Welcome to UGI Corporation Q1 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you would need to press star one one on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to turn the conference over to Tameka Moores, You may begin.

Good morning, everyone. Thank you for joining our fiscal twenty twenty five first quarter earnings call. With me today are Paul Fexen, president and CEO, and Sean O'Brien, CFO. On today's call, we will review our first quarter financial results and key business highlights 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 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.

Thanks, Tameka. Good morning to all of you. Yesterday, we reported our fiscal 2025 first-quarter results with adjusted diluted earnings per share of $1.37, 14% higher than the prior year. Solid underlying performance by our local segments combined with effective tax management led to the strong fiscal first-quarter results. In our natural gas businesses, we benefited from strong demand and higher gas rates at Mountaineer, our West Virginia gas utility. Well, at our global LPG businesses, we realized relatively comparable volumes and reduced operating and administrative expenses when compared to the prior year period. These results underscore the advantages of our diverse portfolio and the opportunities to drive consistent growth through operational excellence. Also of note during the quarter, we deployed over $200 million in capital investment, primarily in the natural gas businesses. These investments advance our infrastructure modernization program enhancing system reliability, safety, and operational efficiency and support strong customer additions that we continue to experience at the utilities. At UGI Utilities, our commitment to service excellence led to the company being recognized as a Cogent 2024 utility customer champion. This prestigious award validates our customer-centric approach and places us among the top performers in customer satisfaction across the utility sector. In our midstream and marketing segment, we have substantially completed several RNG facilities where gas will be delivered into local markets. The projects have been completed on time and on budget and are good additions to our business providing immediate returns to investment tax credits. Also in the midstream and marketing segment, as part of our joint venture in the Pine Run gathering system, we acquired Superior Appalachian, which owns and operates three gathering systems in Pennsylvania. These systems are attractive with long-term acreage dedications and the largest is connected to one of UGI Energy Services gathering systems,…

Thanks, Bob, and good morning. As Bob mentioned, UGI delivered strong results for the fiscal 2025 first quarter, reporting adjusted diluted EPS of $1.37, a $0.17 improvement over the prior year period. The utility segment was up one penny as the business benefited from higher gas base rates at Mountaineer. Distributed Marketing was down two cents as lower operating income was partially offset by the effects of higher investment tax credits associated with the RNG projects being placed in service this fiscal year. UGI International was up seven cents as benefits from the utilization of foreign tax credits fully offset the effect of lower operating income associated with the non-core energy marketing business. At AmeriGas, while EBIT was up $3 million, over the prior year period, the effect of higher income tax expense led to a 28 cent decline in adjusted diluted EPS. Due to limitations associated with interest expense deductibility, there is a corresponding offset to normalize the corporation's tax rate. And this is reflected at Corp another. In aggregate, we anticipate that UGI corporate will recognize an effective tax rate between 12% and 14% fiscal 2025, in comparison to 16% in the prior year period. Now to close out the comments on Corp and Other, the $0.39 increase over prior year is due to lower income taxes $42 cents partially offset by three cents of higher interest expense. Turning to the next slide, I'll now walk you through the key drivers for each reportable segment when compared to the prior year. Starting with the Utilities segment, saw slightly colder weather than the prior year period in our service territories, which led us to higher core market volumes. Both our Pennsylvania and West Virginia service territories now have the weather normalization rider, which partially reduced the impact of colder…

Thanks, Sean. Let me close by highlighting the fundamental strengths of UGI Corporation's business portfolio. Our weather-resilient utilities operate in constructive regulatory environments that support crucial infrastructure investment and a strong 9% rate base growth rate. We have a highly complementary midstream business with an attractive mix of LNG peaking pipeline and storage assets, which provide flexibility in varying market conditions and is strategically positioned to capitalize on growing natural gas demand. UGI International continues to demonstrate strong cash generation capacity and we believe that transformation and optimization of both the domestic and international propane operations will drive improved performance. We remain committed to disciplined capital allocation, operational excellence, and creating long-term value for our shareholders. Thank you for your time with us today, and we will open the line for questions.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open.

Yes. Thank you very much for the time, and congrats on the progress here. Hey, maybe Bob, just kicking things off, nicely done on the 2025 maturity here. How are you thinking about the other larger maturities coming up ahead? Any preliminary thoughts as you are thinking about tackling the ones in 2026 onwards? I imagine there's a number of different levers that you could approach here, but sort of initial thoughts at the end. And then also maybe to turn to the results quickly, you know, nicely done here. I get there's some tax nuance, but when you're thinking about positioning for the full year here, I know that you just reaffirmed the broader range, but how do you think about even within that range, how the latest quarterly results and weather trends could have contributed you know, within that range?

Good morning, Julien. Thanks for the questions. And I'll start out and then hand it to Sean as well. But we felt that doing the loan via the international business to AmeriGas at an arm's length transaction was a good elegant way to deal with the near-term maturity. It allows us to essentially pay the spread in the interest rates to ourselves and we're confident over the next two years, our cash flow from AmeriGas far exceeds the value of that note, so we'll be paying that back in the next two years. And then when it does, it kinda clears the deck for discussions with banks on dealing with the 2026. So now that this is kind of out in public, Sean and team will go to work on the 2026s, and it just makes the whole thing easier to deal with. And more cost-effective as well. So I'll let Sean comment in a moment on that. On performance, what we saw on the natural gas side is just great execution. We had near-record send-out demands of natural gas and from an operational standpoint, it was all done in a very safe manner, excellent performance. So very thrilled with the natural gas side of the business. And then on the propane side of the business, international executed well. They really run the business really well over there. I've been able to spend some time over there as well to get confidence in that business and the business model we have there. And on the AmeriGas side, you know, we're seeing some initial green shoots from the pod structure that we created, but it is very, very early innings. And as you'll see in the slide deck that we initiated teams to go after five key business processes that should have a very significant effect on the business to make us very competitive and really have a really strong leadership position in the industry, but very early going. It's great having Mike Sharp on the team here, and Mike is on the ground charging well ahead on all of those priorities. So yeah, I think we're setting ourselves up for a good year. And the key thing will be getting that performance at AmeriGas where we think we can really unlock potential in that business. Let me turn it to Sean for any additional comments, particularly on the financing.

Good morning, Julien. I'm only gonna add I think Bob did it well. I'm just gonna add a couple things. As AmeriGas takes care of the intercompany loan, you know, I don't want it to be lost. We are delevering. So that's a continued delevering at AmeriGas of that $218 million. It also definitely starts to push AmeriGas close to the 5 on its debt to EBITDA. Even though we don't have a covenant, we still are very focused on getting their leverage target ratio down into the 5 range. And really taking care of those 2025s gives us optionality in two ways. One, the types of products that we're gonna go after to take care of the $664 million of 2026s. The other key thing is the timing. We have a lot of timing available to us, you know, because they don't go current until August of this year. So I think we're set up very well. All the tailwinds that Bob talked about, I think we're set up in a it's the best position we could be as we go to take care of those 2026s.

Nice, guys. Thank you very much. And best of luck to Mike here. If I can, just to follow up one more. I mean, you mentioned the continued success on international. I mean, again, maybe another silo, if you will, the activities ongoing. How do you think about the strategic direction of the international business and businesses, maybe plural, adjacent to the U.S. operations? Any thoughts on that front, especially if you think about these maturities?

I think on the international side, you know, for the near term, they'll continue to look on how to be best strategically position their business where we can take advantage of our storage capability. That's the key thing in Europe is that there's an import market for folks propane. So we'll try to optimize our flexibility around storage and for those locations where we're not necessarily as competitive or have a competitive advantage, we'll continue to evaluate the portfolio and see if to the extent we have as big of a footprint we have over there. And I think both on the international propane as well as domestic propane, we'll continue to evaluate the makeup of the portfolio. And to the extent there are any asset sales that will be used as Sean mentioned as well to help with delever.

Julien, I wanna add you made me think of something. I wanna be clear that this intercompany loan, international is you know, we anticipate this year to generate between $130 and $150 million of excess free cash flow. Then all of that is still going to corp, so none of that is involved in this intercompany loan. So it's generating great cash flow, helping the company support its dividend.

Wonderful. Excellent. I appreciate it very much. Take care, guys.

Thanks, Julien. Thank you.

As a reminder, ladies and gentlemen, that's star one one to ask a question. Please stand by for our next question. Our next question comes from the line of Gabriel Moreen with Mizuho. Your line is open.

Hey, good morning, everyone. Maybe I can start out in terms of the intercompany loan and I think also the segmentation of the AmeriGas structure into these pods. Given the language around paying off the intercompany loan with free cash flow and the emphasis there, does that preclude at all asset sales at the AmeriGas level? And I'm just curious, you know, with the segmentation into pods, maybe getting back to more regionalization, whether that's kinda revealed better regions or better-performing regions or lesser-performing ones. Any implications for portfolio optimization?

I can take the first half. Gabe. The short answer is no. And I'm gonna expand that. So it does not preclude any asset potential divestitures in terms of things that we're looking at underperforming assets at AmeriGas and wanna be clear as well on the other side of the fence it does not preclude asset transactions at international either.

Yeah. So I think it Gabe adding to that. So that any sales and as Sean mentioned, this doesn't preclude anything. Would really just accelerate the pay down of that intercompany note. And we will continue to look at the portfolio and look where we have the right level of density and competitive advantage to the extent that we don't have the right level of density and we're just kind of a me too in some of these markets, then I would evaluate those for divestitures. So we have a lot of analysis we've done around that. You know, our thoughts around that are getting pretty crystallized at this point. So it's something that we'll continue to work towards as well.

Thanks, guys. And then if I can maybe follow-up, you mentioned in terms of the performance of the winter, and how well you've done operationally. But can I drill down on some of the cold weather we've experienced here in January? Both how you feel in terms of how AmeriGas has been performing and handling, maybe capturing some of the opportunity from higher degree days and then also clearly marketing benefits from Natgas market volatility, how that business may be performed in the quarter given some of the wholesale gas market volatility that's been out there?

Sure. So I think on the AmeriGas side, we certainly have benefited from the colder weather in January. I would say it does strain the system in AmeriGas with some of the issues we have in our business processes. So we're doing okay, but we have room for a lot of improvement. And as you notice on the one slide in the deck, the slide five where we talked about five key areas that the business process needs to improve, and that's so we can handle months like January better than what we did. So again, I think we performed relatively well, but there's substantial room for improvement, and that's gonna be the focus of Mike and team for the balance of this year and get us in a better position to do even better performance as we approach next winter. So this is the time where we really have to make a difference on how we run the business processes. On the natural gas side and taking advantage of volatility to the extent you have extended periods of pull, basically, the utility is taking virtually all of the gas from energy services and to the extent it you know, more short brief bouts of cold. Then we do take advantage of volatility in the marketplace. So what we saw in January is a bit of both. So we'll see in some up on volatility, but first and foremost, make sure we meet our obligation to the utility. And I think one of the best things I can say about the utility over this cold snap was when talking to the team out there, whether they're sending near record send out of gas demand operationally. Everything was calm and place, executing well safely. So you know, kudos to our utility here in Pennsylvania and to West Virginia in dealing with extreme cold weather and doing so in a way that was seamless to our customers.

Thanks, Bob. And if I could just squeeze one more question on midstream. Can you maybe expand a little bit on midstream margins being a little bit lower year on year? Is that a little bit lower volumes due to depressed gas prices, maybe some MVCs expiring and kind of what you're expecting there. Then also, allocating additional capital to the acquisition you made there, is that something that is active and ongoing? Should we expect, are you looking at potentially more deals and consolidation opportunities there?

Yeah, Gabe. I'll take the first part. So we'll talk about the margin and everything in terms of the margin in general was baked into our guidance was anticipated. We did have one contract you know, where the the we renewed at lower pricing. That actually happened last year. There was some impact last year. Obviously, it's embedded into our guidance this year. In terms of I'll remind you we have a generally about a seven-year tenure on average on our contracts and we don't have you know, there's stuff being renewed, but we don't see any massive risk or any specific risk in terms of pricing. Matter of fact, in that area, with what's going on, we may even see some opportunities with the demand increase for some better pricing. So that was part of it. We did sell Hunlock, so when you're looking year over year, we had those earnings last quarter. We don't have those earnings from that asset this quarter. And then capacity management was down a little bit, so you talk about the opportunistic ability to make some margin. That's the one that probably wasn't in the guidance, but it was not material. So all in all, most of this we had baked in the unlock the contract expiration, but we still feel pretty good about the year as we look forward on the margin for the midstream business.

And Gabe, appreciate the question on energy services and first on the Superior acquisition. All of that was financed at the JV level, so it didn't utilize any of our capital capacity at pair. But in general, as we look at opportunities, in that territory where we see a lot of interest from third parties with data centers, new power generation, and the like. And then also combine that with the fact that a lot of the infrastructure funds that own pipelines and storage make it near the end of life, which was the situation we ended where the funds got near end of life, which is the situation that we had here. To the extent we've got synergies and it touches our existing infrastructure, these are good opportunities for energy services. So they will continue to be looking for those opportunities and assuming it meets our threshold for returns to add economic value that we would pursue those opportunities. So we'll continue to look from an opportunistic point of view in the area and strike when it makes sense for us to do so.

Great. Thanks, everyone, and go Eagles.

Yeah. I hear you. Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Bob for closing remarks.

Okay. Well, thank you for your interest and participation in the call. Just leave with a couple of thoughts. First, on our natural gas side of the business, as I was just mentioning, we'll continue to be opportunistic and look for those investments that can drive further returns for the business utilizing our scale and our location out there. There'll be a relentless focus on performance and safety for our natural gas both in West Virginia and in Pennsylvania. It's just critical for us to make it a seamless delivery to our customers and recognizing getting the recognition of the Cogent Award for customer service is something that we watch closely. On the LPG side, again, we're gonna just make sure we're performing as well as we can. I think international is doing a very nice job running their business. And on AmeriGas, we're at the beginning of a long journey here, for calendar year 2025, but we have the structure in place. We know the areas that we need to target, and we feel we can really drive a lot of value in doing so. So with that, again, I thank you for your interest and look forward to further conversations.

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