Dycom Industries, Inc.

Good day and thank you for standing by. Welcome to the DICOM Industries, Inc. first quarter 2027 results conference call. At this time, all participants are in a listening 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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 and Corporate Communications. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to DICOM's Fiscal 2027 First Quarter Results Conference Call. Joining me today are Dan Penovich, our President and Chief Executive Officer, and Drew DeFerrari, our Chief Financial Officer. Earlier this morning, we released our fiscal 2027 first quarter results along with certain outlook information. We also announced a definitive agreement to acquire National Technology Integrators, a low-voltage engineering and construction firm based in Maryland. The press release and accompanying materials are available in the investor relations section of our website. including the Outlook Expectations Summary Document, which provides additional outlook metrics beyond what will be discussed on today's call. These materials, which we will discuss during today's call, include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our discussion and 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 gap measures can be found in our press release and accompanying materials. With that, I will turn the call over to Dan Paevich.

Thank you, Sally, and good morning, everyone. Thank you for joining us today. We delivered an outstanding start to the year, continuing to execute our strategy and capitalize on the generational set of opportunities Total revenues of $1.965 billion exceeded the high end of our expectations, increasing 56% compared to Q1 FY2026, including organic growth of 25%. With robust and intensifying demand drivers, we remain disciplined in our awards, high-grazing the pipeline and intensely focusing on execution. The results of this discipline are reflected in our earnings for the quarter, which also exceeded the high end of our expectations. Adjusted EBITDA of $262.5 million and adjusted EBITDA margin of 13.4% increased 75% and 141 basis points respectively. And non-GAAP adjusted diluted EPS was $4.42, an 85% increase compared to Q1 fiscal 2026. We ended the quarter with record total backlog of $11.9 billion. growing 25% sequentially and representing a book-to-bill of 2.2 times for the quarter. Notably, awards this quarter continue to diversify our backlog across customers, demand drivers, and geographies. In some cases, we are also seeing customers extend durations to ensure they have the skilled workforce to meet their goals. These awards provide certainty and visibility that allow DICOM to plan and invest for work far in the future and positions us for multi-year growth. With strong results in Q1 and intensifying demand across our business, we are increasing our full-year fiscal 2027 outlook to a range of $7.38 billion to $7.65 billion. At the midpoint and excluding the extra week from last year, Our new outlook represents total revenue growth of 38%, including 14% organic compared to last year. I'll shift now to our segments, which delivered excellent performance to start the year. Our communications segment generated significant revenue growth of 25% compared to Q1 FY2026, with adjusted EBITDA margins that increased 31 basis points year over year. Growth during the period was driven by expansion into additional geographies and fiber-to-home builds that ramped ahead of expectations, all aided by a favorable seasonal backdrop. Demand for fiber infrastructure remains as strong as ever, as evidenced by our customers' bullish commentary about their multi-year fiber-to-the-home and home-home build programs, as well as recent announcements from Corning to scale manufacturing capabilities in response to the demand for fiber in the coming year. Our building system segment is off to a fantastic start, performing exceptionally well this quarter. DICOM's integration engine is firing on all cylinders, and I am immensely proud of the team for outpacing our internal projections in a very short period of time. Power Solutions eclipsed expectations right out of the gate, delivering $395.4 million of revenue and adjusted EBITDA margin of 17.7%. Importantly, looking ahead, we expect their fiscal 2027 margin to be in a similar range to the Q1 performance. With Power Solutions, we have added an incredible team that has earned tremendous respect across all stakeholders for nearly three decades. As a result, we are positioned for significant long-term growth as we continue to scale our digital infrastructure platform. Shifting to discuss our initiatives, last quarter, I spoke of forward the year, and we delivered on every one of them in our first quarter. First, talent and workforce development. Our investments in our training and our people are yielding great results. We added 730 employees in the quarter as we continue to invest to support our significant growth. Second, we are executing on the expansion of our building system segments, both organically as Power Solutions scales its operations, and through strategic M&A. Today, we announced a definitive agreement to acquire National Technology Innovators, a tenured and fast-growing low-voltage engineering and construction firm based in Maryland, enhancing our position and further expanding our capabilities in the high-growth data center industry. National Technology Innovators specializes in inside-plant structured cabling, including within data centers, as well as audiovisual and security systems. This is a critical step that connects the work of both our segments. We will be able to offer our customers complete fiber infrastructure starting at the racks and connecting data centers across America, ultimately bringing fiber connectivity to businesses, communities, and homes. Their work marries incredibly well with our inside-the-plant electrical work as these trades are highly coordinated and in high demand. Importantly, this private, Founder-led business is another outstanding cultural tip with a team that is highly respected and excited to continue the growth story. Based in Maryland and with much of their revenue in the DMV, they also have operations spanning Texas and the Midwest brought there by their general contractor and hyperscaler customers because of their proven performance. This creates enormous opportunity for DICOM to continue to grow our building system segment and cross-sell our services. This cross-selling is already occurring. Our solutions and national technology innovators have been strategic partners for years and are currently working on projects together. In addition, we are already working together on inside defense fiber work in our communications segment. In short, the synergies are incredibly strong, and this is a perfect fit to further increase our opportunity set. They consistently deliver superb results, and the transaction is expected to be immediately accretive across key enterprise financial metrics. We are excited to welcome national technology innovators to the DICOM family when the transaction closes, expected in Q2. Looking ahead, we will continue to pursue additional high-quality M&A while also maintaining our commitment to long-term net leverage discipline and investing in organic growth opportunities. Moving to our third strategic priority, margin expansion. we delivered year-over-year improvement of 141 basis points in adjusted EBITDA margin for the quarter. Looking towards the fall fiscal year, we continue to expect our communication segment to modestly increase adjusted EBITDA margin over the prior year, and we now expect our billing system segment to maintain adjusted EBITDA margin in high teams. Fourth, cash flow enhancement continues to be a priority, and our combined VSOs were 96 days for the quarter, a significant improvement of 15 days year over year. Over the past five quarters, we've laid out a clear picture of the intensifying demand across our industry, and we've proven DICOM's ability to step up and capitalize on it. We're doing that through clear strategy, consistent execution, organic investments, and disciplined M&A. Looking ahead, the momentum behind fiber deployments and data center builds is stronger today than we have ever seen. We're moving quickly to capture this opportunity expanding our presence and footprint across our business, while continuing to anchor ourselves with steady service and maintenance work. On top of that, FEED is progressing through state-level and sub-grantee pipelines, which points to upside for both our backlog and our future outlook. In closing, DICOM's scale and positioning, combined with our local expertise, is unmatched in digital infrastructure. We're focused on delivering value to our frontline employees and our customers, and believe that this goes hand in hand with delivering value to our shareholders. I would like to thank my 20,000 teammates for raising the bar every day for our customers and in our communities. I am incredibly proud of what we've accomplished together and confident we will continue to deliver value for our shareholders and long-term opportunities for our teams as we pursue our vision to be the people connecting America. I'll turn this all over to Drew now for a deeper dive into our Q1 performance Further details on our acquisition. Thanks, Dan. Good morning, everyone. In Q1, we outperformed the high end of our expectations, delivering strong top line and adjusted EBITDA growth and margin expansion, while also investing in our future growth and returning capital to our shareholders through share repurchases. Q1 total contract revenues of 1.9%. quarter. Building systems represented approximately 20% of total revenue for the quarter. Consolidated adjusted EBITDA of $262.5 million increased 75% over Q126, reflecting strong performance in both of our business segments. Consolidated adjusted net income was $134.3 million and adjusted diluted EPS was $4.42 per share, an increase of 85% over Q1-26. These results are adjusted to exclude the utilization of intangible assets. Results for the quarter included income tax benefits resulting from the vesting and exercise of share-based awards of $12.5 million, or $0.41 per share, compared to $2.2 million, or $0.08 per share, in Q1 last year. Moving to the results of our business segments, each of which performed well in the quarter and exceeded our expectations. Communications revenue was $1.57 billion and grew 24.7% organically, driven by ramping fiber-to-the-home programs, increased long-haul and middle-mile fiber infrastructure, growing maintenance and operations services. Adjusted EBITDA for communications increased 28% to 192.4 million, or 12.3% of segment revenue, reflecting operating leverage and continued investment to scale our footprint and increase headcount, further strengthening our position to execute on multi-year build programs. Building systems revenue was $395.4 million, and adjusted EBITDA was $70 million, or 17.7% of segment revenue, as power solutions ramped growth ahead of our initial expectations and we integrated the operations. Total backlog at the end of Q1 was $11.9 billion, including $10.8 billion of communications backlog and $1.1 billion of building systems revenue. and for building systems. Strong cash flow remains a primary focus. We delivered solid results supporting the growth in revenue and normal seasonal uses of cash during the quarter. The combined DSOs of accounts receivable and contract assets net were 96 days, a reduction of five days sequentially from Q4 26 and 15 days year over year. During Q1, we repurchased 100,000 shares of our common stock for approximately $36 million, or $360 per share. We ended the quarter with cash and equivalents of $538.8 billion and total liquidity of over $1.28 billion. Proforma Net Leverage at the end of Q1 growth and investment. Building on our strong first quarter results and a favorable demand outlook, we are increasing our full year fiscal 2027 expected range of contract revenues. We now expect total contract revenues to range from $7.38 billion to $7.65 billion. For the communication segment, we expect contract revenues ranging from 6.03 billion to 6.2 billion, increasing approximately 12.6% to 15.8% organically from last year. For the building system segment, we expect contract revenues ranging from 1.35 billion to 1.45 billion. We also anticipate On a consolidated basis for Q2, we expect total contract revenues of $1.94 billion to $2.01 billion, adjusted EBITDA of $284 million to $303 million, and adjusted diluted EPS of $4.40 to $4.82 per share, excluding the impact of intangible amortization expense. This outlook for fiscal 2022 National Technology Integrators. While we expect to close the acquisition in our fiscal Q2, impacts are dependent on the timing of completion. Now for more details on the pending acquisition. and we expect that to continue. The purchase price is $275 million on a cash-free, debt-free basis, and the consideration is approximately $234 million payable in cash and approximately $41 million of GEICOM common stock valued as of the signing date of the transaction. Consolidated pro forma net leverage adjusted EBITDA, and we remain committed to our long-term net leverage discipline. The transaction is subject to customary closing and post-closing adjustments, and we expect it to close before the end of our July fiscal quarter. This acquisition presents key revenue synergy opportunities With a strong start to the year and clear momentum across the business, we are confident in our ability to execute our strategy as we pursue the significant and growing opportunities ahead. Operator, this concludes our prepared remarks. You may now open the call for questions.