All right. Good morning. Thanks, everybody, for being here. My name is Frank Louthan. I'm the senior telecom analyst here at Raymond James. Very pleased to have picked up Dycom last year. It's been a while since they've been here at the conference. We have Steve Nielsen, CEO of Dycom. Steve, why don't you talk to us a little bit about, about Dycom? Tell us who you are, kinda how you fit in the space, and, and why a telecom guy's covering a construction firm.
Okay. Well, just before we start the conversation, just wanna remind everybody that in the conversation, we may make some forward-looking statements. Those statements are subject to risks and uncertainties, which are outlined in our SEC filings, which we recommend for your review. So if we think about where Dycom fits in the kind of the telecom universe that you cover, Frank, is we're the folks that actually get the capital deployed for our customers. So if you think about for wireless, wireline, cable, and telephone companies, we're the folks that are doing the engineering and construction, but also, and as importantly, we're the folks that are doing the maintenance that keeps those networks online.
And so I think we are in a period of time where, as we look ahead, there's significant amounts of opportunity, and I think we've gotten to the point where we're in a great spot, where as we serve our customers, we help them succeed. And I'm assuming that you'd like to be part of understanding how we can do that, so that you can best understand the folks that you cover.
Great, so you've got some public comps, but relative to some of the others in the business, you significantly over-index to the telecom and cable industries. The others have a little bit more diversified. Why have you focused, chosen to focus primarily on those networking companies?
So one of the things that you always have to think through as both a public company and a public contractor is there are always incentives to get into new things. And so we as we were working with our board a long time ago about how do we know what businesses we wanna be in, and probably more importantly, what businesses don't we wanna be in? And so we looked at what I call three filters. So the first one is we like to provide services to customers that generally don't do the work themselves. There are always exceptions to that, but that means that in good times and bad, there's always gonna be a base load level of activity.
The second filter is we love to serve customers that have big capital programs, where we can be helpful with them meeting their strategic objectives. I mean, most of what we're doing today around fiber programs and bandwidth expansion and spectrum deployment, right? Those are all strategic to our customers, but we wanna be in industries where there's a fairly significant portion of the opportunity that's recurring maintenance. And so that means, for example, you know, it can be a good business for other people, but we've never had a lot of interest in, say, big pipeline projects because you build one, and you might not be back to touch that pipeline for 30, 40, 50 years. Whereas in our business, it seems like everything that we've touched, we get to touch two and three and four times as the technology improves.
And then the last filter, and this is more kind of in our industry, is we're predominantly unrepresented workforce. We can take people and train them fairly quickly to be very productive, and be well compensated, and so we are able to grow capacity that way. On the capital equipment side, we don't require lots of specialty equipment. We have some, but that means if we get, for whatever reason, when we go through a cycle, we need to surplus capacity, it's easily done, and that's not true of all other adjacencies.
All right, great. And, so you benefited from the bull market and with fiber upgrades and so forth. Talk to us about how you see that playing out, and how long do you expect this to last?
The way we have thought about the industry for a long time is that we think that 75 or 80% of the homes in America that are in predominantly urban and suburban areas will ultimately have two high-capacity networks to pick from, and today, that's certainly true of cable. On the fiber side, we think that that's, call it, somewhere in the low to mid 60 million homes. We think there's another 40, 45 million left, so a long way to go. For the remaining, call it, 30 million homes that are in rural America, we look at all of the government support that we've seen so far, with more to come, and we think that, you know, the balance of that remainder gets built out too.
And so that ultimately in urban and suburban America, you have a couple networks that can provide fiber or fiber-like capacity, and then rural, you at least have one supported with with government dollars.
Okay, great. And so one of the things that came out on the call that got a lot of attention, I think investors were focused on, is your backlog. Yeah, kind of walk us through the factors that were driving the backlog higher. How does that, yeah, what does that imply for your business and how we should think about it for the next 12-18 months?
Yeah, I think what we said on the call, Frank, is that that backlog over time is a good indicator of the size of the business. As we've gotten bigger, our backlog has become bigger. What it means in kind of the near to intermediate term can be a little bit choppy if you try to correlate that with the results. I would think... But more broadly, what I would say is that we continue to win work. We have an important part in the ecosystem of helping our customers meet their needs, and there's no guarantees we're in a service business. We have to earn the relationships every day, but we're in a good spot to grow with our customers. And that's just, you know, in a little bit of a pivot, Frank. I mean, that's just not now.
I mean, we've been doing this a long time. We just looked at our 10-year results and said, "Let's compare the year ended January of 2014 to the year ended January of 2024." Company's grown from about $1.8 billion to a little less than $4.2 billion. EBITDA has gone from $200 million to $500 million. And if we look at the increase in net debt, which is about $300 million to fund that growth, it's half of what we bought stock back for. So this is a business that we like, we're focused, we think it generates good long-term returns, and we think that we have more to come.
All right, great. That's good, good, good perspective. And again, looking more a little long term, out a few years, walk us through how there's a lot of government subsidies. We get asked about this a lot. It comes up with the telecom carriers, the BEAD program, and others. How much of your customers' business are you building because of those? And then how do you see that changing over the next three or four years as it surprisingly, government projects do, and they take longer?
Yeah. So look, it's not a significant driver to the business today. So if you look at our core top five customers, we certainly do some subsidized work for every one of them, but it's not a significant portion of the business. I think it's been a nice incremental driver, so we've-- if you start with the CARES Act, there was some money there, and ARPA, and RDOF, and a surprising amount of money that's available at the state level. I think that's-- it's been important to the business, but certainly not the only reason that we're growing. And then we look at BEADs, and as you say, you know, we have reasonable expectations around these big federal programs.
From 2009 to 2013, we did just under $600 million of the first stimulus program, and that was only about a $6.5 billion program. So company was much smaller, more geographically concentrated than we are today, and we were able to take good advantage of those dollars, and there's no guarantees, but we think we're well set up to do the same going forward or better.
All right, great. So with that, you made an acquisition earlier this year, company primarily in the Southeast. You've grown through acquisition over the years. Walk us through M&A and how you view that as part of your strategy going forward and the current environment for M&A.
Yeah, from a capital allocation perspective, we always wanna make sure that we have sufficient capacity to serve the organic growth needs of our customers. And you never want to have to go back to a customer and say, "I did a bunch of M&A, or I did some share repurchases in this great organic opportunity we can't address." So, so that's always gonna be top of mind. When we look at, M&A versus share repurchases, it's, it's an art, not a science, but we think a balanced approach is right. I mean, we, we always think about, and the way I describe it inside the company is sometimes you're working on the numerator, and sometimes you're working on the denominator. And that means that through M&A, we can grow the, the potential of the business.
We've had a good track record of doing that, but it's got to be at good returns. And it's been interesting that as interest rates have gone up, we've seen better opportunities because there has been less demand at multiples that we didn't particularly see being reasonable in 2021 and 2022 when rates were much lower. So we feel better about the value there. But then again, we can always look at our shares, and we can buy those back.
Okay. How do you think interest rates have affected, you know, your industry, either M&A or then particularly your customers and their decisions on deploying capital?
You know, I think when we look back on the last couple of years from 10 years from now, not surprising when the Fed does a historic series of rate increases, that there was some impact, that people were somewhat surprised. And at least what we saw play out and not universally, but for some customers, as rates went up in 2023, if we got ahead of a program, whether because of good weather or just, you know, we ended up amassing some resources that we could use, budgets became more important than they were when rates were lower. I think at this point, I think people have kind of discounted in where the current level of rates are not exp, you know, not within markets' expectations that they go up much.
In a stable environment, I think the industry has adjusted just fine.
Okay, great. And so when we talk to the carriers, you know, I think one of the biggest impacts when we look and say, "Well, what's taking so long, and how long are these things to grow these businesses?" It gets down to some of the simple ground game things like the permitting, the zoning, and so forth. You know, talk to us about their ability to do that. How does that impact your ability to do work, and what do you do to try and help them through that process?
So certainly, the broader theme that I would talk about permitting within is that these are big, complex programs. When you start from essentially not building much fiber or not having large programs to building very large programs across broad areas of the country, you're gonna run into things that you don't anticipate. And so that's not only true for us, but that's true for our customers, but probably even more importantly, it's true for the municipalities and the local permitting agency. I always tell the story of showing up in one rural county with a customer with a very aggressive program, and we're gonna send a couple hundred people into this county, and they said, "Well, how are we gonna locate our water network?
We have one guy that works the afternoons on Mondays and Wednesdays," I said. "Well, you're gonna have to get some more," right? I mean, and so I think that growing of the ecosystem is certainly the, the surrounding ecosystem is really where these things can slow down. But I would tell you, we've been through these programs multiple times, and with enough time and enough effort, you build a kind of capacity. It can't be done in 3 months or 6 months, but if you're looking at it over 18 months or 24 months, it may not be perfect, but it seems to always get better.
Yeah, I think investors often miss that. Even just to look at a small area, the number of municipalities you may cross, you could hit 3 or 4 in just trying to do 1,000 homes. And so now-
Yeah
... you've got four different hoops to jump through, and I think investors fail to appreciate how complex that gets.
Yeah, Frank, I mean, the analogy that I've used for a long time is, you know, on Wall Street, if you're sitting there with the QE2 on the pier in New York, and they're trying to determine when it's gonna arrive in London based on when the front of the ship passes the end of the pier. And, you know, some poor guy forgets the dock line, and the second derivative goes negative, and it's like, "That's it. We're not getting to England," right? And I think that's a little bit of what permitting does, is it just, you know... It is something to focus on. Everybody has to work hard on it, but eventually, the projects get to London.
Yeah. Okay. So in looking going forward, any new areas of growth, any ex- opportunities within the business? You've expanded over the years into the locate business, things like that. What do you see for new opportunities going forward?
Look, we have good growth opportunities across all of our businesses, and so I think where we've really focused our attentions, and we've always provided this service but not at the same scale, is to help our customers with the program management to get into things like permitting and build profiles of individual municipal agencies. If we work for different customers in the same geography, we often can provide some kind of insights around what it's gonna be to get the permitting to flow. So lots of efforts around program management. We're really comfortable that if we think about kind of our core business, that it has as good or better growth opportunities of anything else that we could be in.
I think, and I haven't run the numbers lately, but I think we, if you look at the last 10 years, organic growth was 7-8%. Means you're doubling every 10 years. I think the opportunity set that we have today at $4-$4.5 billion is better than it was 10 years ago when we were sub-$2 billion, even adjusted for the size of the company.
So explain the program management part of the business there. I mean, like, those types of things just ingratiate you more to the customers and so forth, and, you know, do more for them. And just tell us a bit about that business and how that helps drive incremental revenue from the customer.
Yeah. What it does is if we can provide a good understanding to the customers of the challenges that we're working through and our ability to deliver homes passed on a monthly basis... We are measured on these big programs monthly. They have quota; they may be disaggregated across 6 or 8 states. And if we're able to provide visibility and tell them, "You know, we're 10 days out, we're gonna make it," or, "If we're gonna make this month's number, we've got to have this happen," either from a permitting perspective or a material perspective, I just think that's where scale really makes a difference. These programs are big and difficult, and the skill sets that you needed are not completely fungible for other industries.
If you can build an interstate highway, doesn't mean you can build a fiber program, and I, I think that's an area where we continue to be able to differentiate in the minds of our customers. Now, it doesn't mean we make every month's objective, but I think we are hearing from customers that we are more reliable and predictable than perhaps the overall market.
Some of the things you do, in some cases, you can take some inventory of some components and so forth onto your balance sheet to help them, you know, with some of the getting supplies, getting so forth, getting better pricing power. Talk to us, even some of the companies that, you know, or the bigger companies that you wouldn't think of that would take advantage of that. How attractive is that relative to what maybe your peers do or to get them to sign with you?
Look, I think it's not only ability at times to be able to supply inventory, which we do for a number of customers, but to be able to have the scale where if we're serving the Carolinas and Virginia, and we can have one central receiving facility, and then we can move it wherever the material's most needed. I think that's a skill set that we have done a good job, not only in wireline but also in wireless. So those kind of core logistics management skills are not sexy. They're...
You know, you're not gonna see them in a PowerPoint, but at the end of the day, if it's, you know, Friday's the end of the month, and you need to reel a cable in Virginia that's in Florida, and you're able to deal with that, have visibility, and move it, I think that's important to customers when the pressure to meet objectives is intense.
Talk to us about the locate business and how you got into that business?
Mm-hmm
... and how that dovetails with everything else you do.
So it's interesting, the locate business, and just for the benefit of the room, we, when you hear an 811 announcement to call before you dig, utilities receive those notifications from excavators. They generally hire contract firms to go do that locating. We're the, we think, roughly the second largest in the country, and we've been in the business for a long time, probably almost as long as there's been a Dycom. And what's been good for us is that is a nice ancillary business that we often sell to customers at cable and telephone companies, in addition to the services that we provide on the construction and maintenance side. And so, as more plant gets put in the ground, there's more to locate.
It's a business where about 15 years ago we decided to pursue a kind of high-value strategy. You know, you can only have one low-cost provider in any industry, and we didn't think that was gonna be us, and I think that's allowed us to grow under control and create real value over time.
Okay, great. So you touched on this a little earlier, but I get this question a lot from investors. So how do you go to a company that has a lot of their own employees and their own trucks and all of that and convince them to hire you to do a lot of this work?
Yeah, the good news, Frank, is most of that convincing was done about 60, 70 years ago. So particularly with the advent of underground cable, most of the phone companies, and certainly in the '80s, the cable company said, "We're not getting in the underground construction business." That doesn't mean by union agreement or every once in a while, somebody wouldn't try it. But generally, for those type of services, because they are capital-intensive, they require a fair amount of semi-skilled labor to make that happen. That's always been outsourced. And the same with the aerial construction and fiber splicing, depends on the company, depends on the history as much as anything else. But, I mean, we have relationships, so I always tell the story about Knoxville, Tennessee.
We have provided master contract services to whoever the phone company is in Knoxville, Tennessee, in two periods: 1954 to 1981 and 1984 to present. And, you know, that's what I love about this business is if you think about the number of generational changes in management on our side, management on, on the phone company side, and think about the changes in technology, there's a business that's been around for, I guess it'll be 70 years.
Probably around a little longer.
Yeah, probably. Yeah. No, we're actually really busy deploying fiber there right now.
When you win in the market, who are you generally competing with? Is it DIY? Is it the other firm? Like, how should we think about who you're competing with for a job?
Yeah, I mean, typically, we're competing with other outsourced providers of the same service. There's, you know, there are divisions of larger public peers that are more diversified that compete to some degree with us. I would think if we were just doing a census and we looked at who we're generally competing with, these are smaller, private companies. Some will serve just a single region of the country, others will serve a couple of regions. We typically don't run into somebody that serves the East Coast and then jumps across the country and sets up shop in California, so they tend to be more regional.
Okay, great. Maybe talk to us a little bit about those arrangements with the customers or the master agreements you have and how that's, you know, helped, you know, bring a little bit more stability to the business versus maybe what we saw many, many years ago. I think, talk to us about that.
Yeah, no, it's interesting. These master service agreements have been kind of the paradigmatic way of doing contracting in the industry for a long time. They've gone through simplification efforts. They've gone through the shifting of more administrative effort from the in-house management to us. But if you think about it, we generally, on our business as usual part of the business, we're dealing with receiving hundreds of work orders every day. We looked at a sample of $2.5 billion in completed work. The average invoice was about $4,000. That meant we did 600,000 orders to do $2.5 billion worth of work.
and because we have small orders and we typically have contracts with hundreds of tasks, if we can figure out what the central tendency is, they tend to be fairly predictable. Now, they're affected by weather, and they're affected by mix of work, but I... You know, my view, and I've been in other industries, is I think we're in the best industry, in terms of the recurring nature of the services than anything that I've ever been involved in.
All right, great. So the wireless business, last year, the wireless industry, and some of your peers were hit as there was some extremely unusual construction activity for a variety of reasons that I've never seen and we may never, ever see again, and those circumstances coming up with the way the wireless carriers were building. But it caused a lot of yo-yoing up and down with numbers, a lot of your competitors. You're much less exposed to the wireless industry, so you largely avoided that, although I think sometimes the stock thought you were. But talk to us about the wireless industry and your thoughts on why you have less exposure there, and is that an opportunity going forward, or are you happy with the amount of business you're doing in for the wireless carrier?
We'd always like to do more. It's something that we really only got into a little over 10 years ago, 10, 10, 12 years ago. So we'd be happy to do more. For us, when we assessed kind of the recurring maintenance opportunity that was available to us in the wireline side of the business, remember that second filter that you know, capital programs come and go, but we want that relationship to endure on a geographic basis, and that has historically been less available on the wireless side. Certainly, we're a turf vendor for a you know, one of the large carriers, so we certainly have some you know, recurring business, and we'd be happy for it to grow as long as it makes sense economically.
Yeah. Okay. Why don't we see if we've got some, any questions from the audience, and I may have a couple more. Yep, yep.
Hey, Neil.
... environment with transitory electrification, has that diverted the attention on your competitors toward that area versus what you do?
So the question in the room was, has electrification created opportunities for competitors to become more diversified? I think that's true. I mean, clearly, there's lots of investor interest in the energy transition. And so that has created, you know, other places for people to deploy capital. I think the other thing, Neil, that has been part of that is we work in an industry that's fairly consolidated. If you looked at our top five customers and compared those same entities to their constituent pieces 20 years ago, they probably were 15 companies. And so there is a real advantage to specialization in our industry, and for some people, that makes them, you know, consider alternatives.
My view, and I think this year's, last year's results have borne that out, is if I can make 200 or 300 basis points better margins, if I can have better returns on invested capital, then I'm pleased to work with big customers that have big programs. And to Frank's question, every once in a while, that may mean that there's a cycle in there. But again, if you look at, if you look... forget the 10-year, if you look at the 20- or 25-year record of the company, we've been able to, you know, grow dramatically, increase EBITDA and reduce the number of shares outstanding on an absolute basis. You do that long enough, I guess you'll get down to just the number nine shareholder.
All right, any other questions? All right, well, speaking of which, why don't... Talk to us about, you know, the balance sheet and-
Mm-hmm
... and how you think about uses of capital.
Yeah. So the balance sheet, we ended last, the January year ended at 1.41 for net leverage to EBITDA, so we haven't been that low since the fall of 2012. So it certainly gives us lots of financial flexibility and capacity to continue to grow the business. So balance sheet's in good shape. We're working hard on DSOs. You know, that's one of the... We've been working hard on DSOs every day I've been here. It's always a process where you can always get better, and every day counts. So we're working on that, but I think we're in a great spot.
I mean, we did, we did a note, $500 million note in April of 2021, so we have, you know, several years left on that, 4.5%. So, so I think we've got a great capital structure to position us well to take advantage of growth opportunities.
The DSO game, I think your competitors, your customers know that game pretty well. You're doing better than some other suppliers in that regard.
Well, you know, I always tell our folks is like: "Look, they can't pay it until we get it to them, so let's focus on how quickly we can get them the bill.
All right, I got one last question. Anybody else in the audience? All right. So, you're a fairly mature business, not terribly levered, been returning cash. Any thoughts on a dividend, you know, as far as returning capital to shareholders? How do you think about that?
Yeah, we, we've looked at dividends periodically at the board level, and at least the advice that we've received, is that until you get to about a 2% yield, it doesn't, you know, change your shareholder base or, or make a, a significant amount of difference into the profile of who owns the stock. And so from our perspective, you know, share repurchases have always been, a better use of that kind of shareholder, returns. I mean, just kind of putting it out there. Drew will keep me straight on the number. I think in the last 15 years, a little over 15 years, we've spent just under $1 billion, and our average price per share is $35. So, so pretty good use of capital.
We're probably one of the only public companies that I know of where I look at the internal rate of return on every daily purchase over time to see that it made sense.
All right, great. Any last questions? All right.
All right, thank you.
We'll finish up.
Good to see everybody.
We've got a breakout-