Ladies and gentlemen, thank you for standing by and welcome to the UGI Corporation Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference to your speaker today, Alanna Zahora, Manager of Investor Relations. Please go ahead ma’am.

Thanks Joan. Good morning everyone and thank you for joining us. With me today are Ted Jastrzebski, CFO of UGI Corporation; Bob Beard, Executive Vice President, Natural Gas; Roger Perreault, Executive Vice President of Global LPG; 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 10 of our presentation. Now, let me turn the call over to John.

Thanks Alanna. Good morning and welcome to our call. I hope that you have all had a chance to review our press release reporting UGI’s full year results. On today's call I'll comment on our major achievements over the course of fiscal 2020 and review our guidance for fiscal 2021. I will then turn it over to Ted who will provide more detail on UGI’s financial performance. Roger Perreault and Bob Beard will review critical developments across our businesses and I will then conclude by providing an update on our ESG activities and UGI's strategic positioning for growth in renewable energy solutions. We reported full year fiscal 2020 GAAP EPS of $2.54 while our adjusted EPS was $2.67. Our adjusted EPS was roughly 17% above our fiscal 2019 adjusted EPS of $2.28. We're very pleased with the results delivered in fiscal 2020. Those results reflect a strong performance of the UGI Appalachia Systems acquired last year and the full year impact of the AmeriGas buy-in which closed in Q4 fiscal 2019. While we faced significant challenges due to the pandemic and warmer weather across all of our operations, we responded quickly and effectively to those challenges. Our results reflect our strong emphasis on expense and cash flow management as well. We also significantly benefited from tax legislation that was part of the CARES Act. Ted will provide more details on our financial performance during his comments. As we look to our fiscal 2021 guidance, we took a number of key factors into account. As noted on our Q3 earnings call, we have decided to use 10-year average weather as our basis for fiscal 2021. We believe this weather assumption provides a better foundation for both financial and operational planning. We have assumed that we'll see certain of our customer segments…

Thanks, John. As John mentioned, we're pleased to report a very strong year, but before we get into full year results, I wanted to reconcile a few moving parts that took place in our fourth quarter. On our third quarter earnings call, we provided an updated guidance range of $2.45 to $2.55, which included an estimate of roughly $0.10 of additional tax benefit. The new high tax legislation or GILTI, came out just days before that call and when taken together with the CARES Act and our particular net operating loss position provided considerably higher than anticipated compounding benefits as we carried losses back full five years. The resulting tax benefit for the quarter was an additional $0.10 or fully $0.20 for the full year. The remainder of the difference from our guidance reflected lower COVID impacts and better performance at the businesses. Looking ahead to our guidance for 2021, we're including approximately $0.10 COVID headwind for the year and minimal tax benefit related to the new legislation. Our fiscal 2021 guidance range keeps us well positioned to deliver on our long-term annual growth commitment of 6% to 10%. As mentioned earlier, we delivered adjusted EPS of $2.67 versus $2.28 in the prior year. This table lays out our GAAP and adjusted earnings per share for fiscal 2020 compared to fiscal 2019. Our adjusted earnings exclude a number of items such as the impact of mark-to-market changes in commodity hedging instruments, a gain of $0.39 this year versus a loss of $0.82 in fiscal 2019. This year, we had a $0.12 loss on foreign currency derivative instruments compared to a $0.13 gain in the prior year. As you can see, we adjusted out $0.21 of expenses associated with our LPG business transformation initiatives. Both AmeriGas and UGI International exceeded their…

Thanks, Ted. Q4 was a good quarter for our natural gas businesses with the teams at both energy services and utilities performing very well while managing the effects of the COVID-19 pandemic. Despite FY 2020 weather that was 6% warmer at both utilities and energy services versus the prior year, the natural gas businesses saw a year-over-year increase in EBIT of nearly 16%. The primary drivers of this growth in EBIT are the contribution of UGI Appalachia, the adoption of new base rates at utilities, and the efforts of the natural gas teams to control operating expenses. As John mentioned, energy services recently completed the Bethlehem LNG facility, which will deliver 70,000 dekatherms per day of reliable, on system supply into the UGI utilities distribution system. This $62 million project came in on budget and on schedule, and much credit should be given to the energy services team for executing so well during such challenging times. Our midstream business continues to do very well as we see UGI Appalachia meet or exceed our business case assumptions, even with low commodity pricing for most of FY 2020. We remain encouraged with the outlook for the midstream business as we expect demand for natural gas to remain strong. We're focused on opportunities in the renewable energy space and we continue to see significant activity in this area. We've been very pleased with the performance of GHI, the renewable natural gas company we acquired in August and believe GHI will be a platform for continued growth in the renewable natural gas space for UGI. Just earlier this week, we took another important step in this process as energy services entered into a definitive agreement to make a small investment in utility scale RNG in Idaho. The new project consists of an acquisition and…

Thanks, Bob. The global LPG businesses delivered very strong results in the fourth quarter, despite lower commercial and industrial volumes driven by COVID in both Europe and the United States. Even with the challenges of significantly warmer than normal weather and COVID, AmeriGas and UGI International delivered full fiscal year EBIT roughly in line with last year. We're pleased with this result as it demonstrates the value of our diversified portfolio of customers, applications, geographies, and our ability to manage expense and margin to offset the effects of warm weather. During the last quarter, our teams continued to execute on our transformation efforts underway at AmeriGas and UGI International. These efforts provided financial benefits that exceeded our commitments, with AmeriGas realizing over $40 million and International realizing over €7 million in fiscal year 2020. Our dedicated professionals across AmeriGas and International faced our business challenges head on through expense and pricing management, generating an additional $45 million in expense reduction and $30 million in additional margin in fiscal 2020, which helped compensate for the volume shortfalls. We remain confident that global LPG businesses are well positioned to deliver strong results despite the uncertainties of the pandemic and warm weather. In addition to carefully managing expenses and margins, our team has demonstrated their commitment to our communities by providing reliable energy solutions to our customers throughout the historic hurricane season in our service territory in the Southeast and wildfires in the Western USA. The U.S. team also handled increased demand in our home delivery service brand at Cynch and increased demand in our cylinder exchange businesses in both the U.S. and Europe while remaining focused on the safety of our customers and employees. Now, let's move to more specifics at AmeriGas. As a reminder, the previously announced transformation program at AmeriGas…

Thanks Roger. I'd now like to spend a few minutes looking ahead and sharing our thoughts about the strength of UGI’s position at a time when new challenges and opportunities have emerged due to the significant change underway in the energy distribution sector. UGI has always focused on the environmental, social, and governance commitments we make to our employees, customers, investors and the communities we serve. We have provided significant detail on those efforts in our ESG reports and stated our commitment to accelerate those efforts. I commented earlier about the importance of our social programs and our focus on making a difference in our communities, particularly where we can support individuals and families who have been impacted by the pandemic and racial injustice. Turning to the environmental and climate changes we're all facing today, we're equally focused on our commitments to reduce UGI’s carbon footprint while also identifying and developing attractive investment opportunities that will drive future growth. Those growth opportunities are beginning to come into focus for us. This past summer, we announced the acquisition of GHI, a renewable natural gas company primarily serving transportation customers in California with RNG sourced across the U.S. We're committed to building on this platform to offer a range of renewable energy solutions. As Bob mentioned, just this week, we announced an RNG feedstock project in Idaho that aligns perfectly with this commitment. We're actively exploring a number of additional RNG opportunities involving both distribution and RNG feedstock infrastructure. We believe that UGI is particularly well positioned to develop investment opportunities in this rapidly emerging market. Our experience in project development, project execution, gas transportation and storage, and energy marketing are directly applicable to our RNG feedstock management. From an environmental standpoint, RNG is an outstanding solution since it is a zero…

Thank you. [Operator Instructions]. Our first question comes from Shneur Gershuni with UBS. Your line is now open.

Hi, good morning everyone. Good to see that everyone is safe and well. I was wondering if maybe we can start with the thought process around the guidance for fiscal 2021. You are sort of having a COVID impact just for 1Q and so forth. Wondering if you can sort of talk about that for a little bit, is there potential, obviously with where cases are could there be an impact to 2Q that you would then have to adjust or alternatively, are there some other pluses and minuses, like an extended cylinder exchange season due to restaurants using lamps that’s you are sort of thinking is kind of an offset, just wondering if you can sort of give us the kind of the thought process and the sensitivities we need to be thinking about as we watch cases globally?

Sure, thanks Shneur. In terms of estimating the COVID impact as we enter the fiscal year, as you point out it has sort of a differential impact on different customer segments or demand segments in our business. Without a doubt, we see incremental demand in the cylinder segment, we have seen it since the beginning of the pandemic, which sort of continues to the general growth that we're seeing in that part of our business. We also see very strong demand among residential customers because most families are home as opposed to being in school full time and working. So the core residential demand is quite strong. And then offsetting that, we see the hospitality segment and some of the transportation segments impacted as well. So the estimate is based on that sort of balanced view. Our view is that, we're likely to see that through Q1 and begin to work through it. The situation is fluid, but having the experience that we have now after approximately nine months working with this and looking at the core demand that we're seeing, we feel like we've done the absolute best job we can in terms of incorporating that into our guidance. But it's very much a mixed bag with different sectors of demand, different segments, customer segments being impacted in different ways. We were relatively accurate in terms of what we estimated for FY 2020, in terms of how we saw that impact. And that's why we felt we could provide some specificity around the impact as we move into FY 2021.

Great, so basically people are at home still and they still need keep demand effectively. Okay, and then just to transition a little bit here, when I sort of think about your guidance for this year and I sort of think about where your CAPEX might end up, obviously your EBITDA is going up, which changes your leverage calculation. But at same time it appears that you're going to be in a free cash flow positive after dividends type of situation, which, obviously can bring leverage down further. When you hit whatever target that you'd like to achieve, does that put you in a position to have a material step up in the dividend or pursue buybacks and or is there some other approach that you're thinking about, I was just wondering if you can talk about that fortunate situation that you see yourself in?

Sure. I'll comment briefly and then I'll certainly let Ted comment as well. Fundamentally, we're fortunate to have the cash generation capabilities across our businesses that we have. So as you noted, that puts us in a really strong position in terms of being able to address the priorities, which for us are in the short-term are paying down debt. And as we move forward and execute on that strategy, it then opens up a range of alternatives in terms of how we apply that incremental cash. So we have a range of options moving forward. I think our priorities are clear in the short term, but I'll turn it over to Ted at this point to comment as well, Shneur.

Yeah, just to build on those things, Shneur, as we've talked in the past we want to get AmeriGas debt levels down to that lower kind of four multiple, four to four and a quarter. We're not there yet. We see that as a pay down that we'll be doing over the next couple of years. And also, as we've been fairly consistent in sharing, we'd like to clear most of the debt off of the corporate books that we have now that we took on as we did the UGI Appalachia acquisition and the AmeriGas buy in. And some of that will be shifting debt directly to some of the business units so it won't all just go away for the entire corporation. But we see that as the focus for the next several years. I guess if everything otherwise stayed static over the next three or four years, yeah, what you're suggesting absolutely starts to become true. We will start to really generate a lot of cash. We won't have the debt pay down facing us the way we will over the next couple of years. We'll have to revisit what potentially our dividend strategy looks like at that point. But that's a couple of years out.

Well perfect, really appreciate that. Maybe just a couple of small clarifications, if you can remind us first of all, you changed the 15-year weather to 10-year weather. If I remember correctly, from a prior call, that was about a negative $0.04 impact when we are sort of comparing apples to apples. And you've got two different transformations going on and so forth. Are there any OPEX related charges that are contemplated in fiscal 2021, either for the APU business transformation or what you're doing at the corporate level?

Shneur this is John. Just on the weather, you're right on the weather impact. On the third quarter call we talked about that change and it was roughly $0.04. On your question on the transformations, there will certainly be through FY 2021 and into 2022 additional charges related to those transformations because they're ongoing and certainly we will provide more detail on that at Investor Day as well. But I can let Roger comment as well in terms of sort of the ongoing transformation efforts, both domestically with AmeriGas and across Europe.

Thanks, John and good morning, Shneur. Yeah, as John mentioned, we certainly are continuing to execute the transformation efforts and there is OPEX that we will be spending in fiscal 2021 and we estimate that to be approximately 56 million to 57 million of OPEX and then the rest being CAPEX. As we've highlighted by the end of fiscal 2021, we will have executed our transformation initiatives and then the benefits of the initiatives will continue to roll in throughout 2021 and 2022.

Alright.

And I would add Shneur that with the support function transformation, we will be making investments through 2023 on that. In total, the investments will be about $40 million and about half of that will be OPEX.

Yeah, that's effectively what I was trying to figure out, like I knew you have to spend some money on it what was classified as CAPEX versus OPEX. And I saw that your size is just trying to wondering if that was kind of like a negative on that's being incorporated into your guidance that you're assuming these OPEX charges related to these transformations, perfect. So ex that, that would not be ongoing once you finished the transformation, then you would remove that OPEX essentially, correct?

We would remove that OPEX from so we're adjusting for that one-time investment, right, and once we've made those investments, we will no longer be making adjustments for it. I mean, these are onetime non-recurring investment costs, right, that are made up of capital and OPEX and the OPEX portion we're pulling out.

Right, no, that's exactly what I wanted to understand, that there's an OPEX charge that isn't necessarily recurring over the long run. So that was super helpful. Thank you, guys. Really appreciate the color.

Great, thanks Shneur.

Thank you. Our next question comes from Mark Solecitto with Barclays. Your line is now open.

Hi, good morning. Just one -- just a point of clarification on your 2021 guidance, what are you guys assuming as far as savings related to the transformation initiatives, like what are you guys baking in?

Why don’t I let Roger comment on that, certainly the most significant transformations of the two ongoing at AmeriGas and UGI International.

Thanks, John. Yeah, I was mentioning, we're in a full ramp up of reaching 140 million at International and reaching a €30 million euros -- sorry, 140 million at AmeriGas and 30 million at International. In fiscal 2021, we think it's going to be about 85 million that will be generated in the fiscal year at AmeriGas and €7 million at International.

Great, and then I think in the past you guys have mentioned that you'll be sharing some of those benefits with your customers so just curious that, I guess, to your P&L like how should we think about what you're factoring in in your guidance?

Yeah, so as we mentioned, we're taking about a third of the benefits and really applying it to a segment of our market that we look at where the churn level is quite high. And that's really in the small commercial and residential segment here in the U.S. where there's very competitive landscape and with our advanced analytics, we've been able to identify if we had different programs across those segments, we could likely reduce that churn. Therefore, there's a good rate of return on that investment. That's an area that we're going to continue to develop and we'll continue to provide color as we go forward as to what the benefit we're seeing is from that investment that we're making to help improve that efficiency when it comes to customer churn.

Got it, okay. And then shifting gears a little bit just on PennEast, I wonder if you could provide an update on that, what the path forward is for that project, both in terms on the regulatory front and also on the commercial side?

Yeah, this is John, I'll comment briefly and I will let Bob comment. Essentially on PennEast at this time, we're working through a case and awaiting feedback on a Supreme Court case that's been filed. And essentially that's a key driver in terms of next steps for the project. We're looking for input from the Solicitor General in the very near future and we'll have feedback following that from this. We expect feedback from the Supreme Court as to whether they will hear the case. So that's a really important milestone in the project that we're hoping is upcoming. But I will also let Bob comment on that as well.

No, that's right John. We also continue to work with the regulatory agencies, who will be issuing permits and working with us on construction scheduling, what have you. And as far as the commercial front, we continue to work the project. We continue to talk to potential shippers. And as John said, we await the decision by the Supreme Court as to whether or not they're going to take up the case.

Great. Thank you.

Thank you, Mark.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to John Walsh for closing remarks.

Okay, thank you very much for your time this morning. We look forward to keeping you updated on our progress with the next opportunity being our Investor Day on the afternoon of December 7th. So look forward to seeing all of you then. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.