TravelCenters of America LLC (TA)

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TravelCenters of America LLC (TA)

Q3 2013 Earnings Call

November 04, 2013 10:00 am ET

Executives

Katie Strohacker

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

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

Robert Dunn - Sidoti & Company, LLC

Jeffrey Richart Geygan - Milwaukee Private Wealth Management, Inc.

Presentation

Operator

Ladies and gentlemen, good day, and welcome to the TravelCenters of America Third 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 the Senior Manager of Investor Relations, Katie Strohacker.

Please go ahead.

Katie Strohacker

Thanks Galin, 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, November 4, 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.

And with that, I'd like to turn the call over to Tom O’Brien.

Thomas M. O'Brien

Good morning, and thank you for joining our call today. TA's third quarter 2013 financial results contain a great number of positive indicators, principal among those indicators is a $4 million growth in EBITDAR for the quarter to $88 million. A key factor affecting TA's EBITDAR for the quarter was an increase in contributions from the locations purchased, since our current acquisition initiative began in earnest in 2011.

Sites purchased since January 1, 2011, contributed $19.3 million to EBITDAR during the last 12-months ended September 30, 2013. In combination, since January 2011, we have spent or committed to spend $265 million to purchase and refurbish a total of 30 sites. I want to emphasize that most of these sites are not yet stabilized, and some are under renovation with only limited customer services. We're really excited about the continuing improvements, we're realizing at these sites added to the TA Petro network.

Overall, our retail fuel volume increased nearly 4% in the quarter versus the 2012 third quarter, and fuel margin per gallon increased about 5%.

These positives were more than enough to overcome 2 challenges in the quarter, both of which I've discussed on previous calls. The first being 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. As I mentioned in our second quarter conference calls, these pressures seem to have abated somewhat during the 2013 third quarter. I attribute the modest same site volume decline of 1.4%, largely to customer fuel conservation efforts.

Other challenges you see reflected in our numbers is a combination of lower overall tire profitability, despite unit sales growth in that category, and lower profitability in our full-service restaurant business. I have discussed the tire situation on previous calls, as a reflection of manufacturers' pricing increases that were not passed on to customers as a result of increased competition in the expiration of some favorable tire supply contracts in late 2012.

I expect this year-over-year negative comparison to abate somewhat in the first half of 2014.

Our full-service restaurant results are down, reflective of the things you may see if you follow other companies in the casual dining business, but those results were offset somewhat by better results in our quick service restaurants.

If you bear with me for a moment, I want to again, underline the successes we're beginning see at the sites we've acquired, since the beginning of 2011. It takes some time, we estimate about 3 years, after acquisition and completion of renovations for a new location to become fully integrated into the TA Petro network, and to produce stabilized financial results. As of the beginning of the 2013 third quarter, properties purchased since the beginning of 2011 were substantially complete for a weighted average period of only about 7 months. And properties purchased in 2012 and earlier this year are mostly still under renovation and not yet fully performing.

I think that this time lag is the principal reason our modest EBITDAR growth has not yet overcome the current period increase in related depreciation and financing costs which don't have a ramp-up period. I also believe this phenomenon is the reason why net income for the third quarter of 2013 was $16 million, or $0.53 a share, a $3 million decrease from the prior-year quarter.

While total revenue again exceeded $2 billion for the quarter, importantly, total retail fuel volume increased almost 4%, and nonfuel revenue increased nearly 8%. Fuel gross margin per gallon also increased year-over-year.

We expect to continue to acquire new travel center sites and to integrate them into our nationwide network. We still see a fair amount of opportunity in our pipeline of acquisitions. We closed 6 acquisitions in 2013 before the end of the third quarter, and 4 travel center acquisitions were pending as of the end of that quarter. We have also begun to make plans to take action on Greenfield development sites in areas where we believe we can enhance our network, but where we have not found suitable acquisition candidates to-date. We have owned 7 Greenfield locations since 2007, and we expect to seek to move forward with development if the economy continues as we currently expect. I hope to begin construction late in 2014, or in early 2015.

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