Good day, ladies and gentlemen, and welcome to UGI Corporation Fourth Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

[Operator Instructions] I would now like to turn the call over to you to Tameka Morris, Director of Investor Relations. Please go ahead..

Thank you. Good morning, everyone. And thank you for joining or fiscal 2021, fourth quarter earnings call. Today. I'm joined by Roger Perreault, President and CEO. Ted Jastrzebski, CFO, and Bob Beard, Executive Vice President, Natural Gas, Global Engineering & 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 or most recent Annual Report, and our quarterly reports on Form 10-Q for an extensive list of factors that could affect results.

We ask you no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We'll 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'm pleased to turn the call over to Roger..

Thanks Tameka. And good morning, everyone. Thank you for joining the call today. We are excited to discuss our fiscal 2021 results and expectations for 2022. As you may have seen from our earnings release, we achieved all-time record earnings, which is particularly notable in the face of continued uncertainty and challenges in the global environment.

This performance is a direct testament to our resilient, diversified business that's been built over 139 years and I'm proud of the 11,000 + employees that show up every day, dedicated to safety and excellence.

In fiscal 2021, our diversified business reported GAAP EPS of $6.92, an adjusted EPS of $2.96, which was 11% higher than the previous year and at the top end of our revised guidance, prior to the $0.03 non-cash adjustment related to equity, and is what Ted will discuss in further detail in a moment.

All of our businesses reported higher results in comparison to fiscal 2020, particularly UGI International, which delivered a record performance due to relatively normal weather conditions and continued strong margin management efforts.

This year marked the 34th consecutive year of increasing dividends and the 137th year of consecutively paying dividends. Our shareholders have experienced a dividend growth rate of 7.2% and an EPS growth rate of 7.7% over the past 10 years. Looking forward for fiscal 2022, we expect adjusted EPS to be in the range of $3.05 to $3.25.

We are encouraged by the growth prospects ahead of us and believe we are well-positioned to continue the momentum from 2021 as we execute on our strategy of delivering reliable earnings growth, investing in renewable energy solutions, and rebalancing our portfolio towards a more equal split between LPG and Natural Gas.

Next, I'll comment on several major achievements over the course of fiscal 2021 before turning the call over to Ted, who will provide more details on UGI's financial performance. This year, we made noteworthy progress on a range of strategic investments, and focused on new opportunities that leverage our existing infrastructure and expertise.

We delivered reliable earnings growth as we executed on several growth in environmental, social, and governance initiatives. In our Natural Gas business, we deployed a record level of capital at our regulated gas utilities, investing $394 million in infrastructure replacement and reinforcement.

The PA gas utility continued to produce an attractive rate-base growth rate with the 5-year average being 11% plus and we expect to continue that investment profile, driving reliable earnings growth going forward.

Our PA gas utility also added more than 12,000 new residential and commercial heating customers, continuing our strong track record of annual customer growth. We are pleased to increase our regulated utilities footprint with the Mountaineer acquisition that closed on September 1st.

With this acquisition, we added roughly 6,200 miles of pipeline and nearly 214,000 customers in West Virginia. Within the Midstream & Marketing segment, we continue to see a significant amount of margin from fee-based income.

We also expanded our interest in the natural gas gathering systems in the Appalachian basin with its investment in Pine Run in February 2021. This investment has performed well, and we are pleased with the strong production volumes during the fiscal year.

With the rising natural gas prices, we remain confident that our Midstream assets position us well for future opportunities. Moving to the global LPG business. As I mentioned before, UGI International generated record financial results this year.

The segment also realized approximately €14 million in annual benefits from the business transformation initiatives and remains on track to deliver on our previously stated goal of €30 million in annual benefits by the end of fiscal 2022.

AmeriGas grew national account volumes by over 9% and continued to expand its cylinder home delivery service since, now offered in 22 cities in the U.S. As part of our business transformation initiative at AmeriGas, our teams are focused on enhancing the customer experience and driving operational efficiency.

During the year, we established a centralized customer engagement services center, enhanced customer management tools, and introduced the new routing and logistics tool. In conjunction with those efforts, AmeriGas realized $78 million in incremental annual benefits in fiscal 2021. These transformation activities are substantially complete.

And we now expect to provide total annual benefits of more than $150 million at a total cost of $220 million by the end of fiscal 2022.

Moving to our ESG initiatives, further demonstrating our commitment to sustainability, we established a dedicated ESG team and committed to a 55% reduction in Scope 1 greenhouse gas emissions by 2025, using 2020 as the base year.

We also made great strides in advancing on our belonging, inclusion, diversity, and equity initiative and we're pleased to increase our domestic spend and commitment with diverse suppliers by over 20%.

As part of these efforts, we also established partnerships with The Human Library Organization, and strengthened existing relationships with The Urban Affairs Coalition and Big Brothers Big Sisters. Turning to our progress in advancing our renewable strategy.

During fiscal 2021, the Midstream & Marketing segment entered into several strategic partnerships to produce renewable natural gas from a diversified set of feedstocks, and also from outside of our historical geographic boundaries. In these attractive RNG partnerships, we committed over $100 million of investment during the year.

Adding to those RNG investments, in October 2021, UGI Energy Services announced that it had identified its third RNG project in Upstate New York to develop a dairy digester project to produce renewable natural gas to the Cayuga RNG joint venture. We are also pleased with the foundation that we've begun to lay with biofuels.

We established an exclusive supply arrangement that enabled us to receive bio-LPG in Europe to meet customer needs. In May, we announced the intent to create a joint venture for the production and use of Renewable Dimethyl Ether or RDME, a low carbon sustainable liquid gas in the U.S. and Europe.

We are currently in the regulatory filing process with the European authorities, and we'll provide more updates as we progress on this venture. We are pleased with the strides that we've made in these initial renewable investment opportunities.

First, these projects allow us to utilize our existing natural gas and LPG distribution infrastructure to deliver RNG and bio-LPG to the customers we serve. In most cases, they require no incremental investments by our customers and no community disruption related to infrastructure build-out.

Secondly, similar to our investments in the Natural Gas business through the Mountaineer acquisition, capital spend in replacement and betterment, and investment in the Pine Run midstream system. These investments in renewable energy solutions will drive forward our portfolio rebalancing strategy and lead to continued earnings growth.

And now, I'll turn over the call to Ted who will get into more details on the financial as well as our fiscal 2022 guidance..

Thanks, Roger. As Roger mentioned, we're pleased with the record fiscal 2021 results. UGI delivered, adjusted diluted EPS of $2.96 compared to $2.67 in the prior year. This table lays out our GAAP and adjusted diluted earnings per share for fiscal year 2021 in the comparable prior period.

As you can see, our adjusted diluted earnings exclude adjustments totaling $3.96, which related to a number of items including the impact of mark-to-market changes in commodity hedging instruments, a gain of $4.72 this year versus $0.39 in fiscal '20, which is largely attributable to the significant increase in commodity prices that we saw in the year.

Our businesses employ a hedging strategy to manage market price risk associated with fixed price sales programs, and reduced the effects of short-term commodity price volatility. During fiscal 2021, average wholesale propane commodity prices at 1 of the major supply points in the U.S.

Mount Belvieu, Texas were approximately 97% higher than Fiscal 2020. In addition, UGI International saw 52% increase in average wholesale propane prices in Europe over the prior year. This led to a higher adjustment per mark-to-market gain in the current year.

Next, we adjusted out $0.35 of expenses associated with our business transformation initiatives, compared to $0.21 in the prior year. As the LPG business transformation initiatives are substantially complete, this will be the final year of adjusting for those costs.

Adjustments in fiscal 2022 will relate to the corporate functions transformation that began in fiscal 2020 and are expected to cost roughly $40 million by the end of fiscal 2023 and will result in more than $15 million of ongoing annualized savings.

The corporate functions transformation will standardize processes and activities across our global platform while leveraging the use of best practices and efficiencies between our businesses. Next, we adjusted $0.04 for the acquisition and integration of Mountaineer Gas that closed on September 1st of this fiscal year.

$0.07 for impairment of customer relationship intangible at DVEP, due to a decline in anticipated volumes attributable to historical customer. We had a $0.44 impairment related to our PennEast assets. As announced in September of 2021, PennEast has ceased further development of the proposed pipeline project.

Despite this change, we're confident that there are ample opportunities to deploy capital into other areas that meet our return objectives. Lastly, due to a change in the Italian tax law that came into effect in fiscal 2021, we had a one-time $0.11 gain.

Looking at our year-over-year performance, this chart provides some additional color on the $0.29 improvement in adjusted earnings that we achieved versus the prior year. As Roger mentioned, all of our businesses delivered higher performance over the prior year and we'll discuss each in further detail on the upcoming slides.

Overall, our operating segments experienced some recovery on volumes that were impacted by the COVID-19 pandemic and benefited from weather that was colder than prior year at UGI International. The new gas base rates that went into effect for our PA gas utility also contributed $0.05 to the year-over-year increase.

At the corporate level, we saw an $0.08 decrease versus the prior year period, largely due to higher CARES Act tax benefits that were realized in fiscal 2020. In addition, we had a $0.03 non-cash impact related to the accounting treatment of the $220 million in equity units issued in May of 2021.

This dilutive impact on the Company EPS resulted from the inclusion of the underlying shares in our calculation of weighted average shares outstanding and was not anticipated when we discussed our updated guidance range.

Previously, we expected that the underlying shares would be accounted for using the treasury stock method, and therefore not be included in our calculation until settlement in 2024, which was consistent with market practice at the time.

Despite this account increment, our long-term EPS growth target of 6% to 10% remains unchanged and our fiscal 2022, guidance reflects the reliable earnings growth that we expect to continue providing our shareholders. Turning to the individual businesses. AmeriGas reported an increase of $12 million in EBIT over the prior year.

Retail volume declined by 2% due to continued COVID-19 impact on commercial and industrial volumes, and other residential volume loss. Some of the volume impact on margin was offset by a 9% increase in national accounts volume, as well as an increase in unit margins over prior year.

As I mentioned earlier, average commodity prices were significantly higher than in fiscal 2020. In addition to deploying our hedging strategy, our business continued to focus on margin management and customer affordability.

The $21 million of lower operating expenses are largely due to benefits realized from the LPG transformation initiatives that Roger discussed earlier. We also had an increase in other income primarily due to the resumption of late fees that were suspended during the early months of the pandemic in Fiscal 2020.

UGI International EBIT increased by 22% compared to fiscal 2020. On a constant-currency basis, we had a $31 million or 12% improvement in EBIT over the prior year. Retail volumes increased by 5% largely due to the significantly colder than prior year weather and recovery of certain volumes that were impacted by the COVID-19 pandemic last year.

This increase in bulk volumes drove the higher total margin along with slightly higher unit margins due to effective margin management efforts. Separately, our hedging strategy, which is intended to offset the multiyear impact of foreign currency changes, is working as intended, and is reducing the volatility associated with the U.S.

dollar shifts over time. Moving to the Natural Gas businesses, midstream and marketing reported EBIT of $190 million compared to $168 million in fiscal 2020. The business experienced improved margins from capacity management driven by mark-to-market timing.

Improved margins from gas gathering and renewable energy marketing activities, in comparison to the prior year, also helped offset the margin loss from HVAC in Conemaugh that were divested in fiscal 2020. Our recent investment in Pine Run continues to perform above our expectations and contributed to the increase in EBIT versus prior year.

Our utility segment, now comprised of our PA gas and electric utilities and Mountaineer reported EBIT of $242 million, $13 million higher than the prior fiscal year.

Core market volume increased due to continued growth in our customer base, and addition of more than 12,000 new customers in Pennsylvania, and recovery of certain volume decreases related to COVID-19.

Total margin for the year increased by $39 million, which was largely driven by higher core market volume and the phased implementation of the new base rates, which became effective January 1, 2021.

Higher operating expenses were attributable to higher contracted labor expenses and employee costs in the incremental costs associated with the Mountaineer acquisition. Mountaineer had a $0.01 dilutive impact for the year prior to the $0.03 impact of the non-cash adjustment related to the equity units.

Moving to liquidity, our business continued to generate strong cash flows and we saw a 34% increase in the year-to-date cash flow from operating activities over prior year. Throughout the year, UGI had available liquidity of $2.2 billion, approximately $700 million more than the prior year period.

Our balance sheet remains strong with the capacity to fund active projects and new investments across the Company. As Roger mentioned, our fiscal 2022 guidance range for adjusted EPS is $3.05 to $3.25 and assumes normal weather based on a 10-year average in the current tax regime.

On the slide, you'll see a comparison of the midpoint of our fiscal 2022 guidance to the fiscal 2021 actual adjusted EPS of $2.96. First, fiscal 2021 results were impacted by several non-recurring items.

The net effect of these items is roughly neutral, but to provide you with an update since the Q3 earnings call for the full fiscal year, we experienced COVID-19 headwinds of roughly $0.13, CARES Act tax benefit of approximately $0.07, and benefits from our tax planning strategy of approximately $0.05.

Next are 2 items that came with the Mountaineer acquisition. First, we have the dilutive impact of the equity units that I discussed previously. The guidance includes approximately $0.06 for the full-year dilutive impact of the equity units based on the current accounting treatment. Year-over-year, this is an incremental $0.03 of dilutive impact.

Next is the accretion from Mountaineer, which is an increase of $0.06 over fiscal 2021. Lastly, we have other drivers which are expected to provide an incremental $0.15 over fiscal 2021. This includes benefits from the business transformation initiatives, as well as the return to normal weather in the U.S.

In establishing our guidance, we've taken into consideration some impact from inflation, supply chain constraints, and commodity price increases. Our disciplined approach to expense and margin management helped us mitigate the impact of these global challenges.

In summary, the midpoint of the fiscal 2022 guidance represents a 6.4% increase over fiscal 2021, and a solid 10-year annual growth rate of 9.7%, which is at the top end of our long-term earnings growth commitment of 6% to 10%.

We expect to continue that consistent growth trajectory, and are excited about the opportunities ahead to drive further earnings expansion. Now, I'll hand the call back over to Roger..

Thanks, Ted. In closing, we are proud of the resiliency of our business and people in the strong results we were able to deliver in a year that was marked with several challenges in the global economy.

We continued to expand our operations, accelerated our growth strategy, and advanced in our commitment to the environment, our people and our customers. I am very optimistic about the future and our execution against our strategy will deliver on our long-term EPS and dividend growth commitments.

We have a strong pipeline of investment opportunities ahead and look forward to discussing progress against those investments and our long-term outlook with you at our Virtual Investor Day in December. And with that, we will open it up for questions..

Thank you. [Operator Instructions]. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is now open..

Hey. Good morning, team. I suppose I'm going to try my luck here. I know you guys have your bigger update coming here, but got just a couple of questions if I can. First off, just on the new [Indiscernible] in accounting. Given the backdrop, did you get anything from the SEC that led you to change the accounting practice.

And were there -- were you aware of this potential when you entered into it, perhaps..

So let me take that. Good morning. This is Ted Jastrzebski. We were aware that there were inquiries being put out on this subject, right at the point in time in which we were engaging and creating the new instrument. As you saw in the last quarter in Q3, we did account for it and the Treasury Stock Method.

Between the time that we close the books for Q3 and we released these earnings, it became clear that the appropriate accounting that we needed to use was the If-Converted Method where you recognize the dilution of the shares.

So, we issued $220 million of equity units in May of '21 using the Treasury Stock Method of the treatments, the underlying shares were not included in our calculation of weighted average number of shares outstanding, that was consistent with market practice at the time.

We recognized that we needed to incorporate the new If-Converted method of accounting and reflected that in this release, and we'll be using it going forward, and that recognizes those shares as though they're issued immediately that created a $0.03 impact on our FY2021 results. It will create a $0.6 impact for the full year, next year.

I will say we always incorporated in our thinking that we would have this dilutive impact. Under the old accounting, we assume that wouldn't happen until '24, that clearly is now move forward. But it's always been incorporated in our long-term thinking and therefore, has no impact on our expectations for long-term growth.

Did I answer your question?.

Yes. That's fine. Thank you. I know it's a little nuance here. Okay. Excellent. And just keep on going here if I can.

How much unutilized capacity do you have on the existing Midstream System, particularly the acquired Columbian System? Can you talk about the appetite to extend Midstream investment given the elevated gas price environment and specifically, perhaps muted or limited offtake capacity in this geography?.

Sure.

I think that -- you want to take that, Roger, or you want me to take it?.

No, please go ahead, Bob, I was going to call to state your line..

Perfect. Good morning, everyone. Yeah. We have excess capacity on the acquired Columbia Midstream System and I think meaningful volume's still available for us to be able to move. And relative to the macro question on Midstream activity in general, we like the Midstream business, we continue to think it's a good business.

I think it was a handful of weeks ago, I read an article that production out of Appalachia for that 12-month period was a record, and coming on the heels of our third warmer than normal winter, I think that really tells you something about the fundamentals of the business.

So, we are always looking at opportunities to either build onto our existing systems, or perhaps buy systems that are complementary. So, we are very much always looking. But as everything we do, it's got to make sense for us, and it's got to be a deal that we think is appropriate..

Got it. Fair enough. And then just lastly, if I can squeeze 1 more in here; how are you managing margins at the global LPG business? Obviously, you've got higher gas price backdrop.

Are you adjusting your hedging or procurement policies? And more importantly, just what are you ultimately reflecting here in the guidance? Again, ultimately, you've shown your cards here on what you picked for the year ahead, how are you -- what assumptions are you making, therein, around that global pricing environment and subsequent volumetric implications?.

Yeah, Julien. I'll take that question. This is Roger answering. We have a history of really maintaining good margin management, and we don't see any change in that and our approach going forward. So as a reminder, we do have customers that want a fixed-price.

Those customers typically lock in -- we lock in the cost of that product to meet those fixed-priced obligations with those customers. So, we do have a hedging process that is recognizing fixed-price contracts. And then we have customers that want to be priced on an index, on a published index.

So those categories of customers pay whatever the indexes revealing. And then we have another category of customers which is really like a posted price equated to what you see at the gas station, where we post price that is taking place. That section of customers, we modify the price on an ongoing basis.

There could be a small leg from time-to-time because there are certain markets where we give a notice to the marketplace that we will be adjusting the price; but effectively, what we've demonstrated in the past and what we continue to do is to manage those margins very carefully as commodity costs go up, we continue to move the prices around to essentially reflect that near back-to-back model that we often talk about..

Fair enough. Thank you, guys, I'll leave it there. I appreciate it..

Thank you. [Operator Instructions] Our next question comes from the line of Marc Solecitto with Barclays. Your line is now open..

Hi, good morning. Just wanted to start on the International Gas Marketing business. Obviously, that's a fairly small part of the portfolio and you're not taking much commodity or spread risk based on how I understand it.

But just given the volatility in European gas markets, has that had any impact at all on your business?.

Let me kick it off and I'll pass to Ted as well. So, you're right. I mean, first of all, Mark, to validate what your first statement was is yes, we essentially have the same kind of business model concept where we have a back-to-back model, where we lock in margins as we go along in the margin -- in the energy marketing space.

Clearly, we've seen a lot of pickups in commodity costs and that led to what you see in our GAAP earnings a substantial pickup in mark-to-market -- unrealized mark-to-market gains, which we highlighted in the economics or in the P&L that we shared with you today.

Is there anything thing to add to that, Ted?.

Yeah. No, it's -- I would just direct you as Roger did to our GAAP accounting and that $4.72 adjustment we made for mark-to-market. So, it is sizable. It is fairly dramatically impacted by gas in international. And that is a direct reflection of what we're seeing happening in pricing in Europe..

Got it. Okay. And then with respect to RNG. You guys have had a lot of success lately moving forward with several small-scale projects with GHI serving as the exclusive marketer of that gas. Just wondering as you think about scalability, how are you thinking about GHI.

Would you need some sort of third-party commercial framework to support larger investments, or just how should we think about scalability of that framework?.

Yes. Marc, I'll give you my opinion on that. I think GHI is very well-positioned to handle the types of projects that we're bringing onboard and with line of sight of -- the pipeline of projects that we will continue.

We talked about investing over $1 billion into this space of renewables, so that's a combination of renewable natural gas, but also bio-LPG facilities and potentially renewable dimethyl ether facilities.

GHI is very, very well-positioned to continue to provide those marketing capabilities in California of the attributes we get as we continue to invest in the renewable natural gas assets..

Got it. Thanks for the time..

Thank you, Marc..

Thank you. [Operator Instructions] There are no further questions. I will now turn the call back to Roger Perreault for closing remarks..

Thank you, Sarah. And thanks to all for joining our call today. We now look forward to the Investor Day that will take place in January. So really look forward to seeing all of you there. And we just like to wish everybody a Happy Thanksgiving. Thank you..

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