Hi, and welcome to UGI Corp. Q2 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today. Tameka Morris, you may begin.

Good morning, everyone, and thank you for joining our fiscal 2022 second quarter earnings call. With me today are Roger Perreault, President and CEO; Ted Jastrzebski, CFO; and Bob Beard, Executive Vice President, Natural Gas, Global Engineering & Construction and Procurement. Roger and Ted will provide an overview of our results and the entire team will then be available to answer your questions. 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 most recent annual report 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 within our presentation. Now, I'm pleased to turn the call over to Roger.

Thank you, Tameka and good morning, everyone. On today's call, we will provide a business update, review our financial results for the quarter and discuss the outlook for the rest of this fiscal year before concluding with a question-and-answer session. Let's start with an overview of market conditions and UGI's financial results in our fiscal year second quarter. While we continue to operate in a dynamic macroeconomic and geopolitical environment, our business has shown tremendous resiliency and made good strides on several key strategic priorities. For the fiscal second quarter, UGI reported adjusted EPS of $1.91, and our reportable segments delivered adjusted EBIT of $631 million, which was fairly consistent with the prior fiscal year. We saw strong results from our natural gas businesses largely due to incremental earnings from our recent acquisitions, Mountaineer and Stonehenge. UGI International reported higher LPG margin as the business worked to recover the significant increases in commodity costs. In addition, we began to realize benefits from the several expense control actions implemented during the quarter. This performance partially offset the lower delivered volumes at AmeriGas and decline in energy marketing margin at UGI International. For the full fiscal year, we expect adjusted EPS for fiscal 2022 to be within a revised guidance range of $2.90 to $3 inclusive of the effects of margin management and expense control actions implemented in the first quarter, and we expect to see benefits throughout the year. Ted will expound on these results and the updated guidance in further detail. I would also like to take a few minutes to highlight several key accomplishments. First, the Utilities segment remains on track to make record capital investments in this fiscal year. We also added approximately 4,000 new residential heating and commercial customers at the utilities demonstrating sustained and attractive customer…

Thanks, Roger. UGI delivered adjusted diluted EPS of $1.91 compared to $1.99 in the prior year fiscal quarter. This table lays out our GAAP and adjusted diluted EPS for the second quarter and the comparable prior period. As you can see, our adjusted diluted earnings exclude adjustments totaling $2.41 that related to a number of items. First, the impact of mark-to-market changes in commodity hedging instruments, a gain of $2.48 this year versus $0.25 in the prior year which is largely attributable to the increases in commodity prices. Last year, we had a $0.05 gain on foreign currency derivative instruments. This year, we adjusted out $0.01 of expenses associated with the corporate functions transformation in comparison to $0.07 in the prior year for all the business transformation initiatives. Also, last year, we had a onetime $0.11 gain attributable to a change in the Italian tax law that provided a benefit in fiscal 2021. Lastly, this year, we adjusted out $0.06 of expenses related to restructuring costs within the global LPG business, mostly at AmeriGas and principally resulting from a reduction in the workforce and related costs. On this slide, we provide additional color on the year-over-year quarterly performance by segment. As Roger noted, total EBIT from the reportable segments is consistent year-over-year. The $0.08 decline in year-over-year adjusted EPS for quarter 2 is primarily attributable to the incremental shares from the equity units issued in May 2021 in conjunction with the Mountaineer acquisition. Global LPG experienced higher LPG margins and implemented strong expense control actions, which partially offset net volume loss at AmeriGas and the impact of significant increases in volatility in commodity prices on the UGI International energy marketing business. Our natural gas businesses reported higher contribution in comparison to the prior year, largely due to the incremental margin…

Thanks, Ted. As I mentioned earlier, I am pleased with the resiliency that we've shown and how our teams have responded to the dynamic and challenging environment that we're operating in. During our fiscal second quarter, we saw Russia's invasion of Ukraine, which has had a devastating impact on the people of Ukraine and a significant impact on the European and global energy sector. Globally, this has led to increased commodity prices while demonstrating the need for safe, reliable, affordable and environmentally friendly energy solutions. It will be interesting to see all the conversations regarding energy dependence progress. Notwithstanding, we are confident that UGI is and will continue to be a part of the solution for customers and governments in the geographies that we serve. In addition, we are partnering with a global nonprofit organization, World Central Kitchen to assist Ukranian refugees by providing funds for food and food supplies as well as propane to fuel their kitchens. I'm also pleased to announce that we will be publishing our fourth ESG report later this month, and this will highlight some of the key progress that we have made against our commitments. As we close, I wanted to emphasize that we remain focused on our strategy to deliver reliable earnings growth and to meet our long-term financial commitments of providing 6% to 10% EPS growth and 4% dividend growth. Our business is committed to delivering value to our customers and continually enhancing their experience, creating new efficiencies, cultivating a culture of growth that empowers our employees making a difference in the communities that we serve and adding value for our shareholders. We thank you for your interest in UGI and your participation in today's call. And with that, we will open the line for your questions.

[Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith with Bank of America.

It's actually Kody Clark on for Julian. First -- so first, can you give a little bit more detail on the confidence in recovering half of that energy marketing loss in Europe here in the back half of '22 and on those fixed-price contracts, was there the same dynamic in the second quarter of customers pulling more than you had hedged for? And also just to round it out on energy marketing there on the strategic review, curious what the results of the review could entail outside of exiting the business.

Yes. Thanks, Kody, for the question. So let me start with kind of what we saw in the second quarter. So as you can see, we highlighted that we have year-to-date about $80 million of losses in EBIT attributed to the energy marketing business. So that was due to backwardation where we didn't see the margins in the quarter, but we certainly -- now start seeing that margin come in, in the third and fourth quarter. We also -- I mean, weather was relatively normal, like you didn't see large, large swings so volumes were going pretty much as expected. So what we're now looking at going forward is us again, recovering from the backwardation. So we're going to start seeing that come in, in Q3 and Q4. What we're also expecting going forward is that we did manage contracts as we had talked about after the Q1 where we could, we put in place actions where we could charge customers for the additional volume that is being consumed. We also have put in place price increases where we could so that we can take into account the additional volatility that we had experienced so that we are now going to see better margins as we go forward. And thirdly, but equally importantly, we have put in place cost control actions where, for example, we did not fill open positions, and we will not be filling open positions, where we are reducing discretionary expenses, et cetera. So when we look at the situation between now and the end of the year, we expect to recover approximately half of the $80 million headwind we've experienced on a year-to-date basis. So we feel pretty good about that. And I think that's really what has been built into -- not what I think, it's what has been built in into our guidance range of $2.90 to $3. Now maybe a couple of words on the strategic review. It became very evident to us that the volatility that we experienced in the first quarter is not a good strategic fit for the company. We talk about our reliable earnings growth. And when it comes to this energy marketing piece, it's not an ideal fit with what we saw. So we have now -- we are now looking at all the strategic options, which include exiting the business. We're going to continue to provide updates on that as we go through the third quarter and the fourth quarter. It's a process that has now begun, and I look forward to being able to give you more color on it as we continue to identify what are the options that are best for us and for our shareholders.

Okay. Understood. That's very helpful. And you mentioned it a little bit just on the expense control efforts. Wondering how we should think about these costs coming back into the plan as we look out the next couple of years, i.e., how much is onetime levers versus kind of perpetual cost cutting?

Yes. We really have a combination. So it's something as well that we'll be able to provide more color as we go forward. But we -- for example, there are certain positions that we will not fill. So those are going to be expected to be cost takeout that will remain. However, we did also exercise some temporary cost reductions that we know we will want to be reintroducing as a company over the next year. So that is something, as we look at providing guidance for next year, we'll be able to talk very clearly about what it is we're allowing ourselves to be introduced.

I guess, Kody, this is Ted. I would just add that this is an unusual year where we had to find offsets to revenue headwinds because of the energy marketing in international because of the volume churn at AmeriGas. So we took unusual measures to manage margin and to control costs. As Roger said, there's a portion of that cost management that's permanent. That will be maintained in the future. I would say on those costs that were deferred or delayed, we would see that normalize at a pace where we're seeing our revenues normalize. And so we don't expect to see burgeoning costs in the future as we get back into the future years with normalization of revenues.

Got it. Okay. And then lastly, just a housekeeping item. Just wondering, is the new FY '22 guidance, $2.90 to $3 a new base for the 6% to 10%? Or should we think about the original guidance as that base for the 6% to 10%?

Yes, when we look at that new guidance of $2.90 to $3 with a midpoint of $2.95, just like to bring to your attention that on a 10-year basis, that will be a 9% growth on a 20-year basis, an 8.3% growth. So again, when we're talking about the 6% to 10% growth rate. We certainly are always referencing it on a long-term basis and long-term financial commitment. So with that new guidance, we still remain at the top end of our range.

Right. Okay. But the prior FY '25 guidance that you shared, is that something that you're reiterating, I guess?

Yes. So that's something that we will be updating as we continue to work our way through the remainder of this year and then provide guidance at the end of the year when we talk about guidance for fiscal '23 and beyond.

Okay. Got it. I'll pass it off there. Thanks for the time, and we'll see you at AGA.

Yes. Thank you, Kody. Appreciate the questions this morning.

[Operator Instructions] our next question comes from the line of Marc Solecitto with Barclays.

Just one follow-up on the energy marketing business. So wondering if you could share the average remaining contract life for the existing full requirement contracts there. Appreciate it. It seems like the worst is behind us, but just wondering where your exposure stands today.

Thank you, Marc, for the question. Yes. So we -- the contracts are typically 2 to 3 years. So we are, again, depending on the strategic review and the outcome of our strategic review, there's some uncertainty as to what that will look like for the following years. But our contracts, we stopped signing contracts, so we will see if we remain with the contracts between now and the end of their term, it would be until the end of fiscal '25.

I'm showing no further questions in the queue. I would now like to turn the call back over to Roger for closing remarks.

Thanks, everyone, for joining us today. I'd like to celebrate today the Cinco de Mayo Day with all of you. I certainly look forward to speaking with some of you at the AGA conference in a couple of weeks and/or on the next earnings call. So thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.