Dycom Industries F1Q08 (Qtr End 10/27/07) Earnings Call Transcript

Dycom Industries, Inc. (DY)

F1Q08 (Qtr End 10/27/07) Earnings Call

November 20, 2007 9:00 am ET

Executives

Rick Vilsoet - General Counsel

Steven Nielsen - Chairman, President, CEO

Dick Dunn - CFO

Analysts

Mark Hughes - SunTrust

Alex Rygiel - FBR Capital Markets

John Rogers - D.A. Davidson

Paul Bonenfant - Morgan Keegan & Co.

Jack Kasprzak - BB&T Capital Markets

Alan Mitrani - Sylvan Lake Asset Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Dycom Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host Mr. Steven Nielsen. Please go ahead.

Steven Nielsen

Thank you, Jane. Good morning, everyone. I'd like to thank you for attending our first quarter fiscal 2008 Dycom earnings conference call. With me we have in attendance Richard Dunn, our Chief Financial Officer and Rick Vilsoet, our General Counsel.

Now, I will turn the call over to Rick Vilsoet. Rick?

Rick Vilsoet

Thank you, Steve. Statements made in the course of this conference call that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained from time to time in the company's Securities and Exchange Commission filings, including but not limited to the company's annual report on Form 10-K for the year ended July 28, 2007. The company does not undertake to update such forward-looking information. Steve?

Steven Nielsen

Thanks, Rick. Yesterday we issued a press release announcing our first quarter fiscal 2008 earnings. As you review this release, it is important to note that during our second quarter fiscal 2007, one of our subsidiaries ceased operations, and accordingly, we have reported those results as discontinued. Consequently, for clarity our comments will be limited to results from continuing operations.

Now for the quarter ending October 27, 2007 total contract revenues were $329.7 million versus $270.6 million in the year ago quarter, a growth rate or an increase of 22%.

Income from continuing operations was $15.3 million versus $9.5 million, an increase of 60% and fully diluted earnings per share from continuing operations was $0.37 versus $0.24, an increase of 54%.

Backlog at the end of the first quarter of fiscal 2008 was $1.19 billion versus $1.39 billion at the end of the fourth quarter, a decrease of $199 million from the fourth quarter. Of this backlog, approximately $689.4 million is expected to be completed in the next 12 months.

Please note that with regards to a certain multi-year project relating to fiber deployments, we have included in backlog only those amounts relating to work estimated to be performed during the balance of calendar year 2007.

For the first quarter, our earnings were at the top end of our earnings per share expectations and up 54% year-over-year due to strong operating performance. Additionally, organic revenue growth was 15.5% after adjusting for revenues from businesses acquired during fiscal 2007.

Gross margin increased to 122 basis points from the prior year. The year-over-year increase in gross margin was due in part to improved performance across a number of our businesses, steady Voice-over-IP installation activity sustained in steady volumes from telephone companies and increased constructions spending from a number of cable operators. Organic revenue from our top five customers on a combined basis grew 23%, demonstrating notable strength within our business.

General and administrative expenses declined 25 basis points from the prior year, reflecting good expense management. Cash flow from operations was solid in the quarter at $17.7 million, despite a sequential increase in revenues of over $12 million and the payment of normal year end expense accruals.

Net debt was up slightly sequentially but down year-over-year by over $39 million. Days sales outstanding were steady at 70 days. Capital expenditures net of disposals totaled $19.3 million, as we experienced continued organic growth and executed upon our normal replacement cycle.

Headcount at the end of the quarter was 11,159 reflecting a steady seasonal increase and organic growth. During the quarter, we experienced the effects of a moderately growing overall economy; steady spending by a telephone company, which had completed the merger at the beginning of this calendar year; expenditures by another telephone company, which was steady sequentially and up year-over-year; and results from cable operators which continued to show significant improvement.

Revenue from AT&T, including Legacy BellSouth, was slightly up sequentially and increased $13 million year-over-year or 28.5%. AT&T was our largest customer at $60.8 million or 18.5% of total revenue.

For Verizon, we performed work for its fiber-to-the-premise initiatives in the states of Massachusetts, Rhode Island, New York, Maryland, Virginia and Florida. Revenue from Verizon was $58.9 million during the quarter, up from $45.5 million in the year-ago quarter or 29.7%. At 17.9% of revenue, Verizon was our second largest customer.

Revenue from Comcast was $40.5 million. Comcast was Dycom's third largest customer for the quarter at 12.3% of revenue. Significantly, after adjusting for acquired revenue, revenue from Comcast grew 17.9% year-over-year.

Time Warner was our fourth largest customer with revenues of $30.3 million or 9.2% of total revenue, reflecting increased upgrade activity and steady installation volumes.

And finally, with Embarq, we experienced a sequential decline in revenues to $19.4 million. Embarq was our fifth largest customer. All together, our top five customers represented 63.7% of revenue.

During the quarter, we continued to book new work and renew existing work. From AT&T, we received a new three year master services agreement for Wilmington, North Carolina and from TDS Telecom a fiber-to-the-premise project located just outside Knoxville, Tennessee.

For Cox, we were awarded a network bandwidth upgrade in Virginia. From Comcast, an upgrade in the Bay Area of California and a large mapping project in the North East. And for Time Warner, a design project and network upgrade in California. And finally, from Williams, two gas pipeline projects in the Western U.S.

Throughout the quarter, Dycom continued to demonstrate strength. First and foremost, we maintained solid customer relationships throughout our markets. Secondly, the strength of those relationships and the value we can generate for our customers has allowed us to be at the forefront of rapidly evolving industry opportunities.

We believe that the commitment by the nation's leading two RBOCs to deploy fiber deeper into their networks is now self-evident, irreversible and will drive broad industry developments for the next several years.

In fact, the vast rewiring of the nation's telecommunications infrastructure in order to dramatically expand the provisioning of bandwidth and the delivery of new service offerings is now firmly underway and accelerating. We are encouraged that one RBOC has recently and publicly indicated increased spending in a region of the country where we have a significant presence and that another RBOC is publicly committed to increasing its fiber deployments in 2008.

Additionally, we are encouraged with our continued success and expanding our technical and upgrade services for cable operators and hardened by a meaningful and continued upturn in bidding and award activity. Furthermore, continued acceleration in consumer demand for high-definition video promises to reinforce this cycle as network capacity may become constraint.

And finally, we have maintained our financial strength, generating solid cash flows from operations, which over time has allowed us to make significant capital investments to facilitate future growth, both internally and externally through acquisitions.

As our industry continues its own growth, we believe Dycom's fundamental strength will allow us to remain one of the best-positioned firms in our industry, able to exploit profitable growth opportunities. After weighing all of the factors we have discussed today, as well as our current expectations, we have updated our forecast as follows.

For the second quarter of fiscal 2008, we anticipate earnings per share of $0.15 to $0.21 on revenues of $290 million to $310 million. This outlook anticipates continued growth in the U.S. economy; seasonally normal weather; organic growth, which may exceed 10%; broad solid operating performance; sequential G&A expenses flat to modestly down as a percentage of revenues excluding non-cash compensation; a seasonal decline in other income of approximately one-half from our first quarter, as we anticipate a reduced number of assets will be sold in the second quarter; increased levels of depreciation during the second quarter versus the first quarter as a result of our recent purchases of capital assets and non-cash compensation expense of approximately $2.1 million on a pretax basis during the quarter, flat with the $2.1 million we had in the first quarter.

Now, I will turn the call over to Dick Dunn, our CFO. Dick?

Dick Dunn

Thanks, Steve. Before I begin my review, let me remind everyone that during the second quarter of the prior fiscal year, we discontinued the operations of one of our subsidiaries Apex Digital. The after-tax results of the discontinued operations have been excluded from income from continuing operations and have been included as the separate line on the face of the income statements for all periods presented.

For the purposes of my financial review, all references, unless otherwise indicated, will relate to the results from continuing operations, excluding the impact of discontinued operations.

Now turning to the income statement. Contract revenues for the current quarter were $329.7 million, up 21.9% from last year's Q1 of $270.6 million. Excluding revenues of subsidiaries acquired during or subsequent to Q1 of fiscal year 2007, revenues for the current quarter would have been $300.1 million, an increase of 15.5%.

For the quarter, sales from our top five customers accounted for 63.7% of total revenues versus 69.1% for the prior year's first quarter. The top five customers and their respective percentages of revenue for Q1 of fiscal year 2008 and 2007 are as follows: Beginning with Q1 of fiscal year 2008, AT&T at 18.5%; Verizon at 17.9%; Comcast, 12.3%; Time Warner at 9.2%; and Embark, 5.9%. And turning to Q1 of fiscal year 2007, AT&T at 17.5%; Verizon, 16.8%, Comcast, 11.7%; Embark 7.8%; and Time Warner, 5.3%.

Income from continuing operations for the first quarter was $15.3 million versus $9.5 million in fiscal year '07, representing an increase of 60.2%. Fully diluted earnings for the quarter were $0.37 per share, a 54.2% increase from last year's $0.24 per share results.

Operating margins for the quarter increased a 122 basis points coming in at 8.1% versus last year's 6.88%. This increase was due to a 122 basis point decrease in cost of earned revenues, a 25 basis point decrease in general and administrative, partially offset by a 25 basis point increase in depreciation and amortization.

Depreciation expense for the first quarter was $14.2 million versus $11 million for the first quarter of the prior year. This increase was due to the depreciation related to property and equipment acquired as part of the Cable Express acquisition and increased depreciation for our remaining subsidiaries associated with higher levels of operation.

Amortization expense for the first quarter was $1.8 million versus $1.5 million for the first quarter of the prior year. This amortization is related to finite lived intangible assets acquired as part of our prior acquisitions. The increase between the first quarter of the prior fiscal year and the first quarter of fiscal year 2008 is due to the purchase of intangible assets associated with our acquisitions of Cable Express and Covol.

The effective tax rate for the quarter was 38.8% versus 39.5% for the prior year's comparable period.

Net interest expense for the quarter was approximately $3.3 million versus $3.4 million for the comparable prior year period. Other income for the quarter consisting primarily of gains associated with the disposition of fixed assets was approximately $1.6 million versus $495,000 for the comparable quarter in our fiscal 2007 year.

For the quarter, our cash flow from operating activities was $17.7 million. The primary components to this cash flow were net income of $14.9 million and depreciation and amortization of $16 million, partially offset by increases in working capital of $11.9 million.

Investing and financing activities for the quarter used $17.3 million. The primary components of this use consisted of capital expenditures of $21.2 million, repurchases of 94,000 shares of our common stocks of $2.8 million and principal payments on capitalized leases of $0.9 million. These uses were partially offset by proceeds from net borrowings under our revolving credit agreement of $5 million, the sale of assets of $1.8 million and the exercise of stock options of $1.1 million.

Outstanding debt net of cash at the end of quarter was a $151.6 million, up from a $147.9 in the prior quarter. During the quarter, net receivables increased from a $146.9 million to $157.1 million resulting in days sales outstanding or DSO of 43.4 days versus 42.1 days at the end of the fourth quarter, an increase of 1.3 days.

Net unbilled revenue balances increased in the quarter from $94.7 to $96.2 million, resulting in a DSO of 26.5 days, a decrease of 0.7 days from Q4's figure of 27.2 days.

On a cumulative basis, the combined DSO for our trade receivables and unbilled revenues increased from 69.3 days to 69.9 days, an increase of 0.6 days. At October 27, 2007 the accrual for our self-insured casualty program was $64 million, which includes $28.7million of incurred but not reported claims.

During the third quarter of fiscal 2008, revenue from multi-year master service agreements represented 68.3% of contract revenues versus $72.8% for Q1 of the prior year. Revenue from long-term contracts and multi-year master service agreements represented 86.6% of contract revenue versus 85.9% for Q1 of the prior fiscal year. Steve?

Steven Nielsen

Thanks Dick. Now, Jane will open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions)

And we do have a question from Mark Hughes of SunTrust. Please go ahead.

Mark Hughes - SunTrust

Thank you very much. A very good quarter.

Steven Nielsen

Thanks, Mark.

Mark Hughes - SunTrust

The question on AT&T. It seems like the merger announcements or speculation is heating up with satellite providers. What do you think that will do to your business with AT&T if that's consummated?

Steven Nielsen

Hi, Mark, we are speculating and our business is building the infrastructure. But I think from our perspective, not only is the infrastructure that we're building for AT&T, that's already provisioned video, but it's also to improve bandwidth for high-speed data services to consumers. And so, we think that they remain committed. Just last week, they announced that they were going to spend an extra $500 million on the Lightspeed Project. And so, we are watching the news, but we don't see any impact currently on our business.

Mark Hughes - SunTrust

Right. Now they are building up the network and should have their own video capability, I guess it would be some time before they got it widely distributed in their network. So what's the rationale or why would they continue to build out even if they've got -- I guess you're pointing out that it's high-speed data that's driving it?

Steven Nielsen

Yes, I think, Mark, it may be illustrative. Prior to the merger with AT&T, BellSouth had issued contracts to us and to others to improve the bandwidth in their network for high-speed data and was not publicly committed to doing anything with video over that network. So, we remained comforted that even if we go back to last position, there was a desire from AT&T to spend money on staying current with cable on bandwidth.

Mark Hughes - SunTrust

Exactly. And then with Comcast, it seems like you are describing a meaningful and continued upturn in bidding activity, there have been some concern that they seem to be easing back on CapEx or their redirect was once again returning to the idea that they would not have to spend as much money going forward. But it sounds like you are seeing good activity with them. Is that right?

Steven Nielsen

Yes, no. We were certainly seeing more cable construction and technical services opportunity, not only across Comcast, but amongst a number of other cable operators, Time Warner, Cox, Charter. So from our perspective, we watch what we see coming in for opportunities and understand that these are big companies with large capital budgets and they cover lots of things of which the services that we provide are only a part. So there maybe some rotation going on or other things, but we know what opportunities that we are seeing in the marketplace everyday.

Mark Hughes - SunTrust

Right. Very good. Thank you very much.

Steven Nielsen

Thanks, Mark.

Operator

The next question we have is from Alex Rygiel of FBR Capital Markets. Please go ahead.

Alex Rygiel - FBR Capital Markets

Thank you. Good morning, Steve.

Steven Nielsen

Good morning.

Alex Rygiel - FBR Capital Markets

A couple of questions. First, when you look at the total backlog that you reported, on an apples-to-apples basis if you were to exclude a large telecom customer, it would appear that your total backlog is up about 15% year-over-year. Is that correct?

Steven Nielsen

We haven't done a calculation, Alex, but I think as we talked about I think a year ago, backlog is among certain indictor of future opportunity. We look to the market and see what we are seeing for opportunities everyday. And so we have done the calculation, but it would be consistent with the way we are viewing the market right now.

Alex Rygiel - FBR Capital Markets

And as it relates to your 12-month backlog, last year at this time, you actually included forward projection for Verizon, but currently you are not doing that. Can you talk a little bit about your visibility inside Verizon looking out into 2008?

Steven Nielsen

Yes, we are currently working with Verizon, and we think it's going as expected to finalize the outlook for '08 and '09, and we think that will done before we report the next quarter.

Alex Rygiel - FBR Capital Markets

But what is different today versus a year ago that puts you in a position that is not willing to include Verizon in your 12-month forecast.

Steven Nielsen

Well, as we've talked about before, the contract with Verizon periodically allows both parties to have a pricing discussion. And that was not occurring last year, but is occurring currently. We are obviously not going to comment it other than to say we think that it's moving along as we expect.

Alex Rygiel - FBR Capital Markets

And you also provided us guidance for the January quarter. Does that January quarter, specifically for the month of January, include revenue in the guidance associated with Verizon?

Steven Nielsen

We took our best shot at working at the entirety of the quarter, and we anticipate having revenue from Verizon in January, although it's not in the backlog.

Alex Rygiel - FBR Capital Markets

Great. Thank you very much.

Operator

And the next question we have is from John Rogers of D.A. Davidson. Please go ahead.

John Rogers - D.A. Davidson

Hi. Good morning.

Steven Nielsen

Good morning, John.

Dick Dunn

Good morning, John.

John Rogers - D.A. Davidson

And I apologize. The total backlog number at the end of the quarter was and total employees were what?

Steven Nielsen

John, the backlog was $1.19 billion and the employees were 11,159.

John Rogers - D.A. Davidson

Okay. You talked a little bit about some regional developments, but are you seeing any impact particularly in California, Florida from reduced housing construction, and then secondly, less storm restoration work this year?

Steven Nielsen

We will tackle storm restoration first.

John Rogers - D.A. Davidson

Okay.

Steven Nielsen

As we've discussed before, when there are hurricanes or other very significant weather events, we may have some storm restoration, and so in calendar '04 and calendar '05 and into the first quarter of '06, we certainly had worked out Wilma and Katrina and the other hurricanes that hit Florida in that time period.

But that is not typical. So, we didn't experience much in the way of any storm restoration work in this quarter, nor do we anticipate going forward into the second quarter. And that's far more typical of our business than the activity that we saw in the southeast a couple of years ago.

With respect to housing starts, if you think about our business in terms of the customers we work for -- generally for cable operators, we're doing the technical upgrades and installation services and we have not seen that business impacted in any meaningful way by housing starts.

There has been some impact with our master services construction agreements with telephone companies, but it's been more than offset by the upturn in their spending on these new bandwidth enhancing capital initiatives.

John Rogers - D.A. Davidson

Okay. But in terms wage rates, I mean, it sounds like you are holding or at least it looks, appears from the numbers, those are hold or moving in line with revenue inflation?

Steven Nielsen

Yeah, no, we don't see any particularly cost pressure in any kind of systemic way, that doesn't mean that in some part of the country that there may be a shortage of some particular skill set. But as we've talked about it before that just part of being in this business and it's not anything that we have not worked our way through before successfully.

John Rogers - D.A. Davidson

Okay, great, thank you. Congratulations.

Steven Nielsen

Thank you.

Operator

Next question comes from Simon Leopold of Morgan, Keegan. Please go ahead.

Paul Bonenfant - Morgan Keegan & Co.

Hi, good morning. This is Paul Bonenfant for Simon Leopold. I wanted to start with a couple of housekeeping questions if I may. If you could round out the top ten customer list with the next time and provide the segment revenue including the breakout between Telco and Cable?

Dick Dunn

Okay, Paul, I can handle that for you. The number six customer would have been -- was Charter at 5.29%, then Questar Gas at 2.56%, Qwest at 2.35%, Windstream at 1.74% and Cablevision stand at 1.61%. Moving all that to the customer category, we had about 43.5% to Telcos, about 31% to cable TV companies, utility locating services were about 17.7% and electrical and other 7.8%.

Paul Bonenfant - Morgan Keegan & Co.

Hey, thank you. That's helpful. In terms of the revenue forecast for next quarter, we're now looking at forecast for about 6% to 12% sequential decline. On the last call, you had suggested more of 10% to 15% range. Are you coming high on the revenue in terms of your original forecast this quarter, and I'm wondering what changed if its visibility across all businesses or across anyone segment in particular?

Steven Nielsen

Well, we had talked about in the last call Paul that 10% to 15% was a good historic rule of thumb. We were providing guidance for the second quarter with respect to revenue but just helping people to think about it for modeling purposes.

This quarter, we had a strong quarter at the high end of our expectations in this quarter and we see that momentum carrying. Of course, this is the quarter where there is more uncertainty because of the weather and other factors that you just hard to see until you get there. But based on current levels of activity and our best estimate of the next two or three months, we feel pretty good about this revenue forecast.

Paul Bonenfant - Morgan Keegan & Co.

Okay, fair enough. And just a follow-up quickly on the forecast. The earnings is a bit light of consensus where the street is today, and I'm wondering if we gotten ahead of ourselves and this is just typical seasonality if there maybe other items who work here like maybe fuel providing a bit of a drag?

Steven Nielsen

Well, there is certainly a little bit of the drag to fuel all those. We've talked about that before that is not a huge cost for us, but certainly it's higher now than it was in the first quarter on average.

I think the other thing Paul that we would ask people to look at is make sure that they understand that we adding assets, so that means depreciation is going to improve. And then a number that moves around from quarter-to-quarter really based on our activity levels and what we have for replaced and idle assets is the other income, and I know that number has been a little bit hard for folks to forecast which is why we have tried to give a little bit more specific guidance on this quarter.

Paul Bonenfant - Morgan Keegan & Co.

Hey, that's helpful. Thanks for taking my questions.

Operator

The next question is from Jack Kasprzak of BB&T Capital Markets. Please go ahead.

Jack Kasprzak - BB&T Capital Markets

Thanks. Good morning.

Steven Nielsen

Good morning.

Jack Kasprzak - BB&T Capital Markets

You just touched on one of my questions. But I guess I will go ahead and ask it anyway with regards to the revenue guidance for the quarter, and you said 10 or so percent, 10%-plus organic growth for the next quarter. And given that it was 15 or so percent in Q1 and you described the spending trends by customers in terms of network build out as irreversible.

Should we have a greater degree of confidence here as the past three months have gone by that this is the business that could sustain at 10% or so organic growth rate even beyond the next quarter? Is that kind of what you see as the run rate for your business now?

Steven Nielsen

Well I mean, Jack, we don’t provide guidance beyond the quarter out, and so we won't talk to any specifics about future run rates. But what we will say is that in an environment where our primary customers, the cable and telephone companies are both aggressively deploying capital to improve network spend, that creates opportunities for us to grow the business. And that clearly is the environment that we see ourselves in.

At this point, I think with respect to the second quarter, this is always the quarter that is very difficult to forecast with both revenue and earnings just because as we get deeper into the quarter, the weather becomes more difficult.

And while the business that we have always needs to get done in a customer's budget cycle and that we have a week or 10 days of bad weather at the end of January, we'll certainly capture the revenue that we don’t accomplish during that time period, but it won't be in this quarter. And so we just always have to have a certain degree of conservativism built into this outlook for this quarter. And that's historically always been the case.

Jack Kasprzak - BB&T Capital Markets

Okay. All right, fair enough. That's helpful. Also, will the second quarter of '07 revenue be restated versus what was reported last year?

Steven Nielsen

Well, we will back out in the discontinued ops line both the revenue and the EPS impact. I think if you look in the second quarter of last year, Jack, we had discontinued that operation during the quarter, because if you go back and look at the Q, the number will be right there for you.

Jack Kasprzak - BB&T Capital Markets

Okay, great. And also, you said fuel costs are relatively low, but can you quantify how much of your costs are related to fuel right now approximately?

Dick Dunn

It's in the 3-something percent.

Jack Kasprzak - BB&T Capital Markets

Okay.

Steven Nielsen

So if it moves up 10%, we are talking 30 basis points.

Jack Kasprzak - BB&T Capital Markets

Yes, okay.

Steven Nielsen

So it's not a material expense item, although we watch them all, because that's what you have to do in our business.

Jack Kasprzak - BB&T Capital Markets

That’s great. Thanks a lot. Good quarter.

Steven Nielsen

Thanks, Jack.

Operator

(Operator Instructions)

And we now have a question from [Alan Mitrani of Sylvan Lake Asset Management]. Please go ahead.

Alan Mitrani - Sylvan Lake Asset Management

Hi, thank you. Could you just us remind us -- I'm sorry. What was CapEx before disposals and how much were disposals?

Dick Dunn

Okay. Good actually. We've got numbers here. We spent 21.2 on the CapEx.

Steven Nielsen

And net, it was 19 and change, Alan. I think it was about $1.8 million in disposals.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And what's your expectation for the year? Has that changed at all?

Steven Nielsen

Yes, we had told you in the last call, Alan, that we thought it would be $65 million to $70 million on a net basis. As we've talked about in my comments, we did pick up a new master contract with AT&T in North Carolina. During the first quarter, we spent about 2.5 million or thereabout, gearing that contract up.

And subsequent to the October quarter, we’ve actually added a master contract with another customer in the Southeast. So we think we need to take that number up about $5 million. So we'd expect kind of $70 million to $75 million at this point just for the addition of those two master contracts.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And so then the depreciation and amortization combined was 16 and change this quarter. So we should trail that up going through the rest of the year?

Steven Nielsen

Yes, I think there are a couple of things going on, Alan. I mean we are adding assets, but if you think and look back at what our CapEx spending was five years ago, it was far lower than what it is now. Of course, the business was much smaller and that was not growing. And so, you have assets that are rolling off the depreciation schedule that have less value, less original value than what's coming on and so that's part of the impact also.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And then you were talking about potential you see -- I know you put in the potential for price increases for Verizon. Is this an annual discussion that happens or is this you're setting prices for the next couple of years?

Steven Nielsen

This is for a couple of years, which is exactly what happened a couple of years ago.

Alan Mitrani - Sylvan Lake Asset Management

Okay. Can you give us a sense of what kind of price increases you're looking for?

Steven Nielsen

We don't negotiate with our customers on conference calls, Alan. We worked through it, but we are confident that we'll be satisfied with the outcome.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And if -- and when does that kick supposed to go into effect?

Steven Nielsen

Well, it’s a calendar year process. Sometimes, it may take a little bit longer or may get done a little sooner, but we're in that process now.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And then you did buyback stock this quarter. Can you just remind us what price you paid or how many shares you bought or where are you on the authorization?

Dick Dunn

We've bought 94,000 shares, Alan, at about $2.750 million roughly. So, the average price was [$0.29 some].

Alan Mitrani - Sylvan Lake Asset Management

Okay. And then, could you just tell us when does your black-out period start? So, for example, you just reported when can you be back in the market buying stock back?

Steven Nielsen

Generally two days after earnings Alan, so I guess that will be Friday, of course that a short day on the street, and then it closes two weeks prior to the end of the quarter.

Alan Mitrani - Sylvan Lake Asset Management

Okay, thank you.

Operator

(Operator Instructions)

Steven Nielsen

Jane, if we have no further questions, I want to thank everybody for their time and attention. And we look forward to speaking to you the last week of February on our next earnings call. Thank you very much.

Operator

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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