Steven Nielsen - President and Chief Executive Officer Andrew DeFerrari - Senior Vice President and Chief Financial Officer Richard Vilsoet - General Counsel and Corporate Secretary.

Matt Duncan - Stephens Alex Rygiel - FBR Capital Markets John Rogers - D.A. Davidson Tahira Afzal - KeyBanc Adam Thalhimer - BB&T Capital Markets Noelle Dilts - Stifel Jennifer Fritzsche - Wells Fargo Christian Schwab - Craig-Hallum Alan Mitrani - Sylvan Lake Asset Management John Gibbons - Swanson River Capital.

Ladies and gentlemen, thank you for standing by, and welcome to the Dycom results conference call. [Operator Instructions] And I'll turn the conference over to your host, Mr. Steven Nielsen. Please go ahead, sir..

Thank you, John. Good morning, everyone. I'd like to thank you for attending this conference call to review our third quarter fiscal 2016 results. During the call, we will be referring to a slide presentation, which can be found on our website's investor relations page, under the heading Events and Presentations, Investor Calendar.

Relevant slides will be identified by number throughout our presentation. Going to Slide 3. Today we have on the call Drew DeFerrari, our Chief Financial Officer; and Rick Vilsoet, our General Counsel. Now, I'll turn the call over to Rick Vilsoet..

Thank you, Steve. Except for historical information, 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 involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Those risks and uncertainties are more fully described in the company's Annual Report on Form 10-K for the year ended July 25, 2015, and other periodic filings with the Securities and Exchange Commission. The company assumes no obligation to update forward-looking statements.

Steve?.

Thanks, Rick. Now, moving to Slide 4 and a review of our third quarter results. As you review our results, please note that we have presented in our release and comments, certain revenue amounts excluding revenues from businesses acquired during the fourth quarter of fiscal 2015 and the first quarter of fiscal 2016.

Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, all of which are non-GAAP financial measures. See slides 14 through 19 for a reconciliation of non-GAAP measures to GAAP measures. Revenue increased significantly year-over-year to $664.6 million, an increase of 35%. Organic revenue grew 28.7%.

This quarter reflected a broad increase in demand from several key customers, as we deployed 1-gigabit wireline networks, grew core market share and growth resumed in services for wireless carriers. Gross margins increased 55 basis points as a percentage of revenue, reflecting solid operating performance.

Several large programs accelerated and a number of new contracts commenced meaningful activity. General and administrative expenses improved year-over-year, decreasing 58 basis points.

All of these factors produced adjusted EBITDA of $91.9 million or 13.8% of revenue and adjusted diluted earnings per share of $1.08 compared to $0.58 in the year-ago quarter. Cash and availability under our credit facility totaled $198 million.

Subsequent to the end of the quarter, we added an incremental term loan to our credit facility, increasing availability by $200 million. During the quarter, we repurchased 1.56 million shares for $100 million, reducing our shares outstanding by 4.7%.

We are currently authorized to repurchase up to an additional $100 million of shares over the next 17 months. Going to Slide5. Today a number of major industry participants are deploying significant wireline networks across broad sections of the country.

These newly deployed networks are generally designed to provision bandwidth, enabling 1-gigabit speed to individual consumers. One industry participant has articulated plans to deploy speeds to 10-gigabits, while others are preparing to do so.

These industry developments have produced opportunities across a broad array of our existing customers, which in aggregate are without precedent for the industry in our experience. Currently we are providing program management, engineering and design, aerial and underground construction and fulfillment services for 1-gigabit deployments.

These services are being provided across the country in dozens of metropolitan areas to a number of customers. Revenues and opportunities driven by this industry standard accelerated meaningfully during the third quarter of fiscal 2016.

Customers are continuing to reveal with more specificity multiyear initiatives that are being implemented and managed on a market-by-market basis.

As our calendar 2016 performance-to-date and outlook clearly demonstrate, we are currently in the early stages of a massive investment cycle in wireline networks, which is already more meaningful than then one that occurred for us in the 1990s. Only a remarkably stubborn and protean incredulity could fail to recognize this.

We remain confident that our competitively unparalleled scale and market share as well as our financial strength position us well to deliver valuable services to our customers and robust returns for our shareholders. Now, moving to Slide 6. During the quarter, we experienced the effects of the strong overall industry environment.

Organic revenue grew 28.7%. Our top-five customers combined produce 72.5% of revenue, increasing 48.9% organically, while all other customers decreased 4.5% organically. Of note, five of our six top customers grew organically for the fifth consecutive quarter. AT&T was our largest customer, 26.8% of total revenue or $178.2 million.

AT&T grew 70.1% organically year-over-year. Growth in wireline services was accompanied by the resumption of moderate growth in wireless services. Revenue from Comcast was $95.8 million or 14.4% of revenue. Comcast was our second largest customer and grew organically 46.8%. Revenue from CenturyLink was $91.1 million or 13.7% of revenue.

CenturyLink was our third largest customer. Verizon was Dycom's fourth largest customer for the quarter at 10.4% of revenue or $69.4 million. Verizon grew organically 88.1%. And finally, revenue from a customer who has requested that we not disclose our identity was $47.5 million or 7.1% of revenue. It was our fifth largest customer.

We are particularly pleased that we have continued to gain share and expand our geographic reach.

In fact, over the last six quarters, we have meaningfully increased the long-term value of our maintenance business; a trend, which we believe will parallel our deployment of 1-gigabit networks, as those deployments dramatically increase the amount of outside planned network that must be maintained, and as customers increasingly require their maintenance providers to be of substantial scale.

Going to Slide 7. Backlog at the end of the third quarter was $5.649 billion versus $5.056 billion at the end of the second quarter of 2016, an increase of approximately $593 million. Of this backlog, approximately $2.212 billion is expected to be completed in the next 12 months.

Both backlog calculations reflect outstanding performance, as we continue to book new work and renew existing work. We continue to anticipate substantial future opportunities across a broad array of our customers. For CenturyLink, we secured a new construction and maintenance services agreements in the State of Washington.

From Windstream, we received engineering and construction services agreements in Iowa, Missouri, Nebraska, Oklahoma, Arkansas, Texas and Pennsylvania. With AT&T, we secured a construction and maintenance services agreement in Kentucky and a wireless construction agreement in Kentucky, Georgia and Florida.

From Verizon, we received a construction and maintenance services agreement for Massachusetts. And finally, we extended construction and maintenance service agreements with Time Warner Cable, now Charter, in California, Arizona and Texas. Headcount increased during the quarter to 12,472.

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

Thanks, Steve, and good morning, everyone. Please note that there has been recent SEC guidance on the presentation of non-GAAP measures, and accordingly our press release was reordered. Going to Slide 8. Contract revenues for Q3 '16 were $664.6 million and organic growth was 28.7%, reflecting solid growth from several of our top customers.

Acquired businesses contributed $30.8 million of revenue in the current period. Adjusted EBITDA increased to 13.8% of revenue or $91.9 million compared to 12.8% or $63 million in the year-ago period.

Gross margins increased 55 basis points year-over-year and G&A decreased 58 basis points year-over-year from improved operating leverage, as the company efficiently increased in scale.

On a year-to-date basis, our effective tax rate was 37.7% and it was slightly lower for the quarter, as we benefited from tax credits in relation to pre-tax operating results. Non-GAAP adjusted EPS was $1.08 compared to EPS of $0.58 in Q3 '15. Now, moving to Slide 9.

Our balance sheet and financial profile continue to reflect the strength of our business. Our liquidity exceeded $197 million at the end of the quarter, consisting availability on our credit facility and cash on hand.

We have no significant debt maturities over the next several years, our senior credit facility matures in April of 2020 and our convertible notes have a maturity date in September of 2021. At the end of the quarter we had $214 million drawn on the revolver and $150 million outstanding on the term loan.

Yesterday, we announced the addition of an incremental $200 million term loan to the credit facility, which was used to pay down existing revolver borrowings, thereby increasing our availability by $200 million.

Operating cash flows were $32.4 million and net working capital changes provided the ongoing investment necessary to support the dramatic growth that we are experiencing with our top customers. DSOs for accounts receivable and unbilled cost in excess of billings net were at 96 days, which improved three days sequentially.

Capital expenditures made to facilitate our growth and maintain our fleet, represent key investments for us. CapEx net of disposals was $44.2 million during Q3 '16 and gross CapEx was at $47.8 million. We expect CapEx net of disposals for the full fiscal year of 2016 to slightly exceed $175 million.

During Q3, we repurchased 1.56 million shares of our common stock for $100 million, at an average price of $64.21 per share. We are currently authorized to repurchase up to an additional $100 million of shares through October of 2017.

In summary, we continue to maintain a strong balance sheet, which has enabled us to effectively invest in growth opportunities that provide for solid returns and increased long-term valuation. Now, going to our outlook on Slide 10.

As a result of our 53-week calendar, please note that Dycom's Q4 of fiscal '16 will include 14 weeks of operations compared to 13 weeks during Q4 of fiscal '15. Now, looking ahead to Q4 of fiscal '16. We currently expect revenues would range from $750 million to $780 million.

We expect a broad range of demand from several large customers, robust 1-gigabit deployments, CAF II accelerating, core market share growth and cable capacity projects expanding. This outlook includes an expectation of approximately $40 million of revenue from businesses acquired during the fourth quarter of fiscal '15 and during Q1 of '16.

In the year-ago Q4 period, acquired revenues were $2.4 million. The Q4 '16 gross margin percent is expected to increase compared to Q4 '15, reflecting a solid mix of customer growth opportunities. Total G&A cost as a percent of revenue are expected to decline from Q4 '15 from continued operating leverage on our increased scale.

Total G&A is expected to include $4.3 million of share-based compensation. Depreciation and Amortization is expected to range from $35 million to $35.7 million.

Adjusted interest expense of approximately $4.9 million will include the cash coupon on our convertible notes, interest on our credit facility, amortization of debt issuance cost and other interests. Adjusted interest expense excludes $4.6 million of interest for non-cash amortization of the debt discount.

Other income from asset sales is expected to range from $2.2 million to $2.7 million. Our effective tax rate is expected to be approximately 37.7% during Q4 '16. These factors are expected to generate an adjusted EBITDA margin percent, which increases from the Q4 '15 result.

And non-GAAP earnings, which are currently expected to range from $1.45 to $1.60 per diluted share. This range of non-GAAP earnings per share excludes the non-cash amortization of the debt discount on our senior convertible notes. We expect approximately 32.1 million diluted shares during Q4 '16 with shares gradually increasing in subsequent quarters.

Now going to Slide 11. Looking ahead to Q1 of fiscal '17, we currently expect total revenue growth in the mid-to-high teens as a percentage of revenue compared to Q1 '16. We expect a continuation in Q1 '17 of the growth drivers evident in Q4 '16.

Our outlook includes an expectation of revenue of approximately $35 million in Q1 '17 compared to $29.9 million in Q1 '16 from businesses acquired in Q1 '16. We expect gross margin to increase over the Q1 '16 result. G&A is expected to decline slightly as a percent of revenue year-over-year.

Non-cash stock-based compensation is expected to be approximately $5.7 million and adjusted EBITDA margin percent is currently expected to increase from Q1 '16. Other factors influencing results include depreciation and amortization, which is expected to range from $32.2 million to $32.9 million.

Adjusted interest expense is expected to be approximately $4.6 million, excluding $4.3 million of interest for the non-cash amortization of the debt discount. And other income from asset sales is expected to range from $1 million to $1.5 million. Now, I will turn the call back to Steve..

Thanks Drew. Moving to Slide 12. Within a growing economy, we are experienced the effects of a robust industry environment and capitalized on our significant strengths. First and foremost, we maintained strong customer relationships throughout our markets. We continue to win and extend contracts at attractive pricing.

Secondly, the strength of those relationships and the extensive market presence they have created, has allowed us to be at the forefront of evolving industry opportunities. The end-market drivers of these opportunities remain firm and are strengthening.

Telephone companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1-gigabit high speed connections. These deployments are accelerating and impacting our business.

Some of those telephone companies previously deploying fiber-to-the-node architectures have definitively transitioned fiber-to-the-home, while others are beginning to provision video over their fiber-to-the-node architectures. Cable operators are continuing to deploy fiber to small and medium businesses and with increasing urgency.

Some are doing so in anticipation of the customer sales process. Overall, cable capital expenditures new build opportunities and capacity expansion are increasing. Dramatically increased speeds to consumers are being provisioned. New projects resulting from the Connect America Fund II are in planning, engineering and construction.

These projects are deploying fiber deeper into rural networks and more are expected, as new multiyear opportunities emerge through the balance of this calendar year. Additionally, for one recipient we have received meaningful assignments to perform fixed wireless deployments.

Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance business. Within this context, we believe we are uniquely positioned, managed and capitalized to meaningfully experience an improving industry environment to the benefit of our shareholders.

We remain encouraged that our major customers possess significant financial strength and are committed to multiyear capital spending initiatives. These initiatives are meaningfully accelerating and expanding in scope across a number of customers.

We remain 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 and capitalization. Now, John, we'll open the call for questions..

[Operator Instructions] First, we'll go to Matt Duncan with Stephens..

So, Steve, you guys obviously beat your own expectations pretty substantially in the quarter.

Can you talk about sort of what changed as the quarter went on to allow for you to beat so nicely?.

Well, we really had a broad increase in revenues across all of our customers, almost all of our customers. As we had talked about on the last call, we had a number of large programs that were queued up. We had some new contracts that were secured and had just begun. And all of those kicked off and did quite well during the quarter..

And I appreciate, this may be something that's difficult for you to comment on.

But with the Verizon strike that's going on, did that help at all?.

So remember, because of our 53 calendar, the April quarter ended April 23, so really not much overlap with the initial stoppage. So there is one that it impacts in the third quarter. In the fourth quarter, we've been through these before. There are things that our customer will need us to help them with.

There are impacts on the regular business as usual work, and we've taken kind of the net effect of those into consideration when we've set the fourth quarter guidance..

Looking out to 2017, obviously, it's early at this point. You've given us an early look at what the first quarter is going to look like, and the growth looks like it's still mid-teens or better.

Should we expect for the full year that you can keep growing double-digits, obviously understanding you're going to have one less week next year than you did this year?.

So, Matt, I mean, we are not providing guidance out beyond kind of the October quarter on a qualitative business. I would tell you that the drivers to the current growth and what we see over the next two quarters, we don't expect to lessen any time soon..

And the last thing, you touched on wireless just briefly, it sounds like you're seeing some growth there. Again, I know it's small for you guys right now, but it sounds like from what some of the carriers are implying and we've heard from other suppliers, we might start to see some early testing work on 5G and even early deployment of 5G.

Can you talk about sort of how you're thinking about wireless? Are you viewing it as an area where you might put some M&A dollars? And what's the opportunity there for Dycom?.

So wireless for us was up about 12% organically year-over-year. That's the first quarter that we've been up in any material way since the October 2014 quarter. So it's nice to see that improving. There was no impact on 5G on that.

I would tell you, maybe on 5G is like a number of other changes in the industry, sometimes its over anticipated and underappreciated in the long-term. So right now what we're really seeing is carrier ads and just capacity expansion to support traffic growth..

Next, we'll go to Alex Rygiel with FBR Capital Markets..

Steve, could you quantify the Connect America revenue in the quarter? And what's in backlog at this time, total backlog and 12 month backlog?.

As we said in our comments, we had planning, engineering and construction activities in the current quarter, and we expect those in the fourth quarter. It was up, but it wasn't material. So this is an accelerating trend. I would tell you that we've said in the past that we're comfortable that it's a $150 million to $200 million a year opportunity.

And I would say I'm a little more contractually confident in that estimate today than I was three months ago..

And at what point do you believe it will be up to that run rate?.

I think in calendar '17. So the 40% of the passings are due have to be completed by the end of '17. And I expect we'll see ramping every quarter with the exception that the second quarter is always going to be light because of disproportion amount of this activity is in northern climates.

And so we'll just see that to somewhat more seasonally impact than other programs..

Obviously, your margins expanded nicely sequentially year-over-year.

But can you talk a little bit about cost pressures in the quarter and any anticipation of cost pressures in the coming year?.

Labors are a little bit tighter, but that's a good thing. As we've always said before, it's not something that we haven't had to contend with before. And other than that I would not say that there are any unusual cost pressures, other than those that are typically associated with rapid growth in an industry that needs to grow capacity..

And last question.

Is there any need at this time for us to consider international expansion?.

No..

Next, we'll go to John Rogers with D.A. Davidson..

Steve, you mentioned your comments about some of the contracts or orders being deployed into regional markets. But, yes, we're seeing most of the growth in your largest customers.

Is there a push for more national contracts? And maybe talk about that a little bit, what you're seeing in terms of the competitive market? I mean, certainly, it looks like Quanta is trying to get back into the market as you guys have acknowledged.

And are you seeing others trying to come into this market?.

So, John, this business is both local and national, right. So we have contract relationships locally with national customers that extend for decades. We have good corporate relationships. And so there is a combination of these emerging programs, where we're seeing good growth. And I'll tell you, we're seeing good growth in the local business too.

And so I think we've just been blessed by having good performance by our folks in the field that's built a reputation that has fit us well competitively.

And so I wouldn't read anything more into it, other than given the scale of these opportunities, engaging with suppliers who have to learn to operate at scale or in a new business, probably creates risk for clients that they're considering..

And just a thought that, I mean, it appears that some of your smaller customers, it's a great quarter, but shrunk the business organically or -- ?.

I mean, John, keep in mind, the stimulus work was really the net of that. So if you looked at all other customers ex the stimulus that finished up last calendar year, it was actually breakeven. And the two clients, and Drew you can give the balance of the top-10, that did not grow in the quarter were Charter and the Time Warner.

And I fully expect now that the merger is in place that there will be more growth opportunities even below the top-five.

Drew why don't you go ahead and give the balance?.

Sure. So Windstream was number six at 5.6% of revenue, Time Warner Cable was number seven at 3.2% of revenue, Charter Communications was number eight at 1.8% of revenue, Crown Capsule was number nine at 1.3% of revenue and Questar Gas was number 10 at 0.8% of revenue..

Our next question is from Tahira Afzal with KeyBanc..

So, Steve, what I've noticed is that your backlog, your book-to-bill, for the total backlog versus the 12 month backlog, that spread has been increasing, which seems to suggest you have much better long-term visibility than maybe you've had over the last three, four years.

Is that a gain being driven by these five clients in particular that you see? And do you think, as John asked in a sense earlier on, do you see it spreading to some of the other customers as well?.

Well, we had good contract bookings in the quarter with customers who are not in the top-five. And I think it reflects the recognition by the industry that the capacity has got to grow, that we're going to make significant investments. We are making significant investments.

And that now is a good time for entering into longer-term relationships, so that we can focus together with our customers on meeting their growth needs.

And I think also, given the consolidation in the industry amongst our customers, I think which continues with the Time Warner Charter transaction, I just think this is an industry where you're going to have very large customers with big programs and long-term outlooks..

Does that allow you to plan better going forward, Steve, and hence does it provide more room for your margins to move up? And when I look back to the dotcom era, your margins on the growth side went into the 23%.

Could we be looking at a situation where we go well beyond that?.

We've always been in the business of having long-term relationships with customers. I mean we have geographies that we've served in one instance since 1954. So, yes, contract is important, but relationship is more important and a proven track record with a customer to geography that we'll get the job done for them the way they like it.

So certainly having a good solid contractual base for the business is important, and it does allow us to continually improve our operating performance. But it's all built on the relationships. And then with respect to the margin profile, I think what we've said and have executed against is that we think a mid-teens EBITDA business is attainable.

And I think probably a lot more relevant comparison to other prior peak cycles, and this isn't peak, because we're in early stages, is our returns on equity are so much better because our capital structure is better. So we expect better shareholder returns..

And, I guess, last question will be a follow-up to that outlook.

Steve, I assume based on the outlook and optimism you have, I assume you will be utilizing the rest of your remaining buyback capacity?.

So, Tahira, the way we've always handled buybacks is, first and foremost, we're going to have enough capital to fund our organic growth. I mean, when you just look at the sheer magnitude of the year-over-year absolute dollar growth, we're going to make sure that we support that.

That will balance M&A opportunities as provided by the market versus share opportunities provided by different market..

Next, we'll go to Adam Thalhimer with BB&T Capital Markets..

You mentioned in your remarks, Steve, that you continue to anticipate substantial new opportunities going forward that could add to backlog. I'm just wondering if you can give any color.

Some of these opportunities you've talked about, 10-gigabit, cable, new series of existing customers, can you give us a flavor for what's still out there?.

I would say, all of those, Adam. And probably some more you haven't thought of..

And then, as it relates to the cable acquisitions, you mentioned Charter and you also have Altice. And Charter's got some new commitments in terms of overbuilding and Altice has talked about taking the amplifiers out of Cablevision's system.

I mean when could you start to see a benefit from those activities?.

Well, with respect to Charter and Time Warner, I think they have some commitments that once again are similar to AT&T and every 12 months they're ramping level of deployment. And so we've seen a little bit of ad activity already and some planning forward. So that's helpful.

We've had a long history of providing construction services to Cablevision, and so we'll look forward to any opportunities there associated with their new ownership. I think we had very solid growth with Comcast or more than solid growth of 46% organic, and I think they continue to be very confident in their plans.

And so I think there are some opportunities there also..

And then, lastly, you said, this cycle is already better than the late 90s versus the most bullish statement you made as it relates to comparing this cycle to the 90s.

So how are you looking at that? I mean what metrics are you talking about when you say that?.

I think when you look at the size of the enterprise and so look at the absolute value of the organic growth, you look at the number of customer initiatives that are being pursued contemporaneously.

And then I just I think our relative scale in our industry just has provided us a look at business that perhaps when we were smaller, we would not have seen or not have seen as much up..

And next, we'll go to Noelle Dilts with Stifel..

I just wanted to extend essentially on that last question that Adam asked and go back to your comments that you think you're in the early stages of the cycles, and this is because I do think there is a bit of a disconnect between how investors are thinking about the cycle and how you guys are seeing it.

So can you talk about when you think we might see peak? And just how many years do you think the cycle could last?.

I'm not sure there is a disconnect with all investors and the way we see the length of the cycle. We see it the way our customers articulate it. So when we have a customer, a major customer, who says that's a 10-year initiative, we believe them.

When we have another customer in all the Connect America Fund work that says its through 2020, we believe them. When we see backlog that's almost doubled year-over-year and that's all the result of customer awards and those awards go into the next decade, we think this is a long cycle.

And I think it was encouraging this quarter, for example, to see Verizon announce the expansion of FiOS in Boston. When you consider that they announced the six-year program, which at the end of it we will have been doing FiOS for them for literally 18 years.

So that's about as long as cycle as I think you can see in a technology-based network business..

And then can you comment on the sequential increase in unbilled receivables? Help us understand why we've seen that increase in the position? And the timing on when you think those will move into the link?.

So, Noelle, there is a mix of customers and when you have this kind of growth and you have a quarter that's backend loaded, it's going to be difficult to build April's production in April. And so once again, as we've discussed this before, we're very confident that our procedures are consistently applied.

And as you can see the DSO, even though the seasonal impact was a challenge, actually came down..

The next question is from the line of Jennifer Fritzsche with Wells Fargo..

Three, if I may. Steve, your former customer number two slipped to customer number three here, and that customer has talked about doing vectoring versus maybe a full-on type approach.

Can you talk about how you would play a role in that? I assume you've done that in the past with other players? And then my second question is related to wireless local loop. You mentioned that you're doing it for some of the players who got cast funding there.

Am I right in seeing that, the only players who can do wireless local loop are those that actually have spectrum with the cast? And then, finally, maybe more of a question for Drew. On the free cash flow, I know it was negative this quarter by about $12 million, driven by $40 million increase in working capital.

I'm just wondering, certainly you have the liquidity in place, especially now with the new term loan.

But can you talk about how you see the kind of working capital heaviness, for lack of a better word, lasting for a while? And do you see that changing, now that a lot of the investments are behind you or with the growth ahead of you there is still more to go?.

So, Jennifer, I'll just talk generally about the difference between, say, fiber-to-the-node and vectoring technologies or improvement to copper versus fiber. I mean, we play a major role in both. There are upgrades not only to the electronic DSLAMs, but also improvements to the exiting copper facilities.

And so not only have we done it in the past, but we're doing it currently, and we look at that as a nice opportunity. With respect to cap and fixed wireless, we are engaged with one customer who is a major wireless carrier.

All of the other opportunities that we're seeing with respect to cap are traditional fiber deployments and new DSLAM installations. If you don't have the spectrum and you don't have a wireless network, it seems unlikely, but somebody would develop one simply to just do cap work. And we've not seen any evidence that that's the case, could change.

And then I think on free cash flow, we're growing the business and having very high returns on capital. Our leverage is coming down on a gross basis. And as long as our customers want us to grow and we're earning high returns on equity, we're happy to support them.

Now that doesn't mean that we can't do a better job of collecting and invoicing, but at the same hand, we're not going to in a business where we're actually deleveraging and are earning high returns on equity. We're not going to let that influence our investment plans..

And next, we'll go to Christian Schwab with Craig-Hallum..

Steve, can you just help me or help us look at backlog, which I think a lot of people are trying to figure out? I would imagine going into better seasonality, depending on how much we really work off here. We would expect that to go up.

But are we at a position where we would expect things to kind of plateau and be worked through over the next year or would you expect certainly not at a rate of 93% year-over-year, again, congratulations on that.

But how should we be thinking about backlog on a quarterly trajectory over, say, the next three to six quarters, if you could give us?.

So, Chris, I mean the first thing I would tell you is, from the company's perspective, we don't think about backlog quarterly, right. These are long-term agreements. They have renewal options. In some instances we have a long history of successfully renewing these contracts.

And so remember, the way we value backlog where we're looking to trailing revenues to value, the remaining term under the contract, I'd probably argue that backlog given our growth rate right now in some hypothetical sense is probably understated. So as we continue to grow the backlog will come up as it gets revalued.

But when we have master contracts that have a fixed term, when you get to the end of the term, there is no backlog left. That doesn't mean there is no growth or no revenue. It just means you have to renew the contract. So I think there is still plenty of opportunities for us to book new business.

But there is going to be this renewal cycle that we go through, where there maybe a period of time where backlog is flat. I mean the best example, and I'm looking at the schedule, is last year from the second quarter of '15 to the third quarter, so from February to April, backlog went down $70 million.

How good of an indicator was that as to our growth rate over the next four quarters, zero. So that's how we think about backlog..

Steve, can you remind us the size of the business that we are today, what percentage of revenue is under master service agreement?.

Masters and other long-term contracts, Christian, is 80%, pretty much like it's always been 80%, 81%, 82%, no change..

And we'll go to Alan Mitrani with Sylvan Lake Asset Management..

Drew, can you give us a split of business from telecom, electrical and the rest, please?.

For the customer split, Telco was at 64.7%, cable was 25.9%, facility locating was 5.8% and electrical and other was 3.6%..

And also, I assume CapEx, I know it's early, but for next year, you're just going to scale up continually as your revenues keep going?.

Alan, as long as we see solid investment opportunity with high returns on equity, we're going to continue to invest. This was a big year. But there are also some pretty substantial opportunities in front of us..

And maybe I missed it, I know you said wireless revenues grew organically, but can you tell us what the absolute number of the wireless -- what was the wireless revenues in the quarter?.

Just under $40 million, Alan..

So that business seemingly peaked a couple years ago.

We've had a tough stretch, as we've heard from MasTec, and we see all the spending from the customers, but it sounds like there has been a change in tone and maybe it's an anticipation of 5G, maybe it's finally just that the overbuild or certain spending that happened a couple of years ago has started to cycle back around.

But do you see that business really accelerating in the next couple of years?.

Well, we don't have a large business in that industry. It's significant. It's a good business. So I don't know how much you can read from our results to the broader industry. I would just tell you that our folks have had some good opportunities that we've executed well against.

And so that business is growing and we expect it to grow based on what we know today through the balance of the calendar year..

And then two others. One on your unnamed customer, the growth rate of your unnamed customer year-over-year, which has been very rapid actually slowed to its lowest level, but it seems like that customer has got a lot of spending coming in the next couple of years.

When do you see or expect us to hear about more contracts or more planned build outs from that customer?.

Alan, I'd just say generally, when you have an industry environment that's as robust as it is today, and we've got big customers with big programs, they are not all going to be marching in cadence quarter-to-quarter. There's going to be times where there is surges and consolidations.

And that's just a way these industry expansions have worked in my experience. So I don't know that there's anything broad to read into an individual customers activity quarter-to-quarter in a short-term period..

And then, lastly, on the lawsuit with Quanta. I realize, I mean, you can't say as much, but maybe you have just a couple of comments you can make regarding the breach of contract.

And also, what was the extra expense maybe in SG&A related to that lawsuit? Were there's some extra cost in there too that might have impacted that you didn't call out?.

Yes. So we won't breakout individual legal matters. I think what I'd have to say in our comments on this call are limited. But I think it's important that we may clear why we filed the lawsuit. So this August, I'll have been President of the company for 20 years, and in that period of time, those 20 years, we bought 38 businesses.

And in every one of those transactions sellers made promises to us about how they behave after the deals were closed. 37 out of 38 times the sellers kept their promise, here they haven't. So the lawsuit is just simply to ensure that the Dycom and the shareholders get what Quanta promised when we entered into the 2012 deal.

So that's really all we have to say..

And we do have a follow-up from John Rogers with D.A. Davidson..

Steve, just one bit of clarification. Relative to your comments about DSOs and CapEx, at what point do we start to see a significant ramp up in cash flow from operations.

I mean it's come down a little bit, I understand it's related to the business build up, but as we think about, how to model this out over the next couple of years?.

So John, the way I've always thought about growth in the industry and I think it's played out this way a number of times, we're deleveraging the business as we grow EBITDA. The operating cash flow will have uses and then seasonal flows back out.

And I think as long as you're going to grow at the rate that we are I think the right way to think about it is not necessarily cash flow from operating activities.

Once again, we're always working on getting better at collections and managing our expenses, but think about what the investment was and the business to produce organically $600 million worth of growth. And this is very low EBITDA multiple growth. And so that's the way we think about the investment cycle.

And we are very confident that we'll manage operating cash flow, as I just alluded to. I've been doing this for a long time and if we can take out almost 40% of your equity, keep your leverage at 2x, you must know how to manage the operating cash flow or you couldn't accomplish those things..

And in terms of acquisition opportunities that are out there, I mean you still feel that -- I mean, you've had pretty consistent investment there, should we expect the same?.

I think as opportunity present itself, John, there are always opportunities to grow our customer relationships on small regional basis, so we're always going to work at those kind of transactions. There are some good smaller businesses out there that we can look at and we'll look at larger businesses as they become available..

But at the pace you're going, and presumably is the cash flow swings, I mean you're going to have the ability, as we get further into '17 to buy in potentially a lot more stock?.

Well, as your EBITDA margins are going up and the incremental is generally non-cash expense other than the investments you make, as that stream of cash keeps coming in and those investments at least at some level will level off, you'll generate a lot of cash and you'll have a lot of earnings..

And we have question from John Gibbons with Swanson River Capital..

There seems to be a perception out there that you provide a sort of a commodity type product.

Can you talk about why your customers choose you as opposed to other people?.

Well, let's start with in the last year we've signed a six-year contract with Verizon for essentially entire East Coast. We've signed three year extension CenturyLink that cover 24 states.

And I guess it ought to be self-evident that the customers see value in us in a long-term relationship, our backlog probably wouldn't have doubled and the duration doubled in the last 12 months. So I don't know how to deal with a perception that doesn't look to the actual performance of the business..

And we have follow up from Jennifer Fritzsche, Wells Fargo..

I just wanted to follow-up on wireless spending, the growth there, because I'm at PCIA right now and what we're hearing down here is not a very robust wireless spend environment from some of your largest customers.

So can you just talk about what kind of, is it DAS, is it fiber-to-the-tower, what wireless work are you doing? And then just I wanted to explore the cable part, because I think you said 25% of your revenue now is cable, and as we look at their infrastructure CapEx for the cable guys that is going up into the right, and yet, there is this perceived notion, I don't mean to throw another perception at you, but that DOCSIS 3.1 is it required additional spend, can you just address that a little bit?.

So with respect to wireless, Jennifer, we are doing DAS, we are doing some small cell, but the bulk of the growth that we saw has really been around macro cells, carrier adds and other improvements to that network. Once again, it's a substantial business, but it's not so large that may not be an outlier.

Although, our folks are pretty confident in their outlook for the next 12 to 18 months in that business and that is the business where there is some fair visibility particularly around site acquisition activity. So we, at least, in our business we feel good about it. We're executing well. We can always do better, but we feel good about that business.

I think with respect to cable, we're clearly growing with cable particularly with Comcast.

I think there is been plenty of industry commentary even at the most recent cable show and certainly by the major equipment manufactures about what will be required to increase capacity in the network and that requires pushing fiber deeper, and so we see great forward opportunities in that initiative.

I think just this week Cox came out and had some comments in the press, where they're talking about taking fiber deeper to increase capacity and also to deal with particularly on the return path. So I would just defer people to take a look at what [ph] Ericsson and some of the other equipment folks are saying. I don't think they could be any clearer.

And since they make the equipment, I don't know how they could be mistaken..

And Mr. Nielsen, there are no further questions in queue. End of Q&A.

Well, we thank everybody for your time and attention. We understand this quarter there was a little bit of extra interest on our calendar. And so just to remind everybody for next year, we always publish the Tuesday before Memorial Day. And next quarter will be publishing at the end of August. So with that thanks and have a good day..

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect..