Good day, and thank you for standing by. Welcome to the UGI Corporation Q2 2024 Earnings Conference Call.[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining our fiscal 2024 second quarter earnings call. With me today are Mario Longhi, Interim President and CEO; Sean O'Brien, CFO; and Bob Beard, COO. On today's call, we will provide a strategic update on the business and discuss our financial results for the quarter before concluding with a question-and-answer session. 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 Mario.

Thank you, Tameka, and good morning, everyone. I'd like to begin by commenting on UGI's second quarter and year-to-date financial results before providing a broader strategic update. UGI had a strong fiscal 2024 second quarter, reporting adjusted earnings per share of $1.97, which was a $0.29 increase over the prior year. This performance reflects the resilience of our portfolio and the dedication of our people, and was largely driven by the natural gas businesses. These natural gas businesses delivered record second quarter earnings, a 32% increase in adjusted net income over the prior year. We also implemented effective cost control across the enterprise, and this resulted in a $27 million year-over-year reduction in operating and administrative expenses. With a robust performance in the first half of the fiscal year, we are on track to deliver within our fiscal 2024 adjusted EPS guidance range of $2.70 to $3. We are also pleased to mark the 140th year of consecutively paying dividends, demonstrating our commitment to returning value to shareholders. Sean will provide further commentary on the financial performance shortly, but now I will pivot to the broader strategic update. As we announced yesterday, we completed the strategic review of the LPG businesses, primarily focused on AmeriGas that was launched at the end of August 2023. The process was extensive, and together with our financial advisers, we considered different scenarios, including a potential sale, spin and joint venture of AmeriGas. Although we conducted a due diligence process with multiple strategic and financial parties, the Board decided that in the current market, the company should focus on a restructuring and operational improvement plan for AmeriGas. The Board remains open to all opportunities to maximize shareholder value. Also, in conjunction with the review, over the past few months, we have reassessed our operating strategy,…

Thanks, Mario, and good morning, everyone. As you are aware, AmeriGas has encountered operational challenges over the past several years that have impacted our service standards, resulted in higher customer attrition rates and placed significant pressure on our debt covenants. The strategic review helped us better frame the weaknesses in our operating model. While these challenges are not new and you've heard us discuss several of them over time, the strategic review identified a level of detail that was necessary for us to formulate a more comprehensive and effective action plan to address those shortcomings. We gained more clarity on what needs to be done, and we're committed to doing it. Our overall focus will be on improving our performance in customer satisfaction, service reliability and overall operational excellence. We are committed to addressing these challenges. To initiate this journey, we have streamlined our operational model, creating a simpler and more focused model that enables us to anticipate and more effectively address the evolving needs of our customers. While there are many key indicators associated with measuring these continued operational improvements, the ultimate measure of our success will be the financial results of the business. To support this overarching goal, we're actively pursuing efficiency measures to ensure that our cost structure remains aligned with the earnings trajectory of the business. In line with this objective, we have initiated permanent cost reduction measures that do not compromise our operational capabilities. A number of these actions were completed in late April 2024. Next, as Mario shared, we remain open to opportunities to streamline our footprint and focus on core customer segments. Also of importance, we are working to adjust our capital structure and address AmeriGas' balance sheet, which is currently constrained. Sean will speak to the progress we've made and additional actions…

Thanks, Sean. As I close, I want to emphasize our conviction that diligent execution of the fundamentals will enable UGI to build a strong momentum of balanced growth and value creation. We have embarked on that journey and are taking the necessary actions to achieve the financial commitments that we have outlined. We have the financial capacity to maintain investments in the natural gas businesses, particularly in the regulated utilities, which are expected to deliver 9% plus in rate base growth. . These businesses provide strong return and benefit from the free cash flow-generating LPG businesses. With this model, between fiscal 2024 and 2027, we will target a 4% to 6% EPS growth rate and leverage ratio between 3.5 to 4x. We will also preserve our commitment to the dividend, which has been synonymous with our brand over the past 140 years, keeping the amount flat through fiscal 2026. Our intent is to return to a long-term dividend growth rate of 4% in fiscal 2027. I thank you for your continued interest and support of UGI. And I'll now turn the call back to our operator to open the line for questions.

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

Maybe just starting with the around $400 million of debt reduction at AmeriGas. Just kind of curious what the approach will be to accomplishing that. How much is involved with internally generated cash flows at AmeriGas versus doing something more external intervention? Sean O’Brien: This is Sean. I can hit that. Maybe I'll take you back historically. We took about $300 million out last year. AmeriGas contributed somewhere around $20 million, $30 million of that last year. As we look at this year, first and foremost, we were able to take almost $40 million out through the OMR repurchases that we did in Q3. That was all with AmeriGas cash. So that $40 million came from AmeriGas. As we look to the back half of the year and our goal to continue to improve the balance sheet, we see AmeriGas cash providing maybe another $150 million of debt reduction, and then another maybe $200 million to $300 million from Corp. And that should get you to that total that we're looking for. One thing to keep in mind, as we achieve all this, we'll have taken over $700 million of AmeriGas debt off the balance sheet. So we're pretty proud of that. But directly to answer your question, you're looking at about $200 million coming from AmeriGas cash and another $200 million or so coming from a corporate injection.

Got it. And maybe just to clarify that, coming from the Corp., is that just cash on hand? Or would that be involved with the asset sales that you've mentioned? Or... Sean O’Brien: Yes, all of the above. So we're also optimizing the structure. Obviously, that cash can be more optimally raised or utilized from corporate fungibility. But we also -- as Mario mentioned, we had a $27 million asset sale. I think if you listen to the remarks that Mario made, we're continuing to look at the portfolio and opportunities to generate cash through some potential asset sales. So all of the above. And the good news is we've already executed on almost $30 million of an asset sale that will contribute to that cash coming down.

Got it. Great. And then maybe just last one on this as far as options to kind of adjust fee revolver at AmeriGas, as you mentioned. Any early insights into that? Sean O’Brien: Yes. I think a couple of things. You heard Bob and Mario lay out a plan to get to stabilize and optimize AmeriGas. We want to be able to buy some time. So we are looking pretty heavily at removing but replacing the revolver with another instrument that does not have a quarterly covenant that puts us under that quarterly pressure. It gives us some time as we work through this turnaround and gives us time to basically execute on the things we want to without having that quarterly pressure on AmeriGas and probably more importantly, on corporate as well. So we have started down that path. We have some strategies that we've been working on for a little while. And we'll keep you abreast, but I'm hopeful that we could be successful.

Maybe, Sean, and if I could just squeeze one last one, just the 4% to 6% growth rate. Should we be thinking about that as kind of the CAGR from '24 to '27? Are you looking at like kind of midpoint of guidance? Anything in particular as far as base? Sean O’Brien: Yes. I think it's yes to most of that. I mean it is a '24 to '27, Chris. I think the way to think about that 4% to 6% is we're in a period of balance sheet repair. We're in a period of being very disciplined with capital. So that's why that range came down a little bit, I think, from historical for the company. But it is that period. We feel comfortable. On one side of the fence, we have businesses growing quite a bit. You've got 9% rate base growth. You got nat gas performing really well. So we do think of it as trying to -- we've got a midpoint in there, but it is '24 to '27.

Congratulations on the announcement and all the help throughout the process.

[Operator Instructions] Our next question comes from the line of Paul Fremont of Ladenburg.

I guess my question relates to the Midstream & Marketing. So if total margin is up $41 million and Marketing is $46 million, can you just walk us through what would be sort of the -- what the chart would look like if it was just Midstream and what the sort of comparator would look like? Sean O’Brien: Yes, Paul, this is Sean. A couple of things. I think you're looking at a big increase. The drivers, the biggest driver, I think, as we tried to allude, is capacity values on our -- we've got basis differentials on the gas pipelines that we've contract and we saw some pretty good spreads on the basis. So we were able to take advantage of those contracts, those capacity contracts. And that drove a significant portion of the value. I think the other piece to consider is we have a storage business. If you look at this year, that storage business was in the black and last year, based on the timing of the contracts, we lost money. So that's one of the bigger drivers as well. You had a loss sitting in '23 and you had a modest earnings this year. Those are the 2 biggest drivers of that $48 million. I know you didn't ask about it, but the other highlight would be that OpEx across the company. We see operating costs coming down. There's a pretty big focus on that. And the Midstream business contributed to that goal as well. So hopefully, that answers your question, but those are the drivers of what is happening in the Energy Services business.

Okay. I guess I'm still not understanding. So was Midstream up quarter-over-quarter by itself, if you exclude Marketing from the picture? Sean O’Brien: If you exclude Marketing from the picture, Midstream was up quarter-over-quarter, yes.

And by how much? Sean O’Brien: It's going to be a much -- the majority of the gain was the Marketing side of the equation. So it's going to be less than $10 million.

Okay. And then I guess, one of your peers seem to experience a significant uplift in storage margins during the quarter. Did you experience any significant changes in storage margins? Sean O’Brien: No. As I mentioned, we were positive. We saw some gains in storage. I wouldn't call them outsized gains, but the big delta on the storage business was the fact that we had losses last year. So a solid quarter from a storage perspective, but I wouldn't say it was outsized gains.

And then, I guess, last question with sort of very strong rate base growth and sort of the time that it's going to take you to sort of focus on balance sheet repair. Have you considered the possibility of issuing equity, essentially rebasing and doing the balance sheet repair upfront as opposed to doing it sort of over time? Sean O’Brien: Yes. We've considered many, many scenarios, Paul. I think at the moment, in our written remarks, I believe we've mentioned that equity, we don't have equity in the equation currently, but we are definitely taking a lot of steps to improve the balance sheet. We're doing a lot of cost reductions. We're being very careful on where we're going to deploy capital. We did announce that we're going to hold the growth on the dividend flat. So we're doing -- and lastly, we're looking at some portfolio optimization to generate cash. So those are the avenues we're using to not put debt on, improve the balance sheet at the moment. Right now, we do not have equity in the equation.

I am showing no further questions at this time. I would now like to turn it back to Mario Longhi for closing remarks.

I want to thank everyone for taking the time to participate with us in this call, and we look forward to the next conversation we're going to have. So I wish everyone a good day.

All right. This concludes the program, so thank you for your participation in today's conference. You may now disconnect.