Good day, and thank you for standing by. Welcome to the UGI Corporation Q2 2023 Earnings Conference Call. At this time, all participants are in 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'd now like to hand the conference over to your speaker today, Tameka Morris. Please go ahead.

Good morning, everyone. Thank you for joining our Fiscal 2023 Second Quarter Earnings Call. With me today are Roger Perreault, President and CEO; Sean O'Brien, Chief Financial Officer; and Bob Beard, Chief Operations Officer. Roger and Sean 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 and quarterly reports for an extensive list of factors that could affect results. We assume no duties 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. Before I begin, let me say that I am pleased to be joined by our recently appointed CFO, Sean O'Brien, who joined our team in April. I look forward to working with Sean, who brings a tremendous amount of experience in the energy sector. I would also like to thank Ted, our outgoing CFO, for his leadership and important contributions over the past five years. Thank you, Ted. I have really appreciated your insights and partnership over the past few years. Now 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. This quarter is one where UGI demonstrated resiliency and the value of its diversified operating model as the company navigated several headwinds. We saw extremely warm temperatures across most of our service territories in the US, severe weather events in the West, which impeded our ability to efficiently serve customers and drive growth, significant energy conservation efforts in Europe due to the ongoing Russia-Ukraine war and continued cost inflation. It was a difficult quarter, and in the midst of these pressures, our teams worked diligently and with resilience. I would like to take a moment to thank our teams who have continued to serve customers and execute on our strategy, which is in line with UGI's 140-year plus history of providing essential energy solutions to customers. For the quarter, UGI delivered adjusted diluted EPS of $1.68, reflective of the strong performance from our natural gas businesses and the effects of the headwinds that I previously mentioned. In our natural gas businesses, we are pleased with the improved earnings reliability that we continue to experience, largely due to the…

Thanks, Roger, and good morning, everyone. I'll start with Slide 5 and highlight some key drivers by segment of our second quarter performance. For the fiscal 2023 second quarter, UGI delivered adjusted diluted EPS of $1.68 compared to $1.91 in the prior year. Our natural gas businesses had a strong second quarter, up $0.09 year-over-year, as the utilities benefited from higher gas base rates and the weather normalization rider, which offset weather that was 17% warmer than the prior year. In midstream and marketing, we optimize our gas storage facilities and benefited from acquisitions completed last year to deliver robust earnings for the quarter. Next, UGI International was up $0.02 year-over-year, aided by the previously anticipated benefits from the noncore European energy marketing business where we continue to work on our exit strategy. Lastly, AmeriGas reported $0.30 lower earnings year-over-year due to adverse impacts of warmer weather, continued volume pressures and driver shortages. Overall, three of our four reportable segments delivered higher results despite a challenging quarter. And looking forward, our teams continue to focus on controlling what we can control in order to deliver on our commitments for the remainder of the year. Next, for each reportable segment, I'll walk you through the key drivers of our second quarter results when compared to the prior year. Starting with AmeriGas. Weather was a challenge this quarter as we saw a very warm weather in key regions of the U.S. particularly in the East and South where our customers and volumes are heavily concentrated. In the West, while weather was colder than the prior year, the region faced severe weather events, which impeded our ability to drive growth and efficiently deliver to our customers. In addition, we continue to experience driver shortages, which had a notable impact on volumes for the…

Thanks, Sean. Before concluding, I would like to spend a few minutes on our key priorities for the back half of this fiscal year. First, of utmost importance is maintaining our focus on operational excellence, a core value of UGI is providing safe and reliable operations as this is essential for our customers, employees and the communities we serve. In addition, as a business, we have key operational metrics that align with our commitment to our people and customers. The focus on these metrics is unwavering, and we want to gain further momentum in improving on these metrics such as on-time deliveries, 0 fills, inefficient fills, response times, just to name a few. Second, maintaining discipline in capital allocation and executing on our capital commitments are crucial to the success of UGI. This includes infrastructure replacement and betterment of the utilities and in our previously announced renewables projects. We will continue to strengthen our balance sheet with a near-term focus on refinancing our 2024 bonds at AmeriGas. Investing in critical infrastructure in our utilities drives the need for cost recovery. As such, as anticipated with our investment in Mountain Air, during the quarter, we filed a request with the West Virginia Public Service Commission to increase base distribution rates by approximately $20 million. Included in this rate case is a request for a weather normalization rider similar to what we have at our Pennsylvania gas utility. Next, as we look at the global LPG businesses, it's no doubt there have been a few challenges over the past few years. UGI International, particularly with the mild winter we've seen that customers are conserving volumes in response to government mandates and the overall high energy prices. We are monitoring the situation, and we'll look to how customers adopt as prices normalize and…

[Operator Instructions] And your first question comes from the line of Christopher Jeffrey with Mizuho Securities.

And welcome to Sean. Just a couple maybe on AmeriGas to start. Just wondering as far as the some examples of the measures put in place for the cost expenses. Kind of how much is left to do after the previous measures you put in place? And also, maybe the cadence of further capital contributions from the corporate level if there will be.

Thank you, Chris. Yes. So maybe I'll talk about the kind of the cost profile and what we're dealing with here in the second half and then I'll hand it over to Sean, who will talk about leverage and how we're treating that topic. So let me start with cost here. So from a cost perspective, there's no doubt we've seen some inflation, right? We looked at the first half of the year. Driver costs are up quite substantially. We've seen other products also be up quite substantially. So our focus has been on how can we control the evolution of cost as we go forward, as we continue to see the volume evolution of the business and ensure that we are appropriately staffed as we talked about in the call, to meet excellent customer service. So overall, when I look forward, and I think of the second half year, there's a lot of emphasis, not only at AmeriGas, but across the entire company on controlling the controllable and really controlling costs. You've seen us do that in prior periods and prior years where we have a good track record of being able to control costs, and that's exactly what we're going to see here in the next second half of the year as we are very diligent about all cost parameters, not only at AmeriGas, but across all of the company. With that, I'd like to hand it over to Sean, who can talk about liquidity.

A couple of things to think about AmeriGas and sort of the financing needs. First, the parent -- the parental support is key, and you saw that in Q2, and we've seen it, I think, historically over the years when needed. So I want to start with that. There was a $31 million equity cure provided by UGI Corp. in Q2. So that's a very, very positive step. In terms of the future, Roger mentioned it, I think we mentioned it, we're looking at opportunistically taking out the $675 million debt maturity. I think that could be a very good delevering event for AmeriGas in the future. And I think also all the things that Roger talked about around focus on the positive trends, the leading indicators that we're seeing, we believe that can help the EBIT trend over the future. So we feel pretty comfortable. We're monitoring it. But I think we've got a good plan to focus on the leverage metrics and the debt at AmeriGas.

Got it. And then maybe sticking with AmeriGas. Just any initial impressions from first views of the market as far as customer acquisitions and I know that might be ramping up? Or kind of when do you expect that time line to ramp up more?

Yes, Christopher. So yes, we are, of course, very active in customer acquisitions, right, growing markets in specific segments where we have density and where we can obviously build not only on volume growth, but also on efficiencies. So that's a key focus for the company. We have seen -- as we talked about in the earnings call, we have seen certain segments be a bit sluggish. For example, forklift is a specific example where we're seeing warehousing, et cetera, this be quite a bit of a slowdown. We're also seeing, like everybody in the industry right now, housing starts are down, and that's also an opportunity for growth that we're not seeing as much as we would like. That being said, we're very focused on growth in those -- in the other areas where we do have some momentum, and we are seeing that momentum. We are seeing growth continue. What we had to deal with in the first -- in the second quarter, I should say, or first half of the year is very severe weather events where it was really warm in the East and the South, that's where we have a lot of volume. And unfortunately, we did not see that volume transpire because of weather. Although it was colder in the West, as we talked about, the weather events were severe. We saw a lot of snowfall, a lot of rain, I really applaud our teams for getting out there and delivering as well as we did. But there's no doubt that, that had an impact on our ability to serve and obviously impact your volumes.

And your next question comes from Julien Dumoulin-Smith with Bank of America.

This is actually Cameron Lochridge on for Julian this morning. I wanted to very quickly start off on international. And just maybe parse out the contribution from the noncore assets versus the core. If you can give a little more detail around kind of what the two distinct pieces of the year-over-year increase in margin wise?

Yes, so as we talked about last year, we really expect the noncore, which is what you're referring to, I take it, is the energy marketing business that we are exiting. We did expect to see that business perform better than prior year. And what we're seeing to date is it's actually going as planned, right? It's actually a little better than planned, but pretty much on par with what we expected. As what we're seeing in Europe and in particular, in all of the energy space is lower commodity -- well, what's happened in the quarter as we've seen commodity costs come down. We've seen very warm weather. That, in many respects, assisted our energy marketing business. And as such, we are seeing that that performance trend as we expected.

Perfect. I appreciate it. And then for my follow-up, just given some of the challenges in the LPG business. And I realize maybe it's -- much of it is -- almost all of it is out of your control, just with weather and structural demand and things of that nature. But just thinking about it strategically, is there a scenario you think where you all would consider either selling or spinning either all or part of that LPG business. Just curious kind of how you think about that just given some of the structural issues.

Yes. We -- as we've stated before, Cameron, the LPG businesses are a really strong source of cash for us. So we continue to like the balance of LPG and natural gas where we are disproportionately investing in our natural gas business. The cash engine behind our LPG businesses is instrumental to our strategy. As a result, we very much play -- our playbook is to continue to be smart about investing in our LPG businesses, continue to grow that volume, continue to clearly look at how we maximize cash generation from the LPG businesses as we continue to invest in the other. So our playbook is one that we are very committed to, strategically, which is to have a balance between LPG and natural gas that really benefits from that cash engine and then the cash utilization across all businesses, but in particular, in our natural gas business.

Yes. No, that makes sense. I appreciate it. Maybe just one quick follow-up. If you could talk about the synergies of those businesses or not so much to synergies, but speaking of cash contribution. As far as the renewables business goes, I mean you're injecting significant investment dollars there. Any update on the outlook there as you look into the '24, '25 time frame, what that contribution could look like?

Yes. What we've talked about is hitting kind of a $1 billion to $1.25 billion investment in renewables. We're on a trend that is really trending towards that number. We've now committed over $500 million in renewables, RNG in particular. I expect to see some gain and momentum in some of the bio LPG areas in addition to RNG over the next over the next several quarters. So as a result, I think we're very much still on par for what we committed, which is an investment of the order of $1 billion to $1.25 billion.

[Operator Instructions] And I see no further questions at this time. I will now turn the call back over to Roger Perreault.

Thank you, Bella, and thank you all for joining our call today. We really appreciate the opportunity to update all of you. In closing, I would just like to send another thank you to Ted for his contribution over the last 5 years, and very much welcome Sean a Board. And with that, I look forward to seeing and hearing all of you at the next earnings call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a good day.