Hello, and welcome to the UGI Corporation Fiscal 2025 Second Quarter 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] Thank you. I would like to turn the conference over to Tameka Morris, Vice President of Investor Relations & ESG. You may begin.

Good morning, everyone. Thank you for joining our fiscal 2025 second quarter earnings call. With me today are Bob Flexon, President and CEO; and Sean O'Brien, CFO. On today's call, we will review our second 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. And with that, I'll turn the call over to Bob.

Thanks, Tameka, and good morning to all of you. Before we walk through our financial and operational results in detail, I want to start with a summary of our year-over-year performance on several key financial metrics. Starting with adjusted diluted EPS, UGI reported a 12% year-over-year increased for the fiscal second quarter, delivering the highest adjusted diluted EPS for the second quarter and year to date period in the company's history. All four segments provided EBIT growth has solid operational execution enabled us to effectively meet higher demand, particularly from colder weather in fiscal Q2, while maintaining cost efficiencies. With this strong performance, we have increased our fiscal 2025 guidance range to $3 to $3.15. The balance sheet continues to strengthen with $1.9 billion in available liquidity and an overall leverage ratio of 3.8 times at the end of the quarter. Now, let me also share several other highlights. During the quarter, our LNG infrastructure operated at peak capacity, responding effectively to the sustained cold weather patterns experienced particularly in January and February. Regional natural gas demand continues to demonstrate robust growth, positioning our strategically located midstream assets to deliver these essential services reliably. Late last year, we initiated an expansion project to double the liquefaction capacity at our Manning facility. This significantly enhances our ability to fulfill additional peaking contracts and provide vital LNG services to customers in the Northeast. Construction has now been completed, and the facility is currently in commissioning with full operational status expected by fiscal 2026. In aggregate, during the quarter, we deployed $160 million in capital investment, primarily in the natural gas businesses. At the utilities, we continue to expand our reach, strategically extending our infrastructure to previously underserved communities. Our customer base has grown by over 6,600 new residential heating and commercial accounts…

Thanks, Bob, and good morning. I'll now provide more detail on our financial performance for the fiscal second quarter. As Bob mentioned, we've delivered strong results across all business segments while continuing to strengthen our balance sheet and maintain disciplined capital allocation in a dynamic market environment. UGI delivered adjusted diluted EPS of $2.21, $0.24 above the prior year period. The Utility segment was up $0.04, given the colder weather, partially offset by higher operating and administrative expenses. Midstream & Marketing increased $0.13 as the business benefited from the effects of higher investment tax credits associated with the RNG projects being placed in service this fiscal year. UGI International was consistent year-over-year as lower operating and administrative expenses were more than offset by reduced tax benefits. At AmeriGas, while EBIT was up $16 million over the prior year period, largely due to colder weather, the effect of higher income tax expense led to a $0.06 decline in adjusted diluted EPS. As noted on the Q1 call, AmeriGas is experiencing a higher tax rate due to limitations on interest expense deductibility. On a consolidated basis, there is a corresponding offset to normalize the corporation's tax rate, and this is reflected in Corporate & Other. Overall, Corporate & Other was up $0.52 due to lower income taxes of $0.54, partially offset by $0.02 of higher interest expense. I'll now walk you through the key drivers for each reportable segment when compared to the prior year. Starting with the Utility segment, EBIT was $241 million for the quarter, up $15 million over the prior year period. Both core market and total system throughput showed strong growth, primarily driven by weather conditions that were 15% colder than the comparable period last year. This favorable weather pattern contributed to $22 million increase in total margin,…

Thanks, Sean. Before we open the line for questions, I want to emphasize how our focus on operational excellence is delivering measurable improvements across several key metrics. This progress, combined with our disciplined approach to creating operational efficiencies, has expanded our margins on a year-over-year basis. In addition, we're particularly proud of the 55% improvement in free cash flow generated, reflecting both the strength and sustainability of our business model. Looking ahead, our natural gas businesses continue to be our primary growth engine with strategic infrastructure investments predominantly in the regulated utility business, driving rate base expansion. At AmeriGas, we are making steady progress on operational improvements, enhancing business processes and service quality to drive higher levels of customer retention. Internationally, our disciplined approach is generating strong cash flows that support our corporate priorities. Through focused capital allocation, infrastructure monetization and strategic portfolio optimization, we are well positioned to navigate market uncertainties and create incremental value for our stakeholders. Thank you for your time with us today, and we will open the line for questions.

[Operator Instructions] And your first question comes from the line of Gabriel Moreen with Mizuho. Please go ahead.

Hello, Gabe.

Sorry. Hi, good morning. Sorry about that. I was on mute.

That's okay. So are we.

Hi, okay. Just wanted to start out with AmeriGas. Clearly some improved performance with some benefits from some weather here. Can you just talk about kind of, I guess, learning -- more about the learnings coming out of the winter and also maybe what you're targeting kind of going into this upcoming fiscal year? And then on a related question, I think, last quarter you talked about your targeting trying to refinance the '26 maturities by the end of this fiscal year. Can you just give us an update there? Are you still comfortable with that objective?

Sure. I'll take the first question, and I'll let Sean take the second one. So what I would say, Gabe, is that we got through the winter, we took advantage of the better weather. What we're really focused on between now and the beginning of next year is how do we make the AmeriGas business processes better. And we're full-fledged working on that. These are the type of projects that I love, because it's little to no investment with big returns. So we're working on things like how we do routing and delivery, becoming more efficient on the density of our miles, which will drive OpEx down and customer satisfaction upward. We're working on how we purchase propane. We see tremendous opportunity to leverage our scale and consolidate our suppliers. We currently have 53 different suppliers for propane. So we're not taking advantage of our size. We're also looking at what's the most effective way to take advantage of propane prices, because what we're seeing with the tariff environment is pressure on propane prices to go downward. So we see a lot of asymmetric risk there. And we've got the capacity to start creating and utilizing a more strategic hedging program to lock in some of this lower propane cost better than what we have in the past. We're looking at the customer value proposition. So segmenting our customers and making sure that the ones with the highest margin are getting the best service that they deserve and they should be getting. And for those that are just marginal, or at a loss, either we make them more profitable or we reduce those types of customers, because for us it's profitable volume that we need. It's just not being able to look and say what's the volume this year versus…

Yes. Gabe, a couple of things. In terms of the refinancing, your question, nothing's changed on our goals. Maybe I'll hit some of the key things to remind everyone. So we have about $664 million that comes due next August, late August. We're very focused on making sure we take care of that. What I'm excited about are a couple of things that I want to focus on AmeriGas, but we've hit a bunch of them. The cash generation at AmeriGas has been very strong. We really took advantage of a really strong winter. I'll use a couple of examples. If you listened to my remarks I mentioned, we're sitting close to on $100 million of cash here as we end April. That's pretty excited about that. We were able to start to already pay back part of the intercompany loan with international by about $20 million. And as Bob was alluding to, we took a half a turn or more. We're about 5.4 versus 6 on the leverage metrics. So fundamentally, these were all incredible things about AmeriGas that we're seeing as we head into -- starting to address those -- the 2026 maturity. On the fundamental market, there's actually some good news there. Obviously, there's been volatility since we last spoke in the capital markets, but the AmeriGas bonds themselves are actually -- they've held in very, very well. I've been very pleased with what I've seen on those bonds. And maybe the last point I'll make is, we're actually trading at or better than where we were prior to a lot of the volatility we've seen over the last couple of months. So we're set up to get that taken care of. Nothing's changed in our objectives. And other than I think the business is set up much better as we go in to address those 2026 bonds.

Great. Thanks, guys. And maybe if I could follow-up, just sort of sticking on a bigger picture theme on in basin, sort of Appalachia natural gas demand. It seems like that's been very topical, no matter who's conference call, earnings conference call you listened to this quarter. Just wondering kind of latest thoughts on UGI's positioning in terms of partnering with any of those folks looking to take advantage of cheap Appalachian gas and just what those conversations might be looking like lately?

The only thing I would say, Gabe, is that, certainly echo all your comments that you just made. And both our midstream business, which has the pipelines, as well as the -- our utility that has the distribution as well, are having a lot of discussions with potential generators, data centers and the like. So we expect to see some really robust growth in those areas. And we're fortunate to be located in the middle of all of that. So we're proactive with folks that want to come in to talk about where does it make sense to locate, say, new generation assets and where you can get the natural gas. So we're well positioned to be a big part of that just by where our infrastructure is. So as you'll see, as you know, our capital allocation is heavily skewed towards the natural gas business and that's not going to change, and for those reasons that you just really articulated.

Thanks, Bob. Appreciate that.

[Operator Instructions] And your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead.

Hi, good morning, team. It's actually Paul Zimbardo filling in for Julian. A busy morning. Thanks for the time.

Okay. Hi, Paul.

Hi. Bob, thank you for all that color on AmeriGas. Is there any quantification that you'd be willing to put on? How much incremental margin or EBITDA you see from AmeriGas as you turn into fiscal 2026? I know that there's been a little bit weaker performance, but there's been some strong performance in the past. Do you think you can get back to some of that EBITDA level that you've seen in the historical periods?

Well, Paul, I mean, I couldn't put a number on it now. What we need to do is strengthen our business processes. So we're working on that. We need to focus on the customer value proposition and ensure that our highest-margin customers, which comes from the residential retail is getting the right level of service. Delivery is efficient, people don't need to worry about their propane. And so it's really just focusing on those types of things that are going to make a real difference. Beyond that, I think it's not until we get closer to beginning of the next fiscal year when we put guidance out that we put a number around that. But these are certainly the things that we need to do to make a difference for this business. And again, I'm really excited about what AmeriGas can be. And it doesn't require investment, it requires that our talented employees within AmeriGas bringing a structured problem-solving approach to how do you make your business better? And we've identified what are the five things that we've got to get done before next winter. And we're all very engaged in all that. We're going to be -- I believe we're going to be a very formidable competitor out there as we enter into next winter.

Got it. That's great to hear. And then the second one I had for Sean, just if you could comment a little bit on the fiscal second half drivers, just know that the implied net loss is particularly high versus historical levels. It sounded like you're pulling forward some costs into the second half of the fiscal year from the next fiscal year, but just if you could discuss the drivers that would be helpful. Thank you.

Yes, Paul, I mean, we tried to give some color. But let me start with in terms of pulling expenses, I think what we were trying to emphasize, it was a -- for all of our businesses, it was definitely we saw colder weather than we would have seen last year, and more so even domestically than we did internationally. So for our utility, for our midstream business, there was not only colder weather, there were some extended periods of that. So I think what we're trying to allude to on that front, Paul, is that some of the work, both capital and OpEx that would have gotten done in the first half of the year, we delayed and we pushed into the second half of the year. So if you're thinking about our original guidance, there is going to be some timing in terms of those types of things happening in the second half of the year. Secondly, and I think you were alluding to this, Paul, the company in many -- I've been here two years, as I look at the company's earnings profile, most of the time it earns all or even more than its full-year earnings in the first half of the year. So I think we're just trying to make sure everybody understands that it's a winter-driven generally company and therefore, you're earning most of your earnings or even more than 100% in the first half of the year. So I'd be remiss if I didn't close on some positives. We did raise guidance from the midpoint of $290 million, we were seeing some really good things that we will take to the bank per se, the normal that Bob mentioned overseas in international. We're very pleased with how the team executed around that. That was worth every bit of $0.05. AmeriGas is performing better than our guidance. We're very pleased with how that's performing. So we're holding on to a lot of the benefits that we saw in the first half of the year. And I alluded to a few things. We're still focused on making sure that the efficiencies that the company has tried to deliver over the last two years are sustainable and ongoing. And so far, so good, we're hitting on all those cylinders. But that timing is what we were referring to, Paul.

And, Paul, I'm just going to add a couple of things. So I do rely heavily on Sean to make sure that we don't lose our way on cost management. But also the attrition for AmeriGas in our second quarter was in the very low single digits. So we're already seeing benefits of a lot of the work that the team has done to shore up how we deliver and maintain our customer service levels. So we've got a good running start for next year. And the other thing I'd add to that is, what I mentioned earlier around, we can be far more strategic in how we manage our propane costs than what we've been doing. And we have already achieved locked-in some savings as we go into the latter part of the year on our propane purchases. So I expect some real benefits, financial benefits, from that again requires no cost, just requires some brainpower, and we've got good people within AmeriGas who's going to make that happen.

No, excellent. It's great to see and hear the momentum. So thank you, both.

Thank you, Paul.

Thanks, Paul.

And there are no further questions at this time. I will now turn the call back over to Bob Flexon for closing remarks.

Thank you, Tricia, and thanks for those who attended the call. Just to reiterate, very pleased to see our strong year-to-date performance. What's particularly exciting for me is seeing our balance sheet improving both at the consolidated level and also down at the AmeriGas level. A strong balance sheet is a priority for us. We've got a lot of business process improvements underway, not only in AmeriGas, but in all of our divisions that we expect to see benefit from. We've got new talent within the organization. We are reinvigorating the culture here. We've got a lot of good people that have been here for a long time as well. So we're really excited about the things that come and we're going to go to work and keep working at the things that we're doing, and expect to see some good results from that. So with that, I thank you again for everyone for joining the call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.