Dycom Industries - Earnings Call - Q2 2020
August 28, 2019
Transcript
Speaker 0
Ladies and gentlemen, thank you very much for standing by and welcome to the DICOM Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given to you at that time. Also as a reminder, today's conference is being recorded. I would now like to turn the call over to your host, Mr.
Steven Nielsen. Please go ahead.
Speaker 1
Thank you, operator. Good morning, everyone. I'd like to thank you for attending this call to review our second quarter fiscal twenty twenty results. Going to Slide two. During this call, we will be referring to a slide presentation, which can be found on our website's Investor Center main page.
Relevant slides will be identified by number throughout our presentation. Today, we have on the call Tim Estes, our Chief Operating Officer Drew DeFerrari, our Chief Financial Officer and Ryan Urness, our General Counsel. Now I will turn the call over to Ryan Urness.
Speaker 2
Thank you, Steve. The statements made by company management during this call may be forward looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements, including those related to the company's outlook, are based on management's current expectations, estimates and projections and are subject to risks and uncertainties, which may cause actual results to differ materially from current estimates. These risks and uncertainties are more fully described in the company's annual report on Form 10 ks filed 03/04/2019, and its other filings with the U. S.
Securities and Exchange Commission. The company assumes no obligation to update these forward looking statements. Steve? Thanks, Ryan. Now moving to Slide four and
Speaker 1
a review of our second quarter results. As we discuss our results, please note that the provision for income taxes during this quarter included $1,100,000 related to a previous tax year filing. Also for the quarter ended July 2838, organic revenue amounts exclude revenues from storm restoration services. During our comments and in the accompanying slides, we exclude these items and other non GAAP measures. We refer you to the Quarterly Reports section of our website for a reconciliation of these non GAAP measures to their corresponding GAAP measures.
In addition, the company has entered into a contract modification that increases the revenue produced by a large customer program. As a result, the company recognized $11,800,000 of contract revenues for services performed in prior periods and $1,800,000 of related performance based compensation expense. On an after tax basis, these items contribute approximately $7,300,000 to net income or $0.23 per common share diluted for the quarter ended July 2739. Revenue was $884,200,000 an increase of 10.6%. Organic revenue, excluding storm restoration services of $3,800,000 in the year ago quarter, increased 11.1%.
As we deployed one gigabit wireline networks, wirelesswireline converged networks and wireless networks, this quarter reflected an increase in demand from four of our top five customers. Gross margins were 18.5% of revenue, reflecting the continued impacts of the complexity of a large customer program discussed previously on our first quarter fiscal twenty twenty call, and general and administrative expenses were 7.36%. All of these factors produced adjusted EBITDA of 100,200,000 or 11.3% of revenue and adjusted diluted earnings per share of $1.9 compared to $1.5 in the year ago quarter. Liquidity was ample as cash and availability under our credit facility was 289,100,000 Now moving to Slide five. Today, major industry participants constructing or upgrading significant wireline networks across broad sections of the country.
These wireline networks are generally designed to provision one gigabit network speeds to individual consumers and businesses, either directly or wirelessly using five gs technologies. We believe wireline deployments are an integral element of what is expected to be a decades long deployment of fully converged wirelesswireline networks that will enable high bandwidth, low latency five gs applications. The industry effort required to deploy these converged networks continues to meaningfully broaden our set of opportunities. Total industry opportunities in aggregate are robust. We are providing program management, planning, engineering and design, aerial underground and wireless construction fulfillment services for one gigabit deployments.
These services are being provided across the country in more than a dozen metropolitan areas to several customers. Deployments include networks consisting entirely of wired network elements as well as converged wirelesswireline multi use networks. Potential wired network construction opportunities are increasing outside of traditional customer franchise boundaries. Customers are pursuing multiyear initiatives that are being planned and managed on a market by market basis. Our ability to provide integrated planning, engineering and design, procurement and construction and maintenance services is of particular value to several industry participants.
We expect some normal timing volatility and customer spending modulations as network deployment strategies and technologies evolve, tactical considerations may also impact timing. We remain confident that our competitively unparalleled scale and our financial strength position us well to deliver valuable service to our customers. Going to Slide six. We continue to experience the effects of a strong overall industry environment during the quarter with increased demand from four of our top five customers. Organic revenue, excluding storm restoration services increased 11.1%.
Our top five customers combined produced 78.6% of revenue, increasing 12.7% organically, while all other customers increased 5.5% organically. Verizon was our largest customer, 23.2% of total revenue or $2.00 $5,000,000 Verizon grew organically 39.1%. Revenue from AT and T was $183,300,000 or 20.7% of revenue. AT and T was DICOM's second largest customer and grew 13.5% organically. CenturyLink was our third largest customer at 15.7 of revenue or 138,700,000.0 CenturyLink grew 29% organically.
Comcast was our fourth largest customer at $133,200,000 or 15.1% of revenue. And finally, revenue from Windstream was 34,700,000.0 or 3.9% of revenue. Windstream was our fifth largest customer and grew 20.7% organically. Of note, this is the second consecutive quarter where all of our other customers in aggregate, excluding the top five customers, have grown organically. We are encouraged with our fourth consecutive quarter of double digit organic growth and have continued to extend our geographic reach and expand our program management network planning services.
And in fact, over the last several years, we have meaningfully increased the long term value of our maintenance and operations business, a trend which we believe will parallel our deployment of one gigabit wireline direct and wirelesswireline converged networks as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Now moving to Slide seven. Backlog at the end of the second quarter was 6,691,000,000 versus $7,051,000,000 at the end of the April, a decrease of over $360,000,000 Of this backlog, approximately $2,639,000,000 is expected to be completed in the next twelve months. The total backlog calculation reflects solid performance as we book new work and renewed existing work. We continue to anticipate substantial future opportunities across a broad array of our customers.
For AT and T, we were awarded construction services agreements in Kentucky, Tennessee, North Carolina and South Carolina. From CenturyLink construction services agreements in Wyoming, Colorado, Nebraska, Iowa, Missouri and Florida. For Comcast, fulfillment services in Michigan and Illinois, from Frontier, our construction services agreement in California. And finally, we secured construction services agreements with TDS in Wisconsin. Headcount increased during the quarter to 15,301.
Now I will turn the call over to Drew for his financial review and outlook.
Speaker 3
Thanks, Steve, good morning, everyone. Going to Slide eight. Contract revenues for Q2 twenty twenty were $884,200,000 and organic revenue growth was 11.1% with strong increases from four of our top five customers. The company entered into a contract modification that increases revenue produced by a large customer program. As a result, we recognized $11,800,000 of contract revenues for services performed in prior fiscal quarters and years as well as $1,800,000 of related performance based compensation expense.
On an after tax basis, these items contributed $0.23 per common share diluted for the second quarter. Including the benefit of the contract modification, adjusted EBITDA was $100,200,000 or 11.3 percent of revenue and gross margins were at 18.5%. Gross margins included approximately 100 basis points of benefit from the contract modification. Compared to Q2 twenty nineteen, the net decline in gross margins was 112 basis points due to impacts of a large customer program during the quarter. G and A expense improved by 71 basis points compared to Q2 twenty nineteen.
Our lower financial performance this year resulted in a decrease in share based compensation. Our provision for income taxes included incremental expense of $1,100,000 related to a tax filing for a previous tax year. We expect our effective tax rate at 27.5% for the remainder of fiscal twenty twenty before any tax effects of the settlement of share based awards. Our non GAAP adjusted diluted EPS in Q2 twenty twenty was $1.9 per share. Now going to Slide nine.
Our balance sheet reflects the strength of our business. We ended the quarter with $450,000,000 of term loans outstanding and $65,000,000 of revolver borrowings. Liquidity is ample at $289,000,000 at the end of the July, consisting of availability from our credit facility and cash on hand. Cash flow used for operating activities was $53,600,000 which funded the sequential growth in revenue and working capital. The combined DSOs of accounts receivable and net contract assets were one hundred and seventeen days, reflecting growth on a large customer program.
Capital expenditures were $32,800,000 net of disposal proceeds and gross CapEx was $38,200,000 We anticipate capital expenditures net of disposal proceeds to range from 140,000,000 to $150,000,000 for the full fiscal year. This is a $10,000,000 reduction in our expected range of capital spending from our previous outlook. In summary, we continue to maintain a strong balance sheet and ample liquidity. Going to Slide 10. For the quarter ended October 2019, we currently expect total revenue to range from $820,000,000 to $870,000,000 non GAAP adjusted diluted EPS to range from $0.60 to $0.80 per share and non GAAP adjusted EBITDA percent of contract revenues, which decreases from the Q3 twenty nineteen result.
Other expectations include depreciation of 41.8 to $42,600,000 and amortization of $5,300,000 share based compensation included in G and A of 2,500,000.0 to $3,300,000 adjusted interest expense of approximately 7,900,000.0 to $8,000,000 excluding $5,100,000 of interest for the non cash debt discount amortization on our notes. Other income net is expected to range from 900,000.0 to 1,500,000.0 The effective tax rate is expected at 27.5% before any tax effects of the settlement of share based awards. Now going to Slide 11. The January last fiscal year included $20,400,000 of storm restoration services. For comparative purposes, non GAAP organic revenues that quarter were $728,200,000 Looking ahead to the January, we currently expect organic revenue ranging from in line to low single digit percentage growth compared to the $728,200,000 of non GAAP organic revenues in Q4 twenty nineteen.
And we expect non GAAP adjusted EBITDA margin percent of contract revenue ranging from in line to a slight increase from Q4 twenty nineteen. Now I'll turn the call back to Steve.
Speaker 1
Thanks, Drew. Moving to Slide 12. Within a growing economy, we experienced the effects of a strong industry environment and capitalized on our significant strengths. First and foremost, we maintained strong customer presence throughout our markets. Second, our extensive market presence has allowed us to be at the forefront of evolving industry opportunities.
The end market drivers of these opportunities remain firm and are strengthening. Fiber deployments enabling new wireless technologies are underway in many regions of the country. Wireless construction activity in support of expanded coverage and capacity has begun to accelerate through the deployment of enhanced macro cells and new small cells. Telephone companies are deploying fiber to the home to enable one gigabit high speed connections. Cable operators are deploying fiber to small and medium businesses and enterprises.
A portion of these deployments are in anticipation of the customer sales process. Fiber deep deployments to expand capacity as well as new build opportunities are underway. Dramatically increased speeds to consumers are being provisioned and consumer data usage is growing. Customers are consolidating supply chains, creating opportunities for market share growth and increasing long term value of our maintenance and operations business. In addition, we are increasingly providing integrated planning, engineering and design, procurement and construction and maintenance services for wired and converged wirelesswireline networks.
We remain encouraged that our major customers are committed to multiyear capital spending initiatives, and we are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team as we grow our business. Now operator, we will open the call for questions.
Speaker 0
And our first question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please go ahead.
Speaker 4
Hi team. Thanks for taking my questions. I guess firstly for me, great to see you guys have a handle on the near term outlook here. But looking at the fiscal fourth quarter, to up low single digit revenue growth relative to the kind of qualitative commentary on end market demand. It seems to indicate that there's a stronger growth trajectory on the horizon here.
So I'm just wondering how you guys would characterize visibility on a reacceleration in growth here. Has it improved? Or is that kind of inflection point still kind of
Speaker 3
tough to call at this point?
Speaker 1
So Sean, I think specifically to the fourth quarter, as always, that's the quarter that has four or five holidays in the week between Christmas and New Year's as well as unpredictable weather. And so I think that's always one that is not all that important to understand relative to near and intermediate term trends. There's just so much going on outside the business' control. I think, look, we had good progress this quarter in terms of organic revenue growth. We have the one customer who's committed their regulatory completed their regulatory commitment on fiber deployment, but yet they're happy with those customers and we're optimistic that there will be opportunities not only there, but in other parts of the business.
So I think we're looking ahead to better times.
Speaker 4
Okay, thanks. And when I look at the fiscal fourth quarter flat to slightly up margins from a year over year perspective, can we extrapolate that into the longer term just in terms of getting to a point where margins have stabilized to potentially improving in the quarters beyond that? And or are there some other kind of considerations we should take note of? For example, I'm wondering about this contract modification here in the second quarter and just making sure we're thinking about that correctly as it relates to the kind of margin comparable for the fiscal second quarter of next year?
Speaker 1
Yes. So we talked about in the last couple of quarters, we talked about the effects of a large customer program on margins. And I think what we said last quarter, and we can say that again, is that if you excluded that program, that our margins were in line with how we've executed in the past, not the best year we've ever had, but okay. And I think that this modification does provide some increased revenue going forward. It's much appreciated, but there's still plenty of work to do on that program.
And then once again, to look at trends in the fourth quarter given the weather holiday amount of daylight, that's just a tough quarter for anybody to evaluate against near term or intermediate term trends.
Speaker 4
Okay. All right. I'll turn it over. Thanks, Steve.
Speaker 1
Thanks, Sean.
Speaker 0
Thank you. And our next question comes from the line of Adam Thalhimer with Thompson Davis. Please go ahead.
Speaker 1
Hey, good morning, guys. Good morning, Adam.
Speaker 5
Hey, Steve, are you at peak revenue yet on that large program?
Speaker 1
So Adam, we were asked that question last quarter. We don't comment on individual programs, but we're comfortable that there's plenty of growth opportunities across the entirety of the business.
Speaker 5
Okay. And the all other customers, you made a note that you're finally seeing some nice growth outside of your top five. What can you give some additional color there? What's driving that? How sustainable is that?
Speaker 1
So we're seeing a trend across all of our customers, not only the top five to deploy more fiber, expand their fiber footprints and deeper into their networks. And we've talked on past calls about this emerging rural fiber deployments primarily for electric co ops. And we actually looked at those and said if we'd aggregated those together, because they're typically smaller entities, but they're very active, It probably would have been our sixth or seventh customer and has grown very quickly over the last four to five quarters. So I think that's a good portion of the growth in that part of the business. We also were pleased to see TDS who's been a long time customer who's indicated that they're pretty aggressively deploying fiber both inside their ILEC footprint and outside.
So we're seeing more outside of franchise opportunities not only from them, but it was interesting to see that Windstream actually bought some millimeter wave spectrum in the last auction both inside their footprint and outside. So I think we see some more fiber opportunities even outside of traditional customer franchises from those folks and others.
Speaker 5
Okay. And then last one for me on the cable side of the business. Obviously, big revenue decline in the first half of the year. What's your thought on the back half for just cable in general?
Speaker 1
So we had one of our customers that on their call spoke specifically that their spending on scalable infrastructure and line extensions was down in part due to the timing of planned construction and other investments. And so I think if you look at kind of where we see the third quarter right now compared to where we saw it in May, that really explains kind of the change in slight change in view. But they I think they're seeing a pretty dramatic growth in consumer data consumption. There was a report just yesterday that one of our customers is now seeing an average of 300 gigabytes per month of consumption for every broadband subscriber they have. It's a pretty stunning number compared to three or four years ago.
So while it's a little bit slower this year, I think that's been well understood on the street. We look forward to a better year next year.
Speaker 6
Understood. Okay. Thanks, Steve. I'll turn it over.
Speaker 1
Thank you.
Speaker 0
Thank you. And our next question comes from the line of Brent Thielman with D. A. Davidson. Please go ahead.
Speaker 7
Hey, thanks. Good morning.
Speaker 1
Good morning, Brent.
Speaker 7
Steve, the increase in DSOs, I understand, is associated with this large program. When do you think that starts to plateau and we kind of see some normalization in cash conversion?
Speaker 1
I think we'll see normalization through the end of this fiscal year. I mean, we're working hard at it. There's been some modifications in terms of adding some opportunities for us to more timely invoice completed work that have been offered. So we're working hard at that, and we're working hard at getting better as we've talked about for the last couple of quarters.
Speaker 7
Okay. That's helpful. And then it looks like business with Windstream picked up from last year. I was just curious if you're seeing post petition, I guess, payments coming through there.
Speaker 1
Yes. Their payments in as they're undergoing restructuring are quite good. And we're encouraged that not only are they paying well, but they're also investing in their business, deploying more fiber, had a good subscriber, not only quarter, but expect to grow broadband subscribers for the year. So we're encouraged currently and we're encouraged looking ahead.
Speaker 7
Okay. And my last question, Steve, is more just thinking about kind of the value Dicom brings to the customers in terms of the national footprint and kind of large and growing capacity as we look at the headcount. As I look at some of these awards in the presentation slide where you're in multiple states, is that a are those individual awards to you within those individual markets? Are those collective awards? Again, just trying to kind of think about this in terms of the contract negotiations you have with these customers with your scale.
Speaker 1
Typically the contracts are still described regionally, sometimes for the entirety of the state, sometimes for half of the state. Typically all of the contract sizes over the last ten or fifteen years have grown geographically. So as customers have simplified their administrative organizations, they've gone with larger territories. So they're typically individual regions or individual states, but we have comprehensive discussions with our customers as we work through renewals. And backlog was burned off a little bit in the current quarter, mostly as a kind of a re estimate of a long term contract where the revenue is down a little bit this year, but we expect it to be higher next year and how that flowed through backlog.
But we feel good for the balance of the year in terms renewal and growth in backlog.
Speaker 7
Okay. Appreciate the color. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Alex Rygiel with B. Riley. Please go ahead.
Speaker 2
Good morning Steve, Drew and Tim.
Speaker 1
Hey Alex.
Speaker 2
Hey Drew, could you help us to possibly quantify the dollar value opportunity that you could pull out of receivables and working capital over the next six months?
Speaker 1
I mean, Alex, I'll jump in here. Drew and I have talked about this. I mean, we're working hard to normalize this. If you looked at DSO year over year and excluded this program, it's just up slightly. So the rest of the customer base and the rest of the revenue is in line with past performance.
You could probably do the math to figure out how much cash that would release as we drive DSO from where it is back to normal. It's a big program. It's complex. And so we're going to be careful as we've talked about the last couple of quarters to get ahead of ourselves on that. But I can assure you the entire company is working on project.
Speaker 2
And then there's been some talk about fourth quarter guidance. As it relates to the third quarter revenue guidance, it looks like it's down somewhat from your previous guidance. Anything in particular that's called out there?
Speaker 1
Yes, Alex, as we've said on an earlier question, if you look to the MSOs and in particular one that cited being a little bit slower on their spending in part due to timing of planned construction, it's really just a timing question. And that was the difference in the way we saw things in May and the way we see them now. And that's a customer that has substantial plans and identified that investing in their network is strategic. There's just every once in while there's one of these modulations that we have with the customer.
Speaker 2
And as it relates to the contract modification and your commentary over the last number of quarters about the complexity of certain large customer program, how should we think about gross margins today relative to a more
Speaker 1
normalized level? And Alex, it's the same comment that we made before with respect to EBITDA, but would also apply to gross margin. If you pull this program out, the rest of the business is performing reasonably well. It's not the best that we've ever done, but certainly in line with prior performance. So as we work hard on this program, there's opportunity.
And as we've said in prior quarters, we pointed to that complexity arising from evolving objectives, processes and priorities. I think on the objectives and the priorities, we're more settled. We still have work to do on the processes and we're spending lots of time and attention to pull the cost out associated with those evolutions.
Speaker 3
Very helpful. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Chad Dillard with Deutsche Bank. Please go ahead.
Speaker 6
Hi, good morning guys.
Speaker 1
Good morning, Chad.
Speaker 6
So if I look back, I mean, looks like the July marked the slowest, at least like sequential increase in labor since 2012. Mean, should we take that as a sign that the labor ramp has reached a plateau? Or how should we think about that?
Speaker 1
Well, Chad, think as always, right, as we've said before, we utilize subcontractors for portions of our construction activity. And so headcount to revenue is kind of loosely correlated. So if you think about it, we grew revenue sequentially 50,000,000 essentially a slight increase in headcount and we grew at $85,000,000 year over year at a greater percentage than headcount. So I think as we get into a different mix of business and more construction going forward, we'll see headcount grow. We hope it continues to grow.
We see opportunities to grow the business. But I think as we get more heavily into construction, we will see more subcontractor resources utilized rather than additional headcount.
Speaker 6
Got you. And just to kind of continue on that, I mean, based on what you're seeing in your business, I mean, when do you start to see that tipping point evolve where you do see a greater mix of construction going forward? I guess part one. And then part two, so as it pertains to your backlog, can you give us a little bit more color on what you're seeing on the wireless side? I mean, are you seeing backlog growth accelerate?
Any color would be very helpful.
Speaker 1
Sure. So if we look at wireless in total, it was just short of $75,000,000 of revenue in the quarter, which is the largest number we've ever had. So kind of a $300,000,000 run rate. So we're pleased with the growth in that business, grew both year over year and sequentially double digits. So that was helpful.
I think we're pleased with opportunities in that business. We're just beginning to see actual five gs deployments we have in one large metropolitan market. We have just short of 100 sites that we've done site acquisition, have gotten backhaul to and power and just waiting for radios to come in the next four to eight weeks. So we're actually beginning to see opportunity and revenue driven by five gs.
Speaker 6
And just one more question. So I realize that the ramp of one customer has resulted in complexity and lower margins, and that's been going on for, I guess, several quarters now. And I realize that there's some that you can't control, but there is probably some that you can. But can you so can you just talk about that part that you can? What levers do you have to pull that can actually like mitigate the margin impact here?
Speaker 1
Yes. So Chad, as we've discussed previously, right, and at least as incrementally versus the last quarter, it's really around the processes and not the objectives and priorities. And so as we look at the processes, as we've talked about it before, we implement systems. First, we get ahead of it with what resources we have to do to get ahead of it. Then we implement systems to take that cost out.
And it's a large growing program and so we're having to do both at once and we're working on reversing the working capital build associated with that complexity also. So we'd love to go into more detail. It's a pretty detailed project plan. There's lots of teams working on it, but I think that's what we're comfortable sharing today.
Speaker 6
Great. Thanks. I'll hop back in queue.
Speaker 0
Thank you. And our next question comes from the line of Jennifer Fichte with Wells Fargo. Please go ahead.
Speaker 8
Great. Thank you for taking the question. A few if I may. Steve, you mentioned the electric co op becoming a larger customer in aggregate. You know, one of the main themes from our five gs conference in June was the lack of access power and how that's kind of a tricky part of five gs.
Is that what you're helping with there? Or can you just comment on that? And then just I have one follow-up after that.
Speaker 1
So Jennifer, clearly powering of all of the hundreds of thousands, if not millions of small cells associated with densification and five gs is clearly an issue. I think the industry will figure it out. It always does. And as I said, we're actually starting to bring some five gs sites on air between now and the end of the year. What we refer to with the co ops, these are actually in rural America where there's often not cable service, often only dial up service from an incumbent telco.
And these co ops are actually building on their own facilities fiber to the home networks.
Speaker 8
It's literally
Speaker 1
I think the number that I've seen is there's something like 12,000,000 electric meters that are served by these co ops across the country. And not only have they been doing this with their own funds, but we expect that they'll be active in the rural digital opportunity fund that's upcoming from the FCC.
Speaker 0
Got it. And then if
Speaker 8
I may, about CenturyLink. CenturyLink has publicly announced that they've hired an advisor to sell their consumer business. You know, nothing's happened there yet. But if we went down that rabbit hole, if that were to happen, you've had a nice acceleration of growth with CenturyLink. Do you is most of the relationship with the consumer side?
Or can you just talk about that a little bit?
Speaker 1
So, you know, it's hard for us to comment on anything that has to do with a strategic effort by a customer. I guess what we're seeing is that they're focused on fiber, that they're aggressively growing the fiber footprint, and that we're seeing opportunities not only in the traditional ILEC business, but outside of that ILEC business as they and everybody else continues to focus to getting service on their own facilities rather than leased facilities. So I think we're seeing broad opportunities and we can always do better. We're working hard, but I think we've been pleased with the access we've seen to broader parts of the business beyond consumer.
Speaker 8
Terrific. Thank you very much.
Speaker 0
Thank you. And our next question comes from the line of Blake Hirschman with Stephens Inc. Please go ahead.
Speaker 9
Yes. Good morning, guys. Thanks for taking my questions. As a follow-up on the large customer program contract modifications, are these conversations that are ongoing with the potential for further benefit Or is this more of a onetime deal that's come to an end with the benefits already kind of flowing through?
Speaker 1
No, I think, Blake, just to be clear, as we said in our comments, this increased the revenue both retrospectively and going forward. We've still lots of work to do. We're appreciative of it. But it has both a past benefit and a future benefit. Beyond that, we're not going to comment on our discussions with our customers.
I think as we said last quarter, as we improve the business on this large customer program, we're working hard and the best way to prove it is to show it in the numbers. And that's still our perspective on the program.
Speaker 9
Got it. And for the fiscal 3Q and 4Q guide, has that benefit with the situation there? That's been incorporated into the guidance that was given?
Speaker 1
Yes. Once again, we appreciated it on a retrospective basis. It was a number that we needed to provide so you folks would understand current period performance. It's certainly helpful and it's incorporated in the outlook going forward.
Speaker 9
Got it. And then on AT and T's fiber to the home build out that winded down this summer, did the cadence or magnitude of that AT and T fiber spend impact you guys in the quarter over and above what you expected coming into it? Or was it kind of in line with what you were thinking?
Speaker 1
No, I think it was completely in line with what we're thinking. We're encouraged by their commentary that they continue to see good uptake of the service as they sell into that footprint. And their comments in the past about continuing to invest in fiber going forward. The real effect as we've said in answer to prior questions is just really around this planned timing on the MSO side.
Speaker 9
Got it. And then lastly, on the CapEx, it didn't come down too much for the year, but it did come down. Is there anything to point to there as far as why the range came up?
Speaker 1
I mean we're being disciplined, Blake. We got work to do. As I said, the company is focused on getting these DSOs in line, and we're going to manage the other levers in the business as appropriate without hurting the business. I think we've always had a disciplined capital plan so that if we need to make adjustments as we've done that we can do it without hurting the business and so that's what we're doing.
Speaker 9
All right. Makes sense. Thanks a lot. I'll turn it over.
Speaker 0
Thank you. Our next question comes from the line of with Stifel. Please go ahead.
Speaker 10
Hi. Thanks, guys. Good morning.
Speaker 1
Good morning, Noelle.
Speaker 10
So just another quick question on the contract amendment. Can you just tell us the exact retrospective time period that the change covered? And can you remind us of when this contract concludes?
Speaker 1
So two things, Noelle. So in the current period and in the first quarter, just call it roughly just a little bit over $2,900,000 in each of those quarters, there's a tail that goes back to the prior fiscal years. But that's the if that helps you understand kind of the current year impact. As we continue to work on the program, there's plenty of work to do and we continue to work through it. There may be other opportunities and so we're not going to get into the actual end of the contract because if we do our jobs, hopefully we'll be there for a long time.
Speaker 10
Okay, understood. And second, we've heard from some other folks in the industry that small cell deployments are maybe just taking a bit longer to move forward than folks had expected. Some of that associated with things you've talked about, you know, citing challenges, engineering, etcetera. Any chance you could give us a sense of how much work you're doing around small cells today and how you're thinking about the cadence of deployment moving forward?
Speaker 1
So we have a number of customers that we do small cell activity with. It's growing. It's not a significant piece of the business at this point. But as we look out probably over the next two or three years, I think it will be an increasing proportion of everybody's wireless spending because particularly at millimeter wave frequencies, you've got to have lots of antennas given the propagation properties of those spectrum bands. So we think it's going up.
Look, Noelle, I always look at the popular press and when they start talking about something being a problem, that's usually about the time the industry is starting to get some clarity on how it's going to get better. And I don't see the conversation around siting difficulties today any different than what would have occurred twenty, twenty five years ago for macro sites. The technology is going to provide lots of value. And if a technology provides lots of value, we'll figure out how to get it deployed as a country.
Speaker 10
Okay. And finally, any chance you could round out top customers and other utility and other?
Speaker 3
Sure. And Noel, I'd point everyone on the call to end following us on to Slide six, where we've got the other top customers in the top 10. And then for the split, telco was at 73.6%, cable was at 17.4%, facility locating was at 6.1% and electrical and other was 2.9%.
Speaker 7
Thanks.
Speaker 3
Thank you.
Speaker 0
Thank you. And our next question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Speaker 11
Hey, good morning guys. Thanks for taking my question. Steve, I just want to confirm that the contract modification work with your large customer is complete and we should expect no more modifications in the future?
Speaker 1
There's nothing to confirm because that's not what we said, Kristen. What we said is there was a modification in a piece of that program that had a retrospective benefit and will continue to have an increased revenue benefit going forward as we work through that program.
Speaker 11
Okay. Another question along the same line stated possibly a different way then. Whether it's gross margins or EBITDA margins, we talked about x this large customer program, the rest of the business being in line with historical trends. So just that's if we just wanna think whichever you wanna discuss. But if we wanna think about your opportunity to return to 20% plus gross margins, that opportunity based more heavily on future contract modifications or would that be better control of costs and processes as an opportunity to get there?
Speaker 1
I think, Kristin, we're not going to outline kind of the way we're having discussions with any customer around those topics. We're appreciative of this modification. We've got a number of efforts underway to improve our performance on the contract. And there's lots of work to do. We're making progress.
The program is more settled today than it was three months ago. We're encouraged by that, but there's still lots to do.
Speaker 11
All right. One last question along the same lines, if I can beat it to death then. Can we return that customer in aggregate by better process control to return to historical margin profile of the rest of your business?
Speaker 1
So we're working hard on the business broadly. And I wouldn't characterize it as one particular effort or dimension because we've invested a lot. We need to earn a return on that for our investors. And we're working hard to get back to that to the profile. We've not accepted that where we are today is acceptable because it isn't.
And we're working hard to change it.
Speaker 11
Great. No other questions. Thank you.
Speaker 0
Thank you. And we have a follow-up question from the line of Jennifer Fete with Wells Fargo. Please go ahead.
Speaker 8
Great. Thank you. One, I know the focus has been on this customer, the larger customer with the change in terms. But I think one area that I didn't hear come up and I just wanted to confirm is this whole RDOS as I think it's called, the Rural Development Opportunity Fund which is going to be a substantial amount of money going to some of these rural providers. How do you view that?
I mean I remember when we talked about CAF II you talked at one time about that becoming I think, a top five customer in aggregate. Any initial thoughts there? I know it's still in process.
Speaker 1
Well, I think a couple of things, Jennifer. So one, at a little over $2,000,000,000 a year, it's an increase from where CAF II was for our customers. So it's clearly a good thing from our perspective. It broadens the opportunity set because there may be other participants, as we highlighted some of these nontraditional co ops, electric co ops may be able to participate. And what's interesting, and this shows how strong this movement to fiber is in rural America, we've actually seen in a limited number of instances just recently where customers that we did rural stimulus work for funded through the federal program back in 2010, 'eleven, and 'twelve have actually come back with more work to do in the remainders of their systems.
So I just think this rural deployment as well as some of the comments, particularly from Windstream, not only about fiber but also millimeter wave spectrum in their ILEC and then in 3,000,000 homes adjacent, I just think it's a very strong trend and we don't see that in any way as hurting. I think it helps the business.
Speaker 8
I'm sorry, Steve, if you said this earlier, but this does require a faster speed, correct, than what we saw from II?
Speaker 1
Yeah. So one of the interesting things is CAF II required 10 megabits down and one megabit up. Now the rule is not final. It's out for comment, as I understand it. But it's centering now on 25 megabit down, three megabit up, although there is a sliding scale with to the extent that you propose higher bandwidth up to one gig that you actually are weighted more heavily as you go through the auction.
And it's a fairly just on a quick read, it's a fairly complicated process. But clearly the government is willing to prioritize higher speeds even than 25 down and three up.
Speaker 8
Great. Thanks.
Speaker 0
Thank you. Okay,
Speaker 1
operator, if we have no more questions, we appreciate everybody's time and attention on the call. And we look forward to seeing you on the next call, the week of Thanksgiving. Thank you.
Speaker 0
Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you very much for your participation. You may now disconnect.