UGI Corporation

Good day and thank you for standing by. Welcome to the UGI Corporation Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Tamika Morris, Senior Director of Investor Relations. Please go ahead.

Good morning everyone and welcome to UGI Corporation's Fiscal 2022 Fourth Quarter Earnings School. Joining me today are Roger Perot, President and CEO, Ted Jastrzewski, CFO, and Bob Beard, 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 comments today include certain forward-looking statements which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release, our most recent annual reports, and our quarterly reports on Form 10-Q for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available within our presentation. Now I'll turn the call over to Roger.

Thank you, Tamika, and good morning, everyone. I hope that you've all had the opportunity to review our fiscal 2022 year-end earnings release. On today's call, we'll review our financial results and several key accomplishments for the year, discuss our outlook for fiscal 2023 to 2026, before concluding with a question and answer session. Now let's start with fiscal 2022. We are pleased to report strong financial results, which were the second highest EPS on GAAP and non-GAAP basis in our history. Despite a challenging macroeconomic environment, we saw record earnings at our regulated utilities businesses and in our midstream and marketing segment. Our LPG business at UGI International continued their strong performance, and this helped to mitigate the impact of headwinds faced at Amerigas and in the European energy marketing operations. The geopolitical situation and extreme variation in natural gas and electricity prices in Europe had a significant impact on this year's European energy marketing results. Without this headwind, we would have been well within our original guidance range. I am proud of our dedicated employees who have worked tirelessly to execute against our 3R strategy, which is to deliver reliable growth, invest in renewables, and rebalance our portfolio. Their commitment, as we deployed record levels of capital and focused on margin management, expense control, and serving our customers and communities each and every day culminated in these strong fiscal 2022 results. Ted will provide more details on our financial results, but first, I'd like to highlight some key accomplishments and the important progress we've made across the business. In our natural gas business, our regulated utilities had an outstanding year. We deployed a record level of capital, investing $562 million to replace and upgrade our gas distribution infrastructure as well as our critical systems. This year we replaced roughly 155 miles of pipeline, and the outlook for capital investment across our utilities is robust. We expect to continue a similar investment profile, driving reliable earnings growth. Our utilities business also added more than 14,000 new residential and commercial heating customers, continuing a strong track record of annual customer growth. Also, with increasing spread between oil and gas prices, as well as the 250,000-plus homes within 150 feet of our gas mains in Pennsylvania, there are continued opportunities for attractive customer growth. Next, at fiscal year end, we received approval of our Pennsylvania gas base rate case that included an increase in base rates of $49.45 million in two phases. Thirty-eight million that went into effect on October 29th of this year and another increase of $11.45 million in October 2023. We are also pleased to have received approval to implement a weather normalization adjustment rider at our PA gas utility beginning in November 2022. For our PA residential and small commercial customers, the adjustment provides bill relief in severely cold months and provides for more stable gas bills overall. The weather adjustment is applied as a surcharge or credit to monthly bills during the heating season when weather deviates more than 3% from the 15-year average. Going forward, our utility segment will have more predictable earnings as a large portion of our margin is now weather protected in support of our objective to generate reliable earnings. For instance, in fiscal 2022, our PA utility saw weather that was approximately 8% warmer than normal, With the weather normalization adjustment, this would have been an incremental $0.05 of EPS. The midstream and marketing team had a tremendous year as we strengthened our position as an important midstream operator. We expanded our interest in natural gas gathering systems in the Appalachian Basin with our January 2022 acquisition of Stonehenge, now referred to as UGI Moraine East, as well as the acquisition of the remaining interest in Pennant. These investments performed well, and we are pleased with the strong production volumes during the fiscal year. We also continue to realize a significant amount of margin from fee-based income, with roughly 84% of the margin in this segment generated from fee-based arrangements, including taker pays and minimum volume commitments. Moving to the global LPG business. UGI International's LPG business had an excellent year with higher unit margins amidst increasing volatility in commodity costs and a modest increase in volume despite warmer than prior year weather. Our LPG business in Europe remains strong and is well positioned to take advantage of new opportunities that may arise. At Amerigas, we saw strong national account volumes and sustained ACE volumes when compared to pre-pandemic levels. We also continue to expand our cylinder home delivery service, Cinch, now offered in 25 cities in the US. Lastly, fiscal 2022 concluded our business transformation initiatives where we achieved total annual benefits of approximately $150 million at Amerigas and 30 million euros at UGI International. These benefits help to mitigate the impact of the inflationary cost environment that we experienced during fiscal 2021 and 2022. Turning to our progress in advancing our renewable strategy. During the fiscal year, we entered into several strategic partnerships with the intent to produce renewable natural gas and bio LPG, bringing our total renewables commitment to over $300 million to date. Our RNG project at Spruce Haven Farm in New York was commissioned on September 30th. Once fully operational, we expect to produce approximately 50 million cubic feet of renewable natural gas that will be sold to a local utility, the environmental credit separately marketed by our subsidiary, GHI Energy. The Idaho RNG project, in which we have a minority interest, was also commissioned on September 30th, and this facility is expected to produce roughly 250 million cubic feet of renewable natural gas annually. The RNG will be sold into an interstate pipeline, and similar to other RNG projects, and the environmental credits will be marketed by GHI Energy. We made important strides with these initial renewable commitments and look forward to additional investments that support our 3R strategy. Lastly, in June, we were pleased to issue our fourth annual ESG report entitled Transparency, Action, and Progress. We've made important progress against all of our ESG commitments and in advancing on our belonging, inclusion, diversity, and equity, BIDE initiative. As part of these efforts, in fiscal 2022, we sustained investment in our three resource groups and expanded our women's impact network across our global footprint. We also continued our partnerships with organizations such as the United Way, Big Brothers Big Sisters, and the Human Library Organization. In addition, with the humanitarian crisis stemming from Russia's invasion of the Ukraine, We were honored to partner with a global nonprofit organization, the World Central Kitchen, to assist Ukrainian refugees by providing funds for food and food supplies, as well as propane to fuel their kitchens. With all of these challenges, I am proud of our employees who have performed admirably in the workplace and in the communities that we serve.