Earnings Call Transcript - DY Q3 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Dycom Industries, Inc. Third Quarter 2023 Results Conference Call. Please be advised that today's conference is being recorded. I would like to hand the conference over to your host today, Mr. Steven Nielsen, President and Chief Executive Officer. Please go ahead.

Steven Nielsen, CEO

Thank you, operator. Good morning, everyone. Thank you for attending this conference call to review our third quarter fiscal 2023 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. All forward-looking statements made during this conference call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation and Reform Act of 1995. Forward-looking statements include all comments reflecting expectations, assumptions or beliefs about future events or performance that do not relate solely 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 4, 2022, 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?

Steven Nielsen, CEO

Thanks, Ryan. Now moving to Slide 4 and a review of our third 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 22.1%. As we deploy 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 18.4% of revenue and increased 103 basis points compared to Q3 2022. Improved operating performance of 123 basis points in Q2 was partially offset by 20 basis points of higher fuel costs. General and administrative expenses were 7.6% of revenue and all of these factors produced adjusted EBITDA of $114.6 million or 11% of revenue and earnings per share of $1.80 compared to $0.94 in the year-ago quarter. Liquidity was ample at $444.3 million, improving sequentially. 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 in 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. This represents an unprecedented level of support. In addition, substantially all states are commencing 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. Looking ahead, these factors will increase the likelihood that demand could fluctuate among customers. These fluctuations may result in a wider range of potential outcomes moving into next year. 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, organic revenue increased 22.1%. Our top five customers combined produced 66.5% of revenue, increasing 27.4% organically. Demand increased from four of our top five customers. All other customers increased 13.3% organically. AT&T was our largest customer at 24.8% of total revenue or $258.2 million. AT&T grew 29.4% organically. This was our seventh consecutive quarter of organic growth with AT&T. Lumen was our second largest customer at 13.7% of revenue or $142.9 million. Lumen grew organically 64.5%, excluding from both periods operations sold to Brightspeed. This was our third consecutive quarter of organic growth with Lumen. Revenue from Comcast was $108.8 million or 10.4% of revenue. Comcast was Dycom's third largest customer. Verizon was our fourth largest customer at $94.9 million or 9.1% of revenue. Verizon grew 1.7% organically. And finally, revenue from Frontier was $88.9 million or 8.5% of revenue. Frontier grew 115.4% organically. This is the second consecutive quarter where our top five customers grew organically in excess of 25% and the 15th consecutive quarter where all our other customers in aggregate, excluding the top five customers, have grown organically. Of note, fiber construction revenue from electric utilities was $82.4 million in the quarter and increased organically 53.6% year-over-year. 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 third quarter was $6.116 billion versus $6.028 billion at the end of the July 2022 quarter, an increase of $88 million. Of this backlog, approximately $3.276 billion is expected to be completed in the next 12 months. Backlog activity during the third 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 Lumen construction and maintenance agreements in Washington, Oregon, Nevada, Utah, Wyoming, Colorado, South Dakota, Nebraska, Minnesota, Iowa and Florida. For AT&T, a utility line locating agreement in Florida. From Charter, construction and maintenance agreements in Texas, Michigan, Ohio, New York and Florida. For Windstream a construction agreement in Georgia. And various rural fiber construction agreements in Oregon, Wisconsin and Missouri. Headcount was 15,167. Now, I will turn the call over to Drew for his financial review and outlook.

Andrew DeFerrari, CFO

Thanks, Steve and good morning, everyone. Going to Slide 8. Contract revenues were $1.042 billion and organic revenue increased 22.1%. Adjusted EBITDA was $114.6 million or 11% of revenue compared to $83.1 million or 9.7% of revenue. This reflects an improvement of 126 basis points compared to Q3 '22. Gross margin was 18.4% of revenue and increased 103 basis points. Improved operating performance of 123 basis points of gross margin was partially offset by 20 basis points of higher fuel costs. G&A expense of 7.6% decreased from 7.8% of revenue in Q3 '22 from improved operating leverage at the higher level of revenue and tight management of costs. Net income was $1.80 per share compared to $0.94 per share in Q3 last year. The results for Q3 '23 included tax benefits of $3.2 million or $0.11 per share compared to tax benefits of $3 million or $0.10 per share in Q3 '22, for the vesting and exercise of share-based awards and credits related to tax filings for prior years. The increase in earnings reflects higher adjusted EBITDA, lower depreciation and amortization and higher gains on asset sales, partially offset by higher stock-based compensation and interest expense. Going to Slide 9. Our financial position and balance sheet remains strong. We ended Q3 with $500 million of senior notes, $336.875 million of term loan and no revolver borrowings. Cash and equivalents were $65.3 million and liquidity was ample at $444.3 million. Our capital allocation prioritizes organic growth, followed by opportunistic share repurchases and M&A within the context of our historical range of net leverage. Going to Slide 10. Cash flow used for operating activities was $4.5 million in Q3 to fund the sequential growth in operations. Capital expenditures were $49.2 million, net of disposal proceeds and gross CapEx was $54.8 million. The automotive and equipment supply chains remain challenged and we now expect fiscal 2023 full year capital expenditures net of disposals to range from $165 million to $175 million. This is a decrease compared to the low end of $180 million from our outlook previously provided. The combined DSOs of accounts receivable and net contract assets was 112 days, an increase of 5 days sequentially as we grew with several large customers during the quarter. Going to Slide 11. Each year, our January quarterly results are impacted by seasonality, including inclement weather, fewer available workdays due to the holidays, reduced daylight work hours as well as the restart of calendar payroll taxes. These and other factors may have a pronounced impact on our actual results for the January quarter. As we look ahead to the quarter ending January 28, 2023, we expect contract revenues to increase mid- to high-single digits as a percentage of contract revenues as compared to the quarter ended January 29, 2022. And we expect non-GAAP adjusted EBITDA percentage of contract revenues to increase modestly compared to Q4 of last year. We also expect $11.8 million of net interest expense, reflecting higher market interest rates, a 27% effective income tax rate and 30.1 million diluted shares. Now, I will turn the call back to Steve.

Steven Nielsen, CEO

Thanks, Drew. Moving to Slide 12. This quarter, we observed strong activity and leveraged our significant strengths. We maintained a strong customer presence across our markets, and we are pleased with the diversity in our business. Our extensive market presence has positioned us well to take advantage of emerging industry opportunities. Telephone companies are rolling out fiber to the home to provide gigabit high-speed connections, and rural electric utilities are increasingly doing the same. We are seeing substantial boosts in consumer speeds and growing data usage, particularly upstream. Wireless construction activity is on the rise this year due to newly available spectrum bands. There has been a remarkable increase in federal and state support for rural communication network deployments, both in scale and duration. Cable operators are also deploying fiber to small and medium businesses as well as enterprises, with some of these deployments anticipating future sales. We are undertaking efforts to expand capacity, alongside opportunities for new builds. Customers are consolidating their supply chains, which opens doors for market share growth and increases the long-term value of our maintenance and operations business. Amid rising economic uncertainty, we are still encouraged by the increasing commitment of our customers to multiyear capital spending initiatives. We have confidence in our strategies, the future of our company, our dedicated employees, and the expertise of our management team. Now, operator, we will open the call for questions.

Operator, Operator

Our first question comes from Sean Eastman with KeyBanc.

Sean Eastman, Analyst

So I just wanted to start on the revenue guidance for the fourth quarter. I think last quarter, you guys had highlighted normal seasonal moderation going into the fourth quarter. Obviously, now the third quarter revenue came in higher and it seems like a bit of a more pronounced seasonal moderation into 4Q. So was there some pull forward there? Maybe just what's happening under the hood? And what should we take away from this step down from the low 20% growth to sort of the mid- to high-single-digit growth in the guidance for the fourth quarter as we think about the growth prospects into next year?

Steven Nielsen, CEO

Yes, so Sean, we mentioned in the last call that after a very strong year, like the first three quarters we've experienced, it's common for the fourth quarter to show some weakness. Regarding the growth rate, we discussed how this quarter could be significantly affected by weather, holidays, and daylight hours. That certainly plays a role. Additionally, we pointed out in our comments and slides that as we look forward, we are taking a cautious approach to the macroeconomic implications of an increased cost of capital. At this time, we are not providing guidance for next year but are considering the potential impacts on the overall economy.

Sean Eastman, Analyst

Okay. And then just drilling in on that comment specifically around cost of capital and the potential for a wider range of outcomes moving into next year. I mean, is that comment sort of in advance of some potential squishiness just given the development since we heard from you last quarter? Or are you starting to see evidence that some work is going on the shelves around the kind of macro uncertainty?

Steven Nielsen, CEO

In light of the macroeconomic uncertainty, we see signs of growth in our short-cycle businesses, albeit at a slower pace. We remain optimistic as several customers have recently confirmed their long-term plans for significant fiber deployments. However, with rising capital costs and interest rates, it's essential to keep a few considerations in mind. Higher capital costs have historically pressured short-term investment decisions. Nevertheless, our customers are emphasizing that many of their ongoing programs are strategic in nature; the more strategic they are, the more resilient they tend to be. As interest rates rise further, there could be a notable impact on consumers, which might trickle down to affect businesses. Therefore, we are adopting a cautious perspective as we move forward.

Operator, Operator

Our next question comes from the line of Alex Rygiel with B. Riley.

Alex Rygiel, Analyst

Couple of quick questions here. First, your comment about anticipating substantial future opportunities. Does this suggest you expect your backlog to increase substantially in the near term?

Steven Nielsen, CEO

We’ve previously discussed that backlog is based on past performance, and while we've experienced strong growth, that isn't completely reflected in the backlog. We're encouraged by the awards we've secured this quarter, including a variety of renewals and some new work with Lumen, as well as a new locating agreement with AT&T and additional renewals from other clients. Overall, we are optimistic about the opportunities available in the business, especially since a customer recently shared their fiber expansion plans in 30 markets nationwide.

Alex Rygiel, Analyst

And then you lowered our CapEx budget this year. Is this due to difficult supply chain or a softer demand outlook?

Steven Nielsen, CEO

No. We have $80 million of equipment on order and we're looking at an order on one particular type of equipment that would be the largest, I think, probably in the company's history. So we have lots of appetite for equipment, just a little bit slow to arrive. But we'll be happy when it gets here.

Operator, Operator

Our next question comes from the line of Adam Thalhimer with Thompson Davis.

Adam Thalhimer, Analyst

Nice quarter. Steve, in terms of the wider range of outcomes next year, are you trying to say that you see a scenario where revenue is down? Or it's just hard to tell how much it could be up?

Steven Nielsen, CEO

Adam, we're not providing guidance again. What I want to convey is that when we had this call last year, the Fed was still purchasing mortgage and government securities and hadn't raised interest rates, which were near zero. Considering the cumulative impact of all the rate increases since then, and likely another one coming soon, it's important to recognize that there is increased uncertainty moving forward. We see plenty of opportunities, but we also know that rising capital costs can influence economic activity, which might impact our customers. We're optimistic because we serve large clients with long-term projects. For example, we are currently engaged in a fiber program that has lasted almost two decades, and that customer is actually ramping up activity right now. However, we just want to maintain a realistic expectation for the upcoming year.

Adam Thalhimer, Analyst

Regarding the customer you just mentioned, did the large program from them that was outside of their traditional footprint still have a negative impact during your third quarter?

Steven Nielsen, CEO

Yes. There was still an impact. It will be less in this quarter and we think it will be immaterial next year. The year-over-year growth was really driven by increased activity around fiber deployments in their footprint as well as the addition of another state that we started during the quarter. So happy with the progress there.

Adam Thalhimer, Analyst

Okay, great. And then, the last one for me. Can you comment at all on Brightspeed, I didn't see any awards from them in Q3? There were some in Q2. And I'm just curious if that over time could become a top 10 customer.

Steven Nielsen, CEO

Well and one way to think about it, Adam, is we had just, call it, $8 million of revenue in the quarter because the deal closed at the beginning of October. So there was only a month of activity for modeling purposes. If you look backwards, about 20% to 25% of our historic Lumen revenue is associated with what's gone to Brightspeed. So I think if you can do the math, I think it will definitely be a top 10. We'll hope they get even bigger. We're ramping up activities with them right now.

Operator, Operator

Our next question comes from the line of Eric Luebchow with Wells Fargo.

Eric Luebchow, Analyst

Great. So Steve, your margins have been moving up nicely this year. I know the strong revenue growth and operating leverage has certainly been a big driver of that. But just wondering if you feel like you're getting better economics or turns on newer contracts you're signing or renewed based on a fairly tight labor market in still a very high level of demand. Or has there been any pushback from customers on kind of new contract pricing reflecting the new economic reality?

Steven Nielsen, CEO

Yes. I don't know that we have much to add from what we said last quarter, Eric. I mean we're encouraged with the dialogue that we're having with customers and really don't have a whole lot to add on that topic.

Eric Luebchow, Analyst

Okay, fair enough. And just curious, any update you're seeing from the cable companies? I know that they've been embarking on these mid split upgrades and one of the largest hoping to launch DOCSIS 4.0 as soon as next year. Just wondering if you kind of see a path to returning to growth with cable, particularly with your largest cable company that's been a little bit softer over the last couple of years.

Steven Nielsen, CEO

Yes. We actually did have growth in the quarter with Charter. So that was encouraging year-over-year. And I think what we generally said for all the cable operators is they're aggressive competitors. They've got big plans for their network. They're primarily addressing increased capacity through technical upgrades. We're happy to participate in those. But they've also said they'll do that within their normal capital intensity range. So some good opportunities there and working hard.

Eric Luebchow, Analyst

Great. I have one more question for you, Steve. Regarding the cost of capital discussion, do you believe that private capital could help boost some of the fiber builders? We've heard about two large carriers that might be looking into joint ventures, which could provide them with an additional way to secure capital, perhaps under more favorable terms than those available in the public market. I would like to hear your thoughts on this.

Steven Nielsen, CEO

Yes. We feel positive whenever we see news reports indicating that our industry or our customers are drawing attention from outside investors. It's clear that fiber has become a valuable asset for infrastructure funds. We're monitoring these reports like everyone else, and we find them promising. Additionally, another potential source of capital next year is federal funding, particularly through the BEADs plan, as well as investments from states in broadband. We've observed significant activity in our rural fiber deployments for rural electric utilities, which increased by 53%, accounting for nearly 8% of our revenue. There are various sources of capital available, but with higher interest rates, it's important to take that into account when looking ahead.

Operator, Operator

And our next question comes from the line of Brent Thielman with D.A. Davidson.

Brent Thielman, Analyst

Steve, you're still experiencing substantial growth despite the issues of labor, sort of availability or access to specialty equipment. I'm just curious how you're sort of finding ways to navigate around some of these issues and are these sort of less efficient temporary measures that might be weighing on otherwise great margins that you put up today?

Steven Nielsen, CEO

Our teams in the field have put in a tremendous effort. This quarter saw an increase of $188 million compared to last year. Over the first three quarters, our organic revenue growth exceeded $500 million. While there are costs associated with this growth, we’re addressing them. The positive aspect is that, with our extensive presence and experienced management in the field, we have teams that have dealt with growth challenges before, and there’s always room for improvement. We're continually learning and, as I often mention, there’s always some aspect of the business that can be improved since half of it is below average.

Brent Thielman, Analyst

Okay. I appreciate that. And then, Steve, I mean, it looks like still good operating leverage here. Maybe if you could just speak to some of the upward pressures you're seeing on G&A, just beyond the need to support the growth? And can we still kind of think of a high-single-digit percentage is the right long-term range?

Steven Nielsen, CEO

Sure. I think we've been working on several initiatives for years because G&A is an ongoing process. There's always something to improve. Currently, we don't feel significant pressures in G&A. We've actually streamlined the organization in many ways due to the pandemic and our approach to back office functions. While there are some pressures, we're encouraged by the progress of all the projects aimed at reducing those costs.

Brent Thielman, Analyst

Okay. And then Steve, I guess, if you do see sort of a reversion to mid- to high-single digits this quarter, I know any number of things could play out but would you expect to see more benefits to cash flow?

Steven Nielsen, CEO

Yes, absolutely. And Drew, why don't you talk that through.

Andrew DeFerrari, CFO

Yes, Brent, clearly, we've grown sequentially in the quarter and then for the full year as well so far. We're going to use some working capital as we have grown the revenue. We're working at it every day and working hard on collecting the working capital in the fourth quarter.

Steven Nielsen, CEO

Yes. And I think Brent, as you know, you've followed the company for a long time, fourth quarter tends to be a seasonally strong quarter for operating cash flow. And based on seasonality, we're working hard to make that happen this year, too.

Operator, Operator

Our next question comes from the line of Noelle Dilts with Stifel.

Noelle Dilts, Analyst

First, I just had a housekeeping question. I was wondering if you had wireless as a percentage of revenues.

Steven Nielsen, CEO

Yes, we're just less than 6%, Noelle, it grew over 30%. So it was a nice quarter for wireless.

Noelle Dilts, Analyst

Perfect. Then AT&T on its call and in its release indicated that home passings significantly decreased in the third quarter, and mentioned that their CapEx was mostly allocated to the first half of the year. It seems you are not experiencing any of that in your revenue from AT&T. I was wondering if you could elaborate on how we should consider the type of work you’re doing for AT&T. Should we be focusing on home passings, or are there other areas of CapEx that are becoming more significant? Also, to what extent is there a potential moderation in AT&T's spending reflected in your fourth quarter guidance?

Steven Nielsen, CEO

Yes. So we do provide a wide range of services. AT&T, Noelle, as I mentioned or as we had in our comments, we are starting a large locating agreement with them. We're going to hire 200, 300 people for that contract in the fourth quarter. So we see that as a growth area. We have the wireless. And then, of course, we have the maintenance MSAs as well as the fiber programs. And I guess what I would say is last week at an investor conference, AT&T reiterated a long-term plan through 2025, talked about the components of those fiber passings. And certainly, that is a significant factor in our business. But it's not the only thing we do for them and we still see some good opportunities there.

Noelle Dilts, Analyst

Okay. You mentioned the federal capital coming into the market, and it seems like they are progressing through the mapping process. What are your thoughts on the timing of the federal capital being allocated? Would this occur towards the end of calendar year 2023 or in 2024? Any insights would be appreciated.

Steven Nielsen, CEO

Yes. So the map was, I think, published November 18 or sometime last week. And that starts a challenge process to refine the addresses that are truly unserved or underserved. That concludes in January. And then the NTIA announced that they'd like to have final decisions made by the end of June. I thought it was interesting, Noelle in the approach that they're taking around the challenges that you can both challenge on actual capability to an address or also what's advertised to that address. And so we may find out that there are more underserved addresses than people think. So I think it's encouraging but I don't want to diminish the impact that we've seen in the rural fiber with RDOF with state funds and actually CARES Act and ARPA, there's just a number of programs that are already underway in providing public capital.

Operator, Operator

And our next question comes from the line of Avi Draswood with UBS.

Unidentified Analyst, Analyst

It's Avi Draswood on for Steve Fisher. So it looks like headcount is continuing to grow at about 2% year-over-year. Just wondering you could have hired more people; would you have done so? Or how much of a restraint on growth has labor been?

Steven Nielsen, CEO

Yes. I think what we would say is that it's still a tight labor market with unemployment under 4%. Hiring is somewhat easier than it was six months ago, but only slightly. We're still working hard at it. We continue to enhance our recruiting and onboarding processes. So, I do believe it's a bit better now. We always manage to complete the work we set out to do. If we had more people, we likely would have accomplished more work, but it's always a challenge to measure that accurately.

Unidentified Analyst, Analyst

Makes sense. And I guess also, so you booked a few 3-year contracts. Are you getting more comfortable booking multi-year deals? And how are you managing the cost risk in these contracts compared to, say, earlier in the year or a year ago?

Steven Nielsen, CEO

Well, I think clearly, we as well as everybody else in our industry is aware of the effects of inflation. So we have to be thinking about when we make those commitments, what the cost curve is going to be not only now but next year and the years after. I think we continue to be comfortable in doing that as long as we make sure that we get it right because we don't want to make commitments that we can't keep. And that's always our first objective, particularly in a time of uncertainty and where you still have pretty significant inflation. I mean, cost inflation, particularly on the capital equipment side, labor, I mean it's still there.

Operator, Operator

Our next question comes from the line of Alan Mitrani with Sylvan Lake Asset Management.

Alan Mitrani, Analyst

The story here has been a recovery from really what was the worst margins in your history last year and you're comping against probably the worst quarter, this coming quarter. And you haven't made it back anywhere close to where margins were years ago, even just five, six, seven years ago, we know there's the Verizon impact on the industry has hurt you as well which should be finished, as you said, basically by the end of the year. But can you talk about the prospect of margin expansion regardless of where revenues are?

Steven Nielsen, CEO

We have discussed the effects of this significant customer program, and addressing that is definitely beneficial. Additionally, as we've mentioned before, achieving a diverse growth distribution along with increased public capital entering the market this year or next is advantageous. It's also beneficial to see customers with substantial announced growth plans where we already have existing facilities. This allows us to gain operating leverage initially instead of starting from scratch with new facilities. As we've noted earlier, there's always work to be done, but we are optimistic that some of the challenges we've faced are easing, albeit partly offset by current economic conditions regarding inflation.

Alan Mitrani, Analyst

Right. But you start comping a lot easier comps on gas prices this coming year. So that should be...

Steven Nielsen, CEO

In the October quarter, we faced about a 20 basis point headwind. While that situation is improving, we continue to see increases in labor and equipment costs. There are definitely other cost factors that we are diligently managing.

Alan Mitrani, Analyst

Are you observing that industry capacity is generally limited, especially considering your size relative to others, and that this is affecting your costs? It seems to be impacting smaller players even more due to their lack of capital access. I assume your customers are aware of this and you are able to adjust your pricing accordingly. Will this continue to influence the market in the next 12 to 18 months?

Steven Nielsen, CEO

I mean, we're not going to talk any specifics about customers other than to say is we are encouraged with the continued dialogue that we're having, that we make sure that we identify those opportunities where we can perform best for the customer. And if we perform well for them, then we'll have opportunities to have good returns for investors.

Operator, Operator

And I'm showing no further questions at this time. And I'd like to turn the conference back over to Steven Nielsen for any further remarks.

Steven Nielsen, CEO

Well, we thank everybody for your time and attendance. Wish you a good holiday and we'll talk to you at the end of February. Thank you.

Operator, Operator

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