Good morning. My name is Denise, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the UGI Corporation AmeriGas Fiscal 2019 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Brendan Heck, Director of Investor Relations, you may begin your conference.

Thanks Denise. Good morning, everyone, and thank you for joining us. With me today are Ted Jastrzebski, CFO of UGI Corporation; Hugh Gallagher, President and CEO of AmeriGas Propane; and John Walsh, President and CEO of UGI. Before we begin, let me remind you that our comments today include certain forward-looking statements, which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our annual report on Form 10-K for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We'll also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the appendix of our presentation. Now, let me turn the call over to John.

Thanks, Brendan. Good morning, and welcome to our call. I hope that you've all had a chance to review our press releases reporting first quarter results for UGI and AmeriGas. UGI AmeriGas delivered a solid Q1 performance while facing some challenging operating conditions. Weather was somewhat colder than prior year for each of our domestic businesses, but significantly warmer than the prior year for UGI International. In addition to the weather challenges in Europe, we didn’t see a recurrence of the severe cold weather in the mid-Atlantic that closed out Q1 Fiscal 2018. That severe cold last year resulted in volatility that enabled to us to deliver incremental capacity margins that didn’t re-occur in the first quarter this year. I’ll review our key activities in Q1, then turn over to Ted who will provide you with a detailed overview of UGI’s financial performance in the quarter, Hugh will review Q1 for AmeriGas, and I’ll wrap up with an update on our strategic initiatives. Our Q1 GAAP EPS was $0.36, while our adjusted EPS was $0.81. Our adjusted EPS fell short of the record adjusted Q1 fiscal 2018 EPS of $1.01. Both quarters have been adjusted for the mark-to-market evaluation of unsettled hedges and other items, which Ted will cover later. The shortfall in adjusted EPS versus our record performance last year is attributed to one-time favorable tax impact in Q1 fiscal 2018, the challenging weather conditions in Europe, and the lack of incremental capacity margin opportunities in our Midstream business. Before I turn the call over to Ted, I like to comment on the noteworthy progress we made on a number of projects and activities. Our teams maintained their focus on meeting critical commitments to our customers and the communities we serve, while also ensuring that our new capital projects…

Thanks John. As John mentioned the results this quarter were solid, but fell short of our record earnings last year. Adjusted earnings per share were $0.81 versus $1.01 in Q1 of 2018. This table lays out our GAAP and adjusted and earnings per share for the first quarter of fiscal 2019, compared to the first quarter of fiscal 2018. As you can see, our adjusted earnings excluded number of items such as the impact of mark-to-market changes in commodity hedging instruments, a loss of $0.46 this year versus a gain of $0.03 last year. This quarter, we had $0.03 of unrealized gains under foreign currency derivative instruments versus a loss of less than $0.01 in 2018. You can also see that we no longer have Finagaz integration expenses as this acquisition has been fully integrated. Lastly, there is a $0.02 loss on the extinguishment of debt of our international team refinanced approximately €1 billion of this existing capital structure in the quarter, which includes €350 million, a 3.25% senior notes, due in 2025; a €300 million term loan and a €300 million revolving credit facility. Turning to the bridge. Adjusted earnings per share decreased $0.20 versus Q1 of 2018. For our LPG businesses, AmeriGas benefited from colder weather, while our international business continued to face warmer weather conditions and was the largest contributor to the year-over-year decline at $0.11. For our natural gas businesses both mid-stream and marketing and utility saw declines in adjusted EPS of $0.04 and $0.06 respectively. Less volatile weather in the mid-stream and marketing business limited capacity management margin, and then utilities are prior non-recurring benefit from tax reform decreased comparative results. On the individual businesses, AmeriGas reported adjusted EBITDA of $210.7 million, a 9% increase over first quarter of fiscal 2018, on weather that was…

Thanks, Ted. Adjusted EBITDA for the first quarter of fiscal 2019 was $211 million compared to $194 million in the first quarter of last year, a 9% increase. This marks our strongest first quarter in five years as the business bounced back on more seasonable weather, strong execution of our growth thrust, combined with operating discipline and solid expense management. Weather in the first quarter was 5% colder than the 15-year norm and 6% colder than last year, primarily driven by a colder fall. The month of December was 6% warmer than normal and 9% warmer than last year, which had a dampening effect on the strong fall results. Retail volume for the first quarter was up about 2% year-over-year. Retail unit margins increased about 4% from last year. And although our average cost was relatively comparable last year, we did experience a declining wholesale propane cost environment through our Q1 and costs have remained stable into Q2. Operating expenses were up slightly, about 2%, primarily related to higher payroll and legal cost. Operating expense per gallon was essentially flat with last year. On our growth thrust, both ACE – both our National Accounts and AmeriGas Cylinder Exchange program had a solid quarter. Volumes in both areas were up around 10%. We’re also making excellent progress on the integration of the home delivery business we acquired last year as we continue to develop the home cylinder delivery concept. We expect to roll out of a pilot in several cities later this year. This is a tangible example that we seek to address the needs of our customers through innovative thinking and the deployment of technology. AmeriGas is a nationwide company. We have the resources and assets required to ensure safe and efficient transport of propane in all 50 states. We’re also a local company and a key part of the communities in which we operate. This combination of deep resources and local focus enables us to serve our customers day-in and day-out with the highest levels of execution when our customers need it most, which is usually in the dead of winter. I want to thank our people, both on the frontlines and in support roles for their continued commitment to our customers. Finally, I wanted to add a brief comment on the operational aspects of the strategic review process underway in AmeriGas. We’ve conducted several sessions with the AmeriGas leadership team, with John, Ted, and Roger Perreault, and with our board. We’re focused on leveraging technology and our scale to advance our customer facing capabilities and generate business efficiencies that will lower our cost. I’m pleased with the progress we’re making to position the business for ongoing success. With that, I’ll turn the call back to John for his closing remarks.

Thank you. I now like to spend a few minutes reviewing our progress on the strategic projects and initiatives that are crucial to our long-term success. From that perspective, the first quarter was noteworthy in several respects. The PennEast partnership received approval in Q1 to proceed with the bulk of the remaining property surveys in Pennsylvania and New Jersey. The surveys in Pennsylvania are substantially complete and we have filed our Pennsylvania DEP application. We expect to complete the majority of our New Jersey survey work in the coming weeks. Our final piece of survey work relates to the state-owned properties in New Jersey where we’re awaiting a Federal Judges’ ruling on access. We’ll then be in a position to submit our New Jersey DEP permit application for this much needed pipeline project. We’re excited to move to this critical phase of activities on PennEast, which will involve close collaboration with the state and local agencies in Pennsylvania and New Jersey. We expect construction of PennEast to commence by the end of 2019 with the pipeline in service by the end of 2020. As I noted earlier, our LNG asset network has been an important growth driver over the past decade. In addition to bringing the new Steelton LNG until onstream last year, we received approval to build a new LNG storage and vaporization facility in Bethlehem, Pennsylvania. This unit strategically located in an area of significant peak demand will come on stream for the winter of fiscal 2021. This expansion of our LNG capacity is driven by the increasing demand for peaking services and gas LDCs in the Eastern U.S. respond to increasing customer demand due to system growth. Our investments in LNG liquefaction and storage over the past decade have positioned us as a leader in LNG peaking…

[Operator Instructions] Your first question comes from Shneur Gershuni with UBS. Your line is open.

Hi, good morning everyone. Just to start off, I was just kind of curious, when we think about UGI’s CapEx expectations, when we think about its funding for its dividends and so forth and we contrast that with cash flows from AmeriGas both on the distribution and on the IDR side, how dependent is AmeriGas cash flows to UGI for funding – the expected growth projects and dividend for the upcoming years? Is it material or is there a way for you to take on leverages, just wondering if you can just talk about how you think about the cash flows?

Sure. AmeriGas similar to UGI International to propane businesses both are significant gas generation units for us, and so we certainly utilize the cash flow from those two propane distribution businesses, which are substantial, as well as the organic cash flow from our natural gas businesses to fund our overall growth and investment. One thing at UGI we've always done is maintain the balance sheet capacity and flexibility as we go. We have no debt at the UGI Corp level. We have very solid balance sheets across all of our businesses, and all the debt located in that level. So, we have a pretty resilient base in terms of our capital structure, our balance sheets, and our cash flows. So, we're not overly dependent on any one business unit in any given year to generate significant cash, but our plans are based on consistent long-term gas generations by the business units, but underpinned and reinforced by a very sort of solid and consistent approach to balance sheet management as well.

Great. And just as two quick follow-ups. You sort of mentioned the structural review and its proceeding and so forth, can you talk about the different options that you’re thinking about or should we be thinking about a rollup of APU into UGI, should we be thinking about an IDR restructure or a distribution kind of APU, just kind of wondering what you’re thinking about, especially since you’ve got results that are more normal and as you noted as one of your best results in five years. So, it’s kind of the metrics, kind of stand as where they are versus where are your targets, just wondering if you can sort of talk that a little bit?

Sure. I won’t comment on specific options other than to say at UGI we always think broadly. So, there’s an old kind of spectrum of options that exist, structural options that exist as we step back and now move to this process. We’re looking at those four range of options. So, spectrum is open in terms of that speculative options that’s part of this process. So, I won't comment on specific options other than to say that we’re taking this time to think broadly and think long-term. And in doing so, you do look at and consider and review of broad set of potential structural changes and review those full range of options.

Okay. And one final question just specifically on the results specifically in the midstream and marketing segment. You sort of mentioned in your prepared remarks that the weather was less volatile or less extreme and so forth, should we be thinking about the results in the most recent quarter as kind of a more normalized number or do you believe that it didn’t perform, as well as expectations, just wondering if you could sort of give us some color with respect to how you have been thinking about it with the normal operating environment?

Sure. I think, the I touched on it, I think Ted mentioned it as well. The most difficult aspect of midstream marketing forecast is the margins that come from marketing of capacity, capacity margin. And in this last quarter, we did see, what we would consider to be typical volatility, you know we’ve had quarters in the past for that same set of events occurred. So, you have sort of nap in volatility. Last year, we had severe cold at the end of December. This year, we’ve had moderating temperatures at the end of December. So, I wouldn't say that this is the new norm. The norm for that part of our business is that it’s, it’s volatility because it’s reflecting whether or not there is volatility in the market for that capacity whether the values are volatile and we can access margin by marketing. So, I wouldn't say it’s the new norm, it’s – as I said, it’s the most difficult part of our business to forecast. It kind of ebbs and flows over time. The great point for us is that, over time, we’ll still look to secure those opportunities when they arise, but we have an increasing margin contribution from fee-based activities such as peaking contracts and some of the gathering system revenues and margins that we’ve referenced in our remarks as well. So, not necessarily a new norm, it just reflected market conditions in the quarter and we’ll continue to be responsive to any opportunities that arise for that incremental margin, while at the same time, looking to invest in projects as I talked about that generate long-term fee-based and in many cases fixed fee margins.

Alright, perfect. Thank you very much guys. I appreciate the color today.

Okay. Thanks, Shneur.

Your next question comes from Sharon Lui with Wells Fargo. Your line is open.

Hi, good morning.

Good morning.

Just wondering if you could provide the debt balance at AmeriGas and maybe just touch on the leverage metrics relative to the covenants?

Sure Sharon. This is Hugh. Right now, our debt at the end – at the end of the quarter was around $2.9 billion. Last year we were at $2.8 billion. The difference is higher revolver usage. When you look at leverage, it’s hard to compare a leverage at the end of December to leverage at the end of September because the seasonal nature of the business and the usage of the revolver, but from a leverage ratio standpoint, last year we were at 5:1 at the end of the first quarter and now we’re at 4:7, and interest coverage is better.

Okay, great. And I guess with regards to PennEast, given the recent update, is there any change in terms of the cost of the project or expected returns?

No, you know, there is limited changes in terms of the cost of the project and in terms of expected returns, no, it’s – our expected returns on PennEast have not changed materially at all. It’s fundamentally the same returns we were looking at when we first developed the project with our partners.

Okay, great. Thank you.

Yes, thanks Sharon.

Your next question comes from Dennis Coleman with Bank of America Merrill Lynch. Your line is open.

Yes, good morning. Thanks.

Good morning.

I guess if I can just segue off the PennEast question, I guess you had some re-routes that you filed for in Pennsylvania with your filing there. You know, I wonder if you might just talk a little about that, and then with regard – would you expect the same in New Jersey? And then, finally on PennEast in New Jersey, any timeline for when you might expect a decision from the judge on the state land?

Sure. In terms of the filings, the filings that were done, for example, in Pennsylvania are really just finalizing a submission by virtue of gaining access to properties where to this point, we haven’t had access to do the survey work. We - if you go way back, you know, if you go back a substantial period of time, there was some re-routing as we went through the process of finalizing the route and worked with the various agencies, but the recent submissions both in – the one that has occurred in Pennsylvania and the upcoming submission in New Jersey, are essentially finalizing the package for submission to the state DEP’s in both cases, just updating it for the actual surveys of the properties where we haven’t had access prior to this recent ruling. So, no changes in the route reflected in these filings. In the terms of the timeline for the judge’s ruling, that’s not something that is finite. The judge can rule when the judge has reached a point to issue a ruling, so we really can’t comment on the judge’s timeline other than, you know, we did receive the majority of the rulings related to these parcels in December to smaller set of parcels that’s involved in this upcoming ruling. So, we’re hopeful that we would get that in the near future, but it’s clearly up to the judge in terms of when the judge issues that ruling.

Okay, thanks.

Okay.

I guess maybe if we can hit Europe for a second, obviously a pretty significant weather impact. I'm just wondering, anything to do there strategically that sort of moderate these kind of swings or is it just the nature of the business and we have to be used to that?

I think, you know, we -a couple of things we have done. We’ve diversified in Europe. It’s still predominantly an LPG distribution business, but we have begun, over the last five years, to add a marketing business there, which over time will moderate or have a moderating impact in terms of results. I think we’re also – on both sides of the business, you know, always looking for opportunities to introduce fee-based charges into the business where they make sense and where we can communicate to the customers and attach those fees to specific activities when we do on behalf of our customers. So that’s another step we take in that business with regard to sort of dampening weather impact on margin in that business. So, there’s a number of steps we’re taking and just good margin management is always part of that equation as well.

Okay, thanks. I know the weather is the weather, but thank you for that. And then, lastly from me, on Slide 12, if I can. You know some pretty big impacts here from a number of different things, a little bit of cold weather, but mostly the tax issues. I guess the simple question is, should we think about the 1Q19 number as a better run rate going forward?

Yes, I’ll let Ted comment on that.

Yes, I think – so we had a couple of outsized costs in quarter that we don’t expect to be seeing in the future. There was an absence of tax adjustment that we had last year was kind of the major piece explained in the operating and admin expense hits, but we also, as a result of a new ERP system, its installation, we saw an uptick against our historical uncollectibles as we work through some of the new systems changes that’s now reconciled and we’re looking at clawing some of that money back and expect to go back to historical uncollectible levels. Those are the biggest impacts, and so, we don’t expect to see those kinds of cost up charges in the future.

Any order of magnitude that you can give us on the uncollectible, Ted please?

It’s under $2 million. So, the amount itself is not that huge, but again it’s a systems related issue, and so, it’s something we spend a lot of time working on, and as a result of that, we’ve also increased our spending on IT maintenance and consulting to make sure we got that problem under control.

Okay. That’s it from me, thank you.

Thanks Dennis.

Your next question comes from Chris Sighinolfi with Jefferies. Your line is open.

Hi, good morning, John.

Good morning, Chris.

Wanted to follow up on Dennis’ questions in Europe. You know, I guess to better understand both the distribution of weather there, you know, we – I guess from former disclosures would understand that probably the biggest area of volume concentration is in France and the Benelux region, but it's always a difficulty for us to calibrate, you know, across so many different countries and maybe different regions within Europe, you know, how weather is tracking and also to understand sort of the margin profile by region. I guess as you think about what transpired last quarter versus maybe the year ago period or what you would consider a normalized environment, where there – any help you could offer us in terms of things we should look for, where there degree days based on different locations and waiting them a certain way or thinking about margins in different regions to help us better anticipate, I guess outsized weather moves like we saw?.

Sure, Chris. Yes, I think as you noted, the most significant contributor in terms of margin in UGI International is France, it’s the business in France. So, if you’re looking at margin contribution from regions, Western Europe, and then specifically, France is the most significant weather impact. And this year, we had a relatively warm first quarter, and as noted on the call, we had a run up to that, it was warm and dry. And the reason the dry part of that statement is important is that in France, in particular, elsewhere in Europe, but France specifically has a pretty significant grain drying business where if you have a wetter summer is actually significant amounts of LPG use for grain drying. So, this year was material in terms of the lack of – but limited amount grain drying, the lack of grain drying that occurred because of it being so warm and very dry, but with the course of this summer, that’s true in multiple markets. But once again, most critical from a margin standpoint in France, which is our largest market for that as well. So, you know, the rest of Europe is certainly important and contributes. Weather in Northern Europe for us, which is the Nordics and the UK is relevant. Eastern Europe and particularly Poland are relevant, but if you’re going to focus and look at the best leading indicator to capture weather impact on us, it would be looking at the weather in France.

Okay, and I know that they were, you know, political disruptions in that country in the fall with protests and what not in terms of, you know, new gasoline taxes that may have been news here. I’m just wondering if that provided any uptick and maybe disruptions on an operational front that might be transitory in nature or is that just really material relative to the weather?

Well, the protests throughout the Yellow vest protest and the other disruptions and other events and disruptions that occurred, we were very fortunate in terms of our facilities and our vast majority of our people not being impacted by that in terms of our ability to execute our operations. We had one or two instances where access to supply points of third-parties were limited for short periods of time, but it was not a major factor. One area that did impact that affected our cost base, cost of serving customers is that increasing cost associated with, what we call, white certificates around mandated energy efficiency programs in France where as an energy provider ourselves and every other energy distribution company, there’s a mechanism that requires us, similar to some of the utility-based firms in the U.S., to deliver energy efficiency certificates based on the volume of energy we deliver to customers. So that’s an increasing cost to serve customers that did impact us in the quarter. We’re working hard to make sure we’re recovering all those costs through our pricing and other programs that we have. It’s not the same thing as the gasoline tax, but it’s another example of the government in France focusing on energy efficiency, carbon reduction, carbon emission reduction and et cetera. So, that did affect our business in the quarter and there’s a lot of work that the team in France under Roger’s leadership is focused on.

Okay, that’s very helpful. And thanks for the color on the international side. I guess switching to the domestic front, Hugh, I appreciate the color on fiscal 1Q performance and the dynamic there. I know a year ago, Jerry had talked about the challenges of a bit of a yo-yoing weather pattern, which it appears like, you know, just based on anecdotally what’s happened in New York from last week to this week might be transpiring here in the fiscal second quarter. And so, I’m just wondering sort of on a quarter-to-date basis here in fiscal 2Q, is that a repeat of conditions from a year ago and are you guys acting differently to try and accommodate that?

No, I think weather swings are – Chris, weather swings are normal in the business. It has been a little bit different than last year. Last year, we had the warm build up, and then intense cold leading into the very end of year, and you could see the impact of that not only at AmeriGas, but even at our utility and energy services and their results this year. But, yes, it got warm – it got warm at the end of December that carried a little bit into January, and then, the weather got really cold and really warm. I'll say this, these fluctuations, as always, they are not long-term extremes either way, but sort of par for the course in the business, and from a standpoint of supply and how the industry is reacting, it has been a reasonably sound operating environment. There is – it’s nothing like the polar vortex of 5 years ago where we had supply shortages everywhere. So, you can see a relatively stable price environment. The supply environment is pretty solid; and it’s been – you know, you deal with the fluctuations, but we know how to operate in these conditions. So, we’ll just – we take it as it comes.

Okay, fantastic. If I could quickly just follow-up on two prior questions just for my own identification and clarification, when you talk about the leverage at the end of the period, if my understanding is correct, the winter is a period of elevated borrowing, and then, you'll get receivables collected and cash in the door, and we should see some tempering in that just on a natural cadence in the spring. Is that correct?

Yes, Chris, especially if you’re comparing to where we were at year-end at September, right? You will always have – you know, the way the balance sheet works at AmeriGas, it builds up in Q1 and Q2 and liquefies down, you know, you end up with a liquidation of receivables and inventory in Q3 and Q4. So, I always try to do the comparison to the same point last year and our revolver borrowings are a little bit higher than last year, but our earnings are substantially stronger. So, on a trailing 12 basis, you know, we’re at 4.7 times versus 5.1. That 4.7 is probably higher than we were at year-end. That entire delta from where we were at year-end is the fact that we have higher revolver borrowings than we had at year-end.

Right, right, for receivables, presumably for things that we would be receiving, yes.

Yes, exactly. You know as you build up, you build up the – you know, balance sheet builds up and then it liquefies down.

Yes, okay. And then the other point of clarification, on earlier question, I think, John this is for you or for Ted, in terms of just how cash moves within UGI, my understanding was always that, you know, the independent subsidiary entities operate in effect as independent entities with their own balance sheets, financing their own growth, and then are making dividend decisions back up to the hold co. Where because APU is a publicly traded entity and has a quarterly payout on a distribution to the public and to UGI. It’s rendered arguably the most stable source of cash into the hold co as a result of that fact. I just want – when you were talking to Shneur about the dynamics of cash in the UGI proper, and how that is used either from a retention perspective, I think there was $200 million of entity-level cash at the end of the fiscal year or gets redistributed across the businesses. Is that the correct – is my understanding the correct understanding of how mechanically cash is moving within the company?

Yes, you’re correct. There are some mechanics, yes, yes. My comments were more broadly about the – you know, the mechanics are different with the other business units, but the sort of the goal and performance over time are similar, but AmeriGas, we’re getting distributions and IDRPs, which is a structured set of cash flows. The other cash flows are part of the normal operating processes of the company, but aren’t fixed the way the AmeriGas cash flows are.

Right, okay. I asked a lot of questions, I appreciate you guys making all the time for me and for the others. Appreciate it.

Sure, thank you Chris.

There are no further questions queued up at this time. I'll turn the call back over to Mr. John Walsh.

Okay, thank you very much, and thanks everyone for your time and attention this morning, and we look forward to keeping you up-to-date in the coming months. We’ll talk to you soon.

This concludes today's conference call. You may now disconnect.