Q3 2020 Travelcenters of America Inc Earnings Call
Good morning, and won't Travelcenters of America third quarter Conference call.
All participants will be in listen only mode should need assistance. Please signal a conference specialist by pressing the star key followed by <unk>.
After todays presentation, there will be an opportunity to ask questions.
Please note that this event is being recorded.
I like to turn the conference over to Ms., Kristin Brown director of Investor Relations. Please go ahead.
Thank you. Good morning, everyone. We will begin today's call with remarks from <unk>, Chief Executive Officer, John purchase.
My Chief Financial Officer, Peter Crage, and President Barry Richards for analysts Q and a.
Today's conference call contains forward looking statements within the meaning of the private Securities Litigation reform back in 1995 and federal Securities laws.
These forward looking statements are based on <unk> present beliefs and expectations as of today November four 2020.
Forward looking statements and their implications are not guaranteed to occur and they may not occur.
Undertakes no obligation to revise or publicly release any revision to the forward looking statements made today other than as required by law.
Actual results may differ materially from those implied or included in these forward looking statements.
Additional information concerning factors that could cause our forward looking statements not to occur is contained in our filings with the securities and exchange Commission that are available free of charge at the Fccs web site or by referring to the Investor Relations section of <unk> website.
Investors are cautioned not to place undue reliance upon any forward looking statement.
During this call we will be discussing non-GAAP financial measures include putting EBITDA EBITDA, our adjusted EBITDA adjusted EBITDA or adjusted net income adjusted fuel gross margin and adjusted fuel gross margin per gallon.
Reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our press release that can be found on our website.
The financial and operating measures implied endorsed stated on today's call as well as any qualitative color comments regarding perform it should be assumed to be in regard to the third quarter of 2020 as compared to the third quarter of 2019, unless otherwise noted.
Finally, I'd like to remind you that the recording and retransmission of today's conference call is prohibited without the prior written consent of Ta and with that John I'll turn the call over to you.
[music].
Thanks, Chris and good morning, everyone and thank you for joining us and for your interest in T.A.
I'm pleased to report that the earliest beginnings of our transformational playbook initiatives.
Starting to prove effective.
Despite the extensive challenges to demand operations and management imposed by Kobin.
In Q3 2020 compared to Q3 2019, we report the following improvements.
362.4% increase in net income at.
And almost 30% increase in adjusted EBITDA.
And a 10% increase in adjusted EBITDAR.
This was despite an overall revenue decrease of 19.1%.
The improved year over year performance was driven by improved leadership.
Intense focus and discipline in managing expenses and beginning to execute on operational improvements throughout the organization.
These results are unusually positive, particularly considering that we're working through a global pandemic and therefore, it much gratitude to express.
I want to I want to thank everyone on our broader team for contributing to this outcome, including our great franchisees reporters cleaning bathrooms and showers to Peter Servings, My right hand, and our teammates both new and old.
I want to thank our fleet customers and their drivers for increasing their business with us RMR for its important support.
And finally stockholders, who have demonstrated through increasing stock price and market cap, you're persistent and growing support as well.
2020 to date has been a year of planning and preparation as well as the Europe aggressively fighting the headwinds I'm Gonna Stork health and economic events.
We've installed a new senior leadership team with a blend of new and legacy leaders as part of a major corporate reorganization that resulted in the creation of three new departments.
Corporate development centralized procurement and hospitality and.
And yielded approximately 13.1 million in EPS DNA savings on an annualized basis.
We have developed a comprehensive comprehensive transformation playbook with 40, plus defined initiatives for which each is clear ownership critical path and the beginnings of an understanding of potential financial result.
HM.
Playbook initiatives encompass all business areas across our fuel and Nonfuel businesses and include many important principles like having fewer more meaningful relationships, but.
Putting our scale to use and empowering our culture and team.
[noise] pardon me finally.
We have enhanced the balance sheet with additional liquidity following an 85 million dollar equity raise.
In short during 2020, we put the ground work in place to execute on transforming this great American company.
[noise] Q4 2020 into 2021.
Should be a period of execution.
Development of operational excellence.
And substantial investment in growth and efficiency.
We expect 2021 to be a year of investment in our sites.
G and accelerating growth in franchising and then harvesting substantial savings.
Within our site level operating expenses analogous to the corporate savings we on Earth beginning in Q2 2020.
On behalf of our team we are proud of our strong positive result in this quarter, even without consideration of the fact that we were fighting the economic headwinds of a pandemic.
The strength of these results during this historic time as evidence of the changes we have begun to make and the collective capability. This team and more importantly, we're only just getting started.
Turning to our results for the quarter solid performance from our fuel and Nonfuel businesses, largely offset cobot related decreases in four wheel traffic and then our full service restaurants.
And our intense focus on managing costs deliberate improve profitability versus the prior quarter.
Our overall fuel sales volume increased 8.5% due to an increase in trucking activity.
The addition of new fleet customers and overall increased volume from existing customers due to the early success of a variety of initiatives.
For real traffic reflected in gasoline volume was down versus the prior year Q3, but showed improvement sequentially from the second quarter.
You'll gross margin for the quarter increased by just 1% versus prior year.
Boosted by higher diesel volume and the federal biodiesel tax credit.
And offset by more favorable Q3 2019 purchasing environment.
Just after the third quarter. It is worth mentioning that starting on October Onest, we began using our economies of scale purchasing power to purchase diesel fuel and substantially larger volumes versus inefficiently purchasing in smaller increments previously.
This is expected to reduce diesel fuel cost of goods sold.
<unk> increased diesel gross margin without changing the risk profile of our purchasing at all.
We as we have as we have noted previously we estimate every one penny of increase in fuel gross margin per gallon translates to approximately $20 million increased EBITDA.
Mm Hmm.
On the Nonfuel side of the business overall, our revenue was only down 3.7% versus the prior year quarter. Despite the fact that our full service restaurants were dramatically affected by cold in many states. These restaurants were deemed non essential services by government authorities, which forced them to shut down.
Additionally, even where and when not forced to shut down.
Demand in certain locations dropped so precipitously that we chose to shutdown.
At the beginning of Copel, we made the difficult, but appropriate decision to furlough nearly 4000 field employees, which mitigated last by reducing costs somewhat commensurate with the loss of demand and sales.
We began to slowly reopen some of these full service restaurants in June with limited menus, reducing inventory in labor costs, and allowing us to test different and more effective approaches to running this labor intensive business more efficiently.
Today, a majority of our full service restaurants have reopened and we have begun returning some employees from furlough.
Many other creative methods for utilization of the full service restaurant spaces on our sites are currently being evaluated and soon we'll be beta tested with an eye toward optimizing performance.
Quick service restaurant revenues improved by 4.2% compared to the prior year quarter through more disciplined leadership and management.
For the C stores improved management and merchandising have begun to have a positive impact and for the quarter versus 19 revenues increased by 3.7%.
Also we have begun working to centralized purchasing and manage inventory more efficiently, which eventually will translate into better margin for these businesses.
Importantly truck service revenues as compared to the prior year third quarter showed a solid improvement driven by an increase in work orders.
While multiple changes are being tested and installed imposing increased accountability through the creation of a new middle management role and enhancing training and oversight has begun to make a meaningful difference.
Truck service remains a top focus for the company as both a key competitive advantage and an opportunity to further increase our market share among among fleet customers.
[noise] Nonfuel revenues also continue to benefit from strong demand for diesel exhaust fluid or Def and we expect and demand for deaf to continue growing as more pre 2011 model year trucks are retired each year.
Shifting to network expansion through franchise, we signed 23, new franchise agreements since the beginning of 2019 four began operations. During 2000 1910 have opened year to date and we anticipate an additional nine locations will open by the end of 2021.
Also we have entered into an agreement with one of our franchisees to add two additional ground up travel centers to our network.
In addition, we are currently we currently are negotiating franchise agreements for 11 more travel centers.
With over 50 other locations in various phases of the application and diligence processes.
Finally, it's important to mention what may very well be our single biggest opportunity to improve our bottom line operating results site level operating expenses.
I'm, particularly excited about the opportunity to dig into and drive down site level operating expenses, we found approximately 8% improvement in corporate.
And it will be interesting to see where our efforts take us at site level, which total approximately $900 million on an annualized basis.
To conclude I'm very proud of the progress demonstrated by our results this quarter versus 19.
On top of the results from the second quarter.
We know that two sequential quarters under our belt, where we delivered solid improvement in net income EBITDA and EBITDA are and we did so through a worldwide health and economic crisis. These are the early innings, but I'm optimistic we have started to deliver on the promise to rebuild trust and credibility within the marketplace.
I've shown a sincere and effective commitment to change through these results.
I would like to end my remarks by once again offering gratitude to our teammates and colleagues around the country for their hard work and dedication as well as all the professional drivers and fleet customers.
For allowing us to serve them as we continue to successfully navigate through this unprecedented time together.
And with that I'll hand, the call over to Peter to discuss the quarter's financial results in detail Peter.
Thank you John and good morning, everyone. As John mentioned, we are very pleased with our results in the third quarter, particularly given the continuing challenges presented by the pandemic.
In my remarks that follow I will be referring to the third quarter of this year as compared to the prior year third quarter unless stated otherwise.
So for the quarter, we generated net income of $8.7 million or 61 cents per share compared to $1.9 million or 23 cents per share last year.
Excluding several one time items as detailed in our earnings release, we generated adjusted net income of $9.2 million compared to $1.9 million in the prior year.
Adjusted EBITDA was $41.5 million, an increase of approximately $9.6 million or 29.9% compared to the prior year.
The increase in adjusted EBITDA was primarily due to reductions in site level operating expense and selling general and administrative expenses, partially offset by a decline in non fuel and fuel gross margin, excluding the benefit of the federal biodiesel tax credit.
Fuel gross margin increased slightly to $80.1 million as compared to the prior year, primarily a result of an increase in fuel sales volume and a 9.6 million dollar benefit from the federal biodiesel blenders tax credit.
Partially offset by a more favorable fuel purchasing environment in the prior year quarter.
Excluding the benefit of the biodiesel tax credit in this year's quarter adjusted fuel gross income.
Adjusted fuel gross margin decreased $8.9 million or 11.2%.
To $70.6 million.
Primarily due to a decrease in adjusted fuel gross margin cents per gallon or CPG of 2.8 cents or 18.1% to 12.7 cents.
This was partially offset by an increase in fuel sales volume of 43.4 million gallons or 8.5% to 551 555.1 million gallons.
However, during October we saw general improvement in CPG against the prior year.
As well as continued increases in overall volume.
Non fuel revenues for the quarter decreased by $18 million or 3.7% as compared to the prior year.
The decrease was due to the temporary closure or limitation of services that both our Standalone and travel center restaurants, offset by improved performance in our truck service and store and retail services and by a 16.1% increase in diesel exhaust fluid revenue.
Non fuel gross margin decreased by $8.5 million or 2.9% as compared to the prior year due to the aforementioned decrease in full service restaurant revenues. However.
However, non fuel gross margin as a percentage of non fuel revenues improved to 60.3% from 59.8% in the prior year, primarily due to a change in the mix of products and services sold and certain pricing and marketing initiatives.
Rent and royalties from franchises franchisees in the quarter increased by about $224000 or 6% as compared to the prior year. As a result of 11 franchise travel centers and three franchised Standalone Quaker steak and move our Qs sell restaurants that began operate.
Patients after the third quarter of last year.
The increase was partially offset by the permanent closure of three franchise Standalone Qs ALS and our purchase of one standalone Qs sell from a former franchisee.
Site level operating expense decreased by $19.9 million or 8.2%.
As a result of the difficult, but necessary decision to furlough field employees and response to the decline in business brought on by the pandemic. Additionally, we reduced non labor costs, such as maintenance certain utilities, resulting from closures and curtailments.
And curtailments of supplies as we continue to rationalize our cost structure.
SGN expense for the quarter decreased by $7.2 million or nearly 18% as compared to the prior year. This decrease reflects the full quarterly impact of the late April reorganization plan, which eliminated approximately 130 positions as well as reductions in marketing costs not being critical at this time.
Real estate rent expense for the quarter increased $1.3 million compared to the prior year due to an impairment charges related to certain operating lease assets for underperforming Standalone Qs cell locations.
And we continue to expect our real estate rent expense to run at a quarterly rate of approximately $64 million.
Depreciation and amortization expense increased by $8.2 million or 33.8% in the quarter, primarily due to a $6.6 million impairment charge relating to certain low performing standalone, QSR restaurants, and a $2.4 million right.
Off of certain capitalized costs related to Roadsquad truck service technology initiatives that are being replaced with new and more customer friendly technology in the coming months.
Turning to our balance sheet for a moment.
At September Thirtyth, our cash balance was $280.4 million.
We have no amounts outstanding on our 200 million dollar credit facility as of October 30, Onest of this year.
And we have no near term debt maturities, we have focused on and have significantly improved our liquidity position this year.
We collected $69.9 million up $70.2 million in federal biodiesel tax credit that we recognized in the fourth quarter of 2019, when the government retroactively reinstated the credit for years 2018 2019.
And as you consider our upcoming fourth quarter performance expectations. Please note that this will not recur this year.
As of September Thirtyth, 2020, we own 50 travel centers.
Our standalone restaurants, and a standalone truck service facility that were unencumbered by debt.
We successfully financed 100 location in West Greenwich earlier this year in February at an attractive rate.
And we continue to evaluate opportunities to raise cost effective capital to fund, our near and mid term growth initiatives.
We invested $9.2 million in capital expenditures during the quarter, bringing the year to date total to $36.8 million.
As we've mentioned in previous calls we've also revised our 2020 capital investment plan to be approximately $68 million in order to preserve capital and maintain financial flexibility.
However, now that we have closed on our equity raise.
Carefully considering projects to improve facilities and our IP systems infrastructure.
Assistant with our planned use of these funds, including those that could potentially be initiated in the last nine months of this year.
That concludes our prepared remarks, operator, we're now ready to take questions.
Well now begin the question answer session to ask a question you May Press Star then one on just touched on fall.
We are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble the roster.
First call excuse me first question comes from Paul.
Well Oh Citi Research. Please go ahead.
Hey, Thanks, guys John.
I'm just wondering if you could talk about the new franchise travel centers those converted in 19 and 20 can you maybe talk about the year over year revenue lift that you're seeing in those centers realm.
Relative to before the conversion.
No I don't have that said any detail sitting here in terms of the revenue lift and Thats something we would be happy to follow up with if you like in terms of those newly joined new members of the fold, but were happy to follow up and give some detail on that.
Peter anything to add to that you have in hand until we're sitting our fingertips, particularly of the tail of those very specific locations don't have to get back.
No no no worries. Thanks, you guys have initiation.
Initiatives too.
To increase fuel gasoline gross margin store retail service margins.
Prove operating efficiencies restaurants can you, maybe just talk a little bit about what inning, you feel like you are and what each of those initiatives.
And just how we should think about the timing of when those benefits might kind of head panel sure us I mean, we are definitely in the early innings, maybe the first couple of innings I'll give you I'll give you a smattering of the kinds of things we're doing by each of those areas and maybe that will help reach your own conclusion.
You know and as I said in the remarks in principle. This was a year of kind of preparation planning reorganizing getting our sort of chess pieces on the board next year as the year of investing in execution. So I think most of the value will be captured while we've driven a lot of value through really disciplined cost control this year end and pushing on certain other leavers.
But next year I think over the course of the all really start feeling and seeing the impacts of these various initiatives.
You know as an example on the fuel side just October onest. So that wouldn't this would not be captured in the quarter. This would be early fourth quarter, we for and I mentioned in principle I'll be a little more specific year in my remarks as of December Onest.
We started purchasing fuel following a very lengthy RFP process to acquire fuel through contracts or an agreement for 750 million gallons rather than many many little 30 million gallon incremental increments.
Incremental agreements and we were basically we used to buy fuel in the state similar volumes to a franchisee or two and that we're buying fuel and a much more meaningful way and so that is already starting to course through the system kind of real time, just barely on October Eightth also not captured in this quarter, but we were using pricing analytics to support.
What we determined should be our pricing.
Those some fuel examples that are going to start to happen kind of real time in one location and soon to be too. We've on we're selling our own branded gasoline. So instead of Ta ta gasoline in the same way, we sell t., a diesel and I'm pretty excited about the early signs and results of that and we're just really bad.
Finally, a month into doing that so those are that's a smattering of examples on the fuel side, where none of that is captured in here, we're going to start to see we are starting to feel it and as we get through this year and into next I think you will see more and more of that on the nonfuel side against a couple of examples I'll pause.
We have for example, a VP of merchandising our category managers of people, making pricing decisions and placement on shelves and what should be where there was a void in kind of middle level management that is one example, that's real time and sort of just happening in the last month or so similarly, we have roles. We've created in both the C store retail.
And in truck service, where we've inserted kind of a middle management role that I think of as a compliance kind of roll to do nothing more than visit sites work with teams and make sure what's actually happening on site matches, what should be happening. According to standard operating procedures and creating more accountability. So that's just a quick.
Mattering.
Those are all sort of just now real time some of the things that will be growth oriented that will take some growth Capex you will start to bear will be more of a lag in to see the impact probably.
So a couple of quarters realistically and some that will take even longer than that hopefully that's somewhat responsive to your question.
Yeah.
Very helpful. Just just last one from me just a follow up in terms of the cents per gallon savings can you talk about these although the one penny.
Equaled to 20 million, what do you think feasible there what's what's the goal.
You know I don't want to say I don't really have a goal to be perfectly Frank I'm really which were looking through that the new expertise in new senior.
Senior leadership, and then leadership, we're installing at different levels to look for opportunities and almost see where they take us and I don't I frankly, I think it's premature for me to put anything out there just because look I've been here you know 10 months now Peter seven or eight we've had a pandemic our new leadership our head of fuel for example, just came to us.
He was a little bit of a late comer. Our group came may Onest became about June onest. It was only a few months ago and it takes time for him to get up to speed gets some of his.
<unk> leadership, and the lower level beneath him an organization constituted.
So I don't really want to well I certainly have some.
A vision and for all of our initiatives, we have a vision of and I don't want to call. It an expectation because it's too raw for that we have sort of bracketed ranges by initiative of what we are hoping for its just too early for me to put something out as I as I am hopeful as we get to the end of this year and probably into the first quarter I will be giving very crisp responses to questions.
Like that I, just I don't want to set a false expectation prematurely I'd, rather we are trying to build credibility here at this company.
That may have been lost over over some period of time and as part of that I don't want to just give I guess or a finger in the air kind of answer I want to have something Chris and if I don't want to tell you what I just told you.
Understood. Thank you good luck.
Thanks, Thanks for the questions Paul.
Thank you next question comes from Jim Sullivan of BP.
Please go ahead.
Thank you good morning, guys.
Just following on that the question about.
The cents per gallon.
Savings.
That the you have talked about before.
Back at mid year, when do you kind of outlined.
Various initiatives and again they were targets are estimates they were kind of aspirationally I suppose or illustrations as to how positive they would be if implemented.
But one thing that's interesting is in this quarter year. Your total gallons sold were much higher than the run rate that you had been operating under in previous quarters and so.
Just curious John as we think about the potential positive impact.
Whether its one cent per gallon or plus or minus but if it were one cents per gallon given the sale given the volume levels that you posted here in the third quarter presumably.
We are confident in your ability to maintain that kind of increase that that you've achieved.
And if so then therefore the positive impact of the once a gallon obviously would be that much better does that is that fair I mean, I think so if you just isolate the variables obviously, if we drive more materially more volume than its going to mathematically increase so I think that that presumption or that assumption or that that view.
Magically make sense.
And as we saw this quarter.
On the other variable there is you know is the CPG obvious.
Obviously, we all know is volatile it goes up and it goes down and some factors we can control to drive some of that in some we can't we're certainly pulling the lever is going forward that we can.
As an example, this past.
Quarter. The one we're talking about Q3 versus Q3 a year before.
I think we did 14.4 CPG in Q3 20 1919, we did about a penny one over that 15 five that period saw more volatility.
And in terms of the index and market, which helps us thats a good environment for us and we can drive more value, where there is a differential between wholesale and retail. So obviously the answer that question relies on what happens on that side of things, but yes that that basic view is accurate Jim subject to what I, just said about margin and volatility.
And one other question related to the new approach in terms of purchasing fuel, where you talk about larger orders smaller number but larger orders.
To what extent does that entail.
Higher risk on the part of the company in terms of.
In terms of exposure to a higher fixed cost and market changes might otherwise expose you to.
Thanks, So what we want to be clear, we spot buy and so we caseloads every single day that that process is exactly the same all we've done and our head of fuel brought to US is a very simple thing and that is instead of it albeit.
What I want to say is illustrative not don't take it is absolutely factual, but it's been a little region of three or four locations.
We would agree to buy from some supplier in that region for a period of a year in total gallon amount of say 30 million gallons and then in that region and then region BC Andy We do the same thing in these from other suppliers in these little increments.
We basically consolidated data and about 40% of our gallons are now we put we basically ran a process and we're now found a us supplier to provide all all of it in many regions rather than these little sub areas. So the risk profile and how we're purchasing is exactly the same the differences were working one supply.
Fire and a large volume of gallons.
And so the risk profile is exactly the same as it was before it's just we're using our scale in a simple way.
To to create leverage and drive down costs, and therefore margin up and that same principle by the way as I shared before we haven't had a consolidated procurement function before so this principle of using our scale and leverage was not embraced historically for many many years I'm not sure why but both on the fuel side and non fuel side, that's a a very simple.
Instable right and we were just self inflicting a disadvantage.
To ourselves and we're not doing that anymore.
Okay, and then a quick question here on the write offs in the quarter again, and I guess Qs sell assets.
We're with the write offs took place in part.
And I'm just curious are we going to have an update on how you guys are thinking about the Qs sell Brad.
Brad.
You've had the multiple write offs here.
The size of the brand as it was.
This has declined overtime.
And.
Can you just give us an update on how you're thinking about about that brand and the possibility of either idle or selling it or closing at or converting it.
What the what the strategy is given the write offs that were seeing great. Thanks. Thanks for the question Jim about impairments in there actually I'll address that maybe at what the other item was because I think it fits very much into our sort of world view of where we are taking the company. The other one is also while I will touch on that too, but first on QSR.
I think we put out we've we've effectively engage in an exploratory process to understand the value of those assets as a potential strategic part of this organization and not.
And we're pretty deep into that process, let's just say and.
As a result of that it was time to take an impairment and so.
Take impairment on the one hand, but it's in some ways you know.
We're on a path of exploring where that where that road goes and we're we're deep into that path.
And so again, we took the impairment as a result, and it certainly the right thing and the appropriate time to do so the other item that you didnt ask about but just a touch upon because it is a strategic and it very much fits wallets and impairment Theres a good source story behind it are a good purpose that's very much consistent what we're up to there was sort of a bit of technology that the company historically.
He had invested in that was but one example, an illustration of a lot of the challenges that we've had historically on the IP side that Weve talked I know of each of the quarters, we've talked about this.
That is very important to us going forward to create efficiencies and allow this company really optimize and realized what it's capable of a number of those fall within the area of IP and this is one of them, where we basically effectively are writing off or letting go of some expense.
That was already sunk and the technology that wasn't going to really be the best in class wasn't going to benefit us there were much better alternative and so we've made that decision to go forward on this technology, that's within the truck service part of our business and as a result had a take or an impairment there.
Okay very good appreciate it thanks, guys. Thanks for the questions Jim.
Thank you next question from Bryan Mayer B. Riley FBR. Please go ahead.
Yes, good morning, so otherwise besides the fuel margin pretty decent quarter that you should be pretty proud about that but sticking with fuel margins for a second and having been involved in this name for over a decade.
Can you tell us and I don't want to beat a dead horse here, but was there anything weird Lee.
Impacting the fuel margin in the third quarter that you have or what identify which would explain it coming up a bit short of what we are looking for.
Thanks for the question, Brian and again get to connect this morning, there really isn't there was nothing sort of extraordinary and I'll share again I'll walk through this and maybe it'll it'll be useful I know what is to me.
The manner by which we buy the spot buying in periods of volatility where theres, a big between wholesale and retail pricing and we can hold up hold retail pricing up relatively longer than the wholesale side as change we make that's better for us when there is movement. When you look at 19 versus 20 in Q3.
And I looked at this just to have some sort of a very fact sort of mathematical.
Point to make here if you look at the volatility in 19 Q3 versus 20, the average daily market change in 19 for that period was 2.9% 2.9 cents.
For 20, it was 1.9, so mathematically there was a lesser lower volatility period for us.
Which caused us to lose I don't know about a penny a little over a penny I think it is comparing.
Comparatively so there really was nothing odd we're certainly that's something I guess and Peter look at every single day I mean, there are not a number of things right to run. This business. We look at every day one of the very top ones because of how much how much a part of this company is is is diesel particulate both kinds, if you will but diesel, particularly volume and margin and.
Volume has been terrific and we're really happy with that particularly you know in this period of time were nine months ago is scary what it could have been fast forwarding to today and so it hasn't been and we're really proud of where we are in the volume side. The margin side. It's something we look at every day, we're pulling whatever levers. We can every day you know playing around with.
Moving to gas for a second on the gas side differ a greater differentials in premium to regular there is a lot of small leavers and now with the new leader Geoff Morrell on the fuel side has only been was about three and a half months really looking hard at that and his team every day and we've kind of added to that team a little bit, but that's worth flushed out for the quarter and.
I'm excited that as I mentioned those two data points are facts I should say Q I'm, sorry October one with that that law.
Larger purchasing RFP and to the analytics were relying on as Ive just October eight I'm optimistic we will start seeing a difference as we go forward, but no there really wasnt anything sort of odd or an average rent.
Or unusual to to offer as an explanation as to where the quarter ended on fuel margin on diesel margin, particularly.
Okay, but just to be clear they don't want anybody to get the wrong idea because volumes were well above where I think a lot of people ourselves included thought but margins were down there is no. Hence by the company to try and compete on price to drive volumes at the expense of margins would that be correct assessment Thats a correct assessment.
Okay. We're not we're not taking active steps to trade margin for volume or vice versa, we're sort of while the variables. Obviously very much related we're very focused on things that drive volume that our dipped somewhat different and detached from just giving up margin if that makes sense. So that would do summarizes is correct.
Great and then you touched upon this in your prepared comments, but drilling a little bit deeper on site level operating expenses and I really applaud that you've done so far it's probably the first time in many many years I've been pleasantly surprised with site level up but as you've been in the role now for 10 months and Peter you've been there since.
The first quarter.
When you look at the 900 to 950 million issuance site level operating what is your telling you that you could take it down to the low 800 number to the mid 800 downbeat, yet can you give us any thoughts there on where you see that may be heading.
Sure, Brian I would love to give you again, not numerical answer I'm not going to as much as I would want to and I'm not quite there, but I'll say this that theres numbers are huge right 911 million I think it is 500 labor 400 non labor. So we're looking at those two the labor and non labor differently. The way you get.
Two.
Our results are an improvement on each of those the process is a bit different.
And so we're looking at those somewhat I unpacked.
We have engaged with a number of companies.
Who look at least one of whom we will probably seek some help from going forward to dig into the supplement Peters team just because there will be a heavy lift that will take a period of time to dive into these really deeply and get us to a place of kind of optimization or close to that but in the process of interviewing a number of companies number from.
We heard some very lofty.
Potential and I emphasize potential but I was encouraged what I was hearing from folks who do this for a living granted they are trying to persuade us into hiring company a versus b versus c., but good companies also are careful not to over commit and then under deliver later, so I'm really encouraged how far we can go here, but.
Same point until I get into it and like I feel good about I look myself in the mirror and say from 900. The 500, we can get to act five under minus in the 400, the non labor we can get from 400 to one.
Why minus till I can look myself in the mirror with something and have deeper.
Deeper contact with it I really don't want to set an expectation even directionally I just again really important right here is for us to build credibility and trust back from you guys and from the market with authenticity and if I start loosely throwing things out there that's contrary to that and I just I'm reluctant to do that Peter if you want to add.
That maybe yes, Brian if you look at the year to date, we've got quite a bit 655 from seven to nine but I just want to remind everyone that we are and we have a burning platform here. This year and the pandemic has caused us to make a number of decisions you might not make in a normal year yet in that normal year, you might expect revenues to increase so in absolute dollar amount.
We're spending a lot of time right now as we put our budgets together for 2021, so that we ensure we identify what is sticky and what isn't sticky vis-a-vis hopefully some modest growth in revenue next year. So an absolute dollar amount is difficult to predict an absolute percentage is difficult to predict having said that focusing on that.
Sticky so that we can drive increased free cash flow, that's how we think about it.
Great and just last from me and kind of quickly the IHOP you touched about it in year.
Earnings release, and I think I might have noticed a $1.4 million number for conversion versus I think maybe a year ago. When this first came up it was like one one.
Am I reading that right is the number of potential cost conversion, increasing and could that influence your decision.
Do that and scale.
Thanks again good question, Brian you are absolutely right by the way the number when I sort of got here early in the year was about the one one exactly your recollection is spot on and after the experience of opening the first one in south Atlanta, the real numbers came in a bit higher closer to one for now it would be very easy to sort of build in.
And bake in something closer to one one that were going to get better added you start doing more of it et cetera, that's not how we look at things we tend to be very conservative so.
So that day. So yes, the number did go up and for now the one four is more of a real attack an actual number from a one off and I'm hopeful and even maybe optimistic we'll do better than that but that's not how we plan here. So that's the number the differentially sure sure could around the margins it could make a difference as we pro forma did.
Current locations and we are we are developing pro formas that are peculiar to locations because different markets will behave differently. The 300000 could very well be that dispositive, it could put us above or below a threshold that were not comfortable with on the other hand, you know we were only our agreement really cost for 20 total.
The option to do much many more we have enough sites I'm hopeful of this I don't yet know, but I believe and sitting here, we have enough sites that you know it.
270, total non franchise to 30, plus that 10% are going to pretty for sure have at IHOP that we can figure that out out of every 10, we need one so yes, I think the math will end up working out and Thats. My just got check thats not anything more than a gut check that the math will work out with that slightly higher number.
For our higher number not necessarily slightly higher number as we get into it but again as we also opened a hand, we're not going to just tomorrow go open 20, we'll do a handful several more and build on that we'll learn as we go hopefully we'll start seeing efficiencies and then based on those efficiencies perhaps the one four comes back down to a one one or one two and then we continue to learn and.
Improve how we think about things, how we model things and then ultimately how we make choices and decisions.
Okay. Thank you very much thank.
Thanks, Bryan appreciate that as well Jim and Paul.
Thank you next question comes from Chris Skus Chaos of singular research. Please go ahead.
Hi, everyone. Good morning.
The sad at one one question you determine any numbers behind this but I just wanted to get your feeling on this.
As far as the right restaurants or concern.
Can you give us a port.
Proportion of total restaurants.
That are out currently outside.
And if you don't have that any sort of just any sort of idea there. Thanks.
Good.
Chris just if you could clarify when you say the restaurants that are outside just share I want to make sure I'm responsive. So if you can share with me what you mean, so I can again be appropriately responsive.
Well well the out their outdoor dining.
Okay.
So the restaurants that I have visited.
Hi, everyone I visited and I don't know if Barry you want to chime in after me. If you have I can clarify are correct, what I'm about to say here, but every restaurant I have visited has in a full service restaurant has indoor seating.
A few of them actually more than a few many have an opportunity to sit outside whether it's to eat that meal or to just sit and.
Enjoy a soda or just take a break before getting back to your trucker car, but I havent visited one that had a sort of exclusive seeding outside Barry is that correct can you just.
Yeah.
Yes, John that's correct for the travel centers, the Quaker steak a moves however home.
Almost all of those have out we're receiving on their patios and.
Kind of helped us get through this pandemic, but nothing on the TV side.
Thanks, Okay.
Just just because I wanted to get an idea of as as we head into the winter.
What do you what is being planned for as far as maybe these I don't know if it's possible for these these outdoor dining areas.
To be sort of sheltered or indoor.
Yes, I don't I don't mice my perspective on that is I don't think that will have a material impact on the business or even the FSR. The pulls I'm sorry, the full service restaurant part of the business as just going back a moment of reef historical comment when we first at the pandemic and call. It early March our sales went down for that part of the.
Business by 90% and as a result of that we sort of took this imagine third month as CEO first couple of first month for Peter as CFO, We took a fairly aggressive and quick response to that separate from our transformational plans and we further at 4000 people, we've opened restaurants backup very cautiously very carefully.
In some places as permitted by the authorities in some we still chose not to open because we didn't see the demand. There. We will continue to run these restaurants with intensive intensive discipline and focus and as we shared certain things. We're doing as we reopened for example, the face of not reopened we're opening with much fewer menu items.
Menu items that our dry professional drivers have voted with their wallets bye bye.
Items sold.
In volume and at a reasonable margin and so were only selling those items. So we're going to continue to operate these restaurants.
As well as consider alternatives to how we operate our restaurants, whether outside brands like I hop or others to.
To potentially even other it on a case by case basis, a potential other uses for those spaces. So we're going to continue to evaluate and consider all of that and I, just I don't I'm, not particularly concerned as as that being a factor impacting the overall company performance, we'll just continue to adapt as necessary and as we've proven we can through the second.
Third quarters with respect to demand on this part of the business.
Okay, great. Thanks, Thanks for the question Chris.
Thank you next we have a follow up question from Jim Sullivan of BT.
Please go ahead.
Yes, just a just a quick one.
Again back at mid year, you talked about.
The introduction over the development of a truck service rehab program and you are.
Assuming that that would boost the margin for that for that retail for that Nonfuel segment.
We did have a nice increase in the.
Truck service the truck service line on a sequential quarter basis, I know that.
Line item is going to be very much impacted by weather and therefore can be very volatile, but I just wonder if we look at the third quarter for the truck service is that rehab program impacting that business yet.
I think there are again, thanks again for the question Jim There are a lot of levers we're pulling that I think are impacting that part of the business into how we engage with our customers.
To that that that role that you know that you just referenced rehab and we created a role under a gentleman, who is really inc. and I referred to it indirectly before is creating more accountability and truck service. We have the same exact role based on the success of of that person and that role. We've now done the same thing in the C store a month later and it for.
Thankfully may even drive broader organizational changes, having this mid level manager with a different purpose and driving accountability. So while there are a lot of levers, we're pulling and I think a lot of different contributors and it's a little tricky to it's a little confounding because there's so much going on but thats within 10 that it's hard to isolate variables and say this exactly country.
You did that much but I, absolutely believe that the single biggest contributor to the the that business so far and how its performing is this what you described is that truck service rehab and the creation of this sort of.
Increased accountability role that I just described so thanks for the question John.
Okay, great. Thanks, Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Mr. John approaching.
Great well, thanks to everybody for for listening. This morning. Thanks for your interest in Ta Anda and have a great day. Thanks, everybody.
Conference is now concluded. Thank you for attending today's presentation you may now disconnect.