Dycom’s Nielsen: Verizon’s fiber plans are a huge opportunity

trench dug for fiber

Verizon’s pledge to purchase a large amount of fiber from Corning and Prysmian to support its large-scale 4G and future 5G network builds could be a windfall opportunity for network construction companies like Dycom.

Steven Nielsen, CEO of Dycom, told investors during its fiscal third-quarter earnings call that the need for Corning and Prysmian to increase manufacturing to handle the telco’s demand is an unprecedented event.

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“I think it’s a huge opportunity and it’s still developing,” Nielsen said. “The way I would think about it at a high level is there has been no domestic deployment of fiber of such magnitude that manufacturers had to actually build plants.”

Nielsen added that “it’s the biggest thing that’s happened in the past 17 years.”

Jennifer Fritzsche, senior analyst for Wells Fargo, agreed and said in a recent research note that Dycom is in a good position to be a major construction provider on the proposed fiber build.

“Given its close relationship with VZ over the years (including working on VZ’s initial FiOS deployments), we would expect DY will capture some of this incremental VZ business,” Fritzsche said.

Dycom, which ranks Verizon as its fourth-largest customer, won several contracts with the telco in parts of its territory. Specifically, it won new contracts in Massachusetts, Rhode Island, New York, Maryland and Virginia.

Besides Verizon, Dycom sees potential growth in the cable vertical, particularly as large cable operators push fiber directly to homes, as well as other wireless operators pursuing an aggressive wireless densification plan.  

“The opportunity to push fiber deeper and utilize a small portion of the coax plant and get dramatically increased speeds I think is attractive to cable operators,” Nielsen said. “It’s not unusual that as a wireless technology emerges at an expanded ability to deliver bandwidth that the wireline providers figure out how to do more.”

Fritzche agreed and added that Dycom will also benefit from its other wireline and cable company customers’ network expansion efforts.

“We believe Dycom is well positioned to benefit as telecom carriers and MSOs invest in their networks to keep pace with bandwidth demand,” Fritzche said. “Dycom faces limited competition and its customers' capital spending should remain robust.”

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

Customer revenue: Dycom reported revenues from its top five customers rose 25.2% organically, while all other customers decreased 10.6% organically.

AT&T and Comcast saw the largest amount of organic growth of 27.1% and 58.7%. CenturyLink, Verizon and Windstream grew 52.4%, 8.5% and 4.8%, respectively.

Financials: Dycom reported third-quarter contract revenues of $786.3 million, up year-over-year from $664.6 million in the same quarter a year ago.

Contract revenues for the quarter grew 14.9% on an organic basis after excluding contract revenues from acquired businesses that were not owned for the entire period in both the current and prior year quarter.

Total contract revenues from acquired businesses were $23 million for the quarter, compared to none for the same quarter in 2016.

Financial outlook: Dycom currently expects total contract revenues for the fourth quarter of fiscal 2017 to range from $780 million to $810 million, including about $25 million of revenues from acquired businesses that were not owned for the full period in both the current and prior year periods.

The revenue outlook reflects what Dycom says is growing demand from several large customers' 1 Gbps deployments, fiber deep-cable capacity projects, and initial phases of fiber deployments for newly emerging wireless technologies. Total fourth-quarter 2017 revenue is expected to include approximately $25 million from businesses it acquired in the fourth quarter 2016 and third quarter 2017.