TravelCenters of America Inc.

Good morning and welcome to Travel Centers of America 4th Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Kristen Brown, Director of Investor Relations. Please go ahead, ma'am.

Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, John Perchick, followed by Chief Financial Officer, Peter Crage, 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. These forward-looking statements are based on TA's present beliefs and expectations as of today, 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 at the SEC's website or by referring to the Investor Relations section of TA's 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 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 to the most comparable GAAP amounts are available in our press release that can be found on our website. The financial and operating measures implied and or 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 that despite the continuing challenges to demand, operations and management imposed by COVID-19, and a reduction in overall revenue by 15.5% in Q4 2020, compared to Q4 2019, we report the following improvements. A 29% improvement in adjusted net loss, a 36% increase in adjusted EBITDA, and a nearly 10% increase in adjusted EBITDA are a 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 believe it is fair to say that we are well on our way to transforming TA, and yet we're really just beginning. 2020 was primarily a year of planning and preparation, a year of the three Ps, people, plan, and purse. We put the team of people together through our reorganization. We developed our transformation playbook or plan, and we developed the purse through our 85 million equity and 200 million debt raise, as well as the installation of a newfound and aggressive cost discipline. We end 2020 prepared to invest capital in growth and remediation, as well as to execute on our broader transformation plans. For 2021, we have prepared and continue to refine a robust capital plan designed around the principles of cleanup, catch-up, and growth. Our capital plan includes reestablishing our information technology, or 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 plans of many of our sites, both remedially as well as for financial growth, with an eye toward making our sites more attractive, desirable, and useful to both 18-wheel and four-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 technology to support our growth. We are also surgically investing in outside consultative help our transformation plans in key areas, such as fuel margin, site-level operating expenses, and we expect this investment 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 to leverage its large, well-located sites and pure supplier business model. to embrace changes that non-fossil fuel energy presents, particularly under the new administration. We're 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 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 that 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'm most excited to see what we can do in 2021 and beyond, having the three Ps in place, the people, the plan, and the purse to effectively drive remediation, growth, and long-term shareholder value. Turning to our results for the quarter, Solid performance from our fuel and certain non-fuel businesses largely offset COVID-related decreases in four-wheel traffic and in our 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 addition of new fleet customers, and overall increased volume from existing customers due to the early success of a variety of initiatives. Adjusted fuel gross margin for the quarter decreased by 8.8% versus prior year, as higher diesel fuel volume was offset by reduced four-wheel traffic, reflected in lower gasoline volume and a less favorable Q4 2020 diesel purchasing environment which affected diesel CPG margin. Starting on October 1st, we began using our economies of scale purchasing power to purchase diesel fuel in substantially larger volumes versus inefficiently purchasing in small increments 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 the year ended, the purchasing environment became less favorable due to low market volatility, a 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 remained dramatically affected by COVID, with many states reimposing occupancy and other restrictions during the 2020 fourth 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 had 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 our travel centers. We are also moving ahead with rebranding certain other full-service restaurants in our travel center sites to IHOP, with five conversions currently underway and potentially 10 more to commence in 2021. These conversions conservatively are expected to require an average investment of $1.4 million per site, and generally require six to eight months to complete. In evaluating our overall restaurant segment, we reached the conclusion that our standalone restaurant business, which includes 42 locations, primarily branded as Quaker Steak and Lube or QSL, did not strategically fit within our long-term goals for the company. To that end, we have entered into an agreement to sell this business for approximately $5 million, subject to customary closing contingencies. This 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 will discuss the financial impact of this in his remarks. For the stores and retail services, improved management and merchandising have begun to have a positive impact, and for the quarter versus 19, revenues increased by 6.3%. Also, we are working to centralize 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 have retooled this entire business with new senior leadership, as well as created a new middle manager role to improve accountability. Technician retention, compensation, and training are central targets to drive continued improvement. Truck service remains a top focus and key competitive advantage for the company and an opportunity to further increase our market share among 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 DEF 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. Four began operations during 19, 10 opened in 2020, and so far one has opened in 2021. We anticipate the remaining 18 franchise travel centers will begin operations by the end of the 2022 first quarter. Of the 33 franchise agreements, 21 were 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 in 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 and look forward to more specific comments and announcements as we work our way through early 2021 on this subject. TA's unusually large sites provide the unique ability to develop a meaningful transition plan and to accommodate a wide range of fossil and non-fossil fuel offerings and the infrastructure to support them to coexist at the same time. This broad range of potential offerings is a simple extension of TA's core competency of having the widest range of non-fuel offerings within its highly amenitized C-Store restaurant and truck service ecosystem. These simple facts provide TA a unique opportunity, one we intend to carefully monetize. To conclude, I'm very proud of the progress demonstrated by our results this quarter. We now have 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 a 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, 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 Ps, the people, the plan, and the purse, we are ready for the challenges ahead and 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 the professional drivers and fleet managers for allowing TA 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, or 42 cents per share. compared to net income of $43.1 million or $5.29 per share, primarily the result of recognizing $70.2 million in 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 generated an adjusted net loss of $5.1 million, or 28 cents per share, compared to a loss of $7.2 million, or 89 cents per share, an improvement of 29%. Adjusted EBITDA was $27 million, an increase of approximately $7.2 million, or 36%. This increase was primarily due to our continued close management of site-level operating expense and 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 this credit by the federal government for both 2018 and 2019, offset by 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 8.8%. due to a decrease in fuel gross margin cents per gallon of 2.9 cents or 18.6% to 12.7 cents. This was partially offset by an increase in fuel sales volume of 58.7 million gallons or 11.8% to 555.9 million gallons. While we have continued to see positive trends in overall volumes, margin cents per gallon has softened, the result of a 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 or limitation of services at both our travel center and standalone full-service restaurants, offset by continued improved performance in our truck service and store and retail services, and a $5.2 million or 21% increase in diesel exhaust fluid revenue. Total non-fuel gross margin decreased by $3.9 million or 1.4% exclusively due to the aforementioned decrease in full-service restaurant revenues. Total non-fuel gross margin percentage was down slightly at 61% compared 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 $20.3 million or 8.7% 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 4.5%. The decrease 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, or 37.4% in the quarter, largely the result of the decision to divest Quaker, Stake, and Lube Business, as John mentioned earlier. The marked affair value of the QSL assets and liabilities to the estimated adjusted purchase price less cost to sell resulted in an impairment charge of $13.7 million. In addition, the QSL business has been classified as held for sale in our financial statements as of December 31st of 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 a continued At December 31st, 2020, we had cash and cash equivalents of $483.2 million, an increase of $466 million from December 31st, 2019. We currently have no amounts outstanding on our $200 million revolving credit, and we have no near-term debt maturities. As of December 31st, we also owned 50 travel centers, four standalone restaurants, and a standalone truck service facility that were unencumbered by debt. We have collected substantially all of the $70.2 million in biodiesel tax credit that we recognized in the fourth quarter of last year, as I discussed earlier. Additionally, we raised $80 million in net proceeds through an underwritten public equity offering in July and $190.1 million in 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 plan 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 are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Brian Mayer with B. Riley. Please go ahead.

Good morning, Jonathan and Peter, and thanks for all of that detail. A couple of questions that have jumped out to me and inbound calls from some investors relate to the size of the liquidity position you've built, which between the cash and the facilities is kind of easily $500 to $600 million. Even assuming you spend $175 to $200 million, 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. Thanks for the question and good to connect this morning with you. And I appreciate the question. We get asked it a fair amount. You know, when I, my first day at the company a year and a half ago, we had 17 million in cash. We ended the year with, you know, half a billion in that realm. You know, there's multiple points here, and I look back on previous, you know, experiences I've had, including my last company, where we invested at that company in refreshing our assets to bring them up to snuff. We need to do that here to sort of express our brand more effectively. You know, a lot of the transformation we're undertaking, you know, process-oriented, people-oriented, need to happen along with an asset base that's more attractive, functions better. IT doesn't go down frequently, and we can talk all day about creating goodwill through customer service, and if somebody puts their credit card in and can't pay because the IT is down, that's a real problem. With 238 assets, there's a lot to spread, and there's a tremendous amount of opportunity we have, not to mention some M&A opportunity that we've been thinking a lot and hard about. in a range of areas from additional, 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 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 or 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 a 15% to 20% cash-on-cash return. And, you know, beyond that, as sort of an exit ramp, if we chose to, if we determine we have too much liquidity, we can pay off our baby bonds, at which are a little more costly than the debt itself. So there's an exit ramp there. So it gives us a fortress of the balance sheet, number one, you know, safety. Number two, it gives us the ability to grow fairly carefully but aggressively. And three, if we determine we have too much liquidity, at some point we have an exit ramp that's slightly but nonetheless favorable to what we have today. So, you know, those are sort of the three primary purposes behind our balance sheet and our liquidity and where it stands today. And hopefully that makes sense to folks. It certainly does to me.

To be clear, though, if you do some M&A, would it be, you know, aside from tech or whatever else you're 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.

Yeah, so, again, I appreciate that very much, Brian. As you know, with the QSL point, that was determined by us as non-strategic. I know the history with the C-store world and mini-mart world. You know, I try to emphasize in my comments we're going to invest in our asset base and, you know, obviously that can be interpreted 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 a new cost discipline, we're imposing a 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 closed until you've established a plan that reopening those particular restaurants would be profitable as opposed to what I believe you determined when you initially shut those down in the second quarter last year? I think you ultimately found there was a large slug of full-service restaurants that were unprofitable. So will they be kept closed? until there's a plan in place that they will run at a profit?

Right now, we have been opening restaurants, not just when we're literally legally permitted to, but we're opening them also as we believe they're not going to be a burn to the company or a negative. We open them already in that way. That's the approach we've taken. We have a really tremendous new team within the entire hospitality group led by a gentleman named Kevin Kelly, who has some history with Peter many years ago, who really gets this point. And I know I drive 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 is a collective conscience. 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 our approach of operating with a more limited menu, a 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 there's not a lot of opportunity to continue to improve, and we've mentioned a few of those ways already, I think, just in our introductory comments. You know, there are a number of other things we're working on as well from not only the IHOP brand, but potentially other brands. We've already changed the menu around significantly and reduced 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 prep, the breakage, the loss of, you know, having items that aren't selling particularly well. So we have a range of other things we're doing, but your basic question is, We are only opening as and when we believe, not only are we legally opportune or able to, but when we believe we can operate efficiently and effectively. And I think that's why we're seeing, in some part, why we're seeing results in that otherwise historically very inefficient part of our business.

Great. Thanks. I'll hop back into Q. Thank you.

Thanks, Brian.

The next question will come from Ari Klein with BMO Capital Markets. Please go ahead.

Thank you, and good morning. Maybe just a follow-up on the balance sheet question. As far as CapEx spending is concerned, is this what we're seeing in 2021? Is that the sustainable rate going forward? Is it a one-year spike? How should we think about that maybe longer term?

Great question, Ari, and thanks for that, and good to connect this morning as well. That will not be sort of a normal run rate for us going forward, but If you were to sort of unpack it, I mean, we have a view on what our sort of standard, you know, remedial kind of break-fix, you know, 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 175 to 200. You know, we're going through a window right now where there's some cleanup and catch-up and some really deep retooling. Now, if we do find some bolt-on M&A opportunities, for example, other travel centers, and if that world were to really open up a little for us, and it may for a few reasons, we're exploring that now, we may have other M&A opportunities in the future that we would dedicate capital to. But again, as we're proving out, at least 15% to 20% cash-on-cash, But I don't expect the, you know, 175 to 200 to be, you know, kind of a standard steady state, far from it. You know, it's a multiple on what that will be.

Got it. And then on the fuel volume, you know, how sustainable are the growth trends you're seeing? Is there any way to quantify how much of the increase is from some of the new accounts? And then maybe if you could just touch on – Sorry, go ahead. I was just going to ask about the margins. On the fuel side, what kind of gets that volatility back into the market to the point where we can see margins start to 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 really exploring that effectively, and there is a big opportunity. So I'm hopeful and optimistic that much of our future growth, and not just future, next year, year after, I mean near term, like we're very focused on it, will be in that area. And I know we also have more opportunity to grow with our aggregator base. So, I mean, I'm not going to say that, you know, 16%, 18%, you know, 16% diesel is sustainable year over year. I mean, that compounds to a mathematically impossible place eventually. But on the other hand, I do think there's 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 first part of this first quarter. I'm hopeful that everybody appreciates that despite COVID and the diesel margin headwinds at the last part of the last quarter, we still beat 19 in all important metrics. And so I'm hopeful that folks appreciate that with an entirely different leadership team, it's not about me, it's about a very big team now we've recast it and different choices being made every single day, we can manage our way through any challenge that's gonna come ahead. And so it's hard to know past a quarter or two what margins will be like. There's a lot of variables that play into that from political, macroeconomic. I mean, to rattle on 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 the levers we have. And we have a lot of levers to pull, big ones and small ones, that we're just really unearthing over this past, even the past month, month and a half, we've unearthed a range of things. that we're really digging into hard and giving ourselves visibility on what all those small and medium-sized levers are that historically the company didn't have. The way we use data and the way we sort of approach everything, including CPG, just we didn't really dig many layers down to almost, I don't mean this literally, but to the molecular level, really down to the base, and then understand what all of those levers are. And 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 anybody does that. In fact, frankly, five people may have five different views on that. But what I do know and what I'm very confident, and I think we've proven this past quarter and this past year, is that whatever comes along, a global pandemic, market volatility, we're going to manage our way effectively through it. And so those are some thoughts.

Okay, and then just last question, if I can, just on the QSL sale, maybe I missed it, but can you just highlight what the financial impact is to revenue with that 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 disposition. That's a gross, you know, minus sort of standard, you know, transaction-related kinds of deducts, let's just say. You know, my standpoint, again, I'm going to ask Peter to chime in here in a second. This was more about... I want to put this in quotes, but it's not strategic. These assets or this asset base has nothing to do with what we do fundamentally. And so in that sense, it's been more of, I'd say, a distraction than necessarily a major economic drag. I mean, through COVID, it has certainly been a bit of a drag, an economic or financial drag. But from my standpoint, again, I'm going to ask Peter for the numbers, or not numbers, but for maybe a more financial response here. But conceptually, this was more about divesting an asset base that's not in our asset base, if that makes us a little redundant there, the asset base. But if you follow the point going forward is we will only invest in our asset base. We won't be buying standalone 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 and not find ourselves distracted by things that don't contribute or not accretive to the broader greater good, let's just say. But, Peter, anything to add to that?

Yeah, sure. Yeah, the impact is de minimis, will be de minimis on our operating results. And given the trajectory, as John pointed out, because it's 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 just de minimis rounding error.

All right. Thank you.

Thanks, Ari. Appreciate the questions.

The next question will come from Paul Luez with Citigroup. Please go ahead.

Hey guys, thanks. I just want to go back to the fuel margin question a bit. Obviously, the volatility is 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 benefits? You might be getting masked now by the lack of volatility, but is there a way to quantified benefits. That's number one. And just a 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 we move throughout 21. Thanks. Great. Thanks.

So, you know, first of all, what inning are we in on fuel purchasing and finding efficiencies? You know, we had undertaken already a – and we've reported this previously – I think I even met, in fact, I did in my remarks, the middle of the quarter, we undertook, we did an RFP to purchase fuel using our scale, roughly 40% of our scale. And so that created some relative, it's obviously relative because the market moves beneath us, you know, and this is sort of on top, but relative improvement 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, that's relative. So there's that sort of headline of just sort of an RFP of purchasing. But within that, beneath that, or alongside of that, there's a whole long list of things that we're working on. From our loyalty program to, you know, our pricing analytics, we've just really, it took a little while to get going, but we're using an outside company to help support Our pricing decisions that relate to street, and street, as I mentioned, is the most lucrative, most profitable part of our business, of our diesel margin business. And so we have a big opportunity there. That just got started in the last month, month and a half. And even with that having gotten started, just in almost real time in the last couple of weeks, we found some weaknesses in how that process is working. And so we've made some changes, almost literally real time, not literally while I've been on this phone, but in the last week and a half, couple of weeks. So we're still in the early innings, I would say. And I'll stop there. There's a long list of how we cancel loads. And there's a long list of small things, as I mentioned. While there are 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 levers. And so part of this is unpacking all the things that contribute to margin and and understanding what they are, measuring them, and then pulling those levers and process change to, you know, attempt to achieve, you know, theoretical optimization. So, you know, in terms of innings, we're in the early innings, probably in the, you know, second, third inning, something like that. I hate to put a number out, but we're talking loosely, you know, innings, baseball here. 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 such a thing as a singular priority, which there's not in a company this complex, but that's right at the very tippy top. And in terms of, you mentioned SG&A opportunities, you know, at corporate, I think we've more or less unearthed the opportunities and unlocked them as of mid-year last year, and that'll 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 sort of field SG&A side, We're in the middle of a body of work, and I know I've reported this before, and we have some outside professional help supporting us here, which allows us the ability not just to look internally to try to do better, but also allows us to benchmark and index externally, which is very important. And we just don't have those resources inside to do that external benchmarking. 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, you know, 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 fuel. And Our SVP of procurement, a guy named Jamie Hubbard, who came to us half a year ago, the company we're using for help there, he had used at his previous company. And at his previous company, there were many, many, many tens of millions they found. And from what he has shared with me, that company, what they committed to on the front end of that expectation setting at his previous experience with them, they did significantly better. So I'm really excited about the opportunities we have. in sort of the overall field level SG&A and overall expense. We have tremendous opportunity down. We're also early to mid-innings. Well, we're in the mid-innings of exploring it, early innings of actually letting it manifest, let's just say. But I really expect all the things we just talked about here in this question will 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 question.

Again, if you have a question, please press star, then one. Our next question will come from Jim Sullivan with BTIG. Please go ahead.

Yeah, thanks. John, maybe just to take another swing at the adjusted field margin numbers and what we should be expecting. You've obviously talked about a number of initiatives to improve. both the purchasing and the sales and the potential of improving the mix. But obviously, in the fourth quarter, it fell short of most people's expectations. And I guess the question I have is, when we think about expectations, what investors should be looking for in 21, from where you sit today, do you think your adjusted fuel margin is going to be above or below where it was in 20, in 21.

You know, boy, it, I, I, I, Hey, and by the way, nice to connect this morning, Jim, you know, I'm, I'm reluctant to sort of offer up anything year over year. That's boy, that's a, there's so much in front of us this year. And again, both politically macroeconomically, there's so many of those other factors that boy to throw out for a year, but I'll tell you the trend line we saw at the end of the year, we're seeing currently we've seen for the beginning of this year. And I, boy, I, you know, we, we certainly plan for the worst as we just run the business. Um, and you know, that's just how we work on that. The team knows I'm always about, tell me the bad news first, because that's what we can dig into and, and, and, and work on the good stuff is a quick high five. Let's focus on the negative just because that's what's fixable. You know, so we're, we're very, very focused on this is that thing almost singular top, not singular, but top, top, top priority. And we're finding things almost real time, as I mentioned, even this last couple of weeks, opportunities to improve and change. But, boy, I'm reluctant to offer up anything for the year, Jim. There's just so much year 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 results we had this past year, you know, from 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 effectively and pull margin where we need to from non-fuel to the extent we need to boost, let's say, the fuel side.

Okay, fair enough. I know I put you on the spot with that question. I appreciate it, Jim. Yeah, turning over to the topic of CapEx, the ROI CapEx, if I can describe it that way, that you've set out here 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 Peter to weigh in on, how should we be thinking about the timing of achieving that hurdle? would it be from, you know, from investment or is it something that's going to take a couple of years to prove out after you invest the money, particularly in the M&A activity where you can, you know, there's a going in yield and then there's presumably some post acquisition effort that would go into getting the number up to 15 to 20%. So how should we think about the timing of achieving that? So great.

Again, fair and great question. I mean, from my standpoint, I'll let Peter chime in behind me. It's a bit of a run rate perspective just over time. You know, some of the things we will invest in, for example, enhancements, not just remedial, but growth enhancements to our sites. You know, there's a process there, a construction process, much of which will not involve things like permitting, but nonetheless, there's a process. So that burns time, frankly. You know, 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 a 50-pack. The 50-pack, the bigger one, we bolted on and it started generating returns. Again, it's a different business, different, you know, set of assets we would be acquiring potentially. But, you know, we started seeing results almost immediately. You know, nonetheless, M&A takes time to define, you know, due diligence, close, etc., On the other hand, we have 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 DEF, where we sell diesel exhaust fluid at the retail store, in a box, you go buy it. 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 an order of magnitude, we spend $500,000, $600,000. Again, in some jurisdictions, it can be a lot more, and parts of the country, 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. In other locations, it'll 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 thought behind 15 to 20 and how you just maybe respond to supplement what I said to Jim's question.

Sure, sure. Thanks, John. Hi, Jim. Yeah, you had mentioned immediate and then two years. It's obviously not immediate, but it won't be as long as two years for a couple of reasons. Number one, when you think about, for example, an IHOP, you don't have customer acquisition. It's not a green field. You have a business that's operating, and when you introduce this new concept, it will take some time. It could take anywhere from a few months to a half a year to build that sort of critical mass. So the way I would think about other than the ones John talked about, which might have immediate return, when we pencil it and we go through our analytics to verify that 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, you know, up to six or eight months to begin to build that return.

Okay, and just to be clear, the total CapEx number that you've set out in the release, Would that be inclusive or exclusive of M&A? Is M&A on top of that?

So for now, that is our target range for all things CapEx this year. You know, if we find something opportunistically that is really, really beneficial, you know, 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, you know, and obviously we have to keep it in the context of the macroeconomic environment and COVID continuing and 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, putting that aside, that safety net, that significant safety net off to the side, if we find something opportunistically that's going to generate great returns and is, you know, again, strategic and accretive, we're going to have to really look hard at that. And then we'll, you know, 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 to just keep ourselves in a secure position.

Okay, and then final question for me on the SG&A line. And Peter, you talked a little bit about this in your prepared comments. But, you know, looking back at the time you put in place the, you know, the efficiencies, you guys had talked about a $13 million annual savings. So that's, you know, $3 million plus per quarter. In Q4, sequentially, there was a pretty big uptick in the SG&A line. And I just wonder if you can kind of, you know, tell us what caused that. And looking forward, when we think about a $13 million annual savings, should that be off of the $155 million run rate from 2019? Or what kind of base should we be using to kind of prove out the $13 million savings?

Sure. John, did you want me to take that?

Please, Peter.

There were a couple of items in the fourth quarter, Jim, that moved that delta downward. We continue in the organization to do small restructurings in departments. We had, you'll see in our earnings release, a million one in severance costs for a small restructuring that we did in November. Much smaller, much, much smaller than the restructuring in April, so that's $1.1 million. Also, on a non-cash basis, we provide grant awards to employees, and the accounting for that, given the fact that our stock has done well, which is a good thing, increased the non-cash charge that we had to make for those awards to the tune of about $1.2 million. So when you take all of those combined, we're at that level of about $4 million for the quarter. And yes, on SG&A, you know, 19 was the base year. Our plan is to maintain these cuts through 21. I will mention one thing, although it's not a significant amount, you know, in technology, If you remember earlier in the year, we were charging off some bespoke projects that were built into CapEx. As John has spoken many times on these calls about our philosophy with technology is that we're going to 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 those are hopefully the answers to your questions.

Yeah, okay, thanks.

Jim, I have to admit, Cheetah was ready for that one. I asked him the same question as we were starting to get our results going. Why is it only one-eighth of it? There you have it.

Okay, very good. Thank you. Thanks, Jim.

The next question will come from Brian Mayer with B. Reilly. Please go ahead.

Great, thanks. So I have a follow-up question since nobody's asked it 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 want to see if that's kind of high up on that list of alternative energy uses.

So right now we're very – so thanks for that, Brian. Thanks for that follow-up. I appreciate it. A lot of folks are interested in this subject, as are we and as am I. I've spent a lot of time riding in hydrogen trucks and exploring electric trucks, actually seeing them, touching them, as well as the equipment that's necessary to refuel them, et cetera. So it's definitely very much front of mind. We're very, very close to bringing somebody on to lead this. And all without their leadership. And this will be somebody who really has both a reputation and experience that's unbelievable. The candidates we've seen, and I've interviewed six of them myself, are just incredible, as good or better than all the candidates we've been seeing from different parts of the business. So I'm extremely excited with what this individual will bring with them, whoever, once we finalize this and we're pretty close. So part of the answer is a cop-out just to say I want this person to sort of own, have an opportunity quickly to get up to speed within our, you know, universe and kind of own, you know, ultimately the strategy and the execution. That's very important to me. That's a concept that's just a basic business principle. It's important to me. But with that said, you know, right now we're in pursuit. We've responded to an RFP in one place. where we've partnered up with a couple of different providers, including a 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. You know, I am under the belief that, you know, for the heaviest duty trucks, you know, class seven and eight for true long haul, I think over time, hydrogen is going to win that day. Again, I think that's a little bit out there. If you read some of the literature out there, I mean, there's not a material impact to diesel volume from hydrogen until we get to 2030. And even then, it's, you know, according to folks that it's in their interest to say it's a high market share of, say, hydrogen is like 1% then. But hydrogen is still on the radar. So is natural gas of different forms. I mean, all of those things have to be thought about and considered. and we're doing just that. But I really want to first have this person on board and give them a short window. And the couple of finalist candidates already have pretty strong views. I've 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 onboarded, get in gear, and probably our next earnings 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 for the heavier duty stuff in sort of a material way as we move forward. It's hard to imagine that not happening. Great. Thanks, Jonathan. Thanks for that question, Brian.

This concludes our question and answer session. I would like to turn the conference back over to John Perchick 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.