Q3 2022 Travelcenters of America Inc Earnings Call

Good morning, and welcome to the travel centers of America third quarter 2022 earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the call over to Stephen Colbert Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. We will begin today's call with remarks from Ta's, Chief Executive Officer, John per check followed by Chief Financial Officer, Peter Krage, and President Barry Richards for our analyst Q&A. Today's conference call contains forward looking statements within the meaning of the private Securities litigation.

<unk> Reform Act of 1995 and federal Securities laws.

These forward looking statements are based on Ta's present beliefs and expectations as of today November <unk> 2022 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 look.

Statements made today other than as required by law.

Actual results may differ materially from those implied or included in these forward looking statements additional information concerning factors that could cause our forward looking statements not to occur is contained in our filings with the securities and exchange Commission or SEC that are available free of charge at the SEC's.

Website or by referring to the Investor Relations section of Tas website investors are cautioned not to place undue reliance upon any forward looking statements. During this call we will be discussing non-GAAP financial measures, including adjusted net income EBITDA and adjusted.

At EBITDA the reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our earnings press release that can be found in the news section on our website.

The financial and operating measures implied <unk> stated on today's call as well as any qualitative comments regarding performance should be assumed to be regarding the third quarter of 2022 as compared to the third quarter of 2021 unless stated otherwise 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 with that Jon I'll turn the call over to you.

Thanks, Stephen Good morning to everyone and thank you for your continuing interest in Ta.

Resilience durability and consistency are the hallmarks of operational excellence.

And my 19000 teammates are travel centers of America have demonstrated these ask attributes once again and the outstanding third quarter results that we reported yesterday.

I believe the Tas continued strong performance during what remains a challenging and uncertain environment provides further evidence that solid results like these are sustainable and repeatable moving forward.

As our team displayed at the graduation day Investor event in New York City, we see a bright future for T. A or we are just beginning to hit our stride with growth and innovation.

Okay.

For the third quarter of 2022 as compared to the prior year quarter T. A produced the following.

A 67% improvement in net income to $37 million.

A 36% improvement in adjusted EBITDA to $88 $6 million.

And a 57% increase in adjusted trailing 12 month EBITDA to $320 million versus the prior year period.

Once again healthy top line growth resulted in significant increases in net income and operating cash flow.

It is important to remember that our Q3 2021 improvement over Q3, 'twenty 'twenty results with significant which makes this quarter's results even more impressive against a difficult high performance comparative period.

After now reporting 11 quarters of excellent performance, we acknowledged the increasingly challenging comparisons that we face.

We remain confident that our operational excellence in growth and innovation plans will continue to drive solid multiyear improvements that are both consistent and resilient.

I want to clearly emphasize tas ongoing multi year financial improvement thus far.

In 2019, the last pre transformation period, Tas adjusted EBITA was $131 million in 2020, our new one refocused team generated adjusted EBITDA of $147 million, despite the uncertainty and negative impacts from the Covid pandemic.

In 2020, one we saw further milestones as T. A broke the $200 million mark with $222 million of adjusted EBITDA.

And now I'm proud to report on a trailing 12 month basis, we have generated $320 million of adjusted EBITDA.

These impressive results demonstrate the significant value creation that Tas current leadership team has developed is delivering through operational excellence and resiliency over a sustained and dynamic period of time.

Importantly, while fuel margin remained a robust component of this quarter's results broad strength and innovation can be found throughout our business frankly, overcoming significant inflationary forces that are affecting the broader economy.

Well, then fuel margin Ta's fuel team continues to identify and capitalize on opportunities to not only ensure adequate supply of product in a constrained marketplace.

To improve our dynamic buying processes ever striving to lower costs on each delivered load, thereby increasing margin.

In short our fuel team has continued to meaningfully improve the supply management process and again continued to leverage opportunities within a volatile marketplace to drive strong diesel CPG margins.

It is important to underscore that while favorable market conditions did continue during the third quarter, our solid results and fuel were due in part to the team capitalizing on that environment.

Moving beyond fuel, but staying on the liquids, we saw ongoing strength from demand for diesel exhaust fluid or Def.

This product has become an important part of Tas business and we remain on track to have depth dispensers on the diesel fuel islands that all Ta Petros nationwide by the end of this year.

Turning to the commercial Division truck service revenues were robust with substantial growth coming largely from our mobile maintenance business, which involves large repair vehicles and technicians working within the yards of our large fleet customers.

This strength drove margin expansion is ongoing inflationary pressures were more than offset by top line growth.

We see truck service is an important differentiator and growth driver for the future of T. A.

With new initiatives ranging from heavy duty trailer repair footprint expansion, new technology, and improving tech retention inefficiency.

All designed to harness this unique and differentiated business.

Moving to hospitality, while we continue to thoughtfully increase prices prices to offset inflationary labor and operating cost pressures those pressures remain a persistent but not new headwind as we move into the fourth quarter.

The ongoing increases seen in operating expenses are likely to persist into and through much of 2023 for both hospitality and the broader economy.

Ta is fortunate that it's intrinsically resilient business model combined with excellent execution and much remaining low hanging fruit, that's yet to be harvested should position ta to continue to perform at high levels.

Importantly, we do see opportunity in hospitality for our many new initiatives such as T. S customer loyalty program, improving food operations merchandising efficiency and leveraging technology to reduce friction improve the customer experience and correspondingly benefit margins.

To provide more detail on a few areas of focus we have announced a partnership with the great Cleveland clinic, which will designate healthy meal options in our full service restaurants to improve driver wellness and we expect this relationship to broaden and grow.

We are upgrading some of our full service restaurants, which are a key differentiator by bringing on known brands for us to operate and separately for us to lease to.

These are just a couple of ways. We are carefully working on our various offerings to continue to improve both top and bottom line results as inflation impacts consumer behavior.

Oh.

Beyond the individual businesses I think it is important to speak to the resiliency of Tas business model itself.

As we have discussed before Ta has a unique strength and that certain areas benefit from the same conditions that cause a headwind headwind in other areas of the overall business.

For example, while we while we are seeing the consumer motorists segment impacted by inflation.

Slowing discretionary spending at the C stores. The same macroeconomic uncertainties have also created a favorable fuel market environment that allows our team to deliver higher CPG margins. This is just one example of the balanced and resilient business model.

On the subject of Tas resilience through uncertain times, we expect persistent volatility to remain at least through the end of 'twenty, two and perhaps well into 2023.

Drivers such as the recent OPEC supply cuts the war in Ukraine ongoing supply chain constraints stubborn inflation and other macroeconomic concerns are unlikely to resolve in the near term.

Of course elements like inflation are likely to continue to impact consumer behaviors at the gas pump and in the store and adversely impact Ta's. SG&A. However, we also anticipate favorable diesel margin conditions that we've seen throughout much of the year within which our excellent fuel team will continue to deliver.

That said, while we provided an updated long term fuel CPG target range of 17 to 19 cents at our September Investor Day, we've not changed our baseline guidance of 15 to 17 sets. However.

However, importantly, as noted we remain optimistic as we enter the fourth quarter at higher than typical fuel margins are likely to persist throughout the remainder of 'twenty, two and possibly beyond.

Despite this positive backdrop, we are not content to rest on strong market enhanced performance for CPG.

We are actively implementing transformational initiatives in fuel, including expanding Tas, New small fleet private label card program and the development of an artificial intelligence platform to support diesel Street pricing.

We believe these activities are beginning to contribute to relative fuel performance and have the potential to drive non fuel retail and hospitality sales over time.

Moving to growth initiatives in our network expansion plans, we have completed the acquisition of five travel centers and two truck service locations. During the first nine months of 2022.

Our acquisition pipeline remains robust with several additional opportunities under serious evaluation during the fourth quarter, which position us to add more sites along active carter's to strengthen the Ta networks' geographic coverage.

As we have discussed our corporate development team underwrites these acquisitions with a target minimum midterm mid teen return on investment and I'm happy to report that the first two acquisitions. We closed in April are significantly outperforming our pro forma EBITDA return expectations.

We are excited to see the dedication and excellence that this team in the field operations team have delivered as seen in such strong financial performance.

As described at Investor day acquisitions will provide substantial incremental run rate EBITDA and we expect to deploy 75 to 120 million annually as we move towards our long term three to five year financial targets.

Turning to franchises since the beginning of 'twenty 'twenty, we've entered into agreements covering 56 travel centers.

Five of these franchise sites began operations during 2022 during 2021 and one during the second quarter of 2022.

We expect to open the balance of these 48, mostly ground up travel centers by the fourth quarter of 2024 with an expectation of opening 30 annually in our long term financial targets.

We anticipate the Tas franchise expansion will begin to contribute very meaningful incremental EBITDA as we enter 2023 and beyond.

As we enter the fourth quarter, we continue to forecast our non acquisition capital spend in 2022 to be between 175 and $200 million.

These projects are focused on growth opportunities and improving the overall customer experience, including significant upgrades that travel centers expansion of restaurants, and food offerings and further enhancing Tas technology systems infrastructure.

Before we begin to wrap up I would like to remind everyone of our long term growth strategy and financial targets that we presented to investors at our graduation day event at the NASDAQ in New York City.

First we expect continued operational improvement and new initiatives tailwind along with an intelligent capital plan to drive ongoing strong organic growth in all areas of our current business counterbalancing near term inflationary headwinds within the broader economy.

Second acquisitions are a core component of our expanded network growth strategy, we are targeting $75 million to $120 million of tuck in acquisitions annually designed to strengthen our geographic footprint and deepen customer relationships, while providing solid cash on cash returns.

Third franchises are a key focus for T. A and we are targeting 30 to 35 openings annually. This program has been quite successful thus far we're independent operators that become franchisees have benefited from the scale of ta through greater purchasing power higher volume fleet deals in the far reaching Ta brand recognition.

Finally, these three legs of the stool all lead to our three to five year long term EBITDA target range of between the mid four hundreds and $500 million.

Before I turn things over to Peter I would like to take a moment to review the transformational journey that our 19000 teammates embarked on over the past 11 quarters.

We began this journey when we began this journey the company had no clear mission statement culture, our vision for the future. We have many talented people that simply were not being utilized to their vast potential.

With a thoughtful re imagination of the business and our focus on results and accountability, we leverage key new hires and promotions from within to implement a plan to set the stage for growth and innovation.

Over the past year, we have seen this transformation plan deliver the positive results of resiliency strength and operational excellence that define the new T. A along with a trailing 12 month EBITDA in excess of $300 million following the prior year, where we reached $200 million.

The transformation to the new T. A culminated in our graduation day investor event, where we rang the bell the closing bell at NASDAQ and delivered new delivered and delivered in a long term financial framework for our innovation and growth driven targets.

Additionally, during the third quarter, we delivered our first ever ESG report that highlights the important steps that we have taken thus far at the company to foster inclusion community and sustainability, while laying the groundwork for Tas future in the next generation of mobility.

Now as we move forward in the growth and innovation stage towards our longer term three to five year targets that we outlined at Investor day, I am confident that we have assembled the best team possible to achieve our long term goals through 2023 and beyond.

Finally, and as always I would like to end with an expression of gratitude to our teammates guests customers analysts and shareholders.

Thank you all for your continuing to commitment to Ta and with that I'll hand over the call to Peter <unk>, Our CFO Peter.

Thank you John and good morning, everyone.

As John highlighted this was yet another excellent quarter for the company.

Before I review our performance in more detail I think its worth noting.

And when you consider our significantly improved performance over the past 11 quarters during prolonged periods of uncertainty.

We have demonstrated the ability of this durable and resilient business model to deliver strong operating results and cash flow, even as we lap increasingly challenging comparisons.

Now moving onto our results.

Excuse me for the third quarter, we reported net income of $37 million or $2 49 per share, which improved by 97 per share versus the prior year and year.

And this translates to a 67% improvement in net income against what was very very strong comp in 'twenty one.

Adjusted EBITDA, which excludes one item in the quarter increased by $23 $4 million or 36% to $88 $6 million, primarily due to strong diesel CPG margin and non fuel gross margin, particularly in our truck service business.

This strength was partly offset by Tas investing in growth and the impacts of inflation seen in higher labor and operating costs.

Our fuel sales volume declined slightly year over year by $3 2 million gallons or one 5% to roughly 583 million gallons lapping a very difficult comp following several years of strong growth.

The mix shows diesel sales up one.

Diesel sales volume up 1% and just over an 11% decrease in gasoline sales volume that likely reflects the consumer motorist segment softening as inflation tightened budgets, along with higher prices at the pump.

Fuel gross margin increased to $26 $4 million to $132 4 million an improvement of just under 25%.

And combined margin per gallon improved to $22 seven.

Up $4 six.

Or 25, 4% compared to the prior year.

As John mentioned, the improved fuel performance was the result of favorable market conditions and <unk>.

Continued operational excellence by the travel centers fuel team.

I will add that while we expect the market to rationalize somewhat in 2023 and October volatility remained at or above the levels. We saw in the third quarter.

As we described at the Investor event in New York, We have announced a long term target of 17 to 19 for blended fuel gross margin per gallon, which is above our historical shorter term guidance.

And as John mentioned, while we believe that volatility will remain elevated at least through this year due to broader supply concerns and economic uncertainty. Our team has made important strides with new initiatives designed to transform the entirety of the fuel purchasing process.

We expect that these initiatives will help maintain strong fuel results as we begin to see volatility potentially stabilize in 2023.

The improvements we have developed from artificial intelligence in diesel pricing to our small fleet private label card program give us confidence that this segment will offer yet. Another example of Tas overall durability and resilience throughout any economic cycle.

Non fuel revenues increased by $53 9 million or 10, 5% and total non fuel gross margin increased by $34 8 million or 11, 4%.

Importantly, non fuel gross margin percent increased by 50 basis points to 61% due to increased higher margin truck service business.

And our proactive approach to increasing pricing to counter act higher input costs.

Variable costs remained well controlled and truck service relative to the solid revenue increase resulting in improved profitability.

Revenues from store and restaurant, which include both full service and quick service increased by 3.1, and nine 6% respectively.

Sales growth in this area was offset by ongoing inflationary labor and operating cost pressures.

We have been working hard to manage these costs and lessen their impacts.

As such we are making necessary adjustments to help mitigate the pressures near term along with implementing the longer term improvements John discussed relating to customer loyalty operations and technology.

Yeah.

Selling general and administrative expense for the quarter came in at six 6% of total fuel gross margin plus non fuel revenue as we continue to support our growth and efficiency initiatives.

As a reminder, we have established a benchmark of costs on a relative basis to the growth in our business.

And expect annual SG&A to be in the range of six and three quarters to seven and one quarter percent of fuel gross margin plus non fuel revenue.

We were below this range for the third quarter, you had expect to move higher in that range going forward to support our growth initiatives in 2023.

We believe these investments in growth now are important to achieving our long term targets.

Turning to our balance sheet for a moment on September 30th we had cash and cash equivalents of $467 million and availability under our revolving credit facility of $179 million.

For total liquidity of $646 million and $524 million of long term debt outstanding.

We invested $46 $1 million in capital expenditures during the quarter and $136 million for the year, thus far.

We continue to anticipate a cash spend of between 175 and $200 million on Capex projects in 2022.

Although supply chain and inflationary pressures continue to exist we have been largely successful this year and completing projects on time and at levels at or near our original budgets.

In addition to Capex spend as John highlighted we invested $109 $5 million total cash consideration to acquire five travel centers and two truck service facilities year to date as of September 30th.

We are in the capital planning phase for 2023 and plan to have commentary on our expectations for next year during our fourth quarter earnings call in February .

Lastly to refresh you on our current thoughts with respect to capital allocation.

Given the expectation that a recession may be coming in 2023, we are being prudent regarding the capital that we deploy.

We are willing and able to deploy capital on projects that generate returns at or above our hurdle rates without long periods of stabilization and we will remain focused on these areas for the remainder of the year and likely into next year as well.

We remind everyone that we have multiple levers at our disposal to preserve capital from modest to more significant if recessionary forces further develop some of which we have success successfully executed in the past.

We are confident that our strong financial position flexible execution will allow us to deliver the innovation and growth necessary to achieve our long term financial targets that.

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

We will now begin the question and answer session too.

To ask a question you May press Star then one on your telephone keypad. If you were 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 is from Bryan Mayer with B Riley Securities. Please go ahead.

Good morning, Jonathan and Peter Thanks for all those comments.

Couple of questions for me you know Theres a lot of noise.

Noise out there in the news related to the.

The countries, specifically the northeast running out of diesel fuel.

I'm not really sure what to make of that and how it would impact you guys and I'm sure. It will be devastating to the parts of the country, where it impacts in general, but can you give us any comments as to what you're hearing or seeing out there related to this sure and it is making thanks, Brian by the way and good to connect this morning. There is a lot of noise out there and if you recall.

I think it was around our earnings call over the last one or the one before there was similar concerns that were out there and I think it's maybe a little louder. This time.

But I you know in in and staying very focused with our fuel team who in turn are of course, very focus where we're often bragging about our fuel team because they're doing such a great job and so we're in close close contact with them and we have a we have a pretty.

A high degree of confidence.

That if we go dry anywhere it will be infrequent and short lived and very sort of focused surgically certain key area or a certain specific areas, but we do not have broad protracted wide ranging concerns that could affect you know meaningfully measurably affect volumes we don't.

On the one hand.

And on the other hand, the same environment back to sort of this resilience. We keep you know sort of harping on because I think we've seen it now long enough that we really truly believe in it we expect to have relatively higher margins. During this period. So I think two things net net I think we're gonna be okay, just sort of in and hold dollar margin and two we do not.

Specced again, I'll, just repeat it wide ranging protracted outages, where we go dry if they happen I'll be very focused and in very limited areas and for relatively short periods of time.

The way, we purchase fuel our contracts, both short and long term give us a level of protection, but anyway. So those are our thoughts there is a lot out there and I think the media has really grabbed onto it but hopefully that gives some some further insight into into what we think and maybe what will happen.

Okay. Thanks to that and then you know we've been talking about the franchise pipeline for a couple of quarters couple of years now and I know that the pipeline is deep and growing but it doesn't seem like they're actually like turning on a light switch maybe as fast as we would have thought.

And I think that you mentioned in your prepared comments about there being a lot of ground up development related to this can you talk a little bit about why this loan is to actually really onboard is it is it signage at Ikea the existing relationships that may be in place operators, who are already open for business.

Have I mean.

How do we ramp that up faster sure no. That's a great question I've been surprised going back you know putting my head on from two years ago, Let's say, we're really started pushing almost two and a half to two and a half years ago I've been surprised that two things one how long it would would've taken meaning looking ahead from back then.

And part of that.

Is supply chain challenges, we're getting stuff, both labor and product materials has just taken longer.

And the other surprise was we have far more ground up.

<unk> franchisees than I would've expected back then and so the combination of much much heavily weighted toward ground up number one and number two supply chain and its effects on both labor and materials, which ultimately affect the entire development process has just taken a lot longer we're very focused on it we've added some resource.

To further support franchise.

<unk> franchise in general the good news about them. So that's the bad the good news is what by adding some resorts, which again increased to some SG&A of course.

That's part of the example of investing in growth. The good news is that much of this is in front of us and I think you will see during this next year during 2023, a much lumpier.

Effect of franchise or more opening and greater incremental EBITDA. It has taken longer than I had anticipated again for those reasons and the good news is a lot of value right in front of us.

And then just last for me on.

On the full service restaurants, I mean, I know that you swiftly and meaningfully closed the vast bulk of those you know right when Covid <unk> 'twenty and then identify that there had been a lot of EBITDA losers in that Biogen and were slow to reopen those.

Can you give us an update as to what's going on in the full service restaurant business you know within <unk>.

Sure a few things one is you said you know restaurants. If you go back to that mid year 2021, Covid really hit starting in March and by mid year restaurants were down something like 90% because they were not there were the one part of the business. It was not essential so to your point. We responded reacted it wasn't strategic it was reactive but it was the right thing at the time and we shut down.

Most of them.

Some did some sort of delivery someone could kind of come to the door and they'd almost do just take out but really it was very limited we've reopened roughly 80% of them now and I feel like we're within the right roughly the right number there may be a couple of others, where we rethink but generally speaking again in the order of magnitude I think we're at the right place now.

A number.

In terms of how we're executing.

We're still Oh, well I'll tell you very specifically first.

We've added a few IHOP, we're actually negotiating in and addressing the possibility, which will be more than a possibility or probability of leasing some of them. So some like our traditional model worthy operator, and now and others, we will be the landlord and that will create a nice sort of stable predictable.

Cash flow from those locations and mitigate risk and so they'll create some certainty and frankly in some markets places where there are established excellent operators, who just focus only on that I think they'll probably be able to do better than we do in general so you'll see more of that as we get through this quarter and announcements into next year.

Again, IHOP and some of us some where we're operating somewhere leasing and then you'll see some other brands again, we've been working on now for some time in a couple of locations one proprietary that we'll be announcing around the corner and at least a couple of locations and then finally last but not least not to skip over.

We're pretty focused just on how to continue and this is this is a broader comment about the company sort of a continuous process of improvement. So we're continuing to try to find ways, whether leveraging technology or just traditional operation.

Schedule management tools that we have at our disposal to improve efficiency stuff like that that I think over time will continue to improve the efficiency and effectiveness of the full service restaurants, So that's pretty much the story there.

Okay. Thanks, a lot Jonathan.

Thanks, Brian as always.

Again, if you have a question. Please press Star then one the next question is from Ari Klein with BMO. Please go ahead.

Thanks, and good morning.

Fuel margins have clearly been a significant positive.

It did decline during the quarter can you talk about the margin trajectory for three Q and maybe what October looked like especially with the noise of diesel shortages that you mentioned increasing.

Sure. So you know through the quarter.

And going back I mean this is the stories now multiple quarters, maybe you know three or four quarters old now and that could be corrected on that by Peter or otherwise, but you know we've had a typically high margin as we've emphasized yes, theres been favorable market conditions as well as a great great execution I would say in consumer.

Turning to improve execution under a person who's been elevated up as lead in that department over over time now and so I think we can take some credit for it but we also have to point to the market.

October I think as Peter mentioned in his remarks October was very strong and just keeping it a little higher level and more broadly you know the same conditions that have been creating this environment historically through the third quarter have persisted and we have every reason to think will persist at.

At least for the for the visible future and in my mind that means at least through the fourth quarter and and most likely into some part of 2023, obviously like anything as you get farther and farther out its harder to have really great visibility, but we have a level of confidence and we said the same thing in the last quarter that we we gave an outlook.

That the next quarter. The one that we're reporting third would be would be you know we had a positive outlook on fuel margin and we're repeating the same thing and I think even then last quarter. We said, we feel reasonably comfortable in saying the outlook for fuel margin through the year is positive that it will be.

Higher than typical and we're repeating that now we have that same confidence in it. It's all the things that we all hear about and see about whether it's the war in Ukraine other things that affect.

Fuel supply these those conditions and those uncertainties tend to create a more favorable environment and we have no reason to think they're going to abruptly change within at least the end of this year and as I said I think at least into the beginning of next year beyond that you know too much time between now and then to really feel confident.

But last comment there I just I come back to this resilience of the intrinsic resilience of this business model I know we use this word a lot on this earnings call, but we've come to really believe in it where at certain times in our past since at least we've been here Peter and I, we had shortfalls in an area or headwinds in an area at the same time as tailwind.

Upside in other areas and so whatever that means I still feel really confident that this team blended with folks who've been here a long time with new folks will continue to outperform whatever we see whether it's COVID-19 and other things like that its supply chain and then tight fuel supply and who knows what the world will bring but boy in the three years, we've been here two and a half years we.

Scene about everything and our Ebitdas breaking the trailing 12 well into the three hundreds last year. This time. It was looking like you know trailing so it was well into the two hundreds and the year before that it was in the low one hundreds so I feel like this team is going to execute no matter what comes along in the next couple of quarters, Let's just say.

And then can you reconcile I guess, the 15th of 2017 that baseline comment versus the longer term 17 to 19 is that where you think you know.

In the near term margins are headed once we exit the volatility I suppose sometime in 2023 that are kind of close to 15 to 17 cents before increasing of the longer term.

So you know we have increased by a penny I think a quarter, maybe two quarters ago from 14 to 16 15 to 17, we really wanted to get our skus under ourselves and we've been here now three years and we don't want about year, two and a half we upped than maybe two quarters back on the one hand and on the other book end. We're looking ahead going Okay. We know the team is executing.

At a higher level. So at the book end, meaning the forward looking target not guidance, but target meaning within this three to five we have a level of confidence that we were going to move up to the 17 to 19.

So the question is we're in the middle do we sort of put a stake in the ground and give near term guidance. That's higher we're still sort of comfortable coming back to this up but only by the penny 15 to 17, but giving sort of the outlook. So we have this guidance and hopefully this isn't confusing, but we have this guidance that guidance to me is.

You know, we're trying to make almost almost a commitment right. It's not quite literally that but that's why psychologically think about it and that we really really want to have enough runway behind before we make those very high sort of levels of again I'll put in quotes commitment to change the short term guidance, but at the same time as we're saying here on this call and we said loss.

<unk> call that we expect to have a typically higher margin in the nearer term. So we're giving we're sort of stuck on our guidance, we're giving some outlook short term outlook on top of that and for now looking farther ahead, and saying we're going to get to this other place at some point, we'll put a stake in the ground and.

And move that baseline up.

We're not quite there yet, but I I feel comfortable in signaling. These you know these outlooks above a baseline along in the context of our broader long term target for now and hopefully that gives enough to sort of understand and to make some assumptions and at some point will move the needle I expect.

Got it got it and then just on the fuel volume side.

That's something you would anticipate slowing.

Our declining with with macro pressures, increasing or T. A co op or kind of what you were getting with fleet sales offset.

Any headwinds you might see there.

That's a great question I mean, I think right now we feel reasonably confident that we will stay in a relatively stable place in terms of volumes will that go up or down a little bit over the near to midterm that that's very possible.

And looking farther out I mean, if a recessionary forces inflation forces at inflation of eight 9% recession protract through some long period of time.

We may very well see a decline in volumes that that said, we do have these these tailwind that I'm really excited about and we are repeating I know the AI for St diesel, which attacks the sort of highest part of the customer segmentation and then the private label small fleet program, which is really getting head.

Getting some some tailwind getting some momentum that the rate of growth of that which we haven't reported volumes yet for that new program I expect probably as we get into early next year, we will but the rate of growth there month over month for the last couple of months has been 100%. So that is growing very rapidly.

And so it will be an offset how much of an offset will it be a complete offset so it'll be a net positive versus a negative it's impossible to say, there's again just recessionary inflationary forces how protracted they are measured against these these new programs. The good news for US is that we have these programs and we are unique in that we are able to file.

And very significant substantial meaningful new opportunities like those that are still the value of which is still in front of us and as we've mentioned we alluded to in the comments you know I expect AI and machine learning to broaden into other parts of our business on the fuel side initially and probably other places eventually we may very well have an AI.

In house resource or resources, eventually not just us leveraging outside companies because I really do believe a.

The future of most business that will just be a department or a set of resources that will be a core and therefore inside function.

So so anyway those are some thoughts the other there are some pressures, but on the other hand, we have some initiatives and I do.

I'm very confident there'll be at least that offset will it be a complete offset it's impossible to say at this point.

Got it thank you for all the color.

Thanks, Alright, thanks for the questions and your support.

The next question is from Paul <unk> with Citi Research. Please go ahead.

Hey, guys. This is Brandon Cheatham on for Paul Hope you are all doing well.

I was wondering can we go back to the CPG question, and just talk a little bit about how fuel margins progressed through the quarter I think last we talked you know.

P. G was a 26 cents for July so just kind of wondering how that exited and then can you talk about where where that is today and maybe if we could frame a little bit more expectations for fourth quarter.

Well you know we ended the quarter reasonably well I mean, it was significantly high.

Higher than typical as Peter said and I'll hand, it to Peter in a second October was very strong and you know reading the tea leaves a little bit with what's out there frankly with making the news.

It is almost even more exaggerated what the news is in terms of supply constraints and the volatility and uncertainty that comes with that and as we've articulated how some of that in the short run is beneficial to us.

So Peter any anything to add in terms of the project the trajectory within the period sure sure you know.

We've been you know knowingly and.

More transparent with the with what we see.

In the first month of the quarter, when we report and Thats always dangerous in a volatile environment no.

No question in July we saw 26, we came in at 22, seven so clearly it softened during the remaining two months October we're seeing a similar situation to what we saw in July but you know I provide the caveat that yes, we want to be transparent here, but you will see in a volatile environment environment you could see obviously a decline later in the quarter. So.

What we said in July what we say in October May may ultimately be what we see for the full quarter.

But I provided that caveat.

Got it so October has increased.

Increased relative to September just kind of put a bow on that.

Yeah, I think I think it's a bit of a carbon copy of what we saw in the third quarter.

But but again.

Stating it again for four impact that the quarter theres volatility that exists and and and we saw that in the third quarter, we could see that in the fourth quarter as well, but we're seeing a bit of a carbon copy.

Got it okay and anything to share on why gasoline volumes are down as much as they are is that really just macro drivers or is there anything else that.

It might be impacting the segment traffic.

So you know we never fully.

Repeating the beginning we'd never fully recovered to pre COVID-19 on the volumes a and B you know I do believe much if not most if not approaching all of that is oriented around.

People being a little motorists the motorist side of our business being a little more austere and careful with what they do and how much time they spend in a car.

But with that said I definitely want to leave anybody with the impression otherwise we're constantly looking for opportunities for improvement and frankly, the first places we always look in the areas. We've put the most energy and are the places of softness from the first day, we got here till now theres always been softness somewhere there's always been something broken there's always.

<unk> been some opportunity to improve and it's a psychological it's an expression of our psychology here. We're constantly looking I say to these guys. It's bad news first what are the things that are soft how do we fix those things so.

We're continuing to look for ways to improve and this isn't an obvious area of focus I mean, when we have volumes down it's not good enough for me or else just to say well. It just motorists are well its never recovered to pre COVID-19. Those those things are largely true the motor is comment.

And maybe completely true you know, we don't know for sure I don't know mathematically I should say, but we are very focused on it as an area of potential significant upside.

Got it.

We can just switch to the non fuel side, you know as you continue to pull levers there.

The argument the most excited about.

Where do you think the biggest opportunity is over the next 12 months to add value there.

So you know.

There's two parts to that story, there's probably more but I mean, the two the first come to mind.

On the truck service side.

The team is just performing at such a high level and it is such a unique differentiator and with some of our biggest customers that are just helping us grow their very significantly I'm, just really excited sort of broad brush generally over there a little more specifically, we're adding some both capex and opex again back to investing in growth.

You know vehicles to further expand that business and in particular, our mobile maintenance business that I mentioned in my in my comments that business where.

We literally send a big truck and attack or two behind the gate into the yard of our customers and perform services. There that's a business we're expanding.

That's a business that historically was tethered to a location. So if we added a travel center, we would dispatch a truck like the one I described behind the gate in the yard we realize that business. While we'll continue to expand that way. We can have further reach by growing that business in markets, where we may not or Carter's we may not have a travel center, but there.

Demand customer demand and so that's a way to expand and frankly, it's a capital light.

And all operational expense light way of growing that business. So we're very focused on that and then there are a lot of other things in truck service those just a couple.

Separately on the hospitality side, I'm I'm convinced and it's a different reason, but I'm convinced.

There is opportunity and when I say that I lump and even though it has not really taken the hospitality, but it's really more of the motor side of the business. It's the fuel the gasoline comments, we spoke of a minute ago. I think there is opportunity there that relates to C store and restaurant and food performance and so some of the investment we're making in the in the full service restaurants, you know these <unk>.

<unk> check out and and technologies that reduce the friction at the point of sale.

Some of the investments, we're making that support that.

There's a whole range of things on the retail side of the business that I'm collectively I'm very excited about so I know that's a broad answer that's truck service. That's that's that's that's a retail and I guess this would be repeating but I really am excited about the relative impact that.

The fuel stuff, we talked of before it.

Private label card and separately AI for St diesel will have so I don't have any one thing there's just so much happening here that's really exciting.

That I guess, they're all sort of in somewhat equal parts get me really excited of what we can do into next year.

Got it I appreciate it and one more if I can I'm sure.

Can you talk about the cash balance you have debt that as you know able to be paid down at the end of this year I know you wanted to wait and see kind of what the acquisition pipeline look like so just any update there you know do you think you'll have a pretty good handle on what the pipeline might look like you know any plans for.

You know paying down any portion of that that and plans for the cash balance. Thanks sure. So so thanks. Thanks for that also Paul so as we've been saying for probably a year now or thereabouts.

We've loosely index to the end of this year as a window within which we really wanted to prove out how acquisitive, we could be and we're starting to do that you know two we can are you now.

We have the ability to refinance if we choose to with more flexibility and less.

Less fees economic impact of doing so et cetera also index to the end of this year. So right now we're in this window of budgeting for next year preparing plans for next year and so you know a part of that dialogue of course will be what do we do with our cash balance sheet or what do we do with our cash balance and how can we most effectively put.

To use so we haven't made any we certainly haven't made any firm decisions, but it is part of our very active and <unk>.

Real time dialogue right now Peter what would you add to that I think the headline is we are at the maximum flexibility in the allocation of the capital to John's point and.

Having that flexibility, particularly given the fact that a recession may come along or obviously the pipeline is strong you can see we invested $110 million in.

And acquisitions that will deliver real EBITDA next year in the light of maybe moderating CPG. So we're thinking about the entire business, but that flexibility in our capital allocation for me is very important.

And Paul one thing to add while it goes beyond capital, although a lot of our capital plan of course is built around growth.

Our SG&A, our SG&A has grown as of course, we've reported roughly two thirds of that roughly two thirds of that mountain with mathematical precision, but order of magnitude relate to the SG&A increase roughly two thirds relates directly or indirectly to growth and investing in growth roughly.

Third you know 555% or so.

As.

It relates to sort of inflationary costs. So it's I think important for folks to understand that we're really focused on creating long term value. We're genuinely committed to investing in growth, we could certainly cut back on growth plans.

We wanted to we thought that was best but that's not best for the company in the long term and so while you see a what I would put in quotes and artificially high SG&A growth that directly directly related most of the two thirds of it to investing in things that will only see later in time I'm not in the immediate immediate to create value and there's a long list.

Are things that we're doing like that to invest in growth. So we're very committed to that on the capital side, but also.

On the SG&A side, and I think it's worth saying that everybody hearing that.

Got it I appreciate the color thanks, guys and good luck. Thanks Paul.

The next question is from John Lawrence with Benchmark. Please go ahead.

Great. Thanks, Good morning, guys.

Hey, John .

John would you you spoke a lot about the fuel business and you gave a lot of those short of initiatives at Investor Day.

Just want to walk down through some of those when you when you look at the margin and then you look at availability.

But you have you talked about various things as you have on the call the card the IP projects.

<unk>.

Then the colonial pipeline is one that really intrigued me a little bit can.

Can you talk about which one of those are the most and I assume these returns you're talking about 15% to 20% on all projects basically that.

You know fits that but can you talk about which one of these effects I guess the pipeline is more about availability, but does that help margins as well.

So thanks, John and welcome by the way.

And.

By buying on the pipeline is something we've done but in a very limited way.

Our direct competitors do that most of the industry buys from the pipeline. In addition to the way we sort of have described that we purchase fuel and it is something where we're testing and in a somewhat modestly like everything when we beta stuff before we go headfirst into things and we're constantly testing things and that's an area that were in the <unk>.

<unk> of testing kind of early innings of testing. So it's too early for me to really have my Franklin my own expectation of what it can do other than to say I am excited and intrigued that it.

It is something that could be very significant for us.

I'm always asked him I said, there's got to be a reason and others are doing and have done it. So for so long and why aren't we doing it. It's a very simple curiosity. So it's too early to really say, but others do very well by buying directly from the pipeline separately you know on AI for St diesel once again, that's using the machine to draw.

<unk> Street pricing that's pricing that people are small fleets are independent truckers, who are not part of a big discounting program.

A small fleet discounting program, just pull up and pay the sign right and that's the process by which we price and using the machine in quotes to and a machine that learns and get smarter as it goes you know machines that.

Support Facebook and all these other very complex algorithms that when you go shopping and you look for an odd item and for the next three weeks. All you see are popping up on your screen is that odd item the amount of mathematical equations that need to be calculated to personalize that to the world is unbelievably complex for us it's fairly simple but.

Still more.

Difficult then I think the human mind can just handle and so I'm really excited that the AI for St diesel pricing will find a much more optimized place and we're in the process of rolling that out across the network. Our early beta testing that was done over a few months was very very significant if you were to roll it out across the network very meaningful Inc.

<unk> EBITDA very noticeable measurable so I'm excited for that one and the private label card as I mentioned by definition, we're serving small fleet. So these are fleet I can literally by definition you don't get huge volumes as you sell a fleet your private label card, but we very rapidly we are very rapidly growing that and I think we're going to start to see.

Meaningful measurable impact as we get into next year. So it's really hard for me to parse out we certainly make assumptions, but I wouldn't want to set an expectation outwardly until we got farther along in all of them, but I believe very very strongly that these are things that particularly the latter two colonial pipeline is a little too early for me to have formed a very strong belief that the other two I'm very.

Confident are going to improve relative performance.

Great Thanks for that detail and secondly.

The mobile maintenance business.

Is it my contract is it by just a point month is it a.

Is it a long sales cycle like reached fleets are working at that business might be once a year or is it a more as needed.

Again, great question for the most part it's not exclusively it's by contract.

These are vehicles are there would be these big Ford F $150, it's like a shop on wheels that we take a very heavy duty vehicle and then outfit the back of it literally was just about a shop not a complete shop at a shop on wheels and that in many cases those vehicles will exist most of the time in the yard.

And so it's by contract winner going around doing regular maintenance services, and then a as needed bigger services than that.

That's that's what it is and it's a very I would say sticky in a positive way business for our brand because once the vehicles, there and creating that convenience boy is it needed in the more they're the more it seems to be needed and so we're really really growing this very without with a lot of focus in.

I didn't mention earlier, but somewhat similarly, our trailer repair business is another area, where you know when we say repair usually you think of the tractor the front of the truck where the engine is etc, but we've gotten into this last 18 months or so two years trailer repair. That's also growing very significantly there were also investing in as well and two very unique.

Parts of that business that not only are differentiated and unique but are growing very well and that also create kind of a stickiness to the broader relationships that we create with these large fleets.

Great. Thanks for that detail good luck. Thanks.

Thanks, John I appreciate the support and you being here.

This concludes our question and answer session I would like to turn the conference back over to John <unk> for any closing remarks.

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

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

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