TravelCenters of America Inc.

Good morning and welcome. This call is being recorded. At this time, for opening remarks and introductions, I would like to introduce TA's Director of Investor Relations, Ms. Kristen Brown. Please go ahead.

Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, Don 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, November 2nd, 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, or SEC, 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 adjusted net income, EBITDA, EBITDAR, adjusted EBITDA, adjusted EBITDAR, and adjusted fuel gross margin. The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our press release and on a schedule of our non-GAAP financial measures that can be found in the events section of 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 third quarter of 2021 as compared to the third quarter of 2020, unless otherwise stated. Finally, I would like to remind you that 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, and thank you for your continued interest in TA. I'm proud to report that our third quarter 2021 results represent a continuation of the strength and resilience that the new TA can produce. Our comprehensive and broad-based transformation plan, beginning in April 2020, continues to produce financial and operating performance improvements across business lines, contributing to these impactful results in this reporting period. For the third quarter of 2021, compared to the prior year quarter, we produced the following. Adjusted net income of $22.2 million, which is a 36% improvement. Adjusted EBITDA of $65.2 million, which is a 28% improvement. And adjusted EBITDA, a key metric in measuring our results, of $129.1 million, a 12% improvement. Moreover, while these results do reflect a comparison to the prior year quarter when the COVID-19 pandemic was still acute, It also represents notable improvement relative to the 2019 third quarter with adjusted EBITDA having increased by $24.2 million or 59% as compared to the 2019 third quarter. What excites me the most is that during this third quarter and previous quarters, we've continued to see varying component parts of the overall business contributing in varying degrees to what has become a financial new normal for TA that shows resilience and financial durability, with trailing 12-month adjusted EBITDA of $203 million at the end of the third quarter. I say this with confidence despite continuing effects of the pandemic, including labor pressures and supply chain disruption, as well as the fact that our robust capital plan has just barely begun to be deployed, leaving much to look forward to in terms of growth CapEx impact, as well as other continued harvesting of operational improvement opportunity. We continue to maintain substantial liquidity, which we recognize comes at a cost, while we engage in negotiations with due diligence processes over a large and growing number of meaningful potential transactions to invest in our asset base. Our acquisition pipeline, under review and consideration, totals between $250 and $300 million and is primarily comprised of existing travel center targets, as well as two development sites on land we already own, one of which we expect to break ground on later this month. In total, we may potentially initiate, through offer or beginning of ground-up construction, as much as $40 to $60 million by year end, with additional opportunities during the first quarter of next year. In addition to potential acquisition activity, we continue to invest in our asset base in multiple ways, including upgrades in talent and people, leveraging outside consultant accelerant expertise on an interim basis, investing in our operational initiatives, and, of course, our capital plan, which is focused on a site-level refresh and remediation program, as well as IT and systems improvements and expansion of our ability to sell biodiesel and diesel exhaust fluid or DEF. Most of these investments and improvements are guest-facing and intended to drive efficiency and financial performance, all designed around improving our guest experience based on a more examined understanding of their needs. To that end, we reopened our Seymour, Indiana location two weeks ago following a devastating fire in 2020. We saw this as an opportunity and treated Seymour as the first highest-level platinum site refresh of the first of more than 100 planned refreshes over the next 12 to 18 months. Seymour showcases many of the new design concepts that we plan to include at these locations. Upgrades that our guests will see and feel, including comfortable driver lounges, repaved parking lots, renovated restrooms and showers, new lighting fixtures, new flooring and paint, and self-checkout, along with improved signage and a new store flow. A key pillar to our transformation plan, these improvements will create a better guest experience that is more attractive bright, clean, and fresh environments to increase new traffic and give existing guests reason to return, while more effectively driving purchasing behaviors. I remain confident in our robust capital plan and the positive impact it will have on our overall performance. Building on and enhancing the operational improvements I believe are already starting to be seen in our quarterly results. With that said, labor and supply chain challenges secondary to the pandemic which are impacting our national economy, have also impacted the pace at which we have been able to carry out our capital plan this year. The good news is, despite this impact, we continue to generate a new level of EBITDA for TA, and the financial growth we anticipate from the capital plan remains nearly completely in front of us. Nonetheless, our ability to rapidly deploy capital has been impacted, and Peter will discuss some of these details in his remarks. Staying on growth for another moment, I also want to touch upon our efforts to expand the network through franchising. We have signed 52 new franchise agreements since the beginning of 2019 and opened 18 new franchise locations during the same period. We anticipate 34 new franchise locations will open and begin operations by the third quarter of 2023 as we continue toward our sustained target of 30 per year. Turning toward to our operational results for the quarter, our overall fuel sales volume increased 5.5 percent compared to the prior year quarter and 14.5 percent versus the 2019 third quarter, driven by a 5.8 percent increase in diesel fuel sales volume as a result of increased trucking activity, the addition of new fleet customers, as well as higher volume from existing customers due to the early success of a variety of initiatives. It is important to recognize that our performance included healthy, consistent diesel margin. We continue to dedicate tremendous energy and focus to driving stable and strong diesel margin as we begin to explore artificial intelligence and machine learning to support diesel pricing and supply decisions, as well as begin to build out a small fleet program to better penetrate that valuable portion of the marketplace. Gasoline sales volume continues to show signs of coming back, as four-wheel traffic returns to the road with an increase of 3.5 percent versus the prior year quarter, but still about 10 percent below the 2019 third quarter. On the non-fuel side of the business, store and retail services revenues increased by over 10 percent for the quarter versus 2020 and over 14 percent versus 2019. Although we are experiencing a difficult purchasing and inflationary cost environment, Improve management and merchandising are relatively offsetting these forces, while our ability to drive a larger average basket is also evidence that our initiatives are working. Our customer segmentation work has provided a better understanding of who is visiting us and what their behaviors are, which in turn is allowing us to tailor our offerings to our customers' actual needs, with new display areas in our stores and more meaningful product placements. We have completely reoriented how we merchandise and are rolling out these plans across the network, which we believe, along with a host of other activities, are further driving future value and have begun to show a positive financial effect. Truck service revenue showed a solid improvement with a 5.6% increase versus 2020 and a 7% increase versus 2019. Truck service remains an important competitive advantage for TA and an important area of focus. and I am proud to say that our efforts are proving successful. Our improved revenues are driven by an increase in work orders and labor sales. We have retooled this entire business with new senior leadership as well as created a new middle manager role to improve accountability. Technician staffing is an important focus with compensation and training central targets to driving continued improvement in tech efficiency and wait times. While we have added technician hours to the schedule, To ensure we service customers timely, we have also seen labor costs and margin pressures. We are actively addressing these through the passing along of cost increases to customers, not inconsistent with competitors, and to ensure tech efficiency remains a primary focus as labor and supply chain challenges persist. On the full-service restaurant side, we have worked to rationalize the locations we have reopened through disciplined leadership and strategic changes to how we measure performance. as well as to our operating model through fewer, more desirable menu offerings and tighter labor controls. We have opened two of the five IHOP conversions we have underway and expect to open the other three by the end of the first quarter of 2022. In addition, we are deep into the work of developing other concepts designed around a studied understanding of our customers' needs and look forward to further announcements in the coming months. With full-service restaurant top line having been so adversely affected by the pandemic, down as low as 90% at times last year, this remains one of our highest areas of opportunity to capture future value. We also introduced a new food offering concept, the kitchen, at our newly reopened Seymour location, which offers guests freshly prepared food for sit-down dining in a fast, casual environment, as well as packaged meals and snacks for grab-and-go. Based on our customer segmentation work, the kitchen is, in simple form, our historical deli concept, but very focused on items that are popular and high margin with the grab-and-go options branded in a fresh, crisp, and desirable package. With this new proprietary concept, the conversion costs are low, staffing is minimal, and there are no royalties. We plan to roll out the kitchen to select locations over the course of next year. Non-fuel revenues also continue to benefit from strong demand for diesel exhaust fluid, or DEF, which is required by newer trucks. As pre-2011 trucks are retired each year, we expect that the demand for DEF will continue to grow. Demand for DEF was also boosted by higher diesel fuel volumes in the quarter, and as part of our current capital plan, we expect to make DEF dispensers available in all lanes at our travel centers nationwide by early 2022. Lastly, we continue to pursue our commitment to sustainability and alternative energy with ETA. Our new business division formed earlier this year. In addition to installing new EV passenger vehicle charging stations at several West Coast locations, we are very carefully evaluating rollout plans for passenger duty EV based on a careful understanding of federal and state financial incentives to encourage passenger duty EV. On the commercial duty and truck side, we are continuing to engage and develop collaborative relationships, and various forms of sustainable energy as we stay close to our fleet customers' plans as well as government incentives. We've been successful recipients on multiple grant programs and are actively pursuing more. Over the next year, we plan to significantly expand our sustainability programs across the organization with a specific focus on reducing our carbon footprint. We also expect to issue our first-ever sustainability report in 2022, outlining our achievements to date, the investments we are making, and our longer-term goals. To conclude, I am proud of the strong positive results our team generated in this quarter. The strength and resilience of these results is evidence that the team in place can continue to effectively transform this great, half-century-old company, and that the operating initiatives we have put in place under our transformation plan are working. This team has proven during rain and shine that it can prudently navigate whatever challenges come along and produce results that have elevated TA to a new normal as we approach our 50th anniversary next year in 2022. I would like to end my remarks, as always, by offering gratitude to our teammates and colleagues around the country for their hard work and dedication, as well as the professional drivers and fleet managers for allowing TA to serve them. I also want to express my gratitude to our guests, franchisees, and stockholders for supporting TA. And with that, I'll hand the call over to Peter to discuss the quarter's financial results in detail. Peter?