TravelCenters of America Inc.
Q3 2021 Earnings Call Transcript

Published: 2 Nov 2021

[Operator:]

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. Kristin Brown. Please go ahead.

[Kristin Brown:]

Thank you. Good morning, everyone. We will begin today’s call with remarks from TA’s Chief Executive Officer, Jon Pertchik, 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 today’s present beliefs and expectations as of today, November 2, 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 second quarter of 2021 as compared to the third quarter of 2020, unless otherwise stated. Finally, I would like to remind you that the recording and retransmission of today’s conference call is prohibited without the prior written consent of TA. And with that, Jon, I’ll turn the call over to you.

[Jon Pertchik:]

Thanks, Kristin. Good morning, everyone and thank you for your continued interest in TA. I am 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

[Peter Crage:]

Thank you, Jon and good morning everyone. As Jon mentioned, we are very pleased with our results in the third quarter, which we believe continued to demonstrate the impact of our initiatives on operating results and our ability to generate strong free cash flow. In my remarks that follow I will be referring to the 2021 third 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 $0.61 per share. Excluding a few one-time items in the prior year quarter as detailed in our earnings release, we generated a $5.9 million or 36% improvement in adjusted net income. EBITDA was $65.2 million, an increase of $15.4 million or 31%, while adjusted EBITDA which reflects several 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 5.5% 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 4-wheel traffic returns to the roads and margin cents per gallon improved $0.037 for 25.7% versus the prior year quarter. Non-fuel revenues increased by $37 million or 7.8% and total non-fuel gross margin increased by $19 million or 6.6%. Importantly, when compared to the 2019 third quarter, both non-fuel revenues and gross margin improved by roughly 4%. 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 million 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 & 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 cancelled. Turning to our balance sheet for a moment, at September 30 of this year, we had cash and cash equivalents of $621 million and availability under our revolving credit facility of $94 million for a total liquidity of $715 million and no near-term debt maturities. As of September 30 of this year, we continue to own 50 travel centers and 1 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 Jon 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 million 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 Jon 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.

[Operator:]

Thank you. Our first question comes from Paul Lejuez from Citi. Please, go ahead.

[Paul Lejuez:]

Hey, thanks, guys. Curious if you could talk about the sustainability of that increase in cents per gallon and it was the highest that we’ve seen, and 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,

[Jon Pertchik:]

Thanks Paul, and thanks for the question. So, the question on sustainability of the CPG at $0.18 through a quarter, my view on it and unless and until – we are 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 in different data. We have AI that we’re starting to very slowly, early steps and starting to onboard for this particular area of diesel pricing and supply management. That will take some time to really bring in. So there is a lot of things happening. And I think some of the things, the first couple of comments are contributing to success. On the other hand, until we have, in the rear-view 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 $0.14 to $0.16, no different than what we’ve been signaling before. We’ve had a really solid quarter in this regard. I’m hopeful and even optimistic that we will get to a place that we start to get to a new normal in this particular area, but it would be premature to say that. 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 $0.14 to $0.16.

[Paul Lejuez:]

Got it. Thank you. And then can you talk about any initiatives that you have in the works to attract more of the smaller fleets? And just how you think about that opportunity as a driver of top line and cents per gallon margin?

[Jon Pertchik:]

Again, a great question. It’s really on point with one of the maybe top two priorities in fuel, in both fuel margin and volume, for a long, long time, we’ve not – and 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, 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, etcetera. We’ve not had a real true program that we then put a lot of effort and energy behind. We have a great team here of about a handful of folks who focus on this. And when – I know from one particular month last year, roughly 10% or 11% of our total volume between independents and full retail was about 50% of our diesel EBITDA. That was, again, for a 1-month period. I’m only reciting because I happen to know that 1-month mathematically precision. When you can have that kind of result and we have it so under resource 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 of 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.

[Paul Lejuez:]

Got it. Thanks. Good luck guys.

[Jon Pertchik:]

Thanks for the question, Paul.

[Operator:]

Our next question comes from Bryan Maher from B. Riley FBR. Please, go ahead.

[Bryan Maher:]

Good morning, Jonathan and Peter. I appreciate all those comments, so far are very helpful. When we think about acquisitions, you’ve alluded to it a couple of times now. Can you talk a little bit about pricing and seller motivation? And also, can you talk about the cost to buy versus build since it appears you might be headed down that road as well?

[Jon Pertchik:]

Sure. In most – a couple of parts to that question, in most cases, if not all, we will expect, and we’re seeing so far a discount to replacement, and it could be anywhere from – and I’ll let Peter piggyback behind, anywhere from 20% to maybe even 40% or 50%. So in terms of the comparative differences, between the ground-up and buying existing. 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 fresh or extrapolating a buy to a franchise, when a franchisee joins us, they see a 40% uplift in top line, 40%, four-zero, 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 we’re really looking at cherry-picking really good sites to acquire, I mean. So we expect a very significant uplift. So 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. So that’s where we’re approaching it. I also would say that our cost of capital today is very different than what it’s going to be not too far from now. When we undertook this last term loan B, it we marketed for it, let’s say, September, October of last year, closed on in November, December, we were 1.5 years out from having had a 5x 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, 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 underwrite and assume a very significantly reduced cost of capital. And so that’s also part of how we approach this. Peter, anything you want to add to that?

[Peter Crage:]

Yes. I would just add to Jon’s point, we look at our cost of capital as it is right now, and it may, it makes very well and they would improve in the future. On a non-synergy basis though for these opportunities, we are 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 are all over that provided it achieves the return model that we have.

[Jon Pertchik:]

Is that helpful, Bryan?

[Bryan Maher:]

It is. And we can talk a little bit more about kind of cost of construction stuff offline, but that’s certainly helpful, when you are going to be doing these site level 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 investment in-house with TA versus selling some to SVC, major improvements, not carpet and paint, which would be ridiculous. But what is the thought process internally there about tapping SVC as a source of funds?

[Jon Pertchik:]

Yes. 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 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 am really excited about that plan. It’s been 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 will 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 have 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 am equally as excited about, and so excited to see those ripen, get into the marketplace, get our revised merchandising and the way we are presenting ourselves in the marketplace and let it season, let it ripen a little bit. I am as excited as ever for that stuff. But the plan is to fund that ourselves.

[Bryan Maher:]

Okay. Thank you very much.

[Jon Pertchik:]

Thanks Bryan.

[Operator:]

The next question comes from Ari Klein from BMO Capital Markets. Please go ahead.

[Ari Klein:]

Thanks. On the fuel volume side, diesel volumes grew fairly modestly sequentially. And while that’s not necessarily out of line with seasonality, 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, are you seeing any impacts from that?

[Jon Pertchik:]

Yes. I would say that – thanks, Ari. Great question to really on point with what the world is experiencing today. It’s really – it’s tricky business parsing out how these external factors are affecting us. And I will add more to this. But unfortunately, it doesn’t come with a sample set where we can see on my left-hand I am holding up what life would have been like without these pressures. And in my right hand, what we are experiencing, there is a lot of confounding variables mixed in. So, it’s a bit tricky to parse those out. Obviously, we are all reading the headlines. On the one hand, last week, I was at American Trucking Association. Generally speaking, and I met with, I don’t know, a dozen of my peers at our biggest customers, some of the household names we all know is trucking companies and they are 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 are 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 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 are down in diesel about a small negative, a smidge under zero in diesel volume. We are up year-to-date about $0.18 or $0.19. I think it is, again, for the entirety of the year. So, I know compared to others, we are 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 are all reading about it. I am 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 right exact detailed answer you would want. But the truth is we just really can’t parse out those variables and know with any level of certainty.

[Ari Klein:]

Got it. And maybe just following up on that, on the fleet contracts, you have done a good job there. But can you talk about the competitive side of those? And you mentioned a competitor seeing volumes decline. So, are you seeing any kind of response as you try to win more of those deals? And is that potentially maybe down the line a headwind to some of the margin efforts?

[Jon Pertchik:]

A couple of – yes, again a lot – and again, a 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 I think as we improve our sites, look, we started – start meaning a few year – a couple of years ago at a level that we were behind our competitors. So, growing and maybe taking more than our fair share should be expected as we just improve ourselves and maybe the offering. As we physically improve our sites and 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 as 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 are 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.

[Ari Klein:]

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 are seeing there. Maybe you can provide a little bit more granularity.

[Jon Pertchik:]

Sure.

[Ari Klein:]

Give us a sense of where, if you can, your hourly wages are, how much do you think they might increase as you look into 2022?

[Jon Pertchik:]

So again, a really great question as well. It’s what the whole world is living through, and we are not immune. A couple of things. On the labor side and I will lump in more than just labor and wages too, just more inflationary pressures, too, because there are other things that are out there. I know hourly wages have grown. This is not us. This is nationally, about 6% in the last six months, retail wages, that’s hourly wage of 6%. And I think the trend line is up-ticking. That’s for a 0.5 year period. So, it’s actually higher, more currently. Retail wages are up about 7%. We – within our hospitality group, we have increased our at sort of the counter wages by about $1.25. That’s just the month of September to a year ago September. Also staying on hospitality, or overtime, a year 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 have having to pay other people who are already our dedicated people who aren’t as transitional or transitory, we are having to pay them overtime. So, I think that should be sort of rational. So, we are not outliers, certainly not. We are right, I think, in line with what the world is seeing. We are cautiously, as we try to – look, this is call what it is, inflation, as we see greater expenses, whether it’s from labor or otherwise product, we have been cautious in moving those up. We want to be make sure we are 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 had a meeting a few weeks ago, paying attention 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 are making sure we are doing that cautiously. Another example on wages and those costs, on our truck service area, again, everything I talked about a moment ago was all hospitality, meaning retail, C-Store food. In the truck service side, we have 80 more techs this year net-net than we did a year ago. That’s a good thing. It also means we are paying more, right. There is more wages there. But it’s also an area we have identified and we say investing in growth. That’s part of what we mean. We are bringing on techs to fill that choke point for us. It’s a challenge to bring in 80 net new techs are making these next numbers up. They are close, but they are not precise. We bring on 500 and 420 cycle out. That’s the world we are in right now, but still we are in 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. On the repair side, we have not – unlike the C-Store retail, where we can move prices subject to market and demand and reaction, daily, literally, we can move prices minute-by-minute, frankly, to pass things along. On the repair side, because most of the work we do is for big fleets. We are cautious in terms of 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.

[Ari Klein:]

Thanks. I appreciate all the color.

[Jon Pertchik:]

Thanks Ari.

[Operator:]

The next question comes from Jim Sullivan from BTIG. Please go ahead.

[Jim Sullivan:]

Thank you. So Jon, maybe just following on from the prior question, when you look at non-fuel margins, they were down below 60% in the quarter, which from the 60% to 61% level that I guess you maintained over most of the prior quarters. And I just – well, a simple straightforward question, and maybe it’s not capable of an easy answer, but do you expect you are going to be able to get that back above 60% in the short-term?

[Jon Pertchik:]

I think we are going to have a 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 2%. And it’s – boy, that’s shooting from the hip, which I hate doing, just to – 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 rear-view mirror of experience with where the world is today. And again, bifurcated between how we can move some of these costs and pass them along on the retail side, separate from truck service where we don’t do so. So real time, let’s say. I think on the retail side, I think as we have more experience with this window we are living through, we are 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, the non-fuel margin – percent margin. On the truck service side, as I mentioned, we passed along a significant uptick to our customers as of October 1, so that should start flowing through. And so in the end, 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, I 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 will be fine, and we will continue to put more down to the bottom line, the whole dollar.

[Jim Sullivan:]

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 clearly, we have all seen the headlines. We have all seen the photographs of ships waiting to unload at Long Beach and elsewhere. And we have also seen the photographs of delays at the port, while trucks are waiting to load, and when they are waiting, they are not driving and consuming fuel and without the delays, they would be, presumably. So, there seems to be a systemic issue on the supply chain and transport that is leading to lower gallons sold than would otherwise be the case. And I ask this question because here we are coming up into the most important season at retail in the fourth quarter. And the question is as I look at your sequential changes in gallons sold in the fourth quarter in prior years, couple of years, you are up, couple of years, you are down 2%, 2.5%. This year, there is maybe that anomalous factor that maybe the supply chain is going to start to fix itself in the fourth quarter. We have all heard about initiatives to increase the rate of unloading containers from vessels. Those containers have to go on trucks at some point, if they are available. So, when you think about fourth quarter, should we be thinking that this is a quarter where gallons sold could go up, which seasonally is not typical, but has happened?

[Jon Pertchik:]

Again, also a great question. And it is, as you just highlighted in the question, all the variables that are sort of competing to see who is going to be the winner net-net, right. Relatively, when you have, on the one hand, you have got great demand and that demand has been shope. So, you have got – all at the LA Port, everybody is talking about, in the news, you have got how many truck, 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 am not sure I have a heck of a lot more insight to it than you or anybody else on this call. So, I am not sure what – if there is any additional value to my opinion on this. I do believe the premise that a spike will happen. And the question is just when and how, and how steep or how spread over time. Christmas, increased demand is likely. People have money, have liquidity. So, I think you are going to see only more demand. And with some of what the administration is talking about and pushing and supporting, the LA Port, for example, may be helpful. We will have to see. But my gut check, I would rather set a more conservative expectation and under-promise relatively in over-deliver. That’s our mantra around here for Peter as much or more than me too. So, I just – I would be a little – just I am a little more conservative than that. We could see a little bit of it towards the end of the quarter. I guess that’s fair.

[Jim Sullivan:]

Okay. And then a quick question for Peter, I guess, on the franchising. Your franchising model, I know in your presentation, you indicated that you would expect each new franchise to generate about $0.25 million of EBITDA a year. And Peter, when we think about that, I think I know the answer to this, but I would 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 $250,000 per year per franchisee?

[Peter Crage:]

Yes, essentially. And Jim, it’s $250,000 to $300,000-ish and $300,000 and a hair, some of the bigger ones will do more. The smaller ones do less. And so I use an order of magnitude. Once we get to the sustained 30, it’s in that $7.5 million to $10 million range that should be flowing to the bottom line just through that part of the business and continuing to CAGR to grow at that level.

[Jim Sullivan:]

Okay. Perfect. And then the final question for me. There was a footnote in the release about the QuikQ adjustment in your equity interest. That’s a JV, I think you have with Love’s. And you took your interest down below 50%, I think it had been a parity pursue JV. And I don’t think you indicated what your interest currently is, but I am just curious why that step, did you – or you think you want to go in a different direction regarding cards, or what was the rationale there?

[Jon Pertchik:]

So, QuikQ is something that predates me, it was an investment made in a card offering. And I am still trying to figure out in the long run, and it’s where we sit with that. And so we have 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 I don’t know that I want to signal anything further. But Peter, anything…?

[Peter Crage:]

Yes. We have a small interest. It wasn’t strategic for us. There was a funding – we were funding the business and we are still involved. We took obviously the adjustment through equity, reduced our interest in it, but still remain involved at some level.

[Jim Sullivan:]

And could you just specify what your interest now is down from 50% to what?

[Peter Crage:]

Yes, we are not, because we just disclosed it, we are below 50%. We are not providing the actual percentage.

[Jon Pertchik:]

More to follow, Jim. There is still some pending things that are out there that we are – again, I think more to follow. A fair question though, for sure to ask.

[Jim Sullivan:]

Okay. Thanks guys.

[Jon Pertchik:]

Thanks, Jim. Appreciate it.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Jon Pertchik for any closing remarks.

[Jon Pertchik:]

Again, thank you, everybody. Thanks for your questions today, and thanks for your interest in TA. And look forward to the next time. Have a great day.

[Operator:]

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