Good day, and thank you for standing by. Welcome to the Dycom Industries, Inc. Second Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Callie Tommaso, Dycom's Vice President of Investor Relations. Please go ahead. Callie T

Thank you, operator, and good morning, everyone. Welcome to Dycom's second quarter fiscal 2026 results conference call. Joining me today are Dan Peyovich, our President and Chief Executive Officer, and Drew DeFerrari, our Chief Financial Officer. Earlier this morning, we released our fiscal 2026 second quarter results along with certain outlook information. The press release and accompanying materials are available in the Relations section of our website. Today's discussion will include forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements reflect our expectations, assumptions, and beliefs regarding future events and are subject to risks and uncertainties that could cause actual results to differ materially. A detailed discussion of these risks and uncertainties is included in our filings with the SEC. Forward-looking statements are made as of today's date, and we undertake no obligation to update them. Additionally, we will reference certain non-GAAP financial measures during today's call. Explanations of these measures and reconciliations to the most directly comparable GAAP measures can be found in our press release and accompanying materials. With that, I will turn the call over to Dan Peyovich.

Thank you, Callie, and good morning, everyone. We appreciate you joining us today. This quarter, we demonstrated the power of our strategy as we continue to execute against the rapidly expanding addressable market. We delivered a quarter of record revenue within our range of expectations and record EBITDA and EPS that exceeded our expectations. A direct result of operating leverage, increased efficiencies, and a disciplined focus on operational excellence. Our revenue for the quarter was $1.38 billion, a 14.5% increase over the prior year. This top-line growth combined with our strategic initiatives drove adjusted EBITDA to $205.5 million, representing a 14.9% margin and a 29.8% increase over the prior year. Our commitment to efficient cash flow management also paid off, as we improved our DSOs by nine days year-over-year, ending the quarter at 108 days. We finished the quarter with a total backlog of $8 billion and a next twelve months backlog of $4.6 billion. This represents a year-over-year increase of 16.9% and 20.2%, respectively. We continue to cultivate a healthy pipeline in diverse customer and program areas. As a reminder, the size and complexity of these opportunities can lead to short-term variation in reported backlog resulting from the timing of when contracts are signed. With that in mind, shortly after the quarter's close, we secured a significant new award for both service and maintenance and fiber to the home works across numerous states. This award will be reported in our Q3 backlog and is a clear testament to Dycom's breadth of capabilities across our national footprint. We continue to see a marketplace of unprecedented opportunity as our customers' ambitious plans grow. The increasing addressable market, coupled with our proven ability to execute, bolsters our confidence to achieve our full-year growth target. As a result, we are reaffirming our fiscal 2026 revenue outlook range of $5.29 billion to $5.425 billion. The demand for digital infrastructure is accelerating, and Dycom is uniquely positioned to lead. Our customers are actively seeking partners with scale and national reach to meet their ambitious goals. Shortly after the Q1 earnings call, AT&T and Lumen announced AT&T's acquisition of the majority of Lumen's mass market segment. With this announcement, both companies affirmed their current fiber to the home build projections for calendar '25, and AT&T increased their total expected fiber to the home passings to 60 million, an increase of 10 million from their prior expectations, now incorporating the Lumen footprint. Collectively, our customers' fiber to the home build plans comprise over 125 million passings, more than 50 million of which are incremental in the past sixteen months. While the pace of these builds is not always linear, the opportunities for continued growth over the coming years are significant. We continue to believe we'll extend well beyond 2030. It's important to note that beyond the market growth we're anticipating, we also expect to realize incremental opportunities driven by the shift we've seen among our customers to consolidate their engineering, construction, and service and maintenance partners. We continue to strengthen our portfolio and this quarter, extended fiber to the home agreements and secured new fiber to the home markets across numerous customers. Our service and maintenance business is the cornerstone of our providing stability and a recurring revenue stream. It continues to grow, with meaningful new awards that extend our footprint and deepen our customer relationships. The infrastructure we build today becomes the service and maintenance work of tomorrow. We believe our ability to rapidly respond to our customers' needs across all 50 states is unmatched. And this business provides a strong foundation for all our other demand drivers. During the quarter, we extended key service and maintenance agreements and were awarded new markets by multiple customers. In the wireless space, there is optimism that new spectrum availability and emerging AI workloads will spur further wireless equipment upgrades and densification. Our current equipment replacement work continues to deliver above expectations and positions us well for future wireless opportunities as these trends develop. Shifting to BEAD, we anticipate we'll get more clarity on the program in the coming months when the NTIA provides its final approval on the individual states' plans. We're encouraged by the discussions we're hearing and early announcements from several states, which continue to emphasize fiber infrastructure as the preferred solution. We believe that once the plans are finalized, there will be significant opportunity for Dycom. As we've said, we haven't included any potential revenue from the BEAD program in our current outlook. Our projections for growth in the coming years are supported by other strong demand drivers within the industry. We believe these existing opportunities provide a substantial foundation for our anticipated growth. The demand for digital infrastructure that powers the AI revolution continues to grow at an incredible rate. We're seeing this firsthand in the market. The top hyperscalers have once again collectively raised capital expenditure expectations for this year and next, driven by significant increases in AI-related investments across the country. The trend is just beginning. Analysts estimate that by 2035, US power demand from AI data centers will grow more than 30-fold, reaching 123 gigawatts from just four gigawatts in 2024. This translates to an estimated $1 trillion or more of investment in US data center infrastructure alone. While a large portion of that will go to power infrastructure, the data center buildings themselves, a massive amount of fiber infrastructure will be required. This includes connecting new data centers and upgrading existing pathways to meet the current and future needs of AI. Specifically, this means a need for substantial increases in fiber capacity, the build-out of ultra-low latency networks, diverse routing to ensure uptime, and a shift toward building data centers at the edge to support inference and generative AI. This presents a significant opportunity for Dycom. And we believe we are uniquely positioned to capitalize on it. Our combination of scale and focused expertise is a distinct advantage given the complexity of these builds and the speed of delivery required. We believe this build cycle will extend deep into the next decade, with annual investments increasing over time. We estimate the addressable market for Dycom from the spend on outside plant data center network infrastructure is over $20 billion for the next five years alone, with spend backloaded over that period and likely increasing further as we enter the next decade. Our engagement with both the carriers and hyperscalers on this front is only increasing. We believe we are in the very early stages of a generational deployment of digital infrastructure. And we expect construction of outside plant data center networks to ramp up in calendar year 2026 with significant growth in 2027 and beyond. On this front, I am pleased to report that during the quarter, we were awarded another inside defense opportunity with a hyperscaler. Separately, we were also awarded a service and maintenance agreement with a different hyperscaler. While we can't go into specifics, this represents an opportunity for recurring revenue and involves work that is not performed or managed by our traditional carrier customers. Our success is fundamentally tied to our highly skilled workforce. We've built a time-tested approach that we believe is a key differentiator for Dycom. We are intensely focused on developing our own talent. We invest significantly in recruiting, training, and retaining our workforce, providing clear career paths and a commitment to upskilling and promoting from within, which is a key part of our culture. Exemplifying this, most of our operational leaders started in the field, which gives us an unmatched level of deep hands-on expertise. It's important to gain a clear understanding of growth opportunities, and we are in constant conversation with our customers and other industry partners to ensure we stay one step ahead with our labor forces, as well as our fleet and equipment. Our strategy means we have the right people and the right equipment at the ready to execute our customers' ambitious plans now and in the future. And we believe this provides a strong competitive advantage in a demanding market. Moving to the macroeconomic environment, the passing of the Big Beautiful Bill Act has spurred additional investment by our customers. Several have stated they intend to accelerate their already rapid pace of investment by reinvesting capital from cash tax savings into their builds in the coming years. Additionally, other positive policy initiatives are underway with the primary focus of streamlining permitting processes across infrastructure sectors. Specific to digital infrastructure, as proposed, these initiatives would reduce the cost of deployment for networks and accelerate both ramp and build cycles. Lastly, while tariffs continue to be fluid, we are not seeing significant impacts on our business or our customers' forecasted build programs. We're watching this closely and have regular discussions throughout the supply chain. In summary, our strategy is clear. And this quarter, we made significant progress against our goals. We meaningfully improved our margins through operating leverage and by driving operational efficiency. And our focus on effective cash flow management has led to lower DSOs and increased operating cash flow. We've also continued to build a diverse backlog that strikes the right balance between risk and shareholder returns. Most importantly, we've capitalized on strong growth opportunities, driving a 14.5% increase in revenue over the prior year. Throughout all this, we've maintained a level of service for our customers and communities that we believe sets the industry standard. From day one to day done. Looking ahead to the second half of the year, our commitment to this strategy remains unwavering. We've already secured meaningful awards in our service and maintenance business, which bolsters our other demand drivers. The overall addressable market is robust. And the industry growth ahead of us across numerous drivers is unprecedented. We are well-positioned to achieve our full-year growth target and remain squarely focused on creating long-term value for our shareholders and providing long-term opportunities for our people. I want to personally thank all our teammates for their dedication to safety, quality, and to each other every single day. I'd also like to thank our customers for their continued trust and confidence in our team's capability. We are steadfast in our commitment to constantly raise the bar to meet and exceed their expectations as we pursue our vision to be the people connecting America. With that, I'll turn the call over to Drew for a financial review.

Thanks, Dan, and good morning, everyone. Total contract revenues of $1.378 billion grew 14.5% over Q2 of last year. Revenues were driven by continued execution of Fiber to the Home programs, wireless activity, maintenance and operation services, and initial revenue contribution from fiber infrastructure programs for hyperscalers. Adjusted EBITDA of $205.5 million increased 29.8% over Q2 '25, and we outperformed the high end of our expectations. Adjusted EBITDA was 14.9% of contract revenues, an increase of 175 basis points as a percentage of contract revenues over Q2 '25, as we performed well and continued to benefit from operating leverage in the quarter. Net income was $97.5 million, and diluted EPS was $3.33 per share, also exceeding the high end of our expectations. We are pleased with the strength of our relationships and diversification across our customer base. AT&T and Lumen each exceeded 10% of total revenues for the quarter. AT&T was at $373 million, and Lumen was at $155.4 million of revenue. Customers exceeding 5% of total revenues for the quarter were BrightSpeed, Charter, Comcast, Frontier, Verizon, and an unnamed customer. Backlog at the end of Q2 was $7.989 billion, including $4.604 billion that is expected to be completed in the next twelve months. As Dan highlighted, subsequent to the end of the quarter, we secured a significant new award for both service and maintenance and fiber to the home work across numerous states that will be reported in our Q3 backlog. Operating cash flows of $57.4 million were solid in the quarter. The combined DSOs of accounts receivable and contract assets net improved to 108 days, a reduction of nine days from Q2 '25. We are pleased with this year-over-year reduction and see opportunities for further improvement as strong cash flows remain a key focus area for the company. Recent corporate tax legislation is expected to have positive impacts on our customers and Dycom. Specifically, the legislation reinstates 100% bonus depreciation for property acquired and placed in service earlier this year and restores immediate deductibility of domestic research and experimental expenditures. These pro-investment policies are expected to provide a significant increase in cash flow for many of our customers, leading to incremental capital spending and an uplift in fiber broadband deployment. For Dycom, we also expect a free cash flow benefit this year from a reduction in our cash tax payments by approximately $50 million compared to the amount that would have been required prior to the enactment of the legislation. We're observing strong demand across a diverse set of industry drivers, creating significant opportunities for our company. We are reaffirming our full-year fiscal 2026 revenue outlook range of $5.29 billion to $5.425 billion. For our 2026 outlook, we expect contract revenues of $1.38 billion to $1.43 billion, adjusted EBITDA of $198 million to $213 million, and diluted EPS of $3.30 to $3.36 per share. With our 15,800 employees dedicated to serving customers and connecting America, we are confident in our ability to execute our strategy, and we look forward to the opportunities ahead. Operator? This concludes our prepared remarks. You may now open the call for questions.

Thank you. As a reminder, to ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile our questions. And our first question will come from Richard Choe from JP Morgan. Your line is open.

Hi. I wanted to go over, for the second quarter, kind of what I guess, didn't come through and led to the low end of guidance or revenue. And then also for given the third quarter guidance and full-year guidance, what should the rest of the year look like? And is there going to be less seasonality in the fourth quarter given where the guidance ranges are?

Good morning, Richard. To start with, we're very pleased with our performance on both revenue and certainly margin and cash flow improvement for Q2. If you look at revenue, we talked earlier in the year about how these different programs from the customers, especially the fiber to the home programs, are in different stages of ramp. I think commonly people think that the programs themselves are in some kind of plane. But for the most part, the programs are ramping. How those ramps come together is really what impacts the quarter. So the short term, as we've talked about, in the short term, it doesn't really mean anything other than just the modulation of the programs themselves. In the long term, as you heard in my prepared remarks, over 50 million incremental passings in the last sixteen months added by our customers. We continue to capitalize not only on extending current agreements but adding in new agreements, especially for vibrant home builds. Very optimistic about that. You see that in our reaffirming the full-year guide. You see that certainly in our backlog overall. I would point to the next twelve-month backlog up 20%, a little over 20% year-over-year. So a lot of momentum in the business. Highly optimistic about how we conclude the year. Think a little bit of leveling between Q3 and Q4 in the outlook. But again, if you look to the margins and our ability to maintain that, you see that in the Q3 outlook as well.

And to follow-up on the margins, I mean, really high-end guidance again is for the next quarter. Should we expect this level of margins kind of going forward? And what has the change been? Because its margins have generally been a little bit more modest than this.

Yeah. You've seen our first year. And we're very pleased with the outperform that we had. Comes from a couple of things. One, operating leverage, of course. I've talked about that. How sometimes it comes through, drops to the bottom line. Other times, we're strategically reinvesting that to continue to propel our growth. But what I really like to point out this quarter is the operational efficiencies we're building into the business. If you look at the incremental margin increase, a large part of that comes from the work that we've been putting in, the discipline that we have out in the field, our ability to execute and deliver the quality of product that we're delivering time and time again for our customers. We think that differentiates us in the industry. But as you can see as well, it's really starting to come through to margins. So if you think about margins, if you think about cash flow, we look at those as durable outcomes over time. Not always gonna be linear, do have seasonality that comes into play. But the short answer to your question is yes. We strongly believe in the margins we've been able to produce. The return to our shareholders. And I would add that as we look towards the future, we see further opportunities for improvement there.

Great. Thank you.

Thank you. Our next question will come from Alex Waters from BofA. Your line is open.

Hey, good morning, guys. Thanks for taking my question. Maybe just number one, backing off of Richard's question here. With the 2Q performance, was it kind of the smaller private guys that maybe are slipping a little bit into the second half of the year here? And then maybe just on the wireless side, obviously, really strong quarter in terms of revenues. How should we kind of expect this business to continue to ramp and even into kind of when calendar 2026 here? Thanks.

Sure. On revenue, so as I mentioned, Alex, the program is just as much as we like to think that these are all very linear things or linear and increasing, you're stacking up in some cases, tens of thousands of individual work orders. So if you looked at it on a micro level, you know, quarter over quarter, month over month, there is actually more movement than you would expect. We had a couple of customers that the programs were a little bit lighter in Q2. As you can see, as we look out for the full year, maintaining our full-year guide that we still see a lot of growth there. And I really just like to point to, there's a ton of momentum in the business. A ton of momentum both on backlog certainly on performance, 14.5% at our size, continued growth is considerable. And we see that continuing. We certainly see that continuing in what you see for the two quarters, but we see significant opportunities to continue that growth well into next year. On wireless, specifically, it's been great work for us. It's been ahead of expectations. I would tell you that the aggregate amount of what we acquired that total business has increased. So it's not just a pull forward. We're actually going to do more work. So we will, by the way, we will also lap at we just quite literally hit the one-year mark from acquiring that business. So we will lap next quarter to bring that inside as organic. But great business. We'll continue to perform certainly this year, and that program has at least two more years on it. Thanks. And then just a quick follow-up on the wireless. Is it mainly just the O-RAN work that you're doing? Or are you seeing any kind of incremental deployments from the carriers?

Yeah. It continues to be the equipment replacements. And as we said, great work for us. Sets us up really well, and you heard in my prepared remarks, you know, we will see kind of timing potentials around densification, but it's great to see some commentary there. Some optimism coming through. I think we're very well positioned to be able to pivot into that if it does come through.

Perfect. Thanks, Dan.

Thank you. Our next question will come from Frank Louthan from Raymond James. Your line is open.

Great. Thank you. Can you give us an update on the percentage of your revenue of your current business that's recurring in nature? Recurring revenue? And then where do you see that going over the next couple of years? How much higher can that go? And then can you give us an idea of the data center opportunity that's embedded in your backlog? Thanks.

Yes. I'm going to read your comment on recurring, Frank. I think you're talking about our service and maintenance business. The bulk of our work, over 80%, is on MSAs. So technically it's repeatable. But we talked last quarter about specifically the service and maintenance business, which historically has been over half of our business. We had both in the quarter. You heard me talk about additional awards, extensions, also new market awards, and it's a really important point. As we continue to put more planting ground, as we continue to expand into new markets, that only grows. As I said in the call, fiber that we're putting in the ground today is the maintenance work of tomorrow, that really is the case. So we're very pleased with that. I talked about subsequent to the quarter, another large award that also includes service and maintenance. So overall, the large amount of repeatable recurring opportunity in the business, we see that continuing to grow over time. And then on the hyperscaler side, you also heard now some service and maintenance work coming there. So, again, another opportunity for recurring revenue. And as you heard, one, I think in just generally sizing the market, we thought that was important for investors. As we get more and more insight, we're having more conversations. Our confidence in the opportunity set there grows. $20 billion over the next five years, we really think is just a starting point. If you would have asked six months ago, that number would have been less. I think six months from now, the way things are trending, that number's gonna be even more. So I think that $20 billion is conservative. And I believe that Dycom is very well positioned to be able to continue to capitalize. The breadth that we have, the relationships with both our carrier customers and the hyperscalers. And ultimately, that all of our customers collectively, they want a national partner. They want a scale partner that can continue to execute and deliver on expectations time and time again. So there's a need to be filled. So excited about that. Not sure if I answered your question entirely on the data center side. But we capitalized well, Frank, and believe we can continue to do that in the future.

Alright. Great. And then are you able to update your backlog with the recent award that you have? Can you give us an idea of the magnitude of that?

Yeah. We don't like to size specific opportunities, but what I would say is we have a very strong backlog quarter, and Q3 is shaping up already.

Alright, great. That's helpful. Thank you very much.

Thank you. Our next question will come from Sangita Jain from KeyBanc. Your line is open.

So can I ask one on the inside defense data center? You mentioned one last quarter. Just wanna know if that made it into bookings in 2Q and how the opportunity that you mentioned today compares in size to the one that you mentioned last quarter?

Absolutely. So that's correct. I gave you the last quarter in our backlog. We had awards for inside the fence work. This quarter, we have new awards. I would point out these are different in different places. I can't be too specific, but they're different places. So it's not just extending something that we already had. And we really see, we're just very early in kind of entering into that opportunity set. And important to point out, conversations that we're having with the hyperscalers is, you know, they're looking for somebody like Dycom to come in across, you know, multiple geographies, across data center campuses, to really give them that level of certainty that they're looking for. So we're pleased with the awards. Still very early game there.

Did you book the one from last quarter in this quarter and just like you expect to book the one that you just talked about next quarter?

So our backlog that we showed for Q2 includes all of the inside defense awards that we have today.

Okay. Got it. And then just to follow-up on the comment in your presentation about the significant new award. I know you don't wanna quantify it, but how should we think about that? Is it MSA related? Is it something different? Just curious because you pointed it out.

Absolutely. So this is a long-term customer that we know well. Very pleased to secure it. It is multistate, multiyear, includes both fiber to the home works with an aggressive build schedule as you would imagine, which is common across all of our customers, and also service and maintenance work. So very pleased with the award. It is significant and will hit our backlog in this coming quarter.

Great. Thank you so much.

Thank you. Our next question will come from Eric Luebchow from Wells Fargo. Your line is open.

Great. Thanks for taking the question. Dan, I'm curious, talking to some of your larger carrier customers that have benefited from tax reform in the recent bill. You know, are you having early conversations about, you know, accelerating work with them as they reinvest some of the cash tax savings into the business? And do you think that shows up more next year or in subsequent years? Versus the second half? I'm not sure there'll be a whole lot they can do in such a short period of time. But how do you think that flows in some of these incremental builds that we've talked about that we've heard about from tax reform?

Yeah. It's an excellent point, Eric. And, again, I would go back to so many of these programs are still in some level of ramp. There's very few that are up on plane. Many of our customers have continued to increase absent and certainly get to the tax reform. But even absent that, we continue to see increases in expected passing customers. So many of the programs are already ramping. To answer your question correctly, yes, we've had customers that certainly publicly have talked about reinvesting that capital. We think most of that will come through starting in next calendar year. But already having many of those conversations. And it really just goes in line with a lot of the current conversations around ramp and opportunity. So, can't say enough about the momentum there. Our ability to capitalize on that and really believe that those are going to come through again, not only in the back half of this year, but coming into next year.

Okay, great. And just one follow-up here. I know you mentioned your DSOs have improved a lot. Do you see continued room to improve them? So as we think about operating cash potentially ramping, how are you prioritizing, you know, potential I know reinvesting in the business is number one, but opportunities in the M&A market to acquire other platforms versus buying back your own stock. What are you seeing out there today? How are you thinking about allocating excess capital?

Yeah. First, you know, we said from the outset as part of our overall strategy that improving our cash is the priority. It's something we've been working hard on in the business, building in disciplines, always looking for opportunities for improvement. And you see that our DSOs improved nine days year-over-year. That's significant in our space. Very happy with our results. And believe that there's more opportunity there. To include operating cash flow as well. As far as reinvesting, as we've talked about, the first thing is to support the growth. We've got still considerable growth coming into the business in the back half of this year. I talked about the momentum, making sure that we can stay ahead overall is always gonna be the first priority. To your point, yes, absolutely. We have an appetite for M&A. You've seen that we've been active there over the past couple of years now. It really comes down to the opportunities out there fit our strategy? Do they fit our culture? And where those make sense, and we can create additional value for our shareholders, that's absolutely something that we're showing interest in. And spending time in that space. And then as you mentioned, balance that against share repurchases when those make sense.

Yeah. Thanks, Dan.

Thank you.

Our next question will come from Steven Fisher from UBS. Your line is open.

Thanks. Good morning. Just to start on the revenues, curious about the visibility you have to the Q4 revenues at this point, what are the go gets from here that you still need to book to hit those implied Q4 numbers? And what are the types of things that are driving the accelerating growth later in the year? Is it really just that first half, second half comparisons from last year on the fiber to the home programs? Or is it more that you've got these data center wins that are driving that?

Yeah, thanks, Steve. Good question. So one, we're not gonna give a full guide to Q4. We've obviously given the full-year revenue guide, so I don't think the math is too difficult to figure out where we're trending and where we're heading. What I would tell you is this confidence in the business. You know, we've done very well with awards this year. You've seen that we've not only been able to increase incrementally our backlog, both next twelve and full year as we moved along. But we've increased margins within that as well. So we're competing well. We're capitalizing well on opportunities. And as I said, so many of these programs are ramping. The fiber to the home, still plenty of opportunity to continue to ramp that. Continued opportunity for us to secure additional markets. You look towards the back half of the year, there's not something that we're out there trying to go capture that we don't have visibility to today. So that gives us confidence in the overall number. There's obviously weather that can happen in Q4, so we think about that. You've got the extra week that's included in there. That obviously plays a part in the overall number. But, again, a lot of momentum, a lot of confidence overall. We feel good about how we're set up and how we're positioned and how we've been shown our ability to capitalize.

That's very helpful. And then just a bigger picture question on margins. Just curious. It feels like they compared to a year ago or so, perhaps back at the time, it seemed like it was more of a revenue growth opportunity. And now in recent quarters, the narrative around margin is really evolving and filtering through as you deliver on that. And, you know, it sounds like operational leverage and efficiencies. I guess I'm curious. Number one, how should we think about, you know, this evolution of the margin narrative? Is it more, you know, is my impression correct that there's maybe more of a margin narrative than you were thinking, say, a year ago? And are you getting, if that's correct, are you getting better efficiencies than you would have thought? Is the perhaps the growth happening at a more manageable pace that you can better align the headcount with the needs so the operating leverage is coming through better than you might have thought? Then just thinking about how we actually model this. Is it given the talk about operating leverage, should we be looking at this on an incremental margin basis year over year? Is it a number of basis points year over year in terms of margin improvement? Just kind of curious how to I know that's a lot, but just curious how to think about the margins in a bigger picture sense.

So obviously, with our margin performance, we've talked about throughout the year the opportunities for continued margin improvement and growth. As you mentioned, we talked about two different ways. One, certainly operating leverage. That is coming through the business. You can see that in the margins. Sometimes, we do reinvest that. So important just you can't straight line it out. And the other part is it's not always linear. On all of the incremental margin improvement. All that said, on the efficiencies, these are things that we've been working behind the scenes, under the hood on for some time. As they come through the business now and you see them come to the bottom line, you know, we're certainly happy to talk more about them. You know, we don't wanna get ahead of ourselves as we work on different parts of the business. But we feel strong and confident in our ability to continue performance in that margin range. Again, not always gonna be linear, gotta include the seasonality, but we do see continued opportunities to further drive efficiencies that will result in further margin improvement.

So good about where we are from a margin perspective. Feel good about the opportunities to continue improving that over time.

Okay. Thanks. Congrats on those margins.

Thank you. Our next question will come from Brent Thielman from D.A. Davidson. Your line is open.

Hey, great. Thanks. Good morning. Hey, Dan. You talked before about expecting certain middle mile work to commence later in the fiscal year, I think ramping into next fiscal year, maybe just a progress update on that. And, you know, other long haul, middle mile opportunities you see potentially on the horizon?

No. Really good question. And that's why we really wanna decide the total opportunity. That's the $20 billion that we talked about. We thought it was important to put a number to that. I'll take just a quick moment to talk about what's in that number. So something that we built from the bottom up. We're looking at route miles across the United States, connecting data center campuses, both long haul and middle mile. That includes opportunities for new routes, includes replacing some existing routes as we talked about some of the infrastructure. That doesn't have the capacity, can't get the latency that's needed. As we continue this AI evolution. It includes this inside defense work, a smaller component of the $20 billion, but included in that number as well. We really think that that's conservative, that it's going to continue to grow. To your point, we've capitalized on that with several awards and opportunities. I mentioned quickly and briefly that the Lumen or poll work is going well. It takes a while to ramp into these programs. They're highly complex. Over long distances. Going through municipalities that can have complicated permitting. And so each of the opportunities does take multiple months to ramp. So we're still very early and happy to be working on those projects, happy to continue to add them to our backlog. But I would really think about those heating up from a contribution standpoint next year, really 2027 is when we think that a lot of those opportunities are gonna come online and are gonna be significant.

Okay. I guess one more on the margins. I mean, fantastic performance here. But Dan, as these things get underway in a bigger way, particularly inside defense initiatives, other things around long haul. Do we need to consider that in terms of having an accretive or dilutive impact to the margins? How should we approach that, especially as these things become a bigger piece of the revenue pie?

Yeah. So, it's competitive. Right? There's a lot of press around the AI evolution, a lot of press around these long haul middle mile networks, and that's been the same on the fiber to the home. That's been the same with our customers who are highly sophisticated for a long time. We've shown our ability to compete there. I've mentioned before that across all the work, because of market dynamics and how we look at it, resources, equipment needs, return on capital, that all of our margins are in a similar range. So I wouldn't model those differently. Separate them out. We believe that we can continue to capitalize and be in a similar range that we've seen across other business drivers.

Okay. Very good. Thank you.

Thank you. As a reminder to ask a question, please press 11. Our next question will come from Adam Thalhimer from Thompson Davis. Your line is open.

Good morning, guys. I wanted to ask one more about the large August award. When does that work actually start?

We are heavily into planning that work as we speak right now, Adam. We do think that there will be some contribution this year, but really, that's a multiyear program. Think about that in large part contributing next calendar year, next fiscal year for us. But we will see some today and something that we're working hard on with that customer to speak.

Got it. And then as you think about the percentage of your revenue from hyperscalers or maybe we'll call it data centers more broadly, what was that percentage in Q2, and where do you think that can go?

Yeah. Not giving a breakout on backlog or breaking out the revenue run across the different drivers. As I mentioned, it's still very early innings. So we're happy to be really again, we believe first on the field or certainly among the first on the field. Really out there, we've looked at that over poll work, we've been working on that for seven, seven, eight months now. I think that puts us ahead of a lot of folks in the space. So we've got a lot of lessons learned over that period of time. Really have a handle and understanding around that. Not only that work, but that work type, the long haul, middle mile networks. So we think that sets us up well. For continued opportunity and continued growth. But again, think about those contributing in a much more material way starting next year.

Got it. And then just lastly, the hyperscaler, I think there was a service and maintenance contract that wasn't traditional telecom work. Did I hear that right, Dan?

Yeah. And I think the point I was trying to make there is that this is independent of work that we do. You know, we do have some work for our carrier traditional customers. That where they have contracts with hyperscalers. And I was really trying to differentiate. This is not competing in that space. It's not that type of work. This is a completely new service line for us, a new opportunity set. With hyperscalers where we can go direct do some work that hopefully over time can be perpetual year over year, but it is service and maintenance type work for some of their networks.

Great. Thank you.

Thank you. And our next question will come from Liam Burke from B. Riley. Your line is now open.

Thank you. Good morning. Your operating cash flow, year over year, was very strong. You highlighted DSOs, better margins. Typically, the second half of the year flips, and that's where you really have stronger cash flow. Is there anything to expect differently than the way the cadence has been from previous years?

Liam, thanks for the question. This is Drew. So, we expect the same type of seasonality in the operating cash flow. We were pleased with how we performed in Q2, and that's a direct result of improving on the DSOs. And then just to mention, I highlighted it in my comments, but on the new tax legislation, we would have had about another $50 million or so of cash taxes in the back half of the year that we won't have to make now. So that's helpful as well.

Great. Dan, you talked about the pipeline opportunities as we move into the third quarter. You highlighted some awards, but is there anything that's contributing to the growth in pipeline opportunities or is it across the board?

Really comes down to momentum. Right? That's not just momentum for Dycom. That's momentum in our space. These builds continue to grow. The opportunities continue to favor Dycom with our size, scale, our customer relationships. And quite frankly, our proven ability to deliver time and time again. You know, our goal is to make sure that we're always one step ahead of our customers. And make sure that we can execute on their ever-growing expectations. And you're seeing that in our continued awards. You're seeing that in our opportunity to improve margins over time as well. So we're really just excited about our position and the landscape in front of us. And I would just point out that while we're confident in the back half of the year, we see a lot of growth opportunity going into next year.

Great. Thank you, Dan. Thank you, Drew.

Thank you. And this does conclude our question and answer session for today's conference. I'd now like to turn the call back over to Mr. Dan Peyovich for any closing remarks.

Yes. Thank you, everyone, for attending this quarter. We look forward to seeing you next quarter. Be safe and be well.

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.