Q4 2020 Travelcenters of America Inc Earnings Call

Good morning, and welcome to travel centers of America fourth quarter 2020 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions.

Ask a question you May press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Kristin Brown director of Investor Relations. Please go ahead ma'am.

Thank you.

Everyone.

We will begin today's call with remarks from Ta's, Chief Executive Officer, John per check all of.

By Chief Financial Officer of Peter Krage, and President Barry Richards for our analyst Q&A.

Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and Federal Securities laws.

Forward looking statements are based on Tas present beliefs and expectations as of today as of February 26 2021.

Forward looking statements and their implications are not guaranteed to occur and they may not occur Ta 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 of the SEC's website or by referring to the Investor Relations section of Tas website.

Busters are cautioned not to play.

The place undue reliance upon any forward looking statements.

During this call we will be discussing non-GAAP financial measures, including EBITDA EBITDAR adjusted EBITDA adjusted EBITDAR adjusted net loss adjusted fuel gross margin and adjusted fuel gross margin per gallon. The reconciliation of these non-GAAP measures for the most comparable GAAP amounts are available in our press release that can be found on our website.

The financial and operating measures implied <unk> stated on today's call as well as any qualitative comments regarding performance should be assumed to be in regard to the fourth quarter of 2020 as compared to the fourth quarter of 2019, unless otherwise noted.

Finally, I would 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.

Thanks, Kristen good morning, everyone. Thank you for joining us and for your continued interest in Ta.

I'm pleased to report the despite the continuing challenges the demand operations and management of posed by COVID-19, and a reduction in overall revenue by 15, 5% in Q4 2020 compared to Q4 2019, we report the following improvements.

The 29% improvement in adjusted net loss.

Of 36% increase in adjusted EBITDA.

And of nearly 10% increase in adjusted EBITDAR of key metric in measuring our results.

These results represent a continuation of the positive results, we delivered in Q2 and Q3.

After my first year of tenure I.

I believe it is fair to say that we are well on our way to transforming Ta and yeah. We're really just beginning.

One of 'twenty was primarily of your planning and preparation of your of the three PS people plan and purse.

We put the team of people together through our reorganization we.

We developed our transformation playbook, where plan and.

And we developed the first through our 85 million equity and 200 million debt raise.

As well as the installation of a new found an aggressive cost discipline.

We ended 2020 prepare to invest capital and growth in remediation as well as to execute on our broader transformation plans.

For 2021, we're prepared and continue to refine our robust capital plan designed around the principles of clean up the ketchup and growth.

Our capital plan includes reestablishing, our information technology for our it systems.

And doing so with a focus on creating an efficient and effective foundation upon which to rebuild our organization.

Our capital plan includes comprehensively improving the physical plants of many of our sites both for media Lee as well as for financial growth with an eye toward making our sites more attractive desirable and useful to both 18 wheel and for wheel guests.

Our capital plan includes the exploration of collaborations and joint venture opportunities and to be very clear. These investments in growth will be focused exclusively in our asset base and not in non strategic unrelated businesses or areas.

Simple areas of opportunity to invest within our asset base include travel centers, the truck service business fuel and technologies to support our growth.

We were also surgically investing in outside consultative help to support our transformation plans in key areas such as fuel margin site level operating expenses and.

And we expect this investment will get will begin to bear fruit during 2021.

Lastly, I want to provide a few comments about our enthusiasm for alternative energy and sustainability.

We're extremely excited about the unique opportunities Ta has the leverage it's large well located sites and pure supplier of business model. The embrace changes that non fossil fuel energy presents.

Under the New administration.

We are focused on carefully evaluating these opportunities to best position ourselves as the market evolves and hope to be able to provide more formal announcements in the upcoming quarters.

I am proud of the strong positive results of our team has generated in this quarter and the full year 2020, particularly in spite of the global Covid pandemic the.

Strength of these results. During this historic time is evidence of this team can execute effectively and transform this great half century old company.

I'm confident that this team of leaders will prudently and effectively deal with whatever challenges that come along.

I most excited to see what we can do in 2021 of the beyond having the three pieces in place the people the plan and the purse to effectively drive remediation growth on long term shareholder value.

Turning to our results for the quarter solid performance from our fuel and certain non fuel businesses, largely offset COVID-19 related decreases in for wheel traffic and then all of a full service restaurants, and our focus on managing costs delivered improved profitability versus the prior year quarter.

Our overall fuel volume increased 11, 8% driven by a 16, 2% increase in diesel fuel volume.

Excuse me the increase in diesel fuel volume was due to an increase in trucking activity given the relative health of the trucking industry the Ids.

<unk> of new fleet customers and overall increased volume from existing customers due to the early success of a variety of initiatives.

The adjusted fuel gross margin for the quarter decreased by eight 8% versus prior year as higher diesel fuel volume was offset by reduced for wheel traffic, reflecting the lower gasoline volume and a less favorable Q for 2020 diesel purchasing environment, which affect of diesel CPG margin.

Starting on October one we began using our economies of scale purchasing power to purchase diesel fuel and substantially larger volumes versus the inefficiently purchasing a small income as previously.

We believe this has reduced diesel fuel cost of goods sold and increased relative fuel gross margin without changing the risk profile of our purchasing.

That said diesel fuel market volatility also plays a large role in fuel gross margins one that we have limited control over through canceling or increasing loads as.

As the year ended the purchasing environment became less favorable due to low market volatility of Darwin of dynamic which has persisted into the early first quarter of 2021.

On the non fuel side of the business overall, our revenue was only down 1% versus the prior year quarter. Despite the fact that our full service restaurants remain dramatically affected by Covid with many states reimposing occupancy and other restrictions during the 2024th quarter.

During the quarter, we continued to retain a substantial number of teammates on furlough and had approximately one third of our full service restaurants remain closed.

As we have reopened some restaurants, we did so with limited menus, no buffets reduced payroll and cost control improvements in an effort to produce relatively improved margins.

We are currently evaluating a range of options and operating models to improve the profitability of the full service restaurant areas within of our travel centers.

We're also moving ahead with rebranding certain other full service restaurants in our travel center site for IHOP with five conversions currently underway and potentially 10 more to commence in 2021.

These conversions conservatively our ex are expected to require an average investment of $1 $4 million per site and generally require six to eight months of complete.

In evaluating our overall restaurant segment, we reached the conclusion that our stand alone restaurant business, which includes 42 locations, primarily branded as Quaker steak and loop for Q S. L.

The non strategically fit within our long term goals for the company.

For that and we have entered into an agreement to sell this business for approximately $5 million subject to customary closing contingencies.

The strategic divestment, which is currently in the due diligence phase and expected to close by the end of the first quarter will allow us to focus our efforts on our core travel center business Peter.

Peter will discuss the financial impact of this in his remarks.

For the stores and retail services improved management of merchandising have begun to have a positive impact and for the quarter versus 19 revenues increased by six 3%.

Also we are working to centralized purchasing and manage inventory more efficiently, which eventually will translate into a better margin for these businesses.

Importantly truck service revenues as compared to the prior year fourth quarter showed a solid improvement driven by an increase in work orders, we've retooled the entire business with new senior leadership as well as created a new middle manager role to improve the accountability.

Technician retention compensation and training our central targets to drive continued improvement.

Truck service remains the top focus and key competitive advantage for the company and an opportunity to further increase our market share amongst the amongst fleet customers.

Non fuel margins also continue to benefit from strong demand for diesel exhaust fluid or Def and we expect the demand for Def to continue growing as more pre 2011 model year trucks are retired each year.

Demand for depth was also boosted by higher diesel fuel volumes in the quarter.

Shifting to network expansion through franchise, we have signed 33, new franchise agreements since the beginning of 19 for began operations. During 1910 opened in 2020 and so far one is opened in 2021.

We anticipate the remaining 18 franchise travel centers will begin operations by the end of the 2020 to first quarter.

Of the 33 franchise agreements one of one was signed in 2020, which is nearly double the pace from that of 2019.

We continue to have active discussions with current and potential franchisees with the goal of accelerating the pace of signings from 2021.

Lastly, the exciting topic of alternative energy.

We embrace changes that are forthcoming and are in the process of developing internal resources and leadership with the intention of leading the process of transformation.

I'm extremely excited about the opportunities that exist the look forward to more specific comments and announcements as we work our way through early 2021 on the subject.

The as unusually large sites provide the unique ability to develop a meaningful transition plan to accommodate a wide range of fossil and non fossil fuel offerings and the infrastructure to support them to co exist at the same time.

This broad range of potential offerings is a simple extension of Ta's core competency of of having the widest range of non fuel offerings within its highly of monetize the store restaurant and truck service ecosystem.

The simple facts provide ta unique opportunity one we intend to carefully monetize.

To conclude I'm very proud of the progress demonstrated by our results. This quarter, we know of three sequential quarters under our belt, where we delivered solid year over year improvement in adjusted net loss Slash income adjusted EBITDA and adjusted EBITDAR and we did so through of worldwide health and economic crisis.

We are still in the early innings of this turnaround and most of the work and opportunity remains in front of us. However.

However, I am optimistic we have started to deliver on the promise to rebuild trust and credibility with the marketplace and have shown a sincere and effective commitment to change through these results.

And once again with the three piece of the people the planet and the purse we're ready for the challenges ahead of to focus on execution growth and remediation by intelligently investing in our asset base.

I would like to end my remarks, as always by offering gratitude for our teammates and colleagues around the country for their hard work and dedication as well as all of the professional drivers and fleet managers for allowing <unk> to serve them as we continue to successfully navigate through this unprecedented time together.

And with that I will 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 for the fourth quarter as well as the full year, particularly given the ongoing challenges presented by the pandemic.

In my remarks, I'll be referring to the fourth quarter of 2020 as compared to the fourth quarter of 2019 unless stated otherwise.

For the quarter, we generated a net loss of $7 $2 million of 142 per share.

Compared to net income of $43 $1 million or $5 29 per share.

Primarily the result of recognizing $70 $2 million and biodiesel tax credit retroactively in the fourth quarter of 2019.

Excluding the recognition of the biodiesel tax credit in both fourth quarter periods.

And adjusting for a few other one time items as detailed in our earnings release we.

We generated an adjusted net loss of $5 $1 million 28 per share compared to a loss of $7 $2 million or <unk> 89 per share an improvement of 29%.

Adjusted EBITDA was $27 million, an increase of approximately $7 $2 million of 36%.

This increase was primarily due to our continued close management of site level operating expense and selling and general selling general and administrative expense.

Partially offset by a decline in non fuel and fuel gross margin, excluding the benefit of the biodiesel tax credit.

Fuel gross margin as reported decreased $68 3 million to $79 $4 million due largely again to the recognition of $70 $2 million of biodiesel tax credit in December of 2019.

That stemmed from the retroactive reinstatement of the credit by the federal government for both 2018 and 2019 offset from the credit earned and recorded in the fourth quarter of 2020.

On an apples to apples basis, excluding the benefit of the tax credit and comparability in our quarterly results adjusted fuel gross margin decreased $6 $8 million to $70 6 million or eight 8%.

Due to a decrease in fuel gross margin cents per gallon of $2 nine or 18, 6% to 12 seven.

This was partially offset by an increase in fuel sales volume of $58 7 million gallons or 11, 8%.

Two $555 9 million gallons.

While we have continued to see positive trends in overall volumes.

<unk> <unk> cents per gallon has softened the result of of difficult purchasing environment with low volatility.

Non fuel revenues for the quarter decreased by $4 4 million.

Or 1%.

The decline was due exclusively to the temporary closure of our limitation of services and both of our travel center and Standalone full service restaurants.

Offset by continued improved performance in our truck service and store and retail services and of $5 2 million or 21% increase in diesel exhaust fluid revenue.

Total non fuel gross margin decreased by $3 $9 million for one 4%.

Exclusively due to the aforementioned decrease in full service restaurant revenues total.

Total non fuel gross margin percentage was down slightly at 61%.

Third to 61, 3% in the prior year, primarily due to the decrease in non fuel revenues as a result of the pandemic. However, excluding the full service restaurants non fuel gross margin increased 20 basis points.

Site level operating expense decreased by $23 million of our eight 7% as a result of the difficult but necessary decision to furlough field employees in response to the decline in business brought on by the continuation of the pandemic.

Additionally, we reduced non labor costs, such as maintenance certain utilities, resulting from closures and curtailments of supplies.

SG&A expense for the quarter decreased by $1 8 million or.

Or for 5% of <unk>.

Greece reflects the quarterly impact of the late April reorganization plan, which eliminated approximately 130 positions as well as reductions in low priority marketing costs.

Real estate rent expense for the quarter was roughly flat the prior year and we continue to expect this expense to run at a quarterly rate of approximately $64 million.

Depreciation and amortization expense increased by $10.5 million of 37, 4% in the quarter.

Largely the result of the decision to divest.

Quaker steak and lube business as John mentioned earlier.

The mark to fair value of the <unk> assets and liabilities to the estimated adjusted adjusted purchase price less cost to sell resulted in an impairment charge of $13 7 million.

In addition, the <unk> business has been classified as held for sale in our financial statements as of December 31 2020.

Turning to our balance sheet for a moment.

We diligently focused on our liquidity at the outset of the pandemic and during the year raised the capital necessary to invest for the future and protect us from the continued uncertain economy.

At December 31, 2020, we had cash and cash equivalents of $483 2 million an increase of $466 million from December 31 2019.

We currently have no amounts outstanding on our $200 million revolving credit and we have no near term debt maturities as of.

At December 31, we also owned 50 travel centers for Standalone restaurants, and the Standalone truck service facility that were unencumbered by debt.

We have collected substantially all of the $72 million in biodiesel tax credit that we recognized in the fourth quarter of last year, So as I discussed earlier.

Additionally, we raised $80 million of net proceeds through an underwritten public equity offering in July and $191 million of net proceeds from our new term loan facility that closed in December.

We invested $17 $6 million in capital expenditures during the fourth quarter, bringing the total to $54 4 million for the full year 2020.

Our capital expenditures planned for 2021 contemplates aggregate investments in the range of 175 million to $200 million and as John mentioned earlier on projects to improve our travel center facilities, our technology systems infrastructure as well as on growth initiatives that meet or exceed our targeted 15% to 20%.

Cash on cash return hurdle.

That concludes our prepared remarks, operator, we're now ready to take questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Bryan Mayer with B Riley. Please go ahead.

Good morning, Jonathan and Peter and thanks for all of that detail.

Couple of questions that have jumped out to me and inbound calls from some investors.

Late to the size of the liquidity position, you've built which between the cash and the facility is kind of it.

Nearly 500 $600 million, even assuming the spend $1 75 to 200 million. This year why so much liquidity I've been covering the company for 13 years and never had anything close to that.

Thanks, Brian and thanks for the question and good to connect this morning with you.

I appreciate the questions, we get asked that a fair amount.

My first day at the company a year and a half of it we had $17 million in cash.

We ended the year with half of $1 billion in that realm.

Well you know there's multiple points here and I look back on previous experience of the iPad, including my last company, where we invested of that company and refreshing our assets to bring them up to snuff, we need to do that here.

Two to sort of express our brand more effectively.

A lot of the transformation we're undertaking.

<unk> the oriented people oriented.

Need to happen along with an asset base that's more attractive.

Functions better.

It doesn't go down.

The frequently and we can talk all day about creating goodwill through customer service and if somebody puts their credit card in and cat K because the it is down that's the real problem with 238 assets.

Theres a locked the spread.

And Theres, a tremendous amount of opportunity we have not to mention.

Some M&A opportunity that I'm really where we've been thinking a lot and hard about and a range of areas from.

Additionally, not just growing through franchise, but also potentially growing by now that we have the balance sheet by potentially growing our footprint through owned locations there.

There may be some opportunities out there to pick up some regional players there may be opportunities in sort of the realm of technology.

I mean to actually have a stake in technology of technologies that support for example, the service business as well as our C store other parts of our businesses and so this puts us in a position to really drive growth and there is a tremendous amount of opportunity out there to improve our assets.

And get at least the 15% to 20% cash on cash returns and beyond that we could.

Sort of an exit ramp if we chose to if we determined way of too much liquidity we.

We can pay off our baby bonds at which you're caught a little more costly than the debt itself. So there is an exit ramp there. So it gives us a fortress of the balance sheet number one.

The number two it gives us the ability to grow fairly carefully but aggressively and three of we determined we have too much liquidity at some point, we have an exit ramp that slightly but nonetheless favorable to what we have today. So those are sort of the three primary purposes behind.

The behind our balance sheet, and our liquidity and where it stands today and hopefully that makes sense. The folks certainly does it for me.

Just to be clear, though if you do some M&A would it be you know aside from Tac of whatever Youre also youre talking about it would not be C stores and it would be travel centers I mean, I don't think any of the Investor group wants to go down to the C store debacle again.

Yes, so again I appreciate that very much Brian as you know with the <unk> sell point that was determined by us as non strategic I know the history with the C store World and mini Mart World.

By the emphasize in my comments, we're going to invest in our asset base and you know obviously that can be interpret a lot of different ways, but I'm very committed to staying focused on what we do and what we do well and what we don't do well to not stay focused on it and so that's in the same way we've imposed the new cost discipline, we're imposing of discipline like that with respect to where.

We take the company in terms of growth.

Okay, one more from me and then I'll hop back in the queue. When it comes to the full service restaurants. The one third that are still closed is the plan to keep them close until you've established the plan that reopening those particular restaurants would be profitable as opposed to what I believe the detour.

And when you initially shut those down in the second quarter last year.

Thank you ultimately found there was a large slug of the full service restaurants that were unprofitable. So will they be kept the closed until there's a plan in place that they will run at a profit.

So right now we have been opening restaurants, not just when we were literally legally permitted to for opening them also as we believe they are not going to be of burn to the company or a negative. So we opened them already and that way. We that's the approach we've taken and we have it a really tremendous new team.

<unk> within the entire hospitality group led by a gentleman named Kevin Kelly you had some history with Peter many years ago, who really gets to this point.

And I know what drives him a little crazy on this point, you're asking about because I'm very very focused on you know I'm proud of the changes we've made on the cost discipline side, and we're not going to go backwards and that the that is a collective caution. So that's just not my view that's the team's view so.

We're only reopening as it stands today when we believe we can operate that particular location based on the demand at that location under the our approach of operating with a more limited menu of very different sort of approach to labor and how we manage labor and much more intensely focused.

Cost discipline, so that's already happening today as we've reopened restaurants that doesn't mean to suggest theres not a lot of opportunity to continue to improve and we've mentioned a few of those ways are already I think just in our introductory comments and you know there are a number of other things we're working on as well from not all of the IHOP brand, but potentially other brands.

We've already changed the menu of around significantly and reduce the items, which in turn reducing menu items just that one change that simple change ripples through how these restaurants function the amount of labor you need the perhaps the breakage of the loss of having items that arent selling.

Particularly well so we have a range of other things we're doing but your basic question, where we are only opening as and when we believe not only is the are we legal of.

Opportune are able to but when we believe we can operate efficiently and effectively.

And I think that's why we're seeing that in some part of why we're seeing results.

Otherwise historically very inefficient part of our business.

Great. Thanks, I'll hop back in the queue. Thank you thanks, Brian.

The next question will come from Ari Klein with BMO capital markets. Please go ahead.

Thank you Anne and good morning, maybe just a follow up on the balance sheet question, yes, as far as Capex spending is concerned is that is this is what we're seeing in 2020 line is that the sustainable rate going for is it a one year spike of how shall we think about that maybe longer term.

Great question, and thanks for that and good to connect this morning as well.

That that will not be sort of a normal run rate for us going forward.

You know if you were the sort of unpack. It I mean, we have a view on what our sort of standard.

Remedial kind of great fix rack baseline capex is.

And then you know a reasonable amount of growth on top of that would be a fraction of the number that we've put out there that $1 75 to 200.

We're going through a window right now where there's some clean up and catch up in some really deep retooling.

If we do find some bolt on M&A opportunities for example of other travel centers in the you know.

Worldwide of really open up a little for us and it may for a few reasons where were exploring that now.

We may have other M&A opportunities in the future that we would dedicate capital to but again, that's as we're proving out at least 15% to 20%.

Cash on cash, but I don't expect.

The 175 to 200 to be kind of of standard steady state far far from it it's a multiple on what that will be.

Got it and then on the fuel volume how sustainable are the growth trends, you're seeing is there any way to quantify how much of the increases from some of the new accounts and then maybe just touch on it.

Sorry go ahead of power that the Mark I was just going to ask about the margin on the fuel side, what kind of.

Get that volatility back into the market for the point, where we can see margins start.

The increase again.

Sure. So on the fuel volume side, we've been growing pretty effectively most I wouldn't say all but almost all of our growth has been with our big fleet customers. We have a tremendous opportunity on the street side, meaning small fleets and independents, who just pull up to the pump so to speak I think we've done a poor job of re.

Really exploring that effectively and there is a big opportunity so I'm hopeful and optimistic that much of our future growth of not just future next year Youre. After I mean near term, we're very focused on it.

We'll be in that area and I know, we also have more opportunity to grow with our aggregator of all base. So I mean, I still I'm not going to say that 18 for 16, 18%.

16% diesel as sustainable year over year, I mean that compounds two of mathematically impossible place eventually so but on the other hand I do think there is significant growth opportunity.

For us very significant and it's a matter of focus in terms of margin I mean, we've continued to see headwinds.

Through this the first first part of this first quarter I am hopeful.

That everybody appreciates that despite COVID-19 and the CPM of diesel margin headwinds at the.

The last part of the last quarter, we still beat 19.

And in all important metrics and so I'm hopeful that folks appreciate that with an entirely different leadership team of Quant about me, it's about a very big team now we've recast it in different choices being made every single day, we can manage our way through any challenge it's kind of come ahead.

And so it's hard to know passed the quarter or two what margins won't be like Theres, a lot of variables that play into that from political macroeconomic I mean.

The write a lot of a whole range of things, but like every business has market volatility, which is something you don't control.

But we are very focused on all of the levers we have and we have a lot of levers to pull the big ones and small ones that we're just really on nursing over the past even the past month month and a happy that are sort of a range of things that we're really digging into hard and giving our subject giving of ourselves visibility on what all of those small and medium sized leavers are that historically the comp.

Didn't have.

The way, we use data and the way, we sort of approach everything and including the <unk>.

<unk>, just we didnt really dig many layers down to almost of I don't mean, this literally but to the molecular level really Dallas of the base and then understand what all of those levers are and where we've been in the process of doing that now for some time across the company and in particular on the margin side. So I'm not sure what the market will do in a few quarters from now I don't know that.

Does that mean for that frankly fly people may of five different views on that.

But what I do it on what I'm very confident and I think we've proven this past quarter and this past year is that whatever comes along the global pandemic market volatility, we're going to manage our way of effectively through it.

So those are some thoughts.

Okay and then just last question of if I can just on the true sale, maybe I missed it but can you just highlight what the financial impact into the revenue EBITDA and expense.

Any detail there would be appreciated.

Sure I may turn to Peter I mean, as you know the headline is it's a $5 million.

<unk>, that's a growth minus sort of standard of transaction related kinds of Ddos, let's just say.

You know my standpoint, again, I'm going to ask Peter to chime in here in the second this was more about.

I want to put this in quotes but it's sort of it's not.

Strategic these assets of the asset base has nothing to do with what we do fundamentally and so in that sense of what's been more of the I'd say of distraction than necessarily a major economic drag through COVID-19. It has certainly been a bit of a drag on economic of financial drag, but from my standpoint, again, I'm going to ask Peter for the numbers that or not.

But for maybe a more financial.

Response here, but conceptually this was more about divesting an asset base, that's not in the our asset base of that makes us a little of redundant there of the repeat the asset base, but if you follow the point going forward as we will only invest in our asset base and we won't be buying.

And alone restaurants, or things that do not sort of go to the core of what we do and that just will allow us to focus every bit of energy and resource we have on the things that matter to drive shareholder value of not find ourselves distracted by things that don't contribute or not accretive to the broader of greater good, let's just say, but peter anything to add to that yes sure.

The the impact is de Minimis will be de Minimis on our on our operating results.

And given the trajectory and as John pointed out because its non strategic given the trajectory of the performance of that business. It was a good deal. So I think that's the best way to think about it but the impact will be de minimis rounding error.

Alright, thank you.

Thanks, sorry, I appreciate the questions.

The next question will come from Paul <unk> with Citigroup. Please go ahead.

Hey, guys. Thanks.

Wanted to go back to the fuel margin question of debt.

The the volatility something maybe you can't control, but I'm curious where you feel you are in the process of implementing the better fuel buying practices that you set out to improve what inning are we in there and is there any way to quantify the benefit you might be getting the.

Now by the lack of volatility, but is there a way to quantify the benefits of that's number one and the second question. Just any help you can give us in terms of the future expense reduction potential how we should be thinking about the SG&A line item as.

As we move throughout 'twenty one.

Great. Thanks.

So you know first of all of what inning are we in on fuel purchasing and finding efficiencies we had undertaken already a and.

And we've reported this previously I think I had.

In fact I did in my remarks, the middle of the quarter, we undertook a we did an RFP to purchase fuel using our scale roughly 40% of our scale and so that created some of relative it's obviously relative to the market moves beneath us and this is sort of on top of it relative improvement.

The was already started flowing through let's say at the end of the year.

We're now in the process of even larger scale.

RFP process to consolidate even more gallons that I'm hopeful, we'll reap even greater benefit again thats relative so there's that sort of headline of just sort of an RFP of purchasing but within that beneath that are alongside of that there's a whole long list of things.

Of that we're working on.

From our loyalty program to our pricing analytics, we just really it took a little while to get going but we are using an outside company to help support our pricing decisions that relate to the street and street as I mentioned is the most lucrative most profitable part of our business of our margin of fuel diesel margin business.

Yeah.

And so we have a big opportunity there that just got started in the last month month, and a half and even without having gotten started just almost real time of the last couple of weeks, we found some weaknesses and what how that process is working and so we've made some some changes almost literally real time not literally while I've been on the phone, but in the last one.

We can ask a couple of weeks. So we're still in the early innings, I would say and I'll stop there along with the how we cancel loads and there's a long list of small things as I mentioned that this is while there may be maybe one or two big levers.

What I'm learning and I think what we're seeing is this is really a game of many many little leavers and so part of this is unpacking all of the things that contribute to margin and understanding what they are measuring them and then pulling those levers and process change to attempt to achieve the theoretical optimization. So you know in terms of innings, we're in the early innings.

Probably in the second third inning, something like that age for the number out but it's we're talking loosely earnings base of all year. So we're in the early innings of that I would say and we have very significant opportunity, but that really is maybe if there is of such a thing of the singular priority of which there is not in the company. This complex, but that's right at the very tippy top of.

And in terms of you mentioned SG&A opportunities at corporate I think we've more or less on earth, the opportunities and unlock them as of mid year last year and that will perpetuate and I don't expect we're going to find much more we're not aggressively we look every day, but we're not aggressively looking any further but on the AR on the of the sort of field of field.

SG&A, we're in the middle of the body of work and I know Ive reported this before and we have some outside professional help supporting us here, which allows us the ability not just of look internally to try to do better but also allows us to benchmark index externally, which is very important and we just don't have those resources inside to do that external.

Benchmarking and so.

And so this group has that benefit so we're in the middle of that work right now and as again as we've talked before you know that's 900 plus million of.

Overall expense.

And so it's very significant and so we're attacking it that way with the help of one group and then on parallel I would say, it's probably relevant to mention here. We have another group who's supporting our procurement efforts and how we find efficiencies in the process of procuring I'm talking non fuel here now separate from the conversation earlier about fueling our.

SVP of our procurement of Guy named Jamie Hubbard, who came to us half a year ago. The company. We're using for help there he had us at his previous company and at his previous company. There were many many many tens of millions of they found and from what he has shared with me that company what they committed to on the front end of the expectation setting that as per.

Previous experience with them they did significantly better so I'm really excited about the opportunities we have.

And in sort of the overall site.

Field level SG&A and overall expense, we have tremendous opportunity down. The we're also early to mid innings in well we're in the mid innings of exploring it early innings of actually met letting it manifests, let's just say, but I really expect all of the things. We just talked about here in the last year last this question.

We'll be seeing real fruit this year and I think relatively early this year from these various initiatives and focal areas.

Got it thank you Sir.

Thanks for the questions.

Again, if you have a question. Please press Star then one our next question will come from Jim Sullivan with BT IGN. Please go ahead.

Yes. Thanks.

John maybe just to take another swing at the the.

The adjusted.

Fuel margin numbers, and what we should be expecting you've obviously talked about the number.

The initiatives to improve both the purchasing of the sales.

And the potential of improving the mix.

And but obviously in the fourth quarter of fell short of most people's expectations and I guess the question I have is.

When we think about.

You know expectations, what investors should be looking for in 'twenty one.

From where you sit today do you think your adjusted fuel margin is going to be above or below where it was.

In 'twenty and 'twenty one.

The boy.

And by the way nice to connect this morning, Jim.

We're reluctant to sort of offer of anything year over year. That's boy. That's the there's so much in front of US this year and again, both politically macroeconomically theres. So many of those other factors that boy to throw out for a year, but I will tell you. The trend line. We saw at the end of the year and we're seeing currently we've seen for the beginning of this year.

And boy, we certainly plan for the worst as we just run the business.

And that's just how we work on the at the team knows I'm always about tell me the bad news first because that's what we can dig into in and work on and the good stuff is a quick kind of five less focus on the negative.

Just because that's what's fixable.

So we're very very focused on this is that thing almost singular top notch singular, but top top top priority and we're finding things almost real time of it as I mentioned, even this last couple of weeks opportunities to improve and change.

Boy I'm reluctant to offer if anything for the year, Jim Theres, just so much here in front of us and so many factors out there we don't control I know, we're working on the right things I know, we're focused on the right areas and I'm hopeful that the.

The results we had this past year for.

Fuel and non fuel through the pandemic through the year end.

Headwinds on the margin side that we're going to continue to manage through this year of effectively and and pull margin, where we need to from from non fuel to the extent we need to.

Boost lets say the fuel side.

Okay Fair enough I know I put you on the spot with the question.

Free ships.

Yeah no.

Turning over to the.

The topic of Capex.

The the ROI Capex, if I can describe it that way.

That you've set out here of being half of the total presumably that includes the IHOP investments.

And I guess the question I have is when you talk about this 15% to 20% hurdle and maybe this is something for repeated to weigh in on the.

How should we be thinking about the timing of achieving the hurdle so.

Would it be from.

From investment or is this something that's going to take a couple of years the.

The prove out FTE when the FTE of invest the money, particularly in the M&A activity.

Where you can you know theres of going in yield and then there is presumably some some post acquisition effort that would go into getting the number of up to 15% to 20%. So how should we think about the the timing of achieving the.

So Greg again, a fair and great question I mean for my step I'll, let Peter chime in behind me, it's a bit of of run rate perspective, just over time some of the things we will invest in for example, enhancements not just remedial but growth enhancements to our sites. There's a process there of construction process much of which will not involve things like permitting but nonetheless, there is a process. So.

That burns time frankly.

M&A, depending on the nature of what it is we acquire I know from my last company we acquired.

It was 135 hotel chain when I got there we acquired a four pack and then of 50 pack. The 50 pack the bigger one we bolted on and it started generating returns against the different business different.

Set of assets, we would be acquiring potentially but we started seeing results almost immediately nonetheless of M&A. It takes time to the fines due diligence close et cetera.

On the other end we of things like.

We're adding biodiesel blending wherever we don't have it that we can have it we're adding it that's part of our plan Similarly with debt, where we sell diesel exhaust fluid at the retail store in a box you go bias.

We're now adding in the process of adding that everywhere, we don't have it at the pump the biodiesel blenders on average again in the.

Order of magnitude, we spent $5 600000 again in some jurisdictions it can be a lot more in the parts of the country of other places a little bit less but order of magnitude and in some locations. We will get 100% return on that in the first year and other locations that will be 25%, but so some of these will be relatively quicker some will be relatively longer it's a bit of.

A mixed bag, but Peter maybe anything to add on sort of the the thought behind 15 to 20 and how you're just maybe respond to the supplement what I've said the Jim's question I'm sure sure. Thanks, John Hi, Jim Yeah.

You had mentioned the median in the two years.

It's obviously not immediate but it won't be as long as two years for a couple of reasons number one we don't have a lot of cuts. When you think about for example in IHOP right. You don't have customer acquisition, you'll have the it's not a greenfield you have a business thats operating and when you. When you introduced this new concept it will take some time and it could take anywhere from a few months two of half of year two.

Build that sort of critical mass so the way I would think about other than the other than the ones John talked about which might have immediate return.

When we pencil that in the go through our analytics team to.

Verify and it's 15% to 20% that would be an annual obviously an annual cash on cash return, but it may take a few months to up to six or eight months to begin to build that that return.

Okay, and just to be clear the the total capex number that you've set out in the in the release.

Would that be inclusive or exclusive of M&A.

Is the M&A on top of the.

But for now that we that is our target range.

For all things Capex this year.

No.

If we find something opportunistically that is a really really beneficial accretive and will generate great returns that may move that that we're going to have to think really hard about that and the good news is and obviously, we have sort of keep it in the context of.

The macroeconomic environment and Covid, continuing what have you to make sure I mean, we have this fortress balance sheet and we're not going to give that up or certainly not put the company in any kind of liquidity risk whatsoever. I mean, that's kind of baseline, but then beyond that just putting that aside that safety net that significant safety net also decide if we find something opportunistically thats going to gen.

Great Great returns and as you know.

Strategic and accretive we're going to have to really look hard at that and then we will.

And so I'm, just saying that Jim because obviously M&A is somewhat opportunistic you don't sort of have great visibility on what may shake out.

And and so for now that's our target within that range, but if we find something really opportune, we're going to have to think really hard about that and then adjust and again subject to always keeping that safety net that cash that liquidity at the right sort of baseline level of just keep ourselves in a secure position.

Okay, and then final question for me.

The SG&A line and Peter you talked a little bit about this in your prepared comments, but.

Looking back at the time you put in place the.

The efficiencies.

You guys had talked about a $13 million of annual savings.

So that's the 3 million plus per quarter.

In Q4 is sequentially there was a pretty big uptick in the SG&A line.

And I just wonder if you could kind of.

Tell us what what caused that and looking forward. When we think about of $13 million of annual savings should that be off of the 155 million run rate from 19, or what kind of the base should we be using to kind of prove out the $13 million savings sure. John do you want to take that please.

Peter Yes, I'll piggyback Gulfport yeah.

There were a couple of items in the fourth quarter Jim debt.

The move that Delta downward.

We have we continue in the organization to do small restructurings and departments and we had you'll see in our earnings release of 1 million, one and severance costs for a small restructuring that we did in November much smaller much much smaller than the restructuring in April so that's a million one.

<unk> also.

The on the.

A non cash basis.

The award.

Award currently provide grant awards to employees and the accounting for that given the fact that our stock has done well, which is which is a good thing.

The increased the noncash charge that we had to make for those of warrants to the tune of about $1. Two so when you take all of those combined we're at that level the level of that $4 million for the quarter.

And the us on SG&A.

<unk> west of the base year.

Our plan is to use too.

To maintain these cuts through the through through 'twenty, one we I will mention one thing I don't know what kind.

The significant amount in technology, if you remember earlier in the year, we return king of some.

The some bespoke projects that were built into Capex and the line as John has spoken many times.

These calls about our philosophy with technologies that look on the move to the cloud in many instances and go to best of breed. So there may be some slight pressure on opex.

Due to that change in philosophy and strategy and I would just mention that in passing but.

At doses hopefully the answers to questions.

Yeah, Okay. Thanks.

Jim Jim I have to admit cheetah was ready for that when I asked him. The same question as we were starting to get our results going why is the only one eight so but there you have it.

Okay very good thank you.

Thanks, Jim.

The next question will come from Bryan Mayer with B Riley. Please go ahead.

Great. Thanks, So I have a follow up question since nobody has asked the yet on the call, but Jonathan you kind of danced around the alternative energy uses that could come at your large sites throughout the country.

Embedded in that would be.

Possibly electric charging stations and we do get this question from investors and so I wanted to see if that kind of high up on that list of alternative energy uses.

So right now were very good so thanks for that Bryan. Thanks for that follow up I. Appreciate it a lot of folks are interested in the subject of are we announced the <unk> spent a lot of time riding and hydrogen trucks and exploring electric trucks actually seeing and touching them as well of the equipment that's necessary to refuel the MIT et cetera. So it's definitely very much.

Front of mind were very very close to bringing somebody on to lead this.

And without their leadership and if this will be somebody who really has both the reputation experience that's unbelievable.

<unk> of the candidates, we've seen and I've interviewed six of the myself.

Are just incredible as good or better than all of the candidates we've been seeing from different parts of the business. So I'm extremely excited with what this individual bring with them. However, once we finalize this and we're pretty close so part of the part of the answer is a cop out just to say I am I.

This person docs sort of own have an opportunity quickly to get up the speed within our universe and kind of own ultimately the strategy and the execution.

That's very important to me Thats. The concept that's just the basic business principles, it's important to me.

But with that said.

Right now we're in pursuit of we've responded to an RFP in one place where we've partnered up with a couple of different providers, including of charging company.

We're looking at responding to another RFP in another state where we'd have a similar kind of composition of our team I think and so I don't want to jump ahead to say definitively we will have electric at different sites, it's hard to imagine we won't in the relatively near term, but I don't want to commit to that just yet.

I am under the belief that for the heaviest duty trucks class seven and eight for true long haul I think overtime hydrogen is going to win that day again, I think thats a little bit out there. If you read some of the literature out there I mean, there is not a material impact of diesel volume from hydrogen until we get the 2030 and even that according to the folks that it's in their interest.

Save the high market share of say hydrogen is like 1% then.

But hydrogen is still on the radar. So it was a natural gas of different forms.

All of those things has to be thought about and considered and where.

We're doing just that but I really want to first have this person onboard and give them a short window in the couple of finalist candidates already have pretty strong views of already studied the company quite a bit during our process and already have developed pretty strong views I want them just to have a chance to be on boarded getting gear and probably our next earnings.

The call I'm hopeful I would have a pretty crisp answer for you and I feel comfortable in doing that at that point, but it's hard to imagine electric charging will not be on our sites and sort of a for the heavier duty stuff and sort of of material way as we move forward, it's hard to imagine that not happening.

Great. Thanks, Jonathan.

Thanks for that question Brian.

Yes.

This concludes our question and answer session I would like to turn the conference back over to John per chip for any closing remarks. Please go ahead Sir.

Again, thank you for your interest in Ta and your attention. This morning, and everybody have a great day.

Bye bye.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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