Q2 2021 Travelcenters of America Inc Earnings Call
Good morning, and welcome.
Call is being recorded and at this time for opening remarks, and introductions I would like to introduce Tas director of invasion of Investor Relations Ms. Kristen and Brian. Please go ahead.
Thank you. Good morning, everyone. We will begin today's call with remarks from todays Chief Executive Officer, John per check followed by Chief Financial Officer, Peter Krage and President Barry Richards.
For the 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.
These forward looking statements are based on today's present beliefs and expectations as of today August 3rd 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 or SEC and are available free of charge of the SEC's website or book.
I'm, referring to the Investor Relations section of Tas website.
Investors are cautioned not to place undue reliance upon any forward looking statements.
During this call we will be discussing non-GAAP financial measures, including adjusted net income EBITDA EBITDAR adjusted EBITDA, adjusted EBITDAR and adjusted fuel gross margin.
The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available and our press release and on our schedule of our non-GAAP financial measures that can be found on the events section of our website.
The financial and operating measures and Florida, and our stated on today's call as well as any qualitative comments regarding performance should be assumed to be in regards to the second quarter of 2021 as compared to the second quarter of 2020, unless otherwise stated.
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 without at all John I'll turn it over to you.
Thanks, Kristen and good morning, everyone and thank you for your continuing interest and T. A.
Our second quarter 2021 results reflect a breakthrough moment and Tas history.
As the transformation plan that originated 15 months ago has demonstrated meaningful financial and operating improvements driven by broad based initiatives across all business lines and all of which have contributed to these impactful results.
For the second quarter of 2021 compared to the prior year quarter, we produced the following.
Adjusted net income of $29.7 million, which is the 176% improvement adjusted EBITDA of $73.5 million, which is the 61% improvement.
And adjusted EBITDAR of key metric in measuring our results of $137.1 million, which is a 26% improvement.
Moreover, while these results do reflect the comparison to the prior year quarter. When the COVID-19 pandemic was most acute it also represents a notable improvement relative to the 2019 second quarter as follows.
Adjusted EBITDA increased by $33.2 million or <unk>, 82% as compared to the 2019 second quarter.
Adjusted fuel gross margin improved by $14.4 million or almost 17%.
And.
The non fuel gross margin improved by $14.5 million or 5 per cent, even though a number of our full service restaurants remain closed or operating with reduced hours.
These results were driven by top line improvements and both fuel and non fuel businesses as well as our continued focus on managing costs stayed the differently. These results are not due to any singularity and for example, extraordinary fuel margin during the quarter or otherwise from concentrated improvements from 1 or 2 areas.
Instead, we realized improved performance nearly across the board, which suggests the level of sustainability.
And once again, we remain and the early innings of our transformation plan and in particular, our robust capital improvement plan to invest in our asset base and we believe there is much opportunity in front of us and behind us.
And I'm more confident than ever and our robust capital plan and the impact it will have on our overall experience and performance.
From our site refresh program I T and systems corrections and enhancements to expanding our ability to sell biodiesel and diesel exhaust fluid or Def.
Plan will be highly impactful over the coming year or 2.
With that said temporal challenges, resulting indirectly from the pandemic have disrupted the supply chain as well as created labor challenges neither of which is unique the T a or even our industry.
As businesses across our country and safety issues.
Our ability to achieve the full extent of our anticipated capital spend this year has been impacted 2 of limited extent and Peter will provide some detail in his remarks with that said we remain excited about the opportunity to intelligently invest growth capital for the remainder of this year, while we additionally continue our pursuit of the M&A opportunities.
And for this reason, we do not have immediate plans to pay down debt as we need to ensure we retain transformative M&A optionality.
On the fuel side of the business this quarter, our overall fuel sales volume increased 22, 6% compared to the prior year quarter.
And 16, 2% versus the 2019 second quarter.
This was driven by 'twenty, 1 and 2% increase and diesel fuel sales volume from increased trucking activity of the nation of immersion emerges from the pandemic.
The addition of new fleet customers and higher volume from existing customers due to the early success of the variety of initiatives.
And it's important to recognize that our breakthrough performance included healthy consistent diesel margin once again, making the point that no singular part of our business Apple Aberrational He drove results.
We are dedicating tremendous energy and focus the unpacking and further understanding diesel margin to drive both higher margin as well as to pursue increased stability.
Gasoline sales volume is coming back as 4 wheel traffic returns to the road up 33% versus the prior year quarter, and just 6.7% below the 2019 second quarter.
We are encouraged by the positive data from the July 4th holiday weekend during which we experienced the highest gasoline sales volume for a Friday and Saturday, so far in 2020.1.
On the non fuel side of the business store and retail services revenues increased by almost 24% for the quarter versus 'twenty, and 'twenty and over 14% versus 2019.
Improved management and merchandising have begun to have a positive impact and we continue the centralized purchasing and manage inventory more efficiently, which we believe is translating into better gross margin for these businesses.
Our customer segmentation work has provided a better understanding of who who was visiting us and their behaviors, which is allowing us to tailor our offerings to our customers actual needs. We've also completely reoriented, how we merchandise the.
These efforts have started to have a positive financial effect as of our changes and mid level leadership.
And you had a host of current impactful activities to drive further future value continue to take place.
Chuck service revenue showed a solid improvement with a 26% increase versus 2020, and a 12% increase versus 2019.
Truck services and area that we are really focused on and I'm proud to say that our efforts are proving successful.
Our improved revenues are driven by an increase and work orders and labor cells. We've retooled this entire business with new senior leadership as well as created a new middle manager role to improve accountability.
Technician staffing is an important focus with compensation and training central targets to driving continued improvement and tech efficiency and wait times.
And the full service restaurant side during this quarter. It became evident that all restaurants are not only and important amenity to our professional drivers there a sense. They are central to what makes T. A unique and finally that they can also be a profit center we.
We have worked to rationalize the ones, we have reopened through disciplined leadership and strategic changes to how we measure performance as.
And as well as to our operating model through fewer more desirable menu offerings and tighter labor controls.
We have 5 of IHOP conversions underway, which each cost of approximately 1.4 million per site and we expect will open the of third and fourth quarters. This year.
In addition, we are deep into the work of developing other concepts designed around the studied understanding of our customers' needs and look forward to further announcements before year end.
The full service restaurant top line, having been so adversely affected by the pandemic combined with our improved approach to operating along of these new concepts and this remains 1 of many highly opportune areas to capture future value.
Non fuel revenue has also continued to benefit from strong demand for diesel exhaust fluid or Def.
Which is required by newer trucks, we estimate that approximately 1 quarter of trucks and the road our pre 2011 models.
And we expect as more of those older trucks of retired each year that the demand for Def will continue to grow.
Demand for death was also boosted by higher diesel fuel volumes and the quarter.
And as part of our current capital plan, we expect to make deaths dispensers available and all lanes at all of our travel centers nationwide by early 2022.
We also look forward of having the expanded def availability contribute to a better overall guest experience, which is an area that we're focused on is the pillar of our transformation.
Shifting to the network expansion through franchising, we've signed 46, new franchise agreements since the beginning of 2019 and opened 17, new franchise locations for the same period, we anticipate 29, new franchise locations will begin operations by the third quarter of 2023, as we work our way towards the target level of in excess of 30.
Per year, we continue.
And to evaluate and pursue M&A opportunities and company owned locations that fit our business model as well as other opportunities to invest and our asset base.
When I say, we are investing in our asset base I'm, referring to continuing upgrades and talented people and leveraging outside consultant accelerant expertise on an interim basis.
Investing and our operational initiatives and of course, our capital plan.
Which is focused on the site level refresh and remediation program.
As well as I T and systems improvements.
Each of which discuss guest facing and intended to drive efficiency and financial performance.
All designed around improving our guest experience and a more examined the understanding of their needs.
We have started to refresh and several of our sites with new paid new flooring signage parking areas and more.
We're making significant upgrades that our guests will see and feel.
Creating these improved environments will help us attract new guests and provide a more attractive option for current guests to return to.
We also continue to pursue our commitment to sustainability and alternative energy with our new business Division Eth formed earlier this year.
And starting this month, we were installing new EV passenger vehicle charging station at several west coast locations and are very carefully evaluating rollout plants of passionate passenger duty EV, which will be based in part on the close understanding of the federal and state incentives to and to.
And to encourage passenger duty EV.
And the commercial duty and truck side, we are continuing to engage and develop collaborative relationships and various forms of sustainable energy as we stay close to our fleet customers plans as well as pursue government incentives.
To conclude I am proud of the strong positive results our team generated and this quarter.
The strength of these results as evidenced that the team we have put in place can execute effectively to transform this great half century old company and the initiatives we have put in place under our transformation plan are beginning to work.
And I believe the we have started to deliver on the promise to rebuild trust and credibility with the marketplace.
And I'm confident that this team of leaders will prudently and effectively deal with whatever challenges that may come along and I'm. Most excited to see our capital plan just begin to take hold.
And more aggressively later this year and into next year to effectively drive growth and long term shareholder value.
I am most enthused and as we approach our 50th anniversary year and 2022, our board of broader transformation plan, along with our more specific capital plan will truly begin to take hold and making for an exciting 50th anniversary year.
I would like to end my remarks, as always by offering gratitude to our teammates and our colleagues around the country for their hard work and dedication.
As well as all of the professional drivers and fleet managers per allowing ta to serve them.
And with that I'll hand, the call over to Peter to discuss the quarter's financial results and detail Peter.
And thank you John and good morning, everyone and.
John mentioned, we are very pleased with our results in the second quarter, which we believe of beginning to demonstrate the impact of our initiatives on our operating results and our longer term ability to generate strong free cash flow.
And my remarks of follow I'll be referring to the 2021 second quarter and compared to the 2022nd quarter unless otherwise noted.
For the 2021 second quarter, we improved our net income by $26.8 million.
$28.9 million, all of our $2 and <unk> <unk> per share.
The net income of $2.1 million or 26 cents per share.
Excluding a few 1 time items as detailed in our earnings release, we generated and adjusted net income of $29.7 million or $2.08 per share compared to $10.7 million or $1.29 per share and improvement of all from 175%.
EBITDA was $72.6 million and increase of approximately $34 million or 87%.
Adjusted EBITDA, which reflects several onetime items in both periods increased $27.7 million or 61%.
The increase in EBITDA was due to the positive performance, we generated and both fuel and non fuel gross margin as well as our continued close management of operating and SG&A expenses.
Fuel gross margin increased $8.4 million to $103 million or 9.1%.
Our fuel sales volume increased by $107.
4 million gallons or 22, 6% to 584 million gallons with diesel sales volume of improving by 21, 2% driven by increased trucking activity and the quarter and new customers.
Gasoline sales volume improved by 33% and.
4 wheel traffic returns to the roads.
Margin cents per gallon improved sequentially, but decreased 10, 9% year over year as a result of a more favorable purchasing environment and a relatively higher volume of street diesel sales and the prior year corner.
Non fuel revenues increased by $96.2 million.
And the 23, 7%.
And total non fuel gross margin increased by $65 million or 24 of 29%.
Importantly, when compared to the 2019 second quarter, both non fuel revenues and gross margin improved by roughly 5%.
And with significant top line improvement in store and retail services.
Truck service and.
Diesel exhaust fluid.
I'll start by full service restaurants, approximately 50 of which remain closed.
Performance and our quick service restaurants has been consistent.
There are some locations are operating with reduced hours due to labor availability.
Site level operating expenses increased by $36.5 million or 18, 5%.
Which reflects increased labor and other operating expenses as employees, who had been furloughed and response to the pandemic returned to support the restaurants reopening and overall increased business activity.
On a net basis. After these well controlled cost increases we contributed $24 million of non fuel net margin and the second quarter compared to the prior year.
SG&A expense for the quarter decreased by $1.4 million of 3.6% and.
And $3 million of 7.5% from the 2019 second quarter.
Primarily as a result of the effect of last year's reorganization and the impact of some open positions during the quarter.
Partially offset by increases and consultant fees to assist with identifying and implementing cost reduction and other opportunities as well as increases related to the addition of key leadership positions and lastly, our adoption of more efficient cloud based technology solutions. It's important to note that we are rationalizing costs.
And investing in opportunities for outsized upside is evident.
Depreciation and amortization expense decreased by $4.1 million or 14, 6% of the corner, primarily due to several onetime items in the prior year quarter, including the following.
And $3 million goodwill impairment charge recognized with respect to.
And through our <unk> business.
And $800000 write off of the intangible assets associated with the 3 Standalone franchise restaurants that closed during the second quarter of last year and of.
500000 dollar of write off of certain assets related to truck service programs that were canceled in the prior year.
Sure.
Looking to the second half of 'twenty 'twenty 1.
While we have generated $188.9 million and trailing 12 month adjusted EBITDA through June 30 of this year.
We saw exceptional improvement and the second quarter.
And we are conscious of the impact of the emergence from the pandemic has had across the economy and particularly on our business in recent months.
As a result, we would caution that the significant year over year increases, we generated and the 2021 second quarter as compared to the 2022nd quarter have been so steep that they may well moderate in the second half of 'twenty 'twenty 1.
Our solid performance and the second half of 2020 provides a stronger comp relative to this last quarter and the second quarter.
Before I discuss the balance sheet I wanted to briefly touch upon our trailing 12 months performance and the I'll review of our ability to generate strong free cash flow now and into the future.
In addition to EBITDA, we believe that free cash flow is and will become even more so over time and important metric to measure the performance and value of this business.
Clearly.
We have some near term capex priorities that are of drain on cash. However, we are confident they will write the business after years of under investing and continue to accelerate our growth.
Importantly, as we get to a point of steady state capital spending over the next 2 years the.
And the free cash flow generated can be significant if we continue to deliver the results we have been able to achieve over the past year to operating enhancements and better management of the business. In addition to the future Capex impact of John addressed and as it is.
Got it.
Couple this with the relative flexibility and our ability to allocate capital and we believe we have a very compelling business model.
Now turning to our balance sheet for a moment.
At June 32021, we had cash and cash equivalents of $583 million.
No amounts outstanding on our revolving credit facility as true as of July 32021.
And no near term debt maturities.
And as of June 30 of 2021, we continue the only 50 travel centers and.
And the Standalone truck service facility that were unencumbered by debt.
We invested $15.1 million and capital expenditures during the second quarter and $27.4 million year to date.
As John mentioned, we are experiencing labor and supply challenges that are slowing the progress of some of our capital projects.
While we have spent $27 million through the second quarter, we have released over $120 million and projects to be completed this year and.
And expect to release more over the next few months.
At this time, we believe we will spend of between 130 and $150 million on Capex projects in 2020.1.
On the release projects of between 140 and $160 million.
We do not believe this will have a material impact on the underlying business as we are generating significant improvement in spite of this delay and capex completion.
We also continue to look at the addition of company owned locations that fit our business model and meet the return hurdles, we have set for capital investment.
And lastly, given our flexibility and allocating capital our strong results and sufficient liquidity, we are preserving much of our liquidity for potential accretive M&A opportunities.
I'll also and the early stages of considering options and our nearest term unsecured debt maturities, which are pre payable at par.
That concludes our prepared remarks, operator, we are now ready to take questions.
Thank you we will now begin the question and answer session.
Like to ask a question. Please press Star then 1 if at any point of your question has been addressed and you would like to remove yourself from the queue. Please press star and then too.
The first question today, and we will come from Bryan Mayer with B Riley FBR. Please go ahead.
Good morning, and congratulations on those really impressive numbers for the quarter.
Great job.
Thank you good morning, Brian Thanks.
So let's start off with the fly and labor issues related to Capex I mean labor is self explanatory, but what type of supplies are hindering the capex moving forward, specifically and when do you think that that backlog will be alleviated.
You know first and so.
On the supply side of it depends on the nature of the project obviously everything from you know.
Flooring materials I mean, as we're getting our site refresh is going is just 1 significant example, you know the time. It takes we will use our scale to purchase flooring.
So that we can again enjoy the benefit of of the best costing the.
So requires commitments the purchasing that flooring and all and the supply chain is disrupted the ability to get certain kinds of flooring material is just 1 illustration where they were.
Computer hardware staff chips.
And then on the labor side, which overlaps some.
Some of the both you know unlike the it side some of the consultative help we need some of the outsourced labor help we need on the construction side of the labor side, just literally having the labor and the sufficient amounts to execute on the things we need to do again using the site refreshes as an example, it's sort of all across the board Brian but those are that's the peppering of a few few examples.
1 other thing once we get scaling as we commit to say you get and running with my flooring example, we will have the flooring necessary to really execute and that's why.
I think we're going to be able to do a little bit of of catch up. It's just within the window, obviously, we'd look at things quarter by quarter and year over year within our window of this year I'm not sure we will catch up and time to get to the levels. We had hoped for before and some of that will carry over but but I think as we scale, we will be in a position to execute better and faster.
Almost regardless of what happens externally to the economy and the supply chain more generally.
Great.
And now that you've been in the wall for the year and a half and and as we think about capex going forward.
After you get through with kind of the the big stuff you want to do initially do you have you formulated thoughts as to what kind of that run rate capex would be once the initiatives are done.
I think yes, I mean, I think so I think what we've been communicating and I still think we can we continue to sort of validate our mines as you know, it's about $60 million of kind of regular day to day Capex and another 34 sort of growth and other stuff. So we think about a little bit below 100 is the run rate of 85 to 100 in that range.
<unk> and that's somewhat separate from you know as we look hard at M&A and the short term and frankly, hopefully that and the long run there's an opportunity that continues M&A would be beyond that so the sort of regular capex remedial break fix and a little bit of growth and other gets us to sub hundred call. It 90 is our target and we.
And we feel pretty good about that.
Great and Kelly and moved to M&A for a minute I mean.
Sure Bill.
Drill down a little bit on what you are looking at is it is it really specifically and more travel centers. How deep is that market, what does pricing look like and or is there something else you're contemplating.
Sure the primary I wouldn't say singular, but the primary focus by far is other sites of existing operators, who for 1 reason or another they don't access the large fleet business that we and our direct big competitors do.
And don't perform at certain levels to fears related to alternative energy and you know and and the ability to have the capex or otherwise stick to.
To execute on those and just more generally the fears of our surrounding the as I think and the lastly.
Generationally, if you look at this business and the historically really started after World War, 2 and really got going and the sixties and seventies a lot of folks who started these businesses and we're successful and sort of those 60 seventies maybe into the early eighties generationally are out of place that may be opportune for us. So that's the primary focus and we're really starting to on Earth.
Opportunities and you know, it's going to take some time and like all M&A to actually execute.
But we are unearthing a pretty good amount of a good number of opportunities I E sites, and onesie, twosies small packs and and even 1 offs. So.
So that's the primary focus and anything we do beyond that we were very keenly aware and focused on some of the history of the company.
And you know the Minit Marts and you know we're not going to do things that are just not directly accretive and strategic and benefit the actual the essence of what we do and that's the travel center business. So there are other things that.
I think of quarter was that we're keenly focused on as well, but the the singular top priority. There are others as I mentioned are our additional travel centers and in good locations, where we see opportunity and upside to rolling them into our system and realizing some efficiencies there as well as accessing than fleet business that may not otherwise.
The access of those sites.
Great and just last from me on the fuel margins.
And about a year since you really got your hands dirty and that is.
There was you know there was a couple of quarters and the 14th.
And that I was a little miffed that pretty impressed with the 17.
As you went through the past 3 or 4 of 5 months of your gravitated towards a range of fuel margin and cents per gallon day, you think we should be thinking about for modeling purposes.
I still what I think 1 of the biggest takeaways as I've learned about our business here is the resilience. We you know I go back to the beginning of this year and we talked about headwinds at the very end of last year into early Q1, and what I've come to learn and realize and we've even studied this going back about 10 years.
With some really.
Really really unusual exceptions, we tend to self ranked yourself adjusted with any given quarter, even where we had extraordinarily low margin from market or other external reasons and so that's 1 point of takeaways. Just there is of resilience and that part of the business and frankly as we strengthen the other parts of our business the way the size of the business kind of.
Feed each other it's just even and reinforces the resilient and so theres both resilience within diesel margin and then theres resilience more broadly across the businesses and so you know that was something I was really really focused on is as even concerning as we ended last year and I'm certainly equally as focused on it but less concerned because of that.
Williams and we've seen both again intra within diesel margin and then more broadly and with that I mean, I still come back to this range and and there should be upside on this but I still come back to the 14 to 16 range. If we can execute.
And do all the things were just starting to show, we can do and prove out and we remain in that range through of throughout a quarter of the atwood the quarter averages and that realm not at any given moment through the quarter. We can generate of I believe a boatload of cash flow and so while there could and should be maybe upside over time to that range I'm comfortable if we and in that range at any given <unk>.
Quarter, where the the success, we can have is pretty significant and a lot more runway in front of us than even what we've seen just this past quarter.
Okay. Thank you very much.
Thanks, Brian I appreciate the questions and and Youre here today.
The next question today and will come from.
The issue with the city of Citigroup. Please go ahead.
Hey, everyone in the spring and shoot him on for Paul Thanks for taking our question.
Just 2 more on the big in on the fuel margin per gallon and they're a little bit more I was wondering if we could talk about like how much of the sequential improvement was due to mix from market forces vs. The work you've done internally with your fuel volume program and.
Some of your fleet agreements.
Yeah.
So it's a confluence of pretty much everything you said to some extent, but what it's actually not a confluence of actually 1.1 item to pull out it is not a consequence of mix we continue to poll.
And increase our big fleet volumes, which is the relatively lower margin than say the smaller independents and so we still have a real opportunity there and that's small and frankly, everybody pursues that but we've really been under resource and how we pursue the smaller fleet stuff. So there's a real opportunity. There. So it was not a consequence of mix mix if anything hurt us.
<unk> speaking.
So that's 1 it is it is a part of almost everything else you set of favorable market at times, although not you know.
Overly exuberant, but of favorable generally speaking of a healthy market.
I'd say, partly buying and partly.
We are looking at some of you mentioned alluded to looking at some of our fleet agreements, particularly the ones that were not all of that favorable really getting better we still have a lot of work to do here getting better at understanding.
You know what the non fuel contribution is from a large fleet, we've never really had good visibility at that to that.
We're getting better we still have a lot of upside there in terms of getting even better visibility to that contribution from a big fleet to 2 to non fuel. So theres still a lot of opportunity there, but with some of the upside has been rethinking and recasting our some of some of the less favorable relationships economics ex.
<unk>, so with a little bit of most of the things you said, excluding mix, which once again actually hurt us because we grew 2 disproportionately the large fleet, which is the lower margin.
Relative to any growth and the small fleet stuff.
So that really brought the amount the other direction.
Thanks, that's helpful and you know with the 50 restaurants. The remain close you know what is your outlook for these locations.
Some of them.
Looking to reopen but there might be like labor shortages or are you kind of rethinking those locations is sure and move forward.
So in my remarks, I tried to highlight this for me of new learning and maybe for the company and that is first and foremost more fundamentally the restaurants.
Broadly can be a profit center I really had a significant question Mark as we got through the pandemic last year into the early this year to what extent.
The rest of the full service restaurants ever really made money and IDE and <unk>.
So sure of the answer to that question exactly what's more important is going forward.
The highly confident as a group the full service restaurants can be successful both as something that is absolutely central to our brand and who we are and how drivers.
Yes.
And because if they are a great amenity and important to drivers as well as motors, but also they can be a profit center. So that's 0.1.
In terms of why we have and open certain ones, it's a function of demand as we see it.
Coming out of the pandemic there are still areas, where demand is and we measure is low even if we're allowed to reopen it's not so much of labor or even supply chain issue as to why those are may be contextually fact.
<unk> contextual factors, but we're very very focused on now the a couple of new concepts. So we were opening of 5 IHOP sort of likely to be more of the IHOP to continue to open those will open. This year and then we have 2 other concepts, which I'm not optimistic I believe we'll be able to announce before the end of this year that we will likely <unk>.
Open and certain locations that I think have tremendous upside and that doesn't mean that every single full service restaurant will open and I wouldn't say that at this point and you know ever potentially there may be possibilities, where we convert of full MSR to <unk> quick service restaurants of Popeye's, and I don't know of Burger king or or something and.
And we still have some work to do there, but more fundamentally these are a central part of who we are and what makes us unique and we're embracing that our competitors are going the other direction I understand and where we are going to double down in this area and I think it's going to be even bigger differentiator and the future of than it's ever been in the past with what we're working on.
And then the Lucia.
Sorry.
Uh huh.
Thanks, and good luck.
Thank you I appreciate it.
And the next question will come from Jim Sullivan with BTG. Please go ahead.
Sure. Thank you guys.
For taking the questions.
John I was wondering Jim talk a little bit about about your franchise numbers.
And not sure if I got this right, but reading the the earnings releases kind of the sequentially did you add and then what was it 8.2 franchises and the quarter.
Is that Peter is that the number I'm, sorry, I don't have all of those.
Details right here at my fingertips from seeing if I can grab it and Peter in the meantime, if you see it yes.
Yeah, I don't have those and makes them from such nonsense and much of those.
To the email will follow up right away, Jim with you, but we have a very big pipeline and.
And our store either of you know of formally signed up for.
Opening we are of very very large pipeline behind that again, we've just really started digging into this as you know maybe 2 or 3 quarters back something like that put some resources around it at the end of the year into the beginning of this year in terms of a real dedicated sort of sales person to grow this and interface with potential franchisees. So it's real.
Spooling up right now we're in that window of Spooling up but anyway go ahead.
Sure and I.
Thank you you had said.
And talking about kind of the target.
I think you said in your prepared comments the.
Target would be or you're hoping it to be and excess of 30 per year.
I know in prior calls I think you've talked about 30 per year. So I just wonder if that it's out of it.
The items here, but just whether you know you are feeling more optimistic about about signing more franchisees, perhaps than you were maybe at the start of the year.
Yes, I would.
I think my optimism or confidence is better word is probably consistent from then till now I think 30, a year is should be of stable state Theres. No reason, we can't be doing that.
And just you know.
It takes time again, it gets sort of it they use the word sort of spooled up to kind of get get the machine kind of moving to a certain level and that holding it there and we're in that window and I'm I'm optimistic and confident we will achieve that and sustain that and that's in addition to I say and we were not putting out targets yet on the.
You know sort of the M&A side, and what that could mean for company owned.
And company controlled stores, but I do expect on top of the number like that we should be able to also execute on acquiring and really cherry picking some great great travel centers.
Okay shifting over to D E F volume.
Obviously, you've talked for a while about converting pumps to the newer pumps that could also pumped. The Etfs you have also mentioned that.
The D E F sales were boosted by adjusted increase in overall deal.
Diesel volume and.
And I'm just curious if you could update us on the Capex side.
You know you mentioned some delay here for different items, but it did the same that the D. E. T E of pub conversion was part of that.
And I Wonder if you could update us on kind of what the target is for new D E F. The.
The compliant pumps, and where you are and achieving that.
You know I don't have of detail on sort of where we are and numbers I know, where we are the where we had set our expectation on depth to rollout everywhere, which is the 173 net locations of 173 lanes and having recently bought a diesel truck myself, putting death and myself as the I've come to realize how Congress.
Some of it is support 2 and a half gallon jug and the side of your car and that doesn't the automatic shutoff like gasoline and report out the different imagining of trucker doing that with 25 gallons of it.
Which is what we ask of them at many of our lanes I E. They probably go somewhere else instead of to that location, it's a very big opportunity force number 1.
But number 2 we're still tracking towards finishing really through early 2022, all of these lanes and I have no information and I believe I could follow up just the triple checks that we've been slowed particularly there.
It's not that large of a scope to add it's more of the equipment and so long as the equipments available the effort and and is in the eye and labor is not significant so I can follow up to triple check that but from everything I have at my fingertips here and what I understand is we're tracking consistent to where we've been.
Setting our expectation and that's early 2022, the complete that work.
And then on the.
Sorry go ahead.
Sorry, Jim John and Chad that we double check your 8 sorry, and moving back to a previous question. We did sign 8 franchises and the quarter. Thank you.
Great. Thanks for checking that Peter the.
You had talked about when you talked about supply chain issues I think you also mentioned.
The labor in terms of the the consultants you might've been using for different.
Parts of the strategy.
At the same time and talking about truck service numbers, which are pretty impressive.
Talked about increasing increase.
Increasing staffing there.
Has the has the lack of availability of labor or labor availability generally.
Benefactor in the truck service or is it are you able to.
Hit you hit your numbers and your objectives there.
And it's it's been a challenge and we are hitting our numbers. Despite the challenge, which I think is sort of the net net bottom line and maybe the most important takeaway, but it is the battle. We fight every single day you.
We will hire and made these are made up numbers the order of magnitude probably about right. We'll hire a couple of hundred checks and the given period and we'll lose you know of 175 and that sort of revolving door continues a bit I had dinner a week or so ago with a bunch of our senior kind of leaders not the senior most guys who were still repair textbook senior very experienced.
Repair techs, just talking through the realities from the kind of the ground level and it continues you know and.
It's the the 2 biggest challenges for the industry that for from my mind are the text book before Covid Tech attrition.
Attrition of retention you know and then for the fleets the drivers themselves driver shortage those of both been exacerbated through this through this timeframe and then we've seen of labor pressures as well and other areas that we hadn't seen necessarily to the same extent as a result of COVID-19 and and as we get through the later parts of Covid.
So that part of it we've been able to execute through it.
Okay. Thanks for that and then just to be clear.
And there there were comments that the.
And that both you and Peter made about the EBITDA comparisons obviously of the year over year comps.
1 thing.
And we understand.
The comps do get tougher and the back half of the other hand, and your comments, Joe and I think you said that there was nothing well the already guard of the EBITDA result here in Q2 is the is sustainable and the results of all the initiatives. So just to be clear of the second quarter number is a good number to use.
You know going forward as we think about the the EBITDA earnings potential of the company.
Right I mean, I'm not shocked by our results of this quarter, we've been working really hard on the long list of things as everybody knows and I think they are starting to bear fruit and that combined with.
Increased freight volumes and so forth I think which again is external to us.
Cause us to be where we are ending this quarter. You know there are things we've talked about labor issues supply chain issues you know.
Big picture of inflationary risk, which is may not be a bad thing for us, but on the other hand runaway could be some of the government thing again, all things external to US you know some of the.
Some of the issues sort of and in D. C.
All of which the temper my excitement and bring the keep my feet on the ground and say look we had a great quarter I think the broad based results suggests a level of sustainability and the Ana I think suggests further that the things. We're doing are taking hold of it wasn't like Oh diesel margin, we benefited uniquely from that or something else uniquely it was so broad based that it's at.
Yes.
Sustainable that said.
And I remind ourselves and our team we can't get ahead of our skis and we want to make sure you know we prove to the World again, and then again and again I mean this as you know I guess 6 quarters, I guess I've been here and Peter's been here you know this is a bit of a break out you know as it is.
The breakout I want to make sure we keep our feet on the ground everybody is temporary and how they think and we do it again, and then and again and Okay. And then we can all sort of will still stay on the tip of our toes, but I just want to make sure everybody's thinking still hey, it's still early innings for US you know there are some external fab, which on the 1 hand, I think suggest even more strength, but and the other hand.
And some real issues out there that we're grappling with and they have affected our ability to execute through again as we talked about already the timing of the capital plan and that could have other other you know other impacts that are not today right now identifiable I can't point to a gym and say that thing over there is going to hurt us I cancers, which is the good thing and we focus on the negative often.
And but with all of that said I still want to make sure we keep our feet on the ground as we come through this quarter and now we're into the next quarter.
And John if I might add and just on the math side of the gym.
If you look at the 2 year stack and this business and as John mentioned in the call and the second quarter, we delivered in excess of 88% increase and adjusted EBITDA and this quarter was filled with a lot of fun.
And the country of emerging from the pandemic and we just to take an ex and extrapolate numbers like that we just like the caution that it was a incredibly strong quarter and.
The back half of a tougher comp and just wanted to make sure that we make that statement so that everyone fully transparent.
And understanding of that that math, and it's something that should be looked at and.
Validated.
Fair enough okay. Thanks, guys.
I appreciate the gym.
And the next question will come from Chris Sakai with singular research. Please go ahead.
Hi, Good morning, John and Peter.
Hi, Chris So the question I guess.
Regarding.
Are you seeing any headwinds with the delta there and it and.
Force.
Travel goes.
Sure.
And so first of all lets bifurcate the diesel volume so measuring activity 1 of the leading measures indicators for us are.
Within our business as the diesel volume separate from gasoline volumes and.
On the gasoline side, we're not first of all on both side and either side are we seeing adverse effects today, you know anecdotally and.
And as well as you know we're watching the news I mean numbers are increasing I'm not sure. The worst outcomes are increasing meaning of hospitalizations and deaths thankfully at least that's what we're at least hospital and I'm, sorry of deaths and I'm thankful for that and hopefully it stays that way.
But anecdotally I know, we're hearing more about it and and in certain places you know spiking, we're not seeing it yet affect our business and hopefully not at all but we're not yet.
Nothing I can point to the suggested you look at our.
The quarter results, how we've started this quarter.
And through the reason I bifurcated diesel and gasoline is.
They behaved quite differently coming through of Covid truckers and had to keep trucking whether was medicines and essentials and so I think we did a good job of grabbing more than our market share during the pandemic and through the pandemic and to now.
But underlying our grab and our success and grabbing share.
The freight tended to continue moving it did come down and briefly early early Covid March April, let's say and it's sort of starting to come back and I don't remember exactly when but roughly mid year, we started going significantly positive to 2019 again on the diesel side I don't know why even if delta kick back in or kicked in the COVID-19 kicked in again that it would be much.
And on that side.
And then separately on the gasoline side were still down a little bit to say pre COVID-19 like 2019 levels like you know low mid single digits, we're down and gasoline volumes all of the other stuff we're doing.
And even things we haven't started to see the benefits from like our branding and some of the plan of grabbing of resetting the stores and then some of the Capex stuff like the site refreshes and those are going to I really am excited about the impact of grow the motorists 4 wheel business that we've never really much focused on to really feed not just our gasoline volumes, but also the non.
Fuel stuff. So there's a lot of levers we have to pull the continue to kind of execute and and whatever comes our way externally I think we've proven here sort of the bottom line of I think about it and my third month of your March of last year. The little thing called Covid hit that devastated a lot of companies I Wonder what would have happened to us if we hadn't taken some pretty significant steps.
The start transforming and then respond with the furloughs and other things what might've been for US I don't I don't really know, but what I do know is the team we have in place will execute through you know, even though of 100 year of 50 year storm like we saw last year and we'll continue to do that but the short answer is we haven't seen and effect on our business anecdotally and through the news there certainly seems like something is happening out there.
But I think we're ready for whatever whatever we face.
Great and.
And then just sort of the assets totally different question, but as far as the electric vehicle charging station go.
Do you have any sort of timeline, there going into 2020.2.
So.
And we start so let me step back once again, we always lead and with the truck business right. That's the big part of <unk> 8 to 1 diesel to gasoline and so that's the main core of our business, although we're increasingly focusing more on the passenger duty and the EV world, It's a bit different of I'm, sorry, the sustainable energy World. It's different because there is a clear path forward with respect to what sort.
And what form of energy wins, the day and relatively sooner and thats the passenger and its E V. I mean there.
All of those doing some stuff with hydrogen and Toyota did but for passenger duty. It's it's the V. So theres some clarity now theres not exact clarity on when we should roll out we clearly certain more progressive jurisdictions like California. The incentives are in place sooner than other places. So we've developed a bit of of thought process of how we rollout we're still evaluating our part.
Partnerships, we're going to be very careful and I was just kind of go waste a whole bunch of capex to chase every rabbit hole, we see so were going about of cautiously, but with a lot of focus a lot of attention at the different state levels as well as federally to make sure we're really cutting edge and what.
You know where and when and how so I do expect that west coast that I've mentioned between now and over the course of early to mid next year to do on many rollout and sort of of Carter approach a corridor every several hundred miles of of.
The highway at our stops to have a passenger duty EV.
And again beyond that we're not quite as clear we don't have a specific plan. We have some plans and it's again, it's more regionalized localized the commercial side, we're more putting our toe and the water with different forms of energy and technology and going to rely heavily on federal and state incentives.
And I would say start to experiment.
And you know and the reason for that latter point the commercial side of the sources of energy that win win the day are not clear, we're staying close to our biggest fleets to understand what their plans are they will be the ultimate demand, we're staying very close to the government state and federal what their incentive and what kinds of incentives will be and place grants and favorable loans and.
Tax credits and so forth and so between staying closest to our top fleet.
Fleet customers to understand demand over time to staying close to the government will find our way and and dabble I would say I don't believe diesel volumes are going to be massively or even meaningfully impacted and so really we get into the next decade. The 20, <unk> and only then it'll still be relatively modest I think I think you have to look at another time.
And 15 years out to almost the 2000, Fourteens and fifteens before it becomes something really really a significant threat, but also opportunity. So we're gonna put are telling them and with all of that said last point.
And the local sort of low in.
And a very localized way youll start to see these various technologies start to get used forms of natural gas to some extent some hydrogen.
Electric for sure again, and and localized pockets and so we need to make sure. We're intelligent about where those locales are where who and what where the demand is coming from for those what government incentives there are and and go put put things in place to support that stuff. So that once upon a time and if it does eventually accelerate faster than the what I just said.
Ed we've gone through the trial and error were ready were stand ready to to embrace this and really bring the company into the future of that way.
Okay, well that's great.
And why.
Great.
And lastly, as far as IHOP is concerned.
Heading into 2022 can we expect more IHOP the open.
Yes, you'll see more IHOP opened and into next year.
Got those 5 underway, we've got the other 1 open and the South Atlanta.
Youll see more of those while in parallel we will begin to start and again, we'll get more specific towards the end of this year, probably open and again, we of the country Prize and Iron Skillet. These proprietary brands you will see some more IHOP and Youll see probably 2 other concepts that I'm really excited about but it's just a little bit early to get.
Any more specific the math, but yesterday I believe youll see more eye ops.
Okay, great. Thanks.
Thank you appreciate it Chris.
And this will conclude today's question and answer session I would now like to turn the conference back over to John <unk> CEO to close the call.
And again, thank you for your interest and see a and your attention. This morning, everyone have a great day take care Bye bye.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.