Dycom Industries, Inc. (DY) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Dycom Results Conference Call. For the conference, all the participant lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions] As a reminder, today's call is being recorded. I will turn the conference now over to your host, Mr. Steven Nielsen. Please go ahead, sir.

Thank you, John. Good morning, everyone. I'd like to thank you for attending this conference call to review our third quarter and fiscal 2017 results. During the call, we will be referring to a slide presentation which can be found on our website's Investor Relations page under the heading Events & Presentations, Investor Calendar. Relevant slides will be identified by number throughout our presentation. Going to Slide 3, 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.

Thank you, Steve. Except for historical information, the statements made by company management during this call maybe forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including those related to the company's outlook, 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. Those risks and uncertainties are more fully described in the company's Annual Report on Form 10-K for the year ended July 30, 2016 and other periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements. Steve?

Thanks, Rick. Now moving to Slide 4 and a review of our third quarter results. As you review our results, please note that we have presented in our release and comments certain revenue amounts excluding revenues from businesses acquired during the fourth quarter of fiscal 2016 and third quarter of fiscal 2017; adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, all of which are non-GAAP financial measures. See slides 13 through 20 for a reconciliation of non-GAAP measures to GAAP measures. Additionally, see Slide 20 for a calculation of non-GAAP organic revenue for the fourth quarter of fiscal 2016 that has been adjusted to exclude the impact of the incremental 14th week and the quarters acquired revenues. Revenue increased significantly year-over-year to $786.3 million, an increase of 18.3%. Organic revenue grew 14.9%. This quarter reflected an increase in demand from several key customers as we deployed 1-gigabit wireline networks and grew core market share. It was a stronger than expected start to the calendar year. Gross margins were 20.97% of revenue, reflecting solid operating performance as several large programs accelerated. General and administrative expenses improved significantly year-over-year, decreasing 71 basis points. All of these factors produced adjusted EBITDA of $108.2 million or 13.8% of revenue, and adjusted diluted earnings per share of $1.30, compared to $1.08 in the year-ago quarter. Liquidity was strong as cash and availability under our credit facility was $340.8 million at the end of the quarter. During the quarter we completed the acquisition of Texstar Enterprises for $26.4 million. Texstar is a provider of telecommunications, construction services, wireline, telephone and companies in the Southwest and Pacific Northwest. Finally, we repurchased 400,000 of our shares for $37.9 million as of May 2017, we authorized to repurchase up to 112 million of shares through August 2018. Going to Slide 5; today a number of major industry participants are deploying significant wireline networks across broad sections of the country. These newly networks are generally designed to provision bandwidth enabling 1-gigabit speeds to individual consumers. In addition, emerging wireless technologies are beginning to drive significant incremental wireline appointments, it's now clear that a complimentary wireline investment cycle will be required to facilitate what is expected via decade [ph] appointment of fully converged wireless wireline networks. Notably, one industry participant has begun to invest in the wireline infrastructure required to enable fully converged wireless wireline networks, this is significant. The industry effort required to deploy these converged networks has and will meaningfully broaden our set of opportunities, total industry opportunities in aggregate were already without precedent in our experience prior to this new development. We're providing program management planning, engineering, and design areal and underground construction and performance services for 1-gigabit deployments. These services are being provided across the country and dozens of metropolitan areas to a number of customers. Revenues and opportunities driven by this industry standard continue to grow during the third quarter of fiscal 2017. In addition, we have secured a number of converged wireline wireless, multi-use network deployments across the country; planning has begun, engineering and construction activity is expected to increase throughout the balance of calendar 2017 and accelerate in the calendar 2018. Customers are continuing to reveal with more specificity new multi-year initiatives that are being planned and managed on a market-by-market basis. Our ability to provide integrated planning, engineering and design, procurement and construction of maintenance services is of particular value to those industries participants with projects outside of their traditional geographic service territories. As with prior initiations of large scale network deployments, particularly those occurring during periods of customer M&A activity, we expect some normal timing uncertainty and customers spending modulations as network deployment strategies evolve. We remain confident that our competitively unparalleled scale and market share, as well as our financial strength position us well to deliver valuable services to our customers and robust returns for our shareholders. Now moving to Slide 6; during the quarter we experienced the effects of the strong overall industry environment and a strong start for the calendar year. Organic revenue grew 14.9%, our Top 5 customers combined produced 77.5% of revenue increasing 25.2% organically, while all other customers decreased 10.6% organically. Off note, this quarter March, our 10th consecutive quarter of double digit organic growth. AT&T was our largest customer, 27.1% of total revenue or $213.1 million. AT&T grew 10.3% organically year-over-year. Growth in wireline services was accompanied by strong growth in wireless services. Revenue from Comcast was $152.9 million or 19.4% of revenue and grew organically 58.7%. Comcast was our second largest customer. Revenue from CenturyLink was $138.9 million or 17.7% of revenue. CenturyLink was our third largest customer and grew organically 52.4%. Verizon was Dycom’s fourth largest customer for the quarter at 8.5% of revenue, or $66.8 million. And finally, revenue from Windstream was $37.8 million, or 4.8% of revenue. Windstream was our fifth largest customer. We are particularly pleased that we have continued to gain profitable market share, extend our geographic reach, and expand our program management network planning services. In fact, over the last several years we have meaningfully increased the long-term value of our maintenance business, a trend which we believe will parallel our deployment of 1-gigabit and wireless-wireline converged-networks as those deployments dramatically increased the amount of outside plant network that must be maintained. Going to Slide 7; backlog at the end of the third quarter was $5.47 billion versus $5.112 billion at the end of the second quarter of 2017; an increase of approximately $358 million. Of this backlog, approximately $2.41 billion is expected to be completed in the next 12 months. Both backlog calculations reflect stable performance as we booked new work and renewed existing work. We continue to anticipate substantial future opportunities across a broad array of our customers. For Verizon, we renewed engineering services agreements in Massachusetts, Rhode Island, New York, Maryland and Virginia. From Comcast, we extended construction service agreements in Pennsylvania, Maryland, Virginia and Georgia. With Charter, we renewed construction of maintenance service agreements in California, Arizona and Florida. From Columbia Gas, underground facility locating and mapping services agreements in Ohio. And finally, we secured [indiscernible] and municipal broadband projects in Oregon, Minnesota, New Hampshire, Kentucky, Tennessee, North Carolina, Alabama and Georgia. Headcount increased during the quarter to 14,163. Now I will turn the call over to Drew for his financial review and outlook.

Thanks, Steve, and good morning, everyone. Going to Slide 9; contract revenues for Q3 '17 were $786.3 million, and organic revenue grew 14.9%, reflecting solid growth from many of our top customers. Acquired businesses contributed $23 million of revenue in the current period. Adjusted EBITDA increased to $108.2 million compared to $91.9 million in the year-ago period. As a percentage of revenue, adjusted EBITDA was in line year-over-year at 13.8% of revenue. Gross margins declined 74 basis points year-over-year and were below our expectations by approximately 100 basis points. Work activity was stronger throughout the quarter which caused greater seasonal weather impacts on the gross margin earlier in the quarter. Additionally, our mix of work during Q3 '17 included a greater proportion of jobs where we provide materials for customers and this impact -- this mix impacted the gross margin. G&A expense improved 71 basis points to 7.8% of revenue in Q3 '17 and we continue to maintain sound cost discipline. Non-GAAP adjusted diluted EPS was $1.30 per share compared to $1.80 in Q3 '16, an increase of 20%. Now moving to Slide 9; our balance sheet and financial profile continue to reflect the strength of our business. We ended the quarter with $71 million of revolver borrowings on our senior credit facility, and $367.7 million of term loans outstanding. Our liquidity is robust and exceeded $340 million at the end of the quarter consisting of availability from our credit facility and cash on-hand. Operating cash flows were strong at $42.3 million during Q3 '17, an increase compared to $32.4 million in Q3 '16. The combined DSOs of accounts receivable and costs in excess of billings net were 90 days for Q3 '17, which declined from Q3 '16 and was sequentially in line with Q2 '17 DSO. Capital expenditures were $52.6 million during Q3 '17 net of disposal proceeds, and gross CapEx was $58.3 million. During the quarter we completed the acquisition of Texstar Enterprises for approximately $26.4 million. Additionally, we repurchased 400,000 shares of our common stock for $37.9 million at an average price of $94.77 per share. The current share repurchase authorization remaining is approximately $112 million through August of 2018. In summary, we continue to maintain a strong balance sheet and ample liquidity enabling us to effectively invest in growth opportunities. Going to our outlook on Slide 10 and 11; as we look ahead to Q4 '17 and into Q1 '18, our view is guided by the following. First, we experienced a stronger than expected start to the calendar year and our outperformance in the third quarter influenced our view of the current fourth quarter. Next, we see a broadening set of customers opportunities that are in the initial stages of planning, engineering and design, and deployment. Consistent with prior initiations of large programs, particularly those occurring during times of customer M&A activity, we expect some normal timing uncertainty and customer spending modulations. Based on these observations our expectations have been tempered and reflect the following; for Q4 of 2017 we currently expect revenues which range from $780 million to $810 million, reflecting a broad range of demand from several large customers, 1-gigabit deployments, fiber deep cable capacity projects, and initial phases of fiber deployments for newly emerging wireless technologies. This outlook includes approximately $25 million of revenue from businesses acquired during the fourth quarter of 2016 and the third quarter of 2017. As a reminder, for comparative purposes the prior year fourth quarter of fiscal 2016 included 14 weeks of operations as a result of our 52/53 week calendar. For Q4 of this week, this year there are 13 weeks of operations. For comparative purposes, the organic revenue amount for Q4 '16 was $727.6 million and it adjusts for the extra week in that period and applicable acquired revenues. Gross margin percentage is expected to decrease modestly compared to Q4 '16. Excuse me…

Drew is suffering from [indiscernible], so I'll finish up with this. The gross margin percent is expected to decrease modestly compared to Q4 '16 reflecting the expected mix of wok activity during the period. This expectation also reflects near-term margin impacts as we prepare for larger programs. Total G&A cost as a percent of revenue are expected to be inline compared to Q4 '16 and include $5 million of share-based compensation. Depreciation and amortization is expected to range from $39.1 million to $39.9 million; and includes amortization of $6.3 million. Adjusted interest expense is expected at approximately $5.2 million including $4.5 million of interest in Q4 '17 for the non-cash amortization of the debt discount on our notes. Other income, net is expected to range from $2.3 million to $2.9 million. Our effective tax rate is estimate to be approximately 37.2%; these factors are expected to generate an adjusted EBITDA margin percentage which decreases modestly from Q4 '16 result and non-GAAP earnings ranging from $1.35 to $1.50 per diluted share. We expect approximately $31.7 million diluted shares during Q4 '17. Now going to Slide 11; for Q1 of fiscal 2018, our outlook reflects an expectation of revenue decline of low single digits compared to Q1 '17 revenues. This outlook includes revenue of approximately $5 million in Q1 '18 from the business acquired during the third quarter of 2017. We expect the continuation of Q1 '18 of the drivers evident in Q4 '17. We expect gross margin to decrease modestly from the Q1 '17 margin reflecting the expected mix of work actively [ph], and the near-term margin impacts as we initiate larger programs. G&A as a percent of revenue is expected to increase year-over-year to support growth opportunities and includes increased share-based compensation relating to investing schedule of awards [ph]. Non-cash stock based comp is expected at approximately $7.2 million. Depreciation and amortization to range from $39.4 million to $40.2 million. Adjusted interest expense of approximately $5 million excluding $4.5 million of interest in Q1 for the non-cash amortization of a net discount on our notes and other income net range from $0.7 million to $1.3 million. This outlook is expected to generate an adjusted EBITDA margin percent which decreases modestly from the Q1 '17 results. Q1 '18 diluted shares are expected to be approximately $31.9 million. Now moving to Slide 12; within our growing economy we experienced the effects of a strong industry environment and capitalized on our significant strengths. First and foremost, we maintain strong customer relationships throughout our markets, we continue to win and extend contracts at attractive pricing. Secondly, the strength of those relationships and the extensive market presence that have created has allowed us to be at the forefront of evolving industry opportunities. The end market drivers of these opportunities remain firm at our strengthening. Telephone companies are deploying fiber at homes to enable video offerings at 1-gigabit high-speed connections. Cable operators at 0.5 for small and medium businesses and enterprises, these deployments are often in anticipation of the customer sales process as confidence in the number of existing customers continues to increase. Overall capacity expansion through fiber deployments, as well as new build opportunities are increasing. Dramatically increased speeds to consumers are being provisioned. Fiber deployments and contemplation of emerging wireless technologies have begun in many regions of the country, more are expected. Customers are consolidating supply change, creating opportunities for market share growth and increasing the long-term value of our maintenance business. In addition, we are increasingly providing integrated planning, engineering and design procurement, and construction and maintenance services are creating more visibility around future revenue streams. Within this context, we believe we are uniquely positioned, managed and capitalized to meaningfully experience an improving industry environment to the benefit of our shareholders. While we are disappointed with our adjustment to near-term expectations, we remain encouraged that our major customer possess significant financial strength and are committed to multi-year capital spending initiatives. These initiatives are increasing in number across the number of customers. Recent developments indicate a broadly improved regulatory environment will be supportive of these initiatives. We remain confident in our strategies, the prospects for the company, the capabilities of our dedicated employees, and the experience of our management team as we grow our business and capitalization. Now John will open the call for questions.

[Operator Instructions] First, we'll go to Matt Duncan with Stephens. Please go ahead.

Good morning, guys. So Steve, you guys obviously had a really great sales result here in the April quarter but it looks like revenues are going to flatten out and you talked a lot about what maybe causing that, and it sounds like it's just timing uncertainty and maybe some spending timing changes around the M&A to tap and it seems to me like there is probably one primary customer that would be most likely for that and that's AT&T. Is there anything in addition to those two factors that may be causing them to slow spend in the near-term? Or is it really just those two things and they're going to have to reaccelerate to get to the 12.5 million homes as fast as they've got to do by nearly in '19?

Sure, Matt. I think it's a little bit broader, right. So there is actually a couple of top flight customers that are in M&A process. We had a very strong start to the year which I think was reflected if you went to the capital spending of those two customers relative to kind of their full year expectations. And so from our perspective, it feels like we've pulled a little bit of revenue out of Q4 into Q3; and then given the way their CapEx came in earlier in the year; we're taking a prudent view of the October quarter. We've got a lot of good things that are starting up this calendar year, and we just didn't want to get ahead of ourselves.

So it's fair to say you've probably layered some conservatism into this given that uncertainty that you mentioned. But clearly, the arrow is still pointing up into the right in terms of the direction of the business based on what you're hearing and seeing from your customers.

Well, I think Matt what the other thing that we mentioned right is that we have a number of these converged wireless-wireline multi-use network deployments that we're involved in, we're doing planning and we see engineering and construction increasing throughout the balance of the calendar year and really accelerating particularly in the construction phase in calendar '18. And if you've looked at some of the recent customers -- some of our customers commentary at a conferences week in Boston; I don't know how you couldn't be up into the right when you have a major customer who says that this multi-use network deployment is a 10-20 year buildout. So I'd recommend that folks take a look at what the customers have said about the future and that's the way we see it.

Steve, that's part of where I'm going with this. I mean it feels like maybe this is customers reassessing exactly where they want to spend, they are planning big projects; I mean Verizon announcing how much fiber they're buying [indiscernible], it's obviously going to result in a lot of construction work and I would think it cost some of your other customers to reassess where they're going to spend and stay competitive. So just want to make sure that there is nothing else underlying this sort of near-term guide other than that and it feels like clearly things are still pointing in the right direction. So…

Yes, I wouldn't limit it to solely this wireless-wireline converged-networks but I would tell you that that clearly -- when you look at the commentary, it's really a new strategic thing in telecom networks. And I think not only -- when we've seen other strategic things before, they very long lived but they have knock-on effects in other industry participants which we think -- on top of what was already in unprecedented environment only makes things better. Over the intermediate term, sure -- we hampered our expectations here because that's the way we see it right now but there is a lot of opportunity out there.

Alright. And then last question for me on headcount; you know, you added about a thousand heads in the quarter, it's the most you've added in one quarter in a while. Were those additions sort of before you guys sensed the timing changing customer stand or those additions that you had to make to support some of the contract wins that you reported to us today?

So couple of things, Matt. So we did an acquisition in the quarter, say just under 300 employees that we added; good employees and good expansion for us in the Southwest. And then particularly on the engineering and planning side, you have these large programs coming in. We typically performed a good portion of those services within as headcount, as well as you normally have a seasonal left in the April quarter versus February.

Sure. Alright, thanks. I appreciate. I'll hop back in queue.

Our next question is from Tahira Afzal with KeyBanc Capital Markets. Please go ahead.

Hi, this is Sean [ph] on for Tahira today. So I guess you know we've gone through a lot of the reasons for the tempered expectations on the topline. Just hoping you know, maybe you can frame the timing -- I mean, I know you guys don't like to give guidance beyond two quarters but based on the qualitative commentary, you know, it seems like you guys have pretty good visibility. So to the extent you can frame when you think some of these emerging wireless opportunities are going to ramp? And you know, potentially see organic growth back in positive territory; that would be helpful.

Of course, Sean. We have organic growth on an adjusted basis forecasted for the fourth quarter. We are in planning and design on a number of projects; so as we said earlier we expect that activity to increase and go to construction in this calendar year. When you start these large programs and that's why we want to make sure that we call out some uncertainty, they go through our permitting phase, you go through -- get the municipalities on board with all the activity; and so early on there could be some uncertainty geography by geography and we're working on these programs nationwide; and we just wanted to reflect that into our expectations. So we've had three years of strong performance and the opportunities today is bigger than it was three years ago.

Okay, fair enough. And then -- you know, you guys had great bookings this quarter. I was just wondering how much of these wireless opportunities were reflected in backlog this quarter? And how you'd expect backlog to trend over the next couple quarters based on -- in light of the opportunities?

So I would say that there is a portion in there but there is more to stay tuned.

Okay, great. Alright, thanks very much.

Our next question is from Adam Thalhimer with Thompson Davis. Please go ahead.

Good morning guys. Can you -- the converged-network opportunity, you've talked about it as -- with multiple carriers and I feel like we only know about one of those. Can you give a little more color on what you're seeing out there?

Well, clearly if you think about small cells and the impact of 5G on both, wireless and wireline infrastructure; it is a development that will impact everybody in the ecosystem. Typically there is somebody who is willing to take some of the pioneering arrows in order to get moving but everybody's involved in the 5G deployments on the macro-cell basis and everybody is involved on a small-cell basis; and so it's really just a question of people taking different approaches but I think everybody understands the overall opportunity of deploying these types of networks.

Okay. Well, can I just to delve off of that in terms of understanding the overall opportunity; can you give us any sense for -- even just the one program that's been talked about more by that customer of -- how many employees you would need or just any kind of sense of how we can size that opportunity…

I think we don't want to get ahead of ourselves but I think in terms of sizing it I think it's pretty instructive that you had two manufacturers of fiber optic cable who are actually in one case building a plant, expanding an existing plant; and in the other case, expanding to plants. And best I can remember, that's the first time there has been a new fiber optic cable plant initiated in this century. So clearly there was an outlook that there would be need for lots of more fiber optic cable to the extent that there is more fiber optic cable needed; you've got to have a lot of people to put it in the air, in the ground and splice up.

And then just lastly for me on the Connect America Fund; it feels like that's kind of taken out of the slide deck, I mean is that opportunity kind of diminished?

We have a strong quarter on Connect America Fund; as you know, it's a five-year program. I think when we looked across the opportunity set in the business, given the addition of this converged-network opportunity; on a relative basis it just wasn't -- it's a nice opportunity, we love working it for our customers but on a relative basis it just is not as large as what we see coming not even close to what we see coming on a converged network opportunity.

Got it, thank you.

Our next question is from Alex Rygiel with FBR. Please go ahead.

Thank you, and Steve, great quarter, congratulations.

Thanks Alex. If you can get through over as cold, that would be helpful too.

How are your customers deployments outside of their traditional footprints being awarded to you? Are they creating new MSAs? Are they sort of one-off contracts; if you could expand upon that that would be helpful.

So Alex, I think the best way to answer that is that all of these things are evolving because it's new to the industry, there is a number of -- and we've seen this with a number of customers, you see these network deployment opportunities but quickly after you start getting network in the ground or in the air, there is a maintenance opportunity and there is also a fulfillment opportunity as they begin to sign-up customers. And I think in part that's why we're as excited as we are about the opportunity because you really are starting to create an industry on the wireline side of the business that's analogous to the wireless business and that it becomes a truly national opportunity and is not bounded by kind of the old geographic franchises on a state-by-state basis.

And then as we look at your Slide 7 where you highlight current awards and extensions; can you help us to appreciate whether or not in near view you maintained market share, gained market share or lost a little bit of market share? And then secondly, have you seen any change in that term or length of period of these contracts; you know, call it over the last one to two years, have they linked into shore or understate the same?

So to the second question first, so we have and we've disclosed a number of contract extensions, awards and negotiations where terms were anywhere from three to five years; and so I think if I looked at that kind of metric five years or ten years ago, it's certainly longer, that it was in that period of time; so I think there are some more durable contracts out there. And then in terms of share, I mean we have a good quarter, there is lots of opportunity out there and I think we're getting our fair share.

Congratulations, good luck.

Next we'll go to Noelle Dilts with Stifel. Please go ahead.

Thanks, good morning, a couple of questions. So first, you talked about this sort of pull forward of revenue into the quarter and just some moderation out of couple of key customers; my first question is, are you seeing that here in the first month of the fourth quarter? And then second, I just want to talk a little bit about the timing here -- you're talking about investments ahead of large program ramps which makes a lot of sense but it sort of feels like you're talking about calendar '18 before these really ramp up; so these investments feel a little bit early. Can you just talk to us a little bit about -- maybe a little bit more detail around what you're investing in and the timing of when you would expect that to be covered; it just feels like the gap is a little bit longer than we've traditionally seen.

Okay. So with respect to the first question, we take into account all of the information we have available prior to the publication of the guidance and the slides which would be up and through what we've known through yesterday. So we're not going to start commenting on kind of post-quarter activity other than the say that we contemplate everything we know when we put the guidance together. And then in terms of the investments because we're involved in the planning of these networks in a number of instances; we're investing in the actual activity -- now we get paid to do this, so it's not in anticipation of revenue. And yes, we were adding some crew capacity but that's only as the planning and design moves to construction; so we're not doing anything in a fashion that's different than the way we have ramped up for large projects before there is an impact, particularly given the magnitude of these projects but we're not doing anything different.

Okay. And then on the margin you talked about mix also being a factor over the next couple of quarters; can you expand upon on what's going on that front?

So there is some portions of the business where we actually supply all of the cables and equipment and splicing and closures and those kind of things, as well as in the wireless business where we supply antennas and some other things or larger items. And so to the extent where you have outperformed into those areas where you have higher materials cost and cause a shift in the gross margin. But it's just a makeshift, it's no change in contract terms or anything else, it's just the makeshift.

Okay, thanks.

We'll go to Brent Thielman with D.A. Davidson. Please go ahead.

Thanks, good morning. Steve, it looks like CenturyLink, Comcast revenue growth is really strong this quarter; does your outlook for the next couple of quarters suggest those customers continue to grow at/or kind of near these levels you've seen here recently?

I don't think we're going to isolate individual customers but I would say that the trends we outlined in the revenue comments and the guidance; you will see that we continue to see 1-gigabit deployments and we continue to see fiber deep [ph] cable capacity projects and those are substantial businesses.

Okay, fair enough. And then the comments around the gross margin, down modestly, the next couple quarters as you kind of initiate these larger programs. How quickly does that tend to resolve; I mean just based on past program cycles; is that something that lingers for several quarters, getting dragged into the latter part of next year until these programs really get going?

So Brent, I think you can go back and look at kind of our performance as growth ramped up in fiscal '15 and '16. You can see we had gross margin expansion. You know, we're going to be prudent in the way we work with our customers but we -- there are good opportunities out there with attractive pricing.

Okay. Thanks guys.

Our next question is from Jennifer Fritzsche with Wells Fargo. Please go ahead.

Thank you for taking the questions. Steve, I understand you don't want to talk about other -- specific customers but you mentioned going through M&A, obviously one is AT&T with Time Warner [ph] but the other one is CenturyLink; and they discussed -- started to disclose their leadership changes; it seems most of those decision makers are still out of the legacy CenturyLink but they are buying in asset with an enormous amount of fiber. As you look at the opportunity there, can you discuss -- you know, it seems to me that the residential broadband push, they are not taking their foot off the pedal there; is that correct?

They have a three-year plan and I think they made comments as recently as a couple of days ago that they're on-track with that and we're happy to participate.

Got it. And then just if I could ask one more; on the cable vertical; you know, one has been very aggressive in pushing the fiber, the other shifts deeper in the plant until the other is at least seemingly hasn't been; yet there the Charter is talking about forget 5G, got to 6G. Are you as excited as you once were about the cable vertical because it still seems early to me and I just want to make sure I'm speaking about it the right way [ph].

Yes, I think that industry is pretty -- and it's broader than just the operator that you might be thinking off; I mean there are other operators with similar announcements. And I think the opportunity to push fiber deeper utilize a small portion of the Co-X [ph] plant and get dramatically increased speed; I think it's attractive to cable operators, and I think it is not unusual that as wireless technology emerges at one -- at an expanded ability to deliver bandwidth that the wireline network providers have figured out how to do more and that's the history for the last 20 years. And I see nothing to believe that that won't continue and effect one -- one other cable operator has kind of stated that exclusively.

Great. Okay, thank you very much.

[Operator Instructions] And next we'll go to Christian Schwab with Craig-Hallum. Please go ahead.

Great, thanks for taking my question. Steve, can you -- when did -- can you help us on the timing of when you became aware of the spending modulation due to acquisitions?

Well, what we've said is that there are always -- when you have big programs, there are some near-term timing uncertainty, we've been through this before. I think you've covered us when we went through this before. And I think that our views evolved the way -- around the way we were going to think about our guidance for the quarter based when we saw kind of where CapEx came in versus full year plan; and we're just taking a prudent view that we have a strong start to the year; our customer budget on a calendar year and we just want to be careful.

No, I think that's perfectly fine. So that was -- you don't think -- so am I right in kind of assuming that maybe we should go and take a look at some of the disruption that you and your competitors saw kind of around DIRECTV and AT&T in '14 and '15 to kind of figure out potential timing; would that be fair?

We didn't see much impact from the transaction that you talked about. I would just say that when we've seen other periods of time where big programs are kicking off, like calendar '14 that there was some modulation we've talked about that resolved itself.

Okay, perfect. Okay, great. And then lastly, can you help with any type of framing of the potential for Dycom given the Verizon-Corning announcement and they're 12.4 million miles of fiber they're going to buy at year-end. Is there any rough math or numbers that you can talk about how that could potentially impact you overtime?

Yes. I think it's a huge opportunity, I think it's still developing. I guess the way I would put that -- the way I would think about it at a high level Christian is that they are in the last -- in the 21st Century there has been no domestic deployment of fiber that was of such magnitude that manufacturers had to add capacity; you know, actually build plants. And so I think that would tell you that it's the biggest thing that's happened in the last 17 years if you frame it that way.

I like the way that's framed. I don't have any other questions. Thanks.

Our next question is from Alan Mitrani with Sylvan Lake Asset Management. Please go ahead.

I guess I'll start with the clean-up questions. Can you give us the other split of the revenues based on the segment and also the Top 5 detachment [ph] customers?

We're going to start Alan and then if we can't finish off and try to getting over our call Alan. Charter Communications was number six at 3.6% of revenue. Customer number seven was at 3.4% of revenue and this was for customers' requests that we not disclose their identity. Frontier Communications was number eight at 1.3% of revenue. Crown Castle was number nine at 1.1% of revenue. And Level3 was number ten at 0.9% of revenue. And then for the split, Telco was at 66.7%, ABLE was at 25.5%, facility locating was at 5.4%, and electrical and other was at 2.4%.

Great, thank you. And also I didn't hear on CapEx guidance; are you keeping the guidance for the year? Can you just give us an update of where you think you'll spend for this rest of the fourth quarter again?

I mean we're going to maintain the guidance at kind of that 175 to 185, net. There is lots of opportunity out there Alan, I mean to the extent that we revisit that, we can always spend less but we see lots of opportunity and the need to add to the fleet the service that demand [ph].

Okay. And then I guess Steve, the big issue is that everyone -- did you see now with the guidance with where we are in spending modulation; it seems as if fee could be or AT&T could be [Technical Difficulty] before the Verizon ramp comes in, this is our in-between period. Do you see this hit for all of fiscal '18? When you get into your seasonality and your bad quarters as it relates to weather. So we have a situation where you're looking -- do these big projects that Verizon is talking about and the Comcast ramps and the rest of AT&T ramping back up to hit their $12.5 million by 2019; does that help you as you get into the mid of fiscal '18 and the better weather, of course?

Well, Alan we've talked about on these multi-use fiber networks that were in planning; shortly into engineering and we see activity increasing throughout calendar '17 and accelerating in calendar '18. And so we -- you know, it's early in the process, we've got to go through affirming and all these other things, there is opportunities to grow revenue at a pretty material way on those projects.

Okay. As it relates to XO Communications, now that you've combined them with Verizon; how much was XO Communications in the last year or just to give us a framework, where would they…

It was pretty immaterial Alan. And the organizations have been converged at this point, so they're -- there is not a separate organization.

Okay. Also can you give us a sense of where you think the other competitors will respond or how you think the other competitors might respond to Verizon's initiative with what AT&T is seemingly is doing on the quiet; just overall -- you know, the cable industry specifically?

It is early to say Alan. Once again, I can recommend that folks take a look at all the commentary that came out of an investor conference this week, lots of good information there. I think that the real question to me is, as you see a new network architect that will have pretty robust capabilities; in the past that's always created pressures on the current competitive equilibrium but people have resolved by further investment in their networks and we've seen that for a long time. And given once again the comments that were made about this being a 10-20 year deployment, I think there will be large adjustments to the way people think about investing in their networks. So I think there is going to be lots of activity.

And finally, can you give us a sense about your view of your customers investments and you've made some comments in your prepared remarks as it relates to the SEC changes or potential changes around the neutrality and maybe freeing up of some of the regulations; what do you think the impact could be short-term and maybe long-term in the industry?

So I think strategically, I think all of our customers have made public comments about this. I'm pleased that the threat of price regulation via Title 2 is not going to happen with the current FCC and in fact some industry commentary; and I think there was a bill actually introduced into the House to try to look at net neutrality and a number of issues in a statutory way which I think would be a great way to update the Telecom Reform Act from over 20 years ago. So I think strategically things are moving in a way that will be supportive of enhanced investment; and then there is a number of regulatory actions that the FCC really around networks deployment, specifically small cells, as well as some fiber-related issues that -- where there is a clear recognition of permitting the municipal -- permitting process needs to be streamlined and it needs to be quicker. And that's in part of what we're talking about here in terms of near-term uncertainty around the start of these projects and the more work that the FCC does on that, I think the better our customers will feel about spending money and easier it will be for us to get these projects started.

Thank you.

We have a follow-up from Jennifer Fritzsche with Wells Fargo. Please go ahead.

Great, thanks. Steve, just one more. On the wireless-wireline convergents, I meet WIA right now in Orlando and it's -- everything seems to be about fiber and small cells, ICWS [ph] week seemed the same, Barcelona seemed the same, I guess just as you are discussing with your counterparts or your customers for the wireless decisions, are those decisions being made by -- I guess, the wireline people or the wireless people or there is kind of -- is it all being morphed into one?

I think it's being morphed into one. I mean there are different organizational structures but clearly you have to have a converged view of the way to design the network and engineering. And one of the reasons that there is so much fiber that's needed for these networks is because of all of the capabilities that software defined networking creates and the opportunities to make the deployment of the small cells more affective and the ability to deliver more throughput; these are highly complicated networks, they require extremely low latency to gain the technological benefits of the equipment, and we're in that position where home run fibers from extremely smart computers is the way we're going to be evolving the network for the next 20 years and I think there will be lots of engineering effort at our customers that goes into that.

Great, thank you.

And Mr. Nielsen, there are no further questions. Any closing comments?

Well, we thank everybody for your attendance on the call and we'll speak to you again at the end of August after our fourth quarter. Thank you.

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