Alon Energy USA, Inc.

May. 6.08 | About: Alon USA (ALJ)

Alon Energy USA, Inc. (NYSE:ALJ)

Q1 2008 Conference Call

May 6, 2008, 11:00 a.m. EST

Executives

Mr. Jeff D. Morris – President and Chief Executive Officer

Mr. Claire A. Hart – Senior Vice President

Mr. Shai Even – Vice President and Chief Financial Officer

Analysts

Ann Kohler – Caris & Company

Chi Chow – Tristone Capital

Jeff Dietert – Simmons & Company

Paul Cheng –Lehman Brothers

Paul Sankey - Deutsche Bank Securities

[Vijay Persad – Lime Capital Management]

Bryan Sholdikof – Navigare Partners, LLC

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Alon USA Energy first quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Claire Hart, Senior Vice President.

Claire A. Hart

Thank you, Nicole. Good morning everyone and welcome to Alon USA's first quarter 2008 earnings conference call. With me are Jeff Morris, President and CEO, along with other members of our senior management team. You should have received yesterday our earnings release, but in case you didn't you can obtain a copy from our website, alonusa.com under the investor relations section.

Before I turn the call over to Jeff please be aware that information reported on this call speaks only as of today, May 6, 2008, and therefore you are advised that time sensitive information may no longer be accurate as of time of any replay. Also I'll remind you that certain statements made by management during this call may constitute forward looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based upon management's current expectations and include known and unknown risk, uncertainties and other factors, many of which the company is unable to predict or control, that may cause the company's actual results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC. Furthermore, as we start this call please also refer to the statement regarding forward looking statements incorporated under our news release issued yesterday. And please note that the contents of our conference call today are covered by these statements. With that I'll turn the call over to Jeff.

Jeff D. Morris

Thank you, Claire. In the first quarter of 2008 we dealt with three major issues. The first and most significant was the fire in Big Spring on February 18th, second was the relatively low west coast refining margins, and finally was the rapid increase in crude oil pricing. But I can tell you that although we had three significant issues, I have been very satisfied with our response to each of these.

First I'd like to discuss with you the repair work at Big Spring. We now have over 1,200 people per day split working between two shifts. We have started a 35,000 barrel a day hydro-skimming operation on April 5th which is well ahead of our original plan. We currently expect to begin our polymer modified asphalt operations by May 15th and our ground tire asphalt operations by June 15th.

Most importantly, we have finalized an executable schedule for the cat cracker repairs and expect mechanical completion and beginning of start up by the end of July. We are currently finalizing our occulation schedule and expect it to follow soon after the cat cracker schedule and expect it to follow soon after the cat cracker, though we have not developed a schedule for our propylene unit repairs.

Our progress has been good and I expect we will complete the rebuild of the refinery well within the limits of our insurance, including both our property damage and business interruption. Although we have not completed the final estimate of the repairs I am certainly encouraged by our progress.

I've also been particularly pleased with our cash management during the first quarter. We ended the quarter with $31 million in cash and we're completely undrawn on all of our revolvers.

Secondly, I would like to discuss the west coast. Since the first quarter 2007, west coast 321 margins have been reduced by about half and our crude pricing has almost doubled. We have done several things to respond to this challenging environment. At the refinery we have renegotiated several of our crude supplier arrangements and have reduced our cost of crude versus WTI on a similar quality basis by almost $2 per barrel overall. Nevertheless, this improvement has not been enough. And due to the relatively low current complexity of the plant we have reduced our throughput to about 36,000 barrel per day and expect to stay at this throughput in this environment.

We've also developed a multiple approach to our asphalt business. First we have attempted to increase our pricing as crude prices have increased to maintain our margins. I can tell you I'm please with our $40 per ton margins with a $98 per barrel WTI pricing. In regard to supplying our asphalt customers we have chosen to supply California from the Paramount refinery, but to supply our Arizona, Nevada, Oregon, and Washington terminals from third party purchases. It is our intent to maintain this supply strategy until our west coast refining margins improve.

In that regard we remain on schedule and budget with our west coast upgrade projects which are intended to increase the complexity of that facility. We expect to complete our hydrotreater upgrade project by year end which will increase our finished gasoline and diesel yield by about 50%. And in addition, Chevron Loomis has almost completed the Schedule A engineering package for our 25,000 barrel per day hydro tracker project and we will award the detailed engineering project soon. We expect to have detailed engineering complete by year end and a plus or minus 15% estimate by that time. This schedule will maintain us on the path to complete the project by approximately year end 2010.

In our retail branded segment we continue to make progress. As you can see in our release we are now reporting this segment separately and as is shown we have added over 100 stores over the past year. Our same store merchandise sales were slightly lower, primarily due to the addition of the skinny stores. As we have converted these stores to 7-Eleven brand, inside sales have begun to approach that of our legacy stores. I'm also pleased with our inside margin, which improved by almost 1% over the past year, and our fuel margins although our fuel sales have continued to decline on a per store basis.

I'm also happy to announce that we have restructured the management team for this segment. Kyle McKeen has rejoined our company and will head this new segment. Kyle has over 25 years of experience in the retail and branded marketing segment, many of those years with us. Yossi Lipman will continue to lead our retail division and Jeff Dobryant [ph] will continue to lead our branded marketing business. In addition, we are continuing to pursue our plans for an IPO in this segment later this year.

In a summary, while I'm not satisfied with our results I'm very satisfied with our response to this environment. I think overall our organization has responded particularly well. With that I would be happy to address any questions you may have.

Question-and-Answer Session

Opeartor: Thank you. Ladies and gentlemen, at this time we will conduct the question and answer session. (Operator Instructions) Our first question come from the line of Ann Kohler with Caris & Company. Please go ahead.

Ann Kohler - Caris & Company

Good morning gentlemen.

Jeff D. Morris

Good morning, Ann.

Ann Kohler - Caris & Company

Just a couple of questions, one, could you just go into a little bit more detail regarding the asphalt margins that you had in the first quarter as well as, you know, what you're expecting over the balance of the year? Certainly the numbers, the first quarter margin was very strong. Was there anything in there? Were there inventory sales and things of that nature? And given the increase here that we've seen here recently in crude, you know, what kind of confidence do you have that you'll be able to continue to, you know, keep the margins sort of in, you know, in normalized levels I guess here, given that increase?

Jeff D. Morris

Well Ann, there wasn't anything that particularly unusual that occurred in the first quarter. WE did not have significant inventory changes or anything of that sort. I think the primary recognition goes to our asphalt marketing organization which I think has been quite forward thinking and worked quite well to maintain margins. So going forward I don’t have any reason to expect anything much less. As you know, last year first quarter our margins were $32 a ton. Sometimes during the year we had them up over 50, so this $40 a ton seems to be in the range that we can expect. Certainly we helped ourselves by purchasing third party product during the first quarter and we will continue to do that.

In regard to the pricing we continue to, you know, staying with the crude pricing as an example. You know, end of the first quarter we showed in the 10Q of $374 per ton price as of May 1st. We were raised our spot price in California to $585 per ton so it shows you the difference. Clearly there's been a reduction in overall demand in asphalt this year due to the roofing business and some reduction in demand in the paving business and we've addressed that by the lower throughputs at the California refinery. Our strategy that we developed at the end of the year '07 seems to be working. I don't see any reason to change it. If crude continues to increase we will continue to try to maintain our margins and we will – then we'll have to see how volumes respond. If crude falls of course we'll be helped. But I don't see anything fundamentally changing going forward.

Ann Kohler - Caris & Company

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Chi Chow with Tristone Capital. Please go ahead.

Chi Chow - Tristone Capital

Good morning.

Jeff D. Morris

Hi, Chi.

Chi Chow - Tristone Capital

I guess this is a question maybe for Shai. Could you tell us how much you received from insurance recoveries in the first quarter and maybe if you could explain how those insurance recoveries are showing up in the financials?

Shai Even

During the first quarter we received $25 million and since then we received additional $35 million, $25 during April and then to date during May. This insurance profit that we received that were deducted from the insurance receivables that were part of our working capital for this quarter.

Chi Chow - Tristone Capital

Okay, so it is not flowing through the income statement?

Shai Even

That is correct.

Chi Chow - Tristone Capital

Anywhere? Okay. And is that going to be the case on both, I guess property damage and business interruption? Are you going to treat that the same way?

Shai Even

On the property damage the time there will be impact on the income statement is when we will know more about the total estimated cost for the whole restoration project. On the business interruption, yet to be determined. We need to finalize an agreement with insurance company and at that time we'll know how much and the timing of the effect on our income statement.

Chi Chow - Tristone Capital

Okay. So that will be flowing through the income statement then?

Shai Even

Yes.

Chi Chow - Tristone Capital

And that goes into gross margins?

Shai Even

We think at this point that will be out of operating income and we are not yet to be determined whether it will be part of gross margin or EBITDA.

Chi Chow - Tristone Capital

Okay. Do you plan on breaking that out separately? I guess the question – the reason I ask is I am trying to understand why you have secluded the fire-related expenses as a special line item in the first quarter. I mean it seems like those are operating costs. And are you going to treat the insurance recoveries the same way?

Shai Even

The majority of the costs that we are excluding maybe all of that we think it is special items to including items such as insurance deductible for total third party liability, for property damage, and the other costs that are maybe one time costs associated with the fire and not really with really, you know, normal operations of the company.

Chi Chow - Tristone Capital

Well I do not know. I think you can argue that that is part of your normal operations. You had an operating incident and it just seems like you should also incur the costs associated with that I guess.

Shai Even

We are carrying the costs. It is just that the management observation, management opinion is that is a one time nonrecurring item, special item if you will.

Chi Chow - Tristone Capital

Okay. I guess on the repairs do you have any sort of estimate going forward here on what the repair costs look like?

Jeff D. Morris

Chi, it's Jeff. No, we do not yet. Now that it was critical that we get a schedule developed for the cat cracker repair and that'll be the largest portion and we have that now. So now that we have a very, a good schedule we will apply a spending curve to that. One of the critical things also is to understand our productivity rate. The way we're working there in Big Spring the productivity is going to be different than a normal project, so we have to have that also. I'm hopeful pretty soon we will have a view on the cat cracker repairs. The last elements of the occulation unit, the propylene splitter, some of the infrastructure items. Obviously estimate those. We need the scope of work and the schedule and that'll be coming later. So I would expect it will be a month or so before we have a reasonable schedule, I mean a reasonable estimate, excuse me.

Chi Chow - Tristone Capital

Okay, great, thank you.

Operator

Thank you. Our next question comes from the line of Jeff Dietert with Simmons. Please go ahead.

Jeff Dietert - Simmons & Company

Yes, it's Jeff Dietert with Simmons and Company. Jeff, admirable job on Big Springs and limiting losses in California and turning asphalt around, you know, very difficult environment. So I admire you and the company for that.

Jeff D. Morris

Thank you.

Jeff Dietert - Simmons & Company

On the retail IPO, how much capital are you expecting to raise and what will the use of proceeds be?

Jeff D. Morris

Jeff, I'm sure you know even better than I, I can't pre-sell, so I really can't get into that at this point in time and it dies pretty clearly by our lawyers not to do that. So what I've been saying to others and I hope you appreciate my situation, what I would encourage you to do is take the information you received in our 13Q and then you know who our peers would be in the future when we complete the IPO. I think people like Susser, K.C.'s [ph], folks like that and from that you could probably reach your own view in regard to our proceeds. And I tell you I why I think people like Sam Susser has done a very nice job and many of the initiatives that he has done are good initiatives for this industry.

Jeff Dietert - Simmons & Company

Okay. And you talk about the M&A evaluations ongoing. Could you refer or review your strategy there and what types of assets and that you're considering on the M&A front?

Jeff D. Morris

Straight M&A probably hasn't changed very much as we talked over the years. We tend to focus on niche, unique kind of opportunities, opportunities that we think that are profile opportunities where there's potential upgrade opportunities involved. And so as those become available and are on the market we will always carefully evaluate them.

Jeff Dietert - Simmons & Company

Very good, thank you.

Jeff D. Morris

You're welcome.

Operator

Thank you. Our next question come from the line of Paul Cheng with Lehman Brothers. Please go ahead.

Paul Cheng – Lehman Brothers

Hey guys.

Jeff D. Morris

Hey, Paul.

Paul Cheng – Lehman Brothers

Just on the asphalt, is there any change in the pricing strategy? I mean historically that I think about one-third to one-half of your asphalt sales is based on somewhere between maybe one month to six months of the contract time. So that's a lag effect. Have we changed dramatically in moving to us into the spot market?

Jeff D. Morris

No, we have not, Paul. And we are, when you look over all that our asphalt business, our Texas division is struggling more than others because it has, Texas is one of the last states in the union to have a fixed price forward pricing into the season. So we're, the margin that you're seeing includes a negative margin from our Texas operation that's been offset by some good work in California. We bid the Texas business last October, November with our view of the price of crude at that time. And obviously that has turned out to be incorrect. And so we are now dealing with that forward curve. In California, you know, it is an indexed market and so we do have a little bit more protection there. I would say about a month behind. And what we have done in California is moved our pricing as crude has gone up and I have been please with the way we have done that.

Paul Cheng – Lehman Brothers

Jeff, how much is your sales in [inaudible], now you are seeing the spot?

Jeff D. Morris

We do not sell much in the spot market. Most of ours is contracted price. Now the–

Paul Cheng – Lehman Brothers

Right, but is the contracted price tied to the spot market?

Jeff D. Morris

Well in California it is indexed. So in California every month CalTrans publishes a new index based upon the price accrued from the previous month. So as an example for the month of May the CalTrans index went up over $580 so that is – we do have an index methodology in California. Other states also have types of indexing so even though you have a contract to supply a product to a particular job it will be tied the index. So as the index goes up your price goes up and there is about a – in those markets 30 day or so lag. In Texas, that is not the case. There is not an index in Texas. But the bottom line is our – there has not been a fundamental change in the business, the way we address business. What we have done is – main things we have done is one supply all of our terminals outside of California and Texas with third party purchases and secondly we have moved up our pricing in California as quickly as we can with the indexing as it increases.

Paul Sankey - Deutsche Bank Securities

And in Texas I assume that that is just the industry [inaudible] historical practice or that this is by the state law that you have to – that they sell your petroleum that way?

Jeff D. Morris

Absolutely, so it is state practice. It is the way in which the state issues their contracts. We, personally, believe that that is an error by the state of Texas. It has caused some situations as we are now it causes all producers of asphalt across the country to be less interested in supplying the Texas market because it is well under the price which we can sell into other markets as an example out of Big Spring. We are moving a fair amount of product out to Arizona because of the different strategies there. So, I do not know if we can convince the state of Texas to change their contracting techniques but we are going to try.

Paul Sankey - Deutsche Bank Securities

And is that the reason, Jeff, when we look at the first quarter sales 279,000 ton which is a pretty substantial job from the first quarter of last year which by your [inaudible] pretty low number. Is that – in order for you to protect your margin you just, the offsets that you decide that you share some of the last profit or the loss operation sales?

Jeff D. Morris

Yes we have – our strategy has been, we are primarily working to have a sufficient margin and we have ended up giving some volume. There has also been some macro type of issues especially in the roofing businesses. You certainly know what that looks like these days the housing starts et cetera, et cetera. So that was, in effect, beyond our pricing strategy but certainly in our pricing strategy we have given up some market share.

Paul Sankey - Deutsche Bank Securities

So we should assume that the lower than trend [inaudible] will continue for this year?

Jeff D. Morris

That would be my expectation. The other thing that we are doing, Paul, is, in this environment, is we are continuing to adjust our yields at the Paramount refinery as much as we can within the constraints of the equipment their current asphalt yield is down to about 29% from previous year of around 32, 33% and so we will continue that also.

Paul Sankey - Deutsche Bank Securities

And when did – how did you treat the income stream, externally how many barrels of additional gasoline and diesel you may be able to get?

Jeff D. Morris

What it does Paul we will produce the same amount of like products but we will no longer sell unfinished. In Mathis we will finish all of those. Technically what it does is it raises the capacity of our reformer from 8,000 barrel per day to 12,000 barrel per day and it allows us to start up a 5,000 barrel per day light hydrotreater for jet fuel.

Paul Sankey - Deutsche Bank Securities

Okay, but you are not increasing your gasoline production?

Jeff D. Morris

No but we are increasing our margin because the difference between unfinished and finished is about $0.06 or $0.07 cents a gallon.

Paul Sankey - Deutsche Bank Securities

Sure. Absolutely. Final two question if I could. One for business interruption insurance have you guys, is there any update, how is your discussion with your insurer? And secondly Jeff when you are talking about refining acquisition looking at the balance sheet what kind of funding strategy that you have in place or that you guys going to pursue if indeed you find something attractive? What is the constraint on the balance sheet that if you really want to go much higher than your net debt to capital from the current [inaudible]?

Jeff D. Morris

In regard to the business interruption I can tell you that our dialogues and work with our insurers to date has been quite good. They have been very constructive. We began on April 3 submitting to them on a weekly basis. Our projections of the business interruption from the previous week so they are – fully know what we are expecting. They have a full understanding of the modeling of which we are using. They have expressed a significant interest understandably in our true up that we will be doing now for the month of April. We have a number of business interruption loss for April based upon our modeling. We will true it up with our actual financials for the month of April and if that comes close then I think that will add a lot of credibility to our modeling efforts. At this point and time I can say it has been a good constructive, open dialogue. We have been providing all the information that they need and I appreciate the work they have done.

In regard to acquisitions we have talked often about our desire not to increase the leverage of the company substantially. That if we do acquisitions we will do it a constructive and balanced way. And I have talked in the past about [inaudible] ratios in the – and our company peaking in the 60% range and then deleveraging from there. And if we were to do acquisitions that strategy has not changed, so if we were to do something we would fund it in a way to assure that the parent company is not overleveraged.

Paul Sankey - Deutsche Bank Securities

Very good. Thank you.

Operator

Thank you. Ladies and gentlemen if there are additional questions. (Operator Instructions) Our next question comes from the line of Vijay Persad [ph] with Lime Capital Management. Please go ahead.

[Vijay Persad – Lime Capital Management]

Hi. Thanks for the call. Just a couple of quick questions. On the insurance proceeds you had mentioned you had 25 million for the first quarter and 35 million additional to date. Could you just give some idea of is that, does that keep you break even or does that [inaudible 30:54] some margin? Can you give some ballpark idea?

Jeff D. Morris

In general the insurance company says it has been a very constructive process working with them. And in generally we are receiving proceeds from them about at our spend rate at this point and time as a cash business. Not as a commitment rate but at the spend rate. So they have been very constructive about doing that. We appreciate it and we hope and anticipate that will continue.

[Vijay Persad – Lime Capital Management]

Okay. Can you provide some idea of your [inaudible] general dollar per barrel basis, where it is currently and maybe some guidance for Q2?

Jeff D. Morris

Well from our 10-Q our OpEx for Big Spring for the first quarter was 593 a barrel and for California it was 431 per barrel. These sales are higher than last year. Big Spring OpEx is higher primarily due to the reduced throughput at the refinery so I do not have any reason to expect that number to change over the quarter because we will not be increasing the throughput substantially at Big Spring until the cat cracker is complete. In regard to California that OpEx is affected by two things. One is additionally the reduced throughput and as indicated in my remarks we do not expect that to change at this point and time. And also there is in effect from the natural gas pricing as you can see from the 10-Q, was 874 in the first quarter. So bottom line for the next quarter, at least, I do not expect those OpEx numbers to change very much.

[Vijay Persad – Lime Capital Management]

Okay. And just quickly on the finished and unfinished product that you were talking about. Would the completion of the hydrotreater project; so you expect to convert almost all of the unfinished into finished?

Jeff D. Morris

That is correct. After the hydrotreater start the year end and all of our distillate and [inaudible] will be sold as finished gasoline and [inaudible] diesel.

[Vijay Persad – Lime Capital Management]

Okay and just lastly on the asphalt. Most of questions were answered there but just one follow up. So overall how much of – so basically as far as the Texas market is concerned you are just doing it through third party purchases?

Jeff D. Morris

No in Texas we are supplying some through third party purchases right now because of the situation at the extreme refining but as I have said in my remarks we will be starting up our palmar modified facility on May 15th, next week, and she is bound to our rubber on June 15th.

So during the season this June, July and August it is our intent to supply those from our refinery because as we have talked about in the past, 70% of which we produce in Big Spring is modified asphalts and those are unique niche type of products so those are not things that we can go purchase third party and resale. We need to produce those. That is why we were so aggressive in getting the asphalt plant in Big Spring running because we knew we could not meet our contractual commitments without that.

We expect that the May 15th start-up date for the PMA facility and June 15th for the GTR facility then we will be able to fully meet our contractual commitments that we have for this summer. So we are committed to supplying ourselves from the Big Spring refinery the contracts in which we have in place. Now on the other side because of the margins we are not out there aggressively pursuing new business in Texas at this point and time.

[Vijay Persad – Lime Capital Management]

Okay. So overall off your total asphalt sales how much is modified?

Jeff D. Morris

70% of what we produce in Big Spring and probably 10 to 20% of what we are producing in California. I cannot give you right off the top of my head a total tons for that.

[Vijay Persad – Lime Capital Management]

And essentially you explained how the California market is based on an index. If you look at your overall asphalt business how much would you say still has a one or two month lag in terms of pricing just because of the way the contracts work?

Jeff D. Morris

The vast majority of it is that way. We sell about 200,000 to 300,000 tons through Arizona which is not quite as bad but – I would say the way I look at it, it is about two-thirds of what we sell is on a one or two month lag and then the one-third in the Texas business has about a nine month lag.

[Vijay Persad – Lime Capital Management]

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Bryan Sholdikof with Navigare Partners. Please go ahead.

Bryan Sholdikof – Navigare Partners, LLC

Hi guys. I am looking at the press release looking at your retail and branded marketing segment and it shows that on a per site basis your fuel sales are down 12, 15% in terms of number of gallons sold. And I guess my question is that was at 3.10 a gallon what I get on average for the quarter but I guess my question is being that demand seems to be coming down at the pump so substantially in the Southwest, we could probably assume it is down another 10, 15% given the rise in the fuel prices for Q2; how is that refiners in the area are going to be able to get up to through put or capacity levels in the low 90s to be able to generate cash flow and profits? Or is there noise in that number that I am not seeing?

Jeff D. Morris

We are looking at a micro number and a macro question. So let me address the macro question. There is no question that the gasoline demand growth rate is negative in the US right now and as long as we, it is my opinion that as long as we sustain 3.50 gasoline and 100 plus dollar crude that we will have a negative demand growth rate per gasoline in the US. In fact, with the café standards that were passed by the Congress in December that there is very little way for us not to have a negative demand growth rate going forward on gasoline to get the 35 mile per gallon. I just do not see all of us driving that many more miles to offset the efficiency decrease.

Now going forward how can the refiners in the US run 90%; well we need to remember that 13% of the gasoline we use in the US is imported. And normally if you have a – if the dollar is at a $1.20 or $1.30 to the euro that difference is versus the transportation costs from Rotterdam to the harbor is enough to give the US refinery a cost of goods advantage. Today at a $1.50 or $1.60 to the euro it makes crude relatively cheap in Europe. So it does underpin the European refiners to continue to import into the US so the balance point is the imports into the US. I currently believe that the vast majority of US refiners can still produce gasoline at a lower cost of goods today than we can import it from Europe but that will be grounds for long-term for US refiners to run 90%. It will be required that we have lower cost of goods than the European imports.

The other side of that for us in particular, there is a very strong growth curve for on-road diesel. We look at overall distillate. Overall distillates are down but on road diesel is up about 300,000 barrel per day and heating oil is down by 500. And most of us make road diesel with roughly a small number of refiners on the East Coast have a significant heating oil element. And so us in particular we are focusing on that distillate growth and I think that that will continue; on road diesel will continue. An example one of the primary motivations in addition to many others for us building the hydro cracker in California; whenever we complete that project putting aside the asphalts on fuel spaces over two-thirds of our production, about 70%, will be distillates and only about 20, 25% will be gasoline. So there is a movement among everyone to change their yield pattern. Obviously due to – because of the current pricing to maximize the distillate which will continue – will reduce the gasoline production per barrel through put. So with all those elements I think a well operated refinery in the US virtually anywhere should be able to sustain a 90% through put as long as their cost of goods are less than an import from Europe or they have the ability to switch the yields from gasoline to distillate.

Bryan Sholdikof – Navigare Partners, LLC

Great, thank you.

Operator

That does conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Jeff D. Morris

Well again I want to thank you all for your support, interest, and your comments today. As we discussed it is not going to get a lot easier but as I think you can see from our first quarter results we have developed a very good plan to address the issues of which we are facing and that is not enough. Execution is critical. I think you can see from the results of the first quarter that the people in which I work are executing very, very well and I am very proud of what they are doing. Thank you very much.

Operator

Thank you ladies and gentlemen. That does conclude our conference for today. Thank you for your participation and now you may disconnect.

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