UGI Corporation

from the Appalachia Basin. So we have a couple of well pad expansions, one that starts early in fiscal 27, a second one that starts towards the latter part of fiscal 27. We have the Auburn pipeline that's going to be first regulated that we expect also towards the end of 27 as well. So we're seeing a good return of production to the territory from what we saw in the current year. So we feel good about the growth prospects for our midstream business. And you add to that the demand for power generation that'll come later in the decade, we're seeing a good funnel of opportunities for our midstream business.

And Whitney, this is Sean. Maybe in terms of the five to seven, I'll give you a little bit of color, but we'll give more, obviously, at the end of the year when we give guidance. But The five to seven remains intact. There are moving pieces. We've seen some of the business units, even since we gave that guidance, with stronger outlooks. I would say midstream, in the long run, the outlook still remains very strong based on the comments Bob made. And even as we think about potential opportunities in the future, which they have a pretty good pipeline. But I do think the midstream is still, if I was looking at their long-term growth, it's a little more mid to back-end loaded than it would have been. But for the company, we have, you know, and again, more guidance down the road, other divisions that have, you know, probably make up some of that in the interim.

I see. Thank you. And then just a tiny question if I could squeeze in. Just on Amerigas Performance. Can you help us reconcile that with the improving volume retention that you're describing? Is this quarter's results solely weather or are there more moving pieces to consider?

The way that I think about it, Whitney, is that I look at what's going on on a year-to-date basis. Year-to-date, our net attrition of lost customers is about 2%, which is about the lowest it's been for a very long time. So we're in the Planning process for Amerigas now, I think we've positioned the business very well for this coming winter. Next week, I'm on the road visiting our sales, different sales channels that we're pursuing. So our goal for this coming winter is to take it from net attrition to net growth. And I'm optimistic from the standpoint our attrition is getting much, much better. That's what's driving it down. And as we approach the winter, when we see customers coming online, that should... you know start using the volume lever as well so you know between you know March and April and April being both March end of March and April at the beginning being considerably warmer than normal there's some you know volumes that kind of straddle the end of a quarter but that's why I look at things on a on a year-to-date basis and I think showing that we have a net attrition of 2% reinforces that we have absolutely stabilized this business. And you take a look at a lot of the things that I view as leading indicators, safety being one. Certainly our net promoter scores, if I compare to where we were in July of 2024, significantly better, 63% uptick. If I look at a year earlier than that, a July 23 year-to-date versus where we are today, Four and a half times better. So with the call centers back in the U.S., safety better. We're ahead where we were last year on having sufficient drivers and we're actively preparing our drivers for the coming winter. I feel so much better going into this winter than I did last winter. And last winter, we were in better shape than the prior. So I think we've positioned it well. and I think the net 2% decline, I'm certainly not happy with that, but glad to see the attrition is definitely slowing down. And then we're targeting volume growth for the winter. So we'll see what happens, but we're working on the processes that will deliver that.

Well said. Thank you, Bob. Thank you, Sean.

Thanks, Whitney.

Thank you. Our next question comes from the line of Julian Du Moulin-Smith of Jefferies. Julian, your line is now open.

Hey, good morning, guys. Luke Finker on for Julian. You highlighted recent take private activity among, you know, your European LPG peers as evidence of value in your international platform. Any change in how you think about, you know, potential divestitures within international or should we assume, you know, the portfolio pruning is largely complete at this point? Thanks.

Well, it's a good question. I kind of expected this one because of the light that's been shined on our main competitor. The international business is a very good business and very, very proud of our team over based in France on how they've kind of changed the paradigm there from a shrinking business to one with growth as we look to expand into the heating oil market. We constantly will look and evaluate our portfolio on what's the best thing to do for the overall portfolio for the company and what drives the most shareholder value. So I wouldn't say now the direction what we would do. Certainly we're focused on having that business prepared as we go into the winter and expanding the growth. But it is a very valuable franchise and I I would also say that because of what's happened with our main competitor over there that we do get some calls as well because people are recognizing the value of the franchise over there, the stability of the business, the strength of the business, and the model is very efficient over there, over in Paris, and our team runs it very well. So again, just to summarize, I mean, we always want to look at our portfolio to see what's the best way to drive our shareholder value. And the international, you know, the value of that has been somewhat hidden in the proposed transaction with DCC, highlighted recently with KKR and ECP, which are both two fabulous investors and companies, a lot of smart money, sees the value of this business. DCC is a good competitor, run very well, Yeah, it's good to see the value being shown for what this business is really worth and how well our team runs it over there.

Totally, yeah, thank you. And then maybe on utilities, with the gas settlement including a stay out through January 29, how important is using the disk as sort of bridge recovery in 28 and 29? Is there any potential for maybe changing capex during the stay out? Thanks.

Well, I think you hit it right on the nail, right on the head on that, Luke. It is important in the latter part of the years for the disk to kick in. And so it's been structured that way where we've got, you know, the two-stage increase, but after the second tranche kicks in, then we'll be relying in the third year on the disk.

Makes sense. Thanks, guys. We'll leave it there. Great. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our next question comes from the line of Gabriel Morian of Mizuho. Gabriel, your line is now open.

Okay, good morning, everyone. I just had a quick follow-up. Okay, morning. I just had a quick follow-up question on APU. I think, Bob, you had mentioned the expectation that Amerigas would be in position to distribute cash upstairs to UGI in 27. Can you talk about how that may work? Would that be a formula to the extent that Amerigas' leverage is four times or lower, I guess, given the variability in Amerigas' results, even from things like weather? And then also as a follow-up to that, your view on whether you'd need to put any growth capital into Amerigas, you know, as results hopefully continue to improve there?

Thanks, Gabe. And I'll make a quick comment. I'll turn it to Sean. I'm glad you asked that question because it really shows that we have stabilized this business. We plan on having meaningful cash distributions to the parent in 2027, which is something that hasn't been done for some time. But let me turn it to Sean to give you a little bit more follow-up.

Yeah, maybe to reiterate what Bob said, in my tenure here, that would be the first time The dividends are going from Amerigas to the parent. So Gabe, a couple of things. In terms of the formulaic nature, obviously we have, and we'll share more at the end of the year, we have an outlook. I'll point out Amerigas is generating Thank you for joining us. In Q3, we think by the end of the year, we have a shot to be sub four. We'll be really close. And that's a key milestone. And then I think that continues to build as we go into next year and we continue to approach even the mid to low threes at some point. So I feel very comfortable with the outlook we have on the leverage side. that it's time to start returning distributions. You mentioned weather. We always have that as a lever. That doesn't just apply to Amerigas. That applies to international, to energy services. If one is having a really tough weather year, we can always look at where we're pulling the distributions from. But with a very modest weather outlook, I think we still feel pretty comfortable that we're going to be pulling distributions out of Amerigas in 2027.

And Gabe, on your other question regarding CapEx, when I think about allocating capital to Amerigas, thinking of this, we want to continue to bring the average age of our delivery fleet down. So we continue to do that each year, and we're making good progress with that. And then also, I want Amerigas to be the gold standard out there of propane companies, and I want our facilities to look good. to make sure we're making the right investment into how we appear towards the public. We're a local business. We're becoming more local and doing what we need to do to drive efficiency in the business. There's no big spikes in capex that I'd expect at all in Amerigas. It's just kind of a continued modest level of investment to get Amerigas back to where it should be. And again, we'll just keep doing that day in and day out of along with driving, how we perform in our processes every single day to get that business better. There's some physical improvements that we'll make as well to some of our delivery equipment and our facilities, our storage facilities and the like. But nothing extraordinary, nothing that really stands out as significant, but just a continued focus on that business to let it be what it can be.

I appreciate the answer, Bob and Sean. Thank you so much.

Thanks, Gabe. Thanks, Gabe.

I'm showing no further questions at this time. I would now like to turn it back to Bob Flexon for closing remarks.

Thank you, Olivia, and I just want to focus on a couple of things. First and foremost, Amerigas, which certainly gets a lot of attention. We've done an awful lot over the past year and a half, two years, on improving the outlook for this business. I feel very good in terms of our winter preparation. I've been talking about that a lot, too. So our investors over the past year were ready. We've got the call centers back. Our call centers, the employees trained. We're becoming a local business again like we should be. Our customer net promoter scores are surging. Our safety is dramatically better. We're listening to our customers. We're fixing the things that tended to be irritations to them. So we're really focused on driving the processes in that business. As Kate just asked and Sean and myself answered, we expect meaningful cash distributions to the parent in 2027. Something, as Sean highlighted, is not something he's seen since he's been here. He's been here longer than me. I appreciated also the question on international. Again, excited about international with the mindset over there shifting from we're no longer shrinking. We have an opportunity to grow. We have a diesel heating market, heating oil market that is significantly larger than the LPG market. And the LPG market offers environmental advantages over there and even more price stability. So we see some really good opportunities to grow that business. With a return on capital employed in the mid-teens, an EBITDA margin in the low to mid-20s, free cash flow conversion of 95%, it's a stellar business. And then finally, on the natural gas side, we have the utilities in for the rate case settlement. We expect the PUC to take that up in end of September, early October. We've tried to be sensitive and thoughtful on that rate case to listen to what the governor is saying about affordability and supporting, you know, households that need the support. So we've tried to be very thoughtful on this rate case and listen to what the governor and governor's team has to say. So we're optimistic that that comes through. And finally, on midstream business, again, we see the need for power within the state of Pennsylvania over the coming years for general power demand consumption. We see the capacity clears of PGM keep clearing at the max. You've got obviously data centers and our midstream business is right in the center of all of that. So we've got a pretty large funnel of opportunities and I think as Sean highlighted why a lot of that tends to be a little bit later in our planning horizon because we've got to get the power generation and the like needs to go through their permitting processes and interconnection processes. We're very well positioned within our midstream business to really benefit that in the years to come. I'm very bullish on the outlook, very excited where we are, and we are absolutely focused on having a great winter. And with that, Livia, I will conclude the call and thank everyone for dialing in, listening, and the questions that we received.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.