Bye Bye, Billboards, Says TravelCenters of America

WESTLAKE, Ohio -- TravelCenters of America LLC will cut back on the use of billboards and pull the plug on some new technology on the heels of substantial losses over the past few quarters.

A decline in total gross margin related to less demand for fuel, as well as costs related to litigation, contributed to a net loss for TravelCenters of America (TA) of $29.4 million for first-quarter 2017, compared to a net loss of $9.9 million during first-quarter 2016.

The company reported $99.1 million in total site-level gross margin in excess of site-level operating expenses across its travel centers, convenience stores and other sites in first-quarter 2017, vs. $106.2 million in first-quarter 2016. The company attributed the $7.1 million, or 6.7%, decline primarily to less demand for fuel during the quarter.

Other factors the company cited included $6.1 million of increased depreciation and amortization and $4.5 million of increased rent resulting from expansion activities during 2016.

Here's a look at details from the quarter …

TravelCenters of America incurred $8.2 million of costs related to litigation with FleetCor Technologies Inc., Norcross, Ga., and its subsidiary Comdata Inc., Brentwood, Tenn.

TravelCenters of America filed a complaint against FleetCor and Comdata in November 2016 regarding Comdata’s notice claiming to terminate a merchant agreement for TravelCenters of America to accept Comdata fuel cards through Jan. 2, 2022, in payment for fuel and nonfuel transactions. Comdata alleged that TravelCenters of America breached an agreement to install radio frequency identification (RFID) technology at its travel centers.

TravelCenters of America is seeking a declaration that it did not default on that merchant agreement, among other judgments.

In December 2016, a court denied TravelCenters of America’s request for preliminary injunctive relief subject to Comdata's agreement to continue providing services under the merchant agreement pending a final ruling from the court. Comdata filed a counterclaim alleging that TravelCenters of America defaulted under the RFID agreement, allowing it to terminate both the RFID agreement and the merchant agreement.

“We believe that the claims against us are without merit,” TravelCenters of America said.

Meanwhile, TravelCenters of America is focusing on cost-saving measures that the company expects may yield as much as $12 million on an annual basis, it said. Some of these benefits are expected to begin to show up in the second half of 2017.

“These measures include a plan to significantly reduce our historical reliance on billboard advertising, because we believe our customers have come to increasingly rely upon highway department or [Department of Transportation] signage and may be more effectively attracted to our sites with other forms of marketing and advertising,” said Thomas O’Brien, CEO of TravelCenters of America, during the company’s earnings call on May 9.

“We also expect to increase the bulk purchasing of biofuel … and manage down overhead. I think all of this can be done without interrupting progress on key areas of newer store ramp-up, our Commercial Tire initiative, our growing mobile maintenance initiative and other plans we have for growth.”

Also, for the past several years, the company has been exploring and designing a new system for the replacement of the legacy system in its truck service business. The growing complexity and projected cost reached “the point where we made the decision that improvements of the legacy system would be more effective from a timing and a return-on-capital standpoint. So, we pulled the plug there,” said O’Brien.

For the travel-center segment, fuel and nonfuel revenues increased, resulting in an increase in total revenues of $190.7 million, or 18.9%, in first-quarter 2017 compared to first-quarter 2016. The increase in total revenue was primarily due to increases in market prices for fuel and from development properties opened in 2016 and 2017.

Site-level gross margin in excess of site-level operating expenses at travel centers decreased in first-quarter 2017 by $9.5 million, or 9.4%, compared to first-quarter 2016, primarily due to a $7.5 million decline in fuel gross margin and the $1.8 million higher transaction fees withheld by Comdata, the company said.

On a same-site basis, site-level gross margin in excess of site-level operating expenses at travel centers decreased by $8.5 million, or 8.7%, in first-quarter 2017 due to decreases in fuel gross margin of $8.2 million because of the effect of lower demand in first-quarter 2017 and reactive pricing strategies of competitors, as well as an increase in site-level operating expenses of $700,000 due to increased Comdata transaction fees.

For TA's convenience-store segment, fuel and nonfuel revenues also increased, resulting in an increase in total revenue of $37.6 million, or 29.6%, in first-quarter 2017 compared to first-quarter 2016. The increases in revenue was due to increases in market prices for fuel and the effect of the 29 locations TravelCenters of America acquired since the beginning of first-quarter 2016.

Site-level gross margin in excess of site-level operating expenses for c-stores increased in first-quarter 2017 by $1 million, or 22.7%, compared to first-quarter 2016 due to improvements at existing sites and locations acquired since the beginning of first-quarter 2017.

On a same-site basis, site-level gross margin in excess of site-level operating expenses increased by $600,000, or 14%, in first-quarter 2017 due to increases in fuel and nonfuel gross margin because of the effect of TravelCenters of America’s continued ramp-up of acquired sites, despite soft market conditions, partially offset by an increase in site-level operating expenses, the company said.

Westlake, Ohio-based TravelCenters of America’s nationwide business includes travel centers in 43 U.S. states and in Canada under the TravelCenters of America, TA, Petro Stopping Centers and Petro names; stand-alone convenience stores in 11 states principally under the Minit Mart name; and stand-alone restaurants in 15 states principally under the Quaker Steak & Lube name.