TravelCenters of America LLC (NYSEMKT:TA)
Q4 2009 Earnings Call Transcript
February 24, 2010 10:00 am ET
Tim Bonang – Director, IR
Tom O’Brien – Managing Director, President and CEO
Andy Rebholz – EVP and CFO
Ben Brownlow – Morgan Keegan
Good day, and welcome to the TravelCenters of America fourth quarter earnings 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 Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.
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. I would also note that the recording and retransmission of today’s conference call is strictly prohibited without prior written consent of TA.
Today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal Security laws. These forward-looking statements are based on TA’s present beliefs and expectations as of today, February 24, 2010.
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. And now, I will like to turn the call over to Tom O’Brien.
Thank you, Tim. Good morning and thank you all for joining our call today. I’m here to report our results for 2009. For the fourth quarter and full year our net loss was $45 million and $90 million respectively. EBITDAR for those periods was $32 million and $202 million respectively. These measures do compare unfavorably to 2008.
The single biggest factor contributing to declines in results for 2009 versus 2008 is lower fuel gross margins per gallon. Fuel gross margin in 2008 averaged $0.132 per gallon, including a $0.18.4 per gallon average in the fourth quarter that year. These high per gallon fuel gross margins principally resulted from the rapid decline in fuel prices, which occurred in the last five months of 2008.
Declining fuel prices tend to expand fuel gross margins. We did not experience such a decline in 2009 or in any substantial portion in 2009, and our cents per gallon fuel gross margins where as a result less than in the prior year. We also continued with fuel sales volume declines overall in 2009, and fuel sales volumes declined 7.4% for the year. Moreover, lower fuel sales volumes contributed to lower non-fuel sales. One very important item to note is that our fuel sales volume in the fourth quarter of 2009 increased by 2.4% over 2008. This increase, while modest may be significant in the future because it is the first quarterly increase in fuel sales volumes since 2006.
Our fourth quarter fuel sales volume is encouraging and appears to be evidence that our marketing, sales and customer service efforts are working. I do not yet see evidence of increased fuel demand industry wide. The possibility also exists that our principal competitors are focused elsewhere as they continue their attempts to merge. Growing revenues begins with increasing the attractiveness of TA’s services to customers, and I believe we are just beginning to see the results of our efforts to improve appearance and quality of TA customer service offerings.
In the face of difficult industry conditions, controlling costs is also important. We were able to decrease our site level operating expenses by over $4 million in the fourth quarter and by over $41 million for the full year of 2009 as compared to the comparable 2008 periods. We also reduced our SG&A costs during 2009, and these costs declined by over $18 million for the year.
TA and its customers continue to face difficult economic and industry conditions. While I'm pleased that our same site results for the fourth quarter reflect the modest increase over prior year in fuel sales volume, and our continued efforts regarding sales marketing and cost control, I continue to be anxious about the state of the economy and the trucking industry, and the effect these conditions may have on TA’s future operations and results.
For example, I cannot be certain about what portion of fuel sales volume increase we experienced during the fourth quarter is attributable to the market recovering, and how much resulted from TA increasing its market share at the expense of our competitors. Further, while I'm pleased that we have tightly controlled expenses in light of the depressed levels of business activity, TA’s net loss increased and EBITDAR decreased, further signs that continued financial discipline is still the order of the day.
Before I continue, I will turn the call over to Andy Rebholz, our Chief Financial Officer, who will review our fourth quarter results in detail. And after Andy's comments I will come back on and make few more comments and then we will take questions.
Thanks, Tom. Good morning everybody. I will discuss some of our key financial results for the 2009 fourth quarter and full year. In this discussion, I’ll refer to same site results, which are the results at only those sites that we’ve continuously operated since January 1, 2008.
First I will cover our fourth quarter results. In the fourth quarter of 2009, TA generated a net loss of about $45 million of $2.65 per share. In the fourth quarter of 2008, TA had posted net income of a little over $1 million or $0.08 per share. For the fourth quarter of 2009, TA also reported EBITDAR of $32 million, a decrease of about $44 million versus the fourth quarter of 2008. EBITDAR in the fourth quarter of 2009 fell short of cash front by about $13 million, and fell short of GAAP rent expense by about $26 million.
The unfavorable comparisons to prior year results for net loss and EBITDAR are primarily attributable to the decline in fuel gross margin between years. Fuel gross margin was $38 million less in the 2009 fourth quarter than in the 2008 fourth quarter. This decline is due to a 45% decline in fuel gross margin per gallon, and was despite the increase in fuel sales volume on the same site basis of 2.4%.
Our margin decline on a per gallon basis is strongly related to the strong fuel margins realized in the second half of 2008 that had resulted principally from precipitous fuel commodity price declines experienced after the crude oil bubble burst subsequent to reaching its peak of about $150 per barrel in July 2008. This is in stark contrast to the market prices of diesel fuel during 2009, which were generally on an upward trend in the fourth quarter as they had been since February 2009.
Closing prices for diesel fuel futures on the NYMEX were $2.56 per gallon at the end of January 2008. It increased to $3.81 per gallon at the end of July 2008, and decreased to $1.28 per gallon by the end of February 2009, and then steadily increased to $2 per gallon at the end of December 2009.
Our fuel sales volume on a same site basis increased by 2.4% in the fourth quarter of 2009 versus the 2008 fourth quarter. This is the first quarterly increase we have seen in fuel sales volumes in quite some time, and we believe it may have resulted from us gaining an increased market share and/or from a slight up-tick in tracking activity. But we cannot be sure the extent to which either of those factors affected our results.
We remain cautious regarding expectations for future economic growth in the US in the near term. On a same site basis, our 2009 fourth quarter fuel gross margin was approximately $39 million or 43.7% in less than in the comparable 2008 quarter. Our fuel revenue for the fourth quarter of 2009 reflected an increase of $20 million or 2%, while our fuel cost of sales reflected a larger increase of $58 million or 6%, resulting in the reduced fuel gross margin we generated. The most significant factor in these variants is the difference in market price trends for petroleum products between the 2008 and 2009 fourth quarters.
As the just detailed, in the fourth quarter of 2008 market prices for fuel were plunging from their historical highs in July, while in the fourth quarter of 2009 market prices for fuel steadily rose. Our non-fuel revenue during the 2009 fourth quarter declined by $13 million or about 4.8% on a same site basis versus the 2008 fourth quarter. We believe that the decline in non-fuel sales reflects the effects of the current difficult economic conditions on trucking companies and drivers, including the increased maintenance intervals instituted by truck drivers, and the general affect on consumers to pinch pennies, such as by trading down to a meal from a quick service restaurant instead of a payable service restaurant.
And also reflecting an increase in the level of discounting the economic and industry conditions have forced on certain areas of our business. Our non-fuel gross margin as a percentage of non-fuel sales decreased by 70 basis points on a same site basis to 57.3% for the 2009 fourth quarter. This margin decline reflects we believe that continued decline in sales of higher margin discretionary products and services.
Our site level operating expenses decreased by $4.5 million or about 3% on a same site basis versus the 2008 fourth quarter. This decrease reflects the lower volume of sales as well as our labor expense controls implemented to adjust to the decreased sales volume levels offset somewhat by increases in unit labor costs.
Our selling, general and administrative costs of $20.4 million for the fourth quarter of 2009 were slightly less than in 2008.
Now, I will turn to the results for the year ended December 31, 2009. TA’s net loss for the full year 2009 was about $90 million or $5.38 per share compared to a net loss of about $40 million of $2.65 per share for the 2008 full year. EBITDAR for the year 2009 of about $202 million was about $44 million less than for the 2008 full year. The unfavorable comparisons to prior year results for net loss and EBITDAR are primarily attributable to the decline in fuel gross margin between years.
For the year 2009, fuel gross margin was $45 million less than in 2008. The decline for this 12 month period is partly due to a 10% decline in fuel gross margin per gallon, largely driven by the fuel commodity price trend I detailed a few minutes ago, and is partly the result of the decline in fuel sales volumes. Our fuel sales volume on a same site basis decreased by 7.4% in the year 2009 versus the 2008 year.
As we have noted previously, the percentage declines as compared to the prior year have been moderating throughout 2009, and in fact turned positive in the fourth quarter. We believe these variances have resulted principally from generally lower trucking activity during 2009 and continued efforts at fuel conservation by truck drivers. On a same site basis, our 2009 fuel gross margin was approximately $47 million or 17% less than in 2008 as a result of the generally upward trend of market prices for fuel in 2009 as compared to the sharp declines in market prices in the second half of 2008 as I detailed earlier.
Our fuel revenue for the year 2009 reflected a decrease of $2.9 billion or 44%, while our fuel costs of sales reflected a similar decrease of $2.8 billion or 46%. The most significant factor in these variances is the difference in market price trends for petroleum products between the 2008 and 2009 years. But the lower level of fuel sales volumes also contributed to these declines.
Our non-fuel revenue during 2009 declined by $91 million or about 7.7% on a same site basis versus the 2008 year. We believe that the decline in non-fuel sales reflects the lower level of tracking activity throughout 2009 as compared to 2008, the effects of the current difficult economic conditions on consumer spending, the increased maintenance intervals instituted by truck owners, and an increase in the level of discounting the economic and industry conditions have forced on certain areas of our business.
Our non-fuel gross margin as a percentage of non-fuel sales decreased by 30 basis points on a same site basis to 57.8% for the 2009 year. This margin decline reflects, we believe the continued declines in purchases of higher margin discretionary products and services by our customers. Our site level operating expenses decreased by $40 million or about 6% on a same site basis versus the 2008 year. This decrease reflects the lower volume of sales, as well as our labor expense controls implemented to adjust to the decreased sales volume level, offset somewhat by increases in unit labor costs.
Our selling, general and administrative costs of $78.6 million for the year 2009 were $18.4 million less than in 2008, reflecting our focus on controlling these costs, especially personnel, legal and travel costs, as well as the elimination of the Petro headquarters in 2008, the end of our various retention and severance programs in January 2009, and the non-recurring nature of the legal settlement we recognized in 2008.
In a moment, Tom will detail the increase in our cash balance during 2009. In a difficult economic environment, TA has thus far been able to continue to conserve cash, meet all of its obligations, maintain its TravelCenters sites, and increase its cash balance. It is fair and important to note that the ability to defer up to $5 million of our rent to HPT each month has been an integral factor in our increased cash balance, and with the uncertainty inherent in the current economic conditions, we are unable to predict whether or when we will cease the deferrals or begin to pay the deferred amounts to HPT.
And now, I will turn the call back over to Tom.
Thanks, Andy. Few more comments before we turn to questions. As I've done in past quarters, I will give some details about our cash and liquidity position. During the year 2009, TA’s cash balance increased as follows. We began the year with $145 million of cash on the balance sheet. We spent $43 million to fund capital projects, whose spending was more heavily weighted in the second half of 2009, and less than we had forecasted at the beginning of 2009.
We received funding of about $8 million from HPT For improvements to properties we leased from them. We generated EBITDAR in excess of cash rent of $21 million. We had $25 million of working capital and other changes to bring us to the $156 million in cash at the end of the year or $11 million more than at the beginning of the year.
As December 31, 2009 that portion of our credit line used to support letters of credit was approximately $66 million and the $100 million credit facility is otherwise undrawn. Also at the end of the year 2009, we had approximately $7 million remaining of the original $125 million allowance from HPT for certain TA branded property improvements to be funded by HPT without a rent increase.
Our board of directors recently considered whether to continue to take advantage of the rent deferral arrangement available from HPT, including interest charges during 2010. Among the factors our board considered when it determined to continue to take advantage of that rent deferral in January 2010 were the following. First, the industry and the US economy have only recently shown what may be the earliest signs of potential recovery. Whether those early signs will lead to a sustainable recovery or not thus far is unclear.
I do not that despite these early signs, TA’s diesel sales volume for 2009 is over 20% below 2007 volumes on a same site basis, and down even further some 620 million gallons as compared to 2006 because trucking fleets, drivers and their customers are focused on fuel conservation, it is not at all clear whether even a robust economic recovery will lead to a return of fuel sales volumes approaching our historically high levels.
Second, our truck stop industry is undergoing major upheaval. The planned merger between Pilot Corp. and Flying J has the potential to materially alter our competitive position. In order to effectively compete against the combined Pilot and Flying J enterprise, which will have dominant positions in multiple markets, and in the nationwide sale of diesel fuel to interstate truckers, TA may have to spend large sums to further upgrade our service offerings or expand our services so that our customers may be motivated to spread their business despite the market power that a combined Pilot and Flying J will posses.
Third, it is completely clear to me that oil commodity prices are not immune to a material increase in the future, whether due to speculation or the impact to government policy. Such an increase, the possibility of one requires vigilance and financial discipline and a substantial amount of available cash to meet the increased working capital requirements. In short, I do not believe that the time is right today to foreclose our options. Repaying cash to HPT or ceasing further rent deferrals is a one way street. In my view, there is enough happening in the economy, in our customers’ business and in TA's own industry to make having cash a continued top priority.
With that Andy and I will now take your question. Operator?
Thank you. (Operator instructions) And we'll take our first question from Ben Brownlow with Morgan Keegan.
Ben Brownlow – Morgan Keegan
Hi, good morning.
Ben Brownlow – Morgan Keegan
On your CapEx plans, that $63 million, can you just talk about what that exactly has been spent on, and similar I guess to 2009 is there any portion of that that you would consider postponing to 2011?
I'll answer the first part – the second part first. Yes, there are things in there that can be postponed and may likely be postponed. The Capex plan includes, it was actually a fair amount of Capex in there. One of the things that TA has historically not done is have its fuel prices posted on signs like many gas stations, and that was made for historical – reasons that exist that historically that may not exist going forward. And I believe it's important for us to be able to communicate our price to folks that are driving by our sites. And there is a fair amount of Capex in there, I think in the neighborhood of $14 million to $15 million. Other than routine capital expenditures of the magnitude $30 million, $35 million, there are some other projects in there that could be deferred and a little bit of required cost for systems.
Ben Brownlow – Morgan Keegan
Okay, great. And I guess on the fuel margin environment, have you seen that improve from Q4 kind of through early 2010?
No. Prices continue to creep up and down yesterday but it was the first one in the field [ph], and my sense is I don't know for sure, but my sense is competition is also feeling, I don't know whether their volumes are going up like ours or not, but I do know that, I do suspect that everybody is feeling the impact, which has lasted almost a year now of rising prices and very likely considering whether or not they can fix some of the margin compression with increased volume, and so I haven't seen anybody be any less aggressive on the street side anyway on a wholesale basis. So the margins are not nearly as healthy as they were in 2008 in the current environment, more or less continuance of the same that we experienced in the end of 2009.
Ben Brownlow – Morgan Keegan
Okay, so they're not as healthy as they were early 2009?
Ben Brownlow – Morgan Keegan
Okay. And then just one last question from me, I guess could you just update us on how many sites you own, and I guess there is just not any market, you know, to sell any of those sites at this point?
You're talking about the ones we own free and clear, yes.
There were nine operating sites, and there are a couple of things the marketplace for sales or I haven't seen a truck stop trade hands. There may have been a few but it's just, it's not a market in which the financing is particularly available. I think the Wall Street Journal this morning said something along the lines of lending falls at epic space that may have something to do with the lack of trades out there.
Ben Brownlow – Morgan Keegan
Okay, great. Thank you.
Okay. Thanks, Ben.
(Operator instructions) And at this time, with no further questions in queue, I would like to turn it over to Mr. O’Brien for any additional comments.
Thank you everybody for joining us, and we're going to get back to work and see if we can capitalize on some of our opportunities.
And that does conclude today's conference. Thank you for your participation.
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