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spk04: Greetings and good afternoon, everyone. Welcome to the third quarter 21 earnings call. During the presentation, all participants will be in listen-only mode. Afterwards, we will have a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. And if at any time you need to reach an operator, please press star 0. As a reminder, this conference is being recorded today, Tuesday, November 2, 2021. It is now my pleasure to turn the call over to Mike Mears, Chief Executive Officer. Please go ahead, sir.
spk05: Well, hello, and thank you for joining us today for our third quarter earnings call. Before we get started, I need to remind you that management will be making forward-looking statements as defined by the Securities and Exchange Commission. Such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan, but actual outcomes could be materially different. You should review the risk factors and other information discussed in our filings with the SEC and form your own opinions about Magellan's future performance. Moving on to the quarter, we are pleased with our third quarter results for a few reasons. First of all, Magellan generated strong financial results that significantly exceeded our EPU guidance for the quarter. While there were a number of favorable items that contributed to the earnings beat, the main benefits related to additional refined products transportation volumes, including continued strong distillate demand across our entire pipeline system, as well as lower than expected expenses in part due to our ongoing optimization efforts. In addition, as previously announced, we also delivered on our commitment to maximize value for our investors with more than 390 million of equity repurchases during the quarter at what we believe to be attractive valuations, as well as an increase to our quarterly cash distribution. This increase marks 20 straight years of annual distribution growth for our company, which is a notable distinction that sets Magellan apart within both the MLP and midstream space. Our CFO, Jeff Holman, will now review a few highlights from our third quarter financial results, then I'll be back to discuss our guidance for the year before answering your questions.
spk02: Thanks, Mike. First, let me mention that, as usual, I'll be making references to certain non-GAAP financial metrics. including operating margin, distributable cash flow, or DCF, and free cash flow. And we've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measures. Earlier this morning, we reported third quarter net income of $237 million, an increase of $25 million compared to third quarter 2020. Adjusted earnings per unit for the quarter, which excludes the impact of commodity-related mark-to-market adjustments, was $1.09. which, as Mike pointed out, exceeded our guidance for the quarter of 87 cents. DCF for the quarter of $277 million was 7% higher than the third quarter of 2020, primarily due to additional contributions from our refined product segment. Pre-cash flow for the quarter was $252 million, resulting in pre-cash flow after distributions of $25 million. A detailed description of quarter-over-quarter variances is available in the earnings release we issued this morning So I'm just going to touch on a few highlights of the quarterly results. Starting with our refined product segment, operating margin of $272 million for the quarter was approximately 19% higher than the 2020 period. Our refined products business continued to benefit from the recovery in travel, economic, and drilling activity in 2021 compared to the pandemic-driven reductions experienced in 2020, as well as from the continued ramp up on our Texas expansion projects. In particular, we benefited from outsized increases in diesel fuel during the quarter. Overall, refined transportation volumes were up nearly 20% relative to the prior year period, with significant increases in all products versus 2020. And on an absolute basis, volume set a new quarterly record for the second quarter in a row. Refined products revenues also benefited from the 3% overall average tariff increase that went into effect on July 1st of this year. As a reminder, this 3% increase consisted of a 0.6% decrease to our index rates and an average increase of more than 4% to our competitive rates. Turning to our crude oil business, third quarter operating margin was approximately $112 million, down 18% from the third quarter of 2020, with the themes for the segment remaining generally consistent with the explanations we've given throughout the year and with the assumptions behind our original guidance. Volumes on Longhorn continued to be lower as a result of contract expirations late in 2020, averaging about 240,000 barrels per day versus approximately 275,000 barrels per day in the prior year. While our affiliate marketing activities continued to offset much of the volume decline related to the expired contracts, the margin we realized on those activities is more reflective of the prevailing differential between the Permian Basin and Houston, which is currently well below the tariff we had been earning on the previous contracts. And so our average realized rate per barrel declined. Volumes on our Houston distribution system increased versus the prior year period, primarily due to higher year-over-year refinery utilization driven by demand recovery. This increase in volume was offset by lower average rates, primarily due to deficiency revenue that benefited the 2020 period and didn't recur in 2021. And so just as a reminder, although we often see volatility in our Houston distribution system values between quarters, those volumes move at significantly lower rates and longer haul and long-horn shipments. which means that their impact on our reported volumes and average rate is much greater than their impact on our actual revenues. Similarly to last quarter, storage revenues declined, primarily because the current year period didn't benefit from the strong contango market that drove storage rates in 2020. Moving on to our joint ventures, bridge text volumes were just over 315,000 barrels per day in the third quarter of 2021, compared to approximately 330,000 barrels per day in 2020. primarily due to a decrease in uncommitted shipments in the current quarter, which is reflective of continued unfavorable pricing differentials. While saddle horn volumes increased to more than 215,000 barrels per day compared to nearly 165,000 barrels per day in 2020, primarily as a result of the expansion project completed earlier this year. So, with respect to our long-haul crude oil pipeline, we continue to reap the benefits of long-term commitments from creditworthy counterparties, as our customers continue to ship in line with their contracts. Just a few other quick notes on our year-over-year results. G&A expense increased between periods primarily as a result of higher incentive comp costs, reflecting our strong results year-to-date, while net interest expense increased primarily due to lower capitalized interest as a result of reduced expansion capital spending, as well as higher debt outstanding. As of September 30th, the face value of our long-term debt was $5.1 billion, with a weighted average interest rate on that debt of about 4.4%. As a reminder, due to the pending sale of our independent terminals, the results of operations from those assets, which were previously included in the results of our refined product segment, are now classified as discontinued operations. The results from these assets increase between periods primarily due to improved commodity margins, as well as just the absence of depreciation, which is no longer recorded now that the assets are classified as out for sale. fee-based revenues for these assets slightly declined year over year. As we've noted previously, a significant portion of the operating margin from these assets comes from commodity-sensitive activities that can be volatile from period to period. Moving on to capital allocation, balance sheet metrics, and liquidity. First, in terms of liquidity, we continue to have our $1 billion credit facility available to us through mid-2024. With $123 million outstanding on the commercial paper program on September 30th, Additionally, our next bond maturity isn't until 2025. Our leverage ratio at the end of the quarter was approximately 3.6 times for compliance purposes, which incorporates the gain we realized on the sale of part of our interest in Pasadena earlier this year. Excluding that gain, leverage would have been approximately 3.75 times. Of course, those leverage metrics incorporate the impact of the $391 million in unit repurchases we executed during the quarter. which brings us to the last item we'll touch on, which is capital allocation. Throughout our history as a public company, we've always focused on being good stewards of capital. That has historically been reflected most strikingly in our best-in-class returns on invested capital and our discipline to maintain growth projects, including zero equity issuances since 2010, despite spending approximately $6 billion on growth projects during the intervening 11 years. all while delivering sector-leading credit metrics and 20 straight years of uninterrupted distribution growth. That disciplined capital stewardship is currently reflected in the opportunistic execution of our equity buyback program. The $391 million of units we repurchased during the quarter at an average unit price of $48.15 per unit brings our total repurchases for the year to $473 million, and completes the initial $750 million program authorized by our Board over a year before the end of that program's three-year term. The cumulative units repurchased to date equals 15.1 million units, or about 6.7% of total units previously outstanding. The reduction in total ongoing distributions resulting from these repurchases will increase distribution coverage going forward, which was an important factor in our decision to reinstate small distribution increase this quarter. With the completion of that initial $750 million program and taking into account the expected proceeds from our pending independent terminal sale and our expectation of continued pre-cash flow generation in coming years, our Board has authorized an additional $750 million in purchases over the next three years. Of course, as we are always careful to note, the timing, price, and volume of any unit or purchases will depend on a number of factors, including expected expansion capital spending, pre-cash flow available, balance sheet metrics, legal and regulatory requirements, as well as market conditions and the trading price of our equity. In particular, I'll note that we remain committed to our longstanding four times leverage limit, and also that the timing of the proceeds from independent terminal sale remains subject to the governmental review process. But as we continue to reiterate, we remain focused on delivering long-term value for our investors through a disciplined combination of cash distributions, capital investments, and equity with purchases. And with that, I'll turn the call back over to Mike.
spk05: Thanks, Jeff. Concerning guidance, we now expect to generate DCF of $1.1 billion for 2021, which is $30 million higher than our previous forecast, based primarily on our stronger-than-expected financial performance during the third quarter. Refined products demand overall continues to be solid and is actually trending a bit higher than we initially expected for the year. Our latest forecast expects full-year refined product shipments to be 14% above 2020 levels, or 4% higher than the more normal year of 2019. We continue to benefit from the final commitment ramp on our East Houston to Hearn expansion project, and we've also seen stronger distillate and aviation fuel demand as the year has progressed. Our forward guidance continues to assume that no additional pandemic-related disruptions impact demand. We've hedged nearly 90% of our gas liquids blending for the fourth quarter and are now expecting average margins in the 40 cent per gallon range for the full year. As you know, commodity prices are significantly higher than earlier this year, but continue to be quite volatile, especially as we look out to 2022 for this activity. Like last quarter, we still have 80% of our spring 2022 blending hedged at an average margin of 35 cents. Following our typical approach, we would expect to begin hedging fall of 2022 blending activity next spring once the markets become more liquid for the fall season. Based on our $1.1 billion DCF estimate for 2021, we expect to generate distribution coverage more than 1.2 times, which translates to approximately $200 billion of excess cash above our distribution payments for the year. And while we don't plan to provide guidance for future years at this point, we do continue to target annual distribution coverage of at least 1.2 times for the foreseeable future. As a quick reminder, we continue to await regulatory approval for the pending sale of our independent terminals that we announced back in June. While we have been responsive to the FTC's questions, exact timing for the closing is not yet clear. Considering it's already November, I think it's very reasonable to assume closing will occur in 2022, which is consistent with our guidance. Concerning expansion capital, we now expect to spend $80 million in 2021 and $20 million in 2022 to complete our current slate of construction projects. These estimates are $10 million higher than last quarter due to the addition of a few smaller projects, including new investments, to enhance our gas liquids blending capabilities and to increase connectivity of our Cushing crude oil terminal. These projects are low risk and expected to generate returns at least in line with our six to eight times EBITDA multiple threshold. We are continuously working to assess new opportunities to expand our service offering in a disciplined manner and remain optimistic that additional projects of similar size and returns will come to fruition. For instance, we plan to launch an open season in the near future for a potential small expansion of our refined products pipeline from Kansas into Colorado. The state of Colorado continues to be short refined petroleum products, and our line has been operating at full capacity on a consistent basis to help meet that need. If warranted by sufficient customer commitments, this expansion of nearly 5,000 barrels per day could be achieved for less than $20 million. This potential project has not yet been included in our spending estimates, but gives you a feel for the type of opportunities we are considering. As always, we remain committed to Magellan's longstanding capital discipline and balance sheet strength, and our capital allocation priorities continue to be growth capital investments with attractive returns and equity repurchases. Before I close, I'd like to briefly hit on the topic of inflation. For those watching the change in the producer price index, they know that it has increased by more than 7.5% year-to-date through September. As you recall, a portion of our refined products tariffs follow the FERC indexation methodology that is linked to the change in PPI. We have historically changed the rates in these less competitive markets consistent with the index, and most likely will do so again on July 1st of next year. Concerning our market-based rates that comprised around 60% of our shipments in the past, we have generally been increasing those rates in the 3% to 4% annual range over the last few years, which has been higher than the corresponding index change over the same timeframe. By definition, those markets are subject to competitive pressures, so we need to ensure our rates remain competitive. We'll be preparing a detailed analysis over the coming months to determine the appropriate changes to our rates in the upcoming year. Of course, the next question is, how is the current inflationary environment impacting our actual costs? As a reminder, approximately 70% of our operating costs are related to people, power, and integrity spending. To date, we have not seen pricing pressure on our cost structure at nearly the same level as the PPI increase. The component of our cost that is most likely to be impacted going forward is power, which represents about 10% of our total cost. Most of the power cost increases this year have been mitigated by our ongoing optimization efforts, but it is likely that we'll see marginally higher power costs as we move into 2022, and that will be incorporated into our 2022 guidance when announced next year. Operator, that concludes our prepared remarks, so we'll now open the call to questions.
spk04: Thank you very much. Ladies and gentlemen, if you'd like to register a phone question, please press 1-4 on your telephone keypad. You will hear a three-tone prompt to acknowledge your request. Once again, for phone questions, please press the 1 followed by the 4. One moment, please. And our first question comes from Theresa Chen with Barclays. Please go ahead.
spk01: Hi. Thanks for taking my questions. First, I'd like to touch on the distillate strength you're seeing across your systems. Mike, is this in part related to temporary effects, such as the pull forward of harvest season, or do you expect this to continue going forward?
spk05: Well, I think we've seen, you know, strength in our distillate demand across all the sectors. I mean, it's been strong in the agricultural sector. markets. It's been strong in the transportation markets, and it's been strong in West Texas in particular with regards to the drilling markets. I wouldn't say that what we've seen in the third quarter is unusually high due to agricultural demand. I think it's just representation of strength across the entire spectrum of demand points for diesel fuel.
spk01: Got it. And in terms of your unique perspective on Cushing, given your exposure there, as well as, you know, your crude tie-ins and refined product system in mid-con, just in terms of what we're seeing as far as the backwardation in the market and the level of draws and understand that your contracts are typically on multi-year terms and, you know, immune to near-term volatility, but How should we think about recontracting as far as that swath of storage goes, and what are your expectations for inventories from here?
spk05: Well, you know, we have really tried to focus the customers in our Cushing facility as those customers who need storage for operational purposes. That doesn't mean we don't have some in there that are really just, you know, taking storage for trading purposes, but the majority of our contracts are there for operational purposes, so it's less impacted. Let me rephrase that. Their need for the storage is less impacted by the structure of the curve. And we're looking at opportunities in Cushing, actually, that will even emphasize that more and strengthen our profile in Cushing. So that's been our strategy all along. It's played out fairly well. It doesn't mean that when you come to contract renewals that you are still somewhat price sensitive versus what the market's offering. But at this point in time, given the tenure of our contracts, we're expecting our cushion revenue to be relatively stable. As far as what a short-term projection is, is where actual physical inventories go, I don't know that I have a view on that in particular. That can change dramatically as the price moves and the structure of the curve moves. I don't think it's very surprising at this point in time that you have low inventories in Cushing, low physical inventories in Cushing with a backward-aided market. And the fact that there's some pipelines that are being filled right now, so there's some demand for line fills. But we view our Cushing position as being relatively stable with potential upside with relation to some of the things we're working on.
spk01: Thank you.
spk04: Our next question is from Spiro Dunas, Credit Suisse. Please go ahead.
spk08: Hey, Mike. Hey, Jeff. I wanted to ask you guys about any potential slack you guys might still have in the system that really hasn't fully rebounded yet from the pandemic or really any of the related fallout from that. Just trying to get a sense for what areas of the business could actually outperform here over the next few years. Obviously, jet fuel kind of seems like an obvious one that isn't back to normal. So just curious when you look at MMP as a whole and the asset base in place, how do you think about the earnings power there as sort of all these other areas sort of get back to normal as well?
spk05: Well, I think, you know, the first thing that comes to mind with regards to the refined products business is that, you know, diesel fuel and jet fuel have rebounded very well as we've recovered from the pandemic. But our gasoline volumes are still lagging 2019 volumes. And what, you know, The drivers behind that are still primarily in the metropolitan areas. We're not seeing our metropolitan areas rebounding as fast. They're rebounding, but they're just not getting there as fast. And again, I think that's still mainly attributed to the fact that all the businesses aren't back in the office yet. Now, I don't know if that's permanent or not, but I think there's still room to recover on the gasoline side. We've been through a cycle here where the Delta variant spiked. So it's probably slowed that return to work recovery process down in the third quarter, but hopefully we're past that. And so we still think that there's potential upside just to get back to 2019 levels on our gasoline demand. If you look at our crude oil business, of course, we're hampered by the fact that we have a you know, crude system that's overbuilt, particularly out of the Permian. So recovery there, there's upside. That's going to be dependent upon increased production in the Permian, or it's going to be dependent on repurposing pipes in the Permian. We think that a combination of those things are likely to happen. And when I say that, I don't necessarily mean in the next year or 18 months, but over time, our expectation is that's going to happen and that we'll have some improvement or upside potential in the crude oil business. But the timing of that is probably a little less predictable. Those are the first things to keep in mind.
spk08: Yeah, that's helpful. Thanks for that, Mike. Second question, just thinking about growth projects for next year. You lifted the amount by a little bit. I know, I think you said you're optimistic about some discussions you're having with your customers. And so just curious, Do you have any sense from the customers in terms of timing on when they'd be ready to kind of move forward with the project and kind of what's holding them up? I know we're going through budget season now for a lot of them. And so is it safe to say that as you sort of come out and provide guidance next year, you'll be in a lot better position to sort of guide around CapEx? Is any of the uncertainty in Washington preventing decisions to be made? Just curious what some of the gating items are.
spk05: Well, first of all, I'd say I think the uncertainty in Washington isn't really impacting the types of projects we're looking at. I mean, they're really fundamentally demand and or, in some cases, supply-driven. You know, the things that are happening in Washington, we continue to have a view, are going to have an impact in demand over a very long period of time. So we're mindful of that when we're making these kinds of investments that we're looking for, you know, strong returns and, you know, not projects that have 20-year payouts to make sense. So what's happening in Washington really isn't impacting it. You know, the majority of what we're looking at is just negotiations, you know, to make sure we can find projects that are mutually acceptable to shippers and to us. to meet their needs and meet our return thresholds. And we're optimistic on a number of projects that we're gonna get there. I think we'll probably have more clarity on what 2022 will be in January, but I wouldn't say that we'll have it 100% clear because these negotiations are always ongoing and new projects come up and potential projects drop off and that's just the nature of project development. I will say, I mean, it's kind of a rule of thumb, and we've been saying this for quite some time, that our expectation is, you know, for the foreseeable future, we're going to be in the $100 million a year range on expansion capital. I would say that that's probably true for 2022, even though we haven't obviously signed projects to commit to that yet. But just looking at the development pipeline, so to speak, I think that that's a reasonable number. But we'll have more clarity on that in January. Great. Great.
spk08: Thanks for all the time, Mike. Appreciate it. Sure.
spk04: And the next question is from Keith Stanley with Wolf Research. Please go ahead.
spk03: Hi. Good afternoon. I wanted to start on buybacks. And so the $391 million for the third quarter, and it looks like that was all in August and September. due to earnings blackout, I presume. Just any commentary you have on why buyback at a much faster pace in Q3 than earlier in the year? Was it tied to having the Pasadena proceeds, market conditions, or anything else? And then how should we think about buybacks looking forward, particularly when you have the Southeast Terminal sale proceeds coming in the door, hopefully pretty soon?
spk02: Sure. Part of the reason for the change in pace is we list out all the factors or a lot of the factors that can influence that and different ones come into play at different times. So we've, for example, disclosed, we were tied up with lots of non-public information, different parts of the first six months of the year, and that affected our ability to do buybacks at all times. So that was a factor, for example. But there are different factors at different times. Valuation matters as well. Outlook for leverage and liquidity matters as well. So things lined up in this quarter for us to be opportunistic and move quickly without any constraints on really any front. So that's what you saw. We're going to continue to be opportunistic as we go forward and it will depend on all those same kinds of factors. So the pace before The internal proceeds come in can depend on the same kinds of things. We'll be keeping an eye on leverage. We'll be keeping an eye on when those proceeds come in, but we don't necessarily have to wait for them to come in to execute on some of the new authorization. So it's just going to depend on all those factors, the same as it has before.
spk03: Great. Thanks. Sorry, another capital allocation one. Just curious more the thought process around the 1% distribution increase. So, I mean, on the one hand, with how much stock you've bought back, which is becoming really significant, you know, the dollar amount of distributions being paid out is still declining, even with that distribution increase. But on the other hand, you kind of talk to how, you know, you're back above your coverage target and just how you think about I guess, distribution increases moving forward? Is it an annual process? And how you think about coverage and how the relationship changes with buybacks?
spk05: Well, you know, there's a lot of moving parts there. And, you know, I'd like to say there's, you know, a formula. We just stick all the numbers in and make a decision. But that's obviously not the way it works. Our primary plan is to use excess cash to buy back equity. But for all the reasons that Jeff mentioned, that can be lumpy. It could be slow. You know, it's, you know, we can't say with certainty how much we're going to buy back in every quarter. That being said, if you look at what's happened over the course of the last year, maybe year and a half, you know, we've bought back a significant amount of equity, obviously. We've increased our coverage ratio. And we feel good about the business going forward. And we believe we have some investors that value the distribution. They value growth in the distribution. So we took somewhat of a balanced approach there this quarter. Even though I'd say it wasn't really balanced, it was much more heavily weighted towards equity repurchases. But we did allocate some amount to distribution growth. I don't think you should take that as that's what's going to happen every quarter. We're going to make those decisions on a quarterly basis, but I think it's reasonable to assume that if we execute on our equity buyback plan efficiently, that we're going to continue to increase coverage and that some portion of that coverage will be allocated to distribution growth over time. That's always going to be a quarter-by-quarter analysis by us.
spk03: That's helpful. Thank you.
spk04: And the next question is from Schnuriger, UBS. Please go ahead.
spk06: Hi. Good afternoon, everyone. I was wondering if I can revisit a few questions, one from Spiro, one from Keith. Just starting with Spiro's question about recovery in the system and so forth, If I can ask it a little differently, you know, assuming gasoline volumes are back to 2019 levels, what kind of operating leverage do you see in your business, excluding the pipelines, because we know the challenges there, or crude pipelines, rather, but what do you see within the refined product system? Is there upside potential from where you were at 2019 levels? And if so, can you help characterize it for us?
spk05: Well, yes. I mean, there are I would characterize as significant upside opportunities that are available to us. If you look at our product system, in general, it's not at capacity. We have some exceptions. For example, as I mentioned earlier to the Denver market, we are at capacity. But we're looking at some things there to improve that. And we're also looking at some other logistics things around the front range that can provide upsides for us. But if you look at the rest of our system, in particular in Texas, if there is demand growth in Texas, which happens to be, especially the Dallas-Fort Worth area, one of the fastest growing areas in the country, we have plenty of capacity to accommodate that without, well, speaking about Dallas, without really any capital investment. And when you think about West Texas and access to Mexico and Arizona, markets are further west. We have opportunities there to expand capacity also. So there are upsides around our system. The other thing I mentioned, I've mentioned this before, that as we go through an energy transition cycle over the next five or 10 years, You know, it's reasonable to assume that you have more refinery rationalization. And typically speaking, for a pipeline company, that is a net positive because it creates incremental transportation opportunities basically to fill the hole that a refinery closure is creating. And we have a system. that's ideally situated for that since we're connected to half the refining capacity in the country. And so we're not supply constrained in any way. So if we have a refinery close in a certain market, we've got plenty of sufficient supply and in most cases, sufficient capacity to fill that hole with barrels removed over a longer haul, which is typically a higher tariff. So I think we do have we do have operating leverage going forward around our refined product system.
spk06: Great. Really appreciate the color there. Very thorough. And maybe to follow up on the prior question with respect to the buybacks, I appreciated your response about how it improves, you know, the coverage ratio or payout ratio. I think it's a good strategy. You also mentioned that, you know, it can be lumpy at times just due to blackout periods and different things that occur. So with that being said, and the fact that your EBITDA is now kind of inflected and rising, so your leverage ratios should roll forward and improve, would you be willing to be in the market buying stock if you felt it was an appropriate price ahead of the proceeds from the upcoming asset sale, just kind of getting ahead of it? Or do you feel that you need to wait until the cash is actually in the door, just given that your leverage ratio is trending the right way?
spk02: Now, we don't have to wait for the proceeds to come in. We can't go as far as we could go with the proceeds, obviously. But, no, there's a little bit of room, as EBITDA allows and our four times leverage limit allows. And we've already demonstrated that to some extent. We've bought back $750 million of units, and we haven't had $750 million of asset sales. We've already done buybacks, and that was without excess cash flow during that same period. So, for example, in 2020, we bought back more than we had in asset sales or excess cash flow. So, free cash flow, excuse me. So, we're not limited by that, but leverage will be a limit, and we'll be keeping an eye on that because, you know, we have the four times... limit that we've discussed, and we're going to be careful that we continue to manage that carefully, you know, conservatively and consistently with what we've done in the past.
spk06: All right, perfect. Thank you very much. Really appreciate the call today. Thank you.
spk04: Ladies and gentlemen, as a reminder, if you'd like to queue up for a question, please press 1-4 on your telephone keypad, 1-4 for questions. Our next question is from Michael Lapidus Goldman Sachs. Please go ahead.
spk07: Hey, guys, thanks for taking my question. Just real quick, Mike, you touched a little bit about tariff resets and updates. That will happen in the middle of next year. Can you give a little more color on some of your comments about those that are on market or competitive rates, please?
spk05: Well, I think – I mean, again, the fact that they're not indexed means that they're competitive. And I would argue all of our markets are competitive, but these markets – have been deemed to be competitive. We have, you know, in most cases, multiple competing pipelines in these markets. So we need to be aware of that when we're increasing prices, just like any competitive market would be. We have been raising the tariffs in those markets by higher than the index for the last few years. So on average, they're already higher than index markets. And we just need to be... uh, very deliberate about how we, uh, address that. And what that means in practice is that we are going to evaluate every market in what's our competitive position. Um, of course, what we don't know is how much is our, are our competitors going to raise their tariffs? And we won't know that until they actually do it. But, you know, we can make some reasonable guesses and, um, What will likely wind up is we'll have a range. We'll have some markets where we may not raise it very much, and we'll have some markets where we may raise it closer to what the actual PPI is. But what the average of those will be, I don't know yet. We're not going to know that until we get through the process.
spk07: Got it. Okay. But are you kind of hinting a little bit that maybe next year you won't be at the 3% to 4% growth rate year over year on the competitive customers?
spk05: No, I'm not indicating that at all. I can't tell you that we will be, but I'm not sitting here today knowing we won't be. It's going to be the product of the evaluation, and 3% to 4% may be a reasonable number, but I can't tell you that until we go through the process.
spk07: Got it. Thank you, Mike. Much appreciated. Sure.
spk04: And, gentlemen, those are all the questions we have. I'll turn it back to you for closing remarks.
spk05: All right. Well, thank you for everyone's time today, and we appreciate your interest in Magellan. We'll talk to you next time.
spk04: Ladies and gentlemen, that concludes our call for today. We thank you all for your participation. Have a great rest of your day. You may disconnect your line.
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