TA finds fuel sales volume decreases in Q4 2017 resulted primarily from increased competition.
TravelCenters of America (TA) has announced the results of its fourth quarter of 2017.
Andrew Rebholz, TA’s CEO, made the following statement regarding the 2017 fourth quarter results:
“TA’s net (loss) income and EBITDA results for both the fourth quarter and full year of 2017 were impacted by a number of items that affect comparability with prior year amounts and I believe distract from the successes TA achieved in our operations in the 2017 fourth quarter. Those successes include:
“Nonfuel revenues in our travel center segment grew by 2.7% in the fourth quarter of 2017 versus the prior year quarter as our nonfuel efforts continued to improve, especially in the truck service area. In the 2017 fourth quarter, compared to the prior year quarter, TA realized improvements of 6.8% in tire unit sales, 50.6% in RoadSquad OnSite mobile maintenance work orders, 6.1% in RoadSquad roadside assistance work orders and 20.1% in Reserve-It! parking reservations revenue.
“Site level gross margin in excess of site level operating expenses in our convenience store segment grew by 2.7% over the prior year quarter (1.9 % on a same site basis).
“TA also made some management organization changes that I believe will help our managers focus on controlling costs in the increasingly difficult competitive environment in which TA conducts its business.
“The cost reduction initiatives TA began in the first half of 2017 resulted in approximately $4.6 million of savings in the 2017 fourth quarter. Many of these cost reductions were implemented during the second and third quarters of 2017, and I expect some incremental savings in 2018 from 2017 levels, primarily in the first and second quarters of 2018.
“For the fourth quarter of 2017, items affecting comparability of TA’s results to the prior year included $6.9 million of expense related to asset impairments and write offs, a $6.4 million income tax expense resulting from the new tax legislation, approximately $6.3 million of missing tax credit benefits as a result of the biodiesel blenders’ tax credit not being enacted during 2017 and $1.1 million of expenses related to retirement agreements with former officers.
“For the 2017 full year, the items affecting comparability with 2016 results included a $58.6 million income tax benefit related to our third quarter 2017 resolution of previously uncertain tax positions, approximately $23.3 million of missing tax credit benefit in 2017 due to the biodiesel blenders’ credit not being enacted during 2017, $16.5 million of expense related to asset impairments and write offs, and $9.7 million of legal expenses in 2017 related to our litigation with Comdata Inc., or Comdata, as well as the income tax and officer retirement expenses incurred in the fourth quarter.”
Business Commentary
Fuel sales volume decreased by 5.6 million gallons, or 1.0%, and same site fuel sales volume decreased by 9.2 million gallons, or 1.8%, each for the 2017 fourth quarter compared to the 2016 fourth quarter.
TA believes the fuel sales volume decreases experienced during the 2017 fourth quarter resulted primarily from increased competition, partially offset by recently acquired and developed locations.
Fuel revenues increased by $167.9 million, or 17.8%, in the 2017 fourth quarter compared to the 2016 fourth quarter primarily due to higher market prices for fuel during the 2017 fourth quarter. Fuel gross margin decreased by $3.3 million compared to the 2016 fourth quarter primarily as a result of lower sales volume and the federal biodiesel fuel tax credit program that was in effect in 2016 but not in 2017.
The federal biodiesel tax credit was retroactively reinstated for 2017 in legislation passed on Feb. 8, 2018. TA expects to recognize approximately $23.3 million related to the biodiesel blenders’ credit reinstatement in the 2018 first quarter financial statements as a reduction to TA’s fuel cost of goods sold.
Nonfuel revenues increased $8.6 million, or 1.9%, in the 2017 fourth quarter compared to the 2016 fourth quarter, including a $6.9 million increase attributable to sites acquired and developed since the beginning of the 2016 fourth quarter and a $1.7 million same site increase. Nonfuel gross margin increased $7.6 million, or 3.0%, in the 2017 fourth quarter compared to the 2016 fourth quarter due to a $4.2 million increase from sites acquired and developed since the beginning of the 2016 fourth quarter and a $3.4 million, or 1.3%, increase in same site nonfuel gross margin.
Nonfuel gross margin increased on a same site basis primarily as a result of the mix of products and services sold, partially offset by reduced restaurant business while TA was converting certain locations from full service to quick-service restaurants, or QSRs, and the impact of closing certain restaurants during slower night time periods to increase profitability.
Site level operating expenses increased $4.1 million, or 1.7%, in the 2017 fourth quarter compared to the 2016 fourth quarter primarily due to a $3.7 million increase in site level operating expenses from sites acquired and developed since the beginning of the 2016 fourth quarter. Site level operating expenses as a percentage of nonfuel revenues remained unchanged for the 2017 fourth quarter compared to the 2016 fourth quarter at 50.5%.
Selling, general and administrative expenses for the 2017 fourth quarter increased $2.1 million, or 5.6%, compared to the 2016 fourth quarter, primarily as a result of increased personnel costs including approximately $1.1 million of expenses that resulted from the retirement agreements TA entered during 2017 with former officers, partially offset by certain cost control initiatives.
Real estate rent expense increased $2.9 million, or 4.3%, in the 2017 fourth quarter compared to the 2016 fourth quarter, primarily from TA’s sale to, and lease back from, Hospitality Properties Trust of a travel center and improvements at leased sites since the beginning of the 2016 fourth quarter.
Depreciation and amortization expense increased $9.4 million, or 33.8%, in the 2017 fourth quarter compared to the 2016 fourth quarter primarily resulting from a $5.4 million impairment charge relating to certain property and equipment at certain convenience store sites and a $1.5 million write off of certain other assets removed from service in the fourth quarter.
Net loss for the 2017 fourth quarter was $20.6 million compared to net loss of $6.5 million for the 2016 fourth quarter. Net loss attributable to common shareholders for the 2017 fourth quarter was $20.6 million ($0.52 per common share) compared to net loss attributable to common shareholders of $6.5 million ($0.17 per common share) for the 2016 fourth quarter.
These increased losses in 2017 were primarily attributable to a $6.4 million income tax expense as a result of the revaluation of TA’s deferred tax assets and liabilities at the new corporate income tax rate of 21% established in the Tax Cuts and Jobs Act enacted in December 2017, a $5.4 million impairment charge relating to certain property and equipment and a $3.3 million decrease in fuel gross margin primarily as a result of lower fuel sales volume and the federal biodiesel fuel tax credit program that was in place in 2016 but not in 2017. These factors increasing TA’s net loss were partially offset by a $7.6 million increase in nonfuel gross margin primarily due to sites acquired and developed since the beginning of the 2016 fourth quarter and changes in the mix of products and services sold.
EBITDA for the 2017 fourth quarter decreased by $6.6 million, or 27.5%, as compared to the 2016 fourth quarter, primarily due to a $2.9 million increase in real estate rent expense, a $2.1 million increase in selling, general and administrative expenses and a $0.4 million decrease in site level gross margin in excess of site level operating expenses from same sites. These changes were partially offset by a $1.5 million increase in site level gross margin in excess of site level operating expenses from sites acquired and developed since the beginning of the 2016 fourth quarter.
Travel Centers Segment
Fuel sales volume decreased by 4.2 million gallons, or 0.9%, and same site fuel sales volume decreased by 8.7 million gallons, or 1.9%, for the 2017 fourth quarter compared to the 2016 fourth quarter. TA believes these decreases were primarily due to increased competition.
Fuel revenues increased $151.5 million, or 18.6%, in the 2017 fourth quarter as compared to the 2016 fourth quarter primarily due to higher market prices for fuel and from sites acquired and developed since the beginning of the 2016 fourth quarter. Fuel gross margin decreased by $4.3 million, or 4.9%, to $83.6 million primarily as a result of the federal biodiesel fuel tax credit program that was in place in 2016 but not in 2017.
Nonfuel revenues increased $10.3 million, or 2.7%, in the 2017 fourth quarter compared to the 2016 fourth quarter primarily due to sites acquired and developed since the beginning of the 2016 fourth quarter and a $4.8 million, or 1.2%, increase due to same sites; the same site increase was lowered by reduced restaurant revenues while TA was converting certain locations from full service restaurants to QSRs and the impact of closing certain restaurants during slower night time periods to increase profitability.
Nonfuel gross margin increased $7.1 million, or 3.1%, in the 2017 fourth quarter as compared to the 2016 fourth quarter due to the higher sales level and an increase in the nonfuel gross margin percentage. Nonfuel gross margin percentage was 59.1% in the 2017 fourth quarter as compared to 58.8% in the 2016 fourth quarter; the increased nonfuel gross margin percentage was primarily the result of changes in the mix of products and services sold and the reduction in operating hours of certain TA restaurants.
Site level gross margin in excess of site level operating expenses remained essentially unchanged in the 2017 fourth quarter compared to the 2016 fourth quarter primarily due to decreases at same sites, offset by increases from recently acquired and developed properties.
On a same site basis, (223 locations) site level gross margin in excess of site level operating expenses decreased in the 2017 fourth quarter by $0.4 million, or 0.4%, as compared to the 2016 fourth quarter, primarily due to a $5.3 million decrease in fuel gross margin that resulted primarily from lower sales volume and the federal biodiesel fuel tax credits that were available to TA in 2016 but were not available in 2017, partially offset by a $3.9 million increase in nonfuel gross margin primarily due to changes in the mix of products and services sold and a $1.0 million reduction in site level operating expenses primarily due to operating cost control measures, including reduced billboard advertising and reduced operating hours at certain TA restaurants.
Convenience Stores Segment
Fuel sales volume decreased by 0.5 million gallons, or 0.8%, for the 2017 fourth quarter as compared to the 2016 fourth quarter on both a consolidated and same site basis. This decrease was primarily due to increased competition. Fuel revenues increased $15.6 million, or 14.2%, in the 2017 fourth quarter as compared to the 2016 fourth quarter primarily due to higher market prices for fuel. Fuel gross margin increased by $0.8 million, or 6.3%, to $13.8 million primarily as a result of the continued improvement of operations at newer locations, partially offset by a decrease in fuel sales volume.
Nonfuel revenues decreased $2.1 million, or 3.3%, in the 2017 fourth quarter as compared to the 2016 fourth quarter primarily due to increased competition. Nonfuel gross margin increased $0.1 million, or 0.5%, in the 2017 fourth quarter as compared to the 2016 fourth quarter. Nonfuel gross margin percentage was 35.2% in the 2017 fourth quarter as compared to 33.9% in the 2016 fourth quarter. The increases in nonfuel gross margin and nonfuel gross margin percentage were primarily the result of changes in the mix of products and services sold.
Site level gross margin in excess of site level operating expenses increased in the 2017 fourth quarter by $0.3 million, or 2.7%, as compared to the 2016 fourth quarter primarily due to improvements at same sites.
On a same site basis, site level gross margin in excess of site level operating expenses increased by $0.2 million, or 1.9%, in the 2017 fourth quarter as compared to the 2016 fourth quarter due to increases in fuel gross margin of $0.8 million, or 6.3%, primarily due to the continued improvement of operations at newer sites, and nonfuel gross margin of $0.1 million, or 0.5%, primarily due to changes in the mix of products and services sold, partially offset by an increase of $0.8 million, or 2.9%, in site level operating expenses.