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spk02: Good morning and welcome. This call is being recorded. At this time, for opening remarks and introductions, I would like to introduce TA's Director of Investor Relations, Ms. Kristen Brown. Please go ahead.
spk07: Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, Don Perchick, followed by Chief Financial Officer, Peter Crage, and President Barry Richards for our analyst Q&A. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward-looking statements are based on TA's present beliefs and expectations as of today, November 2nd, 2021. Forward-looking statements and their implications are not guaranteed to occur and they may not occur. TA undertakes no obligation to revise or publicly release any revision to the forward-looking statements made today other than as required by law. Actual results may differ materially from those implied or included in these forward-looking statements. Additional information concerning factors that could cause our forward-looking statements not to occur is contained in our filings with the Securities and Exchange Commission, or SEC, that are available free of charge at the SEC's website or by referring to the investor relations section of TA's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. During this call, we will be discussing non-GAAP financial measures, including adjusted net income, EBITDA, EBITDAR, adjusted EBITDA, adjusted EBITDAR, and adjusted fuel gross margin. The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our press release and on a schedule of our non-GAAP financial measures that can be found in the events section of our website. The financial and operating measures implied and or stated on today's call as well as any qualitative comments regarding performance should be assumed to be in regard to the 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.
spk00: 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 that the new TA can produce. Our 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 EBITDA, 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 2019 third quarter with adjusted EBITDA having increased by $24.2 million or 59% as compared to the 2019 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 TA that shows resilience and financial durability, with trailing 12-month adjusted EBITDA of $203 million at the end of the third quarter. I say this with confidence despite continuing effects of the pandemic, including 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 opportunity. We continue to maintain substantial liquidity, which we recognize comes at a cost, while we engage in negotiations with due diligence processes over a large and growing number of meaningful potential 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 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 in 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 IT and systems improvements and 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 a 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 treated Seymour as the first highest-level platinum site refresh of the first of more than 100 planned refreshes over the next 12 to 18 months. Seymour showcases many of the new design concepts that we plan to include at these locations. Upgrades that our guests will see and feel, including comfortable driver lounges, repaved 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 bright, 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 have 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 have 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 5.5 percent compared to the prior year quarter and 14.5 percent versus the 2019 third quarter, driven by a 5.8 percent increase in diesel fuel sales volume as a result of increased trucking activity, the addition of new fleet customers, as well as higher volume 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 3.5 percent versus the prior year quarter, but still about 10 percent below the 2019 third quarter. On the non-fuel side of the business, store and retail services revenues increased by over 10 percent for the quarter versus 2020 and over 14 percent versus 2019. Although we are experiencing a difficult purchasing and inflationary cost environment, Improve 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. Our customer segmentation work has provided a better understanding of who is 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 have 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 5.6% 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 have 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 tech efficiency and wait times. While we have added technician hours to the schedule, To ensure we service customers timely, we have also seen labor costs and margin pressures. We are actively addressing these through the passing along of cost increases to customers, not inconsistent with competitors, and to ensure 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 menu offerings and tighter labor controls. We have opened two of the 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 top line 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 food offering concept, the kitchen, at our newly reopened Seymour location, which offers guests freshly prepared food for sit-down dining in a fast, casual environment, as well as packaged 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 and high margin with the grab-and-go options branded in 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 continue 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 DEF was also boosted by higher diesel fuel volumes in the quarter, and as part of our current capital plan, we expect to make DEF dispensers available in all lanes at our travel centers nationwide by early 2022. Lastly, we continue to pursue our commitment to sustainability and alternative energy with ETA. Our new business division formed earlier this year. In addition to installing new EV passenger vehicle charging stations at several West Coast locations, we are 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 are continuing to engage and develop collaborative relationships, and various forms of sustainable energy as we stay close to our fleet customers' plans as well as 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 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 are making, and 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 is 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 produce results that have elevated TA to a new normal as we approach our 50th anniversary 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?
spk06: 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. My remarks that follow, I will be referring to the 2021 third quarter as compared to the 2020 third 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 61 cents 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 one-time 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 30.7 million gallons, or 5%. to just shy of 586 million gallons, with diesel sales volume improving by 5.8%, driven by increased trucking activity and new customers. Gasoline sales volume improved by 3.5% as four-wheel traffic returns to the roads, and margin cents per gallon improved 3.7 cents, or 25.7%, versus the prior year quarter. Non-fuel revenues increased by $37 million, or 7.8 percent, and total non-fuel gross margin increased by $19 million, or 6.6 percent. Importantly, when compared to the 2019 third quarter, both non-fuel revenues and gross margin improved by roughly 4 percent, with significant top-line 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 in addition, we have experienced some shift in business from the quick service restaurants to the full service restaurants as full service reopening continues. While we are encouraged by continued top-line 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 2020 fourth quarter performance, this may 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 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 in 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 impairment to property and equipment related to certain standalone Quaker steak and 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 30th 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 maturities. As of September 30th of this year, we continue to own 50 travel centers and one standalone 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 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 as 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.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Paul Lejouet from Citi. Please go ahead.
spk03: Hey, thanks, guys. I'm curious if you could talk about the sustainability of that increase in cents per gallon. It was the highest that we've seen in, I think, several years following an impressive number in 2Q. Just 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 that's a little bit more sustainable. Thanks.
spk00: Thanks, Paul, and thanks for the question. So the question on sustainability of the CPG at the 18 cents through a quarter. You know, my view on it, and less than 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 in 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, the first couple 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've been signaling before. We've had a really solid quarter in this regard. You know, I'm 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'd be premature to say that. And a big part of our job here at the company, since I've been here my second anniversary coming up in a few months, is restoring credibility and trust. And it'd be really premature to signal anything more optimistic than what our typical run rate has been. And I think that healthy range is that 14 to 16.
spk03: 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 and just how you think about that opportunity as a driver of top line and cents per gallon margin?
spk00: Again, great question. It's really on point with one of the maybe top two priorities in fuel and both fuel margin and volume. You know, for a long, long time, maybe forever as far as at least I'm aware, We've not had a program designed very specifically around small fleet needs. In other words, you know, an 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, et cetera. 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. When, you know, I know from one particular month last year, you know, roughly 10 or 11% of our total volume between independence and full retail was about 50% of our diesel EBITDA. That was, again, for a one-month period. I'm only reciting because I happen to know that one month with mathematical precision. When you can have that kind of result, and we have it so under-resourced, number one, great people who their EBITDA per FTE here is tremendous there. We're under-resourced, 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 a loyalty-related component to it, and then putting more energy behind it. That's basically, without getting too far into it, that's what I'm talking about.
spk03: Got it. Thanks. Good luck, guys.
spk00: Thank you.
spk02: Thanks for the questions, Paul. Our next question comes from Brian Marr from B. Reilly FBR. Please go ahead.
spk04: Good morning, Jonathan and Peter. I appreciate all those comments so far. Very helpful. When we think about acquisitions, you've alluded to it a couple times now. Can you talk a little bit about pricing and seller motivation? And also, can you talk about the cost to buy versus sell, since it appears you might be headed down that road as well?
spk00: Sure. You know, in most – a couple parts to that question. In most cases, if not all, we will expect and we're seeing so far, you know, a discount or replacement. And it could be anywhere from – and I'll let Peter piggyback behind me – anywhere from, you know, 20 to maybe even 40 or 50 percent. So in terms of the comparative, you know, differences between the ground up and buying existing – You know, the other thing in terms of what we are seeing in terms of purchase price and how we underwrite, and I'll extrapolate to a different but similar circumstance. When we onboard a franchise, so I'm extrapolating a buy to a franchise. When a franchisee joins us, they see a 40% uplift in top line, 40%, 4-0. Just by joining our network and now the independent truckers who, I'm sorry, the big fleets who used to drive by them and go to one of the big three now stops in, fuels up, and then consumes in other ways, in non-fuel ways, 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, you know, the inbound cap rate or inbound what we're paying and what we're underwriting, I still think conservatively 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. And 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. You know, when we undertook this last term loan B, we marketed for it, let's say, September, October of last year, closed on it November, December. We were, you know, a year and a half out from having had a five-term 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, you know, of course, it was priced accordingly. It was still the right thing to do 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, you know, 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?
spk06: Yeah, I would just add to John's point, you know, we look at our cost of capital as it is right now, and it may very well indeed improve in the future. On a non-synergy basis, though, for these opportunities, we're looking at achieving a premium to that cost of capital. And the ability, unlike a couple of opportunistic ground-up builds, if we can ramp those 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?
spk04: It is, and we can talk a little bit more about, you know, kind of cost of construction and stuff offline, but that's certainly helpful. When you are going to be, you know, doing these site-level, you know, improvements, which historically under prior management were sold to the REIT SVC for those that are owned by SVC, what are your thoughts about, keeping that, you know, investment in-house with TA versus selling some to SBC, you know, major improvements, not carpet and paint, which would be ridiculous. But what is the thought process internally there about having SBC as a source of funds?
spk00: Yeah. So, I mean, first of all, we have a lot of liquidity, as we know. I think the cost of which over time will improve, as we talked about. Our plan is to fund those ourselves. And, you know, and that's just across the board. And I think our plan allows for that. We have liquidity to do that and then some. And I'm really excited about that plan. It's been, you know, a little frustrating with what the whole world is experiencing, certainly not unique to us, the impact on slowing our ability to really aggressively execute through that. We'll get there, and I have as much or more confidence than ever in our ability to make those changes and to then get the desired result. And even just seeing the first few, we talked about Seymour 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 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, you know, in the marketplace and let it season, let it ripen a little bit. I'm as excited as ever for that stuff, but the plan is to fund that ourselves. Okay. Thank you very much.
spk02: Thanks, Brian. The next question comes from Ari Klein from BMO Capital Markets. Please go ahead.
spk05: Thanks. On the fuel volume side, diesel volumes grew, you know, fairly modestly, sequentially. And while that's not necessarily out of line with seasonality, you know, how are you thinking about or to what extent have you been impacted by some of the broader supply chain issues and just truck driver shortages? How are you seeing any impact from that?
spk00: I would say that – no, thanks, Ari. Great question, too. Really on point with what the world is experiencing today. It's really, you know, it's tricky business parsing out how these external factors are affecting us. And I'll add more to this. But, you know, unfortunately, life 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 on my right hand what we're experiencing. There's a lot of confounding variables mixed in. So it's a bit tricky to parse those out. Obviously, we're all reading the headlines on the one hand. You know, last week I was at American Trucking Association. Generally speaking, and I met with, I don't know, a dozen of my peers that are biggest customers, some of the household names we all know as trucking companies, and 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 because the demand is there. It's obviously limited by these issues. So the only thing I would add to that is, is that year-to-date, I know, and I won't mention which competitor, but it was informally stated by one of the leaders of another company. They're 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 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 pushing and fighting. And in the end, we are bringing more down to the bottom line, which is really the bottom line. I guess that's why it's called that. So I know that's not maybe the exact detailed answer you'd want, but the truth is we just really can't parse out those variables and know with any level of certainty.
spk05: Got it. Maybe just following up on that, on the fleet contract, you've done a good job there. But can you talk about the competitive side of those? And you mentioned a competitor seeing volumes decline. So, yeah, are you seeing any kind of response, you know, as you try to win more of those deals? And is that potentially, you know, maybe down the line a headwind to some of the margin efforts?
spk00: You know, a couple of – because, again, a lot – and, 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 a conversation. I had a call yesterday with what would be a brand-new fleet to us. And I spoke to a head of a big part of their business yesterday that could be great business for us. And when I was at ATA, there were a couple of conversations we had with Moore and other opportunities. And so, you know, I think as we improve our sites, look, we started, meaning a few years, a couple years ago, at a level that we were behind our competitors. So, you know, growing and maybe taking some more than our fair share of should be expected as we just improve ourselves and maybe the offering. As we physically improve our sites and we, you know, we improve our IT where in the past our sites would literally go down for not a few minutes but hours. And imagine the destruction of goodwill that creates with fleets and drivers. Well, by contrast, as we improve those things and get rid of some of those negatives, as we bring on better food offerings, which is an inherent advantage, by the way, the breadth of our food offering and 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 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.
spk05: Got it. And then just if I can ask another one, on the labor and wage side, you alluded to some of the headwinds that you're seeing there. Maybe you can provide a little bit more granularity.
spk06: Sure.
spk05: You know, give us a sense of where, if you can, your hourly wages are, you know, how much you think they might increase, you know, as we look into 2022.
spk00: So, you know, again, really great question as well. It's what the whole world is living through and we're not immune. A couple of things. On the labor side, and I'll lump in more than just labor and wages, too, just more inflationary pressures, too, 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, you know, 6% in the last six months. You know, retail wages, that's hourly wages, 6%. And I think the trend line is upticking that for a half-year period. So it's actually higher more currently. Retail wages are up about 7%. 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 to a year ago September. Also staying on hospitality, our overtime in September, again, a year ago, was 5% of total wages overtime. This year it's 6.5% of total wages for hospitality. And think about what that means, right? It means it's harder and harder to keep people who are at the counter, at the register, We're having to pay other people who already are dedicated people who aren't as transitional or transitory. We're having to pay them overtime. So I think that should be sort of rational. So, you know, we're not outliers, certainly not. We're right, I think, in line with what the world is seeing. You know, we're cautiously, as we try to patent, you know, look, this is called what it is, inflation. You know, as we see greater expenses, whether it's from labor or otherwise, products, We've been cautious in moving those up. We want to 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, I had a meeting a few weeks ago, paying attention to what that universe is doing for our hospitality and retail piece, making sure our direct competitors were sort of in line with. So 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, you know, on our truck service area, again, everything I talked about a moment ago was all hospitality, meaning retail, C-store food. And the truck service side, You know, we have 80 more texts this year net-net than we did a year ago. That's a good thing. It also means we're paying more, right? There's 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 text to fill that choke point for us. It's a challenge. To bring in 80 net new texts, I'm making these next numbers up. They're close, but they're not precise. We bring on 500 and 420, you know, cycle out. That's the world we're in right now, but still we're up net-net 80. And so that obviously affects wages as well. The last point on somewhat to wages and inflation or more to inflation, you know, on the repair side, we have not, you know, unlike the C-store retail where we can move prices subject to market and demand and reaction, you know, 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 you know, not being too aggressive in moving up pricing. And so, frankly, we only as of October 1, so post-quarter, moved up 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, relatively speaking, benefit us. So hopefully that gives you a little bit to chew on, a little bit of detail.
spk05: Thanks. Appreciate all the talk.
spk02: Thanks, Ari. The next question comes from Jim Sullivan from BTIG. Please go ahead.
spk01: Thank you. So, John, maybe just following on from the prior question, when you look at non-field 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 I just, well, simple, straightforward question, and maybe it's not capable of an easy answer, but do you expect you're going to be able to get that back above 60% in the short term?
spk00: You know, I think we're going to hover right in the realm of where we are right now, maybe back up to 60, but in this sort of window, maybe a smidge under or two. And, boy, that's shooting from the hip, which I hate doing. But, 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 of experience with where the world is today, you know, and I 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 real time, let's 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 down, which should, relatively speaking, help that margin, that non-fuel margin, percent margin. On the truck service side, as I mentioned, we passed along a significant uptake to our customers as of October 1, so that should start flowing through. You know, and so, you know, in the end, you know, the most important thing, as I think about it, is 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. You know, it would be misleading if I were to say we don't look at percent margin. I think the whole dollar is 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, we'll be fine and we'll continue to put more down to the bottom line, the whole dollar.
spk01: Okay. Second question for me in terms of diesel gallon sales as we think about the fourth quarter. And I think you touched on this earlier in response to another question. But, you know, clearly we've all seen the headlines. We've all seen the, you know, photographs of ships, you know, waiting to unload at Long Beach and elsewhere. And we've also seen the photographs of delays at the port while trucks are waiting to load. And when they're waiting, they're not driving and consuming fuel. And without the delays, they would be, presumably. So, you know, there seems to be a systemic issue on the supply chain and transport that is leading to, you know, lower gallons sold than would otherwise be the case. And, you know, I ask this question because here we are coming up into the most important season at retail in the fourth quarter. And it's, you know, the question as I look at your sequential changes in gallons sold in the fourth quarter and prior years, a couple of years you're up, a couple of years you're down to 2.5%. This year, you know, there's 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, you know, initiatives to increase the rate of unloading containers from vessels. Those containers have to go on trucks at some point if they're available. So when you think about fourth quarter, should we be thinking that this is a quarter where gallons sold could go up, which, you know, seasonally is not typical but has happened?
spk00: Again, also great question. And it is, as you just highlighted in the question, all the variables that are sort of competing to see who's 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 choked. So you've got all, you know, at the LA port, everybody's talking about in the news, you've got how many trucks, sorry, trucks, freight cargo ships queued up and waiting. At some point, there should be a spikiness, right? The question isn't will there be, it's when 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 will see that. Maybe at the end of the fourth quarter, because maybe at the end of the fourth quarter it will. I think it will be a little bit more deferred than that. That's just 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 if there's any additional value to my opinion on this. I do believe the premise that a spike will happen and the question is when and how steep or how spread over time. You know, Christmas and increased demand is likely. People have money, have liquidity. So I think you're going to see only more demand. And, you know, with some of what the administration is talking about and pushing and supporting the you know, the L.A. port, for example, may be helpful. You know, we'll have to see. But my gut check, I'd rather set a more conservative expectation and, you know, under-promise relatively and over-deliver. That's a mantra around here for Peter, you know, as much or more than me, too. So I just, I would be a little, just I'm a little more conservative than that. We could see a little bit of it toward the end of the quarter. I guess that's fair.
spk01: Okay, and then a quick question for Peter, I guess, on the franchising. Your franchising model, I know in your presentation you indicate that you would expect each new franchise to generate about a quarter of a million EBITDA a year. Right. 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, Are we talking about the same number of, you know, 250 per year per franchisee?
spk00: Yep, essentially. Yep. And, Jim, it's 250 to 300-ish and three and a hair. Some of the bigger ones will do more. You know, the smaller ones do less. And so I use an order of magnitude. Once we get to the sustained 30, you know, it's in that 7.5 to 10 million range that should be flowing to the bottom line just through that part of the business and continuing to kegger or to grow at that level.
spk01: Okay, perfect. And then the final question for me, you know, there was a footnote in the release about the quick Q adjustment in your equity interest. You know, that's a JV I think you have with Loves. And you took your interest down below 50%. I think it had been a Parry-Pasu JV. And I don't think you indicated what your interest currently is. But I'm just curious why that step changed. You know, did you think you want to go in a different direction regarding cards, or what was the rationale there?
spk00: So, you know, QuickQ is something that predates me. It was an investment made in a card offering, and I'm still trying to figure out in the long run, and it's, you know, 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 that, you know, I don't know that I'd want to signal anything further, but, Peter, anything?
spk06: Yeah, we have a small interest. It wasn't strategic for us. There was a funding. We were funding, you know, the business, and we're still involved. We took, obviously, an adjustment through equity, reduced our interest in it, but still remain at some level.
spk01: And could you just specify what your interest now is, down from 50 to what?
spk06: Yeah, we're not, because we just disclosed that we're below 50%. We're not providing the actual percentage.
spk00: More to follow, Jim. There's still some pending things that are out there that we're, again, I think more to follow. Fair questions, though, for sure, to ask.
spk01: Okay. Thanks, guys.
spk02: Thanks, Jim. Appreciate it. This concludes our question and answer session. I would like to turn the conference back over to John Perchick for any closing remarks.
spk00: Again, thank you, everybody. Thanks for your questions today, and thanks for your interest in TA. And I look forward to the next time. Have a great day. The conference is now concluded.
spk02: Thank you for attending today's presentation. You may now disconnect.
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