NGL Energy Partners Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 31, 2023

There are 10 speakers on the call.

Operator

Greetings. Welcome to the NGL Energy Partners 4Q 'twenty three Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Speaker 1

Thank you. Good afternoon, and thank you, everyone, for joining us on the call today, where we will discuss our fiscal 'twenty three results, Our deleveraging update and our outlook for fiscal 2024. After the market closed today, we issued an earnings release, investor presentation and filed our 10 ks. Comments today will include plans, forecasts and estimates that are forward looking statements under the U. S.

Speaker 1

Securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward looking statements. Please take note of the cautionary language and risk factors provided in our SEC filing and earnings materials. Fiscal 2023 was truly a transformational year for NGL across all aspects of the partnership with record EBITDA, significant reductions in our absolute debt and leverage well below our initial goal of 4.75 times. We achieved record adjusted EBITDA of $632,700,000 for the year At $173,300,000 for the 4th quarter, this record adjusted EBITDA was driven by the strong growth in our water business, Which I will discuss shortly.

Speaker 1

We completed the sale of our marine assets and other miscellaneous assets totaling approximately $141,000,000 The trailing 12 month adjusted EBITDA associated with these assets was approximately $10,700,000 which implies over a 13 times multiple on these asset sales. Selling these non core and underutilized assets at these attractive multiples Has allowed us to accelerate our strategy to reduce absolute debt and leverage. We started fiscal 2023 with a $476,000,000 balance remaining on the $23,000,000 $42,000,000 remaining on the equipment notes supported by the marine assets. Most folks outside the walls of the NGL offices Thought the redemption of the 23 unsecured notes wouldn't occur until later this calendar year. But due to the strong operational performance, The non core asset sales and our ability to project the release of working capital as commodity prices moderated, we were able to redeem all of the 2023 unsecured notes And pay off the equipment note, both totaling about $518,000,000 by year end.

Speaker 1

With this debt retired, our leverage at the end of the fiscal year was 4.56 times. Our ABL balance at the end of the fiscal year was $138,000,000 roughly the same level that it was at the beginning of the fiscal year. You recently saw our progress on the debt and leverage front acknowledged with the upgrade from S and P to B- stable. While this is a nice move in our overall credit rating, it is not the final stop. As we continue to reduce overall debt And drive leverage lower, we would expect to see additional upgrades along the way.

Speaker 1

We're off to a strong start for fiscal 2024 on the debt retirement front, And Mike will get into how we see the year playing out. But through the 1st 2 months of this fiscal year, we have purchased approximately $100,000,000 of our 2025 unsecured notes. The current balance on the 25 notes is $281,000,000 which we expect to have fully retired no later than March 31, 2024. The debt reduction in fiscal 2023 and jump start on debt reduction in fiscal 2024 significantly reduces our interest expense, thus bolstering our free cash flow on a go forward basis. Our Water Solutions business achieved several new records in fiscal 2023.

Speaker 1

Our consolidated record adjusted EBITDA was driven by Water Solutions record adjusted EBITDA of $463,100,000 And 4th quarter adjusted EBITDA of $131,600,000 Also Water Solutions achieved record disposal volumes in the 4th quarter. As the Delaware Basin saw significant drilling and completion activity last year, our Water Solutions business grew volumes approximately 29% year over year. This growth demonstrates how producers value our integrated pipeline system with large diameter pipe and our track record of service and reliability in the Delaware. In the Q4, water processed approximately 2,460,000 barrels of water per day. This is a 28% increase over the prior year's 4th quarter.

Speaker 1

During the Q4, we also benefited from higher fees on spot volumes that hit our system. The water team continues to find ways to optimize the cost side of the house And reduce the 4th quarter's operating expense per barrel to $0.24 This is a $0.04 per barrel improvement versus the prior 4th quarter $0.01 lower than the Q3 of this fiscal year. This decrease was driven by higher disposal volumes and the locking in of 3 of our largest variable costs utilities, royalty and chemical expense. We won't be materially impacted by inflation in fiscal 2024 Due to negotiated long term utility contracts with fixed rates, royalty contracts with no escalation clauses and a fixed expense per barrel with our chemical provider. Proved Logistics adjusted EBITDA was $29,700,000 in the 4th quarter versus $54,500,000 in the prior 4th quarter.

Speaker 1

This variance was primarily driven by the sale of higher priced inventory into a declining crude price market during the quarter. In the prior Q4, Crude Logistics benefited by selling lower priced crude inventory into a rising crude price environment. Since our last call, there have been a few noteworthy items in the DJ Basin that could positively impact the basin in the near future and our Grand Mesa volumes. First, one of the largest operators in the basin announced strong well results at the end of 2022 and additional drilling and completion activity in the back half of this calendar year. 2nd, Chevron announced the acquisition of PDC Energy.

Speaker 1

We view both of these as positives for the DJ Basin and potentially Grand Mesa. As I said on the last earnings call, we continue to be cautiously optimistic on production increasing in the DJ and ideally additional volumes hitting Grand Mesa. As Mike details how we see fiscal 2024 playing out, I did want to mention we do not currently have this potential additional activity and positive developments in our fiscal 2024 budget. Liquids Logistics adjusted EBITDA was $28,500,000 in the 4th quarter versus $24,500,000 in the prior Q4. This increase was primarily due to higher propane margins during the quarter As customers pulled on their fixed price contracts, the full year results in the propane segment were weaker than we had hoped for due to a warmer than normal winter, reducing The demand for spot volumes.

Speaker 1

EIA recently reported that propane demand in the U. S. Fell to the lowest level since 2010. Margins on our refined products for the Q4 and full year increased due to refinery and infrastructure disruptions in certain markets, while the team was able to continue to execute on a successful supply program for its customers. This increase was partially offset by lower butane margins as our product Purchased earlier in the season continue to compete with product purchased in a discounted market, reducing our margin on each gallon sold.

Speaker 1

Fiscal 2024 is off to a good start in the Liquids segment and our expectations are we see a rebound in performance from this segment for the year. Recall that a majority of the EBITDA from our liquids segment occurs in the 3rd 4th quarters of the fiscal year. So as Mike outlines the guidance For fiscal 2024, our consolidated EBITDA should not assume to be a ratable amount every quarter. With that, I will turn it over to Mike.

Speaker 2

Thanks, Brad. So let's discuss how we expect fiscal 2024 to play out. So with respect to our adjusted EBITDA guidance, First, we are guiding fiscal 2024 Water Solutions to a range of $485,000,000 to 500,000,000 Reconciling to fiscal 'twenty three actual results, we begin with the 463,000,000 Less $15,000,000 for approximately a $10 per barrel lower realized crude price on skim, Plus $37,000,000 for 10% growth in disposal volumes and skim oil barrels. This reconciles to the low end of that range. At the high end of the range, an extra $15,000,000 would put our Growth at $52,000,000 instead of $37,000,000 2nd, we're guiding the full year fiscal $24,000,000 for all of NGL at $645,000,000 plus.

Speaker 2

Reconciling to the fiscal 'twenty three actual results of 633,000,000 We deduct the one time gain of $29,000,000 and then deduct the trailing 12 months adjusted EBITDA on asset sales Of approximately 11, so that's 40, then add back the net change in water solutions we just discussed, which is 22,000,000 Which is that $37,000,000 minus the $15,000,000 of SCIM and then add $30,000,000 for the recovery in liquids, crude oil logistics And reduced corporate overhead. We are being conservative, so we have an opportunity to raise guidance during the fiscal year. Our guidance for fiscal 2024 includes positive growth, but is only one factor in the performance and value equation. Significant cash is raised from the following that are not included in adjusted EBITDA. We continue to identify underutilized assets and monetize them at double digit multiples.

Speaker 2

Again, In this fiscal year, we have identified at least $50,000,000 in such assets and we have already harvested $15,000,000 of those in the 1st 2 months of this fiscal year. With $530,000,000 of debt reduction in fiscal 'twenty three and more in 'twenty four, our interest Spend should decrease by approximately $50,000,000 another source of free cash flow that costs us no capital. We are focused on reducing working capital to provide additional free cash flow. For example, we are idling or selling certain Terminals no longer shipping on certain pipelines and eliminating landfill. Finally, we are reducing capital expenditures wherever possible.

Speaker 2

All of these sources of cash will help accelerate the deleveraging of the balance sheet and add value to our equity. It also allows NGL to address the preferred dividend arrearage sooner. So what does this mean? It means we're very comfortable That we will be able to redeem all the 2025 unsecured notes this fiscal year, possibly by December 31, 2020 Our priority remains lowering absolute debt and reducing leverage. We expect to be under 4.0x total leverage by March 31, 2024.

Speaker 2

This should put us in a strong position To refinance the outstanding balance of the 2026 secondured and unsecured bonds, extending those maturities. We do not expect to pay any dividend arrearage on the preferred equity in calendar, and again, calendar 2023. Now I'd like to address how Water Solutions is structurally different from other water disposal companies. We are a long haul pipeline business with large diameter pipes spanning 100 and 100 of lines. Producers spend their own capital to tie into our pipeline system.

Speaker 2

We do not connect to the wellhead. We have long term contracts with either acreage dedications or MPCs And our weighted average contract life is currently more than 10 years. We're the only water disposal company to reduce operating expense For barrel in the face of inflation, we are not focused on recycling our freshwater sales, but do provide volumes for reuse by producers. NGL is comparable to a crude oil transportation pipeline, which typically trades at an 8 to 10 times EBITDA multiple. Finally, a few comments about Equity Analyst's approach to our company valuation.

Speaker 2

The analyst focus has devolved into a simplified miss or beat consensus EBITDA story, often prior to even listening to the earnings call. There is so much more to a quarterly performance that should be considered as we have outlined debt reduction, Improving leverage, asset sales, working capital changes to name a few. None of these are addressed with a miss or beat label. We provide annual adjusted EBITDA guidance, while analysts decide what the quarterly estimates will be. On occasion, some simply have divided the annual guidance by 4, ignoring our seasonal business, guaranteeing a miss in the 1st and second quarters.

Speaker 2

A few have taken our water business and valued it at 5.5 times EBITDA, multiple similar to a marketing business with few hard assets, while valuing other smaller lower growth competitors So analysts need to take a deeper dive and understand the current and near term value being created at NGL. We believe NGL's equity trades where it is due to our capital structure. Our previous elevated leverage levels, preferred equity, Suspension of dividends and near term maturities created a significant headwind. The good news is that we are growing Into our capital structure, in this fiscal year, our free cash flow will provide for debt reduction to a level where we can push out the 26 maturities and begin attacking the dividend arrearages in calendar 2024. I understand improvement can never happen fast enough for investors, but we are accelerating our balance sheet recovery and ultimately regaining our financial flexibility.

Speaker 2

On a closing note, I would like to thank our Director, Mr. Steve Cropper, for his knowledge, experience and advice over his many years as a Board member of NGL. We will miss him, but are thankful for his guidance over the last few difficult years. And thank you. And with that, let's open it up for Q and A.

Operator

Thank you. At this time, we will be conducting a question and answer The first question comes from Patrick Fitzgerald with Baird. Please proceed.

Speaker 3

Hey, thanks for taking the questions. And Yes. I appreciate the comments on how to value the company and You know the guidance in terms of how you're thinking about everything. So just on that, is it safe to say that you Would wait till you refi the 20 6 maturities before you turn on The distributions again, is that the correct way of thinking about it?

Speaker 1

Yes, I think that's how we're thinking about the next 12 months.

Speaker 2

It makes sense because we want leverage to be as low as possible.

Speaker 3

Right. But, your covenants would allow it, just to clarify.

Speaker 2

That's correct. That's correct.

Speaker 3

Okay.

Speaker 2

Once we get under the 4.75% leverage, yes, which is where we are.

Speaker 3

Okay. Could you provide working capital was a huge It had been kind of a headwind for it seemed like quite a while and in the back half of this year it was Certainly a positive. How do you see that going forward in fiscal 2024?

Speaker 1

Yes, I think for fiscal 2024, I mean, where propane and crude oil prices are today, we won't have near the constraints on our ABL capacity like we did in prior years. One of the other items that historically has pinched our working capital and capacity is the CMA Hedge, that's a non event or inside the fiscal year. Crude price with respect to the forward curve is fairly flat. So I don't think you can look at the previous years as really a representation of how we see working capital this year. ABL balance at the end of the Fiscal year is around $135,000,000 to $140,000,000 I think we see it in the same zip code at the end of fiscal year 'twenty four.

Speaker 3

Great. Thanks. And then, what is the volume Guidance or if you have any update on current volumes that you're seeing in the disposal business? What's the volume guidance underpinning the water EBITDA guidance? And then, any update?

Speaker 1

Yes. In the investor presentation we published, it's showing fiscal year 2024 to average about 2.56 And that equates to the $485,000,000 of EBITDA that Mike guided to. Again, that's the average for the year.

Speaker 2

I think the 1st 2 months of this fiscal year were just under About 2,500,000 barrels a day.

Speaker 3

Okay. All right. Thanks. I'll hop back in queue.

Speaker 2

Thank you.

Operator

The next question is from Tariq Hamid with JPMorgan. Derek, your line is live.

Speaker 4

Good afternoon. I'd love to take in a little bit more on the cost performance on the water business. Obviously, very, very impressive. But you talked about some of the contract pricing being fixed. You're seeing about things like chemicals.

Speaker 4

Have you ever sort of disclosed how long that contract price is 64 and maybe just help us think through kind of how that evolves?

Speaker 1

I don't know if we've historically disclosed that In terms of the contract, I think we've got 5 plus years on it. Doug, are you there? You want to?

Speaker 5

Sure. This is Doug. We expect that to be a long term administration of those prices. I do want to mention, we are working on new initiatives on chemicals to actually reduce our chemical related OpEx by half To 0 point 0 $0.75 by using a different strategy on our chemical program and reduce the volumetric usage of chemicals. But that contract is a longer term contract.

Speaker 4

Nothing we You should think of as a sort of reset coming in

Speaker 2

2025 or anything like that?

Speaker 5

That's correct. Like I said, anything coming This new fiscal year will be lower, not higher on a per barrel basis regarding chemicals.

Speaker 4

That's very helpful. Thank you. And then I want to follow-up on just the working capital question. Obviously, the sort of the seasonality of the business, and you guys spoke about in your prepared remarks, Tends to be a little bit punitive in the 1st couple of fiscal quarters and then a little bit beneficial in the second half. But I just want to sort of tie that To the sort of the $112,000,000 or whatever of bonds that you've repurchased in the last couple of months.

Speaker 4

So should we sort of read anything into kind of how working capital is shaping up over this couple of quarters?

Speaker 1

I don't know if there's anything to read into other than I mean, Mike alluded to some asset sales that have come through the 1st 2 months. With Waters growth, our free cash flow is obviously more driven by Waters performance. So maybe it's not as seasonal as we've seen around the organization Historically, and again recall at the end of what was it early Feb, I guess, we amended the ABL to have that permanent $100,000,000 Accordion feature within the ABL. So lower commodity prices and some of these asset sales that we pulled off here the 1st 2 months gave us comfort To lean into the bond repurchases the 1st 2 months of the year.

Speaker 4

I appreciate that. And then just last one for me. As you just talk about addressing the preferred securities, is your focus there mostly just sort of Solving for the arrearage? Or do you think about the size of that preferred layer as maybe being a little bit oversized and maybe you should Think about redemptions of preferred over time. I'd just love to get your general thoughts on it at this point.

Speaker 2

Yes, I think you're correct. It's both. And if there was some opportunity to repurchase some of the preferreds, We would definitely consider that. So both.

Speaker 4

Okay, that's helpful. I'll jump out of the queue. Thank you guys very much.

Speaker 2

Thank you.

Operator

The next question is from Jason Mendell with RBC Capital. Please proceed.

Speaker 6

Hi, guys. Thanks for taking the question for all the reasonably detailed guidance, very helpful. Just specifically on the Water business, you touched on this Tariq for a minute, but the EBITDA growth guidance, can you give us a sense if any more of that is coming from additional cost saves and thus

Speaker 1

Yes, I think it's predominantly driven by volume improvement. Our OpEx and Again, if you'll in the earnings presentation we released, I think we're showing OpEx fiscal year $0.24 $0.25 compared to $0.25 for this fiscal year. So you could impute it's all volume driven.

Speaker 6

Okay, perfect. Thank you. And then On the buybacks in the quarter, there was a it's a small piece of the puzzle, but there were some buybacks on the unsecured 26s. Was that just opportunistic and shouldn't be a big use of cash going forward?

Speaker 1

Yes, that's fair. They were trading at a pretty decent discount of the 25, so we went and grabbed them.

Speaker 6

Got it. Very good. Okay. That's all for me. Thanks, guys.

Speaker 6

Appreciate it.

Speaker 1

Thank you.

Operator

The next question is from Jay Spencer with Stifel. Jay, please proceed.

Speaker 7

Thank you. Congrats on a good quarter and congrats on being below the 4.75 times leverage. I just wanted to be clear on kind of your thinking in terms of the order of operations like as it relates to The arrearages on the preferred, would is the thinking that you would like to push out the 2026 maturities Before attacking those arrearages on the press, or are you ready to say at this point?

Speaker 2

No, it's very transparent. Yes, that's exactly what we're looking at. We have the 26s and the timing is Coincidental perhaps, but the call premium on 26 secondured drops in half In February of this coming this next February. So I think We'll have if we can get rid of all the 25s by December 31 and then our cost on the call premium drops By 50% and that the timing would work out well.

Speaker 8

Got you. Okay, thanks.

Speaker 7

And as it relates to The water processing capacity, I mean, you've got your produced water processing expectations for Fiscal year 2024, it looks like it's 2,500,000 to 2,600,000 barrels per day. What would the capacity be At the end of this year?

Speaker 2

Doug, Doug, can you address that?

Speaker 5

I can take that. Our operational capacity At the end of this if I can clarify the question, is this fiscal 'twenty four or you actually what was it at the end of fiscal 'twenty three?

Speaker 7

At the end of 'twenty four.

Speaker 5

At the end of 'twenty four, we're going to be somewhere between 3,300,000 and 3,500,000 barrels per day. Permitted capacity, We have been working on additional permitted capacity for new development in the future, and that's going to be north of 4,000,000 Permitted capacity by the end of fiscal 'twenty four.

Speaker 7

Okay, great. Thank you. I appreciate it.

Operator

Up next, we have Gregg Brody with Bank of America. Gregg, please proceed.

Speaker 9

Good morning, guys, and congrats on the execution. Just you gave us a sense of the 1st 2 months of this fiscal year showing your confidence in your volumes Expectations. Just curious how you think about your visibility today on volumes? How far out do you think you can see Based on what producers are doing, takeaway capacity, etcetera.

Speaker 2

Well, I'll say next Tuesday, but I'll let Doug take that question.

Speaker 5

It's a great question. We are consistently working and planning Our future growth, it's a big driver. We have an excellent view 12 months out. And then after 12 months, we really have to rely on Permit activity, remaining inventories, etcetera. But as we look at the general growth Throughout the Delaware Basin, we see that growth approximately 10% per year, year over year.

Speaker 5

And I think that's a pretty well published number out there. We would say our growth with our Large dedications, dedicated areas, etcetera, 10 year contracts, we see our growth very comparable to that 10%.

Speaker 9

Got it. And then just on the CapEx spend, what's potential risks up or down When you think about the guidance you gave today?

Speaker 2

That's an interesting word to use, risk. We would love If we could get additional contracts and MDCs to spend the money, especially at some attractive rates of return. I think I don't know if we have any risk of having to spend more money this year, but we can see some New projects next year.

Speaker 9

Great. And then just to finish up, you mentioned the $15,000,000 of asset sales Arlene, it seems to be on the books this year over the 50 you've identified. Of the 15, I think you said we should assume That's high. That's low double digits. And maybe give us a sense of what you did sell and Kind of what else you think you are selling if to the extent you can tell us?

Speaker 2

Yes. This is an area where we kind of surprised the market because they're not big enough Other than our Marine sale to issue a press release, so they're anywhere from $200,000 $500,000 up to $10,000,000 $15,000,000 $16,000,000 But we'd rather not disclose it as we have employees at those assets That may not be aware they're for sale.

Speaker 9

I appreciate that sensitivity. I'll leave it there and thanks again for the time.

Operator

The next question is from Ned Baramov with Wells Fargo. Please proceed Ned.

Speaker 1

Hey, good afternoon. Thanks for taking the question. Brad, in your prepared remarks, You mentioned potential benefits from the Chevron PDC deal. Could you maybe review if you currently handle volumes from any of the 2 producers? And Going forward, do you anticipate competition for incremental transportation volumes to intensify given ample capacity on pipelines going to Yes.

Speaker 1

I don't think we can fully disclose volumes going across by customer. But I think our stance is and I think others feel the same that transaction like this, you would assume there'd be some increase in activity to support the Underlying economics, kind of our overall view.

Speaker 2

Yes, I'll add to it and Don maybe you jump in, but If these majors have ownership in the other pipelines in the basin, that's where they're going to But their volume but then we would hope we get volume push they would push volume off those lines And over in our direction.

Speaker 1

Got it. Thanks for that. And then Following up on the question of your CapEx guidance, could you maybe talk about the split between Maintenance and growth CapEx. And then on the growth CapEx side, are these projects primarily in the Water Solutions segment? Yes, majority of it's in the Water Solutions segment.

Speaker 1

I think in the earnings deck, we're guiding to $75,000,000 of growth and then $50,000,000 of maintenance. You could assume A chunk of the $75,000,000 is water, dollars 70,000,000

Speaker 2

plus? Yes, dollars 70,000,000 of it.

Speaker 3

That's helpful. Thank you.

Operator

The next question is from Sunil Sibal with Seaport Global Securities. Please proceed.

Speaker 8

Yes. Hi, good afternoon, everybody, and thanks for taking my question. So my first question was related to The contractual commitments on your water systems in Permian, I think you mentioned the contract life of around 10 years. I was curious if you could talk about any MECs that you have with the current volumes?

Speaker 5

I can take that, Brad.

Speaker 1

Yes, go ahead. Go ahead, Doug.

Speaker 5

Okay. Since our last call, We have amended and extended one of our large dedicated contracts that we inherited from the Mesquite acquisition, with a new 10 year term, And we actually were able to execute that at the current market rate, which was a big positive. We added 2 sizable MVC contracts in the quarter, as well as executed the 2 term contracts we mentioned on the prior call. So our MVC barrels per day grew this Past fiscal year and we've already grown it by another 20% in this new year. So those terms are the NBC terms are a 10 year average

Speaker 8

Okay. And then the volume wise you're saying grew for fiscal year 2024, your MEC volumes will be 20% higher than Yes, you were in 23?

Speaker 5

Yes, we were, I think somewhere around 580,000 barrels per day in fiscal 2023 and We've already grown that by approximately 20% with MVCs in the new fiscal year.

Speaker 8

Okay. Got it. And then on the CapEx front, I think you guided to as a guidepost Gallagher volumes growing by 10% year over year for the next few years. So With the CapEx that you're guiding for fiscal 2024, is that kind of a good way to think about run rate In terms of meeting that 10% growth number in the basin? I'm just trying to get whether there's any lumpiness in your CapEx or Is that kind of a good run rate?

Speaker 5

Brad, if I may, I'll go ahead and take that.

Speaker 2

Go ahead, Doug.

Speaker 5

Okay. We have Prior fiscal year to this new fiscal year, our CapEx outlook is pretty close To the same on growth capital, as Mike mentioned and Brad mentioned, that those new projects Are there for a portion of the 10% growth. One big project that we Actually bring online this week, we've already executed in this Q1, is to connect our Block 76 Hillstone assets To the integrated system more fully, that's going to add 300,000 barrels per day of capacity On pipeline from the system to an area that was underutilized, has been underutilized. So we have a nice growth Trajectory there on just that project. Of course, we have some others adding additional capacity.

Speaker 5

We would expect next year's CapEx and most likely years after that based on current contracts that demand to go down For growth, Cath, as we maximize the integrated system. And as Mike said, If we are able to enter into new MVC type deals with fully underwritten additional projects, Then we'd be looking to do that, but we don't we would do those as they were able to be executed.

Speaker 8

Got it. Thanks for that. And then my last question was related to your leverage. Obviously, you have nice tailwinds going into 2024 in terms of leverage. I was curious and you talked about how you want to reduce your absolute debt.

Speaker 8

So I was curious with The business composition that you have now, where do you think is the right leverage level for this kind of business composition?

Speaker 4

I

Speaker 2

think in the short term, there has to be a trade off between the Dividend arrearages and leverage. So we definitely want to be under 4 times to refinance. But then I think we need to maybe Continued decreasing leverage somewhat, but it will be difficult to decrease it significantly while we're Catch a gun on the arrearages.

Speaker 8

Got it. Thanks for all the color.

Operator

Okay. We have You've reached the end of the question and answer session. I would now like to turn the floor back to Mike Krimbill for closing remarks.

Speaker 2

Go ahead, Brad.

Speaker 1

Yes. Thank you guys for joining today. We appreciate your interest in the company and we look forward to connecting with you all in August when we report fiscal Q1 of 2024. Thank you all.

Speaker 2

I would just add, it is now very exciting to work at NGL.

Speaker 1

Thanks, everyone.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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