NGL Energy Partners LP (NGL) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the NGL Energy Partners LP Q2 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Trey Karlovich, Chief Financial Officer. Please go ahead.

Thank you, Candice and welcome everyone to our second quarter earnings call. This conference call includes forward-looking statements and information while NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors that could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements. These factors include prices and market demand for natural gas, liquids and crude oil, level of production of crude oil and natural gas, the effective weather conditions on demand for oil, natural gas and natural gas liquids and the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results and to successfully integrate acquired businesses and assets. Other factors that could impact these forward-looking statements are described in the risk factors in the partnership’s annual report on Form 10-K, quarterly reports on Forms 10-Q and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as well as new information, future events or otherwise. Please also see the Partnership’s website at www.nglenergypartners.com under Investor Relations for reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial information. We’ll now turn the call over to our CEO Mike Krimbill.

Thanks Trey, thanks everyone for joining us. I want to give some color before we get into specifics. So number one, Grand Mesa, as you all know we started line fill in October, we are under budget on the CapEx side, Saddlehorn to their credit was also did a great job there under budget and so we received a piece of the amount under budget on that project. We started shipping in November and so we don't have any change to our guidance on Grand Mesa everything is working perfectly, truck stations, the pipe and the batching. So very excited - and of course we only get a piece less than half of EBITDA this year and next year we'll see the remainder. And as you know it's all take or pay contracts with shippers who if you watched over the last couple of months have either gone public or been successful in raising debt and equity in the public markets as well as increasing their acreage positions around our two truck stations. With respect to Colonial, we've got a few questions, unfortunately Colonial had a little bad luck, it’s a great company and a pipeline. The latest incident does not have a negative impact on NGL. If you recall, we purchased additional line space in July of this year, approximately 100,000 barrels so that's about 20,000 thousand barrels per day on a five-day cycle. So when there - was this incident we had additional gasoline because line 1 was the one that was affected primarily in our terminals. The main thing being we could service and provide 100% of the contracted volumes to all of our customers. We did take - line space values jumped, so we did sell some of our excess lines space into the market to help others. The growth strategy going forward, we want to comment on that and I think, Trey will have more to say about it. We are really focused on the organic projects, we are very fortunate that we have already invested the capital necessary to generate EBITDA in our next fiscal year beginning April 1 of at least $600 million, so we're not worried about how we're going to grow this. We've got to you know go participate in auctions and pay 15 times for things that's just not going to happen. On the M&A front, we’ll say that if we do anything, it's going to be probably with Oaktree and it will be done in the correct way and financed properly. So we're focused on the organic, high rate of return, low multiple meaning five times or less on the multiple side, 20% or more on the rates of return. You're not going to have a lot of those but you only have to spend half as much at a five multiple to get the same EBITDA that you're spending at a ten multiple. So we're very, very fortunate I think that we've spent the money to get the growth, now we just need to run the business. And keep our coverage in that 1.3 to 1.5 times and, Trey will have more to say about that because obviously we are higher than that. Maybe the types of businesses, we're not necessarily focused on any one of our five businesses, we love the - on crude side, the stack, the DJ, and the Permian things are obviously very expensive in the Permian. But if there was an opportunity to do something on the organic side, we would do that. We're always looking for high quality retail propane businesses that are in our footprint, we want the northern half of the US where you're going to end up with some degree days even in a warm winter and it looks like at least October was fairly warm. We're hoping we - if have the weather prognosticators are correct, we see starting some cold weather in the middle of November. And we're also looking if there anything in terminals perhaps, building storage would be great on the fine product side. So we're not actually out there trying to find deals. So we're really more looking at things we can build ourselves. We've had a lot of comments about the distribution or maybe questions and for the first six months of the fiscal year as you know those are two lowest EBITDA quarters due to the seasonality of some of our businesses. So it didn't seem appropriate to say, oh yeah, we're going to do something big, if we really hadn't the - we were not able to see what's going to happen for the entire year. I think we're now with Grand Mesa on and particular what's going on in the refined product side, which is very positive that we - we can now give you some guidance that's based on some line of sight. We kind of describe it as a chicken and egg situation here because we don't have any interest and I don't think it's in the MLP's best interest to be paying a double-digit yield. So we don't want to get back to this 12%, 14%, 15% situation we were in late last year and early this year. On the other hand, we could fairly easily raise the distribution to $2 or $0.50 and still have coverage in the 1.6 or higher level. And management is leaning in that direction. Our goal has always been to get back to where we were at one time and do it prudently and do it where we still are maintaining that 1.3 to 1.5 coverage. So at $17, are we going to see paying $2 that would - I mean, we don't think that's in our best interest. So for over $20, would we pay - would we be willing to recommend $2, probably, yes. So I don't have an answer but those are kind of the sideboard through the range and how we look at it. We also want to be able to have some meaningful increases in subsequent years, we don't want to just step it up one time and have a 1% or some low number. We think somewhere in the kind of shooting from the hip perhaps and trail, you won't be able to see him if he hits me, but will be somewhere I think in that upper single-digit range going forward, if we’re staying out of this double-digit yield scenario. I would also say that some of you may drop by before the end of the call if we get boring, but we’re very confident and very bullish on NGL’ future. We don't have to worry about buying anything, we've got tremendous coverage, we've got EBITDA that’s going to be north of 600 next year. So again we have the luxury of not worrying about growth and focusing - continuing to focus really on the balance sheet. We’ll pay down debt further this second half of the year. So people who are worried about the crude price tomorrow or today we're - that's not how we run the business. So, crude markets are very volatile and so one day it's down about 50, the next day it's up $1, we just have to ignore that, it's only one of our five segments. The water business for instance even though you have low crude prices there are basins that can still thrive like the Permian in a $45 environment. So we think we've hit bottom for instance in that segment, we're seeing it turn up. We're getting increased volumes of water. So, in this lower crude price environment, it's mainly a portion of our crude segment that suffers but we're converting that from some marketing to the base business going forward. So we feel very comfortable with our guidance and we adjust it as we you know we see what the market is doing to us each quarter. So I think with that Trey, I’ll shut up and go back to you.

Thanks Mike. First off, I would like to cover our recent senior notes offering, the use of the proceeds and our financing plans going forward, after that I'll spend a few minutes walking through each of our operating segments and the results from our second quarter. Also talk about expectations for each segment for the rest of this fiscal year and as a follow-on to Mike’s comments on our distribution policy I plan to give some color on how we're looking at fiscal 2018. Our senior offering was highly successful and closed on October 24. We launched a $400 million offering and with the overwhelming demand we were able to upsize the offering to $700 million. The investors we met with were excited about Grand Mesa coming online, our fiscal 27 [ph] distribution coverage and the thoughts around our financial metrics and our focus on the structured growth of our business going forward. This transaction was leverage and debt neutral as we used the proceeds from the offering to reduce our outstanding balance on the revolving credit facility. So that is to balance out our secured and unsecured our increase our liquidity to approximately $1.1 billion. It also extended the debt maturities to November of 2023. With the upcoming election, FED meetings, OPEC discussions and other market risk, we determined that this was an appropriate time to complete this transaction. As we have discussed over the past several months, our financing strategy has been to reduce our committed capital requirements, decrease our leverage, increase liquidity and prove access to capital markets. This transaction is a significant step in the execution of the strategy. Looking forward, we’ll be focusing our attention on an extension of our revolving credit facility and continuing to ensure that we have adequate capital and the appropriate mix of capital to fund our operations and internal growth projects. As an example, we announced our acquisition of a terminal project at the Port of Point Comfort in early October. This acquisition along with the expected cost to complete the project is expected to be a $30 million to $35 million project. During the past two months, we have issued approximately $13 million in total under our ATM program and the proceeds of which will help fund this project. So far this year we have invested $342 million of capital into our business including Grand Mesa, additional Colonial line space, retail propane expansions, crude terminals and water disposal facilities including water pipelines in the Permian. All these projects have attractive return profiles and we have raised over 250 million in equity to finance these opportunities. We continue to see opportunities ranging in size up to $50 million in and around our existing operating footprint in each of our segments and we're targeting returns as Mike mentioned on these projects and acquisitions of 20% or better. However, we expect our growth capital spending for the remainder of this fiscal year to be significantly lower than what has been invested over the first six months of the year. And we are now guiding the market to approximately 400 million to 425 million of capital investment for the entire fiscal year. Now I’ll spend some time and go through the financial results and thought for this year for each of our operating segments. This information was included in the earnings release that was issued this morning. Our net income for the quarter was a loss of $67 million, which is a reminder we expect to generate losses during this time of year without the benefit of Grand Mesa and the seasonality of our propane businesses. We generated just over $75 million of adjusted EBITDA this quarter and have reported approximate $140 million for the first half of our fiscal year. Our target adjusted EBITDA is $500 million for fiscal ‘17 with the majority of our cash flows generated over the next two quarters with winter months in the startup of Grand Mesa. However, with continued headwinds in the crude marketing business, we are updating our guidance to a range; a range of $485 million to $500 million for this fiscal year. Our refined product segment delivered another strong quarter as volumes remain high and our inventory values increased. We set the bar high for this business at the beginning of the year and we remain on track to meet or exceed those expectations. We generated $46 million of adjusted EBITDA in this business segment during the quarter, which included a benefit for the inventory values at the end of September due to supply issues on the Colonial pipeline. Mike covered our expectations of the impact of the recent incident on the Colonial Pipeline to our business but to reiterate, we do not see any long-term impacts or anything that changes our expectations for the year significantly. We are continuing to forecast robust demand throughout fiscal ‘17 and are maintaining our guidance for this segment at $150 million of EBITDA. Our water disposal business has improved, we recognized adjusted EBITDA of $18 million for the quarter. Overall volumes were in line with our expectations and have grown 12% since last quarter. We gave our guidance for the year with the expectation that volumes would increase throughout the year and we continue to see this trend. This business has seen increased volumes and has also benefited from water pipelines going into place and our reduced royalty costs. We continue to see robust drilling and production in the Permian, specifically in the Delaware with the water to crude ratio is approximately 4:1. Most of our disposal efforts have been focused in this area but we continue to see positive signs in the DJ and the Eagle Ford, our other primary areas of operation. We remain on track in this business with our guidance and currently expect to generate $75 million this year. We saw crude prices range between $40 to $50 per barrel during the quarter. However there continues to be very little movement of the curve price going forward. This continues to limit the Contango market which has been a headwind for our crude storage assets. Volumes and margins have continued to suffer in this business and as a result we have not met our expectations at this point in the year. Obviously, Grand Mesa will be a tremendous benefit for the rest of the year, but at this point, we are reducing our overall expectations for this segment. The crude logistics business generated about 3.5 million of adjusted EBITDA during the quarter. Overall volumes in the segment continue to decline with the overall US production and our team remains focused on optimizing margin and managing costs throughout the cycle. We continue to expect Grand Mesa to generate approximately $50 of EBITDA in this fiscal year and $130 million to $135 million in fiscal 2018. Our largest shipper recently completed a successful IPO and also announced their plans to add another drilling rig in the DJ in early 2017. Our other producers are continuing to make positive momentum as well as Mike mentioned, we are excited about the start-up of this strategic asset. Including the Grand Mesa contribution and our current expectations for the crude marketing and logistics business, we are now projecting the crude business to generate $90 million to $100 million of adjusted EBITDA for the year. The result of our retail propane division is weather dependent and we are continuing to expect a normal winter and the volume demand that comes along with it for the rest of this year. We are in a good position heading into the colder months and with the acquisitions we have completed over the summer, we are increasing our expectations slightly in this business segment. We generated about $2 million of adjusted EBITDA in this business for the quarter, a period during which the business has historically operated at or near breakeven levels. In July and August, we acquired two regional propane businesses both of which are extensions to our retail leased markets for total investment of approximately $70 million. We mentioned one of these on our last call. We are expecting these acquisitions to contribute approximately $10 million of incremental EBITDA to this year to our retail propane business increasing our forecasted EBITDA to approximately $105 million for the fiscal year. I will reiterate, we are basing this guidance on normal winter weather in our operating areas with most of these earnings generated in the third and fourth quarters. Finally, our liquids segment performed well this quarter and in spite of some of the headwinds we expected coming into this year. Our butane business had a very good summer and has made up all of the shortfall we have seen in the first quarter. We are expecting this business to exceed its budget for the year and make up for some of the shortfall we have seen at our sawtooth facility, which we noted last quarter and was the cause for our reduction and guidance at that time. Our wholesale propane business is similarly driven by the heating season and at this point we remain in line with expectations. Our liquids logistics business generated approximately 16 million in EBITDA this quarter and while we continue to be impacted by railcar links, our team continues to find opportunities in this market to service our various customers. We are now forecasting approximately $90 million of adjusted EBITDA for liquid logistics for this fiscal year. Overall, our distributable cash flow was $39 million for this quarter and has totaled $264 million for the past 12 months resulting in a TTM coverage of 1.2 times. We expect this trailing 12-month coverage to continue to increase with the third and fourth quarter delivering significant excess coverage as we start up Grand Mesa, complete several other projects like the home of crude terminal, Collins refined product storage and water pipeline as well as beginning of heating season. Once Grand Mesa is online, we would expect to cover our distributions in every fiscal quarter going forward. With our updated guidance range and the recent senior notes offering and result in increase in interest cost for the second half of this year, we are now expecting distribution coverage between $140 million to $155 million or approximately 1.8 times coverage for all of fiscal ‘17, including the distributions on our Class A preferred units which reduce coverage. Our total long term debt outstanding was 2.35 billion, excluding 710 million outstanding in our working capital facility which as a reminder is fully secured by receivables and inventory. We expect our compliance leverage to be approximately 4.15 times compared to our covenant level of 4.75 times. This calculation includes our trailing 12-month EBITDA of approximately $407 million and certain pro-forma additions for capital projects totaling approximately $162 million, the majority of which is the Grand Mesa project and excludes the balance of our working capital facility from the depth side of the calculation. As we have reiterated, we are targeting compliance leverage of 3.25 times or better and will continue to manage our business with that target in mind. We expect to end the fiscal year at approximately 3.8 to 3.9 times based on our guidance and we are targeting to meet our 3.25 level by the end of our fiscal 2018 year which is in March - the following March as earnings increase and excess cash flow is utilized to reduce indebtedness. While we're not providing official guidance for fiscal ‘18, one way to look at it would be to use our current year target of $500 million adjusted EBITDA, include a full 12-month of Grand Mesa which would be an incremental $80 million and use a reasonable assumption for our remaining fiscal ‘17 capital expenditures. This math, as Mike has noted, would exceed $600 million for fiscal 2018 or 20% growth based primarily on capital already invested in our business. And assuming a $2 per unit distribution next year, our coverage would be in excess of 1.6 times. This is an exciting situation to be in and with a continued disciplined approach to our balance sheet and distribution growth, our business has been set up for long term success and value generation. Thank you for your continued interest in the partnership. We will now be opening the lineup for questions. Mike and myself will be available as well as Don Robinson who runs our crude segment to answer questions regarding Grand Mesa. Candice?

[Operator Instructions] And our first question comes from the line of Gabe Moreen of Bank of America. Your line is now open.

Hey, good morning, everyone. A quick question, Mike. I know you had mentioned on M&A doing stuff with Oaktree, but it seems like you've done a decent number of tuck-in acquisitions. Just to clarify, should we expect tuck-in acquisitions to continue without Oaktree or are you still looking at those and you're just preferring to doing something bigger, if to bring in Oaktree?

Yeah, you're correct. I really included these tuck-ins such as retail propane as - in our organic growth. So, yeah, we'll continue doing a little tuck-in. You can see individually there probably anywhere from $15 million to $30 million, $40 million. We don't have any on our plate at the moment and we just have a couple of organic projects. So fairly low CapEx going forward, but you never know what's going to come up.

Thanks. And then in terms of I know you're not managing the business with crude oil prices day-to-day, but can you just give us an update on terms of where hedges are and kind of broadly speaking what your crude oil assumptions are and guidance?

We got to look to planes to figure out where crude prices are going, but we have very little to no crude hedges on the water business. The volumes actually had fallen at one point, when we had $80, $90 crude, I think we were getting about 4,000 barrels a day. Now, we're down to 2,000 or less. So we haven't put any hedges on in the 40-s for instance. We hedge everything else, whether it be the crude marketing business or the refined products in propane. So we're unhedged, say, on 2000 or less barrels of crude per day on the water side.

Got it. And then last one for me is just in terms of the decision on the distribution, do the agencies play into that at all, I mean, in the negative outlooks there or is that just hey, you got the bond deal done and it is what it is and the distribution really is kind of independent, where the agencies are out?

Yes. Trey works with the agencies more closely.

Yeah. Gabe, so obviously we stay in touch with the agencies. It’s nice to get the bond deal done. We still have a goal of ultimately getting to investment grade. So we continue to move up or focus on moving up that ladder, but I think running at a distribution coverage over 1.5 times or even within our 1.3 to 1.5 times range would not cause any angst with the agencies. I don't see that being any - I don't see the agencies being a hold back to getting to those types of distribution levels or within that coverage. Obviously, they look at things. The conversations have been positive, moving in the right direction. They want to see Grand Mesa come on line. That's occurred and they want to see that contribution to EBITDA, which is occurring now. So I would expect to be meeting with agencies in the next quarter or two and hopefully have an update.

Thank you. And our next question comes from T.J. Schultz of RBC Capital Markets. Your line is now open.

Great. Good morning. Just first on Colonial, if you could quantify the impact you all had from being able to service your customers, if there's upside with that. And then on the most recent issue on Colonial, I understand you've sold some line space, are there impacts one way or the other that we should expect this quarter?

I’ll start. So with the incident that occurred in September, we did get some benefit from that and that value of line space increased the value of inventories at terminals along Colonial and Plantation also increased. So that was a net benefit for us. We have not quantified exactly what that benefit is, because some of that will be recognized over the next several months. With regards to the current incident, it was really short term in nature, again with our excess line space, we were able to sell some line space this week. And we were also high on our inventory levels, which we were able to take advantage of, but I don't think it would be significant, however positive in nature.

Yeah. And I'll add to that. It's - I mean the good news on that we’ve - that we like is our contracts that lock us into about a nickel a gallon margin. So when there's an issue like this for Colonial, we're not out there, trying to sell it for $.010 if we can. So in a bad market, we're happy that we're getting a nickel and then even if there's an opportunity to get more than that, we don't as we're honoring our contracts. So it's really the excess line space that we bought in July where if there was an ability to help some of that and make a little money. I went back and I think the line space sale was not more than $0.5 million. So it's not significant. But it's 0.5 million we hadn't budgeted.

Got it. Thanks. On Grand Mesa, I know that there were expectations to ramp to 120 million to 130 million EBITDA over time, just any update on conversations with customers that would give comfort to kind of hit that ramp in year two?

So, T.J., the ramp for year two is based on our existing contracts and the growth in those existing contracts of the NBCs. Don Robinson is on the phone. He might be able to give a little bit of color, but the guidance that we've given for this year or next year is strictly based on our contracts we have in place and the ramp within those contracts on the NBCs. It's not based on any incremental contracts or any new contracts, new customers.

Thank you. And our next question comes from William Challenger, private investor. Your line is now open.

So if I understand correctly on your distribution policy, you're trying to guide the market to $20 so that you don't have that double-digit cost of capital? But are you guys, if you guys get to $2, would you guys be in the money on the IDRs for the GP?

Yes. I mean, you start out at 0.1 and then you go to 15%. The highest level doesn't start until $2.025 [ph]. So - we would not be at $2. I think that's what you're asking. We'd be in the lower levels, but not the higher levels.

Okay. Another question the Comfort Point Terminal acquisition, what multiple, EBITDA multiple are you guys going to get on that investment?

We haven't guided to that, but I would - what we would express is that, it is in line with our general expectation of about a 20% IRR of five times type project.

Okay. Great. And then I have another question about your relationship with [indiscernible]. I know that you own significant amount of you stock, have there been any discussions. I know they recently folded a rock midstream into the company, has there been any strategic M&A discussion with them at all?

No. None. They’ve sold their common units. So they just have their GP interest.

Right. And that's about 11%, right, the GP interest?

That's correct.

Okay. Great. Thank you. Those were all my questions.

You know what I would like to add because I think you brought something up that’s important to the common unitholder, which is even at $2, I think the GP distribution is around $12 million. So the GP owners will continue forfeiting distribution. The 256, the distribution was $65 million. So at 12, you can see the GP, it’s still giving back $50 million annually. And we're - and I'm a GP owner. We're very happy to do that because we always want to make sure the MLP is not only treated fairly, but taken care of. So it's always going to be performing in the GP is just out of luck.

Thank you. And our next question comes from Shneur Gershuni of UBS. Your line is now open.

A couple of quick questions. One, a follow-up to Gabe’s question about propane acquisitions. I think you had responded sort of tuck-in, 30 million to 40 million gallons, would you consider something in the 700 million to 800 million gallon range or would you assume that to be too large.

That's several questions. I'd say number one, yes, that's too large. Number two, we don't want to be a retail propane company. We love that business as really an annuity and just a steady eddy business, but we're keeping it less than 20% of our business and it will shrink over time as is our crude division generates more through the Grand Mesa and others. I think there's also a basic difference between us and, I'll say, the public MLPs. We do not have net customer losses. So when we buy something, it's truly growth, it's not a maintenance cap trying to offset something we've lost. To do that, you have to be really pricing more with the mom and pops and the regionals, which is where we price, so that you don't have net customer losses. So it’d be difficult to do a large one, when to make it work, you’d have to lower margins. I just don't think the math works.

Okay. Fair enough. And then secondly, in the prepared remarks, I believe, Trey, you had mention that the water segment [Technical Difficulty] I think it was 16% quarter-over-quarter, I was wondering if you can comment on how volume is doing versus your expectation, are we running a little bit ahead of that. Secondly, can the volume pace continue and could this be kind of an upside surprise, given the amount of Permian activity that we're seems and the 4:1 ratio on the amount of water we need per barrel of crude?

Yeah. We got so beat up on water last year that we can assume any increase and so, yes, we have been pleasantly surprised that the increased activity, particularly out of the Delaware was - we expect to see some increase here in the DJ as these pipelines have come on and more rigs are being placed in the basin. So it's - I think - we think we will continue seeing an increase in our water volumes and it's really a rig, function of the rigs and where you are. And to the extent it's more flow back, then we should see an increase in the skim oil as well.

And remind me, if I remember correctly, [indiscernible] in the Delaware region?

How many do we, does anyone know?

So in the Delaware region, it's approximately 16. I believe we have 32 currently in the Permian and it's about half Delaware, half Midland Basin.

Okay. Cool. And then finally I was wondering if we can talk about, I guess, the cadence of how you sort of see the distribution growth rate moving over time. Is it a function of hitting your expected leverage target, is it a function of the market bothering to pay for it. You sort of alluded to that in your opening comments. I was wondering if you can sort of expand on how you kind of expect the cadence to be overtime.

So, Shneur, it's a good question. What our expectation and when we laid out our distribution reduction in April was that we would go one year at $1.56 or $0.39 per quarter. Going into next year, we do expect a, we'll call it, significant increase in the distribution from $1.56 to some level. We mentioned $2 on the call. That would be a high-20s to 30% type increase in the distribution. Beyond that, as Mike mentioned, we would like to see a distribution growth, high single digits. So as we're thinking about it and looking at our business and how we're forecasting our business to perform, we see being able to achieve that step in a distribution next year and consistent growth thereafter, while still maintaining more than adequate coverage, as I pointed out $2 next year, our distribution coverage would be over 1.6 times. Our target is 1.3 to 1.5. So, we have some additional growth just embedded in that cash flow. So that's how we're looking at it from the business side of things and that's how we would present it to our board. Obviously, our board will be, as Mike mentioned, watching the market to understand what type of benefit we're getting from the distribution and what our growth story looks like to make sure we're getting that benefit in the value of the units. I was just going to say from a leverage perspective, leverage fixes itself in that situation. They increased EBITDA, the cash flow, paying down debt. If we’re funding any growth with cash flow generated internally, the leverage should not be an issue.

Okay. And on the leverage and your discussions with the agency, have they specifically committed to upgrading you to IG if you hit certain circle targets or is market cap and enterprise value going to size the issue basically overtime and does it make it less important to try and hit those targets as long as, let’s say you're below four times, which would be conventional [indiscernible]?

No. They don't make promises like that. What they have outlined are these are the metrics that we would expect of these types of rated companies. We checked some of those boxes and we'll continue to check more of those boxes. That’s obviously always in their discretion. I think size will come into question to get to investment grade. I don't think $600 million to $700 million is probably big enough to be IG, but we're not looking to be IG in the next 12 to 24 months at this point either. That's a longer term goal. And as we continue to grow the business, I think something $800 million to $1 billion probably gets us close to that size range and that's not that far off.

Thank you. And our next question comes from Matt Niblack of HITE. Your line is now open.

Good morning. So on the distribution, so, I understand the desire not to have a double-digit yield and clearly the pricing in the units right now is relatively crazy, but what is be alternative use of that capital? Is it returning it to shareholders through buybacks? Is it for the - just more aggressive de-leveraging? What's the thought on what you would do if you don't raise the distribution as aggressively?

I think you hit on it. It's reducing leverage. If we and you saw us do this earlier in the year, if the price gets low enough and we would repurchase the equity, just does - it's a great investment if I can make 15% on the equity, why not. That's less likely obviously, but that’s not a de-levering event. And then it’s just the organic growth. If we can make 20%, and not lever up, then that makes sense as well.

Right. So I guess the one view of that is that if you retain something like 150 million of cash or 25% of EBITDA on an ‘18 basis, it’s something similar going forward, then truck mass suggests that even if returns come down a little bit from that 20% number you’re citing, you should still be able to grow cash flow per unit at 10% or call it 8% to 10% a year and sort of have indefinite self-funded 10% growth. Am I thinking about that right?

Yeah. That’s how we’ve looked at it as well.

Got it. And so, based on that, it seems like you should be able to guide to something like that minimum of high single digit growth with potential upside, depending on available projects. I mean that seems fair, right?

Yeah. Definitely as long as we're not getting back to those crazy yields we did earlier.

Yeah. I guess I'm just trying to think through how to get the stock go in the right direction, because the thing that's remarkable to me is that your cash flow per share, depending on how you adjust for the GP from FY16 through FY18 is going to be up at least 40% or 50%. Your leverage is going to be down. I can't think of many other MLPs that maybe a few of these in Appalachian that have come to that. Anything remotely close to that. And yet your share price has underperformed the index and you've got analysts who advised on you two years ago to have sales on you now. So I guess I'm just trying to figure out what the disconnect is about maybe, maybe it's that lack of visibility that people are looking for.

We wonder about that ourselves, but I think the recent high yield investors get it, right, and that's why it went so well and for some reason the equity investors don't get it yet. So it's not the whole world that doesn't get it. It’s - I think everything you're saying is confirmed by the way the high yield investors look at the recent offering.

Right. Well, certainly, congratulations. We appreciate what you've done in the fundamentals and hopefully, we can get the share price go on the right direction, but think about the right ways to create more certainty around the distribution growth trajectory unit that's more conservative, because I think that's something this marketplace will explore.

It makes sense. Thank you.

Thank you. [Operator Instructions] And I’m showing on further questions at this time. I’d like to turn the conference back over to Mr. Krimbill for closing remarks.

Thank you all for your interest in the partnership. Please reach out if you have any follow-up questions or comments.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.