A few key points:
- It’s helpful to back the deferred rent out of the cash balance since that $$ is owed to HPT and they will take it at some point. This means that at Q2 there was $7.32 / share in “net cash” as opposed to the $10.92 / share in gross cash. At $5 / share, one would rationally conclude that the stock is cheap
- However, the company is *and has been* CF negative. If you add their current level of rent expense to the historical financials, you will see that they have never really made any money. TA’s rent per store in Q2 was $307k. Applying that rent per store to the company’s historical number of stores provides a pro forma expense structure that captures the change in rent expense that occurred when HPT spun off TA. This is important because rent / store in 2006 averaged only $20k and TA generated $184MM in EBITDA. But if you adjust the historical rent, you will get a pro forma EBITDA of $24MM in 2006. This means that in the best economy ever, when Americans were building & buying all kinds of stuff, much of which was being shipped by truck, the Company eked out only $24MM in EBITDA. Yet, in that year, working capital used up $10MM of cash, and CapEx was $92MM, so operating CF (as I think of it) was -$78MM. Uh oh.
- I think a way to cut through the extreme volatility in fuel revenues and cost, as well as the Petro acquisition, is to look at fuel gross profit per store. There seems to be some correlation between diesel price and fuel gross profit. This is good for the company, because the forward curve for diesel is upward sloping. Diesel increased 11.2% in Q3 over Q2 and the futures contract expects an 11.5% increase in Q4 and then a 10% increase over the course of 2010.
- The Bureau of Transportation Statistics provides quarterly data on the vehicle miles driven in the US. Because I can’t find consistent quarterly data on truck ton miles, I have been using this broader statistic to look for correlations between TA’s non-fuel revenues and the miles driven. The ratio between non-fuel revenues and miles driven has been more or less consistent and has gradually increased over the last year. This is simply to say that non-fuel revenues are highly correlated to the number of miles driven in the USA. I know that isn’t a surprise to anyone, and it is what I had expected, but I bothered doing the analysis and thought I’d share it. In addition, non-fuel gross profit has consistently been about 41-42% per quarter back to Q1 06.
- CapEx is difficult to project. Clearly when cash is tight they can reduce capital spending. CapEx was $83MM in 2008 but was only $13MM in YTD 2009. If anyone has insight into the level of capital spending we should expect going forward, please share.