Dycom Industries, Inc.
Q1 2015 Earnings Call Transcript

Published: 20 May 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Dycom Results Conference Call. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. I would now like to turn the conference over to your host President and CEO Mr. Steven Nielsen. Please go ahead sir.

[Steven Nielsen:]

Thank you Kylie. Good morning everyone. I would like to thank you for attending this conference call to review our third quarter fiscal 2015 results. During the call, we will be referring to a slide presentation, which can be found on our Web site, www.dycomind.com under the heading Events. Relevant slides will be identified by number throughout our presentation. Going to Slide 2, today we have on the call, Tim Estes, our Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer; and Rick Vilsoet, our General Counsel. Now, I will turn the call over to Rick Vilsoet.

[Rick Vilsoet:]

Thank you Steve. Referring to Slide 3, except for historical information, the statements made by Company management during this call may be forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including those relating to the Company's outlook, are based on management's current expectations, estimates and projections and involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in the Company's annual report on Form 10-K for the year ended July 26, 2014 and other periodic filings with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking statements. Steve?

[Steven Nielsen:]

Thanks Rick. Now moving to Slide 4, and a review of our third quarter results. As you review our results please note that we presented adjusted EBITDA, and certain revenue amounts excluding revenues from businesses acquired during the fourth quarter of fiscal 2014, and the first quarter of fiscal 2015 and revenues from stimulus funded projects, all of which are non-GAAP financial measures in our release and comments. See Slides 13 through 16 for a reconciliation of non-GAAP measures to GAAP measures. Revenue increased significantly year-over-year to $492.4 million, an increase of 15.5%. This quarter was impacted by broad increase and demand from our key customers particularly those deploying 1 gigabit wireline networks and those were we are growing core market share. These factors offset a decline and work for rural customers receiving stimulus funding. Gross margins increased 334 basis points as a percentage of revenue, reflecting a better mix of work types and broadly improved operating performance, while general and administrative expenses improved year-over-year decreasing 11 basis points. All of these factors produced adjusted EBITDA of $63 million or 12.8% of revenue and net income of $0.58 per share, compared to $0.23 in the year ago quarter. On April 24, we expanded our credit facility capacity to $600 million and extended its term to April 2020 further fortifying are already robust financial strength. Liquidity was solid in the quarter with cash and availability under a new credit facility totaling $401.9 million. And finally during the quarter we repurchased 275,000 shares of our common stock at an average price of $49.24 per share or $13.5 million. Now we will update our views of a significant and unprecedented industry and market driver which concretely impacted our business during the third quarter and continues to form an increasingly firm basis for our outlook. Going to Slide 5, today a number of major industry participants are deploying significant wireline networks across broad sections of the country. These newly deployed networks are generally designed to provision bandwidth enabling 1 gigabit speeds to individual consumers. Recently one industry participant articulated plans to deploy speeds beyond 1 gigabit. These industry developments are producing opportunities across a broad array of our existing customers which in aggregate are unprecedented to the industry. Currently we are providing engineering and design and aerial and underground construction services for 1 gigabit deployments. These services are being provided across the country in dozens of metropolitan areas to a number of customers. Revenues and opportunities driven by this new industry standard accelerated during the third quarter of 2015. Customer spending modulations have diminished and customers are publicly outlining multiyear initiatives. As network strategies affirm timing uncertainty has receded, we remain confident that our competitively unparalleled scale and market share as well as our robust financial strength position us well to deliver valuable services to our customers for those opportunities which have the highest likelihood of benefiting our shareholders. Now moving to slide six, during the quarter we experienced effects of an overall industry environment which showed clear signs of acceleration. Organic revenue grew 13.4% while revenue excluding services provided for stimulus funded projects grew organically at a rate of 18.6%. Our top five customers combined produced 62.2% of revenue, increasing 23.2% organically while all other customers increased 0.5% organically. Of note each one of our top five customers grew organically the first time this has occurred since the second quarter of fiscal 2008. AT&T was our largest customer at 21.3% of total revenue or 104.7 million, AT&T grew 14.1% organically year-over-year, growth in wireline services more than offset an expected year-over-year decline in wireless. Revenue from Century Link was 68.5 million or 13.9% of revenue, Century Link grew 18.9% organically. Revenue from Comcast was 65.2 million or 13.3% of revenue, Comcast was our third largest customer grew organically 25.8%. Verizon was Dycom's fourth largest customer for the quarter at 7.5% of revenue or 36.8 million, Verizon grew organically 9%. Revenue from a customer who has requested that we not disclose their identity was 31 million or 6.3% of revenue. It was our fifth largest customer. Going to slide 7, backlog at the end of the third quarter was 2.912 billion versus 2.986 billion at the end of the second quarter of 2015, a decrease of approximately 74 million. Of this backlog approximately 1.618 billion is expected to be completed in the next 12 months. Both backlog calculations reflect solid performance as we continue to book new work and renew existing work. We anticipate substantial future opportunities across a broad array of our customers. For Comcast we secured a renewed construction of maintenance agreements in California and Colorado with charter we renewed construction of maintenance agreements with Illinois, Missouri, Tennessee, North Carolina, South Carolina and Texas. From Century Link we secured construction services agreements for Minnesota and Washington. With Time Warner cable we renewed construction of maintenance service agreements in California, Arizona and Texas. And finally we secured construction service agreements from Windstream for New Mexico and Pennsylvania and engineering service agreements in Missouri and Arkansas. Headcount increased during the quarter to 10,852. Now I will turn the call over to Drew for his financial review and outlook.

[Drew DeFerrari:]

Thanks Steve and good morning everyone. Going to slide eight, contract revenues for Q3 of 2015 were 492.4 million and organic growth was at 13.4% reflecting growth from several key customers offset by declines on stimulus projects. Businesses acquired in the first quarter of 2015 and the fourth quarter of 2014 contributed in aggregate 8.9 million of revenue in the current period. Gross margins increased 334 basis points for the better mix of work types, lower fuel prices and improved productivity with more favorable weather compared to Q3 '14. G&A as a percent of revenue is slightly down year-over-year and reflects our scale of operations. Adjusted EBITDA increased to 12.8% of revenue or 63 million compared to 9.3% or 39.6 million in the year ago period. The strength of the performance this quarter resulted in earnings per share of $0.58 compared to $0.23 in Q3 '14. With the increase in pretax income during the year and projected for our fourth quarter our effective tax rate came in at 37.2% for Q3 which was favorable to our expectations. The difference in the effective rate contributed approximately $0.02 of EPS on the quarter compared to our previous expectations. We expect our Q4 effective tax rate to be 38.5%. Turning to slide 9, our cash flows and balance sheet continue to reflect the strength of our business and our liquidity is over 400 million with cash on hand and availability on our credit agreement. At the end of Q3 we entered into an amended five year $600 million credit agreement which includes the term loan of a 150 million and revolving facility of 450 million. We ended the quarter with the outstanding balance on the term loans and approximately 16.3 million drawn on a revolving facility. Operating cash flows of $40.3 million reflects solid earnings and changes in working capital. During Q3 our combined DSO's of AR and costs in excess of billings net declined by four days to 92 days as collections improved. During the quarter we collected approximately $7.1 million of past due balances from a customer on a stimulus project. This project is restarted and is progressing towards completion. Subsequent to the end of the quarter we received an additional $5.8 million from those customers. The remaining pass due balance is now $7.2 million which we expect to collect over the next couple of quarters. Capital expenditures net of disposals were $35.3 million and gross CapEx was approximately $38.1 million. We expect our net CapEx for fiscal 2015 to coming near $90 million reflecting robust opportunities in the business. During the quarter we spend $13.5 million to repurchase 275,000 shares of our common stock at an average price of $49.24 per share. Subsequent to the end of quarter we completed an acquisition of a small contractor in the upper mid-west for purchase price of approximately $6.8 million. Now going to our outlook on Slide 10. As we look ahead to Q4 we anticipate revenues which range from $550 million to $570 million. We expect firm and strengthening and market opportunities, increased demand by several large customers including 1 gigabit deployments and customers where we are growing core market share and lower revenue on stimulus projects as that program nears completion. Gross margin percentage is expected to expand and reflect a solid mix of customer growth opportunities. Total G&A costs are expected to range from 8.3% to 8.5% of revenue, reflecting our scale and higher performance based compensation, including share based award expense. Depreciation and amortization on a combined basis is expected to range from $24.9 million to $25.4 million. Interest expense is expected at approximately $6.8 million, other income from asset sales is expected to range from $1.3 million to $2.7 million; taxes are expected to be 38.5% for Q4 '15. The applicable factors are expected to generate an adjusted EBITDA margin percentage which expands from the Q4 '14 result and earnings which are currently expected to range from $0.74 to $0.82 per diluted share. We expect approximately 35 million diluted shares during Q4 '15 with shares gradually increasing in subsequent quarters. Now going to Slide 11, looking ahead to Q1 of fiscal 2016, our expectations currently reflect revenue growth of high single to low double-digits percent compared to Q1 '15 including revenues of recently acquired companies. We expect margins to increase over the Q1 '15 result. G&A expense is expected to decrease slightly to as a percentage of revenue year-over-year and include non-cash stock based compensation of approximately $4.5 million. Adjusted EBITDA margin percentage is currently expected to increase from Q1 '15. Other factors influencing results include depreciation and amortization on a combined basis which is expected to range from $25.3 million to $25.8 million, interest expense of approximately $6.8 million and other income from asset sales which ranges from $1.4 million to $1.8 million. Finally, as a result of our 52/53 week calendar, I'd like to remind you that our fiscal 2016 will include 53 weeks of operations. Q1, Q2 and Q3 will all have 13 weeks of operations and our fiscal Q4 of 2016 will have 14 weeks of operations. Now I will turn the call back to Steve.

[Steven Nielsen:]

Thanks Drew. Moving to Slide 12, within an improving economy we experienced the effects of a solid industry environment and capitalized on our significant strengths. First and foremost we maintained strong customer relationships throughout our markets. We continue to win and extend contracts at attractive pricing. Secondly, the strength of those relationships and the extensive market presence they have created has allowed us to be at the forefront of evolving industry opportunities. The end market drivers of these opportunities remain firm and are strengthening. Telephone companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1 gigabit high speed connections. These deployments are accelerating and impacting our business. Some of those telephone companies previously deploying fiber-to-the-node architectures are transitioning to fiber-to-the-home deployments, while others are beginning to provision video over their fiber-to-the-node architectures. Cable operators are continuing to deploy fiber to small and medium businesses and with increasing urgency. Some are doing so in anticipation of the customer sales process. Overall cable capital expenditures and new build opportunities are expanding; dramatically increased speeds to consumers are being planned. New projects resulting from the Connect America fund Phase 1 are deploying fiber deeper into rural networks. More are expected as new multi-year opportunities emerge through the balance of this calendar year. And customers are consolidating supply change creating opportunities for market share growth. Within this context, we believe we are uniquely positioned manage and capitalize the meaningful experience and improving industry environment to the benefit of our shareholders. We remain encouraged that our major customers possess significant financial strength and remain committed to multiyear capital spending initiatives, which in most cases are meaningfully accelerating and expanding in scope. We remain confident in our strategies and prospects for our Company, the capabilities of our dedicated employees and the experience of our management team as we grow our business in capitalization. Now Kelly, we will open the call for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question will come from the line of Tahira Afzal. Please go ahead from KeyBanc Capital Markets.

[Unidentified Analyst:]

This is Shawn on for Tahira today. So, I guess my first question is, just given that Dycom has clearly set a new pace of top line growth in the last two quarters and opportunities are continuing to accelerate and strengthen into beginning of 2016, how should we be thinking about sustainable organic growth rate going forward? Is that, high single to low double-digit outlook for 1Q '16 kind of a good way to think about long-term growth as well?

[Steven Nielsen:]

So Shawn, I think what we've always said in this business is that it is a people business, if you take our organic growth this quarter and as you look ahead to the fourth quarter and annualize it we are creating several hundred million dollar businesses each year and I think for us to make sure that we keep it under control, we're going to take a prudent view to growth. On the same hand, there are some pretty large opportunities that we see in prospect and as long as we are providing good service to customers, we'll step up when they ask us to. So, it's hard to say because as I said in my comments we're somewhat in pressure than it [page] in the industry, right now.

[Unidentified Analyst:]

Okay. Fair enough and secondly I couldn’t help but notice but growth really ticked up notably for your unnamed customer, so to the extent that you can comment, we'd love to get some color on what drove that jump following in, [what nuanced] the quarter and the second quarter?

[Steven Nielsen:]

Yes, after last quarter's call, we were at an investor conference on webcast and we had highlighted that we had worked through some administrative issues with that particular customer around this year's program and we expect it to pick up and it did. And I think it's that simple.

[Operator:]

Thank you. Next question line of Adam Thalhimer with BB&T Capital Markets. Please go ahead.

[Adam Thalhimer:]

I wanted to ask first about your all other customers that grew 0.5% organically in the quarter, what's going on there? Are you taking -- are you concentrating capacity on the top five customers or is there a catalyst such as the Connect America funds that might turn those other customers around?

[Steven Nielsen:]

I think Adam, if you look at the balance of the customers remember, we've had a year-over-year decline in stimulus and all of that decline would have been below the top five customers. So I think its stimulus related, to the extent as we've talked about last quarter, we saw a little bit softness on wireless and good portion of that business was below the top five customers. So I don't see anything more to read into that clearly as Connect America fund, decisions are made, there are certainly number of customers that were there some real opportunity although actually there is some real opportunity also in our top five customers. So really Connect America fund is opportunity across the board.

[Adam Thalhimer:]

And on the Connect America Fund, the carriers have until August to decide whether or not to take the money. What are your thoughts on if they do, and then how the timing plays out in terms of when you would actually see some construction out in the field?

[Steven Nielsen:]

So, there are customers, a number of our customers that have been speaking at conferences, that this is a good last 10 days, they get a view as the what they're thinking about and I think at least in two notable instances, senior management was very confident about taking most if not all of the Connect America fund that would be offered to them. I think they will work through the issue, as they've indicated over the summer and I think this fall, there should be some opportunities around engineering. Of course we're doing Connect America Phase I now and construction should be peaking with over the summer into the fall. So, I think we've got a good trajectory on that business right now.

[Adam Thalhimer:]

Great and then lastly just on the credit facility increase, is there anything to read into from that?

[Steven Nielsen:]

We were able to lower our borrowing cost and increase capacity in an environment where the growth of the business pretty significantly and we thought that was the right thing to do to support that growth and be there for our customers.

[Operator:]

Thank you. Will go next to the line of Christian Schwab with Craig-Hallum Capital. Please go ahead.

[Christian Schwab:]

Congratulations, guys, on another great quarter. Steve, I just have a question on a lack of clarity that you gave the last few quarters. On the one-gigabit full deployments, we categorize that as dozens of metropolitan areas. The last few quarters, we've talked about that going from 11 to 17. Do you have an actual number you can share with us there?

[Steven Nielsen:]

We're not, we actually have a number we know it's more than two dozen, right and Christian what we're trying to indicate there is we do live in a competitive world so we provided disclosure to help investors get comfortable with the emergence of the theme but it's here, we have senior executives of our customers going on CNBC and talking about one gigabit we have comments from another customer on their earnings call about deployments this year, next year and beyond and so from our perspective it's really becoming for lack of a better term business as usual and so for us given the number of customers were now working with the number of customers that are in prospect and talking about it publicly over an extended period of time we just decided to alter the disclosure in a way that helps investors but doesn’t overly help our competition.

[Christian Schwab:]

Great. Has the number of customers that you're dealing with expanded beyond last quarter?

[Steven Nielsen:]

Yes. That's correct.

[Christian Schwab:]

Okay. Perfect. As the scale and scope of the business expands, driven by -- we talked about as unprecedented wireline network spending. What is -- how should we be thinking about gross margins in the trajectory of that, as business continues to ramp? Could you walk us through some of the -- takes, so we can see what ultimately that number could be two or three years from now?

[Steven Nielsen:]

We haven't spoken in the past. To gross margins specifically. But more our thoughts on EBITDA. And we have been able to get to mid-teen EBITDA before. It is in an environment where we have to have good returns on capital because we are spending lots of money to support our customers. And so we want to make sure that we get -- not only a figure -- digger but better. On the same hand, we are not going to just push all of the levers -- to push all of the gross margin ahead, because we want to be fair to our customers. We have had decades long relationships. It is always a balancing act. Returns to attract capital, reward our shareholders. And at the same time, recognize that we need to keep the interest of our customers at balance.

[Operator:]

Thank you. Will go next to the line of Noelle Dilts of Stifel. Please go ahead.

[Noelle Dilts:]

Hi. Thanks guys and congratulations. My first question I want to just start on gross margin but a little bit more detail on the quarter. So, you talked about the mix of work being the driver of the strong improvement fuel and productivity. Can you help us give us sense of how that improvement broke up between those categories particularly the benefit you saw from fuel?

[Drew DeFerrari:]

Yes. Good morning, Noelle. So, fuel was a little over 2.5 million just from a price perspective year-over-year of benefit.

[Noelle Dilts:]

Okay. And then can you speak to just mix and productivity to some extent?

[Steven Nielsen:]

Yes. Noelle I think what we've talked about the fuel is we had winter weather in February and March and we were somewhat less impacted because we continue to see robust opportunities for performing aerial construction which is less weather effected, we also had good growth inside of our existing footprint and it’s always more productive to add resources and existing footprint where you have supervisors and safety folks and your yard facilities and warehousing all in place and so I really think that in addition to the fuel it's the ability given the broad scale of our footprint at this point that’s what really driving productivity and the mix.

[Noelle Dilts:]

Okay. And so my next question is somewhat related to that you have 13.4% organic growth your headcount was up 5.1% year-over-year it's been running relatively flat I mean how much more productivity do you think you can extract out of the current new current work force before you really have to start adding significantly?

[Steven Nielsen:]

Well. So, people always work more effectively when load goes up, over time goes up and if it's managed well we have good productivity. I think the other thing to keep in mind is as the business grows we will use sub-contractors because we want to be able to add to that add to our capability quickly and actually be able to utilize some of their capital assets, so that is in fact, is in part affecting the headcount also Noelle, so that we are adding subcontracted resources in addition to our own increases in headcount and improvements in productivity.

[Noelle Dilts:]

Okay, and then just quickly, can you disclose how much your wireless business was down in the quarter? I know you said it was expected but just if you could give us a sense of what you're seeing now?

[Steven Nielsen:]

Sure, it was about 7% of total revenue Noelle and so it was down call it $14-15 million year-over-year, a year ago was a pretty strong period and so not a big surprise given the general commentary in the industry.

[Operator:]

Thank you, we'll go next to the line of Jennifer Fritz with Wells Fargo.

[Jennifer Fritz:]

Thank you for taking the question, a few questions as the quarter. Steve if you can tell me -- cast one, you know you have a line of sight obviously you’ve worked here, can you tell me when those discussions started happening for that work. Like was it after they got the money, I'm just trying to get a bogey as to when we could begin to see that CAF 1. And then I don't know if you've disclosed this but AT&T has talked about rolling out 17 gigapower markets this year and can you tell us how much exposure you have to those 17 markets. And then just a bigger picture question last one, I think there's a real kind of people trying to connect the dots here cause we've seen the equipment players get really hit because of pullbacks from some of your largest customers, yet your numbers don't jive with that at all, I just wanted to pick your brain as to kind of any color you see in connecting those dots would be helpful.

[Steven Nielsen:]

So Jennifer I don't specifically remember when the CAF 1 money was accepted by our customers but I would say that we certainly have had discussions with them particularly those that had received stimulus dollars and so it's somewhat rolled from one activity to the other and clearly while we may have done some prepatory work prior to their formal acceptance, you know we did not start work on anything until they accepted that money. But there may have been planning activities that took place. With respect to the broadly the gigapower initiative with AT&T we have a broad exposure to that both from engineering which is throughout kind of the sun belt and then on construction in the southeast although we're doing other levels of activity around the country. So I think we have a pretty broad exposure to that initiative. And then with respect to the equipment manufacturers I think perhaps the market has been somewhat focused in the wrong direction, both of the largest supplier in North America to my understanding of fiber cable of primarily there's a telephone industry but also the cable reported 18% year-over-year growth. Another significant supplier to both industries was in excess of 10%, so given that our activities are primarily around creating the path that the fiber takes to the home I think our growth is just in line with cables that we're either putting on poles or in the ground. And perhaps some of the other equipment manufacturers are more subscriber related around ONTs and other type devices which will follow as our customers begin installing new customers, new subscribers.

[Operator:]

Thank you, [Operator Instructions] we'll go to the line of Simon Leopold of Raymond James, please go ahead.

[Unidentified Analyst:]

Hi guys, this is Victor in for Simon. I just wanted to start with a housekeeping question, could you round out the top ten customer list if you don't mind.

[Drew DeFerrari:]

Good morning Victor, Time Warner Cable was at number six at 4.7% of revenue, Windstream was number seven at 4.6%, Charter was number eight at 3%, Corning was number nine at 2.8% and Fairpoint Communications was number 10 at 1.6%, and then the split, TELCO was at 62.5%, cable was at 27.7%, facility locating customers at 6.2% and then electrical and other was at 3.6%.

[Unidentified Analyst:]

Great, thanks very much. I guess I just wanted to follow up off the previous question, I guess I just wanted to see if you could give us a little more color around this strength relative to the rest of the carrier exposed, vendors in the industry, I think even with the understanding that historically your business is directly synchronized with carrier CapEx and spending they still shared generally a rough relationship, so this is one, the first times that I can remember that there's been such a notable dichotomy between how bleak other vendors are kind of describing the industry right now and then how strong your results has been I guess. So I guess I'm just looking for more colors around what you think is unique about this particular period that slowing down of other spending isn't enough to offset the gigabyte deployments that you guys are seeing, I guess.

[Steven Nielsen:]

I think, [indiscernible] we'll kind of take it in pieces, so we are seeing a general weakness in wireless. We're actually starting to see some plans for next year and we are actually encouraged that '16 will, it appears at this point, not in just in our footprints so, maybe not more broadly but at least for us, will be up in '16 versus '15 but certainly down this year. And then with respect to other OEMs if we have fiber-optic cable manufactures who are reporting growth rates that are in excess of our organic growth rates, they are either shipping it in the warehouses or somebody's got to install it. So, I mean to me it's entirely consistent across the best indicators and then clearly we serve big customers and so our stand as a percent of their capital budgets is a small percentage and to the extent that we just happened to be blessed or fortunate to be providing services that are of a high level of importance to the customer then we're going to be in a good place and then we have our second largest customer who is been very aggressive making additional announcements about their G-PON initiative, we have our largest customer who's CEO went on TV and said that this fiber gigabit phenomenon would last past his retirement and he's a young man, so, there is a lot of work going on.

[Unidentified Analyst:]

Okay. I get that. So, I mean, should we just assume that the correlation going forward and in between what carriers -- discloses there -- they are intending on spending and how you guys perform, I mean that the correlation is just -- it's different now; any guesses to that?

[Steven Nielsen:]

I mean Victor I'm just struggling, I will take one more swing at it then we can move on. I mean if we have a customer says, we are going to do 2 million homes faster fiber and the budget's down and the 2 million is up from last year, I don’t know why you would be surprised that we would be up also; if we have another customer says they are going to do 700,000 homes faster fiber this year up from essentially none last year I don’t know why you are surprised, that our sales will be up with that customer. I guess their own comments are uncorrelated with their own capital budgets but I can't sort that out because we are too busy just getting the work done.

[Operator:]

We'll go next line of Alan Mitrani with Sylvan Lake Asset Management. Please go ahead.

[Alan Mitrani:]

Hi, thank you. Just a few questions, I see stimulus cost you about $22 million year-over-year, in terms of the drag versus the, what you reported the organic growth ex stimulus; if I remember correctly, next quarter is really the inflection point, we dropped down meaningfully from there.

[Steven Nielsen:]

Fourth quarter Alan is $18 million, the first quarter is $14 million and then it drops in the single-digit millions. So, yes, that’s correct.

[Alan Mitrani:]

Okay. And you expect unrealized cash, you know they have a certain time period to accept it but I know you have a decent estimation of where some of your customers lie in the conversations, once that starts coming in, that's calendar 2016 mostly?

[Steven Nielsen:]

The way the plan and we just know what the order says. So they have until the end of August to indicate what they are interested in accepting. And shortly thereafter they will actually be funded for '15, so in some way there'll be a cash flow in, planning process and some very preliminary engineering has to be done to help them to determine what they are going to accept and what stage, and so my expectation is that we get into the fall that there will be engineering opportunities and perhaps some very minor construction activities at the tail end of calendar Q4 with the wrap in '16. If you look at the cap order from the FCC, they have a pretty aggressive commitment that by the end of '17 -- calendar '17, 40% of the program must be constructed, so they'll be a pretty significant ramp through '16 to get to that objective.

[Alan Mitrani:]

That’s very helpful. So, using that as a springboard, can you just maybe talk about your views on capital structure and leverage. I saw that you bought back stock this quarter and you extended out your maturities, giving us some certainty. You are now at roughly 1.8 times trailing net debt to EBITDA and given where your EBITDA looks like it's going as well as the certainty that Cap is giving you from an underlying revenue perspective. It seems like your business can carry a little more leverage given you are going to delever fairly quickly but not sure, there is a reason to. Can you remind us where you feel comfortable with leverage, could you add or have internal leverage, minimal amounts in the next 12 to 18 months, while still funding all your CapEx and growth opportunities?

[Steven Nielsen:]

What we've already said Alan is particularly with respect to organic growth we're comfortable with some increased leverage because if you think about the credit quality of our customers, for us to help them by supplying working capital as we grow organically, we're very comfortable doing that, we're also comfortable with buying fixed assets because we don’t generally have highly specialized equipment so to the extent that as we grow for some reason in an unexpected way we had extra equipment, we just deploy it in the rest of the business or sell it. So I think we were very comfortable taking leverage up to the extent that we have substantial growth opportunities organically that require that. We certainly continue to look into small acquisitions and we're happy to do that. I think if you look at kind of our trajectory post the Quanta transaction we haven't completely delevered back to where we started but by the end of the calendar year we certainly be close, maybe be ahead and so what we understand and that creates capacity either to step up to substantial opportunities that require working capital or to the extent that we see value in the stock versus acquisition we can certainly do that too, so we're not range bound in terms of the target debt ratio or leverage ratio it depends on where the money is going.

[Alan Mitrani:]

Great. I appreciate that. Well two, three more quick things, one of Drew you said the bought a company post the quarter, what's expected revenues from that business you said you paid 6.8 million.

[Drew DeFerrari:]

That's isn’t significant 7 million to 8 million was a nice tuck in to an existing business.

[Alan Mitrani:]

Okay. And then the Comcast deal fell apart this past quarter but it seems like guys aren't waiting long to look at Time Warner. So Time Warner spending was down this quarter. Can you give us what's your take is on some of the consolidation that looks like it's going on even today there is an announcement of Suddenlink switching owners just give us your take on how that could play out for you, do you expect any sort of pause in sending as in the past has happened or is the competitive situation not too hard for these guys to stop?

[Steven Nielsen:]

I think with the respect to Time Warner they actually indicated on a full year basis their CapEx would be up in 2105 versus 2014 so there was some seasonality to their spend but we don’t expect any significant impact. I think with respect to broader M&A we're disappointed that the transaction was not able to happen but clearly Comcast has articulated just over the last week or two some very significant objectives around network deployments and we're growing with them rapidly so I think on a net-net basis M&A that may occur outside of Comcast shouldn’t have any significant impact on the overall company.

[Operator:]

Thank you. And we have a follow up from the line of Noelle Dilts of Stifel. Please go ahead.

[Noelle Dilts:]

Hi. Thanks guys. I just wanted to circle back to the first question of the Q&A but wanted to dig in to your first quarter 2016 preliminary guidance a bit you are talking about revenue growth in the high single to low double digits. I guess at that point I'm thinking stimulus to stimulus headwind will be rolling off a bit so it seem like obviously a step down from this quarter maybe could you just walk us through some of the puts and takes that are going into that into that guidance?

[Steven Nielsen:]

Hey Noelle as we look at the second quarter out we just want to make sure that we take an appropriately conservative view that cap money will be coming out there is some M&A in the broader industry and we just don’t want to get ahead of ourselves, we've got a lot of good things going on in the business and we just don’t want to get ahead of that.

[Noelle Dilts:]

Okay. And then second question goes back to your comments on whether in the quarter it sounds like you did have some weather headwinds in January and February. Obviously this move towards aerial impacted by that, but what you say there was somewhat of a weather headwind in the quarter had it not been for the challenging weather that many of your competitors have talked about?

[Steven Nielsen:]

January wasn’t our second quarter so they were some impact in February and actually into the first week of March. I think the patter that we saw is consistent with what we saw at other periods where we had two things, so lot of demand, not peak demand because obviously demand's growing but where we had lots of demand aggressive customer timelines somehow we seem to get through weather better in that demand environment then things are somewhat slower and then there is mix towards a work type that we're better able to prosecute in periods of poor weather so if you actually look back toward aerial construction for the cable operators was a bigger percentage of our business in the 90s we tended to have less seasonality in our Q2 and Q3 then we've had all to the last decade.

[Operator:]

Thank you. And a follow up from the line of Jennifer Fritz of Wells Fargo. Please go ahead.

[Jennifer Fritz:]

Great. Thank you. I just wanted to follow up on the cable question just bigger picture question if today the cable factor is about I think 3% to 27% of your revenue and do you look out and there clearly has been changes with the merger we followed happen now happening do you see that exposure growing or do you still see telecom representing to the various of its business?

[Steven Nielsen:]

We certainly would be happy if the grow there have been periods of time in mid to late 90s was about half of the business all of the cable operators were at an investor conference last week all talked about thinking about gigabit or gigabits as a product delivery, they've talked about plans going into '16 and beyond, I think when you're growing organically Jennifer, it's really a flow [indiscernible] question, so we'll be happy if it grew, we'll be happy for rest of our customers grew and if they're all growing and it's really just comparative analysis it's not really a substitutionary effect of one for another.

[Operator:]

Thank you. We have a follow up from the line of Adam Thalhimer with BB&T Capital Markets. Please go ahead.

[Adam Thalhimer:]

Thanks. Steve, you've mentioned that you guys are early looking at some of the wireless budget for 2016, just curious whether you’ve had an early look at any of the wire-line budgets.

[Steven Nielsen:]

So, we did not indicate that we have team ahead an early look at wireless project, what we've said is in our footprint as we think about planning and some of the objectives that have been that we've reviewed that we have a good feel but we don't know, what budgets are next year that's not for us to say, we just feel good in the footprint, we showed that '16 looks like it will be a better year. On the wire-line side, I think what we've commented on in the presentation was if we have customers articulating multiple year objectives, clearly, there is one merger that is near at hand and there have been some objectives that have been part of that regulatory review process, that I think can give you some insight in the next year and years beyond.

[Operator:]

Thank you. And we have a follow up from the line of Alan Mitrani with Sylvan Lake Asset Management. Please go ahead.

[Alan Mitrani:]

Hi, one last one for you Steve on the strategic look outs. I understand you got a lot of CapEx coming, understand about organic growth. Do you see any ancillary businesses, anything it will related of that might look interesting from M&A standpoint, in terms of -- I'm assuming lot of bankers are showing you lot of deals, at this point of time and maybe some other guys were owned by private equity are looking to come public or looking to sell out, can you just talk a bit about the M&A environment and where you might take this in the next couple of years?

[Steven Nielsen:]

There are certainly M&A opportunities to look at, I think we've primarily focused on organic growth given the magnitude of the opportunities that we see. I think we're positioned in as good as place as we could imagine over the next several years and so we really are just focused on doing a good job for the opportunities we have with customers that we've served for long time.

[Operator:]

Thank you. And at this time there are no further questions.

[Steven Nielsen:]

Well we thank everybody for your time and attendance and attention on the call and we look forward to speaking to you on our fourth quarter call at the end of August. Thank you.

[Operator:]

Thank you. And ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.