Dycom Industries, Inc.

Good day and thank you for standing by. Welcome to the DICOM Industry Think second quarter 2025 results conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Stephen Nielsen, Chief Executive Officer. Please go ahead, sir.

Good morning, everyone. Thank you for attending this conference call to review our second quarter fiscal 2025 results. Going to slide two. During this call, we will be referring to a slide presentation which can be found on our website's Investor Center main page. Relevant slides will be identified by number throughout our presentation. Today we have on the call Dan Paevich, our President and Chief Operating Officer, Drew DeFerrari, our Chief Financial Officer, and Ryan Ernest, our General Counsel. Now I will turn the call over to Ryan Ernest.

Thank you, Steve. All forward-looking statements made during this conference call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events. These forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from current projections, including those risks discussed in the company's filings with the U.S. Securities and Exchange Commission. Forward-looking statements are made solely as of the original broadcast date of this conference call, and we assume no obligation to update any forward-looking statements. Steve?

Thanks, Ryan. On June 17th, after over 25 years as DICOM CEO, I announced my retirement effective November 30th. Upon my retirement, Dan Payevich will become our CEO. Now I will turn the call over to Dan for some opening comments.

Thank you, Steve. Most importantly, thank you for your decades of leadership. You have built DICOM into a true leader in our industry, and I look forward to continuing to work alongside you over the coming months. Congratulations on your upcoming retirement. I would like to thank all my teammates at DICOM for welcoming me and for your support for the past three and a half years. I'm constantly impressed by your focus on executing our work safely, your passion for our business, and your dedication to delivering quality for our customers. Our success is because of you. The opportunities in our industry are unprecedented, and I believe we are well positioned to continue our growth as we pursue our vision to connect America. I am honored and excited to lead DICOM in this next chapter. Steve, back to you.

Dan, I'm excited for you and DICOM as you lead our company to a bright future. Before I review our results and industry opportunities, I would like to thank my fellow employees for their hard work and dedication. Your efforts make DICOM the special place it is. To our directors, thanks for your wisdom, guidance, and oversight. I finished my time as CEO, a much better leader because of you. And finally, to my fellow shareholders, your support as I have led our company has been invaluable. Thanks for the opportunity to benefit from your counsel and the market's discipline. November's earning call will be my last. For purposes of this call, I will be handling the Q&A. Now moving to slide four and a review of our second quarter results. As we review our results, please note that in our comments today and in the accompanying slides, we reference certain non-GAAP measures. We refer you to slides 15 through 20 for a reconciliation of these non-GAAP measures to their corresponding GAAP measures. Now for the quarter. Revenue increased year over year to $1.203 billion, an increase of 15.5%. Organic revenue increased 9.2%. As we deployed gigabit wireline networks, wireless wireline converged networks, and wireless networks, this quarter reflected an increase in demand from three of our top five customers. Gross margin was 20.8% of revenue and increased 52 basis points compared to the second quarter of fiscal 2024. General and administrative expenses were 8.3% of revenue, and all of these factors produced adjusted EBITDA of 158.3 million, or 13.2% of revenue, and adjusted earnings per share of $2.46. Liquidity was strong at 622 million. Now going to slide five. In August, subsequent to the end of our second quarter, We completed the acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business for $150 million. This business provides wireless construction services primarily in the states of New York, New Jersey, Missouri, Kansas, Colorado, Utah, Wyoming, Idaho, and Montana, and is our largest ever wireless services acquisition. It strategically expands our geographic presence, enabling us to more broadly address growth opportunities in wireless network modernization, including open RAN transformation initiatives and deployment services. During our third and fourth quarter of fiscal 25, we expect modest revenues as the business is currently focused on site acquisition for next year's construction program. For fiscal year 26, we anticipate this acquisition to contribute $250 to $275 million of revenue, with post-integration EBITDA margins in line with our consolidated average. Finally, while our review of acquired backlog is still preliminary, we currently expect this acquisition to add approximately $1 billion of total backlog, which we will reflect in our third quarter report. Now moving to slide six. Today, an increasing number of diverse industry participants are constructing or upgrading wireline networks throughout the country. These wireline networks enable the delivery of gigabit network speeds to consumers and businesses. In addition, the advent of AI data centers has sparked interest in broad new national deployments of high-capacity, low-latency intercity networks, as well as metro rings. The level of interest in intercity networks is the highest we have seen in the last 25 years. Finally, wireless networks are deploying additional spectrum bands and equipment so as to more broadly and efficiently provision higher broadband services for both fixed and mobile access. Industry participants have stated their belief that a single high-capacity fiber network can most cost-effectively deliver services to both consumers and businesses. enabling multiple revenue streams from a single investment. Some of these same industry participants who also provide wireless services strongly believe that the ability to provision converged wireline fiber and wireless services creates significant competitive advantages. This belief is evident as some wireless providers have recently invested in new fiber providers, while another wireline wireless provider is deploying fiber networks outside its traditional geographic footprint. These views support our belief that the appetite for massive fiber deployments is irreversible. As a result, we continue to see a meaningfully broader set of opportunities for our industry. We are pleased that a number of our customers have entered into strategic transactions, including refinancings, intended to provide the capital necessary for the incremental deployment of fiber to more than 9.5 million homes over the next several years. These individual transactions are currently awaiting regulatory approval, which is currently expected over the next 12 to 18 months. In addition to the incremental private capital associated with these transactions, a wide variety of programs are providing public capital to support broadband deployments. The largest of these programs, the Broadband Equity Access Deployment Program, or BEAD, includes over $40 billion for the construction of rural communications networks in unserved and underserved areas across the country. This represents an unprecedented level of support and meaningfully increases the rural market that we expect will ultimately be addressed. As of early this week, 35 states and territories have completed all 10 approval steps as required by the NTIA, while 21 others have completed 9 of the 10. To date, approximately $22 billion, or 53% of the program total, has received initial proposal approval. We believe the magnitude and importance of BEAD should not be underappreciated as it addresses some of the most difficult and expensive locations to deploy in America and represents a generational deployment opportunity. For planning purposes, we currently expect to see BEAD opportunities during the third quarter of calendar year 2025. As BEAT continues to develop, we are also seeing significant deployment activity funded by other state and federal programs. Macroeconomic conditions appear stable. In addition, the market for labor has improved in many regions around the country. Automotive and equipment supply chains have normalized, and prices for capital equipment have been stable since the first of the year. Within this context, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers. Moving to slide seven. During the quarter, revenue increased 15.5%. Our top five customers combined produced 54.9% of revenue, increasing 7.1% organically. Demand increased from three of our top five customers All other customers increased 12.3% organically. AT&T was our largest customer at 17.5% of revenue, or 210.2 million. AT&T grew organically 20.6%, its first quarter of organic growth since the January of 2023 quarter. Lumen was our second largest customer, 13.6% of total revenue, or 163.7 million. Lumen grew organically 1%. Revenue from Comcast was $105.6 million or 8.8% of revenue. Comcast was DICOM's third largest customer. The customer who asked that we not identify them was our fourth largest customer at $95.8 million or 8% of revenue. This customer grew 73.2% organically. And finally, Verizon was our fifth largest customer at $85.3 million, or 7.1% of revenue. This is the 22nd consecutive quarter where all of our other customers in aggregate, excluding the top five customers, have grown organically. Of note, fiber construction revenue from electric utilities was $88.7 million in the quarter. We have extended our geographic reach and expanded our program management and network planning services. In fact, over the last several years, we believe we have meaningfully increased the long-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of gigabit wireline direct and wireless wireline converged networks, as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Now going to slide eight. Backlog at the end of the second quarter was $6.834 billion versus $6.364 billion at the end of the April 2024 quarter, an increase of $470 million. Of this backlog, approximately $3.83 billion is expected to be completed in the next 12 months. Backlog activity during the second quarter reflects solid performance as we booked new work and renewed existing work, we continue to anticipate substantial future opportunities across a broad array of our customers, including those who have recently entered into strategic transactions and partnerships. During the quarter, we received, from Verizon, a construction agreement in New York, from Brightspeed, a construction agreement in Ohio, Pennsylvania, New Jersey, Virginia, and North Carolina, from Comcast, a nationwide maintenance and construction agreement, or AT&T, a utility line locating agreement in California, and various rural fiber construction agreements in Arizona, Oklahoma, Arkansas, Alabama, and North Carolina. Headcount was 15,901. Now I will turn the call over to Drew for his financial review and outlook.

Thanks, Steve, and good morning, everyone. Going to slide nine. Contract revenues were $1.203 billion, and organic revenue increased 9.2%. Revenues from our recently acquired businesses were $65.9 million. Adjusted EBITDA was $158.3 million, or 13.2% of contract revenues, compared to $130.8 million, or 12.6% in Q2-24, an increase of 60 basis points. Gross margin improved 52 basis points to 20.8% of revenue compared to 20.3% in Q2-24. G&A expense was 8.3% of revenue compared to 8.1% in Q2-24. G&A this year included incremental stock-based compensation of $2.2 million related to the CEO succession transition. Non-GAAP net income was $2.46 per share compared to $2.03 per share in Q2 last year. The change in net income reflects the $27.5 million increase in adjusted EBITDA and higher gains on asset sales, offset by $8.6 million of higher depreciation and amortization, $2.4 million of higher interest expense, and higher stock-based compensation and income tax expense. Going to slide 10, our financial position and balance sheet remained strong. Cash and equivalents were $19.6 million and liquidity was $622 million. During Q2, we amended our senior credit facility to expand term loan capacity and extend the maturity to January 2029. At the end of Q2, we had $450 million of term loan outstanding and an undrawn $650 million revolving credit facility. Additionally, we have $500 million of senior notes outstanding. Our capital allocation continues to prioritize organic growth, followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage. Going to slide 11. Cash flows used in operating activities were $7.5 million to support the sequential growth in Q2. The combined DSOs of accounts receivable and net contract assets were 117 days, an increase of seven days sequentially. Capital expenditures were $55.9 million net of disposal proceeds, and gross capex was $65.4 million. During Q2, we acquired a telecommunications construction contractor for $20.8 million, net of cash required, expanding our geographic footprint to Alaska. And this morning, we announced that the company has acquired Black & Veatch's public carrier wireless telecommunications infrastructure business for $150 million in cash during Q3. Going to slide 12. As we look ahead to the third quarter ending October 26, 2024, we expect total contract revenues to increase mid to high single digits as a percentage of contract revenues compared to $1.136 billion in Q3 2024. Included in the expectation for the current quarter is approximately $75 million of acquired revenues compared to the prior year period that included 45.2 million of acquired revenues, and 26.5 million of revenues from the impacts of a change order and the closeout of several projects. We also expect non-GAAP adjusted EBITDA percentage of contract revenues to increase 25 to 50 basis points compared to 12.9% in Q3-24 after excluding 1.8% of incremental benefit in the Q3-24 EBITDA margin from the impacts of a change order and closeout of several projects. The expectation of non-GAAP adjusted EBITDA excludes $5.5 million of pre-tax acquisition integration costs related to the Q3-25 acquisition. Other expectations about the Q325 outlook include $9.5 million of amortization expense, $14.3 million of stock-based compensation. That includes $7.1 million of incremental expense related to the CEO succession transition, $17.5 million of net interest expense, a 26.5% non-GAAP effective income tax rate, and 29.6 million diluted shares. The Q3-25 acquisition is a carve-out from an existing business, and we expect pre-tax integration costs of $5.5 million that we will disclose separately and exclude from our presentation of non-GAAP adjusted EBITDA. Other pre-tax costs related to the acquisition that are included in the company's consolidated outlook are $3.7 million of amortization expense that is included in the $9.5 million expectation, and $2.4 million of interest expense that is included in the $17.5 million expectation. On a GAAP basis, the combined pre-tax integration and other costs are expected to total approximately $11.6 million, or $0.29 per common share diluted on an after-tax basis. Now I'll turn the call back to Steve.

Thanks, Drew. Moving to slide 13. This quarter we experienced solid activity and capitalized on our significant strengths. First and foremost, we maintained significant customer presence throughout our markets. We are encouraged by the increasing breadth in our business and pleased with the opportunities accompanying our acquisition from Black & Veatch. Our extensive market presence has allowed us to be at the forefront of evolving industry opportunities. Telephone companies are deploying fiber to the home to enable gigabit high-speed connections. Rural electric utilities are doing the same. Dramatically increased speeds for consumers are being provisioned, and consumer data usage is growing, particularly upstream. Wireless construction activity in support of newly available spectrum bands and fixed wireless access continues this year. Demand for low latency AI data center connectivity is growing rapidly. Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration. Cable operators are increasing fiber deployments in rural America. Capacity expansion projects are underway. Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance and operations business. We are pleased that many of our customers are committed to multi-year capital spending initiatives as our nation and industry experience more stable economic conditions. We are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team. Now, operator, we will open the call for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question will come from Alex Regal from B. Reilly Securities. Your line is open.

Good morning, Steve and Dan. And Dan, welcome to the call here. Look forward to hearing from you over the next few quarters and many years to come.

Thank you.

A couple quick questions here. First, Steve, your commentary on AI seemed very bullish, particularly about intercity networks. However, You know, more recently, DICOM's opportunity has been in-trust city. So can you talk about how DICOM is positioned in the inter-city opportunity? Or are you, like, highlighting this sort of as a leading demand driver to in-trust city work?

No, I think, Alex, we have had exposure to inter-city work recently. When the most recent industry announcements came out, I looked back, and over the last several years, we've placed over 2,000 miles of intercity fiber, essentially in an analogous situation to what we anticipate coming ahead. So I think we're as experienced in that market as anyone. Because we have long histories here in the subsidiaries, we've worked a number of the routes that I think will anticipate some activity, and if you go back far enough, we've probably built some of them. So I think that's a significant opportunity for us. I think more directly on the AI opportunity in general is that you've seen the announcements from Lumen and Microsoft and Corning, but probably as interesting is the fact that in a number of industry areas, events, people have highlighted the importance of low latency to AI as it moves from training to inference. And so I think that's going to create an opportunity around moving data processing or data centers to the edge of the network. And as the trend to the edge takes place, then I think you'll also see intra-city, as you put it, or metro fiber rings also be affected. We've had some preliminary discussions with some of the hyperscalers at a very high level, but that seems to be the way they're thinking about the opportunity.

Very helpful.

And then secondly, total backlog increased nearly 500 million sequentially in a quarter. Historically, fiscal 2Q is sort of a weaker quarter for backlog growth and generally declines from the first quarter. So I guess the question here is, What was the catalyst to the sequential increase in backlog? And are you starting to see bead awards build into your backlog?

So, Alex, to answer your second question, there is no bead in the backlog. As we said in the comments, we do expect bead opportunities next year, so sometime mid-year and beyond. But there were none in the backlog. I just think we've had a broad set of opportunities that we highlighted and some that we didn't, that it was their time. And we're pleased with the performance in the backlog this quarter.

And just a quick follow-up on that. Do you see any risk to bead awards given the pending presidential election?

It's always hard to forecast what's going to happen with the government, but if you recall, B was part of the Infrastructure Act that was passed, I think, with 70 votes in the Senate on a pretty bipartisan basis. Historically, rural fiber deployments have enjoyed support from both parties, particularly if there's a change in control with with those states that are Republican. It's interesting. Not only have those states been actively allocated B money, but those states have also had active state programs. So I think there's no guarantees, but I think the support for rural fiber is both deep and, as we said in our comments, irreversible at this point.

Very helpful. Thank you.

Thank you.

Our next question will come from Adam Thalheimer from Thompson Davis. Your line is open.

Hey, good morning, guys. Nice quarter. Steve, congrats on your retirement, and Dan, congrats on your promotion.

Thank you.

Yeah, thank you. Okay, so the question I've probably gotten the most this morning is, and maybe I'm reading this wrong, there's a lot of moving pieces, but it looks like organic revenue growth decelerates from call it 9% in Q2 to maybe half of that in Q3. And the question would be, is that analysis correct? And then if so, are there specific customers that take a step back in Q3 versus Q2?

Hey, Adam, it's Drew. I'll jump in here. So recall that last year in Q3, we had both acquired revenues of $45 million, and then we also had a change order and closeout of several projects that was another $26 million. So if you take that out of last year's number, and then you take the expected $75 million out of this year's number, I think you'll get organic growth similar to overall growth, which is in that mid-to-high single-digit range.

And I think I'd just add it'd be nice if we could have a $26 million change order and close out every third quarter, Adam, but that's why we called it out a year ago, was that people would be aware of it. I think the other thing supporting our guidance for mid to high is it has been a wet August so far. Hopefully things will dry out, but we wanted to make sure that we reflected that in the guidance. We have one customer that we think may be a little bit slower that's had a pretty strong first half of the year. And this is always hard to understand. deal with or calculate with certainty. But, you know, we've been encouraged by the pace of bead approvals, the state-level approvals by NTIA. It picked up over the summer. And it may be a little bit counterintuitive, but for some of the smaller customers that they've seen evidence that, hey, this bead thing is coming, these states are getting approved. And so we know that within a year there's going to be real activity on that plan that they may have slowed a little bit going into the back half of the year. Again, hard to tell with real certainty, but it has been an impressive run of state approvals in the last, call it, six weeks.

Okay. All that makes sense. And then I wanted to ask about Black & Veatch. A billion-dollar backlog seems high. And I'm curious how diversified it is from a customer standpoint. And the other thing I'm curious about is their model is different than yours, right? They They practically don't do any self-performed construction. So I'm curious how you're going to change that model.

Well, first on the backlog, Adam, it comes primarily from turfing arrangements in the states that we listed in the press release as well as new site builds. And it's work that we're well familiar with with a very good customer. I think there are significant synergies as we've looked at the transaction. We've spent a lot of time and effort and money in the last several years enhancing our program and project management systems for the prosecution of wireless work. We think our folks do it well, and we think that this acquisition was a great way for us to create even more value out of the investments we've made in those systems over the last several years.

Great. I'll turn it over. Thank you.

Thank you. And our next question will come from Sangeeta Jain from KeyBank Capital Markets. Your line is open.

Yes, good morning. Thanks for taking my question. If I can ask a follow-up on the Black & Veatch acquisition, Steve, maybe from a strategic point of view, you're seeing so much growth on the wireline side. Can you tell us what made you think about making an acquisition on the wireless side here?

Well, Sangeeta, to begin with, we not only thought about it, but this is something that we actually surfaced and approached them. So I think this is something that is strategic to us. We've been in the wireless business now for kind of north of 12 years. We think we do a good job at it. We're careful in where we apply those efforts, but we have made significant investments in And to us, it's just a broader theme of becoming a better partner for all of our customers, particularly those that do both wireline and wireless. I mean, ultimately, in those customer organizations, we work for the same people. And so this was a solid enhancement to our business. And we're excited about not only the business we've acquired, but potential opportunities that may bring in the future.

Great. And if I can ask a follow-up, the acquired revenue in your F3Q guide seems a little bit higher than what we would have expected. So I was wondering if there's a specific call-out on where the acquisition is outperforming, because it seems like Black & Reach is going to be a modest contributor the next couple quarters.

Sure. This is Drew again. So on the acquisition, if you recall, last year in the third quarter, we made an acquisition as well. And so we're backing out within this year's the $75 million. That includes the acquisition since the Q3 of last year, as well as the two that we've done earlier this year and now the new acquisition in Q3 of this year. So it's a combination of all of those businesses in the acquired results.

Yeah, and I think, Sangeeta, modest in our mind, it's preliminary. We're still working. We've owned the business now since August 5th, so we're still tightening down our revenue forecast. But, you know, $10 million to $15 million this quarter seems reasonable. Hopefully more. Okay, got it. But that's what we're expecting at the moment.

Got it. Thank you. Thank you.

And our next question. We'll come from Alex Waters from B of A. Your line is open.

Hey, good morning, guys. Thanks so much for taking my questions. Steve, congrats on the retirement, and Dan, congratulations to you as well. Maybe just first off here, kind of going back to Alex's first question, Steve, in the past you've noted kind of that data center opportunity has been modest to revenues. Have your thoughts evolved much more than that to what it could be a contributor for DICOM. And then maybe just secondly, some really strong growth from customer number four this quarter. I know you spoke to it a little bit in your prepared remarks, but can you discuss a little bit more about what's really driving that growth and your expectations for them going forward?

Thanks. Sure. So, Alex, with respect to data centers, as we talked about them and at least what we had observed previously, there were clearly new data centers being constructed. In some cases, they were being constructed in areas of the country that were not closely associated with the existing internet backbone. So there were certainly some opportunities for laterals. If you look at the announcement between Lumen and Microsoft and then the subsequent supply announcement by Corning, These are not small projects. These are projects and routes that are measured in the thousands of miles. We don't know exactly what's going to transpire, but if you think about Corning's announcement of having an order for 10% of their annual capacity each year for the next two years, that's a pretty sizable opportunity for us in the outside plant portion of the network. I think what we're really seeing is essentially a nationwide opportunity for an enhancement to the inner city network, which we haven't seen for a long time. So how that stacks up against a whole bunch of other robust opportunities remains to be seen, but we think it's pretty significant. And then I think with respect to the customer you referenced and just more broadly, We were really pleased with the news flow over the last, let's call it, two to three months in that you had a number of strategic transactions where you had new sources of capital coming in to support the deployment of new high-capacity networks. And so I think what that indicates to me is several things. So first, if you look at our customers like number four, as well as a number of others that are are traditionally very significant to us, they really seem pleased with the returns to their deployment of capital to build out new high-capacity infrastructure. So we're seeing programs broaden either geographically or in duration. So we're seeing more and for longer. We talked a little bit about the federal and state support. If you think about over the last three years, that's been a phenomenal amount of capital that's been committed by both federal and state governments. We just talked about the AI opportunity. You know, what's always interesting in this industry is just when you think you know where all the money's going to come from, there's a new source. So thinking that the hyperscalers could be active participants in providing capital to our industry is encouraging. You know, for them, a big fiber program is, I'm sure, a significant commitment, but when you think that they, an aggregate or supposedly going to spend something like $200 billion in CapEx this year. Their involvement is helpful. And then if you look at the strategic announcements over the last couple of months, we've seen some M&A, mergers amongst customers. We've seen joint ventures established with new, deep-pocketed, very well-respected companies. companies coming into the industry. I just think there's just a broad set of opportunities in wireline.

Thank you, guys.

Thank you. And our next question will come from Steven Fisher from UBS. Your line is open.

Thanks. Good morning, and best wishes, Steve and Dan. Maybe just to start off with some follow-ups on Black & Veatch, just curious what the growth rate embedded in that $250 to $275 million of revenues is for 2020 for your fiscal 26. So what's the trailing right now or what's the calendar 24 expected to be and how much of that $250 to $275 is in backlog? And then I guess I'm just curious on sort of the bigger picture of, how you see the shape of the cyclical curve and investment for things like O-RAN and other wireless investment relative to the fiber curve.

Yeah, so Steve, just to take your first question about the trailing revenues, I mean, we didn't buy the business that way. In wireless, there is lots of visibility when new programs are initiated down to the site level. And we use that information to create a good forecast for, let's call it the next 30 months. So the back half of this year and the two years following. And that's really literally down to the number of sites in each one of these states. So we have good visibility. From a growth perspective, as we just indicated, we're not looking at more than 10 to 15 million in revenue each of these last two quarters. So when you comp that next year, obviously essentially all of the revenue that we see in the back half of next year is going to be organic out of the acquisition in the way that we calculate organic growth. So we think it's a good organic growth opportunity. We think that the construction activity as scheduled will increase beginning at the first of the year. And so we think that's a a very good, solid plan. In terms of the revenue forecast, that's all in backlog. I mean, that billion dollars in backlog really extends through the end of calendar 27. And then I think in general, we're just pleased to participate in this deployment of new equipment to modernize the network. I think that's a trend that we expect to continue for a while. There's clearly been one very major announcement in that space, and I believe it was a several-year announcement, and that's what we're going to be in support of.

Okay, that's helpful. And then just maybe to follow up on Adam's question earlier about the growth in the third quarter, I agree that it's a little slower than we would have expected, and you gave some color there. I guess I'm just kind of curious about the bigger picture on organic growth here. With so much private investment and all the public funding, it seems like there should be potential for double-digit organic growth here. Should we assume that we should be kind of building on this kind of mid to upper single digit growth from here? Or is there something that's still kind of restraining it when we think about the next kind of handful of quarters?

I think, Steve, what we're always factoring into our outlook is that we understand the big growth drivers to the business. They're significant. We've been able to grow double digits. before. We had sizable growth, as you recall, over the last two, three fiscal years. And there's nothing structurally that would say there's a lack of opportunity that wouldn't support that kind of growth again. But there's no guarantees. This is a service business. We earn the business one day at a time. We think we're well positioned. And it is always encouraging when we see customers announcing new initiatives, for example, to take advantage of hyperscaler capital, or just new capital coming into the space to do more of what we already do. It's interesting that just the most recent announcements in the space over the last six months have added over 9.5 million homes incrementally to everybody's plans over the next four or five years. So we're encouraged.

Perfect. Thanks very much.

Thank you. Our next question will come from Rob Palmisano from Raymond James. Your line is open.

Hey, guys. This is Rob one for Frank. Steve, congratulations on your retirement. And Dan, congratulations on your new opportunity. Curious, do you expect to get a decent amount of business from the Lumen AI fiber build? How much do you guys do more generally with blowing fiber? How profitable is that business versus putting a shovel in the ground? Have you talked with these guys, and do you expect to be a part of that process? Thank you.

Yeah, Rob, I guess what I can say, as I mentioned earlier, we're in process or have completed over 2,000 miles of this type of work. So we think we understand that part of the network reasonably well, or as well as anybody else. If you go back long enough, some of the intercity routes are a good portion of some of the regions of the country. We actually were part of the construction process. So we have lots of history in that part of the network. I wouldn't ever comment specifically on an individual customer opportunity, but what I would say is that we don't see generally in any of our growth catalysts anything structural that would say that we can't achieve our current margins and hopefully do better. And as we've talked about before, that's what we're all about is trying to figure out how to make those better with each incremental opportunity.

Got it. Thanks, guys. Thank you.

Our next question will come from Brent Thielman from DA Davidson. Your line is open.

Yeah, thanks. Good morning. Steve, just curious what actions you need to take at Black & Veatch just to get the margins up to the corporate average or the big investments you need to make there, legacy agreements, anything like that?

Yeah, Brian, I think the good news is the investments that we made in our own business to create scalability and to improve the efficiency and timeliness of service delivery all exist. Now, it's a big, big organization. We're getting good cooperation from the new folks, but it's really a blocking and tackling exercise. This is a business that we understand where we have complete familiarity with the customer's administrative systems. And so it's really just an execution and a people investment, systems investment that's in place.

Okay. And I guess in context to the revenue contributions you're talking about for fiscal 2026, would you also expect the margins for that business to, you know, reach that in line sort of guidance you've provided?

Yeah, absolutely, and we'll work hard to make it better, but we see no reason based on our performance in that providing wireless services more generally, we have confidence that the team will be able to execute and deliver.

Okay, and then in the context of the third quarter outlook, Steve, and using the 12.9% EBITDA margin as the base here, I guess, I mean, Is there anything that's restraining your ability to expand margins faster? It seems to me it's still an environment that should be in your favor in that regard.

I think as we look ahead, Brent, as we've always talked before or commented before, that if we get broadly distributed growth, that's always helpful. So even inorganic growth like this acquisition, that helps us, that gives us another catalyst and another pool of revenue over which we can leverage operating costs and G&A. So we feel good about that. And as always, we'd always like to make more, and we're working hard to make sure that we match our resources to the best opportunities so that we can do a really good job for the customer And typically, if we do a good job for the customer, then we're delivering for shareholders also.

Got it. Okay. Thank you.

Thank you. Our next question will come from Eric Lubko from Wells Fargo. Your line is open.

Thanks. Best of luck, Steve, in retirement. And Dan, great to have you on board. I wanted to touch on the BEAD opportunity. You brought this up in your prepared remarks, Steve. A lot of recent states, you know, that have recently, you know, been approved for the application process. I think you mentioned kind of second half of calendar year, 25 is when you think we'll see more contribution from the BEAD program. But I just wanted to get confirmation there on when do you think construction timing could be. And as you look at your current labor force, you know, is there any incremental investment you need to make either direct labor or potential subcontractors to get ready for, you know, a bigger wave of rural builds that's coming in the next year or so.

Yeah, Eric, again, in any government program, they're all a little bit different. We'll have to see how it plays out. But there are requirements in the program that once these approvals are secured, that starts a calendar that has to be met. And so... We think that this increased cadence of approvals should drive more activity, let's call it, within the next year. Of course, we've got to get through design and permitting and material and all those other things, but when this comes, it's going to be significant. I think that's always the tension on the street, right? Not to over-anticipate, but then again also don't under-appreciate the significance of a program that's going to be addressing some of the most difficult and expensive passings for communications infrastructure that's ever been built. And so we're excited. I think we will see, at least I'm told from folks in DC that we use as experts, that we think this cadence of approvals will continue. And then in terms of labor and subcontractors, and we talked about this before, We have a long history in rural America. We have a broad footprint for both cable and telephone company where we provide master services agreements across broad sections of the country. And so I think we will make prudent investments, but we typically don't make speculative investments before we see the size of the opportunity. We think this one's going to be pretty big, but we want to be a little bit closer before we start pulling the trigger on increased expenditures to support it.

Yeah, no, understood. And I guess just one follow-up on the data center AI fiber conversations. It seems like a lot of these may be dark fiber IRUs or in some cases selling, you know, empty conduit in the ground. I mean, how do you view these over time? Are they more one-off project-based type of revenues or something that you think could be more reoccurring over time for these types of routes in terms of maintenance opportunity or other activity that could come after the initial builds?

Yeah, and it's early to tell, but given the ambition and the size of the orders at Corning, I think these have got to be very large network bills that substantially serve most of the country. If you look at commentary from Lumen, they not only highlighted this first series of orders, but that there were substantial opportunities coming behind. And I am no expert in the data center side of the business, but I do recall about 18 months ago, there was like a switch that flipped and everybody who could lease data center space started leasing it. And there is some possibility that that happens in this inner city and metro, intra-city market as this whole move to reduce latency and increase capacity occurs. I mean, one of the things that's interesting in the Corning announcement is the size of the cables. These are massive amounts of capacity that they anticipate deploying. And I think that's a good sign that there's some legs to the trend.

Okay, thanks, Jens.

Thank you. And our next question will come from Alan Matrani from Sylvan Lake Asset Management. Your line is open.

Hi, thank you. Just a couple quick ones. What were the wireless revenues this quarter?

It's about 3% of revenue, so fairly small.

Okay. And were they up in line with sort of the overall revenue growth this quarter?

No, Alan, and I think this is a broad industry trend. The business is down, call it 10%, 12% year over year, but I think that's in line with other commentary as the industry gets ready for this network modernization effort. Okay. It actually was down a little bit less this quarter than it was the prior quarter.

Okay, thank you. And also, Drew, maybe can you update us on the CapEx guide for the year and the cadence of that in the next second half?

Yeah, Alan, we have not changed the outlook there. We're still anticipating the 220 to 230. Okay.

But there's no issue anymore in terms of deliveries?

Yeah, I think I'll jump in there. You know, as we said in our comments, Alan, the equipment supply – has normalized. That's encouraging. I mean, that's why we did spend what we did this quarter. I mean, we've had some orders that were a little bit stopped up and they freed up. And given the magnitude of the opportunities that we see, it's encouraging that when we need to get capital equipment that we'll be able to do it.

Okay. That's helpful. And then with regard to the B, Steve, maybe I misheard you, but I want to understand 35 states and territories are all finished. and 21 others, you said, adding up to about 56 states and territories. Is that it's 50 states and six other territories that we're talking about?

That's correct. Obviously, Alan, our primary focus is on the 50 states, not the territories, but that is the total program.

Okay. And just to understand, I mean, obviously there's been a lot of talk about the cost of this and whether it could be done sort of by satellites a lot cheaper. People are worried about But nevertheless, I never discount the ability of the government to spend a lot of money they don't need, at least in some people's views, or at least to spend it the way they've always spent it, which is through the traditional providers. If they end up spending, it just seems like there's a lot of preparatory work going. You said you think you see revenues in the third quarter of calendar 25. Is that correct?

Yeah, I think we'll see impacts in the business. Timing, whether it's third quarter, beginning of fourth quarter, it's too early to tie that down. But again, I just want to emphasize how big this program is. And if it shows up one month or the next month, I don't think that's significant in the big scheme of things.

Right. So you guys went out, I mean, this next year, let's call it, before this comes, just seems like you have a lot of things going on between the three or four acquisitions you've made over this last year, counting this latest one in terms of the timing of integrating all of them and getting everything ready with all the permissions and speaking to customers. It just seems like, as you said, we're set up for a step function in the business starting at some point in the next 12 months, which once these programs get started last, in my experience, decades typically with fits and starts in between. but meaningful step-ups in the business. I know you built this business over the last, let's call it 25 to 30 years. Dan's taking over a business that, in essence, is already a completed business in the sense that you're operating now in all 50 states. You have scale in wireless and wireline with room to grow, obviously, with different customers in different regions. You're not as concentrated as you were. So my thought process and just question for Dan more for you, Steve, but also for Dan, is where do you see the next phase of DICOM going in terms of if Steve built the business and set up the table, as this next gigantic billions of dollars comes in potentially starting the next 12, 24, 36 months, however long it lasts, how do you see DICOM playing out in the next few years?

I think, Alan, as always, we start within a framework of strategic capital allocation, right? So we want to spend on growing the business, reinvesting the cash flows that we can create inside the business to make it bigger. We'll look at acquisitions as we have over the last year. I mean, it's interesting that if you aggregate the acquisitions over the last year, they approximate in size what we did in 2012 with the acquisitions from Quanta that have worked out well for us. So we think that these acquisitions you know, are good long-term investments in the business. And this is a business, right, where you're always, your ultimate success is based on your ability to execute, which is why we've always focused on having operating people lead the company. With that, I'll turn it over to Dan.

Yeah, Alan, what I would say is, you know, the past four years that I've almost been here now, I've worked closely with Steve and Drew and What I can tell you is I'm very much aligned on the strategy that they helped create a very long time ago, and it's been successful for DICOM, and we see that continuing in the future.

One might only say, you might say, Alan, that he set up to really generate the rewards from that generation of strategy, or he and Drew anyway.

The rewards are all about execution, so that's something that shareholders, we hope will work out well. over the next couple years. We know you don't control the purse strings, so it's just a question of capitalizing on doing that, and best of luck to you.

Thank you.

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Stephen Nielsen for any closing remarks.

Well, we thank everybody for your time and attendance and interest in the company. And we look forward to speaking to you again on our next quarter call. Just want everybody to know this year it's the third week of November, which thankfully for everybody is the week before Thanksgiving and not the week of Thanksgiving. So we'll talk to you again then. Thank you.

Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.