CenturyLink’s Level 3 integration process impacted Dycom’s Q2 revenues

two utility workers setting up a fiber cabinet on a sidewalk
Dycom saw its revenues impacted by CenturyLink's ongoing integration of Level 3 (btphotosbduk/CC BY 2.0).

CenturyLink’s completion of the Level 3 acquisition and integration process is delaying near-term network deployments and spending decisions—affecting one of the largest network construction operators, Dycom.

The network construction provider reported that in its second-quarter 2018 earnings, CenturyLink’s revenues declined to $109 million. CenturyLink is Dycom’s third-largest customer, making up 15.4% of its revenue.

Steven Nielsen, CEO of Dycom, told investors during its second-quarter 2018 earnings call that while CenturyLink remains a near-term challenge, spending could pick up as the telco expands the reach of its fiber network.

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“CenturyLink is obviously going through the integration with Level 3,” Nielsen said. “If you look at public comments it made last week, they indicated that they recognize the importance of driving fiber deeper into their network and we believe that over time that will be good for the business.”

Despite the near-term slowdown at CenturyLink, Dycom said AT&T and Verizon’s aggressive fiber plans for 5G and FTTH means the company will have plenty of business to chase.

“If you think about AT&T’s FTTH program, there’s a commitment in 2019 based on tax reform that they’re going to spend incremental dollars there,” Nielsen said. “There’s clearly a plan with Verizon’s stated public goal to deploy fixed wireless broadband, which is reliant on deep fiber deployments to 25-50 million homes and perhaps more as well as the cable capacity projects we’re involved in to expand network capacity, are all strong.”   

Here’s a breakdown of Dycom’s key metrics:

Customer revenue: Dycom reported that its top five customers declined 8.5% organically. The biggest impact came from what the company said was an expected slowdown in spending by a large customer. Meanwhile, all other customers decreased 16.6% organically.

Despite the declines, Dycom said it saw strong organic growth with Comcast coming in at 9% and Verizon at 40.7%. Contract revenues of $655.1 million in the second quarter included $19.6 million of revenue from storm restoration services. Taking out revenue from storm restoration services and from an acquired business, revenues declined 10.6% organically.

Outlook: For the 2019 fiscal year ending Jan. 26, 2019 and for the quarter ending April 28, 2018 (first quarter of fiscal 2019), the company has forecast contract revenues to be between $3.3 to $3.5 billion and $720 to $750 million, respectively.

Contract revenues: Contract revenues were $655.1 million for the quarter that ended Jan. 27, 2018, down from $701.1 million for the quarter that ended Jan. 28, 2017. Contract revenues for the quarter decreased 10.6% on an organic basis after excluding $19.6 million of contract revenues from storm restoration services in the current period and $8.4 million of contract revenues from an acquired business that was not owned during the prior year's quarter.

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