Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

TravelCenters of America LLC (NYSE:TA)

Q1 2013 Earnings Call

May 07, 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

Chris Weng - UBS Investment Bank, Research Division

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

Operator

Good day, and welcome to the TravelCenters of America First Quarter 2013 Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference call over to the 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 the presentation, there will be a short 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 7, 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. I'm pleased to report TA's first quarter 2013 financial results. First quarter 2013 EBITDA was $57 million, or 15% over the 2012 first quarter. As expected, we incurred a net loss in the first quarter, that loss, however, was $2 million less than the loss in the 2012 first quarter, or $0.08 better than the prior year quarter on a per share basis. I hope listeners understand that the first calendar quarter of each year is when TA has historically produced its weakest financial results. Trucking activity is slowest in the first calendar quarter every year, it then picks up in the second and third quarters and slows again in the last 3 months every year. While Andy will run down the first quarter results in more detail in a moment, a few highlights include: one, nonfuel revenues for the 2013 quarter were up by $21 million or 7% over the prior year; nonfuel gross margin dollars also increased to approximately 7% in the 2013 first quarter versus the prior year quarter; SG&A expenses were held essentially flat versus the prior year quarter; operations, excluded from the same site analysis, are actually sites acquired in 2012 and 2013 contributed $15.5 million of gross margin. I expect these results will continue to improve, over time, as many of the sites have been owned for only a short time and many have not yet seen completion of our planned improvements. Indeed, since the end of 2013 first quarter, we opened 2 new truck repair facilities, at sites acquired in 2011, and another 2 are expected to open in May.

During the first quarter, our total fuel sales volume declined by about 3.3% versus the prior year quarter. I believe this is a modest decline in the face of: one, our final exit from the wholesale fuel business, which was responsible for about 60% of the decline; two, effectively 2 fewer days of operations in 2013 versus 2012; and three, continuing fuel conservation efforts by our customers in the trucking industry.

I continue to believe that the attention that we've devoted to customer service to selectively buying new sites and to improving our facilities and controlling our operating costs has allowed us to improve our bottom line in a slowly improving economy, so far, in 2013, and positioned us for profitability for the full year 2013. While we have been highly focused on improving our operations and controlling costs, I want to highlight some initiatives that we've undertaken that, I believe, may make significant contributions to our future financial results.

First, we entered a definitive agreement with Shell Oil, pursuant to it, Shell agreed to construct a network of a natural gas fueling lanes, at up to 100 of our travel centers over the next several years. We expect that the first natural gas fueling lanes will be operational in early 2014. Second, we continue to opportunistically take advantage of the distressed market conditions affecting specialized real estate like truck stops. To date, during 2013, we purchased 4 travel center businesses for an aggregate investment of $18.6 million. We also entered in an agreement to purchase another travel center for $4 million and we expect to close that in the near future. Third, we completed a public offering of senior notes that provided us net proceeds of a little over $105 million that we intend to put to work in growing our business through acquisitions and other capital investments.

And now, Andy Rebholz, our Chief Financial Officer, will review our first quarter results in more detail. And after Andy's comments, I'll make some closing remarks and then we'll try to answer questions.

Andrew J. Rebholz

Thanks, Tom, and good morning, everybody. I'd like to make some more detailed comments about key financial results for the 2013 first quarter. In this discussion, when I say same site results, I mean the results that only those sites that we have continuously operated since the beginning of 2012. We reported EBITDAR of $57 million for the 2013 first quarter, an increase of about $7.3 million or 14.7% versus the first quarter of 2012. EBITDA, or EBITDAR after GAAP rent expense, was $5.1 million, which is $4.9 million higher in the 2013 first quarter than in the 2012 first quarter .In the first quarter of 2013, TA generated approximately a net loss of $12.1 million, or $0.41 per share, a $2 million improvement over the prior year quarter when we have posted a net loss of $14.1 million or $0.49 per share.

As a reminder, TA's business tends to reflect seasonal changes. The first quarter of each calendar year generally produces our weakest financial results. The second and third calendar quarters generally produce our best financial results.

It is also worth noting that our same site results for the 2013 first quarter were negatively affected relative to the 2012 first quarter because 2012 was a leap year and the Easter holiday fell in the first quarter in 2013 but in the second quarter in 2012. Effectively, this means the 2013 first quarter contains 2 fewer full operating days than did 2012. On a same site basis, our 2013 first quarter fuel gross margin increased by $5.9 million, or 8.8%, more than in the comparable 2012 quarter. Our per gallon fuel gross margin increased by 14.4% on a same site basis, offset somewhat by a decline in our fuel sales volume.

Our nonfuel revenue on a same site basis during the 2013 first quarter also increased by $5.3 million or about 1.7% versus the 2012 first quarter. We believe that the increase in nonfuel sales reflects the impact of slightly improved economic conditions on trucking companies and their drivers, and the results of our various customer service and expansion initiatives at our existing sites, such as diesel exhaust fluid and reserved parking. Our nonfuel gross margin, as a percentage of nonfuel sales, on a same site basis, increased by 20 basis points over the prior year quarter to 55.8% in the 2013 first quarter. We believe that this increase is largely attributable to a modest shift in the mix of our nonfuel products and services sold. Our site level operating expenses on a same site basis for the 2013 first quarter increased by $5.7 million or 3.4% versus the 2012 first quarter. This increase reflects the higher volume of sales in the 2013 quarter. The ratio of operating expenses to nonfuel revenues increased by 80 basis points from the 2012 quarter to 55.3% in the 2013 first quarter.

We believe that this change in this ratio reflects the effects of the TravelCenters we acquired in 2011 that are not yet running as efficiently as our more mature sites or have only recently added key services, like the truck repair facilities Tom referred to earlier, and have incurred training and other pre-opening cost. Our selling, general and administrative costs of $23.2 million for the first quarter of 2013 were flat versus the 2012 first quarter. Our real estate rent expense for the 2013 first quarter increased by $2.4 million, or 4.8% over the 2012 first quarter, due to the rent payable in connection with improvements at sites we leased from HPT, that were funded by HPT during 2012. Our interest expense for the 2013 first quarter increased by $1.6 million over the prior year quarter, primarily as a result of our issuance on January 15, 2013 of $110 million of our 8.25% senior notes due 2028. And now I turn the call back over to Tom.

Thomas M. O'Brien

Thanks, Andy. I would characterize Q1 2013 as a solid quarter, in which, only economic and industry backdrop was not overtly hostile, it did contain numerous challenges that needed to be and were bested by our 16,000 employees. On balance, I'm pleased with our results for the first quarter of 2013, which came in, essentially, as we expected and discussed, during our earnings call in March. I continue to expect TA to be profitable for 2013, and we will continue our focus on selective acquisitions, carefully planned internal growth projects and customer service delivery within the confines of expense and financial ratio discipline. We also continue to work hard in the development and implementation of new products and services, like natural gas fueling for trucks, reserved parking and opportunities we may have in other areas to expand our service offerings, including, but not limited to, our best-in-class truck repair services. And with that, I'll be happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ben Brownlow.

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

Actually, on the wholesale supply, can you quantify the benefit on fuel margin there?

Thomas M. O'Brien

Well, it's a combination of low margin business and, I would say, wholesale supply business, we're talking very low single-digit margins. But it's really more than that because the also have capital tied up in it. That wholesale businesses largely exited several years ago, what remained was a business where we sold fuel to certain of our franchisees. And all of those franchisees were on leases to us. As part of their lease agreement, they were actually required to purchase fuel from us and we were required to sell. During the last year, all of those leases rolled, so there was a renewal option as part of that renewal process. We eliminated their requirement to buy and, therefore, our requirement to sell to them. So it is negative and that it has a pretty big impact on the volume for the short term here. But the capital we pulled out of exiting that business can be used to greater effect in other areas of our business because that margin was so low.

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

Understood. And the biodiesel blenders credit, is that a onetime item or is that carrying forth for benefit's future quarters?

Andrew J. Rebholz

A little bit of both. The biodiesel credit, it's a fuel excise tax credit, is in effect for 2013. But the impact that we called out in the first quarter, that cumulative effect of reinstatement of that blenders credit for 2012. So it expired during 2012. A lot of folks expected retroactive reinstatement by Congress which actually happened. But it didn't happen until -- that reinstatement didn't happen until 2013. And so we were required to sort of defer that. So the $3 million -- excuse me, $2 million is in the first quarter of '13 for all of 2012. It won't recur in lump sum like that in the next first quarter 2014, but it is in -- it will be in our numbers throughout the year.

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

Very helpful. And just one last one for me. The -- obviously, all the issues with the Pilot Flying Jay, are you seeing any upticks or opportunity to pick up market share? Or a change in the marketing strategy for the fleet business?

Andrew J. Rebholz

We haven't changed our strategies. And we remain very willing and able to service our customers. As we ever were, I haven't seen much of any change in recent sales or volume with regard to that.

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

Great. And I know it's a seasonally weaker quarter, so it's hard to say congrats on an earnings loss, but still a record first quarter EBITDAR, so I will say congratulations.

Operator

Next question is going to come from Michael Lasser.

Chris Weng - UBS Investment Bank, Research Division

This is Chris, filling in for Michael. I wonder if you guys could talk about what drove the strong increase in fuel profit per gallon and do you think this is a sustainable rate?

Andrew J. Rebholz

Well, I would say that what we saw in the first quarter was better buying on our part, in part. But there were some challenges, I mean, we had fuel prices decline although modestly, A decline is, typically, a good thing for us. This particular decline, I could say that, one, it was modest, and, two, was coupled with less volatility. And so we had to overcome that. I would say, I'm balanced in the first quarter. There were more market negatives than positives. There were some difficulty in the -- on the supply side, with some refinery outages in Texas and New Mexico. With that as the backdrop, to answer to your question, I think that we've delivered some pretty strong numbers despite the challenges. And I think that goes -- that points to the conclusion that, yes, I do think that it's -- I do think that is sustainable.

Chris Weng - UBS Investment Bank, Research Division

Great. And I was wondering, could you tell a little bit about the recent announcement regarding the deal with Shell? I guess, what kind of opportunities you seeing the first year of roll in? And, I guess, how big do you think that opportunity can get?

Thomas M. O'Brien

So I think, on the natural gas side, what we're willing to say, and can say, is what you've seen. That is to say that the capital is going to be put in by Shell and that our first sites expect to be open within one year's time from the announcement. I would tell you that the last time a fuel revolution, if you will, within the trucking industry, occurred was -- started in the 50s, when trucks started converting from gasoline to diesel. It took till sometime in the 70s when that was complete. I do think that cycle times in the modern economy are shorter, but it isn't going to happen overnight. And we believe that there's a lot of customers that see an awful lot of good for their business by either converting to natural gas or by having the opportunity to use a mix of natural gas and diesel trucks. But the demand is really just getting off the ground. In a year's time, I think that, like I said, we'll have our first site open. Other than that, all I can really say is that I approached our agreement with Shell with all of that in mind. That is to say, one, it's intended to be -- or it's likely to be a slow ramp up; two, natural gas is in fact, in a lot of ways, a replacement product for TA, and that is to say, I didn't enter the agreement in order to make less money on the product I'm replacing. And so, sort of eyes wide open on all of those fronts. But that gives you a little color, I know I haven't told you everything about what the agreement says, but honestly, it's a little far out, and, two, I really not interested in sketching out a roadmap for anybody else in the market that hasn’t done the work that I have.

Operator

[Operator Instructions] Our next question will come from Bryan Maher.

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

So let me ask the question on Pilot Flying J situation a little bit differently. Are you, as a sales force, pursuing more aggressively, I should say, than otherwise, going after some of that business that might be disgruntled or otherwise concerned with the situation at Pilot Line Jay?

Thomas M. O'Brien

Well, I guess, what I can say is this. But first, I don't have any more insight than anybody else about what the facts might be there or what the final fall out might be from those things. What I can tell you is TA's a public company, we've got robust compliance in the controlled environments. We do internal audits, we audit internal controls, all the trappings of a good governance and being an SEC registrant and a New York Stock Exchange-listed company, we're pretty confident, supremely confident that we honor all of our pricing commitments and things like that. That said, Brian, we're in a pretty small industry, we're a big player as are a couple of our competitors, including Pilot and Love's. And I think that, what I would characterize is the general feel of our customers, or how I would characterize that? Is that -- they're looking at things and there's not a lot of knee jerk reaction to anything. And I would say that while we're in tune to the potential for fallout and the dust up associated with those matters, we're not running around, grave dancing, either. Because I don't think that's in our interest in the short term or the long term. So it's more of being in tune with what's happening in the marketplace, as opposed to really actively taking a different approach than we have in the past, which is to sell what we have to sell, which is at competitive price and value besides.

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

All right. So let me ask it kind of one last way and I'll move on to my other question. Did you guys notice after that, let's say, in week or 2 following the FBI raid there, any inbound call -- traffic, from fleet managers who might be interested an exploring in arrangement with you if they didn't have one already?

Thomas M. O'Brien

I would say that inbound calls were no different than what they had been in the past.

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

And then moving on, can you give us a little bit of color on what you’re seeing in the acquisition market? Is it getting better? Is it getting worse, is prices moving up or is pricing staying about the same?

Thomas M. O'Brien

Pricing is staying about the same. I would say that the pipeline today feels a little more robust that it did last time we talked about this, which is really just back in March. I would characterize it as a good environment, that is to say we are we have plenty to look at and choose from and pricing doesn't appear to be softening, or hardening, one way or another. Again, our last call was in March, so really just about 6 weeks ago. So no big changes there and I still feel pretty confident and comfortable about what's in the pipeline and the kinds and quality of things that we're looking at and have closed on.

Operator

[Operator Instructions] And no further questions. I'll hand the call back over to Tom O'Brien.

Thomas M. O'Brien

Okay. Thank you very much, everybody, for participating, and we'll be back in about 3 months to talk about the second quarter. Have a great day.

Operator

And that does conclude our conference for today. Thanks for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: TravelCenters of America LLC Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts