TravelCenters of America Inc.

Good morning, and welcome to Travel Centers of America's first quarter 2022 financial results. This call is being recorded. At this time, for opening remarks and introductions, I would like to introduce Travel Centers of America'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, 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, May 3, 2022. Forward-looking statements and their implications are not guaranteed to occur and they may not occur. TAA 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 and adjusted EBITDA. The reconciliation of these non-GAAP measures to the most comparable GAAP amounts are available in our press release. The financial and operating measures implied and or stated on today's call, as well as any qualitative comments regarding the performance, should be assumed to be in regard to the first quarter of 2022 as compared to the first quarter of 2021 unless otherwise stated. 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, and thank you for your continuing interest in TA. I'm extremely proud of TA's broader team as we report once again a very strong first quarter. And while some market conditions supported these results, other market conditions created significant challenges, and so across the board, our team maximized opportunities in both positive and challenging market circumstances to create overall excellent financial results for the quarter. In other words, our people continue to prove, as we have for over two years, of the most extraordinarily dynamic times that whatever comes our way, we can execute with great effect. In addition to our people, this quarter also continues to demonstrate the fundamental durability and resilience of TA's business model, as well as our ability to drive growth while enhancing profitability. In short, as we work our way through our 50th anniversary year, TA's great people, reliable business model, and overarching focus on investing and growth overcame accelerating inflationary pressures and ongoing labor and supply chain challenges, albeit buoyed by favorable fuel margin conditions. Now to the results. For the 2022 first quarter, compared to the prior year quarter, we produced the following. Adjusted net income of $15.2 million, which is an improvement of over 380%. Adjusted EBITDA of $55.4 million, a 94% improvement. and adjusted EBITDA of $247 million for the trailing 12-month period, a 53% increase versus the prior year period. Also, I want to remind everyone that these results are on top of the prior year 2021 growth over 2020 growth. That was very significant. So once again, TA is demonstrating multi-year improvements that are extraordinary. Component parts of the overall business contributed in varying degrees to this financial improvement for the quarter. However, the biggest contributor was strong fuel margins, while we also increased non-fuel gross margin by 7.1% versus the prior year quarter, and by 11.2% versus the comparable trailing 12 period ended March 31, 2021. The first quarter required intensive focus on monitoring inflationary forces and carefully passing through cost increases. managing labor pressures and gaps in operating hours, and sourcing products to ensure shelves remain full, while continuing to carry out our broad-based transformational initiatives across all parts of the business and ramping up execution on our capital plan. With CPI breaching 8% in March versus prior year and PPI breaching 11% for the same period, these challenges were very real, and some relative margin compression was experienced. However, the impact was within expected levels. Also, some cost increases were realized during the quarter as planned, resulting from our commitment to investing in growth. In the first instance, this includes investing in programs and people to grow top line. For example, TA has invested in launching a robust small fleet program, which includes the program development itself, as well as adding numerous salespeople and increasing marketing spend in advance of generating the first new sales or benefiting from new revenue. Another example during the first quarter, TA invested significantly in developing a comprehensive new customer loyalty program and separately in machine learning and artificial intelligence to support diesel fuel pricing decisions. These are illustrative examples of a much larger list of investments in growth that TA is making today that will impact top-line growth in the future quarters. Excuse me. More generally, TA continues to invest in upgrades in talent and people, as well as in training and excellence. The good news here is that recent investments will bear future fruit, which we expect will continue to create a tailwind as we go forward. In addition, TA's investing and growth includes capital deployment into site refreshes, acquiring existing travel centers, engaging in greenfield development, and growing our franchise footprint, leading to an overall capital plan execution that is accelerating. To that end, we closed on acquisitions in April, totaling in excess of $50 million for two high-performing travel centers and a strategically located truck service facility. We are currently evaluating additional acquisitions in our pipeline, which stands at approximately $130 million, with more announcements to come in the near future. While network expansion is a key pillar of investing and growth, we are disposing of TA's only non-US site located in Canada, given its underperformance and lack of strategic fit in our otherwise all-US network at very favorable economics. We are also developing two new ground-up travel centers on TA-owned land, which we expect will open by the end of 2022, as well as looking for potential opportunities to acquire excellent sites along great active corridors where our network currently has gaps. We not only remain focused on expanding our network through acquisitions, but also through our blossoming franchise program. Since the beginning of 2020, TA has entered into franchise agreements covering 49 travel centers, five of which began operations during 2022 and two during 2021, with the balance expected to open by the second quarter of 2024 as we continue to as we continue toward our sustained target of 30 per year. Another key pillar of investing in growth is our site refresh program, which was launched last fall. With a broad spectrum of updates designed to improve the guest experience, we have completed half of the approximately 100 planned refreshes and expect to complete the remainder by early 2023. Overall, I remain confident in our robust capital and growth plans, and the positive impact they will have on our already established and resilient financial performance. TA is focused on choke points caused by supply chain disruptions that adversely impacted our pace of capital deployment in 2021 to assure capital can be deployed as planned in 2022. And thus far, we are on pace with our planned $175 million to $200 million target for 2022 CapEx spend. Now turning to our operational results for the quarter. Overall fuel sales volume increased 2.1% compared to the prior year quarter, driven by a 2.7% increase in diesel fuel sales volume, and offset by a 3.2% decline in gas sales volume. This decrease was partially driven by higher retail prices, particularly in March, during a period of the year when both fuel and non-fuel volumes are typically at relatively lower levels. Our fuel gross margin increased 45.8% versus the prior year quarter, driven mostly by increases in fuel margin CPG. The fuel team continues to improve its processes and execution, and during this period of unusual volatility, have executed with excellence in utilizing purchasing optionality to take advantage of regional pricing dislocations and market conditions that cause prices to rise and fall quickly. These conditions and this execution led to unusually strong fuel gross margins. While market conditions have remained volatile in April, volatility has somewhat abated from the extraordinary March levels, and we continue to experience very solid fuel gross margins. Despite these results, we are maintaining our guidance for stable state CPG of 15 to 17 cents for blended fuel gross margin per gallon, and we'll continue to evaluate and reevaluate over time. Lastly, staying on fuel, we are particularly excited about the future impact that artificial intelligence and machine learning will have on diesel pricing, as well as our brand new small fleet program and its potential impact on both volume and fuel margin as we approach the back half of 2022. Beta testing and early results have been very encouraging. We expect these tailwinds to help mitigate any adverse impact that macroeconomic forces like inflation, and supply chain disruption may present in 2022. On the non-fuel side of the business, store and retail services revenues increased by over 4.5% for the quarter versus 2021. Although our industry is experiencing a challenging purchasing and inflationary cost environment, we have focused on pricing to balance these forces. 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 offering to our customers' actual needs. We also expect to offer a comprehensively revised loyalty program designed around our customer segmentation work by year end. A combination of inflationary forces, wage pressures, and intentional investing in growth have offset top line increases on the non-fuel side. And while we do not see inflationary forces going away, nor our continuing investing in growth, we are excited that transformational initiatives will continue to germinate and manifest increasing value and otherwise provide TA the opportunity to relatively benefit versus others. Truck service revenue showed a solid improvement with a 10.1% increase versus 2021, driven in part by price adjustments and higher value work orders. Technician staffing remains an important area of focus, with compensation and training targeted to improve tech efficiency and retention. While we have added technician hours to the schedule to ensure timely service, we have also seen labor costs and margin pressures. We are actively addressing these through pricing actions, not inconsistent with competitor and market expectations. Restaurant revenues increased 60 basis points versus prior year, as revenues at our full-service restaurants were boosted by inflation-driven price increases and the reopening of more locations with approximately 19 more FSRs open versus prior year. The revenue increase at our FSRs was offset by a small decrease in quick service restaurant revenues due to persistent staffing shortages that negatively impacted QSR operating capacity. Staffing shortages continue to be a unique challenge across the food side of the business which we are mitigating through streamlining menus and competitive compensation programs. Our full-service restaurants remain an important differentiator, as well as another area of significant opportunity for improved financial performance. We have opened three of the five IHOP conversions underway and expect to open the other two by the end of this quarter, with a target of 20 IHOPs in total. We are also close to formally introducing a new proprietary restaurant concept designed around a studied understanding of our customers' needs and look forward to further announcements in the coming months. 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 6.5% versus the 2021 first quarter, boosted by increased availability across our network. As part of the capital plan, we are now offering DEF from dispensers on the diesel-fueling islands at almost all of our locations and expect to have them available in all lanes and all TA Petros nationwide by the end of 2022. As pre-2011 trucks are retired each year, we expect that the demand for DEF will continue to grow. Shifting, we continue to build on our commitment to sustainability and alternative energy with the dedicated business division formed last year at ETA. In addition to installing new EV passenger vehicle charging stations at several West Coast locations, we are very carefully preparing more comprehensive rollout plans for passenger-duty EV eventually across the country, particularly where federal and state financial incentives are being made available. We are also developing the most powerful publicly accessible microgrid in the United States at an existing travel center in California, with an offsetting California Energy Commission grant. The Infrastructure Act passed in November earmarked $7.5 billion of federal funds specifically targeted for installation of EV fast chargers to be distributed through the states and for which we are making plans to access to the fullest extent possible to defray and subsidize total capital costs. Finally, TA is well on its way to developing a robust environmental, social, governance, or ESG framework and policy. We are pleased to be recognized for our sustainability efforts recently with a 2022 Leadership in Greener Purchasing Award from Office Depot based on TA's high levels of green spend when purchasing office supplies compared to others in the industry. Also, we remain proud of our continuing leadership in supporting both Truckers Against Trafficking and St. Christopher's Driver Relief Fund, as well as our recent support and developing partnership with SOTF, or Special Operators Transition Foundation, a group that helps retiring Special Forces vets prepare to transfer their skills to the private sector. Finally, we expect to issue our first-ever sustainability report later this year, outlining achievements to date, planned and ongoing initiatives, and longer-term goals. We are excited to share this report during the back half of this year. I also wanted to mention that we are planning to host our first Analyst and Investor Day in September which will allow market participants to get to know the broader TA team, and we'll have more details on that to share in the coming months. So to conclude, from porters cleaning showers to administrative teammates supporting executives and everyone in between, our 18,000-plus colleagues have once again proven TA Petro's ability to optimize and operate within highly dynamic circumstances to create significant shareholder value. This is what binds us, and I'm proud of the strong, positive results our team has generated in the first quarter. The transformation plan has delivered improving results, and as we focus on 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 generate shareholder value despite a challenging supply chain, inflationary, and labor environment. 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, franchisees, and dedicated stockholders for continuing to support TA. I'm pleased with the exceptional progress that our team has made and excited about the opportunities to improve and drive long-term shareholder value that are still in front of us. And with that, I'll hand the call over to Peter to discuss the quarter's financial results in detail. Peter?