Thank you, Operator, and good morning, everyone. Welcome to Dycom's Third 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 Third Quarter results along with certain outlook information. We also announced a definitive agreement to acquire Power Solutions, a premier data center electrical contractor in the Mid-Atlantic. Both press releases and accompanying materials are available in the Investor Relations section of our website. These materials, which we will discuss during today's call, include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our discussion and 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 their 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. Good morning, everyone, and thank you for joining us. Today marks a pivotal moment for Dycom. We are announcing both a record-setting third quarter that reinforces our leadership in telecommunications infrastructure and our agreement to acquire Power Solutions that immediately positions Dycom at the heart of the explosive demand for digital and AI infrastructure. I will start by reviewing our third quarter results and then move to further discuss our pending acquisition. Our third quarter performance was exceptional. We delivered all-time record revenue of $1.45 billion, an increase of 14.1% compared to Q3 FY 2025. Adjusted EBITDA was $219 million, and EPS was $3.63, both setting new all-time highs. Adjusted EBITDA margin was 15.1%, a 169 bp increase over the prior year, and our DSOs were 105 days, an improvement of 14 days year over year.
Our backlog was $8.2 billion, an all-time high, with strong diversified bookings throughout the quarter. As a result of our strong performance, we are increasing the midpoint of our full-year revenue outlook, expecting revenue of $5.35 billion-$5.425 billion, representing a range of 13.8%-15.4% total growth over the prior year. This outlook excludes any results from the pending acquisition expected to close in our fiscal Q4, as the impact is dependent on the date of completion. Looking forward, telecommunications demand drivers have never been stronger. Fiber-to-home builds continue at a fever pitch and will further accelerate next year. The demand for fiber infrastructure to support data center growth continues to strengthen at an incredible rate. Our strong market position is validated by deepening engagement across our customer base.
We are seeing robust activity from our longstanding traditional carrier partners, complemented by accelerating demand from the world's leading hyperscaler providers. We believe we are in the very early stages of a generational deployment of digital infrastructure, and we project that the construction of new outside plant data center networks will begin a significant ramp-up in calendar year 2026, leading to substantial growth throughout calendar 2027 and well into the future. Crucially, these are highly complex, large-scale builds that require specialized expertise. This complexity favors Dycom. Given our scale, national footprint, and sophisticated operational capabilities, we are exceptionally well-positioned to capitalize on what we estimate to be a $20 billion addressable market for outside plant data center network construction over the next five years.
I want to emphasize that this significant $20 billion opportunity is separate and distinct from any potential opportunities related to our pending acquisition, which provides an even broader and more substantial foundation for our future growth. Our wireless work remains strong, and the current build programs go through calendar 2027, positioning us well for future equipment upgrades or densification. BEAD is close to becoming a reality, with revenue currently projected in Q2 of next fiscal year. Just yesterday, the NTIA announced it has approved final BEAD deployment plans for 15 states and three U.S. territories, and one state, Louisiana, officially has access to its BEAD funding. NTIA approval is one of the last steps before states can start signing contracts and projects can get underway. $29.5 billion in total spending is expected from the states and territories based on preliminary subgrantee results, split between grants and subgrantee match amounts.
Of that, $26 billion will be used to serve roughly 2/3 of total locations with fiber or HFC infrastructure, creating a large addressable market. Importantly, we are seeing the benefit of our positioning. We have already secured over $500 million in verbal awards related to BEAD deployments, which is not yet reflected in our backlog. This speaks to our strong ability to capitalize on the significant spending on fiber and HFC networks over the next 4+ years. Lastly, underpinning it all, we continue to grow our service and maintenance business, which is a recurring and durable component of our annual revenue. Subsequent to the quarter, we executed additional service and maintenance agreements totaling over $500 million.
While these agreements will not be in our backlog until next quarter, they demonstrate our ability to maintain our position as a service provider of choice while prioritizing profitable growth and shareholder returns. Transitioning to our pending acquisition of Power Solutions. The telecommunications infrastructure space continues to evolve as hyperscalers and other large, data-driven technology companies drive the need for new and enhanced fiber networks to connect through data centers and data center campuses nationwide. These changes are creating new demand drivers around long-haul and middle-mile fiber networks and data center interconnects within campuses to address growing data usage, needed compute capacity, and the AI race. With these new demand drivers, we developed relationships with a new customer set, technology companies with significant CapEx commitments to meet their evolving needs.
Analysts estimate that $6.7 trillion of CapEx will be cumulatively deployed in data center infrastructure globally from 2025 to 2030, including $100 billion for network infrastructure and $600 billion for labor. More than 40% of this spend will be deployed in the U.S., implying $240 billion of data center labor spent over the next five years alone. In a short time, we have extended our reach to capitalize on this, ultimately bringing fiber inside the fence and inside the data centers to the meeting room. Bringing Power Solutions into the Dycom family is the logical and critical next step. It enables us to immediately offer a comprehensive service that extends from the core network to the heart of the data hall, providing full electrical and low-voltage services throughout the data center.
This is a significant milestone for Dycom that enhances our position and capability to address the fast-growing digital infrastructure market, extends our platform for long-term growth, and does so in a way that is immediately accretive to our financial performance. Power Solutions is one of the largest providers of mission-critical electrical infrastructure solutions for data centers and other vital industries in the greater Washington, D.C., Maryland, and Virginia area. Referred to as the DMV, it constitutes the world's largest data center region. The acquisition will combine Power Solutions leadership and electrical infrastructure with Dycom's scale and expertise in fiber, putting us at the center of the powerful secular trends driving growth in digital infrastructure services and considerably enhancing our potential to generate meaningful long-term value creation for our customers and our shareholders. Let me briefly outline the transaction, and Drew will go into more detail.
The total purchase price is $1.95 billion, consisting of approximately $293 million payable in Dycom common stock and the remainder of the consideration payable in cash, subject to customer and closing and post-closing adjustments. We expect to close the transaction this fiscal year. The transaction is expected to be immediately accretive to our adjusted EBITDA margin and adjusted diluted EPS and improves free cash flow for the combined company. Our long-term fiscal disciplines are unchanged, and the combined business is anticipated to provide a clear path to de-lever to two-times net leverage in the next 12 to 18 months. Power Solutions will further solidify Dycom's long-term growth potential in four significant ways. First, it will expand our exposure to rapidly growing mission-critical data center demand by leveraging Power Solutions' deep expertise in electrical infrastructure for data center construction, which comprises over 90% of its revenue.
This complements Dycom's strong fiber network expertise and will enable us to capitalize on the substantial and critical infrastructure investment that is driving durable growth in the attractive DMV region and in the industry overall. Second, it will further diversify our services by adding Power Solutions' leading electrical contracting capabilities. Third, it will unlock significant opportunity to scale Power Solutions' operations and cross-sell services across digital infrastructure players, giving us the ability to extend our combined capabilities into additional targeted high-growth regions and opportunities over time. Finally, it will add substantial skilled labor capacity, providing self-perform electrical contracting capabilities with a highly skilled workforce of over 2,800 employees, extending our capacity to execute large and complex projects. Now, I'd like to take a moment to give you more color on Power Solutions. The company has established itself as one of the largest electrical contractors in the greater DMV region.
For more than 25 years, they have delivered high-quality execution and developed deep customer and end-user relationships. We share similar cultures. Like Dycom, most of their operational leadership started their careers in the skilled trades, and their commitment to safety, quality, and operational excellence raises the bar with their customers. Their focus on and success in data center electrical solutions is unique. As I mentioned, over 90% of their revenue year after year comes from data centers with repeat customers and end users. They differentiate in their ability to scale and deliver the highest level of service in a highly complex technical space. Power Solutions is a fantastic financial fit. They bring a track record of strong, profitable growth with an impressive 15% four-year revenue CAGR and EBITDA margins consistently in the mid to high teens.
With 2025 revenue expected to be approximately $1 billion, this is a high-quality, high-margin business that we expect to be immediately accretive to our performance. Power Solutions' current backlog is over $1 billion, solidifying their strong position in the DMV region. The DMV is the largest data center region in the world, representing 27% of total operational capacity in U.S. markets today. DMV is projected to capture 30% of U.S. data center capacity currently under construction and planned, providing Dycom with substantial opportunities for growth in the world's fastest-growing data center region. In addition, data center infrastructure demand is poised for significant growth across the country, providing opportunities to further scale our enterprise.
Thanks, Dan, and good morning, everyone. I echo the excitement about a record quarter and the pending acquisition of Power Solutions, which we expect to generate considerable long-term value for our shareholders. First on the quarter, we are pleased that we outperformed the high end of our expectations for Q3, delivering solid top-line and adjusted EBITDA growth and margin expansion. Third quarter total contract revenues of $1.452 billion grew 14.1% over Q3 of last year. Organic revenue grew 7.2%. Revenues were driven by continued execution of fiber-to-the-home programs, wireless activity, fiber infrastructure programs for hyperscalers, and maintenance and operation services. Adjusted EBITDA of $219.4 million increased 28.5% over Q3 2025, and we outperformed the high end for expectations.
Adjusted EBITDA was 15.1% of contract revenues, an increase of 169 bps as a percentage of contract revenues over Q3 2025, as we performed well and continued to benefit from operating leverage. Net income was $106.4 million, and diluted EPS was $3.63 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 revenue was $361.9 million, and Lumen revenue was $170.3 million. Customers exceeding 5% of total revenues for the quarter were Brightspeed, Charter, Comcast, Frontier, and Verizon. Backlog at the end of Q3 was $8.22 billion, including $4.99 billion that is expected to be completed in the next 12 months.
As Dan highlighted, after the end of the quarter, we executed additional service and maintenance agreements, both renewals of existing markets and expansion into new markets that total over $500 million that will be reported in our Q4 backlog. Operating cash flows were strong at $220 million. The combined DSOs of accounts receivable and contract assets net improved to 105 days, a reduction of 14 days over Q3 2025. We made great progress year over year, and strong cash flows remain a key focus area for the company. We are implementing a comprehensive ERP system to upgrade and standardize our information technology systems. I am pleased to report that during Q3, we successfully completed the first phase of deployment across our business. We expect to complete additional phases during fiscal 2027, enabling further operational efficiencies and equipping our teams with the latest powerful technologies.
We continue to observe strong demand across a diverse set of industry drivers, creating significant opportunities for our company. We have increased the midpoint of our revenue outlook for the year, and we expect our full-year fiscal 2026 revenue to range from $5.35 billion-$5.425 billion. Our outlook for Q4 reflects normal seasonal factors such as fewer available workdays due to the holidays, reduced daylight work hours, and winter weather conditions. For Q4, we expect contract revenues of $1.26 billion-$1.34 billion, adjusted EBITDA of $140 million-$155 million, and diluted EPS of $1.30-$1.65 per share. Beginning in Q4, we expect to also report non-GAAP adjusted EPS, excluding the impact of intangible amortization expense. Non-GAAP adjusted EPS, excluding the after-tax impact of intangible amortization expense, is expected to range from $1.62-$1.97 per share.
Our outlook excludes any results from the pending acquisition and related financing. While we expect to close in our fiscal Q4, impacts are dependent on the timing of completion. Now, moving to more detail on the pending acquisition, we are excited to bring Power Solutions into the Dycom family. The purchase price is $1.95 billion on a cash-free, debt-free basis and consists of approximately one million shares of Dycom Common Stock valued at approximately $293 million, and the remainder of the consideration is payable in cash, subject to customary closing and post-closing adjustments. We anticipate the transaction to close before the end of our fiscal year of January 31, 2026. The purchase price represents a multiple of approximately 9.7 times Power Solutions' trailing four quarters of adjusted EBITDA.
The acquisition will be treated as an asset purchase for tax purposes and is expected to generate sizable tax-deductible intangible assets and goodwill. The estimated net present value of the future cash benefit of the tax amortization further reduces the implied multiple paid by over one times based on the trailing four quarters of adjusted EBITDA for an estimated net multiple of approximately 8.5 times. We believe the purchase price and related future tax benefits support meaningful value creation for our shareholders. We plan to fund the cash portion of the transaction with a mix of cash on hand, a committed $1 billion senior secured term loan A facility, and proceeds from a committed $700 million senior secured 364-day bridge loan facility.
Pro forma net leverage is expected to be below three times at closing, and the free cash flow profile of the combined business is anticipated to provide a clear path to delever to approximately two times net leverage in the next 12 to 18 months, maintaining our financial flexibility for continued strategic growth. Total borrowings for the acquisition will be determined at closing, and the weighted average estimated interest rate based on SOFR+ a spread is expected to be under 6%. In the event we borrow and maintain outstanding the committed debt amount of $1.7 billion for the entirety of fiscal 2027, we estimate incremental cash interest expense of approximately $96 million and non-cash amortization of debt issue cost of approximately $5 million for fiscal 2027. This transaction is directly aligned with Dycom's capital allocation priorities.
It deploys capital in a high-return enterprise that enhances our scale, capabilities, and exposure to rapidly growing data center demand. It supports disciplined capital allocation by acquiring a business with a strong balance sheet. It bolsters free cash flow generation, supporting continued high-return strategic investments, and it extends Dycom's long-standing customer partnerships, enabling comprehensive telecommunications and electrical infrastructure solutions. Power Solutions annual revenue is expected to be approximately $1 billion for calendar 2025. The company's compounded annual revenue growth has been approximately 15% over the past four years, a trajectory that is expected to continue in calendar 2026. Total backlog for the company currently exceeds $1 billion, giving us confidence in their continued growth. The anticipated results of Power Solutions are expected to be immediately accretive to Dycom's adjusted EBITDA margin and adjusted diluted EPS, excluding non-cash intangible amortization expense.
Power Solutions has consistently delivered adjusted EBITDA margins in the mid to high teens, and we expect this level of profitability to be sustained in calendar 2026. We see opportunities for synergies over time, but we have not yet included any of these potential benefits in our outlook. As I mentioned earlier, the transaction is expected to generate sizable intangible assets that will be determined upon the closing of the transaction and amortized on an accelerated basis. Our preliminary estimate of non-cash amortization expense from the acquisition is approximately $185 million in fiscal 2027 and declines annually thereafter. Beginning in Q4, we expect to present non-GAAP adjusted EPS that will exclude intangible amortization expense. Our estimates of all of these expected results are preliminary and subject to change as we work to complete the transaction.
The acquisition of Power Solutions positions Dycom for accelerated growth in digital and data center infrastructure services. We are honored to welcome Power Solutions employees to Dycom, where together we will continue to be dedicated to serving customers and connecting America. This is a significant milestone for our company, and we are confident in our ability to execute our strategy as we pursue the opportunities ahead. Operator, this concludes our prepared remarks. You may now open the call for questions.