Good day and welcome to Dycom Industries, Inc. Second Quarter Results Conference Call. 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 four of our top five 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 businesses, enabling multiple revenue streams from a single investment. This view is increasing the appetite for fiber deployments and we believe that the industry effort to deploy high-capacity fiber networks continues to meaningfully broaden the set of opportunities for our industry. Increasing access to high-capacity telecommunications continues to be crucial to society, especially for rural America. The infrastructure investment and Jobs Act includes over $40 billion for the construction of communications networks in unserved and underserved areas across the country. This represents an unprecedented level of support. In addition, substantially all states have commenced programs that will provide funding for telecommunications networks even prior to the initiation of funding under the Infrastructure Act. We are providing program management, planning, engineering and design, aerial, underground and wireless construction and fulfillment services for gigabit deployments. These services are being provided across the country in numerous geographic areas to multiple customers. These deployments include networks consisting entirely of wired network elements and converged wireless/wireline multiuse networks. Fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging societal initiatives. We continue to provide integrated planning, engineering and design, procurement and construction and maintenance services to several industry participants. Macroeconomic conditions, including those impacting the cost of capital, may influence the execution of some industry plans. In addition, the market for labor remains tight in many regions around the country. Automotive and equipment supply chains remain challenged, particularly for the large truck chassis required for specialty equipment; prices for capital equipment continue to increase. It remains to be seen how long these conditions may persist. We expect demand to continue to fluctuate amongst customers. For several customers, deployments are increasing into next year. For others, capital expenditures have been more heavily weighted towards the first half of this year. Accordingly, they appear to be managing budgets closely through the end of this year. We are encouraged by recent longer-term industry financings. These financings have expanded the pool of capital available to fund future industry growth. Within this context, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers. Moving to Slide 6. During the quarter, revenue increased 7.1%. Our top five customers combined produced 59.2% of revenue, decreasing 2.3% organically. Demand increased from four of our top five customers. All other customers increased 24.6% organically. AT&T was our largest customer at 16.7% of total revenue or $174.3 million. Lumen was our second largest customer at 15.6% of revenue or $162.5 million. Lumen grew organically 56.5%, excluding operations sold to Brightspeed from the year-ago period. This was our sixth consecutive quarter of organic growth with Lumen. Revenue from Comcast was $119.5 million or 11.5% of revenue. Comcast was Dycom's third largest customer and grew organically 6.9%. Verizon was our fourth largest customer at $104.9 million or 10.1% of revenue. Verizon grew 29.8% organically. A customer who has requested that our name not be disclosed was our fifth largest customer at $55.3 million or 5.3% of revenue. This customer grew 68.6% organically. This is the 18th consecutive quarter where all of our other customers in aggregate, excluding the top five customers, have grown organically. It is the first quarter since our October 2014 quarter where our top five customers have represented less than 60% of total revenue, an encouraging sign of increasing customer breadth and opportunity. Of note, fiber construction revenue from electric utilities was $82.7 million in the quarter and grew organically 3.6%. We have extended our geographic reach and expanded our program management and network planning services. In fact, over the last several years, we believe we have meaningfully increased the longer-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of gigabit wireline direct and wireless/wireline converged networks as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Now going to Slide 7. Backlog at the end of the second quarter was $6.207 billion versus $6.316 billion at the end of the April 2023 quarter, a decrease of $109 million. Of this backlog, approximately $3.523 billion is expected to be completed in the next 12 months. Backlog activity during the second quarter reflects solid performance as we booked new work and renewed existing work. During the quarter, we received from Frontier, a fiber construction agreement for California, Texas, Illinois, Michigan, Indiana, Ohio, New York, Connecticut, Pennsylvania and Florida. For Brightspeed a fiber construction agreement for Pennsylvania, New Jersey, Virginia and North Carolina. From Charter, rural fiber construction agreements in Missouri and Florida. For Windstream, fiber construction agreements in Georgia. And from AT&T, a utility line locating agreement for Arkansas. Headcount was 15,147. Now, I will turn the call over to Drew for his financial review and outlook.

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 to the prior year 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 2023. G&A expense was 8.1% of revenue compared to 7.5% in Q2 2023 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 Days Sales Outstanding 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 by 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.

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 closely manage their budget going into the end of the year. Looking forward to more normalized activity in the following year, there's certainly a possibility that activity could pick up. We've seen that before.

Can you comment on whether Bigham has a specific top customer or if there are any large contracts that you're currently securing? Additionally, could you provide insights 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 formal process. These are folks that we've known for a long time and respected. It just made sense for both of us to come together when we did.

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 of some of the slower demand you saw from a few larger customers.

Yes. I think we are pleased with the margin performance. Over the last 16 consecutive quarters, both gross and EBITDA margins have increased year-over-year. Looking at the guidance, we expect that to continue for the October quarter. There are several factors that have been helpful. We've had a lot of organic growth and strong distribution across top customers, along with good growth from the top five. We've talked about some headwinds that have abated over the last two to three quarters. Overall, the industry is in a healthy place but we are always striving to improve.

Okay. And I guess, stepping back, Steve, 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. Does this environment today, with multiple new and legacy participants spending money, increase your conviction that this is a sustainable trend for you, especially as we see a few of your larger customers take a pause?

Yes, I think Brent, it's helpful to keep in mind that over the last two years, we've had just shy of $1 billion of organic growth. And that has not come from just one or two customers. It's been a broad base of business that's increased. It's been a growth pattern unlike any I’ve seen in a long time. The drivers supporting that growth include both private capital and public capital already in the industry, with expectations for substantial growth in the years ahead.

And just last on the Bigham acquisition, congrats on that. 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 and we expect that to continue. We'll work hard together and one of the synergies of the deal is that we'll be able to assist them in acquiring more capital equipment to support their growth. We are not providing a forecast on one business unit, but generally, we acquire businesses that have been growing and expect to continue to grow.

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 ensure we understand what you're communicating there, and the significance of that.

Sure. So Sean, there was one of our significant customers that was able to raise a substantial amount of additional capital to fund their fiber program. They accessed the ABS market and others we work with did as well. Anytime a growth industry can gain access to investment-grade capital for portions of its future financing, it's good for that industry. I have experience in similar situations from the tower industry 20 years ago, which marked a milestone that supported its significant growth.

Okay. Very helpful. And then coming back to the margins, the guidance for revenue implies flat sequential organic revenues from Q2 to Q3, while the margin expansion guidance seems to imply a pretty significant sequential downtick in margins from Q2 to Q3. Can you clarify why that makes sense? Is there something in the mix of business? Was there something that perhaps wasn't sustainable?

Sure. I think, Sean, we have seen some moderation in some customers. So we're slightly under absorbed on G&A, influencing margins. However, we believe that this is a short-term moderation, and we are managing the business for long-term growth.

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

Directionally, Sean, you're correct. Historically, we have seen this. After a substantial growth period, consolidation typically leads to cash generation, which we will reinvest for future growth when the business improves. Some customers are growing substantially this year and we will use that cash to enhance our business.

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

Just on the Bigham deal, when does that close and can you provide insight into the margin profile? I assume you can improve that a little, but how does that compare to your margins? And then, what are customers telling you about their BEAD plans regarding the funding coming in next year? Are they already lining that up?

Yes, Frank, with respect to the close, the deal was signed and closed last Friday. Regarding the margins, we believe that our margins are a little better and we anticipate this to be accretive post-acquisition. Concerning BEAD, the five states Bigham focuses on have received around $6 billion of deep funding, which will be beneficial. Other resources are also available in those areas. I think there will be active planning among industry analysts about 40% of the $12 billion in an ILEC footprint.

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 have changed with M&A seemingly moving ahead of share repurchases. Can you elaborate on that?

Yes. We've always had an opportunistic approach to M&A. This wasn't a deal we found in the last three weeks; we have been working on it for a while. We look for well-run family businesses, and this one fits the profile we've been successful with before. Regardless of our position on share repurchases or organic growth, this deal was strategic for us. Post-acquisition, we'll remain nicely below the net leverage of 2x and have ample room for future growth.

And specifically regarding backlog, I'm assuming they are bringing some in? Any chance you could quantify that?

Yes, they do have a considerable backlog. We're working through the details now, and we will include backlog results in our October quarter. This deal was in line with our historical range.

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. Two of the customers that you mentioned declined significantly on a sequential basis. Stripping them out, it appears all your other customers grew over 15% sequentially. Can you disaggregate your guide for Q3 between those two customers moderating spend and others continuing to grow?

Yes. At a high level, we note that the sequential adjustment we've seen is moderating. Growth rates for everyone else remain strong into October. However, with a larger base, maintaining those same growth rates requires diligent effort by everyone involved. We recognize the opportunity ahead.

A few equipment manufacturers have cited a demand slowdown for wireline and wireless equipment. From your perspective, do you think this is primarily inventory digestion with lead times improving or does it suggest a broader demand dip?

Certainly; we're not experts in that field but witnessing the challenges in supply chains led to increased ordering. Now that they’re addressing inventory levels, we're pleased to be in the services business. We see several customers still showing strong growth and recognize it as a rotation. While there may be some consolidation, we remain optimistic for next year.

Just one last question for me, Steve. Some tower companies reported a notable slowdown in wireless activity during the second quarter. What is your perspective on the wireless side, particularly with your top customer?

Total wireless revenue was about 4.2%, 4.3% of total revenue. It was somewhat reduced. It's acknowledged that carriers have done a great job of efficiently deploying mid-band spectrum, which has affected activity. While this may temporarily slow down, there are still significant opportunities within wireless for us long-term.

One moment for our next question. Our next question 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.

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 two quarters out, but typically, that's a weather-impacted quarter and revenues usually decline around 12% to 13%, depending on the year. Do you think we'll normally use this third-quarter base, which is already against your regular seasonality, down from there 12% to 13%?

We're not providing second quarter guidance. To reiterate, this quarter can be influenced by daylight hours and holidays, impacting weather. Some customers show growth opportunities despite typical seasonal adjustments. It’s too early for precise guidance at this point. However, looking ahead, we expect substantial public capital, which supports the industry's outlook for growth next year. 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.