Pike Electric Corporation F2Q10 (Qtr End 12/31/09) Earnings Call Transcript

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Pike Electric Corporation (NYSE:PIKE) F2Q10 (Qtr End 12/31/09) Earnings Call Transcript February 8, 2009 5:00 PM ET

Executives

Frank Milano – IR, ICR Inc.

Eric Pike – Chairman, CEO & President

Anthony Slater – EVP & CFO

Analysts

Rich Wesolowski – Sidoti & Company

Adam Thalhimer – BB&T Capital Markets

Scott Levine – JP Morgan

Andrea Wirth – Robert W. Baird

Liam Burke – Janney Montgomery Scott

Matt Tucker [ph] – KeyBanc Capital Markets

Min Cho – FBR Capital Markets

Operator

Good day, everyone, and welcome to the Pike Electric Corporate fiscal second quarter 2010 earnings conference call. As a reminder, today’s call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Frank Milano, Pike Electric’s Investor Relations contact. Please go ahead, sir.

Frank Milano

Thank you, Elizabeth. Good afternoon, and welcome to Pike Electric’s earnings conference call to review our fiscal 2010 second quarter results. Joining us this afternoon are Eric Pike, our Chairman and Chief Executive Officer, and Anthony Slater, our Executive Vice President and Chief Financial Officer.

Before I turn this call over to Eric and Anthony, I will review the necessary disclosures. During this call, we will make forward-looking statements. These are statements that are either not historical facts or represent statements regarding our 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.

We filed our earnings release on Form 8-K and our quarterly Form 10-Q earlier today. The risk factors and management discussion and analysis section of our annual reports on Form 10-K and other SEC filings describe the factors that may affect future results of our 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. We undertake no obligation to revise these forward-looking statements to reflect events or circumstances after today’s call.

A replay of today’s call will be available this evening in the Investor Center section of our website at www.pike.com. Investor Relations questions can be directed to us at 336-719-4622 and financial news alerts are available via email.

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

Eric Pike

Thanks, Frank. Good afternoon, everyone, and welcome to Pike Electric’s second quarter earnings conference call. I will begin the call with a short overview of the past quarter’s performance and update on our restructuring efforts and a perspective on the present economic conditions affecting our industry. After these comments, Anthony Slater, our Chief Financial Officer, will provide a more detailed review of our financial results. After that, we will open the call to your questions.

Revenues for the fiscal second quarter of 2010 were $135.2 million compared to $144.6 million in the second quarter last year. Storm revenues were $18 million for the quarter as compared to $10.9 million for the same quarter a year ago. Our diluted EPS for the quarter was a negative $0.14 or a net loss of $4.7 million.

By comparison, we reported net income of $2.6 million or $0.08 per diluted share a year ago. Our net loss for the quarter was materially impacted by an $8.9 million charge related to our restructuring actions this quarter to right-size our fleet and reduce overhead and administrative costs in the distribution portion of our business. On an after-tax basis, this charge impacted net income by approximately $5.4 million or $0.16 per diluted share.

The actions we took regarding our distribution business will reduce annual expenses by over $16 million. As a result, we expect to see operating profit improvements in future quarters, as we continue to grow our other lines of business and we see our distribution business stabilize at current levels. While we believe this quarter marks the possible bottom for the distribution business deferrable, it is still too soon to suggest in overall industry has bottomed out.

As we indicated last quarter, the government stimulus programs have in many cases actually slowed distribution spending. Many utilities concerned with the administration of the federal government stimulus and bailout programs have elected to forego applying for stimulus money in favor of seeking public service rate increases. However, recent rate case petitions have had generally poor results.

While a small number of our customers have seen some success in the rate case request, most have received little to no increase at all. Without the catalyst from additional federal stimulus moneys and recognizing that utility rate increases have generally been ineffective, the near-term outlook for increased distribution spending is not particularly encouraging.

Given the lingering economic issues facing the country and our customers, the competitive environment remains intense. Longer-term, however, as the overall economy does improve, we do expect end-user demand growth, both from consumers and from businesses, which will drive increased distribution maintenance spending.

This economic slowdown created the first real decline in electricity demand since the mid-1970s. This temporary reduction in demand has allowed a longer deferral of distribution maintenance than we have experienced in the past. However, over time, we remain confident that reliability issues and demand growth will drive incremental spending for new transmission and distribution infrastructure as well as increased maintenance spending on existing infrastructure.

Looking ahead, our focus will be to continue to successfully diversify the company’s revenue base with the goal of enhancing our full platform of energy solutions and driving growth in all business lines. Given the year-over-year revenue growth from our engineering, substation and transmission businesses, it is evident that the two acquisitions we made last year will ultimately begin to drive consolidated top-line revenue as distribution revenues stabilize.

In addition, we also expect to participate in multiple, simultaneous large-scale construction projects like the V.C. Summer nuclear substation project we announced last quarter. I’m confident that the strength of Pike’s energy solutions team and our growing diversified services will enable us to successfully win additional projects of this size and complexity, which will continue to organically grow our business.

With that, I will turn the call over now to Anthony to provide a more thorough review of the quarter’s financial performance. Anthony?

Anthony Slater

Thanks, Eric. As Eric indicated, total revenues for the fiscal second quarter of 2010 were $135.2 million compared to $144.6 million in the same period last year. Core revenues, which exclude storm restoration services, totaled $117.2 million compared to $133.7 million in the same period last year. Storm restoration services totaled $18 million compared to $10.9 million last year.

A breakdown of core revenues includes the following. Engineering and substation construction revenues totaled $21.5 million this quarter, which was up $2.6 million sequentially or about 14%. On a year-over-year basis, engineering and substation construction increased $6.6 million or 44%. We acquired EDS on September 1, 2008, but this represent the first full quarter comparison for that business on a year-over-year basis. As Eric indicated, we are pleased with the performance of this business and the outlook for these business lines remains strong.

Transmission revenues totaled $17.3 million, which was down slightly sequentially and represents a year-over-year growth of $2.7 million or approximately 18.5%, compared to revenues of $14.6 million in the comparable quarter last year. Distribution revenues totaled $78.4 million compared to $104.2 million in the same period last year. Overhead distribution revenues fell slightly on a sequential basis due to the increase in our storm response. Underground distribution continues to experience weakness due to the slow commercial and residential construction environment.

For the quarter, gross profit declined $1.5 million to $16.9 million. As a percent of revenues, the gross profit percentage decreased to 12.5% this quarter compared to 12.8% in the same quarter last year. Our gross profit was favorably impacted by higher storm restoration services and lower fuel cost compared to the same period last year. Gross profit and gross profit percentage continued to reflect lower productivity unit work and higher mix of material procurement, which we mentioned last quarter.

In addition, although we took action late in the quarter to restructure our distribution business, gross profit did reflect depreciation expense on idle equipment and we experienced higher overhead cost for the majority of the quarter. Our overall fleet utilization for the quarter was approximately 70%.

General and administrative expenses totaled $13.1 million compared to $11.2 million last year. As a percentage of revenue, G&A expenses totaled 9.7% this quarter compared to 7.7% in the same quarter last year. As you may recall, the second quarter of fiscal 2009 results included a $1.4 million reversal of incentive compensation expense due to senior management’s voluntary forfeiture of incentive compensation for fiscal 2009.

We also recorded an $8.9 million pretax restructuring charge during the quarter related to our distribution business. The charge consisted of approximately $1 million in cash, severance and benefits cost for terminated employees and the remainder is a non-cash asset impairment charge. We accrued for severance and benefits on 79 people who were affected. And those amounts will be paid out over the next six months.

The right-sizing of the distribution fleet will increase utilization from approximately 70% to approximately 80%. We have retained some excess fleet for future growth, and margins will continue to be negatively impacted by the fixed costs related to these excess assets until utilized. The average age of our motorized equipment has improved from approximately six years to approximately five years based on the assets that we will be disposing.

While our actions are expected to realize annual cost savings totaling approximately $16.4 million, it is possible that further spending cuts by utilities could have the effect of keeping our overhead rates higher than we have planned, suggesting that we could remain disadvantaged on bidding for incremental work.

As Eric noted in his remarks, the economic conditions have not significantly improved and the competitive environment is intense. Thus, while our restructuring is intended to lower overhead sufficiently enough for us to grow revenues in the distribution business, the near-term outlook is not yet clear enough to demonstrate that we will win additional business based on the expected cost savings.

As we have noted in past quarters, our interest rate swaps expired during December. We are currently exposed to market interest rates on our $140.5 million of term debt at one month LIBOR plus 1.5%. EBITDA this quarter was $3.7 million compared to $7.3 million last quarter and $16.4 million in the second quarter of last year. EBITDA for the current quarter was negatively impacted by the $8.9 million restructuring charge.

Depreciation and amortization totaled $9.1 million this quarter compared to $9.4 million in the second quarter last year. The reconciliation of net income to EBITDA is posted on our website in the Investor Center.

Turning to cash flow and balance sheet, an increase in receivables due to the timing of storm restoration services this quarter resulted in a net use of cash from operations totaling $6.1 million compared to positive operating cash flows of $5.1 million last quarter and $23.6 million in the second quarter of last year. We ended the December quarter with $32.9 million in cash and cash equivalents compared to a cash balance of $5.6 million at December 31, 2008.

Total long-term debt remained unchanged at $140.5 million, and we have no borrowings under our $115 million revolver. Outstanding standby letters of credit totaled $24.6 million as of December 31st, leaving us with $90.4 million available under our revolving portion of our credit facility. We are not going to communicate revenue or earnings guidance at this time.

With that, I’ll turn the call back over to Eric for his closing remarks. Eric?

Eric Pike

Thanks, Anthony. While we have certainly faced challenges this fiscal year, with continued distribution maintenance deferrals, a less productive mix work that is available, and a very quiet storm season, we have answered these challenges in the areas that we can control, with rapid and effective cost reduction strategies, continued success and growth in our diversified energy services, and a renewed vigor towards opportunities for organic growth.

Our cash and balance sheet positions remain strong. And our customers recognize the value we bring and being able to write out this economic storm with them. While we are beginning to feel that we are near the bottom of this economic cycle, we still have no assurances this assumption is correct. Therefore we will continue to manage the business in a cautious and conservative manner, controlling our cost, supporting our customers, and continuing to pursue growth through our entire energy solutions platform of services.

As I close our prepared remarks, I would like to highlight and welcome our new Board member, Retired General Peter Pace, former Chairman of the Joint Chiefs of Staff. General Pace has served as the principal military advisor to the President, Secretary of Defense, National Security Council, and the Homeland Security Council. And we are pleased to have him and his experience join our Board of Directors and Pike Electric Company.

That completes our prepared remarks. And at this time, we’ll open the call for your questions.

Question-and-Answer Session

Operator

(Operator instructions) We’ll take our first question from Rich Wesolowski with Sidoti & Company.

Rich Wesolowski – Sidoti & Company

Thanks. Good afternoon.

Eric Pike

Hi, Rich.

Rich Wesolowski – Sidoti & Company

Can you review the recent performance of the unit-based MSAs, which had hurt you in the September quarter?

Eric Pike

We really haven’t seen a lot of change since last quarter. I mean, we continue to see the unit-based work being a little bit hodgepodge, if you will. We are just not able to generate as high of a margin as we used to when there was a better workflow coming out of our utility customers. So, not a lot of change since last quarter.

Rich Wesolowski – Sidoti & Company

Are those still profitable by their own right, or are you taking these hodgepodge orders merely to keep your people busy or in order to maintain the customer relationships?

Eric Pike

Well, you are taking them somewhat from all of the above, but I mean, basically that’s part of the contract. I mean, this is the work that they have available. It’s not really on a basis to turn down. So –

Rich Wesolowski – Sidoti & Company

It’s not your choice?

Eric Pike

Right.

Rich Wesolowski – Sidoti & Company

Okay. It seems that the procurement revenue, how that falls within a quarter, is a greater and greater impact on your margins. Does the percentage of procurement revenue change as you move through stages of a contract? Alternatively stated, do you book a flat margin on fixed price contracts or does the margin change quarter-to-quarter depending on when the procurement is?

Eric Pike

The margins are – if it’s a true fixed priced project, that includes fixed price including materials. Our goal would be to have those margins be similar throughout the entire project. You can have projects where it is EPC, where the materials are more acting like a pass-through though they are based on the cost plus some small margin of markup. So it really depends on the contract. The materials, I would say, if you’re doing full EPC, we typically would be doing your engineering upfront. You would be sourcing your materials and then you would start acquiring those materials before construction began. So kind of I’ll call it in the middle of the project.

Rich Wesolowski – Sidoti & Company

Has that been the trend of the two fixed price jobs that you’ve highlighted previously?

Eric Pike

Yes.

Rich Wesolowski – Sidoti & Company

Okay. And then lastly, by the old rule of thumb, the storm business cost you about $4 million to $5 million in core overhead distributions. Is that right?

Eric Pike

Our total distribution was down about $10 million sequentially on about a $15.5 million overall storm. I mean, we don’t really – I don’t really have a great answer for you on exactly what was deferral specifically due to the storm.

Rich Wesolowski – Sidoti & Company

Okay. Thank you.

Operator

We’ll take our next question from Adam Thalhimer with BB&T Capital Markets.

Adam Thalhimer – BB&T Capital Markets

Good afternoon, guys.

Eric Pike

Hey, Adam.

Anthony Slater

Hi, Adam.

Adam Thalhimer – BB&T Capital Markets

Anthony, you mentioned something in your comments. I think you said that the competition was intense. But I mean, relative to, say, last quarter, would you say the competition is more, less, about the same?

Anthony Slater

Probably – it’s probably about the same, Adam. There is just the projects that are coming out right now. There is not a whole lot of work out there and what is coming out people are pretty aggressive towards. I mean, I don’t know that we’ve seen a gain in intensity, but I certainly haven’t lost any.

Adam Thalhimer – BB&T Capital Markets

Okay. And then obviously it’s been pretty rough winter. Particularly in your service area there has been some ice storms and I guess you guys don’t give specific guidance. But I mean, would you expect to see storm revenue up sequentially in Q3?

Anthony Slater

Really too early to tell. We certainly are going to respond to any storm event that we can in our service territory or outside of our service territory, but really too early to tell, Adam.

Adam Thalhimer – BB&T Capital Markets

But I mean, it’s fair to say that if Duke Power was – I forget what their percentage of outages were at one point. But I mean, is it fair to say you guys are benefiting from that – or participating in the rebuild?

Anthony Slater

We have an opportunity anytime there is a winter storm. That’s what the storm revenues basically will derive from in Q2 that we just listed. Those were some winter storms that really took place over the Christmas, New Year’s holiday time period. There is a lot of snow that’s associated with the present weather conditions. Snow does not necessarily knock down power lines; ice does. So when you take that with about as much guidance as we can offer around winter storms or hurricanes, either one.

Adam Thalhimer – BB&T Capital Markets

Eric, are you hearing any utilities crying uncle [ph] in terms of hey, we’ve just deferred this spend about as much as we can. I mean, are there one or two within your top customer list that said I’m going to start spending again?

Eric Pike

We’ve not had anyone come out, and basically I would say throwing the towel as far as holding back on maintenance spending. There are a lot of pieces that we gained some visibility now with our engineering group that there are certainly work there to be done. But most of it is being driven by the top of the companies that are trying to – and probably rightly, so take a very cautious outlook given the overall economy as to where they want to spend money. I think one of the things that you may see that may come out of some of these winter storms, you’re starting to see certain customers be questioned about reliability that may be the outages are lasting too long or the system is showing wear and tear. That likely could drive some additional spend as we look out over the next couple of quarters of companies that have been impacted by the winter storms.

Adam Thalhimer – BB&T Capital Markets

Okay. That’s it for me. Thanks, guys.

Eric Pike

All right. Thanks, Adam.

Operator

Our next question will come from Scott Levine with JP Morgan.

Scott Levine – JP Morgan

Good afternoon, guys.

Eric Pike

Hi, Scott.

Scott Levine – JP Morgan

I think you said early on that your initial expectation was that utilities – or what you were seeing was utilities were deferring (inaudible) the rate cases go, do you have any thought or have you seen anything that you consider to be a trend with regard to seeing the utilities maybe go back to stimulus? Or kind of what – what’s your thought in terms of what their next move is?

Eric Pike

I think it’s going to be interesting to see how that plays out, Scott. As we’ve mentioned over the last several calls, I mean, early last spring, I think they were much more optimistic that, one, the stimulus package was going to spark a lot of job growth over the summer that didn’t particularly happen and that these rate cases might be a lot more palatable. They obviously prove to not be very palatable and in most cases were denied almost entirely, if not entirely. Now I think that’s going to be quite a question to go back, and these utilities are going to have to decide whether they want to pursue stimulus dollars or if they want to go into the traditional banking as far as just to borrow moneys for capitals, but – you know, quite candidly, they have – they have gotten – they have reservations around some of the stimulus moneys. And the guidelines and, if you will, the rules that will be attached to them after watching how the moneys were used and controlled in the banking and in the automotive industry. So I would love to tell you we had insight on to that. I think we are somewhat watching how that plays out as well. Again, I would highlight from the visibility that we are gaining now across the country through the engineering projects, definitely a lot of work out there to be done. I think they are going to have to come up with a game plan pretty soon on how they want to fund that.

Scott Levine – JP Morgan

Okay. And then maybe if you could talk about, excluding storm and the restructuring activities, how would you kind of characterize the quarter playing out relative to your expectations? Generally speaking, was it kind of inline pretty much and stable sequentially, at weak levels, or how would you characterize that?

Eric Pike

I think that the distribution was not at a level that was unexpected. We don’t like it was going to be at a low level throughout the quarter. I think the performance – as Anthony mentioned in his comments, the performance of the substation and the transmission and the engineering really exceeded what we were expecting for the quarter.

Scott Levine – JP Morgan

Okay. And is that a reflection of the latter point, a reflection of the work that you are doing there, that (inaudible) do you think that’s suggestive of a healthy market for those areas, broadly speaking?

Eric Pike

It certainly – that area of work seems to be obviously a little more robust in the distribution. There are customers that are having to do some capital uptick, and that’s typically where that falls, what else they do in the planning for capital build. So, obviously a little better marketplace there. But I think some of it has just been the push that we have made in those business lines and really supporting them across the country and starting to see a lot of customer success and recognition of what those groups will bring into the market.

Scott Levine – JP Morgan

That’s all. Thanks.

Eric Pike

Thanks.

Operator

We’ll take our next question from Andrea Wirth with Robert W. Baird.

Andrea Wirth – Robert W. Baird

Good afternoon, gentlemen.

Eric Pike

Hi, Andrea.

Andrea Wirth – Robert W. Baird

For me, if you could just talk a little bit about what the utilities are doing? Are they starting to bring more work in-house, and is that causing some of the additional weakness or has contracts level generally stayed the same?

Eric Pike

No. We haven’t seen them in the sense of bringing work in-house of hiring their own workforce. In many cases, the work on the distribution side in some areas has gotten so light that they are moving work that might have typically gone to the contractor to some of their own crews to keep them busy. You’re seeing more of a piece there than a shift away from the outsourcing model. That’s really where we’ve seen some of the unit work has changed to be a little less productive. As we described last time, lot of times our work would be several miles of line rather than a pole here, a pole there to change out. Now we are getting a lot more piecemeal work that’s not quite as production-oriented.

Andrea Wirth – Robert W. Baird

Got it. And have there been any meaningful changes in your customer base, any meaningful contract losses, or has everything generally stayed in place?

Eric Pike

No, everything has pretty much stayed in place.

Andrea Wirth – Robert W. Baird

And then just looking at the earnings this quarter and then trying to kind of think about what we could see next quarter, is it fair to assume that this business should actually be profitable next quarter, just given the restructuring that’s been completed in the cost save coming through? Or is there something else that we should be thinking about that will be pressuring the business in addition to what we’ve seen thus far, assuming we do see stabilization in the market in general sequentially?

Eric Pike

Andrea, I think it really just depends on where the revenues come out as we proceed through the rest of this quarter. Certainly we – our goal is to have our cost cuts and the savings related to those cuts move us back into profitable territory. But as we’ve been through over the past few quarters, it’s really going to depend heavily on the top-line.

Andrea Wirth – Robert W. Baird

And just final question, so at this point do you believe we are fairly well done in terms of the equipment reductions and the staffing reductions?

Eric Pike

Yes. Our goal was to really try to make this as much as a one pass-through as we could. Again, we’re going to have to continue to monitor utility spending primarily in the distribution arena, as we move forward. But that was certainly our goal, was to have it one-time event. We just have to see how it plays out here over the next few quarters.

Andrea Wirth – Robert W. Baird

Thank you.

Operator

We’ll take our next question from Liam Burke with Janney.

Liam Burke – Janney Montgomery Scott

Thank you. Good afternoon, Anthony. Good afternoon, Eric.

Eric Pike

Hi, Liam.

Liam Burke – Janney Montgomery Scott

On the – Anthony, you mentioned in your discussion the transmission revenue is down sequentially. Is that just a function of the project – the nature of the project-based revenue or is there something else also there?

Anthony Slater

No, really it is just a – the transmission work that we’ve been getting to really grow that piece of the business is more bid project work. So we can have a little bit more lumpy feel than our typical MSA flow. And on the transmission side, we actually do have some material that flows along with some of those contracts as well. And the material fluctuations could easily cause what we saw from Q1 to Q2. It was really a minor, slight decline.

Liam Burke – Janney Montgomery Scott

Okay, great. And on the engineering business, the revenues are up. Is there any kind of metric you can give us in terms of RFP activity to give us a sense as to what’s behind the – what we have pushing the business here?

Eric Pike

I’m not sure I quite understand –

Liam Burke – Janney Montgomery Scott

What I'm asking is – I mean, have you seen RFP activity pick up? Have you seen that part – I mean, that business – that amount of activity moving?

Eric Pike

Yes. We’ve seen a lot more opportunity in the engineering space, especially as we grow the regional offices. We’re just calling on additional customers. And there are definitely RFP opportunities out there on the engineering side as well as some of our baseload customers just being starting to forward us more, if you will, baseload engineering projects.

Liam Burke – Janney Montgomery Scott

Okay. Thank you.

Eric Pike

Thank you.

Operator

Our next question comes from Matt Tucker [ph] with KeyBanc Capital Markets.

Matt Tucker – KeyBanc Capital Markets

Good evening, guys. I have two questions here on behalf of Tahira Afzal. I realize it's tough to quantify how much the distribution revenue; the core revenue is kind of cannibalized by storm work. But if you look at storm work and distribution together, it looks like revenues were up about 6% sequentially. I was wondering if that was fairly indicative of the underlying core distribution activity and whether you think that's kind of a sustainable rate based on how the current quarter is going and your expectations going forward?

Anthony Slater

There are really too many variables in that – in the formula that you laid out. We can see so much variability in the storm that we can accomplish on any given storm event. You have different amounts of headcount needed, different rates per hour depending on the region or the customer. Overall we have – we've continued to see a fairly weak, but hopefully bottoming out distribution business. So I would not say that the distribution size is growing at 6%.

Matt Tucker – KeyBanc Capital Markets

Would you characterize the, I guess, underlying distribution business as being closer to flat sequentially or where do you think that came out?

Anthony Slater

It’s probably a little bit of a decline sequentially.

Matt Tucker – KeyBanc Capital Markets

Okay. Thanks. And then just looking at the expected savings from the restructuring, is the $16.4 million annual savings, is that a pretax number? And then if you could kind of indicate what the timing of that is. Should we expect to see a full share of that in the current quarter or is that going to be kind of phased in more gradually?

Anthony Slater

The $16.4 million is pretax. And really all of these cuts are in place, and we are in place toward the end of December. So we will have the full quarterly benefit of that annual amount in our Q3.

Matt Tucker – KeyBanc Capital Markets

Okay, great. Thanks a lot.

Anthony Slater

Thanks, Matt.

Eric Pike

Thank you.

Operator

We’ll go next to Min Cho with FBR Capital Markets.

Min Cho – FBR Capital Markets

Great. Thank you, gentlemen, for taking my question. A quick question about just your renewable business, just the wind and solar outlook for 2010, has that changed at all?

Eric Pike

Min, I don’t know that our outlook has changed. We still feel optimistic that that’s going to become a meaningful part of our business. We’re certainly pursuing a lot of projects. A lot of the things we are seeing on the wind side are still very much subject to the credit markets and some of the IPPs being able to receive funding to start those projects. We have quite a few bids out that until that’s resolved, they are pretty much hanging in limbo. In regards to the solar side, we are seeing opportunities there, first time on some larger RFPs that we had out in place. But as of yet, we don’t – it's not a meaningful piece of the business, but we certainly hope that it will be this year.

Min Cho – FBR Capital Markets

Okay. In terms of smart grid, do you expect – do you expect this next year to provide you with similar opportunities on the smart grid or do you expect that business to slowly improve over the year?

Eric Pike

As we’ve mentioned in some of the past calls, really our exposure on smart grid is not around the meter change-out. We do a lot more in the relay and control and the substation pieces of that work to install and design the equipment to read those meters. And we would imagine that that work will gradually pick up this year as more meters are installed.

Min Cho – FBR Capital Markets

Okay. And then a couple housekeeping items. What was your headcount at the end of the quarter?

Anthony Slater

We were approximately 4,200 total headcount at the end of the quarter.

Min Cho – FBR Capital Markets

Okay. And do you have a list of your top five customers?

Eric Pike

We don’t really break down that level of detail as far as disclosure. We only have one customer that’s over the 10% threshold that we disclose. And you certainly know who they are, but we don’t break down our disclosure further than that.

Min Cho – FBR Capital Markets

Okay. And actually one final question just as it relates to your transmission business. Can you just talk about if you're seeing any increase or decrease or a steady pace of transmission bidding opportunities and just what the competitive market looks like there?

Eric Pike

The areas of transmission that we focus on, which are typically the – as far as bid projects are smaller in nature than some that you hear about I guess more publicly, these are projects that range in the five to 40-mile projects typically in slightly lower voltage than 500 or 765. Of those projects, we are seeing still a fairly steady bid queue, if you will. They are certainly more competitive I think, as some of the larger projects have been put on hold or pushed back a bit in the timeframe. But we’re still seeing fairly consistent flow there.

Min Cho – FBR Capital Markets

All right. And if you guys are looking to utilize some more equipment, we could definitely use some more trucks in Virginia here. It's pretty bad. And we're expecting more tomorrow, so hopefully we'll see you guys around here. Thank you.

Eric Pike

All right. Thanks, Min.

Operator

(Operator instructions) And we’ll take a follow-up from Rich Wesolowski.

Rich Wesolowski – Sidoti & Company

Thanks. How much of the equipment related to the restructuring have you actually sold?

Eric Pike

Percentage-wise, it’s probably a third. I would say probably around a third of the units that we’ve selected for sale, we’ve sold. And we would anticipate being able to sell the remainder of those assets over the next 12 months, hopeful to go certainly to selling as quickly as we can.

Rich Wesolowski – Sidoti & Company

So the notion that you've kind of taken the bath in the December quarter with regard to the restructuring expense is still dependent on you being able to sell that equipment for the rates to which you've written it down, correct?

Eric Pike

Correct. If those units sell for a different price, a lower price or a higher price than what we have estimated in the restructuring charge. Those adjustments will flow through the period or the quarter in which that information is known.

Rich Wesolowski – Sidoti & Company

And have you had any big surprises in either direction in the first third of the equipment you've sold?

Eric Pike

No. The estimates appear to be very close.

Rich Wesolowski – Sidoti & Company

Okay, great. And then lastly, with regard to the equipment, on the other end, your CapEx, I realize that you are under-utilized in your traditional business, but you're also beefing up the transmission, which I suspect you don't really have as much equipment as you will ultimately need there. Is that going to keep CapEx higher than we would otherwise expect?

Eric Pike

Well, I mean, we will certainly spend money on the transmission side, but – we are certainly experiencing nice growth there, but that’s still a relatively small piece of the overall business. So our goal would be to certainly keep CapEx down into low reasonable ranges. We’ve improved the average age now of the overall distribution fleet. So we hopefully can maintain a very low distribution CapEx.

Rich Wesolowski – Sidoti & Company

So you can win a couple of large fixed price transmission contracts and not have to buy a lot of new equipment?

Eric Pike

Well, your first option is to try to utilize other equipment that we may have on hand. You also have options to lease or rent other equipment if the pricing on that job will allow. And then certainly you have the third option, which is bringing in the CapEx. We do not have a lot of under-utilized transmission equipment at the time.

Rich Wesolowski – Sidoti & Company

Great. Thank you again.

Anthony Slater

Thanks, Rich.

Eric Pike

All right. Thanks, Rich.

Operator

And that does conclude today’s question-and-answer session. I’d now like to turn the call back over to Mr. Pike and Mr. Slater for any additional or closing comments.

Eric Pike

All right. Thank you. Anthony and I, both, would like to thank everyone for participating in our call. We’d also like to send out another thanks to all of our crews, as I mentioned. Many of them spent the Christmas and New Year holidays away from home. They did a fantastic job on the storm response again. Many of those same ones are out now. So we appreciate the hard work that they do in growing our company and helping our customers. With that, we’ll conclude the call and we look forward to speaking with you again next quarter. Thank you.

Operator

Once again, that does conclude today’s conference call. And we thank you for your participation.

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