TravelCenters of America LLC (TA)

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TravelCenters of America LLC (TA)

Q1 2011 Earnings Call

May 09, 2011 10:00 am ET

Executives

Carlynn Finn - Manager Investor Relations

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

Thomas O'Brien - Chief Executive Officer, President, Managing Director, Member of the Office of the Chairman and Director

Analysts

Jeff Geygan - Milwaukee Private Wealth Management

Benjamin Brownlow - Morgan Keegan & Company, Inc.

Presentation

Operator

Good day, and welcome to the TravelCenters of America First Quarter 2011 Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to TA's Manager of Investor Relation, Ms. Carlynn Finn. Please go ahead, ma'am.

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 the presentation, 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, May 9, 2011. 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 statement. 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 O'Brien

Good morning, everybody, and thank you for joining our call today. I'm here to report results for the 2011 first quarter, which reflected significant improvement over the 2010 first quarter.

Our 2011, first quarter EBITDAR was $45 million, an increase of $11 million or 34% over the 2010 quarter. We believe the combination of the generally improving economic conditions in the country and our marketing and management efforts is paying off with the increased customer spending and a higher percentage of each incremental sales dollar reaching the bottom line. Our increase in EBITDAR coupled with the reduction in rent and interest payments that we announced earlier this year were the two factors principally responsible for the $24 million improvement in our net loss.

As you may be aware, typically, our results during a year our strongest during the second and third quarters. Pro forma for the January 2011 lease amendments, our net income for the 12 months ended March 31, 2011, was $5 million. This pro forma profit takes account of our improved operating results in the first quarter of 2011, and we expect to continue operational improvements for the balance of the year.

During the 2011 first quarter, we opportunistically took advantage of the distressed market conditions affecting specialized real estate financing by buying or agreeing to buy 8 travel centers for about $37 million. In March, we purchased a travel center in Carl's Corner, Texas at a foreclosure auction. We renovated this property into a Petro Stopping Center and opened for business on May 1, 2011. Our total investment was about $7 million. We believe the replacement cost of this facility is significantly more than this amount. In the first few weeks of operations, we're already seeing very positive sales results from this facility.

Also in March, we exercised our right to purchase a former Petro franchisee's travel center in Kansas for $5.5 million. We expect to close on this purchase and begin to operate this site for our own account during the second quarter of 2011.

In April, we agreed to acquire six travel centers, 5 in Indiana and one in Illinois, at a bankruptcy auction. Staggered closing for these sites begin May 2 and are expected to be complete prior to the end of the second quarter of 2011. One of these sites has been operated as a Petro franchise, and we intend to continue its operation as a Petro. Three are expected to be rebranded prior to the end of 2011, 2 as Petro Stopping Centers and one as a TA.

The remaining 2 sites are adjacent or near to and are expected to function as ancillary facilities to existing TA locations. We agreed to purchase these 6 properties for a total of approximately $24.5 million, which we estimate equates to slightly over 4x the historically generated annual cash flow at these locations. We expect to spend between $15 million and $20 million to renovate these properties into first-class travel centers, and we expect the cash flow from these sites will improve when they're renovated and when we are operating them.

In sum, we believe these acquisitions were at bargain prices and that our future sales of these new company-operated sites will positively impact our future financial results.

Also during the first quarter of 2011, we reopened our existing travel center in Nashville, Tennessee. This facility had been closed since the flood that struck Nashville in May of 2010.

Of course, during this past quarter and continuing through today, we continue to strengthen what we believe is our industry-leading focus on customer service. We believe that dedication to superior customer service, our larger facilities and our extensive truck repair service capabilities set TA apart from our major competitors. The fact that TA is dedicated to offering a full range of amenities and services to truckers and that TA, unlike the competition, maintains direct operating control of all aspects of its business have lead many customers to agree that the full-service experience of TA and Petro brands offer can help them optimize their business.

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