Q1 2024 UGI Corp Earnings Call

February 1, 2024

Okay.

Good day, and thank you for standing by.

Speaker Change: Welcome to the UGI Corporation fiscal 2024 first quarter earnings Conference call. At this time, all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone.

Speaker Change: We'll then hear an automated message advising your hand is reyes.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your speaker today.

Speaker Change: Tamika Morris Senior director of Investor Relations. Please go ahead.

Speaker Change: Yeah.

Good morning, everyone. Thank you for joining our fiscal 2024 first quarter earnings call with me are Mario Longhi interim President and CEO, Shawn O'brien CFO N-bomb theory.

Speaker Change: On today's call, we will discuss our near term priorities and 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 todays date only actual results may differ significantly because of risks and uncertainties that are difficult to predict.

Speaker Change: Please read our earnings release and our most recent annual report for an extensive list.

Speaker Change: Curious that could affect results.

Speaker Change: Assumes no duty to update or revise forward looking statements to reflect events or circumstances that are different from expectations.

Speaker Change: 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.

Speaker Change: I'm pleased to turn the call over to Mario.

Mario: Thank you tamika and good morning, everyone.

As I have been engaging with our people at all levels of the organization. A key objective of these interactions has been to better understand our culture strengths and the improvements needed for greater financial performance.

Mario: Now what is evident from my time on the board and engagement with the organization is that the fundamentals of our core business are solid.

Mario: In Pennsylvania, and West, Virginia, we operate attractive revenue related utilities business to deliver over 10% return on equity.

Mario: These businesses provide earnings ability and growth due to continued customer additions.

Mario: Long runway of opportunities to replace aging infrastructure and reduced weather sensitivity due to a weather normalization of lender.

Mario: At the midstream and marketing segment, we continue to optimize our portfolio and benefit from earnings reliability, given the significant proportion of fee based contracts.

Mario: This business serves gas and electric utilities, including our own UGI utilities, and many top tier customers in the mid Atlantic region.

Mario: As I move to UGI International there is no doubt that the propane distribution business.

Mario: And continues to provide attractive free cash flow, which helps to meet capital needs and paying the dividend.

Mario: Well there is some weather sensitivity regulatory considerations the business has strong market share in key countries and great brand recognition.

Speaker Change: Now our final segment.

Speaker Change: Again.

Speaker Change: Has experienced several challenges over the past few years that have affected volumes and ultimately earnings.

Speaker Change: While efforts were made in the past to address performance. It is evident that there needs to be a renewed focus on execution.

Speaker Change: As a result, we are examining the operating model and business processes to determine the adjustment that is needed along with disciplined execution to effect positive change in the overall performance.

Operator: Good day, and thank you for standing by. Welcome to the UGI Corporation's fiscal 2024 first quarter 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 a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is free.

Speaker Change: And this takes me to our key near term priorities as we embark on the journey to better position.

Speaker Change: In return.

Speaker Change: We're taking actions that should realign our cost base to the underlying business performance and enable us to become more cost competitive in a sustainable manner.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the comments over to your speaker today, Tamika Morris, Senior Director of Investor Relations. Please go ahead.

Speaker Change: As well as allocating capital to segments that have a solid track record of providing attractive returns.

Speaker Change: These actions along with other prudent measures will allow us to strengthen the balance sheet improve our credit metrics and evolve into an organization with more financial flexibility to capitalize on future opportunities.

Tamika Morris: Good morning, everyone. Thank you for joining our Fiscal 2024 First 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 discuss our near-term priorities and 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. However, 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.

Speaker Change: We have a dedicated team of employees, who are instrumental in accomplishing these goals and advancing in Gi.

Speaker Change: Going forward. It is crucial that we operate under a unified and collaborative organization.

Speaker Change: That is customer centric and with a high performing culture.

Speaker Change: With that.

Speaker Change: I will share some of our key highlights for the quarter before handing the call to Sean who will cover the financial results in more detail.

Sean: During the quarter UGI and delivered adjusted EPS of $1 20 in comparison to $1 14 in the prior year.

Sean: These results reflect the strong performance of UGI international and the natural gas businesses and underscores our commitment to our customers shareholders and employees.

Tamika Morris: We will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the Comparable Gap Measures are available in our presentation. Now, I'm pleased to turn the call over to Mario. Thank you, Tameka, and good morning, everyone.

Sean: As the team previously anticipated and discussed on our year end earnings call Amerigas experienced a decline in its year over year financial results.

Sean: Also of note during the quarter over our regulated utilities continue to deploy capital primarily in infrastructure replacement and betterment and added more than 3500, new residential heating and commercial customers.

Sean: In December we received approval of the gas rate case for amounts of the year, which went into effect on January one.

Sean: As a part of the settlement. We were also pleased to receive approval of a weather normalization brighter with a 2% that's been effective from October one 2024.

Sean: This rider normalizes revenue and customer and builds when weather deviates from normal by more than 2%.

Mario Longhi: The long runway of opportunities to replace aging infrastructure and reduce weather sensitivity due to a weather normalization rider at the midstream and marketing segments. We continue to optimize our portfolio and benefit from earnings reliability given the significant proportion of fee-based contracts. This business serves customers in electric utilities, including our own UGI utilities and many top-tier customers in the Mid-Atlantic region.

And finally.

Sean: During the quarter, we completed the sale of federal energy marketing portfolios in France, and Netherlands further progress on our objective to exit dividend CT energy marketing business.

Sean: And the actions taken since January 2022, we have reduced our customer supply locations by over 97%, thereby significantly reducing our exposure.

Mario Longhi: As I move to UGI International, there is no doubt that the propane distribution business has and continues to provide attractive free cash flow, which helps to meet capital needs in paying the dividends. While there is some weather sensitivity and regulatory considerations, the business has strong market share in key countries and great brand recognition. Now our final segment, America, has experienced several challenges over the past few years.

Sean: And with that I will hand, the call over to Sean.

Sean: Thanks, Mario and good morning, as Mario mentioned for the fiscal 2024 first quarter UGI delivered adjusted diluted EPS of $1 26 over the prior year period the.

Sean: The utility segment was up <unk> benefits from the weather normalization rider and higher base rates offset the impact of warmer weather and slightly higher operating expenses midstream and marketing was up eight due to lower income taxes, partially associated with an increase in investment tax credits.

Mario Longhi: These have affected volumes and, ultimately, earnings. While efforts have been made in the past to address performance, it is evident that there needs to be a renewed focus on execution. As a result, we are examining the operating model and business processes to determine the adjustment that is needed, along with disciplined execution, to effect a positive change in overall performance. And this takes me to our key near-term priorities as we embark on the journey to better position EGI for the long term. We're taking actions that should realign our cost base to the underlying business performance and enable us to become more cost competitive in a sustainable manner, as well as allocating capital to segments that have a solid track record of providing attractive returns.

Sean: UGI International was up 18.

Sean: With the continued exit from the noncore energy marketing business and increased total margins from the LPG business Amerigas was down 16 as the business continued to deal with lower volumes and increased investment in operations.

Sean: Lastly, corporate and other was down <unk> <unk> due to higher interest expense and income taxes now.

Sean: Now turning to the next slide.

Speaker Change: I will now walk you through the key drivers for each reportable segment when compared to the prior year, starting with the utility segment, our regulated utilities delivered EBIT of $135 million up $7 million over the prior year period.

Speaker Change: By significantly warmer weather the business benefited from the weather normalization rider that was implemented at the end of October 2022.

Speaker Change: Utilities realize an increase of $9 million in total margins due to higher gas base rates in Pennsylvania incremental benefits from the gift and Iraq programs as well as continued customer growth.

Mario Longhi: These actions, along with other prudent measures, will allow us to strengthen the balance sheet, improve our credit metrics, and evolve into an organization with more financial flexibility to capitalize on future opportunities. We have a dedicated team of employees who are instrumental in accomplishing these goals in advancing EGI. Going forward, it is crucial that we operate as a unified and collaborative organization. One that is customer-centric and with a high-performance culture is there.

Speaker Change: Electric margins were comparable with the prior period as higher base rates from the recently settled rate case offset the impact of the warmer weather.

Speaker Change: Operating and administrative expenses were down $3 million largely due to lower contract labor costs and personnel related expenses next midstream and marketing reported EBIT of $102 million in comparison to $107 million in the prior year.

Speaker Change: <unk> margin was flat year over year as higher margins from the natural gas marketing activities offset the effect of the warmer weather and lower margins from renewable energy activities.

Mario Longhi: I will share some of our key highlights for the quarter before handing the call to Sean, who will cover the financial results in more detail. For the quarter, UGI delivered adjusted EPS of $1.20 in comparison to $1.14 in the prior year. These results reflect the strong performance of UGI International and the natural gas businesses and underscore our commitment to our customers, shareholders, and employees. As the team previously anticipated and discussed on the year-end earnings call, Amerigas experienced a decline in its year-over-year financial results. Also of note during the quarter, our regulated utilities continue to deploy capital, primarily in infrastructure replacement, embeddement, and added more than 3,500 new residential heating and commercial customers. In December, we received approval of the gas freight case for Mountaineer, which went into effect on January 1st.

<unk> realized lower margins from renewable energy largely due to the timing of RIN sales when compared to the prior year.

Speaker Change: Operating and administrative expenses were up $2 million, primarily due to the recovery of an uncollectible account in the prior year.

Speaker Change: At UGI International.

Speaker Change: EBIT was $117 million up $51 million on a year over year basis.

Speaker Change: <unk> volumes were up 4% due to increased natural gas to LPG conversions and weather that was slightly colder than the prior year.

Speaker Change: Total margin was up $64 million as we realized year over year benefit from the continued exit of the non core energy marketing business increased LPG unit margins and the impact of higher LPG volumes.

Speaker Change: Margin was also impacted by the translation effect of stronger foreign currencies amounting to approximately $15 million.

Next while operating and administrative expenses were down on a constant currency basis due to lower personnel and maintenance costs. This was fully offset by the translation effect of the stronger foreign currencies Lastly, UGI international realized a $7 million decline in other income largely due to lower foreign.

Mario Longhi: As part of the settlement, we were also pleased to receive approval of a weather normalization rider with a 2% debt benefit beginning October 1st, 2024. This rider normalizes revenue and customer bills when weather deviates from normal by more than 2%. And finally, during the quarter, we completed the sale of several energy marketing portfolios in France and the Netherlands, further progressing on our objective to exit the non-core energy marketing business. The action was taken in January 2022. We have reduced our customer supply locations by over 97 percent, thereby significantly reducing our exposure. And with that, I'll hand it over to Sean. Thanks, Mario, and good morning.

Speaker Change: Currency translation gains.

Speaker Change: Lastly, at Amerigas, EBIT was down $39 million on a year over year basis.

Speaker Change: Total margin was down $34 million largely due to a 13% decline in LPG volumes. This volume decline was primarily a result of customer attrition and warmer weather.

Speaker Change: Operating and administrative expenses were up $8 million largely due to higher employee related costs as the business increased its delivery capacity and vehicle expenses.

Speaker Change: The business also realized a $3 million increase in other income largely attributable to gains from asset sales.

Speaker Change: Moving to liquidity at the end of the quarter UGI had available liquidity of $1 5 billion inclusive of cash and cash equivalents and available borrowing capacity on our revolving credit facilities.

Speaker Change: As we've shared with you over the past several months, we are focused on strengthening the balance sheet.

Speaker Change: This is an important near term focus, particularly at Amerigas, where we expect to further reduce debt and provide more buffer on the credit metrics.

Speaker Change: And now I'll hand, the call back over to Mario.

Speaker Change: Thanks, Sean.

Mario: To summarize we had a strong start to the year, which was in line with our expectation.

Sean O'Brien: As Mario mentioned, for the fiscal 2024 first quarter, UGI delivered adjusted diluted EPS of $1.20, six cents over the prior year period. The utility segment was up two cents as benefits from the weather normalization rider and higher base rates offset the impact of warmer weather and slightly higher operating costs. Midstream in marketing was up $0.08 due to lower income taxes, partially associated with an increase in investment tax. UGI International was up 18th, with the continued exit from the non-core energy marketing business and increased total margins from the LPG business. Amerigas was down $0.16 as the business continued to deal with lower volumes and increased investment in operations.

Mario: The team is focused on the near term priorities that I mentioned earlier.

Mario: Well also continue to execute on this strategic review.

Mario: While there are no new updates at this time, we are in the letter and stages of the review and anticipate providing additional information by the Q2 earnings call.

Mario: Lastly, our actions are intended to address the business performance.

<unk> and returning value to shareholders through dividends and strengthened the balance sheet, which should provide some initial flexibility and enabled value creation in the years to come.

Speaker Change: With that I will turn the call back to our operator to open the line for questions.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from Gabriel Moreen with Mizuho. Your line is now open.

Gabriel Moreen: Thank you and good morning, everyone, maybe Mario if I can start out.

Sean O'Brien: Lastly, Corporate Other was down $0.06 due to higher interest, expense, and income tax. Now 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. Our regulated utilities delivered EBIT of $135 million, up $7 million over the prior year.

Gabriel Moreen: The comments you made about examining amerigas operating model.

Gabriel Moreen: Care to elaborate on that and I'm also curious about that within the context of.

Gabriel Moreen: We're a customer attrition stands at the moment and I guess, what metrics youre looking for on that customer.

Gabriel Moreen: Customer attrition metric to see it improving where you want to see it going and also just other facets of how youre thinking about running the business.

Speaker Change: Good morning Gabriel.

Speaker Change: Every operating model.

Speaker Change: A number of elements that need to come together in order for us to have a sustainable and efficient way to deliver value to the bottom line.

Sean O'Brien: Despite significantly warmer weather, the business benefited from the weather normalization rider that was implemented at the end of October 2022. Utilities realized an increase of $9 million in total margins due to higher gas base rates in Pennsylvania, incremental benefits from the DISC and IREP programs, as well as continued customer growth. Electric margins were comparable with the prior period, as higher base rates from the recently settled rate case offset the impact of the warmer weather. Operating and administrative expenses were down $3 million, largely due to lower contract labor costs and personnel-related expenses.

Speaker Change: We created a frame to go in looking to everything what those elements.

Speaker Change: Very interactive interactivity is what will define our ability to get to a more sustainable situation than the Gulf due to improvements.

Speaker Change: If you just pick one element and you focus on it and we improve that but the other ones are not involved in the same manner. You don't get the results you book. So we're actually starting also.

Speaker Change: Bottom line.

Speaker Change: We're checking every contribution that we must expect to have from all of those elements in order to get these things that translated to the bottom line and be a sustainable there.

Speaker Change: That's kind of a frame that is in place that we're using to make decisions.

Speaker Change: And how to improve that business.

Speaker Change: Thanks, Mario and Sean you mentioned in your comments about trying to accelerate if I understood you correctly accelerated debt repayment at Amerigas can you just.

Sean O'Brien: Next, the Ministry of Marketing reported EBIT of $102 million in comparison to $107 million in the prior year. Total margin was flat year over year, as higher margins from the natural gas marketing activities offset the effect of the warmer weather and lower margins from renewable energy activities. The segment realized lower margins for renewable energy largely due to the timing of wind sales when compared to the prior year. However, operating and administrative expenses were up $2 million, primarily due to the recovery of an uncollectible account in the prior year.

Speaker Change: Further buffer I think on the balance sheet.

Speaker Change: Can you maybe talk about what that May mean from an evaluation standpoint, and then also where amerigas stands at this current quarter relative to its leverage covenants and yes, I'm just curious in the near term and long term cap structure, what you may or may not be contemplating.

Speaker Change: Yeah sure David Good morning.

Speaker Change: Things in terms of the long term, we I'll start with the success.

Speaker Change: Just that things need to translate into the bottom line. So we have taken 300, roughly $325 million of absolute debt off of Amerigas as balance sheet. So we've made some progress there.

Speaker Change: My comments about the remainder of this year.

Speaker Change: Indicate that all excess free cash flow Amerigas is still generating a fair amount of excess free cash flow will be utilized to continue to take debt off the balance sheet and we're looking at when I say accelerate we're also looking at maybe going above and beyond that and trying to take off in total may be somewhere in the 400 costs.

Sean O'Brien: At UGI International, EVIT was $117 million, up $51 million on a year-over-year basis. LBG volumes were up 4% due to increased natural gas to LBG conversions and weather that was slightly colder than the prior year. Total margin was up $64 million as we realized year-over-year benefits from the continued exit from the non-core energy marketing business, increased LPG unit margins, and the impact of higher LPG volumes. Total margin was also impacted by the translation effect of stronger foreign currencies, amounting to approximately $15 million. Next, while operating and administrative expenses were down on a constant currency basis due to lower personnel and maintenance costs, this was fully offset by the translation effect of the stronger foreign currency. Lastly, UGI International realized a $7 million decline in other income, largely due to lower foreign currency translation gains.

Speaker Change: Range of additional debt off the balance sheet all of that is in an effort to get their leverage metric.

Speaker Change: Into the sub five range down into the as close as we can to four and a half step one get it below five step to start moving to that four five range, we're still sitting in that.

Speaker Change: The covenant range is $5 75.

Speaker Change: Ill remind you Q1 is a high working capital quarter.

Speaker Change: It's typically the quarter, we have the highest metrics that we peaked right about at the covenant there in Q1, we anticipated that but we will be working over the remainder of the year to continue to take that off the books and try and get that metric below five and into what I would call.

Speaker Change: The right range.

Speaker Change: Thanks, Sean and just to clarify did you have to do an equity cure at Amerigas This past quarter just yet.

Speaker Change: Presentation.

Sean: Yes, So let me I'll highlight we took.

Sean: And equity cure acute Q2 of 2023.

Sean: That is available to us for four quarters.

Sean: Gabe so we utilized a little bit of it was $31 million you may recall thats, what we utilized in Q2 of 2023, we utilized I think around $9 million of it.

Sean: As I mentioned, the abbot for four quarters in Q1, which would be the last quarter, we have utilized around $9 million.

Gabe: Okay I appreciate it and then maybe if I could just have one last one around international of the $64 million increase in margin year over year.

Gabe: It seems like the base business did a bit better with the weather and margins, but can you just talk about how much of that 64 million may have come from.

Gabe: The noncore marketing business and should.

Sean O'Brien: Lastly, at Amerigas, EBIT was down $39 million on a year-over-year basis, and total margin was down $34 million, largely due to a 13% decline in LPG volume. This volume decline was primarily a result of customer attrition and warmer weather. Operating and administrative expenses were up $8 million, largely due to higher employee-related costs as the business increased its delivery capacity and vehicle capacity.

Gabe: Should we think that that may repeat as you won that business down, let's say, if we assume that European gas and electricity prices continue to decline. So I'm just curious how much of that May show up relative to the negative five I think you had talked about exiting that business.

Thirdly impact.

Speaker Change: Yes, so a couple of things.

Speaker Change: In terms of obviously international Mario and I, both highlighted very strong quarter somewhere in the range of half of the benefit was driven by the marketing. We anticipated that gave you may recall Q1 of last year, there were some pretty sizeable losses and that marketing business. So.

Speaker Change: We had actually a slight positive this year so.

Sean O'Brien: The business also realized a $3 million increase in other income, largely attributable to gains from advertising. Moving to liquidity. At the end of the quarter, UGI had available liquidity of $1.5 billion, inclusive of cash and cash equivalents and available borrowing capacity on a revolving credit facility. As we've shared with you over the past several months, we are focused on strengthening the balance. This is an important near-term focus, particularly at Amerigas, where we expect to further reduce debt and provide more buffer on the credit. And now, I'll hand the call back over to Mary.

Speaker Change: That's really really proud of the efforts the company has done to exit that business and the majority of that business and youre seeing it pay dividends. So about half of that was driven by the energy marketing again that was anticipated by the company.

Speaker Change: The other positive stories argued markets were up we were glad to see that you're definitely seeing volumes favorable little help from some weather and then the big one that are the natural gas the LPG convergence.

Speaker Change: So that was something that that has been happening over the last 12 months and we're seeing some of the benefits and the volumes and international there. The last thing I would tell you is I think youre dialed in on the guidance, we gave around losing around 5% to <unk>.

Speaker Change: This year on the marketing business. So two things I think there is a timing to that so we had as I mentioned slight favorable in Q1, it's not going to be a big driver of the remainder of the year gave I think in every quarter, it's going to be relatively de minimis and we're still targeting that 5% to success, which I'll remind you is about a <unk> 50 <unk>.

Mario Longhi: Thanks, Sean. To summarize, we had a strong start to the year, which was in line with our expectations. The team is focused on the near-term priorities that I mentioned earlier, and I will also continue to execute on the strategic review. While there are no new updates at this time, we are in the latter stages of the review and anticipate providing additional information by the Q2 earnings call. Lastly, our actions are intended to address business performance, continue returning value to shareholders through dividends, and strengthen the balance sheet, which should provide financial flexibility and enable value creation in the years to come. With that, I'll turn the call back to our operator to open the line for questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: <unk> versus the prior year on the marketing loss.

Speaker Change: Got it thanks, John I appreciate it.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Our next question comes from <unk>.

Speaker Change: <unk> demand Smith with Bank of America. Your line is now.

Smith: Hey, good morning team. Thank you guys very much for the opportunity here.

Smith: Maybe just picking up on a couple of things you said in the prepared remarks, you talked about <unk>. There momentarily ago can you elaborate what would you expect by that point in time to be able to talk to is the 6% to add multiple to kind of address at that point in time and how far would you expect to be on kind of revamping, both what is core versus non as well as how do you.

Smith: About.

Smith: Kind of updating your plans on kind of refining and streamlining the business to elevate cash flow in.

Smith: Prove the overall.

Operator: Please stand by while we compile the Q&A raw. Our first question comes from Gabriel Maureen with Mizzouha. Your line is now open. Thank you. Good morning, everyone.

Smith: Opex profile.

I can maybe start around.

Smith: Improving the Opex profile Julien.

Julien: We've already taken some actions.

Julien: I mentioned, maybe on the last call. So we're looking obviously at $70 billion to $100 billion of sustainable reductions. We've taken some actions. They were late in Q1, So I do want to point out that the impact of those actions.

Mario Longhi: Maybe Mario, if I can start out with the comments you made about examining Amerigas' operating model, if you would just care to elaborate on that. And I'm also curious about that within the context of where customer attrition stands at the moment. And I guess what metrics you're looking for on that, that customer attrition metric to see it improving where you want to see it going, and also just other facets of how you're thinking about running the business. Good morning, Gabriel.

Didn't see a significant amount but is that those are actions, we will continue to drive lower opex.

Julien: Related those actions the remainder of the year we have.

Julien: Significant other actions targeted for Q2 late Q2, once again and we can do and we're continuing to drive efficiencies I think it's a big theme that Mario brings to the table.

Julien: To ensure that that Opex trend continues to go down Q1 is.

Julien: Q1, we did not see an absolute reduction in Opex was slightly up year over year. The primary driver of that was going to be amerigas, and we did make some I call them investments, but we definitely spent some money to prepare for the winter.

Mario Longhi: You know, every operating model has a number of elements that need to come together in order for you to have a sustainable and efficient way to deliver value to the bottom line, and we created a framework to go and look into every single one of those elements. Their interactivity is what will define our ability to get to a more sustainable situation and then evolve into improvement. If you just pick one element and you focus on it, and you improve that, but the other ones are not evolving in the same manner, you don't get the results you want.

Julien: I think youre talking about in terms of.

Julien: The longer term priorities I think we need to get through the strategic review, we've not revised.

Julien: Any of our longer term priorities, whether it be the EPS growth or the dividend.

Julien: But at the end of the day I think we want to make sure we get through the strategic review.

Julien: And fully and as Mario said, we are in the later stages and we'll give you another update in Q2, and then I think we'll address than some of the some of the longer term goals that the company had in terms of the rebalancing of the portfolio. We've been very clear that we are.

Julien: We're moving more to a higher percentage of Nat gas in relation to LPG. That's happened already obviously, maybe not the exact way we wanted to but we are more of a nat gas company today than we were above 60% and we do anticipate and I think we've been clear the goal of the company is to is to increase that percentage.

Mario Longhi: So we're actually starting with the bottom line, and we're checking every contribution that we must expect to have from all of those elements in order to get these things to translate to the bottom line and be sustainable there. But that's kind of the framework that is in place that we're using to make decisions and improve that business. Thanks, Mario.

Julien: Over the over the next few years.

Julien: And we're utilizing the strategic review to help us in that effect.

Sean O'Brien: And Sean, you mentioned in your comments about trying to accelerate, if I understood you correctly, debt repayment at Amerigas. Can you just create further buffer, I think, on the balance sheet? Can you maybe talk about what that may mean from an evaluation standpoint?

Julien: So I think I got them close to your question Julien.

Speaker Change: Indeed, I think you hit them categorically I'm actually just a follow up and clarify if <unk> was kind of the bogey for a bigger update here. How do you think about like what strategic here and kind of should we expect some level of divestment activity here in the.

Speaker Change: Interim kind of leading up into that just as you kind of.

Sean O'Brien: And also, where Amerigas stands in this current quarter relative to its leverage covenants? And yeah, just curious, you know, in the near term and long term cap structure, what you may or may not be contemplating? Yep, sure, Gabe. Good morning.

Speaker Change: Prepare to kind of fully update thanks.

Speaker Change: And everything is on the table Thats why this strategic review is all about and you'll hear more of that when we finished it off.

Speaker Change: Alright fair enough.

Speaker Change: And then just sorry to come back to the numbers real quickly.

Speaker Change: On.

Speaker Change: Gabe was do you mind speaking a little bit to the marketing I mean, I think I think you were in your response, you said half of the benefit there was due to marketing I think you guys had only been contemplating roughly a nickel.

Sean O'Brien: A couple things in terms of the long term. I'll start with success. Mero just said things need to translate into the bottom line. So we have taken roughly $325 million of absolute debt off of Amerigas's balance sheet. So we've made some progress there. My comments about the remainder of this year are to indicate that all excess free cash flow, Amerigas is still generating a fair amount of excess free cash flow, will be utilized to continue to take debt off the balance sheet. And we're looking at, when I say accelerated, we're also looking at maybe going above and beyond that and trying to take off, in total, maybe somewhere in the 400 plus range of additional debt off the balance sheet. All that is in an effort to get their leverage metrics down into the, you know, sub five range down into the, you know, as close as we can to four and a half. Step one, get it below five.

Gabe: For the year here. So it seems like you guys are ahead of plan.

Gabe: Is that insinuating that maybe the back half of the year. There is some fall off or just sustaining that benefit here through the course of the year no.

Nobama: Nobama definitely clarify so there was a big benefit year over year. The primary driver Julian was last year that were big losses and this year.

Nobama: With relatively flat so the business as we've exited the business the earnings volatility that we're experiencing is gone and youre not seeing big chunks, so but to directly answer. Your question, we're pretty flat we have given the five to six and that was a loss and some of that is timing. So we do expect it's not going to be a driver and it's fair.

Nobama: Spread out if I look at the forecast between.

Nobama: Between Q2, Q3 and Q4.

Nobama: Small losses, the remainder of the year that'll get you to that 5% to <unk>.

Nobama: In Q1, really really pretty pretty much a flat business versus a big loss that occurred last year.

What makes 97 then from your original supply locations that we have.

Sean O'Brien: Step two, let's start moving to that four and a half range. We're still sitting, you know, in the, you know, the covenant range is 575. I'll remind you, Q1 is, you know, the high working capital quarter. It's typically the quarter we have the highest metric. So we peaked, you know, right about at the covenant there in Q1. We anticipated that, but we will be working over the remainder of the year to continue to take debt off the books and try and get that metric below five and into what I would call the right. Thanks, Sean.

Speaker Change: Yes, 97%.

Speaker Change: <unk> taken off the table.

Speaker Change: Excellent nice thanks for clarifying that and then just Super quick on the on the other side of this business. If you think about the you said more substantive cash flow profile to continue to address deleveraging on the LPG side can you talk about how much cash flow you would expect post interest expense to be able to delever. This year.

Speaker Change: Prospectively, if you will I think I heard a couple of comments that earlier, but I just want to try to clarify versus what we saw in the quarter here versus prospectus in the course of the year and being able to bring down France yet.

Speaker Change: Yes, and a couple of things to keep in mind.

Yes.

Speaker Change: Just to give you some data points.

Speaker Change: Amerigas closed the quarter I'll use round numbers, Julian I think we had $50 million to $60 million of cash on hand so.

Speaker Change: So we did have some amerigas is in our cash position.

Speaker Change: We expect that I think what I've said in the past as we anticipate.

Sean O'Brien: And just to clarify, did you have to do an equity cure at Amerigas this past quarter? Just, you know, just yeah. Yep, so let me let you know, I'll highlight, we took the equity cure in Q2 of 2023. That is available to us for four quarters. Gabe, so we utilized a little bit of it was 31 million. You may recall, that's what we utilized in Q2 of 2023. We utilized, I think, around $9 million of it. As I mentioned, you have it for four quarters. In Q1, which would be the last quarter we had, we utilized around $9 million. Okay, I will appreciate it.

Speaker Change: We can deliver the year, we had in our heads about $150 million of cash or give or take from directly out of amerigas that'll be used to delever. So you know that on the 150 of debt that's going to come off the table and then as we think about the additional delevering I've been clear that we may provide.

Speaker Change: We may target, a number closer to $350 million to $450 million.

Speaker Change: Of Delevering in total again I'll remind you on the positive you've already taken 325 off so there may be some additional support that continue to delever quicker I think it's important for the company to get amerigas below that FIFO and to get amerigas into.

Speaker Change: Get it to leverage it to a level that it can sustain a warm winter it can sustain a bump in the night so that ought to give you a feel for the year 150, or so directly from Amerigas Delevering earnings. We're looking at another $150. It may be up to 300 400 from Corp.

Sean O'Brien: And then maybe I could just have one last one around international of the 64 million increase in margin year over year. You know, obviously, it seems like the base business did a bit better with the weather and margins. But can you just talk about how much of that 64 million may have come from the non-core marketing business and, should we think that that may repeat as you wind the business down? Let's say if we assume that European gas and electricity prices continue to decline.

Speaker Change: Thank you for all that clarity I appreciate it good luck guys. Thank you Sir.

Speaker Change: Thanks, Joe Thank you.

Speaker Change: Thank you.

Speaker Change: A reminder, please press star one one to ask a question.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Sarah Akers with Wells Fargo. Your line is now open.

Sarah Elizabeth Akers: Hey, good morning.

Good morning Dara.

Sarah Elizabeth Akers: And just on Amerigas, if I understand correctly, the equity cure won't be available for this fiscal Q2. So do you anticipate another equity cure this quarter and if so any sense of besides just given winter weather.

Sean O'Brien: So I'm just curious how much of that may show up relative to the negative five cents I think you talked about in exiting that business in the yearly impact. Yeah, so a couple things in terms of, you know, obviously, International. Mario and I both highlighted a very strong quarter, you know, somewhere in the range of half of the benefit was driven by marketing. We anticipated that, Gabe, you may recall Q1 of last year, there were some pretty sizable losses in that marketing business. So, and we had actually a slight positive this year. So really, you know, that's really, really proud of the efforts the company made just to exit that business.

Sarah Elizabeth Akers: Yes.

Sarah Elizabeth Akers: Yes, I think youre interpreting the first part right. There when you took when we took that equity cure in Q2 of 'twenty three that it stays into you have it available for four quarters and Q1 would have been this year. So the last one.

Speaker Change: We have multiple based on the agreements we have we can take additional equity cures Luke.

Speaker Change: I've been clear we're trying to run this company without equity cures I think that's important as we go forward. The debt reduction is one element and then you heard Mario talk a lot about.

Sean O'Brien: So the majority of that business, and you're seeing it pay dividends. So about half of that was driven by the energy marketing. Again, that was anticipated by the company. The other positive story is that unit margins were up. We were glad to see that.

Speaker Change: Working on the operating model, so that we actually see.

Speaker Change: The volumes and the EBIT to grow outside of just the debt. So we are doing everything we can.

Mario: Good news, we have more equity cure available to us, but our goal is not to do the best we can not to have to utilize it but it kind of gives us some some some cushion.

Sean O'Brien: You know, you're definitely seeing volumes favorable, a little help from some weather, and then the big one is the natural gas to LPG conversions. So that was something that, you know, has been happening over the last 12 months, and we're seeing some of the benefits in the volumes in international there. The last thing I would tell you is, I think you dialed in on the guidance we gave around losing around five to six cents this year on the marketing business. So two things. I think there is some timing to that. So we had, as I mentioned, a slight favorable in Q1. It's not gonna be a big driver for the remainder of the year, Gabe. I think in every quarter, it's gonna be relatively de minimis, and we're still targeting, you know, that five to six cents, which I'll remind you is about a 50 percent improvement versus the prior year on the marketing loss.

As we continue to work to improve the business.

Speaker Change: Got it.

Speaker Change: And I know heading into the year volumes at Amerigas were expected to decline, but can you kind of quantify in Q1 the impact of the attrition.

Speaker Change: Obviously weather was a factor as well.

Speaker Change: That attrition impact and how that compared to your original expectation was that in line or worse than the original plan.

Speaker Change: Yes, I can do it in two ways I'll start with the year over year, because I know thats, what everyone can see so we highlight at 13% down whether was 12% warmer than normal so that had a meaningful impact, but then there was.

Speaker Change: So a pretty large impact due to attrition. So that's year over year now youre asking okay. What did you anticipate obviously when we get when we talk about.

Speaker Change: Our guidance, it's weather normal so that.

Sean O'Brien: Thanks, Sean. I appreciate it. Thank you. Please take a moment for our next question. Our next question comes from... Julian DeMoulin-Smith with Bank of America. Your lines are now open. Hey, good morning, team. Thank you guys very much for the opportunity here. I'm just picking up on a couple of things you said. In the prepared remarks, you talked about QQ there momentarily ago. Can you elaborate? What would you expect by that point in time to be able to talk to?

Speaker Change: Whether I think was 6% warmer than normal so about half what it was versus last year, but still warmer so some of the impact versus our expectations.

Speaker Change: It was driven by weather, we did have customer attrition baked into our forecast Sara.

Speaker Change: But what we saw in Q1 the levels of attrition, we are higher than what we had baked in so the team's working on that but you did have weather that wouldn't have been in our forecast and we had some of the attrition baked in it was.

Speaker Change: Mario obviously spoke around our focus we saw more attrition than what we would have budgeted.

Sean O'Brien: Is the 6 to 10 something you're eligible to kind of address at that point in time? And how far would you expect to be on kind of, you know, revamping both what is core versus noncore? As well as, how do you think about, you know, kind of updating your plans on kind of refining and streamlining the business to elevate cash flow and, you know, improve the overall OPEX profile? I can maybe start around, you know, improving the OPEX profile, Julian.

Speaker Change: Got it and in terms of UGI level financing are you still confident that the company can whether it'd be amerigas issues and execute on that debt pay down without external equity at UGI.

Speaker Change: Yes, I mean, a couple of things.

Speaker Change: UGI.

Speaker Change: Consolidates all of the businesses.

Speaker Change: I think I've highlighted in the past that international just to give you some metrics in terms of where the international sits on its leverage its in the low twos energy services is in the low twos My point being Theyre very very strong when you look at the debt to cap ratios of our utilities, it's incredibly strong it's in the 50%. So my point is.

Sean O'Brien: We've already taken some actions that I mentioned on the last call. So, we're looking obviously at $70 to $100 million of sustainable reductions. We took some actions, but they were late in Q1.

Sean O'Brien: So, I do want to point out that the impact of those actions was, you know, you didn't see a significant amount, but those actions will continue to drive lower OPEX related to those actions for the remainder of the year. We have, you know, significant other actions targeted for Q2, late Q2 once again, and we're continuing to drive efficiencies. I think it's a big theme that Mario brings to the table to ensure that that OPEX trend continues to go down. In Q1, we did not see an absolute reduction in OPEX.

Speaker Change: Yes, we have that's one of the reasons, we really need to improve amerigas, all these entities roll up and consolidate into a corp.

Speaker Change: So the sooner we improve amerigas it helps corp, and the sooner we can continue.

Speaker Change: Continue to make and roads at Corp, as well so.

Speaker Change: Those are the two focuses improve amerigas debt metrics and then.

Speaker Change: Continue to improve Corp, I've been clear our goal is to get core below four times and we're sitting in the low fours right. Now so we have a little bit of work to do there.

Speaker Change: Okay, and just to be clear is the plan to get there without issuing UGI stack or is that on the table as a tool.

Speaker Change: That has not been on the table in any of the models that run as a tool okay. Perfect and then shifting to international the volumes were up unit margins were up for the quarter to what extent do you think that's sustainable trend that might continue throughout the year and any comments on what's driving the underlying strength there.

Sean O'Brien: It was slightly up year over year. The primary driver of that was going to be Amerigas, and we did make some, you know, I call them investments, but we definitely spent some money to prepare for the winter. I think you're talking about, in terms of the longer-term priorities. I think we need to get through the strategic review. We haven't revised any of our longer-term priorities, whether it be the EPS growth or the dividend, but at the end of the day, I think we want to make sure we get through the strategic review fully, and as Mario said, we're in the latter stages, and we'll give you another update in Q2, In terms of the rebalancing of the portfolio, we've been very clear that we're moving more to a higher percentage of natural gas in relation to LPG. That has happened already.

Speaker Change: Yes, I can start Mario can highlight some of what we're seeing over there maybe from a conservation but in terms of the buys we benefit a little bit from weather. So.

Speaker Change: That's going to be dependent on what we see the remainder of the winter.

Speaker Change: The conversions that I mentioned.

Speaker Change: That should continue those are two to three year contracts on those Nat gas LPG conversion. So that's a tailwind that should continue to help us out.

Speaker Change: And the unit margins.

Speaker Change: They are up year over year, I think when I look at versus expectation, they're not up as much we had some of that baked in so I think I feel pretty good about some of the some of the draw.

Speaker Change: <unk> we are seeing.

Speaker Change: No if you want to bear it took about consummated.

Speaker Change: Conservation.

Speaker Change: Situation over there has shown a little bit of a sign of these.

Speaker Change: Certainly, Italy, and Austria have been more vocal about that.

Speaker Change: And we're beginning to see some signs potentially a bit in other countries, but it's kind of early to say whether this trend will continue but at least we've got a start of it.

Mario Longhi: Obviously, you know, maybe not the exact way we wanted to, but we are more of a natural gas company today than we were, you know, above 60%, and we do anticipate, and I think we've been clear, the goal of the company is to increase that percentage over the next few years, and we're utilizing the strategic review to help us with that effect. So, I think I've answered most of your questions, Julian. Indeed, I think you hit them categorically. Actually, just to follow up and clarify, right, so if QQ is kind of the bogeyman for a bigger update here, how do you think about, like, what's strategic here and kind of should we expect some level of divestment activity here in the interim kind of leading up to that just as you kind of prepare to kind of fully update things? Good, and everything is on the table. That's what a strategic review is all about, and you'll hear more about that when we finish this off. All right, no, fair enough.

Speaker Change: Okay.

Speaker Change: Thanks, and then if I could squeeze in one more just on the modeling side if you have it.

Speaker Change: Adjusted EBITDA for Amerigas for the quarter and trailing 12 months is that something you can provide.

Speaker Change: Yes.

Our financials will be released today, Sarah So tamika, we'll be happy to give those to you after the call.

Speaker Change: Perfect. Thank you so much.

Speaker Change: Thanks, Thank you.

Speaker Change: Thank you one moment for our next question.

Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is now open.

Speaker Change: Hey, Tim this is actually Cameron squeezing.

Cameron: Squeezing me Julian real quick.

Cameron: I just wanted to follow up on one thing and I realize it's only one quarter into the fiscal year, but.

Can you.

Cameron: And sorry, if I missed it can you provide any color on kind of how you see full year results trending relative to guide after this quarter.

Speaker Change: Yes, yes, I mean.

Mario Longhi: And then just started to come back to the numbers real quickly on where Gabe was. Do you mind speaking a little bit about marketing? I mean, I think you were in your response that half of the benefit there was due to marketing. I think you guys had only been contemplating roughly a nickel for the year here.

We're happy to see we started off.

Speaker Change: As Mario said.

Speaker Change: Solid quarter.

Speaker Change: But.

Speaker Change: We're holding the guidance that we had out there.

Speaker Change: Okay. So no.

Speaker Change: Commentary I guess around like maybe trimming higher or lower to the high end or low end.

Speaker Change: I think you said, it's the best camera, we're one quarter in so.

Sean O'Brien: So it seems like you guys are ahead of plan. Is that insinuating that maybe the back half of the year there's some fall off or, sustaining that benefit here through the course of the year. No, Bob, I'll definitely clarify.

Speaker Change: So favorable.

Speaker Change: We're pleased with the quarter.

Got.

Speaker Change: At this point no change.

Speaker Change: Got it awesome. Thank you guys.

Sean O'Brien: So there was a big benefit year over year. The primary driver, Julian, was last year there were big losses, and this year was relatively flat. So the business, as we've exited the business, the earnings volatility that we're experiencing is gone, and you're not seeing big chunks. But to directly answer your question, we're pretty flat.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: I'm showing no further questions at this time I would now.

Speaker Change: Like to turn it back to Mario Longhi interim President and CEO for closing remarks.

Mario Longhi: Well. Thank you for spending time with us today, and we look forward to continuing our conversation next quarter, everyone be well. Thank you again.

Mario Longhi: We've given them the five to six, and that was a loss. And some of that is timing. So we do expect it's not going to be a driver, and it's fairly spread out. If I look at the forecast, you know, between Q2, Q3, and Q4, to have small losses for the remainder of the year, that'll get you to that five to six cents. But this, in Q1, really, really pretty, pretty much a flat business versus a big loss that occurred last year. Yeah, we're down, what, 97% from the original supply locations that we have. Yeah, 97% of the risk is taken off the table. Yeah, excellent. Nice.

Speaker Change: This concludes today's conference call.

Speaker Change: Thanks for participating you may now disconnect.

Speaker Change: Goodbye.

Speaker Change: Okay.

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Okay.

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Sean O'Brien: Thanks for clarifying that. And then just super quick on the other side of this business, if you think about that, you said a more substantive cash flow profile to continue to address deleveraging on the LPG side. Can you talk about how much cash flow you would expect, you know, post interest expense, to be able to delever this year? You know, prospectively, if you will, I think I heard a couple of comments about that earlier, but I just want to try to clarify versus what we saw in the quarter here, versus perspectives in the course of the year, and being able to bring down Yeah. Yeah, and a couple things to keep in mind, you know, just to give you some data points, Amerigas closed the quarter, you know, use round numbers, Julian. I think we had 50, $60 million of cash on hand.

Speaker Change: Yes.

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Sean O'Brien: So, we did have some, you know, Amerigas is in a cash position. We expect that, I think what I've said in the past is, we anticipate, you know, if we can deliver the year we had in our heads, you know, about $150 million of cash or give or take from directly out of Amerigas, that'll be used to de-lever. So, you know, that's under $150 of debt. It's going to come off the table.

Sean O'Brien: And then as we think about the additional de-levering, I've been clear that, you know, we may provide, you know, we may target a number closer to, you know, 350 to 450 million of de-levering in total. Again, I'll remind you on the positive side, we've already taken 325 off. So, there may be some additional support that continues to de-lever quicker.

Sean O'Brien: I think it's important for the company to get Amerigas below that 5-0 and to get Amerigas into a level, you know, get its leverage into a level that it can sustain, you know, a warm winter; it can sustain a bump in the night. So, that ought to give you a feel for the year, 150 or so directly from Amerigas de-levering. And then we're looking at another 150 to maybe up to 300, 400 from Corp. Thank you for all that clarity.

Speaker Change: Okay.

Speaker Change: [music].

Sean O'Brien: I appreciate it. Good luck, guys. Thanks, Joe. Thank you. As a reminder, please press star 1-1 to ask a question.

Speaker Change: Okay.

Speaker Change: [music].

Operator: One moment for our next question. Our next question comes from Sarah Akers with Wells Fargo. Your line is now open.

Speaker Change: Yes.

Speaker Change: [music].

Sarah Elizabeth Akers: Hey, good morning. Sarah. Just on Amerigas, if I understand correctly, the equity cure won't be available for this fiscal Q2. So do you anticipate another equity cure this quarter? And if so, any sense of the size, just given winter weather?

Sean O'Brien: Yeah. Yes, I think you're interpreting the first part right, Sarah. When we took that equity cure in Q2 of 23, you have it available for four quarters, and Q1 would have been the last one this year. We have multiple, based on the agreements we have, we can take additional equity cures. Look, I think I've been clear, we're trying to run this company without equity cures. I think that's important as we go forward. Debt reduction is one element.

Speaker Change: Okay.

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Sean O'Brien: And then you heard Mario talk a lot about working on the operating model so that we actually see volumes and EBIT grow outside of just the debt. So we are doing everything we can. Good news, we have more equity cure available to us, but our goal is to do the best we can, not to have to utilize it, but it kind of gives us some cushion as we continue to work to improve the business.

Speaker Change: Okay.

Speaker Change: Yes.

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Speaker Change: Okay.

Speaker Change: Thanks.

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Speaker Change: Sure.

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Okay.

Sean O'Brien: And I know heading into the year, volumes at Amerigas were expected to decline. But can you kind of quantify in Q1 the impact of attrition? Obviously, weather was a factor as well. But that attrition impact and how that compared to your original expectation, was that in line or worse than the original plan? Yeah, I can. I'll do it in two ways.

Speaker Change: Okay.

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Speaker Change: Yes.

Speaker Change: Thanks.

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Speaker Change: Yes.

Sean O'Brien: I'll start with the year over year comparison because I know that's what everyone can see. So, you know, we highlighted 13% down, and the weather was 12% warmer than normal. So that had a meaningful impact, but then there was also a pretty large impact due to attrition. So that's year over year. Now you're asking, okay, what did you anticipate? Obviously, when we talk about our guidance, it's weather normal. So that 12, you know, and the weather, I think, was 6% warmer than normal.

Speaker Change: Okay.

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Sean O'Brien: So, you know, about half what it was versus last year, but still warmer. So some of the impact versus our expectations was driven by weather. We did have customer attrition baked into our forecast, Sarah. But what we saw in Q1, the levels of attrition were higher than what we had baked in. So the team's working on that. But you did have weather that wouldn't have been in our forecast.

Speaker Change: Okay.

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Speaker Change: Thank you.

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Sean O'Brien: And we had some of the attrition baked in. It was, you know, Mario obviously spoke around our focus. We saw more attrition than we would have budgeted.

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Sean O'Brien: And in terms of UGI level financing, are you still confident that the company can weather the Amerigas issues and execute on that debt paydown without external equity at UGI? Yeah, I mean, a couple things. UGI, you know, consolidates all of the businesses. I think I've highlighted in the past that international, just to give you some metrics in terms of where international sits on its leverage, it's in the low twos, energy services is in the low twos, my point being they're very, very strong. When you look at the debt to cap ratios of our utilities, it's incredibly strong; it's in the 50%.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Okay.

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Speaker Change: Thanks.

Speaker Change: Sure.

Speaker Change: Thanks.

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Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yes.

Sean O'Brien: So my point is, you know, yes, we have, you know, that's one of the reasons, Sarah, we really need to improve Amerigas. All these entities roll up and consolidate into Corp. So the sooner we improve Amerigas, it helps Corp. And the sooner we can, you know, continue to make end roads at Corp as well. So those are the two focuses, improve Amerigas, you know, debt metrics, and then continue to improve Corp. I've been clear, our goal is to get Corp below four times, and we're sitting in the low fours right now.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Yes.

Okay.

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Speaker Change: Thanks.

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Sure.

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Speaker Change: Thanks.

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Speaker Change: Okay.

Sean O'Brien: So we have a little bit of work to do there. Okay, and just to be clear, is the plan to get there without issuing UGI stock, or is that on the table? That has not been on the table in any of the models I've run as a tool. Okay, perfect.

Speaker Change: Okay.

Sean O'Brien: And then shifting to international, volumes were up, and unit margins were up for the quarter. To what extent do you think that's sustainable? It's a trend that might continue throughout the year. And any comments on what's driving the underlying strength there? And I can start, Mario can highlight some of what we're seeing over there, maybe from a conservation point of view, but in terms of the vines, we benefit a little bit from

Speaker Change: Okay.

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Speaker Change: Yes.

Speaker Change: Thank you.

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Speaker Change: Okay.

Sean O'Brien: So, you know, that's going to be dependent on what we see the remainder of the winter. The conversions that I mentioned should continue. Those are two to three-year contracts on those NatGast LPG conversions.

Speaker Change: Yes.

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Speaker Change: Yes.

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Speaker Change: Thanks.

Speaker Change: Yes.

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Mario Longhi: So that's a tailwind that should continue to help us out. And the unit margins, you know; they are up year over year. I think when I look at them versus expectations, they're not up as much. We had some of that baked in. So, I think I feel pretty good about some of the drivers we're seeing. And I don't know if you want to, Mario, talk about, you know, conservation. The conservation situation over there has shown a little bit of a sign of this. You know, certainly Italy and Austria have been more vocal about that, and we're beginning to see some signs of it in other countries.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thanks.

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Sean O'Brien: But it's kind of early to say whether this trend will continue, but at least we've got to start. Thanks, and then if I could squeeze in one more just on the modeling side, if you have it, the adjusted EBITDA for Amerigas for the quarter and trailing 12 months, is that something you can provide? Yes, you know, our financials will be released today, Sarah, so Tameka will be happy to give those to you here after the call. Perfect. Thank you so much.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Good day, and thank you for standing by.

Speaker Change: And welcome to the UGI Corporation fiscal 2024 first quarter earnings Conference call. At this time, all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: I'll ask a question during the session you will need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hand is reyes.

Sean O'Brien: Thanks. Thank you. One moment for our next question. Our next question comes from Julian DeMolin-Smith with Bank of America. Your line is now open. Hey, team. This is actually Cameron squeezing in for Julian real quick.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your speaker today Tim.

Tim: Thank you Morris Senior director of Investor Relations. Please go ahead.

Tim: Good morning, everyone. Thank you for joining our fiscal 2024 first quarter earnings call with me today are Mario Longhi interim President and CEO, Shawn O'brien CFO.

Tim: <unk> CEO on todays call, we will discuss our near term priorities and financial results for the quarter before concluding with a question and answer session.

Speaker Change: 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.

Speaker Change: Actual results may differ significantly because of risks and uncertainties that are difficult to predict please.

Speaker Change: Please read our earnings release, you can almost <unk> annual report.

Speaker Change: Thank you Mr. Kraft.

Operator: I just wanted to follow up on one thing, and I realize it's only one quarter into the fiscal year, but can you, and sorry if we missed it, can you provide any color on kind of how you see full year results trending relative to guidance after this quarter? Yeah, I mean, we're happy to see, you know, we started off, we're, as Mario said, a solid quarter, but, you know, we're holding the guidance that we had. Okay, so no real commentary, I guess around like maybe trimming higher or lower to the high end or low end. I think you said it's the best camera.

Speaker Change: Curious that could affect results.

Speaker Change: I assume no duty to update or revise forward looking statements to reflect events or circumstances that are different from expectations.

Speaker Change: Now I'm pleased to turn the call over to Mario.

Thank you tamika and good morning, everyone.

As I have been engaging with our people at all levels of the organization. The key objective of these interactions has been to better understand our core strengths and the improvements needed for greater financial performance.

Sean O'Brien: We're one quarter in, so... We're pleased with the quarter, but at this point, no change. Okay, got it.

Mario Longhi: Now what is evident from my time on the board and engagement with the organization is that the fundamentals of our core business are solid.

Sean O'Brien: Awesome. Thank you, guys. Thank you. I am showing no further questions at this time.

Mario Longhi: In Pennsylvania, and West, Virginia, we operate attractive <unk> alluded to utilities.

Mario Longhi: I would now like to turn it back to Mario Longhi, Interim President and CEO, for closing remarks. Well, thank you for spending time with us today, and we look forward to continuing our conversation next quarter. Everyone, be well. Thank you again.

Mario Longhi: To deliver over 10% return on equity.

Mario Longhi: These businesses provide earnings ability and growth due to continued customer additions.

Mario Longhi: <unk> runway of opportunities to replace aging infrastructure and reduced weather sensitivity due to a weather normalization of lender.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.

Mario Longhi: At the midstream and marketing segment, we continue to optimize our portfolio and benefit from earnings reliability, given the significant proportion of fee based contracts.

Operator: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music Music Music Music, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day, and thank you for standing by. Welcome to the UGI Corporation's Fiscal 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Mario Longhi: This business serves gas and electric utilities, including our own UGI utilities, and many top tier customers in the mid Atlantic region.

Operator: After the speaker's presentation, there will be a question and answer section. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is free.

As I move to UGI International there is no doubt that the propane distribution business has and continues to provide attractive free cash flow, which helps to meet capital needs and paying the dividends.

Tamika Morris: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the comments over to your speaker today. Amiga Morris, Senior Director of Investor Relations. Please go ahead.

Mario Longhi: Well there is some weather sensitivity regulatory considerations the business has strong market share in key countries and great brand recognition.

Mario Longhi: Now our final segment Americas.

Mario Longhi: Has experienced several challenges over the past few years that have affected volumes and ultimately earnings.

Mario Longhi: While efforts were made in the past to address performance. It is evident that there needs to be a renewed focus on execution.

Mario Longhi: As a result, we are examining the operating model and business processes to determine the adjustment that is needed along with disciplined execution to effect a positive change in the overall performance.

Mario Longhi: And this takes me to our key near term priorities as we embark on the journey to better position.

Mario Longhi: Sure.

Mario Longhi: We're taking actions that should realign our cost base to the underlying business performance and enable us to become more cost competitive in a sustainable manner.

Mario Longhi: As well as allocating capital to segments that have a solid track record of providing attractive returns.

Mario Longhi: These actions along with other prudent measures will allow us to strengthen the balance sheet improve our credit metrics and evolve into an organization with more financial flexibility to capitalize on future opportunities.

Mario Longhi: We have a dedicated team of employees, who are instrumental in accomplishing these goals advancing Gi.

Mario Longhi: Going forward. It is crucial that we operate as a unified and collaborative organization.

Mario Longhi: That is customer centric and with a high performing culture.

Speaker Change: With that I will.

Mario Longhi: We will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the Comparable Gap Measures are available in our presentation. Now, I'm pleased to turn the call over to Mario. Thank you, Tameka, and good morning, everyone.

Speaker Change: Sure some of our key highlights for the quarter before handing the call to Sean who will cover the financial results in more detail.

Sean: During the quarter UGI and delivered adjusted EPS of $1 20 in comparison to $1 14 in the prior year.

Sean: These results reflect the strong performance of UGI international and the natural gas businesses and underscores our commitment to our customers shareholders and employees.

Mario Longhi: As I have been engaging with our people at all levels of the organization, a key objective of these interactions has been to better understand our culture, strengths, and improvements needed for greater financial performance. Now, what is evident from my time on the board and engagement with the organization is that the fundamentals of our core business are solid. In Pennsylvania and West Virginia, we operate attractive regulated utilities businesses that deliver over 10% return on equity in aggregate. These businesses provide earnings, stability, and growth due to continued customer additions. The long runway of opportunities to replace aging infrastructure and reduce weather sensitivity due to a weather normalization rider at the midstream and marketing segments. We continue to optimize our portfolio and benefit from earnings reliability given the significant proportion of fee-based contracts.

Sean: As the team previously anticipated and discussed on our year end earnings call Amerigas experienced a decline in its year over year financial results.

Also of note during the quarter over regulated utilities continued to deploy capital primarily in infrastructure replacement and betterment and added more than 3500, new residential heating and commercial customers.

Sean: In December we received approval of the gas rate case for months of the year, which went into effect on January one.

Sean: As a part of the settlement. We were also pleased to receive approval of a weather normalization brighter with a 2% that's been effective from October one 2024.

Sean: This rider normalizes revenue and customer bills, when weather deviates from normal by more than 2%.

Sean: And finally during.

Sean: During the quarter, we completed the sale of several energy marketing portfolios in France, and Netherlands further progress on our objective to exit the NIM CT energy marketing business.

Sean: With the actions taken since January 2022, we have reduced our customer supply locations by over 97%, thereby significantly reducing our exposure.

Mario Longhi: This business serves guests in electric utilities, including our own UGI utilities and many top-tier customers in the Mid-Atlantic region. As I move to UGI International, there is no doubt that the propane distribution business has and continues to provide attractive free cash flow, which helps to meet capital needs in paying dividends. While there is some weather sensitivity and regulatory considerations, the business has strong market share in key countries and great brand recognition. Now, our final segment, America, has experienced several challenges over the past few years.

And with that ill hand, the Golden Ridge as Sean.

Sean: Thanks, Mario and good morning, as Mario mentioned for the fiscal 2024 first quarter UGI delivered adjusted diluted EPS of $1 26 over the prior year period the.

Sean: The utility segment was up <unk> benefits from the weather normalization rider and higher base rates offset the impact of warmer weather and slightly higher operating expenses midstream and marketing was up <unk> <unk> due to lower income taxes, partially associated with an increase in investment tax credits.

Mario Longhi: These have affected volumes and, ultimately, earnings. While efforts have been made in the past to address performance, it is evident that there needs to be a renewed focus on execution. As a result, we are examining the operating model and business processes to determine the adjustment that is needed, along with disciplined execution, to effect a positive change in overall performance. And this takes me to our key near-term priorities as we embark on the journey to better position the GIs for the long term. We're taking actions that should realign our cost base to the underlying business performance and enable us to become more cost competitive in a sustainable manner, as well as allocating capital to segments that have a solid track record of providing attractive returns.

Sean: UGI International was up 18.

Sean: Now turning to the next slide.

I'll now walk you through the key drivers for each reportable segment when compared to the prior year.

Sean: Starting with the utility segment, our regulated utilities delivered EBIT of $135 million up $7 million over the prior year period.

Sean: By significantly warmer weather the business benefited from the weather normalization rider that was implemented at the end of October 2022 utilities realized an increase of $9 million in total margins due to higher gas base rates in Pennsylvania incremental benefits from the disc in Iraq programs as well as continued customer.

Sean: Growth.

Sean: Electric margins were comparable with the prior period and higher base rates from the recently settled rate case offset the impact of the warmer weather.

Sean: Operating and administrative expenses were down $3 million, largely due to lower contract labor costs and personnel related expenses.

Sean: Midstream and marketing reported EBIT of $102 million in comparison to $107 million in the prior year.

Sean: Total margin was flat year over year as higher margins from the natural gas marketing activities offset the effect of the warmer weather and lower margins from renewable energy activities. This segment realized lower margins from renewable energy largely due to the timing of RIN sales when compared to the prior year.

Mario Longhi: One that is customer-centric and with a high-performance culture. With them, I will share some of our key highlights for the quarter before handing the call to Sean, who will cover the financial results in more detail. For the quarter, UGI delivered adjusted EPS of $1.20 in comparison to $1.14 in the prior year. These results reflect the strong performance of UGI International and the natural gas businesses and underscore our commitment to our customers, shareholders, and employees.

Sean: Operating and administrative expenses were up $2 million, primarily due to the recovery of an uncollectible account in the prior year.

Sean: At UGI International even.

Sean: EBIT was $117 million up $51 million on a year over year basis.

Sean: LPG volumes were up 4% due to increased natural gas to LPG conversions and weather that was slightly colder than the prior year.

Mario Longhi: As the team previously anticipated and discussed on the year-end earnings call, Amerigas experienced a decline in its year-over-year financial results. Also of note during the quarter, our regulated utilities continued to deploy capital, primarily in infrastructure replacement and betterment, and added more than 3,500 new residential heating and commercial customers. In December, we received approval of the gas freight case for Mountaineer, which went into effect on January 1st.

Sean: Total margin was up $64 million as we realized year over year benefit from the continued exit of the non core energy marketing business increased LPG unit margins and the impact of higher LPG volumes.

Sean: Total margin was also impacted by the translation effect of stronger foreign currencies amounting to approximately $15 million.

Sean: Next while operating and administrative expenses were down on a constant currency basis due to lower personnel and maintenance costs. This was fully offset by the translation effect of the stronger foreign currencies.

Sean: Lastly, UGI international realized a $7 million decline in other income largely due to lower foreign currency translation gains.

Sean: Lastly, at Amerigas, EBIT was down $39 million on a year over year basis total margin was down $34 million largely due to a 13% decline in LPG volumes. This volume decline was primarily a result of customer attrition and warmer weather.

Sean: Operating and administrative expenses were up $8 million largely due to higher employee related costs as the business increased its delivery capacity and vehicle expenses.

Sean: The business also realized a $3 million increase in other income largely attributable to gains from asset sales.

Sean: Moving to liquidity at the end of the quarter UGI had available liquidity of $1 5 billion inclusive of cash and cash equivalents and available borrowing capacity on our revolving credit facilities as we've shared with you over the past several months, we are focused on strengthening the balance sheet.

Sean O'Brien: And good morning. As Mario mentioned, for the fiscal 2024 first quarter, UGI delivered adjusted diluted EPS of $1.20, six cents higher than the prior year period. The utility segment was up two cents as benefits from the weather normalization rider and higher base rates offset the impact of warmer weather and slightly higher operating costs. Midstream and marketing was up 8 cents due to lower income taxes, partially associated with an increase in investment taxes. UGI International was up 18th, with the continued exit from the non-core energy marketing business and increased total margins from the LPG business. Amerigas was down 16 cents as the business continued to deal with lower volumes and increased investment in operations. Lastly, Corporate Other was down $0.06 due to higher interest, expense, and income tax. Now, turning to the next slide.

Sean: This is an important near term focus, particularly at Amerigas, where we expect to further reduce debt and provide more buffer on the credit metrics.

Speaker Change: And now I'll hand the.

Speaker Change: Call back over to Mario.

Mario Longhi: Thanks, Sean.

Mario Longhi: To summarize we had a strong start to the year, which was in line with our expectation.

Mario Longhi: Team is focused on the near term priorities that I mentioned earlier.

Mario Longhi: Well also continue to execute on this strategic review.

Mario Longhi: While there are no new updates at this time, we earned a letter and stages of the review and anticipate providing additional information by the Q2 earnings call.

Mario Longhi: Lastly, our actions are intended to address the business performance continued returning value to shareholders through dividends and strengthened the balance sheet, which should provide financial flexibility and enable value creation in the years to come.

Sean O'Brien: I'll now walk you through the key drivers for each reportable segment when compared to the prior year, starting with the utilities. Our regulated utilities delivered EBIT of $135 million, up $7 million over the prior year. Despite significantly warmer weather, the business benefited from the weather normalization rider that was implemented at the end of October 2022.

Speaker Change: With that I will turn the call back to our operator to open the line for questions.

Speaker Change: Thank you.

Sean O'Brien: Utilities realized an increase of $9 million in total margins due to higher gas base rates in Pennsylvania, incremental benefits from the DISC and IREP programs, as well as continued customer growth. Electric margins were comparable with the prior period, as higher base rates from the recently settled rate case offset the impact of the warmer weather. Operating and administrative expenses were down $3 million, largely due to lower contract labor costs and personnel-related expenses. Next, marketing history reported an even of $102 million in comparison to $107 million in the prior year. Total margin was flat year-over-year, as higher margins from the natural gas marketing activities offset the effect of the warmer weather and lower margins from renewable energy activities. The segment realized lower margins for renewable energy largely due to the timing of wind sales when compared to the prior year. Operating and administrative expenses were up $2 million, primarily due to the recovery of an uncollectible account in the prior year at UGI International. It was $117 million, up $51 million on a year-over-year basis. LBG volumes were up 4% due to increased natural gas to LBG conversions and weather that was slightly colder than the prior year.

Sean O'Brien: Total margin was up $64 million as we realized year-over-year benefits from the continued exit from the non-core energy marketing business, increased LPG unit margins, and the impact of higher LPG volumes. Total margin was also impacted by the translation effect of stronger foreign currencies, amounting to approximately $15 million. Next, while operating and administrative expenses were down on a constant currency basis due to lower personnel and maintenance costs, this was fully offset by the translation effect of the stronger foreign currency. Lastly, UGI International realized a $7 million decline in other income, largely due to lower foreign currency translation gains. Lastly, at Amerigas, EBIT was down $39 million on a year-over-year basis, and total margin was down $34 million, largely due to a 13% decline in LPG volume. This volume decline was primarily a result of customer attrition and warmer weather.

Sean O'Brien: Operating and administrative expenses were up $8 million, largely due to higher employee-related costs as the business increased its delivery capacity and vehicle fleet. The business also realized a $3 million increase in other income, largely attributable to gains from adding. Moving to liquidity. At the end of the quarter, UGI had available liquidity of $1.5 billion, inclusive of cash and cash equivalents and available borrowing capacity on a revolving credit facility. As we've shared with you over the past several months, we are focused on strengthening the balance. This is an important near-term focus, particularly at Amerigas, where we expect to further reduce debt and provide more buffer on the credit. And now, I'll hand the call back over to Mary. Thanks, Sean. To summarize, we had a strong start to the year, which was in line with our expectations.

Sean O'Brien: The team is focused on the near-term priorities that I mentioned earlier, and will also continue to execute on the strategic review. While there are no new updates at this time, we are in the latter stages of the review and anticipate providing additional information by the Q2 Learns goal. Lastly, our actions are intended to address business performance, continue returning value to shareholders through dividends, and strengthen the balance sheet, which should provide financial flexibility and enable value creation in the years to come. With that, I'll turn the call back to our operator to open the line for questions. Thank you.

Q1 2024 UGI Corp Earnings Call

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