Good day, and thank you for standing by. Welcome to the UGI Corporation Q4 2022 Earnings Conference Call. At this time, all participants 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. I would now like to hand the conference over to Tameka Morris, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to UGI Corporation's fiscal 2022 fourth quarter earnings call. Joining 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, our most recent annual report and our quarterly reports on Form 10-Q 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'll turn the call over to Roger.

Thank you, Tameka, and good morning, everyone. I hope that you've all had the opportunity to review our fiscal 2022 year-end earnings release. On today's call, we'll review our financial results and several key accomplishments for the year, discuss our outlook for fiscal 2023 to 2026 before concluding with a question-and-answer session. Now let's start with fiscal 2022. We are pleased to report strong financial results, which were the second highest EPS on GAAP and non-GAAP basis in our history. Despite a challenging macroeconomic environment, we saw record earnings at our regulated utilities businesses and in our Midstream and Marketing segment. Our LPG business at UGI International continued their strong performance and this helped to mitigate the impact of headwinds faced at AmeriGas and in the European energy marketing operations. The geopolitical situation and extreme variation in natural gas and electricity prices in Europe had a significant impact on this year's European energy marketing results. Without this headwind, we would have been well within our original guidance range. I am proud of our dedicated employees who have worked tirelessly to execute against our 3R strategy, which is to deliver reliable growth, invest in renewables and rebalance our portfolio. Their commitment, as we deployed record levels of capital and focus on margin management, expense control and serving our customers and communities each and every day culminated in the strong fiscal 2022 results. Ted will provide more details on our financial results. But first, I'd like to highlight some key accomplishments and the important progress we've made across the business. In our Natural Gas business, our regulated utilities had an outstanding year. We deployed a record level of capital, investing $562 million to replace and upgrade our gas distribution infrastructure as well as our critical systems. This year, we replaced roughly 155…

Thanks, Roger. As Roger mentioned, UGI delivered adjusted diluted EPS of $2.90, which was the second highest result after a record in the prior fiscal year. This slide provides a reconciliation of our GAAP and adjusted diluted EPS for fiscal 2022 and 2021. As you can see, our adjusted diluted earnings exclude adjustments, totaling $2.07 related to a number of items. First, the impact of mark-to-market changes in commodity hedging instruments, a gain of $2.11 versus $4.72 in the prior year. Adjustment for a $0.17 gain on foreign currency derivative instruments versus $0.03 in fiscal 2021. $0.03 of expenses associated with the corporate functions transformation in comparison to $0.35 in the prior year for all of the business transformation initiatives. $0.12 for the impairment of other assets, primarily related to Pennant, a natural gas gathering system in which UGI Energy Services had a 47% membership interest through to the fiscal third quarter. Next, in Q4, we had a $0.09 of tax benefit related to a tax legislation enacted in Pennsylvania to reduce the state's corporate net income tax rate. The legislation resulted in a $20 million benefit being recorded in fiscal 2022 based on the Company's analysis of future reversals of net deferred tax liabilities. We had a $0.03 loss on the extinguishment of debt associated with the refinancing at UGI International in Q1 and $0.12 of expenses associated with restructuring costs, which are largely attributable to a reduction in workforce and the related costs. On this slide, we provide additional color on the year-over-year performance by segment. I'll speak to the drivers for each segment shortly, but at a high level, in global LPG businesses, there was continued focus on margin management and expense control actions which partially offset net volume loss at AmeriGas and the effect of unprecedented…

Thanks Ted. Before we pivot to fiscal 2023 and beyond, I would like to reiterate the strong performance of UGI in fiscal 2022 despite the macroeconomic challenges that we faced. I am proud of how our teams have been committed to maintaining safe operations, serving our customers, identifying commercial and operational efficiencies and supporting the well-being of the communities we serve. We have a solid underlying base business, a strong balance sheet and the financial flexibility that enables growth investments. This foundation has led to an attractive track record of paying dividends for 138 years, consecutively increasing dividends in the past 35 years and delivering on our long-term financial targets with a 10-year EPS CAGR of 8.8% and dividend CAGR of 7.2%. Over the last few years, we shared our intent to rebalance our portfolio to an even distribution from natural gas and renewables in comparison to global LPG. As you can see from this slide, this year, we attained a rebalanced portfolio driven by both headwinds in the global LPG business that led to a reduced earnings contribution, along with record performance from our natural gas businesses. And now, we'll move the conversation to fiscal 2023. There is no doubt that our world is facing several obstacles such as rising inflation, higher commodity prices, labor shortages and supply chain challenges. We expect that these conditions will continue into fiscal 2023. And so as always, we are working on controlling costs and passing along higher costs where appropriate. I am confident that we are well positioned to optimize shareholder value as we have a differentiated and resilient portfolio, one that supplies essential energy solutions to a large customer base in both the U.S. and Europe, providing geographic diversification to our earnings stream. As we saw in fiscal 2022 and throughout…

Thanks, Roger. Yesterday, we announced our fiscal 2023 guidance range for adjusted EPS of $2.85 to $3.15. This guidance range assumes normal weather based on a 10-year average, the current tax regime and selling the French Energy Marketing business in the first quarter of fiscal 2023. As you can see, we're using a broader range for our guidance than the historical approach because of the uncertainties we are seeing with inflation, commodity price volatility and the potential impact to the remaining energy marketing businesses in Belgium and the Netherlands. On the slide, you'll see a comparison of the midpoint of our fiscal 2023 guidance of $3 to the fiscal 2022 adjusted EPS of $2.90. First, fiscal 2022's results were impacted by several non-recurring items. One, we had $0.06 benefit from capacity management margins that are expected to reverse when the gas is extracted from storage in the upcoming winter and another $0.07 due to certain onetime items, including asset sales at UGI International. Next, there are a few notable items to call out for the next year. As Roger discussed, we expect reduced headwinds from Energy Marketing at UGI International, given the anticipated volume reductions in latest forward curves. The estimated $0.10 reduction assumes divesting of France in the first quarter of the fiscal 2023 and winding down operations in Belgium and the Netherlands. Next to $0.12 pickup from the gas base rate case that was approved at the end of the year and a $0.09 headwind from increased interest expense given higher rates on short-term debt that is typically used to manage seasonal working capital needs. Lastly, we have other drivers, which are expected to provide an incremental $0.10 over fiscal 2022. This includes benefits from the strategic priorities that Roger discussed as well as the return to normal…

Thank you, Ted. As I stated at the beginning of the call, I am pleased with our solid results for the year. While there are uncertainties in this business climate, I am confident that we are resilient and well positioned for growth, consistent with our proven track record. I view fiscal 2023 as a year where we will be strengthening our platform and leaning into the strategic priorities that I discussed earlier. Over the long term, I am confident that we are well positioned to continue delivering reliable earnings growth given our foundation and the investments that we are making in our regulated utilities, midstream and marketing, renewables and global LPG. We have a robust pipeline of attractive investment opportunities, which gives us confidence to deliver strong earnings growth in future years. Thank you for your interest in UGI and your participation in today's call. Now, we'll open the line for your questions.

[Operator Instructions] And our first question will come from Angelique Aiello of Bank of America. Your line is open.

It's actually Julien on here for on behalf of my team. If I may, just to pick up on the domestic side of the business first. Can we talk a little bit about the propane side on AmeriGas? And just how are you thinking about the volume trends? Obviously, nicely done here, you talked about some reversals, post-COVID, et cetera. How do you see that evolving? Again, I know we've talked at times in the past about the tension between price and volume. Just can you say a little bit more on expectations, especially if you look at '23 and onwards, around volume expectations considering what you've already just seen here in the latest quarter?

Thank you for your question. Yes, quite a few items that I certainly would like to highlight. First of all, Julien, as we've talked about in the last several earnings calls, we have been seeing our continued improvement in our operating metrics. When you look at delivering on time, our ability to serve customers quickly when they're calling in, answer their issues or their -- the opportunities we have, we've been able to see a continued improvement in trends on many different operating metrics. When we look at growth, specifically, also an area that we've seen continued improvement. With our new operating model that we've described several times, we are now able to absolutely drive that growth engine with the 75% market share, the 75% of the market that is currently served with moms and pops. So, we are able to really get out in front of that potential customer base, and we have seen good results with our ability to bring in customers. That being said, we've also seen continued churn. We've also seen a higher degree of customers leaving, which we attribute to some of the teething pains we had when we deployed the new operating model. We see that stabilizing. So we see that starting to turn around. What we've been doing overall to really address it is everything from making sure we're hiring drivers, getting drivers in our trucks, enabling us to deliver on time, routing optimization and pushing for efficiencies. We are adding digital tools in our operations around telemetry, for example, where we can better forecast when customers need product. And all of that leading to a significantly enhanced customer experience, where customers can deal with us electronically. They have a digital application that they can come and really interact with us differently than when you look at a very large percentage of the market today that is served with -- from moms and pops, where they just don't have that same capability. So I see '23 as a foundational year. It's a year where all of these pieces now are coming together nicely, and we absolutely expect to see now some nice trends going forward into '23 and beyond.

And if I may, just coming back to cost and cost levers here. I mean, obviously, you guys have been talking about doing what you can, if you will, throughout the year as well as talking about preparation into '23 for some time. Can you talk about sort of what's reflected in '23 in terms of mitigating efforts and measures and the ability to continue to source that? Again, I know you're not talking about beyond '23 per se. But as I think about sort of the integration, descaling out of Europe, for instance, how much of that is a headwind? Is that reflected in those earnings sensitivities you provided on the strategic impacts here, but also just altogether on the cost side, too?

Yes. So maybe a couple of comments on cost, and I'll talk a little more about energy marketing as well in Europe, Julien, to formulate the answer to your question here. So on cost, '22 was a year that we absolutely dug deep and made sure to control discretionary expenses. It was a year in which where open positions, we kept open for a period of time. And when we look towards '23, it's definitely a year where some of those open positions we're filling because we absolutely are focused on the customer experience and delivering our promise, while at the same time, our '23 guidance also includes our views of inflation. And there's no doubt that we have seen very specific inflations in specific areas. For example, driver populations, I think it's very well known across North America that getting drivers and retaining drivers, a part of that strategy must be ensuring that you're competitively paying that population, and that's certainly all built into our fiscal '23 guidance. If I move the conversation a little bit to energy marketing, you saw that last year, it was a pretty significant hit. But this year, we expect that hit to be cut basically in half which we see a $0.10 uplift from the prior year. And that's dependent on our concluding the sale in France, and it looks like that's something we expect to be done in the first quarter. And then we're going to continue to wind down the business in the Netherlands and in Belgium. So clearly, our portfolio, our volume of energy marketing is going to continue to diminish because as we talked about prior, we have not been resigning contracts. We are letting these contracts come to their natural conclusion, while also engaging with customers to ensure that the risk profile of continuing to serve them is balanced. Now, we are really looking at what volume are they going to take. If they take excess volumes, we need an ability to charge for that excess volume, et cetera, as we go forward. And those are efforts that we've been very focused on. So when you look at our guidance range of fiscal '23, it's factoring in these elements that I just talked about.

One moment. And our next question comes from Marc Solecitto of Barclays. Your line is open.

Maybe just to start with a quick one. I was curious if you could talk about the expected cash proceeds side to the sales in UK and French Energy Marketing businesses.

Mark, thank you. For that question, I'll hand it over to Ted.

Sorry, Mark, could you repeat the question?

Just what are the expected cash proceeds tied to the sales of the UK and French Energy Marketing businesses?

Yes. We won't be sharing the details on that until we close the books with the first quarter. I will say that we were very much motivated to -- as we have shared to either get out of these businesses or move towards wind down. And so, it is not we're moving these businesses out at a cost that is going to be fairly neutral to us. What you are going to see is dramatic write-downs of our derivatives positions. And just as a reminder, when you see those large figures on the write-downs of those derivative positions, those are derivatives that we established that do cover out of -- cover the contracts we have for that business. And so, it's fairly -- it's a fair offset to what we're seeing as hurts on the contracts that exist in that business. So, we will be showing those figures as we close the first quarter of the year, and we'll provide the actual final results on that sale.

Got it. Understood. And then if we look at Slide 20 in the outlined international energy marketing volumes, have you hedged your exposure there? And could there be more volumetric exposure into the full requirement contracts that you have remaining?

Yes. Let me kick off the answer for this question, Marc. What we're seeing -- so again, we -- as we've described previously, we're like over 90% hedged, right? So we have these fixed price contracts hedged at over 90%, and the remaining portfolio is a very similar story. We do have very solid hedged positions for those customers that are going to be hanging with us in the Netherlands and Belgium. That being said, I think where there's a bit of an unknown here is what will the volume consumption actually look like. We see in Europe today that the European governments are encouraging customers to reduce consumption. I expect that to be the case. I expect that the customer portfolio, the customers will, in fact, be very sensitive to the amount of product they take. That being said, I can't be certain, right? There are no specific rules in Europe that are really mandating customers to take less product, but there's a strong encouragement to do so. Now just to give you some insight on our customers we serve, we primarily serve small, medium enterprises. So we're serving customers like schools and other establishments that are these medium-type enterprises with whom we are having conversations. We are, of course, having conversations with them to really understand what their consumption profile could look like, understand more from them, are they expected to take less volume. And if they are expecting to take more volume, then we're engaging with them on ensuring we have a commercial discussion that recognizes that there could be additional costs. And where possible, we would be passing on that cost to the customers.

And then maybe lastly, as it relates to the 8% EPS CAGR target at AmeriGas through 2026, could you maybe peel back the onion a bit around the embedded assumptions related to volume versus margin recovery? And does that bake in any M&A? And what would be the capital costs expected to incur your or require to get to that 8% EPS CAGR target?

Yes. So, a few things that I'd like to highlight. It's a combination of many of the things you've described, right? We are expecting organic growth. So, we are expecting and we will succeed at ensuring that the customer churn continues to diminish during the period. We are always focused on effective margin management. Now again, that's when I say effective margin management, that's being very surgical in how do we manage margins when we see cost increases, which include inflation and, of course, product costs that we pass through to the customer bases and in addition to that, some acquisitions. What we've talked about is our excitement around reengaging into the acquisition space. We've invested now a couple of years of redesigning how AmeriGas operates with a much more centralized model, where we're now able to route trucks across the country centrally. We're able to do service -- apply service to our customer base across the country from a centralized center. We're able to handle customer calls from a centralized center as well. And when we think of the acquisition model, post synergies are going to be tremendous for us. We're going to be able to bring in these small, medium-sized propane distribution companies into our new operating model with what we expect to be very attractive synergies and based on the fact that we made these very significant investments to improve the customer experience, but also operate way more efficiently overall. So, we're excited about the combination of all the three areas that I described where we're going to continue to see improvements in customer churn, organic growth while at the same time, blending in some acquisitions. As we continue to blow this -- to build on this, of course, during our quarterly earnings, we're going to be able to talk more specifically around the capital that we are deploying to the acquisitions.

[Operator Instructions] And I'm showing no further questions. I would now like to turn the conference over to Roger Perreault, President and CEO, for closing remarks.

Well, thank you to all for listening into our call today and for the excellent questions. We look forward to following up in investor meetings in the coming weeks and, of course, at our next earnings call. I would also like to wish everybody a great weekend and happy Thanksgiving. Thanks, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.