Good day and thank you for standing by. Welcome to the Dycom Industries Inc. Q1 2022 Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Nielsen, President and Chief Executive Officer.
Please go ahead.
Thank you, operator. Good morning, everyone. I'd like to thank you for attending this conference call to review our Q1 fiscal 2022 results. Going to Slide 2. During this call, we will be referring to a slide presentation, available 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 Earnest. 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
are currently conducting a few key
questions including those risks described in our annual report on Form 10 ks filed March 5, 2021 And our other filings with the U. S. Securities and Exchange Commission. We assume no obligation to update any forward looking statements. Steve?
Thanks, Ryan. Now moving to Slide 4 and a review of our Q1 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 conducting 15 months.
Now for the quarter. Revenue was $727,500,000 a decrease of 10.7%. Organic revenue excluding $3,900,000 of storm restoration services in the quarter declined 11.1%. As we deployed 1 gigabit wireline networks, wirelesswireline converged networks and wireless networks, this quarter reflected an increase in demand are participating in the discussion of our top five customers. Gross margins were 14.8% of revenue, reflecting the continued impacts of the complexity of a large are participating in the same period.
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 44,100,000 are 6.1 percent 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 $477,400,000 and operating cash flow was $41,500,000 Finally, during the quarter, we issued $500,000,000 and 4.5 percent senior notes due in April 2029 have been recognized and extended our credit facility through April of 2026. These two transactions leave the company solidly financed as we look forward to better are performing well. 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 1 gigabit network speeds to individual consumers and businesses, will be able to 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 will be available for dramatically increased rural network investment supported by private capital that in the case of at least some of the participants are expected to be significantly more than the FCC subsidy.
We are providing program management, are participating in the Q1 of 2019. 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 Fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging are participating in the process of providing 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. 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 11.1%. Are participating in our top 5 customers combined produced 68.2 percent of revenue, decreasing 23% organically.
Demand increased for 2 of our top 5 customers. All other customers increased 31.9% organically. AT and T was our largest customer at 21.4 percent of total revenue or 155,600,000 AT and T grew 0.9 percent organically. This was our first quarterly organic growth with AT and T since our July of 2019 quarter. Revenue from Comcast was $131,100,000 or 18 percent of revenue.
Comcast was Dycom's 2nd large customer grew organically 10.7%. Verizon was our 3rd largest customer at 12.6 percent of revenue or 91,500,000 Finally, revenue from Windstream was $32,100,000 or 4.4 percent of revenue. Windstream was our 5th largest customer. This is the 9th consecutive quarter where all of our other customers in aggregate excluding the top 5 customers have grown organically. In fact, the 31.9 percent organic growth rate with these customers is the highest growth rate in at least 9 years.
Of note, fiber construction revenue from electric utilities was $47,000,000 in the quarter or 6.5% of total revenue. Are in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000,000 in the range of $1,000,000 in are in a trend which we believe will parallel our deployment of 1 gigabit wireline direct and wirelesswireline converged network 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 have decided to in source 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 4th 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, are currently at lower levels of activity.
Now going to Slide 7. Backlog at the end of the Q1 was $6,528,000,000 versus $6,810,000,000 at the end of the January 2021 quarter, are decreasing approximately $282,000,000 Of this backlog, approximately $2,740,000,000 are expected to be completed in the next 12 months. Backlog activity during the Q1 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. From Varus Electric Utilities, fiber construction agreements in Arizona, Oklahoma, Missouri, Arkansas, are in the same period. Mississippi, Indiana, Kentucky, Tennessee, Georgia and North Carolina.
For Zipli Fiber, construction and maintenance agreements in Washington, Oregon and Idaho. For Charter, a fulfillment agreement covering Washington, Nevada, Montana, Wisconsin, Massachusetts, Connecticut, New York, are in North Carolina, South Carolina, Alabama and Georgia. From Frontier, a locating services agreement in California and for consolidated communications, a 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.
Thanks, Steve, and good morning, everyone. Going to Slide 8, contract revenues for Q1 were $727,500,000 and organic revenue declined 11.1%. Adjusted EBITDA was $44,100,000 or 6.1 percent of revenue. Gross margins were 14.8% in Q1 and decreased 169 basis points from Q1 2021. 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 2021.
Margins were also impacted by the adverse winter weather conditions experienced in many regions of the country during the first half of the quarter. Are
participating in the
Q4 of 2019. G and A expense increased 112 basis points, reflecting higher stock based compensation and administrative and other costs. Are non GAAP adjusted net loss was $0.04 per share in Q1 'twenty two compared to net income are in the range of $0.36 per share in Q1 2021. The variance resulted from the after tax decline in adjusted EBITDA are in the range of $1,000,000 offset by lower depreciation, lower interest expense and higher gains on asset sales. Now going to Slide 9.
Our financial position remains strong. Over the past 4 quarters, we have reduced are notional net debt by $185,200,000 During Q1, we issued $500,000,000 of 4.5 percent are in the same period. We repaid $105,000,000 of revolver borrowings participants are in the range of $71,900,000 of term loan borrowings and we resized and extended our senior credit facility through April 2026. Cash and equivalents were $330,600,000 at the end of Q1, dollars 58,300,000 is expected to be used to repay our convertible notes due September 2021. We ended the quarter with $500,000,000 of senior unsecured notes, we'll purchase $350,000,000 of term loan, no revolver borrowings and $58,300,000 principal amount of convertible notes.
Our capital allocation prioritizes organic growth followed by opportunistic share repurchases and M and A are within the context of our historical range of net leverage. As of Q1, our liquidity was strong at $477,400,000 and we continue to maintain a strong balance sheet. Going to Slide 10. Operating cash flows have remained are in the range of $41,500,000 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 2021.
Capital expenditures were 28 point $6,000,000 during Q1 net of disposal proceeds and gross CapEx was 31,600,000 Capital expenditures net of disposals for fiscal 2022 are expected to range from 105,000,000 are subject to $125,000,000 a reduction of $40,000,000 when the midpoint is 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 ready to take questions. As compared to Q2 2021 and expects non GAAP adjusted EBITDA as a percentage of contract revenues to decrease
are in the range of $1,000,000
compared to Q2 2021. We expect year over year gross margin pressure of approximately 200 basis points are participating in the first half of this calendar year. We expect approximately $8,700,000 of non GAAP adjusted interest expense for the components listed as well as $700,000 for the amortization of the debt discount on convertible notes for total interest expense of approximately $9,400,000 conducting a non GAAP effective income tax rate of approximately 27% and diluted shares of 31,300,000. Now I will turn the call back
to Steve. Thanks, Drew. Moving to Slide 12. Within a recovering economy, we experienced solid activity and capitalized on our significant strengths. 1st and foremost, we participants have maintained significant customer presence throughout our markets.
We are encouraged with the emerging breadth in our business. Are in the forefront of evolving industry opportunities. Telephone companies are deploying fiber to the home to enable 1 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 are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team.
Operator, we will open the call for questions.
Our first question comes from the line of Sean Eatsman from KeyBanc Capital Markets. Your line is now open.
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 kind of phasing. 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?
So Sean, I think it is a big topic. I think the way we see it in the business so far is that the trajectory of growth as customers kick off new programs Probably could be a little bit faster if the inputs were a little more available. That's not unusual. We saw that 10 years ago. We've seen that at other times in the business.
And so I just think it's in some ways it's a little counterintuitive. It obviously would be better all the inputs freely available, but it's also indicative of how much upturn in demand that we can see in the industry.
Okay. Okay, thanks. And in terms of the margin guidance for the 2nd quarter, I mean, 200 basis points year over year, lower year over year gross margins. I mean, how much of that is from the challenged It would just be helpful to get some more color on why that challenge program is still having such a pronounced impact from a year over year perspective. And if you could give us some indication of how that drag looks into the Q3, Q4, even directionally would be really helpful, Steve.
All participants Go ahead, Drew. Sure. Thanks, Sean. So yes, as we talked about in the comments, we anticipate year over year impacts of about 200 Basis points, there were several things that we talked about in there, the large customer program and we've also had a few customers that appear to be spending less In the first half of the year and so there's some absorption around that component as well.
All participants I think Sean with respect to the large customer program, look, it's a smaller part of the business. There's lots of closeout activity that's associated with are completing markets. There are costs associated with that and we just got to chop through them. 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 got to get through it.
So I guess just to follow-up on that. I mean, how much of the 200 basis points is
Jeremy, the other thing that was clear in the revenue that we had and the comments that we heard from Lumin is that they got off to a slower start To the year. 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.
Okay, thanks guys. I'll turn it over.
Thank you. Our next question comes from the line of Eric Lobchow from Wells Fargo. Your line is now open.
Great. Thanks. Thanks for taking the question. Steve, you mentioned that the labor market was starting to tighten in some markets as well. So, are there any notable changes to point out in terms of Wage inflation or building any of that into your near term guide that we should be aware of.
Yes. Sean, what we've excuse me, Eric, what we've seen is it's been more as we look to hire unskilled and semi skilled people in the marketplace and probably those that are most affected by Some of the government policies that are out there. It's not everywhere, so it's regional. So that's why we highlighted it. It's not something that's have a tremendous impact on the business at the moment, but it's something that we're paying careful attention to.
Okay, great. That's helpful. And you're still down about 900 total employees in terms of headcount versus pre pandemic. Are a lot of those kind of administrative cuts that you've made that employees that aren't revenue producing that you don't need to bring back? Or should we expect that will continue to ramp as the next wave of demand hits this year.
Well, we certainly made some adjustments on the G and A side as growth are 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 we'll 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
Thank you. Our next question comes from the line of Brent Thielman from D. A. Davidson. Your line is now open.
Great. Thanks. Good morning. Steve, could you remind us the timing of the large customer program and sort of phasing associated with that when you sort of expect this to see more of a transition in that program?
Well, I mean, we're actively closing out we'll purchase a number of markets as we've talked about. There's not as a portion of the original expectation, there's not a whole lot left, But there's still lots of activity that has to occur to close out the projects to get the final documentation done and to work through all the invoicing. So it's just a cost that we have to bear to get through the program this year.
Okay. And then Steve, I was trying to reconcile some of the near term challenges, supply constraints, labor constraints, things of that nature relative to what looked like a nice bump up in the next 12 month backlog versus your total backlog this quarter. I mean, any thoughts relative to that?
Well, I think as always, we were encouraged if you look at our other than top five Customers, they grew organically almost 32%. We have a combination of Frontier and Zipli that we'll purchase a year and a half ago with the same entity that would have been a top five customer. And so I think it's just a question of working through some of the challenges, while we're doing that within the context where lots of customers are kicking off large fiber programs and the largest of which of course is AT and T. And I think we're it would be hard to beat anything other than encouraged given their commentary as late as yesterday of how they're reprioritizing CapEx and focused on spending money on wireless and fiber. So just something we have to work through.
Okay. 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 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
all participants
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. I think what's interesting, Brett, is that the RDOF process for them to begin on their own capital, confident of course that their R and D applications actually do get through we'll purchase 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 If you think about it, we've created a brand new top five customer in the last 12 to 18 months.
Thank you. Our next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is now open.
Hey, good morning guys. Hey Steve, the AT and T revenue came in above what we were looking for. Are you starting to see the benefit of that participants are in the same store. And speaking of phasing, how do you expect that to kind of phase in over the course of the or really, I guess, the next 2 years?
So Adam, we were encouraged that we returned back to organic growth with AT and T. Wireless business overall was down about 35 And for the most part, that was AT and T. And we offset that almost entirely with the increase on the fiber program. And it's just getting started. So I think we're encouraged with AT and T.
We think it continues to ramp. There are always in a program that size, it's distributed across a number of geographic locations for us. I think it will continue to ramp through the balance of the year. We were encouraged last week and then again yesterday when AT and T reiterated their objective to double approximately double the number of homes passed over the next all participants Through the end of 2025. And then in some comments they made yesterday, they talked about potentially extending it, 10,000,000 homes beyond that.
So it's a big program. We're serving them in a number of geographies and we're growing pretty rapidly.
The Charter fulfillment awards, are those related to RDOF?
No, that's just part of the core business that we've had with Charter for Literally decades at this point.
Okay. And then lastly, can you help us understand the customer who is in sourcing? I mean, they're talking about hiring 1,000 people and buying a bunch of equipment. And I'm just curious how that's going
to how they're going to
do that given the challenges that you've addressed for your business?
Well, I don't their business is theirs to run. We had discussions with them as we said in our comments. We're going to enter into some new agreements that covers work for next year and beyond. We expect activity levels will be somewhat lower, but they continue to remain a good customer and as they move forward, we'll support them in that decision and see how it plays out.
All I'll turn it over. But I just wanted
to say, in terms of
that large customer program, it's not like the only one in the industry is seeing that. I do think the customer is being somewhat unfair. Thanks for the time.
Thank you. Our next question comes from the line of Alex Rygiel from Steve Riley. Your line is now open.
Thanks. Good morning, Steve. First question, all participants Your organic growth was a negative 11%, backlog growth was somewhat limited. I suspect those two data points are not really telling us the a story of what you see and feel on the ground today. Can you help us to better understand that?
Sure, Alex. I mean, if you just think about the organic growth calculation for this quarter, and then Drew's guidance implied for the next quarter we actually see the organic growth improving. But it was really in the current quarter, it was really focused we'll purchase 2 clients, one who started the year slow and the other one who clearly has pivoted spending away from a large the program and it's much more focused in the second half of the year getting or this half of the year to get ready in the second half of the year to deploy C band. I think the C band auction certainly had an impact on the way the 2 largest participants have planned about their network, but I think we're encouraged. We've already received small initial Allocations of C band work to perform for both AT and T and Verizon.
So, it's just one of these pivot periods
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.
So what it really reflects is that we have lots of orders out. We've had continuing discussions with all of our suppliers from pick up trucks to directional drills to bucket trucks and this microchip issue is a problem on deliveries and so what we'll do, we got ahead of it a little bit with orders last fall and And winter. And so what we'll take the equipment that we do get in and we'll dedicate that to growth opportunities and then we'll spend the lives of the rest and when the supply becomes available at the end of the year, then we'll take receipt of it then.
Ready. Thank you. Our next question comes from the line of Noelle Dilts from Stifel, your line is now open.
Can you hear me? Hello?
Yes. Go ahead, Noelle. You're fine now. You were breaking up before.
Okay. Great. So yes, I just wanted was hoping we could touch on the labor tightness issue a little bit more. I've always kind of thought of your business as Your suppliers of labor, so in my view, when we talked about this before, in scarcity situations over the kind of medium to long term that tends to It sounds like this could be a little bit more of a headwind in the near term. So how should we be thinking about that balance?
Yes. Noelle, and just regarding when there is scarcity of labor, we think all participants
There are times that that's helpful. And then just Steve, if you want to touch on that. Yes. So look, Noelle, I think what we've seen And there's lots of speculation about the impact of enhanced benefits, which are set to expire in September. So I don't want over read, but I don't also want to underplay that on the unscaled and semi skilled side of the business for us to get new employees through the door In certain parts of the country, not everywhere, we're having to pay more money.
Now you can see the growth rate that we had we'll continue to execute on our financial results. With a number of customers and obviously we have the ability to put more field forces in the field or we couldn't have grown we'll purchase 32% of our business, 32% organically year over year. So there's an ability to do it. I think what it does say is that we're going to be careful where we commit our resources, make sure that we've got returns right. And that's what you always do in a period of time where the industry looks ahead to more demand than what they currently Then what resources are currently available.
We've been through this before. It doesn't mean That it won't be an issue, but it is something that we have managed through before.
Okay. And then, just for the supply constraints,
Noelle, you're breaking up. We may want to operate and go to the Next person in queue and Noel, if you can get a little better reception, we'll come back to you. Operator?
Thank you. Our next question comes from the line of Alan Mitrani from
I'll participate in the call. Even though your revenues were the lowest you've had in a while, can you speak is there something specific in there? Or is this just Inflation of giving price giving salary increases and what your guidance would be going out? Thanks.
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.
I mean, it's manageable if your revenues start going up. I mean, that's really what needs to happen, obviously. So In looking at it and going through, I look forward to that thing. But could we fast forward a year where maybe things are a little better, your comparisons get a little better with Verizon, Some of this stuff is all in the rearview mirror in terms of the in between time between when all these guys start spending and maybe an infrastructure bill might be passed. What does the industry look like a year out from now?
You said there's not enough capacity to handle things, but the way it works with you guys is your top five customers really represent the bulk of the business. I realized collectively they're not growing, but there's a couple of reasons for that in between. But underneath the hood, all participants are in the line with the line of David. Things look a little better, you got to parse the data. But I just want to understand where you see the next couple of years going, so once we get through this?
Well, clearly, if we start with AT and T, Alan, they could not have been any more clear About what their plans around the strategic deployment of fiber in their consumer network and in other parts of their network. And we think that Obviously, this year, essentially a restart of the program. They expect it to grow next year and they expect it to continue at least through 2025. Although some comments yesterday that as long as the program performing well that it continues. All participants I think the year ahead or 2 years ahead, Alan, what's interesting is all of the ILEC phone companies for the most part have fiber to the home programs that are at least maintaining if not growing, Right.
So clearly, lots of growth with AT and T. Frontier has been very clear that they look at the deployment of fiber as strategic. Smaller companies like Zipley. We actually as we mentioned in our comments, we've started with consolidated communications, Which is a smaller customer, but an interesting one is that they've been very clear that they expect to build out over the next 5 years about we'll purchase 70% of their footprint or about 1,600,000 homes of fiber to the home. So I just think there's a are ready around the business strategies around network, particularly on the phone company side that has never been clearer both on the wireline side, so fiber, but also on the wireless side with respect to C band.
There were comments yesterday at a conference all participants There's an appetite for one of our large customers to really deploy a wireless broadband we'll purchase product throughout the country, including rural America. And I think on the cable side of the business, I think they've also been very clear They have very healthy broadband businesses that they're willing to invest in, particularly to grow upstream capacity, we'll purchase To maintain their competitive advantage over fiber. So I think the themes are all there. We got to work through this large customer program. We've got some absorption issues in a slow first half for top five customer, but we haven't been at 68% of revenue for The top 5 or 32% for everybody else in a very long time and we think that's a good sign for the future.
Thank you for that insight. I appreciate it. Can you just give maybe Drew, can you give us maybe just to follow-up on the horizon? What was since we're going to see it in the queue most likely anyway, can you give us what the 8% of total AR is for Verizon? I know it had been going down as you work through this In terms of where they stand, it would have been $390,000,000 last quarter on the receivables and contract assets.
Do you have that number for this quarter.
Alan, it will when we publish the Q tomorrow, we'll have all of that detail. I would say that the balance Tied up in this large customer program is down about 25% year over year. We're making progress. We understand everybody including us would like it to be faster, but it is moving in the right direction.
Great. Thank you.
Ready. Our next question comes from the line of Noelle Dilts from Stifel. Your line is now open.
Hey, is this Steve?
Noelle, it's a little bit better. We'll do our best. Go ahead.
Well,
all participants No, Al, we'll just have to follow-up with you. We're at least on our end, we're getting every other word. Okay.
Our next question comes from the line of John Lopez from Vertical Group. Your line is now open.
Hey, thanks very much. Sorry, I wonder if we could come back to the Verizon situation real quick. And maybe if you could help me this way. At this point, if we look relative to sort of the interim peak, your revenue with that customer is down Like over 50%. I guess the thing I'm still wrestling with is what is the baseline, If we can call it that with this customer relative to the unfavorable contract stuff that it sounds like you're kind of in the late stages of working through here.
So, sorry, can you maybe tease those things apart? Like how much left before we get to a run rate with that customer or is kind of the whole 13% deemed stuff that you need to work out?
Well, John, there's really three elements. So there's a portion of the work that we're working through That's been challenging. There's another portion of the work which is around their small cell deployment and network extensions that as they work through their C band priorities is slow this year. And that was the portion of the program that last year was more supportive because there was more work there. And then there's the BAU portion.
The challenged portion is not all of the work, but it's a significant part of the work, but it's coming down sequentially as we work through the year. And the cost associated with it to a degree are operating costs, but they're really are more focused around the closeout costs and it's just something that we got to work through. Okay.
Okay, that helps. My second question, again, just conceptually around not this customer so much, all participants But sort of the surrounding elements. So I guess my understanding was the idea here was you work out this revenue and then there's enough Other project revenue, other customer related revenue that would be significantly more margin friendly that you can replace this with over some we'll purchase Not in terminal amount of time. Is that still right? Is that still the right concept here?
Or have factors either labor, CapEx otherwise perhaps constrained the ability to replace this revenue in maybe the same way that you had previously intended.
So John, it's not an input, it's not a labor or material constraint as the customers made clear in a number of presentations with the advent of C band and the focus on deploying that spectrum. The portion of the build that was going to do more network extensions to more small cells is at a level that is lower than I think What everybody expected a year ago. On the same hand, AT and T is at a level that nobody dreamed of
No, I get that 100%, Steve. But just follow-up on that last statement. So is the increase in the second bucket sort of unforecast, unforeseen in your view? Is that larger than the decrease in the 1st bucket on forecast unforeseen?
Okay, John. I maybe didn't keep track of 1st bucket and second bucket. What I would say is that the portion of the work that's in support of extending the network this year is currently slower That I think everybody expected a year ago and I think in part that's because of the result of the C band results.
Sure, sure. No, but if you think 2, 3 years out, so bucket 2 was network extension, bucket 1 are in the range of 2, 3, are the increased appetite for that second cohort Larger than the drop in the 1st cohort.
And John, again, I've got to make sure I'm clear on your term. So network extensions and small cells are one driver to the program, right? Because you're deploying fiber off of the core to we'll purchase new endpoints. Look, C band requires a coverage layer. It will require a capacity layer and I think as I figure that out, there'll be opportunities around doing that.
This just is not the year that it turned out to have been as busy as I think people expected a year ago. And that's not just us, that's everybody.
No, I got you. Okay, sorry. Just one last clarification on the CapEx stuff. Is your view that that is a limiter industry wide or would there be some reason that You're unable to procure some of those items whereas say peers and or customers may be in a more advantageous place with this?
So with respect to the cable and the equipment, that's a factor of what the customers are doing. There's a portion of the business we'll purchase In rural where we might supply some material, but that's not the real driver. The driver is the uptick in demand That everybody has to deal with. On the automotive side, we enjoy as good or as we'll purchase a relationship with all the suppliers as anybody else and we don't think we're getting things any slower. In fact, I think we're probably blessed that we had a pool of assets that we had on order, from last fall, that puts us in a good as good a position as we can be given the supply constraints.
Okay. I got you.
Thanks for all the thoughts. I appreciate it.
Thank you. Our next question comes from the line of Alan Mitrani from Sylvan Lake Asset Management. Your line is now open.
I wanted to follow-up on the backlog issue. Did you already pull out all whatever expectations of backlog for that customer that's in sourcing the maintenance?
All participants There is no need to adjust the backlog, Alan, because we have contracts through the end of the period and we expect to enter into new contracts that cover next year and beyond. There's no adjustment required.
Okay. And then what's your expectation for backlog growth Going forward in terms I mean, normally the way I'd look at your business, obviously, revenues aren't going to are going to trail the backlog growth. When do you expect to start seeing some of these contracts that you're talking about with fiber or do you expect them just to come through regular maintenance contracts and what you have in In terms of, let's say, for example, increase in AT and T or others that will just be in your normal geographic position?
Well, certainly, Alan, there's a portion that just flows through the master agreement. So for example, the projects that we've received around C band, I mean, they're just flowing through the standard turf agreement that we have. And so they'll reflect in backlog as the run rates increase. All participants With respect to the fiber, again, we had a pretty strong quarter last quarter. As an example, with AT and T, we announced a number of states where we extended our master agreements and included the scope of work to cover the fiber deployment and so that's are subject to estimate revisions as we go through that 3 year period, but it's essentially reflected in the backlog.
Now, there may be some opportunities to grow geographically and when those are booked then we'll add to backlog. I think the other thing, Alan, and again, we've had this the term and there are certain elements in the industry that are going to be a little bit different than the traditional we'll purchase top 5 customers. So for example, in all this rural work we're doing, they typically issue work in phases. We put the phase when we receive it in backlog, we complete it, they give us another one. But there's not a contractual commitment to do that.
We could book A big number if we wanted to torture the way we think about the definition. But I mean, we've got north of $1,000,000,000 in the pipeline just on the rural stuff That's not reflected in backlog. It may never be reflected in backlog as it just comes through the business.
That's helpful. Thank you. And then lastly, on the weather, you mentioned that February, obviously, we all know weather was bad this quarter. Can you just detail a little better maybe the of how that played out in the quarter and how much you think that impacted you?
Alan, February was as bad a February we've had in a long time. I mean, it was a big impact through the middle of the country.
Okay. Thank you.
Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Steve Nielsen for closing remarks.
So we thank everybody for your time and attention. And before I go, I just want to express my thanks to Tim Esis. Tim is retiring are active today as our COO after 27 years of service. He's not been visible on all these calls, But he's been visible on growing the company from what it was when he came at $150,000,000 in revenue to $3,000,000,000 today plus. We wish him well in his retirement.
And then Drew has one more housekeeping item to get out.
Yes. Just to close out the call, I'd break out the customer split. Telco was at 64.9%, cable was at 23%, are participating in the facility locating was at 8.9% and electrical and other was at 3.2%. Steve?
Thanks, Drew, and thanks everybody for your time and attention. We'll speak again on our next quarter's call the end of August. Thank you.