Good day, and thank you for standing by. Welcome to Dycom Industries Fourth Quarter Results Conference Call. Please be advised that today's conference is being recorded.

Thank you, operator. Good morning, everyone. Thank you for attending this conference call to review our fourth quarter fiscal 2024 results. 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. These forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from current projections, including those risks discussed in the company's 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.

Thanks, Ryan. Now moving to Slide 4 and a review of our fourth 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 increased year-over-year to $952.5 million, an increase of 3.8%. Organic revenue declined 2.5%. As we deployed gigabit wireline networks, wireless/wireline converged networks and wireless networks, this quarter reflected an increase in demand from 2 of our top 5 customers. Organic revenue was slightly below the lower end of our expectations due to significant winter weather across broad sections of the country during the latter part of January. The year-over-year effect of the weather on our results was particularly pronounced as we did not experience significant winter weather last January. Gross margin was 16.9% of revenue and increased 37 basis points compared to the fourth quarter of fiscal '23. Margins were also affected by January's weather as revenue per business day declined notably from December. General and administrative expenses were 7.7% of revenue and all of these factors produced adjusted EBITDA of $93.7 million or 9.8% of revenue compared to $83.1 million or 9.1% of revenue in the year-ago quarter and earnings per share of $0.79. Operating cash flow was very strong in the quarter at $325.1 million. Liquidity was robust at $703.6 million. Our net leverage ratio was 1.41, the lowest since the October quarter of 2012. During the quarter, we repurchased 260,000 shares of our common stock for $29.4 million. 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's 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 rural communications networks in unserved and underserved areas across the country under the BEAD program. This represents an unprecedented level of support and meaningfully increases the rural market that we expect will ultimately be addressed. All states and territories have submitted their initial BEAD proposals. As of early this week, one state has completed all 10 required steps, while 15 others have completed 9 of the 10. Once all 10 steps are completed, a state can request 20% or more of its allocated BEAD funding. 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. Stabilizing macroeconomic conditions may well influence the execution of some industry plans. In addition, the market for labor has improved in many regions around the country. Automotive and equipment supply chains are also improving, although the supply of mid-duty chassis is still somewhat constrained. Prices for capital equipment continue to increase but at a moderating rate. For several customers, we expect the pace of deployments to increase this year, including two significant customers whose capital expenditures were more heavily weighted towards the first half of calendar year 2023. We are encouraged that despite winter seasonality, revenue from these two customers actually increased from our October quarter to our January quarter. We expect this trend to continue. More generally, we see organic growth resuming in our July quarter. Overall, we are encouraged by improving financial markets with long-term interest rates substantially lower than 6 months ago and expect these lower rates, if sustained, to support future industry investment. 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 3.8%. Our top 5 customers combined produced 58.6% of revenue, decreasing 13% organically. Demand increased from 2 of our top 5 customers. All other customers increased 17.8% organically. Lumen was our largest customer at 17.2% of revenue or $164.2 million. Lumen grew organically 48.9%. This was our eighth consecutive quarter of organic growth with Lumen. AT&T was our second largest customer at 17.1% of total revenue or $162.7 million. In a seasonally weak quarter, AT&T grew sequentially for the first time in 3 quarters. Revenue from Comcast was $97.3 million or 10.2% of revenue. Comcast was Dycom's third largest customer. Charter was our fourth largest customer at $70.3 million or 7.4% of revenue. Charter grew 124.3% organically. And finally, Verizon was our fifth largest customer at $64.1 million or 6.7% of revenue. In addition, total revenue growth was 22.8% after excluding two customers whose spending was front-end loaded last year. This is the 20th consecutive quarter where all of our other customers in aggregate, excluding the top 5 customers, have grown organically. Of note, fiber construction revenue from electric utilities was $83.7 million in the quarter. 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 long-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 fourth quarter was $6.917 billion versus $6.613 billion at the end of the October 2023 quarter, an increase of $304 million. Of this backlog, approximately $3.966 billion is expected to be completed in the next 12 months. Backlog activity during the fourth quarter reflects solid performance as we booked new work and renewed existing work. We continue to anticipate substantial future opportunities across a broad array of our customers. During the quarter, we received from Frontier, a Construction & Maintenance agreement in Florida. For Brightspeed, Construction & Maintenance agreements in Kansas, Ohio, Pennsylvania, New Jersey, Virginia, Tennessee, and North Carolina. Various Rural Fiber Construction agreements in Washington, Missouri, Louisiana, Mississippi, Michigan, Indiana, Ohio, Kentucky, North and South Carolina. And Various Utility Line Locating agreements in California and New Jersey, Maryland, Virginia and the District of Columbia. Headcount was 15,611.

Thanks, Steve, and good morning, everyone. Going to Slide 8. Contract revenues were $952.5 million, an increase of 3.8% compared to Q4 last year. Organic revenue decreased 2.5% and was slightly below the lower end of our expectations due to significant winter weather across broad sections of the country during the latter part of January. Revenue from our recently acquired business was $57.5 million in Q4. Adjusted EBITDA was $93.7 million or 9.8% of contract revenues compared to $83.1 million or 9.1% in Q4 '23. Adjusted EBITDA increased 78 basis points and reached the lower end of our expectations. Gross margins improved 37 basis points to 16.9% of revenue compared to 16.5% in Q4 '23. We expect a greater improvement in Q4, but results were impacted by the adverse winter weather experienced in January. G&A expense came in better than expected and was 7.7% of revenue compared to 7.8% in Q4 '23. Net income was $0.79 per share compared to $0.83 per share in Q4 last year. The change in earnings reflects the $10.6 million increase in adjusted EBITDA plus higher gains on asset sales, offset by $8.6 million of higher depreciation and amortization, $3.4 million of higher interest expense as well as higher stock-based compensation and income tax expense. Going to Slide 9. Our financial position and balance sheet remain strong. We ended Q4 with $500 million of senior notes, $315 million of term loan and no revolver borrowings outstanding. Cash and equivalents were $101.1 million and liquidity was robust at $703.6 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. Going to Slide 10. Cash flows provided by operating activities were strong at $325.1 million in Q4. The combined DSOs of accounts receivable and net contract assets were 120 days. Capital expenditures were $52.7 million, net of disposal proceeds, and gross CapEx was $57.4 million. Capital expenditures net for the full year of fiscal 2024 were $183.3 million. Looking ahead to fiscal 2025, we expect net CapEx to range from $220 million to $230 million. During Q4, we repurchased 260,000 shares of our common stock for $29.4 million. Going to Slide 11. As we look ahead to the first quarter, ending April 27, 2024, we expect organic revenues to range from in line to slightly lower as a percentage of contract revenues compared to Q1 '24. This range reflects that Q1 of last year included revenue from certain customers whose capital expenditures were more heavily weighted towards the first half of calendar 2023. In addition to the range of organic revenues, we expect approximately $60 million of acquired revenues. We also expect non-GAAP adjusted EBITDA percentage of contract revenues to increase 25 to 75 basis points as compared to Q1 of last year. Additionally, we expect $5.5 million of amortization expense, $13.2 million of net interest expense, a 26% effective income tax rate and 29.5 million diluted shares. As we look ahead to the quarter ending July 27, 2024, we expect organic revenue growth to resume.

Thanks, Drew. Moving to Slide 12. This quarter, we experienced solid activity and capitalized on our significant strengths. First and foremost, we maintained 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. We are pleased that many of our customers are committed to multiyear capital spending initiatives as our nation and industry experience improved economic conditions. We are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team.

We will now open the call for questions.

Sorry about the January weather.

Well, we wish we could have changed it, but we couldn't.

I just want to make sure that I understand the Q1 revenue guide. Are you saying organic is flat to slightly down year-over-year?

Yes, that's correct, Adam.

All right. The Brightspeed awards look significant. I was curious if they could crack into the top 5 customers this year?

Adam, those were a number of renewals of business as usual work that we have done in those territories for a long period of time. We're pleased with the commitment and the extension. We do see opportunities for Brightspeed to accelerate. They've got lots of work to get done. Whether they crack top 5 is hard to say. But certainly, we have a good outlook for that this year.

Okay. And then back of the envelope, I'm getting to kind of high single-digit organic revenue growth in Q2. Just curious if you would comment on the magnitude of that flip back to positive.

Yes, Adam, I would say that we're not providing specific guidance for the second quarter. However, you're probably aware that we lost two significant customers from April to July last year, which accounted for about $115 million. Not having that loss will certainly help us achieve more consistent organic growth.

All right. Last one. Do you see both cable customers up this year?

Again, they're both in areas where they're trying to edge out their footprint into rural America. They're doing capacity expansion. I think it really depends on one relative to the other. I'm not sure that is all that material. We're happy that both have great opportunities.

Steve, if I can ask you just to follow up on the guidance. You usually don't give guidance 2 quarters out. So I'm just trying to see what that may be a function of? Is that just elimination of the headwind that you just mentioned? Or is that more clarity in terms of customer spending that you're seeing?

I believe that when we identify inflection points, we aim to assist our clients. Our business experiences cycles, and we feel optimistic about the ongoing discussions with customers regarding this year's build plan. Given that we have seen a few quarters of flat organic growth, we thought it would be valuable for everyone to share this insight. Additionally, it's worth noting that last year was somewhat atypical as we had a few customers who reduced their activity in the first half of the year. We're pleased that both of those customers have shown sequential growth this quarter, and we anticipate this trend will continue in April and again in July. That's the main reason for our observations.

Great. And if I can ask you one more on revenue contribution from acquisition. It looks like 4Q was stronger than what we were anticipating. Your F 1Q guide is also higher than what we were thinking. So just trying to see if there's anything that you would like to point out in terms of the Bigham acquisition that may be outperforming versus expectations?

The acquisition, the Bigham acquisition that we closed last August is primarily in the Southeast. Now the Southeast had some difficult weather, but not as much as perhaps the rest of the country. And so I think that was helpful to the fourth quarter. In the first quarter, we did close a small additional acquisition in February. And so there's probably a 20 or 30 basis point contribution from that acquisition in addition to Bigham. And we'll hope that as we acquire businesses that we do a good job of finding the right ones and that they grow faster than trend because that's why we deploy capital.

Got it. And if I can squeeze in one more on capital allocation since you just mentioned the acquisition. It looks like you bought some shares back in the quarter, not nearly as much as your authorization is. You made a small acquisition. Just kind of want to see where you think of capital allocation given your leverage is as comfortable as it is?

Yes. I think, Sangita, as we've always said, we first and foremost, we want to allocate capital to be able to grow our business with customers. Organic growth is always the highest and best use of capital. And given our scale in the industry, I think customers look to us to be able to grow with them. We are a significant part of industry capacity. So that's always going to be number one. And then number two, we're going to always evaluate share repurchases versus M&A. On a relative basis, it's an art, not a science. I think what's interesting about the fiscal year we just concluded is that we spent just under $50 million to repurchase shares. We spent $122 million on an acquisition. And at the end of the year, net leverage was down 25 basis points from where it ended the year before. So I do think, to your question, we certainly have the ability to invest, to create both growth and value as we look ahead.

Maybe just first, Steve, you noted the backlog, both the total and the next 12 months backlog is the largest we've really seen in the last couple of years. Maybe can you just talk a little bit more about the runway that provides you in 2025 and then 2026?

Sure. I think, Alex, in general, with backlog, the way we think about it is in the near and intermediate term. It's not always tightly correlated with exactly how we perform for revenue growth. But as we've gotten bigger, the numbers have gotten bigger. And so I think that's what's supportive of our outlook for '25 and '26 with the caveat that we don't have anything in backlog that's associated with the BEAD program. And we do expect, as we get through the balance of this year, that as the BEAD awards are finalized state-by-state and as the states begin to issue grants, that I think there will be an opportunity to reflect some of that activity in the backlog.

And then maybe just secondly, I know it's a smaller portion of your business, but just on the wireless segment, we heard a couple of the tower companies talking about a potential ramp in the second half of 2024 in terms of construction work. So I just wanted to get your thoughts there.

Sure. I think, Alex, in general, with backlog, the way we think about it is in the near and intermediate term. It's not always tightly correlated with exactly how we perform for revenue growth. But as we've gotten bigger, the numbers have gotten bigger. And so I think that's what's supportive of our outlook for '25 and '26 with the caveat that we don't have anything in backlog that's associated with the BEAD program. And we do expect, as we get through the balance of this year, that as the BEAD awards are finalized state-by-state and as the states begin to issue grants, that I think there will be an opportunity to reflect some of that activity in the backlog.

Steve, you mentioned less of a headwind in the second half. Does that mean those two customers that you called out that have declined last year, are they going to see a similar pattern to last year? Was it more front-end weighted? Or is it going to be more even through the year? Can you explain that a little bit?

Yes, Frank, I believe that regarding the outlook for the year, we expect to see an increase in real activity as the year progresses. Last year, we experienced minimal winter weather, which led to some customers preparing early due to better-than-expected conditions. This resulted in front-end loading. However, we anticipate a more typical seasonal pattern this year. I expect to see growth from April through July, and we are optimistic that this trend will extend into the latter half of the year, suggesting a return to normalcy.

And then in the all other categories some of those smaller guys, what's the general trend from them? Were they more impacted by the weather that caused a bit of a decline expecting them to bounce back? Or were there any of those that sort of that pulled back your build or anything like that?

Yes, Frank, I believe that regarding the outlook for the year, we expect to see an increase in real activity as the year progresses. Last year, we experienced very little winter weather, which we discussed frequently, as it was significantly better than anticipated. This led some customers to get ahead of their needs due to the mild conditions. I anticipate a more seasonal trend this year. Specifically, I expect growth from April through July, and we hope this continues in the latter half of the year. Overall, it should be a more typical year.

Just on the margins, I thought it was interesting that you were within your outlook for the quarter, even though you didn't achieve the operating leverage you might have anticipated due to the weather in January. Can we conclude that you're outperforming those margin expectations considering the challenges at the end of the quarter?

Yes, I would say that when we reviewed the November and December period, we were either on track or slightly ahead of our plan, but January proved to be more challenging than anticipated. We analyzed the past ten years for the trend from December to January on a per business day basis. Last year was exceptional, with only a 3% to 3.5% decline each day from December to January, whereas this year followed a more typical pattern with a decline of around 17%. This difference had a noticeable impact on year-over-year revenue comparisons, as last year's unusual pattern skewed results. Consequently, with this trajectory, we experienced reduced utilization and productivity, leading to some diminished operating leverage.

Yes. Okay. That's great color. Steve, and it seems like you saw some really or you're seeing some really nice underlying trends across most of the customer base here in the quarter, absent the weather issues. I guess, I know you have a difficult comparison in next quarter and in April. But could you just level set us on what drives the view that organic growth may just be flat or down in April? Because it sounds like things are moving along pretty well.

Yes. I think, again, Brent, we just don't want to get ahead of ourselves. I mean, we've had a quarter here where we did not have organic growth, tough compare. Actually, if you remember last year, I think we beat the January guidance by almost $100 million. So we had a tough compare. And if we put that behind us, I think we feel good about the quarter. But we don't want to get ahead of ourselves.

Yes, I understand, Steve. There was a noticeable decline from Verizon this quarter. Could you discuss how much of this decline you anticipated compared to the impact of weather and the regions you are operating in for them? Any additional clarity on this would be appreciated.

Yes. I think, Brent, what we can say is we've been closing out this large customer program and pleased to do it and pleased to get beyond the negative impact on margins. But the balance of the work that we do for Verizon is in the Northeast. And so it's going to be a little more seasonally affected than the overall country.

I just wanted to try and gauge, in some way, your full year revenue expectations, and I know you don't want to go out with too much specificity here. But you're expecting about 20% to 25% growth in CapEx. To what extent is the underlying volume there reflective of what your '25 revenue expectations might be? I mean, it seems like a double-digit growth setup.

Well, I think, first off, with respect to the full year, recall that we're guiding to flat for the first quarter. So when you have that in one quarter of the calculation, I think that may be a little bit aggressive, Steve, just by the math. I think in thinking about the balance of the year, which is why we provided the guidance for the resumption of organic growth in the second quarter, we do tend to see periods of time where, when we have difficult comps growth will slow as we get beyond those comps and things pick up. And I think that, as a general principle, is the way we're thinking about the balance of the year. On the CapEx, recall that we did extend the useful lives of our assets because it had been tough during the pandemic to make sure that we could get enough of our equipment. So we held on to things that we might have sold sooner. And so not all of that is growth CapEx. A portion of that increase is really going to be deferred maintenance CapEx. And we're pleased that, for the most part, we're having better access to equipment. And in fact, we have $85 million of equipment on order right now. But I wouldn't tie as tight a correlation between CapEx as your question implies.

Okay. That's helpful. And then on the cash flow, obviously, it was a very nice quarter there. And the DSOs improved by 1 day, but they're still up about 12 days, I think, year-over-year. So how do you see this fiscal year playing out from a DSO perspective? Should that trend back to sort of the 710 levels? Or is this kind of the more normalized level where we are at the moment?

Yes. I wouldn't call it normalized. We're working hard to make it lower. We realize how much capital is tied up with every day of DSO. When we're working on these large fiber programs, they're administratively complex. We're working hard, both ourselves and with our customers to simplify the administrative effort behind them. And I think as we get better at that, we have some real opportunities to bring the DSO in. Different customers have different DSO profiles. And to the extent that we have growth resuming with some customers, I think that can also be helpful of improvement on DSO.

As it relates to the BEAD program, and assuming you win some work, when do you anticipate this funding to work its way into your income statement?

I think at this point, the consensus in the industry is that as we get into calendar '25 that we'll begin to see opportunities. I mean, we may see the opportunities in the second half of the year, but not real opportunities for revenue growth into '25. As we said in our comments, one state has gotten all the way through. So theoretically, they can request 20% of the money and begin making awards. There's another 14 or 15 that are queued up behind them that only have one step left. So I think that's certainly a reasonable expectation.

And then margins are improving year-over-year despite some top line headwinds. Can you talk about why and provide a bit more color on your outlook for margin improvement and even kind of taken another step and discuss how margins could be affected by the BEAD program in 2026 or 2025?

Yes. So Alex, as I know you're aware and others, we had a tough period of time on a large customer program that suppressed margins below where the company had traditionally performed. We're pleased that we've worked through that, and that overhang is behind us. We've had good organic growth. Yes, it slowed down last year, but I think the year still was 6% or 7%. Anytime we get broadly distributed organic growth, we get better operating leverage. We're always working on new ways to be more efficient in the field. So working through improvements in operating the business, everything from dispatch to safety and quality. And so I think we're trying to build better margins into the book of business as we look forward to more growth. With respect to BEAD, we had a pretty significant amount of experience on working in the stimulus programs 15 years ago. I think we saw margins in those programs that we did in rural America then, that we're at or better than what we saw in the rest of the business historically, and we see no reason at this time for that to be any different.

Just following up on Alex's question. It seems to me that your SG&A, excluding stock-based comp, is about as low as a percent of revenues and about 18 years, I think, since they even started breaking that out. Can you talk about the leverage you can get off of your fixed SG&A base as all these projects start coming in?

Yes, Alan, I think there's a couple of things that have been driving that outcome. One, we've been doing a number of projects to standardize back-office processes across the company. We continue to do those. There's more coming that we think that we can take back office cost out of the business. I think in addition, when we get broadly distributed growth, it's also broadly distributed across our subsidiary. So not only are we getting operating or holding company level or corporate level G&A leverage, we're also getting it inside individual business units that are continuing to grow pretty significantly.

So it sounds like it's something that's strategic and planned and that could continue going forward as your business starts to benefit from all these government programs in the recovery of growth.

Yes. We see no reason that we can't maintain good tight controls over the G&A portion of expense, and we do have some pretty significant commitments as we look forward to make that even better.

Great. And then one more. On backlog, you guys were somewhat strategic in that given the inflationary environment we've seen, a lot of other companies took on big projects going in multiple years and then they got forced to eat the inflation cost. You guys seemingly, as someone pointed out, your backlog hadn't really been that high over the last number of years, and now it's starting to pick up as I think some of the pricing has cycled through. Would you characterize it that way that you feel like the pricing in your backlog and what you're seeing now is more representative of where you want margins to go over the next couple of years?

It certainly took us some time to review our existing contracts and ensure they reflected the increased cost environment. While there is always more work to do, we've made significant progress. This has been beneficial. As we mentioned in 2021 and 2022, we identified inflation risks and collaborated with our customers to implement pricing strategies that included protective measures for duration risks. This led us at times to prefer shorter-term contracts, which was the right approach to ensure our pricing could adapt to rising costs.

And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Steven Nielsen for any closing remarks.

Well, we appreciate everybody's time and attention on the call, and we look forward to speaking to you in the month of May. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.