Dycom says 1 Gbps builds from AT&T, Comcast, others are driving new organic wireline growth opportunities

two utility workers setting up a fiber cabinet on a sidewalk
Dycom is seeing more of its top five customers accelerating their 1 Gbps-capable network buildout plans.

Dycom says that as its key service provider customers ramp their ongoing or planned fiber-to-the-premises (FTTP) buildouts, it signals a surge in wireline fiber investments.

Steven Nielsen, CEO of Dycom, told investors during its first-quarter 2017 earnings call that it's seeing more of its top five customers accelerating their 1 Gbps-capable network buildout plans.

“A number of major industry participants are deploying significant wireline networks across broad sections of the country,” Nielsen said. “These newly deployed networks are generally designed to provision bandwidth of 1 Gbps speeds to individual consumers and two industry participants have indicated plans to deploy multi gigabit speeds while others are preparing to do so.”

RELATED: Dycom: AT&T, CenturyLink’s FTTX plans are driven by customer demand, not Google Fiber

To support its customers' 1 Gbps deployments, Dycom is providing a number of services, including program management, engineering and design, aerial and underground construction and fulfillment services.  

Nielsen said that its telco and cable customers like AT&T, Comcast and Charter are laying out specific 1 Gbps plans.

“Revenues and opportunities driven by this industry standard continue to grow meaningfully during the first quarter of fiscal first quarter of 2017,” Nielsen said. “Customers are beginning to reveal with more specificity new multi-year initiatives that are being planned and managed on a market-by-market basis.”

Each of Dycom’s top five customers experienced strong organic growth in the first quarter.

AT&T, which remains Dycom’s largest customer, grew 72.4%. The telco has laid out an aggressive plan to deploy 1 Gbps FTTH services to 12.5 million homes.

However, AT&T could exceed that plan. Earlier this month, the service provider announced that it would launch its 1 Gbps service in 85 cities across 20 major metros.

Additionally, AT&T said that it will launch 1 Gbps service in four new major metros, including Baton Rouge, Birmingham, Charleston and Reno, bringing its total to 44 major metros nationwide. Ultimately, AT&T plans to reach a total of 67 metros. On top of these builds, AT&T will expand its fiber network in 16 existing cities.

The company also saw gains at its other telecom customers. CenturyLink, Dycom’s second-largest customer, grew 12%, while its fourth and fifth customers, Verizon and Windstream, grew 16.2% and 7.5%, respectively.

AT&T awarded Dycom engineering contracts in Illinois, Indiana, and Georgia. Fellow telco CenturyLink employed Dycom for construction and maintenance services in Virginia, Tennessee, North Carolina, and Florida.

Within the telco domain, service providers that accepted CAF II funding are in the midst of planning, engineering, and constructing networks to address rural areas with 10/1 Mbps.

“Projects resulting from the Connect America Fund phase 2 were related to construction, planning and engineering and that activity was firmly underway in the quarter,” Nielsen said. “These projects are deploying fiber deeper in rural areas and more projects are expected as more multi-year opportunities emerge.”

Cable steps up

But telcos weren’t the only source of growth during the quarter as Dycom noted it saw more fiber construction activity from cable operators.

A number of cable operators have indicated that they expect to increase capex spending on new build opportunities and capacity-expansion projects.

Comcast, which remains Dycom’s second-largest customer, grew 52.3%. The company noted that cable operators continue to deploy fiber to small and medium businesses.

During the quarter, Comcast announced that several cities would be able to get its 1 Gbps DOCSIS 3.1 service.

Following 1 Gbps rollouts in Atlanta and Nashville, Comcast began rolling out its 1 Gbps series in Chicago in August. The MSO said its DOCSIS 3.1 conversions would hit Chicago, Detroit and Miami in the second half of this year. 

At the same time, the cable MSO has also been making upgrades to its fiber networks in Philadelphia and Maryland to support 100 Gbps Ethernet. Earlier this month, Comcast said it would invest over $30 million to expand its fiber-based network in Philadelphia, reaching more than 3,000 businesses.

“Cable operators are continuing to deploy fiber to small and medium businesses with increasing urgency,” Nielsen said. “Some are doing so in anticipation of the customer sales process and overall cable capital expenditures are increasing.”

Adjusted outlook
Dycom has adjusted its outlook for the operations from the Goodman Networks acquisition it made in July. The company expects revenues from Goodman Networks for the next several quarters of approximately $10.0 million per quarter. Because of this, Dycom said it reduced its contract backlog by a total of $211 million, of which $49 million was expected to be completed over the next 12 months.

Additionally, a customer modified its plans, driving the company to reduce its forecasted revenue for that customer for the remainder of fiscal 2017 by approximately $80 million and its contract backlog associated with one project by $413 million.

The total remaining backlog associated with other projects for this customer represents less than 2.5% of the company’s total backlog of $5.2 billion at the end of October. Dycom expects total contract revenues for the second quarter of fiscal 2017 to range from $640 million to $670 million.

Contract revenues for the quarter ended October 29, 2016, grew 18% 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.

For the first quarter of 2017, total contract revenues from acquired businesses were $56.6 million for the third quarter, compared to $29.9 million for the third quarter of 2015.

The company reported that total first-quarter 2017 (PDF) contract revenues were $799.2 million, up year-over-year from $659.3 million in the same period a year ago.