Ladies and gentlemen, thank you for standing by and welcome to the UGI Corporation First Quarter Fiscal Year 2020 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. And after the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Alanna Zahora, Investor Relations Manager. Please go ahead.

Thanks, Kenzie. Good morning, everyone, and thank you for joining us. With me today are Ted Jastrzebski, CFO of UGI Corporation; Rob Beard, Executive Vice President of Natural Gas; and John Walsh, President and CEO of UGI. Before we begin, let me remind you that our comments today include certain forward-looking statements, which management believes to be reasonable as of today’s date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our annual report on Form 10-K 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 on Slide 7 of our presentation. Now, let me turn the call over to John.

Thanks, Alanna, and good morning, and welcome to our call. I hope that you’ve all had a chance to review our press release reporting first quarter results. UGI posted a very strong Q1, with each of our businesses performing at a high level. Our teams did an outstanding job of delivering this strong performance, while executing a set of key initiatives that will provide the foundation for superior long-term performance. This was a noteworthy quarter for a number of reasons. It was our first full quarter with the newly acquired CMG asset network and the first full quarter with AmeriGas back in the fold as a wholly-owned UGI subsidiary. It was also our first quarter with the combined rate structure for our gas utility, as those new rates went into effect in October. We also made significant progress on the major restructuring programs across our LPG line of business. Roger Perreault described these programs on last quarter’s call, and we’ve been hard at work over the past 90 days, developing detailed plans that will be rolled out over the next 18 months. Those programs are delivering their initial results as planned and remain on track to deliver the committed savings and enhance customer service levels. I’ll review our key activities in Q1 and then turn it over to Ted, who’ll provide you with an overview of UGI’s financial performance in the quarter. Bob Beard, our Executive VP, Natural Gas, will provide an update on our natural gas businesses, including progress on the CMG system, and I’ll wrap up with comments on our strategic initiatives. Our Q1 GAAP EPS was $1, while our adjusted Q1 EPS was $1.17. Our adjusted EPS was over 40% above our Q1 fiscal 2019 adjusted EPS of $0.81 and significantly exceeded the prior high point of…

Thanks, John. As John mentioned, we delivered adjusted EPS of $1.17, a 44% increase versus fiscal 2019 results. Our reportable segment’s EBIT was $418 million compared to $346 million last year. After a busy fourth quarter with the completion of two significant transactions, our teams returned their focus on operational excellence and delivered a strong start to the fiscal year. This table lays out our GAAP and adjusted earnings per share for fiscal 2020 compared to fiscal 2019. As you can see, our adjusted earnings exclude a number of items such as the impact of mark-to-market changes in commodity hedging instruments, a loss of $0.05 this year versus a loss of $0.46 in the first quarter of fiscal 2019. Last year, we had a $0.03 gain on foreign currency derivative instruments compared to a $0.06 loss this year. Lastly, you can see we adjusted out $0.06 of expenses associated with our LPG business transformation initiatives that we discussed in detail last quarter, and we’ll update momentarily. Before I get into the numbers, on the year-on-year bridge. I wanted to take a moment to reiterate how the seasonality of the AmeriGas business impacts our earnings. As you recall from our Q4 earnings presentation, the buy-in of AmeriGas shifts the timing of the company’s earnings over the quarters. We now expect to earn roughly a 110% in the first two quarters compared to only 95%, historically. This outsized performance in the first half is then balanced with lower than historical performance in the second half. Okay. Returning to the slide. We are off to a good start in fiscal 2020. We faced warm weather conditions compared to last year, but benefited from our recent investments. We delivered adjusted EPS of $1.17, a $0.36 improvement versus our first fiscal quarter last year. The…

Great. Thanks, Ted. Our natural gas businesses continue to focus on growth opportunities we are seeing at both our Utility and our Midstream and Marketing companies, and we continue to identify opportunities to drive efficiencies across both businesses by sharing best practices. And as always, we emphasize safety in everything we do. At energy services, we’re very pleased with the quality of the team that joined us from Columbia Midstream Group. I remain encouraged about the growth potential of what is now UGI Appalachia. Performance of these assets was solid in Q1. This performance was driven primarily by throughput contracts and efficiency gains, which helped control operating expenses. While warmer-than-normal temperatures are helping drive lower natural gas prices, the forecast is for continued growth in the natural gas production from the Marcellus and Utica. When UGI announced the acquisition of CMG, we indicated we would spend between $300 million and $500 million on growth projects over the next five years. Having owned these assets for approximately six months, we continue to believe this level of growth capital is likely, and we continue to work with our existing and potential customers to identify expansion opportunities. Our midstream activities in northeastern and central Pennsylvania remains strong as well. Of note, on November 1, we placed into service our Auburn IV project, which increased the throughput of the system by over 40% or 150,000 dekatherms per day. The build-out of our Auburn system is just one example of how energy services continues to find growth opportunities in the Marcellus and Utica basins. On January 30, FERC issued the declaratory order agreeing with PennEast’s view that the Natural Gas Act properly gives for the authority to grant power of condemnation, including against parcels in which states hold an interest to certificate holders. PennEast believes…

Thanks, Bob. I’d now like to highlight developments in key areas that are crucial to our long-term success. From a strategic perspective, the first quarter was noteworthy in several respects. We continue to see significant demand for LNG peaking as LDCs focus on accessing viable natural gas supply options to meet their peak demand. Our latest storage and vaporization project in Bethlehem, Pennsylvania remains on schedule, and we expect to bring that unit online later this year. In addition to our large permanent units, we’ve also seen significant interest in portable LNG systems, which can be utilized to address short-term supply challenges created by pipeline constraints or supply shortfalls due to construction activities. Our LNG network remains a critical element of our midstream strategy and an area of strength for UGI. The Midstream and Marketing team is active in the northeast Marcellus, in addition to the UGI Appalachia activities in the southwest Marcellus that I referenced earlier on the call. As Bob noted, our Auburn IV expansion project was placed in service on November 1, supported by a 10-year take-or-pay commitment. As Bob noted in his remarks, we remain focused on our PennEast project. Our partnership will continue to pursue the development of PennEast with a two-phased execution plan. We’re encouraged by the continued strong interest in this project. PennEast is a noteworthy project in our portfolio of investment opportunities for the company. This portfolio, in addition to PennEast, includes LNG expansion, capacity additions on our existing systems, continued growth investment at Utilities and the initial development of renewable natural gas and bio LPG projects. The diversity of our portfolio is critically important as energy policy at the state and federal level evolve. We made significant progress in Q1 on the transformation programs underway at AmeriGas and UGI International. As…

Thank you. [Operator Instructions] Our first question comes from the line of Shneur Gershuni [UBS Investment]. Please go ahead. Your line is open.

Hi, good morning, everyone.

Good morning.

Maybe, just to start off with literally your last comment on the prepared remarks. Given the fact that January makes up the bulk of the weather for this quarter, and it’s a bigger weather quarter. Are you still comfortable with your guidance range for this year? Do you feel that enough of the margin offset that you successfully achieved during last quarter, you were able to extend this quarter and it can sort of partially offset where we are? Just sort of any comments as to how you think about it.

Sure. As you know, we typically, and this year will be no exception, kind of revisit that at the end of the second quarter when the – basically the degree days for the year, the winter season is over. January is significant, but February and March are material as well. So yes, we don’t have any comment in terms of guidance and would just stick to our normal practice of waiting, at least, until the end of the winter season to comment on that.

Okay, fair enough. And then my follow-up question is with respect to the update that you provided about the [Audio Dip] assets. When we sort of see all the producers slowing their CapEx spends, rig counts are falling and so forth, you sort of talked about you still see opportunities for growth capital. I was kind of wondering if – what kind of capital is it? Is it really just connection capital to existing facilities and so forth? And is there an opportunity to actually defer some of the CapEx that you’d intended to spend and redirect some of the capital towards buybacks or further deleveraging?

Yes. Sure. As we look at it today, and we’re talking to our customers or producers all the time, we still have meaningful discussions underway, essentially about expansion of existing systems. So, as – and each producer is in their own unique position, but as they look at optimizing their capital spend and in almost every case, trimming the capital spend, in many instances, their best option is an expansion in existing acreage that’s been developed and has already supported by gathering infrastructure. So, most of what we’re doing is looking at the expansions to our existing systems, which provide the producer with an efficient incremental production opportunity, which can be very attractive at a time where some other production expansion opportunities require a lot more capital investment on their part. So that’s the nature. Clearly, we’re going to be – our path and the timing of our spend will be determined in the end by the producers’ decisions around their production levels and where they want to bring that product to market, but we’re encouraged by the discussions we’ve had, even with the lower commodity prices. So, we haven’t fundamentally changed our outlook on capital spend, CapEx levels, but obviously, we’re going to monitor that, and we’re going to be working closely with our customers as they finalize their plans around capital spend and production levels.

Just to paraphrase a little bit. So you’re basically saying the capital spend will be driven by what the growth plans are of your customers. So if they end up deferring or slowing down their pace, what do you do with the saved CapEx? Is it – do you consider buybacks? Do you consider leverage reduction? What’s the priority?

Sure, sure. We consider all those alternatives. Certainly, for us, and we – particularly for the last several quarters here, as the two transactions were executed, we talked about the prioritization of paying down debt in AmeriGas, but it’s important UGI Corp. as well, but we’ll look across all those alternatives in terms of incremental cash being available to deploy. We’ll look at paying down some of the debt. We’ll look at other new investments that could emerge. So, the full range of opportunities remain and you saw last year, we obviously bumped our dividends significantly last year. So, we’ll look at that full range to – and deploy any incremental available cash in the end and discussions with the Board in what we see is the most effective way possible.

All right. Perfect. Well, thank you very much and I will jump back in the queue.

Great. Thanks, Shneur.

Our next question comes from the line of Christine Cho from Barclays. Your line is open. Please go ahead.

Good morning, everyone.

Good morning.

If I could start with the lower LPG costs in International, can you just provide some more color on what drove it lower? And how we should expect this to continue through the remainder of the year?

Yes. I can’t provide you with a commodity forecast. But generally, what’s been happening internationally, and we’re specifically focused on Europe is that the increased production levels of propane and butane, and particularly in the U.S., have resulted in commodity costs dropping pretty considerably over the last year, especially and because now the market for both propane and butane has become much more global and fluid, we’re seeing the benefits of that in Europe. So, we’ve seen a pretty solid drop in our costs, which has helped and enhanced margins. And the outlook, as far as we can see in terms of the current future strip, it remains attractive. Now that obviously, can change, but it’s a pretty positive outlook. And with warmer weather, LPG – storage levels of LPG are quite high, because demand is less, weather-sensitive demand. So again, that’s probably a positive indicator, at least for the short-term on costs remaining low, but as a company, we’re ready to move if we need to if costs move in the opposite direction or unexpectedly. But it’s a very healthy supply environment as a distribution company, and Europe – as I noted earlier, Europe has become much more liquid over the last five years, primarily due to the availability of propane and butane produced in the U.S. It’s had a huge impact on the global market. And as a distributor, we benefited from that.

Well, like with the Saudi outage in September, like some global supply of propane and butane were brought offline. Did that impact Europe at all?

No. I mean, you probably noticed it for a day or two. There was almost a very minimal impact. I think that’s a great example of how the market has changed. Europe used to be a lot more volatile with supply interruptions, because Europe was more dependent on product coming from the east and some from the Gulf. Now, you’ve got product coming from the west, from the U.S., in addition to some of these other supply options. So, there’s a resiliency now in Europe that wasn’t there five or seven years ago in terms of supply.

Okay. And then if I could just move on to the PennEast Phase One. How do we think about economics here now that you split the project in two? Should we think that you’re earning the full 14% ROE on the Phase One capital cost and assume like a 50-50 equity debt capitalization.

I think at a high level, you could make that kind of assumption, we’re going to – you can make that assumption. Obviously, we’ll progress that. We’ve just made the filing with FERC. We’ll progress that and advise as we move forward. But the fundamental economics of the project haven’t changed materially.

Okay, great. Thank you.

There are no further questions at this time. I’ll turn the call back to John Walsh for closing remarks.

Okay. Thank you for your time and attention this morning. We look forward to keeping you updated on our progress and to speaking with you again on our second quarter call. Take care.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.