Good day and welcome to Dycom Industries, Inc. Second Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Steven Nielsen. President and Chief Executive Officer. Please go ahead, sir.

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

Thank you, Steve. All forward-looking statements made during this conference call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate to historical periods. These forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from current projections, including those risks described in our annual report on Form 10-K filed March 3, 2023 and together with our other filings with the U.S. Securities and Exchange Commission. Forward-looking statements are made solely as of the original broadcast date of this conference call and we assume no obligation to update any forward-looking statements. Steve?

Thanks, Ryan. Now moving to Slide 4 and a review of our second quarter results. As we review our results, please note that in our comments today and in the accompanying slides, we reference certain non-GAAP measures. We refer you to the quarterly report section of our website for a reconciliation of these non-GAAP measures to their corresponding GAAP measures. Now for the quarter. Revenue was $1.042 billion, an organic increase of 7.1%. As we deployed gigabit wireline networks, wireless/wireline converged networks and wireless networks, this quarter reflected an increase in demand from 4 of our top 5 customers. Gross margin was 20.3% of revenue and increased 234 basis points compared to the second quarter of fiscal 2023. General and administrative expenses were 8.1% of revenue and all of these factors produced adjusted EBITDA of $130.8 million or 12.6% of revenue and earnings per share of $2.03 compared to $1.46 in the year ago quarter. Liquidity was strong at $685.9 million. And last Friday, we acquired Bigham Cable Construction, a provider of telecommunications construction services in the Southeastern United States for a purchase price of $127 million. Bigham generated revenues of approximately $140 million over the last year and expands our ability to further address significant growth opportunities in rural broadband deployments. And finally, as our most recent share repurchase authorization has expired, our Board has newly authorized $150 million in share repurchases. Now going to Slide 5. Today, major industry participants are constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are generally designed to provision gigabit network speeds to individual consumers and businesses either directly or wirelessly using 5G technologies. Industry participants have stated their belief that a single high-capacity fiber network can most cost effectively deliver services to both consumers and…

Thanks, Steve and good morning, everyone. Going to Slide 8. Contract revenues were $1.042 billion and organic revenue increased 7.1%. Adjusted EBITDA was $130.8 million or 12.6% of revenue compared to $104.7 million or 10.8% of revenue. The adjusted EBITDA percentage increased 179 basis points compared [indiscernible] '23 from improved operating performance on the higher level of revenue in the quarter. Gross margin was 20.3% of revenue compared to 17.9% in Q2 '23. G&A expense was 8.1% of revenue compared to 7.5% in Q2 '23 and Net income was $2.03 per share compared to $1.46 per share in Q2 last year. The increase in earnings reflects higher adjusted EBITDA and lower amortization and higher gains on asset sales, partially offset by higher depreciation, stock-based compensation, interest expense and taxes. Going to Slide 9. Our financial position and balance sheet remains strong. We ended Q2 with $500 million of senior notes, $323.75 million of term loan and no revolver borrowings. Cash and equivalents were $83.4 million and liquidity was strong at $685.9 million. Our capital allocation prioritizes organic growth followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage. Last Friday, we acquired Bigham Cable Construction for a purchase price of $127 million. And this week, our Board of Directors approved a new $150 million authorization for share repurchases through February 2025. This authorization replaces the remaining amount from our prior authorization. Going to Slide 10. Cash flows provided by operating activities were $56.3 million in Q2. Capital expenditures were $40 million, net of disposal proceeds and gross CapEx was $51 million. The combined DSOs of accounts receivable and net contract assets was 111 days, an increase of 5 days sequentially. Going to Slide 11. As we look ahead to the quarter ending October 28, 2023, we expect organic contract revenues to be in line with Q3 of last year. In addition, we expect approximately $30 million of acquired revenues from Bigham Cable construction in Q3 2024. We also expect non-GAAP adjusted EBITDA percentage of contract revenues to increase 50 to 100 basis points as compared to Q3 2023. Additionally, we expect $6.1 million of total amortization expense, $13.3 million of net interest expense, a 26% effective income tax rate and 29.7 million diluted shares. Now, I will turn the call back to Steve.

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

[Operator Instructions] And that will come from the line of Adam Thalhimer with Thompson & Davis.

Congrats on the good quarter and the acquisition. Steve or Drew, from the customers that are going to be a touch weaker in the back half of this year, when do you think activity picks back up? Is it possible in your fiscal Q4?

Yes, Adam, I think we've seen other environments where people that had strong first halves. They closely manage their budget going into the end of the year. And then as I look forward to more normalized activity in the following year, there's certainly a possibility that, that activity could pick up. We've seen that before.

And then for Bigham, can you comment on -- do they have a specific top customer? Are there any large contracts that you're picking up? And maybe you can comment on the acquisition process?

Yes. They have historically had a long successful relationship with Charter in the Southeast. They also work for a number of electric co-ops. So we think it's a good expansion of the business that we do with Charter. We've obviously done lots of work in the Southeast. There was not a process. These are folks that we've known for a long time and respected. And so it just made sense for both of us to get together when we did.

[Operator Instructions] And that will come from the line of Brent Thielman with D.A. Davidson.

Great quarter. Steve, any additional color just on the strong improvement in margins almost 200 basis points over last year. I guess just asking especially in consideration that kind of some of the slower demand you saw from a few larger customers.

Yes. I think we are pleased with the margin performance. We've actually, over the last 16 consecutive quarter, both gross and EBITDA margins have increased year-over-year. If you look at the guidance, we expect that to continue for the October quarter. I think there are a number of things that are -- have been helpful. I mean, clearly, we've had lots of organic growth. We've always talked about having good distribution across top customers but we've also had great growth out of the top 5. So that's been helpful. We talked about some headwinds that have abated over the last, call it, 2 to 3 quarters. So that's also been helpful. And I just think that in general, the industry is in a very healthy place but always -- we could always do better. We're working hard to improve them but we are pleased with our progress.

Okay. And I guess, stepping back, Steve, I mean, you've been able to more than compensate for some of these customers who sort of moderated plans in the short run with the ramp-up among other customers. You've always said there will be some variations in spending patterns on kind of on a short-term basis. But I guess does this environment today with sort of multiple new and legacy participants spending money. Does it increase your conviction? This is sort of a sustainable trend for you, especially as we see a few of your larger customers kind of take a pause here.

Yes. I think, Brent, it's helpful to keep in mind that if you look at over the last 2 years, we've had just short of $1 billion of organic growth. So -- and you don't do that just on 1 or 2 customers. So it's been a broad book of business that's increased. I do think that that's been helpful to the business as broad a growth pattern as I think that I've ever seen or at least maybe not since the late 1990s, a long time ago. And I do think that the drivers supporting that growth are really both private capital for which there's been some new capital raises as well as the public capital that's already in the industry and we expect to see a lot more in the next couple of years.

Okay. And just last on the Bigham acquisition, congrats on that. It's now the trailing 12-month revenue of $140 million, is that appropriate to consider going forward? Is there any reason to believe it'd be lower?

Sure. They've had a nice period of growth. We expect that to continue. We're going to work hard together. We think one of the synergies of the deal is that we'll be able to help them with acquiring more capital equipment to support their growth. So I think they'll grow nicely. We're not going to give you a forward forecast on one business unit but typically, we acquire things that have been growing and that we expect to continue to grow and put us in position to benefit nicely from big trends in the industry. And I think Bigham help us do that.

One moment for our next question. And that will come from the line of Sean Eastman with KeyBanc Capital Markets.

Steve, I wanted to come back to your comment about the longer-term industry financings that were secured. I assume you're referring to the fiber securitization announced by one of your large customers earlier this month. But I just wanted to make sure we understand what you're communicating there, what the significance of that is. And just come away with the right takeaway.

Sure. So Sean, clearly, there was one of our very significant customers that was able to go out and raise a significant amount of additional capital to fund their fiber program. and they were able to do that with a couple of the tranches that were investment-grade rating. But I think it's probably bigger than that. So not only did that customer access the ABS market but so did a number of others that we work for, some that are smaller but trying to grow more rapidly. And I think any time that a growth industry can gain access to investment-grade capital for a portion of its future financing needs. That's a good thing for that industry. I was involved in the tower industry 20 years ago when it began to transition from high-yield financing to CMBS. And I think if you look back on that industry, that was a milestone that supported its hugely successful growth [indiscernible]. So I think anytime that you see investment-grade capital meeting a growth opportunity as it does here with fiber infrastructure. That's a good thing.

Okay. Very helpful. And then coming back to the margins, the guidance for revenue implies kind of flat sequential organic revenues from 2Q to 3Q, while the margin expansion guidance seems to imply a pretty meaningful sequential downtick in margins from 2Q to 3Q. So I just want to understand why that makes sense? Is there something in the mix of business? Was there something that perhaps wasn't sustainable? Any comment there would be helpful.

Sure. I think, Sean, what we would point you to is that clearly, we've had some moderation in some customers. And so we're a little bit under absorbed on G&A. I think is, at least in our model, those margins are in line and a little bit of pressure on the G&A line. given that it's -- our belief is that this is kind of a second half moderation and that things normalize going into next year, we're making some adjustments but we're not going to do anything short term that impacts our ability to manage the business for growth long term.

Okay. Again, very helpful. One last one, Steve. I mean clearly guiding to a moderation in revenue versus what we've seen over the past year or so. Perhaps one benefit of that would be the cash flow unwind. Is that a fair expectation that in the back half, we should see good cash flowing out of the business? Any thoughts there would be also a good perspective.

I think directionally, Sean, you're there. I mean that's what we've historically seen in our business. I just want to step back and provide perhaps some context on this moderation. Any time we've grown, call it, just less than $1 billion over a 2-year period. And the industry has grown with us. This isn't just us; this is lots of folks. That kind of surge in activity typically has some consolidation that comes and we've been through this before. And as we consolidate, we generate cash. We invest that cash to increase our future growth when the business gets better. We've got a number of customers that are growing pretty substantially this year and into next year. And we're going to use that cash to make the business bigger and better as this consolidation unwinds which we don't think it's going to take very long for that to do.

One moment for our next question. And that will come from the line of Frank Louthan with Raymond James.

Just on the Bigham deal, just curious when that closes and if you can give us an idea of the margin profile? I would assume you can improve that a little bit but how is that relative to where you are? And then secondly, what are customers telling you about their BEAD plans, some of the funding coming in next year? Are they already lining that up? And was that some of the strategic rationale for Bigham to expand a little bit more in rural areas?

Yes, Frank, so with respect to close, that was a signed and closed deal. So we closed on last Friday. So that's -- it's done. With respect to the margins, I think that [indiscernible] at our margins are a little bit better. And so we think it's on the margin line before all the purchase accounting issues that we think it's accretive to what we're doing. And once again, we're going to help invest in that business so that we can both grow at topline and bottom. On BEAD, Frank, I think that's a great question. Just with respect to Bigham, if you look at the 5 state area that they focus on, those 5 states have received something like, call it, $6 billion of deep funding. So certainly, that's going to be helpful. We also have lots of other resources in that area, too. I think the way we're thinking about BEAD is we're encouraged that at least some industry analysts have about 40% of the $12 billion that are actually in ILEC footprint. So I think we'll see some good opportunities with the ILECs. And then with respect to others that have expressed some pretty active planning. So I think there's lots of planning going on. It's kind of amazing, Frank. I looked this morning, there's 19 states that received $1 billion or more of allocation. So lots of capital coming to the market -- coming to the industry over the next couple of years.

One moment for our next question. And that will come from the line of Alex Rygiel with B. Riley Securities.

Steve, it looks like capital allocation priorities change to be as M&A as this quarter appears to have moved ahead of share repurchases. Can you touch upon that a bit?

Yes. I think, Alex, we've always had an opportunistic approach to M&A. This wasn't a deal that we found in the last 3 weeks and closed. We've been working on this for a while. We're always looking forward to have an opportunity to buy well-run family businesses. This is a business that just celebrated its 46th anniversary. So it fits a profile that we've been successful with in the past. So I think irrespective of where we were on share repurchases or organic growth. This is a deal that when it presented itself, we were very interested in completing. I think we're going to be opportunistic on where we go with the cash flow that we have. We've always tried to increase the intrinsic capability to grow when there are periods of time where growth moderates a little bit. And I think -- if you think about after this deal, we'll still be nicely below net leverage of 2x. So we've still got plenty of room to grow given the strength of the balance sheet and the available liquidity that we have.

And then specifically to [indiscernible], I'm assuming they are bringing in a backlog here. Any chance you could quantify that? And then as it relates to the macro M&A, can you address purchase multiples today relative to a number of years ago and how they might be -- might have changed?

Yes. I think what we can say is we're working through the details. Certainly, they do have plenty of backlog. We're working through the details right now and we'll have those backlog results included in our October quarter. This deal was certainly within our historical range. Clearly, as interest rates have gone up, we factor that into our valuation but we feel really good that this is a deal that was good for us and good for the sellers.

One moment for our next question. And that will come from the line of Eric Luebchow with Wells Fargo.

Great. Thanks for the question, Steve. So just wondering if you could provide any more color like you did last quarter? So two of the customers you talked about that declined pretty substantially on a sequential basis. If you strip them out, it looks like all your other customers grew over 15% sequentially. So any kind of way to disaggregate your guide for Q3 between those two customers that are moderating spend and some of the other customers that continue to grow pretty nicely.

Yes. I think at a high level, Eric, what we can say is that the adjustment that we saw sequentially is moderating, certainly and that the growth rates as we go into October for everybody else continues but the course off of a bigger base growth at the at the rates that we're seeing requires hard work by everybody and we're working hard to do better if we can but there's certainly lots of opportunity.

Okay. I appreciate that. A couple of the equipment manufacturers recently cited some demand slowdown for wireline and wireless equipment. So maybe based on what you see, do you think this is largely just an inventory digestion issue with lead times on a lot of equipment coming down a lot versus last year? Or does it have any read that you can see in terms of demand in the next few quarters in your business?

Well, certainly and we're no expert in that business but we've been around it. But clearly, with the benefit of hindsight, there was a lot of ordering when supply chains got challenged and they're working through that inventory. That's why we're pleased that we're in the services business where we have to work through those kind of issues. As you can tell, if you look at the details when you get time to run through the information we provided. We've got a number of customers that are still growing strongly. And it's just a question of some rotation. We've seen that before, a little bit of consolidation but we feel good about being optimistic for next year.

Perfect. And then just one last one for me, Steve. A few of the tower companies talked about wireless activity slowing pretty materially in the second quarter. One of your competitors did as well. I know it's a small piece of your business but your top customer, you do a decent amount of workforce. So maybe you could provide any commentary at all in terms of your -- what you're doing on the wireless side, if you did see a slowdown there, consistent with what we heard from other industry participants.

Sure, Eric. Total wireless revenue was about 4.2%, 4.3% of total revenue. So it certainly was off somewhat. I think it's pretty generally acknowledged that carriers have done a great job of efficiently deploying the mid-band spectrum that they have. And so that's affected activity. Again, in the near term, we think over the long term, there are great opportunities in wireless. But again, they've done a great job of getting this out there quickly. And what's good for their business is ultimately always good for our business.

[Operator Instructions] One moment for our next question. And that will come from the line of Alan Mitrani with Sylvan Lake Asset Management.

Just a couple. Was Bigham a subcontractor for you guys at all or no?

No, no, they're direct to customers.

Okay, good. Also, normally, you're guiding to, I guess, down revenues in the next quarter, excluding Bigham, if you add a menu say flat. Normally, I just want to look ahead to your fiscal fourth quarter. I know you don't give guidance 2 quarters out but normally, that's the odd weather quarter, the holiday quarter and revenues are typically down around 12% to 13% depending on the year, of course. Do you think we'll normally use this base -- this third quarter base which is already against your regular seasonality given the slowdown as that quarter to then decline from there 12% to 13%? Just give us some direction, if you can, looking ahead.

I mean, Alan, we're not giving the second quarter out guidance. I think what we would say is just to reiterate what you did is, it's a quarter that can be -- that is always influenced by daylight hours, holidays and can be impacted by weather. We have some customers that we see some opportunities adjusting for seasonality with their activity picking up into that quarter but it's too early for us to provide guidance at this point. And in a way, Alan, I mean, thinking about it that way, I know it's important to the Street. But when we look ahead over the next couple of years, there's $40 billion of public capital on top of $30 billion, $40 billion of capital that's already working its way through the system. And so we feel pretty good at the outlook for next year.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Steven Nielsen for any closing remarks.

Well, we thank everybody for their time and attention and we look forward to speaking to you again on our third quarter earnings call, the week of Thanksgiving. Thank you.

Thank you all for participating. This concludes today's program. You may now disconnect.