okay. In terms of your cash flow, it hasn't been wonderful, the free cash flow over the last couple of years because you've had to use working capital as you ramped up projects for the inventories that you're doing and also the CapEx spend that you had to support the growth you've seen. It sounds like you expect fiscal year '13 -- assuming a flattish year, it sounds like we're going to generate cash from working capital and should be a good cash flow year. Can you just give us your sense as to where working capital could come in? Are you going to be a generator of working capital given where we stand?

Yes, I think that's exactly right, Alan. I think we will generate cash. I think the DSO crept up some. There were some specific client issues. But we know those will reverse. We've been doing this a long time. We've been through these cycles. And we will generate cash, a significant amount of cash, on this outlook.

Okay. And just you mentioned the DSOs, I was going to bring it up. I thought maybe someone else would. Can you -- this is not a situation where you expect to have to write off A/R or something like that, because, I mean, it seems like the DSO -- based on my calculations, adjusted DSO was at the highest it's been in 4 or 5 years now, so...

That's not necessarily true. But it certainly has crept up. The issue is all around particular customers. The stimulus projects, because they are government-funded, have a little longer cycle. There's a payment application process and some other things that just -- they take longer. But probably the money is as good as any money that we have out there, and we have great customers, and so we don't see any issues around collectability at all.

Okay. And then just remind us where we stand on the share buyback. How much is left on the share buyback as of the end of the quarter?

Sure. We had an authorization in March for $40 million. We spent roughly $2 million in the fourth quarter, so there's $38 million remaining.

And any restrictions around that in terms of how much you can buy in a certain period of time or anything or, no, you can be as aggressive as you like?

There are certain volume limitations if you buy in the open market, Alan. But those apply to how much you can buy in any given day. But nothing specific to the company, just the general rules.

Okay. And then at this point of where you stand in the cycle, it seemed like you mentioned that the potential use of cash might be for accretive acquisition opportunities and share repurchases. You put that ahead of share repurchases, the acquisition opportunities. Are you seeing more on the acquisition front than you had in the past?

Well, I think, Alan, actually, we had, historically, always had it that way, so there's not a change of emphasis there. It's always been that way. And I think we've been a growing company, and we're going to look at acquisitions. They got to make sense. But certainly, we are -- we see opportunities every day.

And with that, no additional questions in queue.

Well, we thank everybody for your time and attention to the call. Apologize for the technical difficulty, and look forward to speaking to you on our next call, which will be just prior to Thanksgiving. Thank you.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.