Pioneer Energy Services' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.13.14 | About: Pioneer Energy (PES)

Pioneer Energy Services (NYSE:PES)

Q4 2013 Earnings Conference Call

February 13, 2014 11:00 a.m. ET

Executives

Anne Pearson – Dennard-Lascar Associates

Wm. Stacy Locke – President & CEO

Lorne E. Phillips – EVP & CFO

F.C. Red West – EVP & President of Drilling Services

Joe Eustace – EVP & President of Production Services

Analysts

Jim Rollyson – Raymond James & Associates, Inc.

Dave Wilson – Howard Weil

Matthew Marietta – Stephens Inc.

Daniel Burke – Johnson Rice & Company

John Daniel – Simmons & Company

Jason Wangler – Wunderlich Securities

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Pioneer Energy Services Fourth Quarter Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

I would now like to turn the conference over to Anne Pearson of Dennard Lascar, Investor Relations. Please go ahead.

Anne Pearson

Thank you, George, and good morning everyone. Before I turn the call over to Pioneer CEO, Stacy Locke and to CFO, Lorne Phillips for their formal remarks, I have a few of the usual items that we need to cover.

First of all, a replay of today’s call will be available and will be accessible by webcast by going to the IR section of Pioneer’s website and also by the telephone replay. You can find the replay information for both in this morning’s news release. Since as a reminder, information recorded on this call speaks only as of today, February 13, 2014, so any time sensitive information may not be accurate at the time of a replay.

Management may make forward-looking statements that are based on beliefs and assumptions and information currently available to them. While they believe these expectations are reasonable, they can give no assurance they’ll prove to be correct. They are subject to certain risks and uncertainties and assumptions that are described in today’s news release and also in recent public filings with the SEC. So, if one or more of these risks materialize or should underlying assumptions prove to be incorrect, actual results may differ materially. Also, please note that this conference call may contain certain references to non-GAAP measures. You’ll find a reconciliation to the GAAP measures in this morning’s release.

Now I’d like to turn the call over to Stacy Locke, Pioneer’s President and CEO.

Wm. Stacy Locke

Thank you, Anne, and good morning everyone. I appreciate you joining us on the Q4 call. Joining me here in San Antonio is Red West, President of our Drilling Services Segment and Joe Eustace, President of our Production Services; Lorne Phillips, our Chief Financial Officer.

As you can see from this morning's press release, we had a surprisingly good fourth third quarter, one that is typically off a little bit due to seasonality and holidays, but all four core business lines, drilling, well servicing, wireline and coil tubing contributed and we’re very steady throughout the quarter and this trend really continues into the first quarter which is typically the lowest seasonal quarter of the year. Both pricing and utilization across the board was steady in Q4 and is steady today.

Looking at land drilling, in Columbia as we previously announced we were able to extend our contracts there, the involved and complicated new contract process that we discussed in some detail on the last quarterly call never really came to fruition. We kind of anticipated that it might not come to fruition, it was complicated and I don’t think in the end we’re serving the client well and the 11th hour they aborted that contract process and came to us for an extension of our existing contract, which allowed us to work throughout the holidays and right on into the New Year and so it worked out very well.

In addition, we actually increased our contract to include all 8 of our rigs in the country of Columbia in this new contract form and we’re able to improve our day rate a little bit as well. So, very pleased with the outcome there, we fully anticipate that we will start that renewal process earlier in the year this year and hopefully have it a simpler process as we go forward, but our relationship remains very, very strong with our client and we enjoy working for them there.

In drilling overall, presently we’re at 85% utilization today, we averaged 82% in January, we did get off to a slow start in certain areas mostly South Texas, but we expect to be up to 90% utilization within a couple of weeks from now.

Looking at our specific regions of operation, in South Texas in a couple of weeks we’ve got two more rigs about to go back to work, we will be at 93% utilization which is all 13 of our 14 total rigs back to work and we’ve opportunity to put that 14th rig back at the end of the month or early next month we believe. So that’s looking strong.

West Texas by this weekend will be back to a 100% utilization there that’s started the year off strong and we’re excited about that. In North Dakota has remained at a 100% and with a total of 11 rigs, West Texas I failed to mention is 18 rigs.

In Utah, we’re 71% utilization that’s 5 of 7 rigs working, the rigs are down are two of the 60 series which are the smaller trailer amounted 1,000 horse power double rigs that we’ve talked about in the past, we’ve had some challenge keeping those busy. We’ve got the majority of them working, but we have two down there and we’ve two down now in the Marcellus Shale. So, in Appalachia where 50% utilized two or four rigs working there, the two down as I mentioned out of the 60 series. In that market we do anticipate that we will put these two rigs, they did work in the fourth quarter and we anticipate they’ll go back to work in late March, April we hope.

And then, in Columbia all eight rigs are contracted but one of them is undergoing an upgrade from a 1,000 to a 1,500 so that rig is presently not working, so we’re 88% utilization. We anticipate we’ll complete that by mid March and put it to work, so we will be back 100% utilization there.

So, overall day rates on average holding firm and term contract coverage continues to be very high for us, we’re about the 79% of the rigs that are working are under term contract. So that’s terrific. We continue to roll contracts over on a regular basis and so that process that we went through last year just continues into this year and we’re keeping them turned up and keeping them working.

Turning now to the production services segment looking at well servicing, very steady utilization there throughout the year, we’ve averaged to 85% to 92%, 85% was the lowest quarter which was our fourth quarter, but basically doing extremely well there with an early rate that hunched up and stayed ahead of cost pretty much through the year. We had a 109 well service units today and we will add three new five of the old star units by the second quarter.

Looking at our wireline business that continues to be the largest contributor to the production services segment, very steady utilization and margin for the past three quarters in our wireline business. We’re at 220 units today there and we will add three additional units by the second quarter in wireline as well. Oh, excuse me 120, yes, yes, thank you Lorne, I’m getting ahead of myself. Given you a window into the future.

Off note wireline is the success in two of our operations, one is our expansion into the Permian, we’re now up to five wireline units there and that is going extremely well. We also have expanded me in the Niobrara area mostly in Colorado and that we’re up to nine units there. So those have been two more recent expansion areas that have played out very, very for us and we’re excited about the future in both those areas.

Turning now to our coil tubing business, really for the first time in well we’re showing real progress and grow tubing. We’ve consolidated our operations in just a few core markets, we’ve added two and three inch coil to our offering and we’re beginning to build a nice client base and actually a backlog of business for the first time. We expect 2014 will be the comeback year for our coil business and we’re excited about that. Currently we’re at 13 units and we will be adding an additional offshore unit during the second quarter, late in the second quarter of this year.

Let me turn it over to Lorne at this point.

Lorne E. Phillips

Thanks Stacy. Good morning everyone. This morning we reported consolidated revenues of $238.2 million, adjusted EBITDA of $55.8 million. We had a net loss of $2.5 million or $0.04 per share in the fourth quarter.

Drilling segment revenues declined 4% from the third quarter to $126 million primarily due to the lower Columbia utilization rate and increase standby time in Columbia. Average drilling rate utilization in the fourth quarter was 86% versus89% in the prior quarter when adjusted to exclude the eight rigs that were sold in October.

Drilling margin per day was 8,518 an increase of 6% from the prior quarter. This was primarily the result of two items, first is additional equipment primarily boilers that are used on the rigs in winter months in the Bakken and Marcellus in the winter and reimbursement for damage drilled pipe in our Columbia operation and in the U.S. another minor gains on asset disposal. And combined these items represent approximately 400 of the drilling margin per day increase when comparing quarter-over-quarter.

With the sale of 8 rigs in October, we now have 62 drilling rigs. Of these 53 are earning revenues and 42 are working under term contracts. Of the 35 rigs on term contracts in the U.S., 4 are up for renewal this quarter, 9 are up for renewal on the second quarter, 10 are up for renewal in the third quarter and 12 expired in the fourth quarter or later.

The percentage of the total company's gross margin from non-top drive mechanical rigs in the fourth quarter was approximately 4% and if you include all mechanical rigs that numbers approximately 11%.

Looking now at production services, revenues were $112.2 million which was down approximately 1% from the prior quarter. Gross margin was $38.1 million down 7% from the prior quarter. A gross margin as a percent of revenues was approximately 34% down from 36%. The decreased in margin percentage was the result of slightly decreased utilization due to the seasonality, some higher labor costs, and an increase in the sales tax accrual in the segment.

Utilization for well servicing was 85% compared to 90% in the prior quarter and coil tubing utilization was 49% compared to 53% in the third quarter. Average rate per hour well servicing was 648 up from 628 in the prior quarter. This increase in rate was offset primarily by higher labor costs and pricing for the wireline and coil tubing businesses help steady during the quarter.

Looking now at overall expense trends, interest expense was approximately $12.2 million. We expect the first quarter interest expense to be about the same approximately $12 million. G&A cost in the fourth quarter was $24.1 million and for the first quarter we expect G&A to be in the $25 million to $26 million range driven by higher payroll taxes that we said at the beginning of each year and higher incentive base compensation that will be accreted target at the beginning of 2014.

For the full year, our G&A forecast is approximately $100 million and $102 million. Depreciation and amortization was $46.9 million down about half a million from the prior quarter. For the first quarter, we expect D&A to be approximately $47 million and for the full year 2014, our estimate is $191 million. For 2013 our effective tax rate was approximately 35%, for 2014 excluding the impact of currency gains or losses or other unusual events, we expect our tax rate to be in the 34% to 36% range.

Looking now at the balance sheet, during the fourth quarter, we paid down a total $35 million of debt reducing the amount outstanding on our revolving credit facility to $80 million given the interest payments on our bonds we expect to have limited debt reduction in the first quarter but picking back up again in the second quarter.

Capital expenditures in the fourth quarter were $27.4 million for the full year 2013, capital expenditures totaled $165 million. We currently expect capital expenditures in 2014 to be approximately $115 million to $125 million. This amount includes the spending related to the upgrades we are making in Columbia and additional funds for three well servicing rigs, three wireline units and an offshore coil tubing unit.

And with that I will turn it back over to Stacy.

Wm. Stacy Locke

Okay. Thank you, Lorne. Turing now to kind of the outlook for 2014 and the first quarter, I would say that our outlook really for 2014 and 2015 is positive. We believe activity levels will remain strong and likely and prove a little more later in the year and in the 2015 which hopefully will lead this to some surprising enhancement opportunities. I would say generally we see the outlook is steady with an upward bias for the year.

Looking specifically at drilling and in the first quarter, regarding that we should operate about 83% to 86% terms of utilization during the Q1 and have average drilling margins of 8,000 to 8,300 per day and then our production services business even as we look to the seasonally lowest quarter of the year, just do the activity levels we are seeing today, we would project the revenue remain roughly flat and we do anticipate some margin improvement in this first quarter of 1% to 2%.

With that I will conclude our prepared remarks and would be happy to answer any questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen we want to now being the question-and-answer session. (Operator Instructions) Our first question is from the line of Jim Rollyson with Raymond James, please go ahead.

Jim Rollyson – Raymond James & Associates, Inc.

Good morning Stacy, Lorne.

Wm. Stacy Locke

Good morning.

Lorne E. Phillips

Morning

Jim Rollyson – Raymond James & Associates, Inc.

Stacy, you have done a good job of bringing debt down through the course of 2013. It sounds like you have got more plans in 2014. Maybe a little thought on do you have a target you are looking to get down to and how to weigh that versus looking at getting back on to the new build land rig bandwagon again given the strength that’s been seems to be out there in the market these days?

Wm. Stacy Locke

Well, I would say we have some opportunistic pricing on bonds in the market today. So, our preference would be to do something with the bonds sooner rather than later to take advantage of the pricing. Having said that, it calls us to look hard at all of our various operations and try to monetize anything that we view as non-core, non strategic to us going forward. So, we are looking at that as you have seen through 2013 and will continue to 2014, we have really pulled in our capital expenditures and we are generating quite a bit of free cash flow. So, we are hoping that the combination of freeing up some cash through some divestitures and combined with billing cash flow will allow us to do something ideally in the first half of the year. It might be a little longer than that but we are in very preliminary discussion with people about new equipment and we just aren’t ready to really pull the trigger until we have a little more clarity on when we are able to lower our net interest amount and lower the rate on that indebtness. So that’s a little big vague intentionally, but Lorne would you like to add anything to that?

Lorne E. Phillips

I think that covered. Okay. Yes. Perfect.

Jim Rollyson – Raymond James & Associates, Inc.

I appreciate the answer. And then just on Columbia, great job getting those back contracted in for the full-year. When you think about going into the next round of negotiations to extend this beyond 2014, you mentioned the process will hopefully be little simpler. Just kind of curious how you handicapped being able to continue to extend these given your history down there?

Wm. Stacy Locke

Well, we have extended every renewal since 2007 and we have a great working relationship with our primary client there and we are performing kind of at the top at the pack. We have been able to garner higher rates because of that performance with our client and so we think its relationship of mutual respect and we would fully expect to continue working with them. This process that we went through was I think painful for all parties involved including the client and it didn’t end in a favorable result for the client and so I hope that there will be a re-thinking process going forward that maybe we can start on negotiations late summer at the latest and kind of have a plan to how to renew these rigs more simply next year and we will certainly be proposing that and be proponent of that and I am confident that we will be able to renew the rigs again and hopefully maybe for a little bit more term.

Jim Rollyson – Raymond James & Associates, Inc.

Perfect. I appreciate the answer.

Operator

Thank you. Next we have Dave Wilson with Howard Weil, please go ahead.

Dave Wilson – Howard Weil

Good morning gentlemen. Thanks for taking my question. Stacy, on the production side, production service side of things, your well service is performing quite well even concerning the seasonal impact of last quarter and with the industry having another year wells drilled under the collective belt, have you seen or expect to see a higher ramp in demand for well services. I mean I think the answer might appear obvious but trying to gauge the overall supply and demand of the well service market to see if the supply side might be caught a little flat footed by increase in demand and can we see the 600 plus rates move dramatically higher because of that?

Wm. Stacy Locke

Well, you are getting at the crust of our strategy. That’s exactly why where we are and doing what we are doing is because with the steady rig count and the efficiencies with which the rigs are drilling today in terms of drilling time and move time by going to the pad or in a drilling, we are just putting lots more boreholes on the grounds. There is lots of completion work and lots of boreholes going in and time on the boreholes requires maintenance and we are seeing that, We have been seeing that in the Bakken, we are seeing it ramp up in the Eagle Ford. That will only continue with time because these are high decline rate, horizontal oil wells are the most service intensive well bore out there. So, we anticipate that there will be great demand. We plan to add more units in it to meet that demand and we think that probably is inclined to be a bitter scarcity and could create some continue pricing opportunity there.

Dave Wilson – Howard Weil

Great, thanks. And then, just a follow-up on comments around debt repayment. I know the bonds are callable here in March, but did I hear you right when you said that you don’t expect another repayment on the revolver in the first quarter maybe that will resume in the second quarter? Could you kind of, I am sorry to miss that.

Wm. Stacy Locke

Just Lorne step in.

Lorne E. Phillips

Yes that’s correct David. We have our interest payment on the bonds in the first quarter and annual bonds pay out and it should be a minor uptake in CapEx spending for some of the new unit stations mentioned. So all that combined it will be limited to know debt pay down on the revolver in the first quarter but then get right back to additional pay downs at a good pace in the second quarter.

Dave Wilson – Howard Weil

Great. Thanks. Thanks for clarifying that. I will turn the call back over.

Lorne E. Phillips

Thank you.

Operator

Thank you and our next question is from the line of Matthew Marietta with Stephens, please go ahead.

Matthew Marietta – Stephens Inc.

Good morning guys and congrats on the quarter.

Wm. Stacy Locke

Thank you Matt.

Matthew Marietta – Stephens Inc.

So, I believe last update that you provided you are in the process of converting a couple of coil units. I know you may have touched on this in the opening remarks but can maybe provide an update on where we at on that, whether that’s reflected in fourth quarter utilization numbers or when we could possibly see an impact in the coil utilization numbers from those conversion from incremental contribution there?

Wm. Stacy Locke

I think you will see that impact this year. We really got those in service at the very end of Q4 and then it's little slow as you move in to new year. So I think you will start seeing that in the first quarter and growing throughout this year.

Matthew Marietta – Stephens Inc.

Perfect. Thanks and you kind of hit – you kind of touched on the service rigs and what's driving pricing there but I guess what I wanted to try to do is get an idea of how much of that pricing is due to the top two rig fleet that Pioneer provides and how much of that is really tied to a market where services rates are just simply more demand as a whole? Can you maybe elaborate on the capabilities at the higher horse power rigs that you provide offer?

Wm. Stacy Locke

Right. Well, you can see where we are located. We are located in these markets for a reason with the concentration being in the Eagle Ford and Texas gulf coast are actually the U.S. Golf Coast up in the Bakken, we thus far shied away little bit from the Permian just because the pricing dynamic there is different from these other markets. Part of our success in terms of our overall hourly rate is that say different from the Permian, we usually package our rig with mud pumps, mud tanks, survivals, BOP clothing unit so we sell it as a package in share markets that is Permian, you frequently can only get the basic rig and those other items tend to be rental items for the operator.

In our model, we capture all of that by sending out the package rig. So I would say probably over 90% of the cases we are sending out a complete package and that’s what our average hourly rate plus as you mentioned they are all tall masted 104 to 116 foot mast, 550, 600 horse power class so they are ideally suited for any of the newer horizontal carriers and not every unit out there, in fact, the majority of the units out there aren’t really suited for the longer lateral horizontal blade. You really, you can probably just some of that work with the 400 horse power but sub 400 you are basically out of that market and really most of the clients prefer the taller mast 550, 600 horse power set rigs. So that’s why we built our entire fleet around.

Matthew Marietta – Stephens Inc.

Thanks a lot. That’s all from me, very helpful and congratulations.

Wm. Stacy Locke

Thank you, Matthew.

Operator

Thank you. Next is Daniel Burke with Johnson Rice. Please go ahead.

Daniel Burke – Johnson Rice & Company

Good morning guys.

Wm. Stacy Locke

Good morning.

Daniel Burke – Johnson Rice & Company

Stacy, with regard to the rig margin guidance for Q1, does that fully encapsulate the margin benefit even if nominal that you all expect to generate in Columbia or there are little bit more of a margin benefit from Columbia that will roll through in subsequent quarters?

Wm. Stacy Locke

I think there is some margin benefit that could roll through in subsequent quarters because we have got one rig that’s not even working at the new day rate, it's not working at all. Another rig is currently finishing its work up in the middle Magdalena Valley at a lower day rate. So, we won’t have the full effect of all eight units at the new day rate until the second quarter and beyond. So, you have that impact but our waiting it's a mix of those high margin Columbia rigs, our new builds which are also very, very high margin but we still have a lot of rigs in the West Texas vertical market that are earnings substantially lower margins. So that’s what averages down that margin or the vertical rigs in West Texas.

Daniel Burke – Johnson Rice & Company

You mentioned that the vertical rigs in West Texas are now fully utilized. A lot of the scrutiny on the rig market has been on the AC side of course, I mean are you seeing opportunity to begin the notch pricing on the mechanical side in the West Texas given you are fully utilized?

Wm. Stacy Locke

I don’t see that yet. Before we have been fighting utilization there for the latter half of 2013 and we actually were pleased to get these rigs back to work. We are seeing some opportunities. There is quite a bit of vertical drilling continuing and of course there is no pressure on the vertical market from AC joystick rigs because they don’t drill that market. So there is still a lot of stack rigs out there that could drill the vertical market but I think that we have been able to stay a little busier because we are operating something to a kind of higher inclined that is less available out there which is safety and minimal down time, higher end mechanical type work. But it's still a declining vertical market. We have done – we have probably out performed a little bit there because it is – rigs have gone down in the vertical market and that is a concern if it continues to go down we are going to be challenged there.

But, we have been able to keep those rigs busy and our mechanical rigs that have top drives those actually are competing with AC joystick rigs. Those right now are at 100% utilization. We are fighting it out pretty well there. That probably won’t last forever as more and more new builds are put out in the market but for now we are holding our own pretty good and but I would say there is some pricing opportunity there. In fact, Red just put a rig out under a one year term at an improved rate. So, we are seeing it as for new client, we have never worked for, one of the busier guys out there and so we are excited about that. They want high quality and we are able to secure that. So we see rays of hope there. I think it's too early to say that it's a clear cut opportunity to raise rates.

Daniel Burke – Johnson Rice & Company

Okay. Great that’s helpful. Maybe to squeeze, one last one on the coil side that the business has been challenging for you all. Now, I will be at the absolute revenue contribution it makes is considerably smaller than the wireline and work over business but if coil mends this year for you all, could it mend sufficiently that we could see sort of coil driven improvement in margin coming out of production services?

Wm. Stacy Locke

It sure is possible. We are obviously staying purposely a little conservative on it just because we need to kind of see it to believe it ourselves. Last year it was a very, very rough year in coil. But we have optimism today that we have not had before and I think our challenge was we were in the very crowded [2-inch] market. We were just not able to really build up a client base and now we are able to build up the client base and I am hoping –now it's not about onshore land, not onshore, offshore we are very steady that’s why we are adding an offshore unit there. That’s been steady and remain steady but on the onshore side, we just needed to build up steadier client base and we are now doing that which I hope that utilizing the two and three inch will bleed over into using some more of the two inch unit. So we are excited about it. I think an overall improving market will help to the opportunity there such as the activity levels continue to pick up a little bit that will only help the overall coil market but so I definitely think there is some upside there. We will just have to see as the year develops that it's truly happening. We will report on that as we see at the [belt].

Daniel Burke – Johnson Rice & Company

Understood. Thank you all.

Operator

Thank you. Next we have John Daniel with Simmons, please go ahead.

John Daniel – Simmons & Company

Hello guys. Stacy, two questions from me. I jumped on a little bit late on the call. So I apologize if you talked about this but just with respect to the well service rate per hour, how much of that increase is due to the benefit of ancillary equipment and/ or rig mix versus a true price increase?

Lorne E. Phillips

John, this is Lorne. I will handle that one. I would say probably the majority of it well really I think all of that rate increased this quarter was ancillary equipment and also increased to help cover labor cost. So it's a combination of those two. So in the rate per hour increase a $20 rate per hour I think that basically went to cover those two items this quarter.

John Daniel – Simmons & Company

Got it. Okay. And can you just tell us a little bit about utilization trends in well servicing within your Fayetteville and Haynesville areas? Any uptick?

Lorne E. Phillips

Fayetteville is very. In fact we are talking about relocating some of equipment there. We have had a strong client relationships and that’s gone extremely well. We anticipate that will be robust through the year and we will probably add equipment there. And then what was the other area that Haynesville, Joe would you want to comment on that. Joe is here.

Joe Eustace

We will probably be doing more in the -- Fayetteville has been very good for us, John. And there has been some strong rates up there and strong utilization – is not just back a little bit in the last 30 days but once that [rolls] out we think we will be very happy with it. Haynesville no real big improvement there.

John Daniel – Simmons & Company

As we have been talking some of the rig builders on the work hour side, and most of them have told us that they are sold out for this year in most that the rigs are going primarily to private companies and/ or start-ups. And I just wonder when you hear this type of enthusiasm on their part, does it then temper your enthusiasm and can you share with us just perhaps the recent employee turnover trends within that business unit that’s it from me.

Wm. Stacy Locke

A little bit of pressure from some of the start-ups. I think the biggest limiting factor in the well service business is going to be quality crews and we have that. We just need to hold onto them.

Lorne E. Phillips

Okay. Just to add to that, I mean a lot of the client base we are working for are the big publicly trading companies who care about extremely good service and safety and our group just won the gold award in safety this year as the best safety records of all the big well servicing contractors. So that is – that’s the client base that cares about that or the people that we are targeting and not everybody can work for them. So that’s really part of our strategy.

John Daniel – Simmons & Company

Fair enough. Thanks guys.

Wm. Stacy Locke

Thank you.

Operator

(Operator Instructions) Our next question is from Jason Wangler with Wunderlich Securities. Please go ahead.

Jason Wangler – Wunderlich Securities

Good morning guys. Just and you maybe kind of talked about a bit there just on the labor side, maybe across the board, not only on well servicing just what you are saying as far as ability to pick some people up and get out there as it does seem like you are seeing better and better activity levels going forward?

Lorne E. Phillips

Jason, I think it's just in there is some labor pressure on cost and that’s in certain market not across the board. It's in most businesses in certain markets. I’d say drilling is probably steadier than the other ones but in production services a little more pressure but again it's not across the board. It's just in certain markets but like you said, it involves servicing that was the contributor to the rate increased basically just covering increased cost and so it is out there but it's manageable and that it’s manageable so.

Jason Wangler – Wunderlich Securities

Okay, that’s all I appreciate it.

Wm. Stacy Locke

Thank you.

Operator

Thank you. And I’m showing no further questions I’ll turn the call back to Stacy Locke for closing comments.

Wm. Stacy Locke

All right. Thank you all for participating in today’s call and we look forward to update you after Q1. Thank you.

Operator

Ladies and gentlemen, replay instructions of today’s call can be found in this morning’s press release. We thank you for your participation, you may now disconnect.

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