Q1 2022 UGI Corp Earnings Call

February 3, 2022

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 presentations now.

Now I'm pleased to turn the call over to Roger.

Thank you tamika and good morning, everyone.

I'll start today by providing an update on the quarter, including our progress on several strategic initiatives.

Ted will then provide an overview of first quarter's financial results and liquidity position.

I believe everyone is aware of the extremely challenging macroeconomic environment experienced in the first quarter.

Significant increases and volatility in commodity prices.

Rising inflation.

And the tight labor market.

These factors along with December being the warmest on record in the U S, allowing to have a negative impact on our results as we reported adjusted earnings per share of <unk> 93 for the quarter.

Amerigas, despite seeing promising customer growth in several areas reported lower overall volumes due to weather the impact of customer service challenges from the prior year after establishing the new operating model.

And the effect of higher commodity prices on customer usage.

UGI International had lower average LPG unit margins and lower energy marketing margins that were largely due to higher commodity costs.

Our natural gas businesses delivered strong results. Despite the warmer weather due to incremental earnings from mountaineer.

The higher gas base rates that went into effect last year and higher margin from renewable energy marketing activities.

Per our historical practice, we are not discussing full fiscal year guidance. After a single quarter given the amount of heating degree days.

Remaining.

However, we are executing on a robust plan leveraging our proven capabilities are focused margin and expense management and we expect these actions will have a disproportionate benefit in the back half of the fiscal year.

Additionally, we are encouraged that January was colder than normal in the U S.

We are confident in the strength and resilience of our business and our ability to deliver against our long term commitment of providing 6% to 10% EPS growth.

Turning to slide five.

In the first quarter, we continued to advance our strategy to deliver reliable earnings growth.

Invest in renewables and rebalance our business.

We are off to a strong start in our utilities capital expenditure program, which is an area of significant growth for the company.

During the quarter, we deployed over $110 million of capital and we expect to execute on our plan of investing over $500 million.

In fiscal 2022.

Our goal is to continue replacing cast iron and bare steel pipes to promote the long term safety and integrity of our infrastructure.

Drive operational efficiency.

<unk> access to reliable and affordable natural gas to our customers, while reducing emissions.

We continue to see attractive customer growth at the utilities in particular with conversions from other fuel sources. The most predominant of which is fuel oil.

During the quarter, we added more than 4500, new residential heating and commercial customers.

Mountaineer performed in line with our expectations delivering solid results for the quarter.

We also saw that in the midst of significant increases in commodity prices in comparison to the prior year period Amerigas benefited from disciplined margin management efforts.

Late last week UGI utilities filed a request with the Pennsylvania public utility Commission to increase natural gas rates by approximately $83 million.

This requested rate increase is driven by the record cap level of capital that UGI utilities is deploying to upgrade and expand our piping systems.

Included in this rate case is a request for a weather normalization adjustment mechanism that is intended to stabilize the utilities revenue and customer distribution charges as we continue to execute our strategy of delivering reliable earnings growth.

Turning to our renewables strategy.

In December 2021, we received approval from the European Commission for the intended joint venture with <unk> energy that will advance the production and use of renewable dimethyl ether in the U S and Europe .

With this approval, we've now begun the process of forming the joint venture and expect to provide more details in the coming months.

We anticipate that the first production facility will be located in the UK.

We also entered into a multiyear agreement with Verde mass to utilize their catalytic technology to produce and distribute renewable fuels within the U S and Europe .

The intent is to bolt on the technology to existing bioethanol facilities in order to produce renewable fuels.

The first production facility is expected to be operational in fiscal year 2024, with an annual production target of approximately 50 million gallons of combined renewable fuels.

We are pleased with the momentum that we've built upon fiscal 2021 and identifying renewable investment opportunities.

In addition.

Our previously announced projects remain on track with the Idaho, and Spruce Haven RMG projects expected to be completed in calendar 2022.

We are moving forward, our ESG programs as well as the commitment to lower our own carbon emissions and help our customers to do the same.

I am proud of that of our efforts to maintain robust governance practices and improve greenhouse gas mitigation strategies were recognized with UGI being upgraded to double a rating by MSCI.

This rating positions us among the leading companies worldwide for action across ESG matters.

Turning to the third prong of our strategy.

Rebalancing our portfolio.

On January 27th we completed the previously announced Stonehenge acquisition for a total cash consideration of $190 million.

The Stonehenge business includes a 47 mile natural gas gathering system and associated compression.

It is located in western Pennsylvania, and complements our UGI Appalachia assets.

This transaction is immediately accretive to earnings and a stable cash flows underpinned by a long term contract with minimum volume commitments.

And now I'll turn the call over to Ted who will get into more details on our financial results.

Thanks, Roger and good morning.

As Roger mentioned UGI delivered adjusted diluted EPS of <unk> 93, compared to $1 18 in the prior fiscal quarter.

This table lays out our GAAP and adjusted diluted earnings per share for the quarter in the comparable prior period as you can see our adjusted diluted earnings exclude adjustments totaling $1 39 that related to a number of items.

First is the impact of mark to market changes in commodity hedging instruments, a loss of $1 37, this year versus a gain of <unk> 40 in the prior year, which is largely attributable to the increases in volatility in commodity prices.

Last year, we had a <unk> <unk> loss on foreign currency derivative instruments compared to a <unk> gain this year.

We had a <unk> <unk> loss on the extinguishment of debt associated with our refinancing at UGI international during the quarter.

In addition, we adjusted out a penny of expenses associated with the corporate functions transformation in comparison to six in the prior year for all of the business transformation initiatives. As a reminder, the LPG business transformation initiatives were substantially complete as of the end of fiscal 2020.

One therefore, the expenses being adjusted out in fiscal 2022 solely related to the transformation of the corporate support functions.

On this slide we provide additional color on the 25 decline and the year over year quarterly performance by segment.

Global LPG was impacted by unprecedented warmer weather in the U S. The significant increases in volatility in commodity prices and the effect of customer service challenges from the prior year at Amerigas.

Our natural gas businesses reported higher contribution in comparison to the prior year period due to the incremental margin for mountaineer and higher margin from renewable energy marketing activities.

Turning to the individual businesses.

Amerigas reported a $55 million decrease in EBIT over the prior year.

Retail volume declined 13%, reflecting lower customer usage as the country experienced the warmest December on record coupled with significant increases in commodity prices.

Average wholesale propane prices at one of the major supply points in the U S. Mount Belvieu, Texas, where approximately 125% higher than the comparable prior year period.

As we shared last year, we experienced customer service challenges with our transformation driven new operating model.

Our service metrics have improved dramatically and we're seeing high quality customer growth in certain areas, but the challenges from last year had a follow on customer retention effect during the quarter.

We continue to make customer experience and accelerating customer growth a top priority.

The impact of the lower volume on total margins was partially offset by higher average retail unit margins as we continue to focus on margin management, while being conscious of customer affordability.

As Roger mentioned, our business is navigating rising cost inflation and a tight labor market. These inflationary pressures affected operating and administrative expenses during the quarter, which increased $19 million, reflecting higher general insurance vehicle fuel and maintenance expenses bad debt.

<unk> and advertising expenses.

Turning to slide 10, UGI International reported EBIT of $82 million compared to $136 million in prior year period.

Retail volumes increased 6% largely due to the colder than prior year weather, which had a favorable impact on heating related bulk and crop drying volumes.

Average wholesale propane prices in northwest Europe were approximately 100% higher than the comparable prior year period. This significant increase in unprecedented volatility in commodity pricing prices had a negative impact on average LPG unit margins in energy marketing margins.

Price increases have been put in place to recover this accelerated increase in LPG cost in the margin shift for energy marketing attributable to backwardation is recoverable in future periods of the contract which are typically two to three years in length.

Also impacting the decline in energy marketing margin was increased commodity costs associated with higher than anticipated volumes purchased by certain customers through fixed price sales contracts.

Turning to operating and administrative expenses, the modest increase over price year over prior year is largely due to additional distribution and packaging costs because of the higher retail volumes sold.

Separately, our hedging strategy, which is intended to offset the multiyear impact of foreign currency changes is working as intended and is reducing the volatility associated with U S dollar shifts over time.

Moving to the natural gas businesses mid.

Midstream and marketing reported EBIT of $82 million compared to $59 million in prior year period.

The business experienced increased margins from renewable energy marketing activities capacity management, and peaking contracts in comparison to the prior year period.

The higher renewable energy marketing activities reflect increased sales volumes as well as higher average pricing for environmental credits.

Our utility segment reported EBIT of $98 million $20 million higher than the prior year period, which is largely attributable to the incremental contribution from mountaineer, both core market in total volume increased over the prior year period, despite warmer weather largely due to the <unk>.

Additional volume for mountaineer.

Our utilities continued to experience strong customer growth with an addition of more than 4500, new customers roughly 4000 of which were in Pennsylvania.

Total margin increased by $46 million due to the higher core market volume the higher gas base rates at UGI utilities that went into effect in fiscal 2021, and a distribution system improvement charge that was implemented in Q3 of fiscal 2021.

The increase in operating and administrative expenses as well as depreciation expense were largely as a result of the incremental expenses attributable to mountaineer.

Liquidity.

As of the end of the quarter UGI had available liquidity of $1 $5 billion, which is consistent with the corresponding prior year period, we're pleased with the cash generation capabilities of our business and our current liquidity position given the significant increases in volatility in commodity prices.

And since we typically experienced higher seasonal working capital requirements in the first quarter.

Our balance sheet remains strong with the capacity to fund active projects and growth investments. Additionally.

Additionally on February 2nd our board of Directors declared a quarterly dividend of <unk> 34, and one half cents per share.

On that date, our board also approved an extension of the existing share repurchase program for up to 8 million shares for an additional four year period through to February 2026.

This program extension will provide additional flexibility in deploying cash with the intent to keep shares outstanding fairly constant and at times return excess cash to shareholders.

And with that I'll turn the call back over to Roger.

Thank you Ted.

In closing I want to emphasize that our long term financial commitments of achieving 6% to 10% EPS growth and 4% dividend growth are unchanged.

We are leaning into our strong capabilities are focused margin and expense management and this includes disciplined actions to recover higher commodity cost incurred control and minimize discretionary expenses across the entire business.

And accelerate the corporate function transformation that began in fiscal 2020.

We have a long runway of growth opportunities ahead.

And our teams are making tremendous progress on key initiatives across the business.

These opportunities and initiatives aligned with our strategy to deliver reliable earnings growth in.

Invest in renewables and rebalance our business in order to create sustainable value for our shareholders customers.

And employees.

We thank you for your interest in UGI and your participation in today's call and with that we will open the line for your questions.

Josh.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key please stand bottle with the Q&A roster.

Our first question comes from Julien Dumoulin Smith with Bank of America. You May proceed with your question.

Hey, Good morning. This is actually Cody Clark on for Julian Thanks for taking my question.

So first wondering if you can quantify the weather impact overall for the quarter and also if you could just give a little bit more detail on the offsets.

The weak first quarter for the balance of the year you talked about some of the inflationary pressures youre seeing on the expense side. So how much latitude do you see the balance of the year.

Yes. Thanks.

Cory for your question this morning.

So maybe just a couple of things. So we don't typically typically go into that level of detail talking about specifics on weather, but as you know December has the highest amount of heating degree days in the first quarter.

And we did see an all time record warm December across the U S.

So while our business is certainly designed to manage some weather volatility we did see unprecedented warm weather this particular quarter, especially in December .

So I'd like to highlight though that despite this our natural gas businesses did deliver some pretty strong results and this speaks to the benefits of the diversification of our business and the fact that we have these attractive fee based structures in the midstream business.

Okay got it and then looking at UGI International I'm, just wondering if you can kind of expand on that margin impact attributable to the fluctuations in commodity prices.

I know you've shown how you managed margins global LPG over time.

And you had some volume up there on the colder weather yet it was more than offset by the margin impact.

Yes, So let me just provide a bit more color on the energy marketing.

Margin impact that we saw so we really did see unprecedented and an accelerated increase in natural gas costs and electricity costs. So I think everybody can see that it's been a very well known fact over the over the quarter.

So our business is one where we signed these two to three year deals and when we do customers want a fixed price. So when we lock in a fixed price we hedge it.

And therefore, there is this margin shift that occurs where in the short term, we won't see the margin, but we certainly recover that margin over the longer period. So the first quarter was impacted by margin shift.

The other item that we pointed out is that we did have some customers that took volumes that were in excess of what the previously took.

And that created a scenario, where we had to byproduct from the market at spot prices and that also created some margin.

Erosion in the first quarter.

Now our teams have been hard at work at preventing matter of minimizing that going forward.

Through commercial arrangements with customers, where we're really looking at if they take an additional volume we have the commercial commercial latitude to go in and make sure that we recover excess costs as much as possible going forward. So that's one of the action items, we've been very much focused on.

And also really minimizing the type of the amount of renewal renewals that we will do that will provide this opportunity for customers to take excess product above what.

We agreed to and what we are able to hedge.

Okay understood and lastly on midstream if I can just wondering how youre thinking about opportunities for organic versus inorganic growth, whereas the focus now and similarly can you quantify either revenue or Bcf, how much capacity you have on the existing midstream system.

And what you see is available for expansion there.

Yes, Cory thanks, as well for that question I'll pass it over to Bob Beard, who is here with us to answer that question.

Good morning, Yeah, we see significant opportunities in the southwestern part of the state.

If you give me a second.

Excuse me I will tell you the capacity of the systems that we have.

Yes.

Sorry about that.

Yes sure so.

On the midstream system in total we have.

Total vaporization capacity of about 360000.

<unk> per day.

Liquefaction of about 22500 <unk> per day.

The total pipeline capacity of over four Bcf a day.

So what we're seeing in the go.

Go ahead I'm sorry.

No I was just going to ask the second part on the organic versus inorganic growth.

Yes, we're seeing it was about a month and a half ago that we saw statistic come out of EIA that the prior six months was the highest production out of the Marcellus and the history of <unk>.

Marcellus production in Utica, So we're seeing strong activity continuing and we continue to see.

Using our utility as a proxy for instance, we continue to see.

I'm going to say single digit percentage increase.

Capacity out of the Marcellus and as a proxy the Stonehenge system that we recently purchased we've seen increases in production out of that system over the last four or five years of above.

<unk> 40 or 50%.

So.

When we look at when we look at the midstream system, we look at our utility as a proxy right. So our utility system continues to add anywhere between eight and 16000 customers a year.

We continue to see existing customers grow their load and for the first time in my career, we're seeing industry locate to the Appalachian basin as opposed to move out of it.

So if we use our utility as a proxy and.

Mountaineer as a proxy as well we see continued strong growth out of the Marcellus. So we're bullish on it as far as organic growth, Yes, I think the rig count was up last month by one over the prior year as prices stabilize at what we believe to be reasonable for deca firm rates I think will.

We continue to see interest in production out of the Marcellus.

Okay. That's all I had thanks again for the time.

Thank you Laurie.

Thank you and as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And I'm not showing any further questions at this time I would now like to turn the call back over to Roger grow for any further remarks.

Thank you Josh So just in closing I'd like to share a few additional remarks today.

So as we highlighted during the call we don't discuss guidance. After the first quarter. It's just too early in the year given the amount of heating degree days that we have ahead of us.

That being said, we can say that January in the U S was a colder than usual the normal months.

The other thing I'd like to highlight is that the first quarter was a tough quarter.

Lot of headwinds at the same time with the warm December in the U S. A lot of volatility in commodity cost the residual effects from customer service challenges that we spoke about.

So we are clearly disappointed with the first quarter, but our teams really sprung to action.

Absolutely managing margins and being proactive with margin management as we continue to execute through the next quarters.

We are controlling expense and reducing discretionary expenses, while keeping a very keen eye on safety.

<unk> customer service.

So all of these actions will lead to recovery over the remainder of the years, we really expect recovery through Q2, three and four.

So with that I'd like to thank you for your participation today and your questions and we look forward to the next earnings call. Thank you very much.

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

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Hello, Thank you for standing by and welcome to the UGI Corporation first quarter fiscal 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question during the session you will need.

Press Star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today to meet the Morris Director of Investor Relations. Please go ahead.

Thanks, Josh and good morning, everyone and thank you for joining our fiscal 2022 first quarter earnings call.

Today, I'm joined by Roger Carrillo, President and CEO Tad Your Strep C CFO and Bob <unk> Executive Vice President natural gas global engineering, and 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 commenced 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.

Im pleased to turn the call over to Roger.

Thank you tamika and good morning, everyone.

I'll start today by providing an update on the quarter, including our progress on several strategic initiatives.

Ted will then provide an overview of first quarter's financial results and liquidity position.

I believe everyone is aware of the extremely challenging macroeconomic environment experienced in the first quarter.

Significant increases and volatility in commodity prices.

Rising inflation.

The tight labor market.

These factors along with December being the warmest on record in the U S, allowing to have a negative impact on our results as we reported adjusted earnings per share of <unk> 93 for the quarter.

And the effect of higher commodity prices on customer usage.

UGI International had lower average LPG unit margins and lower energy marketing margins that were largely due to higher commodity costs.

Our natural gas businesses delivered strong results. Despite the warmer weather due to incremental earnings from mountaineer.

The higher gas base rates that went into effect last year and higher margin from renewable energy marketing activities.

Per our historical practice, we are not discussing full fiscal year guidance. After a single quarter given the amount of heating degree days.

Remaining.

Additionally, we are encouraged that January was colder than normal in the U S.

We are confident in the strength and resilience of our business and our ability to deliver against our long term commitment of providing 6% to 10% EPS growth.

Turning to slide five.

In the first quarter, we continued to advance our strategy to deliver reliable earnings growth.

Invest in renewables and rebalance our business.

We are off to a strong start in our utilities capital expenditure program, which is an area of significant growth for the company.

During the quarter, we deployed over $110 million of capital and we expect to execute on our plan of investing over $500 million.

In fiscal 2022.

Our goal is to continue replacing cast iron and bare steel pipes to promote the long term safety and integrity of our infrastructure.

Drive operational efficiency.

<unk> access to reliable and affordable natural gas to our customers, while reducing emissions.

We continue to see attractive customer growth at the utilities in particular with conversions from other fuel sources. The most predominant of which is fuel oil.

During the quarter, we added more than 4500, new residential heating and commercial customers.

Mountaineer performed in line with our expectations delivering solid results for the quarter.

We also saw that in the midst of significant increases in commodity prices in comparison to the prior year period Amerigas benefited from disciplined margin management efforts.

Late last week UGI utilities filed a request with the Pennsylvania public utility Commission to increase natural gas rates by approximately $83 million.

This requested rate increase is driven by the record cap level of capital that UGI utilities is deploying to upgrade and expand our piping systems.

Turning to our renewables strategy.

With this approval, we've now begun the process of forming the joint venture and expect to provide more details in the coming months.

We anticipate that the first production facility will be located in the UK.

We also entered into a multiyear agreement with Verde mass to utilize their catalytic technology to produce and distribute renewable fuels within the U S and Europe .

The intent is to bolt on the technology to existing bioethanol facilities in order to produce renewable fuels.

The first production facility is expected to be operational in fiscal year 2024, with an annual production target of approximately 50 million gallons of combined renewable fuels.

We are pleased with the momentum that we've built upon fiscal 2021 and identifying renewable investment opportunities.

In addition.

Our previously announced projects remain on track with the Idaho, and Spruce Haven RMG projects expected to be completed in calendar 2022.

We are moving forward, our ESG programs as well as the commitment to lower our own carbon emissions and help our customers to do the same.

I am proud of that of our efforts to maintain robust governance practices and improved greenhouse gas mitigation strategies were recognized with UGI being upgraded to double a rating by MSCI.

This rating positions us among the leading companies worldwide for action across ESG matters.

Okay.

Turning to the third prong of our strategy.

Rebalancing our portfolio.

On January 27th we completed the previously announced Stonehenge acquisition for a total cash consideration of $190 million.

The Stonehenge business includes a 47 mile natural gas gathering system and associated compression.

It is located in western Pennsylvania, and complements our UGI Appalachia assets.

This transaction is immediately accretive to earnings and a stable cash flows underpinned by a long term contract with minimum volume commitments.

And now I'll turn the call over to Ted who will get into more details on our financial results.

Thanks, Roger and good morning.

As Roger mentioned UGI delivered adjusted diluted EPS of <unk> 93, compared to $1 18 in the prior fiscal quarter.

Last year, we had a <unk> <unk> loss on foreign currency derivative instruments compared to a <unk> gain this year.

We had a <unk> <unk> loss on the extinguishment of debt associated with our refinancing at UGI international during the quarter.

One therefore, the expenses being adjusted out in fiscal 2022 solely related to the transformation of the corporate support functions.

On this slide we provide additional color on the 25 decline and the year over year quarterly performance by segment.

Turning to the individual businesses.

Amerigas reported a $55 million decrease in EBIT over the prior year.

Retail volume declined 13%, reflecting lower customer usage as the country experienced the warmest December on record coupled with significant increases in commodity prices.

Average wholesale propane prices at one of the major supply points in the U S. Mount Belvieu, Texas, where approximately 125% higher than the comparable prior year period.

As we shared last year, we experienced customer service challenges with our transformation driven new operating model.

We continue to make customer experience and accelerating customer growth a top priority.

Reserves and advertising expenses.

Turning to slide 10, UGI International reported EBIT of $82 million compared to $136 million in prior year period.

Retail volumes increased 6% largely due to the colder than prior year weather, which had a favorable impact on heating related bulk and crop drying volumes.

Also impacting the decline in energy marketing margin was increased commodity costs associated with higher than anticipated volumes purchased by certain customers through fixed price sales contracts.

Moving to the natural gas businesses.

Stream and marketing reported EBIT of $82 million compared to $59 million in prior year period.

The business experienced increased margins from our renewable energy marketing activities capacity management, and peaking contracts in comparison to the prior year period.

The higher renewable energy marketing activities reflect increased sales volumes as well as higher average pricing for environmental credits.

Additional volume for mountaineer.

Our utilities continued to experience strong customer growth with an addition of more than 4500, new customers roughly 4000 of which are in Pennsylvania.

<unk> margin increased by $46 million due to the higher core market volume the higher gas base rates at UGI utilities that went into effect in fiscal 2021, and a distribution system improvement charge that was implemented in Q3.

Fiscal 2021.

The increase in operating and administrative expenses as well as depreciation expense were largely as a result of the incremental expenses attributable to mountaineer.

Liquidity.

And since we typically experienced higher seasonal working capital requirements in the first quarter.

Our balance sheet remains strong with the capacity to fund active projects and growth investments.

Additionally on February 2nd our board of Directors declared a quarterly dividend of <unk> 34, and one half cents per share.

On that date, our board also approved an extension of the existing share repurchase program for up to 8 million shares for an additional four year period through to February 2026. This.

This program extension will provide additional flexibility in deploying cash with the intent to keep shares outstanding fairly constant and at times return excess cash to shareholders.

And with that I'll turn the call back over to Roger.

Thank you Ted.

In closing I want to emphasize that our long term financial commitments of achieving 6% to 10% EPS growth and 4% dividend growth are unchanged.

And accelerate the corporate function transformation that began in fiscal 2020.

We have a long runway of growth opportunities ahead.

And our teams are making tremendous progress on key initiatives across the business.

These opportunities and initiatives aligned with our strategy to deliver reliable earnings growth <unk>.

Invest in renewables and rebalance our business in order to create sustainable value for our shareholders customers and employees.

We thank you for your interest in UGI and your participation in today's call and with that we will open the line for your questions.

Josh.

Thank you as a reminder to ask a question you will need to press star one on your telephone to it.

Draw your question press the pound key please stand battle with the Q&A roster.

Our first question comes from Julien Dumoulin Smith with Bank of America. You May proceed with your question.

Hey, Good morning. This is actually Cody Clark on for Julian Thanks for taking my question.

So first wondering if you can quantify the weather impact overall for the quarter and also if you could just give a little more detail on the offsets.

The weak first quarter for the balance of the year you talked about some of the inflationary pressures that you're seeing on the expense side. So how much latitude do you see for the balance of the year.

Yes. Thanks.

Cory for your questions. This morning.

So maybe just a couple of things so.

We don't typically typically go into that level of detail talking about specifics on weather, but as you know December has the highest amount of heating degree days in the first quarter.

And we did see an all time record warm December across the U S.

So while our business is certainly designed to manage some weather volatility we did see unprecedented warm weather this particular quarter, especially in December .

Okay got it and then looking at UGI International I'm, just wondering if you can kind of expand on that margin impact attributable to the fluctuations in commodity prices I know you've shown how you've managed margins global LPG overtime.

And you had some volume up there on the colder weather, yes, it was more than offset by the margin impact.

Yes, So let me just provide a bit more color on the energy marketing.

Margin impact that we saw so we really did see unprecedented.

And an accelerated increase in natural gas costs and electricity costs. So I think everybody can see that it's been a very well known fact over the over the quarter.

So our business is one where we signed these two to three year deals.

When we do customers want a fixed price so when we lock in a fixed price we hedge it.

The other item that we pointed out is that we did have some customers that took volumes that were in excess of what the previously took.

And that created the scenario, where we had to byproduct from the market at spot prices and that also created some margin.

Erosion in the first quarter now.

Our teams have been hard at work at preventing that are minimizing that going forward.

Through commercial arrangements with customers, where we're really looking at if they take an additional volume we have the commercial commercial latitude to go in and make sure that we recover excess costs as much as possible going forward. So that's the action items, we have been very much focused on.

And also really minimizing the type of the amount of renewal renewals that we will do that will provide this opportunity for customers to take excess product above what.

We agreed to and what we are able to hedge.

And what you see is available for expansion there.

Yes, Cory thanks, as well for that question and I'll pass it over to Bob Beard, Who's here with us to answer that question.

Good morning, Yeah, we see significant opportunities in the southwestern part of the state.

If you give me a second.

Excuse me I will.

Tell you the capacity of the systems that we have.

Yes.

Sorry about that.

Yes sure so.

On the midstream system in total we have.

Total vaporization capacity of about 360000.

<unk> per day.

Liquefaction of about 22500 <unk> per day.

Total pipeline capacity of over four Bcf a day.

So what we're seeing in the go.

Go ahead I'm sorry.

No I was just going to ask the second part on the organic versus inorganic growth.

Yes, we're seeing it was about a month and a half ago that we saw statistic come out of EIA that the prior six months was the highest production out of the Marcellus and the history of <unk>.

Marcellus production in Utica. So we are seeing strong activity, continuing and we continue to see.

Using our utility as a proxy for instance, we continue to see.

I'm going to say single digit percentage increase of capacity out of the Marcellus and as a proxy the Stonehenge system that we recently purchased we've seen increases in production out of that system over the last four or five years of about <unk>.

<unk> 40 or 50%.

So.

When we look at when we look at the midstream system, we look at our utility as a proxy right. So our utility system continues to add anywhere between eight and 16000 customers a year.

We continue to see existing customers grow their load and for the first time in my career, we're seeing industry located to the Appalachian basin as opposed to move out of it.

So if we use our utility as a proxy.

We continue to see interest in production out of the Marcellus.

Okay. That's all I had thanks again for the time.

Thank you Corey.

Thank you and as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And im not showing any further questions at this time I would now like to turn the call back over to Roger grow for any further remarks.

Thank you Josh.

Clothes that you'd like to share a few additional remarks today.

So as we highlighted during the call we don't discuss guidance. After the first quarter. It's just too early in the year given the amount of heating degree days that we have ahead of us.

That being said, we can say that January in the U S was a colder than usual the normal months.

The other thing I'd like to highlight is that the first quarter was a tough quarter.

A lot of headwinds at the same time with the warm December in the U S. A lot of volatility in commodity cost the residual effects from customer service challenges that we spoke about.

So we are clearly disappointed with the first quarter, but our teams really sprung to action.

Absolutely managing margins and being proactive with margin management as we continue to execute through the next quarters.

We are controlling expense and reducing discretionary expenses, while keeping a very keen eye on safety and customer service.

So all of these actions will lead to recovery over the remainder of the year. So we really expect recovery through Q2, three and four.

So with that I'd like to thank you for your participation today and your questions and we look forward to the next earnings call. Thank you very much.

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

Q1 2022 UGI Corp Earnings Call

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