Dycom Industries Inc.
08/21/2025 | Press release | Distributed by Public on 08/21/2025 05:42
Quarterly Report for Quarter Ending July 26, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for fiscal 2025. Our Annual Report on Form 10-K for fiscal 2025 was filed with the SEC on February 28, 2025, and is available on the SEC's website at www.sec.govand on our website at www.dycomind.com.
Introduction
We are a leading provider of specialty contracting services focused primarily on telecommunications and digital infrastructure throughout the United States. These services include program management, planning, engineering and design; aerial, underground, and wireless construction; maintenance; and fulfillment services for telecommunications and digital infrastructure providers. Additionally, we provide underground facility locating services for various utilities, including telecommunications providers, as well as other construction and maintenance services for electric and gas utilities. We supply the labor, tools, and equipment necessary to provide these services to our customers.
Demand for high-speed and low-latency connectivity is expanding, driven by data-intensive applications and mobile usage, necessitating extensive wireline network upgrades and extensions, new and expanding fiber infrastructure for data centers to meet the current and future needs of AI, and advanced wireless network deployments. This widespread need for expanded and enhanced connectivity fuels significant opportunities within the digital infrastructure sector. Our relationships, national footprint, and ability to manage increasing complexity differentiate us and we are confident in our ability to capitalize on industry opportunities.
Our strategy centers on our core maintenance and operations services which provide a strong foundation to capitalize on other drivers of demand for telecommunications and digital infrastructure. These include multi-year fiber-to-the-home deployments throughout the United States, increasing fiber infrastructure builds to support hyperscaler data center growth, continued state and federal program spending to bridge the digital divide and wireless network modernization programs to meet increasing digital demands.
The cyclical nature of the industry we serve affects demand for our services, and our contract revenues and results of operations exhibit seasonality as a significant portion of our work is performed outdoors. The capital expenditure and maintenance budgets of our customers, and the related timing of approvals and seasonal spending patterns, influence our contract revenues and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to, overall economic conditions, the introduction of new technologies, our customers' debt levels and capital structures, our customers' financial performance, our customers' positioning and strategic plans. Other factors that may affect our customers and their capital expenditure budgets include the availability of state and federal funding, the implementation or enforcement of regulations or regulatory actions impacting our customers' businesses, merger or acquisition activity involving our customers, and the physical maintenance needs of our customers' infrastructure.
Customer Relationships and Contractual Arrangements
We have established relationships with many leading telecommunications providers, including telephone companies, cable multiple system operators, wireless carriers, telecommunications equipment and infrastructure providers, as well as electric and gas utilities.
Our customer base is highly concentrated. The following reflects the percentage of total contract revenues from customers who contributed at least 10% to our total contract revenues during the three and six months ended July 26, 2025 or July 27, 2024:
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| July 26, 2025 | July 27, 2024 | July 26, 2025 | July 27, 2024 | ||||||||||||||||||||
| AT&T Inc. | 27.1% | 17.5% | 26.5% | 18.2% | |||||||||||||||||||
| Lumen Technologies | 11.3% | 13.6% | 10.6% | 13.7% | |||||||||||||||||||
We perform a majority of our services under master service agreements and other contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks. We generally possess multiple agreements with each of our significant customers. To the extent that such agreements specify exclusivity, there are often exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, the performance of work with the customer's own employees, and the use of other service providers when jointly placing facilities with another utility. In many cases, a customer may terminate an agreement for convenience. Historically, multi-year master service agreements have been awarded primarily through a competitive bidding process; however, occasionally we are able to negotiate extensions to these agreements. We provide the remainder of our services pursuant to contracts for specific projects. These contracts may be long-term (with terms greater than one year) or short-term (with terms less than one year) and at times include retainage provisions under which the customer may withhold 5% to 10% of the invoiced amounts pending project completion and closeout.
The following table summarizes our contract revenues from multi-year master service agreements and other long-term contracts, as a percentage of contract revenues:
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| July 26, 2025 | July 27, 2024 | July 26, 2025 | July 27, 2024 | ||||||||||||||||||||
| Multi-year master service agreements | 86.6 | % | 78.0 | % | 86.6 | % | 78.0 | % | |||||||||||||||
| Other long-term contracts | 5.7 | 10.6 | 5.9 | 11.0 | |||||||||||||||||||
| Total long-term contracts | 92.3 | % | 88.6 | % | 92.5 | % | 89.0 | % | |||||||||||||||
Acquisitions
As part of our growth strategy, we have and may continue to acquire companies that expand, complement, or diversify our business. We regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate companies.
Fiscal 2025.During the third quarter of fiscal 2025, we acquired certain assets and assumed certain liabilities of a telecommunications construction contractor for a cash purchase price of $150.7 million. The acquired business provides wireless construction services for telecommunications providers in various states. This acquisition expands our geographic presence within our existing customer base.
During the second quarter of fiscal 2025, we acquired a telecommunications construction contractor for a total purchase price of $24.5 million ($20.4 million purchase price plus cash acquired of $4.1 million). The acquired company is located in the northwestern United States and provides construction and maintenance services to telecommunications providers, with the majority of its revenues generated in Alaska. This acquisition expands our geographic presence and our customer base.
During the first quarter of fiscal 2025, we acquired a telecommunications construction contractor for $16.0 million ($12.8 million purchase price, plus cash acquired of $3.2 million). The acquired company provides construction and maintenance services for telecommunications providers in the midwestern United States. This acquisition expands our geographic presence within our existing customer base.
Results of the businesses acquired are included in the condensed consolidated financial statements from their respective date of acquisition.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In conformity with GAAP, the preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and, as a result, actual results could differ materially from these estimates. There have been no material changes to our significant accounting policies and critical accounting estimates described in our Annual Report on Form 10-K for fiscal 2025.
Understanding Our Results of Operations
The following information is presented so that the reader may better understand certain factors impacting our results of operations and should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and Critical Accounting Policies and Estimateswithin Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as Note 2, Significant Accounting Policies and Estimates, in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for fiscal 2025.
Our fiscal year ends on the last Saturday in January. As a result, each fiscal year consists of either 52 weeks or 53 weeks of operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2026 consists of 53 weeks of operations, while fiscal 2025 consisted of 52 weeks of operations.
Contract Revenues. We perform a significant amount of our services under master service agreements and other contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks including, for example, the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a specific unit of measure. A contractual agreement exists when each party involved approves and commits to the agreement, the rights of the parties and payment terms are identified, the agreement has commercial substance, and collectability of consideration is probable. Our services are performed for the sole benefit of our customers, whereby the assets being created or maintained are controlled by the customer and the services we perform do not have alternative benefits for us. Contract revenue is recognized over time as services are performed and customers simultaneously receive and consume the benefits we provide. Output measures such as units delivered are utilized to assess progress against specific contractual performance obligations for the majority of our services. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. For us, the output method using units delivered best represents the measure of progress against the performance obligations incorporated within the contractual agreements. This method captures the amount of units delivered pursuant to contracts and is used only when our performance does not produce significant amounts of work in process prior to complete satisfaction of the performance obligation. For a portion of contract items, units to be completed consist of multiple tasks. For these items, the transaction price is allocated to each task based on relative standalone measurements, such as selling prices for similar tasks, or in the alternative, the cost to perform the tasks. Contract revenue is recognized as the tasks are completed as a measurement of progress in the satisfaction of the corresponding performance obligation.
For certain contracts, representing less than 5% of contract revenues during each of the six months ended July 26, 2025 and July 27, 2024, we use the cost-to-cost measure of progress. These contracts are generally projects that are completed over a period of less than twelve months. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs. Contract costs include direct labor, direct materials, and subcontractor costs, as well as an allocation of indirect costs. Contract revenues are recorded as costs are incurred. We accrue the entire amount of a contract loss, if any, at the time the loss is determined to be probable and can be reasonably estimated.
Costs of Earned Revenues.Costs of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by subcontractors, operation of capital equipment (excluding depreciation), direct materials, costs of insuring our risks, and other direct costs. Under our insurance program, we retain the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers' compensation, and employee group health.
General and Administrative Expenses.General and administrative expenses primarily consist of employee compensation and related expenses, including performance-based compensation and stock-based compensation, legal, consulting and professional fees, information technology and development costs, amortization of implementation costs associated with cloud computing arrangements, provision for or recoveries of bad debt expense, acquisition and integration costs of businesses acquired, and other costs not directly related to the provision of our services under customer contracts. Our provision for bad debt expense is determined by evaluating specific accounts receivable and contract asset balances based on historical collection trends, the age of outstanding receivables, and the creditworthiness of our customers. We incur information technology and development costs primarily to support and enhance our operating efficiency. Our executive management team and the senior management of our enterprise and subsidiaries perform substantially all of our sales and marketing functions as part of their management responsibilities.
Depreciation and Amortization.Our property and equipment primarily consist of vehicles, equipment and machinery, and computer hardware and software. We depreciate property and equipment on a straight-line basis over the estimated useful lives
of the assets. In addition, we have intangible assets, including customer relationships, trade names, and non-compete intangibles, which we amortize over their estimated useful lives. We recognize amortization of customer relationship intangibles on an accelerated basis as a function of the expected economic benefit and amortization of other finite-lived intangibles on a straight-line basis over their estimated useful lives.
Interest Expense, Net.Interest expense, net, consists of interest incurred on outstanding variable rate and fixed rate debt and certain other obligations, and the amortization of debt issuance costs. See Note 14, Debt, in the notes to the condensed consolidated financial statements for information on debt issuance costs.
Loss on Debt Extinguishment.Loss on debt extinguishment includes the write-off of deferred debt issuance costs in connection with the Credit Agreement amendment.
Other Income, Net.Other income, net, primarily consists of gains or losses from sales of fixed assets. Other income, net also includes discount fee expense associated with the collection of accounts receivable under a customer-sponsored vendor payment program.
Seasonality and Fluctuations in Operating Results.Our contract revenues and results of operations exhibit seasonality and are impacted by adverse weather changes as we perform a significant portion of our work outdoors. Consequently, adverse weather, which is more likely to occur with greater frequency, severity, and duration during the winter, as well as reduced daylight hours, impact our operations during the fiscal quarters ending in January and April. Additionally, extreme weather conditions, such as major or extended winter storms, droughts and tornados, wildfires, and natural disasters, such as floods, hurricanes, tropical storms, whether as a result of climate change or otherwise, could also impact the demand for our services or impact our ability to perform our services. Also, several holidays fall within the fiscal quarter ending in January, which decreases the number of available workdays in this fiscal quarter. Because of these factors, we are most likely to experience reduced revenue and profitability or losses during the fiscal quarters ending in January and April compared to the fiscal quarters ending in July and October.
We may also experience variations in our profitability driven by a number of factors. These factors include variations and fluctuations in contract revenues, job specific costs, insurance claims, the allowance for credit losses, accruals for contingencies, stock-based compensation expense for performance-based stock awards, the fair value of reporting units for the goodwill impairment analysis, the valuation of intangibles and other long-lived assets, gains or losses on the sale of fixed assets from the timing and levels of capital assets sold, the employer portion of payroll taxes as a result of reaching statutory limits, and our effective tax rate.
Accordingly, operating results for any fiscal period are not necessarily indicative of results we may achieve for any subsequent fiscal period.
Results of Operations
The following table sets forth our condensed consolidated statements of operations for the periods indicated and the amounts as a percentage of contract revenues (totals may not add due to rounding) (dollars in millions):
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 26, 2025 | July 27, 2024 | July 26, 2025 | July 27, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Contract revenues | $ | 1,377.9 | 100.0 | % | $ | 1,203.1 | 100.0 | % | $ | 2,636.6 | 100.0 | % | $ | 2,345.5 | 100.0 | % | |||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Costs of earned revenues, excluding depreciation and amortization | 1,070.5 | 77.7 | 952.9 | 79.2 | 2,081.6 | 79.0 | 1,874.5 | 79.9 | |||||||||||||||||||||||||||||||||||||||
| General and administrative | 106.8 | 7.8 | 99.6 | 8.3 | 210.5 | 8.0 | 194.1 | 8.3 | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 60.9 | 4.4 | 46.6 | 3.9 | 119.2 | 4.5 | 91.8 | 3.9 | |||||||||||||||||||||||||||||||||||||||
| Total | 1,238.1 | 89.9 | 1,099.0 | 91.4 | 2,411.3 | 91.5 | 2,160.4 | 92.1 | |||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (15.6) | (1.1) | (14.7) | (1.2) | (29.6) | (1.1) | (27.5) | (1.2) | |||||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | - | - | (1.0) | (0.1) | - | - | (1.0) | - | |||||||||||||||||||||||||||||||||||||||
| Other income, net | 6.8 | 0.5 | 6.4 | 0.5 | 14.1 | 0.5 | 15.7 | 0.7 | |||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 131.1 | 9.5 | 94.8 | 7.9 | 209.7 | 8.0 | 172.3 | 7.3 | |||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 33.6 | 2.4 | 26.4 | 2.2 | 51.2 | 1.9 | 41.3 | 1.8 | |||||||||||||||||||||||||||||||||||||||
| Net income | $ | 97.5 | 7.1 | % | $ | 68.4 | 5.7 | % | $ | 158.5 | 6.0 | % | $ | 131.0 | 5.6 | % | |||||||||||||||||||||||||||||||
Contract Revenues.Contract revenues were $1.378 billion during the three months ended July 26, 2025 compared to $1.203 billion during the three months ended July 27, 2024. Contract revenues from acquired businesses were $139.8 million and $5.7 million for the three months ended July 26, 2025 and July 27, 2024, respectively. Acquired revenues represent contract revenues from acquired businesses that were not owned for the full period in both the current and comparable prior periods. Excluding amounts generated by the acquired businesses, contract revenues increased by $40.9 million during the three months ended July 26, 2025 compared to the three months ended July 27, 2024, primarily due to net revenue increases in fiber-to-the-home deployments, including rural fiber deployment programs.
The percentage of our contract revenues by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was 92.1%, 6.1%, and 1.8%, respectively, for the three months ended July 26, 2025 compared to 90.3%, 6.8%, and 2.9%, respectively, for the three months ended July 27, 2024.
Contract revenues were $2.637 billion during the six months ended July 26, 2025 compared to $2.345 billion during the six months ended July 27, 2024. Contract revenues from acquired businesses were $256.6 million and $13.5 million for the six months ended July 26, 2025 and July 27, 2024, respectively. Excluding amounts generated by the acquired businesses, contract revenues increased by $48.0 million during the six months ended July 26, 2025 compared to the six months ended July 27, 2024, primarily due to net revenue increases in fiber-to-the-home deployments, including rural fiber deployment programs.
The percentage of our contract revenues by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was 91.7%, 6.3%, and 2.0%, respectively, for the six months ended July 26, 2025 compared to 90.0%, 7.0%, and 3.0%, respectively, for the six months ended July 27, 2024.
Costs of Earned Revenues.Costs of earned revenues increased to $1.070 billion, or 77.7% of contract revenues, during the three months ended July 26, 2025 compared to $952.9 million, or 79.2% of contract revenues, during the three months ended July 27, 2024. The primary components of the increase were an $89.9 million aggregate increase in direct labor and subcontractor costs, a $15.2 million increase in direct materials expense, a $12.1 million increase in other direct costs, and a $0.3 million increase in equipment and fuel costs.
Costs of earned revenues as a percentage of contract revenues decreased 1.5% during the three months ended July 26, 2025 compared to the three months ended July 27, 2024. Labor and subcontracted labor costs decreased 1.6% primarily due to the mix of work performed during the three months ended July 26, 2025. Direct material costs increased 0.5% primarily as a result of our mix of work in which we provide materials for customers. Equipment and fuel costs decreased 0.5% and other direct costs increased by 0.1% on a net basis as a percentage of contract revenues for the three months ended July 26, 2025 compared to the three months ended July 27, 2024.
Costs of earned revenues increased to $2.082 billion, or 79.0% of contract revenues, during the six months ended July 26, 2025 compared to $1.875 billion, or 79.9% of contract revenues, during the six months ended July 27, 2024. The primary components of the increase were a $172.3 million aggregate increase in direct labor and subcontractor costs, a $18.6 million increase in direct materials expense, and a $17.7 million increase in other direct costs, offset by a $1.6 million decrease in equipment and fuel costs.
Costs of earned revenues as a percentage of contract revenues decreased 1.0% during the six months ended July 26, 2025 compared to the six months ended July 27, 2024. Labor and subcontracted labor costs decreased 0.5% primarily due to the mix of work performed during the six months ended July 26, 2025. Direct material costs increased 0.1% primarily as a result of our mix of work in which we provide materials for customers. Equipment and fuel costs decreased 0.5% and other direct costs decreased by 0.1% on a net basis as a percentage of contract revenues for the six months ended July 26, 2025 compared to the six months ended July 27, 2024.
General and Administrative Expenses.General and administrative expenses increased to $106.8 million, or 7.8% of contract revenues, during the three months ended July 26, 2025 compared to $99.6 million, or 8.3% of contract revenues, during the three months ended July 27, 2024. The increase in total general and administrative expenses during the three months ended July 26, 2025 is mainly attributable to an increase in administrative, payroll, performance based compensation and other costs, including incremental general and administrative expenses from the acquired businesses.
General and administrative expenses increased to $210.5 million, or 8.0% of contract revenues, during the six months ended July 26, 2025 compared to $194.1 million, or 8.3% of contract revenues, during the six months ended July 27, 2024. The increase in total general and administrative expenses during the six months ended July 26, 2025 is mainly attributable to an increase in administrative, payroll, performance based compensation and other costs, including incremental general and administrative expenses from the acquired businesses.
Depreciation and Amortization.Depreciation expense was $48.9 million, or 3.6% of contract revenues, during the three months ended July 26, 2025 compared to $40.7 million, or 3.4% of contract revenues, during the three months ended July 27, 2024. Depreciation expense was $95.3 million, or 3.6% of contract revenues, during the six months ended July 26, 2025 compared to $80.0 million, or 3.4% of contract revenues, during the six months ended July 27, 2024. The increase in depreciation expense during the three and six months ended July 26, 2025 is primarily due to higher capital expenditures to support our growth in operations, the normal replacement cycle of fleet assets, and depreciation from acquired businesses.
Amortization expense was $11.9 million and $5.9 million during the three months ended July 26, 2025 and July 27, 2024, respectively and $23.9 million and $11.8 million during the six months ended July 26, 2025 and July 27, 2024, respectively. The increase in amortization expense during the three and six months ended July 26, 2025 is due to the increase in amortizing intangibles from acquired businesses.
Interest Expense, Net.Interest expense, net was $15.6 million and $14.7 million during the three months ended July 26, 2025 and July 27, 2024, respectively, as a result of higher outstanding borrowings during the current period.
Interest expense, net was $29.6 million and $27.5 million during the six months ended July 26, 2025 and July 27, 2024, respectively, as a result of higher outstanding borrowings during the current period.
Loss on Debt Extinguishment. Loss on debt during the three months ended July 27, 2024 of $1.0 million includes the write-off of deferred debt issuance costs in connection with the Credit Agreement amendment. See "Liquidity and Capital Resources - Compliance with Credit Agreement" for more information.
Other Income, Net.Other income, net was $6.8 million and $6.4 million during the three months ended July 26, 2025 and July 27, 2024, respectively and $14.1 million and $15.7 million during the six months ended July 26, 2025 and July 27, 2024, respectively. Gain on sale of fixed assets, net was $10.1 million and $8.2 million during the three months ended July 26, 2025 and July 27, 2024, respectively and $19.9 million and $20.6 million during the six months ended July 26, 2025 and July 27, 2024, respectively. The change in other income, net is primarily a function of the number of assets sold and prices obtained for those assets during each respective period. Other income, net also reflects $4.2 million and $3.0 million of expense during the three months ended July 26, 2025 and July 27, 2024 respectively, and $7.8 million and $5.9 million during the six months ended July 26, 2025 and July 27, 2024, respectively, associated with the non-recourse sale of accounts receivable under a customer-sponsored vendor payment program.
Income Taxes.The following table presents our income tax provision and effective income tax rate for the three and six months ended July 26, 2025 and July 27, 2024 (dollars in millions):
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| July 26, 2025 | July 27, 2024 | July 26, 2025 | July 27, 2024 | ||||||||||||||||||||
| Income tax provision | $ | 33.6 | $ | 26.4 | $ | 51.2 | $ | 41.3 | |||||||||||||||
| Effective income tax rate | 25.7 | % | 27.9 | % | 24.4 | % | 24.0 | % | |||||||||||||||
Our effective income tax rate was 25.7% and 27.9% for the three months ended July 26, 2025 and July 27, 2024, respectively, and 24.4% and 24.0% for the six months ended July 26, 2025 and July 27, 2024, respectively. The interim income tax provisions are based on the effective income tax rate expected to be applicable for the full fiscal year, adjusted for specific items that are required to be recognized in the period in which they occur. The effective tax rate differs from the statutory rate primarily due to the difference in income tax rates from state to state where work was performed, non-deductible and non-taxable items, tax credits recognized, the tax effects of the vesting and exercise of share-based awards, and changes in unrecognized tax benefits. Deferred tax assets and liabilities are based on the enacted tax rate that will apply in future periods when such assets and liabilities are expected to be settled or realized.
On July 4, 2025, the U.S. government enacted tax legislation that reinstates 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025 and restores immediate deductibility of domestic research & experimental expenditures. Although certain provisions of the legislation are still subject to further regulatory interpretation, we expect that our cash tax requirements will be reduced in the current fiscal year compared to the amount that would have been required prior to enactment.
Net Income. Net income was $97.5 million for the three months ended July 26, 2025 compared to $68.4 million for the three months ended July 27, 2024. Net income was $158.5 million for the six months ended July 26, 2025 compared to $131.0 million for the six months ended July 27, 2024.
Non-GAAP Adjusted EBITDA. Adjusted EBITDA is a Non-GAAP measure, as defined by the rules of the SEC. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, gain on sale of fixed assets, stock-based compensation expense, and certain non-recurring items. Management believes Adjusted EBITDA is a helpful measure for comparing the Company's operating performance with prior periods as well as with the performance of other companies with different capital structures or tax rates. The following table provides a reconciliation of net income to Non-GAAP Adjusted EBITDA (dollars in millions):
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| July 26, 2025 | July 27, 2024 | July 26, 2025 | July 27, 2024 | ||||||||||||||||||||
| Net income | $ | 97.5 | $ | 68.4 | $ | 158.5 | $ | 131.0 | |||||||||||||||
| Interest expense, net | 15.6 | 14.7 | 29.6 | 27.5 | |||||||||||||||||||
| Provision for income taxes | 33.6 | 26.4 | 51.2 | 41.3 | |||||||||||||||||||
| Depreciation and amortization | 60.9 | 46.6 | 119.2 | 91.8 | |||||||||||||||||||
| Earnings Before Interest, Taxes, Depreciation & Amortization ("EBITDA") | 207.6 | 156.1 | 358.5 | 291.6 | |||||||||||||||||||
| Gain on sale of fixed assets | (10.1) | (8.2) | (19.9) | (20.6) | |||||||||||||||||||
| Stock-based compensation expense | 8.1 | 9.5 | 17.2 | 17.3 | |||||||||||||||||||
| Loss on debt extinguishment | - | 1.0 | - | 1.0 | |||||||||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 205.6 | $ | 158.4 | $ | 355.8 | $ | 289.3 | |||||||||||||||
| Non-GAAP Adjusted EBITDA % of contract revenues | 14.9 | % | 13.2 | % | 13.5 | % | 12.3 | % | |||||||||||||||
Liquidity and Capital Resources
We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, and contract assets. Cash and equivalents primarily include balances on deposit with banks and totaled $28.5 million as of July 26, 2025 compared to $92.7 million as of January 25, 2025. We maintain our cash and equivalents at financial institutions we believe to be of high credit quality. For all periods presented, we have not experienced any loss or lack of access to cash in our operating accounts.
Sources of Cash.Our sources of cash are operating activities, long-term debt, equity offerings, bank borrowings, proceeds from the sale of idle and surplus equipment and real property, and stock option proceeds. Cash flow from operations is primarily influenced by demand for our services and operating margins, but can also be influenced by working capital needs associated with the services that we provide. In particular, working capital needs may increase when we have growth in operations and where project costs, primarily associated with labor, subcontractors, equipment, and materials, are required to be paid before the related customer balances owed to us are invoiced and collected. Our working capital (total current assets less total current liabilities, excluding the current portion of debt) was $1,346.2 million as of July 26, 2025 compared to $1,117.5 million as of January 25, 2025.
Capital resources are used primarily to purchase equipment and maintain sufficient levels of working capital to support our contractual commitments to customers. We periodically draw upon and repay our revolving credit facility depending on our cash requirements. We currently intend to retain any earnings for use in the business and other capital allocation strategies which may include investment in acquisitions and share repurchases. Consequently, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Our level of capital expenditures can vary depending on the customer demand for our services, the replacement cycle we select for our equipment, and overall growth. We intend to fund these expenditures primarily from operating cash flows, availability under our Credit Agreement (as defined below), and cash on hand.
Sufficiency of Capital Resources.We believe that our capital resources, including existing cash balances and amounts available under our Credit Agreement, are sufficient to meet our financial obligations. These obligations include payments on our debt, working capital requirements, and the purchase of equipment at our expected level of operations for at least the next 12 months. Our capital requirements may increase to the extent we seek to grow by acquisitions that involve consideration other than our stock, experience difficulty or delays in collecting amounts owed to us by our customers, increase our working capital in connection with new or existing customer programs, repurchase our common stock, or repay Credit Agreement borrowings. Changes in financial markets or other components of the economy could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of available cash and our Credit Agreement to provide short-term funding. Management regularly monitors the financial markets and assesses general economic conditions for possible impact on our financial position. We believe our cash investment policies are prudent and expect that any volatility in the capital markets would not have a material impact on our cash investments.
Net Cash Flows. The following table presents our net cash flows for the six months ended July 26, 2025 and July 27, 2024 (dollars in millions):
| For the Six Months Ended | |||||||||||
| July 26, 2025 | July 27, 2024 | ||||||||||
| Net cash flows: | |||||||||||
| Provided by (used in) operating activities | $ | 3.5 | $ | (44.9) | |||||||
| Used in investing activities | $ | (107.7) | $ | (119.0) | |||||||
| Provided by financing activities | $ | 39.9 | $ | 82.3 | |||||||
Cash Provided by (Used in) Operating Activities.Depreciation and amortization, non-cash lease expense, stock-based compensation, amortization of debt issuance costs, deferred income taxes, gain on sale of fixed assets, loss on debt extinguishment and provision for (recovery of) bad debt were the primary non-cash items in cash flows from operating activities during the current and prior periods.
During the six months ended July 26, 2025, net cash provided by operating activities was $3.5 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $335.7 million of operating cash flow during the six months ended July 26, 2025. Changes that used operating cash flow during the six months ended July 26, 2025 included an increase in accounts receivable, in income taxes receivables, in contract assets, net, in other assets, and in other current assets and inventories of $216.0 million, $63.5 million, $59.9 million, $23.6 million, and $7.1 million, respectively and a decrease in
accrued liabilities, net of $15.2 million. Changes that provided cash flow during the six months ended July 26, 2025 included an increase in accounts payable of $49.6 million.
Days sales outstanding ("DSO") is calculated based on the ending balance of total current and non-current accounts receivable (including unbilled accounts receivable), net of the allowance for credit losses, and current contract assets, net of contract liabilities, divided by the average daily revenue for the most recently completed quarter. Our DSO was 108 as of July 26, 2025 compared to 117 as of July 27, 2024.
See Note 6,Accounts Receivable, Contract Assets, and Contract Liabilities, for further information on our customer credit concentration as of July 26, 2025 and January 25, 2025 and Note 19, Customer Concentration and Revenue Information,for further information on our significant customers. We believe that none of our significant customers were experiencing financial difficulties that would materially impact the collectability of our total accounts receivable and contract assets, net as of July 26, 2025 or January 25, 2025.
During the six months ended July 27, 2024, net cash used in operating activities was $44.9 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $280.9 million of operating cash flow during the six months ended July 27, 2024. Changes that used operating cash flow during the six months ended July 27, 2024 included an increase in accounts receivable, an increase in contract assets, net, and a decrease in income taxes payable of $256.5 million, $26.3 million, and $7.0 million, respectively. In addition, changes that used operating cash flow during the six months ended July 27, 2024 included an increase in other current assets and inventories of $2.9 million. Changes that provided operating cash flow during the six months ended July 27, 2024 included an increase in accounts payable, an increase in accrued liabilities, and a decrease in other assets of $8.8 million, $2.6 million, and $0.3 million, respectively.
Cash Used in Investing Activities.Net cash used in investing activities was $107.7 million during the six months ended July 26, 2025 compared to $119.0 million during the six months ended July 27, 2024. During the six months ended July 26, 2025 and July 27, 2024, capital expenditures were $131.2 million and $107.4 million, respectively, and cash paid for acquisitions during the six months ended July 27, 2024 was $33.8 million. These expenditures were offset in part by proceeds from the sale of assets of $23.5 million and $22.2 million during the six months ended July 26, 2025 and July 27, 2024, respectively.
Cash Provided by Financing Activities.Net cash provided by financing activities was $39.9 million during the six months ended July 26, 2025. During the six months ended July 26, 2025, borrowings and repayments under our Credit Agreement were $629.0 million and $544.0 million, respectively. In addition, we repurchased 200,000 shares of our common stock in open market transactions, at an average price of $150.93 per share, for $30.2 million, during the six months ended July 26, 2025. We also paid $13.0 million, net to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested during the six months ended July 26, 2025. In addition, we paid $1.9 million, net, to tax authorities for payroll tax withholding obligations on the exercise of stock options.
Net cash provided by financing activities was $82.3 million during the six months ended July 27, 2024. During the six months ended July 27, 2024, borrowings and repayments under our Credit Agreement were $282.4 million and $147.4 million, respectively. We paid approximately $6.6 million in issuance costs and third party fees and expenses related to our financing transactions. In addition, we repurchased 210,000 shares of our common stock in open market transactions, at an average price of $141.84 per share, for $29.8 million, during the six months ended July 27, 2024. We also paid $16.3 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested during the six months ended July 27, 2024. This was partially offset by the exercise of stock options, which provided $0.1 million during the six months ended July 27, 2024.
Compliance with Credit Agreement. We are party to a credit agreement, dated as of October 19, 2018, as amended, with the various lenders party thereto and Bank of America, N.A., as administrative agent (as amended on April 1, 2021, May 9, 2023, and May 15, 2024, the "Credit Agreement"). On May 15, 2024, we amended and restated the Credit Agreement to, among other things, increase the term loan facility and extend the maturity date. The Credit Agreement includes a revolving facility with a maximum revolver commitment of $650.0 million and a term loan facility in the principal amount of $450.0 million. The Credit Agreement also includes a $200.0 million sublimit for the issuance of letters of credit and a $50.0 million sublimit for swingline loans. The maturity of the Credit Agreement is January 15, 2029.
Subject to certain conditions, the Credit Agreement provides us with the ability to enter into one or more incremental facilities either by increasing the revolving commitments under the Credit Agreement and/or by establishing one or more additional term loans, up to the sum of (i) $350.0 million and (ii) an aggregate amount such that, after giving effect to such incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and
funded), the consolidated senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net leverage ratio is the ratio of our consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in excess of $25.0 million to our trailing four-quarter consolidated earnings before interest, taxes, depreciation, and amortization ("EBITDA"), as defined by the Credit Agreement. Borrowings under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and secured by 100% of the equity interests of our direct and indirect domestic subsidiaries and 65% of the voting equity interests and 100% of the non-voting interests of our first-tier foreign subsidiaries (subject to customary exceptions).
Under our Credit Agreement, borrowings bear interest at the rates described below based upon our consolidated net leverage ratio, which is the ratio of our consolidated total funded debt reduced by unrestricted cash and equivalents in excess of $25.0 million to our trailing four-quarter consolidated EBITDA, as defined by our Credit Agreement. In addition, we incur certain fees for unused balances and letters of credit at the rates described below, also based upon our consolidated net leverage ratio.
| Borrowings - Term SOFR Loans |
1.375% - 2.00% plus Term SOFR
|
||||
| Borrowings - Base Rate Loans |
0.375% - 1.00% plus Base rate(1)
|
||||
| Unused Revolver Commitment | 0.20% - 0.40% | ||||
| Standby Letters of Credit | 1.375% - 2.00% | ||||
| Commercial Letters of Credit | 0.6875% - 1.00% | ||||
Standby letters of credit of approximately $47.5 million, issued as part of our insurance program, were outstanding under our Credit Agreement as of both July 26, 2025 and January 25, 2025.
The weighted average interest rates and fees for balances under our Credit Agreement as of July 26, 2025 and January 25, 2025 were as follows:
| Weighted Average Rate End of Period | |||||||||||
| July 26, 2025 | January 25, 2025 | ||||||||||
| Borrowings - Term loan facility | 5.95% | 6.02% | |||||||||
|
Borrowings - Revolving facility(1)
|
5.94% | -% | |||||||||
| Standby Letters of Credit | 1.50% | 1.63% | |||||||||
| Unused Revolver Commitment | 0.25% | 0.30% | |||||||||
(1) There were no outstanding borrowings under our revolving facility as of January 25, 2025.
Our Credit Agreement contains a financial covenant that requires us to maintain a consolidated net leverage ratio of not greater than 3.50 to 1.00 as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in connection with permitted acquisitions. The consolidated net leverage ratio is the ratio of our consolidated indebtedness reduced by unrestricted cash and cash equivalents in excess of $25.0 million to our trailing four-quarter consolidated earnings before interest, taxes, depreciation, and amortization as defined by our Credit Agreement. The Credit Agreement also contains a financial covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing four-quarter consolidated EBITDA to our consolidated interest expense, each as defined by our Credit Agreement, of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter. At July 26, 2025 and January 25, 2025, we were in compliance with the financial covenants of our Credit Agreement and had borrowing availability under our revolving facility of $517.5 million and $602.5 million, respectively, as determined by the most restrictive covenant. For calculation purposes, applicable cash on hand is netted against the funded debt amount as permitted in the Credit Agreement.
The indenture governing the 2029 Notes contains certain covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur additional debt and issue certain preferred stock, (ii) pay certain dividends on, repurchase, or make distributions in respect of, our and our subsidiaries' capital stock or make other payments restricted by the indenture, (iii) enter into agreements that place limitations on distributions made from certain of our subsidiaries, (iv) guarantee certain debt, (v) make certain investments, (vi) sell or exchange certain assets, (vii) enter into transactions with affiliates, (viii) create certain liens, and (ix) consolidate, merge or transfer all or substantially all of our or our Subsidiaries' assets. These covenants are subject to a number of exceptions, limitations and qualifications as set forth in the indenture governing the 2029 Notes.
Performance and Payment Bonds and Guarantees. We have obligations under performance and other surety contract bonds related to certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if we fail to perform our contractual obligations. We had $431.6 million and $413.5 million of outstanding performance and other surety contract bonds, as of July 26, 2025 and January 25, 2025, respectively. The estimated cost to complete projects secured by our outstanding performance and other surety contract bonds was approximately $227.7 million as of July 26, 2025. In addition to performance and other surety contract bonds, as part of our insurance program we also provide surety bonds that collateralize our obligations to our insurance carriers. At each of July 26, 2025 and January 25, 2025, we had $31.0 million of outstanding surety bonds related to our insurance obligations. Additionally, we have periodically guaranteed certain obligations of our subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
Letters of Credit.We have standby letters of credit issued under our Credit Agreement as part of our insurance program. These letters of credit collateralize obligations to our insurance carriers in connection with the settlement of potential claims. In connection with these collateral obligations, we had $47.5 million outstanding standby letters of credit issued under our Credit Agreement as of both July 26, 2025 and January 25, 2025.
Backlog.Backlog is not a measure defined by United States generally accepted accounting principles ("GAAP") and should be considered in addition to, but not as a substitute for, GAAP results. Participants in our industry often disclose a calculation of their backlog; however, our methodology for determining backlog may not be comparable to the methodologies used by others. We utilize our calculation of backlog to assist in measuring aggregate awards under existing contractual relationships with our customers. We believe our backlog disclosures will assist investors in better understanding this estimate of the services to be performed pursuant to awards by our customers under existing contractual relationships.
Our backlog is an estimate of the uncompleted portion of services to be performed under contractual agreements with our customers and totaled $7.989 billion and $7.760 billion at July 26, 2025 and January 25, 2025, respectively. We expect to complete 57.6% of the July 26, 2025 total backlog during the next twelve months. Our backlog represents an estimate of services to be performed pursuant to master service agreements and other contractual agreements over their terms. These estimates are based on contract terms and evaluations regarding the timing of the services to be provided. In the case of master service agreements, backlog is estimated based on the work performed in the preceding twelve month period, when applicable. When estimating backlog for newly initiated master service agreements and other long and short-term contracts, we also consider the anticipated scope of the contract and information received from the customer during the procurement process and, where applicable, other ancillary information. The majority of our backlog comprises services under master service agreements and other long-term contracts.
Generally, our customers are not contractually committed to procure specific volumes of services. Contract revenue estimates reflected in our backlog can be subject to change due to a number of factors, including contract cancellations or changes in the amount of work we expect to be performed under a contract. In addition, contract revenues reflected in our backlog may be realized in different periods from those previously anticipated due to these factors as well as project accelerations or delays due to various reasons, including, but not limited to, changes in customer spending priorities, project cancellations, regulatory interruptions, scheduling changes, commercial issues such as permitting, engineering revisions, job site conditions, and adverse weather. The amount or timing of our backlog can also be impacted by the merger or acquisition activity of our customers. Many of our contracts may be cancelled by our customers, or work previously awarded to us pursuant to these contracts may be cancelled, regardless of whether or not we are in default. The amount of backlog related to uncompleted projects in which a provision for estimated losses was recorded is not material.
Dycom Industries Inc. published this content on August 21, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on August 21, 2025 at 11:43 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]