Company Quick10K Filing
Quick10K
Dycom Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$48.49 32 $1,530
10-Q 2019-04-27 Quarter: 2019-04-27
10-K 2019-01-26 Annual: 2019-01-26
10-Q 2018-10-27 Quarter: 2018-10-27
10-Q 2018-07-28 Quarter: 2018-07-28
10-Q 2018-04-28 Quarter: 2018-04-28
10-Q 2017-10-28 Quarter: 2017-10-28
10-K 2017-07-29 Annual: 2017-07-29
10-Q 2017-04-29 Quarter: 2017-04-29
10-Q 2017-01-28 Quarter: 2017-01-28
10-Q 2016-10-29 Quarter: 2016-10-29
10-K 2016-07-30 Annual: 2016-07-30
10-Q 2016-04-23 Quarter: 2016-04-23
10-Q 2016-01-23 Quarter: 2016-01-23
10-Q 2015-10-24 Quarter: 2015-10-24
10-K 2015-07-25 Annual: 2015-07-25
10-Q 2015-04-25 Quarter: 2015-04-25
10-Q 2015-01-24 Quarter: 2015-01-24
10-Q 2014-10-25 Quarter: 2014-10-25
10-K 2014-07-26 Annual: 2014-07-26
10-Q 2014-04-26 Quarter: 2014-04-26
10-Q 2014-01-25 Quarter: 2014-01-25
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-21 Officers, Shareholder Vote
8-K 2019-05-21 Earnings, Regulation FD, Exhibits
8-K 2019-05-21 Earnings, Regulation FD, Exhibits
8-K 2019-04-11 Officers
8-K 2019-02-27 Earnings, Regulation FD, Exhibits
8-K 2019-02-27 Earnings, Regulation FD, Exhibits
8-K 2018-11-20 Earnings, Regulation FD, Exhibits
8-K 2018-11-20 Earnings, Regulation FD, Exhibits
8-K 2018-11-19 Officers
8-K 2018-10-19 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-09-20 Regulation FD, Exhibits
8-K 2018-08-29 Earnings, Regulation FD, Exhibits
8-K 2018-08-29 Other Events, Exhibits
8-K 2018-08-29 Earnings, Regulation FD, Exhibits
8-K 2018-08-13 Earnings, Regulation FD, Exhibits
8-K 2018-08-13 Earnings, Regulation FD, Exhibits
8-K 2018-03-29 Officers, Exhibits
8-K 2018-03-06 Regulation FD, Exhibits
8-K 2018-01-27
APH Amphenol 28,160
WBC Wabco Holdings 6,780
SMG Scotts Miracle-Gro 4,970
TXRH Texas Roadhouse 3,930
ICHR Ichor Holdings 515
BSTC Biospecifics Technologies 497
EYEN Eyenovia 70
DBC Invesco DB Commodity Index Tracking Fund 0
ARTL Artelo Biosciences 0
SBP SB Partners 0
DY 2019-04-27
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 dyq1fy202010qex311.htm
EX-31.2 dyq1fy202010qex312.htm
EX-32.1 dyq1fy202010qex321.htm
EX-32.2 dyq1fy202010qex322.htm

Dycom Industries Earnings 2019-04-27

DY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 dyq1fy202010q.htm 10-Q Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number 001-10613
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Florida
 
59-1277135
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
11780 US Highway 1, Suite 600, Palm Beach Gardens, FL
 
33408
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (561) 627-7171

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common stock, par value $0.33 1/3 per share
 
DY
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 31,482,973 shares of common stock with a par value of $0.33 1/3 outstanding at May 20, 2019.



Dycom Industries, Inc.
Table of Contents

2


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
April 27, 2019
 
January 26, 2019
ASSETS
 
 
 
 Current assets:
 
 
 
 Cash and equivalents
$
33,579

 
$
128,342

 Accounts receivable, net
701,522

 
625,258

 Contract assets
297,630

 
215,849

 Inventories
105,166

 
94,385

 Income tax receivable
2,376

 
3,461

 Other current assets
38,242

 
29,145

 Total current assets
1,178,515

 
1,096,440

 
 
 
 
 Property and equipment, net
429,310

 
424,751

 Operating lease right-of-use assets
69,065

 

 Goodwill
325,749

 
325,749

 Intangible assets, net
155,783

 
161,125

 Other assets
52,784

 
89,438

 Total non-current assets
1,032,691

 
1,001,063

 Total assets
$
2,211,206

 
$
2,097,503

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 Current liabilities:
 

 
 

 Accounts payable
$
138,727

 
$
119,485

 Current portion of debt
11,250

 
5,625

 Contract liabilities
12,815

 
15,125

 Accrued insurance claims
44,035

 
39,961

 Operating lease liabilities
25,072

 

 Income taxes payable
366

 
721

 Other accrued liabilities
109,390

 
104,074

 Total current liabilities
341,655

 
284,991

 
 
 
 
 Long-term debt
867,376

 
867,574

 Accrued insurance claims
59,793

 
68,315

 Operating lease liabilities
44,449

 

 Deferred tax liabilities, net non-current
71,548

 
65,963

 Other liabilities
5,208

 
6,492

 Total liabilities
1,390,029

 
1,293,335

 
 
 
 
 COMMITMENTS AND CONTINGENCIES, Note 20


 


 
 
 
 
 Stockholders’ equity:
 

 
 

 Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares issued and outstanding

 

 Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized: 31,478,851 and 31,430,031 issued and outstanding, respectively
10,493

 
10,477

 Additional paid-in capital
25,217

 
22,489

 Accumulated other comprehensive loss
(1,296
)
 
(1,282
)
 Retained earnings
786,763

 
772,484

 Total stockholders’ equity
821,177

 
804,168

 Total liabilities and stockholders’ equity
$
2,211,206

 
$
2,097,503

 
 
 
 
See notes to the condensed consolidated financial statements.

3


DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
(Unaudited)
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
 REVENUES:
 
 
 
 Contract revenues
$
833,743

 
$
731,375

 
 
 
 
 EXPENSES:
 
 
 
 Costs of earned revenues, excluding depreciation and amortization
701,767

 
599,573

 General and administrative (including stock-based compensation expense of $3.5 million and $4.9 million, respectively)
58,622

 
62,283

 Depreciation and amortization
46,341

 
43,355

 Total
806,730

 
705,211

 
 
 
 
 Interest expense, net
(12,233
)
 
(10,166
)
 Other income, net
5,698

 
7,711

 Income before income taxes
20,478

 
23,709

 
 
 
 
 Provision for income taxes:
 
 
 
 Current
620

 
1,095

 Deferred
5,579

 
5,383

 Total provision for income taxes
6,199

 
6,478

 
 
 
 
 Net income
$
14,279

 
$
17,231

 
 
 
 
 Earnings per common share:
 
 
 
 Basic earnings per common share
$
0.45

 
$
0.55

 
 
 
 
 Diluted earnings per common share
$
0.45

 
$
0.53

 
 
 
 
 Shares used in computing earnings per common share:
 
 
 
Basic
31,451,809

 
31,190,366

 
 
 
 
Diluted
31,786,459

 
32,407,914

 
 
 
 
See notes to the condensed consolidated financial statements.



4


DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
 Net income
$
14,279

 
$
17,231

 Foreign currency translation losses, net of tax
(14
)
 
(88
)
 Comprehensive income
$
14,265

 
$
17,143

 
 
 
 
See notes to the condensed consolidated financial statements.


5


DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in thousands)
(Unaudited)
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
Balances as of January 26, 2019
31,430,031

 
$
10,477

 
$
22,489

 
$
(1,282
)
 
$
772,484

 
$
804,168

Stock options exercised
9,850

 
3

 
103

 

 

 
106

Stock-based compensation
1,528

 
1

 
3,478

 

 

 
3,479

Issuance of restricted stock, net of tax withholdings
37,442

 
12

 
(853
)
 

 

 
(841
)
Other comprehensive loss

 

 

 
(14
)
 

 
(14
)
Net income

 

 

 

 
14,279

 
14,279

Balances as of April 27, 2019
31,478,851

 
$
10,493

 
$
25,217

 
$
(1,296
)
 
$
786,763

 
$
821,177

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
Balances as of January 27, 2018
31,185,669

 
$
10,395

 
$
6,170

 
$
(1,146
)
 
$
709,577

 
$
724,996

Stock options exercised
5,084

 
2

 
65

 

 

 
67

Stock-based compensation
424

 
1

 
4,862

 

 

 
4,863

Issuance of restricted stock, net of tax withholdings
1,892

 

 
(87
)
 

 

 
(87
)
Other comprehensive loss

 

 

 
(88
)
 

 
(88
)
Net income

 

 

 

 
17,231

 
17,231

Balances as of April 28, 2018
31,193,069

 
$
10,398

 
$
11,010

 
$
(1,234
)
 
$
726,808

 
$
746,982

 
 
 
 
 
 
 
 
 
 
 
 
See notes to the condensed consolidated financial statements.


6


DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
OPERATING ACTIVITIES:
 
 
 
Net income
$
14,279

 
$
17,231

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
 
 
 
Depreciation and amortization
46,341

 
43,355

Non-cash lease expense
7,390

 

Deferred income tax provision
5,579

 
5,383

Stock-based compensation
3,479

 
4,863

Provision for bad debt (recovery), net
(10,311
)
 
(24
)
Gain on sale of fixed assets
(6,738
)
 
(8,415
)
Amortization of debt discount
4,932

 
4,672

Amortization of debt issuance costs and other
985

 
887

Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
(76,297
)
 
(8,552
)
Contract assets, net
(84,031
)
 
(44,133
)
Other current assets and inventories
(16,994
)
 
(10,533
)
Other assets
37,323

 
(212
)
Income taxes receivable/payable
730

 
(568
)
Accounts payable
18,300

 
13,169

Accrued liabilities, insurance claims, operating lease liabilities, and other liabilities
(1,089
)
 
7,454

Net cash (used in) provided by operating activities
(56,122
)
 
24,577

 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(45,768
)
 
(34,497
)
Proceeds from sale of assets
7,362

 
8,011

Cash paid for acquisitions, net of cash acquired

 
(20,917
)
Other investing activities

 
1,576

Net cash used in investing activities
(38,406
)
 
(45,827
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Principal payments on senior credit agreement, including term loans

 
(4,813
)
Exercise of stock options
106

 
67

Restricted stock tax withholdings
(841
)
 
(87
)
Net cash used in financing activities
(735
)
 
(4,833
)
Net decrease in cash and equivalents and restricted cash
(95,263
)
 
(26,083
)
 
 
 
 
CASH AND EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD
134,151

 
90,182

 
 
 
 
CASH AND EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
$
38,888

 
$
64,099

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Cash paid for interest
$
7,474

 
$
5,415

Cash paid for taxes, net
$
814

 
$
2,322

Purchases of capital assets included in accounts payable or other accrued liabilities at period end
$
8,054

 
$
6,769

 
 
 
 
See notes to the condensed consolidated financial statements.

7


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services throughout the United States. The Company provides program management, engineering, construction, maintenance and installation services for telecommunications providers, underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities.

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries, all of which are wholly-owned, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2019, filed with the SEC on March 4, 2019. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included. This includes all normal and recurring adjustments and elimination of intercompany accounts and transactions. Operating results for the interim period are not necessarily indicative of the results expected for any subsequent interim or annual period.

Accounting Period. The Company’s fiscal year ends on the last Saturday in January and consists of either 52 or 53 weeks of operations (with the additional week of operations occurring in the fourth fiscal quarter). Fiscal 2019 and fiscal 2020 each consist of 52 weeks of operations. The next 53 week fiscal period will occur in the fiscal year ending January 30, 2021.

Segment Information. The Company operates in one reportable segment. Its services are provided by its operating segments on a decentralized basis. Each operating segment consists of a subsidiary (or in certain instances, the combination of two or more subsidiaries), the results of which are regularly reviewed by the Company’s Chief Executive Officer, the chief operating decision maker. All of the Company’s operating segments have been aggregated into one reportable segment based on their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods.

2. Significant Accounting Policies and Estimates

There have been no material changes to the Company’s significant accounting policies and critical accounting estimates described in the Company’s Annual Report on Form 10-K for fiscal 2019, except with respect to the Company’s accounting policy for leases as described further below.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These estimates are based on the Company’s historical experience and management’s understanding of current facts and circumstances. At the time they are made, the Company believes that such estimates are fair when considered in conjunction with the Company’s consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates.

Fair Value of Financial Instruments. The Company’s financial instruments primarily consist of cash and equivalents, restricted cash, accounts receivable, income taxes receivable and payable, accounts payable, certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for the fair value of the Company’s long-term debt, which is based on observable market-based inputs (Level 2). See Note 14, Debt, for further information regarding the fair value of such financial instruments. The Company’s cash and equivalents are based on quoted market prices in active markets for identical assets (Level 1) as of April 27, 2019 and January 26, 2019. During the three months ended April 27, 2019 and April 28, 2018, the Company had no material nonrecurring fair value measurements of assets or liabilities subsequent to their initial recognition.

Leases. The Company’s leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For leases with initial terms greater than 12 months, the Company records operating lease right-of-use assets and corresponding operating lease liabilities. Operating lease right-of-use assets represent the Company’s right to use the underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make

8


the related lease payments. These assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheet.

3. Accounting Standards

Recently issued accounting pronouncements are disclosed in the Company’s Annual Report on Form 10-K for fiscal 2019. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in the expected dates of adoption or estimated effects on the Company’s consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s Annual Report on Form 10-K for fiscal 2019. Further, there have been no additional accounting standards issued as of the date of this Quarterly Report on Form 10-Q that are applicable to the consolidated financial statements of the Company. Accounting standards adopted during the three months ended April 27, 2019 are disclosed in this Quarterly Report on Form 10‑Q.

Recently Adopted Accounting Standards

Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) which is intended to increase transparency and comparability of accounting for lease transactions. For all leases with terms greater than 12 months, the new guidance requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions. The new standard maintains a distinction between finance leases and operating leases. As a result, the effect of leases in the statement of operations and statement of cash flows is largely unchanged.

Effective January 27, 2019, the first day of fiscal 2020, the Company adopted the requirements of ASU 2016-02 using the transition provisions at the date of adoption instead of at the earliest comparative period presented in the financial statements. Accordingly, comparative financial statements for periods prior to the date of adoption were not adjusted. The Company elected the group of practical expedients that allowed it not to reassess the following: whether any expired or existing contracts represent leases, the classification of any expired or existing leases, and the initial direct costs for any expired or existing leases. The Company did not elect the practical expedient to use hindsight to determine the lease term. On adoption, the Company recognized approximately $71.0 million of operating lease right-of-use assets and corresponding lease liabilities on its condensed consolidated balance sheet for its operating leases with terms greater than 12 months. The adoption of ASU 2016-02 did not have a material impact on the Company’s consolidated statements of operations, comprehensive income, or cash flows.


9


4. Computation of Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (dollars in thousands, except per share amounts):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Net income available to common stockholders (numerator)
$
14,279

 
$
17,231

 
 
 
 
Weighted-average number of common shares (denominator)
31,451,809

 
31,190,366

 
 
 
 
Basic earnings per common share
$
0.45

 
$
0.55

 
 
 
 
Weighted-average number of common shares
31,451,809

 
31,190,366

Potential shares of common stock arising from stock options, and unvested restricted share units
334,650

 
602,549

Potential shares of common stock issuable on conversion of 0.75% convertible senior notes due 2021(1)

 
614,999

Total shares-diluted (denominator)
31,786,459

 
32,407,914

 
 
 
 
Diluted earnings per common share
$
0.45

 
$
0.53

 
 
 
 
Anti-dilutive weighted shares excluded from the calculation of earnings per common share:
Stock-based awards
266,371

 
80,847

0.75% convertible senior notes due 2021
5,005,734

 
4,390,735

Warrants
5,005,734

 
5,005,734

Total
10,277,839

 
9,477,316


(1) Under the treasury stock method, the convertible senior notes will have a dilutive impact on earnings per common share if the Company’s average stock price for the period exceeds the $96.89 per share conversion price for the convertible senior notes. The warrants associated with the Company’s convertible senior notes will have a dilutive impact on earnings per common share if the Company’s average stock price for the period exceeds the $130.43 per share warrant strike price. During the three months ended April 28, 2018, the Company’s average stock price of $110.46 exceeded the conversion price for the convertible senior notes. As a result, shares presumed to be issuable under the convertible senior notes that were dilutive during the period are included in the calculation of diluted earnings per share for the three months ended April 28, 2018. As the Company’s average stock price did not exceed the strike price for the warrants, the underlying common shares were anti-dilutive as reflected in the table above.

In connection with the offering of the convertible senior notes, the Company entered into convertible note hedge transactions with counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the notes and offsetting any potential cash payments in excess of the principal amount of the notes. Prior to conversion, the convertible note hedge is not included for purposes of the calculation of earnings per common share as its effect would be anti-dilutive. Upon conversion, the convertible note hedge is expected to offset the dilutive effect of the convertible senior notes when the average stock price for the period is above $96.89 per share. See Note 14, Debt, for additional information related to the Company’s convertible senior notes, warrant transactions, and hedge transactions.


10


5. Acquisitions

During March 2018, the Company acquired certain assets and assumed certain liabilities of a provider of telecommunications construction and maintenance services in the Midwest and Northeast United States for a cash purchase price of $20.9 million, less an adjustment for working capital received below a target amount of approximately $0.5 million expected to be received during fiscal 2020. This acquisition expands the Company’s geographic presence within its existing customer base.

The purchase price allocation of the business acquired in fiscal 2019 was completed within the 12-month measurement period from the date of acquisition. Adjustments to provisional amounts were recognized in the reporting period in which the adjustments were determined and were not material.

The following table summarizes the aggregate consideration paid for the fiscal 2019 acquisition (dollars in millions):
 
2019
Assets
 
Accounts receivable
$
5.6

Inventories and other current assets
0.2

Property and equipment
0.5

Goodwill
4.0

Intangible assets - customer relationships
12.3

Total assets
22.6

 
 
Liabilities
 
Accounts payable
2.2

Total liabilities
2.2

 
 
Net Assets Acquired
$
20.4


Results of the business acquired in fiscal 2019 are included in the condensed consolidated financial statements from the date of acquisition. Contract revenues and net income of this acquisition were not material during the three months ended April 27, 2019 or April 28, 2018.

6. Accounts Receivable, Contract Assets, and Contract Liabilities

The following provides further details on the balance sheet accounts of accounts receivable, net, contract assets, and contract liabilities.

Accounts Receivable
 
Accounts receivable, net classified as current consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Trade accounts receivable
$
299,572

 
$
331,903

Unbilled accounts receivable
393,198

 
283,463

Retainage
10,124

 
10,831

Total
702,894

 
626,197

Less: allowance for doubtful accounts
(1,372
)
 
(939
)
Accounts receivable, net
$
701,522

 
$
625,258

 

11


The Company maintains an allowance for doubtful accounts for estimated losses on uncollected balances. Approximately $16.8 million of the allowance for doubtful accounts as of January 26, 2019 was classified as non-current. During the three months ended April 27, 2019, the Company recognized a $10.3 million recovery of previously reserved accounts receivable and contract assets based on collections from a customer. The allowance for doubtful accounts changed as follows (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Allowance for doubtful accounts at beginning of period
$
17,702

 
$
998

Provision for bad debt (recovery)
(10,311
)
 
(24
)
Amounts (charged) recovered against the allowance
(6,019
)
 
2

Allowance for doubtful accounts at end of period
$
1,372

 
$
976


Contract Assets and Contract Liabilities

Net contract assets consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Contract assets
$
297,630

 
$
215,849

Contract liabilities
12,815

 
15,125

Contract assets, net
$
284,815

 
$
200,724


Net contract assets were $284.8 million and $200.7 million as of April 27, 2019 and January 26, 2019, respectively. The increase primarily resulted from services performed under contracts consisting of multiple tasks, for which billings will be submitted upon completion of those tasks not yet completed. There were no other significant changes in contract assets during the period. During the three months ended April 27, 2019, the Company performed services and recognized $8.0 million of contract revenues related to its contract liabilities that existed at January 26, 2019. See Note 7, Other Current Assets and Other Assets, for information on the Company’s long-term contract assets.

Customer Credit Concentration

Customers whose combined amounts of trade accounts receivable and contract assets, net exceeded 10% of total combined accounts receivable and contract assets, net as of April 27, 2019 or January 26, 2019 were as follows (dollars in millions):
 
April 27, 2019
 
January 26, 2019
 
Amount
 
% of Total
 
Amount
 
% of Total
Verizon Communications Inc.
$
390.3

 
39.6%
 
$
298.4

 
36.2%
CenturyLink, Inc.
$
152.7

 
15.5%
 
$
147.2

 
17.9%
Comcast Corporation
$
131.1

 
13.3%
 
$
127.2

 
15.4%
AT&T Inc.
$
114.3

 
11.6%
 
$
90.6

 
11.0%

The Company believes that none of the customers above were experiencing financial difficulties that would materially impact the collectability of the Company’s total accounts receivable and contract assets, net as of April 27, 2019 or January 26, 2019.


12


7. Other Current Assets and Other Assets
 
Other current assets consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Prepaid expenses
$
20,045

 
$
12,758

Deposits and other current assets
14,137

 
14,762

Insurance recoveries/receivables for accrued insurance claims
2,100

 

Restricted cash
1,556

 
1,556

Receivables on equipment sales
404

 
69

Total other current assets
$
38,242

 
$
29,145


Other assets (long-term) consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Long-term contract assets
$
28,368

 
$
30,399

Deferred financing costs
8,534

 
9,036

Restricted cash
3,753

 
4,253

Insurance recoveries/receivables for accrued insurance claims
5,007

 
13,684

Long-term accounts receivable, net

 
24,815

Other non-current deposits and assets
7,122

 
7,251

Total other assets
$
52,784

 
$
89,438


Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During the three months ended April 27, 2019, total insurance recoveries/receivables decreased approximately $6.6 million primarily due to the settlement of claims.

Long-term contract assets represent payments made to customers pursuant to long-term agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to the customers.

Long-term accounts receivable, net of allowance for doubtful accounts, represent trade receivables due from Windstream Holdings, Inc. as of January 26, 2019. During the quarter ended April 27, 2019 the Company collected a substantial portion of these accounts receivable. Amounts remaining to be collected are included in current accounts receivable, net as of April 27, 2019. See Note 6, Accounts Receivable, Contract Assets, and Contract Liabilities, for information on the Company’s current accounts receivable, net and contract assets as of April 27, 2019.

8. Cash and Equivalents and Restricted Cash
 
Amounts of cash and equivalents and restricted cash reported in the condensed consolidated statement of cash flows consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Cash and equivalents
$
33,579

 
$
128,342

Restricted cash included in:
 
 
 
Other current assets
1,556

 
1,556

Other assets (long-term)
3,753

 
4,253

Total cash and equivalents and restricted cash
$
38,888

 
$
134,151



13


9. Property and Equipment
 
Property and equipment consisted of the following (dollars in thousands):
 
Estimated Useful Lives (Years)
 
April 27, 2019
 
January 26, 2019
 Land
 
$
4,024

 
$
4,359

 Buildings
10-35
 
12,725

 
13,555

 Leasehold improvements
1-10
 
16,694

 
16,185

 Vehicles
1-5
 
606,576

 
589,741

 Computer hardware and software
1-7
 
145,124

 
140,327

 Office furniture and equipment
1-10
 
13,189

 
12,804

 Equipment and machinery
1-10
 
302,708

 
296,408

 Total
 
 
1,101,040

 
1,073,379

 Less: accumulated depreciation
 
 
(671,730
)
 
(648,628
)
 Property and equipment, net
 
 
$
429,310

 
$
424,751


Depreciation expense was $41.0 million and $37.7 million for the three months ended April 27, 2019 and April 28, 2018, respectively.

10. Goodwill and Intangible Assets

Goodwill

There were no changes in the carrying amount of goodwill during the three months ended April 27, 2019. The goodwill balance consisted of the following (dollars in thousands):
 
 
April 27, 2019
Goodwill, gross
 
$
521,516

Accumulated impairment losses
 
(195,767
)
Total
 
$
325,749


The Company’s goodwill resides in multiple reporting units and primarily consists of expected synergies, together with the expansion of the Company’s geographic presence and strengthening of its customer base from acquisitions. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual reporting units may suffer periodically due to downturns in customer demand, increased costs of providing services, and the level of overall economic activity. The Company’s customers may reduce capital expenditures and defer or cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also suffer if actual costs of providing services exceed the costs anticipated when the Company enters into contracts. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of the Company’s reporting units. The cyclical nature of the Company’s business, the high level of competition existing within its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.

The Company performs its annual goodwill assessment as of the first day of the fourth fiscal quarter of each fiscal year. As a result of the Company’s fiscal 2019 period assessment, the Company determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of their carrying values and no impairment had occurred. As of April 27, 2019, the Company continues to believe the goodwill and the indefinite-lived intangible asset are recoverable for all of its reporting units.


14


Intangible Assets

The Company’s intangible assets consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
 
Weighted Average Remaining Useful Lives (Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Intangible Assets, Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Intangible Assets, Net
Customer relationships
10.8
 
$
312,017

 
$
162,918

 
$
149,099

 
$
312,017

 
$
157,691

 
$
154,326

Trade names, finite
8.0
 
10,350

 
8,417

 
1,933

 
10,350

 
8,312

 
2,038

Trade name, indefinite
 
4,700

 

 
4,700

 
4,700

 

 
4,700

Non-compete agreements
1.3
 
200

 
149

 
51

 
200

 
139

 
61

 
 
 
$
327,267

 
$
171,484

 
$
155,783

 
$
327,267

 
$
166,142

 
$
161,125


Amortization of the Company’s customer relationship intangibles is recognized on an accelerated basis as a function of the expected economic benefit. Amortization for the Company’s other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life. Amortization expense for finite-lived intangible assets was $5.3 million and $5.7 million for the three months ended April 27, 2019 and April 28, 2018, respectively.

As of April 27, 2019, the Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment.

11. Accrued Insurance Claims
 
For claims within its insurance program, the Company retains the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. With regard to losses occurring in the twelve month policy period ending in January 2020, the Company retains the risk of loss up to $1.0 million on a per occurrence basis for automobile liability, general liability, and workers’ compensation. These retention amounts are applicable to all of the states in which the Company operates, except with respect to workers’ compensation insurance in two states in which the Company participates in state-sponsored insurance funds. Aggregate stop-loss coverage for automobile liability, general liability, and workers’ compensation claims is $77.1 million for the twelve month policy period ending in January 2020.

The Company is party to a stop-loss agreement for losses under its employee group health plan. For calendar year 2019, the Company retains the risk of loss, on an annual basis, up to the first $400,000 of claims per participant, as well as an annual aggregate amount for all participants of $425,000. Amounts for total accrued insurance claims and insurance recoveries/receivables are as follows (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Accrued insurance claims - current
$
44,035

 
$
39,961

Accrued insurance claims - non-current
59,793

 
68,315

Total accrued insurance claims
$
103,828

 
$
108,276

 
 
 
 
Insurance recoveries/receivables:
 
 
 
Current (included in Other current assets)
$
2,100

 
$

Non-current (included in Other assets)
5,007

 
13,684

Total insurance recoveries/receivables
$
7,107

 
$
13,684


Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During the three months ended April 27, 2019, total insurance recoveries/receivables decreased approximately $6.6 million primarily due to the settlement of claims. Accrued insurance claims decreased by a corresponding amount.


15


12. Leases

The Company leases the majority of its office facilities as well as certain equipment, all of which are accounted for as operating leases. These leases have remaining terms ranging from less than 1 year to approximately 6 years. Some leases include options to extend the lease for up to 5 years and others include options to terminate.

The following table summarizes the components of lease cost recognized in the condensed consolidated statements of operations for the three months ended April 27, 2019 (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
Lease cost under long-term operating leases
$
8,331

Lease cost under short-term operating leases
8,406

Variable lease cost under short-term and long-term operating leases(1)
1,210

Total lease cost
$
17,947


(1) Variable lease expense primarily includes insurance, maintenance, and other operating expenses related to the Company’s leased office facilities.

The Company’s operating lease liabilities related to long-term operating leases were $69.5 million as of April 27, 2019. Supplemental balance sheet information related to these liabilities is as follows (dollars in thousands):
 
April 27, 2019
Weighted average remaining lease term
3.4 years

Weighted average discount rate
5.3
%

Supplemental cash flow information related to the Company’s long-term operating lease liabilities as of April 27, 2019 is as follows (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
Cash paid for amounts included in the measurement of lease liabilities:
$
8,189

Operating lease right-of-use assets obtained in exchange for operating lease liabilities:
$
5,513


As of April 27, 2019, maturities of the Company’s lease liabilities under its long-term operating leases for the next five fiscal years and thereafter are as follows (dollars in thousands):
Fiscal Year
 
Amount
Remainder of 2020
 
$
21,954

2021
 
23,394

2022
 
15,382

2023
 
7,678

2024
 
4,885

Thereafter
 
4,132

Total lease payments
 
77,425

Less: imputed interest
 
(7,904
)
Total
 
$
69,521


As of April 27, 2019, the Company had additional operating leases that have not yet commenced of $2.2 million. These leases will commence during the second quarter of fiscal 2020.


16


As of January 26, 2019, the future minimum obligation by fiscal year for the Company’s operating leases with original noncancelable terms in excess of one year was as follows (dollars in thousands):
Fiscal Year
 
Amount
2020
 
$
28,415

2021
 
20,166

2022
 
12,919

2023
 
6,686

2024
 
4,342

Thereafter
 
3,675

Total
 
$
76,203


See Note 2, Significant Accounting Policies and Estimates, for further information on the Company’s accounting policy for leases and Note 3, Accounting Standards, for further information on the Company’s adoption of ASU 2016-02.

13. Other Accrued Liabilities
 
Other accrued liabilities consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Accrued payroll and related taxes
$
28,420

 
$
25,591

Accrued employee benefit and incentive plan costs
9,475

 
25,482

Accrued construction costs
51,439

 
36,449

Other current liabilities
20,056

 
16,552

Total other accrued liabilities
$
109,390

 
$
104,074


During the three months ended April 27, 2019, accrued construction costs increased approximately $15.0 million primarily due to an $8.2 million charge for estimated warranty costs for work performed for a customer in prior periods.

14. Debt
 
The Company’s outstanding indebtedness consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Credit Agreement - Revolving facility (matures October 2023)
$

 
$

Credit Agreement - Term loan facility (matures October 2023)
450,000

 
450,000

0.75% convertible senior notes, net (mature September 2021)
428,626

 
423,199

 
878,626

 
873,199

Less: current portion
(11,250
)
 
(5,625
)
Long-term debt
$
867,376

 
$
867,574


Senior Credit Agreement

On October 19, 2018, the Company and certain of its subsidiaries amended and restated its existing credit agreement, dated as of December 3, 2012, as amended on April 24, 2015 and as subsequently amended and supplemented, with the various lenders party thereto (the “Credit Agreement”). The maturity date of the Credit Agreement was extended to October 19, 2023 and, among other things, the maximum revolver commitment was increased to $750.0 million from $450.0 million and the term loan facility was increased to $450.0 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of letters of credit.

Subject to certain conditions, the Credit Agreement provides the Company with the ability to enter into one or more incremental facilities either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans, up to the greater of (i) $350.0 million and (ii) an amount such that, after giving effect to such incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated

17


senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net leverage ratio is the ratio of the Company’s consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in excess of $50.0 million to its trailing twelve-month consolidated earnings before interest, taxes, depreciation, and amortization, as defined by the Credit Agreement (“EBITDA”). Borrowings under the Credit Agreement are guaranteed by substantially all of the Company’s subsidiaries and secured by the equity interests of the substantial majority of the Company’s subsidiaries.

Under the Credit Agreement, borrowings bear interest at the rates described below based upon the Company’s consolidated net leverage ratio, which is the ratio of the Company’s consolidated total funded debt reduced by unrestricted cash and equivalents in excess of $50.0 million to its trailing twelve-month consolidated EBITDA, as defined by the Credit Agreement. In addition, the Company incurs certain fees for unused balances and letters of credit at the rates described below, also based upon the Company’s consolidated net leverage ratio.
Borrowings - Eurodollar Rate Loans
1.25% - 2.00% plus LIBOR
Borrowings - Base Rate Loans
0.25% - 1.00% plus administrative agent’s base rate(1)
Unused Revolver Commitment
0.20% - 0.40%
Standby Letters of Credit
1.25% - 2.00%
Commercial Letters of Credit
0.625% - 1.00%

(1) The administrative agent’s base rate is described in the Credit Agreement as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the administrative agent’s prime rate, and (iii) the Eurodollar rate plus 1.00%.

Standby letters of credit of approximately $52.3 million and $48.6 million, issued as part of the Company’s insurance program, were outstanding under the Credit Agreement as of April 27, 2019 and January 26, 2019, respectively.

The weighted average interest rates and fees for balances under the Credit Agreement as of April 27, 2019 and January 26, 2019 were as follows:
 
Weighted Average Rate End of Period
 
April 27, 2019
 
January 26, 2019
Borrowings - Term loan facilities
4.24%
 
4.25%
Borrowings - Revolving facility(1)
—%
 
—%
Standby Letters of Credit
1.75%
 
1.75%
Unused Revolver Commitment
0.35%
 
0.35%

(1) There were no outstanding borrowings under the revolving facility as of April 27, 2019 or January 26, 2019.

The Credit Agreement contains a financial covenant that requires the Company to maintain a consolidated net leverage ratio of not greater than 3.50 to 1.00, as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in connection with permitted acquisitions. The agreement also contains a financial covenant that requires the Company to maintain a consolidated interest coverage ratio, which is the ratio of the Company’s trailing twelve-month consolidated EBITDA to its consolidated interest expense, each as defined by the Credit Agreement, of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter. In addition, the Credit Agreement contains a minimum liquidity covenant. This covenant becomes effective beginning 91 days prior to the maturity date of the Company’s 0.75% convertible senior notes due September 2021 (the “Notes”) if the outstanding principal amount of the Notes is greater than $250.0 million. In such event, the Company would be required to maintain liquidity, as defined by the Credit Agreement, equal to $150.0 million in excess of the outstanding principal amount of the Notes. This covenant terminates at the earliest date of when the outstanding principal amount of the Notes is reduced to $250.0 million or less, the Notes are amended pursuant to terms that extend the maturity date to 91 or more days beyond the maturity date of the Credit Agreement, or the Notes are refinanced pursuant to terms that extend the maturity date to 91 or more days beyond the maturity date of the Credit Agreement. At April 27, 2019 and January 26, 2019, the Company was in compliance with the financial covenants of the Credit Agreement and had borrowing availability under the revolving facility of $325.4 million and $412.9 million, respectively, as determined by the most restrictive covenant.


18


0.75% Convertible Senior Notes Due 2021

On September 15, 2015, the Company issued 0.75% convertible senior notes due September 2021 in a private placement in the principal amount of $485.0 million. The Notes, governed by the terms of an indenture between the Company and a bank trustee are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Notes bear interest at a rate of 0.75% per year, payable in cash semiannually in March and September, and will mature on September 15, 2021, unless earlier purchased by the Company or converted. In the event the Company fails to perform certain obligations under the indenture, the Notes will accrue additional interest. Certain events are considered “events of default” under the Notes, which may result in the acceleration of the maturity of the Notes, as described in the indenture.

Each $1,000 of principal of the Notes is convertible into 10.3211 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $96.89 per share. The conversion rate is subject to adjustment in certain circumstances, including in connection with specified fundamental changes (as defined in the indenture). In addition, holders of the Notes have the right to require the Company to repurchase all or a portion of their notes on the occurrence of a fundamental change at a price of 100% of their principal amount plus accrued and unpaid interest.

Prior to June 15, 2021, the Notes are convertible by the Note holder under the following circumstances: (1) during any fiscal quarter commencing after October 24, 2015 (and only during such fiscal quarter) if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days period ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on such trading day ($125.96 assuming an applicable conversion price of $96.89); (2) during the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after June 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, the Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the principal amount of the Notes with cash.

During the three months ended April 27, 2019, the closing price of the Company’s common stock did not meet or exceed 130% of the applicable conversion price of the Notes for at least 20 of the last 30 consecutive trading dates of the quarter. Additionally, no other conditions allowing holders of the Notes to convert have been met as of April 27, 2019. As a result, the Notes were not convertible during the three months ended April 27, 2019 and are classified as long-term debt.

In accordance with ASC Topic 470, Debt, certain convertible debt instruments that may be settled in cash upon conversion are required to be accounted for as separate liability and equity components. The carrying amount of the liability component is calculated by measuring the fair value of a similar instrument that does not have an associated convertible feature using an indicative market interest rate (“Comparable Yield”) as of the date of issuance. The difference between the principal amount of the notes and the carrying amount represents a debt discount. The debt discount is amortized to interest expense using the Comparable Yield (5.5% with respect to the Notes) using the effective interest rate method over the term of the Notes. The Company incurred $4.9 million and $4.7 million of interest expense during the three months ended April 27, 2019 and April 28, 2018, respectively, for the non-cash amortization of the debt discount. The liability component of the Notes consisted of the following (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Liability component
 
 
 
Principal amount of 0.75% convertible senior notes due September 2021
$
485,000

 
$
485,000

Less: Debt discount
(50,863
)
 
(55,795
)
Less: Debt issuance costs
(5,511
)
 
(6,006
)
Net carrying amount of Notes
$
428,626

 
$
423,199


The equity component of the Notes was recognized at issuance and represents the difference between the principal amount of the Notes and the fair value of the liability component of the Notes at issuance. The equity component approximated $112.6 million at the time of issuance and its fair value is not remeasured as long as it continues to meet the conditions for equity classification.

19



The following table summarizes the fair value of the Notes, net of the debt discount and debt issuance costs. The fair value of the Notes is based on the closing trading price per $100 of the Notes as of the last day of trading for the respective periods (Level 2), which was $95.50 and $96.31 as of April 27, 2019 and January 26, 2019, respectively (dollars in thousands):
 
April 27, 2019
 
January 26, 2019
Fair value of principal amount of Notes
$
463,175

 
$
467,104

Less: Debt discount and debt issuance costs
(56,374
)
 
(61,801
)
Fair value of Notes
$
406,801

 
$
405,303


Convertible Note Hedge and Warrant Transactions

In connection with the offering of the Notes, the Company entered into convertible note hedge transactions with counterparties to reduce the potential dilution to common stockholders from the conversion of the Notes and offsetting any potential cash payments in excess of the principal amount of the Notes. In the event that shares or cash are deliverable to holders of the Notes upon conversion at limits defined in the indenture governing the Notes, counterparties to the convertible note hedge will be required to deliver up to 5.006 million shares of the Company’s common stock or pay cash to the Company in a similar amount as the value that the Company delivers to the holders of the Notes based on a conversion price of $96.89 per share.

In addition, the Company entered into separately negotiated warrant transactions with the same counterparties as the convertible note hedge transactions whereby the Company sold warrants to purchase, subject to certain anti-dilution adjustments, up to 5.006 million shares of the Company’s common stock at a price of $130.43 per share. The warrants will not have a dilutive effect on the Company’s earnings per share unless the Company’s quarterly average share price exceeds the warrant strike price of $130.43 per share. In this event, the Company expects to settle the warrant transactions on a net share basis whereby it will issue shares of its common stock.

Upon settlement of the conversion premium of the Notes, convertible note hedge, and warrants, the resulting dilutive impact of these transactions, if any, would be the number of shares necessary to settle the value of the warrant transactions above $130.43 per share. The net amounts incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the consolidated balance sheets during fiscal 2016 and are not expected to be remeasured in subsequent reporting periods.

The Company recorded an initial deferred tax liability of $43.4 million in connection with the debt discount associated with the Notes and recorded an initial deferred tax asset of $43.2 million in connection with the convertible note hedge transactions. Both the deferred tax liability and deferred tax asset are included in non-current deferred tax liabilities in the condensed consolidated balance sheets. See Note 15, Income Taxes, for additional information regarding the Company’s deferred tax liabilities and assets.

15. Income Taxes

The Company’s interim income tax provisions are based on the effective income tax rate expected to be applicable for the full fiscal year, adjusted for specific items that are required to be recognized in the period in which they occur. Deferred tax assets and liabilities are based on the enacted tax rate that will apply in future periods when such assets and liabilities are expected to be settled or realized.
The Company’s effective income tax rate of 30.3% and 27.3% for the three months ended April 27, 2019 and April 28, 2018, respectively, differs from the statutory rate for the tax jurisdictions where it operates primarily as the result of the impact of non-deductible and non-taxable items, tax credits recognized in relation to pre-tax results, and certain tax impacts from the vesting and exercise of share-based awards.

20


16. Other Income, Net

The components of other income, net, were as follows (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Gain on sale of fixed assets
$
6,738

 
$
8,415

Discount fee expense
(1,298
)
 
(940
)
Miscellaneous income, net
258

 
236

Total other income, net
$
5,698

 
$
7,711


The Company participates in a vendor payment program sponsored by one of its customers. Eligible accounts receivable from this customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner. This program effectively reduces the time to collect these receivables as compared to that customer’s standard payment terms. The Company incurs a discount fee to the bank on the payments received that is reflected as discount fee expense in the table above and is included as an expense component in other income, net, in the condensed consolidated statements of operations.

17. Capital Stock

Repurchases of Common Stock. On August 29, 2018, the Company announced that its Board of Directors had authorized a $150.0 million program to repurchase shares of the Company’s outstanding common stock through February 2020 in open market or private transactions. As of April 27, 2019, $150.0 million of the repurchase authorization remained available.

The Company did not repurchase any of its common stock during the three months ended April 27, 2019 and April 28, 2018.

18. Stock-Based Awards

The Company has certain stock-based compensation plans under which it grants stock-based awards, including common stock, stock options, time-based restricted share units (“RSUs”), and performance-based restricted share units (“Performance RSUs”) to attract, retain, and reward talented employees, officers, and directors, and to align their interests with those of its stockholders.

Compensation expense for stock-based awards is based on fair value at the measurement date. This expense fluctuates over time as a function of the duration of vesting periods of the stock-based awards and the Company’s performance, as measured by criteria set forth in performance-based awards. Stock-based compensation expense is included in general and administrative expenses in the condensed consolidated statements of operations and the amount of expense ultimately recognized depends on the quantity of awards that actually vest. Accordingly, stock-based compensation expense may vary from period to period.

The performance criteria for the Company’s performance-based equity awards utilize the Company’s operating earnings (adjusted for certain amounts) as a percentage of contract revenues for the applicable four-quarter period (a “Performance Year”) and its Performance Year operating cash flow level (adjusted for certain amounts). Additionally, certain awards include three-year performance measures that, if met, result in supplemental shares awarded. For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if it determines it is probable that performance criteria for the awards will be met.

Stock-based compensation expense and the related tax benefit recognized during the three months ended April 27, 2019
and April 28, 2018 were as follows (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Stock-based compensation
$
3,479

 
$
4,863

Income tax effect of stock-based compensation
$
869

 
$
1,069

In addition, the Company realized approximately $0.6 million of net tax deficiencies and $0.1 million of excess tax benefits during the three months ended April 27, 2019 and April 28, 2018, respectively, related to the vesting and exercise of share-based awards.

21



As of April 27, 2019, the Company had unrecognized compensation expense related to stock options, RSUs, and target Performance RSUs (based on the Company’s expected achievement of performance measures) of $3.1 million, $11.8 million, and $21.6 million, respectively. This expense will be recognized over a weighted-average number of years of 2.6, 2.7, and 2.1, respectively, based on the average remaining service periods for the awards. As of April 27, 2019, the Company may recognize an additional $24.5 million in compensation expense in future periods if the maximum amount of Performance RSUs is earned based on certain performance measures being met.

Stock Options

The following table summarizes stock option award activity during the three months ended April 27, 2019:
 
Stock Options
 
Shares
 
Weighted Average Exercise Price
Outstanding as of January 26, 2019
583,291

 
$
34.24

Granted
39,276

 
$
45.94

Options exercised
(9,850
)
 
$
10.71

Canceled

 
$

Outstanding as of April 27, 2019
612,717

 
$
35.37

 
 
 
 
Exercisable options as of April 27, 2019
510,220

 
$
27.86


RSUs and Performance RSUs

The following table summarizes RSU and Performance RSU award activity during the three months ended April 27, 2019:
 
Restricted Stock
 
RSUs
 
Performance RSUs
 
Share Units
 
Weighted Average Grant Date Fair Value
 
Share Units
 
Weighted Average Grant Date Fair Value
Outstanding as of January 26, 2019
126,470

 
$
87.92

 
377,354

 
$
96.51

Granted
89,863

 
$
46.18

 
475,629

 
$
45.94

Share units vested
(13,356
)
 
$
95.27

 
(43,900
)
 
$
93.49

Forfeited or canceled
(123
)
 
$
81.85

 
(29,002
)
 
$
103.15

Outstanding as of April 27, 2019
202,854

 
$
68.95

 
780,081

 
$
65.60


The total amount of granted Performance RSUs presented above consists of 333,567 target shares and 142,062 supplemental shares. The total amount of Performance RSUs outstanding as of April 27, 2019 consists of 552,904 target shares and 227,177 supplemental shares. With respect to the Company’s Performance Year ended January 26, 2019, the Company canceled 12,331 target shares and 13,556 supplemental shares as a result of the performance period criteria being partially met.



22


19. Customer Concentration and Revenue Information

Geographic Location

The Company provides services throughout the United States. Contract revenues from services previously provided in Canada were not material during the three months ended April 28, 2018.

Significant Customers

The Company’s customer base is highly concentrated, with its top five customers accounting for approximately 80.4% and 78.8%, respectively, of its total contract revenues during the three months ended April 27, 2019 and April 28, 2018, respectively. Customers whose contract revenues exceeded 10% of total contract revenues during the three months ended April 27, 2019 or April 28, 2018, as well as total contract revenues from all other customers combined, were as follows (dollars in millions):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
 
Amount
 
% of Total
 
Amount
 
% of Total
AT&T Inc.
$
209.3

 
25.1%
 
$
177.0

 
24.2%
Verizon Communications Inc.
179.8

 
21.6
 
122.1

 
16.7
Comcast Corporation
137.1

 
16.4
 
159.2

 
21.8
CenturyLink, Inc.
109.8

 
13.2
 
89.7

 
12.3
Total other customers combined
197.7

 
23.7
 
183.4

 
25.0
Total contract revenues
$
833.7

 
100.0%
 
$
731.4

 
100.0%

See Note 6, Accounts Receivable, Contract Assets, and Contract Liabilities, for information on the Company’s customer credit concentration and collectability of trade accounts receivable and contract assets.

Customer Type

Total contract revenues by customer type during the three months ended April 27, 2019 and April 28, 2018 were as follows (dollars in millions):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
 
Amount
 
% of Total
 
Amount
 
% of Total
Telecommunications
$
761.4

 
91.3%
 
$
667.2

 
91.2%
Underground facility locating
48.2

 
5.8
 
45.1

 
6.2
Electrical and gas utilities and other
24.1

 
2.9
 
19.1

 
2.6
Total contract revenues
$
833.7

 
100.0%
 
$
731.4

 
100.0%

Remaining Performance Obligations

Master service agreements and other contractual agreements with customers contain customer-specified service requirements, such as discrete pricing for individual tasks. In most cases, the Company’s customers are not contractually committed to procure specific volumes of services under these agreements.

Services are generally performed pursuant to these agreements in accordance with individual work orders. An individual work order generally is completed within one year. As a result, the Company’s remaining performance obligations under the work orders not yet completed is not meaningful in relation to the Company’s overall revenue at any given point in time. The Company applies the practical expedient in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and does not disclose information about remaining performance obligations that have original expected durations of one year or less.


23


20. Commitments and Contingencies

On October 25, 2018 and October 30, 2018, the Company, its Chief Executive Officer and its Chief Financial Officer were named as defendants in two substantively identical lawsuits alleging violations of the federal securities fraud laws. The lawsuits, which purport to be brought on behalf of a class of all purchasers of the Company’s securities between November 20, 2017 and August 10, 2018, were filed in the United States District Court for the Southern District of Florida. The cases were consolidated by the Court on January 11, 2019. The lawsuit alleges that the defendants made materially false and misleading statements or failed to disclose material facts regarding the Company’s financial condition and business operations, including those related to the Company’s dependency on, and uncertainties related to, the permitting necessary for its large projects. The plaintiffs seek unspecified damages. The Company believes the allegations in the lawsuit are without merit and intends to vigorously defend the lawsuit. Based on the early stage of this matter, it is not possible to estimate the amount or range of possible loss that may result from an adverse judgment or a settlement of this matter.

On December 17, 2018, a shareholder derivative action was filed in United States District Court for the Southern District of Florida against the Company, as nominal defendant, and the members of its Board of Directors, alleging that the directors breached fiduciary duties owed to the Company and violated the securities laws by causing the Company to issue false and misleading statements. The statements alleged to be false and misleading are the same statements that are alleged to be false and misleading in the securities lawsuit described above. On February 28, 2019, the Court stayed this lawsuit pending a further Order from the Court. Based on the early stage of this matter, it is not possible to estimate the amount or range of possible loss that may result from an adverse judgment or a settlement of this matter.

During the fourth quarter of fiscal 2016, one of the Company’s subsidiaries ceased operations. This subsidiary contributed to a multiemployer pension plan, the Pension, Hospitalization and Benefit Plan of the Electrical Industry - Pension Trust Fund (the “Plan”). In October 2016, the Plan demanded payment for a claimed withdrawal liability of approximately $13.0 million. In December 2016, the Company submitted a formal request to the Plan seeking review of the Plan’s withdrawal liability determination. The Company is disputing the claim of a withdrawal liability demanded by the Plan as it believes there is a statutory exemption available under the Employee Retirement Income Security Act (“ERISA”) for multiemployer pension plans that primarily cover employees in the building and construction industry. The Plan has taken the position that the work at issue does not qualify for the statutory exemption. The Company has submitted this dispute to arbitration, as required by ERISA, with a hearing expected during calendar year 2019. There can be no assurance that the Company will be successful in asserting the statutory exemption as a defense in the arbitration proceeding. As required by ERISA, in November 2016, the subsidiary began making payments of a withdrawal liability to the Plan in the amount of approximately $0.1 million per month. If the Company prevails in disputing the withdrawal liability, all such payments will be refunded to the subsidiary.

From time to time, the Company is party to various claims and legal proceedings arising in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, it is the opinion of management, based on information available at this time, that the ultimate resolution of any such claims or legal proceedings will not, after considering applicable insurance coverage or other indemnities to which the Company may be entitled, have a material effect on the Company’s financial position, results of operations, or cash flow.

For claims within its insurance program, the Company retains the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. The Company has established reserves that it believes to be adequate based on current evaluations and experience with these types of claims. For these claims, the effect on the Company’s financial statements is generally limited to the amount needed to satisfy insurance deductibles or retentions.

Commitments

Performance and Payment Bonds and Guarantees. The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of April 27, 2019 and January 26, 2019, the Company had $142.8 million and $123.5 million, respectively, of outstanding performance and other surety contract bonds. In addition to performance and other surety contract bonds, as part of its insurance program the Company also provides surety bonds that collateralize its obligations to its insurance carriers. As of April 27, 2019 and January 26, 2019, the Company had $23.4 million and $23.2 million, respectively, of outstanding surety bonds related to its insurance obligations. Additionally, the Company periodically guarantees certain obligations of its subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
 

24


Letters of Credit. The Company has issued standby letters of credit under its Credit Agreement that collateralize its obligations to its insurance carriers. As of April 27, 2019 and January 26, 2019, the Company had $52.3 million and $48.6 million, respectively, of outstanding standby letters of credit issued under the Credit Agreement.

Cautionary Note Concerning Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. These statements may relate to future events, financial performance, strategies, expectations, and the competitive environment. Words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “forecast,” “target,” “outlook,” “may,” “should,” “could,” and similar expressions, as well as statements written in the future tense, identify forward-looking statements.

You should not consider forward-looking statements as guarantees of future performance or results. When made, forward-looking statements are based on information known to management at such time and/or management’s good faith belief with respect to future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors, assumptions, uncertainties, and risks that could cause such differences are discussed within Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q, as well as Item 1, Business, Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal 2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 4, 2019 and our other periodic filings with the SEC. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement and are only made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update them to reflect new information or events or circumstances arising after such date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for fiscal 2019. Our Annual Report on Form 10-K for fiscal 2019 was filed with the SEC on March 4, 2019, and is available on the SEC’s website at www.sec.gov and on our website at www.dycomind.com.

Introduction

We are a leading provider of specialty contracting services throughout the United States. We provide program management, engineering, construction, maintenance, and installation services for telecommunications providers, underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities. We provide the labor, tools, and equipment necessary to plan, design, engineer, locate, expand, upgrade, install, and maintain the telecommunications infrastructure of our customers.

Developments in consumer and business applications within the telecommunications industry, including advanced digital and video service offerings, continue to increase demand for greater wireline and wireless network capacity and reliability. Telecommunications providers outsource a significant portion of their engineering, construction, maintenance, and installation requirements, driving demand for the services we provide.

Telecommunications network operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to respond to consumer demand, competitive realities, and public policy support. Telephone companies are deploying fiber to the home to enable video offerings and 1 gigabit high-speed connections. Cable operators continue to increase the speeds of their services to residential customers and they continue to deploy fiber for business customers. Deployments for business customers are often in anticipation of the customer sales process. Fiber deep deployments to expand capacity as well as new build opportunities are increasing.

Significant demand for wireless broadband is driven by the proliferation of smartphones and other mobile data devices. To respond to this demand and other advances in technology, wireless carriers are upgrading their networks and contemplating next generation mobile and fixed wireless solutions such as small cells and 5G technologies. Wireless carriers are actively spending on their networks to respond to the significant increase in wireless data traffic, to upgrade network technologies to improve performance and efficiency, and to consolidate disparate technology platforms. Wireless construction activity and support of expanded coverage and capacity is expected to accelerate through the deployment of new or enhanced macro and small cells. These initiatives present long-term opportunities for us with the wireless service providers we serve. As the demand for mobile broadband grows, the amount of wireless traffic that must be “backhauled” over customers’ fiber networks increases

25


and, as a result, carriers are accelerating the deployment of fiber optic cables to macro cells and small cells. In addition, emerging wireless technologies are driving significant wireline deployments. A complementary wireline investment cycle is underway to facilitate the deployment of fully converged wireless/wireline networks. The industry effort required to deploy these converged networks is driving demand for the type of services we provide.

The cyclical nature of the industry we serve affects demand for our services. The capital expenditure and maintenance budgets of our customers, and the related timing of approvals and seasonal spending patterns, influence our contract revenues and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to, overall economic conditions, the introduction of new technologies, our customers’ debt levels and capital structures, our customers’ financial performance, and our customers’ positioning and strategic plans. Other factors that may affect our customers and their capital expenditure budgets include new regulations or regulatory actions impacting our customers’ businesses, merger or acquisition activity involving our customers, and the physical maintenance needs of our customers’ infrastructure.

Customer Relationships and Contractual Arrangements

We have established relationships with many leading telecommunications providers, including telephone companies, cable multiple system operators, wireless carriers, telecommunications equipment and infrastructure providers, and electric and gas utilities. Our customer base is highly concentrated, with our top five customers during each of the three months ended April 27, 2019 and April 28, 2018 accounting for approximately 80.4% and 78.8%, respectively, of our total contract revenues.

The following reflects the percentage of total contract revenues from customers who contributed at least 2.5% to our total contract revenues during the three months ended April 27, 2019 or April 28, 2018:
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
AT&T Inc.
25.1%
 
24.2%
Verizon Communications Inc.
21.6%
 
16.7%
Comcast Corporation
16.4%
 
21.8%
CenturyLink, Inc.
13.2%
 
12.3%
Windstream Holdings, Inc.
4.1%
 
3.3%
Charter Communications, Inc.
2.6%
 
3.9%

We perform a majority of our services under master service agreements and other contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks. We generally possess multiple agreements with each of our significant customers. To the extent that such agreements specify exclusivity, there are often exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, the performance of work with the customer’s own employees, and the use of other service providers when jointly placing facilities with another utility. In many cases, a customer may terminate an agreement for convenience. Historically, multi-year master service agreements have been awarded primarily through a competitive bidding process; however, we occasionally are able to negotiate extensions to these agreements. We provide the remainder of our services pursuant to contracts for specific projects. These contracts may be long-term (with terms greater than one year) or short-term (with terms less than one year) and often include customary retainage provisions under which the customer may withhold 5% to 10% of the invoiced amounts pending project completion and closeout.


26


The following table summarizes our contract revenues from multi-year master service agreements and other long-term contracts, as a percentage of contract revenues:
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Multi-year master service agreements
61.9
%
 
62.3
%
Other long-term contracts
27.5

 
24.5

Total long-term contracts
89.4
%
 
86.8
%
 
Acquisitions

As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate companies.

Fiscal 2019. During March 2018, we acquired certain assets and assumed certain liabilities of a provider of telecommunications construction and maintenance services in the Midwest and Northeast United States for a cash purchase price of $20.9 million, less an adjustment for working capital received below a target amount of approximately $0.5 million expected to be received during fiscal 2020. This acquisition expands our geographic presence within our existing customer base.

Results of the business acquired in fiscal 2019 are included in the condensed consolidated financial statements from the date of acquisition. The purchase price allocation of the business acquired in fiscal 2019 was completed within the 12-month measurement period from the date of acquisition. Adjustments to provisional amounts were recognized in the reporting period in which the adjustments were determined and were not material.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In conformity with GAAP, the preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and, as a result, actual results could differ materially from these estimates. There have been no material changes to our significant accounting policies and critical accounting estimates described in our Annual Report on Form 10-K for fiscal 2019 except with respect to our accounting policy for leases as described below.

Leases. Our leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For leases with initial terms greater than 12 months, we record operating lease right-of-use assets and corresponding operating lease liabilities. Operating lease assets represent our right to use the underlying asset for the lease term and operating lease liabilities represent our obligation to make the related lease payments. These assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet.

Understanding Our Results of Operations
 
The following information is presented so that the reader may better understand certain factors impacting our results of operations and should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and Critical Accounting Policies and Estimates within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Note 2, Significant Accounting Policies and Estimates, in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for fiscal 2019.


27


Accounting Period. The Company’s fiscal year ends on the last Saturday in January and consists of either 52 or 53 weeks of operations (with the additional week of operations occurring in the fourth fiscal quarter). Fiscal 2019 and fiscal 2020 each consist of 52 weeks of operations. The next 53 week fiscal period will occur in the fiscal year ending January 30, 2021.

Contract Revenues. We perform the majority of our services under master service agreements and other contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks including, for example, the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a specific unit of measure. A contractual agreement exists when each party involved approves and commits to the agreement, the rights of the parties and payment terms are identified, the agreement has commercial substance, and collectability of consideration is probable. Our services are performed for the sole benefit of our customers, whereby the assets being created or maintained are controlled by the customer and the services we perform do not have alternative benefits for us. Contract revenue is recognized over time as services are performed and customers simultaneously receive and consume the benefits we provide. Output measures such as units delivered are utilized to assess progress against specific contractual performance obligations for the majority of our services. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. For us, the output method using units delivered best represents the measure of progress against the performance obligations incorporated within the contractual agreements. This method captures the amount of units delivered pursuant to contracts and is used only when our performance does not produce significant amounts of work in process prior to complete satisfaction of the performance obligation. For a portion of contract items, units to be completed consist of multiple tasks. For these items, the transaction price is allocated to each task based on relative standalone measurements, such as selling prices for similar tasks, or in the alternative, the cost to perform the tasks. Contract revenue is recognized as the tasks are completed as a measurement of progress in the satisfaction of the corresponding performance obligation, and represented approximately 20% and approximately 5% of contract revenues during the three months ended April 27, 2019 and April 28, 2018, respectively.

For certain contracts, representing less than 5% of contract revenues during each of the three months ended April 27, 2019 and April 28, 2018, we use the cost-to-cost measure of progress. These contracts are generally projects that are completed over a period of less than twelve months and for which payment is received in a lump sum at the end of the project. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs. Contract costs include direct labor, direct materials, and subcontractor costs, as well as an allocation of indirect costs. Contract revenues are recorded as costs are incurred. We accrue the entire amount of a contract loss, if any, at the time the loss is determined to be probable and can be reasonably estimated.

Costs of Earned Revenues. Costs of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation), direct materials, costs of insuring our risks, and other direct costs. Under our insurance program, we retain the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health.

General and Administrative Expenses. General and administrative expenses primarily consist of employee compensation and related expenses, including performance-based compensation and stock-based compensation, legal, consulting and professional fees, information technology and development costs, provision for or recoveries of bad debt expense, acquisition and integration costs of businesses acquired, and other costs not directly related to the provision of our services under customer contracts. Our provision for bad debt expense is determined by evaluating specific accounts receivable and contract asset balances based on historical collection trends, the age of outstanding receivables, and the creditworthiness of our customers. We incur information technology and development costs primarily to support and enhance our operating efficiency. Our executive management team and the senior management of our subsidiaries perform substantially all of our sales and marketing functions as part of their management responsibilities.

Depreciation and Amortization. Our property and equipment primarily consist of vehicles, equipment and machinery, and computer hardware and software. We depreciate property and equipment on a straight-line basis over the estimated useful lives of the assets. In addition, we have intangible assets, including customer relationships, trade names, and non-compete intangibles, which we amortize over the estimated useful lives. We recognize amortization of customer relationship intangibles on an accelerated basis as a function of the expected economic benefit and amortization of other finite-lived intangibles on a straight-line basis over the estimated useful life.

Interest Expense, Net. Interest expense, net, consists of interest incurred on outstanding variable rate and fixed rate debt and certain other obligations. Interest expense also includes the non-cash amortization of our convertible senior notes debt discount and amortization of debt issuance costs. See Note 14, Debt, in the Notes to the Condensed Consolidated Financial Statements for information on the non-cash amortization of the debt discount and debt issuance costs.

28



Other Income, Net. Other income, net, primarily consists of gains or losses from sales of fixed assets. Other income, net also includes discount fee expense associated with the collection of accounts receivable under a customer-sponsored vendor payment program.

Seasonality and Fluctuations in Operating Results. Our contract revenues and results of operations exhibit seasonality as we perform a significant portion of our work outdoors. Consequently, adverse weather, which is more likely to occur with greater frequency, severity, and duration during the winter, as well as reduced daylight hours, impact our operations disproportionately during the fiscal quarters ending in January and April. In addition, a disproportionate number of holidays fall within the fiscal quarter ending in January, which decreases the number of available workdays. Because of these factors, we are most likely to experience reduced revenue and profitability during the fiscal quarters ending in January and April compared to the fiscal quarters ending in July and October.

We may also experience variations in our profitability driven by a number of factors. These factors include variations and fluctuations in contract revenues, job specific costs, insurance claims, the allowance for doubtful accounts, accruals for contingencies, stock-based compensation expense for performance-based stock awards, the fair value of reporting units for the goodwill impairment analysis, the valuation of intangibles and other long-lived assets, gains or losses on the sale of fixed assets from the timing and levels of capital assets sold, the employer portion of payroll taxes as a result of reaching statutory limits, and our effective tax rate.

Accordingly, operating results for any fiscal period are not necessarily indicative of results we may achieve for any subsequent fiscal period.

Results of Operations

The results of operations of the business acquired in fiscal 2019 are included in the condensed consolidated financial statements from the date of acquisition. The following table sets forth our condensed consolidated statements of operations for the periods indicated and the amounts as a percentage of contract revenues (totals may not add due to rounding) (dollars in millions):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Contract revenues
$
833.7

 
100.0
 %
 
$
731.4

 
100.0
 %
Expenses:
 
 
 
 
 
 
 
Costs of earned revenues, excluding depreciation and amortization
701.8

 
84.2

 
599.6

 
82.0

General and administrative
58.6

 
7.0

 
62.3

 
8.5

Depreciation and amortization
46.3

 
5.6

 
43.4

 
5.9

Total
806.7

 
96.8

 
705.2

 
96.4

Interest expense, net
(12.2
)
 
(1.5
)
 
(10.2
)
 
(1.4
)
Other income, net
5.7

 
0.7

 
7.7

 
1.1

Income before income taxes
20.5

 
2.5

 
23.7

 
3.2

Provision for income taxes
6.2

 
0.7

 
6.5

 
0.9

Net income
$
14.3

 
1.7
 %
 
$
17.2

 
2.4
 %

Contract Revenues. Contract revenues were $833.7 million during the three months ended April 27, 2019 compared to $731.4 million during the three months ended April 28, 2018. Contract revenues from an acquired business that was not owned for the entire period in both the current and prior year quarter were $6.1 million and $5.8 million for the three months ended April 27, 2019 and April 28, 2018, respectively. Additionally, we earned $4.7 million and $14.8 million of contract revenues from storm restoration services during the three months ended April 27, 2019 and April 28, 2018, respectively.


29


Excluding amounts generated by an acquired business and amounts from storm restoration services, contract revenues increased by $112.2 million during the three months ended April 27, 2019 compared to the three months ended April 28, 2018. Contract revenues increased by approximately $57.7 million for a large telecommunications customer primarily related to services for fiber deployments and by approximately $46.5 million for a large telecommunications customer improving its network. In addition, contract revenues increased by approximately $16.0 million for a large telecommunications customer primarily for increases in services performed under existing contracts and by approximately $9.2 million for services performed for a telecommunications customer in connection with rural services. Partially offsetting these increases, contract revenues decreased by approximately $22.0 million from a leading cable multiple system operator for construction and maintenance services and by approximately $2.5 million for services performed on a customer’s fiber network. All other customers had net increases in contract revenues of $7.3 million on a combined basis during the three months ended April 27, 2019 compared to the three months ended April 28, 2018.

The percentage of our contract revenues by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was 91.3%, 5.8%, and 2.9%, respectively, for the three months ended April 27, 2019 compared to 91.2%, 6.2%, and 2.6%, respectively, for the three months ended April 28, 2018.

Costs of Earned Revenues. Costs of earned revenues increased to $701.8 million, or 84.2% of contract revenues, during the three months ended April 27, 2019 compared to $599.6 million, or 82.0% of contract revenues, during the three months ended April 28, 2018. The primary components of the increase were a $75.1 million aggregate increase in direct labor and subcontractor costs, a $12.5 million increase in direct materials, and a $5.3 million increase in equipment maintenance and fuel costs combined. Other direct costs increased $9.3 million on a combined basis.

Costs of earned revenues as a percentage of contract revenues increased 2.2% during the three months ended April 27, 2019 compared to the three months ended April 28, 2018. As a percentage of contract revenues, labor and subcontracted labor costs increased 1.3% during the three months ended April 27, 2019 primarily resulting from the impact of a large customer program. In addition, direct materials increased 0.6% as a percentage of contract revenues primarily as a result of mix of work, and equipment maintenance and fuel costs combined increased 0.1% as a percentage of contract revenues. Other direct costs increased 0.2% as a percentage of contract revenues and include an $8.2 million charge for estimated warranty costs for work performed for a customer in prior periods. This charge was offset by a decrease in other direct costs primarily as a result of operating leverage on our increased level of operations during the three months ended April 27, 2019.

General and Administrative Expenses. General and administrative expenses decreased to $58.6 million, or 7.0% of contract revenues, during the three months ended April 27, 2019 compared to $62.3 million, or 8.5% of contract revenues, during the three months ended April 28, 2018. The decrease in total general and administrative expenses during the three months ended April 27, 2019 is primarily a result of a $10.3 million recovery of previously reserved accounts receivable and contract assets based on collections from a customer, partially offset by increased payroll and legal costs during the three months ended April 27, 2019. The decrease in total general and administrative expenses as a percentage of contract revenues is primarily attributable to the $10.3 million recovery of previously reserved accounts receivable and contract assets during the three months ended April 27, 2019.

Depreciation and Amortization. Depreciation expense was $41.0 million, or 4.9% of contract revenues, during the three months ended April 27, 2019 compared to $37.7 million, or 5.1% of contract revenues, during the three months ended April 28, 2018. The increase in depreciation expense during the three months ended April 27, 2019 is primarily due to the addition of fixed assets during fiscal 2019 to support our expanded in-house workforce and the normal replacement cycle of fleet assets.

Amortization expense was $5.3 million and $5.7 million during the three months ended April 27, 2019 and April 28, 2018, respectively.

Interest Expense, Net. Interest expense, net was $12.2 million and $10.2 million during the three months ended April 27, 2019 and April 28, 2018, respectively. Interest expense includes $4.9 million and $4.7 million for the non-cash amortization of the debt discount associated with our convertible senior notes during the three months ended April 27, 2019 and April 28, 2018, respectively. Excluding this amortization, interest expense, net increased to $7.3 million during the three months ended April 27, 2019 from $5.5 million during the three months ended April 28, 2018 primarily as a result of higher outstanding borrowings and higher market interest rates during the current period.

Other Income, Net. Other income, net was $5.7 million and $7.7 million during the three months ended April 27, 2019 and April 28, 2018, respectively. The change in other income, net is primarily a function of the number of assets sold and prices obtained for those assets during each respective period. Gain on sale of fixed assets was $6.7 million and $8.4 million during

30


the three months ended April 27, 2019 and April 28, 2018, respectively. Other income, net also reflects $1.3 million and $0.9 million of discount fee expense during the three months ended April 27, 2019 and April 28, 2018, respectively, associated with the non-recourse sale of accounts receivable under a customer-sponsored vendor payment program.

Income Taxes. The following table presents our income tax provision and effective income tax rate for the three months ended April 27, 2019 and April 28, 2018 (dollars in millions):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Income tax provision
$
6.2

 
$
6.5

Effective income tax rate
30.3
%
 
27.3
%

Fluctuations in our effective income tax rate were primarily attributable to the difference in income tax rates from state to state where the work was performed during the periods, variances in non-deductible and non-taxable items during the periods, and the impact of the vesting and exercise of share-based awards.

Net Income. Net income was $14.3 million for the three months ended April 27, 2019 compared to $17.2 million for the three months ended April 28, 2018.

Non-GAAP Adjusted EBITDA. Non-GAAP Adjusted EBITDA was $73.6 million, or 8.8% of contract revenues, for the three months ended April 27, 2019 compared to $73.7 million, or 10.1% of contract revenues, for the three months ended April 28, 2018.

Adjusted EBITDA is a Non-GAAP measure, as defined by Regulation G of the SEC. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, gain on sale of fixed assets, stock-based compensation expense, and certain non-recurring items. Management believes Adjusted EBITDA is a helpful measure for comparing the Company’s operating performance with prior periods as well as with the performance of other companies with different capital structures or tax rates. The following table provides a reconciliation of net income to Non-GAAP Adjusted EBITDA (dollars in thousands):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Net income
$
14,279

 
$
17,231

Interest expense, net
12,233

 
10,166

Provision for income taxes
6,199

 
6,478

Depreciation and amortization
46,341

 
43,355

Earnings Before Interest, Taxes, Depreciation & Amortization (“EBITDA”)
79,052

 
77,230

Gain on sale of fixed assets
(6,738
)
 
(8,415
)
Stock-based compensation expense
3,479

 
4,863

Recovery of previously reserved accounts receivable and contract assets
(10,345
)
 

Charge for warranty costs
8,200

 

Non-GAAP Adjusted EBITDA
$
73,648

 
$
73,678


Liquidity and Capital Resources

We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, and contract assets. Cash and equivalents primarily include balances on deposit with banks and totaled $33.6 million as of April 27, 2019 compared to $128.3 million as of January 26, 2019. We maintain our cash and equivalents at financial institutions we believe to be of high credit quality. To date, we have not experienced any loss or lack of access to cash in our operating accounts.

In connection with the issuance of the 0.75% convertible senior notes due September 2021, we entered into privately-negotiated convertible note hedge transactions with certain counterparties. We are subject to counterparty risk with respect to these convertible note hedge transactions. The hedge counterparties are financial institutions, and we are subject to the risk that they might default under the convertible note hedge transactions. To mitigate that risk, we contracted with institutional

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counterparties who met specific requirements under our risk assessment process. Additionally, the transactions are subject to a netting arrangement, which also reduces credit risk.

Sources of Cash. Our sources of cash are operating activities, long-term debt, equity offerings, bank borrowings, proceeds from the sale of idle and surplus equipment and real property, and stock option proceeds. Cash flow from operations is primarily influenced by demand for our services and operating margins, but can also be influenced by working capital needs associated with the services that we provide. In particular, working capital needs may increase when we have growth in operations and where project costs, primarily associated with labor, subcontractors, equipment, and materials, are required to be paid before the related customer balances owed to us are invoiced and collected. Our working capital (total current assets less total current liabilities, excluding the current portion of debt) was $848.1 million as of April 27, 2019 compared to $817.1 million as of January 26, 2019.

Capital resources are used primarily to purchase equipment and maintain sufficient levels of working capital to support our contractual commitments to customers. We periodically borrow from and repay our revolving credit facility depending on our cash requirements. We currently intend to retain any earnings for use in the business and other capital allocation strategies which may include investment in acquisitions and share repurchases. Consequently, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts available under our credit agreement, are sufficient to meet our financial obligations. These obligations include interest payments required on our convertible senior notes and outstanding term loan facilities and revolver borrowings under our credit agreement, working capital requirements, and the normal replacement of equipment at our expected level of operations for at least the next 12 months. Our capital requirements may increase to the extent we seek to grow by acquisitions that involve consideration other than our stock, or to the extent we repurchase our common stock, repay credit agreement borrowings, or repurchase or convert our convertible senior notes. Changes in financial markets or other components of the economy could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of available cash and our credit agreement to provide short-term funding. Management regularly monitors the financial markets and assesses general economic conditions for possible impact on our financial position. We believe our cash investment policies are prudent and expect that any volatility in the capital markets would not have a material impact on our cash investments.
 
Net Cash Flows. The following table presents our net cash flows for the three months ended April 27, 2019 and April 28, 2018 (dollars in millions):
 
For the Three Months Ended
 
April 27, 2019
 
April 28, 2018
Net cash flows:
 
 
 
(Used in) provided by operating activities
$
(56.1
)
 
$
24.6

Used in investing activities
$
(38.4
)
 
$
(45.8
)
Used in financing activities
$
(0.7
)
 
$
(4.8
)
 
Cash (Used in) Provided by Operating Activities. Non-cash items in cash flows from operating activities during the current and prior periods were primarily depreciation and amortization, non-cash lease expense, stock-based compensation, amortization of debt discount and debt issuance costs, deferred income taxes, gain on sale of fixed assets, and bad debt recovery.

During the three months ended April 27, 2019, net cash used in operating activities was $56.1 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $122.1 million of operating cash flow during the three months ended April 27, 2019. Working capital changes that used operating cash flow during the three months ended April 27, 2019 included increases in accounts receivable and contract assets, net of $76.3 million and $84.0 million, respectively. In addition, a net decrease in accrued liabilities used $1.1 million of operating cash flow primarily resulting from amounts paid for annual incentive compensation during April 2019 and payments made related to operating lease liabilities. These decreases were partially offset by increases in other accrued costs during the three months ended April 27, 2019 primarily as a result of an $8.2 million charge for estimated warranty costs for work performed for a customer in prior periods. Working capital changes that provided operating cash flow during the three months ended April 27, 2019 included a net decrease in other current and non-current assets combined of $20.3 million primarily as a result of collections of long-term accounts receivable, partially offset by an increase in prepaid costs that coincide with the beginning of our fiscal year and an increase in inventory. In addition, operating cash flow was provided by an increase in accounts payable of $18.3 million and a net decrease in income

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tax receivable of $0.7 million during the three months ended April 27, 2019, each primarily as a result of the timing of payments.

Days sales outstanding (“DSO”) is calculated based on the ending balance of total current and non-current accounts receivable (including unbilled accounts receivable), net of the allowance for doubtful accounts, and current contract assets, net of contract liabilities, divided by the average daily revenue for the most recently completed quarter. Long-term contract assets are excluded from the calculation of DSO, as these amounts represent payments made to customers pursuant to long-term agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to the customers. Including these balances in DSO is not meaningful to the average time to collect accounts receivable and current contract asset balances. Our DSO was 108 days as of April 27, 2019 compared to 92 days as of April 28, 2018. The increase in our DSO was primarily a result of an increase in the amount of work performed under a large customer program consisting of multiple tasks, for which collections are expected to be received within contract terms upon submission of billings for remaining tasks to be completed.
See Note 6, Accounts Receivable, Contract Assets, and Contract Liabilities, for further information on our accounts receivable and contract asset balances as of April 27, 2019 and January 26, 2019. We believe that none of our significant customers were experiencing financial difficulties that would materially impact the collectability of our total accounts receivable and contract assets, net as of April 27, 2019 or January 26, 2019.

During the three months ended April 28, 2018, net cash provided by operating activities was $24.6 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $43.4 million of operating cash flow during the three months ended April 28, 2018. Working capital changes that used operating cash flow during the three months ended April 28, 2018 included increases in accounts receivable and contract assets, net of $8.6 million and $44.1 million, respectively. Additionally, net increases in other current and non-current assets combined used $10.7 million of operating cash flow during the three months ended April 28, 2018 primarily for inventory and other costs that coincide with the beginning of our fiscal year. In addition, a net increase in income tax receivable used $0.6 million of operating cash flow during the three months ended April 28, 2018 primarily as a result of the timing of estimated tax payments. Working capital changes that provided operating cash flow during the three months ended April 28, 2018 included increases in accounts payable and accrued liabilities of $13.2 million and $7.5 million, respectively, primarily resulting from the timing of payments.

Cash Used in Investing Activities. Net cash used in investing activities was $38.4 million during the three months ended April 27, 2019 compared to $45.8 million during the three months ended April 28, 2018. During the three months ended April 27, 2019 and April 28, 2018, capital expenditures were $45.8 million and $34.5 million, respectively, primarily as a result of spending for new work opportunities and the replacement of certain fleet assets. These expenditures were offset in part by proceeds from the sale of assets of $7.4 million and $8.0 million during the three months ended April 27, 2019 and April 28, 2018, respectively. During the three months ended April 28, 2018 we paid $20.9 million in connection with the acquisition of certain assets and assumption of certain liabilities of a telecommunications construction and maintenance services provider, net of cash acquired. Additionally, we received $1.6 million of escrowed funds during the three months ended April 28, 2018 in connection with the resolution of certain indemnification claims related to a prior acquisition.
Cash Used in Financing Activities. Net cash used in financing activities was $0.7 million during the three months ended April 27, 2019. We withheld shares and paid $0.8 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested during the three months ended April 27, 2019. Partially offsetting this use, we received $0.1 million from the exercise of stock options during the three months ended April 27, 2019.

Net cash used in financing activities was $4.8 million during the three months ended April 28, 2018. During the three months ended April 28, 2018, we made principal payments of $4.8 million on our term loan facilities. Additionally, we withheld shares and paid $0.1 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested during the three months ended April 28, 2018. Partially offsetting these uses, we received $0.1 million from the exercise of stock options during the three months ended April 28, 2018.

Compliance with Credit Agreement. On October 19, 2018, we amended and restated our existing credit agreement, dated as of December 3, 2012, as amended on April 24, 2015 and as subsequently amended and supplemented, with the various lenders party thereto (the “Credit Agreement”). The maturity date of the Credit Agreement was extended to October 19, 2023 and, among other things, the maximum revolver commitment was increased to $750.0 million from $450.0 million and the term loan facility was increased to $450.0 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of letters of credit.


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Subject to certain conditions the Credit Agreement provides us with the ability to enter into one or more incremental facilities, either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans, up to the greater of (i) $350.0 million and (ii) an amount such that, after giving effect to such incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net leverage ratio is the ratio of our consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in excess of $50.0 million to our trailing twelve-month consolidated earnings before interest, taxes, depreciation, and amortization, as defined by the Credit Agreement (“EBITDA”). Borrowings under the Credit Agreement are guaranteed by substantially all of our subsidiaries and secured by the equity interests of the substantial majority of our subsidiaries.

Under our Credit Agreement, borrowings bear interest at the rates described below based upon our consolidated net leverage ratio, which is the ratio of our consolidated total funded debt reduced by unrestricted cash and equivalents in excess of $50.0 million to our trailing twelve-month consolidated EBITDA, as defined by the Credit Agreement. In addition, we incur certain fees for unused balances and letters of credit at the rates described below, also based upon our consolidated net leverage ratio.
Borrowings - Eurodollar Rate Loans
1.25% - 2.00% plus LIBOR
Borrowings - Base Rate Loans
0.25% - 1.00% plus administrative agent’s base rate(1)
Unused Revolver Commitment
0.20% - 0.40%
Standby Letters of Credit
1.25% - 2.00%
Commercial Letters of Credit
0.625% - 1.00%

(1) The administrative agent’s base rate is described in the Credit Agreement as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the administrative agent’s prime rate, and (iii) the Eurodollar rate plus 1.00%.

Standby letters of credit of approximately $52.3 million and $48.6 million, issued as part of our insurance program, were outstanding under the Credit Agreement as of April 27, 2019 and January 26, 2019, respectively.

The weighted average interest rates and fees for balances under the Credit Agreement as of April 27, 2019 and January 26, 2019 were as follows:
 
Weighted Average Rate End of Period
 
April 27, 2019
 
January 26, 2019
Borrowings - Term loan facilities
4.24%
 
4.25%
Borrowings - Revolving facility(1)
—%
 
—%
Standby Letters of Credit
1.75%
 
1.75%
Unused Revolver Commitment
0.35%
 
0.35%

(1) There were no outstanding borrowings under the revolving facility as of April 27, 2019 or January 26, 2019.

The Credit Agreement contains a financial covenant that requires us to maintain a consolidated net leverage ratio of not greater than 3.50 to 1.00, as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in connection with permitted acquisitions. The agreement also contains a financial covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing twelve-month consolidated EBITDA to our consolidated interest expense, each as defined by the Credit Agreement, of not less than