Dycom Industries, Inc.

Good day, and thank you for standing by. Welcome to DICOM Industry Think first quarter 2026 results conference call. At this time, all participants are in a 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 111 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Callie Tommaso, DICOM's Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to DICOM's first quarter fiscal 2026 results conference call. Joining me today are Dan Pajevic, our President and Chief Executive Officer, and Drew DeFerrari, our Chief Financial Officer. Earlier this morning, we released our fiscal 2026 first quarter results. along with certain outlook information. The press release and accompanying materials are available in the investor relations section of our website. Today's discussion will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our expectations, assumptions, and beliefs regarding future events and are subject to risks and uncertainties that could cause actual results to differ materially. A detailed discussion of these risks and uncertainties is included in our filings with the SEC. Forward-looking statements are made as of today's date, and we undertake no obligation to update them. Additionally, we will reference certain non-GAAP financial measures during today's call. Explanations of these measures and reconciliations to the most directly comparable GAAP measures can be found in our press release and accompanying materials. With that, I will turn the call over to Dan Paevich. Dan?

Thank you, Callie, and good morning, everyone, and thank you for joining us. We delivered a strong start to fiscal 2026 and continue to make progress against the goals I outlined at the start of the year. I am pleased to report that we exceeded the high end of our guidance for the quarter on all metrics, including revenue, adjusted EBITDA, and EDS. Our first quarter revenue was $1.259 billion, a 10.2% increase over Q1 2025. Our adjusted EBITDA was $150.4 million, representing 11.9% of revenues and an increase of 14.9% over Q1 2025. In addition, we repurchased 200,000 shares, or $30.2 million, during the quarter. As a result of our strong performance and our view of the market today, we are increasing our revenue expectations for the year to a range of $5.29 billion to $5.425 billion. Despite the current macroeconomic uncertainty, we remain confident in the drivers of our industry and our ability to capitalize on the opportunities. This is evident in our record backlog of 8.1 billion, including a record 4.7 billion of next 12-month backlog. We worked hard to diversify our customer base and the services we offer within the telecommunications and digital infrastructure space. This diversification buffers us from the impact of any single customer or program. Underpinning each of these drivers and build programs is our service and maintenance business, which has grown significantly along with our revenue in recent years. These services provide consistency and stability as other customers' programs add and flow. The nature of the work within this business, that is, day-to-day maintenance, restoration, as well as accommodating road moves and other infrastructure work, and extending networks in the greenfield developments, when taken at scale, creates consistency in the volume of work and associated revenue and margin. Our growth in this business comes from maintaining newly installed plants from the fiber to the home builds, as well as securing additional markets from our customers. The work is sustainable, as the agreements are typically two to four years in duration, and as a reminder, we only include contracts up to their current expiration dates in our backlog. In short, our service and maintenance business provides a stable base of recurring revenue. Our strategy is to build on our service and maintenance business while also capitalizing on other drivers, whether that's fiber to the home deployments in urban, suburban, and rural America, long haul and middle mile networks, hyperscaler work inside the fence, wireless equipment replacements, or other drivers. We continue to layer these programs into our business in alignment with our growth strategy. It's visible in the results from last year. It's visible in the results this quarter. and is visible in the revised outlook we're providing for fiscal 2026. We've built DICOM to be resilient and nimble, and we believe we've differentiated ourselves in the industry. Increasing TAM in our industry, combined with the speed and commitment with which our customers are planning and executing their strategic plans, means complexity has increased, and complexity favors DICOM. Our customers demand certainty of delivery. They demand certainty of quality. and they want a partner they can trust every step of the way. Many customers have and continue to consolidate their vendors, shifting more and more work to proven partners with national reach. This shift, just like the increasing complexity of the work they need done, favors DICOM. Transitioning to the broader economy. While recent tariffs and international trade actions have created volatility and market uncertainty, we believe that the impact to DICOM and to our customers' current bill plans will be negligible. We continue to track this closely and have discussed it with many customers, telecommunications equipment manufacturers, and our equipment suppliers. While there will be cost increases in some equipment components that come from offshore, the bulk of the components in these builds are produced in the United States. Since labor represents the majority of build costs, tariff implications are diluted as a percentage of the overall build, and as such, we are not anticipating an impact to our current build. Specific to our equipment suppliers, while there are some tariff implications, we believe that the percentage increases are manageable without impacting our margins or our customers' programs. Of course, the policies and actions around tariffs and international trade are fluid, and there could be impacts different from what we anticipate today. Importantly, against this backdrop, demand drivers in our business remain robust. First, many of our customers recently reconfirmed or increased their fiber-to-home target. As I shared during our last call, the increase in fiber-to-the-home passings is a key driver for our revenue growth, and we delivered on that during the first quarter. We continue to see fiber-to-the-home ramping as many of these programs accelerate. While we added a number of new projects to our backlog this quarter, I would point to several notable awards, with Verizon for both fiber-to-the-home and maintenance works, with Windstream for both fiber-to-the-home and maintenance works, as well as fiber-to-the-home awards with Lumos. Second, fiber demand related to data centers continues to grow. Opportunities to build long-haul and middle-mile routes to meet the needs of AI infrastructure are increasing, and we are underway and executing well on the Lumen Overpole project. All the hyperscalers reiterated or increased their CapEx budgets and commitment to AI infrastructure on their most recent calls, and we continue to see these long-haul and middle-mile networks as a significant addressable market over the long term. While this driver is still in its early days, we are pleased to have received a substantial multi-year award from an ISP for middle-mile networks. We expect this recently awarded work to commence later this fiscal year with revenue ramping in fiscal 2027. Beyond the opportunities for long-haul and middle-mile routes, we are seeing and have been in discussions to move inside the fence to work directly with hyperscalers. Generally, this work brings fiber from the meet-me vaults in the right-of-way directly into the data centers and includes connecting data centers via underground networks within clusters. These meet-me vaults are typically where the backhaul work we perform for our ISP customers terminates. We were notified of an award from a hyperscaler related to this work that will commence this year but is not yet in backlog. Entry into this scope further expands our TAM and provides another opportunity for us to leverage our skill set, add value directly for the hyperscalers and further diversify our capabilities as a provider of digital infrastructure services. Third, while the final construct of the BEAT program remains unknown, additional states have published subgrantee awards with a heavy lean toward fiber infrastructure. We continue to believe that there will be considerable opportunities for us in fiscal 2027, with the possibility of awards in the second half of this year. As we noted during our last call, we have not included revenue from BEAT in our updated financial outlook for fiscal 2026. Importantly, while the BEAT opportunity is significant, we believe the other drivers in our space provide robust, ongoing opportunities to support our continued growth in the years to come. Fourth, we maintain our focus on our service and maintenance business and added meaningful awards this quarter. The day-to-day connection with our customers and our national footprint serve these contracts enable further differentiation in the depth of our relationships and the scope and scale of our operations. Lastly, our wireless equipment replacement work, both organic and from our acquisition last year, continues to deliver above expectations. While we are not updating specific wireless guidance for the fiscal 2026 outlook, we believe this work will well outperform the original expectations we gave at the close of the transaction and we have included this in our Q2 guidance and full-year outlook. I'd like to shift to discussing our progress on the goals I outlined at the start of the fiscal year. We remain focused on providing long-term value for our shareholders and long-term opportunities for our people. Our approach to pursuits is consistent and disciplined, with backlog that properly balances risk and return profiles to create value for our shareholders. We've proven our ability to capitalize on the opportunity set, and that our customers value what DICOM brings, with record backlog this quarter and the new market awards across drivers I mentioned earlier. Our teams continue their focus on improving free cash flow, and while our progress may not be linear, we expect to continue to improve our cash flow throughout the year. In summary, we have a well-defined strategy, clear objectives, and explicit metrics to track our progress along the way. We are investing with intention in getting the outcomes and returns we expect. we've demonstrated our ability to execute and capitalize on our strategy and on the increasing TAM in our industry. Despite some tariffs and macroeconomic uncertainty, our customers are steadfast in their fiber to the home and hyperscaler build programs, and we continue to see multi-year opportunities for growth. We've expanded our services inside the fence with hyperscalers, opening us up to entirely new opportunities and further demonstrating the broad diversification of telecommunication and digital infrastructure articles we serve. And we continue to deliver at a level that allows us to increase our revenue expectations for the year, and we believe raises the bar in the industry. I'd like to thank our nearly 16,000 teammates for their commitment to working safely every day and for delivering another strong quarter. We believe our customers recognize the difference in working with DICOM, and we continue to work hard to earn their business every day, as we pursue our vision to be the people connecting America.