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Edited Transcript of TA earnings conference call or presentation 7-May-19 2:00pm GMT

Q1 2019 TravelCenters of America LLC Earnings Call

Westlake May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of TravelCenters of America LLC earnings conference call or presentation Tuesday, May 7, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew J. Rebholz

TravelCenters of America LLC - CEO, MD & Director

* Barry A. Richards

TravelCenters of America LLC - President & COO

* Katherine J. Strohacker

TravelCenters of America LLC - Senior Director of IR

* William E. Myers

TravelCenters of America LLC - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Benjamin Preston Brownlow

Raymond James & Associates, Inc., Research Division - Research Analyst

* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Steven Lee Dyer

Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the TravelCenters of America First Quarter 2019 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Katie Strohacker, Senior Director of Investor Relations. Please go ahead.

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Katherine J. Strohacker, TravelCenters of America LLC - Senior Director of IR [2]

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Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, Andy Rebholz; followed by Chief Operating Officer, Barry Richards; and Chief Financial Officer, Bill Myers. We'll also have time for questions from analysts.

Our prepared remarks today will include comments about the recently adopted lease accounting standard, ASC 842. Among the items we will be discussing is the accounting treatment under ASC 842 of the legacy liabilities related to the HPT leases that can be found in the schedule on Page F24 of the 2018 Form 10-K filed on February 26. This 10-K can be found at the SEC's website, www.sec.gov, or by referring to the Investor Relations section of TA's website at www.ta-petro.com.

Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward-looking statements are based on TA's present beliefs and expectations as of today, May 7, 2019. Forward-looking statements and their implications are not guaranteed to occur, and they may not occur. TA undertakes no obligation to revise or publicly release 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 that are available free of charge at the SEC's website or, once again, by referring to the Investor Relations section of TA's website. Investors are cautioned not to place undue reliance upon any forward-looking statements.

During this call, we will be discussing non-GAAP financial measures, including adjusted fuel gross margin, adjusted fuel gross margin per gallon, adjusted loss from continuing operations, adjusted loss per common share from continuing operations attributable to common shareholders and adjusted EBITDA. The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our press release.

The financial and operating metrics implied and/or stated on today's call as well as any qualitative color surrounding performance should be assumed to be in regard to the first quarter of 2019 as compared to the first quarter of 2018, unless otherwise noted. Finally, I would like to remind you that the recording and retransmission of today's conference call is prohibited without the prior written consent of TA.

And with that, Andy, I'll turn the call over to you.

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [3]

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Thanks, Katie, and good morning, everyone. Thank you for joining us and for your interest in TA.

I have a few prepared remarks regarding this quarter's performance and our business initiatives, and then I'll turn the call over to Barry for his comments about our operations. Bill will end our prepared remarks with his discussion of financial matters, including the effects of adopting the new lease accounting this quarter.

For the first quarter of 2019, our financial and operating plans were successful. We are delivering against our goals to provide better year-over-year results, more locations and, within each location, the preferred products, services and customer service for drivers and their trucks.

We had a net loss of $12.7 million compared to a $10.1 million loss last year. But after adjustment for certain one-time items, our loss from continuing operations this year shows an improvement of $7.6 million over last year.

The first quarter's adjusted EBITDA of $11.4 million improved by $14.3 million over the 2018 first quarter, while cash provided by operations increased by $10 million over the same period. Both these improvements were aided by solid growth in key areas.

Fuel sales volume and nonfuel revenues improved by 3% and 4%, respectively, in total and by 2% and 2.7%, respectively, on a same site basis. Within our nonfuel revenues, store and retail services revenue grew 5.9%, led in part by our revamped UltraONE 2.0 customer loyalty program that customers are embracing. Truck service revenues also continued to grow, driven by increased demand for services provided offsite.

Fuel gross margin per gallon was $0.158 per gallon, which was down $0.023 per gallon. But after adjusting for the $23.3 million and $2.8 million special items in the 2018 and 2019 first quarters, respectively, fuel gross margin per gallon increased by $0.022 or 16.9%.

The favorable fuel purchasing environment we enjoyed in the 2018 fourth quarter continued into the first part of the 2019 first quarter before increasing fuel prices brought our per gallon margin back to a more normal level headed into the second quarter.

The government shutdown prolonged an already protracted process for the retroactive reinstatement of the federal biodiesel blenders' tax credit for 2018 or for 2019. Recall that in the first quarter of 2018, we recognized that benefit of $23.3 million related to our 2017 purchases. If this tax credit is retroactively reinstated for 2018, TA will recognize a $35 million benefit to fuel cost of goods sold. The amount of benefit we might recognize, should this tax credit be enacted for 2019, was $5.9 million for the first quarter. Any cost of sales reductions we might recognize as a result of the retroactive reinstatement of this tax credit would be recognized in the quarter the tax credit is enacted by the federal government. We believe that if legislation is enacted, it may not be until the 2019 third quarter.

As you know, our efforts to reduce leverage culminated in the January 2019 transactions with Hospitality Properties Trust that reduced our annual minimum rent payments by $43.1 million.

Our site expansion program is underway, and we have been successful attracting new franchisees and potential franchisees as well as in identifying potential acquisition targets. To date, we have signed franchise agreements for 4 TA express sites, have 3 agreements under legal review and nearly a dozen sites about which we are engaged in detailed discussions or negotiations. We also have roughly 50 other sites that are in various phases of the franchising application and diligence process.

Regarding our acquisition efforts, we have 5 sites under letters of intent. 2 of these sites are existing travel centers and 3 are development parcels on which we would construct TA Express travel centers. These potential acquisitions are not yet under contract. And when they are, the will continue to be subject to a number of conditions, which is a long way of saying one or more or all of them may not occur.

We have also executed a lease agreement for a stand-alone truck service facility that we will begin to operate in June. This progress and knowing what's in our pipeline makes me confident we can achieve our site expansion goal this year primarily through franchising.

We remain focused on costs and spending. We kept our site level operating expenses in line with our nonfuel revenue increases, experiencing only a slight 20 basis point increase in the ratio of those expenses to nonfuel revenues that was due in part to increased truck service staffing and training in advance of increased business in our truck service programs. We did not sell any improvements to HPT this quarter, and our intention is to not sell any site improvements to HPT this year. Accordingly, we are keeping a tight rein on our capital expenditure spending.

A combination of these activities this year should result in a much improved income from continuing operations and adjusted EBITDA in 2019 than in 2018, even before taking into account the effect of our recently agreed rent reduction, and should also generate an improved cash flow from operations.

With that, I'll turn the call over to Barry for his comments.

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Barry A. Richards, TravelCenters of America LLC - President & COO [4]

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Thanks, Andy, and good morning, everyone.

We continued to see positive signs from our travel center operations in the first quarter. Strong freight trends, and we believe our business initiatives and marketing efforts led to increases over prior year quarter in fuel sales volume, nonfuel revenues and site level gross margin in excess of site level operating expenses on an adjusted basis.

Chief among these initiatives, we introduced a revamped UltraONE customer loyalty program in early January, and this program continues to be embraced by professional drivers. Our goals for the program are to reward loyalty, incentivize for maximum loyalty, increase customer engagement, provide rewards that suit the varying needs of today's drivers and grow membership and customer count. During the first quarter, we attracted approximately 30,000 new and reactivated members and, as anticipated, realized increased gallons per transaction. We know that with each visit of an UltraONE member, there's an amount of nonfuel revenue that's earned in addition to the fuel sales, so capturing more of the truckers' fuel stops is important.

For the 2019 first quarter, fuel sales volume increased by 13.7 million gallons or 3% due to same site fuel volume increase of 9 million gallons or 2%. Fuel volumes increased by a net 4.7 million gallons at sites opened or closed since the beginning of the 2018 first quarter.

Fuel gross margin for the quarter decreased by $8.2 million primarily due to a $23.3 million benefit recognized last year in connection with the biodiesel tax credit for 2017 that did not recur in 2019.

Adjusted fuel gross margin for the quarter increased by $12.3 million or 20.6%. Fuel gross margin was impacted by a more favorable purchasing environment as well as the increased sales volume. On a same-site basis, adjusted fuel gross margin increased by $12.4 million or 21.1%.

Nonfuel revenues increased by $17 million or 4%. Same-site nonfuel revenues increased $11.5 million or 2.7% due to the positive impact of marketing initiatives in our store and retail services department and growth in our truck service program. Nonfuel revenues also benefited from the net addition of $5.5 million in revenues from sites opened or closed since the beginning of the 2018 first quarter.

Within truck service, tire unit sales were up 3.8% versus last year. RoadSquad work orders increased by 3.4%, and our mobile maintenance service continued to show strong growth, producing an 83% increase in work orders. Our store division revenue increase was driven in large part by increased reserve parking and Diesel Exhaust Fluid demand. We expect the demand for DEF to continue growing as more pre-2011 model year trucks are retired each year. Our restaurant business remains healthy, showing total revenue increases of 2.4% or $2.3 million for the quarter.

Nonfuel gross margin increased by $10.1 million or 3.9% due to the higher level of nonfuel sales, offset by a 10 basis point decline in the nonfuel gross margin percentage to 61.8%. The nonfuel margin percentage experienced a slight decline due to the change in mix of products and services sold.

Site level operating expenses as a percentage of nonfuel revenues on a same-site basis was 52.7%. This compared to 52.5% for the 2018 first quarter, indicating we're largely successful in controlling our expenses in line with the increases in revenues.

In total, site level operating expenses increased by $9.7 million or 4.4%, of which $3 million was due to net new sites.

Late in the quarter, we completed one of our key cost reduction initiatives for site accounting function centralization project. We realized savings of $1.8 million and anticipate savings of approximately $8 million from this project on an annual basis. Recall that while this project brings us these savings of site level operating expenses, there's a partially offsetting increase in SG&A expense of approximately $1.5 million on an annual basis.

Looking ahead, we continue to see great growth potential and opportunities for our truck service programs, especially the mobile maintenance program that we have branded as TechOn-SITE. We've earned the confidence of a number of large customers, who enjoy the improved reliability and uptime from their equipment being properly maintained. We expect significant increases in revenues with these customers. Our national call center, which supports our fleet of RoadSquad emergency repair vehicles, continues to attract fleet customers that retain us to handle their breakdown calls and allow them to focus on deliveries. Currently, we have agreements with 93 fleets to handle their calls on either nights, weekends and, in most cases, 24/7. Our Retread plant, which opened in the summer of last year, is bolstering sales within our Commercial Tire Network by assisting fleets and managing their vehicle retread programs. Today, we receive casings to be retreaded by the trailer load for some customers. And for others, we service their terminals within a 200-mile radius, inspecting equipment, mounting replacement tires and taking casings back to our plant for retreading.

We continue to be excited about our progress to date in these areas, and we're even more excited about the potential they hold.

And with that, I'll hand the call over to Bill.

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William E. Myers, TravelCenters of America LLC - Executive VP, CFO & Treasurer [5]

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Thank you, Barry, and good morning, everyone.

First, I'll discuss the impact of the new lease accounting standard we adopted at the beginning of January, and then I'll cover the results for the first quarter.

Effective January 1, 2019, we adopted the new lease accounting standard, ASC 842. This resulted in significant changes in our financial statements, with the most significant change to our balance sheet. The adoption of this new standard is purely a non-cash accounting change, so there's no impact on the cash we pay for rent. The standard does not require companies to restate prior comparative periods, and we elected not to do so. Consequently, the March 31, 2019 balance sheet differs materially from the December 31, 2018 balance sheet. This standard did not impact our statement of operations as significantly, but there are some changes that I'll walk you through.

Very simplistically, the new lease accounting standard requires companies to calculate and record a liability that reflects the obligation to pay rent under nearly all lease agreements and to also recognize an asset for the right to use the leased property. As of March 31, that is now how our balance sheet is presented: lease liabilities, which total approximately $2 billion; and the corresponding operating lease assets, which total approximately $1.8 billion.

Going forward, the operating lease assets will be amortized to rent expense over the related lease terms of the lease agreements, and the lease liabilities will decline as lease payments are made.

More specifically, the changes in the TA financial statements are as follows. First, as I just mentioned, we recognized liabilities for our operating leases totaling $2 billion and recorded operating leased assets totaling $1.8 billion. Second, certain of the amounts that previously were accounted for as part of our HPT leases liabilities were reclassified as a reduction to the operating lease assets on the balance sheet.

For example, as of January 1, each of our legacy liabilities for the deferred tenant improvement allowance, the deferred rent obligation and a portion of the straight-line rent accrual reduced the right-of-use assets. This reduction has the effect of reducing rent expense over the respective lease terms. Third, some liabilities have gone away. Our former sale-leaseback financing obligations, related to 2 travel centers that were previously accounted for as financings, are now accounted for as operating leases under the new standard. The separate specific assets and liabilities for these 2 sites that we recognized under the old lease accounting were removed from our financial statements, and the rent related to these 2 properties was included in the calculation of the operating lease liabilities and assets I just spoke of.

Fourth, the deferred gain related to the prior sale leaseback of TravelCenters to HPT was eliminated by recognizing the remaining unamortized gain directly to equity as a reduction to accumulated deficit of $86.2 million net of taxes. One legacy leasing-related liability that did not change was the portion of our straight-line rent accrual associated with TA's obligation to pay HPT an estimated amount for underground storage tank removal at lease expiration. This liability still exists and now is included in other noncurrent liabilities.

Turning to our statement of operations. The most significant impact from the new lease standard is the absence of the amortization of the deferred gain that previously had been recognized as a reduction to rent expense. Because the new lease standard did not allow us to recognize our prior deferred gains on the balance sheet at adoption, we no longer amortize these gains over time as a reduction to rent expense. We historically had been recognizing a credit to rent expense of approximately $2.6 million per quarter as we amortized the deferred gain.

Now to our first quarter results. For the first quarter of 2019, we reported a net loss of $12.7 million or $0.32 per share compared to a net loss of $10.1 million or $0.25 per share in the first quarter of 2018. Excluding certain one-time items, such as the federal biodiesel tax credit of $23.3 million that was recognized in the first quarter of 2018, but has not yet been reinstated for 2018 or 2019, adjusted loss from continuing operations for the first quarter of 2019 was $14.6 million or $0.36 per share compared to $22.1 million or $0.55 per share in the first quarter of 2018.

For the quarter of 2019, we reported adjusted EBITDA of $11.4 million compared to negative $3 million in the 2018 first quarter.

The improvements in our results over the prior year, after excluding the effects of the biodiesel tax credit last year primarily was due to the improved site level gross margin in excess of site level operating expenses that Barry detailed earlier, and was also affected by SG&A expense, rent expense and depreciation expense.

SG&A expense for the 3 months ended March 31, 2019 was $37.1 million, an increase of $616,000 or 1.7%. The increase was primarily attributable to increase in compensation expense as a result of annual salary increases and increased head count to support growth and $458,000 of legal fees incurred in connection with the transaction agreements we entered with HPT in January. The increase was partially offset by a decrease of $1.8 million of expenses related to an executive officer retirement agreement recognized in the 2018 first quarter that did not recur in 2019.

We believe our SG&A expense should be approximately $38 million to $39 million per quarter for the remainder of 2019, absent of any unusual legal expenses or other currently unforeseen items.

Real estate rent expense declined by $3.8 million or 5.4% in the first quarter primarily due to the $43.1 million annual minimum rent reduction under the lease amendments we entered with HPT in January of 2019.

So you may wonder why the decrease in the first quarter was only $3.8 million and not $10.7 million, which is 1/4 of the $43.1 million rent reduction we achieved during January. There are essentially 4 reasons. First, the transaction with HPT occurred during the second half of January, and, therefore, we did not enjoy a full month of reduced rent. Our January rent to HPT was approximately $2.7 million higher than the current monthly rent to HPT under the new lease agreement. Second, during the 2019 first quarter, we did not recognize the $2.6 million rent reduction from amortizing the deferred gain that we enjoyed in 2018. Third, we have $1.2 million more in rent in the 2019 first quarter as a result of improvements sold to HPT during 2018. And fourth, our percentage rent due to HPT increased by approximately $260,000 over the 2018 first quarter. Given our current leasing arrangements, we expect our real estate rent expense to run at a quarterly rate of approximately $64 million.

Depreciation and amortization expense increased by $4.2 million or 20.5% primarily due to the January purchase of 20 travel centers from HPT for $308.2 million.

Turning to our liquidity and investment matters.

At March 31, our cash balance was $24.7 million. We also had approximately $121.2 million available to us under our revolving credit facility. At March 31, we owned 52 travel centers and 7 stand-alone restaurants that are unencumbered by debt. During the quarter, we invested $16.7 million of capital expenditures and did not sell any improvements to HPT.

Our 2019 capital investment plan contemplates approximately $100 million of capital expenditures. For cash flow modeling purposes, remember that we reduced our deferred rent obligation from $150 million to $70.5 million in conjunction with January's purchase and lease restructuring transactions. The $70.5 million will be paid in 16 equal quarterly installments. The first payment of $4.4 million was due and paid to HPT on April 1.

That concludes our prepared remarks. Operator, we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [2]

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Yes. So a few questions. First, on CapEx, and thanks for those numbers, can you tell us what the $100 million will be going for? And why no HPT improvements in 2019 when it's been pretty consistent and fairly high for the last several years?

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William E. Myers, TravelCenters of America LLC - Executive VP, CFO & Treasurer [3]

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Yes. Bryan, I guess to answer the second part first. We are intending to not sell improvements to HPT, so that we can avoid the increased rent, plain and simple. Nothing more than that. Having said that, I mean and that is our intention, there will be some circumstances, I think, in the future, where it will make sense to sell certain improvements to HPT. If we had a site where we were, say, adding a truck service facility for a few million dollars, and there's a specific project that has identified return related to it and it makes sense to pay the increased rent to fund that return. But for kind of the normal CapEx that happens on a regular basis, that's more of a sustaining nature, we're trying to avoid the increased rent. So to the $100 million, what makes that up? It is -- a big chunk of it is the sustaining CapEx sort of amounts. We have a number of IT-related initiatives going on right now that are of the cost savings and/or revenue-generating variety. And then there are a number of other, what we refer to as growth-related projects. A number of them happen to be related to restaurant remodels or rebrandings, which we spoke about probably each of the calls last year, where we had restaurants closed to change it to a national brand or convert to QSRs, those sorts of things. And there are a number of those projects that we're continuing into this year. So those are the biggest chunks. I guess the one other big chunk would be investments related to our truck service business. The mobile maintenance and RoadSquad business, I mean, they're asset-light in that they don't require a lot of buildings necessarily. But we have been adding a number of the trucks necessary for going out to do that work. That's it.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [4]

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Kind of moving on to your site level operating expenses, and maybe feeding a little bit into what you just said about truck servicing, I mean, you admittedly are staffing up truck servicing personnel in training in anticipation of increased revenues. What gives you the confidence that those revenues will come to the level that you believe to support those costs?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [5]

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I think that -- a couple of things. Some of it is -- and maybe it depends on where we are adding. Some of those additions are in, say, our call center that's primarily related to the RoadSquad business. There, to some extent, maybe you're just betting on the fact that more and more fleets will continue to be persuaded by our marketing, that we can do that work for them and let them focus on what they're really in business to do. But more importantly, I think, or really the reasons for a lot of the staffing that we -- the reason that we said that in our remarks and, I think, in the press release, we have customers out there who we do this work for now. And we've been talking to them about increasing the work we do for them. There's a large customer of ours, who prefers to not be named, but we've been doing work for them in the -- like the mobile maintenance work on their trailers at their yards. And we've done a very good job of it, which is what we do. And they've talked to us about, "Well, hey, we also maybe now want you -- have you do work on our tractors." And there are also conversations going on with them about maybe doing even more work at some of their operating terminals. And so there are things like that, that we know are on our horizon, and you just -- you need to get staffed up. And so that's why we have sort of the confidence to make those investments really that come through the income statement.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [6]

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And then just lastly from me. I think you're talking more and more now about the franchising opportunity. Can you give us any even broad characterizations as to how the economics of that will work? And secondarily, I think you might have said something about the potential for 50 sites. Can you clarify and elaborate on that?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [7]

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Sure. To the economics, I think that if you worked your way through the math of different numbers that are available in our 10-K, we are averaging -- for the franchise sites that we've had, travel centers, they probably average royalties and add fee payments to us revenues in a year, call it, $300,000 per site. Much of what we're going to be adding, what we've done to date, and expect most of what the new franchisees we would sign up would be, would be more the smaller format TA Express sites. And we're estimating, we believe conservatively, revenues per year in that $175,000 - $200,000 range. Some will be higher, and some will likely be lower. It's just the way it works. But I think that that's a reasonable average, and that's what we're modeling and expecting from our side.

Now as to the counts, yes, I want to be careful that I don't want to say that we've got 50 that are ready to sign up next week or anything like that, but there will be -- but there is a number, it's that 50-ish kind of a number, where the operator of a site has expressed some interest to us in franchising. And step one in that is sort of our assessing maybe their suitability to be a part of our network, what is their site like? What are their financials like? How are they as an operator, the health of their business, if you will? And assuming we pass that screen, then we provide them with information about the specifics, the contract and the franchise disclosure documents. And so the diligence is really a 2-way thing. Do we -- would we like to have them as a part of our network? Will they service our customers the way our customers expect to be serviced at a TA or a Petro or TA Express? And then also, do they like what they're seeing from us? Do they like the things that we can do to help them improve their business? So it's a 2-way street. That 50 sites that we threw out, some we've just gotten the first phone call from and haven't really gone through the first screen. Some are closer to the end of the process, like the 3 that we talked about being under legal review that, I think, really was a way of saying we expect those to be signed pretty soon. But -- so that 50, I mean, that won't turn into -- I'm sure it won't it turn into 50 signed up franchisee sites over a period of time, but I do expect that there is a good number of future franchise sites in that group. And time-wise, my guess is, by the time that all of those would be an operating site under a TA Express or a TA or a Petro sign, it's probably late next year for some of them. Because some of these sites are an operator, who has, right now, a vacant parcel of land and they want to build a travel center, and that will take some time. So I don't know if that got to the different thoughts or your questions you had about that.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [8]

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Yes, that's good enough. And then on the smaller expresses, you said $175,000 to $200,000 a year, is that a net number or a gross number? And if it's gross, what do you think net is?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [9]

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I think that is gross. And gross equals net really. I mean our costs related to the franchising business, if you will, is all in SG&A. So if there's, say, $200,000 of revenue, that's all going to fall to margin. And to a large part, what we already have in SG&A, it doesn't change significantly if you add another 20 franchise sites. Maybe at some point, you say, "Hey, we need another $100,000 or so of SG&A for another analyst to keep track of all the stuff, paperwork and things that need to be dealt with or another $200,000 for another franchising, regional manager or something like that." But that really comes in as a step function over time. And right now, the size that we are, we could absorb a number of new franchisees without any kind of additional SG&A.

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Operator [10]

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The next question comes from the line of Steve Dyer with Craig-Hallum.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst [11]

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A question from me on fuel margins. You had indicated that sort of tapered off a bit after a really strong Q4 and start to the year. Should we think -- be thinking about kind of more of a normalized rate in that $0.14 to $0.15 per gallon range going forward? Or can it be better than that?

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William E. Myers, TravelCenters of America LLC - Executive VP, CFO & Treasurer [12]

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It's always tricky talking about the fuel margin, but I think that, that kind of a normal range is our expectation. When you look at our overall fuel margin, the blend between diesel and gasoline and over the remainder of the year. I mean I think that that's the expectation. Having said that, something could happen later today that drives the market one way or another and moves that $0.01 either direction, good or bad. And I expect that we'll have a few of those shifts over the remainder of the year, but it seems to me a reasonable expectation for that $0.14, $0.15 kind of a range.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst [13]

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Yes, okay. And then the nonfuel margins were very, very good this quarter, almost 62%. Is your sense that that's a good run rate? Or was there some unique seasonality or some other things in there that made it a little bit better?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [14]

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Go ahead, Barry.

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Barry A. Richards, TravelCenters of America LLC - President & COO [15]

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No. I see us continuing on that path. I don't see any graphic change from that going forward.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst [16]

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Okay. And then lastly for me, just wondering if you're able to sort of spitball what you might be thinking about free cash flow for this year.

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Barry A. Richards, TravelCenters of America LLC - President & COO [17]

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Yes, not really, other than particularly with the rent reduction more than in the prior year. We definitely see improvement in that measure in our future and are trying to manage our spending in a way to make sure that's the case. But we're not really prepared to give a number.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst [18]

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Would you at least anticipate it being positive this year or...

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Barry A. Richards, TravelCenters of America LLC - President & COO [19]

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Yes.

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Operator [20]

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The next question comes from the line of Ben Brownlow with Raymond James.

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Benjamin Preston Brownlow, Raymond James & Associates, Inc., Research Division - Research Analyst [21]

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On the truck service revenue, the up 3%, is there any way to sort of parse that out in terms of what new customer wins were? You called out 93 fleets with the call center right now. I guess just to kind of quantify there or get an idea. What does that compare to last year? I'm just trying to get a better sense of what's driving the truck service revenues.

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William E. Myers, TravelCenters of America LLC - Executive VP, CFO & Treasurer [22]

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I guess I'd have to say what's driving the truck service revenue primarily is our on-site and our RoadSquad. But it's kind of hard to break those out sometimes because they all relate to each other, right? I mean, if we send a truck out on an emergency repair, for instance, and they sell a tire or put a tire on the truck, that goes to tire sales. Part of that goes to RoadSquad. There's a connection -- it's hard to break it up precisely.

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [23]

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But I do think it's fair to say that, right now, the biggest drivers in increasing the truck service revenue are the things that Barry talked about, mainly the focus we have on the RoadSquad and having built out the call center. And actually, our fleet sales folks out there working to convince trucking companies to give their calls to us, let us be their call center, that's really a capability that we really solidified or stabilized maybe, improved greatly on throughout last year, had a lot of growth just in that group. But the RoadSquad, the mobile maintenance, I just think there's -- it's still a small piece maybe of our total revenue, but it's growing so fast and just has such potential because that's the one that, of all our businesses, maybe RoadSquad a bit too but that's the one that really can apply to anybody who owns a truck anywhere, whereas most of our business, being on the interstates, is largely related to the long-haul truckers. The mobile maintenance is one that can go anywhere. And we've had a lot of growth there. And that's -- when we've talked in the past about the nontraditional customers and things like that, that's the business that's primarily serving those nontraditional customers. And then the focus that we have on our -- on this commercial tire business. And as Barry said, we sell tires in bay. We sell them at RoadSquad. We sell them in mobile maintenance. But when you look at the total tires that we're selling, it's up every month over the same month in the prior year, as we've, again, stabilized sort of the -- our method of going to market in that group and the sales force that we have out there doing that. So -- and Barry's got something else.

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Barry A. Richards, TravelCenters of America LLC - President & COO [24]

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Just maybe one thing to add. I think it's important, the relationships that we build through the call center supporting these different fleets, builds their confidence. And due to those relationships, we are who they will turn to when they need scheduled maintenance or in-bay work, to go along with the emergency roadside repair. So it all fits very nicely. And as that call center continues to grow and this on-site maintenance that we do at people's terminals, all those relationships are very valuable to us to spread throughout the network.

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Benjamin Preston Brownlow, Raymond James & Associates, Inc., Research Division - Research Analyst [25]

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That's helpful. How many fleets were signed with the call center a year ago?

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Barry A. Richards, TravelCenters of America LLC - President & COO [26]

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I believe it's less than 70.

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [27]

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I would assume somewhere in the 50, 60 range. So that -- I mean, that's a rough number, Ben, but I think order of magnitude and directionally, it's about right.

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Benjamin Preston Brownlow, Raymond James & Associates, Inc., Research Division - Research Analyst [28]

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Okay. So it's up significantly year-over-year. And as you think about the labor component, should we -- I mean, are you pretty comfortable with the number of technicians that you have right now? I mean, should we think about pretty much just leveraging off that 3% kind of growth in SG&A or, excuse me, site level expenses from this point forward?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [29]

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Yes. I would always model the site level operating expenses not as a percentage increase over a prior year or prior period. I mean we -- when we model, we model what is that as a percentage of the nonfuel revenues. Because so much of what we do out there serving customers, it takes people to do in the -- particularly in the truck service and in the restaurants. So you get more of a -- if you have a 5% increase in revenues, you should expect to see whatever our percentage was this quarter, 52-ish percent of those revenues going to site level OpEx because that's a rough estimate of what it will take to generate those revenues. Now having said that, there is a certain amount of our site level operating expenses that's fixed: managers and property taxes and maintenance and utilities or something like that. But -- so that percentage should decline over time. Every incremental revenue dollar, more of it should fall to the bottom line. But using that 52-ish percent, I'm unfortunately talking off the top of my head instead of looking at a piece of data, but that 52%-ish site level OpEx as a percent of nonfuel is the reasonable way, to my mind anyway, of modeling that cost related to the growth.

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Operator [30]

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We have a follow-up question from the line of Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [31]

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Yes. So following up on that site level discussion, and it's really one of the most frequent questions I get, is how, other than the accounting initiatives that you've put in place with those cost savings you discussed earlier, what's the biggest opportunity that you guys have to lower site level operating as a percentage of non-revenue? And I also think that in prior calls, we've discussed getting that number into the high 40s from 52% or so this quarter. How long do you think that, that takes? And is that still possible?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [32]

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Yes, a couple of things, Bryan. Number one, the 52% of this quarter, and we may have last quarter said this, but when you look at it on an annual basis, so for a year, kind of in that 49%-ish, 50% is a more realistic number on an annual basis. The first quarter is seasonally our weakest quarter, lowest from a revenue perspective typically or from a level of business. And so that percentage is going to be higher in the first quarter and in the fourth quarter. And in the second and third quarters, it will be lower, it will be in the 40s. But the levers to pull to control and/or work to reduce that expense, frankly, the biggest one is growing revenues. Again, there's that pool of fixed costs. And the more revenues you have to spread that over, that's what's going to bring that percentage down. But the other things that we work on to improve that metric are labor scheduling and labor scheduling tools because labor is the bigger part of the site level operating expenses. Doing things to be more energy-efficient in our sites, LED lighting instead of old style lighting, and things like that you can do. It's not a lot of home runs, I guess. It's -- the way I consider sort of the site accounting function centralization, where as a structural change in what we do, most of it is going to be hitting singles, advancing a runner kind of stuff, where it's the little things every day that -- having managers schedule their labor better, those kinds of things are the best ways to do that.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [33]

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Okay. I just wanted to be clear because a couple of times, you used the 52% number, and we had modeled for 49.5% for the full year. So to be clear, you guys still do expect full year numbers in the high 40s, certainly not around 52%?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [34]

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Right. Again, I'm not looking at any data right now. 52% was our percentage for the first quarter, then yes. And what we said in the -- when we're talking about the year was that 49.50%, that's the right kind of number, yes. Nothing's changed in our thinking.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [35]

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And then why wouldn't you -- given how profound the cost savings are with LED lighting, and I'm sure everybody on this call has seen this in their own homes, why wouldn't you, and maybe you have, have already made the investment to switch out LED lighting throughout the entirety of the system?

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [36]

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We haven't done it throughout the entirety of the system. We have done it in a number of sites. And it -- I think it just remains a -- I don't know, a balancing or a prioritization of where you spend the money.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [37]

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I guess when I think of your business as 24 hours a day, 365 days a year with an awful lot of lighting going on, that would be kind of higher on the list. But anyway, just my 2 cents.

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Operator [38]

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This concludes your question-and-answer session. I would like now to turn the conference back over to Andy Rebholz for any closing remarks.

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Andrew J. Rebholz, TravelCenters of America LLC - CEO, MD & Director [39]

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Again, everybody, I'd like to thank you for your time today and your interest in TA, and look forward to speaking with you again soon. Bye.

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Operator [40]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.