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Dycom Industries, Inc. operates in the telecommunications infrastructure industry, providing engineering, construction, and maintenance services to telecommunications and utility companies. Dycom installs and maintains aerial, underground, and buried cable systems owned by telephone companies and cable television providers. The company installs integrated voice, data, and video networks within office buildings and similar structures. Dycom also provides locating services to map and mark underground utilities. Operating through 31 subsidiaries, Dycom served more than 100 customers in 48 states, including Qwest, Comcast, Sprint, and Verizon.
Although Dycom was founded in 1969, the company did not begin to show signs of becoming an industry leader until the mid-1980s. In part, the delay of its rise was attributable to finding its niche within the telecommunications infrastructure industry. The company did not begin to grow meaningfully until it shaped itself into a fiber-optics specialist, and it could not mount a campaign of aggressive growth until the industry it served embraced fiber optics as an alternative to copper wiring. Both of these conditions for growth, when existent, created a fertile climate for Dycom's rise, but one crucial ingredient still remained: a leader capable of foreseeing and seizing the business opportunity. That individual arrived at Dycom in 1984. Through the vision and commitment to growth displayed by Thomas Pledger, Dycom began its assault on the telecommunications industry.
Pledger, who presided over the company during its development into an industry leader and during the most difficult period in its history, took a calculating look at the telecommunications industry when he arrived at Dycom. Telephone companies such as AT&T, MCI, and Sprint were starting the long process of replacing copper wiring with fiber-optic lines in their long-distance lines. Pledger knew he could install the lines for far less cost than could the telephone companies. Pledger's conviction was justified, based on reason more than biased hope. Telephone companies, with their unionized workforces, carried very expensive manpower, unable to compete with low-cost, nonunion enterprises such as Dycom. Telephone companies realized as much and eventually outsourced nearly all of their installation and service work to other firms. Pledger saw the opportunity and acted upon it, initiating an acquisition campaign that would leave the company prepared for the transition to fiber optics.
Expansion Through Acquisitions in the 1980s
In the years following Pledger's arrival at Dycom, the company completed a series of acquisitions. The company chose to grow through acquisitions rather than through internal means for a reason. "If the guy in the next territory is happy and the telephone company is happy," Pledger explained in a September 3, 1991 interview with Financial World, "then he is going to be very hard to unseat." Consequently, growth through acquisitions was adopted as Dycom's mode of attack. The company's march, completed territory by territory, region by region, began in 1984. Typically, Pledger acquired selected companies, many of which were quite small, by purchasing them with Dycom stock. The owners of the acquired businesses became Dycom managers, creating a decentralized organizational structure. To lend accountability and drive to the company's operations, the managers were awarded bonuses when specific performance objectives were achieved. With an acquisition procedure in place, Dycom steadily grew, insinuating itself across the nation and preparing for the future.
Being able to tout itself as a company with a genuine national presence offered Dycom the advantages of growth and stability. The greater the company's physical presence became, the greater its ability to increase revenues became. Profit margins in the telecommunications infrastructure business remained essentially constant, but sales growth could be increased as the scope of a company's geographic operation broadened. The ability to serve more territory for more customers enabled a company such as Dycom to generate more profits primarily because it generated greater revenues. Further, local installation contracts generally were too small to require competitive bidding, a sector of the telecommunications infrastructure industry known as the "local loop" business. Because competitive bidding often did not exist in the local loop business, "master contractors" were automatically given the business awarded by local installation contracts. The dynamics of the industry, consequently, demanded piecemeal expansion to ensure success. Dycom, with its decentralized organizational structure, flowered into a company consisting of a host of operating subsidiaries, each taking on the local loop business of a country divided into territories.
The conversion to fiber-optic technology fueled Dycom's growth, making the 1980s the company's signal decade of success. Between 1996 and the end of the decade, the company's role as a leader in providing the specialized services of a fiber-optic installer enabled it to post annual revenue growth of 48 percent. On the eve of an encouraging turning point in the telecommunications infrastructure industry, Dycom completed the acquisition of Ansco & Associates, LLC in 1990, marking a juncture but not the culmination of the acquisition spree touched off in 1984. Awarded its first master contract in 1981, Greensboro, North Carolina-based Ansco & Associates operated as long-distance and local loop fiber-optic cable installer in the southeastern United States.
Not long after the acquisition of Ansco & Associates, the moment Pledger had waited for arrived, promising to greatly increase the size of his $165 million-in-sales company. In 1991, Judge Harold Green decided to allow the regional Bell operating companies to enter the information business, a ruling that meant the Baby Bells--as the operating companies were commonly known--could begin to install fiber optics into offices and homes. Dycom stood to gain much from the decision, but the company appeared in the newspaper headlines for all the wrong reasons following Green's nod of consent.
Infighting in the 1990s
Judge Green's ruling caused a stir within the telecommunications infrastructure industry. In late 1991, Dycom's rival, Burnup & Sims Inc., launched an unsolicited attempt to merge with Dycom, an attempt aided in part by Pledger's fellow executive, Dycom President William Stover. In the turmoil to follow, an internal revolt ensued. Pledger fired Stover. In response, Stover sued Pledger and Robert Owens, Dycom's chief financial officer, claiming fraud and other violations. Dycom countered, filing a lawsuit of its own. Meanwhile, Dycom's stock dropped in value, shadowed by declines in the company's revenue and its net income. The company's waning strength prompted Dycom shareholders to join the fray in the form of a shareholder class-action lawsuit. The Securities and Exchange Commission (SEC) took an interest as well, launching its own investigation into the litigious battles embroiling Dycom.
The acrimony dragged on for several years, hobbling Dycom's chance to take advantage of Judge Green's ruling. In November 1992, Stover appeared at the company's shareholder meeting and tried to oust Pledger. He failed. Finally, in February 1993, both parties agreed to settle, but considerable damage already had been done. In 1993, from revenues of $136.9 million, Dycom recorded a massive loss of $31.5 million. In 1994, when revenues slipped to $122.5 million, the company lost nearly $8 million. Although Dycom ranked as one of the largest companies in the country devoted to installing fiber optics for telephone access as well as cable transmission lines, the toll incurred during the first half of the 1990s was severe. The company lost $45.6 million during a four-year period, while its stock collapsed, plummeting from $16 per share to $2 per share.
After the debacle, Pledger entered the second half of the 1990s trying to forget the sting of the preceding years. "We've got most of our problems behind us now," he said in an October 20, 1995 interview with the South Florida Business Journal. Pledger's words were not entirely convincing, but Dycom's actions during the second half of the 1990s unequivocally demonstrated the erasure of the problems earlier in the decade. In 1996, the company generated $145 million in sales and recorded net income of $4.6 million. By the end of the decade, the company's annual revenue volume eclipsed $600 million. Annual profits flirted with the $50 million mark. The enormous leap in the company's financial stature came in large part from the increased size of its operations geographically. By the end of the 1990s, the company was operating in 40 states providing a variety of services. Dycom installed lines for cable and telephone companies. The company installed integrated voice, data, and video networks within office buildings. Dycom installed direct broadcast satellite systems, provided locating services to map and mark underground utilities, and the company provided electrical utility power line services, including the installation and maintenance of high-voltage power grids. Dycom was bigger and broader, enabling it to record vigorous financial growth.
Pledger met with success during the 1980s and disaster during the first half of the 1990s. His third period of leadership saw Dycom exhibit the strength he foresaw in 1984, becoming the halcyon years that marked the end of his day-to-day control over the company. In 1999, he gave up his title as chief executive officer, scaling back his duties to those accorded to a chairman. His replacement was Steve Nielsen, who was appointed president and chief executive officer in March 1999. Nielsen, hired in 1993 to manage the company's Atlanta office, joined Dycom during the company's contentious struggle with Stover and shareholders. In 2000, Pledger retired, paving the way for Nielsen's appointment as Dycom's chairman of the board. The succession of a new leader and the departure of Pledger, who had directed the company's course for more than 15 years, marked the beginning of a new era.
Dycom in the 21st Century
One constant bridging the Pledger era and the Nielsen era was acquisitive activity. During the company's fiscal 2000 year, five acquisitions were completed. At the time of Nielsen's appointment as chairman, Dycom operated through 15 subsidiaries, a number that was to increase significantly during the coming years. In late 2000, Dycom announced plans to acquire Point-to-Point Communications, a provider of central office equipment, engineering, installation, testing, and maintenance services for the optical networks of telecommunication providers. At the time of the announcement, Dycom relied heavily on BellSouth Telecommunications, Inc. and Comcast Cable Communications, Inc., which together accounted for nearly 40 percent of the company's annual sales.
The first years of Nielsen's reign represented a troubled period for Dycom, as a recessive economic climate and other factors contributed to unsettling financial results. Revenues soared to $826 million in 2001, but fell nearly 25 percent the following year because of the profound financial problems experienced by two of its customers, Adelphia Communications Corp. and WorldCom Inc. In terms of profitability, the difference between the two years was far more glaring. After recording $61.4 million in net income in 2001, Dycom posted a numbing $123 million loss in 2002.
During the downturn, Nielsen and his management team prepared for the resumption of growth in the telecommunications industry. Part of the company's strategy was reflected in the February 2002 acquisition of Arguss Communications, Inc., the first large-scale merger of two publicly traded providers of telecommunications infrastructure services. The addition of Arguss significantly expanded Dycom's geographic coverage and its roster of clients, giving the company greater technical service capabilities and improved broadband offerings. The merger was expected to add to Dycom's earnings in 2003.
As Dycom prepared for the future, firm financial footing eluded the company. There were signs of improvement, however, particularly in the company's stock performance. Comcast's acquisition of AT&T's cable television assets in 2002 proved to be a blessing for Dycom. Comcast hired Dycom to upgrade its cable lines, an 18-month project that began in April 2003. In addition, Dycom secured a four-year maintenance contract from Sprint covering the telecommunications company's wiring and telephone equipment in the mid-South. In response to the news, the company's stock rose $2.25 per share, reaching a 52-week high of $16.21 in June 2003. In the years ahead, Nielsen and his team hoped to turn occasional highlights into consistent financial success and make Dycom the dominant company in its industry.
Principal Subsidiaries: Ansco & Associates, LLC; Apex Digital, Inc.; C-2 Utility Contractors, LLC; Cable Com, Inc.; Cable Connectors, LLC; Can-Am Communications, Inc.; Communications Construction Group, LLC; DiversiCom Site Development, LLC; Ervin Cable Construction, LLC; Fiber Cable, LLC; Globe Communications LLC; Installation Technicians, LLC; Ivy H. Smith Company, Inc.; Kohler Construction, LLC; Lamberts' Cable Splicing Co., LLC; Kitt Smith Communications, LLC; Locating, Inc.; Nichols Construction, LLC; Niels Fugal Sons Company, LLC; Point to Point Communications, LP; Stevens Communications, LLC; Star Construction, LLC; STS, LLC; TCS Communications, LLC; Tesinc, Inc.; Triple D Communications, LLC; Underground Specialties, LLC; US Communications, LLC; White Mountain Cable Construction, LLC.
Principal Competitors: MasTec, Inc.; Orius Corporation; Qunata Services, Inc.
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