Pike Electric Corporation F2Q09 (Qtr End 12/31/08) Earnings Call Transcript

Pike Electric Corporation (PEC)

F2Q09 Earnings Call

February 3, 2009 5:00 pm ET

Executives

Lara Travars - Director of Corporate Communications

Eric Pike - Chairman and Chief Executive Officer

Anthony Slater - Chief Financial Officer

Analysts

Rich Wesolowski - Sidoti & Company

Andrea Wirth - Robert W. Baird & Co., Inc.

Alex Rygiel - Friedman, Billings, Ramsey & Co.

Tahira Afzal - Keybanc Capital Markets

Hasan Doza - Luminous Management

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Pike Electric Corporation's second quarter 2009 earnings conference call. (Operator Instructions)

Now, for opening remarks and introductions, I would like to turn the conference over to Lara Travars, Director of Corporate Communications. Please go ahead, ma'am.

Lara Travars

Good afternoon. Welcome to Pike Electric's conference call to review our fiscal 2009 second quarter results.

Joining us this afternoon are Eric Pike, our Chairman, Chief Executive Officer and President, and Anthony Slater, our Chief Financial Officer.

Before I turn the call over to Eric and Anthony, I will revenue the necessarily disclosures. During this call, we will make forward-looking statements. These statements, that are either not historical facts or are statements regarding our attempts, beliefs or expectations with respect to trends affecting the company's operations, its financial, general economic and market conditions, and its growth and operating strategies. Specifically, of course, financial expectations and estimates are forward-looking statements.

We filed our earnings release on Form 8-K earlier today. You should review the Risk Factors and Management's Discussion and Analysis sections of our 2008 annual report on Form 10-K and other SEC filings, which describe factors that may affect future results of our operation. Any forward-looking statements made today or contained in other public statements of Pike Electric or made by our management should be considered in light of those factors.

A replay of today's call will be available in the Investor Center on our website at www.Pike.com later today. You can also register to revenue Pike Electric financial news alerts by e-mail. Investor Relations questions can be directed to 336-719-4622 or 336-719-4492.

I'll now turn the call over to Eric Pike, Chairman and Chief Executive Officer, who will begin the call with a business update.

Eric Pike

Thanks, Lara. Good afternoon and thank you for joining Pike Electric's fiscal 2009 second quarter earnings call.

On this call, I will provide an overview of our second quarter results, as well as an update on our progress as we diversify our services into an energy solutions company. Anthony will then provide details on our second quarter financial results, and I will update our outlook for 2009. We will then open the call for your questions.

Our recent second fiscal quarter saw the country experience tremendous financial turmoil. We officially entered a recession, with housing starts at an all-time low and financial markets that have been forced to receive government bailouts which have in turn frozen the credit markets that many of our customers utilize for their long-term capital spending plans.

These events, coupled with a quarter that includes the highest number of paid holidays and a higher amount of rain days, which are not positive to our business, have impacted our performance during the second quarter. While we did experience a modest amount of storm restoration work during the period, it was not sufficient to offset the reduction in distribution spending that our customers faced.

It is important to remember that part of Pike's value as a large master service agreement provider is the ability for us to assist our customers by downsizing in tough economic times. In response and in anticipation of this, we have continued to reduce our crew levels where appropriate but, in many cases, we have also extended the terms and conditions of our contracts with customers to allow Pike to return to historic staffing levels as the economy improves.

Again, these service agreements provide flexibility for our customers as their spending needs change with relationships that remain intact when they're ready to reaccelerate the need for our services. We are confident that the strength of our long-term customer relationships will help us through this challenging period and continue to position us for the return of their distribution spending.

The reacceleration in spending at utilities for maintenance work is dependent to a large extent on the health of the economy. However, power line maintenance can only be deferred for so long, as is being evidenced right now with the present ice storm impact in the Midwest. At this time, we won't predict when spending will reaccelerate, but we do believe that a significant amount of pentup demand is building and the system reliability is being challenged, and we believe that we are in an optimal position to benefit from other those needs.

Despite this challenging environment, we made further progress in our second quarter, incorporating into our sales process the additional Energy Solution services we are now able to offer since the EDS acquisition. We also took actions to improve efficiencies and reduce costs in every section of the company. We are confident that the diversifications we are making to provide design and engineering services, substation construction, as well as renewable energy services and a refocus on transmission will be a great benefit to the company and to our customers.

As we integrated the former EDS customers into our business, we were able to apply many of Pike's operating practices to improve profitability. By implementing adjustments such as challenging equipment, crew sizes, and construction techniques, we have been able to have a positive impact in that business.

Additionally, EDS's focus on higher-voltage transmission work, which included work up to 345 kb, has allowed us to increase our Transmission revenues. This is important as we are currently performing over 42% more transmission work in our second quarter this year than we did the previous year. We believe we will continue to see this work grow each quarter.

As a full service energy solution contractor, we have also made progress in cross-selling our capabilities. By building on Pike's long-standing customer base as well as those customers that were brought in through the EDS acquisition, we have been expanding our services across these relationships. We are engaged in providing design, procurement and project management capabilities to our former construction customers, and in turn, we're providing construction services now to many of our engineering customers.

We are very excited about the opportunity to expand existing relationships with full service turnkey solutions, since nearly all of our customers can benefit from Pike's diversified offerings. For example, during the second quarter we were successful in winning two multi-year owner engineering contracts, as well as several electronic cooperative substation construction contracts in markets in which EDS did not previously operate.

The decline in our core distribution volume has, however, had a deleveraging affect and has negatively impacted our margins. Therefore, we have been keenly focused on aligning the company's cost structure to the realities of the market. We implemented cost saving measures by reducing overhead in every department, beginning with the voluntary forfeiture of the senior management's annual cash bonus program. We have continued to demonstrate good financial discipline and, to that end, despite the unprecedented economic challenges, we continued to generate strong cash flow.

During the quarter, we paid down our revolver balance that resulted from storm-related work and capital needs during Q1. As of the end of January 2009 we had over $24 million of cash on hand.

While we expect the near term to remain difficult, particularly in the distribution sector, the drivers of our long-term opportunities are as strong as ever. There has been considerable underinvestment by utilities in the maintenance and upgrade of our nation's infrastructure. We do not see the outsourcing trend from our customers changing, and in fact, we expect it will accelerate when distribution spending returns. In addition, smart grid technology implementation, the demand for renewable energy solutions, and the anticipated energy infrastructure stimulus plan will continue highlight the needs for our services.

Finally, we are a financially stable and prudent company, and Pike remains well positioned to weather difficult economic environments. And while we expect spending in our core distribution business to remain soft, we will benefit from our Energy Solutions platform of diversified services. We're confident that the steps we're taking now will allow us to further enhance our market position when spending returns to more normalized levels.

With that, I'll turn the call over to Anthony for the financial review.

Anthony Slater

Thanks, Eric. I'm going to walk through the income statement for our fiscal 2009 second quarter and provide selected information related to our balance sheet and cash flows.

Total revenues for the fiscal second quarter ended December 31, 2008 increased 1% to $144.6 million from $143.1 million in the comparable period last year. Core revenues increased $10.2 million to $133.7 million compared to $123.5 million for the second quarter of fiscal 2008, including a $23.8 million contribution from EDS, which was acquired on September 1, 2008.

Our Transmission Service revenues increased $4.3 million or 42% over the prior year.

Distribution Service revenues were negatively impacted as many of our customers reduced their distribution, maintenance and upgrade spend as a result of the overall economic concerns and tighter capital markets.

Our gross profit for the second quarter of fiscal 2009 was $18.4 million compared to $24.5 million in the second quarter of fiscal 2008. Gross profit was 12.8% of revenues compared to 17.1% in the prior year.

There were a number of factors which negatively impacted our margins during the quarter. First, equipment utilization declined in the period. We own the majority of our equipment and both the underground and overhead distribution equipment utilization decreased as a result of the reduction in overall utility distribution maintenance projects in our territory. This impact was compounded by the excess equipment that we assumed in the EDS transaction, as we've discussed earlier. The overall worsening condition of our secondary market for used utility equipment and vehicles has also made it challenging to sell excess equipment.

Assuming the same equipment utilization achieved in the second quarter of fiscal 2008, our gross profit for the current quarter would have been improved by approximately $2 million.

Second, fuel expense increased to 5.9% of total revenues in the second quarter compared to 5.5% for the same period in the prior year. Fuel costs have moderated, but the market continues to fluctuate. The reduction in our overall average fuel price for this quarter compared to the prior year was more than offset by a $1.3 million non-cash [mark to market] adjustment for our diesel fuel swaps and a $400,000 charge for cash settlements related to the swaps.

Excluding the diesel derivative charges this quarter, fuel costs would have been only 4.7% of total revenues. Our diesel derivative expense negatively impacted our second quarter diluted earnings per share by approximately $0.03.

Third, higher margin storm revenues were down 44% to $10.9 million compared to the prior year quarter.

Fourth, the acquisition of EDS added a material procurement service to our service mix. These services are part of our fully integrated service offering, but they do generate lower gross margins compared to other core services.

Fifth, during the quarter we added additional engineering staff and additional engineering office space as part of our investment to grow the Engineering Services revenues.

Lastly, we did incur EDS transition costs. While the transition has gone smoothly, we relocated all legacy EDS employees to new Pike facilities during the second quarter. In addition to the expense associated with the office moves, the moves also negatively impacted utilization in the engineering group.

General and administrative expenses increased $600,000 year-over-year to $11.2 million for the second quarter of fiscal 2009 due primarily to the administrative costs of the EDS business. Our general and administrative expenses were favorably impacted in the quarter by the voluntary forfeiture of the 2009 fiscal year cash incentives for our top seven management members. These cash incentives would have been due if we achieved established targets and estimated fiscal 2009 results.

The favorable impact of the forfeited cash incentives in the quarter totaled $1.3 million and included a reversal of $1.1 million in incentives recorded during the first quarter. Based on our current estimates, the forfeiture will total an additional $600,000 in savings for the second half of fiscal 2009.

Interest expense for the fiscal second quarter 2009 decreased 27.7% to $2.7 million compared to the second quarter last year, and this was due to debt reduction and lower interest rates.

Our effective tax rate was 39.2% in the quarter.

Net income for the fiscal second quarter of 2009 was $2.6 million or $0.08 per diluted share compared to $5.1 million or $0.15 per diluted share last year.

EBITDA was $16.4 million for the second quarter of fiscal 2009 versus $21.2 million for the same period last year.

Depreciation and amortization for the second quarter of fiscal 2009 totaled $9.4 million versus $9.2 million last year.

A reconciliation of net income to EBITDA is posted on our website in the Investor Center.

Now, turning to our balance sheet and cash flows, net cash provided by operations totaled $23.6 million for the quarter, which is representative of Pike's ability to generate strong cash flows. Our cash position was $5.6 million at the end of second quarter and as of the end of January 2009, the balance improved to $24 million.

Total long-term debt was $140.5 million. In addition, we paid down our entire revolver balance during the second quarter, which had totaled $17.4 million as of the end of Q1.

As of the end of the second quarter, our total receivables were $6.6 million higher than the end of the second quarter last year. This increase was due primarily to a $13 million storm restoration billing from the September 2008 storms. These were related to one utility and those remained unpaid as of the end of the second quarter. Approximately $10 million of this balance has been paid to debt during the third quarter.

We serve creditworthy customers and we have not seen any unusual customer payment trends to date.

Based on a trailing 12-month EBITDA, our long-term debt to EBITDA ratio is approximately 1.4.

Of our total term debt outstanding, none is due until 2012, and our revolver matures in July 2010. As of December 31, 2008, our borrowing availability under our $90 million revolving portion of our credit facility was $66 million, after giving effect to outstanding letters of credit.

Now switching over to our year to date results, year to date total revenues for the six months ended December 31, 2008 were $330.1 million as compared to $282.9 million for the same period last year.

Core power line revenues were $241.5 million for the size months ended December 31, 2008 as compared to $258.4 million for the same period last year.

Storm restoration revenues totaled $88.6 million for the first six-month period of this fiscal year, up from last year's $24.5 million in storm revenues.

Net income for the first six months of fiscal 2009 totaled $20.8 million or [$0.68] per diluted share compared to net income of $10.4 million or $0.31 per diluted share for the same period of last year.

Now I'll turn the call back over to Eric, who will update our outlook for the remainder of fiscal 2009.

Eric Pike

Thank you, Anthony.

As we have discussed, our core Distribution business has become challenged in the difficult economic environment. Tight credit and weak housing markets continue to impact our customers' spend. While we still expect to realize benefits from our more diversified service offering, at this time we feel it's prudent to lower our revenue guidance for fiscal 2009.

We expect total revenues to range from $600 to $620 million for our fiscal 2009 as compared to our prior range of $650 to $680 million. The updated range assumes storm revenues of approximately $20 million for the remainder of the year. As always, storm revenues remain unpredictable. We are working diligently with Midwest utilities impacted by the late January 2009 winter storms; however, it is too early to tell the full impact of this weather event as of the call.

Given our cost reductions and the opportunities we are pursing in transmission, engineering, substation and the renewable space, we do, however, continue to expect earnings per diluted share to be in our previously stated range of $0.85 to $0.95.

We remain focused on profitability, controlling our costs and positioning Pike as a full service energy solutions provider.

With that, we will now open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rich Wesolowski - Sidoti & Company.

Rich Wesolowski - Sidoti & Company

Anthony, how much of your diesel consumption is hedged and at what average price?

Anthony Slater

Based on current volume, we're approximately 30% hedged on total diesel gallons. And the rates on that, Rich, range from $2.52 per gallon up to $4.25 per gallon.

Rich Wesolowski - Sidoti & Company

Okay. Diesel had been coming down throughout the December quarter. Am I correct in assuming that if it stays at this sort of level, you won't have any more mark-to-market changes but you will see a benefit from the consumption?

Anthony Slater

Absolutely. As the price per gallon at the pump, if it continues to decline or stay steady, we'll of course benefit from that. Of course, the marked-to-market adjustment is based on forward curve estimates, which has been very volatile of late, but we certainly hoped that we've leveled out on the level of exposure with the marked-to-market adjustment.

Rich Wesolowski - Sidoti & Company

Okay, your core Distribution sales guidance, I think it started the year around a $585 million or a high $500 millions midpoint. Now we're probably at about a $500 million midpoint. Is the current guidance based just on the existing conditions at your customers' plants or are you now baking in a cushion for further delays beyond what you've already seen?

Eric Pike

Rich, I think right now we're just basing it on what we believe our customers, in terms of what they're telling us that they see out through the next six months, five months, and they're not seeing a lot of work beyond where we are today, at least in terms of staffing levels on the Distribution side.

Rich Wesolowski - Sidoti & Company

Do you guys have an estimate or care to release an estimate of your revenue-producing headcount?

Anthony Slater

The total headcount for the company is approximately 5,100.

Rich Wesolowski - Sidoti & Company

And then lastly, can you talk about the pipeline of the, at least by Pike's standards, larger engineering and substation awards that would apply to your acquired business? Is that larger or smaller or about the same versus the last call? You've won a couple; have you lost many of those?

Eric Pike

We really haven't lost any. We've had some that we have bids in, Rich, on various wind farms that the bids have been postponed due to the credit market. They're still outstanding; they've just been pushed back, the awards, either in Q3 or Q4. The ones that we have bid and have been successful were the owner engineering accounts that I mentioned during the script.

Operator

Your next question comes from Andrea Wirth - Robert W. Baird & Co., Inc.

Andrea Wirth - Robert W. Baird & Co., Inc.

Just wondering if you could talk a little bit about just your headcount in general. I know you said it was at 5,100. How much is that actually down now on a percentage basis?

Eric Pike

If you look at headcount today compared to, say, a year ago, adjusted for the headcount in the EDS acquisition, we're down about 15%.

Andrea Wirth - Robert W. Baird & Co., Inc.

And then I guess when you look at your guidance, to be able to hold the EPS flat obviously you're getting a few cents a share from the bonus forfeiture. How should we look at the remainder of that, since you're being able to hold that flat? Is that coming from the headcount reduction? Is there also some fuel built in? Just trying to understand the components of being able to keep that guidance flat.

Eric Pike

The primary drivers are we're certainly looking to gain additional efficiencies out of the combined business with EDS. We think we've completed the majority of the personnel changes. We believe that fuel will stabilize at a relatively low level compared to recent history, anyway. We're hoping fuel should stay in the $2.30 to $2.40 per gallon range based on this estimate.

We also continue to work with each department, each operational division, to make sure that we're maxing out on our utilization. Our utilization was impacted as the headcount came down in the T&D business. We acted as quickly as we could, but we did see a major decline this quarter and so utilization was impacted. And, as I mentioned in the earlier remarks, the office moves and just the integration of the EDS business this quarter as it continued certainly had an impact on utilization within the engineering business. And so we're projecting all of those to get back to our targeted levels.

Andrea Wirth - Robert W. Baird & Co., Inc.

And just looking at those transition costs, do you know roughly how much that cost this quarter?

Eric Pike

Yes. It's hard to put an exact thumb on, but including what we believe is a reasonable estimate of decreased utilization, it's in the range of approximately $500,000.

Andrea Wirth - Robert W. Baird & Co., Inc.

And then just to be clear on the bonuses, the benefit this quarter, was it the $1.1 million reversal or was it also the $1.3 million?

Eric Pike

It was the $1.3 million, which is inclusive of a reversal of $1.1 million.

Andrea Wirth - Robert W. Baird & Co., Inc.

And then I guess just looking at your Distribution business, it looks like I think ex storm and excluding EDS, it was down probably about 5% this quarter. Is that about right?

Anthony Slater

I think that's right.

Andrea Wirth - Robert W. Baird & Co., Inc.

And then just looking back, I know it's very difficult to try to judge what the business did, but I think you thought last quarter when you tried to exclude the storm revenue, which I know is a tough thing to do, you thought your business might have been flat. I guess, looking back, do you think maybe that might have been a little bit optimistic just kind of given the trends we're on or do you really think that business was starting to come back and now we've just kind of had this incremental downturn in the economy and now this business is kind of on the downward trajectory again?

Eric Pike

Well, I think the biggest thing, Andrea, is that when you had the financial collapse in September, it was a bit of deal where all bets were off. Some of our utility customers took some very hard positions in controlling their own costs which, no, we did not foresee that nor that level of cost containment on their part.

But one of the things that we do value out of it is in going to them, we've had several of our large accounts that, while they recognize they had to make those hard decisions themselves, in turn we have worked with them to extend our contracts for additional years to give us opportunities to return to those volumes without having to re-bid the work. And I think that's pretty paramount when you look at the relationship that's involved with those MSA contracts. I mean, that's part of what we do.

Andrea Wirth - Robert W. Baird & Co., Inc.

Could you remind us now how big your transmission business is, I guess, on an annualized basis?

Eric Pike

Historically our transmission revenues were about 8% to 10%. They're higher than that now, probably 10% to 12%, and we would anticipate them growing based on the focus we're putting on it.

Operator

Your next question comes from Alex Rygiel - Friedman, Billings, Ramsey & Co.

Alex Rygiel - Friedman, Billings, Ramsey & Co.

I didn't hear you disclose the change in power line revenue per billable hour and the power line billable hours. Could you do that for us?

Eric Pike

We have decided, Alex, not to continue to disclose that piece of information. As we continue to look at the new business, Energy Solution business, we're trying to make sure we evaluate how our segment disclosures are going to play out and we hope to have that wrapped up in the next quarter or at least by year end. And so we want to make sure we have that wrapped up before we provide that level of guidance.

Alex Rygiel - Friedman, Billings, Ramsey & Co.

And could you attempt to quantify the dilution to EPS from the EDS acquisition this quarter?

Eric Pike

Really, other than the excess equipment that we brought over, we certainly had a plan to use that excess equipment in the business and dispose of some of our older units, and given the current secondary equipment market, we've been unable to do that at the level we wanted to.

But excluding the equipment utilization matter, actually EDS is, I would still say, ahead of our plan and was not dilutive.

Alex Rygiel - Friedman, Billings, Ramsey & Co.

And what is the revenue contribution from EDS in your guidance of $600 to $620 million for this year?

Eric Pike

Again, I guess, Alex, I would say that they still are on a run rate close to where they were before we bought them, but as far as disclosures of breaking that down, again, I'll go back to my segment comment. I want to make sure that plays out appropriately before we provide that level of guidance detail.

Alex Rygiel - Friedman, Billings, Ramsey & Co.

And so therefore is it safe to assume that you did not walk away from or cancel any contracts that you acquired with the EDS business?

Eric Pike

Correct.

Operator

Your next question comes from Tahira Afzal - Keybanc Capital Markets.

Tahira Afzal - Keybanc Capital Markets

Number one, if EDS wasn't [inaudible] it seems like the hit you took in terms of utilization and fuel costs was fairly severe in terms of your organic power line margins. As you look into the second half of the year, are your assumptions for something very similar or do you expect some recovery given the fact you've assumed cost reductions, etc.?

Eric Pike

I think basically we adjusted during the quarter as we saw Distribution revenues decline to adjust the internal cost structure to that decline, so that it's better in line with it in terms of profitability in the back half of the year, as well as the Q2 did incur the cost that Anthony was talking about in regards to the EDS transition. It also had the marked-to-market cost in it that we discussed around the fuel.

All of those things we believe that we have pretty well addressed during Q2. Some of them couldn't impact it as well just in a timing base, but that's the reason for not changing the EPS guidance. We believe the cost structure is appropriate for the level of Distribution work as well as we don't think we're going to have the additional EDS cost nor the marked-to-market cost in the back half of the year.

Tahira Afzal - Keybanc Capital Markets

So would that assume that the machinery you're planning on selling off, have you assumed that you sell off a certain amount?

Eric Pike

We'll sell off a certain amount, Tahira, if that secondary market improves to the point that we can sell the equipment at the rates that we choose to sell it and not take an impact from that. Otherwise, we'll hold the equipment until that market returns.

Tahira Afzal - Keybanc Capital Markets

Would the range of guidance you provided account for you selling or holding equipment?

Eric Pike

There's a lot of things, Tahira, we're working on on the equipment front. Our guidance includes a level of improvement in equipment utilization and we believe very strongly that we'll be able to achieve that.

Tahira Afzal - Keybanc Capital Markets

And the other question I had was, again, in regards to EDS, it seems that the margins for EDS seem to have sequentially improved. Would that be the case?

Eric Pike

You know, it is actually up a little bit, but you have to remember that we only had that business for one month last quarter, so I would say it's a little too early to make that a firm statement. But certainly it's factually correct if you look just at the allocated numbers to that division. But we're still in the process of making sure that we have appropriate business level allocations and so we'll update you guys on that as we progress.

Tahira Afzal - Keybanc Capital Markets

And if I look at G&A and I take out the $1.1 million, which was a reversal from the quarter before and treat it more as a one-time item in a sense, the earnings implied for the quarter were as low as $0.04 and maybe a little over that. So it essentially seems to imply that the second half you're assuming a fairly material improvement in the third and fourth quarter. Again, would you say most of that is coming through cost discipline on your part or are there some assumptions in terms of the macro environment as well?

Eric Pike

I think that the majority of it is coming through the cost discipline. There is definitely some optimism on the macro side in terms of the engineering, the substation and the transmission, but we do not - at least right now we don't see the distribution fundamentally changing in the near term.

Tahira Afzal - Keybanc Capital Markets

And I read somewhere that Duke Energy, given the amount of [inaudible] work that has come on and off over the last couple of years, Duke Energy might be considering taking some of its lines underground. I was wondering if you heard anything about that?

Eric Pike

There is a proposal that they are looking at of taking a small city area and converting it entirely to underground as a test project. Right now that's still very much in the planning phases, but it is being discussed.

Tahira Afzal - Keybanc Capital Markets

And would that be a market that you would participate in?

Eric Pike

Yes, we would most likely help perform the construction on that work, certainly, and we would hope to even perhaps help out on the engineering.

Tahira Afzal - Keybanc Capital Markets

And I know you can't provide too many details in terms of numbers, in terms of EDS, and its impact on the transmission space, but would love some more color in terms of the pipeline you're seeing there, how that compares on the transmission side in terms of the macro environment versus what you've seen on the Distribution side.

Eric Pike

I think you're still seeing, certainly, bid projects for transmission. Pike has been successful on a recent MSA award on transmission to do maintenance work and we're taking a much more aggressive position on the lump sum bid projects. So we do still see quite a bit of volume out there in that space as opposed to - the MSA contracts are really flexible in their loading, unlike lump sum bid.

Tahira Afzal - Keybanc Capital Markets

And again, if you look at, I guess, are you worried that some of this distribution will start trickling down to the transmission side or do you think the two are being treated fairly separately in a sense by utilities?

Eric Pike

Well, in a lot of cases, Tahira, the transmission work has had to be planned and budgeted much longer than some of the smaller Distribution projects so those are pieces that are already slated to go, I guess, with capital dollars that were already secured for them. Obviously, it could impact, if the market continues to be poor and our customers do not want to access the credit plans or the credit markets that are out there at the rates they would be charged, it certainly could impact the transmission.

Of course, the flip side to that is the stimulus plan that's being discussed and the focus that's being put on the grid as well as renewables. We view that as certainly a very optimistic piece, but until more details come out about it and where they're actually going to spend the dollars, we're reluctant to speak too heavily to it.

Tahira Afzal - Keybanc Capital Markets

Yes, and I think that's probably the sensible thing to do. I guess one last question. You know, when you look at your core power line business and you think about the future and when you finally see some light at the end of the tunnel, would you think that the first key catalyst would be a stabilization in the credit markets or do you think it would be a stabilization in the housing market in the South?

Eric Pike

Actually, I don't think you're going to see an improvement in the housing market until you see an improvement in the credit market.

Tahira Afzal - Keybanc Capital Markets

So, I mean, credit market is what we should be looking as potentially a key catalyst?

Eric Pike

Well, it's either that - I think that would be the economic catalyst in the free market or, if the government introduces a stimulus plan that directly affects infrastructure, I mean, that certainly would be a near-term catalyst as well.

Operator

Your next question comes from Rich Wesolowski - Sidoti & Company.

Rich Wesolowski - Sidoti & Company

Eric, I had a question regarding one of your prepared remarks regarding the altered contract language that would enable you to re-staff once the economy improves. I was always under the impression that the MSA framework automatically stipulates that Pike get some share of a customer's work whether that dollar value moves up or down. If that is the case - and please correct me if I'm wrong - then why would you alter the language?

Eric Pike

No, you're correct in what you describe, Rich. What we did is with some of our utility contracts that would have been up for either re-bid or renegotiation next year, we extended the timeframe on them without having to re-bid or renegotiate them.

Rich Wesolowski - Sidoti & Company

And second, could you quantify or at least give some qualitative description of the size and the timing of the EDS backlog. You know, the fixed-price bidding business is different from the MSA that we're used to. If you didn't book another job from today, how quickly would that $23 million drop off over the next, say, six quarters?

Eric Pike

Rich, I apologize, but I'll probably defer the same way Anthony is. Until we get the segment reporting defined, we're not going to separate a lot of numbers out on EDS. But I will give you some color around the fact that probably a larger percentage of their work right now is longer term in nature. A lot of the engineering work that we're doing is owner engineering, that is, multi-year work orders. So that work is not going to - it doesn't have near the burn rate that a traditional basket of, say, $10 million of six-month projects would have.

Operator

Your next question comes from Hasan Doza - Luminous Management.

Hasan Doza - Luminous Management

Kind of a broader question on utility spending. As you guys know, a lot of these utilities are kind of reporting their Qs and kind of providing outlook for '09 and most are planning for CapEx reductions, both maintenance and growth, not just for '09 but also 2010 and beyond. So from your insight and experience, do you guys believe that this deferral trend could last longer than historical deferrals?

Eric Pike

Hasan, I guess I would tell you that it is a very unusual time in terms of what we have seen. The only time period that in, quite candidly, my lifetime that even resembles it was in the mid-70s. It certainly could extend beyond that. I think that there are some very real, tangible effects that you will see if it does in terms of reliability to the end use customer. We've seen that highlighted recently in a couple of different articles, I think probably most recently last week in the Wall Street Journal. There are a lot of questions now being raised as reliability to the end user is being questioned - storm hardening, storm preparedness and just the overall system itself.

There's an ability for our customers to defer maintenance work a certain amount of time. That time does have an end, though, and I think that you will see some return to spending. It will not be maybe as robust as it was during a peak housing time, but I would be surprised if our utilities could go multi-year that low.

Operator

And it appears all questions have been answered at this time.

Eric Pike

All right. Well, we thank you all for joining us on our Q2 call. We look forward to updating you on our progress in Q3. And with that, we will talk with you next quarter. Thank you.

Operator

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation and have a wonderful day.

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