Okay. I think we should probably get started. Yeah, there are a lot of seats up at the front. I don't know if I have to pay people. Good morning. I'm Manish Somaiya. I lead the power technology and infrastructure franchise at Cantor. Also super timely, we initiated on Dycom this morning with a price target of $436. Obviously super excited to have Dan Peyovich, CEO of Dycom, join us for the conference and to talk about everything that we want to talk about really. I mean, there's so much going on. Maybe if you can get started, Dan, beginning with obviously your fiscal 2026 year was quite solid. Fourth quarter was quite impressive.
Obviously, you're expanding your footprint with the Power Solutions transaction. I understand you had an 8-K out on Power Solutions this morning outlining some figures, historical figures. If we look at the trajectory of your business over the next 12-24 months, what do you think the market's missing?
Excited to talk about all of that. Really quickly, I'm gonna make forward-looking statements. If you could all just please reference our safe harbor statement on the website, then I can get to the fun stuff. Yeah, one incredibly successful year last year for Dycom, and I think the headlines that we would like people to take away is, you know, just over a year ago, Drew DeFerrari, our CFO, and I talked about we wanted to see margin growth. We thought we could see that in the business. We were gonna be working on cash flow and improving that in the business, and we delivered on that.
We delivered on exceeding the high end of the revenue outlook we gave, for the first time for the full year, and we delivered on those two really important initiatives to set the business up really for the stage that we're in today. That is a different world than where Dycom has been historically. We, you know, have really thought about what our strategy can be, not just for FY 2027 that we're in today, and I know that's confusing by the way, calendar 2026, FY 2027, but about where we can be in 3, 5, and 10 years. Those durable changes in the business set us up for phenomenal growth opportunities on both. Now we have two segments on both sides of the business.
Just as a whole, you know, our platform and how we want people to think about Dycom is, you know, we're the largest in what we do on the communication side. We're in all 50 states. What we do on the Building Systems side with Power Solutions is very large in a very mature market that just happens to be the largest data center market in the world. That is an incredible platform opportunity to grow into. How we lean into that really is what we're setting up for the next year, which can look like M&A, it can look like continued growth. What it really is at the end of the day is delivering a skilled workforce for our customers to meet their growing and quite incredible needs and demands of the future. We feel really good about our position to do that, Manish.
Obviously, Dan, the last couple of weeks have been, you know, just amazing set of headlines, geopolitics in particular. When you talk to your customers today versus a month ago, six months ago, you know, what's changed? You know, how are you sort of looking at demand, timelines, contract structures, execution constraints? Maybe if you could just give us an update on that.
Yeah. It is an incredible demand. If I'm talking on the Fiber to the Home, which I think a lot of people kind of undervalue about how much work there is still to do there. We're not even close to the peak of what that looks like. Our customers are even more bullish today than they were six months ago. There's even more homes that they've targeted in the past than there were six months ago. That is a very large endeavor that's gonna take, you know, probably every bit of a decade to deliver over time in whole. You know, whether it's that, whether you're talking about a hyperscaler, Middle Mile, Long Haul, we're getting more opportunities today. We're having more conversations with the hyperscalers directly today.
I thought we were doing a lot a quarter ago when I was up on a stage talking about it, but it's even more today. Same for the Power Solutions story and what we're seeing in the data center market. I think a lot of people connect, you know, derivatively based on CapEx expectations or other things that you might be hearing in the news. I can just tell you what we're seeing, and what we're seeing is an incredible demand to deliver more data centers. We're talking specific to the DMV today, but you certainly hear that nationwide.
I think that there is so much there and there is so much pent up that can't be happening quick enough that we feel really good about, one, you know, certainly what we gave for an expectation this year of 15%-25% revenue growth for Power Solutions. Two, really that extending very far in the future.
Right. You know, maybe if we can just start off with Power Solutions. As I mentioned earlier, put out the 8-K with historical numbers. Obviously, the expectation, you know, in that business is high-teens margin. I think the guidance for this year is mid-teens. Maybe if you can just help us, you know, with the bridge, and obviously the growth prospects that you have both organically, inorganically. You know, one of the questions I get quite frequently from folks is, you know, are we seeing a bubble in data centers? I mean, you talked about the fact that you are having lots of conversations and, you know, that does not seem to be the case. You know, what gives you that confidence? Hopefully you can help us with that.
Absolutely. Not seeing a bubble, that's the first, and I can provide more color on that. Let's talk about margins for Power Solutions. First, you know, we're really pleased with the margins that we see across the Dycom business. I think if you think about the communication side, our ability to grow that business significantly, continue to grow Service and Maintenance, which is a different part of the business, and grow margins while we're doing all the other initiatives that we're doing. You know, I'm telling you that is a difficult lift for an enterprise of our size, and I think we're doing it exceptionally well. If you think about Power Solutions and their ability to have delivered at mid- to high-teen margins over time with the kind of growth that they've had, their four-year growth CAGR is 15%, right?
Coming into this year. That's an incredibly well-run organization. I really just cannot say enough about the men and women of Power Solutions and how impressive they are at every level. It is a highly sophisticated business that obviously quite large, especially in what they do. That's what attracted us to them, and that's what attracted us to a business in the DMV where there's so much opportunity. Dycom has acquired businesses for a long time. That is our DNA. You know, we do a really good job of finding businesses that fit our culture, fit our strategy. Of critical importance, those are very high filters. Behind that, we look for businesses that we can leverage at a different place than they are operating independently than they are when we bring them into Dycom.
You've seen that if you look at what we did with the wireless acquisition that we did a couple years ago, you see that with the Bigham acquisition we did before that. You can see an inflection that happened in those businesses. Where does that come from? That comes because we're investing in the businesses. You know, so many times when a founder-led business gets to a certain point, and this is no commentary on the ability of these organizations, 'cause all of them have been fantastic, but they do get to a different risk profile when it's founder-held compared to when you have the balance sheet and the overall management that you can bring from a company like Dycom. We wanna lean into that. So how do we do that? Well, we need to invest in the business.
What does that investment mean and what does it look like? First and foremost, we're gonna bring resources. It can be anything. It can be safety, it can be quality, it can be management. We wanna get to a place with Power Solutions where maybe the next project that they would've said no to from a risk profile, we wanna get them to where they're gonna say yes. That's why you see 15% growth going to now a range of 15%-25%, and certainly potentially beyond that. How do we unlock that? Is by bringing in that institutional expertise that we have to offset what they already have, which is incredible, to open up kind of a new chapter and a new dialogue. The second thing you do is you ready for the future growth. There's different ways that you can think about that.
Certainly, there's just, you know, putting systems in place, you know, putting other things in place that do have expense to them. You can also think about it from a manpower perspective. The way that Power Solutions projects work is, you know, they have a data center that might be part of a data center campus. When they first start that project, when you're at the beginning and you're starting multiple projects as they are right now, your margin profile is not gonna be the same as it is over time. The more starts you have, right, you have more resources than you have revenue coming in at the beginning of a project. Later in the project, you're gonna make that up to get to that high teens that you talked about, Manish.
During that period of time, you're gonna have a little bit of margin pressure. If you add to that, there are times when you have one data center ending and the other one doesn't start the very next day, and you have a carry period. You can send, you know, electricians, which everybody knows how valuable a strong electrician is today. You can send them back to the hall. That's an option. What's a better option when you see significant growth opportunity is to take them, diffuse them into your other parts of the business, which again, gives you a little bit of margin pressure so that you come out of that stronger, better, faster, with a better ability to grow and a better margin profile. From our perspective, this is just a normal investment we make in every business we acquire.
The difference is it's a segment of one right now, so everybody can see it very clearly. You know, that doesn't concern us. The margins we're getting from the gross margin, the bid margin that's out there are still incredibly strong, and we absolutely see over time the ability to be in that high teens EV range.
In Power Solutions then, would you go beyond electrical? From a geographic footprint perspective, what would make sense?
Yeah. I have no problem sharing our strategy, and I talk quite openly about it. You know, this pivot was very natural for us. I talked about that a lot a quarter ago. The DMV was very specific. We wanted to be in a mature market. Electrical was specific because it has so many corollaries to what we do, and the cross-sell opportunities are incredible. The opportunity now is really twofold. In the DMV, we call it Building Systems for a reason. There are other systems within data centers that we can lean into. If we find, again, it's gotta be the culture fit, it's gotta be the opportunity fit. That sell of having, you know, a collective services that's greater than what we have today is a strong sell in the DMV. That's something we would look at there.
We would not look at that in a market we're not in. We're not thinking about mechanical companies in, you know, Oregon or somewhere else, right? We're really would think about anything that's adjacent, and it's not just mechanical. There's Structured Cabling and there's others you think about there. If you're gonna go to other markets around the country, one, now that we have a large mature market that we're in, you know, going to a frontier market makes more sense. We could look to electrical companies there. We do Structured Cabling in-house with Dycom. You know, we've done that for a long time. We don't do a ton of it in data centers the way we're talking about them. That's one that we could lever into in any way, shape, or form. You know, that's an opportunity over time.
That's an opportunity for continued cross-sell. That could be organic, it could be through an M&A. Really think about inside the four walls, and I think again, this is where Dycom is different than our peers. We do not plan to get highly diversified. We do not plan to get into other types of infrastructure like civil or like pipelines or renewables. That's not our play. Our play is to stay right down the fairway in digital infrastructure, really all based on the premise that we're gonna use more data tomorrow than we use today. We're gonna use more data next year than we use this year. That requires more infrastructure, and it requires more compute capacity. We think that our play, very thoughtful approach, is to be right in the middle of that.
We have huge growth opportunities, but also, you know, quite frankly, you know, this goes back to the AI bubble. We do have, you know, really good staying power. If things come in a little bit, we believe that we are better positioned than many to be able to continue to grow through that.
Maybe Dan, if we can just talk about the synergies between communications and Power Solutions. You know, what's been the customer feedback? You know, have you gotten traction in booking new jobs? Then, you know, I guess more broadly, as power becomes a gating factor in everything that you guys do, I mean, how does that change the sequencing of, you know, the job that you wanna get done on time and get it done on time?
Let me take those in reverse order, Manish. The power. I worked on my first data center in 1998, and I built them for two decades, you know, as a general contractor before I came here. Very familiar with that. That space, you've always had power issues. You've always had other issues that come up in why things get resequenced. Again, what's important to remember, and this applies to both sides of the business, but let's just talk about what Power Solutions is doing. What the hyperscalers are concerned about, you know, what the developers of the data centers are concerned about is having the skilled workforce to deliver on their growth plans. They are looking at more than one campus, more than one data center.
You know, our workforce is not uncommon for us to think we're gonna go build data center A on campus A and end up building data center C on campus L because they change and reprioritize. Being nimble in that space is just a requirement to be in this space. This is something we've seen, you know, through the history of time. Again, when you're in a market like the DMV where there's so much happening, those are really kinda edge noise and overall not an impact to how we see the day-to-day or our growth opportunity. The second part is, you know, as far as kinda what's the cross-sell and the update there, I use the example of Stretch Armstrong to kinda date myself.
You know, we have so much pull right now from the hyperscalers, but there's so much pull even from the general contractors with Power Solutions. You know, we expected that. What I would tell you is it's even stronger than we expected. Again, we're being very thoughtful about our approach, how quickly we expand. One more thing I want everybody to take away about Dycom is we have a strategy for all of these things. We have very clear disciplines and objectives that we're measuring over time. This is not a huge change in our DNA, right? We're not gonna just go crazy in one direction. You've seen the discipline in our backlog. You've seen the discipline on delivering on what we told you we were gonna do. It's really the same thing here. We're gonna make these moves smartly.
We're gonna definitely seize the growth opportunities 'cause we do have a growth mindset, but we're not gonna sacrifice things to get there.
Right. Maybe turning to communications, what are some of the growth areas there behind the implied double-digit growth rates that you've talked about?
Yeah, and thank you for saying that last part. Remember, half of the communications business is service and maintenance, and that only grows with new plant that we're putting in place or us expanding to other markets. If you look at really what that growth opportunity that we talked about for the year when we gave our guide, that means that the program work is growing quite significantly. I think that's really important because it shows you that we're capitalizing for sure, but it shows you the momentum across the space. Today, that is largely fiber to the home. Certainly, you have the long-haul middle mile that's coming up, but industry-wide, that's still a much smaller driver today. Gonna get bigger next year for sure. Gonna get really big in calendar 2028.
You know, we're positioned well for that. This year you're gonna see Fiber to the Home be the leader. Again, people are underestimating that. If you think about BEAD coming online now, and we are seeing that make progress, and you think about what the actual addressable market is for BEAD, for Dycom in our space, it's almost $20 billion. Take that back to today, you know, Dycom, the largest in what we do across all 50 states, but if you take out the Service and Maintenance business, last year you're talking about something like $2.7 billion of program work. BEAD alone, on top of an already extremely robust Fiber to the Home, on top of a very quickly growing long-haul Middle Mile work, this is all with the same workforce, all with the same equipment.
BEAD alone is $20 billion with a B, over four or five years, maybe longer. We'll see how it plays out. Those are very material numbers to come through the ecosystem. All of that is a positive for Dycom. All of that is about opportunity. I do think that you will see some of these timelines expand just purely because it is so much demand coming through so quickly. That's why I talked about on the call, calendar 2028 is really gonna be, as we see it today, kind of a pivotal year in the industry to see how it's gonna impact, with all these drivers coming together.
Yeah. The other question, Dan, and I'm so glad you're here today because I see headlines about Hollow Core Fiber, and maybe if you can just talk about that. How does it differ from standard fiber? You know, why should we care? Of course, you know, what are the implications, you know, when we talk about the data center market?
I think a lot of people haven't heard about Hollow Core Fiber, and we have our hyperscaler customers, a couple of them are talking about it quite publicly about the need around it. Just, you know, I know that we don't have a ton of time, but just a quick context. It comes down to latency. If you think about so much of the work that we're doing, whether it's the Long Haul work, the Middle Mile work, everything we're doing on the data center side or inside the fence is really around latency. Where the hyperscalers are putting these data centers, it's around latency. Right now, physics is a constraint to that. When you're pushing light through glass, you know, you have a resistance, and I am not a technical expert in this, but I will give you my very layman perspective.
You have resistance in pushing that light through that glass. What that does is it gives you a distance that these data centers can be apart, and that they can be away from whoever is gonna be using that data. Because that distance is governed by the speed, the Latency, and how it's gonna go through that medium. Hollow Core Fiber, which is really, you know, quite nascent today and really just coming up, and you're gonna hear more and more about it. Hollow Core Fiber, you're actually passing that light through inert gas or air that's in a glass that's around. What that does is it improves the Latency by something, again, layman numbers like 30%, which just allows you to extend how far apart those data centers can be or how far away you can be from a large population.
Why is it important to talk about? Well, two reasons. One is, you know, we don't know. What we know for sure is we are all using more data. Things like latency, things like capacity are really important. It is really hard to see exactly what the state of the world is gonna look like. Where Dycom is positioned is all these changes require infrastructure. Putting Hollow Core Fiber on the ground, there's hardly any of it across the United States today. You know, if that is something now that is gonna take root and really become the backbone that connects data centers nationwide, that is a huge lift that's not even anticipated right now, and something that we're leaning into, you know, well ahead of the curve. The point there is really technology is gonna change as we consume more data.
Where we want to be positioned is how can we really be that provider of choice to get ahead of it. Then the second part really just comes back to the need, right? The need. The reason our hyperscaler customers are talking about Hollow Core Fiber and implementing and beginning to implement Hollow Core Fiber is because latency is an issue. If latency is an issue, regardless if it goes to Hollow Core Fiber or not, there is an infrastructure component that has to happen. Again, that's where Dycom across the enterprise today comes in to deliver that service.
Maybe just turning to supply chain input costs, maybe if you could just touch on, you know, where the bottlenecks are today, how are you guys handling it? And I guess, you know, with the rising cost of fuel more recently, how's that impacting you guys?
Yeah. We, you know, we have a large fleet. We certainly use fuel across the country. It's too early to tell, you know, with what's going on geopolitically. It's too early to tell exactly how that's gonna play out. What I will tell you is we've done a lot of work on our fleet to try and make it more streamlined and reduce those impacts. Last year, we doubled the number of hybrid vehicles we have on the road. You know, you've heard me talk on this call about how we've really worked on fleet management overall to make it more efficient. All those things help to offset, but I think there's a lot still to play out to see how that's gonna come through the business.
For Dycom, if you were to look at it as a percentage of revenue, and what we spend in fuel every year, it's a very small number. There could be impacts, but, you know, today, again, something we're watching closely. Across the supply chain, again, I think the skilled workforce, Dycom is incredibly well-positioned to continue to grow with our customers and deliver on that. I do think industry-wide, you're gonna really see that start to get pinched next year, so calendar 2027, and like we talked about into calendar 2028 especially. Again, this is where Dycom is very well positioned to make sure that we're in front of that, you know, for all the work that we're doing. I think you'll see the same thing that will come through the supply chain, especially when it comes to fiber.
One of the things that's getting talked about right now, BEAD has the Buy America, the BABA requirements, so all that fiber has to come from the U.S. We need to see how that's gonna play through on top of the already very strong demand drivers. What's good news is those conversations are happening. You're hearing them in the space today with our customers locking down supply from companies like Corning. But I do think there's still work to see how that's gonna come through over time. Again, I come back to when you add all this up and so many things coming on top, we see, and this is a positive for Dycom, we see all of these builds ultimately elongating.
Maybe this kind of goes well with the training facility that you announced in Georgia.
Very excited about that, Manish. Very excited.
Maybe if you can just tell us, you know, what the scope of that is. Clearly it seems that you're kind of getting ahead of the problems in 2027 and 2028.
Yeah. We talked about it for a couple reasons. One is this is part of our long-term strategy, and what Manish is referring to is our flagship facility that's gonna be outside Atlanta. We have training facilities all around the country because in our space, you know, we do work with technical colleges. You know, we work with other organizations like veterans organizations to bring in and skill the workforce. Quite frankly, we do the majority of the training within Dycom.
Our flagship facility is really taking the best of the best in everything we do and creating a simulated environment where we will have essentially like a Hollywood set of a town in America where our men and women can work and have that real feel without the risk of hitting other utilities or creating other impacts, that they will be able to come out there and experience that in an immersive environment. Same thing with what Power Solutions do. We will have a data center environment where they can come and do that very difficult, complex work in a very controlled place and upskill people really quickly. This is not the end-all be-all, right?
The point is, this is a strategy we put in place several years ago to get ahead, and it really just speaks to everything we're doing around the skilled workforce to make sure that we continue to grow and train and bring talent in. One of my favorite things about Dycom, I'm a huge advocate of the skilled workforce, is we provide a career path for somebody to come in that has no skill in what we do, create that skill, and then give them an entire career worth of pathing where they can move up through the organization to wherever level they want to ultimately be. We offer all of that, where somebody can make a career here starting in the trades.
I think that's pretty incredible offering, and I think that, you know, in the environment we're in today, it's gonna continue to be very appetizing for people coming into the space.
I know we have about six minutes left. I did wanna turn to capital allocation, M&A. Which is obviously everybody's favorite topic. Maybe, if you can just help us understand how you prioritize organic growth versus inorganic growth, you know, versus share buybacks versus deleveraging. You know, how does each kind of stack up? You know, how do you kinda do one against the other? What are some of the things that go into the mindset, in making that decision?
We've been an acquirer for a long period of time, and knowing we were gonna move into this next phase, you can see the moves that we made in anticipation of that. We told you over a year ago that we wanted to improve our cash flow position, well. We increased our free cash flow last year by 216% over the prior year. That was intentional. That allows us, as you see now, with the size of the acquisition we do with Power Solutions, we're gonna get back below 2x net leverage within 12 months of doing that. That's significant, right? That shows you that strategy, that shows you that thoughtfulness in how we're thinking about where we're going. That's the same really lens that we think about the future.
First, we're gonna always invest in organic growth, and we have strong organic growth across the enterprise, and you can see that in the outlook we gave for the year, and we certainly believe that that will continue well beyond that. We're gonna invest there first. We do have a new segment, and we do not intend that just to forever be a segment of one business. There are opportunities that we're seeing that where they fit, really that initial criteria, culture or strategy, where we wanna be, how we can grow in that digital infrastructure, you know, data center space, then those are things we're looking at. I would tell you the integration is going exceptionally well with Power Solutions.
We could do another acquisition today, and I'm not saying we are, but we could do today and I would be very comfortable with Dycom continuing to operate at the level that we've been operating and continue to do all the great things around margin and cash flow and otherwise that we've talked about. There are size limits to that, for sure, but we know what that space is and we know where we're comfortable. From a net leverage perspective, you know, what's important to us over time is to stay below 2x. That does not mean, however, that we wouldn't before we get all the way below 2x, do something that takes us up again into a reasonable range that we know we can bring it down quite quickly. It's really the same disciplines that you've seen through the history of Dycom.
We feel really good about where we are from being able to execute. We really believe that we raised the bar in the industry for the level of service that we provide our customers across the business, and our goal is to continue to raise that bar. We are not going to jeopardize where Dycom is in that space and how we're regarded both as an employer of choice and from our customers to do something because it's in the moment. Trust me when I tell you, everything is very well thought out and very structured in how we're looking at the future. The opportunity is significant, Manish.
Yeah, absolutely. Dan, just on that, on the M&A front in particular, how many acquisitions do you look at? How many kinda acquisitions kinda pass through the funnel? You know, what are some of the return requirements that you look at?
Yeah. I mean, it's a very active space today, that would not surprise anybody. We probably see at least a book a week, at least. I mean, it's very active. As everybody can see, you know, there's not a ton that really fit our filter set. We are very thoughtful. We're never gonna do an acquisition just to do an acquisition. We're gonna have really good, you know, arms around what's out there. You know, there are attractive businesses out there that have really good return profiles over time. Where we can get that to work and where the culture fits and we know that together we can be stronger than apart, then we move into those.
Just, I guess we have about two minutes left. What are some of the milestones we should be watching for as fiscal 2027 unfolds? By the way, to Dan's point, their calendar year end is January 31st.
Yeah.
So [crosstalk]
Yeah.
Just wanna make sure.
Yeah, one month off. I mean, the first is we're gonna continue to update you on Power Solutions and how that business is going through. As we said, as the projects come online, their backlog profile is a little bit different. You know, you can see the correlation of how close their next 12-month of $1.1 billion to their total backlog of $1.2 billion. You know, we're gonna continue to talk about that and our ability to win and grow in that business. Again, we see a lot of opportunity there. Expect to hear more about that.
We're gonna be very vocal about how these different demand drivers on the communication side are coming through the business and the opportunities that and how we see that coming together from an industry perspective and how Dycom is positioned to capitalize on it. We're gonna do what we said we're gonna do, right? I talked about four core objectives that we have this year. Two really carry forward from last year. Continued margin improvement while we're growing, while we're investing in the business. That is not easy to do, but we feel really good about it. Continued cash flow improvement. We still have, you know, a really good lens in how we continue to improve cash flow for the business overall. We got to invest in the workforce. You're gonna hear more about the flagship training facility.
You're gonna hear more about how we continue to grow ahead of our customers and really build the workforce of tomorrow, so we can serve the needs across the digital infrastructure space. You know, in all, they're all pieces that we're very excited about. We think that we're exceptionally well-positioned today to continue to deliver on the significant growth objectives that our customers have across the space. We do it all with a very long-term lens, a very long-term value proposition for our employees and for long-term value for our shareholders.
Maybe, Dan, if we can end with this, very easy question. What keeps you up at night?
Delivering at the level that we've proven Dycom stands for, right? We truly believe that we've raised the bar in our space. Staying at that level and continuing to raise the bar year after year, it really takes an incredibly thoughtful strategy that you can never be satisfied with. We have a ton of people working to make sure we stay in front of it, whether it's from a safety perspective, whether it's from a training perspective, whether it's just from a pure customer relationship perspective. There's so many parts and pieces of that. I feel really good about where Dycom's positioned in that space today. It is really the hallmark of who we are and our success. Making sure that our strategy stays in that place is critical.
Again, we feel like we have a good grasp on it, but it's definitely always top of mind.
Well, thank you, Dan.
Thank you, Manish.
Thank you so much.
Appreciate it.
For spending the time with us.
My pleasure.
Enjoy the conference and, best of luck.
Thank you so much.
Thank you.