TA’s continued improvements at recently acquired c-store sites partially offset by increase in site level operating expenses.
TravelCenters of America (TA) released its second quarter results for 2017.
“During the second quarter of 2017 our dispute with FleetCor/Comdata increased our operating expenses by about $5.3 million in legal fees and what we believe to be excessive fuel card transaction fees. The status of our dispute with FleetCor/Comdata remained unchanged since the time of our first quarter report: we are awaiting a ruling from the Delaware Court of Chancery,” said Thomas O’Brien, TA’s CEO.
“We incurred about $1.3 million of site level operating expenses during the 2017 second quarter that we did not incur in the second quarter of 2016 in connection with certain operating initiatives, particularly in staffing our commercial tire efforts and to expand the capacity of our RoadSquad business.
“Our efforts to achieve stabilized results at our recently acquired locations continued largely as expected for our travel centers and restaurants, but we have encountered certain challenges at our convenience stores, including challenges that are impacting the convenience store industry generally. While I believe these challenges may increase the time it will take TA to achieve expected results at these stores, I believe TA’s fuel pricing, merchandising and cost control strategies will continue positively impacting our financial results at these stores.
“Last quarter I reported that TA had identified certain cost savings initiatives that would begin to be realized in the second half of 2017. These initiatives have begun and we are starting to see the benefits in our financial results,” he added.
Q2 Highlights
Fuel sales volume decreased by 8.8 million gallons, or 1.6%, and same site fuel sales volume decreased by 11.1 million gallons, or 2.0%, each in the 2017 second quarter compared to the 2016 second quarter. TA believes fuel volume decreases experienced during the 2017 second quarter resulted from comparatively weak consumer demand for gasoline, a relatively weak trucking freight environment and especially continued fuel efficiency gains and especially by TA’s commercial diesel fuel customers. Fuel revenue increased by $59.1 million, or 6.3%, in the 2017 second quarter compared to the 2016 second quarter primarily due to higher market prices for fuel during the 2017 second quarter compared to the 2016 second quarter. Fuel gross margin increased by $3.8 million ($0.010 per gallon), to $105.8 million ($0.192 per gallon) primarily as a result of increased fuel gross margin per gallon achieved as a result of declining fuel prices during the 2017 second quarter and the impact of TA’s pricing and purchasing strategies.
Nonfuel revenue increased $9.6 million, or 1.9%, in the 2017 second quarter compared to the 2016 second quarter due to a $7.1 million increase attributable to sites acquired and developed since the beginning of the 2016 second quarter and a $2.5 million same site increase due to favorable effects of certain pricing and marketing initiatives. Nonfuel gross margin increased $8.0 million, or 2.9%, in the 2017 second quarter compared to the 2016 second quarter due to a $4.1 million increase from sites acquired and developed since the beginning of the 2016 second quarter, and a $3.9 million, or 1.5%, increase in same site nonfuel gross margin. Same site nonfuel gross margin in the 2017 second quarter was 55.4% of nonfuel revenue, compared to 54.9% in the 2016 second quarter, a change largely attributable to the positive impact of TA’s purchasing and pricing strategies and TA’s marketing initiatives.
Site level operating expenses increased $8.8 million, or 3.6%, in the 2017 second quarter compared to the 2016 second quarter primarily due to a $4.9 million increase from sites acquired and developed since the beginning of the 2016 second quarter and what TA believes to be excess transaction fees of $2.8 million TA incurred related to the dispute with FleetCor Technologies, Inc. and its subsidiary Comdata Inc., or FleetCor/Comdata. On a same site basis, site level operating expenses as a percentage of nonfuel revenues increased versus the prior year quarter by 50 basis points to 50%. The change in this percentage is primarily due to the increased transaction fees being charged by FleetCor/Comdata.
Net loss attributable to common shareholders for the 2017 second quarter was $3.0 million ($0.08 per common share) compared to net income attributable to common shareholders of $3.5 million ($0.09 per common share) for the 2016 second quarter. EBITDA for the 2017 second quarter decreased by $2.5 million, or 7.4%, as compared to the 2016 second quarter.
Travel Centers Segment
Both fuel and nonfuel revenues increased, resulting in an increase in total revenues of $60.9 million, or 5.0%, in the 2017 second quarter as compared to the 2016 second quarter. The increase in total revenues was primarily due to increases in market prices for fuel and from sales at recently developed properties opened in 2016 and 2017.
Site level gross margin in excess of site level operating expenses increased in the 2017 second quarter by $2.3 million, or 1.9%, as compared to the 2016 second quarter primarily due to a $5.0 million increase in nonfuel gross margin and a $2.5 million increase in fuel gross margin, partially offset by what TA believes to be excess transaction fees of $2.8 million being charged by FleetCor/Comdata.
On a same site basis, site level gross margin in excess of site level operating expenses increased by $2.8 million, or 2.4%, in the 2017 second quarter compared to the 2016 second quarter due to increases in nonfuel ($3.3 million) and fuel ($2.5 million) gross margin, which primarily resulted from an increase in fuel gross margin per gallon achieved as a result of declining fuel prices during the 2017 second quarter and the impact of TA’s pricing and purchasing strategies, partially offset by an increase in site level operating expenses ($3.0 million) primarily due to what TA believes to be excess transaction fees being charged by FleetCor/Comdata.
Convenience Stores Segment
Both fuel and nonfuel revenues increased, resulting in an increase in total revenues of $5.3 million, or 2.8%, in the 2017 second quarter compared to the 2016 second quarter. The increase in total revenues was primarily due to the impact of the five locations acquired since the beginning of the 2016 second quarter and increases in market prices for fuel.
Site level gross margin in excess of site level operating expenses increased in the 2017 second quarter by $1.1 million, or 10.8%, as compared to the 2016 second quarter due to improvements in operating results at same sites and locations acquired since the beginning of the 2016 second quarter.
On a same site basis, site level gross margin in excess of site level operating expenses increased by $0.9 million, or 8.5%, in the 2017 second quarter compared to the 2016 second quarter due to increases in fuel ($1.2 million) and nonfuel ($0.6 million) gross margin, which primarily resulted from the impact of TA’s continued improvements at recently acquired sites, partially offset by an increase in site level operating expenses.
Investment and Growth Activities
Since the beginning of 2011, when TA began its growth and acquisition program, to June 30, 2017, TA has invested $895.3 million to develop, purchase and improve travel centers, convenience stores and standalone restaurants. For the 12 months ended June 30, 2017, these investments produced site level gross margin in excess of site level operating expenses of $103.5 million, which, on a sequential basis, was $1.0 million, or 1.0%, more than the site level gross margin in excess of site level operating expenses for the 12 months ended March 31, 2017.
TA believes that its investments require a period after they are developed or acquired and upgrades are completed to reach expected stabilized financial results, generally three years for travel centers and one year for convenience stores.