Dycom (DY) Q3 2026: $1.95B Data Center Acquisition Expands High-Margin Platform
Dycom’s $1.95 billion Power Solutions acquisition marks a decisive pivot toward data center infrastructure, layering high-margin electrical contracting onto its core fiber and telecom buildouts. Robust Q3 results, record backlog, and large-scale service wins reinforce DY’s multi-year demand visibility, while new cross-sell and labor leverage set the stage for margin durability and accelerated diversification. Investors should focus on integration execution, data center cycle longevity, and the unfolding BEAD tailwind as DY broadens its digital infrastructure moat.
Summary
- Data Center Expansion: Power Solutions acquisition brings mission-critical electrical capabilities and $1B in high-margin revenue.
- Backlog and Service Momentum: Record $8.2B backlog and $500M+ in service renewals support multi-year growth.
- Integration and Scale Opportunity: Skilled labor and cross-sell potential underpin Dycom’s next phase of digital infrastructure leadership.
Performance Analysis
Dycom posted a record-breaking quarter, with revenue up double digits and adjusted EBITDA margin surging by 169 basis points year over year. Growth was broad-based, led by fiber-to-the-home builds, hyperscaler network activity, and recurring service contracts. Organic revenue climbed over 7 percent, while cash flow from operations remained robust, reflecting disciplined execution and improved DSO (days sales outstanding) management.
Customer concentration remains moderate, with AT&T and Lumen each exceeding 10 percent of sales, and a diverse set of other telecom and cable operators contributing meaningfully. The $8.2 billion backlog—now at an all-time high—includes nearly $5 billion expected to convert within 12 months, providing strong revenue visibility into fiscal 2027. Dycom also highlighted over $500 million in newly executed service agreements post-quarter, underscoring the durability of its maintenance revenue stream.
- Margin Expansion: Operating leverage and mix shift toward higher-value projects drove adjusted EBITDA margins above 15 percent.
- Cash Conversion Discipline: DSOs improved by 14 days, reflecting tighter working capital controls and improved billing cycles.
- Backlog Quality: Service and maintenance contract wins, not yet in backlog, signal ongoing customer stickiness and recurring revenue growth.
The combination of strong organic execution and a large, accretive acquisition signals a step change in Dycom’s business model and sector positioning.
Executive Commentary
"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 DICOM at the heart of the explosive demand for digital and AI infrastructure."
Dan Paevich, President and Chief Executive Officer
"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... The acquisition will be treated as an asset purchase for tax purposes and is expected to generate sizable tax-deductible intangible assets and goodwill."
Drew DeFerrari, Chief Financial Officer
Strategic Positioning
1. Data Center Platform Expansion
With the Power Solutions acquisition, Dycom becomes a vertically integrated provider for digital infrastructure, spanning outside plant fiber builds to mission-critical data center electrical contracting. Power Solutions’ $1 billion in annual revenue is 90 percent data center-focused, with mid-to-high teens EBITDA margins and a $1 billion backlog concentrated in the DMV (Washington D.C., Maryland, Virginia)—the world’s largest data center region. This move positions Dycom squarely at the intersection of cloud, AI, and hyperscaler CapEx cycles.
2. Skilled Labor and National Scale
Dycom’s combined workforce will exceed 19,000, a scale advantage in a labor-constrained market where project complexity is rising. The company’s history of successful integrations and its distributed presence across all 50 states enable rapid mobilization and execution on large-scale, technically demanding projects—an increasingly important differentiator as data center and fiber deployments accelerate.
3. Recurring and Diversified Revenue Streams
Service and maintenance agreements, now exceeding $500 million in new awards post-quarter, reinforce Dycom’s recurring revenue base. The company’s exposure to BEAD (Broadband Equity, Access, and Deployment) program funding, with over $500 million in verbal awards already, adds another multi-year growth vector. Customer diversification, both through traditional carriers and new hyperscaler relationships, reduces reliance on any single end-market.
4. Financial Flexibility and Deleveraging Path
Acquisition financing will initially lift net leverage below 3x, but strong free cash flow is expected to delever the balance sheet to 2x within 12 to 18 months. The deal structure, including tax-deductible goodwill and asset step-up, further enhances cash flow accretion and preserves capacity for future organic and inorganic investments.
Key Considerations
Dycom’s Q3 and pending acquisition mark a strategic inflection, broadening its addressable market and deepening its competitive moat in digital infrastructure.
Key Considerations:
- Data Center Cycle Durability: Continued hyperscaler and AI-driven CapEx support multi-year demand, but investors should monitor for any signs of project pauses or overbuild risk.
- Integration Execution: Successful cultural and operational integration of Power Solutions is critical to realizing cross-sell, labor, and margin synergies.
- BEAD Program Ramp: Dycom’s positioning for BEAD-funded rural broadband deployments offers a significant, multi-year growth tailwind as state funding is released.
- Margin Sustainability: Maintaining mid-teens EBITDA margins as the business mix shifts and new regions are entered will be a key watchpoint.
Risks
Integration risk from the Power Solutions deal is non-trivial, especially as Dycom enters new end-markets and customer sets. Data center project cycles can be volatile, with potential for timing mismatches or regional overcapacity. BEAD revenue timing remains subject to state-level execution and federal funding flows. Rising interest expense from acquisition debt, while manageable, could pressure free cash flow if macro conditions tighten or project awards slip.
Forward Outlook
For Q4, Dycom guided to:
- Contract revenues of $1.26 billion to $1.34 billion
- Adjusted EBITDA of $140 million to $155 million
- Diluted EPS of $1.30 to $1.65 per share; non-GAAP adjusted EPS of $1.62 to $1.97
For full-year 2026, management raised the midpoint of revenue guidance to $5.35 to $5.425 billion, excluding Power Solutions.
- Q4 guidance reflects normal seasonality, with fewer workdays and winter impacts.
- BEAD revenue is expected to begin in Q2 of next fiscal year, with significant verbal awards already secured.
Takeaways
Dycom’s record Q3 and transformative acquisition set up a structurally stronger, more diversified business model with multi-year growth visibility.
- Acquisition Leverage: Power Solutions brings immediate scale, margin accretion, and platform expansion into the world’s largest data center market.
- Backlog and Service Strength: All-time high backlog and large maintenance contract wins reinforce Dycom’s demand visibility and recurring revenue profile.
- Integration and Execution: Investors should track synergy realization, data center cycle health, and the pace of BEAD-funded project conversion as key drivers of forward returns.
Conclusion
Dycom’s Q3 2026 results and Power Solutions acquisition represent a clear pivot to digital infrastructure leadership, with strong organic execution, a fortified backlog, and a high-margin, data center-focused platform. The next phase will hinge on integration discipline, end-market cycle durability, and the company’s ability to capture cross-segment synergies at scale.
Industry Read-Through
Dycom’s aggressive move into data center electrical contracting signals that digital infrastructure buildouts are entering a new phase of complexity and scale, with labor and technical capability as key bottlenecks. The deal also highlights industry fragmentation and the premium placed on skilled workforce aggregation. For telecom and specialty contractors, the convergence of fiber, power, and data center capabilities is likely to accelerate M&A and strategic partnerships, as hyperscalers and cloud providers demand turnkey solutions. BEAD and AI-driven CapEx cycles will continue to drive sector-wide backlog and service revenue momentum, but execution and integration will separate winners from laggards.