2023
ANNUAL
REPORT
THE PEOPLE
CONNECTING
AMERICA
TM
CORPORATE
PROFILE
Dycom Industries, Inc. is a leading provider of specialty contracting services to the telecommunications infrastructure and
utility industries throughout the United States. Since our incorporation in the State of Florida in 1969, we have expanded
our scope and service offerings organically and through acquisitions. Today, Dycom is made up of more than 40 operating
companies that serve a diverse customer base across 49 states from hundreds of field offices. Our deep industry knowledge,
strong customer relationships, broad geographic presence and skilled workforce provide the scale needed to quickly execute
on opportunities to service existing and new customers throughout urban and rural America.
Dycom’s operating companies supply telecommunications providers with a comprehensive portfolio of specialty services,
including program management; planning; engineering and design; aerial, underground, and wireless construction;
maintenance; and fulfillment services. Additionally, we provide underground facility locating services for various utilities,
including telecommunications providers, and other construction and maintenance services for electric and gas utilities. Dycom
supplies the expertise, labor, equipment, and tools necessary to provide services to our customers.
Engineering Services. We provide engineering services to telecommunications providers, including the planning and design
of aerial, underground, and buried fiber optic, copper, and coaxial cable systems that extend from the telephone company
hub location, or cable operator headend, to a consumer’s home or business. We also plan and design wireless networks
in connection with the deployment of new and enhanced macro cell sites and new small cell sites. Additionally, we obtain
rights of way and permits in support of our engineering activities and those of our customers and provide program and
project management and inspection personnel in conjunction with engineering services or on a stand-alone basis.
Dycom’s Nationwide Presence
Construction, Maintenance, and Installation Services. We provide a
range of construction, maintenance, and installation services, including
the placement and splicing of fiber, copper, and coaxial cables. We
excavate trenches to place these cables; place related structures,
such as poles, anchors, conduits, manholes, cabinets, and closures;
place drop lines from main distribution lines to a consumer’s home
or business; and maintain and remove these facilities. We provide
these services for both telephone companies and cable multiple
system operators in connection with the deployment, expansion, or
maintenance of new and existing networks. We also provide tower
construction, lines and antenna installation, foundation and equipment
pad construction, small cell site placement for wireless carriers,
and equipment installation and material fabrication and site testing
services. In addition, we provide underground facility locating services
for various utility companies, including telecommunications providers. Our underground facility locating services include
locating telephone, cable television, power, water, sewer, and gas lines. In addition, we install and maintain customer
premise equipment, such as digital video recorders, set top boxes and modems, for cable multiple system operators and
others. We also perform construction and maintenance services for electric and gas utilities and other customers.
Financial Highlights
The following financial information has been derived from the Company’s consolidated financial statements. This information should
be read in conjunction with the consolidated financial statements and the notes thereto contained in this Annual Report, as well as
the section of this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Revenues
Net income
Earnings per common share – diluted
Non-GAAP Adjusted earnings per common share – diluted
Weighted average number of common shares – diluted
Total assets
Long-term obligations
Stockholders’ equity
Number of employees
Fiscal 2023
Fiscal 2022
Fiscal 2021
In thousands, except earnings per common
share amounts and number of employees
$3,199,165
$3,130,519
$3,808,462
34,337
$
48,574
$
$ 142,213
1.07
$
1.57
$
4.74
$
2.54
$
1.52
$
4.74
$
29,997
32,091
30,844
$1,944,165
$2,118,224
$2,313,254
$ 684,367
$ 977,884
$ 974,948
$ 811,308
$ 758,544
$ 868,755
14,280
15,024
15,410
2023 Annual Report
3
DCHIMDDENJCTRIMANHVT DEAR FELLOW
SHAREHOLDERS
April 2023
As fiscal 2024 begins, we look back on a year of strong operating performance.
Despite difficulties created by macroeconomic conditions, we set records in
total annual contract revenue and organic revenue growth, improved margins,
and solidly deleveraged our balance sheet with significantly enhanced
liquidity. In this time of increased macroeconomic uncertainty, we remain
confident in the prospects for our company and the significant long term
growth opportunities that continue to exist for our industry.
In May 2021, we first outlined the supply constraints becoming visible in
our industry. Some regional labor shortages were emerging, particularly
for new hire unskilled/semi-skilled positions, and lead times for fiber optic
cable and equipment were lengthening. Throughout the balance of 2021,
those pressures intensified with labor becoming tight in most regions of the
country and extended delivery lead times for fiber optic cable and equipment
becoming the industry norm. In the second half of 2021, automotive supply
challenges emerged, particularly for the large truck chassis required for the
specialty equipment we use in part to grow our business. Delivery times
became extended and near-term availability very limited.
During fiscal 2023 (the twelve months ending January 2023) those supply
constraints as well as dramatic increases in fuel prices, resulted in escalating
costs. Field wages rose significantly, particularly for new hires, essentially
resetting the lower end of our wage scale throughout the country. Fiber optic
cable availability improved, but deliveries became more volatile in the short
to intermediate term, causing job inefficiencies. Automotive supply challenges
intensified with capital equipment prices increasing by more than 15 percent
year over year. Initially industry participants were slow to recognize these cost
pressures but as the year progressed, they increasingly understood that the
pressures were industry wide and needed to be addressed to ensure service
delivery. Internally, we reemphasized operating disciplines to measure and
manage idle running time for capital equipment to reduce fuel consumption
and enhanced our digital recruiting capabilities to expand our available labor
pool. When possible, we negotiated protection against inflationary increases
and when feasible and practical, shortened contract durations to reduce risk.
Even with this challenging backdrop, fiscal 2023 was a strong year. Total
contract revenue was $3,808.5 billion, an increase of $677.9 million. Organic
revenue growth of $681.8 million, represented an annual organic growth
rate of 21.8 percent. More impressive, organic growth was evenly distributed
across each quarter with first quarter organic growth of 21.1 percent, second
quarter 23.5 percent, third quarter 22.1 percent and fourth quarter organic
growth 20.5 percent. Revenue concentration, as measured by the percentage
of revenue generated by our top 5 customers, remained steady for the year,
dropping to below 66 percent in the fourth quarter. Total contract revenue
and organic revenue growth were both all time records while the annual
organic rate of 21.8 percent was the highest annual rate since fiscal 2016
when the company was over 30 percent smaller.
...we remain confident
in the prospects for
our company and the
significant long term
growth opportunities
that continue to exist
for our industry.
4
Dycom Industries, Inc.
Increasing revenue and growth were accompanied by materially improved
profitability during fiscal 2023. Diluted earnings per share (“EPS”) was
$4.74, increasing 212 percent from Non-GAAP Adjusted Diluted EPS for the
prior fiscal year. In addition, Adjusted EBITDA increased to $366.1 million
from $244.3 million, an increase of 49.8 percent year over year. Gross
margin increased 116 basis points to 17.0 percent while total general and
administrative expenses decreased 68 basis points to 7.7 percent. Interest
expense, net increased by over $7.5 million reflecting higher interest rates.
Profit before tax of 4.7 percent nearly tripled from the prior fiscal year. In a
year when inflationary pressures impacting the business were at levels last
seen 40 years ago, these operating results represent tight cost controls and
the focused effort of the entire management team.
Strong organic growth required significant investments in support of the needs
of our customers. Capital expenditures during the year were $201 million, an
increase of $44 million, the highest level in five years. This resulted from the
proactive management of automotive supply chain challenges throughout
the year and the foresight to initiate orders for new equipment much earlier
than we would have in prior years. Working capital (total current assets less
total current liabilities, excluding cash and equivalents and the current portion
of debt) increased $135 million to $816 million. Despite this investment in
working capital, operating cash flow finished the year strongly at $246 million
in the fourth quarter and $165 million for the year. Total liquidity consisting of
availability under our bank credit facility and cash on hand, finished the year at
$758 million, more than double the $352 million at the end of the prior year.
Increased financial flexibility allowed us to repurchase over 500 thousand
shares, reducing fully diluted shares at the end of the fourth quarter below
30 million for the first time since 1999. Of note, since we began repurchases in
September of 2001, we have retired over 27 million shares for an investment
of just over $900 million, a repurchase price of $33.84 per share. At a recent
share price of $95, this represents a gain of over $1.65 billion on the shares
retired, or approximately $61 per share.
In last year’s letter, we highlighted the tremendous increase in planned
deployments of fiber to the home networks by traditional wireline companies.
We reiterated our belief, first articulated in 2016, that eventually 100 to
105 million total locations throughout the country would be served by fiber
optic networks funded with non-governmental private capital. In addition, we
outlined the significant number of federal and state government programs
targeting broadband network deployments in rural America and the tens
of billions of dollars appropriated to fund these rural deployments. This
year’s organic growth largely resulted from the significant acceleration in
deployments that we so eagerly anticipated last year.
Not a surprise, last year’s planned deployments by traditional wireline
companies were met this year by very ambitious plans from the leading
cable multiple system operators (“MSO’s”). Over the last 10 to 15 years
these companies have garnered the vast majority of consumer and small
and medium business broadband subscriber growth. Through continued
investment in their hybrid fiber coaxial cable networks, higher and higher
speeds have been provisioned. Building on their robust existing infrastructure
and newly developed technical capabilities, leading cable MSO’s outlined
plans during the year to dramatically increase the downstream and upstream
bandwidth delivered by their networks over the next several years. These
plans are designed to enable multi-gigabit product offerings that rival those
offered by fiber optic networks.
The technical upgrades underway, will require the eventual replacement of
all of the outside electronic devices that manage the radio frequency signals
DEAR FELLOW SHAREHOLDERS
Total contract
revenue and organic
revenue growth were
both all time records...
...operating cash
flow finished the year
strongly at $246 million
in the fourth quarter
and $165 million for
the year.
2023 Annual Report
5
We are grateful
to our employees
who every day live
our mission “Serve
customers skillfully.
Deliver results with
discipline. Accountable
in all we do.”
that deliver information through a hybrid fiber coaxial cable network. These
devices consist of nodes where light signals carried by a fiber optic cable are
converted to radio frequency signals carried by coaxial cable and amplifiers
that boost the signals as they travel through the coaxial cable from a node
to an eventual subscriber. All told, millions and millions of these devices will
be physically replaced. In addition, as this technical work is performed some
construction will be required primarily to upgrade a portion of the coaxial
cable plant so as to ensure that the full capabilities of the new technical
upgrades are available. These upgrades present yet another multi-year
opportunity for our industry.
As traditional wireline companies and cable MSO’s upgrade their networks
to provision multi-gigabit bandwidth to consumers and small and medium
businesses, it is notable that consumer demand for 1 gigabit connections
more than doubled last year. Each quarter, industry analyst OpenVault
publishes a report showing the percentage of total broadband subscribers
connected at various speeds. Its most recent report showed that during the
fourth quarter of calendar 2022, 26% of consumers subscribed to a 1 gigabit
or more connections compared to 12% during the fourth quarter of calendar
2021. If this trend continues, strong consumer preference for 1 gigabit services
will ineluctably drive more network upgrades and deployments.
In contemplating the scope, scale, and duration of the opportunities our
industry enjoys, we are comforted by history that strongly indicates that
industry programs to enable higher capability networks generally grow in
size and duration. The deployment of a fiber to the home network by an
industry pioneer stands as a good case in point. Twenty years ago, this pioneer
initiated a broad fiber optic deployment with the articulated goal of passing
18 million or approximately 55 percent of the 33 million homes then in its
service territory. Over the years, this company sharpened its geographic focus,
divesting approximately 8 million homes through four separate transactions
but continued deploying within the territory it retained. Today this company
has deployed more than 17 million homes and plans to continue passing
approximately 500 thousand homes per year for the next few years. At this
pace, it may eventually pass 19 to 20 million homes, or approximately 75 to
80 percent of its current footprint. Both of the companies who acquired
territory from this pioneer are also aggressively deploying fiber optic networks
today. We believe this percentage level of deployment will eventually be
replicated by other traditional wireline companies across the country.
As we reflect on last year and contemplate this exciting future, we are
encouraged that our simple vision “To connect America” has never been
more critical for our country. We are grateful to our employees who every
day live our mission “Serve customers skillfully. Deliver results with discipline.
Accountable in all we do.” and want to thank our customers for their patience
when we occasionally fail to accomplish that mission. We will never finish
improving our business. We can always do better.
To my fellow directors and shareholders, thank you for your confidence. It is
much appreciated. And to Dwight Duke, our retiring director, thanks for your
12 years of service. I will always remember your industry insight, wise counsel,
and dedication.
Sincerely,
Steven Nielsen
President and Chief Executive Officer
6
Dycom Industries, Inc.
(Mark One)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Florida
(State or other jurisdiction of incorporation or organization)
59-1277135
(I.R.S. Employer Identification No.)
Commission File Number 001-10613
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
11780 US Highway 1, Suite 600
Palm Beach Gardens,
FL 33408
(Address of principal executive offices,
including zip code)
Registrant’s telephone number, including area code: (561) 627-7171
Title of Each Class
Common stock, par value $0.33 1/3 per share
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
DY
Name of Each Exchange on Which Registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒(cid:3)No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
☒ Accelerated filer
☐
☐ Smaller reporting company
☐ Non-accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)0 by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐(cid:3)No ☒
The aggregate market value of the common stock, par value $0.33 1/3 per share, held by non-affiliates of the registrant, computed by reference to the
closing price of such stock on the New York Stock Exchange on July 30, 2022, was $2,933,163,238.
There were 29,355,347 shares of common stock with a par value of $0.33 1/3 outstanding at February 28, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the registrant’s Proxy Statement for its 2023 Annual Meeting of Shareholders
Part of Annual Report on Form 10-K into which
incorporated
Parts II and III
Such Proxy Statement, except for the portions thereof which have been specifically incorporated by reference, shall not be deemed “filed” as part of this
Annual Report on Form 10-K.
Dycom Industries, Inc.
Table of Contents
Cautionary Note Concerning Forward-Looking Statements
Available Information
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART 11
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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4
10
20
20
20
20
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42
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
2
Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K, including any documents that may be incorporated by reference, may contain forward-
looking statements. Forward looking statements can be identified with words such as "believe," "expect," "anticipate,"
"estimate," "intend," "project," "forecast," "target," "outlook," "may," "should," "could," and similar expressions, as well as
statements written in the future tense. These statements, as well as any other written or oral forward-looking statements we may
make from time to time in other SEC filings or other public communications are intended to qualify for the "safe harbor" from
liability established by the Private Securities Litigation Reform Act of 1995. You should not consider forward-looking
statements as guarantees of future performance or results. When made, forward-looking statements are based on information
known to management at such time and/or management's good faith belief with respect to future events. Such statements are
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in our
forward-looking statements. Important factors, assumptions, uncertainties, and risks that could cause such differences include,
but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
projections of revenues, income or loss, or capital expenditures;
future economic conditions and trends in the industries we serve;
customer capital budgets and spending priorities;
our plans for future operations, growth and services, including contract backlog;
our plans for future acquisitions, dispositions, or fmancial needs;
expected benefits and synergies of businesses acquired and future opportunities for the combined businesses;
anticipated outcomes of contingent events, including litigation;
availability of capital;
restrictions imposed by our senior notes and credit agreement;
use of our cash flow to service our debt;
the effects of changes in tax law;
potential liabilities and other adverse effects arising from occupational health, safety, and other regulatory matters;
potential exposure to environmental liabilities;
determinations as to whether the carrying value of our assets is impaired;
assumptions relating to any of the foregoing;
duration and severity of widespread public health epidemics, including the coronavirus ("COVID-19") pandemic, and
their ultimate impact across our business;
other risks outlined in our periodic filings with the SEC; and
other factors that are discussed within Item 1. Business, Item 1A. Risk Factors and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.
Our forward-looking statements are expressly qualified in their entirety by this cautionary statement. We do not undertake
to update or revise forward-looking statements to reflect events or circumstances arising after the date of those statements or to
reflect the occurrence of anticipated or unanticipated events.
3
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any
amendments to those reports are available, free of charge, on our website, www.dycomind.com, as soon as reasonably
practicable after we file these reports with, or furnish these reports to, the SEC. All references to www.dycomind.com in this
report are inactive textual references only and information contained at that website is not incorporated herein and does not
constitute a part of this Annual Report on Form 10-K. In addition, the SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers, where you may obtain a copy of all of the materials we file
publicly with the SEC. The SEC website address is www.sec.gov.
Item 1. Business.
PART I
Dycom Industries, Inc. ("Dycom," the "Company," "we," or "us") is a leading provider of specialty contracting services to
the telecommunications infrastructure and utility industries throughout the United States. Since our incorporation in the State of
Florida in 1969, we have expanded our scope and service offerings organically and through acquisitions. Today, Dycom is
made up of more than 40 operating companies that serve a diverse customer base across 49 states from hundreds of field
offices. Our deep industry knowledge, strong customer relationships, broad geographic presence and skilled workforce provide
the scale needed to quickly execute on opportunities to service existing and new customers throughout urban and rural America.
Dycom's operating companies supply telecommunications providers with a comprehensive portfolio of specialty services,
including program management; planning; engineering and design; aerial, underground, and wireless construction;
maintenance; and fulfilhnent services. Additionally, we provide underground facility locating services for various utilities,
including telecommunications providers, and other construction and maintenance services for electric and gas utilities. Dycom
supplies the expertise, labor, equipment, and tools necessary to provide services to our customers.
Engineering Services. We provide engineering services to telecommunications providers, including the planning and
design of aerial, underground, and buried fiber optic, copper, and coaxial cable systems that extend from the telephone
company hub location, or cable operator headend, to a consumer's home or business. We also plan and design wireless
networks in connection with the deployment of new and enhanced macro cell and new small cell sites. Additionally, we obtain
rights of way and permits in support of our engineering activities and those of our customers and provide program and project
management and inspection personnel in conjunction with engineering services or on a stand-alone basis.
Construction, Maintenance, and Installation Services. We provide a range of construction, maintenance, and installation
services, including the placement and splicing of fiber, copper, and coaxial cables. We excavate trenches to place these cables;
place related structures, such as poles, anchors, conduits, manholes, cabinets, and closures; place drop lines from main
distribution lines to a consumer's home or business; and maintain and remove these facilities. We provide these services for
both telephone companies and cable multiple system operators in connection with the deployment, expansion, or maintenance
of new and existing networks. We also provide tower construction, lines and antenna installation, foundation and equipment
pad construction, small cell site placement for wireless carriers, and equipment installation and material fabrication and site
testing services. In addition, we provide underground facility locating services for various utility companies, including
telecommunications providers. Our underground facility locating services include locating telephone, cable television, power,
water, sewer, and gas lines. In addition, we install and maintain customer premise equipment, such as digital video recorders,
set top boxes and modems, for cable multiple system operators and others. We also perform construction and maintenance
services for electric and gas utilities and other customers.
Business Strategy
Capitalize on Long-Term Growth Drivers. We are well-positioned to benefit from the increased demand for network
telecommunications bandwidth that is necessary to ensure reliable video, voice, and data services. Developments in consumer
and business applications within the telecommunications industry, including advanced digital and video service offerings,
continue to increase demand for greater wireline and wireless network capacity and reliability. Telecommunications network
operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and
businesses in order to respond to consumer demand, competitive realities, and public policy support. Additionally, wireless
carriers are upgrading their networks and contemplating next generation mobile solutions in response to the significant demand
for wireless broadband, driven by the proliferation of smart phones, mobile data devices and other advances in technology.
Increasing wireless data traffic and emerging wireless technologies are driving wireline deployments in many regions of the
4
United States. Furthermore, significant consolidation and merger activity among telecommunications providers could also
provide increased demand for our services as networks are integrated.
Selectively Increase Market Share. We believe our reputation for providing high quality services and the ability to provide
those services nationally creates opportunities to expand market share. Our operating structure and multiple points of contact
within customer organizations positions us favorably to win new opportunities and maintain strong relationships with our
customers. We are able to address larger customer opportunities due to our significant financial resources that some of our
comparatively more capital-constrained competitors may be unable to take on.
Pursue Disciplined Financial and Operating Strategies. We manage the financial aspects of our business by centralizing
certain activities that allow us to leverage our scope and scale and reduce costs. We have centralized functions, such as
information technology, legal, risk management, treasury, tax, the approval of capital equipment procurements, and the design
and administration of employee benefit plans. In contrast, we decentralize the recording of transactions and the financial
reporting necessary for timely operational decisions. This operating structure promotes greater accountability for business
outcomes by our local managers. Our local managers are responsible for marketing, field operations, and ongoing customer
service, and are empowered to capture new business and execute contracts on a timely and cost-effective basis. Executive
management supports the local marketing efforts while also marketing at a national level. This operating structure enables us to
benefit from our scale while retaining the organizational agility necessary to compete with smaller, regional and privately
owned competitors.
Pursue Selective Acquisitions. We pursue acquisitions that are operationally and financially beneficial for the Company as
they provide incremental revenue, geographic diversification, and complement existing operations. We generally target
companies for acquisition that have defensible leadership positions in their market niches, the opportunity to generate
profitability that meets or exceeds industry averages, proven operating histories, sound management and certain clearly
identifiable cost synergies.
Fiscal Year
Our fiscal year ends on the last Saturday in January. As a result, each fiscal year consists of either 52 weeks or 53 weeks of
operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2023, fiscal 2022, fiscal 2020, and
fiscal 2019 each consisted of 52 weeks of operations. Fiscal 2021 consisted of 53 weeks of operations. Fiscal 2024 will consist
of 52 weeks of operations.
Customer Relationships
We have established relationships with many leading telecommunications providers, including telephone companies, cable
multiple system operators, wireless carriers, telecommunication equipment and infrastructure providers, as well as electric and
gas utilities. Our customer base is highly concentrated, with our top five customers during fiscal 2023, fiscal 2022, and fiscal
2021, accounting for approximately 66.7%, 66.2%, and 74.1%, of our total contract revenues, respectively. During fiscal 2023,
we derived approximately 25.2% of our total contract revenues from AT&T Inc., 12.7% from Lumen Technologies Inc., 11.3%
from Comcast Corporation, 9.1% from Verizon Communications, Inc., and 8.5% from Frontier Communications Corporation.
We believe that a substantial portion of our total contract revenues and operating income will continue to be generated from a
concentrated group of customers and that the identity and proportion of our contract revenues arising from our work for our top
five customers will fluctuate.
We serve our markets locally through dedicated and experienced personnel. Our sales and marketing efforts are the
responsibility of the management teams of our operating companies. These teams possess intimate knowledge of their particular
markets, allowing us to be responsive to customer needs. Executive management supports these efforts, both at the local and
national levels, focusing on contacts with the appropriate personnel within our customers' organizations.
We perform a significant amount of our services under master service agreements and other contracts that contain
customer-specified service requirements. These agreements include discrete pricing for individual tasks. We generally possess
multiple agreements with each of our significant customers. To the extent that such agreements specify exclusivity, there are
often exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other
service providers, the performance of work with the customer's own employees, and the use of other service providers when
jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience.
Historically, multi-year master service agreements have been awarded primarily through a competitive bidding process;
however, occasionally we are able to negotiate extensions to these agreements. We provide the remainder of our services
pursuant to contracts for specific projects. These contracts may be long-term (with terms greater than one year) or short-term
5
(with terms less than one year) and often include customary retainage provisions under which the customer may withhold 5% to
10% of the invoiced amounts pending project completion and closeout.
Cyclicality and Seasonality
The cyclical nature of the industry we serve affects demand for our services. The capital expenditure and maintenance
budgets of our customers, and the related timing of approvals and seasonal spending patterns, influence our contract revenues
and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to,
overall economic conditions, including the cost of capital, the introduction of new technologies, our customers' debt levels and
capital structures, our customers' financial performance, and our customers' positioning and strategic plans. Other factors that
may affect our customers and their capital expenditure budgets include new regulations or regulatory actions impacting our
customers' businesses, merger or acquisition activity involving our customers, and the physical maintenance needs of our
customers' infrastructure.
Our contract revenues and results of operations exhibit seasonality and are impacted by adverse weather changes as we
perform a significant portion of our work outdoors. Consequently, adverse weather, which is more likely to occur with greater
frequency, severity, and duration during the winter, as well as reduced daylight hours, impact our operations during the fiscal
quarters ending in January and April. Additionally, extreme weather conditions such as major or extended winter storms,
droughts and tornados, and natural disasters, such as floods, hurricanes, tropical storms, whether as a result of climate change or
otherwise, could also impact the demand for our services, or impact our ability to perform our services. Also, several holidays
fall within the fiscal quarter ending in January, which decreases the number of available workdays in this fiscal quarter.
Because of these factors, we are most likely to experience reduced revenue and profitability or losses during the fiscal quarters
ending in January and April compared to the fiscal quarters ending in July and October.
Backlog
Our backlog is an estimate of the uncompleted portion of services to be performed under contractual agreements with our
customers and totaled $6.141 billion and $5.822 billion at January 28, 2023 and January 29, 2022, respectively. We expect to
complete 56.3% of the January 28, 2023 total backlog during the next 12 months. Our backlog represents an estimate of
services to be performed pursuant to master service agreements and other contractual agreements over their terms. These
estimates are based on contract terms and evaluations regarding the timing of the services to be provided. In the case of master
service agreements, backlog is estimated based on the work performed in the preceding 12 month period, when applicable.
When estimating backlog for newly initiated master service agreements and other long and short-term contracts, we also
consider the anticipated scope of the contract and information received from the customer during the procurement process and,
where applicable, other ancillary information. The majority of our backlog comprises services under master service agreements
and other long-term contracts.
Generally, our customers are not contractually committed to procure specific volumes of services. Contract revenue
estimates reflected in our backlog can be subject to change due to a number of factors, including contract cancellations or
changes in the amount of work we expect to be performed. In addition, contract revenues reflected in our backlog may be
realized in different periods from those previously anticipated due to these factors as well as project accelerations or delays due
to various reasons, including, but not limited to, changes in customer spending priorities, project cancellations, regulatory
interruptions, scheduling changes, commercial issues, such as permitting, engineering revisions, job site conditions and adverse
weather. The amount or timing of our backlog can also be impacted by the merger or acquisition activity of our customers. All
of our contracts may be cancelled by our customers, and work previously awarded to us pursuant to these contracts may be
cancelled, regardless of whether or not we are in default. Historically, the amount of backlog related to uncompleted projects in
which a provision for estimated losses was recorded has not been material.
Backlog is not a measure defined by United States generally accepted accounting principles ("GAAP") and should be
considered in addition to, but not as a substitute for information provided in accordance with GAAP. Participants in our
industry also disclose a calculation of their backlog; however, our methodology for determining backlog may not be
comparable to the methodologies used by others. We utilize our calculation of backlog to assist in measuring aggregate awards
under existing contractual relationships with our customers. We believe our backlog disclosures will assist investors in better
understanding this estimate of the services to be performed pursuant to awards by our customers under existing contractual
relationships.
6
Competition
The specialty contracting services industry in which we operate is highly fragmented and includes a large number of
participants. We compete with several large multinational corporations and numerous regional and privately owned companies.
In addition, a portion of our customers directly perform many of the same services that we provide. Relatively few barriers to
entry exist in the markets in which we operate. As a result, any organization that has adequate financial resources, access to
technical expertise, and the necessary equipment may become a competitor and the degree to which an existing competitor
participates in the markets that we operate may increase rapidly. The principal competitive factors for our services include
geographic presence, quality of service, worker and general public safety, price, breadth of service offerings, and industry
reputation. We believe that we compare favorably to our competitors when evaluated against these factors.
Human Capital Resources
We believe that our employees are our most important resources and are critical to our continued success. We employed
approximately 15,410 persons as of January 28, 2023. We focus significant attention on attracting and retaining talented and
experienced individuals to manage and support our operations. We offer our employees a broad range of company-paid
benefits, and we believe our compensation package and benefits are competitive with others in our industry. We are committed
to hiring, developing and supporting a diverse and inclusive workplace.
Each employee, officer and director of the Company must adhere to the highest standards of business ethics when dealing
with each other and with customers, suppliers and all other persons as outlined in our Code of Business Conduct and Ethics and
our Code of Ethics for Senior Financial Officers (collectively, the "Code of Conduct"). The Code of Conduct requires all
employees to conduct all business dealings with honesty and candor and with respect for the law and the highest standard of
ethical behavior. Personal integrity, good faith and fair dealing, the respectful treatment of others, and all other attributes of
good behavior are essential for our employees, but special responsibility to uphold these values rests on our officers, managers
and supervisors as they establish the climate for all other employees. Officers, managers and supervisors are required to create a
work environment that encourages employees to discuss concerns without fear of retaliation. Should potential violations of the
Code of Conduct or the law occur, employees are encouraged to voice concerns promptly and are reminded that retaliation
against anyone who reports a potential violation in good faith will not be tolerated. All employees are required to complete the
training on the Code of Conduct and Ethics, and we report material matters related to the Code of Conduct to the Audit
Committee of our Board.
The success of our business is fundamentally connected to the safety and well-being of our people. We are committed to
instilling safe work habits through proper training and supervision of our employees and expect adherence to safety practices
that ensure a safe work environment. Our safety programs require employees to participate both in safety training required by
law and training that is specifically relevant to the work they perform. Safety directors review incidents, examine trends, and
implement changes in procedures to address safety issues.
Our Board of Directors, through our Compensation Committee and our Corporate Governance Committee, provides
oversight on employee matters. The Compensation Committee receives updates on activities, strategies and initiatives related to
the compensation and retention of our employees, and our Corporate Governance Committee oversees environmental, social
and human capital matters, as well as the development and succession planning of senior management.
Subcontractors and Materials
We contract with subcontractors to perform a significant amount of our work and to manage fluctuations in work volumes
and to reduce the amount we expend on fixed assets and working capital. These subcontractors are typically small, privately
owned companies that provide their own employees, vehicles, tools and insurance coverage. No individual subcontractor is
fmancially significant to the Company.
For a majority of the contract services we perform, we are provided the majority of the required materials by our
customers. Because our customers retain the financial and performance risk associated with materials they provide, we do not
include the costs associated with those materials in our contract revenues or costs of earned revenues. Under contracts that
require us to supply part or all of the required materials, we typically do not depend upon any one source for those materials.
Risk Management and Insurance
Claims arising in our business generally include workers' compensation claims, various general liability and damage
claims, and claims related to motor vehicle collisions, including personal injury and property damage. For claims within our
7
insurance program, we retain the risk of loss, up to certain limits, for matters related to automobile liability, general liability
(including damages associated with underground facility locating services), workers' compensation, and employee group
health. Additionally, within our aggregate coverage limits and above our base layer of third-party insurance coverage, we have
retained the risk of loss at certain levels of exposure. We carefully monitor claims and actively participate with our insurers and
our third-party claims administrator in determining claims estimates and adjustments. We accrue the estimated costs of claims
as liabilities, and include estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to
year, insurance accruals have varied and can affect our operating margins. Our business could be materially and adversely
affected if we experience an increase of insurance claims at certain amounts, or in excess of our coverage limits. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 10, Accrued Insurance
Claims, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Regulation
We are subject to various federal, state, and local government regulations, including laws and regulations relating to
environmental protection, work-place safety, and other business requirements.
Environmental. A significant portion of the work we perform is associated with the underground networks of our
customers and we often operate in close proximity to pipelines or underground storage tanks that may contain hazardous
substances. We could be subject to potential material liabilities in the event we fail to comply with environmental laws or
regulations or if we cause or are responsible for the release of hazardous substances or cause other environmental damages. In
addition, failure to comply with environmental laws and regulations could result in significant costs including remediation
costs, fines, third-party claims for property damage, loss of use, or personal injury, and, in extreme cases, criminal sanctions.
Workplace Safety. We are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and
comparable state statutes that regulate the protection of the health and safety of workers. Our failure to comply with OSHA or
other workplace safety requirements could result in significant liabilities, fines, penalties, or other enforcement actions and
affect our ability to perform the services that we have been contracted to provide to our customers.
Business. We are subject to a number of state and federal laws and regulations, including those related to utility oversight
contractor licensing and the operation of our fleet. If we are not in compliance with these laws and regulations, we may be
unable to perform services for our customers and may also be subject to fines, penalties, and the suspension or revocation of our
licenses.
Information About Our Executive Officers
The following table sets forth certain information concerning the Company's executive officers as of January 28, 2023, all
of whom serve at the pleasure of the Board of Directors.
Name
Age
Office
Steven E. Nielsen
59 Chairman, President and Chief Executive Officer
Executive Officer Since
February 26, 1996
Daniel S. Peyovich
47 Executive Vice President and Chief Operating Officer
January 6, 2021
H. Andrew DeFerrari
54 Senior Vice President and Chief Financial Officer
Jason T. Lawson
52 Vice President and Chief Human Resources Officer
November 22, 2005
October 10, 2022
Ryan F. Umess
50 Vice President, General Counsel and Corporate Secretary
May 21, 2019
There are no arrangements or understandings between any executive officer of the Company and any other person pursuant
to which any executive officer was selected as an officer of the Company. There are no family relationships among the
Company's executive officers.
Steven E. Nielsen has been the Company's President and Chief Executive Officer since March 1999. Prior to that,
Mr. Nielsen was President and Chief Operating Officer of the Company from August 1996 to March 1999, and Vice President
from February 1996 to August 1996.
Daniel S. Peyovich has been the Company's Executive Vice President and Chief Operating Officer since May 2021. Prior
to that, Mr. Peyovich was the Company's Executive Vice President of Operations. Before joining the Company in January
2021, Mr. Peyovich spent 21 years in various leadership and management roles at Balfour Beatty Construction, including
serving as President of its Northwest Division since 2013.
8
H Andrew DeFerrari has been the Company's Senior Vice President and Chief Financial Officer since April 2008. Prior to
that, Mr. DeFerrari was the Company's Vice President and Chief Accounting Officer since November 2005 and was the
Company's Financial Controller from July 2004 through November 2005. Mr. DeFerrari was previously a senior audit manager
with Ernst & Young Americas, LLC.
Jason T. Lawson has been the Company's Vice President and Chief Human Resources Officer since October 2022. Prior to
joining the Company, Mr. Lawson held various leadership positions in human resources for Installed Building Products (IBP),
one of the nation's leading installers of insulation and other building products, where he most recently served as IBP's Vice
President of Human Resources.
Ryan F. Urness has been our Vice President and General Counsel since October 2018, and our Corporate Secretary since
May 2019. Prior to that, from May 2016 through October 2018, Mr. Urness was General Counsel and Corporate Secretary of
USI Building Solutions, a provider of installation and distribution services to commercial and residential construction markets.
From 2003 until May 2016, Mr. Umess was General Counsel and Corporate Secretary of Speed Commerce, Inc., a provider of
e-commerce technology and fulfillment services.
9
Item 1A. Risk Factors.
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties
described below. You should read the following risk factors carefully in connection with evaluating our business and the
forward-looking information contained in this Annual Report on Form 10-K If any of the risks described below, or
elsewhere in this Annual Report on Form 10-K were to occur, our financial condition and results of operations could suffer
and the trading price of our common stock could decline. Additionally, if other risks not presently known to us, or that we
do not currently believe to be significant, occur or become significant, our financial condition and results of operations
could suffer and the trading price of our common stock could decline.
Risks Related to Financial Performance or General Economic Conditions
Economic downturns, uncertain economic conditions, and capital market fluctuations may affect our customers'
spending on the services we provide. Macroeconomic conditions, including inflation, slower growth or recessionary
conditions, changes to fiscal and monetary policy, availability of credit, and interest rates could materially adversely affect
demand for our services and the availability and cost of the materials and equipment we need to deliver our services.
During periods of elevated and prolonged economic uncertainty our customers may delay, reduce or eliminate their
spending on the services we provide. In addition, volatility in the debt or equity markets may impact our customers' access
to capital and result in the reduction or elimination of spending on the services we provide. Our vendors, suppliers and
subcontractors may also be adversely affected by these conditions. These conditions, which can develop rapidly, could
adversely affect our revenues, results of operations, and liquidity.
We derive a significant portion of our revenues from a small number of customers, and the loss of one or more of these
customers could adversely affect our revenues, results of operations, and liquidity. Our customer base is highly
concentrated, with our top five customers during fiscal 2023, fiscal 2022, and fiscal 2021 accounting for approximately
66.7%, 66.2%, and 74.1%, of our total contract revenues, respectively. Our industry is highly competitive and the revenue
we expect from an existing customer in any market could fail to be realized if competitors who offer comparable services
to our customers do so on more favorable terms or have a better relationship with a customer. Additionally, the continued
consolidation of the telecommunications industry could result in the loss of a customer if, as a result of a merger or
acquisition involving one or more of our customers, the surviving entity chooses to use one of our competitors for the
services we currently provide.
The capital and operating expenditure budgets and seasonal spending patterns of our customers affect demand for our
services. Generally, our customers have no obligation to assign specific amounts of work to us. Customers decide to
engage us to provide services based on, among other things, the amount of capital they have available and their spending
priorities. Our customers' capital budgets may change for reasons over which we have no control. These changes may
occur quickly and without advance notice. Any fluctuation in the capital or operating expenditure budgets and priorities of
our customers could adversely affect our revenues, results of operations, and liquidity.
Pandemics and public health emergencies could materially disrupt our business and negatively impact our operating
results, cash flows and financial condition. Pandemics and public health emergencies, such as the COVID-19 pandemic,
may impact our operating results, cash flows and fmancial condition in ways that are uncertain, unpredictable and outside
of our control. The extent of the impact of such an event depends on the severity and duration of the public health
emergency or pandemic, as well as the nature and duration of federal, state and local laws, orders, rules, emergency
temporary standards, regulations and mandates, together with protocols and contractual requirements implemented by our
customers, that may be enacted or newly enforced in response. Additionally, our ability to perform our work during such
an event may be dependent on the governmental or societal responses to these circumstances in the markets in which we
operate. A pandemic or public health emergency is likely to heighten and exacerbate the risks described herein. We
experienced many of these risks in connection with the COVID-19 pandemic. Any resurgence of infection rates or the
spread of new variants or viruses could trigger a return of many of the risks and circumstances we experienced in
connection with the COVID-19 pandemic, which could adversely affect our revenues, results of operations, and liquidity.
Seasonality and adverse weather conditions affect demand for our services. Our contract revenues and results of
operations exhibit seasonality and are impacted by adverse weather changes as we perform a significant portion of our
work outdoors. Consequently, adverse weather, which is more likely to occur with greater frequency, severity, and duration
during the winter, as well as reduced daylight hours, impact our operations during the fiscal quarters ending in January and
April. Additionally, extreme weather conditions such as major or extended winter storms, droughts and tornados, and
natural disasters, such as floods, hurricanes, tropical storms, whether as a result of climate change or otherwise, could also
impact the demand for our services, or impact our ability to perform our services. Also, several holidays fall within the
10
fiscal quarter ending in January, which decreases the number of available workdays in this fiscal quarter. Because of these
factors, we are most likely to experience reduced revenue and profitability or losses during the fiscal quarters ending in
January and April compared to the fiscal quarters ending in July and October.
We derive a significant portion of our revenues from multi-year master service agreements and other long-term
contracts which our customers may cancel at any time or may reschedule or modify previously assigned work The
majority of our long-term contracts are cancellable by our customers with little or no advance notice and for any, or no,
reason. Our customers may also have the right to cancel or remove assigned work without canceling the contract or to
reschedule or modify previously assigned work. In addition, these contracts typically include a fixed term that is subject to
renewal or rebid on a periodic basis. We may be unsuccessful in securing contracts when their fixed terms expire. Our
projected revenues assume that definitive work orders have been, or will be, issued by our customer, and that the work will
be completed. The potential loss of work under master service agreements and other long-term contracts, or the
rescheduling or modification of previously assigned work by a customer, could adversely affect our results of operations,
cash flows, and liquidity, as well as any projections we provide.
Our contracts contain provisions that may require us to pay damages or incur costs if we fail to meet our contractual
obligations. If we do not meet our contractual obligations our customers may look to us to pay damages or pursue other
remedies, including, in some instances, the payment of liquidated damages. Additionally, if we fail to meet our contractual
obligations, or if our customer anticipates that we cannot meet our contractual obligations, our customers may, in certain
circumstances, seek reimbursement from us to cover the incremental cost of having a third party complete or remediate our
work. Our results of operations could be adversely affected if we are required to pay damages or incur costs as a result of a
failure to meet our contractual obligations.
Our backlog is subject to reduction or cancellation, and revenues may be realized in different periods than initially
reflected in our backlog. Our backlog includes the estimated uncompleted portion of services to be performed under master
services agreements and other contractual agreements with our customers. These estimates are based on, among other
things, contract terms and projections regarding the timing of the services to be provided. In the case of master service
agreements, backlog is calculated using as an input the amount of work performed in the preceding 12 month period, when
applicable. Backlog for newly initiated master service agreements and other long and short-term contracts is estimated
using the anticipated scope of the contract and information received from the customer in the procurement process.
Generally, our customers are not contractually committed to procure specific volumes of services. Contract revenue
estimates reflected in our backlog can be subject to change due to a number of factors, including contract cancellations or
changes in the amount of work we expect to be performed. In addition, contract revenues reflected in our backlog may be
realized in different periods from those previously anticipated due to these factors as well as project accelerations or delays
due to various reasons, including, but not limited to, changes in customer spending priorities, project cancellations,
regulatory interruptions, scheduling changes, commercial issues, such as permitting, engineering revisions, job site
conditions and adverse weather. The amount or timing of our backlog can also be impacted by the merger or acquisition
activity of our customers. Our estimates of our customers' requirements during a future period may prove to be inaccurate.
As a result, our backlog as of any particular date is an uncertain estimate of the amount of, and timing of, future revenues
and earnings.
We have a significant amount of accounts receivable and contract assets, which could become uncollectible. We
extend credit to our customers because we perform work under contracts prior to being able to bill for that work.
Deteriorating conditions in the industries we serve, bankruptcies, or financial difficulties of a customer or within the
telecommunications sector generally may impair the fmancial condition of one or more of our customers and hinder their
ability to pay us on a timely basis or at all. In addition, although in some instances we may have the right to file liens for
certain projects, we may not be successful in enforcing those liens. The failure or delay in payment by one or more of our
customers could reduce our cash flows and adversely affect our liquidity and results of operations.
Our profitability is based on delivering services within the estimated costs established when we price our contracts. A
significant portion of our services are provided under contracts that have discrete pricing for individual tasks. Due to the
fixed price nature of the tasks, our profitability could decline if our actual cost to complete each task exceeds our original
estimates, as pricing under these contracts is determined based on estimated costs established when we enter into the
contracts. A variety of factors could negatively impact the actual cost we incur in performing our work, such as changes
made by our customers to the scope and extent of the services that we are to provide under a contract, delays resulting from
weather and the COVID-19 pandemic, conditions at work sites differing materially from those anticipated at the time we
bid on the contract, higher than expected costs of materials and labor, delays in obtaining necessary permits, under
11
absorbed costs, and lower than anticipated productivity. An increase in costs due to any of these factors, or for other
reasons, could adversely affect our results of operations.
Regulatory changes and requirements associated with government funding that is associated with certain capital
spending initiatives of our customers may affect their spending on the services we provide. Our customers operate in
regulated industries and are subject to laws and regulations that can change frequently. Additionally, where our customers
utilize governmental funding sources in connection with the work they contract us to perform, such work may be subject to
new or enhanced regulatory requirements and compliance obligations. The application of new or enhanced regulatory
requirements or obligations, or changes to the enforcement or interpretation of existing laws or regulations, may delay or
constrain our ability to perform our work, increase our costs to perform our work without a corresponding increase in
payment from our customers, and could cause our customers to reduce or delay spending on the services we provide, which
could adversely affect our revenues, results of operations, and liquidity.
Technological change may affect our customers' spending on the services we provide. We generate a significant
majority of our revenues from customers in the telecommunications industry. This industry has been and continues to be
impacted by rapid technological change. These changes may affect our customers' spending on the services we provide.
Further, technological change in the telecommunications industry not directly related to the services we provide may affect
the ability of one or more of our customers to compete effectively, which could result in a reduction or elimination of their
use of our services. Any reduction, elimination or delay of spending by one of our customers on the services we provide
could adversely affect our revenues, results of operations, and liquidity.
Our business is labor-intensive, and we may be unable to attract, retain and ensure the productivity of qualified
employees or to pass increased labor and training costs to our customers. We are highly dependent upon our ability to
employ, train, retain, and ensure the productivity of the skilled personnel needed to operate our business. Given the highly
specialized work we perform, many of our employees receive training in, and possess, specialized technical skills that are
necessary to operate our business and maintain productivity and profitability. We cannot be certain that we will be able to
maintain and ensure the productivity of the skilled labor force necessary to operate our business. Our ability to do so
depends on a number of factors, such as the general rate of employment, competition for employees possessing the skills
we need, the general health and welfare of our employees and the level of compensation required to hire, train and retain
qualified employees. In addition, the uncertainty of contract awards and project delays can also present difficulties in
appropriately sizing our skilled labor force. Furthermore, due to the fixed price nature of the tasks in our contracts, we may
be unable to pass increases in labor and training costs on to our customers. If we are unable to attract or retain qualified
employees or incur additional labor and training costs, our results of operations could be adversely affected.
We may be unable to secure subcontractors to fulfill our obligations, or our subcontractors may fail to satisfi, their
obligations to us, either of which may adversely affect our relationships with our customers or cause us to incur additional
costs. We contract with subcontractors to manage fluctuations in work volumes and reduce the amounts that we would
otherwise expend on fixed assets and working capital. If we are unable to secure qualified subcontractors who can provide
adequate labor resources at a reasonable cost, we may be delayed or unable to complete our work under a contract on a
timely basis. In addition, we may have disputes with these subcontractors arising from, among other things, the quality and
timeliness of the work they have performed. We may incur additional costs to correct such shortfalls in the work performed
by subcontractors. Any of these factors could negatively impact the quality of our service, our ability to perform under
certain customer contracts, and our relationships with our customers, which could adversely affect our results of operations.
Changes in fuel prices may increase our costs, and we may not be able to pass along increased fuel costs to our
customers. Fuel prices fluctuate based on events outside of our control. Most of our services are provided under contracts
that have discrete pricing for individual tasks and do not allow us to adjust our pricing for higher fuel costs during a
contract term. In addition, we may be unable to secure prices that reflect rising costs when renewing or bidding contracts.
To the extent we enter into hedge transactions in conjunction with our anticipated fuel purchases, declines in fuel prices
below the levels established in the hedges we have in place may require us to make payments to our hedge counterparties.
As a result, changes in fuel prices may adversely affect our results of operations.
Increases in healthcare costs could adversely affect our financial results. The costs of providing employee medical
benefits have steadily increased over a number of years due to, among other things, rising healthcare costs and legislative
requirements. Because of the complex nature of healthcare laws, as well as periodic healthcare reform legislation adopted
by Congress, state legislatures, and municipalities, we cannot predict with certainty the future effect of these laws on our
healthcare costs. Continued increases in healthcare costs or additional costs created by future health care reform laws
adopted by Congress, state legislatures, or municipalities could adversely affect our results of operations and financial
position.
12
Fluctuations in our effective tax rate and tax liabilities may cause volatility in our financial results. We determine and
provide for income taxes based on the tax laws of each of the jurisdictions in which we operate. Changes in the mix and
level of earnings among jurisdictions could materially impact our effective tax rate in any given financial statement period.
Our effective tax rate may also be affected by changes in tax laws and regulations at the federal, state, and local level, or by
new interpretations of existing tax laws and regulations. We are also subject to audits by various taxing authorities. An
adverse outcome from an audit could unfavorably impact our effective tax rate and increase our tax liabilities.
We may incur impairment charges on goodwill or other intangible assets. We assess goodwill and other indefmite-
lived intangible assets for impairment annually in order to determine whether their carrying value exceeds their fair value.
Reporting units are tested more frequently if an event occurs or circumstances change between annual tests that indicate
their fair value may be below their carrying value. If we determine the fair value of the goodwill or other indefinite-lived
intangible assets is less than their carrying value as a result of an annual or interim test, an impairment loss is recognized.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically
due to downturns in customer demand, increased costs of providing our services, and the level of overall economic activity.
Our customers may reduce capital expenditures and defer or cancel pending projects due to changes in technology, a
slowing or uncertain economy, merger or acquisition activity, a decision to allocate resources to other areas of their
business, or other reasons. The profitability of reporting units may also suffer if actual costs of providing our services
exceed our estimated costs established when we enter into contracts. Additionally, adverse conditions in the economy and
future volatility in the equity and credit markets could impact the valuation of our reporting units. The cyclical nature of
our business, the high level of competition existing within our industry, and the concentration of our revenues from a small
number of customers may also cause results to vary. The factors identified above may affect individual reporting units
disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units
could decline, resulting in an impairment of goodwill or intangible assets. In addition, adverse changes to the key valuation
assumptions contributing to the fair value of our reporting units could result in an impairment of goodwill or intangible
assets. A write-down of goodwill or intangible assets as a result of an impairment could adversely affect our results of
operations.
The market price of our common stock has been, and may continue to be, highly volatile. During fiscal 2023, our
common stock fluctuated from a low of $76.79 per share to a high of $121.11 per share. We may continue to experience
significant volatility in the market price of our common stock due to numerous factors, including, but not limited to:
•
•
events impacting us, or our competitors, with respect to significant contracts, acquisitions or dispositions,
fluctuations in operating results, or change to capital structure;
announcements by our customers regarding their capital spending and start-up, deferral or cancellation of projects,
or their mergers and acquisitions activities;
•
the commercialization of new technologies impacting the services that we provide to our customers;
•
•
•
regulatory and compliance obligations associated with government funding provided to our customers in
connection with the work we perform, other regulatory actions, and changes in tax laws;
changes in recommendations or earnings estimates by securities analysts; and
the impact of economic conditions on the credit and stock markets and on our customers' demand for our services.
In addition, other factors, such as market disruptions, industry outlook, general economic conditions, widespread
public health epidemics, including the COVID-19 pandemic, and political events, could decrease the market price of our
common stock and, as a result, investors could lose some or all of their investments.
Risks Related to the Operation of Our Business
Our operations involve activities that are often inherently dangerous and are performed at times in complex or
sensitive environments. If our activities result in, or if it is alleged that our activities have resulted in, damage or
destruction to the real or personal property of others, or in injury or death to others, we could be exposed to significant
financial losses and reputational harm, as well as civil and criminal liabilities. Our operations involve dangerous activities
such as underground drilling and the use of mechanized equipment. These activities and their effects could result in, or be
13
alleged to have resulted in, damage to the real and personal property of others, and cause personal injury or death to third
parties or our employees. In many instances, our activities are performed in close proximity to other utilities which, if
damaged, may result in the occurrence of catastrophic events. Additionally, we may perform our activities in
environmentally sensitive locations or in locations that may be susceptible to catastrophic events, including wildfires. If our
activities cause or contribute to, or are alleged to have caused or contributed to, a catastrophic event, we could be exposed
to severe financial losses and reputational harm. We procure insurance coverage to cover many of these risks; however,
there can be no assurance that these coverages will continue to be available to us on commercially reasonable terms, or at
all, or that they are adequate in scope or amount to address financial losses from these risks. As a result, we could incur
significant costs to defend any such allegations, defend and indemnify our customers, repair and replace assets, or to
compensate third parties; reputational harm could result in the loss of future revenue-generating opportunities; or we may
be subject to civil and, in certain situations, criminal liabilities.
Changes in the cost or availability of materials may adversely affect our revenues and results of operations. For a
majority of the contract services we perform, customers provide the necessary materials. Under other contracts, we supply
part, or all, of the necessary materials. If we, or our customers, are unable to procure the materials necessary to the contract
services we perform, or if those materials are only available at prices that make our work unprofitable, our revenues and
results of operations could be adversely affected.
A failure, outage, or cybersecurity breach of our technology systems or those of third party providers may adversely
affect our operations and financial results. We are dependent on technology to operate our business, to engage with our
customers and other third parties, and to increase the efficiency and effectiveness of the services we offer our customers.
We use both our own information technology systems and the information technology systems and expertise of third-party
service providers to manage our operations, process data for our financial reporting, and perform other business processes.
We also use information technology systems to record, transmit, store, and protect sensitive data, including the sensitive
data of our employees and customers. A cyber-security attack, computer viruses, security breaches, or vandalism on these
information technology systems may result in our inability to access and utilize these systems, create or contribute to
significant financial losses, and may negatively impact our reputation. The systems of our customers that we utilize to
transmit and receive information could also fail or be subject to a cybersecurity attack. Any of these occurrences could
disrupt our business or the delivery of services to our customers, result in potential liabilities, the termination of contracts,
divert the attention of management from effectively operating our business, cause significant reputational damage, or
otherwise have an adverse effect on our financial results. We may also need to expend significant additional resources to
protect against cybersecurity threats or to address actual breaches or to redress problems caused by cybersecurity breaches.
We have experienced cybersecurity threats to our information technology infrastructure and attacks attempting to
breach our systems and other similar incidents. In 2017, we determined that certain of our computer systems containing
Company financial information were subject to unauthorized access. Law enforcement authorities were notified and new
security enhancements and protocols were implemented. Although these prior cybersecurity incidents have not had a
material impact on our results of operations, financial position, or liquidity, there is no assurance that future threats would
not cause harm to our business and our reputation, and adversely affect our results of operations, financial position, and
liquidity.
A failure in our information technology systems could negatively impact our business. We rely on information
technology systems to record and process transactions, manage our business, and maintain the financial accuracy of our
records. Our information technology systems may be adversely impacted by various factors, including power outages,
software and hardware failures, connectivity outages, catastrophic events, and human error. Interruptions to our
information systems could disrupt our business, delay our financial reporting, and could result in the loss of revenue, and
cause us to incur additional expense. We are in the process of implementing an Enterprise Resource Planning (ERP) system
to upgrade and standardize our information technology systems. This implementation is expected to occur in phases over
the next several years. Any delays or failures to achieve our implementation goals may adversely impact our financial
results. In addition, the failure to complete the implementation on a timely basis, or to adequately address the necessary
readiness and training needs of our personnel, could lead to business disruption, negatively affect our customer
relationships, and restrict our ability to execute our business strategy, which could adversely affect our business.
The loss or long-term incapacitation of one or more of our executive officers or other key employees could adversely
affect our business. We depend on the continued and ongoing services of our executive officers and other key employees,
including the senior management of our subsidiaries. In many instances, these employees have significant experience and
expertise in our industry. These key employees often possess and maintain key relationships with our customers and
subcontractors that would be difficult to replace. Competition for senior management personnel is intense and we cannot be
certain that any of our executive officers or other key management personnel will remain employed by us or that they will
14
otherwise be able to provide service to us for any length of time. Additionally, we may not have adequate succession
planning in place to ensure that our key employees can be replaced if they are no longer employed by us. We do not carry
"key-person" life or disability insurance on any of our employees. The loss or long-term incapacitation of any one of our
executive officers or other key employees could negatively affect our customer relationships or the ability to execute our
business strategy, which could adversely affect our business.
The preparation of our financial statements requires management to make certain estimates and assumptions that may
differ from actual results. In preparing our consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, a number of estimates and assumptions are made by management that
affect the amounts reported in the financial statements. These estimates and assumptions must be made because certain
information that is used in the preparation of our financial statements is either dependent on future events or cannot be
calculated precisely from available data at the time that these estimates are made and, accordingly, requires the use of
management's judgment. Estimates and assumptions are primarily used in our assessment of the recognition of revenue
under the cost-to-cost method of progress, job-specific costs, accrued insurance claims, the allowance for doubtful
accounts, accruals for contingencies, stock-based compensation expense for performance-based stock awards, the fair value
of reporting units for the goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived
assets, the purchase price allocations of businesses acquired, and income taxes. When made, we believe such estimates and
assumptions are fair when considered in conjunction with our consolidated financial position and results of operations
taken as a whole. However, actual results could differ from those estimates and assumptions, and such differences may be
material to our financial statements.
Risks Related to Laws and Regulations
Our failure to comply with occupational health and workplace safety requirements could result in significant liabilities
or enforcement actions and adversely impact our ability to perform services for our customers. Our operations are subject
to strict laws and regulations governing workplace safety. Our workers frequently operate heavy machinery, work on and
in the vicinity of electrical and gas lines, perform their work at heights, and engage in other potentially dangerous activities
which could subject them and others to injury or death. If, in the course of our operations, it is determined we have violated
safety regulations, our operations may be disrupted and we may be subject to penalties, fines or, in extreme cases, criminal
sanctions. In addition, if our safety performance were to deteriorate, customers could decide to cancel our contracts or not
award us future business. These factors could adversely affect our results of operations and financial position.
Our failure to comply with worker eligibility and immigration laws could result in significant liabilities and harm our
reputation with our customers, as well as cause disruption to our operations. If we fail to comply with these laws our
operations may be disrupted, and we may be subject to fines or, in extreme cases, criminal sanctions. In addition, many of
our customer contracts specifically require compliance with worker eligibility and immigration laws and in some cases our
customers audit compliance with these laws. Further, several of our customers require that we ensure our subcontractors
comply with these laws with respect to the workers that perform services for them. A failure to comply with these laws
could damage our reputation and may result in the cancellation of our contracts by our customers, or a decision by our
customers not to award us future business. These factors could adversely affect our results of operations and financial
position.
Our failure to comply with various laws and regulations related to the construction and operation of utilities,
contractor licensing and the operation of our fleet of commercial motor vehicles could result in significant liabilities. We
are subject to a number of state and federal laws and regulations, including those related to the construction and operation
of utilities, contractor licensing and the operation of our fleet of commercial motor vehicles. If we are not in compliance
with these laws and regulations, we may be unable to perform services for our customers and may also be subject to fines,
penalties, and the suspension or revocation of our licenses. Our failure to comply with these laws and regulations may
affect our ability to operate and could require us to incur significant costs that adversely affect our results of operations.
Our failure to comply with environmental laws could result in significant liabilities. A significant portion of the work
we perform is associated with the underground networks of our customers and we often operate in close proximity to
pipelines, sewer lines, or underground storage tanks that may contain hazardous substances. We could be subject to
liabilities in the event that we fail to comply with environmental laws or regulations or if we cause or are responsible for
the release of hazardous substances or other environmental damages. These liabilities could result in significant costs
including remediation costs, fines, third-party claims for property damage, or personal injury, and, in extreme cases,
criminal sanctions. These costs, as well as any direct impact to ongoing operations, could adversely affect our results of
operations and cash flows. In addition, new laws and regulations, altered enforcement of existing laws and regulations, the
discovery of previously unknown contamination or leaks, or the imposition of new remediation requirements could require
15
us to incur significant costs or create new or increased liabilities that could adversely affect our results of operations and
financial position.
We retain the risk of loss for the occurrence of certain liabilities. We retain the risk of loss, up to certain limits in our
insurance program, for matters related to automobile liability, general liability (including damages associated with
underground facility locating services), environmental liability, workers' compensation, and employee group health. We
are effectively self-insured for the majority of claims because most claims against us fall below the deductibles or retention
levels of our insurance policies. Additionally, within our aggregate coverage limits and above our base layer of third-party
insurance coverage, we have retained the risk of loss at certain levels of exposure and any claims that reach these retained
levels of exposure are self-insured. We estimate and develop our reserve accruals for these claims, including losses
incurred but not reported, based on facts, circumstances, and historical evidence. However, the estimate for accrued
insurance claims remains subject to uncertainty as our ultimate losses may depend on factors not known at the time such
estimates are made. These factors include the estimated development of claims, the payment pattern of claims incurred,
changes in the medical condition of claimants, and other factors such as inflation, tort reform or other legislative changes,
unfavorable jury decisions, and court interpretations. Should the cost of actual claims exceed what we have anticipated, our
recorded reserves may not be sufficient, and we could incur additional charges that could adversely affect our results of
operations and financial position. See Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations — Critical Accounting Policies — Accrued Insurance Claims, and Note 10, Accrued Insurance Claims, in the
Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
We may be subject to litigation, indemnity claims, and other disputes, which could result in significant liabilities and
adversely impact our financial results. From time to time, we are subject to lawsuits, arbitration proceedings, and other
claims brought or threatened against us by various parties, including our customers. These actions and proceedings may
involve claims for, among other things, compensation for personal injury, workers' compensation, wage and hour
violations, employment discrimination, harassment, retaliation, and other employment-related damages, breach of contract,
property damage, multiemployer pension plan withdrawal liabilities, liquidated damages, consequential damages, punitive
damages, statutory damages, and civil penalties, other losses, or injunctive or declaratory relief. In addition, we may also be
subject to class action lawsuits, including those alleging violations of the Fair Labor Standards Act, state and municipal
wage and hour laws, and misclassification of independent contractors. We also indemnify our customers for claims arising
out of or related to the services we provide and our actions or omissions under our contracts. In some instances, we may be
allocated risk through our contract terms for the actions or omissions of our customers, subcontractors, or other third
parties.
Due to the inherent uncertainties of litigation and other dispute resolution proceedings, we cannot accurately predict
the ultimate outcome of these matters. The outcome of litigation, particularly class action lawsuits, is difficult to assess or
quantify. Class action lawsuits may seek recovery of very large or indeterminate amounts. Accordingly, the magnitude of
the potential loss may remain unknown for substantial periods of time. These proceedings could result in substantial costs
and may require us to devote substantial resources to our defense. The ultimate resolution of any litigation or proceeding
through settlement, mediation, or a judgment could have a material impact on our reputation and adversely affect our
results of operations and fmancial position. See Item 3. Legal Proceedings, and Note 20, Commitments and Contingencies,
in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
We may be subject to warranty claims, which could result in significant liabilities and adversely impact our financial
results. We typically warrant the services we provide by guaranteeing the work performed against defects in workmanship
and materials or where our services are not provided in a manner consistent with applicable requirements. When these
claims occur, we may be required to repair or replace our work without receiving any additional compensation and we may
be liable to our customers for significant monetary claims. Our performance of warranty services requires us to allocate
resources that otherwise might be engaged in the provision of services that generate revenue. In addition, our customers
often have the right to repair or replace warrantied items using the services of another provider and to charge the cost of the
repair or replacement to us. Costs incurred for warranty claims, or reductions to revenue-generating activities arising from
the allocation of resources to resolve warranty claims, could adversely affect our results of operations and financial
position.
Our subsidiaries may participate in multiemployer pension plans from time to time under which we could incur
significant liabilities. Pursuant to collective bargaining agreements, our subsidiaries may participate in various
multiemployer pension plans from time to time that provide defined pension benefits to covered employees. Where
applicable, we make periodic contributions to these plans to allow them to meet their pension benefit obligations to
participants. Assets contributed by an employer to a multiemployer plan are not segregated into a separate account and are
not restricted to providing benefits only to employees of that contributing employer. Under the Employee Retirement
16
Income Security Act ("ERISA"), absent an applicable exemption, a contributing employer to an underfunded
multiemployer plan is liable upon withdrawal from the plan for its proportionate share of the plan's unfunded vested
liability. Such underfunding may increase in the event other employers become insolvent or withdraw from the applicable
plan or upon the inability or failure of withdrawing employers to pay their withdrawal liability. In addition, if any of the
plans in which we participate become significantly underfunded, as defined by the Pension Protection Act of 2006, we may
be required to make additional cash contributions in the form of higher contribution rates or surcharges. This could occur
because of a shrinking contribution base as a result of insolvency or withdrawal of other companies that currently
contribute to these plans, inability or failure of withdrawing companies to pay their withdrawal liability, lower than
expected returns on plan assets, or other funding deficiencies. Requirements to pay increased contributions or a withdrawal
liability could adversely affect our results of operations, financial position, and cash flows.
During the fourth quarter of fiscal 2016, one of the Company's subsidiaries ceased operations. This subsidiary
contributed to a multiemployer pension plan, the Pension, Hospitalization and Benefit Plan of the Electrical Industry -
Pension Trust Fund (the "Plan"). In October 2016, the Plan demanded payment for a claimed withdrawal liability of
approximately $13.0 million. In December 2016, the subsidiary submitted a formal request to the Plan seeking review of
the Plan's withdrawal liability determination. The subsidiary disputes the claim that it is required to make payment of a
withdrawal liability as demanded by the Plan as it believes that a statutory exemption under the Employee Retirement
Income Security Act ("ERISA") applies to its activities. The Plan has taken the position that the work at issue does not
qualify for that statutory exemption. The subsidiary has submitted this dispute to arbitration, as required by ERISA, and an
arbitrator has ruled that the subsidiary does not qualify for the statutory exemption. The subsidiary is appealing the
arbitrator's ruling on various grounds. There can be no assurance that the Company's subsidiary will be successful in its
appeal of the arbitrator's ruling regarding this statutory exemption. In November 2016, this subsidiary began making
payments of a withdrawal liability to the Plan in the amount of approximately $0.1 million per month, as required by
ERISA. If the subsidiary prevails in disputing the withdrawal liability, all such payments are expected to be refunded.
Anti-takeover provisions of Florida law and provisions in our articles of incorporation and by-laws could make it
more d cult to effect an acquisition of our Company or a change in our control. We are subject to certain anti-takeover
provisions of the Florida Business Corporation Act. These anti-takeover provisions could discourage or prevent a change in
control. In addition, certain provisions of our articles of incorporation and by-laws could delay or prevent an acquisition or
change in control and the replacement of our incumbent directors and management. For example, our board of directors is
divided into three classes. At any annual meeting of our shareholders, our shareholders have the right to elect only
approximately one-third of the directors on our board of directors. In addition, our articles of incorporation authorize our
board of directors, without further shareholder approval, to issue up to 1,000,000 shares of preferred stock on such terms
and with such rights as our board of directors may determine. The issuance of preferred stock could dilute the voting power
of the holders of common stock, including by the grant of voting control to others. Our by-laws also restrict the right of
shareholders to call a special meeting of shareholders. As a result, our shareholders may be unable to take advantage of
opportunities to dispose of their stock in the Company at higher prices that may otherwise be available in connection with
takeover attempts or under a merger or other proposal.
We may face challenges in setting and meeting our corporate social responsibility and sustainability goals. We have
begun to assess and develop corporate social responsibility and sustainability goals for our company. Our customers,
shareholders, and other constituents may not be satisfied with the corporate social responsibility and sustainability goals
that we may set. Any targets or goals we do set will be subject to risks and uncertainties, many of which may be outside of
our control, and it is possible that we may fail to achieve any goals and targets we do set. These risks and uncertainties
include, but are not limited to: our ability to execute our operational strategies and achieve our goals; the availability of
new technologies and equipment that operates on these technologies on a cost-effective basis; overlapping and
contradictory requirements and scoring and evaluating our goals; the inability to effectively impose requirements on our
suppliers and subcontractors; and the actions of competitors and competitive pressures. A failure to set appropriate
corporate social responsibility and sustainability goals for our company, or our failure to meet these goals could adversely
affect public perception of our business or customer or shareholder support.
Risks Related to Our Ability to Grow Our Business
We may not have access in the future to sufficient capital on favorable terms or at all. We may require additional
capital to pursue acquisitions, fund capital expenditures, for working capital needs, or to respond to changing business
conditions. Our existing debt agreements include restrictions on our ability to incur additional debt at certain levels. In
addition, if we seek to incur more debt, we may be required to agree to additional covenants that further limit our
operational and financial flexibility. If we pursue additional debt or equity financings, we cannot be certain that such
17
funding will be available on terms acceptable to us, or at all. Our inability to access additional capital could adversely
affect our liquidity and may limit our growth and ability to execute our business strategy.
Our debt obligations impose restrictions that may limit our operating and financial flexibility, and a failure to comply
with these obligations could result in the acceleration of our debt. On April 1, 2021, the Company and certain of its
subsidiaries amended its credit agreement, dated as of October 19, 2018, with the various lenders party thereto and Bank of
America, N.A., as administrative agent (the "Credit Agreement") to among other things, decrease the maximum revolver
commitment to $650.0 million from $750.0 million and decrease the term loan facility to $350.0 million from
$416.3 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of letters of credit and a $50.0
million sublimit for swingline loans. As part of the amendment, the maturity of the Credit Agreement was extended to
April 1, 2026. As of January 28, 2023, we had $332.5 million outstanding under the term loan facility and $47.5 million of
outstanding letters of credit issued under our Credit Agreement. We had no outstanding borrowings under our revolving
facility as of January 28, 2023. This Credit Agreement contains covenants that restrict or limit our ability to, among other
things: make certain payments, including the payment of dividends, redeem or repurchase our capital stock, incur
additional indebtedness and issue preferred stock, make investments or create liens, enter into sale and leaseback
transactions, merge or consolidate with another entity, sell certain assets, and enter into transactions with affiliates. Our
Credit Agreement also requires us to comply with certain financial covenants, including a consolidated net leverage ratio
and a consolidated interest coverage ratio. These covenants in our Credit Agreement may prevent us from engaging in
transactions that benefit us and may limit our flexibility in the execution of our business strategy.
Additionally, on April 1, 2021, we issued $500.0 million aggregate principal amount of 4.50% senior notes due 2029
(the "2029 Notes"). The 2029 Notes are guaranteed on a senior unsecured basis, jointly and severally, by all of our
domestic subsidiaries that guarantee the Credit Agreement. The indenture governing the 2029 Notes includes cross-
acceleration and cross-default provisions with our Credit Agreement. If our financial results fall below anticipated levels,
we may be unable to comply with these covenants and a default under our Credit Agreement could result in the
acceleration of our obligations under both our Credit Agreement and the indenture governing the 2029 Notes, which could
adversely affect our liquidity and our ability to execute our business strategy.
The specialty contracting services industry in which we operate is highly competitive. We compete with other specialty
contractors, including numerous local and regional providers, as well as several large corporations that may have financial,
technical, and marketing resources exceeding ours. Relatively few barriers to entry exist in the markets in which we
operate. Any organization may become a competitor if it has adequate financial resources and access to technical expertise,
the ability to engage subcontractors, and the necessary equipment and materials. Additionally, our competitors may
develop expertise, experience, and resources to provide services that are equal or superior to our services in price, quality,
or availability, and we may be unable to maintain or enhance our competitive position. Furthermore, our customers
generally require competitive bidding of our contracts upon the expiration of their terms. If competitors underbid us to
procure business, we could be required to lower the prices we charge in order to retain contracts. Our revenues and results
of operations could be adversely affected if our customers shift a significant portion of our work to a competitor, if we are
unsuccessful in bidding or retaining projects, or if our ability to win projects requires us to provide our services at reduced
margins.
We face competition from the in-house service organizations of our customers. We face competition from the in-house
service organizations of our customers whose personnel perform the services that we provide. We can offer no assurance
that our existing or prospective customers will continue to outsource specialty contracting services in the future. Our
revenues and results of operations could be adversely affected if our existing or prospective customers reduce the specialty
contracting services that are outsourced to us.
Our failure to perform sufficient due diligence prior to completing acquisitions could result in significant liabilities.
The growth of our business through acquisitions may expose us to risks, including the failure to identify significant issues
and risks of an acquired business. A failure to identify or appropriately quantify a liability in our due diligence process
could result in the assumption of unanticipated liabilities arising from the prior operations of an acquired business, some of
which may not be adequately reserved and may not be covered by indemnification obligations. The assumption of
unknown liabilities due to a failure of our due diligence could adversely affect our results of operations and financial
position.
Our failure to successfully integrate acquisitions could adversely affect our financial results. As part of our growth
strategy, we may acquire companies that we expect to expand, complement, or diversify our business. The success of this
strategy depends on our ability to realize the anticipated benefits from the acquired businesses, such as the expansion of our
existing operations and the elimination of redundant costs. To realize these benefits, we must successfully integrate the
18
operations of the acquired businesses with our existing operations. Integrating acquired businesses involves a number of
operational challenges and risks, including diversion of management's attention from our existing business; unanticipated
issues in integrating information, communications, and other systems and consolidating corporate and administrative
infrastructures; failure to manage successfully and coordinate the growth of the combined company; and failure to retain
management and other key employees. These factors could result in increased costs, decreases in the amount of expected
revenues and diversion of management's time and energy, which could adversely affect our results of operations and
financial position. Additionally, any impairment of goodwill or other intangible assets as a result of our failure to
successfully integrate acquisitions could adversely affect our results of operations and financial position.
19
Item IB. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease our executive offices located in Palm Beach Gardens, Florida. Our subsidiaries operate from administrative
offices, district field offices, equipment yards, shop facilities, and temporary storage locations throughout the United States.
Those facilities are primarily leased but certain facilities are owned. Our leased properties operate under both non-cancelable
and cancelable leases. We believe that our facilities are suitable and adequate for our current operations and, if necessary,
additional or replacement facilities would generally be available on commercially reasonable terms.
Item 3. Legal Proceedings.
Refer to Note 20, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Market Information for Our Common Stock
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "DY."
Holders
As of February 28, 2023, there were approximately 552 holders of record of our $0.33 1/3 par value per share common
stock.
Dividend Policy
We have not paid cash dividends since 1982. Our Board of Directors occasionally evaluates the payment of a dividend
based on our financial condition, profitability, cash flow, capital requirements, and the outlook of our business. We currently
intend to retain any earnings for use in the business and other capital allocation strategies which may include investment in
acquisitions and share repurchases. Consequently, we do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item is hereby incorporated by reference from the section entitled "Equity Compensation
Plan Information" found in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
20
Issuer Purchases of Equity Securities
The following table summarizes the Company's purchases of its common stock during the three months ended January 28,
2023:
Total
Number of
Shares
Purchased (1)
Average
Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Period
October 30, 2022 - November 26, 2022
November 27, 2022 - December 24, 2022
December 25, 2022 - January 28, 2023
210,000 $
96.19
(1) All shares repurchased have been subsequently canceled.
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
(2)
(2)
(2)
(2) On March 2, 2022 the Company announced that its Board of Directors authorized a new $150.0 million program to
repurchase shares of the Company's outstanding common stock through August 2023 in open market or private transactions.
During fiscal 2023 we repurchased 514,030 shares of common stock, at an average price of $94.80, for $48.7 million. As of
January 28, 2023, $101.3 million remained available for repurchases.
21
Performance Graph
The performance graph below compares the cumulative total return for our common stock with the cumulative total return
(including reinvestment of dividends) of the Standard & Poor's (S&P) 500 Composite Stock Index and that of a selected peer
group for fiscal 2017 through fiscal 2023. The selected peer group consists of MasTec, Inc., Quanta Services, Inc., MYR
Group, Inc., and Primoris Services Corporation. The graph assumes an investment of $100 in our common stock and in each of
the respective indices noted on July 31, 2017. The comparisons in the graph are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of the possible future performance of our common stock.
COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN*
Among Dycom Industries, Inc., the S&P 500 Index,
and a Peer Group
0
---- 2
— -E)— —
$350
$300
$250
$200
$150
$100
$50
$0
7/31/17
1/31/18
1/31/19
1/31/20
1/31/21
1/31/22
1/28/23
Dycom Industries, Inc.
---er-- S&P 500
—a- - Peer Group
1100 invested on 7/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending January 28.
Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved.
22
Item 6. Selected Financial Data.
Our fiscal year ends on the last Saturday in January. As a result, each fiscal year consists of either 52 weeks or 53 weeks of
operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2023, fiscal 2022, fiscal 2020, and
fiscal 2019 each consisted of 52 weeks of operations. Fiscal 2021 consisted of 53 weeks of operations. Fiscal 2024 will consist
of 52 weeks of operations. The following selected financial data is derived from the audited consolidated financial statements
for the applicable fiscal year.
The selected financial data below should be read in conjunction with our consolidated financial statements and
accompanying notes, and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations, in this Annual Report on Form 10-K. The results of operations of businesses acquired are included in the following
selected financial data from their dates of acquisition (dollars in thousands, except per share amounts):
January 28,
2023
Janua 29,
2022ry (1)
Janua 25,
2020ry t3)
January 26,
2019(3)
Fiscal Year Ended
January 30,
2021(2)
Operating Data:
Revenues
Net income
Earnings Per Common Share:
Basic
Diluted
Balance Sheet Data (at end of period):
Total assets(4)
Long-term liabilitiee
Stockholders' equity(5)
$ 3,808,462 $ 3,130,519 $ 3,199,165 $ 3,339,682 $ 3,127,700
$ 142,213 $
48,574 $
34,337 $
57,215 $
62,907
4.81 $
4.74 $
1.60 $
1.57 $
1.08 $
1.07 $
1.82 $
1.80 $
2.01
1.97
$ 2,313,254 $ 2,118,224 $ 1,944,165 $ 2,217,631 $ 2,097,503
$
$
974,948 $
977,884 $ 684,367 $ 1,026,002 $ 1,008,344
868,755 $ 758,544 $
811,308 $
868,604 $
804,168
(1) During fiscal 2022, we issued $500 million aggregate principal amount of 4.50% senior notes due 2029 (the "2029 Notes").
The 2029 Notes are guaranteed on a senior unsecured basis, jointly and severally, by all of our domestic subsidiaries that
guarantee the Credit Agreement. In addition, we amended our existing credit agreement to extend its maturity date to April 1,
2026 and, among other things, decrease the maximum revolver commitment to $650.0 million from $750.0 million and
decrease the term loan facility to $350.0 million from $416.3 million. The outstanding balance of $58.3 million under the 2021
Convertible Notes was repaid in full on September 15, 2021.
(2) During the first quarter of fiscal 2021, we recognized a goodwill impairment charge of $53.3 million as the result of an
interim impairment analysis.
(3) On February 25, 2019, Windstream filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the
U.S. Bankruptcy Court for the Southern District of New York. As of January 26, 2019, we had outstanding receivables and
contract assets in aggregate of approximately $45.0 million. Against this amount, we recorded a non-cash charge of
$17.2 million reflecting our evaluation of recoverability of these receivables and contract assets as of January 26, 2019. During
the first quarter of fiscal 2020, we recovered $10.3 million of these previously reserved accounts receivable and contract assets.
Windstream emerged from bankruptcy in September 2020.
(4) Balance sheet data presented for fiscal 2020 reflects the adoption of Accounting Standards Update 2016-02, Leases (Topic
842) ("ASU 2016-02") which resulted in the recognition of operating lease right-of-use assets and corresponding lease
liabilities. Balance sheet data presented for fiscal 2020, fiscal 2019, and the 2018 transition period reflects the adoption of
Accounting Standards Update 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU
2015-17"), under which deferred tax liabilities are presented net of deferred tax assets. No prior periods have been
retrospectively adjusted for the adoption of ASU 2015-17.
23
(5) We did not repurchase any of our common stock during fiscal 2020 or fiscal 2019. The following table summarizes our share
repurchases during fiscal 2023, 2022, and 2021:
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Shares
Amount paid (dollars in millions)
Average price per share
514,030
1,231,638
1,324,381
48.7 $
106.1 $
$
94.80 $
86.17 $
100.0
75.51
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated fmancial statements and the
accompanying notes, as well as Part I, Item 1. Business, and Part I, Item 1A. Risk Factors, of this Annual Report on Form 10-K.
Introduction
We are a leading provider of specialty contracting services throughout the United States. These services include program
management; planning; engineering and design; aerial, underground, and wireless construction; maintenance; and fulfillment
services for telecommunications providers. Additionally, we provide underground facility locating services for various utilities,
including telecommunications providers, and other construction and maintenance services for electric and gas utilities. We
supply the labor, tools, and equipment necessary to provide these services to our customers.
Significant demand for broadband services is driven by applications that require high speed connections as well as the
everyday use of mobile data devices. To respond to this demand and other advances in technology, major industry participants
are constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are
generally designed to provision gigabit network speeds to individual consumers and businesses, either directly or wirelessly
using 5G technologies. Industry participants have stated their belief that a single high capacity fiber network can most cost
effectively deliver services to both consumers and businesses, enabling multiple revenue streams from a single investment. We
believe this view is increasing the appetite for fiber deployments and that the industry effort to deploy high capacity fiber
networks continues to meaningfully broaden the set of opportunities for our industry. Increasing access to high-capacity
telecommunications continues to be crucial to society, especially in rural America. The Infrastructure Investment and Jobs Act
("Infrastructure Act") includes over $40 billion for the construction of rural communications networks in unnerved and
underserved areas across the country. This represents an unprecedented level of support. In addition, substantially all states
have commenced programs that will provide funding for telecommunications networks even prior to the initiation of funding
under the Infrastructure Act.
We are providing program management, planning, engineering and design, aerial, underground, and wireless construction
and fulfillment services for gigabit deployments. These services are being provided across the country in numerous geographic
areas to multiple customers. These deployments include networks consisting entirely of wired network elements and converged
wireless/wireline multi-use networks. Fiber network deployment opportunities are increasing in rural America as new industry
participants respond to emerging societal initiatives. We continue to provide integrated planning, engineering and design,
procurement and construction and maintenance services to several industry participants.
Macro-economic conditions, including those impacting the cost of capital, may influence the execution of some industry
plans. In addition, the market for labor remains tight in many regions around the country. Automotive and equipment supply
chains remain challenged, particularly for the large truck chassis required for specialty equipment. Prices for capital equipment
continue to increase. It remains to be seen how long these conditions may persist. We expect demand to continue to fluctuate
amongst customers but are encouraged that several have newly initiated or reiterated their commitment to programs of
significant size and duration. Within this context, we remain confident that our scale and financial strength position us well to
deliver valuable service to our customers.
We have extended our geographic reach and expanded our program management and network planning services. In fact,
over the last several years we believe we have meaningfully increased the long-term value of our maintenance and operations
business, a trend which we believe will parallel our deployment of gigabit wireline direct and wireless/wireline converged
networks as those deployments dramatically increase the amount of outside plant network that must be extended and
maintained.
24
Telephone companies are deploying fiber-to-the-home to enable gigabit high-speed connections. Increasingly, rural electric
utilities are doing the same. Dramatically increased speeds for consumers are being provisioned and consumer data usage is
growing, particularly upstream. Wireless construction activity in support of newly available spectrum bands continues this year.
Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration.
Cable operators are increasing fiber deployments in rural America. Capacity expansion projects are underway. Customers are
consolidating supply chains creating opportunities for market share growth and increasing the long-term value of our
maintenance and operations business.
The cyclical nature of the industry we serve affects demand for our services. The capital expenditure and maintenance
budgets of our customers, and the related timing of approvals and seasonal spending patterns, influence our contract revenues
and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to,
overall economic conditions, the introduction of new technologies, our customers' debt levels and capital structures, our
customers' financial performance, our customers' positioning and strategic plans, and any potential effects from the COVID-19
pandemic. Other factors that may affect our customers and their capital expenditure budgets include new regulations or
regulatory actions impacting our customers' businesses, merger or acquisition activity involving our customers, and the
physical maintenance needs of our customers' infrastructure.
Customer Relationships and Contractual Arrangements
We have established relationships with many leading telecommunications providers, including telephone companies, cable
multiple system operators, wireless carriers, telecommunications equipment and infrastructure providers, as well as electric and
gas utilities. Our customer base is highly concentrated, with our top five customers accounting for approximately 66.7%,
66.2%, and 74.1% of our total contract revenues during fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
The following reflects the percentage of total contract revenues from customers who contributed at least 2.5% to our total
contract revenues during fiscal 2023, fiscal 2022, or fiscal 2021:
AT&T Inc.
Lumen Technologies Inc.
Comcast Corporation
Verizon Communications Inc.
Frontier Communications Corporation
Windstream Corporation
Charter Communications, Inc.
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
25.2%
12.7%
11.3%
9.1%
8.5%
2.3%
1.8%
23.5%
11.9%
15.1%
11.3%
4.4%
3.5%
2.2%
16.7%
16.9%
16.7%
18.8%
2.0%
5.0%
2.5%
In addition, another customer contributed 3.7%, 3.7% and 1.6% to our total contract revenues during fiscal 2023,
fiscal 2022, and fiscal 2021, respectively.
We perform a majority of our services under master service agreements and other contracts that contain customer-specified
service requirements. These agreements include discrete pricing for individual tasks. We generally possess multiple agreements
with each of our significant customers. To the extent that such agreements specify exclusivity, there are often exceptions,
including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, the
performance of work with the customer's own employees, and the use of other service providers when jointly placing facilities
with another utility. In many cases, a customer may terminate an agreement for convenience. Historically, multi-year master
service agreements have been awarded primarily through a competitive bidding process; however, occasionally we are able to
negotiate extensions to these agreements. We provide the remainder of our services pursuant to contracts for specific projects.
These contracts may be long-term (with terms greater than one year) or short-term (with terms less than one year) and at times
include retainage provisions under which the customer may withhold 5% to 10% of the invoiced amounts pending project
completion and closeout.
The following table summarizes our contract revenues from multi-year master service agreements and other long-term
contracts, as a percentage of contract revenues:
25
Multi-year master service agreements
Other long-term contracts
Total long-term contracts
Acquisitions
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
79.5 %
10.5 %
90.0 %
76.9 %
13.5 %
90.4 %
71.7 %
18.3 %
90.0 %
As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We
regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our
growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate
companies. The results of these businesses acquired are included in our consolidated financial statements from their respective
dates of acquisition. During the fourth quarter of fiscal 2023, we acquired the assets of a telecommunications construction
company for $0.4 million.
Understanding Our Results of Operations
The following information is presented so that the reader may better understand certain factors impacting our results of
operations, and should be read in conjunction with Critical Accounting Policies and Estimates below, as well as Note 2,
Significant Accounting Policies & Estimates, in the Notes to the Consolidated Financial Statements in this Annual Report on
Form 10-K.
Contract Revenues. We perform a majority of our services under master service agreements and other contracts that contain
customer-specified service requirements. These agreements include discrete pricing for individual tasks including, for example,
the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a specific unit of measure.
Contract revenue is recognized over time as services are performed and customers simultaneously receive and consume the
benefits we provide. Output measures, such as units delivered, are utilized to assess progress against specific contractual
performance obligations for the majority of our services. For certain contracts, we use the cost-to-cost measure of progress as
more fully described within Critical Accounting Policies and Estimates below.
Costs of Earned Revenues. Costs of earned revenues includes all direct costs of providing services under our contracts,
including costs for direct labor provided by employees, services by subcontractors, operation of capital equipment (excluding
depreciation), direct materials, costs of insuring our risks, and other direct costs. Under our insurance program, we retain the
risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with
underground facility locating services), workers' compensation, and employee group health.
General and Administrative Expenses. General and administrative expenses primarily consist of employee compensation
and related expenses, including performance-based compensation and stock-based compensation, legal, consulting and
professional fees, information technology and development costs, provision for or recoveries of bad debt expense, acquisition
and integration costs of businesses acquired, and other costs not directly related to the provision of our services under customer
contracts. Our provision for bad debt expense is determined by evaluating specific accounts receivable and contract asset
balances based on historical collection trends, the age of outstanding receivables, and the creditworthiness of our customers. We
incur information technology and development costs primarily to support and enhance our operating efficiency. Our executive
management team and the senior management of our subsidiaries perform substantially all of our sales and marketing functions
as part of their management responsibilities.
Depreciation and Amortization. Our property and equipment primarily consist of vehicles, equipment and machinery, and
computer hardware and software. We depreciate property and equipment on a straight-line basis over the estimated useful lives
of the assets. In addition, we have intangible assets, including customer relationships, trade names, and non-compete
intangibles, which we amortize over their estimated useful lives. We recognize amortization of customer relationship
intangibles on an accelerated basis as a function of the expected economic benefit and amortization of other finite-lived
intangibles on a straight-line basis over their estimated useful lives.
Interest Expense, Net. Interest expense, net, consists of interest incurred on outstanding variable rate and fixed rate debt and
certain other obligations and the amortization of debt issuance costs. In fiscal 2021 and fiscal 2022, interest expense also
included the non cash amortization of our convertible senior notes debt discount. See Note 13, Debt, in the notes to the
26
consolidated financial statements in this Annual Report on Form 10-K for information on debt issuance costs and the non-cash
amortization of the debt discount.
Loss on Debt Extinguishment. Loss on debt extinguishment for fiscal 2022 of $0.1 million includes the write-off of
deferred debt issuance costs on the 2021 Convertible Notes.
Other Income, Net. Other income, net, primarily consists of gains or losses from sales of fixed assets. Other income, net
also includes discount fee expense associated with the collection of accounts receivable under a customer-sponsored vendor
payment program.
Seasonality and Fluctuations in Operating Results. Our contract revenues and results of operations exhibit seasonality and
are impacted by adverse weather changes as we perform a significant portion of our work outdoors. Consequently, adverse
weather, which is more likely to occur with greater frequency, severity, and duration during the winter, as well as reduced
daylight hours, impact our operations during the fiscal quarters ending in January and April. Additionally, extreme weather
conditions such as major or extended winter storms, droughts and tornados, and natural disasters, such as floods, hurricanes,
tropical storms, whether as a result of climate change or otherwise, could also impact the demand for our services, or impact our
ability to perform our services. Also, several holidays fall within the fiscal quarter ending in January, which decreases the
number of available workdays in this fiscal quarter. Because of these factors, we are most likely to experience reduced revenue
and profitability or losses during the fiscal quarters ending in January and April compared to the fiscal quarters ending in July
and October.
We may also experience variations in our profitability driven by a number of factors. These factors include variations and
fluctuations in contract revenues, job specific costs, insurance claims, the allowance for doubtful accounts, accruals for
contingencies, stock-based compensation expense for performance-based stock awards, the fair value of reporting units for the
goodwill impairment analysis, the valuation of intangibles and other long-lived assets, gains or losses on the sale of fixed assets
from the timing and levels of capital assets sold, the employer portion of payroll taxes as a result of reaching statutory limits,
and our effective tax rate.
Accordingly, operating results for any fiscal period are not necessarily indicative of results we may achieve for any
subsequent fiscal period.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements. These statements have been prepared in accordance with accounting principles generally accepted in the United
States of America ("GAAP"). In conformity with GAAP, the preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes.
These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and, as a result,
actual results could differ materially from these estimates.
Below, we have identified those accounting policies that are critical to the accounting of our business operations and the
understanding of our results of operations. These accounting policies require making significant judgments and estimates that
are used in the preparation of our consolidated financial statements. The impact of these policies affects our reported and
expected financial results. We have discussed the development, selection and application of our critical accounting policies with
the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosure relating to our critical
accounting policies herein.
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also
important to understanding our consolidated financial statements. The notes to the consolidated financial statements in this
Annual Report on Form 10-K contain additional information related to our accounting policies and should be read in
conjunction with this discussion.
Revenue Recognition. We perform a significant amount of our services under master service agreements and other
contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks
including, for example, the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a
specific unit of measure. A contractual agreement exists when each party involved approves and commits to the agreement, the
rights of the parties and payment terms are identified, the agreement has commercial substance, and collectability of
consideration is probable. Our services are performed for the sole benefit of our customers, whereby the assets being created or
maintained are controlled by the customer and the services we perform do not have alternative benefits for us. Contract revenue
27
is recognized over time as services are performed and customers simultaneously receive and consume the benefits we provide.
Output measures such as units delivered are utilized to assess progress against specific contractual performance obligations for
the majority of our services. The selection of the method to measure progress towards completion requires judgment and is
based on the nature of the services to be provided. For us, the output method using units delivered best represents the measure
of progress against the performance obligations incorporated within the contractual agreements. This method captures the
amount of units delivered pursuant to contracts and is used only when our performance does not produce significant amounts of
work in process prior to complete satisfaction of the performance obligation. For a portion of contract items, units to be
completed consist of multiple tasks. For these items, the transaction price is allocated to each task based on relative standalone
measurements, such as selling prices for similar tasks, or in the alternative, the cost to perform the tasks. Contract revenue is
recognized as the tasks are completed as a measurement of progress in the satisfaction of the corresponding performance
obligation.
For certain contracts, representing less than 5% of contract revenues during fiscal 2023, fiscal 2022, and fiscal 2021, we
use the cost-to-cost measure of progress. These contracts are generally projects that are completed over a period of less than 12
months and for which payment is received in a lump sum at the end of the project. Under the cost-to-cost measure of progress,
the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs.
Contract costs include direct labor, direct materials, and subcontractor costs, as well as an allocation of indirect costs. Contract
revenues are recorded as costs are incurred. We accrue the entire amount of a contract loss, if any, at the time the loss is
determined to be probable and can be reasonably estimated.
There were no material amounts of unapproved change orders or claims recognized during fiscal 2023, fiscal 2022, and
fiscal 2021.
Accounts Receivable, net. We grant credit to our customers, generally without collateral, under normal payment terms
(typically 30 to 90 days after invoicing). Generally, invoicing occurs within 45 days after the related services are performed.
Accounts receivable represents an unconditional right to consideration arising from our performance under contracts with
customers. Accounts receivable include billed accounts receivable, unbilled accounts receivable, and retainage. The carrying
value of such receivables, net of the allowance for doubtful accounts, represents their estimated realizable value. Unbilled
accounts receivable represent amounts we have an unconditional right to receive payment for that will be billed at a later date
due to administrative requirements in the billing processes specified by our customers. Certain of our contracts contain
retainage provisions whereby a portion of the revenue earned is withheld from payment as a form of security until contractual
provisions are satisfied. The collectability of retainage is included in our overall assessment of the collectability of accounts
receivable. We expect to collect the outstanding balance of current accounts receivable, net (including trade accounts
receivable, unbilled accounts receivable, and retainage) within the next 12 months. We estimate our allowance for doubtful
accounts by evaluating specific accounts receivable balances based on historical collection trends, the age of outstanding
receivables, and the credit worthiness of our customers.
We participate in a customer-sponsored vendor payment program for one of our customers. All eligible accounts receivable
from this customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner of the
customer. This program effectively reduces the time to collect these receivables as compared to that customer's standard
payment terms. We incur a discount fee to the bank on the payments received that is reflected as an expense component in other
income, net, in the consolidated statements of operations.
Contract assets. Contract assets include unbilled amounts typically resulting from arrangements whereby complete
satisfaction of a performance obligation and the right to payment are conditioned on completing additional tasks or services.
Contract liabilities. Contract liabilities consist of amounts invoiced to customers in excess of revenue recognized. Our
contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. As
of January 28, 2023 and January 29, 2022, the contract liabilities balance is classified as current based on the timing of when
we expect to complete the tasks required for the recognition of revenue.
Leases. Our leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the
lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will
exercise that option. For leases with initial terms greater than 12 months, we record operating lease right-of-use assets and
corresponding operating lease liabilities. Operating lease right-of-use assets represent our right to use the underlying asset for
the lease term and operating lease liabilities represent our obligation to make the related lease payments. These assets and
liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our
leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the
28
commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not
recorded on our consolidated balance sheet.
Goodwill and Intangible Assets. Goodwill and other indefinite-lived intangible assets are assessed for impairment annually,
or more frequently, if events occur that would indicate a potential reduction in the fair value of a reporting unit below its
carrying value. We perform our annual impairment review of goodwill at the reporting unit level. Each of our operating
segments with goodwill represents a reporting unit for the purpose of assessing impairment. If we determine the fair value of
the reporting unit's goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of an annual
or interim test, an impairment loss is recognized and reflected in operating income or loss in the consolidated statements of
operations during the period incurred.
We review finite-lived intangible assets for impairment whenever an event occurs or circumstances change that indicate
that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of
undiscounted future cash flows resulting from the use of an asset and its eventual disposition. Should an asset not be
recoverable, an impairment loss is measured by comparing the fair value of the asset to its carrying value. If we determine the
fair value of an asset is less than the carrying value, an impairment loss is recognized in operating income or loss in the
consolidated statements of operations during the period incurred.
We use judgment in assessing whether goodwill and intangible assets are impaired. Estimates of fair value are based on our
projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated future results, general
economic and market conditions, as well as the impact of planned business or operational strategies. We determine the fair
value of our reporting units using an equal weighting of fair values derived from the income approach and market approach
valuation methodologies. The income approach uses the discounted cash flow method and the market approach uses the
guideline company method. Changes in our judgments and projections could result in significantly different estimates of fair
value, potentially resulting in impairments of goodwill and other intangible assets. The inputs used for fair value measurements
of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs.
The Company's goodwill arising from acquisitions resides in multiple reporting units and primarily relates to the value of
expected synergies, anticipated expansion of its geographic presence, and the strengthening of the customer base. Goodwill and
other indefinite-lived intangible assets are assessed for impairment annually, or more frequently if events occur that would
indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual
reporting units may suffer periodically due to downturns in customer demand, reduced revenues from the termination of
contracts or the termination or delay of services under a contract or the loss of a customer, increased costs of providing services,
and the level of overall economic activity. The individual reporting unit's customers may also reduce capital expenditures and
defer or cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a
decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also
suffer if actual costs of providing services exceed the costs anticipated when the reporting unit enters into contracts.
Additionally, adverse economic conditions and future volatility in the equity and credit markets could impact the valuation of
the Company's reporting units. The cyclical nature of the reporting unit's business, the high level of competition existing within
its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These
factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the
performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.
The Company performs its annual goodwill assessment as of the first day of the fourth fiscal quarter of each fiscal year.
Goodwill and indefinite lived intangible assets are required to be tested for impairment between annual tests if events occur that
would indicate a potential reduction in the fair value of a reporting unit below its carrying value.
We performed our annual impairment assessment for fiscal 2023, fiscal 2022, and fiscal 2021, and concluded that no
impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the periods other
than the first quarter of fiscal 2021 as described below. In each of these periods, qualitative assessments were performed on
reporting units that comprise a significant portion of our consolidated goodwill balance. For the Company's indefinite-lived
intangible asset we performed a quantitative analysis for fiscal 2023 and a qualitative assessment for fiscal 2022 and 2021. A
qualitative assessment includes evaluating all identified events and circumstances that could affect the significant inputs used to
determine the fair value of a reporting unit or indefinite-lived intangible asset for the purpose of determining whether it is more
likely than not that these assets are impaired. We consider various factors while performing qualitative assessments, including
macroeconomic conditions, industry and market conditions, financial performance of the reporting units, changes in market
capitalization, and any other specific reporting unit considerations. These qualitative assessments indicated that it was more
likely than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units, we
performed the quantitative analysis described in ASC Topic 350 in each of these periods. When performing the quantitative
29
analysis, we determine the fair value of our reporting units using an equal weighting of fair values derived from the income
approach and market approach valuation methodologies. Under the income approach, the key valuation assumptions used in
determining the fair value estimates of our reporting units for each annual test were: (a) expected cash flow for a period of
seven years based on our best estimate of revenue growth rates and projected operating margins; (b) terminal value based upon
terminal growth rates; and (c) a discount rate based on the Company's best estimate of the weighted average cost of capital
adjusted for certain risks for the reporting units.
The table below outlines certain assumptions used in our annual quantitative impairment analyses for fiscal 2023,
fiscal 2022, and fiscal 2021;
Terminal Growth Rate
Discount Rate
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
2% - 3%
11.5%
2% - 3%
10.5%
3.0%
10.0%
The discount rate reflects risks inherent within each reporting unit operating individually. These risks are greater than the
risks inherent in the Company as a whole. Determination of discount rates included consideration of market inputs such as the
risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions. The increase in the discount
rate for fiscal 2023 from fiscal 2022 was largely driven by increases in prevailing interest rates as observed in financial markets
as of each valuation date. The increase in the discount rate for fiscal 2022 from fiscal 2021 was mainly a result of a heavier
weighting of the cost of equity versus debt in fiscal 2022 as a result of market trends for capital structure. We believe the
assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of our
reporting units and our industry. Under the market approach, the guideline company method develops valuation multiples by
comparing our reporting units to similar publicly traded companies. Key valuation assumptions used in determining the fair
value estimates of our reporting units rely on: (a) the selection of similar companies and (b) the selection of valuation multiples
as they apply to the reporting unit characteristics.
We determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of
their carrying values in the fiscal 2023 assessment. Management determined that significant changes were not likely in the
factors considered to estimate fair value, and analyzed the impact of such changes were they to occur. Specifically, if the
discount rate applied in the fiscal 2023 impairment analysis had been 100 basis points higher than estimated for each of the
reporting units, and all other assumptions were held constant, the conclusion of the assessment would remain unchanged and
there would be no impairment of goodwill. Additionally, if there was a 25% decrease in the fair value of any of the reporting
units due to a decline in their discounted cash flows resulting from lower operating performance, the conclusion of the
assessment would remain unchanged for all reporting units except for one. For this reporting unit with goodwill of
$5.7 million, the excess of fair value above its carrying value was approximately 7% of the fair value. Recent operating
performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions
used during the fiscal 2023 impairment analysis. Management has determined the goodwill of the Company may have an
increased likelihood of impairment if a prolonged downturn in customer demand were to occur, or if the reporting units was not
able to execute against customer opportunities, and the long-term outlook for their cash flows were adversely impacted.
Furthermore, changes in the long-term outlook may result in a change to other valuation assumptions. Factors monitored by
management which could result in a change to the reporting units' estimates include the outcome of customer requests for
proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity.
The Company determined that there were no events or changes in circumstances for the other reporting units or indefinite
lived intangible assets during fiscal 2023 that would indicate a potential reduction in their fair value below their carrying
amounts. As of January 28, 2023, the Company continues to believe the remaining goodwill and the indefinite-lived intangible
asset are recoverable for all of its reporting units. However, if adverse events were to occur or circumstances were to change
indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment
and could be impaired. There can be no assurances that goodwill or the indefinite-lived intangible asset may not be impaired in
future periods.
During fiscal 2021 and 2022, the economy of the United States was severely impacted by the nation's response to the
COVID-19 pandemic. Measures taken included travel restrictions, social distancing requirements, quarantines, and shelter in
place orders. As a result, businesses had been closed and certain business activities curtailed or modified. During the
COVID-19 pandemic, our services have generally been considered essential in nature and have not been materially interrupted.
However, certain customers of one of the Company's reporting units ("Broadband") had decided to restrict our technicians from
30
entering third party premises. Furthermore, customers have modified their protocols to increase the self-installation of customer
premise equipment by their subscribers.
Broadband generates a substantial portion of its revenue and operating results from installation services inside third party
premises. The events following the onset of COVID-19 were expected to result in a prolonged downturn in customer demand
for installation services from Broadband. This was expected to have a direct, adverse impact on its revenue, operating results
and cash flows. These indicators represented a triggering event that warranted impairment testing of Broadband during the three
months ended April 25, 2020.
The Broadband reporting unit includes the operations of Broadband Installation Services, Prince Telecom and certain other
operations and generated revenue of less than 4% of the consolidated contract revenue of Dycom in fiscal 2020. The Broadband
reporting unit did not incur losses in fiscal 2020.
The fiscal 2021 interim impairment analysis for Broadband utilized the same valuation techniques used in the Company's
annual fiscal 2020 impairment analysis. The key assumptions used to determine the fair value of the Company's reporting units
during this interim impairment analysis were: (a) expected cash flow for a period of seven years based on our best estimate of
revenue growth rates and projected operating margins; (b) terminal value based upon terminal growth rates; and (c) a discount
rate based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with Broadband.
Recent operating performance, along with key assumptions for specific customer and industry opportunities, were used during
the fiscal 2021 interim impairment analysis. The terminal growth rate used in the fiscal 2021 interim assessment was 1.5% as
compared to 3.0% in the fiscal 2020 assessment reflecting lower long-term demand levels. The discount rate used in the fiscal
2021 interim assessment was 12% compared to 10% in the fiscal 2020 assessment reflecting increased risk associated with the
outlook of Broadband.
The combination of lower expected operating results and cash flows from the reduction in revenue, as well as changes in
valuation assumptions in the fiscal 2021 interim analysis resulted in a substantial decline in the fair value of the Broadband
reporting unit. In accordance with ASU 2017-04, the Company compared the estimated fair value of Broadband to its carrying
amount. As a result, the Company recognized an impairment charge of $53.3 million which is the amount by which the carrying
amount exceeded the reporting unit's fair value. After the impairment charge, Broadband has $10.1 million of remaining
goodwill. The goodwill impairment charge did not affect the Company's compliance with its financial covenants and conditions
under its revolving credit agreement.
Accrued Insurance Claims. For claims within our insurance program, we retain the risk of loss, up to certain annual stop-
loss limits, for matters related to automobile liability, general liability (including damages associated with underground facility
locating services), workers' compensation, and employee group health. Losses for claims beyond our retained risk of loss are
covered by insurance up to our coverage limits.
For workers' compensation losses during fiscal 2023, 2022, and 2021, we retained the risk of loss up to $1.0 million on a
per occurrence basis. This retention amount is applicable to all of the states in which we operate, except with respect to
workers' compensation insurance in two states in which we participate in state-sponsored insurance funds.
For automobile liability and general liability losses during fiscal 2023, 2022, and 2021, we retained the risk of loss up to
$1.0 million on a per-occurrence basis for the first $5.0 million of insurance coverage. We also retained the risk of loss for
automobile and general liability for the next $5.0 million on a per-occurrence basis with aggregate stop loss limits of
$11.5 million within this layer of retention over the period from fiscal 2021 to fiscal 2023. During fiscal 2023 we retained
$5.0 million risk of loss on a per occurrence basis for losses between $10.0 million and $15.0 million, if any. Additionally,
during fiscal 2023 and 2022 we retained $10.0 million risk of loss on a per occurrence basis for losses between $30.0 million
and $40.0 million, if any.
We are party to a stop-loss agreement for losses under our employee group health plan. For the calendar year 2020, we
retained the risk of loss on an annual basis, up to the first $450,000 of claims per participant, as well as an annual aggregate
amount for all participants of $475,000. For the calendar years 2021, 2022, and 2023, we retain the risk of loss on an annual
basis, up to the first $600,000 of claims per participant.
We have established reserves that we believe to be adequate based on current evaluations and our experience with these
types of claims. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is
determined with the assistance of an actuary and reflected in the consolidated financial statements as accrued insurance claims.
The effect on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or
retentions. Amounts for total accrued insurance claims and insurance recoveries/receivables are as follows (dollars in millions):
31
Accrued insurance claims - current
Accrued insurance claims - non-current
Accrued insurance claims
Insurance recoveries/receivables:
Current (included in Other current assets)
Non-current (included in Other assets)
Insurance recoveries/receivables
January 28, 2023
January 29, 2022
41,043 $
49,347
90,390 $
4,957
4,957 $
36,805
48,238
85,043
756
3,687
4,443
The liability for total accrued insurance claims included incurred but not reported losses of approximately $48.0 million as
of January 28, 2023 and January 29, 2022.
We estimate the liability for claims based on facts, circumstances, and historical experience. Recorded loss reserves are
settled over time and are not discounted. Factors affecting the determination of the expected cost for existing and incurred but
not reported claims include, but are not limited to, the magnitude and quantity of future claims, the payment pattern of claims
which have been incurred, changes in the medical condition of claimants, and other factors such as inflation, tort reform or
other legislative changes, unfavorable jury decisions, and court interpretations.
Income Taxes. We account for income taxes under the asset and liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Measurement of our tax position is based on the applicable statutes, federal and state case law, and our interpretations of
tax regulations. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income during the
period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely
than not be realized. In making such determination, we consider all relevant factors, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial operations. In the
event we determine that we would be able to realize deferred income tax assets in excess of their net recorded amount, we
would adjust the valuation allowance, which would reduce the provision for income taxes.
We recognize tax benefits in the amount that we deem more likely than not will be realized upon ultimate settlement of any
tax uncertainty. Tax positions that fail to qualify for recognition are recognized during the period in which the more-likely-than-
not standard has been reached, when the tax positions are resolved with the respective taxing authority, or when the statute of
limitations for tax examination has expired. We recognize applicable interest related to tax amounts in interest expense and
penalties within general and administrative expenses.
Fluctuations in our effective income tax rate were attributable to the difference in income tax rates from state to state where
work was performed, non-deductible and non-taxable items, tax credits recognized, the tax effects of the vesting and exercise of
share-based awards, impacts of tax filings for prior years, and changes in unrecognized tax benefits.
Stock-Based Compensation. We have stock-based compensation plans under which we grant stock-based awards, including
stock options, time-based restricted share units ("RSUs"), and performance-based restricted share units ("Performance RSUs")
to attract, retain, and reward talented employees, officers, and directors, and to align stockholder and employee interests. The
resulting compensation expense is recognized on a straight-line basis over the vesting period, net of actual forfeitures, and is
included in general and administrative expenses in the consolidated statements of operations. This expense fluctuates over time
as a function of the duration of vesting periods of the stock-based awards and the Company's performance, as measured by
criteria set forth in performance-based awards.
Compensation expense for stock-based awards is based on fair value at the measurement date. The fair value of RSUs and
Performance RSUs is estimated on the date of grant and is equal to the closing market price per share of our common stock on
that date. RSUs generally vest ratably over a four-year period. Performance RSUs vest ratably over a three-year period, if
certain performance measures are achieved. Each RSU and Performance RSU is settled in one share of our common stock upon
vesting. The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. This
valuation is affected by the Company's stock price as well as other inputs, including the expected common stock price volatility
32
over the expected life of the options, the expected term of the stock option, risk-free interest rates, and expected dividends, if
any. Our outstanding stock options generally vest ratably over a four-year period and are generally exercisable over a period of
up to ten years.
For Performance RSUs, we evaluate compensation expense quarterly and recognize expense only if we determine it is
probable that the performance measures for the awards will be met. The performance measures for target awards are based on
our operating earnings (adjusted for certain amounts) as a percentage of contract revenues and our operating cash flow level
(adjusted for certain amounts) for the applicable four-quarter performance period. Additionally, certain awards include three-
year performance measures that are more difficult to achieve than those required to earn target awards and, if met, result in
supplemental shares awarded. The performance measures for supplemental awards are based on three-year cumulative
operating earnings (adjusted for certain amounts) as a percentage of contract revenues and three-year cumulative operating cash
flow level (adjusted for certain amounts). If we determine it is no longer probable that we will achieve certain performance
measures for the awards, we reverse the stock-based compensation expense that we had previously recognized associated with
the portion of Performance RSUs that are no longer expected to vest. The amount of the expense ultimately recognized depends
on the number of awards that actually vest. Accordingly, stock-based compensation expense may vary from period to period.
For additional information on our stock-based compensation plans, stock options, RSUs, and Performance RSUs, see Note 18,
Stock-Based Awards, in the notes to the consolidated financial statements in this Annual Report on Form 10-K.
Contingencies and Litigation. In the ordinary course of our business, we are involved in certain legal proceedings and other
claims, including claims for indemnification by our customers. In determining whether a loss should be accrued, we evaluate,
among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of
loss. If only a range of probable loss can be determined, we accrue for our best estimate within the range for the contingency. In
those cases where none of the estimates within the range is better than another, we accrue for the amount representing the low
end of the range. As additional information becomes available, we reassess the potential liability related to our pending
litigation and other contingencies and revise our estimates as applicable. Revisions of our estimates of the potential liability
could materially impact our results of operations. Additionally, if the final outcome of such litigation and contingencies differs
adversely from that currently expected, it would result in a charge to operating results when determined.
Business Combinations. We account for business combinations under the acquisition method of accounting. The purchase
price of each business acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on
information regarding their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value
of the separately identifiable assets acquired and liabilities assumed is allocated to goodwill. We determine the fair values used
in purchase price allocations for intangible assets based on historical data, estimated discounted future cash flows, expected
royalty rates for trademarks and trade names, as well as other information. The valuation of assets acquired and liabilities
assumed requires a number of judgments and is subject to revision as additional information about the fair value of assets and
liabilities becomes available. Additional information, which existed as of the acquisition date but unknown to us at that time,
may become known during the remainder of the measurement period. This measurement period may not exceed 12 months
from the acquisition date. The Company will recognize any adjustments to provisional amounts that are identified during the
measurement period in the reporting period in which the adjustments are determined. Additionally, in the same period in which
adjustments are recognized, the Company will record the effect on earnings of changes in depreciation, amortization, or other
income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting adjustment had been
completed at the acquisition date. Acquisition costs are expensed as incurred. The results of operations of businesses acquired
are included in the consolidated financial statements from their dates of acquisition.
33
Results of Operations
The following table sets forth our consolidated statements of operations for the periods indicated and the amounts as a
percentage of contract revenues (totals may not add due to rounding) (dollars in millions):
Contract revenues
Expenses:
Fiscal Year Ended
January 28, 2023
January 29, 2022
$
3,808.5
100.0 % $
3,130.5
100.0 %
Costs of earned revenues, excluding depreciation and amortization
3,160.3
General and administrative
Depreciation and amortization
Total
Interest expense, net
Loss on debt extinguishment
Other income, net
Income before income taxes
Provision for income taxes
Net income
293.5
144.2
3,597.9
(40.6)
10.2
180.1
37.9
83.0
7.7
3.8
94.5
(1.1)
0.3
4.7
1.0
$
142.2
3.7 % $
2,633.9
262.4
152.7
3,049.0
(33.2)
(0.1)
4.4
52.8
4.2
48.6
84.1
8.4
4.9
97.4
(1.1)
0.1
1.7
0.1
1.6 %
Contract Revenues. Contract revenues were $3.808 billion during fiscal 2023 compared to $3.131 billion during
fiscal 2022. Fiscal 2023 and fiscal 2022 had 52 weeks of operations.
Excluding $3.9 million of contract revenues from storm restoration services in fiscal 2022, contract revenues increased by
$681.8 million during fiscal 2023 compared to fiscal 2022. Contract revenues increased by $223.0 million for a large
telecommunications customer for fiber deployments and for improvements to its network, and by $185.4 million and $110.8
million, respectively, for two telecommunications customers primarily for fiber deployments. Partially offsetting these
increases, contract revenues decreased by $42.8 million for a leading cable multiple system operator from installation,
maintenance and construction services, $21.4 million for services performed for a telecommunications customer in connection
with rural services, and by $5.3 million for a large telecommunications customer primarily related to fiber deployments. All
other customers had net increases in contract revenues of $232.1 million on a combined basis during fiscal 2023 compared to
fiscal 2022.
The percentage of our contract revenues by customer type from telecommunications, underground facility locating, and
electric and gas utilities and other customers, was 89.7%, 7.2%, and 3.1%, respectively, for fiscal 2023 compared to 88.7%,
8.2%, and 3.1%, respectively, for fiscal 2022.
Costs of Earned Revenues. Costs of earned revenues increased to $3.160 billion, or 83.0% of contract revenues, during
fiscal 2023 compared to $2.634 billion, or 84.1% of contract revenues, during fiscal 2022. The primary component of the
increase was a $402.5 million aggregate increase in direct labor and subcontractor costs. The increase was further due to a $42.3
million increase in other direct costs, $41.8 million increase in equipment maintenance and fuel costs combined, and a $39.8
million increase in direct materials.
Costs of earned revenues as a percentage of contract revenues decreased 1.2% during fiscal 2023 compared to fiscal 2022.
As a percentage of contract revenues, labor and subcontracted labor costs decreased 1.1% primarily due to the mix of work
performed. Equipment maintenance and fuel costs combined increased 0.3% as a percentage of contract revenues primarily
resulting from an increase in fuel prices. Direct materials decreased 0.2% primarily as a result of our mix of work in which we
provide materials for our customers and other direct costs decreased 0.1% as a percentage of contract revenues during
fiscal 2023.
General and Administrative Expenses. General and administrative expenses increased to $293.5 million, or 7.7% of
contract revenues, during fiscal 2023 compared to $262.4 million, or 8.4% of contract revenues, during fiscal 2022. The
increase in total general and administrative expenses primarily resulted from increased administrative, payroll and other costs,
including performance based compensation and stock-based compensation.
34
Depreciation and Amortization. Depreciation expense was $128.8 million, or 3.4% of contract revenues, during
fiscal 2023, compared to $135.2 million, or 4.3% of contract revenues, during fiscal 2022. The decrease in depreciation expense
during fiscal 2023 was primarily due certain assets becoming fully depreciated or sold and the timing of capital expenditures.
Amortization expense was $15.3 million and $17.5 million during fiscal 2023 and fiscal 2022, respectively.
Interest Expense, Net. Interest expense, net was $40.6 million and $33.2 million during fiscal 2023 and fiscal 2022,
respectively. Interest expense included $1.7 million during fiscal 2022 for the non-cash amortization of the debt discount
associated with the 0.75% convertible senior notes due September 2021 (the "2021 Convertible Notes"). Excluding this
amortization, interest expense, net increased to $40.6 million during fiscal 2023 from $31.5 million during fiscal 2022 as a
result of higher interest rates on funded debt balances and higher outstanding borrowings during the current period.
Other Income, Net. Other income, net was $10.2 million and $4.4 million during fiscal 2023 and fiscal 2022, respectively.
The change in other income, net was primarily a function of the number of assets sold and prices obtained for those assets
during each respective period. Gain on sale of fixed assets was $16.8 million and $4.2 million during fiscal 2023 and
fiscal 2022, respectively. Other income, net also includes expense associated with the non-recourse sale of accounts receivable
under a customer-sponsored vendor payment program.
Loss on Debt Extinguishment. Loss on debt extinguishment for fiscal 2022 of $0.1 million includes the write-off of
deferred debt issuance costs on the 2021 Convertible Notes.
Income Taxes. The following table presents our income tax provision and effective income tax rate for fiscal 2023 and
fiscal 2022 (dollars in millions):
Income tax provision
Effective income tax rate
Fiscal Year Ended
January 28, 2023
37.9
21.0%
$
January 29, 2022
4.2
8.0%
Our effective income tax rate differs from the statutory rate primarily due to the difference in income tax rates from state to
state where work was performed, non-deductible and non-taxable items, tax credits recognized, the tax effects of the vesting
and exercise of share-based awards, impacts of tax filings for prior years, and changes in unrecognized tax benefits.
Net Income. Net income was $142.2 million for fiscal 2023 compared to $48.6 million for fiscal 2022.
Non-GAAP Adjusted EBITDA. Adjusted EBITDA is a Non-GAAP measure, as defined by Regulation G of the SEC. We
define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, gain on sale of fixed assets, stock-
based compensation expense, and certain non-recurring items. Management believes Adjusted EBITDA is a helpful measure
for comparing the Company's operating performance with prior periods as well as with the performance of other companies
with different capital structures or tax rates. The following table provides a reconciliation of net income to Non-GAAP
Adjusted EBITDA (dollars in thousands):
Net income
Interest expense, net
Provision for income taxes
Depreciation and amortization
Earnings Before Interest, Taxes, Depreciation & Amortization
("EBITDA")
Gain on sale of fixed assets
Stock-based compensation expense
Loss on debt extinguishment
Non-GAAP Adjusted EBITDA
Fiscal Year Ended
January 28, 2023
January 29, 2022
142,213
$
40,618
37,909
144,181
364,921
(16,759)
17,927
48,574
33,166
4,202
152,652
238,594
(4,203)
9,866
62
366,089
$
244,319
Non-GAAP Adjusted EBITDA % of contract revenues
9.6 %
7.8 %
35
A discussion of our financial results for fiscal 2022 compared to our financial for fiscal 2021 can be found in the "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" section in
our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed on March 4, 2022.
Liquidity and Capital Resources
We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, and
contract assets. Cash and equivalents primarily include balances on deposit with banks and totaled $224.2 million as of
January 28, 2023, compared to $310.8 million as of January 29, 2022. We maintain our cash and equivalents at financial
institutions we believe to be of high credit quality. For all periods presented, we have not experienced any loss or lack of access
to cash in our operating accounts.
Sources of Cash. Our sources of cash are operating activities, long-term debt, equity offerings, bank borrowings, proceeds
from the sale of idle and surplus equipment and real property, and stock option proceeds. Cash flow from operations is
primarily influenced by demand for our services and operating margins, but can also be influenced by working capital needs
associated with the services that we provide. In particular, working capital needs may increase when we have growth in
operations and where project costs, primarily associated with labor, subcontractors, equipment, and materials, are required to be
paid before the related customer balances owed to us are invoiced and collected. Our working capital (total current assets less
total current liabilities, excluding the current portion of debt) was $1,040.6 million as of January 28, 2023 compared to
$991.8 million as of January 29, 2022.
Capital resources are used primarily to purchase equipment and maintain sufficient levels of working capital to support our
contractual commitments to customers. We periodically draw upon and repay our revolving credit facility depending on our
cash requirements. We currently intend to retain any earnings for use in the business and other capital allocation strategies
which may include investment in acquisitions and share repurchases. Consequently, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
Our level of capital expenditures can vary depending on the customer demand for our services, the replacement cycle we
select for our equipment, and overall growth. We intend to fund these expenditures primarily from operating cash flows,
availability under our credit agreement, and cash on hand. We expect capital expenditures, net of disposals, to range from
$220.0 million to $230.0 million during fiscal 2024 to support growth opportunities and the replacement of certain fleet assets.
Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts
available under our credit agreement, are sufficient to meet our financial obligations. These obligations include payments on our
debt, working capital requirements, and the purchase of equipment at our expected level of operations for at least the next 12
months. Our capital requirements may increase to the extent we seek to grow by acquisitions that involve consideration other
than our stock, experience difficulty or delays in collecting amounts owed to us by our customers, increase our working capital
in connection with new or existing customer programs, or we repurchase our common stock, or repay credit agreement
borrowings. Changes in financial markets or other components of the economy could adversely impact our ability to access the
capital markets, in which case we would expect to rely on a combination of available cash and our credit agreement to provide
short-term funding. Management regularly monitors the financial markets and assesses general economic conditions for
possible impact on our financial position. We believe our cash investment policies are prudent and expect that any volatility in
the capital markets would not have a material impact on our cash investments.
Net Cash Flows. The following table presents our net cash flows for fiscal 2023 and fiscal 2022 (dollars in millions):
Net cash flows:
Provided by operating activities
Used in investing activities
(Used in) provided by financing activities
Fiscal Year Ended
January 28, 2023
January 29, 2022
164.8 $
(183.9) $
(67.4) $
308.7
(151.7)
142.0
Cash Provided by Operating Activities. During fiscal 2023, net cash provided by operating activities was $164.8 million.
Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $164.8 million of
operating cash flow during fiscal 2023. Working capital changes that used operating cash flow during fiscal 2023 included an
36
increase in accounts receivable of $173.7 million, other current assets and inventories of $41.3 million, contract assets, net of
$18.4 million, and a decrease in accrued liabilities of $10.0 million. Changes that provided operating cash flow during
fiscal 2023 included an increase in accounts payable of $49.4 million and a decrease in other assets of $5.7 million. In addition,
an increase in income tax payable and a decrease in income tax receivable provided $23.5 million in operating cash flow during
fiscal 2023.
The primary non-cash items in cash flows from operating activities during the current and prior periods are depreciation
and amortization, non-cash lease expense, stock-based compensation, amortization of debt discount and debt issuance costs,
deferred income taxes, gain on sale of fixed assets, goodwill impairment charge in fiscal 2021, gain and loss on debt
extinguishment and provision for bad debt.
Days sales outstanding ("DSO") is calculated based on the ending balance of total current and non-current accounts
receivable (including unbilled accounts receivable), net of the allowance for doubtful accounts, and current contract assets, net
of contract liabilities, divided by the average daily revenue for the most recently completed quarter. Long-term contract assets
are excluded from the calculation of DSO, as these amounts represent payments made to customers pursuant to long-term
agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to
the customers. Including these balances in DSO is not meaningful to the average time to collect accounts receivable and current
contract asset balances. Our DSO was 108 days as of both January 28, 2023 and January 29, 2022.
See Note 5, Accounts Receivable, Contract Assets, and Contract Liabilities, for further information on our customer credit
concentration as of January 28, 2023 and January 29, 2022 and Note 19, Customer Concentration and Revenue Information, for
further information on our significant customers. We believe that none of our significant customers were experiencing financial
difficulties that would materially impact the collectability of our total accounts receivable and contract assets, net as of
January 28, 2023 or January 29, 2022.
During fiscal 2022, net cash provided by operating activities was $308.7 million. Changes in working capital (excluding
cash) and changes in other long-term assets and liabilities provided $54.4 million of operating cash flow during fiscal 2022.
Working capital changes that provided operating cash flow during fiscal 2022 included a decrease in contract assets, net of
$177.0 million and other assets of $2.2 million. Changes that used operating cash flow during fiscal 2022 included a decrease in
accrued liabilities of $49.7 million and accounts payable of $4.9 million. In addition, an increase in accounts receivable of
$40.7 million, other current assets and inventories of $12.3 million and net increase in income tax receivable of $17.2 million,
each primarily as a result of the timing of payments, used operating cash flow during fiscal 2022.
Cash Used in Investing Activities. Net cash used in investing activities was $183.9 million during fiscal 2023. Capital
expenditures of $201.0 million were for the replacement of certain fleet assets and new work opportunities. Additionally, we
acquired the assets of a telecommunications contraction company for $0.4 million. Proceeds from sale of assets were
$17.4 million.
Net cash used in investing activities was $151.7 million during fiscal 2022. During fiscal 2022, capital expenditures of
$157.0 million, primarily as a result of spending for new work opportunities and the replacement of certain fleet assets, were
offset in part by proceeds from the sale of assets of $5.4 million.
Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was $67.4 million during
fiscal 2023. The primary source of cash used in financing activities during fiscal 2023 was the repurchase of 514,030 shares of
our common stock in open market transactions, at an average price of $94.80 per share, for $48.7 million and principal
payments on term loans of $17.5 million. The exercise of stock options provided $4.6 million during fiscal 2023 and we paid
$5.8 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested
during the period.
Net cash provided by fmancing activities was $142.0 million during fiscal 2022. The primary source of cash provided by
fmancing activities during fiscal 2022 was the "2029 Notes" issued in a private placement in April 2021. This was primarily
offset by a $58.3 million payment on long-term debt related to the repayment in full of our 2021 Convertible Notes during fiscal
2022 and an additional $0.7 million to unwind warrants associated with the remaining portion of the 2021 Convertible Notes
that was repaid. In addition, we used $105.0 million of the proceeds from the 2029 Notes offering to repay outstanding
borrowings under the revolving portion of our credit agreement and approximately $71.9 million to repay term loan borrowings
under our credit agreement. We paid approximately $11.6 million in issuance costs and third party fees and expenses related to
our fmancing transactions. We repurchased 1,231,638 shares of our common stock in open market transaction, at an average
price of $86.17 per share, for $106.1 million. The exercise of stock options provided $2.3 million during fiscal 2022 and we
37
paid $6.6 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested
during the period.
Compliance with Credit Agreement. We are party to a credit agreement, dated as of October 19, 2018, as amended, with the
various lenders party thereto and Bank of America, N.A., as administrative agent (the "Credit Agreement") to among other
things, decrease the maximum revolver commitment to $650.0 million from $750.0 million and decrease the term loan facility
to $350.0 million from $416.3 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of letters of
credit and a $50.0 million sublimit for swingline loans. As part of the amendment, the maturity of the Credit Agreement was
extended to April 1, 2026.
Subject to certain conditions, the Credit Agreement provides us with the ability to enter into one or more incremental
facilities either by increasing the revolving commitments under the Credit Agreement and/or by establishing one or more
additional term loans, up to the sum of (i) $350.0 million and (ii) an aggregate amount such that, after giving effect to such
incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and
funded), the consolidated senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net
leverage ratio is the ratio of our consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in
excess of $25.0 million to our trailing four-quarter consolidated earnings before interest, taxes, depreciation, and amortization
("EBITDA"), as defmed by the Credit Agreement. Borrowings under the Credit Agreement are guaranteed by substantially all
of our domestic subsidiaries and secured by 100% the equity interests of our direct and indirect domestic subsidiaries and 65%
of the voting equity interests and 100% of the non-voting interests of our first-tier foreign subsidiaries (subject to customary
exceptions).
Under our Credit Agreement, borrowings bear interest at the rates described below based upon our consolidated net
leverage ratio, which is the ratio of our consolidated total funded debt reduced by unrestricted cash and equivalents in excess of
$25.0 million to our trailing four-quarter consolidated EBITDA, as defined by our Credit Agreement. In addition, we incur
certain fees for unused balances and letters of credit at the rates described below, also based upon our consolidated net leverage
ratio.
Borrowings - Eurodollar Rate Loans
Borrowings - Base Rate Loans
Unused Revolver Commitment
Standby Letters of Credit
Commercial Letters of Credit
1.25% - 2.00% plus LIBOR(1)
0.25% - 1.00% plus Base rate(2)
0.20% - 0.40%
1.25% - 2.00%
0.625% - 1.00%
(1) To address the transition in financial markets away from LIBOR, the Credit Agreement includes provisions related to the
replacement of LIBOR with a LIBOR successor rate (as defmed in the Credit Agreement), which may be a rate based on the
Secured Overnight Financing Rate published by the Federal Reserve Bank of New York.
(2) Base rate is described in the Credit Agreement as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the administrative
agent's prime rate, and (iii) the Eurodollar rate plus 1.00% and if such rate is less than zero, such rate shall be deemed zero.
Standby letters of credit of approximately $47.5 million and $46.3 million, issued as part of our insurance program, were
outstanding under our Credit Agreement as January 28, 2023 and January 29, 2022, respectively.
The weighted average interest rates and fees for balances under our Credit Agreement as of January 28, 2023 and
January 29, 2022 were as follows:
Borrowings - Term loan facility
Borrowings - Revolving facility(1)
Standby Letters of Credit
Unused Revolver Commitment
Weighted Average Rate End of Period
January 29, 2022
January 28, 2023
1.86%
6.21%
1.75%
0.35%
1.75%
0.35%
(1) There were no outstanding borrowings under our revolving facility as of January 28, 2023.
38
Our Credit Agreement contains a financial covenant that requires us to maintain a consolidated net leverage ratio of not
greater than 3.50 to 1.00, as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in
connection with permitted acquisitions. The consolidated net leverage ratio is the ratio of our consolidated indebtedness reduced
by unrestricted cash and cash equivalents in excess of $25.0 million to our trailing four-quarter consolidated earnings before
interest, taxes, depreciation, and amortization as defined by our Credit Agreement. The agreement also contains a fmancial
covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing four-quarter
consolidated EBITDA to our consolidated interest expense, each as defined by our Credit Agreement, of not less than 3.00 to
1.00, as measured at the end of each fiscal quarter. At January 28, 2023 and January 29, 2022, we were in compliance with the
fmancial covenants of our Credit Agreement and had borrowing availability under our revolving facility of $602.5 million and
$326.3 million, respectively, as determined by the most restrictive covenant. For calculation purposes, applicable cash on hand
is netted against the funded debt amount as permitted in the Credit Agreement.
The indenture governing the 2029 Notes contains certain covenants that limit, among other things, our ability and the
ability of certain of our subsidiaries to (i) incur additional debt and issue certain preferred stock, (ii) pay certain dividends on,
repurchase, or make distributions in respect of, our and our subsidiaries' capital stock or make other payments restricted by the
indenture, (iii) enter into agreements that place limitations on distributions made from certain of our subsidiaries, (iv) guarantee
certain debt, (v) make certain investments, (vi) sell or exchange certain assets, (vii) enter into transactions with affiliates, (viii)
create certain liens, and (ix) consolidate, merge or transfer all or substantially all of our or our Subsidiaries' assets. These
covenants are subject to a number of exceptions, limitations and qualifications as set forth in the indenture governing the 2029
Notes.
Contractual Obligations. The following table sets forth our outstanding contractual obligations as of January 28, 2023
(dollars in thousands):
Due in
Fiscal 2024
Due
Thereafter
Total
2029 Notes
Credit agreement — term loan facility
Fixed interest payments on long-term debt(1)
Obligations under long-term operating leases(2)
Obligations under short-term operating leases(31
Employment agreements
Purchase and other contractual obligations(4)
Total
315,000
123,750
44,046
— $ 500,000 $ 500,000
332,500
146,250
74,547
922
32,089
126,093
$ 201,908 $ 1,010,493 $ 1,212,401
17,500
22,500
30,501
922
27,232
103,253
4,857
22,840
(1) Includes interest payments on our $500.0 million principal amount of 2029 Notes outstanding, and excludes interest
payments on our variable rate debt. Variable rate debt as of January 28, 2023 consisted of $332.5 million outstanding under our
term loan facility.
(2) Amounts represent undiscounted lease obligations under long-term operating leases and exclude long-term operating leases
that have not yet commenced of $0.1 million as of January 28, 2023.
(3) Amounts represent lease obligations under short-term operating leases that are not recorded on our consolidated balance sheet
as of January 28, 2023.
(4) We have committed capital for the expansion of our vehicle fleet in order to accommodate manufacturer lead times. As of
January 28, 2023, purchase and other contractual obligations includes approximately $86.7 million for issued orders with
delivery dates scheduled to occur over the next 12 months.
Our consolidated balance sheet as of January 28, 2023 includes a long-term liability of approximately $49.3 million for
accrued insurance claims. This liability has been excluded from the table above as the timing of payments is uncertain.
The liability for unrecognized tax benefits for uncertain tax positions was approximately $15.8 million and $11.9 million,
as of January 28, 2023 and January 29, 2022, respectively, and is included in other liabilities in the consolidated balance
sheets. This amount has been excluded from the contractual obligations table because we are unable to reasonably estimate the
timing of the resolution of the underlying tax positions with the relevant tax authorities.
39
Performance and Payment Bonds and Guarantees. We have obligations under performance and other surety contract bonds
related to certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment
and/or performance from the issuer of the bond if we fail to perform our contractual obligations. As of January 28, 2023 and
January 29, 2022 we had $299.8 million and $296.4 million of outstanding performance and other surety contract bonds,
respectively. The estimated cost to complete projects secured by our outstanding performance and other surety contract bonds
was approximately $109.4 million as of January 28, 2023. In addition to performance and other surety contract bonds, as part of
our insurance program we also provide surety bonds that collateralize our obligations to our insurance carriers. As of
January 28, 2023 and January 29, 2022, we had $20.4 million and $20.3 million, respectively, of outstanding surety bonds
related to our insurance obligations. Additionally, we have periodically guaranteed certain obligations of our subsidiaries,
including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
Letters of Credit. We have standby letters of credit issued under our Credit Agreement as part of our insurance program.
These letters of credit collateralize obligations to our insurance carriers in connection with the settlement of potential claims. In
connection with these collateral obligations, we had $47.5 million and $46.3 million outstanding standby letters of credit issued
under our Credit Agreement as of January 28, 2023 and January 29, 2022, respectively.
Backlog. Backlog is not a measure defined by United States generally accepted accounting principles ("GAAP") and
should be considered in addition to, but not as a substitute for, GAAP results. Participants in our industry often disclose a
calculation of their backlog; however, our methodology for determining backlog may not be comparable to the methodologies
used by others. We utilize our calculation of backlog to assist in measuring aggregate awards under existing contractual
relationships with our customers. We believe our backlog disclosures will assist investors in better understanding this estimate
of the services to be performed pursuant to awards by our customers under existing contractual relationships.
Our backlog is an estimate of the uncompleted portion of services to be performed under contractual agreements with our
customers and totaled $6.141 billion and $5.822 billion at January 28, 2023 and January 29, 2022, respectively. We expect to
complete 56.3% of the January 28, 2023 total backlog during the next 12 months. Our backlog represents an estimate of
services to be performed pursuant to master service agreements and other contractual agreements over the terms of those
contracts. These estimates are based on contract terms and evaluations regarding the timing of the services to be provided. In
the case of master service agreements, backlog is estimated based on the work performed in the preceding 12 month period,
when available. When estimating backlog for newly initiated master service agreements and other long and short-term
contracts, we also consider the anticipated scope of the contract and information received from the customer during the
procurement process and, where applicable, other ancillary information. A significant majority of our backlog comprises
services under master service agreements and other long-term contracts.
Generally, our customers are not contractually committed to procure specific volumes of services. Contract revenue
estimates reflected in our backlog can be subject to change due to a number of factors, including contract cancellations or
changes in the amount of work we expect to be performed. In addition, contract revenues reflected in our backlog may be
realized in different periods from those previously anticipated due to these factors as well as project accelerations or delays due
to various reasons, including, but not limited to, changes in customer spending priorities, project cancellations, regulatory
interruptions, scheduling changes, commercial issues, such as permitting, engineering revisions, job site conditions and adverse
weather. The amount or timing of our backlog can also be impacted by the merger or acquisition activity of our customers.
Many of our contracts may be cancelled by our customers, or work previously awarded to us pursuant to these contracts may be
cancelled, regardless of whether or not we are in default. The amount of backlog related to uncompleted projects in which a
provision for estimated losses was recorded is not material.
Legal Proceedings
Refer to Note 20, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K.
Recently Issued Accounting Pronouncements
Refer to Note 3, Accounting Standards, in the Notes to the Consolidated Financial Statements in this Annual Report on
Form 10-K for a discussion of recent accounting standards and pronouncements.
40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary exposure to market risk relates to unfavorable changes in interest rates on our fixed-rate and variable-rate
debt. Fluctuations in interest rates impact the fair value of our fixed-rate debt and interest expense on our variable-rate debt. At
January 28, 2023, 60% of our debt, on a gross basis, incurred interest at a fixed-rate and the remaining 40% of the debt incurred
interest at a variable-rate.
On April 1, 2021, we issued $500.0 million aggregate principal amount of 4.50% senior notes due 2029 (the "2029
Notes"). The 2029 Notes are guaranteed on a senior unsecured basis, jointly and severally, by all of our domestic subsidiaries
that guarantee the Credit Agreement. The fair value of the fixed rate 2029 Notes will change with changes in market interest
rates. Generally, the fair value of the fixed rate 2029 Notes will increase as interest rates fall and decrease as interest rates rise.
The following table summarizes the carrying amount and fair value of the 2029 Notes, net of debt issuance costs. The fair value
of the 2029 Notes is based on the closing trading price per $100 of the 2029 Notes as of the last day of trading (Level 2), which
was $90.25 and $97.50 as of January 28, 2023 and January 29, 2022, respectively (dollars in thousands):
Principal amount of 2029 Notes
Less: Debt issuance costs
Net carrying amount of 2029 Notes
Fair value of principal amount of 2029 Notes
Less: Debt issuance costs
Fair value of 2029 Notes
January 28, 2023
January 29, 2022
500,000 $
(5,736)
494,264 $
500,000
(6,687)
493,313
January 28, 2023
January 29, 2022
451,250 $
(5,736)
445,514 $
487,500
(6,687)
480,813
A hypothetical 50 basis point change in the market interest rates in effect would result in an increase or decrease in the fair
value of the 2029 Notes of approximately $13.0 million, calculated on a discounted cash flow basis as of January 28, 2023.
Our Credit Agreement provides borrowings at a variable rate of interest. On January 28, 2023, we had variable rate debt
outstanding of $332.5 million under our term loan facility. Interest related to these borrowings fluctuates based on LIBOR or
the administrative agent's base rate. The administrative agent's base rate is described in the Credit Agreement as the highest of
(i) the Federal Funds Rate plus 0.50%, (ii) the administrative agent's prime rate, and (iii) the Eurodollar rate plus 1.00% and, if
such rate is less than zero, such rate shall be deemed zero. At the current level of borrowings, for every 50 basis point change in
the interest rate, interest expense associated with such borrowings would correspondingly change by approximately
$1.7 million annually.
41
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Page
43
44
45
46
47
49
76
42
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
Current assets:
Cash and equivalents
Accounts receivable, net (Note 5)
Contract assets
Inventories
Income tax receivable
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Current portion of debt
Contract liabilities
Accrued insurance claims
Operating lease liabilities
Income taxes payable
Other accrued liabilities
Total current liabilities
Long-term debt
Accrued insurance claims - non-current
Operating lease liabilities - non-current
Deferred tax liabilities, net - non-current
Other liabilities
Total liabilities
January 28, 2023 January 29, 2022
$
224,186 $
1,067,013
43,932
114,972
3,929
38,648
310,757
895,898
24,539
81,291
12,729
30,876
1,492,680
1,356,090
367,852
67,240
272,545
86,566
26,371
294,798
61,101
272,485
101,832
31,918
2,313,254 $
2,118,224
207,739 $
155,896
17,500
19,512
41,043
27,527
14,896
141,334
469,551
807,367
49,347
39,628
60,205
18,401
17,500
18,512
36,805
24,641
233
128,209
381,796
823,251
48,238
36,519
55,674
14,202
1,444,499
1,359,680
COMMITMENTS AND CONTINGENCIES (Note 20)
Stockholders' equity:
Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares
issued and outstanding
Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized:
29,350,021 and 29,612,867 issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to the consolidated financial statements.
43
9,783
5,654
(1,771)
855,089
868,755
9,871
2,028
(1,769)
748,414
758,544
2,313,254 $
2,118,224
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Contract revenues
$
3,808,462 $
3,130,519 $
3,199,165
Costs of earned revenues, excluding depreciation and amortization
3,160,264
2,633,877
2,641,989
General and administrative
Depreciation and amortization
Goodwill impairment charge
Total
Interest expense, net
(Loss) gain on debt extinguishment
Other income, net
Income before income taxes
293,478
144,181
262,432
152,652
259,770
175,897
53,264
3,597,923
3,048,961
3,130,920
(40,618)
(33,166)
(29,671)
10,201
180,122
(62)
4,446
52,776
12,046
8,597
59,217
Provision for income taxes
37,909
4,202
24,880
Net income
$
142,213 $
48,574 $
34,337
Earnings per common share:
Basic earnings per common share
4.81 $
1.60 $
1.08
Diluted earnings per common share
4.74 $
1.57 $
1.07
Shares used in computing earnings per common share:
Basic
Diluted
29,549,990
30,337,544
31,665,183
29,996,591
30,844,211
32,090,578
See notes to the consolidated financial statements.
44
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Net Income
Foreign currency translation (losses) gains, net of tax
Comprehensive income
$
$
142,213 $
48,574 $
34,337
(2)
12
142,211 $
48,574 $
34,349
See notes to the consolidated financial statements.
45
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Equity
Balances as of January 25, 2020
31,583,938 $ 10,528 $
30,158 $
(1,781) $829,699 $868,604
Cumulative effect from implementation of
ASU 2016-13
Stock options exercised
Stock-based compensation
Issuance of restricted stock, net of tax
withholdings
Equity component of the settlement of
0.75% convertible senior notes due 2021, net
of taxes
Purchase of warrants
Settlement of convertible note hedges related
to extinguishment of convertible debt
Repurchase of common stock
Other comprehensive income
Net income
295,650
4,962
54,998
98
1
19
5,640
12,770
(747)
(8,976)
(7,176)
7,197
(1,324,381)
(441)
(36,582)
Balances as of January 30, 2021
30,615,167
10,205
Stock options exercised
Stock-based compensation
Issuance of restricted stock, net of tax
withholdings
Purchase of warrants
42,580
2,197
184,561
14
1
62
2,284
2,247
9,865
(2,767)
(693)
(471)
(471)
5,738
12,771
(728)
-
—
(8,976)
(7,176)
-
12
7,197
(62,977)
(100,000)
12
34,337
34,337
(1,769)
800,588
811,308
2,261
9,866
—
(3,934)
(6,639)
(693)
Repurchase of common stock
(1,231,638)
(411)
(8,909)
-
(96,814)
(106,133)
Net income
Balances as of January 29, 2022
29,612,867
9,871
Stock options exercised
Stock-based compensation
Issuance of restricted stock, net of tax
withholdings
Repurchase of common stock
Other comprehensive (loss)
Net income
119,430
1,824
129,930
40
1
43
2,028
4,517
17,926
(3,449)
(514,030)
(172)
(15,368)
48,574
48,574
(1,769)
748,414
758,544
4,557
17,927
—
—
(2)
(2,346)
(5,752)
(33,192)
(48,732)
(2)
—
142,213
142,213
Balances as of January 28, 2023
29,350,021 $ 9,783 $
5,654 $
(1,771) $855,089 $ 868,755
See notes to the consolidated financial statements.
46
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 142,213 $
48,574 $
34,337
Depreciation and amortization
Non-cash lease expense
Deferred income tax provision (benefit)
Stock-based compensation
Provision for bad debt, net
Gain on sale of fixed assets
Loss (gain) on debt extinguishment
Amortization of debt discount
Amortization of debt issuance costs and other
Goodwill impairment charge
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable, net
Contract assets, net
Other current assets and inventories
Other assets
Income taxes receivable/payable
Accounts payable
Accrued liabilities, insurance claims, operating lease liabilities, and other
liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of assets
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from 2029 Notes
Proceeds from borrowings on senior credit agreement, including term loans
144,181
32,069
4,532
17,927
2,600
152,652
31,838
8,024
9,866
2,911
(16,759)
(4,203)
62
1,665
2,825
2,835
175,897
31,828
(28,185)
12,771
406
(10,026)
(12,046)
7,441
2,797
53,264
(173,714)
(40,687)
(41,755)
(18,394)
(41,270)
5,666
23,463
49,396
176,982
(12,255)
2,220
(17,177)
(4,905)
53,664
27,316
9,178
7,505
43,747
(9,956)
(49,737)
164,789
308,655
13,638
381,777
(200,955)
(157,042)
(58,047)
17,372
(350)
5,363
13,419
(183,933)
(151,679)
(44,628)
500,000
95,000
1,056,000
Principal payments on senior credit agreement, including term loans
(17,500)
(271,875)
(973,500)
Debt issuance costs
Repurchase of common stock
Extinguishment of 2021 Convertible Notes
Redemption discount on convertible debt, net of costs
Settlement of convertible note hedges related to extinguished convertible debt
Purchase of warrants
Exercise of stock options
Restricted stock tax withholdings
(11,646)
(48,732)
(106,133)
(100,000)
(58,264)
(401,736)
4,557
(5,752)
(693)
2,261
(6,639)
30,761
7,197
(7,176)
5,738
(728)
47
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in thousands)
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Net cash (used in) provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
(67,427)
(86,571)
142,011
298,987
(383,444)
(46,295)
Cash, cash equivalents and restricted cash at beginning of period (Note 7)
312,561
13,574
59,869
Cash, cash equivalents and restricted cash at end of period (Note 7)
$ 225,990 $
312,561 $
13,574
Supplemental disclosure of other cash flow activities and non-cash investing and
financing activities:
Cash paid for interest
Cash paid for taxes, net
$
$
37,928 $
22,076 $
20,653
6,915 $
8,601 $
45,332
Purchases of capital assets included in accounts payable or other accrued liabilities at
period end
8,256 $
6,666 $
6,556
See notes to the consolidated financial statements.
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Dycom Industries, Inc. ("Dycom," the "Company," "we," "our," or "us") is a leading provider of specialty contracting
services throughout the United States. These services include program management; planning; engineering and design; aerial,
underground, and wireless construction; maintenance; and fulfillment services for telecommunications providers. Additionally,
Dycom provides underground facility locating services for various utilities, including telecommunications providers, and other
construction and maintenance services for electric and gas utilities. Dycom supplies the labor, tools, and equipment necessary to
provide these services to its customers.
Accounting Period. Our fiscal year ends on the last Saturday in January. As a result, each fiscal year consists of either 52
weeks or 53 weeks of operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2023 and fiscal
2022 each consisted of 52 weeks of operations. Fiscal 2021 consisted of 53 weeks of operations.
The accompanying consolidated financial statements of the Company and its subsidiaries, all of which are wholly-owned,
have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP")
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management,
all adjustments considered necessary for a fair presentation of such statements have been included. This includes all normal and
recurring adjustments and elimination of intercompany accounts and transactions.
Segment Information. The Company operates in one reportable segment. Its services are provided by its operating segments
on a decentralized basis. Each operating segment consists of a subsidiary (or in certain instances, the combination of two or
more subsidiaries), whose results are regularly reviewed by the Company's Chief Executive Officer, the chief operating
decision maker. All of the Company's operating segments have been aggregated into one reportable segment based on their
similar economic characteristics, nature of services and production processes, type of customers, and service distribution
methods.
2. Significant Accounting Policies and Estimates
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make certain
estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes.
These key estimates include: the recognition of revenue under the cost-to-cost method of progress, accrued insurance claims,
the allowance for doubtful accounts, accruals for contingencies, stock-based compensation expense for performance-based
stock awards, the fair value of reporting units for the goodwill impairment analysis, the assessment of impairment of intangibles
and other long lived assets, the purchase price allocations of businesses acquired, and income taxes. These estimates are based
on our historical experience and management's understanding of current facts and circumstances. At the time they are made, we
believe that such estimates are fair when considered in conjunction with the Company's consolidated financial position and
results of operations taken as a whole. However, actual results could differ materially from those estimates.
Revenue Recognition. We perform a significant amount of our services under master service agreements and other
contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks
including, for example, the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a
specific unit of measure. A contractual agreement exists when each party involved approves and commits to the agreement, the
rights of the parties and payment terms are identified, the agreement has commercial substance, and collectability of
consideration is probable. Our services are performed for the sole benefit of our customers, whereby the assets being created or
maintained are controlled by the customer and the services we perform do not have alternative benefits for us. Contract revenue
is recognized over time as services are performed and customers simultaneously receive and consume the benefits we provide.
Output measures such as units delivered are utilized to assess progress against specific contractual performance obligations for
the majority of our services. The selection of the method to measure progress towards completion requires judgment and is
based on the nature of the services to be provided. For us, the output method using units delivered best represents the measure
of progress against the performance obligations incorporated within the contractual agreements. This method captures the
amount of units delivered pursuant to contracts and is used only when our performance does not produce significant amounts of
work in process prior to complete satisfaction of the performance obligation. For a portion of contract items, units to be
completed consist of multiple tasks. For these items, the transaction price is allocated to each task based on relative standalone
measurements, such as selling prices for similar tasks, or in the alternative, the cost to perform the tasks. Contract revenue is
49
recognized as the tasks are completed as a measurement of progress in the satisfaction of the corresponding performance
obligation.
For certain contracts, representing less than 5% of contract revenues during fiscal 2023, fiscal 2022, and fiscal 2021, we
use the cost-to-cost measure of progress. These contracts are generally projects that are completed over a period of less than 12
months and for which payment is received in a lump sum at the end of the project. Under the cost-to-cost measure of progress,
the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs.
Contract costs include direct labor, direct materials, and subcontractor costs, as well as an allocation of indirect costs. Contract
revenues are recorded as costs are incurred. We accrue the entire amount of a contract loss, if any, at the time the loss is
determined to be probable and can be reasonably estimated.
There were no material amounts of unapproved change orders or claims recognized during fiscal 2023, fiscal 2022, and
fiscal 2021.
Accounts Receivable, net. We grant credit to our customers, generally without collateral, under normal payment terms
(typically 30 to 90 days after invoicing). Generally, invoicing occurs within 45 days after the related services are performed.
Accounts receivable represents an unconditional right to consideration arising from our performance under contracts with
customers. Accounts receivable include billed accounts receivable, unbilled accounts receivable, and retainage. The carrying
value of such receivables, net of the allowance for doubtful accounts, represents their estimated realizable value. Unbilled
accounts receivable represent amounts we have an unconditional right to receive payment for that will be billed at a later date
due to administrative requirements in the billing processes specified by our customers. Certain of our contracts contain
retainage provisions whereby a portion of the revenue earned is withheld from payment as a form of security until contractual
provisions are satisfied. The collectability of retainage is included in our overall assessment of the collectability of accounts
receivable. We expect to collect the outstanding balance of current accounts receivable, net (including trade accounts
receivable, unbilled accounts receivable, and retainage) within the next 12 months. We estimate our allowance for doubtful
accounts by evaluating specific accounts receivable balances based on historical collection trends, the age of outstanding
receivables, and the credit worthiness of our customers.
We participate in a customer-sponsored vendor payment program for one of our customers. All eligible accounts receivable
from this customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner of the
customer. This program effectively reduces the time to collect these receivables as compared to that customer's standard
payment terms. We incur a discount fee to the bank on the payments received that is reflected as an expense component in other
income, net, in the consolidated statements of operations.
Contract Assets. Contract assets include unbilled amounts typically resulting from arrangements whereby complete
satisfaction of a performance obligation and the right to payment are conditioned on completing additional tasks or services.
Contract Liabilities. Contract liabilities consist of amounts invoiced to customers in excess of revenue recognized. Our
contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. As
of January 28, 2023 and January 29, 2022, the contract liabilities balance is classified as current based on the timing of when
we expect to complete the tasks required for the recognition of revenue.
Cash and Equivalents. Cash and equivalents primarily include balances on deposit in banks. We maintain our cash and
equivalents at financial institutions we believe to be of high credit quality. To date, we have not experienced any loss or lack of
access to cash in our operating accounts.
Inventories. Inventories consist of materials and supplies used in the ordinary course of business and are carried at the
lower of cost (using the first-in, first-out method) or net realizable value. Inventories also include certain job specific materials
that are valued using the specific identification method. For contracts where we are required to supply part or all of the
materials on behalf of a customer, the loss of a customer or declines in contract volumes could result in an impairment of the
value of materials purchased.
Property and Equipment. Property and equipment are stated at cost and depreciated on a straight-line basis over their
estimated useful lives (see Note 8, Property and Equipment, for the range of useful lives). Leasehold improvements are
depreciated on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining lease term.
Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold or retired, the
cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in other
income. Capitalized software consists primarily of costs to purchase and develop internal-use software and is amortized over its
50
useful life as a component of depreciation expense. Property and equipment includes internally developed capitalized computer
software at net book value of $12.8 million and $17.0 million as of January 28, 2023 and January 29, 2022, respectively.
Leases. Our leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the
lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will
exercise that option. For leases with initial terms greater than 12 months, we record operating lease right-of-use assets and
corresponding operating lease liabilities. Operating lease right-of-use assets represent our right to use the underlying asset for
the lease term and operating lease liabilities represent our obligation to make the related lease payments. These assets and
liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our
leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the
commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not
recorded on our consolidated balance sheet.
Goodwill and Intangible Assets. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment
as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential
reduction in the fair value of a reporting unit below its carrying value. We perform our annual impairment review of goodwill at
the reporting unit level. Each of our operating segments with goodwill represents a reporting unit for the purpose of assessing
impairment. If we determine the fair value of the reporting unit's goodwill or other indefinite-lived intangible assets is less than
their carrying value as a result of an annual or interim test, an impairment loss is recognized and reflected in operating income
or loss in the consolidated statements of operations during the period incurred.
We review finite-lived intangible assets for impairment whenever an event occurs or circumstances change that indicate
that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of
undiscounted future cash flows resulting from the use of an asset and its eventual disposition. If an asset is not recoverable, an
impairment loss is measured by comparing the fair value of the asset to its carrying value. If we determine the fair value of an
asset is less than the carrying value, an impairment loss is recognized in operating income or loss in the consolidated statements
of operations during the period incurred.
We use judgment in assessing whether goodwill and intangible assets are impaired. Estimates of fair value are based on our
projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated future results, general
economic and market conditions, as well as the impact of planned business or operational strategies. We determine the fair
value of our reporting units using a weighing of fair values derived in equal proportions from the income approach and market
approach valuation methodologies. The income approach uses the discounted cash flow method and the market approach uses
the guideline company method. Changes in our judgments and projections could result in significantly different estimates of fair
value, potentially resulting in impairments of goodwill and other intangible assets. The inputs used for fair value measurements
of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs. See Note 9,
Goodwill and Intangible Assets, for additional information regarding our annual assessment of goodwill and other indefinite-
lived intangible assets.
Long-Lived Tangible Assets. We review long-lived tangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is
based on an estimate of undiscounted future cash flows resulting from the use of an asset group and its eventual disposition.
Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived tangible
assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell.
Accrued Insurance Claims. For claims within our insurance program, we retain the risk of loss, up to certain limits, for
matters related to automobile liability, general liability (including damages associated with underground facility locating
services), workers' compensation, and employee group health. Additionally, within our aggregate coverage limits and above
our base layer of third-party insurance coverage, we have retained the risk of loss at certain levels of exposure. We have
established reserves that we believe to be adequate based on current evaluations and our experience with these types of claims.
A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is determined with
the assistance of an actuary and reflected in the consolidated financial statements as accrued insurance claims. The effect on our
fmancial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions.
We estimate the liability for claims based on facts, circumstances, and historical experience. Even though they will not be
paid until sometime in the future, recorded loss reserves are not discounted. Factors affecting the determination of the expected
cost for existing and incurred but not reported claims include, but are not limited to, the magnitude and quantity of future
claims, the payment pattern of claims which have been incurred, changes in the medical condition of claimants, and other
factors such as inflation, tort reform or other legislative changes, unfavorable jury decisions and court interpretations.
51
Income Taxes. We account for income taxes under the asset and liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Measurement of our tax position is based on the applicable statutes, federal
and state case law, and our interpretations of tax regulations. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income during the period that includes the enactment date. We record net deferred tax assets to the
extent we believe these assets will more likely than not be realized. In making such determination, we consider all relevant
factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies and recent financial operations. In the event we determine that we would be able to realize deferred income tax assets
in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income
taxes.
We recognize tax benefits in the amount that we deem, more likely than not, will be realized upon ultimate settlement of
any tax uncertainty. Tax positions that fail to qualify for recognition are recognized during the period in which the more-likely-
than-not standard has been reached, when the tax positions are resolved with the respective taxing authority or when the statute
of limitations for tax examination has expired. We recognize applicable interest related to tax amounts in interest expense and
penalties within general and administrative expenses.
We believe our provision for income taxes is adequate; however, any assessment would affect our results of operations and
cash flows. With few exceptions, we are no longer subject to U.S. federal, state and local, or Canadian income tax examinations
for fiscal years ended 2015 and prior.
Per Share Data. Basic earnings per common share is computed based on the weighted average number of common shares
outstanding during the period, excluding unvested restricted share units. Diluted earnings per common share includes the
weighted average number of common shares outstanding during the period and dilutive potential common shares arising from
our stock-based awards (including unvested restricted share units), convertible senior notes, and warrants if their inclusion is
dilutive under the treasury stock method. Common stock equivalents related to stock-based awards, convertible senior notes,
and warrants are excluded from diluted earnings per common share calculations if their effect would be anti-dilutive.
Stock-Based Compensation. We have stock-based compensation plans under which we grant stock-based awards, including
stock options, time-based restricted share units ("RSUs"), and performance-based restricted share units ("Performance RSUs")
to attract, retain, and reward talented employees, officers, and directors, and to align stockholder and employee interests. The
resulting compensation expense is recognized on a straight-line basis over the vesting period, net of actual forfeitures, and is
included in general and administrative expenses in the consolidated statements of operations. This expense fluctuates over time
as a result of the vesting periods of the stock-based awards and, for our Performance RSUs, the expected achievement of
performance measures.
Compensation expense for stock-based awards is based on fair value at the measurement date. The fair value of stock
options is estimated on the date of grant using the Black-Scholes option pricing model. This valuation is affected by our stock
price as well as other inputs, including the expected common stock price volatility over the expected life of the options, the
expected term of the stock option, risk-free interest rates, and expected dividends, if any. Stock options vest ratably over a four-
year period and are exercisable over a period of up to ten years. The fair value of RSUs and Performance RSUs is estimated on
the date of grant and is equal to the closing market price per share of our common stock on that date. RSUs generally vest
ratably over a four-year period. Performance RSUs vest ratably over a three-year period, if certain performance measures are
achieved. Each RSU and Performance RSU is settled in one share of the Company's common stock upon vesting.
For Performance RSUs, we evaluate compensation expense quarterly and recognize expense only if we determine it is
probable that the performance measures for the awards will be met. The performance measures for target awards are based on
our operating earnings (adjusted for certain amounts) as a percentage of contract revenues and our operating cash flow level
(adjusted for certain amounts) for the applicable four-quarter performance period. Additionally, certain awards include three-
year performance measures that are more difficult to achieve than those required to earn target awards and, if met, result in
supplemental shares awarded. The performance measures for supplemental awards are based on three-year cumulative
operating earnings (adjusted for certain amounts) as a percentage of contract revenues and three-year cumulative operating cash
flow level (adjusted for certain amounts). In a period we determine it is no longer probable that we will achieve certain
performance measures for the awards, we reverse the stock-based compensation expense that we had previously recognized and
associated with the portion of Performance RSUs that are no longer expected to vest. The amount of the expense ultimately
recognized depends on the number of awards that actually vest. Accordingly, stock-based compensation expense may vary from
period to period. For additional information on our stock-based compensation plans, stock options, RSUs, and Performance
RSUs, see Note 18, Stock-Based Awards.
52
Contingencies and Litigation. In the ordinary course of our business, we are involved in certain legal proceedings and other
claims, including claims for indemnification by our customers. In determining whether a loss should be accrued, we evaluate,
among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of
loss. If only a range of probable loss can be determined, we accrue for our best estimate within the range for the contingency. In
those cases where none of the estimates within the range is better than another, we accrue for the amount representing the low
end of the range. As additional information becomes available, we reassess the potential liability related to our pending
litigation and other contingencies and revise our estimates as applicable. Revisions of our estimates of the potential liability
could materially impact our results of operations. Additionally, if the final outcome of such litigation and contingencies differs
adversely from that currently expected, it would result in a charge to operating results when determined.
Business Combinations. We account for business combinations under the acquisition method of accounting. The purchase
price of each business acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on
information regarding their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value
of the separately identifiable assets acquired and the liabilities assumed is allocated to goodwill. Management determines the
fair values used in purchase price allocations for intangible assets based on historical data, estimated discounted future cash
flows, expected royalty rates for trademarks and trade names, as well as certain other information. The valuation of assets
acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the
fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but
unknown to us at that time, may become known during the remainder of the measurement period. This measurement period
may not exceed 12 months from the acquisition date. We will recognize any adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustments are determined. Additionally, in the
same period in which adjustments are recognized, we will record the effect on earnings of changes in depreciation,
amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the
accounting adjustment had been completed at the acquisition date. Acquisition costs are expensed as incurred. The results of
operations of businesses acquired are included in the consolidated financial statements from their dates of acquisition.
Fair Value of Financial Instruments. Our financial instruments primarily consist of cash and equivalents, restricted cash,
accounts receivable, income taxes receivable and payable, accounts payable, certain accrued expenses, and long-term debt. The
carrying amounts of these items approximate fair value due to their short maturity, except for the fair value of our long-term
debt, which is based on observable market-based inputs (Level 2). See Note 13, Debt, for further information regarding the fair
value of such financial instruments. Our cash and equivalents are based on quoted market prices in active markets for identical
assets (Level 1) as of January 28, 2023 and January 29, 2022. During fiscal 2023, fiscal 2022, and fiscal 2021 we had no
material nonrecurring fair value measurements of assets or liabilities subsequent to their initial recognition.
Taxes Collected from Customers. ASC Topic 606, Taxes Collected from Customers and Remitted to Governmental
Authorities, addresses the income statement presentation of any taxes collected from customers and remitted to a government
authority and provides that the presentation of taxes on either a gross basis or a net basis is an accounting policy decision that
should be disclosed. Our policy is to present contract revenues net of sales taxes.
53
3. Accounting Standards
Recently Adopted Accounting Standards
None.
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to the
guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the
expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This ASU was effective
for adoption at any time between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU 2022-06,
"Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date included
within Topic 848 from December 31, 2022, to December 31, 2024. We have determined that the adoption of this ASU would
not have a material effect on our financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. The amendments in this ASU require acquiring entities to apply Topic 606
to recognize and measure contract assets and liabilities in a business combination. This update is intended to improve
comparability after the business combination by providing consistent recognition and measurement of acquired revenue
contracts and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for annual
periods beginning after December 15, 2022 and interim periods within those annual periods, with early adoption permitted. The
amendments in this ASU should be applied prospectively. We will adopt the provisions of this ASU in the first quarter of fiscal
2024 and do not expect the adoption to have a material effect on our consolidated fmancial statements.
4. Computation of Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (dollars in thousands,
except per share amounts):
Fiscal Year Ended
January 28,
2023
January 29,
2022
January 30,
2021
Net income available to common stockholders (numerator)
$
142,213 $
48,574 $
34,337
Weighted-average number of common shares (denominator)
29,549,990
30,337,544
31,665,183
Basic earnings per common share
4.81 $
1.60 $
1.08
Weighted-average number of common shares
29,549,990
30,337,544
31,665,183
Potential shares of common stock arising from stock options, and unvested
restricted share units
Total shares-diluted (denominator)
446,601
506,667
425,395
29,996,591
30,844,211
32,090,578
Diluted earnings per common share
4.74 $
1.57 $
1.07
Anti-dilutive weighted shares excluded from the calculation of earnings per common share:
Stock-based awards
0.75% convertible senior notes due 2021(1) (2)
Warrants(1) (2)
Total
98,530
91,816
375,013
538,124
98,530
1,004,953
233,988
1,715,972
1,715,972
3,665,932
54
(1) The Company used the treasury stock method for calculating any potential dilutive impact on earnings per common share if
our average stock price for the period exceeded the $96.89 per share conversion price. There was no dilutive impact on earnings
per common share during any of the periods presented as our average stock price did not exceed the per share conversion price
and the 2021 Convertible Notes (as defined in Note 13) matured on September 15, 2021. The warrants associated with our 2021
Convertible Notes would have had a dilutive impact on earnings per common share if our average stock price for the period
exceeds the $130.43 per share warrant strike price. As our average stock price did not exceed the strike price for the warrants
for any of the periods presented, the underlying common shares were anti-dilutive as reflected in the table above. The warrants
were scheduled to expire on a series of dates concluding on May 9, 2022. During the fourth quarter of fiscal 2022, we
purchased the remaining warrants for $0.7 million and there are no additional warrants outstanding.
(2) In connection with the offering of the 2021 Convertible Notes, we entered into convertible note hedge transactions with
counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the 2021
Convertible Notes and offsetting any potential cash payments in excess of the principal amount of the 2021 Convertible Notes.
Prior to conversion, the convertible note hedge was not included for purposes of the calculation of earnings per common share
as its effect would be anti-dilutive. Upon any conversion, the convertible note hedge was expected to offset the dilutive effect of
the 2021 Convertible Notes when the average stock price for the period was above $96.89 per share. The 2021 Convertible
Notes matured on September 15, 2021. The convertible note hedge transactions expired on September 13, 2021. See Note 13,
Debt, for additional information related to our 2021 Convertible Notes, warrant transactions, and hedge transactions.
In connection with the purchase of $401.7 million of the 2021 Convertible Notes in fiscal 2021 and $25.0 million in fiscal
2020, we unwound convertible note hedge transactions and warrants proportionately to the number of 2021 Convertible Notes,
resulting in a decrease in the number of excluded weighted shares.
5. Accounts Receivable, Contract Assets, and Contract Liabilities
The following provides further details on the balance sheet accounts of accounts receivable, net; contract assets; and
contract liabilities. See Note 2, Significant Accounting Policies and Estimates, for further information on our policies related to
these balance sheet accounts, as well as our revenue recognition policies.
Accounts Receivable
Accounts receivable, net classified as current, consisted of the following (dollars in thousands):
January 28, 2023
Trade accounts receivable
Unbilled accounts receivable
Retainage
Total
Less: allowance for doubtful accounts
Accounts receivable, net
367,842 $
January 29, 2022
330,811
670,066
32,351
1,070,259
(3,246)
1,067,013 $
545,493
20,318
896,622
(724)
895,898
We maintain an allowance for doubtful accounts for estimated losses on uncollected balances. The allowance for doubtful
accounts changed as follows (dollars in thousands):
Allowance for doubtful accounts at beginning of period
Provision for bad debt
Amounts charged against the allowance
Allowance for doubtful accounts at end of period
January 28, 2023
January 29, 2022
724 $
2,600
(78)
3,246 $
1,676
2,911
(3,863)
724
55
Contract Assets and Contract Liabilities
Net contract assets consisted of the following (dollars in thousands):
Contract assets
Contract liabilities
Contract assets, net
January 28, 2023
January 29, 2022
43,932 $
19,512
24,420 $
24,539
18,512
6,027
The increase in contract assets, net, in fiscal 2023 from fiscal 2022 primarily resulted from reduced services performed and
increased billings under contracts consisting of multiple tasks. There were no other significant changes in contract assets during
the period. During fiscal 2023, we performed services and recognized $15.9 million of contract revenues related to contract
liabilities that existed at January 29, 2022. See Note 6, Other Current Assets and Other Assets, for information on our long-term
contract assets.
Customer Credit Concentration
Customers whose combined amounts of accounts receivable and contract assets, net exceeded 10% of total combined
accounts receivable and contract assets, net as of January 28, 2023 or January 29, 2022 were as follows (dollars in millions):
Lumen Technologies
AT&T Inc.
Comcast Corporation
Verizon Communications Inc.
January 28, 2023
January 29, 2022
Amount
% of Total
Amount
% of Total
189.3
136.2
125.2
102.7
17.4 % $
12.5 % $
11.5 % $
9.4 % $
166.0
106.0
113.5
144.3
18.4 %
11.7 %
12.6 %
16.0 %
We believe that none of the customers above were experiencing financial difficulties that would materially impact the
collectability of our total accounts receivable and contract assets, net, as of January 28, 2023 or January 29, 2022.
6. Other Current Assets and Other Assets
Other current assets consisted of the following (dollars in thousands):
Prepaid expenses
Deposits and other current assets
Insurance recoveries/receivables for accrued insurance claims
Restricted cash
Receivables on equipment sales
Other current assets
Other assets consisted of the following (dollars in thousands):
Long-term contract assets
Deferred financing costs
Restricted cash
Insurance recoveries/receivables for accrued insurance claims
Other non-current deposits and assets
Other assets
January 28, 2023 January 29, 2022
17,357 $
19,919
1,372
$
38,648 $
14,640
14,083
756
1,372
25
30,876
January 28, 2023 January 29, 2022
8,333 $
14,056
3,685
432
4,957
8,964
4,834
432
3,687
8,909
26,371 $
31,918
Long-term contract assets represent payments made to customers pursuant to long-term agreements and are recognized as a
reduction of contract revenues over the period for which the related services are provided to the customers.
56
See Note 10, Accrued Insurance Claims, for information on our Insurance recoveries/receivables.
7. Cash and Equivalents and Restricted Cash
Amounts of cash, cash equivalents and restricted cash reported in the consolidated statement of cash flows consisted of the
following (dollars in thousands):
Cash and equivalents
Restricted cash included in:
Other current assets
Other assets (long-term)
Cash, cash equivalents and restricted cash
8. Property and Equipment
Property and equipment consisted of the following (dollars in thousands):
January 28, 2023 January 29, 2022
224,186 $
310,757
1,372
432
1,372
432
225,990 $
312,561
Land
Buildings
Leasehold improvements
Vehicles
Computer hardware and software
Office furniture and equipment
Equipment and machinery
Total
Less: accumulated depreciation
Property and equipment, net
Estimated
Useful Lives
(Years)
January 28, 2023 January 29, 2022
10-35
1-10
1-5
1-7
1-10
1-10
8,419
10,466
17,623
815,266
165,582
12,215
359,021
1,388,592
(1,020,740)
367,852
4,127
10,649
17,706
714,515
153,072
12,939
329,145
1,242,153
(947,355)
294,798
Depreciation expense and repairs and maintenance expense were as follows (dollars in thousands):
Depreciation expense
Repairs and maintenance expense
9. Goodwill and Intangible Assets
Goodwill
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
128,840 $
62,724 $
135,163 $
51,150 $
155,274
47,586
$
There were no changes in the carrying amount of goodwill during fiscal 2022. Changes in the carrying amount of goodwill
during fiscal 2023 were as follows (dollars in thousands):
Balance as of January 29, 2022
Goodwill from fiscal 2023 acquisition
Balance as of January 28, 2023
Goodwill
Accumulated
Impairment
Losses
Total
521,516 $
(249,031) $
272,485
60
60
521,576 $
(249,031) $
272,545
57
The Company's goodwill resides in multiple reporting units and primarily consists of expected synergies, together with the
expansion of our geographic presence and strengthening of our customer base from acquisitions. Goodwill and other indefinite-
lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, or more
frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value.
The profitability of individual reporting units may suffer periodically due to downturns in customer demand, increased costs of
providing services, and the level of overall economic activity. Our customers may reduce capital expenditures and defer or
cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a
decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also
suffer if actual costs of providing services exceed the costs anticipated when the Company enters into contracts. Additionally,
adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our
reporting units. The cyclical nature of our business, the high level of competition existing within our industry, and the
concentration of our revenues from a limited number of customers may also cause results to vary. These factors may affect
individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more
of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.
We evaluate current operating results, including any losses, in the assessment of goodwill and other intangible assets. The
estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying assets and
liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could result in significantly
different estimates of the fair value of the reporting units and could result in impairments of goodwill or intangible assets of the
reporting units. In addition, adverse changes to the key valuation assumptions contributing to the fair value of our reporting
units could result in an impairment of goodwill or intangible assets.
The Company performs its annual goodwill assessment as of the first day of the fourth fiscal quarter of each fiscal year.
Goodwill and indefinite lived intangible assets are required to be tested for impairment between annual tests if events occur that
would indicate a potential reduction in the fair value of a reporting unit below its carrying value.
We performed our annual impairment assessment for fiscal 2023, fiscal 2022, and fiscal 2021, and concluded that no
impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the periods other
than the first quarter of fiscal 2021 as described below. In each of these periods, qualitative assessments were performed on
reporting units that comprise a significant portion of our consolidated goodwill balance. For the Company's indefinite-lived
intangible asset we performed a quantitative analysis for fiscal 2023 and a qualitative assessment for fiscal 2022 and 2021. A
qualitative assessment includes evaluating all identified events and circumstances that could affect the significant inputs used to
determine the fair value of a reporting unit or indefinite-lived intangible asset for the purpose of determining whether it is more
likely than not that these assets are impaired. We consider various factors while performing qualitative assessments, including
macroeconomic conditions, industry and market conditions, financial performance of the reporting units, changes in market
capitalization, and any other specific reporting unit considerations. These qualitative assessments indicated that it was more
likely than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units, we
performed the quantitative analysis described in ASC Topic 350 in each of these periods. When performing the quantitative
analysis, we determine the fair value of our reporting units using an equal weighting of fair values derived from the income
approach and market approach valuation methodologies. Under the income approach, the key valuation assumptions used in
determining the fair value estimates of our reporting units for each annual test were: (a) expected cash flow for a period of
seven years based on our best estimate of revenue growth rates and projected operating margins; (b) terminal value based upon
terminal growth rates; and (c) a discount rate based on the Company's best estimate of the weighted average cost of capital
adjusted for certain risks for the reporting units.
The table below outlines certain assumptions used in our annual quantitative impairment analyses for fiscal 2023,
fiscal 2022, and fiscal 2021:
Terminal Growth Rate
Discount Rate
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
2% - 3%
10.5%
2% - 3%
11.5%
3.0%
10.0%
The discount rate reflects risks inherent within each reporting unit operating individually. These risks are greater than the
risks inherent in the Company as a whole. Determination of discount rates included consideration of market inputs such as the
risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions. The increase in the discount
rate for fiscal 2023 from fiscal 2022 was largely driven by increases in prevailing interest rates as observed in financial markets
as of each valuation date. The increase in the discount rate for fiscal 2022 from fiscal 2021 was mainly a result of a heavier
58
weighting of the cost of equity versus debt in fiscal 2022 as a result of market trends for capital structure. We believe the
assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of our
reporting units and our industry. Under the market approach, the guideline company method develops valuation multiples by
comparing our reporting units to similar publicly traded companies. Key valuation assumptions used in determining the fair
value estimates of our reporting units rely on: (a) the selection of similar companies and (b) the selection of valuation multiples
as they apply to the reporting unit characteristics.
We determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of
their carrying values in the fiscal 2023 assessment. Management determined that significant changes were not likely in the
factors considered to estimate fair value, and analyzed the impact of such changes were they to occur. Specifically, if the
discount rate applied in the fiscal 2023 impairment analysis had been 100 basis points higher than estimated for each of the
reporting units, and all other assumptions were held constant, the conclusion of the assessment would remain unchanged and
there would be no impairment of goodwill. Additionally, if there was a 25% decrease in the fair value of any of the reporting
units due to a decline in their discounted cash flows resulting from lower operating performance, the conclusion of the
assessment would remain unchanged for all reporting units except for one. For this reporting unit with goodwill of $5.7 million,
the excess of fair value above its carrying value was approximately 7% of the fair value. Recent operating performance, along
with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the
fiscal 2023 impairment analysis. Management has determined the goodwill of the Company may have an increased likelihood
of impairment if a prolonged downturn in customer demand were to occur, or if the reporting units was not able to execute
against customer opportunities, and the long-term outlook for their cash flows were adversely impacted. Furthermore, changes
in the long-term outlook may result in a change to other valuation assumptions. Factors monitored by management which could
result in a change to the reporting units' estimates include the outcome of customer requests for proposals and subsequent
awards, strategies of competitors, labor market conditions and levels of overall economic activity.
The Company determined that there were no events or changes in circumstances for the other reporting units or indefinite
lived intangible assets during fiscal 2023 that would indicate a potential reduction in their fair value below their carrying
amounts. As of January 28, 2023, the Company continues to believe the remaining goodwill and the indefinite-lived intangible
asset are recoverable for all of its reporting units. However, if adverse events were to occur or circumstances were to change
indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment
and could be impaired. There can be no assurances that goodwill or the indefinite-lived intangible asset may not be impaired in
future periods.
During fiscal 2021 and 2022, the economy of the United States was severely impacted by the nation's response to the
COVID-19 pandemic. Measures taken included travel restrictions, social distancing requirements, quarantines, and shelter in
place orders. As a result, businesses had been closed and certain business activities curtailed or modified. During the
COVID-19 pandemic, our services have generally been considered essential in nature and have not been materially interrupted.
However, certain customers of one of the Company's reporting units ("Broadband") had decided to restrict our technicians from
entering third party premises. Furthermore, customers have modified their protocols to increase the self-installation of customer
premise equipment by their subscribers.
Broadband generates a substantial portion of its revenue and operating results from installation services inside third party
premises. The events following the onset of COVID-19 were expected to result in a prolonged downturn in customer demand
for installation services from Broadband. This was expected to have a direct, adverse impact on its revenue, operating results
and cash flows. These indicators represented a triggering event that warranted impairment testing of Broadband during the three
months ended April 25, 2020.
The Broadband reporting unit includes the operations of Broadband Installation Services, Prince Telecom and certain other
operations and generated revenue of less than 4% of the consolidated contract revenue of Dycom in fiscal 2020. The Broadband
reporting unit did not incur losses in fiscal 2020.
The fiscal 2021 interim impairment analysis for Broadband utilized the same valuation techniques used in the Company's
annual fiscal 2020 impairment analysis. The key assumptions used to determine the fair value of the Company's reporting units
during this interim impairment analysis were: (a) expected cash flow for a period of seven years based on our best estimate of
revenue growth rates and projected operating margins; (b) terminal value based upon terminal growth rates; and (c) a discount
rate based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with Broadband.
Recent operating performance, along with key assumptions for specific customer and industry opportunities, were used during
the fiscal 2021 interim impairment analysis. The terminal growth rate used in the fiscal 2021 interim assessment was 1.5% as
compared to 3.0% in the fiscal 2020 assessment reflecting lower long-term demand levels. The discount rate used in the fiscal
59
2021 interim assessment was 12% compared to 10% in the fiscal 2020 assessment reflecting increased risk associated with the
outlook of Broadband.
The combination of lower expected operating results and cash flows from the reduction in revenue, as well as changes in
valuation assumptions in the fiscal 2021 interim analysis resulted in a substantial decline in the fair value of the Broadband
reporting unit. In accordance with ASU 2017-04, the Company compared the estimated fair value of Broadband to its carrying
amount. As a result, the Company recognized an impairment charge of $53.3 million which is the amount by which the carrying
amount exceeded the reporting unit's fair value. After the impairment charge, Broadband has $10.1 million of remaining
goodwill. The goodwill impairment charge did not affect the Company's compliance with its financial covenants and conditions
under its revolving credit agreement.
Intangible Assets
Our intangible assets consisted of the following (dollars in thousands):
January 28, 2023
January 29, 2022
Weighted
Average
Remaining
Useful Lives
(Years)
Gross
Carrying Accumulated
Amount Amortization
Intangible
Assets,
Net
Gross
Carrying Accumulated
Amount Amortization
Intangible
Assets,
Net
Customer relationships
Trade names, finite
Trade name, indefinite
Non-compete agreement
4.8
7.5
7.5
$ 312,017 $
9,250
4,700
75
231,028 $ 80,989 $ 312,017 $
215,806 $ 96,211
8,448
802
4,700
75
9,250
4,700
8,329
921
4,700
$ 326,042 $
239,476 $ 86,566 $ 325,967 $
224,135 $ 101,832
Amortization of our customer relationship intangibles is recognized on an accelerated basis as a function of the expected
economic benefit. Amortization of our other finite-lived intangibles is recognized on a straight-line basis over the estimated
useful life. Amortization expense for finite-lived intangible assets was $15.3 million, $17.5 million, and $20.6 million for
fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
As of January 28, 2023, total amortization expense for existing finite-lived intangible assets for the next five fiscal years
and thereafter is as follows (dollars in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
Amount
13,911
13,732
13,424
11,288
9,536
19,975
81,866
As of January 28, 2023, we believe that the carrying amounts of our intangible assets are recoverable. However, if adverse
events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully
recoverable, the assets would be reviewed for impairment and the assets could be impaired.
10. Accrued Insurance Claims
For claims within our insurance program, we retain the risk of loss, up to certain annual stop-loss limits, for matters related
to automobile liability, general liability (including damages associated with underground facility locating services), workers'
compensation, and employee group health. Losses for claims beyond our retained risk of loss are covered by insurance up to
our coverage limits.
60
For workers' compensation losses during fiscal 2023, 2022, and 2021, we retained the risk of loss up to $1.0 million on a
per occurrence basis. This retention amount is applicable to all of the states in which we operate, except with respect to
workers' compensation insurance in two states in which we participate in state-sponsored insurance funds.
For automobile liability and general liability losses during fiscal 2023, 2022, and 2021, we retained the risk of loss up to
$1.0 million on a per-occurrence basis for the first $5.0 million of insurance coverage. We also retained the risk of loss for
automobile and general liability for the next $5.0 million on a per-occurrence basis with aggregate stop loss limits of
$11.5 million within this layer of retention over the period from fiscal 2021 to fiscal 2023. During fiscal 2023 we retained
$5.0 million risk of loss on a per occurrence basis for losses between $10.0 million and $15.0 million, if any. Additionally,
during fiscal 2023 and 2022 we retained $10.0 million risk of loss on a per occurrence basis for losses between $30.0 million
and $40.0 million, if any.
We are party to a stop-loss agreement for losses under our employee group health plan. For the calendar year 2020, we
retained the risk of loss on an annual basis, up to the first $450,000 of claims per participant, as well as an annual aggregate
amount for all participants of $475,000. For the calendar years 2021, 2022, and 2023, we retain the risk of loss on an annual
basis, up to the first $600,000 of claims per participant.
Amounts for total accrued insurance claims and insurance recoveries/receivables are as follows (dollars in thousands):
January 28, 2023
January 29, 2022
Accrued insurance claims - current
Accrued insurance claims - non-current
Accrued insurance claims
Insurance recoveries/receivables:
Current (included in Other current assets)
Non-current (included in Other assets)
Insurance recoveries/receivables
41,043 $
49,347
90,390 $
4,957
4,957 $
36,805
48,238
85,043
756
3,687
4,443
The liability for total accrued insurance claims included incurred but not reported losses of approximately $48.0 million as
of January 28, 2023 and January 29, 2022, respectively.
Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the
amounts exceed the Company's loss retention. During fiscal 2023, total insurance recoveries/receivables increased
approximately $0.5 million primarily due to the settlement of claims that exceeded our loss retention. Accrued insurance claim
increased by a corresponding amount.
11. Leases
We lease the majority of our office facilities as well as certain equipment, all of which are accounted for as operating
leases. These leases have remaining terms ranging from less than 1 year to approximately 9 years. Some leases include options
to extend the lease for up to 5 years and others include options to terminate.
The following table summarizes the components of lease cost recognized in the consolidated statement of operations for
fiscal 2023 and fiscal 2022 (dollars in thousands):
Lease cost under long-term operating leases
Lease cost under short-term operating leases
Variable lease cost under short-term and long-term operating leases(1)
Total lease cost
Fiscal Year Ended
January 28, 2023
January 29, 2022
34,464 $
25,073
5,567
65,104 $
34,520
24,218
3,405
62,143
(1) Variable lease cost primarily includes insurance, maintenance, and other operating expenses related to our leased office
facilities.
61
Our operating lease liabilities related to long-term operating leases were $67.2 million and $61.2 million as of January 28,
2023 and January 29, 2022, respectively. Supplemental balance sheet information related to these liabilities is as follows:
Weighted average remaining lease term
Weighted average discount rate
January 28, 2023
January 29, 2022
2.9 years
3.9 %
3.1 years
3.8 %
Supplemental cash flow information related to our long-term operating lease liabilities as of January 28, 2023 and
January 29, 2022 is as follows (dollars in thousands):
Fiscal Year Ended
January 28, 2023
January 29, 2022
Cash paid for amounts included in the measurement of lease liabilities
33,693 $
33,514
Operating lease right-of-use assets obtained in exchange for operating lease
liabilities
38,325 $
29,725
As of January 28, 2023, maturities of our lease liabilities under our long-term operating leases for the next five fiscal years
and thereafter are as follows (dollars in thousands):
Fiscal Year
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Total
Amount
30,501
22,626
12,689
5,976
2,044
712
74,548
(7,393)
67,155
As of January 28, 2023, the Company had additional operating leases with total leases costs of $0.1 million that have not
yet commenced. These leases will commence in fiscal 2024.
12. Other Accrued Liabilities
Other accrued liabilities consisted of the following (dollars in thousands):
Accrued payroll and related taxes
Accrued employee benefit and incentive plan costs
Accrued construction costs
Other current liabilities
Other accrued liabilities
January 28, 2023
January 29, 2022
32,448 $
44,487
37,735
26,664
47,303
26,942
28,254
25,710
141,334 $
128,209
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13. Debt
The following table summarizes the net carrying value of our outstanding indebtedness (dollars in thousands):
January 28, 2023
January 29, 2022
Credit Agreement - Revolving facility (matures April 2026)
$
$
Credit Agreement - Term loan facility (matures April 2026)
4.50% senior notes, net (mature April 2029)
Less: current portion
Long-term debt
Credit Agreement
330,603
494,264
824,867
(17,500)
807,367 $
347,438
493,313
840,751
(17,500)
823,251
On April 1, 2021, the Company and certain of its subsidiaries amended its credit agreement, dated as of October 19, 2018,
with the various lenders party thereto and Bank of America, N.A., as administrative agent (the "Credit Agreement") to among
other things, decrease the maximum revolver commitment to $650.0 million from $750.0 million and decrease the term loan
facility to $350.0 million from $416.3 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of
letters of credit and a $50.0 million sublimit for swingline loans. As part of the amendment, the maturity of the Credit
Agreement was extended to April 1, 2026.
The following table summarizes the net carrying value of the term loan (dollars in thousands):
Principal amount of term loan
Less: Debt issuance costs
Net carrying amount of term loan
January 28, 2023
January 29, 2022
332,500 $
(1,897)
330,603 $
350,000
(2,562)
347,438
Subject to certain conditions, the Credit Agreement provides us with the ability to enter into one or more incremental
facilities either by increasing the revolving commitments under the Credit Agreement and/or by establishing one or more
additional term loans, up to the sum of (i) $350.0 million and (ii) an aggregate amount such that, after giving effect to such
incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and
funded), the consolidated senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net
leverage ratio is the ratio of our consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in
excess of $25.0 million to our trailing four-quarter consolidated earnings before interest, taxes, depreciation, and amortization
("EBITDA"), as defmed by the Credit Agreement. Borrowings under the Credit Agreement are guaranteed by substantially all
of our domestic subsidiaries and secured by 100% the equity interests of our direct and indirect domestic subsidiaries and 65%
of the voting equity interests and 100% of the non-voting interests of our first-tier foreign subsidiaries (subject to customary
exceptions).
Under our Credit Agreement, borrowings bear interest at the rates described below based upon our consolidated net
leverage ratio, which is the ratio of our consolidated total funded debt reduced by unrestricted cash and equivalents in excess of
$25.0 million to our trailing four-quarter consolidated EBITDA, as defmed by our Credit Agreement. In addition, we incur
63
certain fees for unused balances and letters of credit at the rates described below, also based upon our consolidated net leverage
ratio.
Borrowings - Eurodollar Rate Loans
Borrowings - Base Rate Loans
Unused Revolver Commitment
Standby Letters of Credit
Commercial Letters of Credit
1.25%- 2.00% plus LIBOR(1)
0.25% - 1.00% plus Base rate(2)
0.20% - 0.40%
1.25% - 2.00%
0.625% -1.00%
(1) To address the transition in financial markets away from LIBOR, the Credit Agreement includes provisions related to the
replacement of LIBOR with a LIBOR Successor Rate (as defined in the Credit Agreement), which may be a rate based on the
Secured Overnight Financing Rate published by the Federal Reserve Bank of New York.
(2) Base rate is described in our Credit Agreement as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the administrative
agent's prime rate, and (iii) the Eurodollar rate plus 1.00% and, if such rate is less than zero, such rate shall be deemed zero.
Standby letters of credit of approximately $47.5 million and $46.3 million, issued as part of our insurance program, were
outstanding under our Credit Agreement as of January 28, 2023 and January 29, 2022, respectively.
The weighted average interest rates and fees for balances under our Credit Agreement as of January 28, 2023 and January 29,
2022 were as follows:
Borrowings - Term loan facility
Borrowings - Revolving facility(1)
Standby Letters of Credit
Unused Revolver Commitment
Weighted Average Rate End of Period
January 29, 2022
January 28, 2023
6.21%
1.75%
0.35%
1.86%
1.75%
0.35%
(1) There were no outstanding borrowings under our revolving facility as of January 28, 2023.
Our Credit Agreement contains a financial covenant that requires us to maintain a consolidated net leverage ratio of not
greater than 3.50 to 1.00, as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in
connection with permitted acquisitions. The consolidated net leverage ratio is the ratio of our consolidated indebtedness reduced
by unrestricted cash and cash equivalents in excess of $25.0 million to our trailing four-quarter consolidated earnings before
interest, taxes, depreciation, and amortization as defined by our Credit Agreement. The agreement also contains a financial
covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing four-quarter
consolidated EBITDA to our consolidated interest expense, each as defined by our Credit Agreement, of not less than 3.00 to
1.00, as measured at the end of each fiscal quarter. At January 28, 2023 and January 29, 2022, we were in compliance with the
fmancial covenants of our Credit Agreement and had borrowing availability under our revolving facility of $602.5 million and
$326.3 million, respectively, as determined by the most restrictive covenant. For calculation purposes, applicable cash on hand
is netted against the funded debt amount as permitted in the Credit Agreement.
64
4.50% Senior Notes due 2029
On April 1, 2021, we issued $500.0 million aggregate principal amount of 4.50% senior notes due 2029 (the "2029
Notes"). The 2029 Notes are guaranteed on a senior unsecured basis, jointly and severally, by all of our domestic subsidiaries
that guarantee the Credit Agreement.
The indenture governing the 2029 Notes contains certain covenants that limit, among other things, our ability and the
ability of certain of our subsidiaries to (i) incur additional debt and issue certain preferred stock, (ii) pay certain dividends on,
repurchase, or make distributions in respect of, our and our subsidiaries' capital stock or make other payments restricted by the
indenture, (iii) enter into agreements that place limitations on distributions made from certain of our subsidiaries, (iv) guarantee
certain debt, (v) make certain investments, (vi) sell or exchange certain assets, (vii) enter into transactions with affiliates, (viii)
create certain liens, and (ix) consolidate, merge or transfer all or substantially all of our or our Subsidiaries' assets. These
covenants are subject to a number of exceptions, limitations and qualifications as set forth in the indenture governing the 2029
Notes.
The following table summarizes the net carrying value of the 2029 Notes (dollars in thousands):
Principal amount of 2029 Notes
Less: Debt issuance costs
Net carrying amount of 2029 Notes
January 28, 2023
January 29, 2022
500,000 $
(5,736)
494,264 $
500,000
(6,687)
493,313
The following table summarizes the fair value of the 2029 Notes, net of debt issuance costs. The fair value of the 2029
Notes is based on the closing trading price per $100 of the 2029 Notes as of the last day of trading (Level 2), which was $90.25
and $97.50 as of January 28, 2023 and January 29, 2022, respectively (dollars in thousands):
Fair value of principal amount of 2029 Notes
Less: Debt issuance costs
Fair value of 2029 Notes
0.75% Convertible Senior Notes Due 2021
January 28, 2023
January 29, 2022
451,250 $
(5,736)
445,514
487,500
(6,687)
480,813
On September 15, 2015, we issued 0.75% convertible senior notes due September 2021 in a private placement in the
principal amount of $485.0 million (the "2021 Convertible Notes"). The 2021 Convertible Notes, governed by the terms of an
indenture between the Company and a bank trustee, were unsecured obligations and did not contain any financial covenants or
restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by the
Company. The 2021 Convertible Notes bore interest at a rate of 0.75% per year, payable in cash semiannually in March and
September, and matured on September 15, 2021.
Each $1,000 of principal of the Notes was convertible into 10.3211 shares of the Company's common stock, which is
equivalent to an initial conversion price of approximately $96.89 per share. The conversion rate is subject to adjustment in
certain circumstances, including in connection with specified fundamental changes (as defined in the indenture). In addition,
holders of the Notes had the right to require the Company to repurchase all or a portion of their notes on the occurrence of a
fundamental change at a price of 100% of their principal amount plus accrued and unpaid interest.
Prior to June 15, 2021, the Notes were convertible by the Note holder under the following circumstances: (1) during any
fiscal quarter commencing after October 24, 2015 (and only during such fiscal quarter) if the last reported sale price of the
Company's common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days
period ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the
applicable conversion price on such trading day ($125.96 assuming an applicable conversion price of $96.89); (2) during the
five consecutive business day period after any five consecutive trading day period (the "measurement period") in which the
trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than 98% of the
product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such trading
day; or (3) upon the occurrence of specified corporate events. None of the conditions were met during the term of the 2021
Convertible Notes. On or after June 15, 2021 until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders could have converted all or a portion of their 2021 Convertible Notes at any time
65
regardless of the foregoing circumstances. Upon conversion, the 2021 Convertible Notes would have been settled, at the
Company's election, in cash, shares of the Company's common stock, or a combination of cash and shares of the Company's
common stock. There was no conversion made of the 2021 Convertible Notes.
During the fourth quarter of fiscal 2020, we purchased, through open-market transactions, $25.0 million aggregate
principal amount of the 2021 Convertible Notes for $24.3 million, leaving the principal amount of $460.0 million outstanding.
After the write-off of associated debt issuance costs, the net loss on extinguishment was $0.1 million for fiscal 2020. In fiscal
2021, we purchased $401.7 million aggregate principal amount of the Notes for $371.4 million, including interest and fees,
leaving the principal amount of $58.3 million outstanding. These 2021 Convertible Notes were purchased through a privately-
negotiated transactions and a tender offer. After the write-off of associated debt issuance costs, the net gain on extinguishment
was $12.0 million for fiscal 2021. On the maturity date of September 15, 2021, the outstanding balance of $58.3 million under
the 2021 Convertible Notes was repaid in full.
Convertible debt instruments that may be settled in cash upon conversion are required to be accounted for as separate
liability and equity components. As of the date of issuance, the carrying amount of the liability component is calculated by
measuring the fair value of a similar instrument that does not have an associated convertible feature using an indicative market
interest rate ("Comparable Yield"). The difference between the principal amount of the notes and the carrying amount
represents a debt discount. The debt discount was amortized to interest expense using the Comparable Yield (5.5% with respect
to the 2021 Convertible Notes) using the effective interest rate method over the term of the 2021 Convertible Notes. We
incurred $1.7 million, and $7.4 million of interest expense during fiscal 2022 and fiscal 2021, respectively, for the non-cash
amortization of the debt discount.
The equity component of the 2021 Convertible Notes was recognized at issuance and represents the difference between the
principal amount of the 2021 Convertible Notes and the fair value of the liability component of the 2021 Convertible Notes at
issuance. The equity component approximated $112.6 million at the time of issuance and its fair value was not remeasured as
long as the conditions for equity classification were met.
Convertible Note Hedge and Warrant Transactions
In connection with the offering of the 2021 Convertible Notes, we entered into convertible note hedge transactions with
counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the 2021
Convertible Notes and offsetting any potential cash payments in excess of the principal amount of the 2021 Convertible Notes.
In the event that shares or cash were deliverable to holders of the 2021 Convertible Notes upon conversion at limits defined in
the indenture governing the 2021 Convertible Notes, counterparties to the convertible note hedge were required to deliver to us
shares of our common stock or pay cash to us in a similar amount as the value that we delivered to the holders of the 2021
Convertible Notes based on a conversion price of $96.89 per share. At inception of the convertible note hedge transactions, up
to 5.006 million of our shares could have been deliverable to us upon conversion. After the Company settled a portion of the
note hedge transactions during fiscal 2020 and fiscal 2021 in connection with the purchase of $25 million and $401.7 million,
respectively, of the 2021 Convertible Notes, the number of shares that could have been deliverable to us upon conversion was
reduced to up to 0.601 million of our shares. The convertible note hedge transactions expired in September 2021.
We also entered into separately negotiated warrant transactions with the same counterparties as the convertible note hedge
transactions whereby we sold warrants to purchase, subject to certain anti-dilution adjustments, up to 5.006 million shares of
our common stock at a price of $130.43 per share. After the Company purchased a portion of the warrants during fiscal 2020
and fiscal 2021 in connection with the purchase of $25 million and $401.7 million, respectively, of the 2021 Convertible Notes,
the remaining warrant transactions provide for to up to 0.601 million shares. The warrants were scheduled to expire on a series
of dates concluding on May 9, 2022. During the fourth quarter of fiscal 2022, we unwound the remaining warrants for
$0.7 million and, as a result, there are no additional warrants outstanding.
66
14. Income Taxes
The components of the provision (benefit) for income taxes were as follows (dollars in thousands):
Current:
Federal
Foreign
State
Deferred:
Federal
Foreign
State
Provision for income taxes
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
24,917 $
8,460
33,377
(3,323) $
(4)
(495)
(3,822)
42,794
(2)
10,273
53,065
6,094
7,506
(24,380)
(1,562)
4,532
518
8,024
37,909 $
4,202 $
(3,805)
(28,185)
24,880
Our effective income tax rate differs from the statutory rate primarily due to the difference in income tax rates from state to
state where work was performed, non-deductible and non-taxable items, tax credits recognized, the tax effects of the vesting
and exercise of share-based awards, impacts of tax filings for prior years, and changes in unrecognized tax benefits. During
fiscal 2021 our effective tax rate was impacted by a $53.3 million goodwill impairment charge which was mostly non-
deductible for income tax purposes.
During the first quarter of fiscal 2023, we were notified by the Internal Revenue Service that our federal income tax return
for fiscal 2016 was selected for examination due to the net operating loss carryback claim filed in fiscal 2021. In addition, fiscal
year 2020 was selected for examination in the second quarter of fiscal 2022. We were notified in the fourth quarter of this fiscal
year that we have been selected for an income tax audit in Canada for fiscal years 2017 through 2020. We believe our provision
for income taxes is adequate; however, any assessment may affect our results of operations and cash flows.
Fiscal Year Ended
January 28,
2023
January 29,
2022
January 30,
2021
$
37,826 $
11,083 $
12,436
5,325
3,833
3,959
(2,505)
(5,056)
(3,515)
371
(203)
215
(376)
1,422
4,493
1,468
(4,609)
(3,756)
(2,425)
(1,355)
71
70
(12)
(1,965)
(2,248)
4,344
1,189
2,632
(3,145)
(436)
(4)
808
1
10,411
(2,631)
(725)
$
37,909 $
4,202 $
24,880
Statutory rate applied to pre-tax income
State taxes, net of federal tax benefit
Change in accruals for uncertain tax positions
Compensation limitation
Tax filings for prior periods
Tax credits
Federal benefit of vesting and exercise of share-based awards
Deferred tax remeasurements
Effect of rates other than statutory
Non-deductible and non-taxable items, net
Change in valuation allowance
Non-deductible goodwill impairment
Tax Reform and related effects
Other items, net
Provision for income taxes
67
Deferred Income Taxes
The deferred tax provision represents the change in the deferred tax assets and the liabilities representing the tax
consequences of changes in the amount of temporary differences and changes in tax rates during the year. The significant
components of deferred tax assets and liabilities consisted of the following (dollars in thousands):
Deferred tax assets:
Insurance and other reserves
Capitalized research expenditures (IRC Section 174)
Leases
Stock-based compensation
Allowance for doubtful accounts and reserves
Net operating loss carryforwards
CARES Act tax deferral
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Goodwill and intangibles
Leases
Other
Deferred tax liabilities
Net deferred tax liabilities
January 28, 2023
January 29, 2022
22,866 $
19,407
19,498
17,096
3,577
2,984
591
5,080
71,692
(634)
71,058 $
77,024 $
36,132
17,178
929
131,263 $
15,718
2,303
1,356
9,183
4,791
6,233
58,991
(1,131)
57,860
63,310
33,221
15,822
1,181
113,534
60,205 $
55,674
The 2017 Tax Cuts and Jobs Act ("TCJA") amended Internal Revenue Code Section 174 to require taxpayers to capitalize
certain research and experimental (R&E) expenditures. This regulatory change is effective for amounts paid or incurred in tax
years beginning after December 31, 2021. A new deferred tax asset has been established in relation to this law change and the
capitalized Section 174 costs must be amortized over five years.
The valuation allowance above reduces the deferred tax asset balances to the amount that we have determined is more
likely than not to be realized. The valuation allowance primarily relates to immaterial foreign net operating loss carryforwards
and immaterial state net operating loss carryforwards, which generally begin to expire in fiscal 2024.
Uncertain Tax Positions
As of January 28, 2023 and January 29, 2022, we had total unrecognized tax benefits of $15.8 million and $11.9 million,
respectively, resulting from uncertain tax positions. Our effective tax rate will be reduced by $14.7 million during future
periods if it is determined these unrecognized tax benefits are realizable. We had approximately $2.6 million and $2.3 million
accrued for the payment of interest and penalties as of January 28, 2023 and January 29, 2022, respectively. Interest expense
related to unrecognized tax benefits for the Company was not material during fiscal 2023, fiscal 2022, and fiscal 2021.
68
A summary of unrecognized tax benefits is as follows (dollars in thousands):
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Balance at beginning of year
$
11,929 $
5,940 $
Additions based on tax positions related to the fiscal year
Additions based on tax positions related to prior years
Reductions related to the expiration of statutes of limitation
2,042
2,957
(1,157)
1,377
4,612
4,742
1,075
530
(407)
Balance at end of year
15. Other Income, Net
$
15,771 $
11,929 $
5,940
The components of other income, net, were as follows (dollars in thousands):
Gain on sale of fixed assets
Miscellaneous income (expense), net
Other income, net
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
16,759
(6,558)
10,201
4,203
243
4,446
10,026
(1,429)
8,597
We participate in a vendor payment program sponsored by one of our customers. Eligible accounts receivable from this
customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner. This program
effectively reduces the time to collect these receivables as compared to that customer's standard payment terms. We incur a
discount fee to the bank on the payments received that is included as an expense component in miscellaneous income (expense),
net in the table above.
16. Employee Benefit Plans
We sponsor a defined contribution plan that provides retirement benefits to eligible employees who elect to participate (the
"Dycom Plan"). Under the plan, participating employees may defer up to 75% of their base pre-tax eligible compensation up to
the IRS limits. We contributed 30% of the first 5% of base eligible compensation that a participant contributes to the plan and
may make discretionary matching contributions from time to time. Effective January 1, 2023, we increased our contribution to
50% of the first 6% of base eligible compensation. Our contributions were $5.3 million, $4.4 million, and $4.0 million related
to fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
Certain of the Company's subsidiaries contribute amounts to multiemployer defined benefit pension plans under the terms
of collective bargaining agreements ("CBA") that cover employees represented by unions. Contributions are generally based on
fixed amounts per hour per employee for employees covered by the plan. Participating in a multiemployer plan entails risks
different from single-employer plans in the following aspects:
• assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers;
• if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be allocated to the
remaining participating employers; and
• if the Company stops participating in the multiemployer plan, the Company may be required to pay the plan an amount
based on the underfunded status of the plan. This payment is referred to as a withdrawal liability.
The information available to us about the multiemployer plans in which we participate is generally dated due to the nature
of the reporting cycle of multiemployer plans and legal requirements under the Employee Retirement Income Security Act
("ERISA") as amended by the Multiemployer Pension Plan Amendments Act. Based upon the most recently available annual
69
reports, our contribution to each of the plans was less than 5% of each plan's total contributions. All plans are presented in the
aggregate in the following table (dollars in thousands):
Fund
Company Contributions
Fiscal
Year
Ended
2022
Fiscal
Year
Ended
2021
Fiscal
Year
Ended
2023
Expiration
Date of
CBA
All Plans
63 $
83 $
280
Various
During the fourth quarter of fiscal 2016, one of the Company's subsidiaries ceased operations. This subsidiary contributed
to a multiemployer pension plan, the Pension, Hospitalization and Benefit Plan of the Electrical Industry - Pension Trust Fund
(the "Plan"). In October 2016, the Plan demanded payment for a claimed withdrawal liability of approximately $13.0 million.
In December 2016, the subsidiary submitted a formal request to the Plan seeking review of the Plan's withdrawal liability
determination. The subsidiary disputes the claim that it is required to make payment of a withdrawal liability as demanded by
the Plan as it believes that a statutory exemption under the Employee Retirement Income Security Act ("ERISA") applies to its
activities. The Plan has taken the position that the work at issue does not qualify for that statutory exemption. The subsidiary
has submitted this dispute to arbitration, as required by ERISA. There can be no assurance that the Company's subsidiary will
be successful in asserting the statutory exemption as a defense in the arbitration proceeding. As required by ERISA, in
November 2016, this subsidiary began making payments of a withdrawal liability to the Plan in the amount of approximately
$0.1 million per month. If the subsidiary prevails in disputing the withdrawal liability, all such payments are expected to be
refunded. Given the early stage of this action, it is not possible to estimate a range of loss that could result from either an
adverse judgment or a settlement of this matter.
17. Capital Stock
Repurchases of Common Stock. The company made the following repurchases during fiscal 2023, fiscal 2022, and fiscal
2021 (all shares repurchased have been canceled).
Period
Fiscal 2023
Fiscal 2022
Fiscal 2021
Number of Shares
Repurchased
Total
Consideration
(In thousands)
Average Price Per
Share
514,030 $
1,231,638 $
1,324,381 $
48,732 $
106,133 $
100,000 $
94.80
86.17
75.51
On March 2, 2022 the Company announced that its Board of Directors authorized a new $150.0 million program to
repurchase shares of the Company's outstanding common stock through August 2023 in open market or private transactions.
During fiscal 2023 we repurchased 514,030 shares of common stock, at an average price of $94.80, for $48.7 million. As of
January 28, 2023, $101.3 million remained available for repurchases.
On March 3, 2021 the Company announced that its Board of Directors had authorized a $150.0 million program to
repurchase shares of the Company's outstanding common stock through August 2022 in open market or private transactions.
During fiscal 2022, we repurchased 1,231,638 shares of our common stock, at an average price of $86.17, for $106.1 million.
On August 24, 2020 the Company announced that its Board of Directors had authorized a $100.0 million program to
repurchase shares of the Company's outstanding common stock through February 2022 in open market or private transactions.
During the fourth quarter of fiscal 2021, we repurchased 1,324,381 shares of our common stock, at an average price of $75.51,
for $100.0 million.
Restricted Stock Tax Withholdings. During fiscal 2023, fiscal 2022, and fiscal 2021, we withheld 59,018 shares, 78,264
shares, and 19,081 shares, respectively, totaling $5.8 million, $6.6 million, and $0.7 million, respectively, to meet payroll tax
withholding obligations arising from the vesting of restricted share units. All shares withheld have been canceled. Shares of
common stock withheld for tax withholdings do not reduce our total share repurchase authority.
Upon cancellation of shares repurchased or withheld for tax withholdings, the excess over par value is recorded as a
reduction of additional paid-in capital until the balance is reduced to zero, with any additional excess recorded as a reduction of
retained earnings. During fiscal 2023, $33.2 million was charged to retained earnings related to shares canceled during the fiscal
year.
70
18. Stock-Based Awards
We have outstanding stock-based awards under our 2003 Long-Term Incentive Plan, 2007 Non-Employee Directors Equity
Plan, 2012 Long-Term Incentive Plan, and 2017 Non-Employee Directors Equity Plan (collectively, the "Plans"). No further
awards will be granted under the 2003 Long-Term Incentive Plan or 2007 Non-Employee Directors Equity Plan. As of
January 28, 2023, the total number of shares available for grant under the Plans was 1,214,005.
Stock-based compensation expense and the related tax benefit recognized during fiscal 2023, fiscal 2022, and fiscal 2021
were as follows (dollars in thousands):
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Stock-based compensation
Income tax effect of stock-based compensation
$
$
17,927 $
9,866 $
12,771
4,433 $
2,435 $
3,141
In addition, we realized approximately $4.2 million, $2.9 million, and $0.5 million of net excess tax benefits during
fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
As of January 28, 2023, we had unrecognized compensation expense related to stock options, RSUs, and target
Performance RSUs (based on the Company's expected achievement of performance measures) of $2.7 million, $16.2 million,
and $15.0 million, respectively. This expense will be recognized over a weighted-average number of years of 2.6, 2.4, and 1.4,
respectively, based on the average remaining service periods for the awards. As of January 28, 2023, we may recognize an
additional $11.1 million in compensation expense in future periods if the maximum number of Performance RSUs is earned
based on certain performance measures being met.
The following table summarizes the valuation of stock options and restricted share units granted during fiscal 2023,
fiscal 2022, and fiscal 2021, and the significant valuation assumptions:
January 28,
2023
Fiscal Year Ended
January 29,
2022
January 30,
2021
Weighted average fair value of RSUs granted
Weighted average fair value of Performance RSUs granted
Weighted average fair value of stock options granted
$
$
$
96.81
97.49
61.18
$
$
$
82.25
84.73
52.33
$
$
$
27.75
25.15
14.63
Stock option assumptions:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividends
2.4 %
8.9
54.2 %
1.6 %
9.3
53.4 %
0.7 %
9.4
51.3 %
71
Stock Options
The following table summarizes stock option award activity during fiscal 2023:
Stock Options
Outstanding as of January 29, 2022
Granted
Options exercised
Canceled
Weighted
Average Exercise
Price
Shares
332,121 $
33,015 $
(119,430) $
— $
52.39
97.49
38.16
Weighted
Average
Remaining
Contractual Life
(In years)
Aggregate
Intrinsic Value
(In thousands)
Outstanding as of January 28, 2023
245,706 $
65.36
Exercisable options as of January 28, 2023
148,916 $
65.12
6.4
5.3
7,111
4,374
The total amount of exercisable options as of January 28, 2023 presented above reflects the approximate amount of options
expected to vest. The aggregate intrinsic values presented above represent the total pre-tax intrinsic values (the difference
between the Company's closing stock price of $92.73 on the last trading day of fiscal 2023 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option holders had all option holders exercised their
options on the last trading day of fiscal 2023. The amount of aggregate intrinsic value will change based on the price of the
Company's common stock. The total intrinsic value of stock options exercised was $8.5 million, $1.9 million, and $8.1 million
for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. We received cash from the exercise of stock options of $4.6 million,
$2.3 million, and $5.7 million during fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
RSUs and Performance RSUs
The following table summarizes RSU and Performance RSU award activity during fiscal 2023:
Restricted Stock
RSUs
Performance RSUs
Share Units
Weighted
Average Grant
Price
Share Units
Weighted
Average Grant
Price
524,255 $
123,428 $
(190,545) $
(17,235) $
439,903 $
38.49
96.81
40.60
43.80
54.17
455,800 $
202,212 $
(6,483) $
(265,856) $
385,673 $
68.88
97.49
25.15
60.60
90.32
Outstanding as of January 29, 2022
Granted
Share units vested
Forfeited or canceled
Outstanding as of January 28, 2023
The total number of granted Performance RSUs presented above consists of 137,605 target shares and 64,607 supplemental
shares. During fiscal 2023, we canceled 164,066 target shares and 85,576 supplemental shares of Performance RSUs, as a result
of performance criteria for attaining those shares being partially met for the applicable performance periods. Approximately
2,504 target shares and 57,199 supplemental shares outstanding as of January 28, 2023 will be canceled during the three months
ending April 30, 2023 as a result of the fiscal 2023 performance period criteria being partially met. The total amount of
Performance RSUs outstanding as of January 28, 2023 consists of 259,319 target shares and 126,354 supplemental shares.
The total fair value of restricted share units vested during fiscal 2023, fiscal 2022, and fiscal 2021 was $18.4 million, $22.4
million, and $3.1 million, respectively.
72
19. Customer Concentration and Revenue Information
Geographic Location
We provide services throughout the United States.
Significant Customers
Our customer base is highly concentrated, with our top five customers accounting for approximately 66.7%, 66.2%, and
74.1%, of our total contract revenues during fiscal 2023, fiscal 2022, and fiscal 2021, respectively. Customers whose contract
revenues exceeded 10% of total contract revenues during fiscal 2023, fiscal 2022, and fiscal 2021, as well as total contract
revenues from all other customers combined, were as follows:
AT&T Inc.
Lumen Technologies
Comcast Corporation
Verizon Communications Inc.
Total other customers combined
Total contract revenues
January 28, 2023
Fiscal Year Ended
January 29, 2022
January 30, 2021
Amount
% of
Total Amount
% of
Total Amount
% of
Total
$ 958.0
25.2 % $ 735.2
23.5 % $ 533.7
16.7 %
483.5
430.6
12.7 %
11.3 %
373.0
473.8
347.3
1,589.1
9.1 %
352.6
41.7 % 1,195.9
11.9 %
15.1 %
11.3 %
38.2 %
542.0
533.9
601.6
988.0
16.9 %
16.7 %
18.8 %
30.9 %
$ 3,808.5 100.0% $3,130.5 100.0%
$3,199.2 100.0%
See Note 5, Accounts Receivable, Contract Assets, and Contract Liabilities, for information on our customer credit
concentration and collectability of trade accounts receivable and contract assets.
Customer Type
Total contract revenues by customer type during fiscal 2023, fiscal 2022, and fiscal 2021, were as follows (dollars in
millions):
Fiscal Year Ended
January 28, 2023
January 29, 2022
% of
Total Amount
% of
Total Amount
January 30, 2021
% of
Total
Amount
Telecommunications
Underground facility locating
Electrical and gas utilities and other
Total contract revenues
Remaining Performance Obligations
$3,415.8
89.7%
$ 2,777.6
88.7%
$2,851.6
89.1%
274.9
7.2%
255.4
8.2%
229.6
7.2%
117.8
3.1%
97.5
3.1%
118.0
3.7%
$3,808.5 100.0% $3,130.5 100.0% $3,199.2 100.0%
Master service agreements and other contractual agreements with customers contain customer-specified service
requirements, such as discrete pricing for individual tasks. In most cases, our customers are not contractually committed to
procure specific volumes of services under these agreements.
Services are generally performed pursuant to these agreements in accordance with individual work orders. An individual
work order generally is completed within one year. As a result, our remaining performance obligations under the work orders
not yet completed is not meaningful in relation to our overall revenue at any given point in time. We apply the practical
expedient in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and do not disclose
information about remaining performance obligations that have original expected durations of one year or less.
73
20. Commitments and Contingencies
On August 10, 2021, one of the Company's subsidiaries was named in a putative class action lawsuit alleging claims on
behalf of its non-exempt employees in California. The lawsuit alleges that the company failed to pay minimum and overtime
wages, did not provide required meal and rest breaks, did not timely pay wages during employment and at the time of
termination, provided noncompliant wage statements, failed to reimburse necessary business expenses, failed to keep requisite
payroll records, and engaged in unfair business practices. On September 14, 2021, the same plaintiff bringing the putative class
action filed a separate representative action under California's Private Attorneys General Action ("PAGA") seeking civil
penalties relating to the same claims described above. Both lawsuits are in the very early stages. The Company's subsidiary has
entered into a preliminary settlement with plaintiffs in connection with this, which is subject to the parties entering into a
definitive settlement agreement, which will also require court approval. This settlement does not include any admission by the
Company's subsidiary of the allegations made in the lawsuit. Due to the early stage of this litigation at the time that the terms of
this settlement were reached, it is not possible to estimate a range of loss that could occur if this settlement is not consummated.
During the fourth quarter of fiscal 2016, one of the Company's subsidiaries ceased operations. This subsidiary contributed
to a multiemployer pension plan, the Pension, Hospitalization and Benefit Plan of the Electrical Industry - Pension Trust Fund
(the "Plan"). In October 2016, the Plan demanded payment for a claimed withdrawal liability of approximately $13.0 million.
In December 2016, the subsidiary submitted a formal request to the Plan seeking review of the Plan's withdrawal liability
determination. The subsidiary disputes the claim that it is required to make payment of a withdrawal liability as demanded by
the Plan as it believes that a statutory exemption under the Employee Retirement Income Security Act ("ERISA") applies to its
activities. The Plan has taken the position that the work at issue does not qualify for that statutory exemption. The subsidiary
has submitted this dispute to arbitration, as required by ERISA, and an arbitrator has ruled that the subsidiary does not qualify
for the statutory exemption. The subsidiary is appealing the arbitrator's ruling on various grounds. There can be no assurance
that the Company's subsidiary will be successful in its appeal of the arbitrator's ruling regarding this statutory exemption. In
November 2016, this subsidiary began making payments of a withdrawal liability to the Plan in the amount of approximately
$0.1 million per month, as required by ERISA. If the subsidiary prevails in disputing the withdrawal liability, all such payments
are expected to be refunded. Given the early stage of this action, it is not possible to estimate a range of loss that could result
from either an adverse judgment or a settlement of this matter.
From time to time, we are party to other various claims and legal proceedings arising in the ordinary course of business.
While the resolution of these matters cannot be predicted with certainty, it is the opinion of management, based on information
available at this time, that the ultimate resolution of any such claims or legal proceedings will not, after considering applicable
insurance coverage or other indemnities to which we may be entitled, have a material effect on our fmancial position, results of
operations, or cash flow.
Commitments
Performance and Payment Bonds and Guarantees. We have obligations under performance and other surety contract bonds
related to certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment
and/or performance from the issuer of the bond if we fail to perform our contractual obligations. As of January 28, 2023 and
January 29, 2022, we had $299.8 million and $296.4 million, respectively, of outstanding performance and other surety contract
bonds. In addition to performance and other surety contract bonds, as part of our insurance program, we also provide surety
bonds that collateralize our obligations to our insurance carriers. As of January 28, 2023 and January 29, 2022, we had
$20.4 million and $20.3 million, respectively, of outstanding surety bonds related to our insurance obligations. Additionally, the
Company periodically guarantees certain obligations of its subsidiaries, including obligations in connection with obtaining state
contractor licenses and leasing real property and equipment.
Letters of Credit. We have issued standby letters of credit under our credit agreement that collateralize our obligations to
our insurance carriers. As January 28, 2023 and January 29, 2022, we had $47.5 million and $46.3 million of outstanding
standby letters of credit issued under our credit agreement, respectively.
74
21. Quarterly Financial Data (Unaudited)
In the opinion of management, the following unaudited quarterly financial data from fiscal 2023 and fiscal 2022 reflect all
adjustments (consisting of normal recurring accruals), which are necessary to present a fair presentation of amounts shown for
such periods. Our fiscal year consists of either 52 weeks or 53 weeks of operations with the additional week of operations
occurring in the fourth quarter. Fiscal 2023 and fiscal 2022 consisted of 52 weeks of operations. The sum of the quarterly
results may not equal the reported annual amounts due to rounding (dollars in thousands, except per share amounts).
Fiscal 2023
Quarter Ended
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Contract revenues
$ 876,300 $ 972,273 $ 1,042,423 $ 917,466
Costs of earned revenues, excluding depreciation and amortization $ 745,730 $ 797,980 $ 850,897 $ 765,658
Gross profit
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
Fiscal 2022
$ 130,570 $ 174,293 $ 191,526 $ 151,808
24,809
43,856 $
19,536 $
54,012 $
$
$
$
0.66 $
0.65 $
1.48 $
1.46 $
1.83 $
1.80
$
0.84
0.83
Quarter Ended
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Contract revenues
$ 727,497 $ 787,568 $ 853,973 $ 761,481
Costs of earned revenues, excluding depreciation and amortization $ 620,011 $ 651,367 $ 705,865 $ 656,634
$ 107,486 $ 136,201 $ 148,108 $ 104,847
794
Gross profit
Net income
18,165 $
898 $
$
28,717 $
0.95 $
0.94 $
0.03
0.03
Earnings per common share - Basic
Earnings per common share - Diluted
$
$
0.03 $
0.03 $
0.60 $
0.59 $
75
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dycom Industries, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Dycom Industries, Inc. and its subsidiaries (the "Company")
as of January 28, 2023 and as of January 29, 2022, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the three years in the period ended January 28, 2023, January 29, 2022,
and January 30, 2021, including the related notes (collectively referred to as the "consolidated financial statements"). We also
have audited the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the fmancial
position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for
each of the three years in the period ended January 28, 2023, January 29, 2022, and January 30, 2021, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of January 28, 2023, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
fmancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
76
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
fmancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Reporting Units Subject to Quantitative Analysis
As described in Notes 2 and 9 to the consolidated financial statements, the Company's consolidated goodwill balance was
$272.5 million as of January 28, 2023. Management conducts an impairment test as of the first day of the fourth fiscal quarter
of each year for each reporting unit, or more frequently if events occur that would indicate a potential reduction in the fair value
of a reporting unit below its carrying value. In the annual impairment test, management performs a qualitative assessment, and
if it is not more likely than not that the fair value exceeds the carrying value of the reporting unit, a quantitative assessment is
performed. In the year ended January 28, 2023, qualitative assessments were performed on reporting units that comprise a
significant portion of the Company's consolidated goodwill balance, and quantitative assessments were performed on the
remaining reporting units. If management determines the fair value of a reporting unit's goodwill is less than its carrying value,
an impairment loss is recognized. When performing the quantitative analysis, the fair value is determined using an equal
weighting of fair values derived from the income approach and market approach valuation methodologies. The income
approach uses the discounted cash flow method and the market approach uses the guideline company method. Under the
income approach, the key valuation assumptions were (a) expected cash flow for a period of seven years based on the
Company's best estimate of revenue growth rates and projected operating margins, (b) terminal value based upon terminal
growth rates, and (c) a discount rate based on the Company's best estimate of the weighted average cost of capital adjusted for
certain risks for the reporting units. Under the market approach, the guideline company method develops valuation multiples by
comparing the Company's reporting units to similar publicly traded companies. Key market approach valuation assumptions
were (a) the selection of similar companies and (b) the selection of valuation multiples as they apply to the reporting unit
characteristics.
The principal consideration for our determination that performing procedures relating to the goodwill impairment assessment
for reporting units subject to quantitative analysis is a critical audit matter is the significant judgment by management when
developing the fair value measurement of each of the reporting units within the quantitative analysis. This in turn led to a high
degree of auditor judgment, subjectivity and audit effort in performing our audit procedures and in evaluating audit evidence
relating to management's cash flow projections and significant assumptions related to the revenue growth rates and projected
operating margins used in the discounted cash flow method, terminal growth rate, discount rate, and the selection of similar
companies and valuation multiples used in the guideline company method. In addition, the audit effort involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence
obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management's goodwill impairment assessment, including controls over the valuation of the Company's reporting units subject
to quantitative analysis. These procedures also included, among others, testing management's process for developing the fair
value estimates; evaluating the appropriateness of the income and market approaches and the related discounted cash flow and
guideline company methods; testing the completeness, accuracy and relevance of the underlying data used in the discounted
cash flow and guideline company methods, and evaluating the significant assumptions used by management, including the
revenue growth rates, projected operating margins, terminal growth rate and discount rate used in the discounted cash flow
method, and the selection of similar companies and valuation multiples used in the guideline company method. Evaluating
management's assumptions related to the revenue growth rates and projected operating margins involved evaluating whether
the assumptions used were reasonable considering the current and past performance of the reporting units and considering
whether they were consistent with evidence obtained in other areas of the audit, including the evaluation of contractual
agreements with customers and industry trends. Professionals with specialized skill and knowledge were used to assist in
evaluating the valuation methodologies, the discount rate and terminal growth rate assumptions used in the discounted cash
flow method, and the selection of similar companies and valuation multiples used in the guideline company method.
/s/ PricewaterhouseCoopers LLP
Hallandale Beach, Florida
March 3, 2023
We have served as the Company's auditor since 2014.
77
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with accountants on accounting and financial disclosures within the
meaning of Item 304 of Regulation S-K.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) as of January 28, 2023, the end of the period covered by this Annual Report on
Form 10-K. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
January 28, 2023, the Company's disclosure controls and procedures are effective to provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
(1) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange
Commission's rules and forms, and (2) accumulated and communicated to the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the Company's fourth quarter of fiscal 2023 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management of Dycom Industries, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934. The
Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
fmancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. There are inherent limitations in the effectiveness of any system of internal control, including the
possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide
reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions,
effectiveness of internal control over financial reporting may vary over time.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that the Company's internal control over financial reporting was
effective as of January 28, 2023.
The effectiveness of the Company's internal control over financial reporting as of January 28, 2023 has been audited by
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm. Their report, which is set forth in
Part II, Item 8, Financial Statements, of this Annual Report on Form 10-K, expresses an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting as of January 28, 2023.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
78
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information concerning directors and nominees of the Registrant and other information as required by this item are hereby
incorporated by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A. The information set forth under the caption "Information About Our Executive
Officers" in Part I, Item 1 of this Annual Report on Form 10-K is incorporated herein by reference.
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers, which is a code of ethics as that term is defined
in Item 406(b) of Regulation S-K and which applies to its Chief Executive Officer, Chief Financial Officer, Chief Accounting
Officer, Controller, and other persons performing similar functions. The Code of Ethics for Senior Financial Officers is
available on the Company's website at www.dycomind.com. If the Company makes any substantive amendments to, or a
waiver from, provisions of the Code of Ethics for Senior Financial Officers, it will disclose the nature of such amendment, or
waiver, on its website or in a report on Form 8-K. Information on the Company's website is not deemed to be incorporated by
reference into this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by Item 11 regarding executive compensation is included under the headings "Compensation
Discussion and Analysis," "Compensation Committee Report," and "Compensation Committee Interlocks and Insider
Participation" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information concerning the ownership of certain of the Registrant's beneficial owners and management and related
stockholder matters is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
Item 13. Certain Relationships, Related Transactions and Director Independence.
Information concerning relationships and related transactions is hereby incorporated by reference from the Company's
definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services.
Information concerning principal accounting fees and services is hereby incorporated by reference from the Company's
definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
79
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as a part of this report:
PART IV
1. Consolidated financial statements: the consolidated financial statements and the Report of Independent Registered
Certified Public Accounting Firm are included in Part II, Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K.
2. Financial statement schedules: All schedules have been omitted because they are inapplicable, not required, or the
information is included in the above referenced consolidated financial statements or the notes thereto.
3. Exhibits furnished pursuant to the requirements of Form 10-K:
Exhibit Number
3 ii
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13 *
Restated Articles of Incorporation of Dycom Industries, Inc. (incorporated by reference to Dycom Industries, Inc.'s
Quarterly Report on Form 10-Q filed with the SEC on June 11, 2002).
Amended and Restated By-laws of Dycom Industries, Inc., as amended on September 28, 2016 (incorporated by
reference to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on September 30, 2016).
Indenture, dated as of April 1, 2021, among Dycom Industries, Inc., the subsidiary guarantors and U.S. Bank
National Association, as Trustee (incorporated by reference to Dycom Industries, Inc.'s Current Report on Form 8-
K filed with the SEC on April 2, 2021).
Description of Common Stock Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(incorporated by reference to Dycom Industries, Inc.'s Annual Report on Form 10-K filed with the SEC on March
2, 2020).
2003 Long Term Incentive Plan, amended and restated effective as of September 19, 2011 (incorporated by
reference to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on September 23, 2011).
Form of Non-Qualified Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and
restated (incorporated by reference to Dycom Industries, Inc.'s Annual Report on Form 10-K filed with the SEC on
September 4, 2012).
Form of Incentive Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and restated
(incorporated by reference to Dycom Industries, Inc.'s Annual Report on Form 10-K filed with the SEC on
September 4, 2012).
2012 Long-Term Incentive Plan, amended and restated effective as of November 21, 2017 (incorporated by
reference to Dycom Industries, Inc.'s Definitive Proxy Statement filed with the SEC on October 12, 2017).
Amendment to the Dycom Industries, Inc. 2012 Long-Term Incentive Plan, as Amended and Restated as of
November 21, 2017 (incorporated by reference to Appendix A of the Dycom Industries, Inc.'s Definitive Proxy
Statement, filed with the SEC on April 11, 2019).
Amendment to the Dycom Industries, Inc. 2012 Long-Term Incentive Plan, as Amended and Restated as of May
26, 2022 (incorporated by reference to Appendix A of the Dycom Industries, Inc.'s Definitive Proxy Statement,
. _
Form of Non-Qualified Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by
reference to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 20, 2012).
Form of Incentive Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference
to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 20, 2012).
Form of Restricted Stock Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to
Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 20, 2012).
Form of Performance Share Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference
to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 20, 2012).
2007 Non-Employee Directors Equity Plan, amended and restated effective as of September 19, 2011
(incorporated by reference to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on
September 23, 2011).
Form of Non-Employee Director Non-Qualified Stock Option Agreement, under the 2007 Non-Employee
Directors Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Annual
Report on Form 10-K filed with the SEC on September 4, 2012).
Form of Non-Employee Director Restricted Stock Unit Agreement, under the 2007 Non-Employee Directors
Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Annual Report on
Form 10-K filed with the SEC on September 4, 2012).
80
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24
10.25
10.26
10.27
10.28
10.29
10.30
2017 Non-Employee Directors Equity Plan (incorporated by reference to Dycom Industries, Inc.'s Definitive
Proxy Statement filed with the SEC on October 12, 2017).
Form of Non-Employee Director Restricted Stock Unit Agreement under the 2017 Non-Employee Directors
Equity Plan (incorporated by reference to Dycom Industries, Inc.'s Transition Report on Form 10-K filed with the
SEC on March 2, 2018).
Employment Agreement for Steven E. Nielsen dated as of May 21, 2020 (incorporated by reference to Dycom
Industries, Inc.'s Form 8-K filed with the SEC on May 21, 2020).
Employment Agreement for Timothy R. Estes dated as of October 25, 2017 (incorporated by reference to Dycom
Industries, Inc.'s Current Report on Form 8-K filed with the SEC on October 27, 2017).
Employment Agreement for Daniel S. Peyovich dated as of January 6, 2021 (incorporated by reference to Dycom
Industries, Inc.'s Current Report on Form 8-K filed with the SEC on January 6, 2021).
Employment Agreement for H. Andrew DeFerrari dated as of July 23, 2015 (incorporated by reference to Dycom
Industries, Inc.'s Current Report on Form 8-K filed with the SEC on July 24, 2015).
Employment Agreement for Jason T. Lawson dated as of October 10, 2022. (incorporated by reference to Dycom
Industries, Inc.'s Current Report on Form 8-K filed with the SEC on October 11, 2022).
Employment Agreement for Ryan F. Urness dated as of October 31, 2018 (incorporated by reference to Dycom
Industries, Inc.'s Quarterly Report on Form 10-Q filed with the SEC on August 29, 2019).
2009 Annual Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s Definitive Proxy Statement
filed with the SEC on October 17, 2013).
Form of Indemnification Agreement for directors and executive officers of Dycom Industries, Inc. (incorporated by
reference to Dycom Industries, Inc.'s Annual Report on Form 10-K filed with the SEC on September 3, 2009).
Credit Agreement, dated as of December 3, 2012, among Dycom Industries, Inc., as the Borrower, the subsidiaries
of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National
Association, as Syndication Agent, and SunTrust Bank, PNC Bank, National Association and Branch Banking and
Trust Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries,
Inc.'s Current Report on Form 8-K filed with the SEC on December 5, 2012).
First Amendment to Credit Agreement, dated as of April 24, 2015, among Dycom Industries, Inc., as the Borrower,
the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A.,
as Administrative Agent, Swingline Lender and L/C Issuer, Bank of America Merrill Lynch and Wells Fargo
Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National Association, as
Syndication Agent, and SunTrust Bank, PNC Bank, National Association and Branch Banking and Trust
Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s
Current Report on Form 8-K filed with the SEC on April 27, 2015).
Second Amendment to Credit Agreement, dated as of September 9, 2015, among Dycom Industries, Inc., as the
Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, and Bank of
America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s
Current Report on Form 8-K filed with the SEC on September 10, 2015).
Third Amendment to Credit Agreement and Additional Term Loan Agreement, dated as of May 20, 2016, among
Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain
lenders named therein, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit
10.1 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on May 24, 2016).
Fourth Amendment to Credit Agreement, dated as of June 17, 2016, among Dycom Industries, Inc., as the
Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, and Bank of
America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s
Current Report on Form 8-K filed with the SEC on June 22, 2016).
Lender Joinder Agreement, dated as of January 26, 2017, to the Credit Agreement dated as of December 3, 2012,
by and among MUFG Union Bank N.A., as the New Lender, Dycom Industries, Inc., as the Borrower, the
subsidiaries of Dycom Industries, Inc. identified therein, and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s Quarterly Report on Form 10-Q filed with
the SEC on March 3, 2017).
Amended and Restated Credit Agreement, dated as of October 19, 2018, among Dycom Industries, Inc. as the
Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of
America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and other parties named therein
(incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the
SEC on October 22, 2018).
81
10.30(a) First Amendment to Amended and Restated Credit Agreement and First Amendment to Amended and Restated
Pledge Agreement, dated as of April 1, 2021, among Dycom Industries, Inc., as the Borrower, the subsidiaries of
Dycom identified therein, certain lenders named therein, Bank of America, N.A., as Administrative Agent,
Swingline Lender and L/C Issuer, and other parties named therein (incorporated by reference to Dycom Industries,
Inc.'s Current Report on Form 8-K filed with the SEC on April 2, 2021).
21.1 +
23.1 +
31.1 +
31.2 +
Principal subsidiaries of Dycom Industries, Inc.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 -HP Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 -HP Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
101 +
The following materials from the Registrant's Annual Report on Form 10-K for the fiscal year ended January 28,
2023 formatted in Inline XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of
Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of
Stockholders' Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated
Financial Statements.
104 +
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Filed herewith
++
Furnished herewith
Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10% Summary.
None.
82
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DYCOM INDUSTRIES, INC.
Registrant
Date: March 3, 2023
/s/ Steven E. Nielsen
Name: Steven E. Nielsen
Title:
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Position
Date
/s/ Steven E. Nielsen
Steven E. Nielsen
/s/ H. Andrew DeFerrari
H. Andrew DeFerrari
/s/ Sharon R. Villaverde
Sharon R. Villaverde
/s/ Dwight B. Duke
Dwight B. Duke
/s/ Jennifer M. Fritzsche
Jennifer M. Fritzsche
/s/ Eitan Gertel
Eitan Gertel
/s/ Peter T. Pruitt, Jr.
Peter T. Pruitt, Jr.
/s/ Stephen C. Robinson
Stephen C. Robinson
/s/ Carmen M. Sabater
Carmen M. Sabater
/s/ Richard K. Sykes
Richard K. Sykes
/s/ Laurie J. Thomsen
Laurie J. Thomsen
President, Chief Executive Officer and Director
March 3, 2023
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
March 3, 2023
(Principal Financial Officer)
Vice President and Chief Accounting Officer
March 3, 2023
(Principal Accounting Officer)
Director
Director
Director
Director
March 3, 2023
March 3, 2023
March 3, 2023
March 3, 2023
Director
March 3, 2023
Director
March 3, 2023
March 3, 2023
March 3, 2023
Director
Director
83
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP FINANCIAL MEASURES
(Dollars in thousands)
Unaudited
Appendix A
The shareholder letter included at the beginning of this Annual Report includes the financial measures of Non-GAAP
Organic Contract Revenues, Non-GAAP Adjusted EBITDA and Non-GAAP Adjusted Diluted Earnings per Share which are
Non-GAAP financial measures as defined in Regulation G of the Securities and Exchange Act of 1934. The Company believes
that certain Non-GAAP financial measures provide information that is useful to investors because it allows for a more direct
comparison of the Company’s performance for the period reported with the Company’s performance in prior periods. The
Company cautions that Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the
Company’s reported GAAP results. The below tables present reconciliations of Non-GAAP financial measures to the most
directly comparable GAAP measures.
CONTRACT REVENUES, NON-GAAP ORGANIC CONTRACT REVENUES, AND GROWTH %’S
Unaudited
(Dollars in millions)
Fiscal Year Ended
January 28, 2023 (FY2023)
January 29, 2022 (FY2022)
Quarter Ended
January 28, 2023 (Q4 2023)
January 29, 2022 (Q4 2022)
October 29, 2022 (Q3 2023)
October 30, 2021 (Q3 2022)
July 30, 2022 (Q2 2023)
July 31, 2021 (Q2 2022)
April 30, 2022 (Q1 2023)
May 1, 2021 (Q1 2022)
Contract
Revenues -
GAAP
Revenues
from storm
restoration
services
3,808.5 $
3,130.5 $
— $
(3.9) $
Non-GAAP -
Organic
Revenues
3,808.5
3,126.7
Growth %
GAAP -
Organic %
21.7%
Non-GAAP -
Organic %
21.8%
917.5 $
761.5 $
1,042.4 $
854.0 $
972.3 $
787.6 $
876.3 $
727.5 $
— $
— $
— $
— $
— $
— $
— $
(3.9) $
917.5
761.5
1,042.4
854.0
972.3
787.6
876.3
723.6
20.5%
20.5%
22.1%
22.1%
23.5%
23.5 %
20.5%
21.1%
$
$
$
$
$
$
$
$
$
$
Amounts in table above may not add due to rounding.
A-1
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP FINANCIAL MEASURES (CONTINUED)
(Dollars in thousands)
Unaudited
NET INCOME AND NON-GAAP ADJUSTED EBITDA
Reconciliation of net income to Non-GAAP Adjusted EBITDA:
Net income
Interest expense, net
Provision for income taxes
Depreciation and amortization expense
Earnings Before Interest, Taxes, Depreciation & Amortization (“EBITDA”)
Gain on sale of fixed assets
Stock-based compensation expense
Loss on debt extinguishment(1)
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA % of contract revenues
Amounts in table above may not add due to rounding.
Fiscal Year Ended
January 28, 2023
Fiscal Year Ended
January 29, 2022
$ 142,213
40,618
37,909
144,181
364,921
(16,759)
17,927
—
$ 366,089
$ 48,574
33,166
4,202
152,652
238,594
(4,203)
9,866
62
$ 244,319
9.6%
7.8%
A-2
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP FINANCIAL MEASURES (CONTINUED)
(Dollars in thousands, except per share amounts)
Unaudited
NET INCOME, NON-GAAP ADJUSTED NET INCOME, DILUTED EARNINGS PER COMMON SHARE, AND
NON-GAAP ADJUSTED DILUTED EARNINGS PER COMMON SHARE
Reconciliation of net income to Non-GAAP Adjusted Net Income:
Net income
Pre-Tax Adjustments:
Non-cash amortization of debt discount on 2021 Convertible Notes
Loss on debt extinguishment(1)
Tax Adjustments:
Tax impact for the vesting and exercise of share-based awards(2)
Tax impact of pre-tax adjustments
Total adjustments, net of tax
Non-GAAP Adjusted Net Income
Reconciliation of diluted earnings per common share to Non-GAAP Adjusted
Diluted Earnings per Common Share:
GAAP diluted earnings per common share
Total adjustments, net of tax
Non-GAAP Adjusted Diluted Earnings per Common Share
Shares used in computing Non-GAAP Adjusted Diluted Earnings per
Common Share
Amounts in table above may not add due to rounding.
Fiscal Year Ended
January 28, 2023
Fiscal Year Ended
January 29, 2022
$
142,213
$
48,574
—
—
—
—
—
142,213
4.74
—
4.74
$
$
$
1,665
62
(2,886)
(466)
(1,625)
46,949
1.57
(0.05)
1.52
$
$
$
29,996,591
30,844,211
A-3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP FINANCIAL MEASURES (CONTINUED)
Explanation of Non-GAAP Financial Measures
Management defines the Non-GAAP financial measures used as follows:
•
•
•
Non-GAAP Organic Contract Revenues - contract revenues from businesses that are included for the entire period in
both the current and prior year periods, excluding contract revenues from storm restoration services. Non-GAAP Organic
Contract Revenue change percentage is calculated as the change in Non-GAAP Organic Contract Revenues from the
comparable prior year period divided by the comparable prior year period Non-GAAP Organic Contract Revenues.
Management believes Non-GAAP Organic Contract Revenues is a helpful measure for comparing the Company’s revenue
performance with prior periods.
Non-GAAP Adjusted EBITDA - net income before interest, taxes, depreciation and amortization, gain on sale of fixed
assets, stock-based compensation expense, and certain non-recurring items. Management believes Non-GAAP Adjusted
EBITDA is a helpful measure for comparing the Company’s operating performance with prior periods as well as with the
performance of other companies with different capital structures or tax rates.
Non-GAAP Adjusted Net Income - GAAP net income before the non-cash amortization of the debt discount and the related
tax impact, certain tax impacts resulting from vesting and exercise of share-based awards, and certain non- recurring
items. Management believes Non-GAAP Adjusted Net Income is a helpful measure for comparing the Company’s
operating performance with prior periods.
•
Non-GAAP Adjusted Diluted Earnings per Common Share - Non-GAAP Adjusted Net Income divided by weighted
average diluted shares outstanding.
Management excludes or adjusts each of the items identified below from Non-GAAP Adjusted Net Income and Non-GAAP
Adjusted Diluted Earnings per Common Share:
•
•
•
•
Non-cash amortization of debt discount on 2021 Convertible Notes - The Company’s 2021 Convertible Notes were
allocated between debt and equity components. The difference between the principal amount and the carrying amount
of the liability component of the 2021 Convertible Notes represents a debt discount. The debt discount is amortized over
the term of the 2021 Convertible Notes but does not result in periodic cash interest payments. The Company excludes
the non-cash amortization of the debt discount from its Non-GAAP financial measures because it believes it is useful to
analyze the component of interest expense for the 2021 Convertible Notes that will be paid in cash. The 2021 Convertible
Notes were repaid in full during fiscal 2022. The exclusion of the non-cash amortization from the Company’s Non-GAAP
financial measures provides management with a consistent measure for assessing financial results.
Loss on debt extinguishment - During the fiscal year ended January 29, 2022, the Company recognized a loss on debt
extinguishment of $0.1 million in connection with the amendment and restatement of its credit agreement. Management
believes excluding the loss on debt extinguishment from the Company’s Non-GAAP financial measures assists investors’
overall understanding of the Company’s current financial performance and provides management with a consistent
measure for assessing the current and historical financial results.
Tax impact of the vesting and exercise of share-based awards - In fiscal 2022, the Company excluded certain tax impacts
resulting from the vesting and exercise of share-based awards. For comparability to other companies in the industry, the
Company no longer excludes these tax impacts from its Non-GAAP measures beginning with the results for fiscal 2023.
Tax impact of pre-tax adjustments - The tax impact of pre-tax adjustments reflects the Company’s estimated tax impact of
specific adjustments and the effective tax rate used for financial planning for the applicable period.
A-4
Notes
(1)During the fiscal year ended January 29, 2022, the Company recognized a loss on debt extinguishment of $0.1 million in
connection with the amendment and restatement of its credit agreement maturing in April 2026.
(2)In fiscal 2022, the Company excluded certain tax impacts from the vesting and exercise of share-based awards when
calculating Non-GAAP Adjusted Net Income. For comparability to other companies in the industry, the Company no
longer excludes these tax impacts from its Non-GAAP measures beginning with the results for fiscal 2023. As there are no
Non-GAAP adjustments for fiscal 2023, Non-GAAP Adjusted Net Income equals GAAP net income.
A-5
CORPORATE
DIRECTORY
EXECUTIVE OFFICERS:
ANNUAL MEETING:
The 2023 Annual Shareholders Meeting will be held via a
virtual meeting portal at 11:00 a.m. on Thursday, May 25,
2023. The virtual meeting can be accessed via the following
link: www.virtualshareholdermeeting.com/DY2023
COMMON STOCK:
The common stock of Dycom Industries, Inc. is traded on the
New York Stock Exchange under the trading symbol “DY”.
SHAREHOLDER INFORMATION:
Copies of this report to Shareholders, the Annual Report
to the Securities and Exchange Commission (“SEC”) on
Form 10-K, and other published reports may be obtained,
without charge, by sending a written request to:
Secretary
Dycom Industries, Inc.
11780 U.S. Highway 1
Suite 600
Palm Beach Gardens, Florida 33408
Telephone: (561) 627-7171
Web Site: www.dycomind.com
E-mail: info@dycomind.com
Documents that Dycom has filed electronically with the
SEC can be accessed on the SEC’s website at www.sec.gov.
Dycom has filed the certifications of the Chief Executive
Officer and Chief Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2
of its 2023 Annual Report on Form 10-K filed with the SEC.
Steven E. Nielsen
Chairman, President and Chief Executive Officer
Daniel S. Peyovich
Executive Vice President and Chief Operating Officer
H. Andrew DeFerrari
Senior Vice President and Chief Financial Officer
Jason T. Lawson
Vice President and Chief Human Resources Officer
Ryan F. Urness
Vice President, General Counsel and Secretary
DIRECTORS:
Dwight B. Duke 2, 3
Jennifer M. Fritzsche 1, 2, 3
Eitan Gertel 1, 2, 5
Peter T. Pruitt, Jr. 1, 5
Stephen C. Robinson 1, 5
Carmen M. Sabater 2, 3
Richard K. Sykes 2, 3, 4
Steven E. Nielsen 4
Laurie J. Thomsen 1, 3, 5
COMMITTEES:
1 Audit Committee
2 Compensation Committee
3 Corporate Governance Committee
4 Executive Committee
5 Finance Committee
REGISTRAR AND TRANSFER AGENT:
American Stock Transfer & Trust Company
New York, New York
INDEPENDENT AUDITORS:
PricewaterhouseCoopers LLP
Hallandale Beach, Florida
Contact Us
Dycom Industries, Inc.
11780 U.S. Highway 1, Suite 600
Palm Beach Gardens, FL 33408
dycomind.com
info@dycomind.com
561.627.7171
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