Parkland Corporation
Q3 2021 Earnings Call Transcript

Published: 5 Nov 2021

[Operator:]

Good morning, ladies and gentlemen, and welcome to Parkland Corporation's 2021 Q3 Results Conference Call. This call is being recorded on Wednesday November 3. I'd now like to turn the conference over to Val Roberts, Director of Investor Relations for Parkland. Please go ahead.

[Valerie Roberts:]

Thank you, operator. With me today on the call are Bob Espey, President and CEO; Marcel Teunissen, Chief Financial Officer; and Doug Haugh, President, Parkland USA. This call is being webcast. I encourage listeners to follow along with the supporting slides. We will go through our prepared remarks, then open it up for questions from the investment community. Please limit yourself to one question and a follow-up as necessary. And if you have other questions, re-enter the queue. We would ask analysts to follow-up directly with the capital markets team afterwards for any detailed modeling type questions. During our call today, we may make forward-looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties, which are difficult to predict. These uncertainties include, but are not limited to, expected operating results and industry conditions, among other factors. Risk factors applicable to our business are set out in our annual information form and management's discussion and analysis. We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed by GAAP. These measures are identified and defined in Parkland's continuous disclosure documents, which are available on our website or on SEDAR. Please refer to these documents as they identify factors which may cause actual results to differ materially from any forward-looking statements. Dollar amounts discussed in today's call are expressed in Canadian dollars, unless otherwise noted. I will now turn the call over to Bob.

[Bob Espey:]

Great. Thank you and welcome to Parkland, Val, and good morning everybody. We appreciate you taking the time to join us and trust you're staying safe and healthy. The photo on today's cover slide showcases the first of our on the run ultra fast electric vehicle charging network in British Columbia. Located in downtown Kelowna, this site is strategically positioned to serve the emerging needs of electric vehicle owners in the region. Consistent with our strategy of creating convenience and food destinations, we are currently upgrading this site to feature and On the Run branded convenience store and a refreshed adjoining Triple O's restaurant. When you combine these amenities with conventional and electric refueling options, it represents a fully integrated experience where customers can shop, eat, refuel and use complimentary Wi-Fi as they recharge their vehicle. We are on track to open our BC electric charging network in 2022. Our goal is to enable our customers to make the most of every stop and the vast majority will feature and On the Run convenience store and the Triple O's restaurant. I'd like to start by thanking the entire Parkland team for delivering record results at an enterprise level, as well as in our U.S and international segments. Working together as one Parkland team, we generated record third quarter adjusted EBITDA of $364 million and $1 billion year-to-date. These are exceptional results that put us on track for a strong finish to the year and give us high confidence that we will achieve the upper end of our full year adjusted EBITDA guidance. Our performance highlights the strength and growth trajectory of our company, the quality of our brands, and our ability to anticipate and meet the evolving needs of our customers. Our record results were underpinned by the capabilities of our team, consistent operational execution, organic growth, winning new business and financial discipline. In parallel, we continue to benefit from our acquisition strategy and proven ability to capture synergies. From late last year until now, we have announced or close 14 acquisitions, each complement and expand our existing business. Our in demand resilient markets and collectively they're immediately accretive, we are seeing strong supply leverage across our system. We can expect will increase distributable cash flow by approximately 10%. These acquisitions will provide further growth in synergies through leveraging our supply platform, Parkland's brands and marketing capability and integration into our back office platform. As you will have seen earlier this morning, we announced the acquisition of Urbieta in Southern Florida, which will almost double the size of our U.S retail business. Doug will talk more about this later on the call. At our Burnaby refinery, we keep the composite utilization of 101% during the quarter. You'll recall that we set an ambitious renewable fuels target for 2021 aiming to co-process a 100 million liters of Canadian sourced bio-feedstocks. This has the equivalent annual environmental benefit of removing 80,000 passenger vehicles from the road. Our team embrace this challenge and co-processed a record 33 million liters of bio-feedstocks in the third quarter and we were -- we are confident we will meet our full year target. Year-to-date, our co-processing accomplishments have delivered compliance cost savings of more than $35 million virtually paying for our entire capital investments in co-processing since 2017. We've also seen growth in the carbon compliance and offset trading business at Elbow River. Lastly, I would like to provide an update on the planned maintenance at the Burnaby refinery that commenced in early October. report that the refinery has substantially -- was substantially operational by the end of the October. I'm very proud of the entire Parkland team. We have set new performance records in the third quarter. Parkland has a has a very exciting future. And you can count on us to remain focused on maintaining our financial strength and delivering sustainable long-term growth on a per share basis. I'll now pass it over to Marcel to discuss our third quarter results in more detail.

[Marcel Teunissen:]

Thank you, Bob, and good morning, everyone. Turning to Slide 4, and a summary of our financial results. Bob already mentioned we delivered a record quarterly performance adjusted EBITDA of $364 million, which is up 8% compared to the same quarter in 2020. During the first 9 months of 2021, we generated $1 billion exactly of adjusted EBITDA, which is up almost 40% to the same period in 2020. And these are really remarkable accomplishments for our company. One of the main drivers for a record performance, if you look at a macro level while COVID continues to impact the broader economy, we are seeing continued signs of recovery. And as you can see on the right here in the graph, Canadian volumes are all beginning with 2020, but they're not yet back to pre-COVID 2019 levels, and that's driven largely by the intermittent lockdowns and the impact of work-from-home orders in some provinces. We've seen that volumes in Quebec and BC have almost recovered to 2019 levels, were Ontario, the Prairies and Atlantic provinces are still about 10% behind the 2019 levels, but significantly up from quarter two of this year. The commuter markets around the big cities have not yet fully recovered, but we do see positive signs as things normalize. We see similar patterns in several countries or across the international segments, but not yet at all. And on the other hand, actually, the U.S is largely open for business and volumes are exceeding pre-COVID 19 levels. Check at the table on the left, our marketing business, which is comprised of our Canadian, U.S and international segments continues to deliver consistent growth. These results are driven by compelling customer offers and excellent performance from our recent acquisitions, including Conrad & Bischoff in Idaho, and the Isla joint venture in the Dominican Republic, plus associated supply advantages that we've captured. Relative to the first 9 months of 2019, adjusted EBITDA in this combined marketing segments is up 17%, which shows the success of our operational excellence and organic and inorganic growth strategy. Our supply business was also markedly up from 2020, driven by composite refinery utilization of 101% including a record 33 million liters of live feedstock co-processing in the quarter. Our team at the refinery continues to explore alternative ways to increase renewable fuel production, which as you recall from last quarter is the most cost effective way to supply with the BC low carbon fuel standards. Parkland is firing on all cylinders or shooting on batteries as well. And we are positioned to capture upside as economies continue to recover. Moving to the segment overview on Slide 5, I’m going to start with Canada. We delivered $105 million of adjusted EBITDA in quarter three as recovering volumes and growth in merchandise gross profits were offset by lower unit margins, driven by a shift in fuel and customer mix and reduced benefit from the COVID related rates assistance program. Unit fuel margins in the retail segment continue to be strong, supported by our digital pricing capability. Same-store sales growth excluding cigarettes was nearly 2% up. This was driven by strength in major categories including central store, beverages and alcohol, while successful margin enhancement initiative stroke merchandise gross profit. You recall quarter three 2020 was an exceptional quarter in which Canada was largely open fully in lockdowns during the summer, which made the year-over-year comparison a difficult one to surpass. Continue to expand our On the Run convenience brands, and over nine new to industry retail sites and one cart out location in the quarter. And we are on track with our target to complete approximately 60 On the Run side conversions by the end of the year bringing our Canadian count to around 400. Reflecting our focus on continuously strengthening our connection to customers, we have now grown our JOURNIE membership to 2.5 million. Continue to further diversify our retail offer and expand the ways we can meet the evolving preference of our customers. SkipTheDishes and DoorDash are now available at over 270 and 200 locations, respectively. Moving to the international segment. So the international segment delivered a record adjusted EBITDA of $83 million, which was up $6 million from last year, which you may recall last year include a nonrecurring $10 million benefit. So it's really an outstanding performance. Q3 performance was underpinned by the ongoing recovery in our base business, supply optimization, and previously announced cost control initiatives as well as the ongoing strength in offshore drilling and production activity in Guyana and Suriname. We also draw value from recently announced acquisitions including the Isla joint venture in Dominican Republic that added approximately 160 high-quality retail sites to our portfolio. Plus we delivered related supply advantages. Our total international volumes were up nearly 20% year-over-year, and in some markets, we have seen some early signs of tourism recovering. We're well-positioned to capture additional upside as we enter into the tourism season in quarter four and into quarter one next year. Shifting to our U.S segment, we have doubled our business year-over-year with record adjusted EBITDA of $44 million in the quarter. U.S national retail fuel volume have surpassed 2019 levels, a positive sign for the U.S economy. Our U.S performance was propelled by a combination of acquisitions, organic growth from our national accounts business and the benefits of a strong summer driving season. Saw strong contribution from Conrad & Bischoff which we acquired in April this year, and enjoyed some early supply synergy capture. Our underlying strategic growth initiatives and delivering results are delivering results and our acquisition and integration capabilities continue to generate shareholder value. We continue to see additional upside in the recovery, particularly in our marine bunkering business in Florida and from oil and gas activities in our Northern Regional operating center. As I mentioned in last quarter's call, we continue to manage inflation as wages for workers, service providers and the cost of products have increased. These pressures are not isolated to partner, our team is doing an excellent job offsetting these headwinds and ensuring additional costs are recovered from the market. Our Supply segment delivered exceptional third quarter results reporting $161 million of adjusted EBITDA. That's up $37 million from quarter three in 2020. Very proud of the Burnaby refinery team, who have continued to expand our coke processing and renewable fuel manufacturing leadership. Proven capabilities directly support our goal of helping our customers lower the carbon effect on their JOURNIEs. During the quarter, our Burnaby team set another record co-processing an average of 2,300 barrels a day or 33 million liters of bio-feedstock. And year-to-date, the refinery has co-processed 83 million liters placing us well on track to reach our 2021 goal of 100 million liters of co-processed feedstock. Supply optimization business is also involved in low carbon fuel logistic, transportation and planning as well as low carbon credit sourcing and trading. As you're aware, we undertook planned maintenance at the refinery in October. And as, Bob, already mentioned, at this point, the work has been substantially completed, and we are now ramping up to typical utilization levels. Corporate adjusted EBITDA expense was $29 million, reflecting the reduced benefits from the Canadian Wages -- Emergency Wage Subsidy program and administrative costs to support partial return to pre-COVID business activity levels. With us in the room today is Doug Haugh, President for our U.S business and he will provide a few highlights of our most recent acquisition in the U.S that was announced earlier this morning.

[Douglas Haugh:]

Thanks, Marcel. Yes, Slide 6 is quick spotlight on our recent announcement to acquire Urbieta. This acquisition complements our existing Florida commercial business that we've had since 2019 and establishes a large, high-quality retail and convenience growth platform for us in Southern Florida. As Bob mentioned in his opening, I mean, Urbieta does almost double the size of our retail business with 94 new sites, literally about a 101 existing sites. So it's almost a double. It gives us immediate scale on a densely populated and rapidly growing Florida market with some really unique real estate and location attributes of this network that we love. Kind of give us an awesome opportunity to expand our On the Run convenience brand. We'll talk more about this at our Investor Day. I just want to take the chance to thank the Ignacio and Urbieta and their family for working with us on this choosing Parkland, choosing to join our family and further support going forward and growing a very exciting market in Miami. Thanks, Marcel.

[Marcel Teunissen:]

Thanks, Doug and real congratulations to you and the team. I’m excited about this. On Slide 7, we have summarized the impact of all of our recent acquisitions. So since reporting our quarter three results in 2020 last November, we've now announced or closed 14 transactions, which you'll see here on the page, representing an investment of approximately $1.2 billion including purchase price adjustments. In aggregate these deals represent our fourth largest acquisition to date, and highlight the impact of our disciplined consolidation strategy. Transactions are immediately accretive to distributable cash flow per share, and are approximately 9% accretive after expected synergies and EBITDA enhancement initiatives. Our acquisitions are aligned with our stated growth strategy and provide us with integration and organic growth opportunities, which will further strengthen our supply advantage and generate attractive returns. At the end of quarter three, our total funded debt to credit facility EBITDA of 3.2x reflect the completion of some previously announced acquisitions. Following the anticipated synergy capture, we expect to return to our targeted leverage levels of 2x to 3x. There are no material credit facility or bond maturities until 2026 and we have significant financial liquidity. As always, we are focused on creating long-term shareholder value, and we are confident in our ability to reach our ambition of $2 billion of adjusted EBITDA run rate by the end of 2025. I will pass it back to Bob to wrap things up.

[Bob Espey:]

Great. Thanks, Marcel and Doug. That was great overview and it sets the tone for what we expect will be a strong finish to the year. I would also like to welcome the Urbieta team to the Parkland team and really look forward to working with the team in Southern Florida and establishing our retail presence there. This acquisition is our largest U.S acquisition to date and is a solid example of the accretive opportunities in our pipeline that will continue to support our growth strategy. Turning to Slide 8, another critical aspect of our strategy is our sustainability journey. Now I'm pleased to share that we continue to make strides in advancing our environmental, social and governance efforts. During the quarter, we welcome two new Board members Angela John and Richard Hookway. They bring extensive global experience in supply, low carbon technologies and creating value across the entire downstream chain. And I believe the company and its shareholders will benefit greatly from their contribution. I look forward to their contribution and working with them. As mentioned earlier, our Burnaby refinery continues to expand its leadership position when it comes to renewable fuel manufacturing. Our proven capabilities are delivering tangible environmental benefits to our customers, coupled with financial benefit to Parkland, to cost effective compliance. It's a true win-win. We have a lot more to share on the progress of our sustainability journey, and we'll publish our sustainability report before the end of the year. Moving to Slide 9, our record quarterly results highlight the capabilities of our teams and the underlying strength and trajectory of our business. These results clearly demonstrate the value of our integrated model, which includes supply logistics and marketing. And we have high confidence in achieving the upper end of our 1 year adjusted guidance of $1.25 billion plus or minus 5%. We have not reduced our 2021 capital expenditure guidance at this time, but due to anticipated timing of capital spending, including some COVID related delays, we expect to be at the lower end of our range of $350 million to $500 million. To wrap things up, before we invite our -- before inviting your questions, I'd summarize by saying that I'm extremely grateful to the Parkland team for delivering a record quarter and a record year-to-date performance. Our pipeline of organic growth initiatives and accretive acquisition opportunities gives us confidence that we will achieve our $2 billion adjusted EBITDA run rate by the end of 2025. Parkland's growth program is firmly on track. We look forward to seeing you at our upcoming Investor Day on November 16, in Toronto. The event will include presentations from Parklands leadership team, outlining our long-term growth and energy transition strategy, which will position Parkland for continued success while generating superior shareholder returns. I would now like to turn the call back to the moderator for questions.

[Operator:]

Your first question will be coming from Ben Isaacson from Scotiabank. Please go ahead.

[Ben Isaacson:]

Good morning, everyone. Congrats on the good quarter. I have two questions. My first question is just to get a -- just to provide investors a bit of an update in terms of where you are on EBITDA. So you ended '19, I think you are 1.26 in that ballpark, then we had COVID. You've made lots of great acquisitions. Are you -- is your run rate 1.4 right now? And is that -- does that go higher once we see the recovery of COVID? Can you just give us an update in terms of what you think run rate EBITDA is right now and where you think it could be in a COVID free world?

[Bob Espey:]

Hi, Ben, and thanks for the question. We will be providing guidance later this year on our 2022 business, which will incorporate the impact of the M&A that we've announced and will be closing subsequent to the announcement and into the beginning of next year. I think we'll certainly see the benefit of those plus the associated synergy start to flow through in 2022. And on top of that, we do still have some COVID headwinds in the business that as public health measures continue to have an impact and incidents go down, we expect will have a positive impact of providing a win for Parkland. So, look, I'm confident that we're setting up for a really strong 2022 here on the back of record performance in '21.

[Ben Isaacson:]

Great. Thank you for that, Bob. And then just as a follow-up question, really impressed with the 20% volume growth year-over-year in international. Wanted to dig a little bit deeper there. What do you think the run rate volume is in international? Are we getting close to 5.2, 5.3 billion liters I think we were at 5.1 back in 2019. How much of that 20% growth -- can you break that up into the three buckets that you usually do? And is any of that from M&A? Or is it a lot of that to COVID recovery? Thank you.

[Bob Espey:]

Yes, I guess there's three buckets. So part of it is M&A. So we have done some M&A in the region. And you're seeing the impact of that in the volumes and that's sustainable going forward. The second thing is growth in our wholesale business across multiple customers within the region. So we've talked a lot about Guyana and Suriname, and the impact of natural resources in the economies of those markets. Now, let's say on top of that the team has been making wins across the region based on the strength of our supply system in the region. So again, we expect that to continue going into next year. And then the third thing is, we have seen some recovering COVID. We've seen aviation volumes come back, but they're certainly not at the level where they were in 2019. And some markets are still close, so that will increase both diesel and gasoline demand as we see those markets come back in full force. So again, sitting on -- first of all, I like the team has done an amazing job there in filling the gaps that occurred through COVID and then sitting on the upside of full year-over-year run rate on acquisitions. And then continued positive impact of COVID recovery.

[Operator:]

Thank you. Your next question comes from David Newman from Desjardins. Please go ahead.

[David Newman:]

Good morning, guys. It's great quarter. Good to see in the acquisition as well. Just a couple of thoughts on -- couple of questions on. First of all, I guess Urbieta. Any financial metrics you can point out. It's obviously a real estate play of the 54 sites. And then look at the volume that you're getting, any financial metrics that you'd say in terms of run rate EBITDA that we should be thinking about here. It looks like it could be $10 million to $20 million in terms of run rate, and what you might have paid as 8, 9, still kind of the run rate on what you pay for evaluations.

[Bob Espey:]

Yes, David, thanks and great question. We'll certainly incorporate the EBITDA into our guidance when we release that later in the year. So you'll be able to see that. We're not disclosing those details at this point. But I will turn it over to Doug, and he can give some more insights into the quality of the business that we're buying and the type of sites that we're buying.

[Douglas Haugh:]

Yes, thanks, Bob. And yes, appreciate the question. It's a fantastic business. Couple of the aspects to appreciate about it, in terms of its fit with us strategically, it's not just 94 locations, but it's 94 locations on virtually irreplaceable real estate that is extremely dense. So they're all in two counties, which is important as we think about rolling out On the Run in the U.S. And we really wanted a launch pad that would give us density in a market to have impact on marketing, advertising, branding, that we -- while we love our sites in the Rockies, we don't have -- there's not a place in the Rockies where we can have 94 locations in one town and a rapidly growing town like Miami. So what gives us -- I mean, it's a great quality business today. And one that we are positioned to really add synergies to both from the supply standpoint, of course, but in this case, on the retail marketing, branding side of things as we roll out on the run across the U.S. So that's what gives us really pumped about this business going forward.

[David Newman:]

And that sort of is a great segue into the amount of real estate that you actually own here, taken with your corporate sites in Canada. I mean, you guys are upwards of what 700 sites now corporately owned, which is I would think no matter what, in terms of energy transition, that real estate does have a lot of utility.

[Bob Espey:]

Yes. For sure, the corporate owned site counts, we are starting to build a good portfolio. Now the exact number I'm not sure we disclose, but it's roughly three quarters that are owned and 25% that are leased across our network.

[Operator:]

Your next question comes from Neil Mehta from Goldman Sachs. Please go ahead.

[Carly Davenport:]

Hi, good morning. This is Carly on for Neil. Thanks for taking the questions and congrats on a great quarter. The first one was just around capital allocation. So you've completed a number of transactions this year, which have driven higher EBITDA and really strong earnings execution, but it's not necessarily clear you've gotten credit for the deals and the equity price performance. So just wanted to get your latest thoughts on how you think about the optimal capital allocation strategy across the balance sheet, M&A and thinking about incremental capital returns?

[Bob Espey:]

Yes, great question. And again, we are really pleased with the growth that we've been able to achieve in the business and the values that we're continuing to find in the market on these transaction is accretive to Parkland. But I'll turn it over to Marcel to talk specifically about our capital structure.

[Marcel Teunissen:]

Yes. So in terms of capital, kind of allocation priorities as we have communicated, that hasn't changed. So our number one priority is to execute the strategy and grow the business. And second priority is to deliver the balance sheet. And the third one is additional distributions to shareholders. And it's really on the basis that we believe that growing our business, delivering the synergies or making the return on the investments is the best way to kind of grow shareholder return. So that's the starting point. Of course, like everyone else, I personally I am disappointed with where the share price has been over the last couple of weeks here since the second quarter. Our conversations with shareholders by and large have been paused. They've been supportive in terms of continuing to deliver and execute our strategy. The market in general, of course, there's been quite a couple of macro effects in there, as we have seen that. But we continue to just stay on strategy and execute that as we have done that, and we have good support from our shareholder base.

[Carly Davenport:]

That's great. Appreciate the color there. And then the follow-up was just around the co-processing initiative, which continues to track well at Burnaby. And it seems like you're on track to reach that 100 million liter goal for the year. So can you talk a little bit about the opportunities that might exist beyond that initial goal, and as it relates to the renewable fuels and also how that could further offset any regulatory obligations you might have?

[Bob Espey:]

Yes. So, again, our team has done remarkable work there to hit that target. And they truly are an innovator in this area, and have been able to demonstrate that we can do it reliably and safely. In terms of, we will continue to increase that each time and we've just completed a minor turnaround in the refinery. But as we continue to do maintenance, we do continue to increase the throughput of the plants. And when we do our Investor Day, the team will give a more detailed update around what that growth looks like. I mean, the key is that we can -- more than our compliance obligations in the province of BC. And as we talked about the cost benefit, it's quite enormous to Parkland, particularly in comparison to the capital that we're putting into the facility. So, it's been a great project, great partnership there with the province of Alberta, BC. And we're really pleased with what the team's achieved. Now, the other areas that we continue to make great progress, we do have carbon compliance trading business, and carbon offset business we need to grow that substantially. And we've seen enormous growth there over the last 24 months. And then we are a large wholesaler of renewables, certainly within Canada where we leverage our rail fleet to bring product in and move it around the market. So that space, we're seeing exponential growth right now and expect to see that here going forward over the next few years.

[Operator:]

Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.

[Vishal Shreedhar:]

Hi, and thanks for taking my question. I was hoping you could comment a little bit on the Canada results year-over-year. And what caused the fuel margins to soften year-over-year and sequentially? Obviously, product costs were a factor. However, I wanted to clarify that in Canada, that fluctuation of product costs, it isn't as significant of an impact of retail fuel margins, as it is in the U.S. Number one, if that's in fact, the case. And number two, if the business model that you have which focuses more on less on corporate stores, more dealer, if that also insulates the product, the product cost fluctuation in there. And maybe you can help me understand if that margin that we saw this quarter, is that -- because of the product cost, is that less than a normalized level that you would otherwise expect?

[Bob Espey:]

I think -- so, thanks for showing, thanks for the question. I would say the fuel margins, first of all, there's what the market is giving and where it's pricing at. And if you do look on account data, you'll see that it has come in year-over-year. Now the second thing is mix. And not so much between our dealer and our corporate business, but our commercial business had some good growth in some of the lower margin distillate delivery business. So that halt the aggregate margin down, but look, the margin environment in the business is extremely healthy, given that the volumes are off. When compared to 2019, I mean, the business performed on a year-to-date basis has shown growth. And in the quarter, we certainly read the same level where we were in 2019. So, look, I'm very pleased with the performance and what the team has been able to achieve. And, as always, in that channel, there is a bit of volatility in margins, but over time, they certainly worked out and, again, provide stable cash flow from that, that particular business.

[Vishal Shreedhar:]

Okay. Thank you for that color. And in the prepared remarks, I think I heard management's comments on a CapEx reduction, if I heard that correctly. Just wanted to get your perspective on what projects have been deferred. And it's the total of that CapEx reduction, there's another one early on the year, if I recall correctly, if that will just be added to the 2022 number.

[Bob Espey:]

Yes, I would say, we are at the lower end of the guidance that we currently provided, and it is substantially less than what we indicated at the beginning of the year. We did have a one project that we cancelled, that was within our supply group, because we were able to achieve some of the benefits without the capital required. And then, we have had some delays in some -- particularly in some of our retail, due to just constraints in contractor capacity and getting materials. So we expect to pick that up next year, but not incrementally to the growth capital that we would normally have in that channel. And I would say, those are the two main items that are really impacting the .

[Marcel Teunissen:]

We’ve optimized some of the capital spend as well with our M&A that we have done. So some of the M&A has just kind of display some of the CapEx. We would have otherwise done organically.

[Operator:]

Your next question comes from Michael Van Aelst from TD. Please go ahead.

[Michael Van Aelst:]

Hi, good morning. Congrats on the quarter. You've talked a couple of times on the acquisition and contribution and particularly on the synergies and it seems like the synergies are coming in stronger than what you would have originally anticipated. So I was hoping that you could talk about the source of that. And particularly, I think you pointed out supplies introduced in the Pacific Northwest, and supplies energies as part of the acquisition. So can you talk about the source of those and the sustainability of those managers?

[Bob Espey:]

Yes, hi, Michael and thanks for the question. Consistent with, what we've talked about in the past is we look for synergies and sort of three buckets. The first is in supply, which tends to come quite quickly. And we are seeing that benefits, certainly throughout the majority of the M&A that we've done this year. The second thing is making operating improvements. And that can be things like rebranding, it can be optimizing the network. In some cases, we've been able to close sites in the commercial business and aggregate that into our other locations. And then the third is in our operating system and back office. And one of the things that I'm really pleased with the team has been able to achieve is our -- the speed at which we're integrating into the back office. And maybe, Doug, you can give some color on some of the great work the team's been doing in the U.S., but we've accelerated the pace and the speed at which we get businesses onto our back office platform enabling us to get those transactional synergies quicker.

[Douglas Haugh:]

Yes, Bob, that's a great point. And I think the -- and it's the ERP back office systems, but it's also logistics platform, our sales and marketing, CRM systems, our people and culture platforms, all along with , which is from a safety and environmental health standpoint, critical, especially as we integrate some of these smaller entrepreneurial businesses that haven't had that kind of support in the past. So really, all five lanes of integration process have continued to improve, we continue to get better at execution, continue to add to the team in terms of expertise and horsepower. And, yes, the pace of getting that work done really does lead us to faster synergy capture, and faster growth because a lot of those capabilities really allow us to move forward more aggressively.

[Bob Espey:]

So similar to what Doug has been able to achieve in the U.S, we've seen that in our international business and the three acquisitions that have been done. The thing you did ask is, are those sustainable? And certainly they are sustainable. And that's EBITDA that we'll bake into our guidance for next year.

[Michael Van Aelst:]

Great, thank you. And just as a follow-up, and you talk about what the pipeline looks like, right now, in terms of the size of the opportunities, more commercial, retail, wholesale, what do you look, what are you seeing right now as well as the valuations.

[Bob Espey:]

Now, again, consistent with what we've been seeing in the market, we do see a broad range of opportunities available, quite frankly, across all of our markets right now, which is great. We're able to find good, high-quality businesses that are well run, and work with vendors, mostly on an exclusive basis to work to provide a value that works really well for them and us. And, I would say valuations are still very much consistent with what we've guided in the past. Certainly on a post synergy basis, we're still seeing some really good accretion on these deals. So again, quite bullish on our M&A pipeline, and that we continue to grow the business and meet our 2 billion targets. Your next question comes from Peter Sklar from BMO. Please go ahead.

[Peter Sklar:]

Good morning. First, a question on the co-processing you're doing in Burnaby. So, as your co-processing continues to ramp up, can you talk just a little bit about how that impacts your financial returns at the refinery? I mean, is that gives you higher returns than processing a barrel of oil or lesser returns? Just like understand that you have -- that you're meeting the regulatory requirements. But what's the bottom line impact on financial returns at the refinery?

[Bob Espey:]

Yes, for sure and thanks for the question, Peter. Now, the way the market works, as we have certain compliance obligations. If we weren't manufacturing or co-processing, we would have to import more expensive renewable diesel from the U.S. And what this allows us to do is meet that compliance requirement without having to purchase the more expensive renewable diesel. So there is a significant EBITDA benefit to that which has, again, the return, as I've indicated, this year we're on track to saving 3$5 million and the equivalent. Based on an equivalent investment in the facility for co-processing. So it is quite -- the returns are quite healthy there.

[Peter Sklar:]

Okay. And then my follow-up question is on this Florida acquisition that you've done, that you've announced this morning. You haven't given financial statistics, but just the way you've described it in the press release, in your discussion on the call this morning, this sounds like a very high-quality asset. And given where your stock is currently trading, and where Parkland is, is being valued. It sounds like to me that, like you paid a higher multiple for this business than what your -- what Parkland is currently being valued at. So, Bob, I just wanted to know about you and the Board, think about that issue. That you're considering acquisitions that, although high-quality may be a higher valuation than your own company, so there's kind of the valuation arbitrage opportunity is not there. It's kind of dilutive of pre-synergies. And so, I just wondering is that an issue when you hold these discussions with the management team and the Board,

[Bob Espey:]

Look, I mean, certainly our capital allocation process, looks at returns and looks at the returns that we can get on a post synergy basis. I would assure you that this is accretive. The other thing is to look at our business through different pieces, right. We've got our supply and refining business, and then our marketing business, that trade are two different multiples. And when you look at it on the sum of the parts basis, now, this is accretive, both on a multiple basis, and then most importantly, on a post synergy basis. It's accretive to the shareholder at the current multiple.

[Marcel Teunissen:]

Maybe just if I -- if I may, Bob, if I add to that. So this acquisition has a huge component of valuable real estate. So when we look at the multiples, I think the real estate is a bit separate from what the run rate EBITDAs and the business, which we paid for. And I think that looks also very attractive even compared to where we trade today as a company, which, as Bob said, is a composite of different business.

[Operator:]

Your next question comes from Derek Dley from Canaccord Genuity. Please go ahead.

[Derek Dley:]

Yes. Hi, everyone. I just want to follow-up just quickly on the M&A. In the past, you've talked a lot about obviously, the U.S where you continue to grow aggressively and international. But I think you just mentioned, you're seeing lots of opportunities across all markets. Just wondering, what would be the whitespace that's left in Canada that you'd be potentially pursuing?

[Bob Espey:]

Yes. Thanks for the question, Derek. And, again, we do see opportunities on -- in the three channels that we operate, or certainly the two channels, retail and commercial. And I would say within commercial, we're seeing some opportunities in propane. And then on the retail side, stated how we do have areas within certain markets where we don't have a good network. And we'd certainly look at those and do smaller opportunities in the markets to continue to fill that in.

[Derek Dley:]

Okay. No, thanks for that. It's helpful. And I just want to turn to the cost side, quickly. In Canada, you mentioned, there was a $9 million increase in operating costs, partly due to the elimination of the Emergency Wage Subsidy, but should we expect that number, I guess, that quantum to sort of continue going forward? And what are you seeing in terms of cost inflation, if any, on the operating cost side in North America?

[Bob Espey:]

Yes. Certainly the huge impact we have had to replace costs that were funded by the government. And look, I would say, the Qs enabled us to make sure that we could continue to provide service in open communities that we operate during a very tough time through COVID. So we are very grateful for that. But these costs, are there -- we did, through the pandemic, it did allow us to achieve some structural cost savings, which we're hanging on to. But ultimately, we do need to add costs back in to make sure that we can service our customers. And make sure that we can continue to run the business. So, costs will come up, but look, they'll stabilize. And, as always, we'll continue to focus on those and make sure that we're getting the benefits of the scale of the business.

[Operator:]

Your next question comes from John Royall from JPMorgan. Please go ahead.

[John Royall:]

Hey, good morning, guys. Thanks for taking my question. Can you talk about how the refinery turnaround went from a cost perspective relative to your expectations. It sounds like it went well from a timing perspective. And then I think, in past turnaround, you called out costs. When you report the quarter believe it's the turnaround on both the capital and the OpEx side. Anything high-level you can share there, that'll help us model 4Q and then just you can remind us how often the major and minor turnarounds occur and when we can expect the next one. Thanks.

[Bob Espey:]

Yes. Hi, John, and thanks for the question. I would say on time and on budget, with the headline, which is great. And again, the team's done a great job in managing this particular turnaround, which was smaller than some of the others that we've had. Doug, did you want to comment specifically on the cost and capital?

[Douglas Haugh:]

Sure. Since that the turnaround happened in the month of October, that'll be our Q4 results, we'll provide that information. And as Bob said, on time on budget, so very happy with them ramping up their production.

[John Royall:]

Okay, thanks. And then the international business, just any color on the tourism piece going into the travel season. And then anything that might help us think about kind of the organic growth versus the acquisition growth in that business going into a 4Q and into next year.

[Bob Espey:]

Specifically in international on organic. So look, we do see some -- there is still some recovery to happen in markets. There are markets that are just reopening. So we expect to see a tailwind there both on our aviation business where we have an aviation presence in the markets. And then on -- based on the economic activity in the base business. Again, on top of that, we've got the great work that the team has done to win business on the wholesale side, and then the M&A that will start to flow through on a year-over-year basis. So, we're certainly looking to increase the run rate of that business and our guidance that we'll provide later in the year.

[Operator:]

Your next question comes from Steven Hansen from Raymond James. Please go ahead.

[Steve Hansen:]

Oh, yes. Hey, guys. Just maybe a narrower question to follow-up on the last. Can you give us perhaps some description or understanding of what kind of lead time you might get from your large cruise or travel related customers in the Caribbean? And just thinking in the context of you needing to pre-position fuel volumes in advance of that season? Did you get goodly time advantage information on that, or some of the more on a short-term basis?

[Bob Espey:]

Yes, it's a good question. It's still as a headwind in the business. I'll let Doug talk about it because the marine business, a lot of it runs out of Miami. And the U.S team and the soul team worked very closely together on a lot of that. So Doug, if can provide some color, that would be helpful.

[Douglas Haugh:]

Yes. Thanks, Bob. I think in that whole sector, first to the point of lead times we do collaborate with a large number of the cruise lines, in particular, on forward demand. And we've seen expectations for that demand for fourth quarter return modestly, certainly not the full run rates that one would have seen in '19. But a very nice recovery versus the essentially a full shutdown we saw in 2020. So that's quite encouraging across the U.S domestic market, as well as the international markets across the Caribbean, that we service as well. So, the commercial lines are far less collaborative. They kind of show up when they show up. They do have shipping schedules, but they don't tender ahead of time as much as the cruise lines that we get to collaborate with, usually a quarter ahead in a minimum.

[Steve Hansen:]

Great. That’s very helpful. And just one quick follow-up, if I may, on the latest acquisition. Just thinking about the loyalty opportunity there, do they have an existing loyalty program in place of scale or substance and how do you relate that to the JOURNIE opportunity going forward? Thanks.

[Douglas Haugh:]

Yes, it's great question. I think they do not. And we -- when we look at the composition of this network, what's -- what gets us really excited is, these are fantastic locations, fantastic real estate, great infrastructure. But without the support of the brand, the marketing, loyalty, the supply chain support, category management, a lot of the components of retail excellence, that we deliver, I think are absent in most cases in this network. So that -- that's what gets us excited about the upside from here with what are really high-quality infrastructure assets, but without scaled marketing and sales support that, that we bring to the table. So really bringing those two together gets us quite excited.

[Steve Hansen:]

That’s great color. Thanks, Doug.

[Operator:]

Your next question will be coming from David Newman from Desjardins. Please go ahead.

[David Newman:]

Hi, guys. Just a quick follow-up in terms of the pace of recovery overall. You outlined sort of the gas demand and how we're recovering sort of by province. But you're a great B2B player and just kind of want to get a sense of where you feel like we are on the diesel, jet fuel and other fuel types. And do you think there's going to be any sort of permanent impairment, I guess, in a hybrid world that we can't get back to 2019 levels. Maybe just thoughts on other fuel types?

[Bob Espey:]

So I would say, the great thing about Parkland is diversified products and diesel tracks GDP. And you know, as GDP has come back here, we are seeing both demand track that. And on top of that, our team has continued to win market share. So we're seeing that in all three businesses, and the U.S and international where we've been able to grow our diesel volume at a far higher rate than our gasoline volume, because of the underlying connection with the economy. And again, our ability to win in the marketplace.

[David Newman:]

Hey, Bob, just quick one, just a quick follow-up on that. Just where -- we can all track the gas where the gas is, but just on diesel and jet fuel, where are you versus 2019? Do you believe, like what's the delta?

[Bob Espey:]

That's a good question. I don't have it on the top of my head. But I do know certainly in -- I would like to say in all jurisdictions, we're ahead. I don't know the exact number right now, but we can follow-up on that.

[Douglas Haugh:]

Yes, I think, sector was here. I think a couple of broad ways to think about that. Certainly, jet is still off, I think we all recognize that. We would expect that to come back to '19 levels and beyond because aviation is going to still be a growth industry going forward. When you look across the industrial and commercial sectors, obviously, oil and gas has been off hard -- related to COVID, but just also related to the commodity collapse that occurred with COVID. Those are coming back at these crude values, for sure. So that's encouraging, but certainly not as fast as the -- what I call the kind of daily living categories from food distribution, waste management, transportation, freight -- general freight, those are all have come roaring back and we're seeing volumes consistently ahead of '19 across those sectors. And then the other sector we mentioned was Marine, where Marine in general has been off substantially through the pandemic, coming back quite nicely now. And we'd expect that to fully restore certainly throughout '22, but not there yet.

[Operator:]

There are no further questions at this time. Please proceed.

[Bob Espey:]

Great. Thank you. Appreciate everybody dialing in today and look forward to sharing our Investor Day coming up in a couple of weeks here.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.