Pike Electric Corporation F1Q09 (Qtr End 10/31/08) Earnings Call Transcript

Pike Electric Corporation (PEC)

Q1 2009 Earnings Call

November 8, 2008 8:30 am ET

Executives

Eric Pike – Chairman, CEO, President

Anthony Slater – Chief Financial Officer

Analysts

Andrea Wirth – Robert W. Baird

Richard Wesolowski – Sidoti & Company

Alex Rygiel – FBR Capital Markets

Tahira Afzal – Key Banc

Curtis Woodworth – J.P. Morgan

Presentation

Operator

Welcome to the Pike Electric Corporation's first quarter 2009 earnings conference call. (Operator Instructions) For opening remarks and introduction, I'd like to turn the call over to Miss Laura Travers.

Laura Travers

Welcome to Pike Electric's conference call to review our 2009 first quarter results. Joining us this morning 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'll run through the usual housekeeping details. This morning, we'll be talking about our 2009 first quarter financial results published on Form 8-K earlier today, and our outlook for fiscal 2009. After our prepared remarks, we will have time for questions.

Media questions should be directed to 336-719-4492. This conference is being recorded. It will be available for replay this afternoon at the investor relations section of our corporate web site www.pike.com, which will also contain a transcript of the conference call, press releases and other investor related information. You can also register there to receive Pike Electric's financial news alert.

Please be advised that any statements made today may include forward-looking statements within the meaning of the Private Securities and Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, projected revenues, earnings per share, tax rate, capital expenditures and other projections of financial and operations results as well as growth, strategies and plans anticipated future projects, expected benefits associated with acquisition and any other statements reflecting Pike's expectations, intentions, assumptions or beliefs about future events or performance or anything that does not fully rely on or relate to historical or current facts.

During this conference call, we may also make references to EBITDA or other non-GAAP financial measures. The reconciliation of non-GAAP measures to applicable GAAP measures can be found on our web site. All statements are based on information available to Pike Electric's management as of this date. These statements are no guarantee of future performance and are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated.

Risks are further described in periodic reports filed with the Securities and Exchange Commission, the SEC. Any such forward-looking statements whether written or oral are expressly qualified by these cautionary statements. Except as may be required by applicable law Pike Electric disclaims any intention and assumes no obligation to update or revise forward-looking statements.

This concludes our housekeeping. I'll now turn the call over to Eric Pike, Chairman, Chief Executive Officer and President of Pike Electric who will begin the call with our business update.

Eric Pike

Thank you for joining Pike Electric's fiscal 2009 first quarter earnings call. Today, I will discuss the state of Pike Electric and our evolution into an energy solutions company. I will provide a general overview of the period with perspectives and insights on the current market conditions affecting the company.

My comments will be followed by those of Anthony Slater, our CFO who will provide a review of the first quarter financial results and our outlook for 2009. Then, following our prepared remarks, we'll open the call for your questions.

Much of the success this quarter was attributable to our line crew's fine performance restoring power outages after hurricanes Gustaf and Ike. Storm revenues following hurricanes Gustaf and Ike were up significantly to $78 million in the first quarter of 2008, compared to $5 million in the prior year.

Our storm restoration capabilities are a testament to the dedication of our field work force and the knowledge and experience of our leadership team. When we deal with the aftermath of a storm, as when we perform our core business, it's our ability to execute that sets us apart. Our crews' efficient response this past quarter showed that once again we're able to quickly mobilize across our system, get the job done and return to our core business.

On a personal level, I want to tell you that I'm extremely proud of what our linemen accomplished after the hurricanes. When a storm takes down power lines, Pike Electric typically gets there first and stays the longest. This kind of service is vital for the public. It's necessary for our customers and it's profitable for our company, and our customers were pleased that Pike Electric was there for them. While we do not rely on the earnings that storm restorations bring, it is one of our core competencies and a service that our customers rely on.

In terms of our core business, we do have a lot of exciting opportunities to discuss and some challenges. As to the opportunities, we remain focused on expansion with our successful acquisition and integration of EDS. Now that the integration is complete, we've expanded our foot print across the country. We've also expanded our capabilities as an energy solutions company with turn key services for our customers.

In addition to the core construction business that's been our service platform for 63 years, we now provide customer solutions in the engineering, sub station and renewable energy sectors. We are continuing to grow and diversify our business in areas where we can offer field expertise. We have a rich history of delivering dependable service, and as an energy solutions company we believe we offer a lot more across the spectrum of our customers' electrical energy supply chain needs through the addition of engineering services, sub station, renewables and EPC work.

Now for the challenges; as we see it, every market and virtually every industry has challenges in the present economy. Credit market concerns and uncertainty in the U.S. economy translate to the potential for a down turn in utility maintenance and capital projects, and that could impact our business.

However, Pike has always taken a long term approach to our business, and we feel that fundamentally, we're well positioned with growth opportunities even in a challenging economy. The services we offer are important. We will continue to design, construct, maintain, connect and restore the power lines and sub stations vital to our nation's infrastructure, and we'll do it well.

We have continued to demonstrate good financial discipline and to that end we remain focused on paying down debt and controlling expenses. We will also continue reviewing potential acquisition candidates that would further enhance our service offerings. This leads me to be more convinced than ever that we continue on the right track.

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

Anthony Slater

I'm going to walk through the income statement for our fiscal 2009 first quarter, balance sheet and cash flows and provide our outlook for the remainder of fiscal 2009.

Total revenues for the fiscal first quarter ending September 30, 2008 increased 33% to $186 million from $140 million in the comparable period last year. Our revenue increase was driven by storm restoration revenues and the September 1 acquisition of EDS.

Storm revenues totaled $78 million in the first quarter of fiscal 2009 compared to $5 million in the comparable quarter last year. A large amount of storm work in the quarter diverted a significant number of our crews from core work. As a result, core revenues decreased by 20% to $108 million.

Gross profit for the first quarter of fiscal 2009 was $45 million compared to $23 million in the first quarter of fiscal 2008. Gross profit was 24.2% of revenues compared to 16.7% in the prior year. The year over year increase was due to a significant increase in higher margin storm restoration revenues in the quarter which accounted for 42% of the quarter's total revenues compared to 4% in the prior year.

Fuel costs increased to 6.2% of total revenues in the first quarter compared to 5.4% in the same period of the prior year.

General and Administrative expenses increased approximately $3 million year over year to $13 million in the first quarter of fiscal 2009 but decreased 20 basis points to 7.2% of total revenues.

Interest expense for the fiscal first quarter of 2009 decreased 51% to $2 million compared to the first quarter last year, due to significant debt reductions. Our effective tax rate was 37.6% in the quarter.

Net income for the fiscal first quarter of 2009 was $18.3 million or $0.54 per diluted share compared to $5.3 million or $0.16 per diluted share last year.

EBITDA was $41 million for the first quarter 2009, versus $22.5 million for the same period last year. Depreciation and amortization for the first quarter totaled $9.4 million versus $9.6 million last year. A reconciliation of net income to EBITDA is posted on our website under the investor relations section.

Turning to our cash flow and balance sheet; net cash used in operations totaled $577,000 for the quarter. Major storm restoration efforts caused a short term working capital drain. We have the cost of mobilizing staff, and the cost of significant overtime pay for our crews. Our storm restoration is billed on a time and materials basis, but most storm invoicing will go through a customer audit review before payments are made due to the nature and magnitude of such invoices.

Our receivables billed and unbilled will increase dramatically during a storm event. This short term increase in receivables will negatively impact our cash flow from operation totals during a storm period. Our total receivables increased by $67 million since our fiscal year end primarily due to storm activity as well as the EDS acquisition.

Our cash position was $1.1 million at the end of the first quarter of 2009, and total long term debt was $140.5 million. In addition, our revolver balance totaled $17.4 million at September 30, 2008 due to the working capital needs related to the storm events as discussed.

Based on the trailing 12 month EBITDA, our long term debt to EBITDA ratio is approximately 1.4 times. Our long term debt is due in 2012.

As of September 30, 2008 our borrowing availability under our $90 million revolving portion of our credit facility was $49 million after giving effect, the current borrowings and outstanding letters of credit.

To date, all of our banks have participated in our revolver draws and based on our review, we believe the participating banks will continue to be active partners in the revolver. Our revolver matures on July 1, 2010.

And now, let me provide some additional color on the recent acquisition of EDS. We acquired this business for approximately $24 million in cash subject to a working capital adjustment. We acquired approximately $22 million of net assets in the EDS transaction. We did assume operating leases for the majority of the EDS fleet that will have annual payments of approximately $7 million. The entire purchase price was paid with available cash on hand as of September 1, 2008.

Only September's results for EDS are included in our first quarter results. We have already completed the integration of EDS and incurred minimal integration costs. The EDS, T&D crews assisted in our storm restoration efforts in September and operating results while only visible for 30 days, appear to be on track with our targets.

Let me provide some context about our guidance. While our guidance reflects the benefits from our increased service capabilities, and anticipates the potential for declining diesel prices, we also face continued uncertainties including the economic environment, tight credit and weak housing markets.

We are still in the early bidding stages for projects that combine the Pike and EDS skill sets. Therefore, we still feel that it's prudent at this time to refrain from assuming any incremental revenues or profit contributions from large scale contracts.

Regarding diesel prices, the market remains quite volatile. Following the surge in diesel prices which reached as high as $4.70 per gallon in July, there has been a decline in pricing to about $4.00 per gallon toward the end of the September quarter, and it has continued to decline through the first half of our second quarter.

We have assumed storm revenues of approximately $35 million to $40 million for the remainder of the year. We originally had an assumption of $50 million of storm revenues in our annual guidance, but clearly we exceeded that during our first quarter. As always, storm revenues remain unpredictable.

I'd also like to point out a couple of other things. While we don't give quarterly guidance, there are some aspects about our second quarter that are different from other quarters. First, I want to remind you that our second quarter has far more holidays, double the amount in any other quarter. Again, double the amount of holidays than any other quarter.

In addition, more people typically take vacations in our second quarter and there's also a higher probability of inclement weather like rain which is not positive to the business. That's just something to be aware of.

It's also the last quarter for most of our utility customers' fiscal years. Historically, we have seen those customers adjust spending as they approach their year end based on how they're performing against their targets. With that said, here's where we're at with guidance.

In terms of outlook, we're increasing our fiscal 2009 guidance based on the storm and first quarter. We expect total revenues to range from $650 million to $680 million for our fiscal 2009 compared to our prior range of $620 million to $650 million for fiscal 2009.

We expect earnings per diluted share to be in the range of $0.85 to $0.95 compared to our prior range of $0.55 to $0.65.

That concludes my remarks. Now, I'll turn the call back over to Eric.

Eric Pike

In closing, we had a solid start to fiscal 2009. I'd like to thank all our Pike employees for their hard work and dedication, especially during the demanding storm restorations. In the near term, we anticipate continued economic challenges as tight credit markets impact our customers. However, I'm confident that we're well positioned to emerge an even stronger company when their spending picks up.

Before the EDS acquisition, we were one of the largest, best equipped power line construction contractors in the United States. Now, Pike Electric is one of the nation's largest providers of energy solutions including power line construction, engineering, sub stations, EPC and renewable energy work.

These capabilities, together with our deep customer relationships, operating discipline and strong balance sheet position us to continue to drive growth over the long term.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Andrea Wirth – Robert W. Baird.

Andrea Wirth – Robert W. Baird

Can you let us know how much EDS actually contributed in revenue to the quarter? I know it was just one month but was it roughly $9 million?

Eric Pike

What we've disclosed in the past, the business was on a run rate of about $100 million a year and so we still believe that still a good current run rate, so you're estimate is in range.

Andrea Wirth – Robert W. Baird

So I guess then when you look at just the core business, when you try to X out contributions from Shaw, you're probably down about 27%. I'm just wondering how much of that, if you can estimate is down due to diverting the crews. What would the gross rate have been if you can adjust for that crew diversion?

Anthony Slater

As we've discussed before on these calls, it's very difficult for us to go back and assume a certain level of core business, but based on some general averaging we believe that the core business is down minimally. It's holding relatively stable.

Andrea Wirth – Robert W. Baird

So actually an improved growth rate from what you saw last quarter which was down 9% or so.

Anthony Slater

Improved from that, yes.

Andrea Wirth – Robert W. Baird

Going forward from that, if you look at your guidance and scrubbing the higher storm revenue, it does look like your outlook is lower for the core business. Can you talk a little bit about that? Is that more you just trying to push out where that inflection point comes into play where the maintenance spending should start coming up?

Eric Pike

I think most of it is from our fourth quarter call to now, going through the month of September the impact that the credit markets and the financial issues that took place, obviously there's been several press releases recently about some large utilities paring back some of their capital expenditure monies, or at least proposing to if credit markets don't open.

We've had discussions with many of our large customers and right now it is very unclear to them how rapidly they're going to see those markets open back up. I think what you're seeing in our revised guidance is continuing as we did in Q4 to take a conservative and practical approach to where we see the business.

I think what took place in September is arguably pretty unprecedented. It is having an impact on our customers and until we get better clarity from them, we feel like this is still an attempt to show the opportunities we know are there with EDS, to open up additional revenue lines that are going to support our original budget, but taking a bit of a cautious tone around the distribution spend as we look out until we get a little more clarity from our customers.

Andrea Wirth – Robert W. Baird

As it relates to diesel costs, could you remind us of the 6.2% of sales that fuel was, is that entirely diesel?

Eric Pike

It's about 90% diesel.

Operator

Your next question comes from Richard Wesolowski – Sidoti & Company.

Richard Wesolowski – Sidoti & Company

I was hoping to drill a little further into the comment you just made and try to reconcile a flattish distribution outside the storm with what looked to be about a 20% organic decline. I look back to Katrina and Rita and you recognized the meat of that revenue in the first half of F'06 and the core power line work was actually up. I'm trying to get a sense of what's different with your labor force now? Do you have less excess room that would say that when you do have good storm revenue, you're not going to be able to grow the core?

Eric Pike

I'm not entirely sure I totally understand the two pieces of your question. In terms of the work force that we have versus '06, you are seeing an entirely different economy. I think at the time the work force that we had was in terms of head count larger at that time. The underground work force that was not typically diverted to storm work throughout that time period, in which case we've had some retraction that we talked about in Q4 of our underground work force. I think that's probably the offsetting difference versus '06 to now.

In terms of the core reduction, it's important to note and it's hard to come up with an exact percentage, but most of that reduction that you saw during the quarter really was a diversion to storm work not an overall drop in core. We had pretty flat in terms of core if you had adjusted it for storm.

As we look out going forward, we expect the core numbers to pick back up, absence of any major storm.

Richard Wesolowski – Sidoti & Company

If you look at the mid point of your revenue guidance at $635 million, and you take out about $116 million in storm, you wind up with $520 in core versus $502 million last year, and you're going to get $80 million in EDS, which would imply an organic core rate of about 15% lower. I'm just trying to reconcile that calculation with expectations that things are going to improve.

Anthony Slater

You're staring with the new guidance?

Richard Wesolowski – Sidoti & Company

Yes, the $635 million mid point.

Anthony Slater

It would be $665 million mid point.

Richard Wesolowski – Sidoti & Company

I think that would still check out to a down core. Maybe just qualitatively saying that you expect your core to be at least flat in spite of the utilities are saying.

Anthony Slater

As Eric mentioned in the forecast, we're certainly aware of some concerns in the credit market with our utility customers. As we mentioned also that as we approach this second quarter, which is the fiscal year end for some of our customers, there's a potential we may see some shift depending upon how they're looking at their budgets. I think we're trying to put a reasonable forecast out there for you.

Operator

Your next question comes from Alex Rygiel – FBR Capital Markets.

Alex Rygiel – FBR Capital Markets

Can you help us to understand the dilution of EDS that you've incorporated into your 2009 guidance if any?

Eric Pike

We basically brought EDS in in terms of guidance pretty much flat. We didn't give any accretion or dilution amounts.

Alex Rygiel – FBR Capital Markets

It sounds like you are somewhat hopeful that you're going to see some revenue synergies between the two organizations. If you had to frame that in a time standpoint, is that an opportunity that you'll develop over the next three months or six to nine months further on out?

Eric Pike

I think our original expectation was really over the six to nine month period. We think however, there are some opportunities that Anthony touched on in his remarks that we are in the process of bidding on that we feel very confident. But until we are successful, and know that we are successful on those bids, we don't want to put them in the numbers. Between the additional revenues that they brought over with acquisition plus the cross selling opportunities that we have amongst customers, we think that's going to be a benefit to us, perhaps still in the six to nine month period, but on the nearer side of that.

Alex Rygiel – FBR Capital Markets

Understanding that some of your revenue is under contract, can you help us understand the mix between which contracts have a revenue fuel surcharge that may be given back to the customer and which don't? Do the two offset each other or do you hope you're a net gainer?

Eric Pike

We certainly hope that overall we'll see some net gain there. We do have some contracts that have trigger points in which the fuel surcharges actually go away with the reduction in diesel prices. However, when we put those in place, the idea was for those fuel surcharges to remain pretty much cost neutral.

If the diesel drops low enough that they come back off, those were designed to be a pass through to handle the spike in fuel prices. Contracts that have fuel clauses in them, which are separate and independent of that, they obviously function within the contract.

Operator

Your next question comes from Tahira Afzal – Key Banc.

Tahira Afzal – Key Banc

When you look back historically and you've seen utilities cut back on CapEx because of economic pressures, how did that impact your pricing in the past?

Eric Pike

Typically our pricing in the past has been usually during these time periods established. Because of the old Pike business being on longer term master service agreements, typically that pricing is set in place. I think that as you see some of the possible pull back in capital spending, some of the projects that we are looking at that are more EDS type projects, that are going to be lump sum bids, that could impact the pricing there depending on the quantity of work that's available.

Tahira Afzal – Key Banc

Would it be possible to approximate how much that would be in terms of your revenue mix?

Eric Pike

Right now I don't know that I would have it off the top of my head.

Anthony Slater

The lump sum projects are relatively a small portion of our total business even with EDS.

Tahira Afzal – Key Banc

If you look at diesel pricing and it seems that diesel right now is down, and you put it in context of what you know in terms of distribution pricing and the margins you get from your power line business, just from the pricing aspect, and you look at the diesel prices going down and helping your margins, and you look at pricing perhaps coming under a bit of pressure, net net as you look at your business and what you reflected in you margins, would it be net up or net down?

Eric Pike

We're still looking at a net up.

Operator

Your next question comes from Curtis Woodworth – J.P. Morgan.

Curtis Woodworth – J.P. Morgan

If you just look at your top ten utility customers, based on discussions you had recently, what is your best guess on how many of those you think are going to be up on de-spend in 2009 versus down on distribution spending in '09?

Eric Pike

I don't know that's I've posed the question to them directly in terms of de-spend. Most of the conversations I've had have been over just general capital budgets.

Curtis Woodworth – J.P. Morgan

Maybe more crews or less crews.

Eric Pike

I think right now, most of our major customers are taking a pretty cautionary look out at the space. They understand that there is a lot of needed work to be done, but with the credit risk that's out there, and their long term credit needs and being able to access it, most of them are flat to slightly down, I think in terms of near term projection. But they're very vague on it in the conversations with me because they simply don't know themselves.

Curtis Woodworth – J.P. Morgan

In terms of EDS, you mentioned some of that work was lump sum bid, what is your capacity there in terms of transmission? How large a project could you possibly take on? In terms of your initial feedback with customers, is it your sense that it's kind of an advantage of EDS versus it appears would be more on the engineering side or collection systems? How do you see them fitting in the competitive fabric of the market?

Eric Pike

Right now the reaction that we've had amongst our major utility customers has been very, very positive. They're pleased to see Pike branching out into some additional service lines that provide opportunities on system. We have seen success already in the engineering side quickly in terms of being able to provide owner engineering services, staff augmentation services as well as lump sum project engineering.

The sub station work continues to be strong and growing. That's a piece of our business that folds in nicely with work. We are growing our transmission side on the transmission maintenance portion which we still believe that is the niche that we'd like to operate in. We're also looking at projects that probably range anywhere from 5 to 40 long projects in terms of transmission in the 230 and below space.

In regards to the renewables, a lot of our utilities are impacted in the credit market. We don't have a lot of exposure to the space but the exposure that we do is typically electric orientated, that being the collector systems, the power lines, the distribution feed between the windmills and so forth.

That work continues to be growing for us. It's a very small sliver of our work, but EDS brought over a great reputation in that business. That being said, we're still very optimistic and very positive pretty much on all of the facets that came over with that acquisition.

Curtis Woodworth – J.P. Morgan

Are you currently working on any wind project?

Eric Pike

We are. We're completing two in West Texas, as well as performing owner engineering on an upcoming windmill.

Operator

Your next question comes from Richard Wesolowski – Sidoti & Company.

Richard Wesolowski – Sidoti & Company

Can you provide some perspective on when you think some of these distribution maintenance projects would have to be done? I know we're looking at a bit of a cloudy CapEx forecast, but we've reviewed for a number of calls now that your customers had been delaying, and I wanted your perspective on when some of this would have to be done.

Eric Pike

We've struggled with the same question because historically we would be at a time period where I think you'd start to see a lot of pressure to do that spend and I think there is a pressure there amongst our customers. But several of them had started large capital projects in terms of either transmission or additional generation and now they are questioning how they're going to fund those that are in process and are they going to continue that build out that maybe they had planned for the next four or five years.

I guess you have to finish the ones that are in process and they're trying to look for avenues to find the funds to finish those. Had we not seen the financial and credit risk that happened in September, I think I would have still been very confident that we would have seen an uptick in spend on distribution in the back half of our fiscal year.

I think that's going to be pushed back some, perhaps to fourth quarter or even slightly later. But again, we've been in very close conversation with customers and I feel very comfortable that they're giving us as much insight as they can and they simply don't know where that's going to be just yet.

Richard Wesolowski – Sidoti & Company

Can you talk about the performance of the EDS T&D backlog and whether you're still very confident that you can turn around that performance?

Eric Pike

In terms of the T&D side of the EDS, they had a couple of issues that I think Pike helped out pretty rapidly. They had some accounts that were not performing and part of that non-performance was the fact that they had a large amount of idle fleet that was on a lease basis. Pike was able to assume that lease fleet and utilize it and put it back to work in our different areas of the system. They also had a couple of accounts that quite candidly the operational mix of people and equipment we didn't believe was optimum. We've already made those changes and we've seen some improvement already in that account.

And maybe the final basket was, as we actually did the integration and cut over, there's perhaps less overhead and overhead percentage being applied to the work that they were doing which gives them a little more breathing room to be successful.

Richard Wesolowski – Sidoti & Company

The SG&A, was that high because there was storm and maybe some incentive bonuses, or was it the addition of EDS and that's a more normal run rate we should be looking at?

Anthony Slater

It's really a combination of both. It was the EDS overhead as well as some incentive compensation.

Operator

Your next question comes from Alex Rygiel – FBR Capital Markets.

Alex Rygiel – FBR Capital Markets

It looks like the mid point of your guidance is $665 million. If you take out the storm work at $115, you get on an adjusted basis, $550 million. Then if you take out EDS of $80 million, you get to $470 million. But comparing that to fiscal '08, you take your $502 million and subtract out those contracts that you exited, which was something in the range of $20 million to $30 million, so it would appear as if your guidance today on your core business is flattish to down slightly which is much better than on a trailing 12 month basis. Is that a fair calculation?

Anthony Slater

I'm just trying to go back through all of your math there. The exited accounts more impacted our fiscal 2007 results.

Alex Rygiel – FBR Capital Markets

Right, but then they roll into '08 as well? You exited them in '07 but did carry some?

Anthony Slater

Very little into '08. The comparison was fiscal '08 to '07 where the exited revenues had an impact.

Alex Rygiel – FBR Capital Markets

As you look at your contract portfolio now, do you anticipate or see any contracts that pose opportunities to prune or be more aggressive on pricing?

Eric Pike

I think right now, most of the contracts we have more of the MSA type long term. We're pretty comfortable where they are in terms of pricing and margin. I think where we see the opportunity on enhancing both volume in terms of revenue and perhaps earnings is on the EDS lump sum opportunities that are going to be out there. We think those projects are going to continue over the next several quarters to be strong.

Operator

Your next question comes from Tahira Afzal – Key Banc.

Tahira Afzal – Key Banc

As you get back fall which is selling material, you'll be coming out with a lot of free cash, and I would like to know what you're going to be using the free cash for, paying down more debt and hence we should be forecasting lower interest expense going forward or are you thinking about incremental acquisitions?

Eric Pike

Debt repayment is still a focus for the company but we will of course evaluate other options that are appropriate including acquisitions before we make that payment.

Operator

Your next question comes from Andrea Wirth – Robert W. Baird.

Andrea Wirth – Robert W. Baird

A quick question on how Q2 looks as it relates to the storm revenue. Have most of your crews been moved out of the affected areas or will 2Q be a fairly decent storm quarter as well?

Eric Pike

We have some minimal roll over into 2Q but the majority of the Ike and Gustaf restoration was in Q1.

Andrea Wirth – Robert W. Baird

And were most of those crews, is it fair to say came from the original Red Simpson acquisition that went down to that region?

Eric Pike

No, they worked pretty much crews from every state we operate in.

Andrea Wirth – Robert W. Baird

The tax rate was a little bit better than I was looking for this quarter. What's the tax rate assumed in your guidance of $0.85 to $0.95?

Anthony Slater

38%.

Andrea Wirth – Robert W. Baird

Did your previous guidance assume 39.5%?

Anthony Slater

We were at 39%.

Operator

At this time I'll turn the conference back to Mr. Pike for any additional remarks.

Eric Pike

That concludes our conference call this morning. We appreciate you dialing in and the interest in the company and we will look forward to updating you on Q2 shortly.

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