TravelCenters of America LLC (TA)

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TravelCenters of America LLC (TA)

Q2 2013 Earnings Call

August 06, 2013 10:00 am ET

Executives

Carlynn Finn

Thomas M. O'Brien - Chief Executive Officer, President, Managing Director and Director

Andrew J. Rebholz - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Benjamin Brownlow - Raymond James & Associates, Inc., Research Division

Robert Dunn - Sidoti & Company, LLC

Bryan A. Maher - Craig-Hallum Capital Group LLC, Research Division

Emmett Wright

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the TravelCenters of America Second Quarter Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Senior Manager of Investor Relations, Ms. Carlynn Finn. Please go ahead.

Carlynn Finn

Thank you. Good morning and welcome, everyone. Our agenda today includes remarks by Tom O’Brien, our Chief Executive Officer; and Andy Rebholz, our Chief Financial Officer. After those remarks, there will be a question-and-answer session.

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, August 6, 2013. TA undertakes no obligation to revise or publicly release the results of 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. Investors are cautioned not to place undue reliance upon any forward-looking statements. The recording and retransmission of today's conference call is strictly prohibited without the prior written consent of TA.

Now I will turn the call over to Tom O’Brien.

Thomas M. O'Brien

Good morning, and thank you for joining our call today. Our 2013 financial results released this morning contain a great number of positive indicators, and I remain steadfast in my belief in TA's longer-term prospects and business plans. TA's second quarter 2013 net income was disappointing relative to 2012. Net income for that second quarter was $16 million or $0.54 per share, a $14 million decrease from the prior year quarter. While total revenue again bested $2 billion for the quarter, importantly, total retail fuel volume increased almost 2% and nonfuel revenue increased nearly 9%.

I attribute the decline in our net income principally to 2 factors, both of which, I believe, can be overcome by continued focus on our current plans. One, our same-site fuel margin in the 2013 second quarter declined by about $11 million. I believe this is a reflection of, principally, lower retail margins as a result of pressure from some of our principal competitor's efforts to retain or gain volume as a result of the current turmoil affecting our largest competitor and to a lesser extent, a modest volume decline resulting from fuel conservation efforts by our customers.

Two, our same-site nonfuel margin oversight level operating expenses in the 2013 second quarter declined by about $2 million. Substantially, all of this impact can be attributed to changes in our Tire business, which, despite unit sales growth, has seen per unit margin shrink over the past year due to industry-wide changes in tire pricing. We have, to date, been unsuccessful in passing those pricing changes to our customers principally due to increased -- increasing competition in the sale of tires to the trucking industry. The impact of these 2 items has continued in our early look at post-second quarter results, although so far, the negative impact seems to have moderated somewhat.

I am excited about the potential longer-term financial impact of several projects completed during the latter part of the 2013 second quarter to add truck repair facilities to 2 locations purchased during 2011, and to reopen our now completely rebuilt state-of-the-art Petro location in Gary, Indiana in late May.

I can also confirm my continued belief in the substantial financial potential in the 26 locations purchased in the 2011 to 2013 time frame over the next 1 to 3 years. We're working hard on those operations to bringing them up to their full potential. I continue to believe that the attention we've devoted to customer service, our selective purchase of new sites and improvements we've made to our facilities have allowed us to operate profitably so far in 2013 and have positioned TA for profitability in the full year 2013.

I made reference earlier to turmoil surrounding a major competitor. And on our last earnings conference call, we heard several questions about the impact on TA's business on what has been reported in the media as an investigation of potentially improper rebate payments to customers by Pilot Flying J. Rather than wait for further questions, what I can say is as follows: First, I know from experience that TA and Pilot Flying J are fiercely competitive. When a competitor comes under pressure, that competitor will do what it can to defend against and to mitigate the negative impact of that pressure. It's our job to anticipate, to counteract and to aggressively defend against the potential negative impact on our business of our competitor's responses to turmoil. In plain language, when our competitor feels pressure, it is likely to do what it can to retain its business volume. And as a result, TA has to do what it can to defend its own business volume.

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