AT&T (NYSE: T) and CenturyLink's (NYSE: CTL) ambitious 1 Gbps FTTH service build outs have become a revenue boom for Dycom Industries, a provider of specialty contracting services to the telecom industry.
Evidence of this trend can be seen in Dycom's fourth quarter fiscal year 2015 results where revenues rose 20 percent year-over-year to $579 million.
Steven Nielsen, president and CEO of Dycom, attributes the revenue uptick to the growing demand for construction services from its largest customers who are in the process of expanding their 1 Gbps network footprints.
"This quarter was impacted by a broad increase in demand from each and every one of our top five customers as we deployed 1 gigabit wireline networks and grew core market share," Nielsen said during the earnings call, according to a Seeking Alpha transcript. "These factors offset a decline in work for real customers receiving stimulus funding and a reduction in services for wireless carriers."
Dycom also reported net income of $84.3 million, or $2.41 per common share diluted, for the fiscal year that ended July 25, 2015, compared to $40.0 million, or $1.15 per common share diluted, for the fiscal year that ended July 26, 2014.
AT&T and CenturyLink -- two of Dycom's largest customers -- have made 1 Gbps FTTH a priority in their broadband roadmaps.
Complementing its ongoing movement to bring FTTH service into 15 states and counting, AT&T said in an FCC filing that it would build 1 Gbps service to an additional 11.7 million customer locations over the next four years. This build out plan is one of the provisions it promised the FCC it would meet in getting approval for its DirecTV acquisition.
Likewise, CenturyLink plans to extend its GPON 1 Gbps service to 500,000 businesses and 700,000 homes by the end of the year, two initiatives that company executives have said should continue in 2016 and beyond.
While not calling out AT&T and CenturyLink specifically, Nielsen said that traditional ILECs that are deploying FTTH and fiber to the node (FTTN) architectures to enable video offerings and 1 Gbps connections "are accelerating and impacting our business."
During the quarter, the company saw organic growth across AT&T, CenturyLink and Verizon.
As its largest customer, revenue from AT&T grew 19.1 percent of its total revenue or $110.4 million and grew 13 percent organically year-over-year.
It saw similar gains from CenturyLink and Verizon.
Revenue from CenturyLink grew 42.1 percent organically, and was $90.5 million or 15.6 percent of revenue. Dycom said it renewed construction and maintenance agreements in 14 states the telco serves.
Verizon was Dycom's fourth largest customer for the quarter at 9.1 percent of revenue or $52.6 million, growing organically at 36.2 percent. It received construction and maintenance and underground facility locating services agreements for Delaware and Virginia.
Another potential new telecom revenue source for Dycom could come from the second phase of the FCC's Connect America Fund (CAF-II). Now that AT&T, CenturyLink, Windstream and others have chosen how much money they will accept from CAF-II, these companies will begin engineering and construction plans for 2016 and beyond.
Other than saying it is talking to customers that have accepted CAF-II funding, Nielsen could not provide further details.
"We're having a number of discussions with customers around CAF work beyond that," Nielsen said. "For competitive reasons clearly we're not going to go into any detail. So it's not into projections. It's not in the backlog."
Nielsen added that "two of the three acquisitions have broad exposure to one of the CAF recipients through a part of the country that those really enhance our exposure and so we think that's an upside to build acquisitions."
Not to be outdone, Dycom is also seeing momentum in the cable operator space as operators continue to deploy fiber to small and medium businesses. Comcast, Dycom's fourth largest customer, has launched an initiative to bring 2 Gbps services to a total of 18 million homes by the end of 2015 using a mix of its existing HFC cable via DOCSIS 3.1 technology and fiber.
Nielsen said that "cable capital expenditures and new build opportunities are expanding, and dramatically increased speeds to consumers are being planned."
Looking forward, the company expects total revenue for the first quarter of fiscal 2016 to range from $615 million to $635 million and diluted earnings per share to range from $0.96 to $1.04. Dycom's fiscal 2016 first quarter guidance includes the expected results from recently acquired businesses, including TelCom Construction.
- see the earnings release
- here's the earnings transcript (reg. req.)
AT&T to extend 1 Gbps service to 11.7M locations following completion of DirecTV acquisition
CenturyLink to bring 1 Gbps broadband to 700,000 homes by end of year