TravelCenters of America Inc.

Good morning and welcome to the Travel Centers of America's 4th Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I'd now like to turn the conference over to Kristen Brown, Director of Investor Relations. Please go ahead.

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 Krage, and President Barry Richards for our analyst Q&A. Today's conference call contains forward-looking statements within the meanings 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 23, 2022. Forward-looking statements and their implications are not guaranteed to occur and 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 on 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, and adjusted EBITDAR. These reconciliations of 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 fourth quarter of 2021 as compared to the fourth 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 continuing interest in TA. Our strong, consistent, and durable performance continued in the fourth quarter and further demonstrates the fundamental quality and resilience of TA's business model, as well as our ability to drive growth while enhancing profitability. We achieved these results despite ongoing COVID-related labor challenges and inflationary pressures due to our focus on operational improvements as well as pricing and labor efficiency opportunities. We believe we have positioned the company well as we enter into our 50th anniversary year, with all businesses contributing to our bottom line financial improvement and reflecting the quality of the multiple revenue streams, the strength of improved leadership, and the consistency of execution through two years of the most extraordinary and challenging external economic circumstances. Now to the results for the fourth quarter 2021 compared to the prior year quarter, we produced the following. Adjusted net income of $13.2 million, an improvement of over 800%. Adjusted EBITDA of $52.9 million, a 48% improvement. And adjusted EBITDA of $117.1 million, which is an 18% improvement. 2021 fourth quarter results also represent notable improvement relative to the pre-COVID 2019 fourth quarter, with adjusted EBITDA up by $24 million, or 83%, over that pre-COVID 2019 fourth quarter. Additionally, I would note that we recorded strong fuel margin results this quarter, and I am particularly proud of the improvement in our non-fuel gross margin, which increased 8% versus the prior year quarter and 7% over the 2019 quarter. And for the full year 2021, was up 11% and 4% versus 2020 and 2019, respectively. What excites me the most is that we have continued to see the component parts of the business contributing in varying degrees to our overall financial improvement, producing full-year 2021 adjusted EBITDA of nearly $220 million, the highest in the company's history. I say this with enthusiasm. Despite the continuing effects of the pandemic, including the impact of inflation on input costs, labor pressures, and supply chain disruption, as well as the fact that our robust capital plan had barely begun to have been deployed. We have much to look forward to in terms of the continued harvesting of operational improvement opportunities, as well as the impact of the growth capex that is underway as our transformation plan shifts gears from organizational discipline to investing in top-line growth. TA was successful in the fourth quarter at monitoring inflationary forces and carefully passing through cost increases, efficiently managing labor pressures and gaps in operating hours, sourcing products to ensure shelves remain full, and beginning to invest in growth through IT improvements, a comprehensive site refresh program, ramping up franchising pace, and developing a strong and growing pipeline of travel center acquisition opportunities. These same priorities remain as we enter 2022. I want to talk a little bit about investing in growth. First, our capital plan deployment is beginning to accelerate, which is important as we continue to maintain substantial liquidity that we understand comes at a cost. To that end, we currently have a purchase agreement in place to acquire two existing franchise locations for approximately $45 million which we expect to close in late March, subject to customary closing conditions. This acquisition is important to TA as it adds a flagship location to our company-owned sites, as this is an iconic location and will be the largest travel center in the United States based on number of truck parking spaces once current construction is completed. Financially, we are confident this transaction and these sites will exceed our minimum return thresholds. We also have a purchase agreement in place to acquire a small truck service facility, which is expected to close in late March. This strategically located acquisition will allow us to better serve our key customers in one of our highest growth business segments, mobile maintenance. We are also developing two new ground-up travel centers on land TA had previously owned, which we expect will open by the end of 2022. And we have 15 to 20 potential acquisition sites totaling approximately $150 million, moving through the later phases of consideration. Another area of investing in growth is through our franchise program. TA signed 26 new franchise locations in 2021 and a total of 59 new franchise agreements since the beginning of 2019. And we have opened 19 new franchise locations during the same period. We anticipate 40 new franchises will open and begin operations by the second quarter of 2024 as we continue toward our sustained target of 30 per year. Investing in growth also includes our robust site refresh program, which was launched this past October with the reopening of Seymour, Indiana, the first of more than 100 planned refreshes to be completed no later than early next year. Seymour represents our top-level platinum refresh level and showcases many of the new design concepts that are being rolled out amongst many of the other 100 refreshes. Updates include 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 new store flow. We expect to complete the first 50 refreshes by the end of March. Finally, investing in growth also includes upgrades and key additions in talent and people, expanding our digital and traditional marketing and sales efforts, and investing in various operational initiatives as well as IT and systems improvements. All of these investments and improvements are designed around improving our guest experience based on a more examined understanding of their needs and intended to drive efficiency and financial performance. Overall, I remain confident in our robust capital plan and the positive impact it will have on our already established and resilient financial performance. In 2021, pace of our capital deployment was adversely impacted by supply chain disruption. TA has focused on choke points and is taking steps to assure capital can be deployed as planned in 2022, and thus far the pace has increased. Peter will discuss some of last year's challenges in his remarks. Turning now to our operational results for the quarter, overall fuel sales volume increased 3.8% compared to the prior year quarter, and 16% versus the 2019 fourth quarter, driven by a 3.7% 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. Our fuel gross margin increased 37.4% versus the prior year quarter, driven by a 32.2% increase in fuel margin CPG. We have dedicated tremendous energy and focus to driving stable and strong diesel margin, while positioning ourselves with purchasing optionality to take advantage of regional pricing dislocations. In December, certain markets in the Southwest and parts of the Midwest experienced major spikes in local diesel markets due to supply shortages that caused dislocation between our purchasing and selling indices. Improved management allowed TA to capitalize on this opportunity, and roughly 25 locations drove much of the upside in our diesel margin for Q4. Staying on diesel, we have begun the beta testing phase of using artificial intelligence and machine learning to support diesel pricing and supply decision making. Also importantly, we're about to introduce a competitive small fleet offering by mid-year, which should be particularly impactful. Gasoline sales volume increased 4.6% versus the prior year quarter, but still was about 10% below the 2019 pre-COVID fourth quarter and represents another area of additional potential upside. On the non-fuel side of the business, store and retail services revenues increased by over 9% for the quarter versus 2020 and over 16% versus 2019. Although our industry is experiencing a challenging purchasing and inflationary cost environment, we have focused on pricing to balance 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 and more meaningful product placements. I'm also very excited that we expect by year end to offer a comprehensively revised loyalty program designed around our customer segmentation work. Truck service revenue showed a solid improvement with a 9.2% increase versus 2020, and an 18.6% increase versus 2019, driven in part by an increase in average work orders. Technician staffing and retention remain important areas of focus, with compensation and training central targets to driving continued improvement in tech efficiency and driver wait times and reducing turnover. While we have added technician hours to the schedule to ensure timely service, we've also seen labor costs and margin pressures. We're actively addressing these through pricing actions, not inconsistent with competitors and market expectations. On the full-service restaurant side, we have worked to rationalize reopened locations 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 to balance rising wages. We have opened three of the five IHOP conversions that are underway, expect to open the other two by the end of this quarter, and continue to make plans toward opening a total of 20 IHOPs. In addition, we are deep into the work of developing other concepts designed around scrutinizing 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% of times in 2020, and the recognition that this business is an important differentiator, this remains one of our highest areas of opportunity for improved financial performance. Non-fuel revenues also continue to benefit from strong demand for diesel exhaust fluid, or DEF, which is required by newer trucks. DEF volume increased by 5% versus the 2020 fourth quarter, and 23.9% versus the 2019 fourth quarter. As pre-2011 trucks are retired each year, we expect that the demand for DEF will continue to grow. As part of the capital plan, we are now offering DEF from dispensers on the diesel fueling island at approximately 265 of our travel centers and expect to have them available in all lanes at all TA Petros nationwide by the end of 2022. Lastly, we continue to double down on our commitment to sustainability and alternative energy with the dedicated business division formed last year, ETA. In addition to installing new EV passenger vehicle charging stations at several West Coast locations, we're very carefully preparing more comprehensive rollout plans for passenger duty EV across the country, particularly where federal and state financial incentives are being made available. The recent announcement of the Infrastructure Act passed in November has earmarked $7.5 billion of federal funds specifically targeted for installation of EV fast chargers. which will provide as much as 80% of the project cost per site. On the commercial duty and truck side of ETA, we continue to develop collaborative relationships to deliver various forms of sustainable energy as we stay close to our fleet customers' plans as well as government incentives. We've been awarded grants from multiple programs and are actively pursuing more. In addition, we are currently evaluating and expanding our sustainability programs across the organization where we see gaps as part of the development of an ESG reporting framework. We also expect to issue our first-ever sustainability report later this year outlining achievements to date, planned and ongoing investments, and longer-term goals. To conclude, I am proud of the strong positive results our team generated in the fourth quarter and for the year. On behalf of the entire TA family, we have proven that this 50-year-old American institution is strong, resilient, and consistent as we now report in our 24th month of transformative and demonstrably stable continuing improvement. Through thick and thin, we have proven to ourselves that we can unlock and release the inherent value of this great company. The transformation plan has worked and is working, and as the plan shifts gears toward investing in top-line growth Through acquisition, development, franchise, site refresh, IT improvements, and in our people, we remain confident in our ability to continue to improve and execute despite ongoing supply chain, inflationary, and labor challenges. As we celebrate our half century of history, the team not only recognizes its obligation to shareholders to create long-term value, in addition, we sense an obligation to continually improve on behalf of all those who came before us at TA. In closing, I offer gratitude to our teammates and colleagues around the country for their hard work and dedication, as well as to professional drivers and fleet managers for allowing TA to serve you. I also offer gratitude to our guests, our franchisees, and stockholders for continuing to support TA. I am pleased with the exceptional value and progress that our team has delivered over the past 24 months And as we transition into a new phase of our overall transformation plan of investing in growth, I am most excited that we're still only in the early innings of our transformation. And with that, I will hand the call over to Peter to discuss the quarter's financial results in detail. Peter.