Good afternoon. My name's Frank Louthan. I'm the telecom analyst here at Raymond James, and we are very pleased to have Dycom, have Dan Peyovich, the new CEO for the company. And so that, we'll start with a couple of questions. Dan, I think you got a safe harbor statement on that fun stuff, and then maybe give us a couple of minutes, tell us about the company, how you fit in the industry, who you compete with, kind of what you do, and introduction there.
Absolutely, Frank. Good afternoon, everybody. I'd just like to start with pointing out the safe harbor statement on the screen and on the webcast, and just direct everybody to our website for any forward-looking statements that we may make, and with that, yeah, let's jump in. So for those that know Dycom Industries, so we certainly go back a number of decades, but we are in the wireline wireless space nationwide. We're in all 50 states now, so we do engineering and construction. Our typical customers are AT&T, Verizon, Comcast, you name it, across the customer set. So obviously a growing industry these days with the fiber to the home and getting people connected around America, and we hope to continue to play a big part of that.
All right, great. So you're a week into your new role here officially. Talk to us a little bit about how you're approaching the job, and what should we think about? Anything you might be looking at differently or how you might be approaching the business? Is there anything that we should know that how your vision for your tenure here as CEO at Dycom?
Exciting time in our industry. So I started to mention it a little bit, but if you look at, as we came out of COVID, there's this clarity that we need to get all the homes in America connected to high-speed internet access. I think that's anything that's being debated on any stage today that that needs to happen.
And so whether it's the commitments that our customers have been making about fiber to the home passings and the incremental 35 million more that they've talked about recently that I'm sure we'll hit a little bit later, whether you talk about the hyperscaler set and the fact that there's new long-haul networks where they want high-capacity, low-latency networks that are going to go nationwide to connect their clouds, to connect their data centers, or whether it's the rural programs, be it BEAD or the other federal or state subsidy programs that are really trying to reach some of those more hard-to-get-to homes and hard-to-get-to locations. We really have these just multiple factors within the industry that, in front of us, create a lot of growth opportunities.
So from a business perspective and a strategy perspective, what we're spending our time talking about, and just, Frank, you mentioned, I've been in the role for about a week now, but over the last four years, my fingerprints, just like the rest of our leadership teams, are very much on the strategy, very much on the M&A that we've done, very much on our approach and where we're trying to get to. The question is, how do we set ourselves up to continue to deliver at the level that we've been delivering over the past several years? What we've all seen, these programs have gotten more complex, right? The number of passings have increased. When our customers are making outward commitments about what they want to do, we want to make sure that when we sign up to do the work, that we can meet or exceed those commitments.
We talk a lot about quality as a brand. How do we deliver a level of quality that differentiates us from the competition where we're not just delivering quality in the end product, where we're delivering quality at all phases of both engineering and construction, and frankly, in the bid process? For us, what that means a lot of times is that we want to have the hard conversations with the customer. We want to talk about it before the work gets going. What do we see for the potential opportunities for passings? What do we see for the potential obstacles that you might have in a municipality? How do we really front-end those things and get through the difficult conversations so that we get really good alignment? It's all about long-term partnerships with our customers.
It's about long-term opportunities for more people, and it's about long-term returns for our shareholders. So how do we situate all that upfront so that as this growth is in front of us and these opportunities are in front of us, that we can continue to deliver quality as a brand and hopefully continue to prosper in the industry?
All right, great. That's a good segue kind of to then my next question. So talk to us about the value proposition that Dycom brings to your customers. They're all big companies. They all have crews that do a lot of the stuff that you do themselves. Why did they choose to hire you? What are they getting from that that you bring to them?
Absolutely, Frank. So part of it is our footprint. We're in all 50 states now, and it takes a lot. It takes a lot of infrastructure in order to do that, to have personnel. We're not in every zip code around the country, but we're in a lot of them. We've got warehousing. We've certainly got tons from a fleet and equipment standpoint that is at the ready so that we can cover basically any geography within the U.S., And that is a lot to do because our customers, they might have outlets, they might have opportunities. That doesn't mean that all the work flows through there at the same time at the same rate of speed. So with us, the opportunity to flex up or flex down to augment maybe some things that they do do themselves because many of our customers do have those programs.
We give that ability to scale those up and scale those down quickly and not have the same internal mechanism, and of course, what we hope is that based on our scale and based on the ecosystem that we've set up, the money that we invest, not only in equipment, not only in training and facilities for our people, but in our own systems and our own software, we put a lot of capital into those as well. The idea, of course, is then that we can do it at a cheaper dollar value than they can necessarily ramp up for themselves, so that's the offering, and again, we continue to see that grow even with the complexity of these programs. Again, I talked a little bit about it, but every program that we're talking about today is more complex than it was yesterday.
Whether that's complex because of the task at hand. For those folks that are new to the space, even though what we do in the end product might seem like it's a pretty simple thing, right? Dig a hole, put some pipe in it, pull some fiber through it, go place it aerially. They might seem like simple activities. It's a highly complex process to get there. Every customer is different. Every municipality is different. So we, again, having that know-how, having that understanding, we just bring a different offering to our customers that, again, can help augment the way that they look at their business. At the end of the day, of course, they're looking for cost savings.
Yeah. Okay, great. So M&A has been a large part of the growth over the years. There's still a substantial number of these smaller private companies. You came from that world. Talk to us about M&A as part of your strategy, as part of your growth opportunity. What should we think about going forward as how M&A will play a role with Dycom?
Yeah, first, I would say in my four years, I've been at the front of the M&A opportunities that we've done. And for us, it's been an acquisitive past 15 months. We did four acquisitions. The first part, what we're looking for is culture fit, right? We are very passionate about our subsidiary model. We have a lot of folks. You know how Dycom really has grown through acquisition over the years. We have over 40 operating subsidiaries. And in many of those, it's the original founder or maybe a family member of the founder or partner that is still running that business today. And that's important to us, that entrepreneurship that they have, that spirit that they want to build, that they want to win, that they want to grow, really key to kind of the culture across the enterprise.
The other is we're typically looking for acquisitions that we can grow, right? And maybe it's where they are from a capital place at the time. Maybe it's from a risk profile that they like being private, but we're looking for companies that if we can bring them into our mix, infuse them with capital, give them a different risk tolerance, bring other things to their business that they have an opportunity for growth. And that's really been the case, again, over the last 15 months and some really good, strong businesses that we've brought into the company and been able to do that with.
Yeah. Okay, great. So talk to us about the Black & Veatch deal. How does that change your business over the next 12 months, 24 months?
We've been in the wireless space for 15, 16 years. And so when we had the opportunity here to carve out the wireless part of Black & Veatch and bring it into our enterprise, this is, we're a pure play telecommunications digital infrastructure, right? So everything we do is committed there. So for us, we're not deciding like many other folks out there, we're not deciding where to put dollars, right? All ours is going into telecommunications. So when you look at our wireless space, again, we've had it for 15 years. We've invested a lot in it. We've built specific software systems that interlace into our customers' programs. We built distribution facilities and ways that we handle inventory. We've done training. All of those things we look at as synergy.
So when this opportunity came up, one, the equipment swaps that are contemplated in the work that they have that they had ahead of them, and that we have in our business too, that's really good work. We can see what it looks like over the next few years. And then two, excellent synergies for us. So everything that we put into our business, this gives us a chance to increase that, what the footprint is, increase our stance overall in wireless, and we can get some immediate synergies out of it as we pull it into our business. So you really have all of those factors. And of course, really great people that we're excited to have part of our organization, part of our culture, and an opportunity for growth.
So if you look out a little bit, one of the things that we look at in some of the regulatory public policy side is the FCC spectrum authority. Wireless tends to be a little more hot and cold as how when there's things like spectrum auctions that tend to get a lot of activity and so forth. How do you think about that? If it's a political football that I'm sure will at some point get solved and they get back to re-auctioning spectrum, how do you think about that? Is this the opportunity time to be buying more wireless, getting bigger in that space while things maybe are cheap or get ahead of that? Those kinds of things, or how do you think about it in the right mix of wireless overall in your business?
Absolutely, Frank. So obviously, we're going to learn a lot in many different ways from the new administration and what the approach there is, which it appears from early commentary that maybe they'll open up more spectrum availability, which obviously would be good for our customers, obviously would be good for opportunity. We feel really good, again, with the base that we have with this acquisition and where we are in wireless as we look forward in all of our data usage on the phones that are in our pockets. As that continues to grow and we hear our customers talk about the rates of growth, whether it's the wireless side or frankly, we could talk about it on the wireline side too, but on the wireless side, as that continues to grow, we do see a period of densification that will come eventually.
We just feel like this gives us a good footprint so that we can pivot towards that when we see it come back.
Okay. All right, great. So one of the most often asked questions I get from investors is, how long can your current growth rate continue? Right? We've seen this period of expansion of Fiber to the home, but we keep seeing these announcements. I mean, even as you mentioned last week, your friends at AT&T announced both on the Gigapower side where they have a minority investment and in their base business, expanding the number of homes passed and keeps going. So how do we think, how do investors get comfortable that your current growth, how long your current growth rate can kind of last?
Yeah, I would start with probably a core premise or a core tenet, if you will, that again, when we came out of COVID, what we've been talking about is 80% of the homes in America are going to be connected with fiber with private capital, 80%. And I think you've heard that now from some of our customers. Some of the roadmaps they've given for the homes that they're going to pass are about 80% of their footprint. So that all seems to make sense. It doesn't have to be a perfect number, but it gives you a general range. And then the second one is generally homes are going to have two connections, right? That's going to be from with fiber and going to be from one of the cable operators.
It seems when you look at what people are getting for penetration and how folks are putting this together, our customers are putting together, that still works in the world. So there's a lot of work left to do, right, to meet the needs. And not just rural, by the way. I mean, rural is certainly part of it, but there's still a lot of homes to pass, to your point. One of our customers just significantly increased what their run rate is going to be going forward. And there's been 35 million new passings that our customers have incrementally added in the past year. That's a really big number. When you're talking about 140-ish million total homes in the U.S., 35 million is a real number. And that's in addition to maybe what they already had, in addition to what they had in their original program.
The long answer to your question, that alone is going to take a while to play out, right? That alone, just to connect the homes that our customers are going to hit to 80% is still a multi-year build in front of it. And then we have the rural side. And then I'm sure we'll talk about too from a hyperscaler perspective on what these long-haul networks look like. We see significant opportunities. We spend a lot of time on strategy. We spend a lot of time making sure, again, that we can continue that quality of our brand. But we do see significant opportunities for growth over a multi-year time horizon.
Yeah. So I mean, I approach this from the telecom view of the world. That's kind of the names that I cover. So I think I kind of understand a little bit better from that perspective. But what do you think in general a lot of investors maybe misunderstand about why these builds are taking as long as they do, which gives you more runway? I mean, what is it about the nature of them that people maybe don't understand or should understand better to know when AT&T adds another five or 10 million homes, throws that gauntlet down of what they're going to build? Why would anyone think that's going to be done in two weeks?
Obviously, you have the labor component. We could talk about that at length. We put a lot of time, energy, strategy into our labor forces. We've retooled our labor programs. We're building new training facilities. There's the whole labor side that we've been able to stay ahead of on the builds and really on the increase that we've seen over the past several years. The common constraint that we've seen and we think that we're going to continue to see comes to the municipalities, and you hear about it being talked about. There's permitting issues. There can be locating issues. There can be different kinds of inspection issues, or there can just be plain old in a municipality only once they have so many roads ripped up at one point in time.
And again, it doesn't matter which part of these builds you're talking about, whether it's rural or metropolitan, anywhere in between, every municipality is going to have its own flow rate that you want to go through. So we still think that is going to be part of it. And so what many of our customers have done is when they talk about these builds, they're talking about across many markets, right? Because that gives them much more opportunity to scale and control the throughput. But I think when you look at it on the very micro level, I think that it is still going to be a challenge as we move forward in the programs and something I know people are working really hard to solve.
Okay. So it's really just more about the nature of the work and the prep time and everything else that people don't, rather than just you can't just show up with a truck and start building.
Yeah, and of course, there is just the engineering and permitting side. That does take time. When you look at some of these bigger programs, there's environmental reviews and other things that have to happen. All those do have lead time to them.
Yeah. Okay. And you mentioned labor. So let's talk about that a little bit. Talk to us about the availability of labor currently and what are some of the things that investors can watch for to say, "Oh, okay, this maybe labor's getting a little better in the macro, or maybe labor's getting a little tighter. How should we think about that?" And then tell us about some of the things a little more deeply about some of the things you've done to kind of try and make labor less of a fluctuation in your equation.
It has gotten better, Frank. I mean, if you think about a couple of years ago, coming right out of COVID, there was a lot of pressure on labor. There was a lot of things happening, a lot of pressure on equipment too. But on the labor side, we were seeing more significant increases. And this is not just in our industry. And certainly, this is not news to everybody, but that has tapered off. We're really seeing kind of pre-COVID conditions now from an annual escalation standpoint, from that attraction, from the availability, and from a retention standpoint. Those have all returned to what we would refer to as normal. I mentioned before, we're making these investments in our different programs. We're making investments in our people. Opportunity is a huge part of it. And I'll talk about it in a couple of ways.
One is when the industry talks about these long-term build programs for our folks that are working out at any level of organization on a daily basis, seeing long-term programs, seeing long-term opportunities for them to continue their career growth, for them to do more over time, that's a big deal, right? That's a big deal. People don't want to just think about things as a six-month career or a six-month job. They want to think about it over a multi-year horizon. So when the industry is talking about that, it certainly helps with labor attraction. Specific to us, I like to point to the opportunity side where people want to know what their career path can look like.
We have many leaders in our businesses and many leaders in our subsidiaries that started with a shovel in their hand and worked their way up through every role of the company. When you can show that to new employees and when you can show that as a career path, and you can prove that this is a reality and it's not just something we talk about, I'm an absolute huge advocate for the trades. I started in the trades myself. When we can show that to our people, it really motivates folks and they get excited about where do I start and how can I move up through that ladder. I do think that's special to us. Not that other people don't have it, but we talk about it a lot internally. I think it makes us unique from a career pathing perspective.
All right, great. That's helpful. So let's talk a little bit about the subsidy programs that are out there. To what extent do those kind of fit into your plan and how ongoing are there? And let's just talk, let's take this in two parts. First, let's talk about just general subsidy programs, of which everybody talks about the BEAD program, $42 billion. Let's come back to that. But there's almost as much out there of state and local grant programs and so forth that are out there. How much does your business benefit from that and what's sort of the outlook there?
Yeah, and it comes to the 20% that I talked about. So 80% of the homes are going to be covered with private capital. Hopefully, I'm not going to lose my voice while I'm up here talking, but I have been talking all day. So 80% is going to get covered by private capital. So you have the 20% that does need some kind of subsidy for it to make sense. And to get to the short answer, no, not all of those are going to make sense with fiber because some of them are just too expensive. But we have a number of other programs, whether it's RDOF that's still ongoing with some of the other funding programs, whether it's the state grant programs.
I mean, I think folks that are connected to this industry see that certainly once a month or every few weeks, many of our customers are talking about getting another state grant award. And that's helping to connect homes. And even what you see in Louisiana related to BEAD and their announcement, a lot of that, their ability to do that and have additional funding is because many homes got connected under other subsidy programs that otherwise wouldn't have been covered by private capital. So that's a really important component. That 20%, we still believe that this has really become in the United States a necessity for people. This is not just a utility. It's a social issue, right? People need to get connected. There are different technologies to make that happen.
But ultimately, we really believe that you got to have, there has to be some subsidy dollars in to connect a number of those homes.
Yeah. Okay. And then on the BEAD program, talk to us about that, how the conversation you've had with customers and how you expect that to go. And then also touch on the potential for it to be possibly adjusted. There's a potential that the new administration could take the thumb off the scales it had for fiber. How do you think that impacts you if more of that spend goes to fixed wireless or satellite?
Yeah, and I would start back on the social issue side. Even with the prior administration to today, there was still a focus on connecting rural America and getting them high-speed internet access. There was funding, there were programs. Been the same for the existing administration. And I've yet to hear anybody talk about that doesn't need to happen, right? We need to get everybody in America connected. We need to get all the homes connected. Nobody wants to see people having to go into fast food restaurants to have to sit there to get Wi-Fi, right? So I think there is unanimous agreement about that. It's just about how we get there. When we look at BEAD, and we've been talking to customers, there's nothing in our backlog. There's nothing in anything that we're projecting right now that has BEAD in it. So it would be upside.
But when we're talking to our customers, when we've been talking to the state broadband agencies, the question that we've had is, what is going to be the interest level? And this doesn't matter what the administration is or what's going to do. I think this is always paramount to that program or any of the other subsidy programs. The question is, what is going to be the interest from the private companies, from the private sector? And are they willing to put in, in BEAD's case, 25% or more? Are they willing to put that part in to connect these homes in these rural or more rural passings? And what we've seen in Louisiana is that it's great that there's 95% of the state's fiber. But our takeaway from that is that we have really good industry participation from the fiber ISPs.
And to us, that is more of the headline. So when the economics work for them in, again, these rural subsidized passings where they do have to put money in, where there are other components, and I don't want to get too deep into exactly how the NTIA is going to play with the states, but there's some opportunities there that can make that more attractive as well. From that perspective, as long as, and we do think it'll vary state by state. Some states are just going to have more homes that are more expensive to pass and don't make economic sense, and they're going to get more satellite. Satellite's always going to have been a part, just like fixed wireless. So we see that continuing to happen.
And we don't think it's going to be state by state, but we see that competitive environment is likely what's going to dictate things more than others. And the states are pretty far along in the process. As I know you know, Frank, you've got 13 states now that are going through the subgrantee process. I'm sure we'll see more awards before we get to the change in administration. I think we'll all get a really good look at the landscape. But again, it's great to see that participation from the fiber ISPs, and we'll see how it plays out.
Okay. All right, great. Got another question about some of the AI builds, and if folks have a question in the audience, we'll check back on that in a second, but talk to us about some of these AI builds that you think you'd be working on. Break those down a little bit and kind of walk us through a project. How is that different from a project where you're largely blowing fiber through an empty conduit duct where all the digging's been done, all that kind of stuff, versus what we normally think of? How should we think about those types of differences in those types of projects?
It's an exciting space, so we talked about the fiber to the home passings, 35 million incremental. That's significant. We've talked about BEAD and the other subsidy programs. That's significant, so then we come to the hyperscaler side, and what we're talking about here is the desire for long-haul, high-capacity, low-latency networks for the hyperscalers to connect their cloud, to connect their data centers. Those are significant builds. They haven't been done en masse in decades, and so when you think about the capacity of some of these networks that are being talked about, and you've heard about some of it from some of the equipment suppliers and others, again, these are very large fiber counts and going many, many miles to connect around the country or certainly around the NFL cities in the United States.
If you look at that across hyperscalers, we just see that as a significant market potential and important, right, in this race for AI, in this race to connect their cloud and everything that's going on with data centers and all the discussions around the continuation of those builds and what the opportunity set is there. We just believe that this is going to be significant, so to your question, you have the overpull work is where a customer would have existing conduit that's empty in the ground, and we have an opportunity to go in and blow fiber, pull fiber through that. On some of the higher capacity fiber counts, it's a little more complicated. You got to both pull and blow at the same time just because they're heavier, but this is work that we do all the time around the country.
And it can be gotten to more quickly, right? And I think that's certainly appetizing for the hyperscalers whose speed is an issue for permitting is much less constrained. The actual plant is already in place. So it's work that you can jump into right away. This is an award that we talked about in our last earnings call that we're excited to get started on, and that work is going to start this quarter. So we see that playing out over time. But behind that, you have the potential for new construction. So for routes that aren't in place with empty conduits, now you're talking about back to digging the trench, back to boring, back to plowing in open fields. And that work varies greatly, whether you're in a metropolitan city, highly, highly complex, a lot of permitting.
Maybe you're under a river, big environmental reviews, or maybe you're out in the cornfields. You're much easier, and you can plow that work, but again, this is work that is complex. It's going to take time, and with what's being talked about by the hyperscalers, we just see that as a significant opportunity.
All right, great. If anybody have any questions? Okay. All right, so talk to us maybe about the margin and cost differences between the overpull work and so forth. What's the difference in the labor component? How should we think about that?
Yeah, I would think more and more about from what the work itself takes. So overpull work is less equipment intensive. You don't have the same machinery that we're going to have out there when we have to excavate or do trenching. But from a margin relative mix for us anyways, we look across all these things. We have fantastic partnerships with our customers, which we very much appreciate. We want to make sure that we're providing value to them. And like I talked about, this kind of quality is a brand. We hope that we can provide another level of quality, another level of value, whether it's related to the fiber to the home, whether it's related to building these long-haul networks. We want to do that. And we really see that all of that is going to end up in a similar margin range for us.
So we don't really look at it that way. We look at the work. We're pricing the work, and we're pricing the risk, right? The risk is not just the putting the plant in itself. There's a lot of other components of risk. It's got to do with the velocity of the program, right? It can have to do with the contract terms or the specific deal points in something. So there's many components to work, but that's really how we look at it, is how do we price the work and how do we price the risk and make sure that in the longer term, we can have a good return to our shareholders and good opportunities for our people.
Okay, great. So maybe talk to us about capital allocation. What are your priorities there? And how would you rank your capital allocation priorities so investors can kind of have a level set for that?
We've grown considerably. In the time that I've been here, we've grown almost 50% by the end of this year. In one year, we grew almost 22%. So what we want to do first is make sure that we can fund our organic growth, right? As we continue to see opportunities. Again, we have fantastic coverage around the country. We're in all 50 states. We've got great customer opportunities.
And so we want to make sure that for our customers, that we can be there for them as they continue to grow and expand their networks, that we can take that and make sure we can fund it organically, whether it's equipment or whether it's from getting our people up and running. After that, obviously, we've been acquisitive by our standards over the last 15 months. So we certainly are looking for M&A opportunities where those make sense and where they fit the business. And then we balance that against share repurchases.
Yeah. Okay. Yeah, go ahead.
Just wondering, in your discussions with the state broadband offices, is the local economic impact of the build a consideration at all? And I guess I'm thinking that there's very different implications for where the dollars flow on a satellite deployment versus a fiber pull.
Yeah, absolutely, it is a consideration. I'm not going to dare to dance into those waters too deeply because there's a lot of things happening across the country and across different states. And different states have different perspectives as well, right, which we've seen. But obviously, there's a different economic impact. And obviously, what has been out there to date has really been very much wanting to get fiber in the ground and put those jobs in place that are out there in the field.
Okay, great. Anybody else? Okay. All right, so talk to us about some of the additional services that you offer. You have some other things that you do for customers. What's the profile of customers that use you for some of those other project management type services? Is it the big companies or the smaller ones, things like that? Talk to us about how attractive that is to customers.
Yeah, thanks, Frank, so for us, I talked a little bit about our subsidiary model and the entrepreneurship that we have there, the customer relationship, the customer connection that we have there, and then we look at that across the enterprise model as well, so we have solutions that, whether it's our program management group, whether it's some of the technology and some of the applications that we've built to interface with our customers, we look at it as both, right, so we want to make sure that we're serving both that local need and giving that local field that understands the communities that we're working in, that understands the municipalities and some of the requirements and the constraints that they might have, and then we want to overlay that so our customers are getting one experience across Dycom, right?
Like I said, we really want to elevate the quality level of that experience. We're taking any lesson that we might learn in one subsidiary or in one build, or in one part of a program. As we go to work for another part or another area in the country for the same customer, we want to take all those lessons learned and be able to build on those and move it forward yet again. We've built, we have folks that are working internally. Like I said, we have different processes and components that we just really hope, ultimately, what we're trying to do is elevate the level of value that we can deliver for our customers. We feel like we've done a good job.
There's always more work to do, and we can always do better, but we're trying to earn their business every single day.
Okay, great, and then when the customers look at this, I mean, what's kind of, does it make them stickier? I mean, how do they think about it, and what enhancements do you see to that? How can you grow with those kind of project management services over time? Are there other areas that you think you could do more or that you could expand that type of revenue?
Yeah, so we want to offer an opportunity for our customers to augment how they operate their business and whether that means that we have staff people that can augment the way that they're looking at their enterprise and they're trying to balance, of course, they're balancing all the same things as a business that we are. If we can provide that, then we want to do it. Again, from a software solution set side, because we do, we build a lot of software solutions that are very custom to us, very custom to our business. And when we want to interweave those, and if that can make their lives easier, if that can simplify their internal processes, then that's something we want to do. So we're always looking for those opportunities to play in, but we really look at it from the customer's perspective.
We're not going to push anything on them that they don't need. We want to make sure that they understand the opportunities that are there and that where it makes sense for them, that we're ready to step in and take a little more of the ball.
All right, great. Any last questions? No? All right. Dan, thank you very much. Really appreciate you being here. Look forward to hearing more about the.