Pike Corporation's CEO Discusses F2Q 2014 Results - Earnings Call Transcript

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

Pike Corporation (NYSE:PIKE)

F2Q 2014 Earnings Conference Call

February 5, 2014 09:00 a.m. ET

Executives

Frank Milano – VP Investor Relations

Eric Pike – Chairman, CEO and President

Anthony K. Slater – CFO and EVP

Analysts

Tahira Afzal – KeyBanc Capital Markets

Adam Thalhimer – BB&T Capital Markets

Daniel Mannes – Avondale Partners

Noelle Dilts – Stifel, Nicolaus & Co.

Liam Burke – Janney Capital Markets

Jon Evans – JWest, LLC

Operator

Good day everyone, and welcome to the Pike Corporation Fiscal Second Quarter 2014 Results Conference. As a reminder, today's presentation 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 Corporation. Please go ahead, sir.

Frank Milano

Thank you, Dorris. Good morning, and welcome to Pike's earnings conference call to review the results for our fiscal second quarter 2014, which ended December 31, 2013. 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 today’s call through the webcast, the slides are automatically available. For those of you that have dialed into today's call, you can download an Adobe PDF version of the slides from our Investors Center section of the website at www.pike.com.

Please turn to Slide 2. During this 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 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 also routinely include the GAAP to non-GAAP reconciliation in our Form 10-K and Form 10-Q filings. The risk factors in management discussion and analysis sections of the company's annual report on Form 10-K, and 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 Investors Center section of our website. A replay of today's call will also be available later today at www.pike.com.

I will now turn the call over to our CEO, Eric Pike. Eric?

Eric Pike

Thanks, Frank. Good morning, everyone. Thank you for joining us today. I will start with some highlights from the quarter, and then after my comments, Anthony will provide a complete financial review before we open the call to your questions.

If you would please turn to Slide 3, while I am pleased to report a strong fiscal quarter it is one in which we faced a very tough year-over-year financial comparison. These tough comps largely reflect the 83 million of storm revenue in the second quarter last year from the work we performed in relation to Hurricane Sandy.

Against that backdrop, total revenue this quarter was $210.9 million, down $62.8 million or 23% year-over-year compared to our record revenue of $273.7 million in the year-ago period. Diluted earnings per share totaled $0.18 this quarter compared to record earnings of $0.67 per diluted share in the year ago period.

During the quarter, several small isolated winter storm events from the Gulf Coast to the upper Northeast resulted in a sustained level of storm response that lasted from before Thanksgiving through the calendar year-end, and as a result quite a few of our crew members were not home to celebrate the holidays with their families this year. On behalf of the entire leadership team here at Pike I would like to thank each of them for their hard work and sacrifice during the quarter.

Compared to this quarter’s consensus estimates both revenue and earnings exceeded the consensus average, as well as most of the range of revenue and earnings estimates. However, I would caution that these results were significantly impacted by the several Northeastern storm responses. These events resulted in higher than average storm profits due to both the location and the timing over the holidays. While we don’t traditionally provide guidance, given our financial performance in both the fiscal first and second quarters of 2014, those of you trying to model the business on a go forward basis might be best served by using the quarterly average of the first six months rather than trying to extrapolate solely of this most recent quarter.

Fiscal second quarter core revenues totaled $188.3 million, down 1% year-over-year, as compared to the core revenue of $190.7 million in the year-ago period. Storm related revenues totaled $22.6 million this quarter compared to the $83 million we reported in the year ago period.

Now please turn to Slide 4. Core construction revenue totaled a record high $156.7 million, up $6.9 million or 5% compared to $149.8 million in the year ago period. Distribution and other revenue totaled $112.8 million this quarter, which was up 1% compared to the $111.6 million in the same quarter last year. We did increase distribution revenue by utilizing more hours this year on core distribution construction and maintenance as compared to last year when Hurricane Sandy’s efforts displaced many of these core activities -- revenues from core activities.

As we noted last quarter, our Solar construction revenue, which is included in our distribution and other segment, has declined year-over-year. We continue to expect renewable revenue, which is primarily utility grade solar projects in the Southwest to be lumpy in future quarter-to-quarter comparison. This outlook reflects both heightened competition and our desire to be more selective on the type of projects and their associated margin profiles.

Transmission and substation revenue totaled a record high $43.9 million this quarter, up 15% compared to the $38.2 million in the year-ago period. This quarter also marked our eighth consecutive year-over-year increase in our transmission business. We are well-positioned in the market for smaller interstate transmission jobs and we continue to see good bid flow for transmission projects.

Now please turn to Slide 5. Core engineering revenue totaled $31.6 million this quarter, down 23% year-over-year compared to a record high of $40.9 million in the year ago period. In addition, storm assessment revenue declined to approximately $600,000 this quarter as compared to a record high $4.4 million in the year ago period. As we have indicated on our past several earnings calls, we are and continue to shift our strategy in the engineering business from a prior focus on full service EPC projects, where we perform the full suite of engineering, procurement and construction services to more of a design-and-build strategy.

Our design-and-build strategy looks to utilize our utility customers’ larger purchasing power, while we manage the logistic responsibilities on their behalf. As a result of this change, we expect to realize higher gross profit percentages as we reduce the amount of low margin procurement revenue. We are also procuring an increased mix of recurring base load work across all of our engineering capabilities, distribution, transmission and substation.

We expect this base load work will enhance the growth of our construction businesses well as we gain incremental cross selling capabilities. Anthony will now walk you through the financial details for the quarter. Anthony?

Anthony K. Slater

Thanks Eric, and good morning everyone. If you would, please turn to Slide 6. Core revenue totaled $188.3 million this quarter, and storm revenue totaled $22.6 million. Gross profit totaled $30.9 million this quarter or 14.7% of revenue. A few of the gross profit drivers include the following. First, as Eric noted in his opening comments, the gross profit generated from our storm efforts this quarter were higher than normal ranges.

A significant amount of the storm work was for non-MSA customers and occurred during the holidays. Second, we finalized the work on the California lost jobs that were highlighted on our first fiscal earnings call during the second quarter. Lastly, we recorded a $1.4 million receivable reserve in our engineering segment. This receivable relates to early-stage sighting and design work for a start-up company that is currently pursuing project financing. We plan to continue collection efforts in this matter.

General and administrative expenses this quarter totaled $19.8 million, which was generally in line with $19.9 million last year. The higher percentage of revenue this quarter primarily reflects the difference in storm revenue, which contributed to the record total revenue in the year ago period.

Operating profit was $11.2 million or 5.3% of revenue. The tax rate of 40.4% was generally in line with the 40% tax rate that we continue to suggest you use in your models for fiscal year 2014. Net income totaled $5.7 million compared to $23.6 million in the year ago period. Earnings of $0.18 per diluted share compared with the record earnings of $0.67 per diluted share in the year ago period. Quarterly and year-to-date segment results are available in the appendix on slides 12 and 13, and are included in the tables on yesterday’s earnings release.

Please turn to Slide 7 for a look at the selective balance sheet data. Cash and cash equivalents totaled $2.4 million as of December 31. Accounts receivable were down year-over-year, which was consistent with the lower level of storm revenue this quarter. Total debt was $220.5 million. In addition to the organic growth opportunities in our business, we intend to use free cash flows to retire debt.

During the quarter, we amended the leverage ratio covenant in our revolving credit facility. The revised leverage ratio covenant is currently 4.0 to 1, and will step down to 3.75 to 1 effective June 30, 2014, and will step down again to 3.5 to 1 effective September 30, 2014.

The term of the revolving credit facility was unchanged and will expire in August of 2015. The quarterly and annual EBITDA information is provided on slides 14 and 15 for those of you who wish to refer to that data. We do make certain adjustments to our reported EBITDA amounts for purposes of computing the debt covenants, and at December 31, 2013, the leverage ratio for the company was 3.21 times.

Please turn to Slide 8 for a few cash flow highlights. We generated positive operating cash flow of $10.1 million this quarter compared to $11.5 million last quarter, and $44.4 million in the year ago period. Capital expenditures this quarter totaled $11.1 million. That completes my portion of today's call. Now I'll turn the call back to Eric for a few closing remarks. Eric?

Eric Pike

Thanks, Anthony. Before we open this call to questions, I would like to take a moment again to thank our employees who responded to all the winter storm events during the quarter. Pike employees again showed our commitment to professionally respond to our customer’s needs. It is always difficult to be away from family during Christmas holidays, and our senior management visited our crews on Christmas Day and [Indiscernible] and our crews were excited to see the faces of customers as their lights came on in time for Christmas.

Originally, we like to thank our customers, who called on us in these situations and for their everyday needs. We will continue to serve each of our customers with the highest level of integrity, but with a level of work quality that has enabled us to build this company into a leadership position within our industry.

With that, we will close our prepared remarks and we will open the call to your questions.

Question-and-Answer Session

Thank you. (Operator instructions) And we will go first to Tahira Afzal with KeyBanc.

Tahira Afzal – KeyBanc Capital Markets

Good morning gentlemen, and congratulations. Great quarter.

Eric Pike

Thanks Tahira.

Tahira Afzal – KeyBanc Capital Markets

I guess my first question is if I look back to fiscal ’13, you know, you had a similar, roughly similar amount of storm work in the third quarter of the year, and I was just wondering if you -- I know your storm margins are coming in higher generally, but, you know, could you comment a bit on how your core service margins have progressed for maybe fiscal ’13 in the third quarter to this quarter, just give us an idea of how the expansion is going over there?

Eric Pike

Now the biggest thing around this quarter Tahira is really the impact to storm margins. While we don’t provide margins, because they were -- a lot of the work was in the Northeast and it was on higher rates than you would typically see in our Southeastern mid-Atlantic territory, and the addition of the fact that we worked a good number of folks over the holidays, which would have normally in our model been lost time, or a non-productive time when we were not working.

It really accelerated the margin profile on this amount of storm to a much better than average level. Our core work continues to improve. It improves mostly because as Anthony mentioned in his remarks the rest of the California jobs that we had losses rolled off, but otherwise the core margins are still kind of in line to slightly improving.

Tahira Afzal – KeyBanc Capital Markets

You got it okay. And, you know, the second question and I will hop back into line after that Eric, you know, we started to hear a lot of our front-end companies talk a little more about new housing communities coming up, I know it could potentially be a big driver for your underground business. So could you talk a bit about what your sponsors are saying in regards to that in terms of timing?

Eric Pike

Yeah, I mean, Tahira I feel like that I am kind of the lone naysayer in the housing response. We do see pockets where we’re seeing some improved housing, and a little bit of underground up tick, and as we put in our numbers, we are seeing a very gradual improvement in our underground distribution revenue numbers.

But we are still at this point not seeing a widespread news to build new community growth. You know, there are pockets obviously. Some of the little Texas markets were the shale gas is really boosting the local economy. Some of the Florida market as we have mentioned in the past is we are seeing some recovery. We continue to see some recovery around the Washington DC area, but broad-based it is still, I think there is still movement in the housing market that is positive, but it is more taking up some of the excess inventory as opposed to broad-based new build.

Tahira Afzal – KeyBanc Capital Markets

Got it. Okay, thank you Eric and I will jump back into queue.

Operator

Our next question comes from Adam Thalhimer with BB&T Capital.

Adam Thalhimer – BB&T Capital Markets

Hi, good morning guys.

Eric Pike

Hi, Adam.

Adam Thalhimer – BB&T Capital Markets

Eric, in retrospect how would you characterize kind of your core distribution maintenance spend from utilities in 2013?

Eric Pike

You’re talking about for calendar 2013?

Adam Thalhimer – BB&T Capital Markets

Yeah, calendar 2013. I mean in general how would you characterize the level of maintenance distribution spend from your core electric utility customers, and then what are your thoughts on that in calendar ’14?

Eric Pike

You know, I think that our view on the core maintenance spend on the distribution, and this is a combination of overhead and underground, and as I mentioned it to Tahira the underground is certainly the smaller portion. But we have seen a gradual improvement. You know, we have seen more and more of our customers going back and starting to allocate dollars to distribution maintenance that moves it back up the curve, and with that we think that that trend is going to continue.

I will highlight that as we go into our fiscal Q3, calendar Q1 that in a construction cycle and a weather cycle unless there is significantly bad weather, this is traditionally a slower quarter because it is basically the winter months. But when we look at budgets and we look at the conversations we are having with customers, it looks like that that distribution spend is going to continue to gradually improve over the next year.

Adam Thalhimer – BB&T Capital Markets

Okay, good. And then I mean, maybe it is hard to say, but I mean where you think we are in terms of what you expect in 2014 versus pre-09 recession?

Eric Pike

You know, pre-09 recession is a very difficult comparison because the housing market was so strong, and at that time underground distribution made up almost half of our core distribution revenues. And obviously we are not anywhere close to that number again and we operate a lot more states.

In terms of overhead distribution, I think we are certainly moving back up the curve towards a more normalized maintenance cycle. But, you know, we hope to see that as the economy continues to improve we hope to see that augmented by some new construction, new growth.

Adam Thalhimer – BB&T Capital Markets

And then, if you are going to see the new construction, when do you -- when would you normally feel that, I mean would you see it in the -- now that you have the engineering business, would you be seeing it there in terms of a xyz homebuilder wants to build out a new subdivision, would you see that six months in advance, or nine months in advance or less?

Eric Pike

Traditionally, you know, for underground developments and that sort of thing, we probably would only get about a three-month lead time from an engineering perspective granted there is significantly more visibility then we have had in the past. But just on a normal construction, the cyclical nature of a year of construction, you are going to start to see that more in calendar Q2 and Q3 and sort of our fiscal Q4. As springtime comes on, you just have normally better weather for people to break ground on new projects.

Adam Thalhimer – BB&T Capital Markets

Okay, great. And last one from me, I appreciate the guidance you gave on storm for the upcoming quarter and pushing this into that $10 million to $15 million range, is that based on what you have already had quarter-to-date or is there some -- are you assuming anything beyond kind of what you saw in January in those numbers.

Eric Pike

No, we’re really not assuming anything beyond what we had already put out, but I think you have to take into account that as I said in the scripted remarks, to utilize an average going forward of the first six months to look at the back half of the year that storm was much higher in Q2 margin profile and it offset what would have been normally a non-productive time.

So that kind of gave it an extra piece. But, you know, we don’t want people to come off kind of like what happened a year ago was Sandy sort of was a bit of storm euphoria going into a quarter that without a significant storm is typically a bit slower quarter. So that is really why we -- we don’t want to provide guidance. That is not what we have historically done, and are starting to do that on this call. But we do think it is important that people understand that dynamic.

Adam Thalhimer – BB&T Capital Markets

Okay. Thanks again.

Eric Pike

All right. Thanks Adam.

Operator

And we will go next to Dan Mannes with Avondale.

Daniel Mannes – Avondale Partners

Thanks. Good morning and nice quarter guys.

Eric Pike

Yes, thank you.

Daniel Mannes – Avondale Partners

So, it looked like -- and I hate to beat the dead horse, but your commentary as it relates to the forward look on storm work is that more related to the margin structure, especially given it looks much better than the normal margin on a storm, was that the actual volume of storm work as you look forward to the March quarter?

Eric Pike

Yes. I’m sorry. Most of my comments are really more directed towards modeling on the margin. You know, as far as the revenue, we said early on our Q1 call because of virtually no storm in Q1 that for our modeling purposes we had basically used $50 million for the full year. Right now at six months, we’re roughly at about half that number and that will give the number utilized on a revenue basis internally.

Daniel Mannes – Avondale Partners

Yeah, but I mean the 23 million from this quarter, you know, that is not massively out of line with the long-term average, maybe it was a little high, but it sounds like the margin in the quarter was sort of a bigger story, because as you said of the location and the climate?

Eric Pike

Right. Yeah that really is the component that [Indiscernible] to run away from because if we hadn’t had that same volume of storm in different locations in the country, it likely would not have produced that over if this had been a year in which the holidays fell on the weekend, our modeling would have had less non-productive time in it as well. That offset that over a couple of weeks there.

Daniel Mannes – Avondale Partners

Got it. And then, and not that I want to too fine a point on this, but as you think about the March quarter, I mean, just sitting where I sit up in the Northeast, it seems to me we have already seen a substantial amount of storm work so far even in January. Is that a fair assessment or too early to look at the March quarter from that perspective?

Eric Pike

Yes, Dan, I mean, you guys have seen a lot of very foul weather, but again it is a really unusual mix. Sometimes when you get a lot of snow, honestly that doesn’t really do a whole lot in terms of our business. [Indiscernible] to be more wind and ice and that sort of thing that generates more down power lines and so forth. So some of the events that have transpired since the end of our fiscal Q2 have not necessarily resulted in significant storm responses. You know, to guess that what it will be we have had our fiscal Q3 that it had very minimal storm in them, and we have actually in 2009 had about our second largest storm in the mid-West.

It is just a complete guess for me to tell you when and where it is going to be. So, I just -- I use the yearly average and that has typically played out pretty close.

Daniel Mannes – Avondale Partners

And then one final question if you let me, as it relates to the core work, [Indiscernible] solar would you say that by itself maybe it has actually been a little bit supportive to margin, because it seems like if you look at your core work in terms of a lot of the other work you have done looks a lot more profitable that maybe the solar side?

Eric Pike

I am sorry, Dan. I missed a little bit of the first part of that, it cut out, did you -- tell me again what you were saying about the solar work that it was more of a contributor or less of a contributor?

Daniel Mannes – Avondale Partners

No, it seems like the reduction in solar work has been a positive contributor, and is that something we should expect going forward as solar maybe becomes a smaller piece of the mix or you are more disciplined in the solar work you pick up that should then be beneficial to margin?

Eric Pike

Yes, I think that is a fair statement. You know, one of the things that we’re seeing is unless we can get a project of significant scale, you are starting to see smaller competitors come in and the margin profile on some of those jobs has dropped to a level that quite candidly your assessment is exactly right, and so we are being more selective. We will continue to bid some of the larger projects for strategic solar developers that we have a relationship with. But probably you are going to see our total renewable revenues continue to diminish a bit, and based on where the margin profile has been that would be a positive to us?

Daniel Mannes – Avondale Partners

It sounds good. Thanks a lot.

Eric Pike

Thanks Dan.

Operator

And our next question comes from Noelle Dilts with Stifel.

Noelle Dilts – Stifel, Nicolaus & Co.

Thanks, good morning.

Eric Pike

Good morning Noelle.

Noelle Dilts – Stifel, Nicolaus & Co.

Good morning. I just wanted to dig in a little bit more into a couple of the businesses, first starting with engineering, you know, you have talked in the past and mentioned it again today that you are trying to shift away from EPC into more design build, I was hoping you could just maybe comment on where you think you stand today in terms of that evolution, you know, what is kind of your ideal mix, and then if you could touch on just where you stand in the UCS PES integration?

Eric Pike

Yes, I mean, we continue to see opportunities out there for us to do the design build for a lot of customers and basically just manage the material piece, and not run that through our book. We still have some projects on our books that have a big component. As they roll off you will see drops in revenue affect the engineering business, but we believe that the mix of business we are going after is going to provide a better margin profile, and really a more sustainable business model, less lumpy, not necessarily more sustainable, but just less lumpy because the pass through margin on materials is just not recovering from what we see in a bid format.

Given that we are still trying to integrate the two businesses, they are integrated in name and we hope by the end of this probably next quarter they will all be centrally located in terms of our engineering headquarters in Charlotte into one location rather than two. There are still some integration costs that are running through last quarter, and there will be some in this quarter as well as we continue to try to get all of the IT systems lined up.

That is a more IT heavy environment than our construction environment because they are one using the computers to do the design work, as well as we do a lot of our billing and everything else online in the engineering piece. So that quite candidly has gone a little bit slower than we had hoped it would, but it is imperative that we get it right. But in terms of the integration from customers and blending of services it continues to be going well.

Noelle Dilts – Stifel, Nicolaus & Co.

Okay, great. And then so going around to distribution, last quarter you talked a bit about some of the challenges in the California market, I’m curious to know kind of how things are trending there, and given what you faced in terms of some of the challenges on those projects, how that has maybe changed your plan or outlook for growing in that market?

Eric Pike

Yes, we have continued to work with the customers out there, and, you know, it is a challenging market for a multitude of reasons and a lot of those I went through on the last call. The labor out there is very tight. The requirements for using minority women-owned disadvantaged businesses as they calculate into the amount of revenue you can perform in your core service continues to be a bit of a challenge. But I think as we work through these jobs now, we have learned a lot in terms of where we want to focus and also the challenges in that market.

And the projects that we have priced on a go forward basis we feel comfortable that they are going to generate the margin profile that we want. You know, we are not going to be this next quarter running at quite the same volume that we were in the past because we have been more selective around the projects. And a couple of the projects quite candidly that we have bid, all of the bids came in high and they are actually reassessing that work and looking to see if they want to bid at all in that capacity, which is an indication in the market of all of the factors that I just outlaid that we’re not the only one seeing that.

That being said, the California market is a huge market. It has a lot of growth for us and it is one that we are seeing from an engineering standpoint, from a construction standpoint both TD and AS that has a lot of opportunity, and we have expended a lot of efforts to get a beach chair there, if you will, and so we continue to look to expand in that market.

Noelle Dilts – Stifel, Nicolaus & Co.

Great, thanks. I appreciate the color.

Eric Pike

Okay.

Operator

(Operator instructions) And we will go next to Liam Burke with Janney Capital Markets.

Liam Burke – Janney Capital Markets

Thank you. Good morning Eric. Good morning Anthony.

Eric Pike

Hi Liam, how are you?

Anthony K. Slater

Good morning.

Liam Burke – Janney Capital Markets

Good. Thank you. Eric, you talked about the project mix on transmission, you had a strong quarter, you talked about more longer inner state projects I believe, is that a trend that will continue or could you give us some sense as to more mix in terms of the transmission business?

Eric Pike

Yes Liam, and it may have been my accent or what have you, but what I was attempting to tell you in the scripted remark was intrastate is these -- are the job we have highlighted for many years are sort of the 5 to 50 mile projects. We continue to see good bid volume there, and that is really where we have continued to see success and pick up. On the more interstate that are crossing state lines, you know, we are not seeing as big a bid volume, though we don’t often bid those type projects.

So it is not fair for me to say that the bid volume is higher or lower. What we focus on we’re seeing good volume. We are seeing pretty good success. You know, we always highlight the fact on these calls that our transmission revenues, though we have been very fortunate to continue to grow it for eight quarters, it can be lumpy quarter-to-quarter because a lot of times these smaller projects can be done and completed in a quarter. But right now our transmission outlook looks positive.

Liam Burke – Janney Capital Markets

Okay, and on SG&A you talked about the lift or the increase you saw as a result of storm-related activity, where there anymore growth investments in that -- in the SG&A line?

Anthony K. Slater

There were a little bit Liam, but nothing as material as we have seen in prior quarters. You know, as we have mentioned over the past few quarters, we have invested a lot certainly out West, and that investment is slowing down a little bit now as we continue to recoup that investment. So it is not as material this quarter as it has been in the past.

We did incur as we have talked about for the continued integration cost for UCS. That was approximately $600,000 this quarter, and as Eric mentioned that is going to continue here for a little while on a similar run rate until we get the back-office fully integrated.

Liam Burke – Janney Capital Markets

Great. Thank you.

Eric Pike

Thank you, Liam.

Anthony K. Slater

Thank you, Liam.

Operator

And our next question comes from Jon Evans with JWest, LLC.

Jon Evans – JWest, LLC

Can you talk a little bit about, you know, the quarter was stronger, your cash flow should be better in the next quarter just because of the strength in the quarter on the payables et cetera. Help us understand your thoughts relative to paying down debt et cetera, can you just talk a little bit about that and the priorities?

Eric Pike

Yes, the storm results certainly have a timing impact on your cash flow. So, a lot of the storm activity happened towards the latter part of the second fiscal quarter. And so, you know, you see an increase in receivables related to that and those typically do come in in the following quarter. So we will have a positive cash flow pickup from this quarter. The net cash impact will depend on whether we have storm closer to the end of this quarter.

So it just depends on the timing of the storming events and how they happen towards the end of each quarter. But as far as overall debt position, you know, we are certainly comfortable with our overall credit facility, great relationships with the banks. As we mentioned, we have to look to refinance that facility here over the next couple of quarters. But we will continue to look at excess cash flow to be used to reduce our debt position.

Jon Evans – JWest, LLC

Great, okay. Thank you.

Eric Pike

Thank you.

Operator

And at this time, there are no further questions in the queue. I will turn the call back to our Mr. Pike for any closing remarks.

Eric Pike

Great. Thank you, Dorris. Well, we like to thank everybody for joining us for our second quarter call, and we look forward to talking to you and updating you next quarter. Thanks everyone.

Operator

And ladies and gentlemen that does conclude today’s presentation. We thank you for your participation.

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