Steven Nielsen - President and CEO Drew DeFerrari - CFO Rick Vilsoet - General Counsel

Adam Thalhimer - BB&T Capital Markets John Rogers - D. A.

Davidson Alex Rygiel - FBR Capital Markets Simon Leopold - Morgan Keegan & Company Jordan Teramo - Brigade Capital

Thank you, John. Good morning everyone.

I’d like to thank you for attending our first quarter fiscal 2010 Dycom results conference call. During the call, we will be referring to a slide presentation which can be found on our website www.dycomind.com, under the heading investors and subheading event details.

Relevant slides will be identified by number throughout our presentation. Going to slide one, today we have on the call, Tim Estes, our Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer, and Rick Vilsoet, our General Counsel.

Now, I will turn the call over to Rick Vilsoet. Rick?

Thank you, Steve. Turning to slide two, except for historical information statements made by company management during this call may be forward-looking and are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations, estimates and projections and involve known and unknown risks and uncertainties, which may cause actual results to differ materially from forecasted results. These risks and uncertainties are more fully described in the company's filings with the Securities and Exchange Commission.

The company does not undertake to update forward-looking information. Steve?

Thanks Rick. Yesterday we issued a press release announcing our first quarter results.

As you review this release, it is important to note the following. During the first quarter of fiscal 2010, we recorded a pre-tax charge in cost of earned revenues for the proposed settlement of a wage and hour class action claim and $1.1 million non-cash charge to income tax expense for valuation allowance against the deferred tax asset.

In the first quarter of fiscal 2009, we incurred a pre-tax write-off of $550,000 of deferred financing cost in connection with the replacement of the company's credit facility. For clarity and to enable comparability between periods, my comments will be limited to results from continuing operations excluding these items.

A reconciliation of the non-GAAP results to our GAAP results for the year ago period has been provided with our press release as well as on slide 10. Moving to slide three, results of $0.15 per share for the first quarter were down from last year's $0.28 per share result.

Revenue decreased sequentially by 3.9% to $259.1 million and declined year-over-year by 22.4% for the quarter reflecting customer reductions in cash capital spending plans and a lack of any meaningful storm restoration services during the quarter. Excluding storm restoration services from the year ago quarter, revenue declined approximately 19% year-over-year.

Volumes during the quarter were mixed from telephone companies as some customer’s deployed capital for new network initiatives at a slowing pace and most other customers tightly managed routine capital and maintenance expenditures. Construction spending by cable customers was mixed while installation activity was also mixed slightly decreasing towards the later part of the quarter.

Margins decreased sequentially by a 104 basis points but improved by 18 basis points year-over-year. Cash flow from operations was strong reflecting a slight decline in day sale outstanding and we did not repurchase any of our common stock or senior subordinated notes.

Going to slide four, during the quarter we experienced the effects of a weak overall economy, revenue from AT&T was down sequentially and down year-over-year. At $47.2 million or 18.2% of revenue AT&T was our largest customer, revenue Comcast was up sequentially but down year-over-year.

Comcast was our second largest customer at $40.6 million or 15.7% of total revenue. Revenue from Verizon was $38 million; Verizon was Dycom’s third largest customer for the quarter at 14.7% of revenue.

Revenue from Time Warner Cable was up sequentially but down year-over-year, reflecting slowing upgrade activity but increased installation volume sequentially. Time Warner Cable was our fourth largest customer at 8.6% of total revenue.

CenturyLink, which resulted from the merger of CenturyTel and Embarq was our fifth largest customer with revenues of $21.7 million or 8.4% of total revenue, CenturyLink was up though sequentially and year-over-year. Altogether our top five customers represented 65.5% of revenue or down 21.6% year-over-year.

All other customers declined 23.9%. Now moving to slide five, backlog at the end of the first quarter was $819 million versus $935 million at the end of the fourth quarter, a decrease of approximately $116 million.

Others backlog approximately $517 million is expected to be completed in the next 12 months. During the quarter, we continue to book new work and renew existing work: For AT&T a one-year extension to our master service agreement in Kentucky.

For CenturyLink new two-year agreements in North Carolina, South Carolina, Virginia, Tennessee, Pennsylvania, New Jersey, and Ohio. From Qwest, a three-year extension to our master construction contract for Southwest Washington and Oregon.

For Time Warner Cable, a one-year system maintenance and upgrade contract in Southern California. Headcount decreased during the quarter to 8,951 reflecting continued right sizing of our workforce in a weak overall economy.

Now I will turn the call over to Drew for his financial review.

Thanks Steve and good morning everyone. As I discuss the financial results for the quarter, please note that there were several items that impacted our results for the quarter, for the current and prior year periods that will be excluded from my comments.

We have provided a reconciliation of these non-GAAP measures to the GAAP measures in the press release, and also in the appendix of the slide presentation for today’s call. Going to slide number six of the presentation, contract revenues for the first quarter of 2010 were $259.1 million, which was down 22.4% from last year’s Q1 revenue of $334 million.

During the prior year first quarter, we recognized storm related revenue of approximately $15 million and there was no storm work in the current quarter. Excluding the storm work revenue was lower as customers continued to maintain lower levels of capital spending.

Non-GAAP income from continuing operations for the current quarter was $5.8 million compared to $10.9 million in the first quarter of last year. Fully diluted earnings per share on a non-GAAP basis was $0.15 per share compared to $0.28 per share in Q1 '09.

These non-GAAP amounts exclude the adjusting items set forth in our GAAP reconciliation in the appendix of today's slide presentation. Turning to slide number seven, during the first quarter of fiscal 2010, our cost of earned revenue included a charge for the proposed settlement of a wage and hour class action claim of $2 million or 77 basis points.

Excluding the impact of this charge, cost of earned revenues as a percentage of contract revenues declined slightly. Lower fuel prices contributed 88 basis points towards margin improvement at higher costs for casualty claims and other operating costs mostly offset as improvement.

General and administrative costs were down approximately $4 million compared to Q1 of last year. This decline was driven by the lower level of operations on a year-over-year basis and resulted from reduced labor costs and lower professional fees in the current period.

In addition, stock compensation declined by approximately $600,000 from the prior year. Depreciation and amortization was lower in the current quarter due to the sale of assets and the impact of assets reaching the end of their depreciable lives in 2009 and 2010.

Interest expense was lower on a year-over-year basis as we have lower debt balances outstanding. During the current quarter our tax provision included a reserve established against a deferred tax asset of approximately $1.1 million.

On a non-GAAP basis our effective tax rate was approximately 42.4%. Now turning to slide number eight, our balance sheet strength continued during the quarter and we ended the period with approximately $120 million of cash on hand.

During the quarter operating cash flows contributed $24.6 million, based on average daily revenue in each period day sales outstanding were 60 days down two days from the end of the Q4 '09. Capital expenditures net of disposals were $8.3 million for the quarter.

We ended the quarter with no borrowings outstanding under a senior credit facility and $162.1 million of availability after providing for letters of credit related to our insurance program. Now I will turn the call back to Steve.

Thanks Drew. Going to slide nine, in summary, during the quarter we were challenged by a week economy yet continued to demonstrate strengths.

First and foremost we maintained solid customer relationships throughout our markets. We continued to win projects and extend contracts at acceptable pricing.

In addition as demand is slow we have generally increased market share as our customers are consolidating vendor relationships. Secondly, the strength of those relationships in the value we can generate for our customers has allowed us to be at the forefront of evolving industry opportunities.

The long-term drivers of these opportunities are as strong as ever and in fact may further strengthen. The government’s response to a week economy includes increased funding for broadband initiatives and industry mergers and acquisition activities may expand new technology deployments.

Additionally, we remain encouraged that cable operators have begun to deploy a number of new technologies, which will enable them to significantly increase the effective bandwidth of their networks and offer new products to consumers. Finally, we are strong financially, maintaining ample liquidity a robust balance sheet and declining net debt all of which positioned Dycom well to whether a difficult overall economic climate.

As our industry continues to evolve, we believe our fundamental strengths will allow us to remain one of the best positioned firms in our industry, able to exploit profitable growth opportunities. Finally, as we look ahead, we expect revenues which are down sequentially reflecting seasonality and slowing capital expenditures by a key customer, and normal seasonal margins, both contributing to a modest loss per share.

As a nation’s economy appears to be emerging from recession, we remain encouraged that our major customers posses significant financial strength and remain committed to multi-year capital spending initiatives. We are adjusting our business to address the weak economic environment and slowing expenditures from a key customer and these adjustments have fortified our strong balance sheet, and meaningfully increased our liquidity.

We remain confident in our strategies, the prospects for our company that capabilities of our able employees and the experience of our management team who have successfully managed through difficult economic times before. Now John, we will open the call for questions.

Steve, what’s your CapEx outlook for the year, it was little higher in the quarter than it was in Q4 and Q3 of last year?

Well, we had talked on our last call, Adam, that we thought for fiscal '10 we would be in kind of the $40 million to $50 million range net, and we spend about $10 million in this quarter. So we think we are on track with that expectation.

Okay, and then you picked up a good number of CenturyLink contracts. Can you kind of expand on how big an opportunity that is for you?

Sure. That was a number of contracts for which we had been the incumbent with Embarq.

We went through a renewal rebid cycle on those, but in addition we picked up contracts, new contracts in Ohio and Pennsylvania and we're pleased with the result and CenturyLink as was indicated in our comments, was up organically year-over-year and up sequentially and has talked about a number of new initiatives particularly around deploying IPTV. So we expect activity with them to be good going forward.

Okay, I mean the telcos really seem like stick in the mud. Are you getting any sense that that might change as we roll through calendar '10?

Well, I think about it a little bit differently, Adam. I mean, clearly Verizon has indicated that the FiOS program from their perspective will be including at the end of '10.

So I think that's the way we see that. AT&T continues to deploy U-verse.

I think on their call or some comments I read over the last month, they actually were thinking about expanding the footprint, whether that's a '10 event or thereafter, is unclear to me, but they seem to be happy. I think some of the other telephone companies like CenturyLink as they conclude mergers have indicated that there will be renewed capital spending and if the economy improves in 2010, I would expect that you would see that.

Okay. On the broadband stimulus side, are we still thinking that that’s more of a late calendar '10 event?

At this point, the have slipped the approval of the first round and I actually think consolidated the first and second rounds. So in that particular case I think it continues to be slow although we have a number of customers you have applied for stimulus dollars through that program.

There was an announcement I think three, four weeks ago on some smart grid a large and actually two or one of our customers where we’re currently deploying fiber for them and their network was actually awarded a pretty sizeable grant under that smart grid initiative and there has also been some other, our initiatives where we actually have another cooperative customer they got a pretty good award in that program. So it’s starting slow, but we are starting to see some of our adjusting clients secure fund.

Okay, and then last question. Just on the outlook for acquisitions are you seeing anything attractive across your desk Steve?

There are certainly plenty of things to look at. I think always Adam for us we balance deploying capital on the growth of our business.

First we think about our capital structure what opportunities that might present and then looking at returns we’ll look at what makes sense from an acquisition perspective as long as it fits well with our business and we think as an attractive outlook. So we’re always looking.

Just looking at some of the revenue numbers by customer; one, do you have a breakdown or the distinction between the telco and the cable companies?

Drew, why don’t you round out the top 10 customers and give that.

Yes. That’ll be great.

Well, I do that as well. On the telco side, it was 46.3%, cable was 32.7%, utility locating was 18.1%, and the electrical installation and other was 2.8%.

Then to round out the top 10, Charter was at 5.4%, Windstream was 3.4%, Qwest 2.3%, Cable Vision 1.6% and Western Carolina rural telephone at 1.3%.

Okay. I haven’t figured out year-over-year changes for the second five, but just looking at the top five.

I guess, Steve, what’s your sense, I mean, you mentioned that some of the files work was finishing off for Verizon. But how long can these companies operate with these reduced levels of capital spending?

It really varies John, by client and I think a good way to think about it is both AT&T and Verizon have been relatively strong through the recession. I think when you look at capital budgets of $17 billion, $18 billion a year, that’s a pretty big number in any industry.

Verizon has said that, they are looking at 10 as kind of the wind down of the program; there’ll be work that goes on after 10, but on a more ad hoc basis, like AT&T will extend. So for those customers like AT&T and Verizon, I would expect the recovery coming out of the recession, will be a little more muted, because they've spent more during the recession.

Smaller customers like CenturyLink and a number of others that maybe involved with stimulus dollars, actually I think will have more significant recoveries. Drew, mentioned our 10 customer, Western Carolina telephone, that's a fiber-to-home bill that we've been at now for over a year and is pretty, I think is going to be a project of which there'll be several others as the stimulus dollars go out.

So I think somewhat muted with the larger carriers and probably a more pronounced snap back John with the smaller carriers.

I'm sorry, your reference to the smart grid. What's the opportunity there for you?

Well, what I can tell you is on the smart grid, John, we've been involved in a project for the municipal utility in Chattanooga, Tennessee, where they're deploying a system wide fiber network and they were able to secure, this is off the top of my head, about $110 million portion of the smart grid awards. When you read the purpose of the award, it was to complete the build out of the entire system with fiber.

I assume that they're going to use that for metering and backhaul and other demand monitoring initiatives. But we are seeing a number of power companies either in the smart grid area or as we talked about last quarter in providing cellular backhaul, get involved in deploying more fiber.

Okay. Thank you.

Sorry, one other question, in terms of your settlement, what will be the cash impact and when will we see that?

Well, as it is with of these things John here, you work through the details and you go through an opt out opt in period depending on the state. I think normally it would be anywhere from three to nine month process depending on how it goes and that’s a pretax number that we gave you.

So, all things being equal not a significant use of cash.

Okay all right, but that’s the extent of it.

Yes.

A few questions first. Does your fiscal 2Q revenue guidance suggest there will be positive or negative year-over-year organic growth?

I think it will be down Alex, but it will down less then this quarter.

Do you think the fiscal third quarter might be that quarter where you start to annualize and raise comps?

I think there is a number of variables there that we’d have think through, but certainly the direction from this quarter into the second quarter would imply that. I think what we have to think through as we work through the last significant year of this Verizon project.

There will be some declining revenue although that project was also slowing in the back half of this year. So that’s not it is not the ample quarter, it certainly won’t be much fast mid-year.

On the Verizon contract, how many months that Verizon files work do you have, that is in your backlog?

We are still working through the details on the final signed amendment, so we just have thru [1231].

And what’s the timing of the signed amendment going into 2010

We are still working through it Alex, we are not going to give any particular guidance on that.

On your G&A line, it looks like its starting to come down a little bit here. As we look out throughout the balance of the year should we expect the G&A figure in the $20 million to kind of $23 million range per quarter or around slightly higher than that?

Well, we will hope that it will pick up as revenue, if revenue picks up. But as a percentage, we still have a number of things that we are working on.

But we don’t expect that number to accelerate meaningfully as a percentage.

As a percentage, can it be for the full-year 2010, can it be below full-year 2009?

We are not going to give full-year 2010 guidance, Alex. I mean, there is nothing in the business that says there is pressures on the G&A side other than areas that we might choose to spend some money on as we talked about before on some of the IT initiatives and other things.

But in terms of just operating the business, there are no pressures on G&A right now.

First, I want to clarify your, I guess, the [tax] press release on the forecast for sales for the January quarter, suggesting normal seasonal patterns. I am assuming, we could ignore last year’s abnormal pattern and we are looking at I guess a 6%, 7% down a couple of years ago and 14% sequential down in 2008.

If I am looking at the right numbers, am I interpreting the forecast correctly and thinking it’s kind of a high single-digit, low double-digit kind of sequential move?

I think, historically, just because of the number of work days in the quarter and the weather that we’ve kind of been in that low to mid-teens and I think I would be closer to there than I would single digits. The other thing is as we've said, that there is a – as we've got one key customer that's kind of realigning where they spend money, that's a bit of an overhang on that number too.

Okay, great. In terms of looking at some of the activities that might be helping you out here, I think you've mentioned before doing some of the fiber construction for cell site backhaul, can you quantify what that business has been in the most recent quarter and how you're thinking about it as a contributor?

We haven't broken it out specifically, but I can tell you that there a number of initiatives going into calendar '10 that in aggregate or in the thousands in terms of the number of cell sites that we would be deploying to, and I think as we've talked about the opportunities before, Simon. It's a nice piece of business we're seeing it not only through our master service contracts with the telephone companies, we're seeing it with the cable operators.

We have a couple of projects where we're also seeing it for power companies and we're even seeing some opportunities, which we'll address cautiously where there are essentially tower [C-lexs] that are being created to provide the service in a number of instances. So it's a real opportunity.

We've talked about it. It's kind of a 4% or 5% opportunity in annual revenue, might be more but it certainly is helpful on the construction services that we supply to the cable companies in particular.

Now, if we look at the broadband stimulus opportunity, understandably, it's hard to judge timing. But let’s just say whenever it get starting how do you think about how to quantify that opportunity?

We have a number if you go through the list. We have a number of clients that have applied for stimulus dollars.

In some instances we help support those applications as part of the process of applying and, you go through that it’s hard to understand exactly how the words are going to be made. But we feel good that generally, the opportunities we would focus on are with existing carriers or cooperative carriers or folks that are in the telecommunications business now, which at the end of the day, I think will be the most reliable way to play that opportunity.

Just one last one. If you sort of step back and look at the next for the remainder of the fiscal year.

How do you think your sales trend at least relative to service provider CapEx trends above below and sort of how do you sort of see the variance?

We will talk about it qualitatively Simon, its difficult as we have discussed before to kind of have a direct correlation either quarter-to-quarter, even half year-to-half year because there is inventory build and burn cycles that can influence CapEx, there can be other things. I would say for example, on the cable side for construction I think overall cable CapEx is/and reforecast is to be flat to down particular because of CPE expenditures.

But without a doubt spending on fiber deployments for cell sites is going to be up pretty significantly. So it’s tough to correlate that.

Clearly, Verizon has said that they are looking at 2010 as the year where they conclude the bulk of the FiOS program. There are things that are going to continue after that.

But I would say once we get through mid-year, we’ll be kind of looking backwards at where the FiOS impacts have been for the most part as we lap the middle part of the next calendar year. I think that’s consistent at least with what I’ve read from commentary, from other carriers and consistent with what they’ve said.

Can you just be a little more clear in terms of what the FiOS kind of concluding means for you in terms of revenue. Like any idea of that 17% you said or whatever is 14%?

What we have historically said, Jordan, is that the other revenue in any given quarter. There is a third, sometimes 40% that’s involved in routine expenditures or things that are not directly related to the fiber deployment program.

So for example, subsequent to the end of this quarter, we actually gained a master service agreement in Virginia with Verizon for their routine business as usual type activity. So we have that going.

There are portions of the program as you followed it in some of the metropolitan areas and in some of the multiple growing unit activities, that I think, you will expect to see go beyond that with the bulk of the heavy [pat] creation expenditure is something that has been very well indicated by Verizon to be for the most part concluded by the end of next year.

So, it’s fair to, so you could think on 60% to 70% of the 15% this quarter is going to go to zero?

No, that's not what I said.

Okay.

First I said that the program, that the heavy [pat] creation, which is not of that magnitude will wind down. But there will be some [pat] creation where their franchise commitments and other things that will go forward.

There is MDU construction that we think will go forward and there will be opportunities on the business as usual. So in this particular quarter, as we looked at just the October results and try to disaggregate those activities that are most effective going forward, that number was in the order of $8 million to $12 million round numbers.

That's the number.

8 to 12 a quarter is the files number.

Yes. I mean and it's not a science because we don't.

Right.

They have settled their budgets for the next year. We don't know exactly where it's going to be.

But if we looked at the October quarter, that would be a reasonable approximation.

Okay, and then in terms of kind of free cash. Is there much more to get out of working capital or do you feel like just taking kind of $4 million of interest expense a quarter and $45 million of CapEx, it's kind of basically the biggest cash uses this year?

Some of the interest expense is amortization.

Okay.

Okay, so some of that's non-cash. I think on the working capital side, a big construction intensive program like FTTP has generally used kind of a little bit heavier amount of working capital than the rest of the business, and so I would actually expect as that business comes in as we've talked about, that actually DSOs will probably trend down.

So there is not a lot to come out, but there is certainly going to be some cash flows out of that part of the business.

Then can you give us an idea of just ballparking what you think revenue declines for the year could be, if you exclude FiOS or if you exclude FiOS will it be flat or is it…

We are not giving guidance for the year.

Right.

We are at the, what appears to be the end of an economic cycle in the recession and we have got stimulus dollars coming out, we have got some emerging opportunities on this wireless backhaul and they kind of just slice and dice it and say where we think we are going to be six or nine months from now. I just don’t think would be a fruit full exercise other than to say that we have got robust liquidity.

We think that as the business shifts around that’s going to only increase. We have some CapEx needs, but they are all manageable and things that we get good pricing on.

So we think we will throw off some free cash flow and as opportunity presents itself, usually coming out of the recession, there are growth opportunities.

What kind of leverage you comfortable with, where do you feel like, talking about your acquisition strategy in terms of multiples you win or…

I mean we are not going to negotiate, hypothetical acquisitions before we see them. But I can tell you that historically in the right climate we obviously have carried sometimes between one to one and half, two times leverage.

But at this point between undrawn availability on the revolver and cash and what we think we see for free cash flow; it’s a several $100 million number. So I am not particularly focused on the debt side of the balance sheet right now.

Right. But in terms of overall kind of leverage, would you want to keep it at two times or below?

Historically, when service business lever up too much, they get surprised. At this point, and this may be an old fashion perspective; but we’ve got growing tangible network, we’ve got good book value per share, we’ve got lots of room on our covenants and I think in an economy, that’s still somewhat weak and just beginning to come out of recession, that’s the right balance sheet to have.

I mean, its not, this isn’t the time to make a significant bid on leverage in this type of an economy.

All right, John. We thank everybody for your time and attention and we’ll talk to you at the end of February on our next results conference call.

Thank you.