Parkland Corporation

Ben Brooks - Vice President, Treasury and Investor Relations Robert Espey - President and Chief Executive Officer Mike McMillan - Chief Financial Officer

Kevin Chiang - CIBC World Markets Sabahat Khan - RBC Capital Markets Derek Dley - Canaccord Genuity Michael Van Aelst - TD Newcrest

Good morning and welcome everyone to the Parkland Fuel Corporation’s Q1 results conference call. My name is Ben Brooks, and I’m the Vice President of Treasury and Investor Relations at Parkland Fuel Corporation.

With me this morning are Bob Espey, President and Chief Executive Officer, and our Chief Financial Officer Mike McMillan. Pointing everyone to slide two of our presentation, during the call today, Parkland may make forward-looking statements related to expected future performance.

Such statements are based on current cone views and assumptions and are subject to uncertainties, which are difficult to predict, including expected operating results, industry conditions et cetera. Certain financial measures, which do not have any standardized meanings prescribed by GAAP, will be referred to during this presentation.

These measures are identified and defined in Parkland’s continuous disclosure documents, which are available on our website or SEDAR. Please refer to our continuous disclosure documents as they identify factors which may cause actual results to differ materially from any forward-looking statements.

Our plan for the call today is Bob will share an overview of the quarterly results and then Mike will dive a little deeper and provide further insight into the numbers before Bob closes the presentation. We’ll then take questions at the end of the call.

I’ll now turn things over to Bob to give an overview on our results.

Great. Thanks, Ben.

And welcome everyone to our first quarter earnings call for 2017. I'm pleased to start the call by reporting that we’ve had exceptional results in Q1.

We achieved a record first quarter adjusted EBITDA of CAD 70 million, which is a growth rate of 17% compared to the same period last year. This record first quarter was driven by 44% growth in Supply and Wholesale segment and 28% growth in the Commercial Fuels segment.

We achieved 13% growth in volume, delivering approximately 2.8 billion liters of fuel and petroleum products in the first quarter of 2017 compared to the same period last year. The volume increase was driven by growth in gasoline, diesel and propane volumes in Commercial Fuels and propane volumes in Supply and Wholesale.

During the quarter, Commercial Fuels delivered 57% more propane than in the first quarter of 2016, primarily due to strong organic growth efforts, the impact of recent customer wins and contributions from strategic business acquisitions completed in 2016. Parkland saw growth in both Eastern Canada and Western Canada as indicators of a recovering economy in its early stage.

The Supply and Wholesale segment also benefited from higher-than-normal propane sales this quarter, which also contributed to the growth in adjusted EBITDA. Supply and Wholesale delivered an additional 217.5 million liters of propane in the first quarter of 2017 as compared to the first quarter of 2016.

I’ll now turn the call over to Mike, who will provide you with an update on how our business segments did in Q1.

Thanks, Bob. Thank you all for joining us on our call this morning.

As Bob mentioned, it was another record quarter at Parkland, with CAD 70 million in adjusted EBITDA. Our adjusted EBITDA waterfall chart gives you a side-by-side comparison for each of our operating divisions.

Overall, we achieved a growth rate of 17% compared to Q1 last year. As you can see, Parkland’s Supply and Wholesale segment continued to benefit from improvements in our supply economics that were initiated in the beginning of the second quarter of 2016 as part of the strategic initiatives to enhance our supply advantage.

This contributed materially to the 44% growth in Supply and Wholesale’s adjusted EBITDA in the first quarter of 2017. In the Commercial Fuels business, we delivered growth in gasoline and diesel, as well as the propane side of our business.

In Q1 2017, as Bob mentioned, we saw 57% more propane being delivered than in the same period last year due to strong organic growth efforts, the impact of recent customer wins and contributions from the strategic business acquisitions completed in 2016. Retail Fuels delivered adjusted EBITDA for the first quarter of 2017 of CAD 25.4 million compared to CAD 28.4 million for the first quarter of 2016.

The primary driver for the decrease was lower non-fuel adjusted gross profit, slightly higher operating costs, and marketing, general and administrative expense. The Retail Fuels segment had continued success in company C-store same-store sales growth.

Overall, the company C-store same-store sales growth was 0.3% for the three months ended March 31, 2017. The C-store same-store sales growth continued its trend of positive quarter-on-quarter growth, having completed a number of improvement initiatives.

In terms of the next step for this segment, we anticipate building on the On the Run/Marché Express convenience store franchise system and related trademarks in Canada, providing a strong retail platform for Parkland to expand and support the Parkland Retail Fuels offering across Canada. We're also soon going to be launching key initiatives in this segment, such as loyalty and private label programs.

More to come on this. And Parkland USA delivered adjusted EBITDA of – delivered CAD 3 million in the first quarter of 2017 compared to CAD 3.5 million in the first quarter of 2016.

The decrease was primarily driven by lower wholesale volumes due to reduced winter travel as a result of several winter storms experienced in the region during the quarter, as well as the continued soft economic activity in the Bakken oil region. Despite a modest increase in crude oil prices, regional oil production, and average rig count in the first quarter of 2017 remained slightly lower than the first quarter of 2016.

Moving to slide five, you'll see more detail around our segment results. Overall, you'll see that we've experienced strong performances in the Supply and Wholesale as well as our Commercial segment.

I’d like to dive deeper into each of these segment, starting with Retail Fuels. In the first quarter of 2017, fuel volumes remain consistent compared to the first quarter of 2016 with no significant fuel demand changes in Eastern or Western Canada.

With regard to Retail Fuels adjusted EBITDA, as previously mentioned, it came in at CAD 25.4 million compared to CAD 28.4 million for the first quarter of 2016. The primary driver of the decrease, as mentioned, was due to lower non-fuel adjusted gross profit, higher variable operating costs with new locations and higher commodity prices, and marketing, general and administrative expenses related to marketing initiatives.

Non-fuel adjusted gross profit decreased primarily due to lower store merchandise margin contribution and lower carwash margin contribution, mainly due to unfavorable weather. This was offset by higher fuel and petroleum product adjusted gross profit, attributable to slightly higher margin in gasoline and diesel sales.

Supply and Wholesale adjusted EBITDA for the first quarter of 2017 was CAD 23.3 million compared to CAD 16.2 million in the first quarter of 2016, an impressive 44% growth as compared to the same period last year. Fuel volume increased primarily due to higher-than-normal propane sales in the quarter.

Supply and Wholesale delivered 217.5 million liters more propane in the first quarter of 2017 as compared to the same quarter last year. Furthermore, Supply and Wholesale also saw growth in crude, asphalt and fuel oil, or CAF, volumes as part of new business initiatives in the CAF category, and growth in wholesale gas and diesel volumes due to improved demand across Canada.

Adjusted gross profit increased primarily due to the impact of improvements made to our supply economics that were initiated at the beginning of the second quarter in 2016 and higher-than-normal propane sales during the first quarter of 2017. Commercial Fuels adjusted EBITDA for the first quarter of 2017 grew by CAD 6.2 million to CAD 28.5 million dollars as compared to CAD 22.3 million for the same quarter in 2016.

The 28% increase was primarily driven by an increase in fuel volumes related to service and lubricant contributions across the segment, strong organic growth efforts, the impact of recent customer wins and contributions from the business acquisitions completed in 2016. The growth in performance was observed in both Eastern and Western Canada.

Adjusted gross profit increased primarily due to the increase in fuel volumes and related service and lubricant contributions across the segment. The decrease in Parkland USA fuel volume is primarily attributable to decreased wholesale volume due to reduced winter travel as a result of several winter storms experienced in the region during the quarter, as well as the continued reduced economic activity in the Bakken oil region, with lower oil production as compared to the first quarter of 2016.

The decline in volumes was partially offset by increased retail volume, resulting from the acquisition of three service stations in Wyoming in late 2016. Adjusted gross profit decreased due to the decline in wholesale gas and diesel volumes during the quarter.

And as mentioned previously on the call, Parkland USA’s adjusted EBITDA was CAD 3 million in the first quarter of 2017 compared to CAD 3.5 million in the first quarter of 2016. I’ll now turn it back over to Bob to discuss some of our operational key performance indicators.

Great. Thanks, Mike.

As we’ve highlighted previously, the key performance indicator metrics for each division are in place to help provide even more insight into our business and are cascaded throughout our organization to ensure all our team members are aligned with these performance measures. On the retail side, our net unit operating costs were higher in the trailing 12 months ended March 31, 2017 as compared to the same period of 2016, primarily due to the June 2015 acquisition of Pioneer Energy, which was a higher cost structure due to more concentration of company sites as compared to the rest of the Parkland network.

MG&A expenses for the first quarter increased primarily due to expenditures on strategic marketing campaigns to drive future growth and volume and backcourt convenience store sales. Although volume same-store sales growth was minus 1.3% as a result of early signs of economic recovery in Western Canada market, the metric improved by 2.3 percentage points in the first quarter of 2017 as compared to the first quarter of 2016.

Company C-store same-store sales growth was 0.3% in the first quarter of 2017, which is a continuation of a positive same-store sales growth quarter-on-quarter. This was partially offset by pressure from higher fuel street prices.

In contrast, company C-store same-store sales growth was higher at 7.5% in the first quarter of 2016 as a result of convenience store refresh programs associated with the Pioneer Energy acquisition. Although Retail Fuels in Western Canada has not benefited from any potential early stages of an economic recovery, we experienced modest improvements in company C-store same-store sales growth and volume same-store sales growth in the region.

In the east, we continued the growth quarter-on-quarter, but was cycling against very strong performance in the first quarter of 2016 as we ramped up Pioneer. In commercial, fuel and petroleum product volume increased primarily as a result of a 57% growth in propane volumes, driven by strong organic growth and the impact of business acquisitions completed in 2016.

Furthermore, gas and diesel volumes increased by 5%, driven by early signs of increased economic activity in Western Canada, along with increased industrial volumes in Eastern Canada. The trailing 12-month operating ratio decreased as adjusted gross profit was higher in 2017 as a result of early signs of increased economic activity in Western Canada, an increase in propane volumes due to organic growth efforts, contributions from business acquisitions completed in 2016, and stronger non-fuel contributions from services and lubricant sales.

With regard to Parkland USA, the decrease in the segment’s fuel volume is primarily attributable to decreased wholesale volume due to reduced winter travel as a result of several winter storms experienced in the region during the quarter, as well as the continued reduced economic activity in the Bakken oil region with lower regional oil production as compared to the first quarter of 2016. This decline in volumes was partially offset by increased retail volume resulting from the acquisition of three service stations in Wyoming in late 2016.

The trailing 12 operating ratio increased as a result of lower adjusted gross profit due to decreased economic activity in the Bakken oil region, which saw lower regional oil production in the first quarter of 2017 compared to the first quarter of 2016. I'll now turn the call back to Mike, who will discuss the results of a number of our corporate KPIs.

Thanks, Bob. On the corporate side of the business, MG&A expenses increased due to increased acquisition, integration and other costs incurred primarily as a result of the CST Brands Canada acquisition and Chevron Canada acquisition, which includes legal, consulting and professional services expenses.

Excluding the impact of these costs, corporate adjusted MG&A expenses decreased due to the cost control initiatives and lower variable compensation expenses. Overall, corporate adjusted MG&A expenses as a percentage of Parkland’s adjusted gross profit improved from 6.3% to 5.4%.

The dividend payout ratio and adjusted dividend payout ratio decreased from 77% to 72% and 68% to 60% respectively as a result of higher distributable cash in proportion to the higher dividends declared. Looking ahead to the second and third quarters, we expect our dividend payout ratio metrics to increase temporarily as a result of the pre-funding of the Chevron acquisition.

However, excluding the pre-funding, it would trend within expectations. Distributable cash flow increased by CAD 3.9 million compared to the first quarter of 2016, which was primarily attributable to the increase in adjusted EBITDA, partially offset mainly by higher acquisition, integration costs, higher interest expenses, which were related to our acquisition activity as well.

I’d like to now turn it over to Bob who will touch on how this last quarter delivered on our strategy to grow organically and deliver a supply advantage and acquire prudently and how it positions us well to deliver on our 2017 guidance.

Great. Thanks, Mike.

To wrap up, it's been another incredible quarter at Parkland. We continue to deliver on our strategy to grow organically, deliver a supply advantage and acquire prudently.

On the grow organically side, we delivered record Q1 results of CAD 70 million and delivered 57% more propane year-over-year. Parkland continued to drive organic growth by innovatively pursuing opportunities to increase gross profit, focusing on delivering a great customer experience and are improving efficiencies continuously.

On our supply advantage, Parkland’s Supply and Wholesale segment continued to benefit from improvements in our supply economics, which were initiated in the beginning of the second quarter of 2016, which partially contributed to the 44% growth in Supply and Wholesale adjusted EBITDA in the first quarter of 2017. The team is committed to drive ongoing improvements to our supply economics as part of supply advantage strategy.

And finally, our strategy’s third pillar is to acquire prudently. And I'd like to conclude this presentation by touching on two of our key acquisitions that are currently ongoing.

Two weeks ago, we announced that Parkland would acquire all the outstanding shares of Chevron Canada Refining and Marketing. As you are likely aware, we entered into an agreement with Chevron Canada to acquire 129 Chevron branded retail service stations, principally located in Metro Vancouver, 37 commercial car lot locations, three Marine fueling locations, the Burnaby refinery and three terminals located in Burnaby, Hatch Point and Port Hardy, as well as wholesale businesses, which includes aviation fuel sales to the Vancouver International Airport.

This acquisition is extremely important to Parkland going forward as it further strengthens our supply-focused business model and add significant scale with the premier Chevron retail brand and network in British Columbia. Parkland is acquiring a highly-integrated business, which adds significant supply infrastructure and logistics capability to support Parkland’s existing operations.

We're also working towards closing the previously announced agreement with Couche-Tard to acquire the majority of the Canadian business and assets of CST Brands, Inc. Our integration efforts are well underway and I look forward to welcoming both the CST and Chevron Canada employees into the Parkland family.

To underpin the importance of these two transactions, the synergies on the two combined is expected to be between CAD 60 and CAD 75 million over the next three years. This is the equivalent of another Pioneer size transaction and will be a priority across the business to deliver.

In closing, I’d like to thank all of you for joining us this morning. Again, I'm extremely proud of the results the Parkland team has delivered over the past quarter.

Thanks, Bob and Mike. At this point, we would like to ask the operator to open the lines for questions please.

Hi. Good morning.

And thanks for taking my question. Maybe I’ll first start on the propane side, strong growth there in the first quarter.

You have a big transaction. There was a big transaction in the propane industry.

Wondering what you see in terms of opportunities to continue to grow market share and if that’s creating maybe a little bit of a dislocation in the market, allowing you to grab, or at least providing some visibility on your ability to grab more volumes as we get through 2017 here.

Hi, Kevin. It’s Bob Espey.

Again, I think we’re well positioned in the propane market. We added two new branches last year, one in Bonnyville and the other in Lloydminster really filled out our network within Western Canada.

The team continues to differentiate itself through stellar customer service; and through that, we expect to continue to gain market share throughout the balance of the year.

Okay. And are you seeing any followed or any opportunities from just like two other big players looking to merge or is it too early to see any type of dislocation in the market?

I would say it’s – again, the dynamic out there is as always – it’s always a competitive marketplace and we have to work hard to maintain and build market share. I’m not sure it’s changed materially over the last couple of quarters.

Okay, that’s helpful. And then secondly, when I look at Parkland USA, and I understand it's facing a more difficult macroenvironment from when you acquired it, but I think this is the sixth quarter where you’ve seen a year-over-year decline in EBITDA.

And I’m just wondering what you think – as you take a step back here from when you acquired this asset three or four years ago, how you view this in terms of a platform to grow your US business, how you think of this acquisition today, is it – and are there things to learn from it as you pursue acquisitions, given that maybe it hasn’t performed financially as you would have expected three, four years ago arguably because the backdrop has been more difficult?

Yeah. No, that’s a good question.

I would say, the – first of all, we’re committed to the US market. We do like the business we have and the platform we have there.

I would say that business has had immense headwinds in the local economy. And we really haven't seen that recover yet.

I would say that we’re, certainly with SPF Energy, still very pleased with the performance we had very early on. So, if you recall, in the first couple of years after we purchased that business, that business delivered very strongly.

I would say, the team there is also really focused on reducing – improving efficiencies within the business. And as things come back, we’ll expect to see that dramatically help the bottom line in that business.

There are growth opportunities in that market. As always, we’ll be selective about what we pursue.

And I would say that the business really helped us, Parkland, understand the dynamics in that market and the differences between that market and our Canadian market. And I think it’s, again, giving us – those learnings are really helping us chart a path forward for the business and make sure that we continue our work and start to turn it around and grow it effectively.

That’s helpful. And maybe a last one here, just more of a housekeeping question.

You ran a slightly higher operating cost through your retail business this past quarter. On the flipside, wholesale continues to at least deliver above I think what it’s been doing earlier in 2016 and late 2015.

Just wondering, should we be viewing these as kind of the normalized run rates for profitability. I know there’s some acquisitions to come through here, but let’s say for the legacy Parkland business, are these kind of good run rates for wholesale and maybe the operating cost line for retail?

Hey, Kevin. It’s Mike here.

It’s a good observation. I think a couple of things on the retail side when you think of op costs.

Certainly, if we look at variable costs within that component, things like credit card fees and delivery and things like that are a little higher year-over-year just as a direct function of commodity prices, right? So, I think in some regions of the country, fuel prices are up 20% compared to last year.

And so, things like credit card fees and so forth do vary with that as a percentage rather than on a cents per liter basis. I think the other thing you’d notice in there, last year, we included a number of company-operated sites and new builds.

And so, what we’re seeing there is higher operating costs in those particular types of sites and we’re starting to see the contribution flow through. And so, there’ll be a little bit more profitability coming out of that component as well, but you'll see a little bit – as we have higher mix of company-operated sites, we tend to see a little more OpEx, right?

As the team continues to focus on driving that net unit operating cost number down overall, we should see it continuing to improve over the coming quarters.

On the wholesale – yeah, sorry.

Yeah. And on the wholesale side, and we did have some significant wins last year in that area that – this is the last quarter that they’re rolling through the business.

So, going through to next quarter, we shouldn’t see such a large delta year-over-year.

Okay. So, this kind of runway we’ve seen, say, on a trailing 12-month basis has been a pretty good run rate moving forward.

Yeah. No, certainly on the supply side, and to Mike's point, on the OpEx side, there has been some inflation because of – in retail because of, again, credit card fees and then we’ve made some – adding more corporate sites carries more OpEx.

So…

Perfect. That’s it for me.

Thank you very much.

Thanks, Kevin.

Thanks. You alluded to a little bit to the strategy with On the Run.

There’s a plant coming there. Can you maybe talk about – now that you have a few new brands coming online from acquisitions, On the Run and your legacy brands, what the high-level strategy is maybe by region or by brand of how you’re going to utilize those?

So, on – we need to separate into fuel brands and C-store brands. The two are separate.

On the C-store side, we do look at the On the Run brand as an opportunity to develop a single brand on our C-stores. Our marketing team has been working on a refresh of that brand and we’re currently launching a pilot to test that refreshed look and also the rebranding and merchandising changes to go along with that, which we’ll be doing in two markets, one in the east and one in the West.

And as we get data on that and can prove that we get the returns that we require, we’ll then look at rolling that out more aggressively. On the fuel side, I think we’ve got a great set of fuel brands.

We cover multiple customer segments with those brands in each market. We tend to go to market with a major oil brand and an independent brand.

We now have that in all of the markets that we sell into. I would say, quite excited about adding Chevron brands to the portfolio, they being the premier brand in BC and certainly having been the exclusive supplier of that brand gives us a really nice tool within our brand toolbox in the market.

And then the Ultramar in the east again is a great positioning and really gives us a preeminent brand in that market. So, from a fuel branding perspective, we've got a great portfolio that should really help us make sure that we’re able to connect with the right consumer in each market that we serve.

All right. Thanks.

And then, just switching over to the commercial side of the business, you saw some organic growth this quarter. And then, at the last call, you called the outlook as cautiously optimistic.

And a few months into the year, I guess, how would you characterize the outlook or just the overall backdrop there?

I would say same. We have seen some improvement.

And on the diesel side in Western Canada, which we’ve lagged in the last eight quarters, we've seen that come off. So, we’ve seen it come back somewhat.

But, again, it takes a while for economic activity to flow through and we’re hopeful that that trend will continue, but, again, cautious at this point in terms of predicting that as a trend going forward.

Thanks. And then just one last one for me.

At the Chevron acquisition announcement, it was noted that there might be some costs related to the refinery upkeep that might flow into 2017. Just wondering if you would be updating guidance at some point to reflect that or should we just assume that current guidance in intact for now, portfolio of 2017?

Yeah, yeah. Good question, Sabahat.

So, what we would plan to do, I guess a couple of things you could expect to happen on guidance this year. You have our annualized guidance before CST and Chevron out there today at CAD 255 million to CAD 285 million.

So, once we close CST, we’ll update guidance for 2017 for the balance of the year. And then, as we anticipate closing Chevron in Q4, we will update guidance as well for 2017 and so forth.

So, there may be some costs, like what we've done is we've factored in – as you mentioned there, there's an expected turnaround at the refinery in Q1 of 2018 and some of the costs will likely flow in Q4. However, we’ll provide you with the guidance and what to expect as we look at the balance of the year, as we get into Q4 and we have some certainty around close and the timing of those expenses.

And as well, as early as we can in 2018, as we close out the year, we will provide guidance as we normally would around what to expect there outside of what we've already given in the disclosure so far.

All right. Thank you.

Okay.

Hi, guys. Just wondering if you could comment on some of the regional disparity, namely in the retail business.

Did you continue to see the Ontario sites outperform the Western Canadian sites? And then, when do you expect the overall retail business to return to organic volume growth?

You noted you have seen a little bit of an economic recovery in Western Canada, just wondering how you’re seeing that flowing through for the balance of the year.

Hey, Derek. Thanks for your question.

West-East, I would say, on – so, couple of things. One is, in the east in particular, the price of fuel shot up pretty dramatically in the latter part of Q4 and into Q1.

And that does tend to dampen sales. And it's interesting certainly as we saw things pick up through the quarter and certainly the run rate in March on our merged [ph] side was consistent with what we would expect in our network in the East.

In the west, we have seen an improvement year-over-year on the same-store sales side. Certainly, we’re seeing the declines flow.

We haven't seen activity fully recover in the site, so that we did get some robust fuel volume in the west, which offset some of the shortfall in the east. I would expect that, as we get into the summer driving season here, we’ll see volumes pick up quite nicely and, hopefully, trend above last year.

Okay, great. That’s helpful.

And then, just on some of the merchandising initiatives, lower carwash, though, that was with the high-margin business, so that impacted the margin. But what were some of the other initiatives that may have impacted the margin short-term in the quarter and what are some initiatives more medium-term that you're looking at rolling out on the C-store side?

Yeah. So, one of the things that we do in the east, if you go to a Pioneer site, is we do have low pricing on cigarettes and that's been very successful.

So, that’s something we’re testing in the west here and looking to rollout. So – and it takes a while to see the benefits of a program like that.

On the carwash side, it’s really weather-related. Didn’t quite get the cold, slushy winter that we would like to drive that.

Those would be the two primary things. The other thing on the MG&A side is we are investing – we talked about repositioning and working on the On the Run brand, so we've been doing a lot of work there with third-party agencies and we’re also concurrently looking at our loyalty and developing the private label program.

So, there is some cost that’s going through right now that we should see come out as we start to launch those programs.

Okay, great. Thank you very much.

Hi. Good morning.

Just to follow up on that last comment on the investing in retail, when do you expect those programs to be launched?

So, again, I would say 2017 is where we’re piloting a lot of different concepts. On the On the Run, like they indicated, we’ll do two pilots, one in the east and one in the west to rebrand a cluster of sites to see how that works.

On the private label, it’s something that we expect to launch later in the year. And on the loyalty, the loyalty is a bigger project.

That’s – we won't be piloting anything until early next year in that area. So, again, some investment there, but certainly we expect there to be significant payback once these are launched.

Should we expect the investment levels to remain around Q1 levels for the rest of this year or until these programs are launched?

I would expect that there will be some higher costs. And the exact timing of that, I'm unsure of.

But I would say that we will continue to see some higher costs here through the year. That would be representative of what we saw in Q1.

I don’t know if you’ve covered this. I’ve been jumping back and forth between other releases.

But the Supply and Wholesale, when you look at CAD 217 million increase in propane volumes, how much of that would you say is sustainable, given that you have either contracts or you have – new business wins or it’s organic versus how much might have been related to favorable industry conditions or weather conditions or something like that?

Yeah. Just to start on that, Michael, I think, as you know, we had a number of important customer wins that started to take hold in Q1, and Q1 being one of our peak months for propane, for example – especially with heating and so forth.

So, we did – I would say that it's a good representation again. As we came through Q4 and into Q1, we did note that – it was slightly warmer than, say, the five-year cycle we typically look at for degree days.

So, from that perspective, I’d say couple of things. as we build market share, we start to see the acquisitions and the new customer wins come online.

I think it's a pretty good representation for Q1. And then, of course, we go into the summer months.

With P&E and other acquisitions, we’ll start to see those take hold with the barbecue season and so forth as the cylinder exchange business picks up a little bit. Not quite as material certainly, but I think it's a good run rate when you think of how we’re coming through Q1.

Yeah. I would say, again, that propane business is a Q4/Q1 business.

A lot of these wins would have – you would've seen an impact in Q4. So, as you look forward, I wouldn't see the same run rate in addition to what we did last year in Q4.

Yeah, yeah. A couple of those acquisitions came on in December, right?

So, when you think of the propane branches, like in Saskatchewan and so forth, they came on in December, so there’ll be a little bit of a marginal change there.

Okay. Q1 is in normal run rate.

Q4, we didn’t necessarily see at all. But Q2 and Q3 doesn’t have the same impact [indiscernible].

Q2, Q3 tend to be our warm – it’s all weather-driven [indiscernible] to a large extent. The only exception to that is this P&E business we bought last year, which is a propane exchange business, which will keep some volume going through the summer, but certainly not – it won't be as large – what’s the annual run rate on that business volume wise?

It’s around 25?

Something like that, yeah.

25 million liters. So, you see that flow through, I would say, probably equally in Q2 and Q3.

Yeah. One other notable thing too, Michael, just within the Supply and Wholesale segment, I think I would characterize that as a strong [indiscernible] propane site.

So, probably above normal propane sales as you look at what we delivered through that channel. And so, we’ll likely not see as much volume there.

But in the commercial business, I think it's a pretty good run rate as we commented here just a few minutes ago.

And then just – I’ll follow up with that offline actually. But on the USA side, are you seeing any signs of a recovery.

I know you said that the rig count is still down slightly year-over-year, but are you seeing any signs of a recovery for the coming quarters?

I would say not seeing recovery, but seeing it stabilize. So, the team there has had a tough goal.

But, again, not seeing it fall off as dramatic as it was.

Right, thank you.

We’d like to thank everybody for their ongoing support for Parkland and certainly look forward to connecting with folks post Q2. Thanks.

That’s great. Thank you.