Dycom Industries' (DY) CEO Steven Nielsen on Q2 2017 Results - Earnings Call Transcript

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Dycom Industries, Inc. (NYSE:DY) Q2 2017 Earnings Conference Call March 1, 2017 9:00 AM ET

Executives

Steven Nielsen – President and Chief Executive Officer

Rick Vilsoet – General Counsel

Drew DeFerrari – Chief Financial Officer

Analysts

Bobby Burleson – Canaccord

Tahira Afzal – KeyBanc Capital Markets

Adam Thalhimer – Thompson Davis

Matt Duncan – Stephens

Alex Rygiel – FBR Capital Markets

Brent Thielman – D.A. Davidson

Jennifer Fritzsche – Wells Fargo

Noelle Dilts – Stifel

Christian Schwab – Craig-Hallum Capital

Alan Mitrani – Sylvan Lake Asset Management

Alex Rygiel – FBR Capital Markets

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Dycom Results Conference Call. For the conference, all the participant lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s call is being recorded.

I will turn the conference now over to your host Mr. Steven Nielsen. Please go ahead, sir.

Steven Nielsen

Thank you, John. Good morning, everyone. I’d like to thank you for attending this conference call to review our second quarter fiscal 2017 results. During the call, we will be referring to a slide presentation which can be found on our website’s Investor Relations page, under the heading Events & Presentations, Investor Calendar. Relevant slides will be identified by number throughout our presentation.

Going to Slide 3, today we have on the call Tim Estes, our Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer; and Rick Vilsoet, our General Counsel.

Now I will turn the call over to Rick Vilsoet.

Rick Vilsoet

Thank you, Steve. Except for historical information, the statements made by company management during this call maybe forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including those related to the company’s outlook, are based on management’s current expectations, estimates, and projections, and involve known and unknown risks and uncertainties, which may cause the company’s actual results in future periods to differ materially from forecasted results.

Those risks and uncertainties are more fully described in the company’s annual report on Form 10-K for the year ended July 30, 2016 and other periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements. Steve?

Steven Nielsen

Thanks, Rick. Now moving to Slide 4 and a review of our second quarter results. As you review our results, please note that we have presented in our release and comments certain revenue amounts excluding revenues from businesses acquired during the fourth quarter of fiscal 2016; adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, all of which are non-GAAP financial measures. See slides 13 through 19 for a reconciliation of non-GAAP measures to GAAP measures.

Additionally, see Slide 20 for a calculation of non-GAAP organic revenue for the fourth quarter of fiscal 2016 that has been adjusted to exclude the impact of the incremental 14th week and Q4 2016 acquired revenues. Revenue increased significantly year-over-year to $701.1 million, an increase of 25.3%. Organic revenue grew 22.9%. This quarter reflected a broad increase in demand from several key customers as we deployed 1-gigabit wireline networks and grew core market share.

Gross margins increased 42 basis points year-over-year as a percentage of revenue, reflecting strong operating performance. Several large programs accelerated and a number of recent contracts commenced meaningful activity. General and administrative expenses improved year-over-year, decreasing 10 basis points. All of these factors produced adjusted EBITDA of $86.2 million or 12.3% of revenue, and adjusted diluted earnings per share of $0.82, compared to $0.54 in the year-ago quarter.

Liquidity was strong as cash and availability under our credit facility was $421.9 million at the end of the quarter. During the quarter we repurchased 313,000 of our shares for $25 million as of February 2017, we authorized to repurchase up to 150 million of shares through August 2018.

Going to Slide 5, today a number of major industry participants are deploying significant wireline networks across broad sections of the country. These newly deployed networks are generally designed to provision bandwidth enabling 1-gigabit speeds to individual consumers.

Several industry participants have articulated plans to deploy multi-gigabit speeds, while others are preparing to do so. These industry developments have produced opportunities across a broad array of our existing customers, which in aggregate are without precedent for the industry in our experience. These opportunities are currently expanding.

We are providing program management, engineering and design, aerial and underground construction and fulfillment services for 1-gigabit deployments. These services are being provided across the country in dozens of metropolitan areas to a number of customers.

Revenues and opportunities driven by this industry standard continue to grow meaningfully during the second quarter of fiscal 2017. Customers are continuing to reveal with more specificity new multi-year initiatives that are being planned and managed on a market-by-market basis. Our calendar 2016 performance clearly demonstrated that a massive wireline network investment cycle of unprecedented scale is underway

As we look out over the near to intermediate term, we are increasingly encouraged that newly emerging wireless technologies are driving significant additional wireline growth opportunities. It’s now clear that several calendar 2016 projects are harbingers of the complementary wireline investment cycle that will be required to facilitate what is expected to be a decade long deployment of fully converged wireless, wireline networks.

Finally, we remain confident that our competitively unparalleled scale and market share, as well as our financial strength position us well to deliver valuable service to our customers and robust returns for our shareholders.

Now moving to Slide 6. During the quarter, we experienced the effects of a strong overall industry environment, organic revenue grew 22.9%. Our top five customers combined produced 76.2% of revenue, increasing 37.1% organically, while all other customers decreased 7.5% organically. Of note, this quarter marks the ninth consecutive quarter of double-digit organic growth.

AT&T was our largest customer at 28.3% of total revenue or $198.2 million. AT&T grew 48.7% organically year-over-year. Growth in wireline services was accompanied by strong growth in wireless services. Revenue from Comcast was $116.8 million or 16.7% of revenue and grew organically 55.2%. Comcast was our second largest customer.

Revenue from CenturyLink was $115.4 million, or 16.5% of revenue. CenturyLink was our third largest customer and grew organically 38.3%. Verizon was Dycom’s fourth largest customer for the quarter at 8.8% of revenue, or $61.9 million. And finally, revenue from Windstream was $42.2 million, or 6% of revenue. Windstream was our fifth largest customer and grew organically 37.4%.

We are particularly pleased that we have continued to gain share and expand our geographic reach. In fact, over the last nine quarters, we have meaningfully increased the long-term value of our maintenance business, a trend which we believe will parallel our deployment of 1-gigabit and wireless, wireline converge networks as those deployments dramatically increase the amount of outside plant network that must be maintained and as customers increasingly require their maintenance providers to be of substantial scale.

Going to Slide 7, backlog at the end of the second quarter was $5.112 billion versus $5.203 billion at the end of the first quarter of 2017, a decrease of approximately $91 million. Of this backlog, approximately $2.363 billion is expected to be completed in the next 12 months. Both backlog calculations reflect stable performance as we book new work and renewed existing work. We continue to anticipate substantial future opportunities in the near-term across a broad array of our customers.

For AT&T, we renewed construction and maintenance services agreements in Mississippi and Alabama. From Comcast we’ve received a construction services agreement in Colorado and renewed construction and maintenance service agreements in Massachusetts, New Jersey, Pennsylvania, and Virginia.

With CenturyLink we secured construction and maintenance services agreements in North Carolina, South Carolina and Georgia, and construction and engineering services agreements in Washington, Utah, Colorado and Florida. And finally from Windstream, we received construction and maintenance services agreements in New Mexico and West Virginia. Headcount increased during the quarter to 13,236.

Now I will turn the call over to Drew for his financial review and outlook.

Drew DeFerrari

Thanks, Steve, and good morning, everyone. Going to Slide 8. Contract revenues for Q2 2017 were $701.1 million, and organic revenue grew 22.9%, reflecting solid growth from many of our top customers. Acquired businesses contributed $13.4 million of revenue in the current period. Adjusted EBITDA was $86.2 million or 12.3% of revenue compared to $66.4 million or 11.9% of revenue in the year-ago period. This represented an increase of over 29%.

Gross margins expanded 42 basis points year-over-year as we grew our operations. G&A improved to 8.3% of revenue in Q2 2017 compared to 8.4% in Q2 2016. Non-GAAP adjusted diluted EPS was $0.82 per share compared to $0.54 in Q2 2016, an increase of 52%.

Now moving to Slide 9. Our balance sheet and financial profile continue to reflect the strength of our business. We ended the quarter with no revolver borrowings of our senior credit facility. During Q2 we increased the term loan portion of our facility by $35 million and we ended quarter with $376.9 million of term loans outstanding. Our liquidity is robust and exceeded $421 million at the end of the quarter consisting of availability from our credit facility and cash on hand.

Operating cash flows were strong at $105.8 million during Q2 2017 and increased by more than $30 million compared to Q2 2016. The combined DSOs of accounts receivable and costs in excess of billings net were at 89 days for Q2 2017, which declined both year-over-year and sequentially.

Capital expenditures made to facilitate our growth and maintain our fleet were $34.8 million during Q2 2017 net of disposal proceeds, and gross CapEx was $36.8 million. During Q2 we repurchased 313,000 shares of our common stock for $25 million at an average price of $79.87 per share. The current share repurchase authorization is a 150 million through August of 2018. In summary, we continue to maintain a strong balance sheet and ample liquidity enabling us to effectively invest in growth opportunities.

Now going to our outlook on Slide 10. For Q3 of 2017, our outlook contemplates normal winter weather and we currently expect revenues which range from $715 million to $745 million, reflecting a broad range of demand from several large customers, robust 1-gigabit deployments, fiber deep cable capacity projects accelerating, CAF II underway and core market share growth. This outlook includes approximately $10 million of revenue from businesses acquired during the fourth quarter of fiscal 2016. For organic growth calculations, there were no acquired revenues in Q3 2016.

Gross margin percent is expected to increase compared to Q3 2016, reflecting a solid mix of customer growth opportunities, and an expectations for normal winter weather with the related impacts on productivity. Total G&A costs as a percent of revenue are expected to be in line compared to Q3 2016 and include $5 million of share-based compensation, compared to $3.9 million in the year-ago quarter.

Depreciation and amortization is expected to range from $36.4 million to $37.1 million and includes amortization of $6.1 million. Adjusted interest expense of approximately $4.8 million will include the cash coupon on our convertible notes, interest on our credit facility, amortization of debt issuance costs and other interest. Adjusted interest expense excludes $4.4 million of interest for non-cash amortization of the debt discount.

Other income, net is expected to range from $2.6 million to $3.2 million. Our effective tax rate is estimated to be approximately 37.3% for the reminder of fiscal 2017. These factors are expected to generate an adjusted EBITDA margin percent, which increases from the Q3 results, and non-GAAP earnings, ranging from $0.11 to $0.24 per diluted share. We expect approximately 32 million diluted shares during Q3 2017, with shares gradually increasing in subsequent quarters.

Now going to Slide 11. As a reminder for comparative purposes, the prior year fourth quarter of fiscal 2016 included 14 weeks of operations, as a result of our 52, 53 week calendar. For Q4 of this year there are 13 weeks of operations. For comparative purposes, the organic revenue amount for Q4 2016 was $727.6 million and it adjusts for the extra week in that period and applicable acquired revenues.

Now looking ahead to Q4 of fiscal 2017, we currently expect organic revenue growth of mid-teens as a percentage of revenue compared to the non-GAAP organic revenue in Q4 2016. In addition to the organic revenue change, our outlook for total Q4 2017 revenue includes revenue approximately $15 million in Q4 2017 from businesses acquired in the fourth quarter of fiscal 2016. We expect a continuation in Q4 2017 of the growth drivers evident in Q3 2017, as well as fiber deployments for newly emerging wireless technologies.

We expect gross margins to increase over the Q4 2016 result and G&A expense to decrease as a percentage of revenue year-over-year. Non-cash stock-based compensation is estimated at approximately $5 million. Depreciation and amortization to range from $37.5 million to $38.2 million. Adjusted interest expense of approximately $4.9 million; excluding $4.5 million of interest in Q4 2017 for the non-cash amortization of the debt discount, and other income, net to range from $700,000 to $1.3 million. This outlook is expected to generate an adjusted EBITDA margin percent, which increases from the Q4 2016 results.

Now I will turn the call back to Steve.

Steven Nielsen

Thanks Drew. Moving to Slide 12, within a growing economy we experienced the effects of a robust industry environment and capitalized on our significant strengths. First and foremost, we maintain strong customer relationships throughout our markets. We continue to win and extend contracts at attractive pricing.

Secondly, the strength of those relationships and the extensive market presence they have created has allowed us to be at the forefront of evolving industry opportunities. The end market drivers of these opportunities remain firm and are strengthening. Telephone companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1-gigabit high speed connections. These deployments are accelerating and impacting our business.

Some of those telephone companies previously deploying fiber-to-the-node architectures have definitively transitioned to fiber-to-the-home deployments, while others are beginning to provision video over their fiber-to-the-node architectures and selectively deploy fiber-to-the-home.

Cable operators are continuing to deploy fiber to small and medium businesses and with increasing urgency, some are doing so in anticipation of the customer sales process. Overall, cable capital expenditures, new-build opportunities and capacity expansion through fiber deep deployments are increasing. Dramatically increased speeds to consumers are being provisioned. Projects resulting from the Connect America Fund II are in planning, engineering, and construction and deployment activity was well underway during the quarter. These projects are deploying fiber deeper into rural networks.

Additionally, for one recipient we are executing meaningful assignments to perform fixed wireless deployments. Fiber deployments and contemplation of newly emerging wireless technology are being considered in many regions of the country. Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance business.

In addition, we are increasingly undertaking planning and program management responsibility for our customers. These roles are creating more visibility around future deployments. Within this context, we believe we are uniquely positioned, managed and capitalized to meaningfully experience an improving industry environment to the benefit of our shareholders.

We remain encouraged that our major customers possess significant financial strength and are committed to multi-year capital spending initiatives. These initiatives are meaningfully accelerating and expanding in scope across a number of customers.

Recent developments indicated broadly improved regulatory environment will be supportive of these initiatives. We remain confident in our strategies to prospect for our company, the capabilities of our dedicated employees and the experience of our management team as we grow our business and capitalization.

Now, John, we’ll open the call for questions.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] First with the line of Bobby Burleson with Canaccord. Please go ahead.

Bobby Burleson

Hey, good morning. Congratulations on the strong results.

Steven Nielsen

Thanks.

Bobby Burleson

I was just curious. You talked about fiber deployments in contemplation of some emerging wireless technologies. Where do you think, just timing-wise, that starts to become more meaningful for you guys in terms of revenue?

Steven Nielsen

So, I think we said in the comments, Bobby that we see this developing in the near to intermediate term and I guess I would just encourage people to stay tuned.

Bobby Burleson

Okay. Is there any kind of competitive dynamic there, where competitors that are more entrenched on the wireless side with the customer might be better-positioned to address some of the fiber deployments for that customer?

Steven Nielsen

No, I think it’s the opposite. I mean, these fiber deployments are wireline deployments and so they really don’t utilize the skillset that you would do traditional macro site wireless work. So these are wireline deployments in support of a wireless technology.

Bobby Burleson

Okay, great. And then just one other quick one. In terms of emerging customers, are you seeing anybody moving into the market here in the U.S., in terms of healthy fiber plans, that could start to become a meaningful customer for you this year?

Steven Nielsen

So I think we’ve got a number of customers that have healthy plans and I think beyond that I wouldn’t break it down.

Bobby Burleson

Okay, great. Thank you.

Operator

Next with line of Tahira Afzal with KeyBanc Capital Markets. Please go ahead.

Tahira Afzal

Hey, Steven, Drew, great quarter. Congratulations.

Steven Nielsen

Thank you.

Tahira Afzal

Steve, as you look out, it’s interesting, you’re pretty positive on the wireless technology side, and obviously that’s leading to a lot of associated fiber. Can you to talk a bit more about anything strategically you may have to do, if you do want to leverage yourself a little more on the wireless side as well? Or is Goodman really good enough?

Steven Nielsen

So I think we had a strong presence in wireless, pretty Goodman, we have a bigger footprint today I think there’s a number of opportunities and what I’d call kind of the traditional back macro cell environment. I think we compete well in that environment and we serve customers well, so if there’s something that appears attractive, we certainly would look at it, but we don’t need to do anything.

Tahira Afzal

All right, okay. And the other question I wanted to ask you – obviously the economy, the housing cycle and all, have hopefully also helped the business. Can you talk a bit about, to the extent you can sort of profile your brownfield versus greenfield construction so far? And if the housing cycle does start to ebb, assume there’s still a lot of upgrade work to be done to offset that?

Steven Nielsen

Sure. So the direct deployment of fiber in subdivisions and new office in industrial areas probably peaked in 2007 at 6% to 8% of business, it all came out of the business, it’s coming back, so that’s supportive. I think it’s more broadly supportive as the economy picks up and connectivity needs to pick up in support of the broader economy that just helps our master service agreement business or general routine business as usual both capital spending and maintenance right, because the networks are running hotter so it would require more maintenance. So it’s helpful.

Tahira Afzal

Got it, okay. And last question for me – there seems to be sort of a reacceleration, in a sense, of your top line growth, really based on your fiscal for qualitative guidance. Is that something you think you can sustain into the next year, given really what seems like a long-term cycle?

Steven Nielsen

Sure. I don’t necessarily think about it as a reacceleration. If you think about the year ago April quarter, we had guided a year ago approximately to date call it $600 million in revenue. We had a very strong quarter, it’s almost $60 million or little over $60 million more and so had growth approaching 30%. If you look at that and adjust for that normalized, I think we are consistently growing the business. If you look at the four quarters ending this last January, we grew almost $500 million organically and there’s a lot of momentum there. So I don’t see it as – we have a really strong quarter in April, we are lapping that as we get past it, there’s a number of opportunities that are really just beginning.

Tahira Afzal

So we could probably see double-digit organic revenue growth, Steve, into 2018?

Steven Nielsen

Well, we haven’t given guidance beyond two quarters, as you know that’s our practice but when we talk about new near to intermediate term drivers in the business in the number of areas we have some opportunity.

Tahira Afzal

Awesome. Thank s a lot Steve and congrats again.

Steven Nielsen

Thank you.

Operator

Our next question is from Adam Thalhimer with Thompson Davis. Please go ahead.

Adam Thalhimer

Good morning guys, great quarter.

Steven Nielsen

Good morning, Adam.

Adam Thalhimer

The fiber backhaul for wireless that you talked about, and the fiber deep for DOCSIS 3.1, can you give us any kind of sense for how much of those opportunities are in the Q2 backlog?

Steven Nielsen

There’s a fair amount on the cable side, on the wireless side it’s just emerging.

Adam Thalhimer

Got it. And your unnamed customer was flat year over year. Can you give us any sense of timing for when that falls off more materially?

Steven Nielsen

We don’t have any more comment other than what we provided in the trend schedules.

Adam Thalhimer

Okay. And then can you provide a little commentary on CAF II and the timing of that? Because talking to other people in the industry, they’re a little disappointed that it’s taking longer than they expected. But maybe that gets underway more materially in calendar 2017. Do you have any thoughts on that?

Steven Nielsen

Yes. So I think our customers have been very skilled at using equipment in part to provide additional bandwidth so we are busy we are doing a number of programs and we’re deploying fiber every day, but at least in this portion of the program, it’s somewhat less than we would have originally expected. I think the good news is the customers that have received that money have been spending more money than we expected in other areas and other programs in the network that we are directing from that were directly benefiting from. So I think the overall purpose of the program which is to spur investment is very much being accomplished.

Adam Thalhimer

Okay, very interesting. Thanks.

Operator

Next will go to Matt Duncan with Stephens. Please go ahead.

Matt Duncan

Hey good morning guys, great quarter.

Steven Nielsen

Thanks, Matt.

Matt Duncan

So Steve, looking at the strong growth you had at this quarter the guide up for the next couple quarters, it seems like you picked a little momentum back up again. Are you seeing some meaningful new contracts on the horizon for newbuild type activity is that part of what they be driving that really kind of what I’m getting at is there was a small ticked down in total backlog sequentially, which I suspect is nothing more than timing of awards 12-month backlog is up which is probably more informative just trying to put all the puzzle pieces that gather here.

Steven Nielsen

Sure. So recall in around 85% of the business is long-term contracts and master service agreements you book them you burn them down your new them you book them again, right.

Matt Duncan

Right.

Steven Nielsen

And so the total number is going to be a function to some degree of the strong renewals that we had really in 2015, 2016 and 2017, or excuse me 2015, and 2016 and early 2017 and so I think that that’s just naturally the way the business operates, I would point as you commented to the next 12 months backlog that continues to grow in line with the growth of the business. And we are seeing opportunities even on a project-based that are coming into the business as opportunities that we think we can grow both next to our 12months all over the balance of the calendar year.

Matt Duncan

Okay. On the margin side of things, you’re still seen adjusted EBITDA margin slowly grind higher which is encouraging and I would assume as long as we’re still talking double-digit organic revenue growth that those margins are likely going to continue to go up I know historically said kind of midteens, is maybe what that starts to kind of peak out a little bit but at the same time with the level of demand you’re talking about in the market I would have to believe there’s a little bit of pricing power for you guys to which is help drive margin. So how should we be thinking about adjusted EBITDA margins going forward over the next call it 2 to 3 years, do think that will continue to go up as long as we are seeing this level of organic revenue growth?

Steven Nielsen

We’re going to work hard to make it go up, right have to business was worse than we resulted on average in the other half is better we’re going to be selective and make sure that we supply resources to our customers in areas where we can best do the work with them with the highest quality and good returns. We certainly are making substantial investments in the business, you know to grow the business $500 million organically in the trailing 12-month period, there’s lots of investment that has to be made there and as long as that investment has to be made, we’re going to be very disciplined about, how we commit our resources and at what return levels we find new work acceptable.

Matt Duncan

Sure. And lastly for me touch you subject I’m sure but I’m pretty sure the trial with quantum with the trial actually last week should’ve concluded early this week, is there anything you can tell us about that word is there a decision which there?

Steven Nielsen

The trial include on Monday. They’ll be post-trial briefing and beyond that we have no comment.

Matt Duncan

Okay. Fair enough. Thanks, Steve.

Operator

Next question is from Alex Rygiel with FBR Capital Markets. Please go ahead.

Alex Rygiel

Nice quarter, Steve.

Steven Nielsen

Thanks, Alex.

Alex Rygiel

As it relates to this wireless fiber opportunity, as relates to 5G, can you talk a little bit about sort of that how that contracts or other revenue could be awarded to you, is it more project-based is it MSA-based is it coming through some of your existing MSAs if there is a customer that is a wireline and wireless sort of customer today, so little bit more color on how that project or how that work will develop in common to backlog.

Steven Nielsen

So, Alex, I think I’m going to be pretty darted in our commentary it’s an emerging opportunity, and I’m not – it doesn’t seem to me to be a great idea to educate the competition on a conference call. I would just say that there are folks we’ve done business with over an extended period of time and we’re happy to work with those types of customers as they need additional resources.

Alex Rygiel

And secondly your cash flow is very strong in the quarter. I get a lot of calls from investors that have some concerns about your receivables and whatnot can you just kind of more broadly address your views on cash flow and your receivables little on your balance sheet today?

Steven Nielsen

Go ahead, Drew.

Drew DeFerrari

Yes. Alex a DSOs as you saw were at 89 days in that did come down year-over-year about 10 days, so seasonally that’s reflective in a proven on one part of that was midway through the year, we talked about our receivables program and also did come down sequentially. We continue to work on it, these are with if you look at the concentration of customers these are with high credit quality customers we have no concerns around collectibility.

Alex Rygiel

That’s great. Nice quarter. Thank you.

Steven Nielsen

Thanks, Alex.

Operator

And next will go to Brent Thielman with D.A. Davidson. Please go ahead.

Brent Thielman

Thanks. Congratulations on a nice quarter.

Steven Nielsen

Thanks, Brent.

Brent Thielman

Steve, Steve the reduction revenue from the non-comp five customers, that you mentioned in the presentation. Any thoughts on what you’re seeing there and terms of plans, initiatives among those customers could be potentially see a shift next fiscal year is it too early to tell

Steven Nielsen

Well. Certainly charter communications is certainly going through the integration of the Time Warner asset we expect them to talk very openly about accelerating their CP deployments in 2017 and we do support them in that effort. They’ve also talked very openly about pushing fiber deeper into the network to facilitate what they call 60, so multi-gigabit speeds over their network. And so I think it’s one of those things where in the industry the way it structured now, our top customers are the top people to work for and sometimes is going to move around a little bit but you’ll were to manage the overall growth line and sometimes that means some grow faster than others it doesn’t mean anything more than that.

Brent Thielman

Okay. And then any update on the competitive landscape, do you see significant capacity been added to support these deployments?

Steven Nielsen

I think we’re very comfortable, that if we do a good job for customers will get our fair share and I don’t know that we have any other comment beyond letting our numbers speak for themselves.

Brent Thielman

Absolutely. Fair enough. It looks like the revenue from acquired businesses was I think it was $13 million I think you’re using 10 million a quarter for Goodman going forward was this sort of a seasonal bump this period any?

Steven Nielsen

There’s another small business in that number I just think that there is a trend line there. I mean there are some opportunities particularly around FirstNet, where we think that our broader wireless footprint is going to become a much more valuable asset, but we’ll have to see how that develops.

Brent Thielman

Okay. Best of luck. Thanks.

Operator

Next question is from Jennifer Fritzsche with Wells Fargo. Please go ahead.

Jennifer Fritzsche

Great. Thank you for taking the question. A few if I may. Steve, right now I met Mobile World Congress, and it seems like there’s quite a bit of talk about your largest customer possibly winning FirstNet and many of the supply chain equipment companies have talked about that being a game changer for spending, more on wireless. As you talk, you’ve mentioned convergence quite a bit, but can you talk a little bit about the convergence you’re seeing with wireline and wireless in the decision-makers at that largest customer?

And a second if I may, CenturyLink is also involved in a very large acquisition and it looks like revenue there was up well over 30% year-over-year. Any signs that that integration is causing some near-term decision-making to be kind of kick the can a little bit, Steve?

Steven Nielsen

Sure. So with respect to your wireless question, I mean, I think particularly with the renewed unlimited offerings, there’s clearly going to be more demand for macro cell site capacity. At the same time we are seeing additional sectors that are being added based on running fiber laterals. And then there’s the whole C-rand development where dark fiber to cell tower, so that there can be more consolidation around the radio access layer. We think it’s just something that’s just going to continue for a very long period of time. And then of course there’s FirstNet and it’s always helpful when the taxpayers through a federal program can provide billions of dollars of support for capital spending. So I think those are all strong opportunities.

And then I think with respect to CenturyLink they’ve been very clear about their three-year plan of deploying both fiber-to-the-home and more fiber deeper into their copper network so that they can facilitate bandwidth increases in their top 25 markets and we are pleased that we can support them in that effort and it’s full speed ahead.

Jennifer Fritzsche

Great. And if I may ask some follow-up on the AT&T with Goodman, am I correct in saying that the way I understand it there is five AT&T wireless treason that Goodman expands their relationship. So as things like FirstNet kind of turn on the wireless spot that you spend in, you’d be in a better position to capture some of that versus prior to Goodman?

Steven Nielsen

Yes, that’s absolutely true and that is who we are today than it was 90 days ago.

Jennifer Fritzsche

Great. Thank you very much.

Operator

Next question is from Noelle Dilts with Stifel. Please go ahead.

Noelle Dilts

Thanks for taking the call and saying congratulations on a nice quarter.

Steven Nielsen

Thanks.

Noelle Dilts

So first on, just given your comments on maintenance work, I was wondering if you could just give us an update on how much of your revenue at this point is coming from maintenance work and how that’s evolved over the last few years? I know Verizon was a big piece of that. And then do you have a feeling for sort of how much work has maintenance work has currently performed in-house versus outsource and how that is changing?

Steven Nielsen

Sure. So with respect to maintenance, it’s always hard to put a strict number on it, because the program, the projects that were issued or the work orders were issued everyday, sometime expand both capital and maintenance. I would just tell you that our core master service agreement footprint is busy and that can be supporting both maintenance initiatives or also what I’d call routine CapEx, things like housing subdivisions or road moves to the extent that we have an expansion that infrastructure support for roads and highways and bridges and sewer. All of that business – all of those programs impact outside plan and that’s the work that we do.

In terms of outsourcing, it’s one of those things which every year customers seem to someplace come up with a new activity and certainly as construction picks up of the aerial portion of these large fiber deployments, that’s an area where historically in different parts of the country that could present a good opportunity for us to take advantage of increased outsourcing.

Noelle Dilts

Okay. And then for my second question, I was hoping that you could revisit some of the assumptions that you’ve laid out previously and presentations talking about there being 125 million households in the U.S. that you think each could be passed by two carriers and 75% are commercially viable for passing. Has anything changed really since last quarter in terms of some of the commentary of the customers that changing how you’re thinking about that opportunity?

Steven Nielsen

Sure. I mean that 200 may be bigger, right. So to the extent that assumption was based on having two wireline high bandwidth providers to essentially 75% of the homes passed in the U.S. to the extent that there’s a viable wireless overlay that probably expands that potential number I think if you look at the number of customer announcements with respect to homes that came out since we spoke in November, there’s been a cable operator with a fiber-to-the-home build, other cable operators that have had talked about doing that 75% of their footprint with a high bandwidth network over time for 100%.

So my guess is that the 200 may be a bigger number and because the opportunity now may incorporate a converge wireline wireless alternative in some markets, and at the same time the percentage of customers networks may be higher than 75%, so we’ll just see.

Noelle Dilts

Okay. And then one last question if I can squeeze it in, on the AT&T conference call management talked about the fact that they were sort ahead of plan in the fourth quarter and that they actually allocated incremental capital to building out additional homes, do you have any sense if that was a pull forward of demand or if it’s just essentially based on ramped up? There are clearly passings. And can you give us a sense of – that you’re expecting growth beyond that sort of million homes passed level that they posted in the fourth quarter?

Steven Nielsen

I don’t know, but I’d like to add anything in detail about the customers plans other than to reiterate what they said which is they are pleased with the program. That generally means when our customers are pleased that is meeting or exceeding their internal expectations for returns, I think that is supportive of a continued rollout and perhaps its expansion, we’ll see.

Noelle Dilts

Thanks Steve.

Operator

Next we will go to Christian Schwab with Craig-Hallum Capital. Please go ahead.

Christian Schwab

Great. Good stuff, Steve.

Steven Nielsen

Thanks Christian.

Christian Schwab

So can you remind us in the last 12 months, what percentage of your revenue you would equate to the way that you guys kind of be wireline versus wireless?

Steven Nielsen

Yes. I think in the quarter it was about 8% wireless and I think that’s relatively in line for the balance of the last 12 months.

Christian Schwab

Okay, perfect. And then can you – with the Goodman acquisition, are you in a position to do work with all four of the wireless carriers?

Steven Nielsen

Yes, we do work for all four. Right now we’re busier with two than others and from a competitive perspective I don’t know that I’d want to go beyond that, but we certainly are doing work for all four.

Christian Schwab

Okay. So your enthusiasm on wireless was kind of echoed last week by a competitor. It seems that the carriers are now making a shift to look at ways to dramatically increase network speeds. I would kind of suggest that they’re all going to have to do that kind of slightly different. Now for marketing purposes they may call it 5G, but it will be an upgrade or a compliment to the existing 4G network, but that should require – will require, we understand a lot of modification to the spending of the core of the network as well. And is that what you’re kind of talking about where certain people may want to invest more aggressively in fiber or what they believe is position their network better?

Steven Nielsen

Well, I just think it’s kind of at a high level Christian. They way I think about it is if you’re going to increase wireless speeds, you’ve got use higher frequency spectrum. It doesn’t propagate as far, so you got to have more antennas and you got to connect those antennas to the network with fiber, so it’s just really basic intensification which will enable as we’ve seen in some of the metro builds that one of our customers has talked about in the Northeast it just enables Internet-of-Things, traffic signals, streetlights – just a whole bunch of new emerging applications for that bandwidth that we are probably first batter on second pitch in the first inning.

Christian Schwab

Yes, exactly, I agree. Thank you, congratulations on a good quarter.

Steven Nielsen

Thank you.

Operator

Next we will go to Alan Mitrani with Sylvan Lake Asset Management. Please go ahead.

Alan Mitrani

Thank you. Steve, can you give us your view on the regulation with the new FCC commissioners coming in and your thoughts about consolidation what the impact could be on your industry?

Steven Nielsen

Well, clearly the new chair of the FCC, I guess spoke – I guess this morning in Spain and highlighted why facilities base competition is what he believes is the best way to facilitate the deployment of high bandwidth technology. So it’s always nice to hear a clear articulation of a facility space competition.

I think with respect to convergence that’s something we’ve been living with and approved numerous different regulatory regimes in different administrations because I think it’s the way that technology and consumer preference are pushing our customers. So I don’t have a specific view on any combinations, we just know that as our customers have all gotten bigger, their spending has become more gullible, it’s longer lasting and have greater magnitude, that’s over the last 25 years I’ve been doing this.

Alan Mitrani

Okay, great. And with regard to leverage, it seems like you added the $35 million to the term loan. Can you tell us – tell us how you added to your share buyback without having really completed the previous share buyback. Can talk about your thoughts of leverage and what the purpose would be as you get into the busy season? And what would happen if the tax rates as well were cut back for corporations? What would be your thoughts be on leverage and where would the incremental dollar go?

Steven Nielsen

Sure. So, Alan, with respect to tax policy, who knows, right, there is a number of proposals that are out there. I guess the good thing is that what they all have in common is a lower federal tax rate and we’re basically a whole basis tax payer with very small international revenue, and don’t really get any tax preferences, so we had nothing to give up. So revolver rate will be helpful. If you go beyond that and talk about the expensing of capital expenditures, that’s obviously helpful and the business where we’re growing is as rapid as we are. The flipside is what they do around the facts that adaptability of interest.

So I think it’s a little bit hard to say, I guess what I’d put out there is that we still find the debt markets attractive. We had a new source of capital that we wanted to get into the facility. We freed up revolver capacity and we have – as we’ve said, we’ve grown $500 million in the trailing 12 months and we got opportunities going forward to use capital. So that’s why we put in a place.

Alan Mitrani

Great, thanks.

Operator

And we will go to Alex Rygiel with FBR Capital Markets. Please go ahead.

Alex Rygiel

Thanks. Just a quick question. Were there any abnormal legal expenses in the quarter and/or do you expect any in the upcoming quarter and on the flipside any gains?

Steven Nielsen

So we didn’t have any legal expenses that were material to our numbers in the quarter and don’t expect to have any going forward.

Alex Rygiel

Thank you.

Operator

And Mr. Nielsen, there are no further questions in queue.

Steven Nielsen

All right. Just before we go Drew is going to round up our disclosure on our top 10 customers. Go ahead, Drew.

Drew DeFerrari

Sure. Customer number six was at 5% of revenue and this is for customers requested that we not disclose their identity. Charter Communications was number seven at 3.6% of revenue. Crown Capital was number eight at 1.6% of revenue. Frontier Communications was number nine at 1.6% of revenue, and Questar Gas was number 10 at 0.5% of revenue.

Steven Nielsen

End it all.

Drew DeFerrari

And the split, Telco was at 68.1%, cable was at 24.4%, facility locating was at 4.9%, and electrical and other was at 2.6%.

Steven Nielsen

Okay. Well, we thank everybody for your time and attention, and we will talk to you on our third quarter call in May. Thank you.

Operator

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.

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