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.

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. Our first question comes from the line of Manish Sumayya with Cantor Fitzgerald. Your line is now open.

Thank you and congratulations on an exceptionally strong quarter to the team. A couple of questions, Dan. Maybe on the NTI acquisition to begin with, if you could just help us understand the customer overlap between NTI, Power Solutions, and the legacy communications business, and how do you see immediate cross-selling opportunities?

That's the beauty of this transaction that you said, so thank you for asking the question to start. back a number of years between them and NPI. That's how we were connected to NPI to begin with. And we started talking to them about opportunities on the communications side, the work we're doing inside the fence in other facilities around the country. We started to see some really good efficiencies there and began conversations on how we can make them part of the DICOM family. What you see ultimately is the potential for campuses to have not only power solutions doing the electrical inside, but NPI also doing the structured cabling while our communications business is doing the inside the fence work and then ultimately connecting it back to the long-haul and middle-mile routes. So it's a completely comprehensive offering that quite literally connects the homes and businesses of America all the way into the data centers and the racks themselves. A ton of synergies to actually cross-sell that work. So a lot of their work, just like our solutions, goes to the general contractors, but they also have relationships with hyperscalers. So we get to have conversations on really both those fronts, and we're already seeing – Again, before the acquisition, just in conversations to try and sell that as a partnership, seeing really good connection there. And we think that's going to even go exponential here now that they'll be part of the DICOM family next quarter.

That's helpful. And then just going to the guidance for the full year, clearly – Q1 was exceptionally strong. Outlook for 2Q is strong. But when I look at the full year guidance range, it still looks a bit conservative. So I'm just trying to figure out if there's anything in the second half that I'm missing. You know, specifically, when I look at the total increase in revenues versus the prior guidance that you gave for the full year, I think it's about 7, 7.5%. So maybe she can just help us reconcile as to what's happening in the first half versus the second half. Thank you.

Incredibly pleased with the start of the year. And I'll talk really about the collective munition in each of the segments, if I could. So first, significant growth. We're looking at 56% year-over-year revenue growth. That takes a lot of investment. We were fortunate with the weather. Q1 really behaved more like Q2 or Q3. What's important, though, is the demand has to be there. And what it shows is this demand that we've been talking about across the business, across the demand drivers, is incredibly strong. We're able to capitalize on that. On the communications side, we've been talking about Fiverr to the home for a long time. And we've been sending the message that, listen, this is really only currently in the bills. There's a lot of growth opportunity left in Fiverr to the home. There's still several years where the passings are going to continue to increase. There's several years beyond that where the cost for passing will increase. And what you really see in Q1, because that was really aided on the communication side by Cyber to the Home, is that is starting to take place. So just as we set up our strategy, I would believe that's going to continue. But like a lot of things, that doesn't mean it's perfectly linear. When you start out with a very strong seasonal quarter and you're running into Q2 and Q3, and you see in our outlook for Q2 that that does become a little more, you don't see the same kind of upswing that you would see. And then a reminder, on both sides of the business, of course, we build these from the bottom up. And so, you know, it's not going to be perfect linear, but we're incredibly pleased with the overall growth and results. On the building system segment, one, you see incredible growth the first year. We're talking about now for the full year, them doubling the CAGR that they've had over the last four or five years. So going from 15% to 30% plus growth, that is significant, requires significant investment. And even with that investment, you can see, you know, already we're in a high team's margin range. So very pleased there as well. A couple more comments. One is if you look at their backlog, it is very different in how it behaves. Those projects get contracted right before we're about to start the build. What we do have behind that, though, is what we call A, B, and C, awarded but not contracted, and then further behind that, shadow backlog. And what I can tell you is even though we don't publish those numbers, there are multiples of what you see in that immediate backlog. So that gives us the confidence, Manish, for the year to raise the overall revenue on the building system side. It gives us confidence in the margin profile because we can see what those projects look like and we can see how those shape. But just like on the communications side, that doesn't mean that they all start at the exact same time and finish at the same time. So we do shape that out over the year. So all told, what you see is significant growth. We're in in the business for growth beyond this year. And we're just incredibly proud of our teams for being able to deliver at the level they're delivering today.

Thank you. Our next question comes from the line of Eric Lubko with Wells Fargo. Your line is now open.

Great. Thanks for taking the question. You know, Dan, I think you said and you alluded to it in your last comment About Fiber to the Home project ramping a little faster than you expected, and maybe just a little more color on that.

Do you think there's a little bit of a pull forward of demand you saw in the first quarter, or do you think there's signs you're actually gaining market share of some of these larger programs as they ramp this year and next?

That's exactly right, Eric. We are continuing to expand our market presence. We are getting additional awards in additional spaces. We continue to deliver at an exceptional level. We're not perfect. Trust me, we're not perfect. But our teams are absolutely committed to making our customers successful. From a timing perspective, you know, we've been talking about how these builds themselves are building and growing and ramping and how that happens at different phases. What you're seeing this year is many coming online and really starting to increase in volume and velocity at the same time. And, again, if you look at our overall outlook for the year, you see that that's continuing. You see the significant growth over last year. This isn't something we published, but if you just look sequentially quarter over quarter, our fiber to the home worked through 33% in one quarter's time. So it just shows our ability to capitalize there, continue to grow against that. And I think if you listen to other commentary in the industry, it's not always the same message, which really, from our perspective, just shows our ability to, one, execute on the work, but two, you know, have our customers continue to grow our share as we continue to deliver for them. All right, great. Thanks for that, Dan. And just one follow-up. So you alluded to the fact you're signing some longer duration contracts with your customers, you know, to lock in their labor supply? And I guess, how are you thinking about structuring those contracts to make sure you have cost inflation protection? I know we've seen some costs like fuel in particular rise pretty rapidly in the last couple months. And just wondering how you think about projecting that future cost curve? Thank you. Yeah, so fuel has obviously been an impact for Anybody that's doing our line of work, you know, what we've done and what I talked about last quarter, we made intentional moves last year around our fleet to help offset that. And that has helped mitigate, obviously, our expansion into the building system segment. That does not use as much fuel per dollar of revenue as we use on the communications side. So all of that has helped offset. But to your point, yeah, it's certainly been an impact. And, you know, we're watching it closely like everybody else. We do have that model in based on everything that we can all know today in our outlook for the rest of the year. So we do feel good about that. When it comes to the long-term contract, and this is a really good point to make, we've been talking about the skilled workforce. We've been talking about building ahead of our customers and making sure that we can be there to meet their needs. We've talked about our relationships. We're spending time with customers, not just talking about the work that we're going to do this year or even next year, but out through the end of the decade. And what all of our customers recognize is that the skilled workforce is really what's going to make or break their bills. It's going to make or break their ability to succeed, and they're very robust and, in many cases, growing plans. So as part of those conversations, as you would expect, it naturally evolves to, hey, how do we make sure that we have your teams locked up to deliver on our plans all the way through the end of the decade? Of course, Eric, as you would think, We are very thoughtful in how we would contract that work. We were very thoughtful in how we would think about the different parts and pieces, and our customers understand that because contracting three or four years out, right, you've got to be smart about how you set that up. So we feel really good about how those contracts are structured. We feel really good about the relationships. We feel really good about, one, our ability to continue to deliver and our ability to continue to grow. But as you can see in our outlook for the communication segment, also our ability to invest and grow margin at the same time.

Great. Thanks, Dan. Congrats on the quarter.

Thank you. Our next question comes from the line of Joseph Osho with Guggenheim Partners. Your line is now open.

Hi. Thanks very much for taking the question. Two questions, actually. First, some of you commented a bit in terms of the outcome, but as I think about the improved outlook on the communications side for the rest of the year, Is most of that coming from FDTH or is there some long haul and middle mile in there? And then the second question I'll just ask now, is there an upper limit to leverage that you have that you're thinking about? I'm just trying to understand how far you might take that as you continue to explore other acquisition opportunities. Thank you.

Absolutely. On the communications outlook, It is largely fiber to home. And again, Joseph, this is a message that we've been sending. Fiber to home is still earlier on in the overall cycle from our perspective, and we see significant continued growth, and that's really what gives us confidence in that raise for the year on the communication side and the overall performance there. And it also goes back to the question we just asked about our confidence to continue to contact track that further out. The long haul middle mile is still in early innings. And, you know, I've said before that we really see that as 2027 calendar coming online, but 2028 really kind of being that fast and furious here. Now, that said, we've been doing it for some time now. A couple of years we've been working on these projects. We still think we were first on the field. We continue to get more and more work there. We continue to grow that revenue. But if you look at it compared to Fibers at Home, Fibers at Home is just much more robust today. And we like that. We like how those will blend together as you start to move several years out. On the leverage question, Again, we're, one, very excited about the opportunity set. We do have a strategy, what kind of companies we're looking for. The culture has to fit first and foremost. It's got to fit our strategy for growth and how it actually augments our current opportunity set. From a leverage point itself, again, we're going to be very responsible, just like we've always been. We're going to have that discipline to make sure anytime we bring leverage up, we're going to have a clear path to bring it back down. We do not want to be elevated over long periods of time. That said, there's a lot of attractive opportunities out there. And we talked about in our prepared remarks that we're still actively looking and having those conversations. But, again, we are going to be improving in how we think about leverage.

Thank you.

Thank you. Our next question comes from the line of Frank Lawson with Raymond James & Associates. Your line is now open. Thank you.

Great. Thank you. On the DSOs, how sustainable is that? Is this sort of a new normal or is there something in the quarter that kind of impacted that? And how should we think about that going forward? And then when we look at NPI, how should we think about its overall exposure if you kind of break it down between data centers and then more of the AV and DAS type opportunities? Thanks.

All right. Thanks for noticing the DSOs, Frank, because we put a lot of work into that. We talked about it being a priority going back to last year. We talked about it being part of four strategic priorities for this year. What I want to make clear is that's improvement on both segments of the business. That's not just an offset from Power Solutions having a better profile in that industry. We've been working hard on the communications side as well and saw significant improvement in the DSOs there. So when you combine it together, I'm very pleased to be below 100 coming in at 96 days. We do think that's a sustainable range over time. On that NCI exposure, the raw number is about two-thirds data center exposure and about a third that is not data center.

Right. Great. Thank you.

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchstone telephone. Our next question comes from the line of Richard Cho with JPMorgan. Your line is now open.

I just wanted to follow up with the, I guess, long-haul, middle-mile type of build. Has that opportunity changed at all as things have developed? And when should we expect that revenue to maybe start ramping? Just wanted to get an update there.

It's grown significantly, Richard. We talked about, I'm trying to think, probably five quarters ago, this $20 billion gap. 20 billion opportunity set related to long-haul middle mile. That has certainly grown. You know, we've updated numbers internally. We haven't published that. What you've seen more and more is our customers being very vocal about it. One of my favorite commentaries, one of our customers talked about how they're having conversations with hyperscalers about routes that would have up to 7,500 to 10,000 fiber strands per route. And that is a huge number beyond even what we're talking about today when we're bringing in 864 or 1728 cal fiber. If you think about getting to 7,500 or 10,000 over time, it goes back to what we said. This is a decade-plus long build to get the architecture that they need out there to support the continued development and the continued consumption of data. We continue to do more work, and we are absolutely ramping up there. We are winning more. We're seeing more opportunities set. We're capitalizing on that. They just take a long time to get started. And so that runway, you know, typically a year-ish from when you kind of start hearing about these programs to when they get going, and then you have to ramp to get it on plane. So really start thinking about next year, calendar 27, and especially calendar 28.

Yeah, those strength caps are pretty amazing. One follow-up on the fiber to the home. Was it multiple companies ramping, and do you expect more to ramp? from your entire base through the year? Just any color on the breath?

Exactly. So you're seeing more and more of these programs that are getting to accelerated levels of execution that are consistent. And it is important to remember, when you hear our customers talk about this, it doesn't mean all markets that they have are ramping at the same time. It doesn't mean that we have every single market that they have. So we're looking at it from a very micro level. And, yes, to your point, if you're talking about ramping work across many customers, across many markets, which, again, just goes back to that indication that, you know, the homes in America are going to get passed. The $60 million that's yet that our customers have talked about are going to get passed. It's just going to take some time, and we're excited to be there to support them in that role.

Great. Thank you.

Thank you. Our next question comes from the line of Stephen Fisher with UBS. Your line is now open.

Thank you. Good morning. Congrats on the quarter. I'm curious on the building segment margins. What changed in the outlook for the rest of the year? I understand the first quarter had some good execution, weather perhaps, but you're also raising the rest of the year to be consistent with the first quarter. I assume you're still making some of the scaling investments and the back office over I guess I'm curious, you know, what happened with the rest of the outlook, and did that imply that there's still potentially some upside beyond this year if you're still making those investments and achieving the higher margins there?

Yeah, I really could not be more pleased, one, with our team's ability to integrate power solutions, and two, with just the strength of their operation and their customer relationships. So, you know, last quarter we talked a lot about making investments. Every time we do an acquisition, this one was unique because it was in a segment of its own so everybody could see it. But every time we make an acquisition, we're going to invest in that. When we close with NTI, we will make investments there because what we're trying to do is bring together two things to make something that's different than when they were apart. And that does take investment. It does take clear strategy. We're typically adding resources and staff to help make that happen. And that's what we were doing a quarter ago with Power Solutions. What you can see is we were able to get traction on that incredibly quickly. You know, when you talk about doubling a four- or five-year trailing TAGR rate in a very short period of time, I don't think it would surprise anybody that that takes a lot of investment and a whole lot of discipline. So we couldn't be more pleased with how that's come through the business, and that gives us confidence as we look out for the rest of the year. But to your question, absolutely, we continue to make investments because this goes well beyond our fiscal 2027. we continue to make those investments for future growth. At the same time, we've got the confidence to say that that margin that we saw this first quarter, that we can be in that range throughout the year.

Okay, thanks. And then just a follow-up as you relate to NTI and a similar topic, can you just maybe talk about some of the investments that you need to make there and maybe just some of the differences in the skill sets that you're bringing along in terms of the type of labor and how easy or hard it is to go out and grow that skill set relative to what you brought in with power solutions in terms of electricians, et cetera?

Let me take the skill set one first, Stephen. This is, again, great synergy for our business. This is an opportunity for us to have a fungible workforce. So some of the work that National Technology Innovators does is union-based. Some of the work that they do in other markets is non-union. And in those non-union markets, that is very plungeable for what we're doing inside the best work. So we do have an ability to cross-train to augment staffing there. You know, I don't want to get too far ahead of all the investments that we'll make because, you know, right now we're working to close and bring them formally into the families. But similar to what we've done in other places, right? How do we augment that to really create an inflection in the growth opportunity, to give a different balance sheet, to give some different resources? And what we love about national technology integrators is that not only are they based in the DMV and have a lot of work there, but they're in these other markets, which are critical markets for what's going on in the data center space, markets like Texas. So that just gives us another ability to flex off of that and to continue to grow and think about How do we continue to increase the building segments part of our business overall?

Thank you very much.

Thank you. Our next question comes from the line of Michael Dudas with Vertical Research Partners. Your line is now open.

Good morning, Tali, Drew, Dan. Good morning. Dan, maybe you could share a little bit more of your thoughts. You mentioned you prepared marks about beads. the progress overall and how it's looking relative to when we could see some of that conversion into maybe backlog it into revenues, maybe second half this year into fiscal year 2028.

So we continue to make progress. And, you know, this is something that we've had a strategy going back, I think it's over four years now. And we've been partnering with the different states. We've had numerous conversations and tons of relationships across subgrantees. We still believe that we will see revenue in Q2 of this year. But really, and we've talked about this before, and it's unchanged. Think about that as a calendar 2027, when it really starts to take hold and get moving. You are going to see that different programs and different subgrantees start at different phases. You know, smaller programs can start sooner. That's why we believe we'll still see some revenue in Q2. And just a reminder, you know, this is not included in our outlook. So we really want people to think about B for this year as, potential uplift, and then really starting to take shape in calendar 2027. Excellent.

Thank you, Dan.

Thank you. Our next question comes from the line of Liam Burke with B-Riley Securities. Your line is now open.

Thank you. Dan, you mentioned in earlier comments that you're working more and more with your customers on longer-term projects and multi-year planning projects. Does that change the composition of the business to multi-year projects versus MSA?

So still mostly under MSAs or long-term agreements, Liam. I think if you look at our backlog, you know, our next 12 months, we had a significant backlog increase. Our next 12 months went up. But really what you see, again, is we're adding firepower into the out years, which, again, is a big positive for us. It allows us to plan, to be proactive, to continue to invest in the business and have really good foresight into what some of those bills are going to look like. So, you know, it's a big positive in our space to be talking about work and actually contracting work that's three or four years out.

Great. And on the data center volumes, are you seeing more activity? I mean, you talked about fiber to the home, but is there more activity over and above fiber to the home on data center activity on the local loop?

If you're talking about inside the fence and all the other fiber that's connected to that kind of middle mile, absolutely. It continues to grow. The conversations, and I feel like I say this every quarter, the conversations only continue to grow, and that really is true. And then specifically on the data center side, again, the demand has not abated whatsoever. In fact, it's only increasing. You can see that in our outlook. You can see that in our results. And you can see that in the confidence in us raising for the year in that segment as well. Great. Thank you, Dan.

Thank you. Our next question is a follow-up from the line of Manish Somaiya with Cantor Fitzgerald. Your line is now open. Manish, your line is open. Please check your mute button.

Hi, I'm sorry. Can you hear me?

We got you, Denise.

Okay, awesome. I appreciate that. Dan, I just have two follow-ups for you. One is on the building systems backlog. Should we assume sort of high teams margin in line with the 27 margin expectations, or is that different based on mix or customers, et cetera?

So, yes, that backlog is consistent. As you can see, their next 12 months and their – and we believe this will continue to be the case. Their next 12 months and their total backlog are very close numerically to each other. So, yes, the margin profile is very similar to what we saw in Q1.

Okay. And then secondly, obviously you talked about strong end markets, but I was wondering if there are any projects or work that you are essentially passing on – And if so, what are the big reasons for it? Is it execution? Is it pricing? Is it not meeting your hurdles? If you can just kind of give us a sense as to what's happening on the ground.

We're very pleased that we have strong partnerships with our customer set, and that's really what we're looking for, Manish. We want customers that understand the value of the skilled workforce, to understand the value of all the investments that DICOM has made to help deliver at a higher level for them, There are still people out there that are looking for low bid numbers, and that's just not where we play. We want to play in those longer-term agreements where we can really have input in how they think about their bills, how they think about their programs, how we can support that, have really good dialogue that allows us both, by frankly, to raise the bar together. So that's where we play. So, yes, there is work that we pass up. What I would tell you, we feel really good, again, not with what we've done from a skilled workforce, but really good about the growth that we saw in our headcount for the quarter and our continued growth through the year and the investments we're working there. So we don't believe that we're, you know, leaving any of these important bills behind. But at the same time, we are going to be selective on the pipeline.

Okay. I appreciate that, Dan. Thank you.

Thank you, and I'm sure no further questions from our phone lines. I'd now like to turn the conference back to Mr. Dan Kipavich for closing remarks.

I want to thank everybody for joining us today, and I want to thank our 20,000 teammates for their fantastic execution this quarter. Look forward to seeing you all in about three months. Thanks so much.

This concludes today's conference. Thank you for your participation. You may now disconnect.