TravelCenters Sees Success With Internal Growth Moves
WESTLAKE, Ohio — TravelCenters of America LLC is back on track after experiencing a challenging start to the year, reporting better second-quarter results with help from its in-house growth strategies.
According to CEO Tom O'Brien, internal growth initiatives include TA's commercial truck tire business, expanding its OnSITE mobile maintenance business and renewed growth in its RoadSquad Connect emergency breakdown service.
Overall, growth in the truck service part of our non-fuel business generated $2.6 million more non-fuel margin during the 2017 second quarter than in the 2016 second quarter — or about 50 percent of our total growth in non-fuel growth margin in the travel center segment.
"We've added enough service volume and margin to more than overcome the increased operating expenses incurred during the 2017 second quarter to support these initiatives that I believe there's more revenue and margin growth to come," O'Brien said during the company's second-quarter earnings call on Aug. 8.
Tire unit sales increased 9.2 percent during the quarter, and events logged by TA's two vehicle-based service delivery businesses — OnSITE and RoadSquad — increased almost 17 percent each vs. the same period last year, he added.
"We continue to press forward with this business, not only in an effort to improve upon the metrics I mentioned, but to also ultimately drop more of the revenue and margin from these initiatives to the bottom line," O'Brien said.
Close competitor Pilot Flying J, a Knoxville, Tenn.-based travel center operator, also added a new truck care program to its list of services for professional drivers; however, O'Brien noted TA has been a leader in the truck service business.
"I think the competitive landscape is evolving principally because of the things that we're doing. That is to say, we've been the leader in the truck service business, certainly among the travel centers, for a long time," he said.
"And frankly, I think some of our competitors are tired of being asked why aren't they more like us. But one of the differences in RoadSquad, the emergency roadside business for example, is that our trucks are backed by 3,000 techs that have been doing more than just tires and fuels for a long, long time," O'Brien explained, adding that TA expertise is backed by its national call center.
A LOOK AT THE FINANCIALS
"The second quarter results were, as is typical, noticeably better on a quantitative basis than the first quarter of 2017 results, as we saw firming on several fronts during that second quarter," O'Brien said.
On a year-over-year basis, net income declined to a net loss of $3 million in the second quarter before the impact of expenses related to the FleetCor/Comdata dispute, which totaled about $5.3 million during the 2017 second quarter. The status of the dispute remains unchanged.
According to O'Brien, TA continued to incur excess transaction fees and litigation-related expenses from its dispute with FleetCor/Comdata. The chief executive "had hoped to have a ruling from the Delaware Court before today, but that has not occurred. I believe we will prevail in this litigation, and I hope we will have a ruling from the court soon."
If TA does prevail, he added, the company hopes to recover at least all of the $13.5 million in costs it has incurred in the first half of this year.
As CSNews Online reported, TA previously accused FleetCor of trying to change the terms of an existing agreement that allows truckers to use FleetCor's fuel cards at TravelCenters locations, unilaterally increasing its fees.
According to the numbers, EBITDA rose 8.4 percent over the same period last year on strong performances in both fuel and non-fuel gross margin, and in controlling both site-level operating and general administrative expenses, he added.
Importantly, fuel volume showed a 1.6-percent decline in the second quarter — showing improvement compared to the 5 percent during the previous quarter, according to O'Brien. More specifically, same-store diesel volume declined only 1.7 percent vs. the 7.5-percent decline during the first quarter of 2017.
"Each is compared to comparable 2016 periods as uncharacteristically difficult factors that weighed on volume during the first quarter of 2017 abated," he explained.
While TA has continued to ramp up operating results at acquired sites, increased contributions from certain acquired convenience store sites have not yet returned to the pace of growth seen prior to the first quarter, O'Brien explained.
"There have been some challenges in particular convenience store markets, as it seemed high-quality operators construct new or upgrade existing stores," he added. "Our fuel pricing, merchandising, and operating costs strategies in many of our recently completed improvements are resulting in benefits."
Same-site results grew 8.5 percent "despite being dampened by the new competition in certain markets," according to the chief executive, who added that he still believes TA "will generate contributions in the expected magnitude."
"Our goals in the near term are to continue, and indeed accelerate, growth in results of our new locations — particularly the c-stores, to get the litigation with FleetCor/Comdata behind us and to increase productivity in our newer initiatives, particularly our commercial tire network, OnSITE and RoadSquad," O'Brien said.
"I told you last quarter that the negative factors weighing on results may be short lived, while the positives are likely to be long term. Certainly the extreme environment experienced during the first quarter of 2017 did not repeat in the second quarter," he added. "I may not yet have answers on our litigation, but we are closer now to a ruling than we were before, and we've prepared for the worst even though we don’t think we will face it."
As for its c-store segment, O'Brien noted that "it may take a little longer than I had hoped for our c-store acquisitions to hit their stride, but our cost-savings initiatives are taking hold earlier than expected and the advances we made in truck services, in particular, in a very short time are already showing early promise with more, I believe, to follow."
Westlake-based TA conducts business in more than 40 states and Canada, principally under the TA and Petro Stopping Centers travel center brands and the Minit Mart convenience store brand.