Ladies and gentlemen, thank you for standing by and welcome to the UGI Corporation First quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, Tameka Morris, Director, Investor Relations. Please go ahead.

Thank you. Good morning everyone and thank you for joining us. With me today are John Walsh, President and CEO of UGI; Ted Jastrzebski, CFO of UGI Corporation; Bob Beard, Executive Vice President, Natural Gas; and Roger Perreault, Executive Vice President of Global LPG. 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 will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available on Slide 7 of our presentation. Now, let me turn the call over to John.

Thanks Tameka. Good morning and welcome to our call. I hope that you've all had a chance to review our press release reporting first quarter results UGI posted a very strong Q1 as we surpassed our prior high point for Q1 adjusted EPS achieved last year. Our strong performance in the quarter is a clear demonstration of our ability to meet our financial commitments, while addressing the challenges presented by warmer than normal weather and the continued impact of the pandemic on some customer segments. We've benefited from the geographic and operational diversity of our businesses, our proactive response to this quarter's challenges, and a strong focus on delivering results. This was an important quarter for the company. During the last week of the quarter, we announced our agreement to acquire Mountaineer Gas Company, the largest LDC in West Virginia. We're excited about the opportunity to expand our gas utilities business, and eager to welcome the Mountaineer team and their customers to the UGI family later in 2021. Earlier in the quarter, we announced our investment in a utility scale renewable natural gas project in Idaho, which follows our acquisition of GHI, an RNG distributor in Q4 of fiscal '20. These investments as well as additional opportunities under development will accelerate the strategic rebalancing of our business portfolio and enhance our ESG efforts. On today's call, I'll comment on our achievements in Q1. I'll turn it over to Ted who will provide you with a financial review of our Q1 performance. Bob Beard and Roger Perreault will comment on critical developments across our businesses. And I'll then conclude by providing an update on our environmental, social and governance activities and a comment on the outlook for the balance of fiscal '21. Our Q1 GAAP EPS was $1.44 while our adjusted…

Thanks John. As John mentioned, we're pleased with the strong results for the quarter. We delivered adjusted diluted EPS of $1.18 compared to $1.17 in the prior fiscal quarter. Our reportable segments EBIT was $414 million, compared to 419 million in the prior year. This table lays out our GAAP and adjusted diluted earnings per share for fiscal '21 compared to fiscal '20. As you can see, our adjusted diluted earnings exclude a number of items such as the impact of mark-to-market changes and commodity hedging instruments, a gain of $0.40 this year versus a loss of $0.05 in the first quarter of fiscal '20. Last year, we had a $0.06 loss on foreign currency derivative instruments compared to a $0.07 loss this year. We had a $0.01 loss this quarter that related to the Mountaineer acquisition announced in December. Lastly, you can see we adjusted out $0.06 of expenses associated with our LPG business transformation initiatives that is consistent with the amount in the prior year. With regards to liquidity, cash flows remain strong with year-to-date cash provided by operating activities, growing 28% versus the same period in the prior year. As of the end of the quarter UGI had available liquidity of $1.5 billion, which is consistent with the last fiscal year end position and half a billion more than Q1 of fiscal '20. We're particularly pleased with our cash generation and liquidity position because we typically have higher seasonal working capital requirements in our first quarter. We're also comfortable with the financing capacity across all of our business units, and remain well within our debt covenants. Additionally, on February 3, our Board of Directors declared a quarterly dividend of $0.33 per share. UGI has paid common dividends for 136 consecutive years and raised its dividend in each…

Thanks Ted. Our natural gas businesses experienced weather that was approximately 10% warmer than normal in Q1, which affected margin at both utilities and energy services. While energy services have experienced no measurable change in margin or throughput, utilities continue to see the effects of the COVID pandemic. Excluding the effects of weather and COVID, both utilities and energy services exceeded expectations in Q1 as the fundamentals of our core businesses remain strong. As John mentioned, we recently announced the acquisition of Mountaineer Gas Company, the largest distribution company in West Virginia. Mountaineer serves approximately 215,000 customers in 50 of the 55 counties and what is importantly an energy friendly state. We're excited about this opportunity and plan to invest in and grow Mountaineer Gas, much as we have done with our Pennsylvania utilities. The petition to acquire Mountaineer was submitted to the West Virginia PSC on January 27 and we expect the deal to close in the second half of 2021. We look forward to welcoming all of the Mountaineer employees to the UGI family of companies, as we become part of the West Virginia community. In addition to the acquisition of mountain air gas, we continue to see growth at both natural gas businesses, with utilities adding more than 3,900 heating customers in the first quarter, and energy services seeing continued strong activity in our midstream business. Utilities' CapEx program remains a significant driver of growth, and we fully expect to execute on our plan to invest approximately $425 million in FY '21. As I mentioned on our prior call, an important provision of the settlement agreement for last week case was resetting the plant in service threshold that triggers our use of the DSIC mechanism. As a result, we will realize DISC revenue earlier, which will result…

Thanks Bob. The global LPG businesses delivered very strong results in the first quarter despite lower commercial and industrial volumes, driven by the COVID pandemic in both Europe and the United States. Even with the challenges of warmer than prior year whether at AmeriGas, our global LPG line of business delivered first quarter EBIT in excess of prior year by $12 million or 4.5%. We're very pleased with this result as it demonstrates the value of our diversified portfolio of customers, applications, geographies, and our ability to manage our business fundamentals to offset the effects of warmer weather. During the first quarter, our teams were dedicated to serving our customers in the midst of the pandemic while continuing to also execute on our ongoing transformation efforts at AmeriGas and UGI International. We remain confident that the global LPG businesses are well positioned to deliver strong results despite the uncertainties of the current environment. The US team continued to experience increased demand in our cylinder exchange business, including our home delivery service branded as Cynch. The European team experienced some solid grain drying campaigns and some margin expansion stemming partially from the lower cost of energy conservation certificate and partially from increased demand in heating segments and in the higher margin home cooking cylinder segment. Now, let's move to more specifics at AmeriGas. As a reminder, the previously announced transformation program at AmeriGas includes a total investment of $200 million that we expect will provide annual benefits of approximately $140 million by the end of fiscal '22. We are progressing with our reengineering of key processes and systems that are part of the transformation efforts. In fact, in the first quarter, we rolled out more broadly the use of centralized customer engagement services center, enhanced customer management tools, and a new…

Thanks Roger. I'd now like to comment on the significant progress we've made on our ESG program over the past few months and close with a discussion and close with a discussion on our fiscal '21 outlook. As the calendar turned to 2021, we were all hopeful that the New Year would bring stability, peace and health. Therefore, we were disheartened with the events of early January in our nation's capital. While we still believe that better days lie ahead, recent events reinforce the importance of our belonging, inclusion, diversity and equity or BIDE commitments at UGI. These efforts form a significant element of our social platform for ESG at UGI. We're committed to being a voice for change and a force for good in our communities. And we've continued to expand our activities to engage and support those in need. We've relied on critical existing partnerships to provide this support, such as the United Way, Salvation Army and Reading is Fundamental, while also launching or strengthening other partnerships, such as the Urban Affairs Coalition, Big Brothers, Big Sisters, and Philabundance. We've also been very active on the environmental front, a crucial element of our ESG program. In addition to the GHI investment and the RNG feedstock infrastructure project in Idaho, we've moved forward on several other exciting new projects in recent weeks. As Bob mentioned, UGI Utilities executed a renewable natural gas interconnect agreement with a landfill gas developer in northeast Pennsylvania. This interconnect will enable the landfill to significantly reduce methane emissions, and will provide shippers with access to a renewable fuel source. When fully operational, this interconnect will become the largest RNG supply point in the United States. As Roger noted, the UGI International just announced a new supply and development partnership with Ekobenz, a Polish company…

Before we begin Q&A, we would like to turn the call over to Bob for some brief remarks.

Thank you and good morning. Regarding the PennEast pipeline, we were pleased to learn yesterday that the Supreme Court has agreed to take up this critical case and we look forward to hearing their decision sometime in the June timeframe. In the meantime, we're waiting for FERC to act on our request to bifurcate the project. We still believe that an additional source of natural gas into eastern Pennsylvania and New Jersey is necessary, but the timing of the project remains unclear. Spending on the project in FY '21 will be very minimal. So with that, I'll turn it back to the operator.

[Operator Instructions] Our first question comes from the line of Harry Pollan from Bank of America. Your line is now open.

Hi, thanks for taking my question.

Good morning.

So starting off, could you walk through the moving pieces why the AmeriGas business total margin was down so much year-over-year despite cylinders up 25% and the saving through transformation initiative, just want to understand how much C&I volumes were down to see that I kind of puts ant takes here. And then as you talk about the current cylinder shortage in the US, how are you guys thinking about that heading into the rest of the year here?

Yeah, I'll comment - thanks for that question. I'll comment briefly and then turn it over to Roger. I think that the number one factor impacting volume was weather. And that then was coupled with other impacts around specific segments impacted by the pandemic, but Roger why don't you comment in more detail.

Yeah, absolutely. Yeah. So just to reemphasize, definitely weather was the - was really what drove some of those volume shortfalls. You mentioned in your question Harry that some offsets were experienced with cylinder volumes, that is true, we did experience good cylinder volumes up 25% on our cylinder exchange, not enough to offset the COVID impact, however, where we continue to see commercial segments being quite low. The restaurant industry, entertainment, in particular, when you think of resorts, for example, that are currently shut down. You also asked about cylinder shortages. Yeah, unfortunately, the industry as a whole is experiencing a cylinder shortage at the present time, driven by a couple of things, driven by customers wanting to stock up. So we have seen an unprecedented amount of cylinder sales where customers are buying a cylinder and therefore, clearly stocking up on this during this time. This isn't unique to AmeriGas. It's an industry wide complexity right now where buying new cylinders has been very difficult. So we've been utilizing all of our resources to do a couple of things. Get as many new cylinders as possible into our business, but also looking at how we're managing inventories and cylinder rotations and ensuring to get cylinders to the high-volume points of sale as much as possible. So we're really trying to manage this on all fronts. And as a matter of fact, we actually have some of our cylinder distributors now that have started putting some limitations as to how many cylinders a customer can buy, so more to come on that as we continue to work through throughout the year.

Got it, that's helpful. I guess, on the European side and LPG. Can you talk about the scope of this bioLPG partnership? And in terms of what percent of your traditional propane volumes, you could potentially replace with this bioLPG? And are you looking at anything like this on the US side?

Yeah, so a couple of comments on that, yeah, first of all, we're excited about this. We at Investor Day, we talked about our real dedicated focus on developing renewable LPG, and really de-fossilizing or de-carbonizing our supply of LPG. So we have several projects that we are looking at and various technologies. Now, this one in particular is a proprietary technology where they are converting - our partners are converting bioethanol to bioLPG. And we in Europe - Europe has been quite assertive in its development of bio requirements and de-carbonization. So we have markets, especially in the Nordic countries, for example, where we can bring this product and get immediate value. Now it's relatively small. I don't want to - I'm not at liberty to say the exact size of this, but these projects, the way I see it is that we're going to continue to see these relatively small assets. This is a small commercial scale, just a bit beyond a pilot scale, but are going to continue to develop and what we like about this approach to de-carbonizing is we can leverage our infrastructure. We have assets throughout all 18 countries, including the US, where it's very likely that some of these projects will be localized to where raw material feeds exist, whether that be farming products, human waste, or in this particular case, ethanol. So the fact that these projects are going to be relatively modest in size, distributed, helps us leverage our infrastructure, and enables us to leverage our customer base, all of our storage terminals, the assets we have to move product from those production sites to the end customers. And absolutely, we are following projects everywhere we operate.

Got it, this could be the first of many.

Yeah.

Yeah, I would just add, this is John, to Rogers's comments here. As he noted, as Roger noted, we love the sort of the attributes of this in terms of being able to leverage our infrastructure. We can blend this product with conventional LPG or deliver it as a pure bioLPG product. It's immediate. Hopefully, this will be the first of many investments. And some of those attributes are shared, as we look at projects on the renewable natural gas side as well, those attributes of being able to blend and utilize in our existing networks, and deliver solutions that are immediate solutions to customers who are looking to achieve certain mandates or certain goals in terms of their emission reductions.

Got it, that's super helpful and interesting development here. One more if I could squeeze it in regarding your recent near acquisition, any update on how you intend to finance that transaction?

Sure. Ted, you want to just comment on kind of status right now of our process looking at financing?

Sure. So there really isn't a change from our earlier comments. We are still working through the details. It will be a combination of cash on hand liquidity that's available, some amount of debt and some amount that will be covered through some kind of likely mandatory convertible instrument and the exact proportions of that are still being worked through. So no real change yet. We will share an update when we lock down on the best approach.

Got it, thank you, appreciate it guys.

Thank you.

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

Hi, good morning, guys. I've got a bunch of questions. So you tell me if I need to reach signal at some point. But to start off, I was wondering if you can provide some color around the margin performance in any international segment? There is a comment about conservation certificate, just wondering if this is related to the issue, I think it was last year in France and are we returning to a more normal level or is it something else? Just any color you can provide around that that would be super helpful?

Sure. I'll let Roger comment. I think the only comment I'd make with regard to that is we set a focused effort over the last few years to make sure we had a process within the company for kind of optimizing our approach to satisfy the - satisfying the requirements for energy certificates in France. And I think some of what we're seeing this quarter end and last year as well kind of shows that focus, but I'll let Roger provide the details on that.

Yeah, thanks. Thanks Shneur for the question. Yeah, absolutely, I think this - the dedication, we have and just continuing to find ways to source these energy conservation certificates in most cost-effective manner has proved to be beneficial. So we've seen some upside. I'd like to point out that in the first quarter, in the margin, and you look at a few things that we talk about. We talked about these energy conservation certificates and our ability to secure this. Some of these are onetime adjustments and we estimate the onetime adjustments to be roughly $0.03. The rest is really ongoing good margin management that we've demonstrated we're able to do and continue to do.

Okay, that makes perfect sense. And then maybe to follow up, you've talked about across the company, expense control has been a contributor to your performance over the last year. Clearly, some of it was probably pandemic related, but I'm not sure if that just sort of accelerated the program in the first place. And so as we sort of think about future years, not just this year, how sustainable is this benefit? Is it a permanent step down in costs and improving an optimization? How much, I don't know if you can put a percentage on it, do you expect to permanently capture as we think on a go forward basis?

I think generally Shneur, if we look at our particularly transformation programs and some of the work we're doing now, and aligning our - some of the critical functions across the company, the majority of those savings are permanent savings. The pandemic related savings there some is some lower operational costs associated with some limits on activity, things like travel. There'll be some recovery in that, but that's a relatively small item anyways. I would say that in addition to the transformation - the formal transformation work, the other thing we're doing as we move through the period, we're in right now and think about the evolution of pandemic and returning to more normalized conditions. We are learning - we have learned a lot and there are opportunities that have come about and sort of crystallized by the experience of the pandemic around need for office space, et cetera, that will lead to future cost reductions as well, just because we'll work differently moving forward than we did in the past. So I think the predominant percentage of the savings will be ongoing. There will be some elements of our costs, but not a material percentage that will return. But that's going to be offset by changing the way we work on an ongoing basis as well. I don't know Ted if there's anything you want to add on that.

Yeah, I guess what I'd add Shneur - again, good morning. What I'd add is that the transformation events really were onetime focused, significant changes in our business and operating models. But in embarking on those transformations, we've basically established a platform that will be a continuous improvement platform. So I think what you're seeing is this kind of onetime dramatic change that comes with changing how we do our business. But we're very much expecting to maintain a level of savings, certainly nothing like the size of the transformation that would allow us to maintain cash flow growth, regardless of what we're seeing and any potential structural changes in volume.

Got it, so just a paraphrase this, so at the end of the day a significant percentage of this will be maintained longer term, as kind of result of all these changes, Am I paraphrasing that correctly? That's

Yeah.

Yes.

Perfect. Okay, excellent, glad to hear that. Just continuing on with the West Virginia acquisition that you did, does this expand the area of focus for future utility acquisitions? And are you continuing to evaluate initial LDC acquisitions? Or is the focus right now let's, let's just close what we've done and then we'll rethink going forward?

I'll comment briefly Shneur and then let certainly Bob weigh in as well. But for sure, our focus in the short-term is working with the Mountaineer team and with all the regulatory authorities on the process for moving forward in West Virginia. Having said that we certainly would look favorably on other potential opportunities to expand our utilities business in the future and weigh a number of factors around the regulatory environment, et cetera. So, we would continue in the future to certainly be open to that and more and more as we progress with the renewable solutions focus in the company, we'll look at how that impacts the utility sector and opportunities for us to play a role in terms of the introduction and expansion of renewable natural gas solutions as part of our own utilities portfolio and others. Bob anything you'd like to add in terms of the focus on gas LDC?

Yeah, John, thanks and good morning Shneur. Yeah, we continually keep our eye on the landscape of LDC. So what we focus on along with what John said, as far as opportunities to grow our ESG presence is regulatory environment in a given state. So yeah, I'll just echo what John said. We are continually kind of scanning the landscape and staying on top of what might become a reality and regulatory landscape is extremely important for us. So that certainly will govern where we would look.

Perfect and step two more if you guys don't mind. Just sort of continuing on what you said on the RNG side, what are your expected returns that you're targeting with respect to those investments?

Yeah, Shneur, we've been really pleased with what we've seen, obviously, each investment stands on its own. We're looking for returns that are - will support our long-term earnings growth commitments we've made in the company. I think, as we assess different types of and forms of investments, we look for cases where we can leverage our existing infrastructure, our existing sort of demand and ability to incorporate output, renewable output into our supply chain. So as I said, each investment will stand on its own. But we've been encouraged with the returns we've seen with the types of renewable solutions, investments we've been looking at. And they look, in many ways very similar to investments we - returns we see across the rest of the company. We'll see how that evolves moving forward. But so far so good in terms of having attractive returns that contribute positively to EPS growth of the company over the long-term, but also in the projects we're looking at become accretive very quickly.

Appreciate the color on that. And maybe one final question related to the propane tank exchange business, and just in general on that side. But there's a significant increase in the installed base of, I guess, burner tips related to propane tank exchange, whether it's at homes, restaurants, lands and so forth. Any thoughts on whether there could be a lasting impact on the cylinder exchange business post pandemic? I mean, maybe not at the 25% increase in volumes you saw last quarter, but is there going to be kind of a new normal level that's potentially higher than where it has been? And are you seeing a similar trend in Europe that you're able to capitalize on as well?

I'll comment briefly and let Roger expand because he's got much more detailed knowledge than I do. But at a consumer level, yeah, I do think that similar to - I referenced us sort of learning certain lessons during the pandemic about our business and how we operate. I do think that individual consumers are experiencing different things over the last 10 or 11 months here. And I do think it will fundamentally change consumer demand and their own habits. So I see more outdoor dining extending for longer periods, people like that experience. So I think we've seen a surge, but I think we're going to see traction for increased demand for certain - in certain areas for certain types of cylinder exchange demand. And the other thing that the pandemic has accelerated is on the Cynch side where more and more people were attracted to having the cylinders brought to them versus having to go out and get them. That was certainly initially accelerated by the pandemic. But I think once people get used to the convenience of that service, I don't think that many of them are going back, so to speak. So Roger, what would you add to that?

Yeah, just maybe a couple of things, yeah, to the first part of your question Shneur, yeah, it's possible that our populations are going to continue to enjoy the life outdoors, right. I mean, we're seeing a lot more patio type heating applications where restaurants are encouraged, I mean not only encouraging, but enabling outdoor eating. So is that going to continue? It's certainly possible. To answer more specifically your question, in Europe, we're not seeing the same type of pickup. And again it's the type of market we're serving in Europe. In Europe cylinder business is not really a leisure product. It's a product that's used in everyday cooking. Now, no doubt we've seen some pickup because people are not dining out. And in many countries in Europe, the lockdowns are much more strict than what we're seeing here in the US. So we do see that pickup. But it's not the surge and pickup that we saw here in the US where with patio eating and just a lot of new applications of mobile propane tanks have taken place, have taken hold over the last year.

All right, perfect. Thank you for letting me ask so many questions. Really do appreciate all of that. And so thank you very much and have a safe day.

Thank you, Shneur.

Thank you, Shneur.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to John Walsh, CEO for closing remarks.

Thank you very much for your time and attention on our call this morning. We certainly look forward to keeping you updated on developments as the weeks and months progress and look forward to speaking with you again on our Q2 earnings call. Take care.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.