TravelCenters of America Inc.

Good morning and welcome to Travel Centers of America 4th Quarter 2020 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 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Kristen Brown, Director of Investor Relations. Please go ahead, ma'am.

Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, John Perchick, followed by Chief Financial Officer, Peter Crage, and President Barry Richards for our analyst Q&A. 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, February 26, 2021. 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 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 EBITDA, EBITDAR, adjusted EBITDA, adjusted EBITDAR, adjusted net loss, adjusted fuel gross margin, and adjusted fuel gross margin per gallon. The reconciliation of these non-GAAP measures to the most comparable GAAP amounts are available in our press release that can be found on our website. The financial and operating measures implied and or stated on today's call, as well as any qualitative comments regarding performance, should be assumed to be in regard to the fourth quarter of 2020 as compared to the fourth quarter of 2019, 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, John, I'll turn the call over to you.

Thanks, Kristen. Good morning, everyone. Thank you for joining us and for your continued interest in TA. I'm pleased to report that despite the continuing challenges to demand, operations and management imposed by COVID-19, and a reduction in overall revenue by 15.5% in Q4 2020, compared to Q4 2019, we report the following improvements. A 29% improvement in adjusted net loss, a 36% increase in adjusted EBITDA, and a nearly 10% increase in adjusted EBITDA are a key metric in measuring our results. These results represent a continuation of the positive results we delivered in Q2 and Q3. After my first year of tenure, I believe it is fair to say that we are well on our way to transforming TA, and yet we're really just beginning. 2020 was primarily a year of planning and preparation, a year of the three Ps, people, plan, and purse. We put the team of people together through our reorganization. We developed our transformation playbook or plan, and we developed the purse through our 85 million equity and 200 million debt raise, as well as the installation of a newfound and aggressive cost discipline. We end 2020 prepared to invest capital in growth and remediation, as well as to execute on our broader transformation plans. For 2021, we have prepared and continue to refine a robust capital plan designed around the principles of cleanup, catch-up, and growth. Our capital plan includes reestablishing our information technology, or IT systems, and doing so with a focus on creating an efficient and effective foundation upon which to rebuild our organization. Our capital plan includes comprehensively improving the physical plans of many of our sites, both remedially as well as for financial growth, with an eye toward making our sites more attractive, desirable, and useful to both 18-wheel and four-wheel guests. Our capital plan includes the exploration of collaborations and joint venture opportunities. And to be very clear, these investments in growth will be focused exclusively in our asset base and not in non-strategic, unrelated businesses or areas. Simple areas of opportunity to invest within our asset base include travel centers, the truck service business, fuel, and technology to support our growth. We are also surgically investing in outside consultative help our transformation plans in key areas, such as fuel margin, site-level operating expenses, and we expect this investment will begin to bear fruit during 2021. Lastly, I want to provide a few comments about our enthusiasm for alternative energy and sustainability. We're extremely excited about the unique opportunities TA has to leverage its large, well-located sites and pure supplier business model. to embrace changes that non-fossil fuel energy presents, particularly under the new administration. We're focused on carefully evaluating these opportunities to best position ourselves as the market evolves and hope to be able to provide more formal announcements in the upcoming quarters. I am proud of the strong positive results our team has generated in this quarter and the full year 2020, particularly in spite of the global COVID pandemic. The strength of these results during this historic time is evidence that this team can execute effectively and transform this great half century old company. I'm confident that this team of leaders will prudently and effectively deal with whatever challenges that come along. I'm most excited to see what we can do in 2021 and beyond, having the three Ps in place, the people, the plan, and the purse to effectively drive remediation, growth, and long-term shareholder value. Turning to our results for the quarter, Solid performance from our fuel and certain non-fuel businesses largely offset COVID-related decreases in four-wheel traffic and in our full-service restaurants. And our focus on managing costs delivered improved profitability versus the prior year quarter. Our overall fuel volume increased 11.8%, driven by a 16.2% increase in diesel fuel volume. Excuse me. The increase in diesel fuel volume was due to an increase in trucking activity given the relative health of the trucking industry, the addition of new fleet customers, and overall increased volume from existing customers due to the early success of a variety of initiatives. Adjusted fuel gross margin for the quarter decreased by 8.8% versus prior year, as higher diesel fuel volume was offset by reduced four-wheel traffic, reflected in lower gasoline volume and a less favorable Q4 2020 diesel purchasing environment which affected diesel CPG margin. Starting on October 1st, we began using our economies of scale purchasing power to purchase diesel fuel in substantially larger volumes versus inefficiently purchasing in small increments previously. We believe this has reduced diesel fuel cost of goods sold and increased relative fuel gross margin without changing the risk profile of our purchasing. That said, diesel fuel market volatility also plays a large role in fuel gross margins, one that we have limited control over through canceling or increasing loads. As the year ended, the purchasing environment became less favorable due to low market volatility, a dynamic which has persisted into the early first quarter of 2021. On the non-fuel side of the business, overall, our revenue was only down 1% versus the prior year quarter, despite the fact that our full-service restaurants remained dramatically affected by COVID, with many states reimposing occupancy and other restrictions during the 2020 fourth quarter. During the quarter, we continued to retain a substantial number of teammates on furlough and had approximately one-third of our full-service restaurants remain closed. As we had reopened some restaurants, we did so with limited menus, no buffets, reduced payroll and cost control improvements in an effort to produce relatively improved margins. We are currently evaluating a range of options and operating models to improve the profitability of the full-service restaurant areas within our travel centers. We are also moving ahead with rebranding certain other full-service restaurants in our travel center sites to IHOP, with five conversions currently underway and potentially 10 more to commence in 2021. These conversions conservatively are expected to require an average investment of $1.4 million per site, and generally require six to eight months to complete. In evaluating our overall restaurant segment, we reached the conclusion that our standalone restaurant business, which includes 42 locations, primarily branded as Quaker Steak and Lube or QSL, did not strategically fit within our long-term goals for the company. To that end, we have entered into an agreement to sell this business for approximately $5 million, subject to customary closing contingencies. This strategic divestment, which is currently in the due diligence phase and expected to close by the end of the first quarter, will allow us to focus our efforts on our core travel center business. Peter will discuss the financial impact of this in his remarks. For the stores and retail services, improved management and merchandising have begun to have a positive impact, and for the quarter versus 19, revenues increased by 6.3%. Also, we are working to centralize purchasing and manage inventory more efficiently, which eventually will translate into a better margin for these businesses. Importantly, truck service revenues as compared to the prior year fourth quarter showed a solid improvement driven by an increase in work orders. We have retooled this entire business with new senior leadership, as well as created a new middle manager role to improve accountability. Technician retention, compensation, and training are central targets to drive continued improvement. Truck service remains a top focus and key competitive advantage for the company and an opportunity to further increase our market share among fleet customers. Non-fuel margins also continue to benefit from strong demand for diesel exhaust fluid, or DEF, and we expect the demand for DEF to continue growing as more pre-2011 model-year trucks are retired each year. Demand for DEF was also boosted by higher diesel fuel volumes in the quarter. Shifting to network expansion through franchise. We have signed 33 new franchise agreements since the beginning of 19. Four began operations during 19, 10 opened in 2020, and so far one has opened in 2021. We anticipate the remaining 18 franchise travel centers will begin operations by the end of the 2022 first quarter. Of the 33 franchise agreements, 21 were signed in 2020. which is nearly double the pace from that of 2019. We continue to have active discussions with current and potential franchisees with the goal of accelerating the pace of signings in 2021. Lastly, the exciting topic of alternative energy. We embrace changes that are forthcoming and are in the process of developing internal resources and leadership with the intention of leading the process of transformation. I'm extremely excited about the opportunities that exist and look forward to more specific comments and announcements as we work our way through early 2021 on this subject. TA's unusually large sites provide the unique ability to develop a meaningful transition plan and to accommodate a wide range of fossil and non-fossil fuel offerings and the infrastructure to support them to coexist at the same time. This broad range of potential offerings is a simple extension of TA's core competency of having the widest range of non-fuel offerings within its highly amenitized C-Store restaurant and truck service ecosystem. These simple facts provide TA a unique opportunity, one we intend to carefully monetize. To conclude, I'm very proud of the progress demonstrated by our results this quarter. We now have three sequential quarters under our belt where we delivered solid year-over-year improvement in adjusted net loss slash income, adjusted EBITDA, and adjusted EBITDAR. and we did so through a worldwide health and economic crisis. We are still in the early innings of this turnaround, and most of the work and opportunity remains in front of us. However, I am optimistic we have started to deliver on the promise to rebuild trust and credibility with the marketplace and have shown a sincere and effective commitment to change through these results. And once again, with the three Ps, the people, the plan, and the purse, we are ready for the challenges ahead and to focus on execution, growth and remediation, by intelligently investing in our asset base. I would like to end my remarks, as always, by offering gratitude for our teammates and colleagues around the country for their hard work and dedication, as well as all the professional drivers and fleet managers for allowing TA to serve them as we continue to successfully navigate through this unprecedented time together. And with that, I will hand the call over to Peter to discuss the quarter's financial results in detail. Peter?