TravelCenters of America Inc.

TravelCenters of America Inc.

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Specialty Retail

TravelCenters of America Inc. (TA) Q4 2015 Earnings Call Transcript

Published at 2016-03-14 17:00:00
Operator
Good morning and welcome to the TravelCenter of America Fourth Quarter 2015 Financial Results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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.
Katie Strohacker
Thanks Emily. Good morning everyone and thank you for joining us. We’ll begin today’s call with remarks from Chief Executive Officer, Tom O’Brien, followed by remarks from TA’s Chief Financial Officer, Andy Rebholz before opening up the call for questions. 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, March 14, 2016, but 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, www.sec.gov or by referring to the Investor Relations section of TA’s website at www.ta-petro.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. The recording and retransmission of today’s conference call is strictly prohibited with the prior written consent of TA. You should also note that the information provided today describes TA’s consolidated operating results as well as, for the first time this quarter, a discussion of TA’s results disaggregated into two reportable operating segments. The reportable segments are travel centers and convenience stores. Andy will provide additional detail related to these segments during his prepared remarks. Now, I’ll turn the call over to Tom. Thomas O’Brien: Thank you, Katie. Good morning and thank you for joining our call. Our results for the fourth quarter of 2015 and the full year 2015, which Andy will review in detail in a moment, reflect two significant matters. First, comparisons to prior year periods reflect the very fuel margin environment we experienced in 2014. I have discussed this tough comp matter on prior calls. The fuel margin per gallon decline for the full year 2015 of $0.017 translates into a $36 million pre-tax impact, and we made up for some of that with volume increases of over 5% on a consolidated basis and just under 1% on a same site basis. This tough comp item had an even larger dollar impact in the fourth quarter of 2015 versus the fourth quarter of 2014. Second, we spent the better part of 2015, and in particular the fourth quarter, preparing for absorbing and integrating a number of acquisitions, including 170 convenience stores during all of 2015, of which 123 were acquired in the last four and a half months of 2015. The acquisitions we’ve made since our acquisition program began in 2011 have totaled just over $700 million. As we described in our press release this morning, for 2015 these sites generated a combined contribution of about $71 million, and as I’ve said previously and continue to firmly believe, we are capable of delivering ramped up contributions from these acquired locations by the end of this year, so that the ramped up contributions are fully in the 2017 run rate. These additional contributions will more than offset the negative fuel margin impacts I described a moment ago. I’d also like to briefly cover what we expect for 2016. First with respect to the acquisition market, what I can say is that we’ve seen a lot of acquisition candidates both in the convenience store space and in the standalone restaurant space; but that said, seller expectations of price in the convenience store acquisition market, particularly in the latter part of 2015, began to exceed our willingness to pay. The combination of higher price expectations and our fairly full plate of integration work to complete has kept us on the sidelines of potential transactions more often than not in recent months, but we’re still active. Second with respect to fuel margin, be reminded that our 2016 first quarter will again experience a tough comp when compared to the first quarter of 2015 results. What I can tell you is that our preliminary numbers for the first two months of 2016 show fuel margin per gallon in the area of $0.15 to $0.17 while consolidated volume is running 8 to 9% over 2015. I’d like to point to a few positives embedded in our results for the fourth quarter that I think should suggest to you that my confidence in the future is well founded. In our travel center segment, our same site non-fuel gross margin increased by $10 million or approximately 4.7% during the quarter. That’s 140 basis points faster than we grew our travel centers’ non-fuel sales. To provide a little color on how we got there, I’ll tell you that our quick service restaurants and store operations posted revenue increases of over 8% while our table service restaurant revenue and truck repair revenue were largely flat. In our standalone convenience store segment, which on a same site basis for the 2015 periods consists almost exclusively of the Minute Mart locations we acquired in late 2013, we grew same site fuel gross margin per gallon over 14% during the 2015 fourth quarter. Same site non-fuel gross margin increased over 15% during the quarter, and site-level operating expenses declined by just over 14%. The 2015 contribution from those acquired locations was $11 million. We invested $67 million, including improvements, at these locations and so that translates into an investment multiple of 6.1 times their contribution. These results reflect, I believe, the culmination of the synergies we are expecting for the remaining recently acquired locations over the 2016 and 2017 period. Earlier in my comments today, I implied our belief that the potential for additional contributions from recently acquired locations, which are principally convenience stores, is greater than $36 million, but let me be even more clear. If our investments on average have been made at six times stabilized contribution multiples, stabilized contribution from these acquired locations should exceed the 2015 results by about $47 million. As I am sure you appreciate, confidence in a few good metrics stemming from historical reporting periods doesn’t necessarily translate into increased future profits, which is of course what we’re trying to accomplish, so let me tell you about our ramp-up and integration program which is our single largest identified source of future profit increase potential currently. As of March 14, 2016, nearly all of the standalone convenience stores we own as of the end of 2015 and the travel stores at 25 of our travel centers have been updated to include all brand standard Minute Mart signage and marks and the addition of our private label coffee and other programs. We have also completed our review of gasoline branding at all 204 standalone convenience stores we owned at the end of the year, and as of today gasoline brand conversions at 83 of these stores and an update of gasoline brand elements at 109 of these stores has been completed. I believe that the steps we’re taking to integrate these recently acquired operations, including of course training, planned investments in site improvements, some facilities expansions, and driving efficiency are the right ones, particularly when combined with our three-pronged approach to using brands to drive traffic. That approach includes, first, having the right gasoline brand for that market; second, enhancing consumer awareness and messaging effectiveness of our Minute Mart brand; and third, leveraging our deep experience with multiple quick service food brands to enhance non-fuel revenues. While we’re intently focused on these ramp-up and integration activities largely related to convenience stores, we have not forgotten that our TA and Petro brands and locations currently contribute the vast majority of our results by nearly any measure. I’ve mentioned many times in the past, our adaptations and innovations in the area of reserved parking or expansion of truck repair and maintenance services or adding quick service restaurants. We remain dedicated to further enhancing those areas, but we also expect to go beyond them. While I believe TA has a number of strengths and competitive advantages, there are two in particular that we’ve emphasized in our plans for 2016 and beyond. The first is to exploit the breadth of our operational expertise. I believe we’ve done a good job marketing our TA and Petro brands to truckers and fleets historically and will continue to do so going forward, but there are some key enhancements to our approach in 2016 and beyond that we believe can drive further business. One element is the combination and rationalization of our truck service offerings. Our customer research has showed us that the Petrolube, TA Truck Service, Road Squad and Road Squad Onsite brands were each best known for different services. Indeed, some of our customers thought of them as separate companies, when in fact each of them of course belong to TA and are operated by the same highly qualified team. We believe that combining them under one marketing umbrella known as TA Truck Service will enhance the effectiveness of our communications to potential new customers and increase customer understanding of the value of, for example, our warranties, our technical expertise, and our broad scope of services. Now that our convenience store operations total over 450 locations, including standalone stores and those embedded in truck stops, another key element is proliferating that brand, driving customer awareness of it and ensuring delivery of that brand’s messages - clean, fast and friendly. Our marketing team has already been reorganized and now includes teams dedicated to each of our brand groups - commercial fuel and maintenance, gasoline, convenience stores, and of course food, which includes both full service and quick service. Those operations include over 650 restaurants and other food outlets. The second related but somewhat longer term item is to realize better value from our large truck stop locations, many of which are uniquely positioned to appeal to trucker and non-trucker customers. We think that the large scale of many of these individual locations provides a lot of flexibility for us to enhance what is presented to these customers and we’ve already attempted to take advantage of this in the early going of 2016. For example, our opening of our newly built location in Hillsboro, Texas includes a virtual golf and shooting range intended to appeal to entertainment-oriented customers. Another example is adding a Fuddruckers fast casual restaurant to our Commerce, Georgia travel center. This shows our ability to adapt and increase our appeal to local and traveler customers that stems from our deep experience with multiple restaurant brands. Another example is the renovation at one of our more successful travel centers in Lodi, Ohio. It’s probably the best recent example of capitalizing on the large size of our typical travel center to present to our consumer what appears to be a series of inline retail operations, including a Burger King, a Starbucks, a Popeyes, and Country Pride casual dining restaurant, and a Minute Mart. This location is a great example of how we expect to position the consumer-facing elements of our travel centers over time. All of these internal growth projects have shown early promise, exceeding our expectations. I realize that my comments today, as much as I feel they’ve been simplified for purposes of this call, may seem complex, and while they are that, all of the details behind our plans stem from one and only one goal, which is to expand our reach to add additional customers as a means to the end of increased profits. Every acquisition and every operational initiative is intended to leverage our strengths and advantages toward that goal. We remain excited about our future opportunities despite the lingering fuel margin per gallon tough comp that will be around for a little bit longer. Our activities will have us make investments in our properties and in our marketing and similar efforts, but not only are we confident that all the effort will pay off, there are many reasons to believe that that confidence is well founded. With that, I’ll turn the call over to Andy.
Andrew Rebholz
Thank you, Tom, and good morning everybody. When I refer to newly acquired sites in my prepared remarks, I’m referring to sites we’ve acquired since the beginning of the fourth quarter of 2014; and when I refer to same sites, I’m referring to those sites we have operated for the entire period since October 1, 2014. Turning first to our consolidated results, we reported a net loss for the 2015 fourth quarter of $1.6 million or $0.04 per share. This compares to net income of $34.3 million or $0.91 per share in the fourth quarter of 2014. We had fuel tax credit rebates and acquisition costs during each of these periods with after-tax income effects of these items in total of $3.9 million or $0.10 per share in the fourth quarter of 2015, and $4.1 million or $0.11 per share in the fourth quarter of 2014. We reported 2015 fourth quarter adjusted EBITDAR of $83.2 million, a decrease of $46.2 million or 35.7% versus the EBITDAR for the 2014 fourth quarter. The decrease in adjusted EBITDAR over the prior year is due primarily to the fuel gross margin decline of $35.4 million or 25.5%. Our fuel gross margin cents per gallon declined approximately $0.09 year-over-year to $0.19 per gallon in the fourth quarter of 2015 compared to $0.28 per gallon in the prior year period. The year-over-year fuel gross margin decline was attributable to a favorable purchasing environment in the 2014 fourth quarter that did not recur in the 2015 fourth quarter. Both years’ quarters benefited from declining fuel costs, but the 2015 quarter did not provide the same opportunities for advantaged purchasing that we enjoyed in the 2014 quarter. Regarding our non-fuel gross margin, approximately half of the increase in non-fuel gross margin in the fourth quarter was due to our 173 newly acquired sites, which included 170 convenience stores. Within our travel centers, growth in non-fuel gross margin was driven by our diesel exhaust fluid, parking, gaming and food service products and services. Despite the 10.3% increase to overall non-fuel gross margin in the 2015 fourth quarter, our site-level operating expenses increased by 12.2% in the quarter. About 75% of the increase in site-level operating expenses was due to the newly acquired sites, for which operating expenses are fully loaded into our results very soon after acquisition. However, as we’ve mentioned in the past, fuel and non-fuel sales, on the other hand, are achieved over time as we complete renovations and stabilize operations. In addition, we incur costs associated with employee training, permits and licenses, and certain maintenance improvements. The decline in fuel gross margin was the principal reason site-level gross margin was down by $38 million or 24.3%. Our selling, general and administrative costs increased by $6.3 million or 22.6% compared to the 2014 quarter principally as a result of expenses related to corporate staffing increases primarily associated with the 170 convenience stores we acquired during 2015, including in our operations management, accounting and finance, information systems, marketing, and human resources departments. Our rent expense increased by $7.2 million or 13.1% compared to the 2014 fourth quarter primarily due to the lease amendments and sale-leaseback transactions we completed during June and September, 2015 and the increased rent as a result of improvements to sites that we sold to HPT from the 2014 fourth quarter through the 2015 fourth quarter. As of December 31, 2015 TA leased a total of 193 properties from HPT for total annual minimum rent payments of $255.6 million, or $63.9 million per quarter, although the amounts reflected as rent expense in our income statement differ from the amounts we pay for a number of reasons that we fully explain in our press release and in our Form 10-K to be filed later today. Our interest expense for the 2015 fourth quarter increased by $1.6 million as compared to the 2014 fourth quarter principally as a result of our October 2015 issuance of $100 million principal amount of new 8% unsecured senior notes, partially offset by a decrease in rental amounts classified as interest that resulted from our June 2015 lease amendments with HPT. Turning to our same site results on a consolidated basis, our total same site fuel gallons sold during the quarter declined by 1.1%, driven by the 7.5% decline in same site gasoline volume year-over-year offset by the 0.2% increase in same site diesel volume. We attempted to optimize retail gasoline margin this quarter at the expense of volume. Our same site diesel sales were up 0.2% and we believe this positive result indicates that in the fourth quarter of 2015, we grew our trucking fuel business despite the effect of fuel conservation due in part to the success of our marketing and capital investment programs. Our non-fuel revenues on a same site basis increased $13.6 million or 3.4% versus the 2014 fourth quarter while our non-fuel gross margin on a same site basis increased by $10.8 million or 5% versus the 2014 fourth quarter, and this drove non-fuel gross margin as a percentage of non-fuel revenues up by 80 basis points to 55.8%, primarily due to changes in our sales mix. Now I will review some detailed financial results by reportable segment. Given our significant level of convenience store acquisitions, we have begun in the 2015 fourth quarter to provide segment reporting. Our two reportable segments are our travel centers business and our convenience store business. For purposes of segment reporting, we report results by segment down to the profitability measure, site-level gross margin in excess of site-level operating expenses, because that is the measure we use internally in allocating resources and assessing performance. In our travel center business, our site-level gross margin in excess of site-level operating expenses for the 2015 fourth quarter was $112.5 million, which represented a decline of $42.2 million from the 2014 fourth quarter. This decline was attributable primarily to the significant decline in fuel gross margin per gallon from 2014 to 2015 of $0.092 per share or $45 million. In total, travel center fuel sales volume of 479.2 million gallons for the 2015 fourth quarter represented a decrease of 0.7% from the 2014 quarter, and non-fuel revenues of $392.2 million represented an increase of $14.2 million. On a same site basis for our travel center segment, 2015 fourth quarter fuel sales volume decreased 1.1% and non-fuel revenues increased 3.3% as compared to the 2014 fourth quarter, indicating the success of our marketing and capital improvements initiatives. Our site-level gross margin in excess of site-level operating expenses on a same site basis for our travel center segment for the 2015 fourth quarter declined $42.6 million largely as a result of a $45.4 million decline in fuel margin. In our convenience store business, our site-level gross margin in excess of site-level operating expenses for the 2015 fourth quarter was $4.8 million, which represented growth from the 2014 fourth quarter of $3.7 million that was attributable primarily to the acquisitions we completed throughout 2015. In total, convenience store segment fuel sales volume of 54.1 million gallons for the 2015 fourth quarter represented an increase of 450% over the 2014 quarter, and non-fuel revenues of $59.5 million represented an increase of $40.7 million. On a same site basis for our convenience store segment, 2015 fourth quarter fuel sales volume declined 0.4% and non-fuel revenues increased 5.5%. Our site-level gross margin in excess of site-level operating expenses on a same site basis for our convenience store segment for the 2015 fourth quarter improved by $2 million due primarily to an increase in fuel gross margin per gallon that offset the slight decline in fuel sales volume, as well as the improved levels of non-fuel sales, non-fuel margin percentage, and site-level operating expenses as a percentage of non-fuel revenues that we believe resulted from the continued stabilization of the 31 convenience stores we acquired in December 2013. Turning to our outlook for certain 2016 consolidated results, we believe fuel gross margin per gallon in the first quarter 2016 will not approach first quarter 2015 amounts for reasons similar to what occurred between the fourth quarters of 2014 and 2015; but we believe our first quarter 2016 fuel margin per gallon will fall in the range of $0.15 to $0.17 per gallon. However as you know, fuel margins can be sensitive to competitive and market factors and may be materially better or worse than these amounts. Keep in mind that the fourth quarter 2015 fuel gross margin per gallon of $0.19 included approximately $0.015 per gallon from the recognition in that quarter of a full year of the renewal fuels tax credit that was not retroactively reinstated by the federal government until December 2015. Because this credit was extended until the end of 2016, the benefit of this tax will be reflected in our fuel gross margin throughout the four quarters of 2016. We expect TA’s consolidated non-fuel gross margin as a percentage of non-fuel revenues will continue to decline as convenience stores continue to become a more significant part of our non-fuel business. Our convenience store products and services typically generate a gross margin percentage lower than that of our truck repair and food service products and services. While we do not envision margin erosion in any of our service lines, the shift in mix towards convenience stores will affect our consolidated non-fuel gross margin percentage. We expect TA’s consolidated non-fuel gross margin as a percentage of non-fuel revenues on a same site basis will increase as a result of positive sales mix. We expect our fourth quarter level of selling, general and administrative expense is a decent run rate level for an average quarter of 2016 as we continue to invest in our marketing and branding initiatives at our travel center and convenience store segments. Regarding rent expense, our current quarterly run rate for rent expense is $62.1 million. This amount is for all real estate leases and not only the leases with HPT. If we complete our capital improvements program as currently planned, we expect to sell approximately $150 million of improvements at sites we lease from HPT in 2016. Our rent expense will increase by 8.5% of the proceeds of these sales to HPT. Further, we plan to sell and lease back from HPT three of the five previously announced development travel centers in the first half of 2016, including one during the first quarter for an estimated average cost of approximately $21 million per site which will increase our rent by 8.5% of the proceeds, or approximately $1.8 million per site. Also, in 2016 the calculation of percentage rent due to HPT will recommence pursuant to our recently amended leases. Regarding depreciation and amortization expense, we believe that the fourth quarter amount is a reasonable run rate estimate for an average 2016 quarter other than for the increases to that estimate that will result from the acquisitions we complete in 2016 and our capital expenditures program. Our current quarterly run rate for interest expense is approximately $7.7 million. In addition, at December 31, 2015 we had $172.1 million in cash on the balance sheet. Thus far in the first quarter, we have purchased seven convenience stores for an aggregate of $13.9 million and we currently have agreements to acquire an additional 33 convenience stores for an aggregate of $42.2 million and certain assets of Quaker Steak & Lube for about $25 million. With that, I’ll turn the call over to the Operator for questions.
Operator
[Operator instructions] Our first question is from Steve Dyer of Craig Hallum. Please go ahead.
Steve Dyer
Thanks, good morning. Thomas O’Brien: Hey Steve.
Steve Dyer
Thanks for taking my question. The fuel gross margin guidance of $0.15 to $0.17 for Q1 is obviously lower than we’ve seen in a little while. How much of that, if any, has been sort of driven by the increase in diesel prices here in the last, I don’t know, month, month and a half of the year? Thomas O’Brien: I would say that that’s most of it. I think that as we’ve talked before, there’s a lot of different variables, but that one can drive. We’re still seeing good availability of supply, and when I say good, I mean that tends to obviously dampen prices and, to a certain extent, the volatility which is helpful to us. But directionally, particularly on the retail side, when prices go up, we’re going to have a harder time expanding margins, particularly now that that applies to both the retail piece of our diesel and the gasoline piece, which is growing in its importance as we expected.
Steve Dyer
Okay, and then I think I missed what you said on site-level operating expenses. I think you exited this year at about a [indiscernible] run rate. Could you comment on how that run rate could look going forward here? Thomas O’Brien: Sure. I think the thing to focus on is that gap that we pointed to. I think on the same site basis, I think that we can achieve on the travel center segment the growth that we’ve seen or the control that we’ve seen in that item in 2016, so that’s a big, big piece of it. On the convenience store segment, what you see in the same site is those locations that are included in there, those 32 locations are very likely a pretty good model versus--upon which to base the results at all of those locations over time Are you following me? I think that may be the best way to get at what you’re looking for.
Steve Dyer
Okay. Then as I kind of input all of these--you obviously don’t guide for the year, but when you kind of triangulate a lot of the data that you gave us, you’re looking at potentially a negative year from an EPS, GAAP EPS perspective. Does that kind of ring true with your internal planning, or am I missing something? Thomas O’Brien: Well, obviously I’m walking a fine line here because we don’t give guidance, but there is that tough comp in the first quarter on fuel margin. Fuel margin is a big piece, and basically what we’ve tried to convey here today is fuel margins are down but still historically pretty strong, and that we’re going through some growing pains but I think at the end of that tunnel, we’ll have a very positive result. In the meantime or in addition, what we’re trying to do is leverage the competitive strengths we have, the size and geographic span, the breadth of our operational experience. That, I hope is the takeaway. The pain in getting there is going to be driven a little bit by that tough comp, particularly in the first quarter.
Steve Dyer
Okay. Last question from me - do acquisitions, are those still sort of the highest use of capital for you guys as you look at capital allocation strategy going forward, as opposed to buybacks or some other option? Thomas O’Brien: I would say in today’s environment, investment in our portfolio or our existing locations, given what I see right now, is probably higher than the acquisitions. There’s a lot of opportunity that we have sort of beyond sustaining capital in everything from adding quick service restaurants or fast casual, like the Fuddruckers that we just opened in January-February, investing in truck service, pre-presenting if you will to the consumer a lot of the consumer-facing elements of the truck stop so that it really looks like that prototype, for lack of a better word, in Lodi. Things like that are probably taking the front seat to acquisitions, which is--now, that could change of course, but based on what I see right now, those would be our priorities.
Steve Dyer
Okay, thanks. I’ll hop back in the queue. Thomas O’Brien: Thanks Steve.
Operator
Our next question is from Bryan Maher of FBR & Company. Please go ahead.
Bryan Maher
Good morning, guys. A couple of questions. We’re seeing a lot of stuff in the Wall Street Journal and other papers about fewer trucks being sold, and I think it’s got some investors a little squeamish as it relates to your space. Wouldn’t it be fair, though, to say that some of that truck sales degradation is the result of much lower gas prices, so less of a need to spend significant amounts upgrading to a more fuel efficient truck? And then secondarily, wouldn’t that benefit your truck service business with older trucks being on the road? Thomas O’Brien: Yes, it has that potential. As a, call it a fleet but what I mean is the total supply of trucks, gets older, that tends to require more repair, more maintenance particularly as things come off warranty, so that can be positive. One thing that’s happening too that I think should be appreciated is as the new trucks that were purchased with the DEF, so diesel exhaust fluid, a lot of them are starting to turn over into the used truck market, and I think that again not only as you pointed out, do we think that the truck service or repair-maintenance business may increase because of the age, as the total amount of DEF equipped vehicles increases as a percentage, we’re very likely to see continued strong growth in diesel exhaust fluid sales. So you’re right - the headline is usually intended to be negative when you see there’s a lot less truck orders, but that is not necessarily the case for us at all.
Bryan Maher
Thanks. My follow-up question relates to kind of this C-store margin. Can you give us a little bit of color, and you’re probably not going to go into exactly what they are and where they’re going, but can you give us a little bit of color as it relates to kind of the life cycle of the C-store margin, and kind of when you acquire them, to what happens when you take them over and they’re undergoing a little bit of noise, per se, and then how much upside in, let’s say, basis point increase do you think we can see from current level? Thomas O’Brien: Yes, I think that comparing our consolidated C-store--well, our non-same site, right, so the C-store segment reporting, with the same site C-store segment reporting is the best guide. But to give you a sense of what happens when we take over, obviously in some cases we’re replacing pumps, replacing brand elements. There’s a lot of activity going on, but we’re also training, training in what it means to work for Minute Mart, which includes both the customer-facing things but also a big portion of systems, making sure all those ducks are in a row. Sometimes when we take over a small group of convenience stores, they may have had a legacy loyalty program which we may decide is not the best choice for us going forward. It takes time to work through that and show the impact of new branding and new elements and such, so the goal is probably best represented from the things that you can see by that same site presentation of the 32 stores for 2015 that’s in the convenience store segment. Those stores tend to have more food than the collection of stores that are not included in there. So long as you temper your expectations with the other numbers that we went through, sort of that plus-$49 million in the calculus I went through, then you should be on the right track.
Bryan Maher
Thanks. Then just lastly, from a greenfield standpoint, I think you still have a couple, a few sites available to develop if you wanted to. Given that pricing on acquisitions is not really where you want it to be right now, how should we be thinking about greenfield development going forward, both from a truck stop standpoint and maybe even from a C-store standpoint? Thomas O’Brien: I think there’s been no real change to our approach there. We’ve got five sites that are on the drawing board--well, excuse me, one of them we opened so I supposed that’s four. Generally speaking, I still expect that development to go forward. We have not entertained particularly seriously ground-up development beyond that, whether in the truck stop space or in the C-store space. Some of our partners are trying to encourage us to do that, but we’ve not made that decision. I think our best opportunities lie in leveraging the things that we have. We can acquire customers, if you will, by buying sites, but I think particularly in the truck stop space and even more specifically, to get a little bit more granular, in the food space, the restaurant space, I can’t emphasize enough how deep our experience is there. The ability to add and successfully operate food offerings, I think our abilities there are unparalleled. We, as I said, operate 650 restaurants/food outlets. I think we have in our stable 30-something different brands. We’re very good at that, and I think pushing those kinds of things is probably a very--it is a very good use of our capital. I’m not running--as to what I’m trying to say, I’m not running all to development in order to grow out of a lack of opportunities in the existing portfolio, which I think are tremendous.
Bryan Maher
Thanks Tom. Thomas O’Brien: Thanks.
Operator
Our next question is from Ben Brownlow of Raymond James. Please go ahead.
Ben Brownlow
Hey, good morning guys. Thomas O’Brien: Hey Ben.
Ben Brownlow
On the same store gasoline volume decline, that 8.4% of TA sites, is there anything in the consumer or your changing pricing strategy that led that? I didn’t hear if you commented on that, but obviously you’re not seeing that type of negative trend at the C-stores. Thomas O’Brien: Yes, we didn’t comment on it. That’s probably mostly a reflection of--how do I say we made a mistake without sounding like we made a mistake? We had a strategy in the fourth quarter and we worked it, and it didn’t turn out the way that we wanted, and that strategy has now ended. I don’t know how else to say it.
Ben Brownlow
Okay, so it was just a slightly different change in the pricing strategy? Thomas O’Brien: That’s right. There’s nothing systemic there or that I see as being caused by some kind of material shift in outside influences.
Ben Brownlow
Okay. On the 83 brand conversions, any early read-through in terms of customer lift or the return there? Thomas O’Brien: A little too early, because we’ve got noise and seasonality and things like that, and of course just having them in our hands recently. But anecdotally, we think it’s having a positive impact.
Ben Brownlow
Okay, and then just two last quick ones for me. On the CFG, the fuel margin with C-stores which based on the fourth quarter or even for the year was around a $0.02 to $0.03 elevation relative to the travel centers, I assume part of that is the mix; but is that how we should think about whether on a same site basis or for the entire portfolio of C-stores, is that how we should think about that relative--with the C-stores on the fuel margin relative to the travel centers in terms of kind of a $0.03 to $0.04 premium? Thomas O’Brien: No, I think that might be dangerous. I think you’ve got to look at fuel margin in combination. Remember, and I tried to bring this out, but one of the things that acquiring convenience stores and focusing on gasoline at our travel centers, one of the things that it does for the company overall is it helps us balance our attractiveness on the business-to-business side, which is code for commercial truck drivers, and our business-to-consumer side. So if you think of that, if you think of diesel as business-to-business and gasoline for a minute as business-to-consumer, while they’re both fuels, they are both--they are each subject to different kinds of pricing, different inventory levels, different market impacts. One of the things that we are trying to do over the long term is balance those two so that at least we have a better chance of having some of the volatility go out of at least the per-gallon gross margin. So I think it’s best to think of them together, as opposed to think of one always going to be better than the other. The strategy here is intended to give us a better chance to have them actually offset and reduce some of the volatility, as well as obviously increase the overall level of profit. Is that helpful?
Ben Brownlow
Yes, very helpful. It makes sense. Then just a last one from me on the M&A environment, I know you had kind of targeted six to eight on prior deals on a multiple, which you’re doing better meeting your target on that. But where are you seeing asking multiples now? Thomas O’Brien: Well, as a general rule, I think that the targets that we have and the experiences that we’ve been able to demonstrate, they’re still available but for certain transactions, the multiples are kind of all over the place, so some are at the upper end of that range. Some are, to my way of thinking, just beyond that by a very significant amount - you know, 50 to 100% depending on what deal you’re looking at and whether you’re at the top or the bottom of our target. I’m just--I’ve got better things to do than overpay, meaning literally I have better things to do with our capital, by investing in the core business that we’ve got because there’s a lot of opportunities there.
Ben Brownlow
Great, thank you. Thomas O’Brien: Thanks Ben.
Operator
Our next question is from Brian Hollenden from Sidoti. Please go ahead.
Brian Hollenden
Good morning, and thanks for taking my call. Thomas O’Brien: Hi Brian.
Brian Hollenden
Can you give us your thoughts on share buybacks and what you plan on doing with the cash on the balance sheet as prices for C-stores are more elevated? Thomas O’Brien: Sure. In the current state of play here with the company growing and in fact not just through acquisitions, a few of which we still have on the docket going forward, but also the integration. While I believe that that is going to work out as planned, that’s not the same thing as saying there’s absolutely no risk that it won’t. So the prospect in the near term of allocating capital to making the company smaller, which is in fact one of the impacts of a share repurchase, there’s very little prospect of that. The cash that we have, I think is best utilized--its highest use is in fact what we’ve been doing. You think back to the investments that we made in travel centers, which culminated to a certain extent and to a certain way of thinking early last year in the sale-leaseback of those travel centers, we invested X and we took out X plus I think it was about $120 million. It’s those kinds of things that give me confidence in our capital allocation plan and prospects, meaning if you can temporarily put in less than you’re going to take out, and after you take it out keep about a third of the profit, you should do that exclusively. So that’s the approach that we’ve taken, and I hope that answers the question.
Brian Hollenden
Yes, thanks for the color. If I could just ask one additional question. As you make more C-store acquisitions, how should we think about the geographies that you might pursue for a future acquisition? Is it more sprawl, or are you going to concentrate on your existing 11 states? Thomas O’Brien: That’s a good question. I suppose--you know, on the one hand I believe, because we have a very dispersed operation in the travel centers - you know, we’re in 40 some-odd states, we have in effect people on the ground almost everywhere until--on the one hand, that opens up the opportunities that we might find going forward in the convenience store space. On the other hand, the concentration of geography, and today in about 10 states that are all touching each other and a little bit in California, that does provide us some advantages. So it’s a balancing act. I’m not terribly hesitant to look at opportunities anywhere in the country, but I am cognizant of the fact that to the extent we can tuck in acquisitions to a geographic area where we already have locations, that may have better impacts on us, and frankly that’s mostly what we’ve been doing.
Brian Hollenden
Thank you. Thomas O’Brien: Thanks a lot.
Operator
This concludes our question and answer session. I’d like to turn the conference back over to Tom O’Brien for any closing remarks. Thomas O’Brien: I just want to thank everybody for their participation, and we’ll see you after the first quarter. Thanks a lot.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.