UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended April 30, 2022
For the transition period from ________ to ________
Commission File Number 001-10613
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices, including zip code) | ||||||||||||||
Registrant’s telephone number, including area code: (561 ) 627-7171
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 29,551,971 shares of common stock with a par value of $0.33 1/3 outstanding at May 24, 2022.
Dycom Industries, Inc.
Table of Contents
| PART I - FINANCIAL INFORMATION | ||||||||
| PART II - OTHER INFORMATION | ||||||||
| SIGNATURES | ||||||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
| April 30, 2022 | January 29, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Accounts receivable, net (Note 5) | |||||||||||
| Contract assets | |||||||||||
| Inventories | |||||||||||
| Income tax receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Current portion of debt | |||||||||||
| Contract liabilities | |||||||||||
| Accrued insurance claims | |||||||||||
| Operating lease liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Accrued insurance claims - non-current | |||||||||||
| Operating lease liabilities - non-current | |||||||||||
| Deferred tax liabilities, net - non-current | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 19) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
| See notes to the condensed consolidated financial statements. | |||||||||||
4
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
(Unaudited)
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Contract revenues | $ | $ | |||||||||
| Costs of earned revenues, excluding depreciation and amortization | |||||||||||
| General and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Total | |||||||||||
| Interest expense, net | ( | ( | |||||||||
| Loss on debt extinguishment | ( | ||||||||||
| Other income, net | |||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Provision for income taxes: | |||||||||||
| Provision (benefit) for income taxes | ( | ||||||||||
| Net income | $ | $ | |||||||||
| Earnings per common share: | |||||||||||
| Basic earnings per common share | $ | $ | |||||||||
| Diluted earnings per common share | $ | $ | |||||||||
| Shares used in computing earnings per common share: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| See notes to the condensed consolidated financial statements. | |||||||||||
5
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Foreign currency translation gains, net of tax | |||||||||||
| Comprehensive income | $ | $ | |||||||||
| See notes to the condensed consolidated financial statements. | |||||||||||
6
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share amounts)
(Unaudited)
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| April 30, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of January 29, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Stock options exercised | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of tax withholdings | ( | — | ( | ( | |||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | ( | ( | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balances as of April 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| May 1, 2021 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of January 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Stock options exercised | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of tax withholdings | ( | — | ( | ( | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balances as of May 1, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| See notes to the condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||
7
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash lease expense | |||||||||||
| Deferred income tax provision | |||||||||||
| Stock-based compensation | |||||||||||
| Amortization of debt discount | |||||||||||
| Provision for bad debt, net | |||||||||||
| Gain on sale of fixed assets | ( | ( | |||||||||
| Loss on debt extinguishment | |||||||||||
| Amortization of debt issuance costs and other | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | ( | ( | |||||||||
| Contract assets, net | ( | ||||||||||
| Other current assets and inventories | ( | ( | |||||||||
| Other assets | |||||||||||
| Income taxes receivable/payable | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities, insurance claims, operating lease liabilities, and other liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from 2029 Notes | |||||||||||
| Proceeds from borrowings on senior credit agreement, including term loan | |||||||||||
| Principal payments on senior credit agreement, including term loan | ( | ( | |||||||||
| Debt issuance costs | ( | ||||||||||
| Repurchase of common stock | ( | ||||||||||
| Exercise of stock options | |||||||||||
| Restricted stock tax withholdings | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period (Note 7) | |||||||||||
| Cash, cash equivalents and restricted cash at end of period (Note 7) | $ | $ | |||||||||
8
Supplemental disclosure of other cash flow activities and non-cash investing and financing activities: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash (refunded) paid for taxes, net | $ | ( | $ | ||||||||
| Purchases of capital assets included in accounts payable or other accrued liabilities at period end | $ | $ | |||||||||
| Debt financing costs included in other accrued liabilities at period end | $ | $ | |||||||||
| See notes to the condensed consolidated financial statements. | |||||||||||
9
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries, all of which are wholly-owned, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2022, filed with the SEC on March 4, 2022. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included. This includes all normal and recurring adjustments and elimination of intercompany accounts and transactions. Operating results for the interim period are not necessarily indicative of the results expected for any subsequent interim or annual period.
2. Significant Accounting Policies and Estimates
There have been no material changes to the Company’s significant accounting policies and critical accounting estimates described in the Company’s Annual Report on Form 10-K for fiscal 2022.
10
3. Accounting Standards
Recently issued accounting pronouncements are disclosed in the Company’s Annual Report on Form 10-K for fiscal 2022. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in the expected dates of adoption or estimated effects on the Company’s condensed consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s Annual Report on Form 10-K for fiscal 2022. Further, there have been no additional accounting standards issued as of the date of this Quarterly Report on Form 10-Q that are applicable to the condensed consolidated financial statements of the Company.
Accounting Standards Not Yet Adopted
All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
4. Computation of Earnings per Common Share
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Net income available to common stockholders (numerator) | $ | $ | |||||||||
| Weighted-average number of common shares (denominator) | |||||||||||
| Basic earnings per common share | $ | $ | |||||||||
| Weighted-average number of common shares | |||||||||||
| Potential shares of common stock arising from stock options, and unvested restricted share units | |||||||||||
| Total shares-diluted (denominator) | |||||||||||
| Diluted earnings per common share | $ | $ | |||||||||
| Anti-dilutive weighted shares excluded from the calculation of earnings per common share: | |||||||||||
| Stock-based awards | |||||||||||
Warrants(1) (2) | |||||||||||
| Total | |||||||||||
11
(1) The Company used the treasury stock method for calculating any potential dilutive impact on earnings per common share if our average stock price for the period exceeded the $96.89 per share conversion price. There was no dilutive impact on earnings per common share during any of the periods presented as our average stock price did not exceed the per share conversion price and the 2021 Convertible Notes (as defined in Note 13) matured on September 15, 2021. The warrants associated with our 2021 Convertible Notes would have had a dilutive impact on earnings per common share if our average stock price for the period had exceeded the $130.43 per share warrant strike price. As our average stock price did not exceed the strike price for the warrants for any periods presented, the underlying common shares were anti-dilutive as reflected in the table above. The warrants were scheduled to expire on a series of dates concluding on May 9, 2022. During the fourth quarter of fiscal 2022, we purchased the remaining warrants for $0.7 million and there are no additional warrants outstanding.
(2) In connection with the offering of the 2021 Convertible Notes, we entered into convertible note hedge transactions with counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the 2021 Convertible Notes and offsetting any potential cash payments in excess of the principal amount of the 2021 Convertible Notes. Prior to conversion, the convertible note hedge was not included for purposes of the calculation of earnings per common share as its effect would be anti-dilutive. Upon any conversion, the convertible note hedge was expected to offset the dilutive effect of the 2021 Convertible Notes when the average stock price for the period was above $96.89 per share. The 2021 Convertible Notes matured on September 15, 2021. The convertible note hedge transactions expired on September 13, 2021. See Note 13, Debt, for additional information related to our 2021 Convertible Notes, warrant transactions, and hedge transactions.
5. Accounts Receivable, Contract Assets, and Contract Liabilities
The following provides further details on the balance sheet accounts of accounts receivable, net; contract assets; and contract liabilities.
Accounts Receivable
| April 30, 2022 | January 29, 2022 | ||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Unbilled accounts receivable | |||||||||||
| Retainage | |||||||||||
| Total | |||||||||||
| Less: allowance for doubtful accounts | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
We maintain an allowance for doubtful accounts for estimated losses on uncollected balances. The allowance for doubtful accounts changed as follows (dollars in thousands):
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Allowance for doubtful accounts at beginning of period | $ | $ | |||||||||
| Provision for bad debt | |||||||||||
| Amounts recovered (charged) against the allowance | ( | ||||||||||
| Allowance for doubtful accounts at end of period | $ | $ | |||||||||
12
Contract Assets and Contract Liabilities
| April 30, 2022 | January 29, 2022 | ||||||||||
| Contract assets | $ | $ | |||||||||
| Contract liabilities | |||||||||||
| Contract assets, net | $ | $ | |||||||||
During the three months ended April 30, 2022, we performed services and recognized $7.7 million of contract revenues related to contract liabilities that existed at January 29, 2022. See Note 6, Other Current Assets and Other Assets, for information on our long-term contract assets.
Customer Credit Concentration
Customers whose combined amounts of accounts receivable and contract assets, net, exceeded 10% of total combined accounts receivable and contract assets, net, as of April 30, 2022 or January 29, 2022 were as follows (dollars in millions):
| April 30, 2022 | January 29, 2022 | ||||||||||||||||||||||
| Amount | % of Total | Amount | % of Total | ||||||||||||||||||||
| Lumen Technologies | $ | $ | |||||||||||||||||||||
| Verizon Communications Inc. | $ | $ | |||||||||||||||||||||
| AT&T Inc. | $ | $ | |||||||||||||||||||||
| Comcast Corporation | $ | $ | |||||||||||||||||||||
6. Other Current Assets and Other Assets
| April 30, 2022 | January 29, 2022 | ||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Deposits and other current assets | |||||||||||
| Insurance recoveries/receivables for accrued insurance claims | |||||||||||
| Restricted cash | |||||||||||
| Receivables on equipment sales | |||||||||||
| Other current assets | $ | $ | |||||||||
| April 30, 2022 | January 29, 2022 | ||||||||||
| Long-term contract assets | $ | $ | |||||||||
| Deferred financing costs | |||||||||||
| Restricted cash | |||||||||||
| Insurance recoveries/receivables for accrued insurance claims | |||||||||||
| Other non-current deposits and assets | |||||||||||
| Other assets | $ | $ | |||||||||
Long-term contract assets represent payments made to customers pursuant to long-term agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to the customers.
13
7. Cash, Cash Equivalents and Restricted Cash
| April 30, 2022 | January 29, 2022 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in: | |||||||||||
| Other current assets | |||||||||||
| Other assets (long-term) | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
8. Property and Equipment
Property and equipment consisted of the following (dollars in thousands):
| Estimated Useful Lives (Years) | April 30, 2022 | January 29, 2022 | |||||||||||||||
| Land | — | $ | $ | ||||||||||||||
| Buildings | |||||||||||||||||
| Leasehold improvements | |||||||||||||||||
| Vehicles | |||||||||||||||||
| Computer hardware and software | |||||||||||||||||
| Office furniture and equipment | |||||||||||||||||
| Equipment and machinery | |||||||||||||||||
| Total | |||||||||||||||||
| Less: accumulated depreciation | ( | ( | |||||||||||||||
| Property and equipment, net | $ | $ | |||||||||||||||
Depreciation expense was $32.7 million and $34.4 million for the three months ended April 30, 2022 and May 1, 2021, respectively.
9. Goodwill and Intangible Assets
Goodwill
| April 30, 2022 | January 29, 2022 | |||||||||||||
| Goodwill, gross | $ | $ | ||||||||||||
| Accumulated impairment losses | ( | ( | ||||||||||||
| Total | $ | $ | ||||||||||||
The Company’s goodwill resides in multiple reporting units and primarily consists of expected synergies, together with the expansion of the Company’s geographic presence and strengthening of its customer base from acquisitions. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual reporting units may suffer periodically due to downturns in customer demand, increased costs of providing services, and the level of overall economic activity. The Company’s customers may reduce capital expenditures and defer or cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also suffer if actual costs of providing services
14
exceed the costs anticipated when the Company enters into contracts. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of the Company’s reporting units. The cyclical nature of the Company’s business, the high level of competition existing within its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.
The Company performs its annual impairment assessment as of the first day of the fourth fiscal quarter of each fiscal year. As a result of the Company’s fiscal 2022 period assessment, the Company determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of their carrying values and no impairment had occurred. As of April 30, 2022, the Company continues to believe the remaining goodwill and the indefinite-lived intangible asset are recoverable for all of its reporting units.
Intangible Assets
| April 30, 2022 | January 29, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Remaining Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Trade names, finite | |||||||||||||||||||||||||||||||||||||||||
| Trade name, indefinite | — | ||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
Amortization of our customer relationship intangibles is recognized on an accelerated basis as a function of the expected economic benefit. Amortization of our other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life. Amortization expense for finite-lived intangible assets was $3.9 million and $4.7 million for the three months ended April 30, 2022 and May 1, 2021, respectively.
As of April 30, 2022, we believe that the carrying amounts of our intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment.
10. Accrued Insurance Claims
For claims within our insurance program, we retain the risk of loss, up to certain annual stop-loss limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. Losses for claims beyond our retained risk of loss are covered by insurance up to our coverage limits.
For fiscal 2022, with regard to workers’ compensation losses, we retained the risk of loss up to $1.0 million on a per occurrence basis. This retention amount is applicable to all of the states in which we operate, except with respect to workers’ compensation insurance in two states in which we participate in state-sponsored insurance funds. With regard to automobile liability and general liability losses for fiscal 2022, we retained the risk of loss up to $1.0 million on a per-occurrence basis for the first $5.0 million of insurance coverage. We also retained the risk of loss for automobile and general liability for the next $5.0 million on a per-occurrence basis with aggregate loss limits of $11.5 million within this layer of retention. In addition, we retained $10.0 million risk of loss on a per occurrence basis for losses above $30.0 million.
For fiscal 2023, with regard to workers’ compensation losses, our retention of risk remains the same as fiscal 2022. With regard to automobile liability and general liability losses our retention of risk remains the same as fiscal 2022, with the exception that we retained an additional $5.0 million risk of loss on a per occurrence basis for losses above $10.0 million, if any.
15
We are party to a stop-loss agreement for losses under our employee group health plan. For the calendar year 2022, we retain the risk of loss on an annual basis, up to the first $600,000 of claims per participant.
| April 30, 2022 | January 29, 2022 | ||||||||||
| Accrued insurance claims - current | $ | $ | |||||||||
| Accrued insurance claims - non-current | |||||||||||
| Accrued insurance claims | $ | $ | |||||||||
| Insurance recoveries/receivables: | |||||||||||
| Current (included in Other current assets) | $ | $ | |||||||||
| Non-current (included in Other assets) | |||||||||||
| Insurance recoveries/receivables | $ | $ | |||||||||
Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During the three months ended April 30, 2022, total insurance recoveries/receivables decreased approximately $0.9 million primarily due to the settlement of claims that exceeded our loss retention. Accrued insurance claims decreased by a corresponding amount.
11. Leases
We lease the majority of our office facilities as well as certain equipment, all of which are accounted for as operating leases. These leases have remaining terms ranging from less than 1 year to approximately 9 years. Some leases include options to extend the lease for up to 5 years and others include options to terminate.
The following table summarizes the components of lease cost recognized in the condensed consolidated statements of operations for the three months ended April 30, 2022 and May 1, 2021 (dollars in thousands):
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Lease cost under long-term operating leases | $ | $ | |||||||||
| Lease cost under short-term operating leases | |||||||||||
Variable lease cost under short-term and long-term operating leases(1) | |||||||||||
| Total lease cost | $ | $ | |||||||||
(1) Variable lease cost primarily includes insurance, maintenance, and other operating expenses related to our leased office facilities.
Our operating lease liabilities related to long-term operating leases were $62.0 million as of April 30, 2022 and $61.2 million as of January 29, 2022. Supplemental balance sheet information related to these liabilities is as follows:
| April 30, 2022 | January 29, 2022 | ||||||||||
| Weighted average remaining lease term | |||||||||||
| Weighted average discount rate | % | % | |||||||||
16
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | |||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
As of April 30, 2022, maturities of our lease liabilities under our long-term operating leases for the next five fiscal years and thereafter are as follows (dollars in thousands):
| Fiscal Year | Amount | |||||||
| Remainder of 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | |||||||
| Total | $ | |||||||
As of April 30, 2022, the Company had additional operating leases with total leases costs of $1.0 million, which will commence during the second quarter of fiscal 2023.
12. Other Accrued Liabilities
| April 30, 2022 | January 29, 2022 | ||||||||||
| Accrued payroll and related taxes | $ | $ | |||||||||
| Accrued employee benefit and incentive plan costs | |||||||||||
| Accrued construction costs | |||||||||||
| Other current liabilities | |||||||||||
| Other accrued liabilities | $ | $ | |||||||||
13. Debt
| April 30, 2022 | January 29, 2022 | ||||||||||
| Credit agreement - Revolving facility (matures April 2026) | $ | $ | |||||||||
| Credit agreement - Term loan facility, net (matures April 2026) | |||||||||||
| Less: current portion | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
17
Senior Credit Agreement
On April 1, 2021, the Company and certain of its subsidiaries amended its credit agreement, dated as of October 19, 2018, with the various lenders party thereto and Bank of America, N.A., as administrative agent (the “Credit Agreement”) to among other things, decrease the maximum revolver commitment to $650.0 million from $750.0 million and decrease the term loan facility to $350.0 million from $416.3 million. The Credit Agreement includes a $200.0 million sublimit for the issuance of letters of credit and a $50.0 million sublimit for swingline loans. As part of the amendment, the maturity of the Credit Agreement was extended to April 1, 2026.
The following table summarizes the net carrying value of the term loan as of April 30, 2022 and January 29, 2022 (dollars in thousands):
| April 30, 2022 | January 29, 2022 | ||||||||||
| Principal amount of term loan | $ | $ | |||||||||
| Less: Debt issuance costs | ( | ( | |||||||||
| Net carrying amount of term loan | $ | $ | |||||||||
Subject to certain conditions, the Credit Agreement provides us with the ability to enter into one or more incremental facilities either by increasing the revolving commitments under the Credit Agreement and/or by establishing one or more additional term loans, up to the sum of (i) $350.0 million and (ii) an aggregate amount such that, after giving effect to such incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated senior secured net leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured net leverage ratio is the ratio of our consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in excess of $25.0 million to our trailing twelve-month consolidated earnings before interest, taxes, depreciation, and amortization, as defined by the Credit Agreement (“EBITDA”). Borrowings under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and secured by 100% of the equity interests of our direct and indirect domestic subsidiaries and 65% of the voting equity interests and 100% of the non-voting interests of our first-tier foreign subsidiaries (subject to customary exceptions).
Under the Credit Agreement, borrowings bear interest at the rates described below based upon our consolidated net leverage ratio, which is the ratio of our consolidated total funded debt reduced by unrestricted cash and equivalents in excess of $25.0 million to our trailing twelve-month consolidated EBITDA, as defined by the Credit Agreement. In addition, we incur certain fees for unused balances and letters of credit at the rates described below, also based upon our consolidated net leverage ratio.
| Borrowings - Eurodollar Rate Loans | |||||
| Borrowings - Base Rate Loans | |||||
| Unused Revolver Commitment | |||||
| Standby Letters of Credit | |||||
| Commercial Letters of Credit | |||||
(1) To address the transition in financial markets away from LIBOR, the Credit Agreement includes provisions related to the replacement of LIBOR with a LIBOR Successor Rate (as defined in the Credit Agreement), which may be a rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York.
(2) Base rate is described in our Credit Agreement as the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the administrative agent’s prime rate, and (iii) the Eurodollar rate plus 1.00 % and, if such rate is less than zero, such rate shall be deemed zero.
Standby letters of credit of approximately $47.5 million and $46.3 million, issued as part of our insurance program, were outstanding under the Credit Agreement as of April 30, 2022 and January 29, 2022, respectively.
18
The weighted average interest rates and fees for balances under our Credit Agreement as of April 30, 2022 and January 29, 2022 were as follows:
| Weighted Average Rate End of Period | |||||||||||
| April 30, 2022 | January 29, 2022 | ||||||||||
| Borrowings - Term loan facility | |||||||||||
Borrowings - Revolving facility(1) | |||||||||||
| Standby Letters of Credit | |||||||||||
| Unused Revolver Commitment | |||||||||||
(1) There were no outstanding borrowings under our revolving facility as of April 30, 2022 and January 29, 2022.
The Credit Agreement contains a financial covenant that requires us to maintain a consolidated net leverage ratio of not greater than 3.50 to 1.00 , as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in connection with permitted acquisitions. The agreement also contains a financial covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing twelve-month consolidated EBITDA to our consolidated interest expense, each as defined by the Credit Agreement, of not less than 3.00 to 1.00 , as measured at the end of each fiscal quarter. At April 30, 2022 and January 29, 2022, we were in compliance with the financial covenants of our Credit Agreement and had borrowing availability under the revolving facility of $284.3 million and $326.3 million, respectively, as determined by the most restrictive covenant. For calculation purposes, applicable cash on hand is netted against the funded debt amount as permitted in the Credit Agreement.
On April 1, 2021, we issued $500.0 million aggregate principal amount of 4.50 % senior notes due 2029 (the “2029 Notes”). The 2029 Notes are guaranteed on a senior unsecured basis, jointly and severally, by all of our domestic subsidiaries that guarantee the Credit Agreement.
The indenture governing the 2029 Notes contains certain covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur additional debt and issue certain preferred stock, (ii) pay certain dividends on, repurchase, or make distributions in respect of, our and our Subsidiaries’ capital stock or make other payments restricted by the indenture, (iii) enter into agreements that place limitations on distributions made from certain of our subsidiaries, (iv) guarantee certain debt, (v) make certain investments, (vi) sell or exchange certain assets, (vii) enter into transactions with affiliates, (viii) create certain liens, and (ix) consolidate, merge or transfer all or substantially all of our or our Subsidiaries’ assets. These covenants are subject to a number of exceptions, limitations and qualifications as set forth in the indenture governing the 2029 Notes.
The following table summarizes the net carrying value of the 2029 Notes as of April 30, 2022 and January 29, 2022 (dollars in thousands):
| April 30, 2022 | January 29, 2022 | ||||||||||
| Principal amount of 2029 Notes | $ | $ | |||||||||
| Less: Debt issuance costs | ( | ( | |||||||||
| Net carrying amount of 2029 Notes | $ | $ | |||||||||
The following table summarizes the fair value of the 2029 Notes, net of debt issuance costs. The fair value of the 2029 Notes is based on the closing trading price per $100 of the 2029 Notes as of the last day of trading (Level 2), which was $91.25 and $97.50 as of April 30, 2022 and January 29, 2022, respectively (dollars in thousands):
| April 30, 2022 | January 29, 2022 | ||||||||||
| Fair value of principal amount of 2029 Notes | $ | $ | |||||||||
| Less: Debt issuance costs | ( | ( | |||||||||
| Fair value of 2029 Notes | $ | $ | |||||||||
19
On September 15, 2015, we issued 0.75 % convertible senior notes in a private placement in the principal amount of $485.0 million (the “2021 Convertible Notes”). The 2021 Convertible Notes, governed by the terms of an indenture between the Company and a bank trustee, were unsecured obligations and did not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by the Company. The 2021 Convertible Notes bore interest at a rate of 0.75 % per year, payable in cash semiannually in March and September, and matured on September 15, 2021. On the maturity date the outstanding balance of $58.3 million under the 2021 Convertible Notes was repaid in full and no 2021 Convertible Notes were converted prior to maturity.
In connection with the offering of the 2021 Convertible Notes, we entered into convertible note hedge transactions with counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the 2021 Convertible Notes and offsetting any potential cash payments in excess of the principal amount of the 2021 Convertible Notes. We also entered into separately negotiated warrant transactions with the same counterparties whereby we sold warrants to purchase shares of our common stock at a price of $130.43 per share. The convertible note hedge transactions expired in September 2021. In addition, we unwound the remaining warrants during the fourth quarter of fiscal 2022 and, as a result, there are no additional warrants outstanding. For further information, see Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2022.
14. Income Taxes
Our interim income tax provisions are based on the effective income tax rate expected to be applicable for the full fiscal year, adjusted for specific items that are required to be recognized in the period in which they occur. Deferred tax assets and liabilities are based on the enacted tax rate that will apply in future periods when such assets and liabilities are expected to be settled or realized.
Our effective income tax rate was 3.4 % and 149.1 % for the three months ended April 30, 2022 and May 1, 2021, respectively. The effective tax rate differs from the statutory rate primarily due to tax credits recognized, the impact of the vesting and exercise of share-based awards, and the difference in income tax rates from state to state where work was performed. During the three months ended April 30, 2022 and May 1, 2021, the Company realized approximately $2.5 million and $2.6 million of net excess tax benefits, respectively, related to the vesting and exercise of share-based awards. Additionally, the three months ended April 30, 2022 includes approximately $1.7 million of incremental tax benefit for tax credits related to a tax filing for a prior year. Other fluctuations in our effective income tax rate from the statutory rate each period are mainly attributable to changes in unrecognized tax benefits, tax law changes, and variances in non-deductible and non-taxable items.
During the first quarter of fiscal 2023, we were notified by the Internal Revenue Service that our federal income tax return for fiscal 2016 was selected for examination due to the net operating loss carryback claim filed in fiscal 2021. In addition, fiscal year 2020 was selected for examination in the second quarter of fiscal 2022. We believe our provision for income taxes is adequate; however, any assessment may affect our results of operations and cash flows.
15. Other Income, Net
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Gain on sale of fixed assets | $ | $ | |||||||||
| Discount fee expense | ( | ( | |||||||||
| Miscellaneous income, net | |||||||||||
| Other income, net | $ | $ | |||||||||
We participate in a vendor payment program sponsored by one of our customers. Eligible accounts receivable from this customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner. This program effectively reduces the time to collect these receivables as compared to that customer’s standard payment terms. We incur a
20
16. Capital Stock
Repurchases of Common Stock. On March 2, 2022 the Company announced that its Board of Directors had authorized a new $150 million program to repurchase shares of the Company’s outstanding common stock through August 2023 in open market or private transactions. The new authorization replaces the remaining $43.9 million that was available under the prior authorization. During the first quarter of fiscal 2023, we repurchased 200,000 shares of common stock, at an average price of $92.70 , for $18.5 million. As of April 30, 2022, $131.5 million of the authorization was available for repurchases.
Restricted Stock Tax Withholdings. During the three months ended April 30, 2022 and May 1, 2021 the Company withheld 56,839 shares and 74,835 shares, respectively, totaling $5.5 million and $6.4 million, respectively, to meet payroll tax withholdings obligations arising from the vesting of restricted share units. All shares withheld have been canceled. Shares of common stock withheld for tax withholdings do not reduce the Company’s total share repurchase authority.
Upon cancellation of shares repurchased or withheld for tax withholdings, the excess over par value is recorded as a reduction of additional paid-in capital until the balance is reduced to zero, with any additional excess recorded as a reduction of retained earnings. During the three months ended April 30, 2022, $20.8 million was charged to retained earnings related to shares canceled during the period.
17. Stock-Based Awards
We have certain stock-based compensation plans under which we grant stock-based awards, including common stock, stock options, time-based restricted share units (“RSUs”), and performance-based restricted share units (“Performance RSUs”) to attract, retain, and reward talented employees, officers, and directors, and to align stockholder and employee interests.
Compensation expense for stock-based awards is based on fair value at the measurement date. This expense fluctuates over time as a function of the duration of vesting periods of the stock-based awards and the Company’s performance, as measured by criteria set forth in performance-based awards. Stock-based compensation expense is included in general and administrative expenses in the condensed consolidated statements of operations and the amount of expense ultimately recognized depends on the quantity of awards that actually vest. Accordingly, stock-based compensation expense may vary from period to period.
The performance criteria for the Company’s performance-based equity awards utilize the Company’s operating earnings (adjusted for certain amounts) as a percentage of contract revenues for the applicable four-quarter period (a “Performance Year”) and its Performance Year operating cash flow level (adjusted for certain amounts). Additionally, certain awards include three-year performance measures that, if met, result in supplemental shares awarded. For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if it determines it is probable that performance criteria for the awards will be met.
| For the Three Months Ended | |||||||||||
| April 30, 2022 | May 1, 2021 | ||||||||||
| Stock-based compensation | $ | $ | |||||||||
| Income tax effect of stock-based compensation | $ | $ | |||||||||
During the three months ended April 30, 2022 and May 1, 2021 the Company realized approximately $2.5 million and $2.6 million of net excess tax benefits, respectively, related to the vesting and exercise of share-based awards.
21
As of April 30, 2022, we had unrecognized compensation expense related to stock options, RSUs, and target Performance RSUs (based on the Company’s expected achievement of performance measures) of $3.7 million, $21.5 million, and $9.2 million, respectively. This expense will be recognized over a weighted-average number of years of 3.2 , 3.0 , and 2.1 , respectively, based on the average remaining service periods for the awards. We may recognize an additional $24.3 million in compensation expense in future periods after April 30, 2022 if the maximum number of Performance RSUs is earned based on certain performance measures being met.
Stock Options
| Stock Options | |||||||||||
| Shares | Weighted Average Exercise Price | ||||||||||
| Outstanding as of January 29, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Options exercised | ( | $ | |||||||||
| Outstanding as of April 30, 2022 | $ | ||||||||||
| Exercisable options as of April 30, 2022 | $ | ||||||||||
RSUs and Performance RSUs
| Restricted Stock | |||||||||||||||||||||||
| RSUs | Performance RSUs | ||||||||||||||||||||||
| Share Units | Weighted Average Grant Date Fair Value | Share Units | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| Outstanding as of January 29, 2022 | $ | $ | |||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
| Share units vested | ( | $ | ( | $ | |||||||||||||||||||
| Forfeited or canceled | ( | $ | ( | $ | |||||||||||||||||||
| Outstanding as of April 30, 2022 | $ | $ | |||||||||||||||||||||
The total number of granted Performance RSUs presented above consists of