UGI - NYSE

Good day, and thank you for standing by. Welcome to the UGI Corporation Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today Tameka Morris. Please go ahead.

Good morning, everyone. Thank you for joining our Fiscal 2025 Third Quarter Earnings Call. With me today are Bob Flexon, President and CEO; and Sean O'Brien, CFO. On today's call, we will review our third quarter and fiscal year-to-date financial results, along with other key business highlights 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. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release or quarterly reports and our 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. 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. And with that, I'll hand the call over to Bob.

Thanks, Sean. [Audio Gap]

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith of Jefferies.

It's actually Paul

Okay. It's good to hear across the board. And then, I know, I had asked about AmeriGas, I'll leave that for someone else. I wanted to drill in a little more on the Midstream side of the business. Obviously, you had a lot of activity with the Pennsylvania AI & Innovation Day. Are there any way that you could frame what you think the investment opportunity set is for the Pennsylvania Midstream business, given a lot of the activity in the near your footprint, that would be helpful.

Yes, Paul, I think, the best I can do with that right now is to say that, both Midstream and the Utility, we expect will benefit, we have well into the double digits of NDAs with potential generators and other opportunities to utilize our infrastructure for providing natural gas or providing on-site LPG -- sorry, LNG. So we see pretty robust opportunities there, multiple, like say, multiple counterparties and in-depth discussions that are ongoing. So we have the right assets in the right place to take advantage of all of this. So it's just to continue to cultivate those opportunities.

Okay. Great. And then if I could squeeze in one last one. Any commentary you provide on the multiple for the strategic divestitures you had as of date?

No. I mean, the way that we looked at all the divestitures is that we looked at, kind of, how we view the value in our hands versus the value that we're receiving from again, the counterparty on it. And we wouldn't sell any asset that would be dilutive. So when you think about the various multiples of our business even when you break them apart, it's got to either be equal or better than in our own hands. So that way on a risk-adjusted basis, you're creating value versus not selling. So, that's the way we look at it. Again, we look at the NPV in our hands versus the sale price and make sure that it's not going to be dilutive to us. On leverage, Paul, when you think about it. So it's got to be much better than our leverage ratio as well.

[Operator Instructions] Our next question comes from Gabriel Moreen of Mizuho.

Good morning, everybody. I guess, I'll take the AmeriGas question then just twofold there. One is, there's a lot of moving parts, I think, between the wholesale divestiture, potential high-grading of the customer base. So I'm curious, Bob, as you go into the upcoming winter heating season, what sort of metrics you're most focused on here, whether it's, I guess, profit -- I'm sure profitability is a big one. But anything you can kind of direct us to whether it's absolute or relative metrics? And then, the second part on the divestiture program, just on LPG, wondering if you think you're kind of done for now if there's more to go at this point?

Thanks, Gabe. I'll go into it, and certainly in the AmeriGas topic, I'll try not to use the rest of the call time for that. First of all, the wholesale business, again, creates -- it's been creating a lot of activity in our business, but not providing any bottom line benefit. So again, working on simplifying that business we're not going to supply largely our competitors basically at our cost using our infrastructure. So it doesn't make any sense to continue doing that. To the extent we've got customers in there that are lost customers, they'll either become new national accounts on a profitable level or they, again, will not be continuing on with them. So it's really, I think, as you said, high-grading the portfolio, taking the complexity out of the portfolio, so we're focusing on our highest value customers out there providing the commensurate level of service that our customers expect and deserve it. So I think, it's a good step as we go into the winter to better handle our profitable businesses, our profitable customers within AmeriGas. When you think about some of the indicators we're looking at, safety is one that we don't talk a lot about on these calls. But certainly, the third quarter of this year at AmeriGas had substantial improvements in our safety record. And to me, that's a leading indicator of how well you're focusing on your businesses, your processes, and getting inefficiencies out of your business and maintaining a safe workforce and not creating rework or anything that's just adding cost and more complexity to the business. So -- really happy to see the dramatic improvement that we've experienced in the third quarter on safety. It has been a key focus area for us. On a lot of the improvement projects that are underway, we've gone from really the analysis of what is the root cause of issues and what's the solution to implementation. And we talked about it in the past that it's -- this is a two-winter effort. Going into this winter, when you think about customer service, we'll have a bit of a hybrid, we'll have some still international support for customer service, but a much more substantial footprint domestically to provide much better customer service. So another metric will be our customer service statistics, our Net Promoter Scores, our time on hold, things of that nature. So we continue to work on some of the KPIs and the things that really affect the customer. Another one is routing and delivery. It's another work stream that we've been focusing on, and we have that rolled out now to a handful of our locations across the country, and we're experiencing, call it, an 8% to 10% efficiency improvement on miles on efficiency on gallons delivered per mile and the cost of delivery. So as we get to October 1, we plan to have that launched nationwide. So that will be another statistic that we're looking at, is the efficiency of our delivery routes as well. And then always the kind of bottom line free cash flow, we generating cash flow from this business, as we've talked about need -- to stand on its own. And one of the things that really excited about as well for AmeriGas is that their leverage ratio has improved by nearly one turn. So we'll continue to watch the balance sheet, the importance of maintaining the right credit metrics, but as we go into the winter, there will be various performance metrics, some of which I just went through. So we're gearing up for the winter. One of the other things though that came as a little bit of a surprise to me in this quarter when I think about substantial opportunity during the summer months to improve our ACE business as well. And again, through better productivity, better efficiency, better processes that there's meaningful improvement that we can make over the summer months. And I would say that before going into the summer, my focus was relentlessly on the winter, but going out and visiting some of the locations and seeing the opportunity to really hit our production targets I think, can really help us in the summer months as we go forward. So I'm looking forward not only to a good winter next year, but also a stronger summer than we had this year. So looking at those production metrics will be another one that we look at as we go into next summer at our various ACE facilities. So there's a lot of opportunity procurement of propane, hedging, proactively hedging to help our customers maintain stability of their bills. So we've got a lot going on and a lot of progress. I think we're in really good shape going into the winter. Okay. Hopefully, that's helpful. I mean, I can talk about for quite a long time, but I'll stop there.

And again, Gabe, just a follow-up on maybe the earlier question from Paul as well. When we look at the potential developers within the state of Pennsylvania, both on the regulated and unregulated side for power generation and the like. We're seeing substantial inquiries and opportunities there. So will continue to work with all of those counterparties to see what we can do to participate and help make the energy investment that's happening across the state. Again, we're in a exciting time for the state of Pennsylvania. The Energy Summit really highlighted that. And the great thing of Pennsylvania is how, from a political standpoint, all parties are aligned on bringing investment into the state of Pennsylvania. So it's really an exciting time here in Pennsylvania. And again, our Midstream business and our Utility business should be substantial benefactors of the movement underway.

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

Thanks, Dana, and thanks, everyone, for dialing in. And just a few -- maybe a few closing comments. We had a record year. So certainly, that's exciting in its own, right? But work is underway to make the future even more successful than what we had this year. As I just mentioned, talking with Gabe, I'm very excited about our safety performance and the improvements we're seeing in safety, I just view that as a leading indicator to a well-run company. So we feel great about that. The financial performance this year, we talked about was great. The cash flow of $558 million is an 11% improvement year-on-year. And that really takes me to the kind of the third point of what really focusing on is the balance sheet. And we've got our corporate leverage down to 3.8x, $200 million debt reduction, as I mentioned a moment ago. The AmeriGas achieving nearly one turn improvement in its leverage ratio. So we're going to continue focusing on the intrinsic value drivers in our business, the State of Pennsylvania and West Virginia. We've had a constructive rate case proceeding. We're looking to get that through its final stages and have that part of our fiscal '26 results. And we've completed our Midstream projects, and we just continue to look at our emerging opportunities. And finally, I'll just say that our eyes are completely focused on this upcoming winter and to be ready for winter to have a really successful launch into fiscal '26. to our discussions in the future.