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TravelCenters of America LLC (NYSE: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

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.

Second, while TA is sparing no effort to win best -- business from our competitors, I'd like to lay to rest what I perceive as a misperception by some as a possible impact of the allegations against Pilot Flying J. Our observation is that relationships with customers tend to be sticky in an industry like ours that has so few major participants. The decisions involved for our customers to change suppliers in such an industry are carefully considered. And so long as customers continue to believe in the financial viability of each of their potential suppliers, the turmoil that surrounds one of those suppliers is less likely to have an impact on the customer's decisions. This is all a long way of saying that for those of you who have asked, my belief is that the future scenario that favors TA the most is the one that brings that turmoil to a rapid conclusion. That said, during that turmoil's pendency, TA will continue to act to vigorously defend and improve its own business.

Before I turn things over to Andy I do also want to highlight and update you on a few of our major initiatives that I believe will make significant contributions to our future financial results. First, with regard to our previously announced agreement with Shell for the construction of a coast-to-coast liquid natural gas fuel network, progress has been made to identify the first locations, and we still expect that the first LNG fueling lanes will be operational in early 2014.

Second, with regard to growth and expansion of the TA Petro network, we have, to date during 2013, purchased 6 travel centers for an aggregate investment of $28 million. We've also entered agreements to purchase 2 other travel centers for $4.5 million that we expect to close this year. Also, as I mentioned earlier, during the second quarter 2013, we completed the construction of our location in Gary, Indiana along one of the busiest sections of interstate highway in the country. We've also opened 2 brand-new truck repair facilities at locations acquired in 2011 and continued various expansions during the 2013 second quarter, making renovations, improvements and additions designed to enhance our future business.

Third, we continue to press the advantages we have over our competition that come from a wider scope of operations and our significant location size advantage. For example, our emergency roadside repair business, which we refer to as Road Squad Connect, can respond to emergency repair calls anywhere in the United States. That business call volume was up 23% during the second quarter 2013 versus the prior year.

As a further example, the large size of our parking lots has allowed us to begin to effectively monetize that asset by offering our customers a new tool in their quest for increased miles per truck despite increased regulatory requirements for driver rest periods. Our Reserve-It parking program allows the driver to reserve a parking spot, eliminating the need to plan a cushion of hours in his or her day to simply look for parking. During the 2013 second quarter, we reserved 48,000 parking spaces at 205 locations, up from only 165 reservations at 1 location during the 2012 quarter when the Reserve-It was in its infancy.

And now Andy Rebholz, our Chief Financial Officer, will review our second quarter results in more detail. 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 second quarter. When I refer to same site results, I mean the results at only those sites that we have continuously operated since the beginning of April 2012.

We reported EBITDAR of $86.6 million for the 2013 second quarter, a decrease of about $7.5 million or 8% versus the second quarter of 2012. In the second quarter of 2013, TA generated net income of $16 million or $0.54 per share, a decline of $13.9 million from the prior year quarter when we had posted net income of $29.9 million or $1.04 per share.

On a same site basis, our 2013 second quarter fuel gross margin decreased by $11.1 million or 11.6% from the comparable 2012 quarter. We believe the fuel gross margin decline resulted from more difficult industry and fuel market conditions in 2013 versus 2012 and continued to reflect the effects of improved truck fuel efficiency. Our nonfuel revenue on a same-site basis during the 2013 second quarter, increased by $12.1 million, or about 3.5% versus the 2012 second quarter. We believe that the increase in nonfuel sales reflects the success of our various customer service and expansion initiatives, such as diesel exhaust fluid and reserved parking.

Our nonfuel gross margin as a percentage of nonfuel sales on a same site basis decreased by 1 percentage point from the prior year quarter to 54.7% in the 2013 second quarter. We believe that this decrease is largely attributable to a modest shift in the mix of our nonfuel products and services sold and the increases in tire purchase prices that Tom mentioned earlier.

Our site level operating expenses on a same site basis for the 2013 second quarter increased by $5.3 million or 3% versus the 2012 second quarter. This increase reflects the higher volume of nonfuel sales in the 2013 quarter. The ratio of operating expenses to nonfuel revenues decreased by 20 basis points from the 2012 quarter to 49.7% in the 2013 second quarter.

Our selling, general and administrative costs of $24.5 million for the second quarter of 2013 were essentially flat versus the 2012 second quarter. Our real estate rent expense for the 2013 second quarter increased by $2.8 million or 5.6% over the 2012 second quarter due to the rent payable in connection with improvements at sites we lease from HPT that were funded by HPT since the 2012 second quarter. Our interest expense for the 2013 second quarter increased by $1.9 million over the prior year quarter as a result of our issuance on January 15, 2013, of $110 million 8 1/4% senior notes due 2028.

And now I'll turn the call back over to Tom.

Thomas M. O'Brien

Thank you, Andy. In short, the message I'm trying to deliver about the 2013 second quarter is that the combination of tough comps versus the prior year and some industry-specific conditions that I hope will be short term created headwinds for us during that quarter. I'm not suggesting that the silver linings I've pointed out excuse the cloud itself but I do believe firmly that the difficult second quarter 2013 is not the defining moment, if anything perhaps -- except perhaps the firmness of our resolve to continue to execute on our business plans to be profitable for 2013 to continue selective acquisitions and related improvements and stabilization, to carefully plan internal growth projects, to deliver outstanding customer service and to maintain expense and financial ratio discipline while we also execute on new products and services like natural gas fueling for trucks, reserved parking and Road Squad Connect.

Andy and I will now take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of Ben Brownlow with Raymond James.

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

On the pricing pressure with Pilot, is -- just to be clear, is that on retail and the fleet side of the business?

Thomas M. O'Brien

Most of the pressure that we felt is on the retail side. And again, to put that in context, second quarter 2012, margins were $0.19. And 2013 was $0.17.

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

And is that regional-specific or you basically seeing it chain-wide?

Thomas M. O'Brien

It is not focused on any particular region.

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

Okay. And if you can just give a little color on sort of how that progressed through the second quarter and do you see any relief coming near-term?

Thomas M. O'Brien

There were a number of actions that were taken, mostly on the retail side and a combination of pricing and incentives through loyalty programs. And when I say incentives through loyalty programs, I'm talking about added points for customers, if you will, on that loyalty program. That took place in May and June, and so I talked about the moderation. We had not seen that in July or so far in August. That is our competitors' offering additional points for continued business. That really reflects on the retail side quite a bit. As far as the actual headline pricing, there hasn't been as much -- much change in the post-third quarter versus -- excuse me, post second quarter versus the second quarter itself. So moderating somewhat, but obviously, those -- the turmoil continues to exist.

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

Okay. And just one last one for me. On the new rules for hours of service, that should be a favorable impact to you guys. Can you just talk about -- I guess that went into effect July 1. Are you seeing any change in traffic or customer account, purchasing trends that are favorable from that?

It's a little too early to tell. The new rule requires a 30-minute rest period during the allowed hours per day. There's some things with regard to restarts, if you will. And I guess that went into effect at the beginning of July, and we haven't yet discerned a change in behavior of business because of that. My comment on hours of service really would have been whether or not that change had taken place. And I think some of the success we're having with our parking reservation system comes because, in many cases, we find the drivers reporting, fleets reporting that they're spending a couple of hours or leaving a couple of hours in everyday to try and make sure that they find parking. Of course, the reason for that is because not being able to find parking often requires you to travel a great distance or perhaps take a risk in park at a place that has no amenities or may not be a legitimate parking space. Being able to reserve a parking space can add a significant amount of efficiency. So if you have 11 hours but you're only rolling 8 because you're losing 3 hours to look for parking space. That's a pretty big piece of potential efficiency and I think that's why the Reserve-It program so far had some such early success.

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

What's been the average price on that reserve?

Thomas M. O'Brien

It runs between $10 and $12 a night. And so with the 48,000 parking night -- parking spot nights reserved in the second quarter, that -- it's about $0.5 million in that quarter.

Operator

Our next question today comes from the line of Robert Dunn representing Sidoti.

Robert Dunn - Sidoti & Company, LLC

If there's a silver lining to the turmoil in the industry, have you seen any increase in acquisition opportunities, maybe more people approaching you to take over their site as a result of this? Or have you not really seen a change there?

Thomas M. O'Brien

Anecdotally, I would say that the answer to that feels like yes. I think that for some, whether they're right or wrong -- and I don't know, I'm not talking about my competitor but rather those that have dealt with that have sites that are for sale. It feels to me like we're being pursued a little bit more vigorously than before. That may be because of a perception of lesser opportunities, for the sellers that is.

Robert Dunn - Sidoti & Company, LLC

Yes. And on the tire side, you talked a little bit about maybe some pricing pressure and your inability to pass the cost through. Do you see that mitigating in the next couple of quarters, or as commodity prices stay high, that's just going to be a fact of life?

Thomas M. O'Brien

Well, I think the year-over-year change will mitigate. That said -- and when I talk about mitigation year-over-year, I mean on a per unit cost and margin basis. That said, the industry, the truck tire industry, which used to be the world of longer-term contracts and large pricing concessions from the suppliers has changed to one of shorter-termed contracts and a reduced amount of pricing concessions from suppliers. And so what I'm saying is I believe it will mitigate, but I don't have a long-term contract to sort of back up that belief.

Robert Dunn - Sidoti & Company, LLC

Okay. I just -- one more, on the fuel margin, you said you've seen some of the pressure mitigate into July and August. Is that to say that the margins are up year-over-year or just that the downward trend has been mitigated somewhat?

Thomas M. O'Brien

I would say that the downward -- with the latter, the downward trend seems to have mitigated somewhat. I don't want to be overly cautious but we're less than 6 weeks into the third quarter. So when I talk about early reports, I really mean that. And this is what we're seeing so far.

Robert Dunn - Sidoti & Company, LLC

Yes, so it's still down, just less so.

Thomas M. O'Brien

That's fair to say.

Operator

Next we'll go to line with Bryan Maher with Craig-Hallum Capital.

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

Can you talk a little bit about the ramping of the 20 stores and that impact on the quarter and how quickly you think that, that might change around?

Thomas M. O'Brien

Yes. We purchased in -- since the beginning of 2011 26 stores. And the ramp-up of a new store does take some time. First of all, we've got to improve it and I would say, on average, those 26 stores, of the amounts that we've invested, about 1/2 that amount has gone to improvements. So that gives you a sense of scale. So on an average, if we're buying for $4 million, we're putting $4 million in on top of that. So it takes a little bit of time there. And then once that site is ready to go and improve, it does take time for it to be fully utilized, particularly by fleets who've kind of got to get it into the system, if you will. So at a minimum, you're looking at about a year, maybe 2, if we don't have to do something like build a brand-new facility like we did in Gary, Indiana. That was the one that we purchased in 2011 and really just reopened at the end of May. The impact of the new sites, I think it's fair to say that to date, that the positive impact has covered our cost of capital. And moving forward, obviously, we expect a multiple of that. It's going to take, again, a year or 2 for the sites purchased in 2011 and 2012. All told, we've invested about $210 million, don't quote me on that number, but around that, on those new sites. And for the last 12 months, those new sites have produced, on an EBITDAR basis, about $8 million. So that gives you a sense of the starting point, and I've given you a sense of the ramp-up too.

Robert Dunn - Sidoti & Company, LLC

Okay. And kind of circling back to what's going with the competitor issue, I heard what you said about retail and with loyalty points. But I guess that some of us on the call here might have thought that both Love's and TA might be picking up market share. And is it safe to say that that is not happening?

Thomas M. O'Brien

Well, let me we characterize it like this, Brian. Our efforts to gain market share have never been at a point where we've done any less than we could do. And so while the turmoil is an industry event, and it's a new event, and everybody in the industry will do what it can to take long-term advantage of their competition, right? It's a mistake to think that our largest competitor is not in a position to counteract those moves. And so when I talked about the fierceness of the competition, that has not changed. Maybe some of the topics have changed a little bit. And while we have certainly seen those fleets that have concluded that they would prefer to approach their supply relationships differently than they have in the past, we've also seen very large fleets declare that they're not going to make any changes. And so, again, I don't -- I'm not saying that it's not something that we would -- we aren't trying to make a positive out of but it's not as if we're fighting an unarmed person.

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

Yes, kind of expanding that conversation a little bit, and I just have a follow-up conversation on truck tonnage. I understand your position in the second quarter of not wanting to make a lot of noise and kind of throwing it in Pilot Flying J's face when they were down, and taking business and maybe going about it quietly. But to the extent that they have ramped up competition to a point where you would use the word fierce, why wouldn't you then turn the tables and go fiercely back at them?

Thomas M. O'Brien

You misunderstood a little bit. It's always been fierce. We've always been fierce, and that's not a new thing. That's the status quo. Like I said, the topics have changed a little bit but the intensity really hasn't.

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

Just 1 last question on truck tonnage. I mean the ATA truck tonnage index is hitting all-time new highs. I'm sure you guys see that data monthly. How should we be thinking about this? If truck tonnage is increasing and new private residential construction is increasing, it seems to us that there would be more trucks on the road, more miles driven. And I understand the efficiency counter-argument to that, but I would think that at a minimum, same-store sales would be flattish to slightly up. Can you talk about that a little bit?

Thomas M. O'Brien

Yes, I think that truck tonnage, while maybe a longer-term indicator, it is not the best indicator for our business. It used to be that we would talk about mileage as the better indicator. But honestly, that -- those changes have been overwhelmed by fuel efficiency. And the reason is, to put it into context, a few years ago, trucks are averaging 5.5 miles to the gallon, and that's a very small number, which means that every mile per gallon of efficiency is a pretty large percentage. And so when I look at our same site volume decline, even in the context of all of the things that are going on, I actually -- I'm not particularly concerned about it.

Operator

[Operator Instructions] And we will go to the line of Emmett Wright representing Milwaukee Private Wealth Management.

Emmett Wright

Can you please spend a little more time on site level operating expense and explain the delta in that period-over-period?

Andrew J. Rebholz

Sure. The same level operating expenses on a same-site basis you're referring to, I take it?

Emmett Wright

Yes, I guess both ways, the absolute and same site.

Andrew J. Rebholz

The same site, as we said we were up 3%, which the types of things that are encompassed in site level operating expenses, largely labor, maintenance, utilities, things that many of which will move naturally with the change in, primarily, the nonfuel sales revenue because that's the more labor-intensive component of our sales, much more -- fuel is not an especially labor-intensive sales process. On the nonfuel side with the food service and the truck repair maintenance services, those are very labor-intensive. And as you're selling more food, you're selling more repair services, maintenance services, you're going to need more labor , more supplies, things like that to support that level of sales. So the increase in the site level operating expenses moving along with the nonfuel revenues sort of makes sense, and that's why we referred to the -- we include this measure of the site level operating expenses as a percentage of nonfuel revenues to kind of give an indication of that relationship and how that's moving. And if that percentage is getting smaller, then that's a useful indication that the costs are remaining in check, if you will. From a total perspective, the operating expenses, we -- Tom talked about a bit just a moment ago about the sites, the recently acquired sites. And of course, the difference between our same-site results and our total results are largely those sites that are not considered same sites, the ones recently acquired. And those ones are not yet really running at a level of, I'll call it, expense efficiency, say as they would, when they are mature as the average same site may be operating. They often don't have the full offer. They don't have maybe a repair shop. They don't have all the components of the food offer installed yet, those sorts of things. So you have a little bit more of a ramp-up there and the -- that can affect those different ratios that one might calculate on the OpEx.

Emmett Wright

I appreciate it. Your call is fading in and out. I don't know whether that's my phone or everybody's got that issue, so if I'm asking a redundancy, pardon me. Is it fair for us to assume that as you increase the number of actual sites that we'll get a continued downward ratio in terms of your expense in aggregate for sites that are open 1 year or longer?

Thomas M. O'Brien

The expense as a percentage of sales, yes. I think that's fair. And if you look at the overall, you got a -- because of the -- half the percentage [ph], do a little math but the nonfuel margin in the third quarter -- excuse me, in the second quarter, 2013 was about $14 million over the nonfuel margin in 2012, while the site level operating expenses were up about $14 million. You'll see over time a couple of things happen. As the new sites stabilize and sort of come into their stride, not only will you have increased business but you'll avoid some of the start-up costs of the new site, which include training and things like that, which are -- it's not $14 million but it's about $1 million over the last 6 months. And so, to answer to your question, yes, we're doing this in order that we drop more to the bottom line and so that the margin grows faster than costs. That's the goal.

Emmett Wright

Fair enough. And lastly, when you think about these new acquisitions, what is your expected return on capital over time, given that we probably have a 18- to 24-month gestation period?

Thomas M. O'Brien

Well, absent a financing transaction that reduces the capital and recognize that we purchased -- the sites we have purchased, we purchased for cash and they remain on the balance sheet. Our targets are mid-single-digit multiples, and that makes for high double-digit total returns on an unlevered basis.

Operator

And we'll go to the line of Bryan Maher with Craig-Hallum Capital.

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

Just a couple of follow-up questions. Have you received, and if so, can you give us some quantification on what type of inbound calls you might have had from Pilot Flying J customers over the past few months?

Thomas M. O'Brien

No, I can't quantify that for you Brian. Sorry.

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

But there has been some, I would assume?

Thomas M. O'Brien

Customers call us all the time for all kinds of reasons but I wouldn't want to comment on why.

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

Okay. And then the second question I have is you talked a little bit about how Pilot Flying J was competing, it seemed more on a retail basis and through the use of loyalty, I guess, points in their program. Can you elaborate on that a little bit and talk to us a little bit about your kind of counter to that and maybe a little bit about your loyalty program, and any changes you may or may not have made to that?

Thomas M. O'Brien

Sure. I'll focus on the loyalty program. What actually happened in our observation is that competitor loyalty program issued what they called double points in May and June. I took that as a response to the turmoil that was reported in the media in April. They followed that, we didn't. And as of today, it hasn't continued. That's not to say that it won't get turned on tomorrow or after this call or next month, but that's an example. That's sort of clear and observable. The other is the second level there is retail pricing, and that is a question of perception. In my perception is that our major competitors, and I'm not just talking about the one, that our major competitors have become more aggressive on retail pricing and we're doing what we have always done to continue to be competitive. Again, it's important to point out and remind folks of the context, you're talking about a margin on a per gallon basis that is very strong on a historical basis at about $0.17, in an environment where, generally speaking, prices were on the upswing during the quarter -- and that's important too. I didn't mention that before but it's important to note that, that was also a headwind, if you will. And then the third level of your question is really about the suite [ph] or contract pricing, and again I haven't seen an increase in, to use my own term, the fierceness on either side. It's still very competitive. Our pitch has always been our competitive price and a lot more value, and we're sticking to that.

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

So when you talk about retail pricing, are you talking about both fuel and nonfuel?

Thomas M. O'Brien

No, just fuel.

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

Just fuel.

Thomas M. O'Brien

That's what I'm talking about yes.

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

And can you go into -- I think, if memory serves me, you only keep, as far fuel goes -- first of all, you can change prices as quickly as you want, possibly even as quick as hourly?

Thomas M. O'Brien

Absolutely.

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

Okay. And then -- and you only keep about, what, 1 to 3 days worth of inventory on hand?

Thomas M. O'Brien

You're correct.

Operator

That does conclude our question-and-answer session today. And I'll turn the call back over to Mr. O'Brien for closing remarks.

Thomas M. O'Brien

Well, I want to thank everybody for listening in and for your interest, and we're going to get back at it. Thanks a lot.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using the AT&T Executive TeleConference. You may now disconnect.

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