Dycom (DY) Grew Revenue 46% but Nearly $400M Came from Acquisitions. Is Organic Growth Strong Enough?

Dycom Industries, Inc. (NYSE: DY ) reported record fiscal second-quarter revenue, but the headline growth rate requires some unpacking. Contract revenue increased 45.6% year over year to $2.01 billion, with acquired businesses contributing $397.5 million. Acquisitions therefore generated nearly two-thirds of the approximately $628 million revenue increase.

The underlying business was hardly weak. Company-defined non-GAAP organic contract revenue, which excludes businesses not owned throughout both comparison periods, grew 16.7% to $1.61 billion. That performance shows Dycom Industries, Inc. (NYSE:DY) is not simply buying additional revenue.

The Communications segment of Dycom Industries, Inc. (NYSE:DY) benefited from fiber-to-the-home programs, long-haul and middle-mile construction, inside-the-fence fiber projects, and expanding maintenance services. Communications backlog increased 37.5% to $10.98 billion, while the portion expected over the next 12 months rose 16.5% to $5.36 billion.

Those figures provide a cleaner view of underlying demand than the 53.2% increase in total backlog to $12.24 billion, which also includes the acquired Building Systems segment. Even after separating the acquisition effect, the order pipeline of Dycom Industries, Inc. (NYSE:DY) remains strong.

The Building Systems segment of Dycom Industries, Inc. (NYSE:DY) generated $397.5 million of revenue and a company-defined non-GAAP adjusted EBITDA margin of 24.5%. Power Solutions continued scaling its data-center electrical construction operations, while newly acquired National Technology Integrators contributed $22.9 million following the transaction's completion during the quarter.

The Building Systems margin partly reflected favorable changes in project cost estimates and service scope. Dycom Industries, Inc. (NYSE:DY) expects the segment's adjusted EBITDA margin to be in the high teens to low twenties for the remainder of fiscal 2027.

Despite double-digit organic growth, the company-defined non-GAAP adjusted EBITDA margin of the Communications segment declined to 13.6% from 14.9%. Dycom Industries, Inc. (NYSE:DY) attributed the contraction to investments required to expand operations, higher fuel costs, and wireless projects being pushed into the next fiscal year.

Dycom Industries, Inc. (NYSE:DY) raised its consolidated fiscal 2027 revenue outlook to between $7.48 billion and $7.66 billion. However, Dycom Industries, Inc. (NYSE:DY) reduced its Communications outlook to between $5.90 billion and $6.01 billion after approximately $150 million of wireless revenue was deferred into fiscal 2028. The overall program scope was unchanged, but the delay still limits near-term operating leverage.