Earnings Call Transcript - DY Q1 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Dycom Industries, Inc. Q1 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Nielsen, President, and Chief Executive Officer. Please go ahead.

Steve Nielsen, President & CEO

Thank you, operator. Good morning everyone. I'd like to thank you for attending this conference call to review our first quarter fiscal 2022 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.

Ryan Urness, General Counsel

Thank you, Steve. The statements made during this call may be forward-looking in nature and are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. Forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from our current projections, including those risks described in our Annual Report on Form 10-K filed March 5, 2021, and our other filings with the US Securities and Exchange Commission. We assume no obligation to update any forward-looking statements. Steve?

Steve Nielsen, President & CEO

Thanks, Ryan. Now, moving to Slide 4 and a review of our first-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. To begin, I want to express my sincere thanks to our employees who have served our customers with real fortitude in difficult times over the last 15 months. Now for the quarter, revenue was $727.5 million, a decrease of 10.7%. Organic revenue excluding $3.9 million of storm restoration services in the quarter declined 11.1%. As we deployed one-gigabit wireline networks, wireless wireline converged networks and wireless networks this quarter reflected an increase in demand from two of our top five customers. Gross margins were 14.8% of revenue, reflecting the continued impacts of the complexity of a large customer program, revenue declines year-over-year with other large customers, and the effects of winter weather in the first half of the quarter. General and administrative expenses were 9.2%, and all of these factors produced adjusted EBITDA of $44.1 million or 6.1% of revenue, and adjusted loss per share of $0.04 compared to earnings per share of $0.36 in the year ago quarter. Liquidity was strong at $477.4 million, and operating cash flow was $41.5 million. Finally, during the quarter, we issued $500 million in 4.5% senior notes due in April 2029, and resized and extended our credit facility through April of 2026. These two transactions leave the company solidly financed as we look forward to better performance. 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 one-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 our set of opportunities. Increasing access to high capacity telecommunications continues to be crucial to society, especially in rural America. The wide and active participation in the completed FCC RDOF auction augurs well for dramatically increased rural network investment supported by private capital that in the case of at least some of the participants is expected to be significantly more than the FCC subsidy. We are providing program management, planning, engineering and design, aerial and underground, and wireless construction and fulfillment services for one-gigabit deployments. These services are being provided across the country in numerous geographic areas to multiple customers, including customers who have initiated broad fiber deployments, as well as customers who have resumed broad deployments. These deployments include networks consisting entirely of wired network elements, as well as converged wireless/wireline multi-use networks. Fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging societal incentives. We continue to provide integrated planning, engineering and design, procurement and construction, and maintenance services to several industry participants. Macroeconomic effects and potential supply constraints may influence the near-term execution of some customer plans. Broad increases in demand for fiber optic cable and related equipment may impact delivery lead times in the short to intermediate term. In addition, the market for labor is tightening in some regions of the country, particularly for unskilled/semi-skilled new hires. It remains to be seen how geographically broad these conditions will be and how long they will persist. Despite these factors, 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, organic revenue decreased to 11.1%. Our top five customers combined produce 68.2% of revenue, decreasing 23% organically. Demand increased for two of our top five customers. All other customers increased 31.9% organically. AT&T was our largest customer with 21.4% of total revenue or $155.6 million. AT&T grew 0.9% organically. This was our first quarterly organic growth with AT&T since our July of 2019 quarter. Revenue from Comcast was $131.1 million or 18% of revenue. Comcast was Dycom's second-largest customer and grew organically 10.7%. Verizon was our third largest customer with 12.6% of revenue or $91.5 million. Lumen was our fourth largest customer at $85.8 million or 11.8% of revenue. And finally, revenue from Windstream was $32.1 million or 4.4% of revenue. Windstream was our fifth largest customer. This is the ninth consecutive quarter where all of our other customers, in aggregate, excluding the top five customers have grown organically. In fact, the 31.9% organic growth rate with these customers is the highest growth rate in at least nine years. Of note, fiber construction revenue from electric utilities was $47 million in the quarter or 6.5% of total revenue. This activity increased organically 92.1% year-over-year. We have extended our geographic reach and expanded our program management network planning services. In fact, over the last several years, we have meaningfully increased the long-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of one-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. Despite this overall industry trend, we were recently notified by a customer representing less than 5% of our revenue that it had decided to insource a portion of the construction and maintenance services that are currently provided for them by us, as well as a number of other suppliers. They expect to implement this decision during the fourth calendar quarter of 2021. After this initiative is fully implemented, we expect to continue working for this customer in several markets under new contracts and perform other work on an ongoing basis, although it currently appears at lower levels of activity. Now, going to Slide 7. Backlog at the end of the first quarter was $6.528 billion versus $6.81 billion at the end of the January 2021 quarter, decreasing approximately $282 million. Of this backlog, approximately $2.746 billion is expected to be completed in the next 12 months. Backlog activity during the first 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. For Various Electric Utilities, fiber construction agreements in Arizona, Oklahoma, Missouri, Arkansas, Mississippi, Indiana, Kentucky, Tennessee, Georgia, and North Carolina. For Ziply Fiber, construction and maintenance agreements in Washington, Oregon, and Idaho. For Charter, a fulfillment agreement covering Washington, Nevada, Montana, Wisconsin, Massachusetts, Connecticut, New York, North Carolina, South Carolina, Alabama, and Georgia. From Frontier, our locating services agreement in California, and for Consolidated Communications, construction services agreement in New Hampshire. Headcount increased during the quarter to 14,331. Now, I will turn the call over to Drew for his financial review and outlook.

Drew DeFerrari, CFO

Thanks, Steve, and good morning everyone. Going to Slide 8. Contract revenues for Q1 were $727.5 million, and organic revenue declined 11.1%. Adjusted EBITDA was $44.1 million or 6.1% of revenue. Gross margins were 14.8% in Q1 and decreased 169 basis points from Q1 '21. This decrease resulted from the impact of a large customer program, as well as margin pressure from revenue declines for other large customers compared to Q1 '21. Margins were also impacted by the adverse winter weather conditions experienced in many regions of the country during the first half of the quarter. G&A expense increased 112 basis points, reflecting higher stock-based compensation, and administrative and other costs. Non-GAAP adjusted net loss was $0.04 per share in Q1 '22, compared to net income of $0.36 per share in Q1 '21. The variance resulted from the after-tax decline in adjusted EBITDA, offset by lower depreciation, lower interest expense, and higher gains on asset sales. Now, going to Slide 9. Our financial position remained strong. Over the past four quarters, we have reduced notional net debt by $185.2 million. During Q1, we issued $500 million of 4.5% senior unsecured eight-year notes due April 2029, we repaid $105 million of revolver borrowings, and $71.9 million of term loan borrowings, and we resized and extended our senior credit facility through April 2026. Cash and equivalents were $330.6 million at the end of Q1; $58.3 million is expected to be used to repay our convertible notes due September 2021. We ended the quarter with $500 million of senior unsecured notes, $350 million of term loan, no revolver borrowings, and $58.3 million principal amount of convertible notes. Our capital allocation prioritizes organic growth, followed by opportunistic share repurchases and M&A, within the context of our historical range of net leverage. As of Q1, our liquidity was strong at $477.4 million, and we continue to maintain a strong balance sheet. Going to Slide 10; operating cash flows have remained strong and totaled $41.5 million in the quarter. The combined DSOs of accounts receivable and net contract assets were at 128 days, an improvement of 8 days sequentially from Q4 '21. Capital expenditures were $28.6 million during Q1 net of disposal proceeds and gross CapEx was $31.6 million. Capital expenditures, net of disposals for fiscal 2022 are expected to range from $105 million to $125 million, a reduction of $40 million when the midpoint as compared to the midpoint of the prior outlook. This deferral reflects short to medium-term manufacturer supply constraints. Going to Slide 11; for Q2 2022, the company expects contract revenues to range from in line to modestly lower as compared to Q2 2021, and expects non-GAAP adjusted EBITDA as a percentage of the contract revenues to decrease compared to Q2 2021. We expect year-over-year gross margin pressure of approximately 200 basis points from the impact of a large customer program and from revenue declines for other large customers that are expected to have lower spending in the first half of this calendar year. We expect approximately $8.7 million of non-GAAP adjusted interest expense for the components listed, as well as $0.7 million for the amortization of the debt discount on convertible notes for total interest expense of approximately $9.4 million during Q2. We expect the non-GAAP effective income tax rate of approximately 27%, and diluted shares of $31.3 million. Now, I will turn the call back to Steve.

Steve Nielsen, President & CEO

Thanks, Drew. Moving to Slide 12; within a recovering economy, we experienced solid activity and capitalized on our significant strengths. First and foremost, we maintained significant customer presence throughout our markets. We are encouraged with the emerging 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 one-gigabit high-speed connections, increasingly rural electric utilities are doing the same. Cable operators are deploying fiber to small and medium businesses and enterprises; a portion of these deployments are in anticipation of the customer sales process. Deployments to expand capacity, as well as new build opportunities are underway. Dramatically increased speeds to consumers are being provisioned and consumer data usage is growing, particularly upstream. Fiber deployments enabling new wireless technologies are underway in many regions of the country. 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 recover from the COVID-19 pandemic, we remain encouraged that a growing number of our customers are committed to multi-year 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. Now operator, we will open the call for questions.

Operator, Operator

Our first question comes from the line of Sean Eastman from KeyBanc Capital Markets. Your line is now open.

Sean Eastman, Analyst

Good morning, Steve and Drew. Thanks for taking my questions. I just wanted to start on the comments on supply chain constraints and how that could potentially have a near-term impact on customer deployment. I'm just curious, is that something you're seeing slow down activity today or something you're trying to get out in front of, since it's a big topic these days? And what exactly in the supply chain do we need to be monitoring, Steve?

Steve Nielsen, President & CEO

So, Sean, I think it’s a significant issue. From our perspective, the growth trajectory as customers launch new programs could potentially be quicker if certain inputs were more readily available. This isn’t uncommon; we experienced something similar a decade ago and at other times in our history. It might seem a bit counterintuitive, as having all inputs readily accessible would certainly be advantageous, but it also reflects the substantial rise in demand we’re observing in the industry.

Sean Eastman, Analyst

Okay, thanks. Regarding the margin guidance for the second quarter, there is a 200 basis points decrease in gross margins compared to last year. How much of this is attributed to the challenged customer program? It would be helpful to understand why this program continues to have such a significant impact year-over-year. Additionally, if you could provide any insights on how this might affect the third and fourth quarters, even in general terms, that would be very helpful, Steve.

Steve Nielsen, President & CEO

Go ahead, Drew.

Drew DeFerrari, CFO

Sure. Thanks, Sean. As we discussed, we expect a year-over-year impact of about 200 basis points. Several factors are contributing to this, including the large customer program and a few customers who seem to be spending less in the first half of the year, which also affects this component.

Steve Nielsen, President & CEO

I think, Sean, with respect to the large customer program, look, it's a smaller part of the business. There are lots of closeout activity that's associated with completing markets. There are costs associated with that. And we just got it chopped through one. And every day that goes by, we're chopping through more and we're on a path to make this a much smaller effect on the business, but we gotta get through it.

Sean Eastman, Analyst

So I guess, just a follow-up on that. I mean, how much of the 200 basis points is the challenged customer program versus absorption on the remaining balance of customers?

Steve Nielsen, President & CEO

It's a significant factor, Sean, but it's not the only factor. I mean, the other thing that was clear in the revenue that we had in the comments that we heard for a moment is that they got off to a slower start to the year.

Sean Eastman, Analyst

Yes.

Steve Nielsen, President & CEO

They expect that to continue, but when you have year-over-year revenue declines on the order that we have there, and we're still serving the same geography, there can be some absorption issues. On the other hand, we have other customers that are picking up quite nicely. And so, it's just a balance of taking a prudent view of what that does to margin in total.

Sean Eastman, Analyst

Okay. Thanks, guys. I'll turn it over.

Operator, Operator

Thank you. Our next question comes from the line of Eric Luebchow from Wells Fargo. Your line is now open.

Eric Luebchow, Analyst

Great, thanks. Thanks for taking the question. Steve, you mentioned that labor markets were starting to tighten in some markets as well. So, are there any notable changes to point out in terms of wage inflation or build any of that into your near-term guide that we should be aware of?

Steve Nielsen, President & CEO

Yes, Eric. In our core workforce, we are monitoring the situation closely, but we haven't noticed significant changes in labor costs. The focus has been on unskilled and semi-skilled workers in the marketplace, who appear to be most affected by certain government policies. This impact is not widespread, as it tends to be regional. Therefore, we want to emphasize that it hasn't had a substantial effect on the business at this time, but we are keeping a close watch on it.

Eric Luebchow, Analyst

Okay, great. That's helpful. You're still down about 900 total employees compared to pre-pandemic levels. Are many of those administrative cuts or are they primarily revenue-generating positions that you don't need to bring back? Should we expect that this trend will continue as demand increases this year?

Steve Nielsen, President & CEO

Well, we certainly made some adjustments on the G&A side as growth picks up in the business. Looking ahead, there will be some increase there, but we're not back to where we were, that's for sure. And then, as we see growth opportunities across a number of customers for fiber construction, it's going to be a mix of what we do ourselves versus what we subcontract. The net of that, we'll probably see some employee growth, but not as we've seen in the past, it doesn't have to grow as rapidly as the top line.

Eric Luebchow, Analyst

Okay, great. Thanks, Steve.

Operator, Operator

Thank you. Our next question comes from the line of Brent Thielman from DA Davidson. Your line is now open.

Brent Thielman, Analyst

Great, thanks. Good morning. Steve, could you remind us the timing of the large customer program and for phasing associated with that, when you sort of expect this to see more of a transition in that program?

Steve Nielsen, President & CEO

We are currently finalizing several markets as previously discussed. While there isn't much remaining from our original expectations, there is still considerable work to be done to complete the projects, finalize documentation, and manage invoicing. This represents a necessary expense for us to finish the program this year.

Brent Thielman, Analyst

Okay. Steve, I was trying to understand the near-term challenges like supply and labor constraints in relation to the increase in the next 12-month backlog compared to your total backlog this quarter. What are your thoughts on that?

Steve Nielsen, President & CEO

We were encouraged, as always. Our customers outside the top five grew organically by almost 32%. Frontier and Ziply, which were once part of the same entity that would have been a top five customer a year and a half ago, are now separate. It's a matter of navigating some challenges while many customers are starting significant fiber initiatives, with AT&T being the most notable. Given their recent commentary about re-prioritizing capital expenditure and focusing on wireless and fiber investments, it's hard not to feel encouraged. We just need to work through these challenges.

Brent Thielman, Analyst

Okay. And maybe just lastly, the fiber construction revenue from utilities continues to be a small but really fast-growing component of the revenue for you. And you also highlighted a quite a few new awards this quarter from those types of customers. Maybe just Steve your thoughts on what you're seeing there and can this be much more impactful kind of segment to the company in the near future?

Steve Nielsen, President & CEO

Sure. So, we certainly were encouraged with the award activity, both its breadth and then the rate of growth that we saw in the work for those customers. Yes, I think, what's interesting Brent is that, the RDOF process has not finalized. So we are seeing customers that are making decisions that these programs are strategic enough for them to begin on their own capital confident of course that the RDOF applications actually do get through the final approval process. But I think that tells you how important it is and what an opportunity it is for those types of entities. And so, we're pleased with the exposure that we have to that customer set of the industry. I mean, it's almost as if you think about it, we've created a brand new top five customers in the last 12 to 18 months.

Brent Thielman, Analyst

Great, okay. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is now open.

Adam Thalhimer, Analyst

Good morning, everyone. Steve, AT&T's revenue exceeded our expectations. Are you starting to see the advantages of the fiber build? Also, how do you anticipate it will progress over the next couple of years?

Steve Nielsen, President & CEO

So, Adam, we were pleased to see that we returned to organic growth with AT&T. The wireless business overall declined by about 35%, and this was primarily due to AT&T. We were able to nearly counteract that drop with the increase in the fiber program, which is just beginning. We remain optimistic about AT&T and believe it will continue to grow. Given the size of the program, it is spread out across various geographical locations. I expect it to keep increasing for the rest of the year. We were encouraged last week, and especially yesterday when AT&T reaffirmed their goal to roughly double the number of homes passed by the end of 2025. They even mentioned the possibility of extending that by an additional 10 million homes. It is a significant program, and we are serving them in numerous locations while experiencing rapid growth.

Adam Thalhimer, Analyst

The Charter Fulfillment awards, are those related to RDOF?

Steve Nielsen, President & CEO

No, that's just part of the core business that we've had with Charter for literally decades at this point.

Adam Thalhimer, Analyst

Could you explain the customer who is bringing operations in-house? You're mentioning plans to hire a thousand individuals and purchase a significant amount of equipment. I'm curious about how they plan to accomplish this considering the challenges you've outlined for your business.

Steve Nielsen, President & CEO

Well, their business is theirs to run. We had discussions with them. As we mentioned earlier, we're going to enter into some new agreements that will cover work for next year and beyond. We expect activity levels will be somewhat lower, but they continue to be a good customer. As they move forward, we'll support them in that decision and see how it unfolds.

Adam Thalhimer, Analyst

All right. I'll turn it over, but I just wanted to say, in terms of large customer program, it's not like the normal industry is seeing that, how do you think the customer has been somewhat unfair. Thanks for the time.

Operator, Operator

Thank you. Our next question comes from the line of Alex Rygiel from B. Riley. Your line is now open.

Alex Rygiel, Analyst

Thanks. Good morning, Steve. First question, your organic growth was a negative 11%, backlog growth was somewhat limited. I suspect those two data points are not really telling us the story of what you see and feel on the ground today. Can you help us to better understand that?

Steve Nielsen, President & CEO

Sure, Alex. If you consider the organic growth calculation for this quarter alongside Drew's guidance for the next quarter, we actually anticipate an improvement in organic growth. However, the current quarter was primarily influenced by two clients: one that started the year slowly and another that has shifted spending from a large program. There's a stronger focus on preparing for the second half of the year to deploy C-band. The C-band auction has certainly influenced how the two largest participants are planning their networks. Nonetheless, we're encouraged, as we've already received small initial allocations of C-band work from both AT&T and Verizon. This is simply a pivotal moment in their planning processes.

Alex Rygiel, Analyst

That's helpful. And then, what does your net CapEx revision suggest about sort of near to intermediate-term revenue outlook and new project awards?

Steve Nielsen, President & CEO

What this truly indicates is that we have numerous orders in progress. We have been in ongoing discussions with all of our suppliers, ranging from pickup trucks to directional drills to bucket trucks. The microchip issue is causing delivery problems. Fortunately, we anticipated this somewhat by placing orders last fall and winter. We will prioritize the equipment we receive for growth opportunities and extend the lifespan of the existing equipment. Once the supply is available at the end of the year, we will take delivery of the new equipment then.

Alex Rygiel, Analyst

Helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Noelle Dilts from Stifel. Your line is now open.

Noelle Dilts, Analyst

Can you hear me? Hello.

Steve Nielsen, President & CEO

Yes. Go ahead, Noelle. You're fine now. You were breaking up before.

Noelle Dilts, Analyst

I want to address the issue of labor tightness more thoroughly. This has always been a part of your business as your labor suppliers are crucial. In my opinion, when we discuss this in the context of scarcity over the medium to long term, it often indicates challenges ahead. How should we approach understanding that balance?

Drew DeFerrari, CFO

Yes, Noelle. Just regarding when there is scarcity of labor, we think there are times that's helpful. And then just, Steve, if you want to touch on.

Steve Nielsen, President & CEO

Yes. Noelle, we've observed that there's a lot of speculation regarding the impact of enhanced benefits that are due to expire in September. While I don't want to overstate or downplay the situation, in some regions, we're finding that to recruit new employees in the unskilled and semi-skilled areas, we have to offer higher wages. The growth rate we've experienced with several customers is evident, and we have the capacity to increase our field forces, which could have allowed us to grow our business organically by 32% year-over-year. This indicates that we have the potential to do so. However, we need to be cautious in committing our resources to ensure that we achieve the right returns. This is crucial during a time when the industry anticipates more demand than the currently available resources. We've faced similar challenges in the past, and while it may pose an issue, we have successfully navigated such situations before.

Noelle Dilts, Analyst

Okay. And then, just on the supply constraints is that ...

Steve Nielsen, President & CEO

Noelle, you're breaking up. We may want the operator to go to the next person in the queue. Noelle, if you can get a little better reception, we will come back to you. Operator?

Operator, Operator

Thank you. Our next question comes from the line of Alan Mitrani from Sylvan Lake Asset Management. Your line is now open.

Alan Mitrani, Analyst

Hi. Can you discuss the SG&A expense? It was higher than I anticipated and the highest you've experienced, even though your revenues are at a low point. Is there something specific contributing to this, or is it primarily due to inflation and salary increases? What guidance can you provide going forward? Thank you.

Steve Nielsen, President & CEO

Yes, Drew, go ahead. I mean, Alan, there was some increase in stock comp that obviously we call out. There were some administrative and some other expenses that ran through the quarter. I don't think we don't really have anything to add. We understand it was a little bit above trend, but we think it's manageable.

Alan Mitrani, Analyst

I believe it is manageable with your revenues, and that's clearly what needs to occur. I'm looking forward to what happens. However, can we anticipate a year from now when things might be improved? Your comparisons with Verizon could become more favorable, and much of the current situation may become a thing of the past, especially if an infrastructure bill is passed. What do you think the industry will look like in a year? You mentioned there isn't enough capacity to meet demands, yet it's important to note that your top five customers account for most of your business. While they may not be collectively growing, there are underlying reasons for this, and when you examine the data closely, the outlook appears somewhat more positive. I want to understand your vision for the next couple of years once we move past this phase.

Steve Nielsen, President & CEO

AT&T has clearly communicated its plans for strategically deploying fiber in both its consumer network and other areas. This year marks a restart of their program, with expectations for growth next year and continued progress through at least 2025, contingent on the program's performance. Notably, many ILEC companies are also maintaining or even growing their fiber-to-the-home initiatives. AT&T is experiencing substantial growth, while Frontier has signaled that they view fiber deployment as a strategic move. Smaller firms, such as Ziply, are making plans to expand their fiber footprint as well, with Consolidated Communications aiming to reach about 1.6 million homes over the next five years. The clarity surrounding the business strategies for both wireline and wireless networks has never been more apparent. Recently, a large customer expressed interest in rolling out a wireless broadband product nationwide, including in rural areas. Meanwhile, cable companies have indicated their strong broadband business and willingness to invest in enhancing upstream capacity to stay competitive against fiber. While we are addressing absorption issues with a major customer and have experienced a slow start this year, the distribution of revenue between our top five customers and the rest of our business reflects a positive outlook for the future.

Alan Mitrani, Analyst

Thank you for that insight. I appreciate it. Can you provide a follow-up on the horizon? Since we're likely to see it in the upcoming quarter anyway, can you tell us what the 8% of total accounts receivable is for Verizon? I know it has been decreasing, and last quarter, the amount was $390 million for receivables and contract assets. Do you have that number for this quarter?

Drew DeFerrari, CFO

Alan, when we publish the Q tomorrow, we'll have all of that detail. The balance tied up in this large customer program is down about 25% year-over-year. We're making progress. We understand that everyone, including us, would like it to be faster, but it is moving in the right direction.

Alan Mitrani, Analyst

Great, thank you.

Operator, Operator

Thank you. Our next question comes from the line of Noelle Dilts from Stifel. Your line is now open.

Noelle Dilts, Analyst

Hi.

Steve Nielsen, President & CEO

Noelle, it's a little bit better. We'll do our best. Go ahead.

Noelle Dilts, Analyst

Well, thank you for taking my questions. I just wanted to follow-up on what you said earlier about tightness in skilled labor. Can you speak to whether that’s affecting your profitability? And what is the company doing to address that issue?

Steve Nielsen, President & CEO

Absolutely, Noelle. We’re focused on optimizing our labor efficiencies, and while we anticipate some pressure on profitability due to wage inflation, we believe that our strategies for talent acquisition and retention will help mitigate those costs.

Operator, Operator

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Steve Nielsen for closing remarks.

Steve Nielsen, President & CEO

So, we thank everybody for your time and attention, and before I go, I just want to express my thanks to Tim Estes. Tim is retiring effective today as our COO after 27 years of service. He has not been visible on all these calls, but he has been visible on growing the company from what it was when he came at $150 million in revenue to $3 billion today plus. And we wish him well in his retirement. And then Drew has one more housekeeping item to get out.

Drew DeFerrari, CFO

Yes. Just to close out the call, I'd break out the customer split. Telco was at 64.9%, cable was 23%, facility locating was at 8.9%, and electrical and other was at 3.2%. Steve?

Steve Nielsen, President & CEO

Thanks, Drew, and thanks, everybody for your time and attention. We'll speak again on our next quarter's call at the end of August. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.