UGI Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 17, 2023

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the UGI Corporation's 4th Quarter 2023 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Tamika Morris, Senior Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining our fiscal 2023 4th quarter earnings call. With me today are Roger Perrault, President and CEO Sean O'Brien, CFO and Bob Beard, COO. On today's call, we will review our financial results and some notable performance highlights for the year, discuss the strategic 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.

Speaker 1

Please read our earnings release and our most recent annual and quarterly 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. Now, I'm pleased to turn the call over to Roger.

Speaker 2

Thank you, Tamika, and good morning, everyone. We appreciate your interest in joining our call today. Fiscal 2023 was a year where we continued to see uncertainty in the macroeconomic environment, particularly with high interest rates and elevated inflation levels. Across most of our service territory, weather was significantly warmer than normal and we experienced challenges within our global LPG businesses, largely due to operational headwinds at AmeriGas and Energy Conservation in Europe. Against that backdrop, UGI reported adjusted diluted earnings per share of $2.84 for the fiscal year.

Speaker 2

The Utilities and Midstream and Marketing segments delivered record earnings and an 8% growth in EBIT over the prior year. This performance was aided by the weather normalization rider that was implemented in the fiscal Q1 and the higher gas base rates at our Pennsylvania gas utility, as well as incremental earnings from the prior year acquisitions of UGI Marine East and Pennant. We also benefited from margin management actions taken to alleviate volume and cost related pressures in the global LPG businesses. These businesses continue to generate attractive free cash flow, which support actions to return capital to shareholders, service the balance sheet and make growth investments in other portions of the business. This diversified portfolio has provided a solid foundation for consecutively paying dividends Over the past 139 years, increasing dividends in the past 36 consecutive years and delivering a 10 year EPS CAGR of 6% and dividend CAGR of 7%.

Speaker 2

Of course, our performance would not have been possible without the tremendous dedication of our employees In fiscal 2023, we continue to execute on critical elements of our long term strategy in areas that We deployed a significant amount of capital with approximately $563,000,000 invested, primarily in infrastructure replacement and betterment. The team replaced roughly 142 miles of pipeline and made noteworthy updates to its infrastructure, including an upgrade to its Auburn station to increase natural gas capacity as we accommodate growing customer demand. Customer additions remained robust with more than 13,000 new residential heating and commercial customers added during the year, reflecting further growth in the business. We also continue to facilitate programs designed to aid our customers with energy affordability, Along with various customer assistance programs, in fiscal 'twenty three, we were pleased that nearly 51,000 utility customers received LIHEAP grants The rate case continues to progress as expected and on October 6, the company filed a joint stipulation and agreement for settlement, which included a revenue increase of $13,900,000 We anticipate that the new rates will go into effect on January 1. Looking at the Midstream and Marketing segment, we continue to provide a full suite of midstream services, which includes LNG peaking, Pipeline capacity, storage and gathering services.

Speaker 2

Approximately 86% of our margins are underpinned by fee based contracts, which includes take or pay arrangements and minimum volume commitments. These contracts are with gas and electric utilities, Top tier producers and other commercial and industrial customers. Many of our midstream assets, which include LNG facilities, Pipeline capacity, storage and other assets are either located on or connected via pipelines to our utility system. Given the strategic positioning, UGI Utilities has typically been the largest customer of the midstream business with all contractual arrangements completed through open RFPs. Next, we made progress on the previously announced RNG projects and we were pleased to complete construction of 2 such projects in Upstate New York, namely Allen Farms and Alvey Farms.

Speaker 2

These facilities have the capacity to produce 140,000,000 cubic feet of RNG annually, in total, that will be sold to local gas utilities. GHI Energy, our wholly owned subsidiary, is the exclusive marketer of the environmental credits on these projects. Moving to the global LPG businesses. At UGI International, we made important progress Exiting the non core energy marketing business as we sold our operations in the U. K.

Speaker 2

And Belgium during fiscal 2023. In addition, in October 2023, we completed the sale of substantially all of the energy marketing portfolios in France. In completing these transactions, we have been able to substantially reduce our exposure to natural gas and power marketing in Europe, And we anticipate that we will fully exit this business by the end of calendar 2025. At AmeriGas, we continue to see a positive trend in several of our critical operating metrics such as on time deliveries, 0 fills and inefficient fills. Our teams have been focused on enhancing the customer experience And optimizing our systems to enable more efficient delivery.

Speaker 2

During the year, we've also made investments in technology and other areas to promote the safety of our employees and the communities we serve. At UGI, we are committed to making a difference in the communities in which we operate. I am so proud of our employees who continue to spend time each year serving their local communities through programs such as United Way, Big Brothers Big Sisters, Reading is Fundamental and Habitat for Humanity among others. And with that, I'll turn the call over to Sean, who will comment on the financial results for the year.

Speaker 3

Thanks, Roger, and good morning. I'll start by sharing the key drivers of our financial performance for the year. As Roger mentioned, for fiscal 2023, UGI delivered adjusted diluted EPS of $2.84 in comparison to $2.90 in the prior year. The Utility segment was up $0.06 as benefits from the weather normalization rider And higher gas based rates offset the impact of warmer weather and higher operating expenses. Next, midstream and marketing was $0.13 with incremental earnings from the prior year acquisitions of UGI Moraine East and Pennant as well as benefits from investment tax Credit associated with the previously announced RNG facilities that were placed in the service during the year.

Speaker 3

Turning to the global LPG businesses. UGI International was down $0.01 as the impact of lower LPG volumes was largely offset by higher LPG unit margins, Higher margin from the non core energy marketing business and lower taxes due to the optimization of foreign tax credits, which yielded the benefit of approximately $0.09 AmeriGas was down $0.19 as the business dealt with lower volumes and higher operating and administrative expenses As it experienced inflationary pressures and made investments to improve driver capacity. With these investments, we believe that AmeriGas positioned to meet our customer demand in the heating season. Lastly, corporate other was down $0.05 due to higher interest expense. Turning to the next slide.

Speaker 3

For each reportable segment, I'll walk you through the key drivers of our results when compared to the prior year. Starting with the Utilities segment, our regulated utilities delivered record EBIT of $365,000,000 up $29,000,000 or 9 percent over the prior year. Despite significantly warmer weather, the business benefited from the weather normalization rider that was implemented in the Q1. Utilities also realized higher margins due to higher gas base rates in Pennsylvania. Incremental benefits from the DISC and iREB programs as well as continued customer growth.

Speaker 3

Operating and administrative expenses were up $36,000,000 largely due to higher uncollectible account expenses, contract labor costs and personnel related expenses. Next, Midstream and Marketing reported a record EBIT of $291,000,000 an increase of $22,000,000 or 8% over the prior year. While weather was warmer than normal and also the prior year, the company benefited from its fee based portfolio and the optimization of its peaking assets during a cold weather snap in December. These benefits help to offset lower capacity management margins due to the settlement timing of certain multiyear commodity storage hedge contracts in fiscal 2022. In addition, The business realized incremental margin from UGI Marine East acquired in January 2022 and from the full buy in of Tennant that occurred in August 2022.

Speaker 3

These acquisitions have performed well, delivering robust returns for the fiscal year. At UGI International, LPG volumes were down 9% due to significantly warmer weather and the effects of energy conservation efforts in Europe as a result of the ongoing geopolitical situation. Total margin was down 15,000,000 The impact of lower volume and the translation effect of weaker foreign currencies were partially offset by higher LPG unit margins and a $29,000,000 improvement in margin from the non core energy marketing business. The segment also experienced increased operating and administrative expenses, largely due to the global inflationary cost environment. The effect of the reduced total margin and higher operating and administrative expenses were partially offset An increase in other income largely associated with the release of cylinder deposits.

Speaker 3

Lastly, at AmeriGas, LPG volumes were down 7% due to the effects of driver staffing shortages, which also limited growth, Continuing customer attrition and structural conservation, largely in the residential sector. Total margin was up 1,000,000 As a result of higher LPG unit margins that helped to offset increased operating and administrative expenses, The increase in cost was attributable to inflationary pressures, increased staff employed to meet customer demand during the winter season, Higher overtime and employee related costs as well as increased vehicle and advertising expenses. The business also benefited from higher gains from asset sales of approximately $21,000,000 during the year. Turning to liquidity. At the end of the fiscal year, UGI had available liquidity of $1,600,000,000 inclusive of cash and cash equivalents and available borrowing capacity on our revolving credit facilities.

Speaker 3

Over the past few months, we have emphasized our priority to strengthen the balance sheet focused on AmeriGas. Additionally, in fiscal 2023, we completed over $2,600,000,000 of long term debt financing to support our ongoing operations and improve liquidity. In November 2023, we also amended the Merigas credit agreement, Decreasing the minimum interest coverage ratio from 2.75 times to 2.5 times, while also rightsizing the revolver from $600,000,000 to 400,000,000 The business did not utilize this revised threshold in Q4 and was in full compliance with its debt covenants. Going forward, these changes provide further support and financial flexibility as we continue to address the operational performance of the business and the balance sheet. Now before I pivot to fiscal 2024, I'd like to take a moment to summarize the year.

Speaker 3

As Roger noted, this was a challenging year due to both external and internal factors affecting certain parts of our business. Despite these circumstances, our natural gas businesses delivered record EBIT. We made key investments to strengthen operations in the global LPG businesses And we continue to make progress on several important priorities. With fiscal 2024 now underway, I'd like to address some important near term priorities for the company as we strive to unlock and maximize shareholder value. First, we remain focused on continuing to reduce costs.

Speaker 3

We believe we have further opportunities to enhance efficiencies while providing our customers with optimal service levels and maintaining a relentless focus on safety. That is more crucial than ever as we see continued inflationary pressures. As such, We are scrutinizing costs across the entire business, including the corporate functions and evaluating essential versus non essential spend. We're also taking a hard look at our processes to identify inefficiencies and opportunities to reduce expenses. These efforts are currently underway with some actions already taken to help us with achieving 25% to 30% of the targeted cost savings In fiscal 2024, in totality, we are targeting permanent savings of approximately $70,000,000 to 100,000,000 by the end of fiscal 2025.

Speaker 3

Secondly, we are focused on strengthening the balance sheet to reduce leverage and provide more flexibility and capacity To make attractive growth investments. As a result, we have realigned our capital allocation plan to align with our strategic priorities. Next, during Q4, we announced a strategic review of the LPG businesses with a focus on AmeriGas. We're running a thorough process with external advisors and we'll provide an update once we have more information that we're able to share. Lastly, we continue to execute our growth strategy with regards to the natural gas businesses.

Speaker 3

We will prioritize investments in the regulated utilities As we continue to meet our commitments, promote pipeline safety, reliability and improvement and to take into consideration customer affordability. We will also leverage our midstream assets that are located in highly productive sections of the Marcellus and Utica production areas to drive reliable earnings growth. Yesterday, we announced our fiscal 2024 guidance range for adjusted diluted EPS of $2.70 to $3 which assumes normal weather based on the 10 year average, our existing portfolio and the current tax regime. Looking first at the natural gas businesses, we ended fiscal 2023 with strong momentum and we expect that trajectory to continue into fiscal 2024. As these to continue into fiscal 2024 as these assets prove their resiliency and stability in delivering robust earnings.

Speaker 3

At the utilities, our margins are attractive as a substantial majority are underpinned by the weather normalization rider at the Pennsylvania Gas Utility. We also anticipated higher base rates and similar trends in customer growth. In Midstream and Marketing, our margins are approximately 86% fee based With limited commodity exposure due to our hedging programs. In the natural gas businesses, the benefits are expected to offset modest inflationary pressures and higher interest expense. Moving to Global LPG.

Speaker 3

At UGI International for fiscal 2024, We've assumed normal weather, a similar level of energy conservation to fiscal 2023, higher margins from the non core energy marketing business, partially offset by lower benefits from foreign tax credit optimization. Lastly, for AmeriGas, We are expecting a slight decline in volumes over the prior year as the business continues to execute on operational improvements. These operational improvements will enable us to more effectively serve our customers during the winter season with the goal to stabilize volumes And ultimately achieve growth in the future. Roger will also provide additional updates on the outlook for this business. Slide 14 walks you through our targeted cash deployment plan for fiscal 2024 and how it aligns with the priorities that we've shared with you.

Speaker 3

1st and of the utmost importance is meeting our commitment to the dividend as we return cash to shareholders. Similar to fiscal 2023, we expect to maintain an attractive payout ratio as we anticipate returning roughly $330,000,000 of capital to shareholders. Next, as we look at the capital allocation plan, during 2023, we invested approximately $1,100,000,000 in capital expenditures, With close to 75% of this amount attributable to our natural gas businesses. For fiscal 2024, we will employ strong working capital management and tighten our capital expenditures in order to strengthen our balance sheet. As a result, Total capital spend is expected to decline to roughly $960,000,000 Of the total capital expenditure for fiscal 2024, We anticipate that approximately 80% will be allocated to natural gas businesses, predominantly to our regulated utilities where we have a long runway of opportunities to Point capital at attractive returns.

Speaker 3

Included in this amount is also capital related to the previously committed renewables projects Where we continue to target unlevered internal rate of returns of 10% or more. And with that, I'll hand back the call to Roger.

Speaker 2

Thanks, Sean. As we've highlighted before, we are evaluating our AmeriGas business as part of our previously announced strategic review. AmeriGas is the largest propane distribution company in the U. S. With an unparalleled supply and distribution network.

Speaker 2

Over the years, AmeriGas has been a generator of robust free cash flow that was used to fund growth investments in the natural gas businesses and return capital to shareholders. Despite the current challenges, the business has continued to generate free cash flow and as we look to fiscal 2024, We have the opportunity to use that cash to improve the balance sheet and reduce leverage. Simultaneously with the strategic review, We will continue to focus on the operational improvements needed to improve customer experience and assure that we are running the business as effectively as possible. This means that we will continue to support and enhance our customer facing activities, optimize our process and scrutinize our costs to achieve savings and reduce inefficiencies. We're also looking at ways to more accurately forecast demand and optimize as we continually work on meeting the needs of customers.

Speaker 2

That is of the outmost importance in our distribution businesses. Similarly, we are focused on improving the balance sheet. We have reassessed our capital spend to ensure that we are being disciplined in how we are deploying capital Within the LPG businesses, in particular, we anticipate that capital will be primarily focused on maintenance spend and select organic growth initiatives that provide a strong return. As I close, I want to emphasize that we are confident in our ability to execute on the key strategic priorities that will further solidify our foundation to deliver consistent and reliable results and create long term value for our shareholders. We have already identified many of the actions required to drive further improvements in our business and fiscal 2024 will be an important year in executing on these initiatives.

Speaker 2

Thank you for your continued interest in UGI and your participation on today's call. And with that, we will open the line for your questions.

Operator

Our first question will come from the line of Gabriel Moreen with Mizuho.

Speaker 4

Hey, good morning, everyone. Good morning. If I could maybe start out on the strategic review, can you give us a sense maybe around Timing of the valuation with a specific focus on AmeriGas, given AmeriGas being embedded in the guidance for FY 2024, we do assume that UGI will still be AmeriGas' owner through the winter heating season. So any comments you could maybe make in that regard?

Speaker 5

Yes. Good morning, Gabe, and thanks for your question. Yes, as we announced at the Correct. The last earnings call, the strategic review is something that's still in its early days. So we have launched it.

Speaker 5

And at this time, we really don't have an update that we can provide on weather timing or the outcome. Just as a reminder, right, the strategic review Was launched with a view on the LPG businesses with a focus on AmeriGas. In parallel to that strategic review, we also Announced that our operational efficiency objectives here, which is to take $70,000,000 to $100,000,000 of expense out of the business. So that's something that we are executing. So what you see in our guidance right now is the impact of about the 30% of that that We will get in addition to a continued focus on operating AmeriGas and continuing to improve Customer delivery metrics, which are trending quite nicely.

Speaker 5

And once we have more information on the strategic review, we'll be Please come back to you and to the market with some updates.

Speaker 4

Understood. And then maybe if I can drill down a little bit on the global PG assumptions for 'twenty four, I think you're assuming normal weather, But you're also assuming volumes decline despite what were as a warm winter last winter. So I'm trying to reconcile those and I know You talked about a little bit in your remarks earlier. And then also as far as margins declining, it seems like the propane pricing environment is Pretty benign at the moment. So I'm wondering to what degree that may be a conservative assumption or not given, I guess, propane prices being so low right here?

Speaker 3

Yes, I can start. Gabe, this is Sean. Let me hit the volume question. So we'll start with International LPG, it was a warm winter last year. So we did have I think around 8% more 7% to 8% warmer than normal.

Speaker 3

So we have normalized that with the 10 year average in our 2024 assumptions and we have assumed We saw some of that conservation last year. We've kept that constant, so that would not be a variable as you go into 'twenty four. We'll keep an eye on that, But we've kept that at the levels that we saw in 2023, maybe closing out international with the EM exits, we definitely see some improvements In the EM side of the equation that are helping the outlook for international. And then as Roger said, we've got a lot of self help Under way and that's across the board. So we're going to continue to focus on cost.

Speaker 3

On AmeriGas, we did not remember, we were fairly On the weather front, when you look at 2023, we had some areas that had warm weather, we had some areas that had cooler weather. So really what you're doing what you're seeing from AmeriGas going from 23% to 24% is a pretty really not much of a weather shift. What we're indicating on volumes there is that we do still expect to continue to see volume declines. We expect those volume declines in 24 to be at a lower rate than what we saw 'twenty two to 'twenty three. Roger alluded to some improvements that we're seeing.

Speaker 3

We're going to be cautious, but we've made some investments and we really are focused on getting through the winter, but we still anticipate some volume declines at AmeriGas. Same concepts there, self help, we're focused on cost in that business as well. And you heard Roger say, capital is going to be Pretty focused on just sustaining and maintenance type capital. So that's sort of the outlook on AmeriGas As you move from 23 to 24.

Speaker 4

Thanks, Sean. Sorry, Gabe,

Speaker 3

you mentioned pricing. I think we see pricing at similar levels in terms of How we're currently forecasting, but we did see obviously you're referencing that maybe pricing is down a little bit. So we don't see that as a big driver in terms of the delta of the variance to our 2024 versus 23.

Speaker 4

Okay, great. Thanks guys. Thank

Speaker 5

you, Gabe.

Operator

Our next question comes from the line of Julien Dumoulin Smith with Bank of America.

Speaker 5

Good morning, Julian.

Speaker 6

Hey, good morning, guys. This is actually Cameron on for Julian. You guys for taking my questions. Hey, hey, good morning. Happy Friday.

Speaker 6

Real quick, I wanted to just Continue on the discussion of volumes for AmeriGas in 2024. So, can appreciate the fact that obviously you guys are working to Right size the business or just kind of get it on more solid footing. You've got a couple of quarters now, 3 quarters of Elevated OpEx as you kind of are embarking on this effort. So maybe just can you speak to the Any benefits you're seeing thus far? And I guess just considering you've had a few quarters to work on this, why maybe we're not seeing a little bit more of a Positive impact for volumes in 'twenty four versus what maybe you'd expect given these efforts?

Speaker 5

Yes. Let me kick that off. Yes, a couple of things to keep in mind. When we went into 'twenty three, Hi, Cameron. We saw a very severe driver shortage and we talked extensively about that throughout the year.

Speaker 5

That did lead to customer losses. And what we're seeing going into 'twenty four is kind of the tail end of that, right? We're seeing a continuation of Volume that really is lost from the driver shortage issue we had at 2023, so it's a lingering effect. When we look at the elevator, the OpEx we've put into the business, that OpEx was very focused on ensuring we have Right number of drivers going into fiscal 2024, Service Stacks, frontline employees, ensure that we are Delivering the promise we make to customers. What we are seeing and we continue to see an improvement in this throughout Summer and leading into the winter is good progress on on time deliveries, good progress On improving 0 fills or minimizing 0 fills, good progress on efficient fills.

Speaker 5

And that's thanks to the fact that we now feel very good about the staffing levels we have going into 'twenty four. Now That did put pressure on OpEx and that is why we also are very focused on this $70,000,000 to $100,000,000 of expense takeout What we've done is we've put OpEx in more customer facing areas and of course we're very focused on taking and controlling costs That do not impact the customer experience. So what we're seeing going into 2024 is some lingering effects From that, now as Sean mentioned, we are confident that we're going to see some improvement in that, but It is going into the year with still a negative trend, but smaller than what we saw in 2022 to 2023.

Speaker 6

Got it. Got it. Okay. Thanks. That's super helpful.

Speaker 6

Maybe pivoting here just to the strategic Review a few questions here. One, just want to confirm, I understand that the review is LPG focused on AmeriGas, but just to what extent is international also being kind of You know, lumped in here and what are some potential avenues you guys are thinking about as far as the international LPG business goes and then related on midstream, obviously strong year, That's been a good business for you guys. What's the potential for any kind of midstream Assets to enter into the strategic review just in terms of just how are you guys thinking about the go forward business on that side of the house as well?

Speaker 5

Yes. So a couple of things and I'll encourage Sean and Bob to add commentary if we see fit. So the strategic review is really focused on LPG businesses. So we were very deliberate In that focus with a focus on AmeriGas, what we see is a focus on AmeriGas as the area that would have the biggest impact On shareholder value, right? The whole process of us launching strategic review was really to commit to unlocking and maximizing Shareholder value.

Speaker 5

And where we see that potential is with a focus on Ameris. Now that being said, we remain very open minded On the strategic review process and really again with an eye on what's going to unlock shareholder value the most. So we're not eliminating ideas from the process, but we are wanting to ensure that we're very clear That the strategic review is LPG Businesses with a focus on AmeriGas, which then leads to your second part of your question, which is Midstream. And in the Midstream part, I mean, Midstream has been and is Just a phenomenal business, right? This is a business that continues to show very nice progress on vertical ratios, on ability to control costs And a very effective shift to more fee based contracts, right, more fee based structures.

Speaker 5

So a business model that is very robust With a very good relationship with LDCs, including our regulated utility And with some good opportunities for continued growth and investments as we continue to provide that essential service in Pennsylvania to move molecules from Various sites to LDCs, etcetera. So we see Midstream as a very core business. It's a business we are excellent at, Like we are at operating a regulated utility, so that's going to continue to be a focus. And as you can see in our thesis that we talk about In our fiscal 2024, we continue to allocate more and more capital to that natural gas business.

Speaker 3

Yes. Cameron, maybe to add just one quick point. Roger talked about the strategic review. The overall goal Of the company which the review is helping us is to we want to be a bigger have a bigger nat gas presence than LPG. Gee, I think we're sitting in that 60 to 40 range currently now.

Speaker 3

And when you look at sort of the composite of the company and I believe we want to grow the nat gas portion of that in the future. So a lot you mentioned actions overseas, obviously the exit of the EM business that the company has been doing and other things that we're looking at. Just keep that in mind that the goal was to be a much more weighted natgas company in the future and we're well down that path already.

Speaker 6

Got it. Thank you. And then just sorry, if I could squeeze in one more. The asset sale that's included in the AmeriGas segment, 21,000,000 Can you comment on what that was when that took place? I may have missed that.

Speaker 6

What exactly was that?

Speaker 4

Yes. So, a couple

Speaker 3

of things, Cameron. Those we have in the AmeriGas portfolio, there are asset sales that occur That have occurred, they're pretty common throughout the years. That one occurred in Q4 late Q4, so you didn't miss it. So this is But it was planned. It was in our guidance ranges and those are common and we have some And our guidance ranges for 2024 as well.

Speaker 3

It's something that we've constantly evaluating some assets and some of the land and some of the Facilities that we have in the AmeriGas business every year.

Speaker 6

Perfect. Okay. Thank you. I'm glad I didn't miss anything. Can you comment on what It's baked into the guide for 2024 on that front?

Speaker 3

What I can say is that 2020 3 was heavier a little bit heavier than normal year. So you could assume that it's going to be smaller than what we saw in 2023.

Speaker 6

Perfect. Okay, got it. Thank you, guys. I will turn it back.

Speaker 5

Thank you, Kevin.

Operator

Our next question will come from the line of Sarah Akers with Wells Fargo.

Speaker 1

Hey, good morning.

Speaker 5

Hey, good morning, Sarah.

Speaker 7

Just a couple of questions on leverage. Can you talk about where you ended 2023 relative to the target? I think it was 3.25 to 3.75 And when you forecast you'll be in that targeted range?

Speaker 3

Yes, Sharon, this is Sean. So there's 2 primary leverage targets we're looking at. The one you're referencing is corp. So we're trying to get 3.5 to 3.75 on corp. We ended in the low 4s At the end of the year, and we do think we can get sub-four percent.

Speaker 3

We're very focused on this. We think we can get sub-four percent in 'twenty four. One other one that I think that's important to think through is AmeriGas. That's another one that we focus on every day. Our covenant range, our covenant max on that is $575,000,000 I'll take this opportunity to say I'm incredibly pleased that we were able to get it End the year and not utilize Equity Cure and actually free up the revolver at AmeriGas.

Speaker 3

That means we're not utilizing any Equity Cure at the end of the year. So, very, very excited about that. And we closed the year at AmeriGas at 5, roughly 5.2, 5.3 And our goal is to get that by the end of the year, but sub-five. So we're making pretty good progress, actually almost a full turn improvement At AmeriGas from just a couple of quarters ago, and we hope we're really focused by the end of the year to try and get sub 5 and sub 4, Yes, high 3s, sub 4 at the corp.

Speaker 7

And getting to sub 5 presumably would be without additional equity from the parent, correct?

Speaker 3

Correct. Correct. As I mentioned, we got out of the quarter. We got out of the year with no with Again, not having to utilize that equity cure, which is why that now the revolver is freed up, there's no restrictions on it. And our goals going forward Yes, or not to utilize additional equity cure.

Speaker 3

That's the plan.

Speaker 7

Great. And then in the release, it mentions Share repurchases, obviously, with balance sheet considerations that would seem to be a constraint. But can you just talk about how you're thinking about The possibility and how that coincides with the balance sheet considerations?

Speaker 3

Yes. I can start and Roderick can chime in. It's a nod to as you can imagine we're doing forward modeling And we're looking at all the options and it goes without saying we think we're undervalued. But remember on my I had a Slide in there that talks about capital prioritization, it's the dividend, it's the balance sheet. We're going to continue to invest in the regulated utility.

Speaker 3

But as we look forward, The only thing we're trying to point out that is as we continue to get the company healthier, the balance sheet healthier, it is an option That we think we should be on the table down the road. It's not something imminent at the moment though, Sarah.

Speaker 1

Great. Thank you.

Speaker 4

Thank you, Sarah.

Operator

We have a follow-up question from the line of Gabriel Moreen with Mizuho.

Speaker 4

Hey, good morning everyone. If I could just hey, just ask hello again. I wanted to just ask a quick follow-up on the utilities outlook, specifically What's your consuming on O and M and any moderation there in 2024? And the second part of that is I noticed that the CapEx Outlook there over the next couple of years maybe it was tweaked slightly downwards along with rate base growth. Just wondering what may be behind that?

Speaker 5

Yes. I'll kick it off and I'll ask Bob to add some color as well. Yes. So as we've been talking about, right, we continue to prioritize Capital in our natural gas businesses and we're wanting to tighten. And in this higher inflation environment right now, We just see it as very prudent to keep our philosophy, keep investing a significant amount of capital in in the regulated utility and in our natural gas businesses.

Speaker 5

However, just being prudent and tightening a little bit. And that's what you're seeing. You're seeing us just being very modest On Albert Heineken, we are ahead of schedule with our commitments to the PUC and that's our full intention is to continue to be ahead of schedule with our We have the benefit of having been ahead of schedule from in prior years and that gives us this Opportunity to in this high inflation environment to just be cautious and say, hey, let's right size this for now, But keep to our game plan of being ahead of schedule for our programs. Yes, Bob, anything to add?

Speaker 8

Sure. Good morning. Your question about OpEx, Gabe, the company has grown, the utility company has grown. We had anywhere between 13,000 maybe 15,000 customers a year. So the customers the company is growing.

Speaker 8

However, we continue to take a look across all four of our businesses at opportunities to become more efficient. So your question about OpEx creep, absolutely, we're aware of that and we believe we've got a handle on that. And as far as capital, I'll just echo what Roger said. 1st and foremost, the agreement that we made with the Public Utility Commission a little over a decade ago, We're ahead of schedule on that. We're retiring non contemporary material.

Speaker 8

System safety performance things like leaks and Leak occurrences are trending in the favorable direction. So we're comfortable. And again, as you pointed out, this is not a massive reset of capital. It's just a reallocation.

Speaker 4

Understood. Thanks, Bob. Thanks, Roger.

Speaker 5

Thank you, Gabe.

Operator

Our next question comes from the line of Michael Gougler with Janney.

Speaker 4

Good morning, everyone.

Speaker 9

Good morning.

Speaker 3

Good morning.

Speaker 9

I'd like to go back to the guidance range for a moment. So as I look across your presentation, we've got $14,000,000 in new rates at Mountaineer, Positive trends at AmeriGas. We are assuming normal weather across your businesses. I would think there will be some economic benefit from the RNG projects. And then you've got new assets at midstream and marketing and you're taking cost out of the business.

Speaker 9

So I look at the guidance and we're Your midpoint is exactly what you did this year. So I'm wondering where the offset to all that good news is That would get you to the midpoint or lower of your guidance.

Speaker 3

I can start Michael. I mean, the slide that we have in there, You highlighted all the good news and that is true. We do see some growth. We're Blessed to have a diversified portfolio, so the utility is growing, services is growing. We see international growing slightly, But we do see it is a rebound year, recovery year for AmeriGas.

Speaker 3

So we do see volumes continuing to decline in AmeriGas. We do see some impact on our margins at AmeriGas even on a 23 basis to 24 basis. So Bottom line, we're seeing growth in 3 divisions and that's being predominantly offset as we continue to reset and get AmeriGas back on track.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Roger Parral for closing remarks.

Speaker 5

Okay. Thank you, Liz, and thank you all for joining us today. We appreciate your continued interest in UGI. I wish you all a great weekend and Thanksgiving.

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Earnings Conference Call
UGI Q4 2023
00:00 / 00:00