Pike Electric Corporation F3Q08 (Qtr End 3/31/08) Earnings Call Transcript

Pike Electric Corporation. (PEC)

F3Q08 (Qtr End 3/31/08) Earnings Call

May 8, 2008 5:00 pm ET

Executives

Anthony Slater - Chief Financial Officer

Eric Pike - Chairman and Chief Executive Officer

Analyst

Tahira Afzal - KeyBanc

Rich Wesolowski - Sidoti & Company

Andrea Wirth - Robert Baird

Presentation

Operator

Good day everyone and welcome to the Pike Electric Corporation Third Quarter 2008 Financial Results Conference call. As a reminder today's call is being recorded.

Now for opening remarks and introductions, I would like to turn the call over to Mr. Anthony Slater, Chief Financial Officer. Please go ahead.

Anthony Slater

Thanks, Clarissa. During this call, we will make forward-looking statements. These are statements that are either not historical facts or are statements regarding our attempts, beliefs or expectations, with respect to trends affecting the company's operations, its financial, general economic and market conditions and its growth and operating strategies. Specifically of course, financial expectations and estimates are forward-looking statements. We filed our earnings release on Form 8-K earlier today, and we encourage you to review the risk factors and management's discussion and analysis sections of our 2007 annual report on Form 10-K and other SEC filings that describe the factors that may affect the future results of our operations. Any forward-looking statements made today or contained in any other public statements of Pike Electric or made by our management should be considered in light of those factors.

A replay of today's call will be available in the Investor Relation section of our website at www.pike.com this afternoon. You can also register to receive Pike Electric financial news alerts by email. Investor relations questions can also be directed to 336-719-4622.

I will now turn the call over to Eric Pike, Chairman and Chief Executive Officer, who will begin the call with a business update.

Eric Pike

Thanks, Anthony. Good afternoon everyone, and thank you for joining the Pike Electric Fiscal Third Quarter 2008 earnings call. Today, I'll give you some highlights on the quarter, and I'll update you on what we're seeing in the market place, and then Anthony, will walk through the financials for the quarter and discuss the outlook for the year. We'll then open the call to your questions.

We'd like to start out with, being consistent with our past communications, as well as, our expectations during the last two quarterly calls. We have continued to see our utility customers defer the normal levels of spending on distribution work, in response to challenging economic environment. This deferral combined with what is seasonally one of our slowest quarters, was the primary reason that the company experienced a weak quarter.

As expected, our core powerline revenues were negatively impacted by this slowdown, and the decline for the quarter was more pronounced than we had anticipated. Core powerline revenues were $120 million in the third fiscal quarter, versus $135 million for the same quarter last year. This was a result of both the low margin contracts we exited during fiscal '07, as well as, the overall moderation in customer spending levels I just mentioned.

Despite the decline in headcount and billable hours as work has slowed, we continue to improve core powerline revenue per billable hour, which has increased 2.7% year-over-year during the third quarter. This reflects the realization of improved pricing, as well as, the retention of our most productive and highly skilled workforce during the slowdown.

Despite the slowdown this quarter, we have seen early indications from our customers that some of the deferred spending is beginning to return, and that we may be gradually approaching a recovery in the coming year. This is a point in the cycle where it is critical that, we continue to execute on our strategy and take the necessary steps to ensure we are positioned for growth as it returns.

Our business model remains the cornerstone of our long-term strategy, while deferred utility spending will impact our results in the short-term, our primary goal is to deliver the highest level of service and build lasting partnerships with our customers. As we have discussed in the past, our model provides customers budgetary assistance during their down economic cycles and construction crew growth during their economic up cycles.

This short-term revenue flexibility is the key to the long partnerships with our customers, which average over 30 years. As a result, our utility customers have come to rely on us to value our services and financial strength, and ultimately, to choose the Pike team time and time again.

I'd like to take a few moments to readdress the Pike Electric business model, and the competitive landscape to assist our investors in understanding how economic cycles impact and affect the company. Pike Electric presently operates in a 19-state region throughout the South, Southeast and Mid-Atlantic portions of the United States. We do not have exposure to other markets at this time.

Our primary work consists of the installation and maintenance of distribution voltage powerlines. These projects are generally short-term in nature, ranging from daily projects to those of several weeks in length, though they are all performed on multi-year contracts. They are not projects that involve millions of dollars of planning, materials, right-of-way considerations or engineering, as some extremely large transmission projects do. Pike's normal work is more fungible during economic and budgetary contractions than long lead-time, high profile megaprojects.

However, while our projects can be delayed for short durations, they can rarely be canceled because our work connects the utility customer to the grid and completes the revenue stream for Pike's customers. This is the long-term business model and strategy that has driven Pike Electric's business for over the 63 years. Also, while we do share markets with our public company comparables, Pike Electric's main competitors in the distribution market continue to be primarily, private regional companies, operating within our service territory.

These companies are experiencing the same seasonal and economic slowdown in the distribution market as Pike, as evidenced by the amount of distribution class equipment that has been returned to leasing companies over the past several quarters. Again, this slowdown on the distribution side of the business over the past few quarters has been fairly broad based across our market. This is also consistent with reports from several public company equipment suppliers who serve the same electrical distribution market, and have reported a similar weakness.

With regard to our customers and headcount reduction levels, let me explain that Pike has not lost customers this year. We have however, reduced crews on many customers in order to assist in their budgetary constraints. Our reduction in headcount corresponds directly to the level of work available at our existing customers. Again, part of Pike's service oriented business model is, to provide our customers flexibility in managing and constructing their work, flexibility involves being able to grow or retract as our customers need us to.

Pike's continued improvement in our revenue per billable hour metric illustrates, that management is still keenly focused on the productivity of this business. We have had some improvement in this metric from more favorable pricing, but a significant portion is a result of retaining our long-term and highly skilled workforce. This retention and the costs associated with it is what will allow us to rapidly respond to our customer's needs as the work returns.

We will be able to respond with our most productive employees in leadership roles, which will reduce the difficulty in adding crews, as we will be hiring more semi and unskilled labor to build out crews from within. As I mentioned earlier, we are beginning to see indications of work returning, primarily for overhead distribution crews. Our work in Florida, which was the first to decline, appears to be some of the first to return.

We have several customers that have requested crews to start in the late part of the fourth quarter, and two past customers that want to restart Pike crews on their system in that same time period. We are also preparing for several crew additions for work in the Mid-Atlantic region. These crews will all return to existing customers that had to reduce resources during the winter.

The Carolinas and Georgia continue to be a bit slower in their recovery, but we do anticipate an uptick in this work throughout the summer months. The work in our Western region, which comprises the Gulf States, as well as Texas and Oklahoma, remains very stable with solid growth projects expected to come during the summer. One particular opportunity that we are very proud of will involve the addition of several underground crews for a customer in Oklahoma during the month of June.

These crew additions were a direct result of the impressive overhead storm restoration effort, Pike was able to provide this customer during our second quarter. The addition of long-term crews after assisting a new or existing customer on storm restoration is the best indication of value Pike brings to our distribution customers. Storm restoration work is always unpredictable, and this quarter proved no exception.

While our storm restoration work was significantly less than the same quarter last year it was also performed mainly for our existing customers, versus non-customers or out-of-service area customers last year. As you would expect, our storm rates for long-term customers have a more modest profit margin that for customers of which we're not performing regular work.

This reduced storm restoration work greater than expected deferral in work and increased fuel prices, did result in a weaker than expected third quarter. However, we continue to see indications that work levels in our core powerline business will pick up during the latter half of calendar '08 and '09.

Finally, despite all the uncertainty in the financial markets, Pike continues to enhance our financial position and capital structure through substantial cash flow generation and debt reduction initiatives. We paid down $27 million in debt during the third quarter and have reduced debt outstanding by over $74 million in the past 12 months. This will remain a key focus for us going forward. Again, the uptick we are seeing in business and new contracts is encouraging while it's still early.

We expect to begin to gradually build line crews starting in late fourth quarter and anticipate this positively impacting our results as we progress through the next fiscal year. As we look ahead, long-term fundamentals remain favorable, and we still firmly believe we are well-positioned to take advantage of them. We believe utilities will continue to increase their mix of outsourcing, particularly as larger segments of their workforce are expected to retire over the next several years.

We believe consumers incremental electricity use will continue to rise, putting increased demand on the distribution network. And we believe the infrastructure investments and upgrades to the distribution network will also continue to be required in the future.

We're very proud of our accomplishments at Pike and encouraging everyone, both inside and outside the company to stay focused on the long-term strategy. This will allow us to weather a challenging environment as we have many times in the past, and make sure that, we're in the best possible position to capitalize on the opportunities as they come next year.

With that, I'll turn the call over to Anthony, to take us through the financials and our outlook for next year. Anthony?

Anthony Slater

Thanks, Eric. First I'm going to walk you through the income statement for the quarter and then provide some additional highlights regarding the balance sheet and cash flows. Total revenues for the fiscal third quarter ended March 31, 2008, decreased 15%, to $131 million from the comparable period last year.

Core powerline revenues were $120 million in the fiscal third quarter, an 11% decrease from the comparable quarter last year. As Eric mentioned, core powerline revenue per billable hour increased 2.7% year-over-year. This reflects our favorable pricing from contract negotiations, the elimination of certain accounts during fiscal 2007 that, did not meet our profitability goals, and an increase in efficiency of our crews.

Core powerline billable hours decreased 13%, year-over-year, due to the reduction in headcount as a result of exiting certain contracts, and the moderation in utility customer demand Eric, just touched on. Revenue generated in the third quarter of fiscal 2007 from exited accounts totaled approximately $6 million. Excluding revenue from exited accounts, core powerline revenue decreased 7%.

It is important to note that, we have now passed the anniversary date of the completion of our efforts to exit low margin accounts this quarter. So this is now behind us, and will no longer impact our quarterly year-over-year comparisons. Storm restoration revenues were $11 million in our third quarter of fiscal 2008, a 42% decrease from the comparable quarter last year.

Gross profit for the third quarter of fiscal 2008 was $21 million, a drop of approximately $7 million from the third quarter last year. Looking at gross margins in the quarter, we were at 15.8%, a 200 basis point decrease from the third quarter of last year. As Eric mentioned, this was largely due to a significantly lower contribution from storm restoration revenues, the impact of higher fuel costs and a negative leverage on direct overhead costs.

General and administrative expenses decreased approximately $2 million year-over-year, to $10 million in the third quarter of fiscal 2008. This decrease is primarily due to reduced legal fees and a decrease in Sarbanes-Oxley related expenses. As a percentage of revenue, G&A expense was 7.9% in the third quarter of fiscal 2008, a 20 basis point decrease from last year. Going forward, we expect G&A to benefit from reduced legal fees as we were able to settle our non-compete litigation in early fourth quarter.

Interest expense for the fiscal third quarter of 2008 decreased 34% to $3 million compared to the third quarter last year. Again, this reflects lower debt balances from our ongoing debt reduction initiative. Our effective tax rate was 38.8% in the quarter. And looking ahead, we continue to expect the tax rate to remain close to 39%.

Net income for the fiscal third quarter of 2008 was $4.3 million or $0.13 per diluted share, down $1.7 million or $0.05 per diluted share from the same quarter last year.

EBITDA was $19 million for the third quarter of fiscal 2008, versus $24.9 million for the same period last year. Depreciation and amortization for the third quarter of fiscal 2008 totaled $8.7 million versus $10 million last year.

A reconciliation of net income to EBITDA is posted on our website under the Investor Relations section.

Turning to the balance sheet and cash flow highlights. Cash flow from operations totaled $30 million for the quarter. As Eric mentioned, debt pay down remains a key focus, and we reduced our total debt by $27 million in the third quarter and by $51 million over the first nine months of fiscal 2008.

We also continue to improve our DSO position. Our DSO, including build and home build receivables stood at 63 days at the end of the third quarter, compared to 68 days reported this same time last year.

Now turning to our year-to-date results. Total revenue for the nine months ended March 31, 2008 decreased 8% to $414 million from the same period last year, with core powerline revenues coming in at $379 million, a 7% decrease from last year. Breaking this down, core powerline revenue per billable hour increased 7% year-over-year for the nine month period, which was offset by a 12.8% decline in core powerline billable hours.

Revenue generated from exited accounts totaled approximately $23 million for the nine months period ended March 31, 2007. Excluding revenue from exited accounts, core powerline revenue decreased 1% year-over-year, for the first nine months of fiscal 2008. Storm restoration revenues totaled $36 million for the first nine months of fiscal 2008, a 22% decrease from last year.

Net income for the first nine months of fiscal 2008 totaled $14.6 million or $0.44 per diluted share, an increase of $1.9 million or $0.06 per diluted share from the same period last year.

Now I'd like to take a moment to address our guidance. We now expect core powerline revenues for fiscal 2008 to be in the range of $500 million to $510 million, down from our previously issued guidance range of $520 million to $530 million. This revision is primarily due to higher than anticipated storm work in the fiscal third quarter, which temporarily diverted some of our core powerline revenues and a slower than expected recovery in customer spending.

I would like to quickly address our storm revenue assumption for the remainder of the year. Looking ahead, we have less than two months remaining in our fourth quarter, and it is our seasonally slowest time of the year for storm work. As such, our updated core powerline revenue guidance, currently assumes no storm restoration work for the balance of the year.

Again, the level of storm activity is unpredictable, and any significant storm response will displace core powerline revenue. Despite our reduced outlook for 2008, we are encouraged by the recent trends Eric discussed, which suggest that we may be approaching a recovery on the overhead distribution side of our business in fiscal 2009.

Again, while we do anticipate increasing headcount throughout the fourth quarter, we do not expect to begin to see any meaningful pickup in revenue from building line crews until next year. We continue to expect total gross profit margins in fiscal 2008 to be in the range of 16% to 17%, and G&A expenses to be in the range of 7% to 8% of revenues.

I'd now like to turn the call back over to Eric, for some closing remarks.

Eric Pike

Thanks, Anthony. In closing, we continue to manage our business for the long-term. We remain focused on executing a strategy that will not only allow us to weather challenging economic times, but will also ensure we're positioned for growth, that we believe will occur in the coming year.

With our high quality customer base, our dedicated workforce and solid industry fundamentals, we continue to believe that Pike is positioned to deliver stable, profitable growth, and in turn build shareholder value in the years ahead. I'd like to thank our employees for their continued dedication, our customers for partnering with us, and our stockholders for your ongoing support.

At this time, we'll open the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

We'll take our first question from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc

Hi. Good morning, gentlemen.

Eric Pike

Hi, Tahira.

Anthony Slater

Hi.

Tahira Afzal - KeyBanc

I'm sorry, good afternoon, I'm sorry. Just a couple of questions of just -- basically more macro, in a sense. Could you talk about how much of the slowdown you're seeing is being offset by outsourcing trends, and whether you've seen any change in those outsourcing trends over the last six months?

Eric Pike

Tahira, I don't know that we've seen any of the outsourcing trend right now because, the overall basket of distribution work was just reduced during the last three, six, months. That has not stopped the aging of our customer's workforce. And we typically see a greater outsourcing percentage as that workload comes back. I think we're seeing indications of that from customers throughout our entire service territory that it looks like they are going to have far more robust spending cycles throughout the summer.

Tahira Afzal - KeyBanc

Got it. And then, could you talk a bit about what role Pike could possibly play if all this talk around smart grid is actually implemented on the distribution front?

Eric Pike

Well that's a piece that while we do not have a lot of diversified business lines as far as a presence in the wind or solar energy space, and not at today, a large piece of the transmission business. We do believe the smart grid technology is going to drive further investment in the distribution space. And that's an area that we feel like we'll certainly be the beneficiary of. We look at some of the smart grid metering projects, now.

We're talking with customers about how those will interact with our present workforce. As we see more, smart grid rollout from our customers I think a lot of that from what we gather today, is still in the planning stage outside of some metering. We believe there is going to certainly be more and more devices and hardware and pieces that will need to be placed on the distribution system. And it's certainly our intent to be in place to do that for them.

Tahira Afzal - KeyBanc

Okay, great. And do you expect this to be sort of a regional trend? And do you think there will be areas where the congestion is going to drive or the regulatory environment on a state level is more conducive for this going ahead a little faster. So if you look at your areas in Florida, Carolinas, Texas, Oklahoma, is it too early to gauge what areas would be doing this first?

Eric Pike

Are you speaking about in terms of rolling out more, smart grid technology?

Tahira Afzal - KeyBanc

Yes.

Eric Pike

We're not seeing as much regulatory push as we are, our customers just viewing this as an economic advantage, they seem to be pushing this more on their own. So it seems to be driven more by where they are in their cycle of looking out to the future of how they want to operate their utilities. What can they do to better streamline and reduce their long-term cost on the distribution side?

So we're really seeing it paced more by the utilities efforts, and we certainly have some utilities that have embraced this and are pushing it much more quickly than some others. I'm not sure that I could really give you a region specific area. There are significant utilities, really, in each one of our four operating regions that seem to be going at this pretty aggressively.

Tahira Afzal - KeyBanc

Okay, great. I mean that's definitely helpful. One other macro question and that's pertaining to your comments earlier on. Would it be possible to sort of roughly estimate how many of the storm work customers you typically get, are not part of your core powerline customers as of now?

Eric Pike

Tahira, I think I might have tried to answer that question a couple of years ago. I'm not sure that we could really give you a good sense for that now because, we have in the last several years, been able to go well outside our present footprint and be successful, and successfully received by customers that, we probably won't be on their system for a little while, as we expand out. It's real hard to give you a real sense of that.

But prior to a couple of years ago, we typically did not get too far out of our present footprint. But we see that as good opportunities now. So I really couldn't tell you what the makeup would be.

Tahira Afzal - KeyBanc

Sure. And if you look at that one customer that you referred to earlier on, was that an account that you won versus a smaller regional player, or was it someone more of your size?

Eric Pike

Well that was an account, it was a present customer. It was one that we have a small overhead group working for, had not performed underground work for them in the past. I'm not sure that we particularly, displaced a competitor with this award, but they had work that they were going to outsource, and chose to give us an opportunity to do it based on the fact that we had responded so well for them during the end of Q2.

Tahira Afzal - KeyBanc

Okay, great. I've actually got lots of micro questions, but I'll jump back in the queue and queue-up again. Thank you very much.

Eric Pike

Okay. Thank you.

Operator

Our next question comes from Rich Wesolowski with Sidoti & Company.

Rich Wesolowski - Sidoti & Company

Thanks a lot. Good afternoon.

Anthony Slater

Hey, Rich.

Eric Pike

Hi, Rich.

Rich Wesolowski - Sidoti & Company

Eric and Anthony, do you think the softness in the utility demand has lasted longer than you expected?

Eric Pike

Well I think it probably was a little longer than we expected in Q3. I think we were expecting a little bit more uptick in Q3 than what we saw materialize. We're starting to see it in the end of Q4. But I think the biggest thing Rich, where we sort of struggle with is, our space is a fairly small niche of the whole utility and energy side of the business. We're tightly focused and in some economic cycles, that's quite a boon, to be so tightly focused. In others, when you don't have as many diversified lines, you go through a down period that maybe others aren't experiencing.

Rich Wesolowski - Sidoti & Company

Right.

Eric Pike

We see this distribution phase playing out in a similar time fashion to ones that we've seen in the past. Like I said I would say that Q3, we thought we might see a little bit more improvement than we did. It looks like it's been pushed into Q4.

Rich Wesolowski - Sidoti & Company

I think the heart of my question is what colored the prior estimate on your part? Was it historical experience, or was it utilities saying, we think the money is flowing through in this quarter? And if it was the latter what gives you the confidence that their suggestions this time around are actually going to play out?

Eric Pike

Yes. Really I think that ours was more based on experience and looking at, kind of historical timeframes.

Rich Wesolowski - Sidoti & Company

Right.

Eric Pike

The work that we're talking about now that the projects and things I listed are work that's there to be done, not that our budgets are coming back, this, that and the other. I mean, these are customers that are talking about actual crew-headcount levels they want to add, and so forth. So I feel much more confident in these numbers.

Rich Wesolowski - Sidoti & Company

Are you finding that the client's are pushing spending back in a lot of categories or is it that distribution is competing with a greater number of other buckets for the utilities?

Eric Pike

Well I think certainly, when they go through cycles that there is an opportunity to defer some cost for them they take advantage of it. That's part of our business model.

Rich Wesolowski - Sidoti & Company

Right.

Eric Pike

I don't know that if you would the distribution is subsidizing or being set aside if you will for other projects. I think some of the projects that we're hearing about that may involve a lot of engineering, a lot of maybe, years of planning to get in the work. When those go, they pretty much have to go.

The nature of our projects being small and shorter-term in nature, they can be pushed around in the time cycle. But as I mentioned in the earlier remarks, at the end of the day if we don't complete the piece that we do, then that revenue paying customer doesn't connect to the grid.

Rich Wesolowski - Sidoti & Company

Right.

Eric Pike

So we do see a little bit, but maybe we jockey for position sometimes in the budgetary cycle. But as I mentioned, it's rare to cancel distribution up-fit.

Rich Wesolowski - Sidoti & Company

Do you think the spending will be strong enough to enable you to reach that high-single digit core growth rate that you talk about over the long-term?

Eric Pike

We really do. We still feel very confident that the fundamentals are there, that you're going to see the need for the spend in the distribution space as well. Obviously, the nation has areas that have large transmission needs still and those projects are going to roll out. You don't see, on a routine basis, projects or contracts of that magnitude rollout in the distribution side.

So it sometimes, is hard to compare. But we do think, as you come out of the back of this that we're going to still be able to see the mid-to-high-single digit growth rates.

Rich Wesolowski - Sidoti & Company

Okay. And finally, now that you've repriced some contracts, you've exercised some of the ones that you weren't making as much money on. What other avenues do you have to rate gross margin or conversely, is this 16%, 17% in that range is that a sustainable number that you expect to have FY'09, 2010, et cetera?

Eric Pike

Yes. I think that's really our target that we're sticking to going forward, because we do still have some initiatives that we've talked about that could impact that a little bit on our IT front, that we think that are going to help us, that we're still working on. But we think those are very good margin levels for this business. We think they are sustainable.

Obviously, there may be some ways to improve it as we continue to just do the sort of blocking and tackling that's involved day-in, day-out, with a business from paying down debt to keeping of DSOs down. Any number of things like that there could be some minimal improvement. But I don't know that we would want to leave that guidance right now.

Rich Wesolowski - Sidoti & Company

Great. Thank you.

Eric Pike

Thanks.

Operator

(Operator Instructions) Our next question comes from Andrea Wirth with Robert Baird.

Andrea Wirth - Robert Baird

Hey, Eric and Anthony.

Anthony Slater

Hey, Andrea.

Eric Pike

Hi, Andrea.

Andrea Wirth - Robert Baird

I'm wondering, Eric, if you could just talk a little bit about or just give us a little bit of color as to what activity look like throughout the quarter. It sounds like power core power lines were a little bit lighter than you had expected, and obviously, fourth quarter looks like it will be a little bit lighter as well.

Did things seem to deteriorate throughout the quarter, or was it kind of more one month here or there that things caused the shortfall, I'm just trying to get an understanding of have we kind of hit a stable level now or have things just generally kind of deteriorated throughout?

Eric Pike

Yes, Andrea. I don't think, things didn't really in our view deteriorate during the quarter. We did have a little bit of offset of core revenues by some of the storm work that we did. But in general, we had expected or in our mind and in our projections, had modeled in an earlier headcount increase than what we have seen. So while we didn't really see a lot of deterioration in the customer base or in the accounts, we just didn't really pick up the modest growth that we had anticipated in Q3 and early Q4.

Andrea Wirth - Robert Baird

Okay. Okay, fair enough. And then, kind of going back to the outsourcing question of earlier, in prior cycles, how does it usually look as far as the utilities go, of hiring their own crews, do you sometimes see as you start ticking back up that maybe they will first hire their own crews before they come to you or is there not a kind of a typical cycle of them increasing their crews, and then you coming on and increasing your crews for them?

Eric Pike

Yes actually, as a growth cycle begins or an uptick cycle begins, that's typically where you see them rely more heavily on companies like Pike, because of the quicker availability of trained crews. So we actually see probably, less of that during that period. We have seen some customers that have hired some employees, if you will, to become linemen in their companies.

But we're seeing that more as, right now the levels that we're seeing on our customers are more to retain a certain amount of craft workforce, so that they have company representation to their customers in the way of service calls and service linemen and so forth, as well as they want to keep a certain level of craft knowledge. So we would anticipate them continuing to hold a certain level of their own linemen, if you will. But any time we go into an up cycle, that's actually the time when we see much higher growth.

Andrea Wirth - Robert Baird

Sure, sure. And then, if you could just give us kind of a reminder as to say utility is indicating they want to increase their level of crews, as they are for this fourth quarter. Is it generally, you start training the crews, and then as soon as they give you the go ahead, you put them in place. I guess what's kind of the timeframe between them giving you an indication, and then you putting them actually into place?

I guess what I'm really getting into is they are indicating right now that they'd like to put more crews in place at the end of fourth quarter. But is there some timing in between that could easily get pushed out a little bit further if things do continue to get a little bit weaker in the economy?

Eric Pike

Yes. Most of the -- most, if not all of the instances that I spoke to, are basically -- I'm trying to think what might be the right terminology. These are adds that they are asking for on a particular date, when they will be ready to take them. So they are not projected that we might need eight, ten, twenty guys, whatever. This is, by this week, we need to start this crew or that crew or so forth. We feel very good that the headcount adds that we're seeing, could they defer, if they were expected to happen the last week or two of June, could they roll into the first week of July?

It's possible, are they going to get pushed out to the end of Q1? No that's not what we're seeing at all. We feel like these are very real headcounts. We also feel like we're going to be able to meet them pretty easily in each of the areas, the reason being is as we have retracted in size and overall number of people, we have really not lost very many of our highly skilled folks. They have stayed onboard. They've been able to move around with us.

And in some cases, we've even doubled them up on some crews because, we want to make sure that we had them, knowing that this cycle was going to end. And then, they are able to then, break out and form these new crews. They will be the leadership of the new crews. That puts us in ability of needing to hire and train really unskilled and semi-skilled, instead of having to go out and find so much highly skilled labor.

Andrea Wirth - Robert Baird

Got it. And then, just wanted to get an update more on the western region of your business, I know the possibility is lagging just a bit there. Just want to get an update on initiatives in that region and any signs of improvement you're seeing on the margins there?

Eric Pike

Yes. We're starting to see some there. We believe that, we've repriced the accounts and we've been able to over the last year, when we had some escalator pieces come on board to put those in as well. Some of the accounts that we had that were still a bit behind the curve on our internal metrics are now coming up. While you don't want to reduce crews, certainly in a company, the fact that we have reduced down some of our crews, our best people are now on the accounts that we're most challenged on. So we do see those margins improving in the west.

Andrea Wirth - Robert Baird

Okay, great. Thanks very much.

Eric Pike

Thank you.

Operator

Thank you. And that does conclude today's question and answer session. At this time, I'd like to turn the call back over to Mr. Eric Pike, for any closing or additional remarks.

Eric Pike

Thank you. Well this closes our third quarter fiscal '08 call. We appreciate your interest and continued support of Pike. And we look forward to updating you all, next quarter. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation, and you may now disconnect.

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