Q3 2021 Travelcenters of America Inc Earnings Call
Thank you good morning, everyone. We.
We will begin today's call with remarks from Ta's, Chief Executive Officer, Jon <unk>, followed by Chief Financial Officer, Peter Cranes, and President Barry Richards for 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 Tas present beliefs and expectations as of today November 2nd 2021.
Forward looking statements and their implications are not guaranteed to occur and they may not occur.
Under 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 as you see that are available free of charge at the SEC's website or by referring to the Investor Relations section.
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 adjusted net income EBITDA EBITDAR adjusted EBITDAR adjusted EBITDAR and adjusted fuel gross margin. The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our press release and on our schedule of our non-GAAP financial.
Measures that can be found in the events section of our website.
The financial and operating measures implied <unk> stated on today's call as well as any qualitative comments regarding performance should be assumed to be in regard to the third quarter of 2021 as compared to the third quarter of 2020, unless otherwise stated.
Finally, I would like to remind you that 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 and thank you for your continued interest in Ta.
I'm proud to report that our third quarter 2021 results represent a continuation of the strength and resilience with the new T. E can produce are comprehensive and broad based transformation plan beginning in April 2020 continues to produce financial and operating performance improvements across business lines.
Contributing to these impactful results in this reporting period for the third quarter of 2021 compared to the prior year quarter, we produced the following.
Adjusted net income of $22 $2 million, which is a 36% improvement.
Adjusted EBITDA of $65 $2 million, which is a 28% improvement.
And adjusted EBITDAR, a key metric in measuring our results of $129 $1 million, a 12% improvement.
Moreover, while these results do reflect a comparison to the prior year quarter. When the COVID-19 pandemic was still acute. It also represents notable improvement relative to the 20th 19 third quarter with adjusted EBITDA, having increased by $24 $2 million or 59% as compared to the <unk>.
<unk> thousand 19 third quarter.
What excites me the most is that during this third quarter and previous quarters. We've continued to see varying component parts of the overall business contributing in varying degrees.
To what has become a financial new normal for T. A that shows resilience and financial durability with trailing 12 month adjusted EBITDA of $203 million at the end of the third quarter.
I'd say this with confidence despite continuing effects of the pandemic.
<unk> labor pressures and supply chain disruption as well as the fact that our robust capital plan has just barely begun to be deployed leaving much to look forward to in terms of growth Capex impact.
As well as other continued harvesting of operational improvement opportunities.
We continue to maintain substantial liquidity, which we recognized comes at a cost while we engage in negotiations with due diligence processes over a large and growing number of meaningful potential transit transactions to invest in our asset base.
Our acquisition pipeline under review and consideration totals between 250 and $300 million and is primarily comprised of existing travel center targets as well as two development sites on land, we already own one of which we expect to break ground. On later this month in total we may potentially initiate.
Through offer or beginning of ground up construction as much as $40 million to $60 million by year end.
With additional opportunities during the first quarter of next year.
In addition to potential acquisition activity, we continue to invest in our asset base in multiple ways, including upgrades and talent and people.
Leveraging outside consultant accelerant expertise on an interim basis.
Investing in our operational initiatives and of course, our capital plan, which is focused on a site level refresh and remediation program as well as I T and systems improvements.
An expansion of our ability to sell biodiesel and diesel exhaust fluid or Def.
Most of these investments and improvements are guest facing and intended to drive efficiency and financial performance all designed around improving our guest experience based on our more examined understanding of their needs.
To that end, we reopened our Seymour, Indiana location two weeks ago. Following a devastating fire in 2020, we saw this as an opportunity and treat it see more as the first highest level platinum site refresh.
The first of more than 100 plan refreshes over the next 12 to 18 months Seymour.
See more showcases many of the new design concepts that we plan to include these locations.
Upgrades that our guests will see and feel including comfortable driver lounges, repave parking lots renovated restrooms, and showers, new lighting fixtures, new flooring and paint and self checkout, along with improved signage and a new store flow.
A key pillar to our transformation plan. These improvements will create a better guest experience that is more attractive.
<unk> clean and fresh environments to increase new traffic and give existing guests reason to return while more effectively driving purchasing behaviors.
I remain confident in our robust capital plan and the positive impact it will have on our overall performance building on and enhancing the operational improvements I believe are already starting to be seen in our quarterly results.
With that said labor and supply chain challenges secondary to the pandemic.
Which are impacting our national economy have also impacted the pace at which we've been able to carry out our capital plan. This year.
The good news is despite this impact we continue to generate a new level of EBITDA for Ta and the financial growth. We anticipate from the capital plan remains nearly completely in front of us.
Nonetheless, our ability to rapidly deploy capital has been impacted and Peter will discuss some of these details in his remarks.
Staying on growth for another moment I also want to touch upon our efforts to expand the network through franchising.
We've signed 52, new franchise agreements since the beginning of 2019 and opened 18 new franchise locations. During the same period, we anticipate 34, new franchise locations will open and begin operations by the third quarter of 2023, as we continue toward our sustained target of 30 per year.
Turning toward to our operational results for the quarter. Our overall fuel sales volume increased five 5% compared to the prior year quarter, and 14, 5% versus the 2019 third quarter driven by a five 8% increase in diesel fuel sales volume as a result of.
Increased trucking activity. The addition of new fleet customers as well as higher volume for exit from existing customers due to the early success of a variety of initiatives.
It is important to recognize that our performance included healthy consistent diesel margin, we continue to dedicate tremendous energy and focus to driving stable and strong diesel margin as we begin to explore artificial intelligence and machine learning to support diesel pricing and supply decisions as well as begin to build out a small fleet.
Program to better penetrate that valuable portion of the marketplace.
Gasoline sales volume continues to show signs of coming back as four wheel traffic returns to the road with an increase of three 5% versus the prior year quarter, but still about 10% below the 2019 third quarter.
On the non fuel side of the business store and retail services revenues increased by over 10% for the quarter versus 2020 and over 14% versus 2019.
Although we are experiencing a difficult purchasing an inflationary cost environment improved management and merchandising are relatively offsetting these forces while our ability to drive a larger average basket is also evidence that our initiatives are working or.
Our customer segmentation work has provided a better understanding of who was visiting us and what their behaviors are which in turn is allowing us to tailor our offerings to our customers actual needs with new display areas in our stores and more meaningful product placements.
We've completely reoriented, how we merchandise and are rolling out these plans across the network, which we believe along with a host of other activities are further driving future value and have begun to show a positive financial effect.
Truck service revenue showed a solid improvement with a five 6% increase versus 2020, and a 7% increase versus 2019 truck service remains an important competitive advantage for Ta and an important area of focus and I am proud to say that our efforts are proving successful.
Our improved revenues are driven by an increase in work orders and labor sales. 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 in <unk> efficiency and wait time.
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While we have added technician hours to the schedule to ensure we service customers timely we've also seen labor cost and margin pressures.
We are actively addressing these through the passing along with cost increases to customers not inconsistent with competitors and to insure tech efficiency remains a primary focus as labor and supply chain challenges persist.
On the full service restaurant side, we have worked to rationalize the locations we have reopened through disciplined leadership and strategic changes to how we measure performance as well as to our operating model through fewer more desirable desirable menu offerings and tighter labor controls.
We have opened two of five IHOP conversions, we have underway and expect to open the other three by the end of the first quarter of 2022. In addition, we are deep into the work of developing other concepts designed around a studied understanding of our customers' needs and look forward to further announcements in the coming months.
With full service restaurant topline, having been so adversely affected by the pandemic down as low as 90% at times last year. This remains one of our highest areas of opportunity to capture future value.
We also introduced a new off food offering concept the kitchen at our newly reopened see more location, which offers guests freshly prepared foods for sit down dining in a fast fast casual environment as well as package meals and snacks for grab and go.
Based on our customer segmentation work the kitchen is in simple form our historical deli concept, but very focused on items that are popular on high margin with the grab and go options branded and a fresh crisp and desirable package with this new proprietary concept. The conversion costs are low staffing is minimal and there are no royalties.
We plan to roll out the kitchen to select locations over the course of next year.
Non fuel revenues also continued to benefit from strong demand for diesel exhaust fluid or Def, which is required by newer trucks.
As pre 2011 trucks are retired each year, we expect that the demand for Def will continue to grow.
Demand for depth was also boosted by higher [noise] pardon.
Pardon me diesel fuel volumes in the quarter and as part of our current capital plan, we expect to make depth dispensers available in all lines at our travel centers nationwide by early 2022.
Lastly, we continue to pursue our commitment to sustainability and alternative energy with ETE or new business Division formed earlier this year.
In addition to installing new EV passenger vehicle charging stations at several west coast locations, we're very carefully evaluating rollout plans for passenger duty EV based on a careful understanding of federal and state financial incentives to encourage passenger duty EV.
On the commercial duty and truck side, we're continuing to engage and develop collaborative relationships in various forms of sustainable energy as we stay close to our fleet customers plans as well as government incentives.
We've been successful recipients on multiple grant programs and are actively pursuing more.
Over the next year, we plan to significantly expand our sustainability programs across across the organization with a specific focus on reducing our carbon footprint.
We also expect to issue our first ever sustainability report in 2022 outlining our achievements to date the investments, we're making in our longer term goals.
To conclude I am proud of the strong positive results our team generated in this quarter the strength and resilience of these results as evidence that the team in place can continue to effectively transform this great half century old company and that the operating initiatives. We have put in place under our transformation plan are working.
This team has proven during rain and shine that it can prudently navigate whatever challenges come along and produced results that have elevated <unk> to a new normal as we approach our 50th anniversary in next year in 2022.
I would like to end my remarks, as always by offering gratitude to our teammates and colleagues around the country for their hard work and dedication as well as the professional drivers and fleet managers for allowing ta to serve them.
I also want to express my gratitude to our guests franchisees and stockholders for supporting Ta and with that I'll hand, the call over to Peter to discuss the quarter's financial results in detail Peter.
Thank you John and good morning, everyone.
As John mentioned, we are very pleased with our results in the third quarter, which we believe continue to demonstrate the impact of our initiatives on operating results and our ability to generate strong free cash flow.
In my remarks that follow I will be referring to the 2021 third.
Third quarter as compared to the 2023rd quarter unless otherwise noted.
For the third quarter, we improved our net income by $13 5 million to 22.
$2 million or $1 52 per share compared to net income of $8 7 million or <unk> 61 per share.
Excluding a few one time items in the prior year quarter as detailed in our earnings release, we generated a $5 9 million or 36% improvement in adjusted net income.
EBITDA was $65 $2 million, an increase of $15 4 million or 31%, while adjusted EBITDA, which reflects several onetime items in the prior year quarter increased $14 1 million or 28%.
The increase in EBITDA was primarily due to the positive performance, we generated in both fuel and non fuel gross margin, partially offset by increased operating expenses as business conditions improve along with general labor and supply chain cost pressures.
Fuel gross margin increased $25 $9 million to $106 million or 32%.
Our fuel sales volume increased by 37 million gallons or five 5% to just shy of 586 million gallons with diesel sales volume improving by five 8% driven by increased trucking activity and new customers.
Gasoline sales volume improved by three 5% and four wheel traffic returns to the routes.
In margin per gallon improved 374.
25, 7% versus the prior year quarter.
Non fuel revenues increased by $37 million or seven 8% and total non fuel gross margin increased by $19 million or six 6%.
Importantly, when compared to the 2019 third quarter.
Both non fuel revenues and gross margin improved by roughly 4% with significant topline improvement in store and retail services truck service and diesel exhaust fluid offset by full service restaurants, approximately 46 of which remain closed.
Performance at our quick service restaurants has been consistent although some locations are operating with reduced hours due to labor availability and.
And in addition, we have experienced some shift in business from the quick service restaurants to the full service restaurants as full service real estate continues.
While we are encouraged by top continued topline growth we are cognizant of both input and operating cost pressures that are part of the backdrop of the economies in which we and most all companies operate.
Non fuel cost of goods sold and site level operating expenses increased by 18 and $25 million respectively.
While these primarily reflect continued improved business activity and the return of furloughed employees to service customers labor rates and input cost pressures do exist.
We are focusing on pricing and labor efficiency opportunities to offset the impact.
And while we have been largely successful thus far we do expect these pressures to persist in the near term.
When coupled with normal late year seasonality and a strong comp in our 2024th quarter performance.
They have the effect of moderating our year over year EBITDA increase for the fourth quarter of this year.
Selling general and administrative expense for the quarter increased by $6 $6 million or 20%.
In addition to the expansion of our business. The increase was driven in part by short term consultant fees to assist with identifying and implementing cost reduction and other opportunities as.
As well as our adoption of more efficient cloud based technology solutions.
We expect SG&A to remain elevated over the next several quarters as we rationalize costs and invest in opportunities where outsized return is evident and implement cloud based solutions to our technology infrastructure and a more economical way than internally developed solutions.
Depreciation and amortization expense decreased by $8 million, primarily due to the following one time items in the prior year quarter.
A $6 6 million dollar impairment to property and equipment related to certain stand alone Quaker steak <unk> lube restaurants that we sold earlier this year.
And a $2 $4 million write off of certain assets related to truck service technology programs that were canceled.
Turning to our balance sheet for a moment at September 30 of this year, we had cash and cash equivalents of $621 million and availability under our revolving credit facility of $94 million for total liquidity of $715 million and no near term debt.
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As of September 30th of this year, we continue to own 50 travel centers and one stand alone truck service facility that were unencumbered by debt.
We invested $19 4 million in capital expenditures during the third quarter and $46 $8 million year to date.
As John mentioned, we along with the U S. As a whole continue to experience labor and supply chain challenges either directly or indirectly through our vendor partners that are slowing the progress and in certain cases, the start of some of our capital projects.
While we have spent $46 $8 million through the third quarter, we have approved over $130 million in additional spending for projects to be completed this year and next and expect to approve approve more over the next few months.
At this time, we believe we will incur a cash spend between 80 and $100 million on Capex projects in 2021.
Looking ahead to 2022, and assuming that the current labor and supply chain challenges subside, we anticipate capex spend in excess of $150 million and some of the expenditures planned for 2021 fall into the early part of 2022.
And lastly in addition to Capex, we are preserving much of our liquidity for potential accretive acquisitions and ground up travel center development opportunities.
As John mentioned in his remarks, we may deploy some of this capital in the fourth quarter with additional opportunities into next year.
This in addition to our Capex and operating initiatives should provide for continued momentum in our broader strategy.
That concludes our prepared remarks operator.
We are now ready to take questions.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Paul Lajoie from Citi. Please go ahead.
Hey, Thanks, guys.
Curious if you could talk about the sustainability of that increase in tons per gallon and was the highest that we've seen in several years, calling them an impressive number in <unk>.
Maybe talk about how much of that you see as temporary just having to do with market dynamics.
As you always see fluctuations in cents per gallon versus a function of better buying mix of business. So it's a little bit more sustainable.
Thanks, Paul and thanks for the question. So the question on sustainability of the CPG in the 18th through a quarter.
My view on it.
Lesson until we're making a lot of changes in both the people.
Who lead this we've elevated a couple of folks in the area. They look at more and different data we have AI that we're starting to very slowly early steps and starting to onboard for this particular area of diesel pricing and supply management that'll take some time to really bring in so there's a lot of things happening and I think some of the things.
First a couple of comments are contributing to success on the other hand until we have in the rearview mirror multiple quarters at some kind of new normal I still want to make clear to everybody my own expectation remains unchanged that a healthy typical diesel CPG should be in that 14 to 16 no different than what we have.
Been signaling before we've had a really solid quarter in this regard.
Hopeful and even optimistic that we'll get to a place that we start to get to a new normal in this particular area, but it would be premature to say that in a big part of our job here at the company since Ive been here My second anniversary coming up in a few months is restoring credibility and trust and it would be really premature to signal anything more optimistic than what our typical.
Will run rate has been and I think that healthy ranges that 14% to 16.
Got it. Thank you and then can you talk about any initiatives.
That you have in the works to attract more of the smaller fleet.
Do you think about that opportunity as a driver of top line and cents per gallon margin.
Thanks again, great question, it's really on point with one of the maybe top two priorities.
In fuel in both fuel margin and volume for a long long time, we've not had maybe forever as far as I can at least I'm aware.
We've not had a program designed very specifically around small fleet needs in other words.
Offering some kind of incentive whether you want to call that a discount program not necessarily discounting, but possibly to some kind of loyalty opportunity points etcetera. We've not had a real true program that we then put a lot of effort and energy behind we have a great team here of about a handful of folks who.
Focus on this.
And when you know for I know from one particular month last year, roughly 10 or 11% of our total volume between independents and full retail was about 50% of our diesel EBITDA that was again for a one month period I'm only slipped reciting because I happen to know that one month would mathematically precision.
When you can have that kind of result, and if we have it so under resource number one great people, who their EBITDA per per FTE. Here is tremendous there were underwritten resource and we have not had a real program and a real offering and so that's what I'm talking about having an offering.
Some kind of private label card that will have.
Some kind of discounting on our loyalty related component to it and then putting more energy behind it that's basically without giving getting too far into it that's what I'm talking about.
Got it thanks, good luck guys.
Thanks for the questions Paul.
Our next question comes from Bryan Maher from B Riley FBR. Please go ahead.
Good morning, Jonathan and Peter I appreciate all those comments so far are very helpful.
When we think about acquisitions, you've alluded to it a couple of times now can you talk a little bit about pricing and seller motivation and also can you talk about the cost to buy versus bill since it appears you might be headed down that road as well.
Sure.
In most a couple parts of that question.
Most cases, if not all we we will expect and we're seeing so far a discount to replacement.
And it could be anywhere from and I'll, let Peter piggyback behind anywhere from 20 to maybe even 40 or 50%.
So in terms of the comparative differences.
Between the ground up and buying.
Buying existing you know the other thing in terms of what we are seeing in terms of purchase price.
And how we underwrite and ill extrapolate to a different but similar circumstance when we onboard a fresh extrapolating a buy to a franchise when a franchisee joins us they see a 40% uplift in topline, 40% four zero just by joining our network and now the independent truckers, who I'm sorry, the big fleets, who used to do.
Why buy them and go to one of the big three now stops in.
Fuels up and then consumes and other ways of non fuel weighs 40% uplift and so by we're really looking at Cherry picking really good sites to acquire I mean, so we expect a very significant uplift so.
Inbound cap rate or inbound what were paying in and what we're underwriting I still think conservatively. There. There is a significant difference and I think it's more than I think it's justified by the established performance uptick we see in franchise.
So that's how we're approaching it I also would say that our cost of capital today is very different than what it's going to be not too far from now when.
When we undertook this last term loan b it was <unk>.
Marketed for it let's say September October of last year closed on in November December we were you know a year and a half out from having had a five time reverse split right. We were less than a year out from having had a $17 million market cap at the time of that and so what you know of course it was priced accordingly, it was still the right thing to do for.
For us and so as we start to look ahead and think about other opportunities and we're in that window as we're getting into next year I think it's fair to underwrite and assume a very significantly reduced cost of capital and so that's also part of how we approach. These Peter anything you want to add to that yes, I would just add John's point, we look at our cost of capital and as it is right now and it may.
It may very well and data improve in the future on a on a on a non synergy basis, though for these opportunities we're looking at achieving.
Our premium to that cost of capital and the ability. Unlike a couple of <unk>.
Opportunistic.
<unk> builds if we can ramp that was up more quickly and not have the delay of construction. We're all over that provided it achieves the return model that we have.
Is that helpful. Brian.
It is now where we can talk a little bit more about you know kind of cost of construction and stuff offline, but thats certainly helpful.
When you are going to be doing these site level improvements, which historically under prior management.
Were sold to the REIT SBC for those that are owned by FCC what are your thoughts about <unk>.
That investment in house that Ta versus selling some SD see major improvements not carpet and paint which would be ridiculous, but what is the thought process internally there about tapping SBC as a source of funds.
Yeah. So I mean first of all we have a lot of liquidity as we know.
The cost of which over time will improve as we talked about our plan is to fund those ourselves and.
And that's just across the board and I think our plan allow.
Allows for that we have liquidity to do that and then some and I'm really excited about that plan, it's been a little frustrating with what the whole world is experiencing certainly not unique to us is the impact on slowing our ability to really aggressively execute through that.
We will get there and I have as much or more confidence than ever in our ability to make those changes and then get the desired result.
And even just seeing the first few we've talked about see more we had a big ribbon cutting out there a few weeks ago.
I didn't really mention in the earlier remarks, we have about 90% plus almost 100% completed some lower price point refreshes it within the state of new Mexico that I'm equally as excited about and so excited to see those ripen get into the marketplace, you know get our revised merchandising and the way we're presenting ourselves.
In the marketplace and let it season letter ripen a little bit.
As excited as ever for that stuff, but the plan is to to fund that ourselves.
Okay. Thank you very much thanks, Brian.
The next question comes from Ari Klein from BMO capital markets. Please go ahead.
Thanks.
Fuel volume side ease of items grew fairly modestly.
Modestly sequentially and while that's not necessarily out of line with seasonality.
Or are you thinking about to what extent have you been impacted by some of the broader supply chain issues.
Jess truck driver shortage is how are you seeing any impact from that.
I would say no. Thanks, alright, great Great question, two really on point with what the world is experiencing today.
It's really it's tricky business parsing out how these external factors are affecting us and I'll I'll I'll add more to this but unfortunately it doesn't come with a sample set where we can see on my left hand, I'm holding up what life would have been like without these pressures and to my right hand, what were experiencing there is a lot of confounding variables mixed in so that it's a bit <unk>.
Tricky to parse those out obviously, we're all reading the headlines on the one hand last week I was at American Trucking Association generally speaking and I met with I don't know a dozen of my peers at our biggest customers. Some of the household names. We all know is the trucking companies and they're all they're all fighting the good fight in terms of trying to figure out ways.
To bring on a different pool or additional drivers and it's a frustration point with that said, they're all performing quite well.
The demand is there it's obviously limited by by these issues. So the only thing I would add to that is that year to date, I know, what I won't mention which cost, which which competitor but it was informally.
Stated by one of the leaders of another company Theyre down in diesel about.
A small negative a smidge under zero in diesel volume.
We're up year to date about 18 or 19, I think it is again for the entirety of the year, So I know compared to others, we're doing quite well.
But it's it would be impossible for me to give a credible authentic response to know how much those other factors have limited us we're all reading about it I'm really pleased with how the team is is pushing and fighting and in the end we are bringing more down to the bottom line, which is really the bottom line. So that's why it's called that so I know that's not maybe the right exact E.
<unk> answer you'd want but the truth is we just really can't parse out those variables and know with any level of certainty.
Got it and then just following up on that on the fleet contracts you've done what you've done a good job there, but can you talk about the competitive side of those and you mentioned the competitors seeing seen volume decline. So yeah. How are you seeing any kind of response.
As you try to win more of those deals.
That potentially maybe down the line or a headwind to some of the margin.
A couple of them because again a lot been again, great question also and I was with some of these folks last week, we have a lot of I mean I was brought into conversations I had a call yesterday with a Brent what would be a brand new fleet to us.
I spoke to have a head of a big part of their business yesterday that could be great business for us and when I was at 88.
Couple of conversations we had with more than other opportunities and so.
I think as we improve our sites look we started we'll start meaning a few year a couple of years ago at a level that we were behind our competitors. So.
Growing in and may be taking some more than our fair share.
Should be expected as we have just improve ourselves and maybe the offering as we physically improve our sites and we we improve our I T where in the past our sites with literally go down for not a few minutes, but hours and imagine the destruction of goodwill that creates with fleets and driver as well bye.
By contrast, as we improve those things and get rid of some of those negatives as we bring on better food offerings, which has an inherent advantage by the way the breadth of our food offering in our truck service offering I don't think others today can compete with us fully and so as we make those better and nicer and we design them around the customer base through that customer journey and segmentation work that I mentioned in my.
In my formal script earlier, I think we're only going to get more and more competitive and that's going to make us more desirable and give us a better and better opportunity to get more than our fair share.
Got it and then just.
I'll ask another one on the labor wage side, you alluded to some of the headwinds that youre seeing there.
He can provide a little bit more granularity sure.
Just a sense of where you can.
Your OE wages or how much do you think they might increase.
I can look and see what 2022, so again really great question is well, it's what the whole world was living through and we're not immune.
Couple of things.
On the labor side.
And I'll lump in more than just labor and wages to just more inflationary pressure still because there are other things that are out there.
You know I know hourly wages have grown this is not us. This is nationally about six 6% in the last six months.
Our retail wages.
Hourly wage of 6% and I think the trend line is up ticking that for us.
Half year periods, so it's actually higher more currently.
Retail wages are up about 7%.
For within our hospitality group, we've increased our at sort of the counter wages by about a buck and a quarter. That's just the month of September two a year ago September.
Also staying on hospitality, our overtime a year in September again, a year ago with 5% of total wages overtime. This year at six 5% and it is off total wages for hospitality and think about what that means right. It means is it's harder and harder to keep people who were at the counter at the register.
We're having to pay other people who are already our dedicated people, who arent as transitional or transitory, we're having to pay them over time. So that's I think that should be sort of rational.
So we're not outliers certainly not where we're right I think in line with what the world is seeing.
We're cautiously as we try to Pat and look this is call. It what it is is inflation.
We see greater expenses, whether it's from labor or otherwise product, we've been cautious and moving those up.
Want to be make sure we're not getting ahead of our competitors or others in terms of passing those costs along so we watch that from NACS. The convenience store Association meeting a few weeks ago.
Hanging attention with that that universe is doing for our hospitality and retail piece, making sure. Our direct competitors were sort of in line with so we've we are passing along.
Some of those expenses as we go to consumers and again not out of line with others, We're making sure we're doing that cautiously. Another example on wages and those costs on our truck service area again, everything I talked about a moment ago was all hospitality, meaning retail C store food in the truck service side, we have 80 more techs. This.
This year net net than we did a year ago. That's a good thing. It also means we're paying more right. There is more wage there, but it's also an area we've identified and we say investing in growth. That's part of what we mean, bringing on tax to fill that chokepoint for us. It's a challenge to bring in 80, new net new text I'm, making these next numbers up they're close but they're not precise we bring on five.
100, and 420 cycle out that's the world. We're in right now, but still wind up net net 80.
And so that obviously affects wages as well the last point on somewhat to wages and inflation more to inflation on.
On the repair side, we have not unlike the C store retail, where we could move prices subject to market and demand in reaction.
Daily literally we can move prices minute by minute frankly to pass things along on the repair side because most of the work. We do is for big fleets, we're cautious in terms of not.
Not being too aggressive in moving up pricing and so frankly, we only as of October one so post quarter moved up or some of the expenses effectively passing them through to our fleets in the truck service area outside of the quarter and so that's another factor that I think as we start to look a little bit ahead that may read.
<unk> speaking benefit us so hopefully that gives you a little bit to chew on a little bit of detail.
Thanks, I appreciate all the color.
I'm sorry.
The next question comes from Jim Sullivan from <unk>. Please go ahead.
Thank you.
So John maybe just following on from.
From the prior question when you look at.
Non fuel margins.
They were down below 60% in the quarter, which.
You know from the 60 61 level that I guess you maintained over most of the prior quarters.
And.
Just a simple straightforward question and maybe it's not capable of an easy answer but.
Do you expect youre going to be able to get that back above 60% in the short term.
It's I think we're going to hover right in the realm of where we are right now maybe maybe back up to 60, but in this in this sort of window.
Maybe a smidge under or two and it's boy that's shooting from the hip which I hate doing just to.
Look these pressures aren't going away on the one hand on the other hand, I think as we learn more meaning as we have more in the rearview mirror experience with where the world is today and.
Bifurcated between how we can move some of these costs and pass them along on the retail side separate from truck service, where we don't do so so.
Real time lets say I think on the retail side.
I think as we have more experience with this window, we're living through we're going to get better and better at moving some of that along and passing some of that downward should relatively speaking helped that margin and non fuel margin percent margin on the truck service side as I mentioned, we we pass along a significant uptick to our customers as of October one so that should start flowing through.
And so.
In the end.
The most important thing as I think about it as whole dollars, we are passing more whole dollars down to the bottom line, but on the other hand, it's a fair thing and we look at it would be.
It would be misleading if I were to say, we don't look at percent margin I think the whole dollars more important but it is still something we look at and it's just really hard to know that's the real truth, Jim It's more to me about how we manage through this window that the whole world is experiencing and if we do it as well or a little better than the next guy or Gal.
What will be will be fine and we'll continue to put more down to the bottom line the whole dollar.
Okay second question for me in terms of diesel gallon sales as we think about the fourth quarter.
Thank you you touched on this earlier in response to.
Another question, but.
Clearly, we've all seen the headlines we've all safely.
The photographs of ships waiting to unload in long beach and elsewhere.
And we've also seen the photographs of delays at the port while trucks or waiting to load.
When they are and when they're waiting, they're not driving and consuming fuel and without the delays they would be presumably so.
There seems to be a systemic.
Issue on the supply chain and transport that is that is leading to lower gallon sold than what otherwise be the case.
I asked this question because here, we are coming up into.
Into the most important season at retail in the fourth quarter.
And it's.
The question as I look at your sequential changes and gallons sold in the fourth quarter in prior years couple of years are up a couple of years, we're down to two 5%.
This year there.
Maybe that anomalous factor.
That maybe the supply chain is going to start to fix itself in the fourth quarter, we've all heard about.
Initiatives to increase the rate of unloading containers from vessels those containers has to go on trucks at some point if they are available. So when you think about fourth quarter should we be thinking that this was a quarter where gallons sold.
Go up.
Which seasonally is not typical but it has happened.
Again, we also great question and it is as you just highlighted in your in the question all the variables that are sort of competing to see who is going to be the winner net net right relatively when you have on the one hand, you've got great demand and that demand has been schoeps. So you've got all the la Porte everybody is talking about in the news you've got how many truck guys Chuck sorry.
Freight cargo ships queued up and waiting at some point there should be a spiking. This right. The question is and will there be its win and spread over what period of time, I think it's when and how steep.
And that's the question of the day, Jim for me I do not believe I don't have as much confidence or optimism that the fourth quarter, we'll see that maybe at the end of the fourth quarter.
Because maybe at the end of the fourth quarter. It will I think it'll be a little bit more deferred than that that's just my my gut check and I'm not sure I have a heck of a lot more insight to it than you or anybody else on this call.
So I'm not sure what if theres any additional value to my opinion on this I do believe the premise that a spike will happen.
And the question is just when in house, how steep warehouse spread over time.
Christmas.
Increased demand is likely people have money have liquidity, so I think youre going to see only more demand and with some of what the administration is talking about and pushing and supporting.
You know the La Porte for example may be helpful.
We'll have to see but my gut check I'd, rather set a more conservative expectation I know under promise relatively and over deliver that's our mantra around here for Peter as much or more than me too. So I just I would be.
I'm, a little more conservative than that we could see a little bit of it towards the end of the quarter I guess that's fair.
Okay, and then a quick question for Peter I guess on the franchising franchising.
Franchising model I know in your presentation.
You indicate that you would expect each new franchise to generate about a quarter of a $1 billion of EBITDA year.
And Peter when we think about that I think I know the answer to this but I'd like you to confirm it one way or the other but.
From the standpoint of cash generation.
We're talking about the same number.
$2 50 per year per franchisee.
Essentially yes.
Yeah, and Jim is 250 to 300 ish in three and a hair of some of the bigger ones will do more the smaller ones do lessons. So I use an order of magnitude once we get to the sustained 30.
It's in that seven $5 million to $10 million range that should be flowing to the bottom line just through that part of the business and continuing to CAGR to grow at that level.
Okay, perfect and then the final.
The question for me.
There was a footnote in the release about the quick queue adjustment in your equity interest.
That's a JV I think you have with Love's and.
You took your interest down below 50% I think it had been a parry pursue JV.
And I don't think you indicated what your interests currently is but I'm just curious why why that step.
Did you.
Thank you want to go into a different direction regarding cards here.
What's the rationale there.
So quickly was something that predates me it was an investment made in a.
In our card offering and I'm still trying to figure out in the long run and it's where we sit with that and so we've changed the level of commitment to it and that's what's reflected in the footnote much more beyond that it's still sort of a pending out there kind of issue there.
I don't know that I'd want to signal anything further, but Peter anything yes, we have a small interest it wasn't strategic for us and it was a funding.
Funding.
The business and we're still involved we took obviously the adjustment.
Through equity reduced our interest in it but still remain at some level.
And could you just specify what your interest now is down from 50 to what yes, we're not because we just disclosed that we're below 50%, we're not providing the actual percentage, but more to follow Jim Theres still some pending things that are out there that were again I think more to follow but fair questions, though for sure to ask.
Okay. Thanks, guys.
Thanks, Jim I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to John <unk> for any closing remarks.
Thank you everybody. Thanks for your questions today and thanks for your interest in Ta and look forward to the next time have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Thank you.
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