Pike Electric Management Discusses Q4 2013 Results - Earnings Call Transcript

|
 |  About: Pike Corporation (PIKE)
by: SA Transcripts

Operator

Good day, everyone, and welcome to the Pike Electric Corporation Fiscal Fourth Quarter 2013 Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Frank Milano, Vice President of Investor Relations for Pike Electric Corporation. Please go ahead, sir.

Frank Milano

Thank you, April. Good morning, and welcome to Pike's earnings conference call to review the results for our fiscal fourth quarter and full year 2013, which ended June 30. Joining me this morning are Eric Pike, our Chairman and Chief Executive Officer; and Anthony Slater, our Executive Vice President and Chief Financial Officer. Our Chief Accounting Officer, Jeff Calhoun, will also be available for the Q&A portion of today's call.

We will be referencing a slide presentation throughout the call today. For those of you accessing the call through the webcast, the slides will be automatically available. For those who have dialed in to today's call, you can download an Adobe PDF version of the slides from the Investor Center section of our website at www.pike.com.

If you would please turn to Slide 2. You will note that during today's call, the company will make forward-looking statements. These are statements that are either not historical facts or represent statements regarding the company's intents, beliefs or expectations with respect to trends affecting the company's operations, financial, general, economic and market conditions, and growth and operating strategies. Financial expectations and estimates, for example, are forward-looking statements.

During this call, the company will also reference certain non-GAAP financial information. In accordance with Regulation G, we have included a reconciliation of the GAAP to non-GAAP financial information in today's presentation. We will also routinely include the GAAP to non-GAAP reconciliation in our Form 10-Q and Form 10-K filings.

The risk factors and the management discussion and analysis section of the company's annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings describe the factors that may affect future results of the company's operations. Any forward-looking statements made today contained in Pike's public statements or made by management should be considered in light of these factors. The company undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after today's call.

We filed our earnings release on Form 8-K last night, and a copy of the release is also available in the Investor Center section of our website at www.pike.com. A replay of today's call will also be available online later today and we anticipate a Form 10-K filing will also be made shortly.

I will now turn the call over to Eric Pike, our Chairman and Chief Executive Officer. Eric?

J. Eric Pike

Thanks, Frank. Good morning, everyone. Thank you for joining us. I'll start this morning with some highlights from the quarter and then provide a financial overview of our full year performance. After my comments, Anthony will provide a complete financial review before we open the call to your questions. If you now turn to Slide 3.

I'm pleased to report a solid fourth quarter to our financially strong record year. The fiscal fourth quarter revenue totaled $200.2 million, up 12% year-over-year. This is a challenging quarter to compare concerning the 40% growth rate we delivered in the fourth quarter last year.

Core revenue also increased 12%, which reflected record quarterly results in our transmission business and the benefits from the UC Synergetic acquisition, which added $18.6 million in the fourth quarter revenue.

Our distribution business continues to perform well. While our June quarter results reflect a slightly slower growth rate in distribution, we believe this market is continuing to improve. Our outlook reflects increased maintenance spending, as well as assisting our customers with their storm hardening efforts.

Underground Distribution is also continuing to gradually recover as well. Over the past 12 months, Underground Distribution revenue totaled nearly $70 million, up 6%, with year-over-year increases in each of the past 7 quarters.

With a construction presence in over 35 states, which is nearly twice the size of our geographic presence when we went public in 2005, we continue to believe the recovery in distribution and specifically, housing construction, will be one of the long-term growth catalysts in our business. Transmission revenue totaled $31.2 million, an increase of 44% compared to the year-ago period. We continue to see numerous bid opportunities in the smaller scale, interstate jobs, what we have historically referred to as our 5 to 50 mile projects, as well as several larger scale projects that we're currently bidding. Our outlook for transmission remains strong.

Substation revenue was down year-over-year against our record $17.5 million quarter in a year-ago period. We had anticipated this quarter's sequential decline and highlighted the difficult year-over-year comparison on our previous earnings call. We continue to expect substation revenue to be somewhat lumpy, reflecting both the projects' timing, as well as the timing and level of procurement in these projects.

Turning to our engineering business. The integration of UC Synergetics and our legacy Pike Energy Solutions business is proceeding very well. UC Synergetics added $18.6 million of revenue in this quarter, which contributed to a 70% year-over-year growth rate in our engineering business.

Our gross profit percentage increased 70 basis points year-over-year, reflecting the improved health of the business and the favorable diversification of our revenue mix. The increased profitability would have been even more evident in our operating results and earning numbers this quarter, had we not incurred charges associated with the secondary equity offering, concurrent share repurchase and other related cost, which negatively impacted our diluted EPS by $0.07. Additionally, Anthony will discuss a couple of other items that impacted gross profit in his portion of today's call.

The secondary equity offering this quarter was a significant milestone for our company. The upsize offering of 8 million shares, plus the concurrent 40 million stock repurchase, eliminated the majority of the private equity stake in the company. After which, Lindsay Goldberg resigned their 2 board seats, then in June, Lindsay Goldberg sold the remaining 1.5 million of its shares, which completely exited them from their position and have completed the separation of a long-term relationship that we have enjoyed with Lindsay Goldberg for more than a decade. We appreciate their support and counsel these past many years, including their support for the diversification strategy that we started just over 5 years ago.

To Bob Lindsay, Alan Goldberg and Russ Triedman and all the other professionals at Lindsay Goldberg, on behalf of everyone here at Pike Electric, I'd like to thank you for your help in growing our company. Now please turn to Slide 4.

Our fiscal 2013 performance was tremendously successful and exceeded our internal expectations by every measure. Total revenue of $918.7 million represented a 34% increase over last year and an increase of $191.2 million over our record previous high.

Building upon last year's record in our core business, we grew the core business another 22% this year to a new record level of $751.4 million. In addition, storm revenue of $167.3 million represented the second highest storm year in our company's history. This combination of strength in our core and unusually high storm revenues increased gross profits by more than $55 million to $147.2 million for the year. As a percent of revenue, the gross profit percentage improved 260 basis points to 16%.

Our diversification step strategy continues to broaden our business and the addition of UC Synergetics doubled our engineering business to an annual run rate of more than $140 million per year.

With the addition of UC Synergetics, we are well positioned to further improve our core business over the long term as we continue to cross-sell our mix of engineering and construction capabilities and expand our geographic footprint.

The secondary equity offering, concurrent share repurchase and other related costs incurred this year, did negatively impact our full year results of diluted EPS by approximately $0.10.

Additionally, we returned $35 million in cash to our investors in December, through the $1 per share special dividend and we completed the repurchase of almost 3.7 million shares at an average cost of $10.925, totaling $40 million for the share repurchase in May.

That completes my prepared remarks at the beginning. I'll now turn the call over to Anthony for a more detailed review of the financials in the quarter. Anthony?

Anthony K. Slater

Thanks, Eric, and good morning, everyone. I'm going to begin with a review of our fourth quarter performance. So please turn to Slide 5.

Core revenue this quarter totaled $191.5 million and storm revenue totaled $8.7 million. While we improved our gross profit to 13% of revenue in the fourth quarter, there are 4 items that negatively impacted our quarterly gross profit.

First, the June quarter was a relatively light storm quarter. Second, we incurred costs of approximately $1 million, or $0.02 per diluted EPS, related to our geographic expansion in the west. These costs included start-up tools, which we expensed, equipment transportation costs and new offices in our expanded territory. Third, as Eric noted earlier, we have began to integrate our 2 engineering groups, Pike Energy Solutions or PES and UC Synergetics or UCS. In the June quarter, we incurred approximately $500,000, or approximately $0.01 per diluted EPS, in severance related to that integration.

And fourth, the unfavorable mark-to-market adjustment on diesel fuel hedges totaled approximately $500,000 or $0.01 of diluted EPS.

Looking down the income statement. G&A expense totaled $18.7 million, which was in line with last quarter's 9.3% of revenue and down from 10.1% of revenue in last year's fourth quarter.

As Eric indicated, secondary equity offering, concurrent share repurchase and other related costs totaled $2.9 million during the fourth quarter. This amount included investment banking fees, special committee fees, legal and other expenses associated with the transaction that culminated in the upsized secondary equity offering of 8 million shares and our $40 million share repurchase in May. Approximately $2.5 million of these costs were not deductible for income tax purposes, which accounts for the $0.07 EPS impact that Eric cited previously.

Now please turn to Slide 6. Construction segment revenue totaled $164.4 million, up 4% year-over-year. Storm revenue and our Construction segment totaled $8.3 million. Our distribution business continues to perform well. Revenue this quarter was affected by some continued wet weather, although not to the extent that we had experienced in the March quarter. The strength in our transmission business was particularly encouraging, extending the positive trend that we have experienced for the past several quarters.

Quarterly transmission revenue totaled a record $31.2 million, up 44% year-over-year. Substation revenue did decline during the quarter as we continue to focus on improved profitability in that business line.

Now please turn to Slide 7. All Other Operations includes our entire portfolio of siting, planning and engineering services. Revenue totaled $35.8 million, up 72% year-over-year. UCS added $18.6 million of revenue this quarter, which included $400,000 of storm assessment and inspection services. Excluding UCS, our legacy engineering business declined $3.6 million. This decrease was primarily due to a lower volume of procurement and reflecting a structural change in our engineering business to improved profitability by being more selective in our pursuit of procurement and subcontractor revenues, by focusing more on our desire to pursue design build opportunities and by continuing to focus on recurring base load work for utilities, including distribution, transmission and substation engineering.

Now please turn to Slide 8 for a full year look at our reporting segments.

The year-over-year growth in all areas of our business is evident in these 2 charts. Construction is on the left and our All Other Operations segment is on the right. Distribution and Other revenues grew 7% year-over-year to $449.2 million. Results benefited from the sustained growth patterns that we've experienced in both overhead and Underground Distribution. It was a strong year for renewable projects at our Klondyke subsidiary.

Transmission revenue grew 40% year-over-year to a record $101.5 million in 2013. And substation revenue grew 3% to a record $54.3 million. The portion of the year-over-year revenue growth in transmission reflects the timing of the South Carolina Electric & Gas transmission project, which began construction in January of 2012.

We have decided that beginning next quarter, we will no longer separate transmission and substation revenue categories, which is more consistent with industry practice. This change in our external disclosure has no effect on the way we operate or manage these 2 business lines within our Construction segment.

As an early indicator of what this change will represent, we have included Slide 14 and 15 in the Appendix. Slide 14 is core revenue excluding storm, Slide 15 reflects all of our revenue streams with storm restoration as part of Construction segment and storm assessment and inspection service as part of our All Other Operations segment.

Core revenue mix was more balanced this year with 60% of our total revenue from distribution and other, 21% from transmission and substation, and 19% from engineering. Going forward, we expect that modeling revenue and discussing our business along these 3 lines will serve to simplify the discussion and analysis of our business.

UCS contributed $77.3 million to All Other Operations for the full year, representing $67.9 million in core services and $9.4 million of storm assessment and inspection services. Excluding UCS, organic revenue growth totaled $7.8 million or 11%. As I stated earlier, engineering revenue was affected by the timing of large scale projects, and the amount of procurement revenue and the mix of the work that we performed.

Now turning to Slide 9. EBITDA totaled $14.8 million this quarter or 7.4% of revenue. The full year EBITDA amount and corresponding reconciliation is on Slide 18 in the Appendix.

On Slide 10, we highlight selected balance sheet data. Improvement in accounts receivable and estimated earnings in excess of billings on uncompleted projects equates to a DSO of 79 days. This represents a 4-day improvement in collections compared to the prior quarter and was unchanged compared to a year ago.

Sequential improvement in DSO reflects the lower level of storm activity which tends to take a little longer to collect relative to recurring work we performed for customers under MSA contracts.

Our debt increased $30 million during the quarter. Along with cash on hand, this enabled us to complete the $40 million stock repurchase in May. Going forward, debt repayment represents our preferred use of cash.

On Slide 11, we provide a summary of the selected cash flow items. Capital expenditures totaled $12.8 million this quarter and totaled $40.4 million this year.

Now looking ahead to next year. We are budgeting internally storm-related revenues of $81 million in fiscal 2014. As noted earlier, fiscal year 2013 was our second highest storm year, so a decline in storm revenue, if it occurs, would decrease our total revenues and earnings compared to 2013.

The integration of UCS and our legacy PES business will continue through the first half of 2014. We also plan to convert financial systems for Klondyke and to convert to a new fleet management system during fiscal 2014. Altogether, we expect to incur G&A expenses of approximately $3 million to $4 million on these projects during fiscal year 2014.

For modeling purposes, we suggest that you use a 40% tax rate in your models for next year. In addition, the reduction in the number of common shares outstanding should be evident beginning in our fiscal first quarter of 2014 at approximately 32 million shares outstanding. We anticipate capital expenditures will be roughly in line with this year's level at approximately $40 million, again, for fiscal 2014.

That completes my prepared remarks. And I'll turn the call back over to Eric. Eric?

J. Eric Pike

Thanks, Anthony. Today, our business has never been healthier or more well positioned to grow and increase profitability as our industry continues its recovery. We have grown in size and scale as have our accomplishments. Through organic and acquisitional growth, Pike has transformed itself from a regional distribution contractor to a national engineering and construction firm, opening the door to bidding projects Pike would have never considered just a few short years ago.

In just the last few years, we have completed 5 acquisitions, commissioned and built the first new EPC switchyard project for V.C. Summer Nuclear, started a multiyear transmission award from South Carolina Electric & Gas and successfully completed our first international project. Now we're preparing to start the Clean Line Plains & Eastern HVDC line with flue work in 2016, and we have several other notable projects that are in the works.

We have grown our capabilities from simple distribution construction and storm response to include siting, engineering, substation, transmission and renewable construction. Additionally, we have added a unionized prep workforce in the western half of the country and expanded to work in over 35 states. With this growth in territory and service line, we continue to leverage our ability to cross-sell our engineering and construction capabilities in all parts of the country.

While we recognize that year-over-year comparisons with this fiscal year will be more difficult due to the near-record storm revenue we generated, it is critically important to remember that storm services are an important part of the value proposition we offer our customers and they serve to augment the day-to-day profitability of our core business and would not be possible if our customers did not trust us with a significant portion of their regular work in the distribution space.

To all of our employees and customers, we'd like to thank you for helping us achieve the most successful year in our 69-year history. With that, we'll close our remarks and we'll open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll first hear from Adam Thalhimer of BB&T Capital Markets.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

I wanted to ask first about the -- your core distribution business, it was up about 1% year-over-year, and I'm just curious whether you think that, that growth will accelerate going forward, Eric?

J. Eric Pike

Yes, the distribution, the core distribution was actually up more than that. We had some -- part of our distribution revenues also encompassed some of our renewable projects and we had one of the larger projects that completed in the quarter. So the core distribution was actually up a little north of there. And we do think that that's going to continue to grow, Adam, we're not seeing customers backing off maintenance or quite candidly, storm hardening opportunities.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Can you still add incrues [ph] in that business?

J. Eric Pike

In the core distribution business?

Adam R. Thalhimer - BB&T Capital Markets, Research Division

On the core distribution business, yes.

J. Eric Pike

Yes, we are.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

And then on the transmission, great quarter for transmission revenue. Is this kind -- do you kind of build off of these levels or is there that kind of impacted you one time-ish in the quarter?

J. Eric Pike

Well, we're going to have some project-based work that ties in this as we mentioned in the scripted remarks, I mean, we do still bid these 5-to-50-mile projects. But we really see this is as a place to build off of, because we're continuing to see strength in that bid market really across the country in the areas we service.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

What size of jobs do you see as strength there, Eric?

J. Eric Pike

I mean, it's really -- there are some projects that we're in discussions with that are little bit larger, but the majority of these that we predominantly bid tend to fall in that 5 to 45 to 50-mile range.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Okay. And then, I guess, just lastly for me. You gave a projection for storm revenue in fiscal '14. I'm just -- on the core side, can you give us any kind of sense at all for what you might expect for growth there?

J. Eric Pike

No, I mean, we really, we're not going to deviate from our guidance standpoint there. We do try to help out with the storm. Obviously, there's going to be some offset there that core work will not be as deferred as it was this past year.

Operator

Next, we'll hear from Tahira Afzal of KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

First question is, if I look back in the first and second quarters, your distribution business is running at $110 million in the second quarter, but more importantly, at $120 million in the first quarter. And that was despite the fact that you are seeing high levels of storm work. So can you reconcile -- you did talk a bit about wet weather continuing to be an issue, but I would've assumed distribution business would have rebounded by now in other ways. Is there -- can you sort of put into perspective the $120 million you sought earlier on in the year and where the discrepancy is for the fourth quarter?

J. Eric Pike

Yes, a fair bit of that, Tahira. We don't break out the renewable projects that we do that are typically distribution-related voltage. We had quite a bit of solar that was going on during first and second quarter on the West Coast. And those projects are just wrapped up in the third and fourth quarters. That really equates to the difference.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Got it, okay. And so would that be for distributed generation, Eric, or would that really count to really connecting sort of, I guess, I'm trying to understand why it's in distribution?

J. Eric Pike

We just simply don't do enough volume to break it out of distribution. We put it in distribution and other is the way we list the segment.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Got it, okay. Okay, that makes a lot of sense. And then, I guess, the second question I had was on utilization, you're hiring new people. Could you talk about where your utilization is, in general, today versus where it was maybe a year ago?

J. Eric Pike

On utilization, Tahira, we -- that's not -- it works a bit as a misnomer in RPs because we don't have -- we don't keep a lot of excess votes, so the utilization remains pretty high. The only time that we've had a utilization number that I think is more reflective is in equipment utilization because the manpower always tends to stay in the 92%, 93-plus percent range. As far as equipment utilization, it's at about at an all-time high right now. Most all of our transmission equipment is pretty much fully utilized and most all of the distribution is. There's some excess there but not a tremendous amount.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Got it. So really going forward, the margin improvement from your core business, would you say is going to come more from pricing versus utilization?

J. Eric Pike

Well, again, coming back to utilization, I mean, we could add another 200 people and that won't change that utilization percentage. So I don't want to confuse utilization versus margin impact that we would add those people that would potentially improve our margin as we leverage that growth against the G&A cost that we don't think that we have to incur significantly. But we also believe that the market is going to have a little bit more pricing flexibility as we go forward as well.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Okay, that's great. And last question for me and I'm going to go back in the queue. As things lie right now, it seems you got a great secular story ahead of you. You've done a great job growing your transmission business, and now it looks like distribution with the housing cycle that sparked some growth. So it's a bit of a pity if we have a sell side community sets your numbers are too high not knowing how this inflection is going to go this year, so I know you've provided us some qualitative guidance, but could you help us in terms of really looking at the earnings power as we transition into next year, maybe perhaps from the margin perspective to some degree?

J. Eric Pike

Tahira, on the margin side, we continue to try to build out and diversify the company to ultimately get back into the 15% to 16% gross margin without storm. However, we still got a ways to go. I mean, we don't view that as imminent in the next several quarters, but we have continued to improve that margin profile each year for the last several years. We do think it will continue to improve in the upcoming year on core business. Whenever we hit our storm estimates, we tend to be in the 16% plus gross margin range as a company. So if you're looking at it from a modeling perspective and you've began to see the storm work achieved anywhere near our estimates, we think on a blended basis, we'll be there on a core basis, we're going to be a little bit south of that but we are continuing to improve it off of these year's number.

Operator

Next, we have from John Rogers from D.A. Davidson.

John B. Rogers - D.A. Davidson & Co., Research Division

I was wondering if you could just talk a little bit about your visibility, especially with some of the smaller projects. I mean, how far out are you scheduling work now? And has it changed?

J. Eric Pike

John, for us, we actually -- I don't know that I would say we technically schedule the work out, but we certainly have dramatically better visibility through our engineering group into the potential for work that's out now, 6 to 8 months, in some cases, 18 months out. In terms of kind of like the stepping back maybe a little to Tahira's point in utilization, a lot of our MSA accounts don't have that much of what you would consider to be long-term visibility because the work is really issued on a daily or weekly or biweekly basis, but we're seeing the volume of that work start to improve.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay, and that's what I was trying to focus on. I get the sense of what you're seeing, and I'm just trying to get a better understanding of what gives you that confidence. I mean, you mentioned the engineering business, but is there anything else, I mean, are your customers talking about larger projects into 2014 or just more work?

J. Eric Pike

Yes, we -- I think the thing that's given us the confidence is a bit twofold, is one, our sort of legacy Southeastern Mid-Atlantic deep South customers are definitely beginning to talk more and more about either be it storm hardening, be it enhanced maintenance, be it some new growth in some spotty areas. But also, we're hearing now as Klondyke and Pine Valley have established themselves and grown outside of just the Arizona and Utah state market into multistate markets, we're now getting better visibility into project load out there and while we certainly couldn't service all of the opportunities that are there, we like the fact that we're seeing things to choose from instead of just the only thing that's out there to bid on.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay. And then lastly, in terms of just the geographic markets, are there any new markets that you're looking at especially in the calendar 2014?

J. Eric Pike

I don't know that I would say that there are particularly new markets that we are looking at. I think we're more focused right now on the execution of growing in the markets that we have. We see a good bit of greenfield opportunity in the west, certainly with our Klondyke and Pine Valley groups, and we also are seeing a lot of opportunity to cross-sell our services throughout the Southeast and Mid-Atlantic. So I don't know that we would -- we would certainly, if the opportunity presented itself, we wouldn't turn it down. But we're not really looking as part of next year's strategy as a geographic expansion as much as within the territory we are expanding.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay, and then just lastly, if I could, in terms of acquisition opportunities. Is there anything out there now or are you seeing opportunities? Or do you have an interest there?

J. Eric Pike

We continue to look at the acquisition potentials out there. And I would tell you that there are certainly some areas that we have some interest in. We have seen some deals that we were loosely associated with just as a cursory glance. Some of those we've seen have gone at multiples that probably don't make them very attractive to a strategic buyer. But if the right one came along, we certainly would take a hard look at it.

Operator

Next, we'll hear from Liam Burke of Janney Capital Markets.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Eric, you talked about some restructuring in the engineering side of the business and with a lot of procurement revenue being run through that line, the EBITDA margins were pretty small. Can you see some meaningful lift on the profitability of that business anytime, understanding the reality of the procurement piece of the revenue?

J. Eric Pike

We certainly think that we can, Liam. I mean, I'm not going to try to pitch which quarter that might be in, but the restructuring is a bit twofold. Obviously, we had some of the engineering work that our legacy PES group. They were a lot more focused on the bigger EPC fixed price projects that had a larger procurement component. We are shifting them, but not completely away from that because we still view those as good opportunities, but we want that to be a smaller piece of their mix of revenues so that we can reduce that procurement component, get them on more longer-term engineering pieces for our customers, and then use the EPC to augment revenue, not be the core piece. The second piece of that restructuring comment on the script, I just want to be sure, part of that is just the integration of UC Synergetics and PES together. Obviously, we've got a small amount of overlap there. And so as we put those 2 organizations together, we should see a modest amount of G&A pipe improvement, which also should help on that margin profile.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Great. Thank you. And Anthony, do you have a -- an annualized cash flow from operation handy or should we just discuss that off-line?

Anthony K. Slater

As far as fiscal '13?

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Yes.

Anthony K. Slater

Hold on 1 second, Liam. I can get you that. So for the full year, fiscal '13, net cash provided by operating activities, $82.8 million.

Operator

Next, we'll hear from Min Chio of FBR Capital Markets.

Min Cho - FBR Capital Markets & Co., Research Division

In the last couple of quarters, you've talked about bidding on a few kind of larger, maybe $100-million-plus types of projects. So I'm just wondering if you could provide any detail on how some of those products are progressing, and if you see an increase in the pipeline for some of that larger work?

J. Eric Pike

Yes. We continue to be in discussions with folks, Min, I mean, I don't think we're certainly at a place that we're ready to announce anything. If we do, we will certainly do that in a public press release. I think those are continuing. We were still very positive about them, but anytime you are working on projects like that, they tend to have a longer lead time. We do see several of those out there. Those are not the type of projects that we typically focus on. As we mentioned on transmission, we're usually in the 5-to-50-mile range, which are certainly smaller than that. But from time to time, we're going to look at these projects. We want to build a backlog in them as we see parts of the V.C. Summer down the road roll off and other larger projects we have to build that backlog. So we feel pretty comfortable around these. I don't know that I would feel comfortable telling you that I see a huge volume of those projects, but I caveat that with the fact that we don't typically look for a huge volume of them.

Min Cho - FBR Capital Markets & Co., Research Division

Right, but they're still definitely in the works?

J. Eric Pike

Correct, yes.

Min Cho - FBR Capital Markets & Co., Research Division

Okay. And also, can you talk a little bit about your -- the renewable kind of EPC opportunities. I know that you finished a couple of the solar projects, but I mean, is that still kind of a near-term opportunity for you on the solar and wind side?

J. Eric Pike

Yes, we actually see a little less volume right now on the wind side, but we continue to look at opportunities in the west, particularly the Arizona, New Mexico, California market around solar. And there are certainly we -- there are several projects we'll be bidding on over the course of the next year that are coming out there.

Min Cho - FBR Capital Markets & Co., Research Division

Okay. And then also, on the substation part of your business, can you remind us how much revenue came from V.C. Summer last year in this quarter?

J. Eric Pike

I don't know that off the top of my head, Min. I mean, we can get it for you.

Anthony K. Slater

Yes, I don't know if I have that number handy. I mean, it would've been a decent portion of the 17 7 [ph] for the quarter.

Min Cho - FBR Capital Markets & Co., Research Division

Right. Okay. And then finally, just on your telecom engineering business that you acquired through UCS, can you give us a little kind of update on what you're seeing there. I know you're doing some work on the DAS [ph] side. If you're providing any type of construction services yet or is it still mostly engineering and is there any update on the AT&T expansion?

J. Eric Pike

Yes, we -- well, that's still a relatively small piece of our business. We have picked up some additional states to engineering with AT&T. We were originally doing engineering for AT&T at about 9 states, we'll do about 20 states today. That is solely engineering work, but we are evaluating the -- adding in a construction component to that. To date, we have not done that simply because we are in the middle of the integration of the whole UCS and PES right now. But we certainly think at some point, that becomes a platform to do that, especially with the DAS and the RAD [ph] technology that we're seeing they introduced of space.

Operator

[Operator Instructions] We'll now hear from Noelle Dilts of Stifel.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

I just wanted to circle back to the expenses associated with the extension into the west that fell into the quarter. You talked about some other expenses kind of carrying forward into 2014. But can you just specifically comment on the expenses associated with that expansion and if you see some of those continuing into next quarter?

J. Eric Pike

Yes, that the -- it's mostly westward expansion expense. So we're taking the charge to the P&L. So it's mostly startup tools, transportation to get the equipment in the new locations, cost of setting up regional type offices or construction in the west as we move into new state. And so we did an expense hitting the P&L, but it really has -- it's really an investment in what we believe is a good growth opportunity. So it's impacting the current P&L, which we wanted to highlight and we haven't been able to yet see the benefits of that growth. And so certainly the growth benefit, hopefully, we'll see that going forward. But the cost that I mentioned, and as far as those moving forward, those were really more around system conversion costs. So a little bit different type of expense. So we were talking about the PES and UCS merger for engineering and integrating UCS into our financial systems. Our Klondyke subsidiary, we are also going to convert their financial systems and we are looking at a new fleet management system to handle now the multi-entity business that we are today. And we think the range on those is between $3 million and $4 million, so a little bit different profile on the system integration costs compared to the westward expansion incurred this year.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just to be clear, I mean, you think you could see a little bit more investment in the Western expansion or you think you're kind of moving past the investment stage and you should start to see more of the returns?

J. Eric Pike

I think there will definitely be more investment, but I think some of that, we believe, will be offset by returns on the investments we've made this year. We are in no way halting or slowing down opportunistic footprint expansion that we believe will have -- will be offset by some of the other growth objectives that we're trying to achieve now.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then on your Underground Distribution business. Clearly, you're seeing some recovery there but I think maybe a little bit more slowly than some folks were anticipating, if you work through the inventory of housing and maybe we're seeing kind of a disproportionate amount of the recovery happening in the multifamily housing. Can you just comment on how you're thinking about that, the piece of that recovery going forward and how could you be thinking about that opportunity?

J. Eric Pike

I mean, it really is a bit of an opportunistic view. In the accounts that we have, Noelle, with the MSA, that includes the underground and the overhead opportunity. If our customers begin to see new service ads, new homes, new customers, that is a piece of work that they typically outsource almost 100%. So as that work comes, we will see it grow and we expect it to do that with the -- if the housing recovery continues. But in terms of trying to box that in of how we could facilitate that either accelerating or not accelerating is really a matter of making sure that you have the longer-term contracts that you have the ability to grow as it grows and we think we're well positioned for that. But there's not a lot that we can do until that market continues to pick up steam, which it is doing its just, albeit a little bit slower than what you might see from the big-box store results or some of the homebuilders that want to talk about perspective builds that they may have booked. Until they actually turn dirt and do state-built homes or multifamily homes, we can't actually hook the service up, which is what drives our piece.

Anthony K. Slater

And we are still less than 50% of our high watermark in Underground Distribution. So we did just under $70 million. Our highest year was over $150 million. And as Eric mentioned in the comments earlier, that was with a dramatically smaller footprint. So given our expanded footprint and where we're at compared to our historical underground, we think there's a pretty good opportunity for us to grow there along with housing growth, hope that helps a little bit.

Operator

And next, we'll hear from Dan Mannes of Avondale Partners.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

A couple of quick follow-ups. First, as it relates to quarterly results, I believe, in your third quarter, you have some incremental costs related to training, and also maybe some wetter weather that you are expecting. Do you have either of those impact the fourth quarter or were most of those kind of out of the way by the time you reached this quarter?

J. Eric Pike

They did have a little bit of impact that rolled over into the fourth quarter, Dan, but we didn't view it nearly as material, as what impacted the third quarter. That was the reason we didn't raise it this time.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Got it. Number 2, on the transmission side, obviously, really strong growth there. When you look at the year-over-year perspective, can you either -- can you quantify this upgrade? How much a year that you're gross would accelerate spending on the big South Carolina projects versus growth and maybe other projects year-over-year?

J. Eric Pike

Beyond the annualized run rate of the South Carolina project, really that's all, all incremental growth over there. I mean, we did move up from 2012 to a full year on the SCANA project, which that would have a, what, $22-or-so million dollars a quarter of run rate. It was about $15 million increase on transmission year-over-year. There's additional revenues on the project that's engineering related, but just looking at transmission and standalone, somewhere in that range.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

But I mean in the fourth quarter, I think transmission was up, I don't know, $10-plus million. Is the bulk of that, was that the South Carolina job or something else?

J. Eric Pike

It's a split. We're seeing good transmission opportunities really across not only our historical customer base in the Southeast, but also opportunities in the west. So this is certainly not a complete SCE&G story, it's really a good cross across the customer base growth pattern.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

It's good to hear. The last...

J. Eric Pike

The majority of -- Dan, the majority of what you're asking now in fourth quarter is E&G had a little bit of an uptick, but most of that growth in the fourth quarter was E&G has a more normalized run rate. Most of the growth in fourth quarter was other customer growth on transmission.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Got it. One last question. When you look at the fees paid during the quarter, back, it was $2.9 million, that seemed like a pretty large number relative to a secondary? I was just wondering, was there something more intensive you guys look at there, strategic alternatives or if there was something else that might be embedded in that number?

J. Eric Pike

Well, yes, I mean, part of the reasoning for the secondary equity offering was the ultimate exit of Lindsay Goldberg and we had a much longer process than what a traditional just secondary offering would have been. As we look at a variety of alternatives for their exit to facilitate what them exiting, but also not damaging the business. So it was certainly a much longer, broader process with the secondary being the end result.

Operator

And then we'll take a follow-up from Noelle Dilts of Stifel.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Again, I just wanted to touch on -- it's the high-level question, but you talked about high levels of transmission equipment utilization. So if you look forward to potentially starting this Clean Line job in 2016, can you talk about what investments you would maybe have to make an equipment or how you'd handle a ramp-up on a job of that size.

J. Eric Pike

We certainly feel like we have the capabilities to ramp up, to do a job of that size. But quite candidly, Noelle, until we decide with the customer and with Fluor on the ultimate design and structure design of the line, it's really pretty premature at this point for me to guess ways we would do that. I think the fact that we have the ability as a third-party manufacturer of equipment and the lead time and knowledge that we have on the job, we can certainly for any specialty equipment, we have plenty of time to build that equipment and be in position. But we're also already reaching out across all 3 states that we'll be touched by the line, 2 various subcontractors to assist us with a lot of non-specialty equipment and participate in the job. So just on that job, at this point, it's still very preliminary. We are doing preliminary engineering on it. We are working with Clean Line as they tighten up the right of way and line rally. But at this stage, it is still receiving its final regulatory land options and final route. So we'll be happy to try as we get a little bit closer to give more details around how we'll ramp-up. But I'm not sure we have enough details around the project yet to tell you a full answer.

Operator

And there are no further questions at this time. I'll turn the conference back over to Eric Pike for any additional or closing comments.

J. Eric Pike

Great. Thank you. Well, that concludes our fourth quarter call and we appreciate everyone's interest in joining us on the call. We look forward to updating you again the next quarter. Thank you, all, very much. Bye-bye.

Operator

That does conclude today's conference. Thank you, all, for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!