Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Executives

Tom McMillan – Director, Corporate Communications

Robert Espey – President and Chief Executive Officer

Michael Lambert – Senior Vice President and Chief Financial Officer

Analysts

Kevin Chiang – CIBC World Markets

Derek Dley – Canaccord Genuity

James Reid – Haywood Securities

Jason Zandberg – PI Financial Corp.

Parkland Fuel Corporation (OTCPK:PKIUF) Q2 2014 Earnings Conference Call August 7, 2014 6:00 PM ET

Tom McMillan

Good afternoon, my name is Tom McMillan, and I'm the Director of Corporate Communications and Investor Relations for Parkland Fuel Corporation.

At this time, I would like to welcome participants to Parkland Fuel Corporation's Results Conference Call for the Second Quarter of 2014, with the President and Chief Executive Officer, Bob Espey; and Senior Vice President and Chief Financial Officer, Mike Lambert. After their remarks, there will be a question-and-answer session.

At this time, all lines have been placed on mute to prevent any background noise. Please note, that while talking about our results and answering questions, Bob and Mike may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially.

For more information, please review the forward-looking statements and business risks sections of Parkland's second quarter 2014 Management's Discussion and Analysis which along with this quarter's news release and our unaudited financial statements can be found on our web site at www.parkland.ca, as well as the SEDAR website. Dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

I will now turn the call over to Bob Espey to review the quarter. Bob?

Robert Espey

Thanks, Tom. And welcome to our Q2 webcast. When we left our last call, our last quarter call we were quite cautious about Q2 and I'm pleased to say that business performed extremely well in the quarter at $36 million of EBITDA which is within the seasonal expectations of this time of year.

And we're still tracking ahead of guidance on a year-to-date basis. I'm also very pleased that the base business is performing extremely well. It's coming along quite nicely and we're getting some very good performance across the entire business.

I'm also pleased to say that our BUs are ahead of – or acquisitions are also ahead of expectation this quarter. So when you go through our Penny Plan Scorecard, on the growth side, some great steps within our individual business units. Our retail business is basically up 3% year-over-year on a same store fuel sales basis, 10% in the merchandise sales within the store and one of our key metrics that we track on a monthly and quarterly basis is average volume per site and I'm happy to say that both in our corporate network and in our dealer network that is in fact up year-over-year.

So, some good performance there by the retail team as they continue to execute quite effectively. On the commercial business, bit of a slow start in the quarter because of the late spring but they caught up extremely well in the quarter as they executed on their sales plan and made sure that they delivered fuel in a timely manner.

All-in-all, our organic growth does appear to be off on the score card. This is primarily due to our whole sale business. In some markets we've seen some margin pressure. This has affected our spot sales and also in a few cases we have decided to maintain a disciplined approach in those markets and make sure that we don't do anything reckless.

So again, again low margin, it really is a – volume shortfall is primarily attributed to our low margin wholesale business. On the acquisition side, very pleased with our pipeline and progress we're making on that front. Our SPF Energy acquisition is also very much on track in delivering ahead of plan in Q2.

On the supply side, again our wholesale supply and distribution in Elbow River above on an aggregate basis performed ahead of last year. And one of the areas I'd like to highlight is we have moved Elbow River into the refined products area and that team has enjoyed a lot of success in Q2 as it starts to get traction adding roughly $2 million in EBITDA in the quarter.

On the operate side, our OpEx is stable in the business. It does on the raw numbers, it has gone up year-over-year and that's primarily due adding some extra rail cars within the Elbow River fleet to take advantage again the growth opportunities on the refined product side, the LPG side and also in the crude business. So some increase in OpEx but definitely tied to activity.

On the MG&A side, again very pleased that we are getting the scale effect, as we grow the business we are able to leverage our existing MG&A and make sure that we're getting performance across the business from that side of the business.

On the health and safety side, our TRIF improved year-over-year, we've put a big emphasis on training in the field, better root cause analysis and supporting our field to make sure that they're operating as safe as possible.

So all-in-all if you look at the scorecard on the quarter, a very good quarter. Again, all BUs performing ahead of last year with strong fundamentals. Again, some strong sales growth, good operating costs, and operating safely, so I'm very pleased.

Let me turn it over to Mike. Mike will talk through his favorite chart.

Michael Lambert

Thanks, Bob. And he is right, this is my favorite chart. Parkland delivered an adjusted EBITDA of $36 million as you’ve heard from Bob in line with our seasonal expectations. If you remember, despite our strong first quarter, we only maintained our guidance and been [ph] up our guidance of $200 million for 2014, and we did this in anticipation of a slower Q2 due to the hangover from a cold winter that often delays the onset of sales into the agricultural sector.

We continue to maintain our guidance of $200 million for 2014. Remember, we have paid $12 million in acquired EBITDA into this guidance, and we have not yet announced any acquisitions. Last quarter, we changed our segmented reporting. Previously, we only reported gross profit in each of our business divisions. Now, we report EBITDA by division. This increased transparency should make it easier for us to follow going forward. A number of investors and analysts have asked for a full-year of segmented reporting to a system in updating the models.

To facilitate this, today's press release provides the segmented reporting for the three months ended September 30 and the three months ended December 31, 2013. Now, onto the waterfall, which as you’ve heard it is my favorite chart. All 2015 acquisitions are incorporated into the respective divisions in this chart.

We break-out SPF Energy separately in the acquisition bar, so that our divisional results stand on their own merit. Our plan will be to do that for all new acquisitions in the year they are acquired. Retail EBITDA was up slightly for the quarter as a result of a significant increase in same-store sales in the company's retail or gas station network, an increase in fuel gross profit on a cent per liter basis, slightly lower operating costs in the base business, offset by lower volumes from our dealer business.

Commercial EBITDA increased as a result of a 2.5% increase in base volumes, related to sales activity and demand carryover from the cold winter, offset by a slow start to the spring agricultural season. In Parkland's Canadian commercial base business, a 3% year-over-year increase in adjusted fuel gross profit on a cent per liter basis was offset by a corresponding 3% increase in commercial operating expenses on a cent per liter basis. The increase in operating expenditures year-over-year was primarily due to increased feet costs related to higher activity during the winter and an increase in labor costs due to the growth in the base business.

Supply and wholesale EBITDA was down $28 million year-over-year as a result of the strong refiners margins we experienced last year in the second quarter, partially offset by our supply initiatives. This is no surprise and, again, the reason we provided guidance for 2014.

Corporate costs were up $1.5 million year-over-year due to $0.5 million increase in employee costs related to head count and staff training and a $0.5 increase in professional, consulting, and legal fees, and other items such as variable comp and relocation expense.

Now, onto the next slide, now this slide essentially is the slide that shows all the numbers as a result of the positive momentum inside the quarter. Net earnings per share were down 69% primarily due to a $4 million decrease in adjusted gross profit, a $17 million increase in operating costs, and a $6 million increase in depreciation and amortization partially offset by $7 million in lower income tax expense.

The dividend payout ratio was 87% this quarter, which is nothing to be alarmed by. Investor should expect a higher payout ratio in Parkland's second quarter, because on a seasonal basis, this is the lowest cash flow period for the company. When we initially provided our forecast, we anticipated a full-year payout ratio of approximately 70% in 2014, and we're well below this year-to-date of 56% compared to 41% during the first-half of 2013.

The increase both in the quarter and year-to-date is due to an increase in shares year-over-year and a decrease in distributable cash flow. Our balance sheet continues to be strong. During the quarter, we completed a seven-year high yield bond offering to $200 million priced at 5.5%. The proceeds of this offering were used to pay down short-term debt associated with the acquisition of SPF Energy, and to revote our balance sheet for additional acquisitions in the future. Matching long-term debt with long-term assets like SPF Energy is part of Parkland's prudent financial philosophy.

Net debt to EBITDA was 2.3 times at the end of the quarter compared to 1.1 times in the same period last year due to the purchase of SPF Energy. We'll see it down compared to 2013 separate, because we don’t anticipate – we don’t participate in refiners margins due to Suncor contract anymore. Again, that is where we expect to be right now.

This quarter we reported the correction of a prior period error. And what this relates to is a comprehensive review of our fuel tax transactions from 2010 to 2012, which we have recently completed, so that we could submit amended fuel tax returns for the period impacted by the enterprise, resource, planning system go live where the ERP go live that many of you would have – may recall from March 2010, and we did it for the period of March 2010 to December 2012.

Upon completion of the fuel tax transactions review, a shortfall of $9.6 million from the reviewed fuel tax transactions receivable to the recorded fuel tax receivable was discovered. We have treated this as a prior period error and have adjusted the prior period statement.

In addition, we reviewed our transaction from 2010 to present, which demonstrated a high degree of accuracy. This tells us the controls we have in place, our functioning as intended, and the shortfall from the reviewed fuel tax transaction dates to prior to the period that we recorded in this current interim statement.

We have concluded the error is not material to any prior year financial statement. For any further information on this, see Note 2 in the notes to the interim consolidated financial statements for the quarter.

I'll now turn it the call back over to Bob to review our strategic growth plan.

Robert Espey

Great. Thanks, Mike. So as we look at our five-year strategy that we launched a little over two years ago. We are making good progress towards achieving an EBITDA of $250 million. We're on track to delivering $200 million of EBITDA this year.

And we're still very much committed to the three pillars of our strategy, so the first is to grow – grow to capture more share. We initially had a target of $7 billion leaders, and we're at that and was increased that to $10 billion leaders. Our organic growth is coming along extremely well, again, you can see our – the focus we put on the area of organic growth previously in the last year's paying big dividends this year in some of the core metrics around same-store sales growth in retail and year-over-year volume growth within the commercial business.

On the acquisition side, again, we've proven that we can acquire and integrate effectively. Our acquisitions are all performing ahead of plan, and we are very busy in that space as we always are continuing to look for great businesses to buy – to bring to Parkland and fold into the business.

On the supply side, very pleased, again, you can see the impact of that this year as that team has worked hard to replace large portion of what the Suncor contract contributed. When we look at the quarter and I know the earnings have fallen from 58% to 36%, the EBITDA, but really the refiners margins last year this time were historic and certainly far larger than we would ever have anticipated. So that team has worked very well to replace that Elbow River’s doing an extremely good job in terms of continuing to deliver across all commodities and also ramp up their refined products team.

From an operation standpoint, our integrations team has successfully proven again that we can integrate businesses. We've made process improvements to SPF Energy. We supported our base business with Elbow River and Sparlings Propane continues to have a good year. And the other big thing we're seeing is that the business is in fact benefiting from scale.

So, again, you can see that in our MD&A numbers. So, again, tracking very well against the plan and certainly on track to deliver the plan from my perspective within the timeframe we set out.

I'll turn it over to Mike and he will give an update on our guidance.

Michael Lambert

Well, thanks, Bob. For the last two quarter, we provided investors with a schedule of adjusted EBITDA distribution by quarter, so if you look on this slide at the bottom right hand side, it's by quarters, give investors a greater understanding of our seasonality. Our expected EBITDA for 2014 is $200 million.

As I said earlier, this includes a $12 million in additional acquired EBITDA by the end of 2014, but so far we haven’t announced any additional acquisitions. So if you do the calculation, analysts should be starting from a base of $188 million, when making their calculation. So for analysts that apply the quarterly EBITDA distribution we provided probably have come up with guidance for this quarter in the neighborhood of where we are, I mean where our EBITDA actually is about $1 million higher.

For analysts that want to do this for the upcoming quarter, that would give you an adjusted EBITDA of about $41 million. Now, we want to give quarterly guidance, we're just doing the calculation for you. We are not adjusting our annual guidance for 2014 as a whole year – as a total year. I say, again, we are not adjusting our annual guidance. In other words, reconfirming our annual guidance of $200 million.

I'll now turn it back to Bob to wrap things up.

Robert Espey

Great. Thanks, Mike. Again, in summary, a positive quarter at $36 million with a base business performing extremely well. We reconfirming guidance for the year of $200 million and really speaks to the strength of the team and progress against our plan. We are making good progress across all three pillars of our strategy. Our acquisition pipeline remains strong. Our base business continues to track very closely to where we expected. And, again, our acquisition strategy has made us the fastest growing fuel marketer in North America, and we will continue to look for new opportunities to grow accretively.

Before I open the call up to questions, we would like to thank Mike. Mike, as many of you are aware as – he's moving on from Parkland. Mike's been a great partner to work with – to take Parkland to the expiry of the Suncor contract. He leased Parkland in good hands, and we're well positioned to continue to execute our plan going forward. I would like to thank Mike on behalf of the Parkland team for your leadership and guidance, and we wish you all the best of luck in your new assignment. Thanks, Mike.

Michael Lambert

Thanks, Bob. It’s been a great three years. I mean, we've done a lot of good things together, and I'm leaving the company with – that has great opportunity as well. I feel – I actually feel good about that.

Robert Espey

Okay. Well, with that, we will open the call up for questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. We will now take questions from the telephone lines. (Operator Instructions) The first question is from Kevin Chiang of CIBC. Please proceed.

Kevin Chiang – CIBC World Markets

Hi, good evening. Thanks for taking my question and, Mike, best of luck on your new adventure over there at Black Diamond.

Michael Lambert

Thanks, Kevin.

Kevin Chiang – CIBC World Markets

Maybe my first question is on Elbow River. I just want to confirm, was the EBITDA in Q2 just over $9 million, I might also add the $1.7 million to what you did in Q2 of last year?

Michael Lambert

Yes, you would add to $1.7 million. So the waterfall chart what we do is we show the change versus last year.

Kevin Chiang – CIBC World Markets

Okay, so I just want to clarify that point. And then just on Elbow River, when I read to the MD&A, it looks like you saw some cost inflation, some of the leasing costs that are raising, some OpEx as you take on some additional short-term railcars. Firstly, can you remind us, again, how many railcars you have available to you?

And then secondly, is this a timing issue where you are absorbing these costs now in anticipation of more revenue moving forward, so your margins should see a lift, as we move to the quarters, or is this – are these costs are incurring and your margins will stay whether at today basically?

Robert Espey

Yes, Kevin, it’s Bob. You are quite accurate in highlighting that, we have added more cars. And that is two factors, that is activity driven, and also we have wrapped [ph] opportunistically cars that are later than 2011, as we will be retiring some of the older cars in the fleet due to the some of the new environmental or some of the new standards that are coming through. And that’s really to make sure that we meet the requirements of our customers.

Kevin Chiang – CIBC World Markets

Okay. So it sounds like you're kind of maybe buying ahead of the curve here to take advantage of maybe some slots available on the tank cars?

Robert Espey

Yes, I will take somewhat, but generally it’s – we don’t have a lot of vital capacity in that business right now from a railcar perspective.

Kevin Chiang – CIBC World Markets

Okay. And then what the U.S. Department of Transportation coming, it looks like to be more specific criteria for the tank cars, I know criticism for or some uncertainty on the transport Canada side of things was that, it didn’t highlight the specifics they want in the tank car. Are you using those deal key specs as kind of the specs to move forward with, and now you're more comfortable in buying these newer tank cars knowing that they meet the newer regulations?

Robert Espey

Well, first of all, I mean, in the U.S. they haven’t mined. I mean there are three different potentials out there.

Kevin Chiang – CIBC World Markets

Right.

Robert Espey

And they're still debating it. We think there will be alignment with what the Canadians have announced. In terms of us getting some leases, a lot of leases that (inaudible) and increased or the number of cars they’ve increased are short-term leases.

Kevin Chiang – CIBC World Markets

Okay. Okay and I guess the cost of refurbishment hasn’t changed based on the new DOT, obviously on the DOT legislation out there?

Robert Espey

Our estimate is still the same….

Kevin Chiang – CIBC World Markets

Okay.

Robert Espey

We think there is couple, $2 million to $3 million is what I would talk.

Kevin Chiang – CIBC World Markets

Okay. That sounds great. And maybe just lastly for me, at least within my model, you and you just highlighted in your MD&A, there was some pressure on your wholesale division there. Just wondering, because the Q2 volume and margin on a cent per liter basis, is that a pretty decent run rate to think about through the balance of the year, or do you think you will rebound off some of these headwinds you saw in the second quarter?

Robert Espey

Yes. So I would say within the wholesale group, the margins that stands are indicative of looking forward.

Kevin Chiang – CIBC World Markets

Okay.

Robert Espey

Again, what we've been impacted by is low margin business that we've chosen not to participate in. And if you remember a portion of our wholesale portfolio is spots and we certainly backed out of that. And then some of our lower margin contracts we've chosen not to defend.

Kevin Chiang – CIBC World Markets

Okay. And then the volume?

Robert Espey

Yes, that market is, it bounces around…

Kevin Chiang – CIBC World Markets

Okay.

Robert Espey

We're not concerned, but that’s a long-term impact of the business.

Kevin Chiang – CIBC World Markets

Okay. That’s good to hear. And actually on the volume side, I think the $1.1 billion, is that a good, because I noticed that the wholesale doesn’t see a ton of seasonality, so I'm just wondering if that’s – from a volume perspective, is that a decent run rate to think about?

Robert Espey

So, again, that volume includes Elbow River marketing.

Kevin Chiang – CIBC World Markets

Right.

Robert Espey

And there will be volatility in there.

Kevin Chiang – CIBC World Markets

Okay. So that we will see some volatility there?

Robert Espey

Yes, again, that wholesale business has a spot component to it…

Kevin Chiang – CIBC World Markets

Right.

Robert Espey

That we used to tactically at times and then also the Elbow River business has volatility by commodity…

Kevin Chiang – CIBC World Markets

Okay.

Robert Espey

Within their various marketing, but roughly we shouldn’t see it also late dramatically.

Kevin Chiang – CIBC World Markets

Okay.

Kevin Chiang – CIBC World Markets

Okay. Now, that’s it for me. Thank you.

Robert Espey

Thanks, Kevin.

Operator

Thank you. The next question is from Derek Dley from Canaccord Genuity. Please proceed, sir.

Derek Dley – Canaccord Genuity

Hi, guys. I'm just wondering you guys have some really strong organic growth at retail is – I know that re-merchandise is held at 9.9%, can you just tell us some of the initiative you guys have going there and what's driving that growth?

Robert Espey

Yes, I mean, a number of items, so first is we – last year we tested a number of new promotions within the retail network that we've now rolled out across the network, so we're seeing some good take up of that promotional activity. And part of that's focusing and defining who are customer is and making sure we are targeting that promotions properly and that has an impact.

The second thing is our execution continues to improve at a slight level, not only making sure that marketing programs are effectively rolled out, but making sure that the stores are merchandized properly and that the look and feel was consistent for the consumer.

And then the third element is, we've enhanced our loyalty program, so it’s gone to an electronic loyalty program and that had a very positive impact with our consumers.

Derek Dley – Canaccord Genuity

Okay, that’s great. And then going forward, do you guys plan on keeping the – like a similar mix between dealer operated and retailer operated stores?

Robert Espey

Okay. And it depends, we like both businesses, they're both great businesses for us. We like the corporate's own sites with retail partners. It's been a very strong segment for us. So, again certainly on an organic basis we've been adding new sites. And I think this year we've rolled out four new – or new to industry or rebuilds or we're continuing to invest in that business and grow it.

On the dealer business, again like the model, like our partners that we do business with there and it's a good way to expand our reach into areas that we don't have a strong corporate network.

As I've indicated in the past, acquisitions are – we can't time them and they're also tend to be opportunistic and that will drive the mix going forward.

Derek Dley – Canaccord Genuity

Okay. Now, it's fair enough. I guess, just on acquisitions. I think I ask you guys this every quarter, but have you seen any changes in some of the multiples that some of the independents are looking for?

Robert Espey

Again, I've always – the environment is active. Multiples are driven by value and as we've always said high quality assets command the premium in the marketplace. And on the other extreme, wholesale businesses tend to trade for less. So, we're somewhere within that range if we were going to buy a top quality urban retail network we'd be certainly well north of our five times and for pure wholesale business we're significantly less than that.

Derek Dley – Canaccord Genuity

Okay. And then just finally, the – is it fair to say that the bulk of the delta in the wholesale division year-over-year was that predominantly due to that, the refiner margin contract?

Robert Espey

No, I would say not, and we haven't actually changed our pricing into the marketplace. What we've seen is – oh, sorry.

Michael Lambert

Yes, yes, I mean, we were looking at the waterfall chart here. Well, let's just clarify the question, Derek.

Derek Dley – Canaccord Genuity

Yes, I'm – yes, I'm asking about the delta in EBITDA, not in…

Michael Lambert

Oh, the delta in EBITDA, yes, I know for sure, I mean that is solely due to the loss in the refiner's contract.

Robert Espey

Yes.

Michael Lambert

In fact that red bar would have been significantly more had we not executed as effectively as we have across all areas of the business.

Robert Espey

Yes, how we characterize it around here is that red bar is actually we're proud of because it would have been a lot bigger had we not improved the business around it.

Michael Lambert

And again, what's – I can't continue to stress enough that, I'm really pleased with base business performance this quarter.

Derek Dley – Canaccord Genuity

Okay. That's fair. Thank you very much.

Robert Espey

Thanks, Derek.

Operator

Thank you. The next question is from James Reid of Haywood Securities. Please proceed.

James Reid – Haywood Securities

Hi, guys. I was just hoping you could comment on the search for a new CFO.

Robert Espey

Hi, James. It's Bob Espey. Yes, we have initiated a search. We're using a search firm to help us look externally.

James Reid – Haywood Securities

Okay. Excellent. Thanks.

Michael Lambert

And so we're looking at candidates and obviously we'll – I would say we're well positioned internally. We'll find the right CFO for Parkland going forward.

James Reid – Haywood Securities

Excellent, thanks.

Operator

Thank you. The next question is from Jason Zandberg of PI Financial. Please proceed.

Jason Zandberg – PI Financial Corp.

Hi, guys.

Michael Lambert

Hi, Jason.

Jason Zandberg – PI Financial Corp.

I want to – if I look at retail fuel margins, if I go back five or six years, and then they are suddenly declining over that period. Yet, this quarter we see, are moving up. I know this is a subtle change but again with the volumes that you do – subtle change can make a big difference to my model.

So I want to get an idea in terms of, I guess, what drove that trend reversal this quarter. And do you expect – do you think this is an anomaly or can we expect some of the higher level of margin going forward?

Robert Espey

I'd love to be able to predict marketing margins going forward. What we do know is that over time the average – the trend in the industry is that margins come down over time, that margins are stable over time and that the way that we run our business is focusing on same store sales so average throughput per site making sure that that goes up year-over-year and a relentless focus on something called net unit operating cost which is making sure that our in-site sales basically are maximized and our costs around the sites are minimized to reduce our breakeven point and make sure that we're not sensitive to the street margins.

Jason Zandberg – PI Financial Corp.

Okay. No, fair enough. I guess, my other question is just – I don't know the benefit of your MDA (inaudible). What – how many retail stations did you end the quarter with, do you have that in handy?

Robert Espey

The exact number – our exact number right now is in the Canadian network is 699 sites. And then we've got 12 corporate sites in the U.S. and the number of dealer relationships as well.

Jason Zandberg – PI Financial Corp.

Okay.

Robert Espey

(Inaudible) in the U.S.

Jason Zandberg – PI Financial Corp.

So, how many Chevron locations were added during the quarter?

Robert Espey

Well, during the quarter, so good point, we did close the Chevron acquisition, and we added 12 sites through the acquisition. And I believe we added a couple of new dealers on the organic side.

Jason Zandberg – PI Financial Corp.

Okay. But that's – that, we shouldn't expect to see anymore Chevron sites added in Q3?

Robert Espey

Well, again, our sales team is always active in the field. On an annual basis, I mean, we're adding dozens of new sites. Now, we're also culling sites through that process. But it's an ongoing process, we're always selling and bringing higher quality, higher volume per site into our network and culling out the low volume underperformers.

Jason Zandberg – PI Financial Corp.

Okay. Well, fair enough, I got it. And just one last comment, just in terms of the reference to the guidance and the embedded acquisition number that was in there. So, I completely understand and get the point that's the $12 million – within that $200 million was acquisitions. Well, I guess my question is why – what was the reason for not adding $12 million acquisitions according to plan?

And I'm not – I know timing is a big deal, but I guess, I'm more wondering whether there were some deals that were closed but didn't happen, or you just found that there has been a rate set or price was too high. Any sort of reasons why that didn't come to fruition?

Robert Espey

Well, again, we're just only halfway through the year. So, all I can say is, our pipeline is active. We are – it's – I'd love to be able to say that I can add on a linear basis so much revenue or earnings in volumes on a quarterly basis, but it's impossible to do, because we don't know what's available on the timing around the acquisition. All I can assure you is that, we're disciplined. We do see a lot of activity and are confident around our plan.

Jason Zandberg – PI Financial Corp.

Yes. And I wasn't trying to be critical, I just want to get some more color. So, great. Thanks very much guys.

Robert Espey

Thank you.

Michael Lambert

Thanks, Jason.

Operator

Thank you. (Operator Instructions) The next question is from Kevin Chiang of CIBC. Please proceed.

Kevin Chiang – CIBC World Markets

Hey, just a follow-up question. I just want to get a sense of – when I look at Q2, it was a pretty good free cash flow quarter for you. You've seen your net debt move up a little bit here as you roll off the high margin Suncor earnings you got in 2013. And with your net debt to EBITDA sitting on 2.3 times, I know it's below your target, but what's your comfort level at these – at this level especially as you keep on discussing the huge pipeline in front of you. Would you like to deliver further at these levels, if there is not an acquisition right in front of you before you make a big acquisition, or do you think there's a room?

Michael Lambert

No, it’s a short answer, Kevin.

Kevin Chiang – CIBC World Markets

Okay.

Michael Lambert

Thanks for the question. Balance sheet is strong and we're intentionally keeping the balance sheet strong, because we see acquisition and Bob is absolutely right. The pipeline is very robust and as long as we see the pipeline is active and there are opportunities in front of us, we're going to keep our balance sheet strong, because it's our best position to be negotiating from this to be able to say we can write a check.

Robert Espey

Kevin, keep in mind, like that net debt to EBITDA ratio also includes the converts right now (inaudible) that aren't money right, so there is a natural delevering mechanism that's out there. And so we're – good to think about that.

Kevin Chiang – CIBC World Markets

Right, I know that, that's a good point. And in terms of the pipeline of opportunities, when you look at what's out there, the changing North American Landscape in terms of whether pipelines get built or not and which pipelines do get built, is that having an impact on what's available, because I would imagine there are distributors out there that may have supply one day and then a pipeline gets reversed and all of a sudden they don't and those discussions are happening every day. How is that impacting the pipeline of opportunities and as you see the live [ph] the land in terms of potential acquisitions?

Michael Lambert

It hasn't very much. When you think of the type of acquisitions that we're looking for and the white spaces we're looking to fill, the pipelines don't have a significant impact on our acquisition. I think you may think well, what the – what kind of impact will it have on Elbow River.

Right now we're not seeing that impact, partly, because even once they announced these pipelines being built, they'll take so long to build that the supply will fill it and it's moving commodities by rail should still be there, even if these pipelines get built.

Kevin Chiang – CIBC World Markets

Okay. That's it for me. Thank you.

Michael Lambert

Sure.

Operator

Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. McMillan. Please proceed, sir.

Tom McMillan

And I'll turn it over to Bob Espey to wrap up.

Robert Espey

Great. Thanks, Tom. Thank you very much. Thanks for joining us in our Q2 conference call. Again, great quarter, and so, we look forward to talking to you at the end of Q3.

Michael Lambert

Okay.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Parkland Fuel's (PKIUF) CEO Robert Espey on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts