TravelCenters of America Inc.

Good morning, and welcome to Travel Centers of America Second Quarter 2022 Investor Call. 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, 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, August 2nd, 2022. 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, and adjusted EBITDA. The reconciliations of these non-GAAP measures to the most comparable GAAP amounts are available in our earnings press release that can be found in the news section 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 regarding the second quarter of 2022 as compared to the second quarter of 2021 unless stated otherwise. 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 to everyone, and thank you for your continuing interest in TA. strength, resilience, consistency, the ability to optimize opportunity and outperformance. My 18,000 teammates at Travel Centers of America have increasingly demonstrated these qualities in recent years, and the benefits of their efforts were fully on display in the outstanding second quarter results we reported yesterday. I believe the TA's performance and execution during what has been a challenging and dynamic past 30 months provides the best evidence that these results are sustainable and repeatable moving forward. For the second quarter of 2022, as compared to the prior year quarter, TA produced the following. A 117% improvement in adjusted net income to $64.4 million. A 67% improvement in adjusted EBITDA to $122.8 million. a 56% increase in trailing 12-month adjusted EBITDA to nearly $300 million versus the prior year period. In short, healthy top-line growth translated into even greater operating leverage, generating significant increases in income and operating cash flow. Remember that our Q2 2021 growth over Q2 2020 results were significant, which makes this quarter's outcome even more impressive against a difficult comp. So once again, TA demonstrated multi-year improvements that are both consistent and extraordinary. I want to draw attention to TA's multi-year financial improvement. TA's 2019 adjusted EBITDA was $131 million. In 2020, our newly combined team generated an adjusted EBITDA of $147 million, despite facing the adverse effects of COVID. In 2021, we broke the $200 million mark with $220.2 million of adjusted EBITDA. And now we have generated just under $300 million of trailing 12-month adjusted EBITDA. These results demonstrate consistency, resilience, growth and significant value creation. While much of this upside this quarter resulted from fuel margin, strength can be found across our businesses. Most obviously within fuel margin, TA's fuel team has intensively refined the supply management process, enabling the team to leverage a favorably volatile period to efficiently maximize diesel margins, which led to strong results. I would underscore that this was not merely favorable market forces, but circumstances combined with excellent team performance and execution. Starting with the commercial division, margin expansion was driven in large part by strong truck service performance with substantial growth coming from our mobile maintenance business, solidly outpacing any inflationary impact. and many initiatives relating to technician compensation and retention, improving tech efficiency, and leveraging technology to improve the professional driver experience remain in front of us with value yet to be harvested. Shifting to hospitality, we have been largely successful in thoughtfully increasing prices to offset labor and operating cost pressures. Excuse me. Here, too, many initiatives have just gotten underway, including, for example, TA's customer loyalty program, improving food operations, and merchandising efficiency through leveraging technology, with impacts that have not yet begun to take hold. Moreover, we are carefully working on our various food and C-Store offerings to continue to find ways to improve top-line as well as bottom-line efficiencies. Non-fuel revenues were again strengthened by demand for diesel exhaust fluid or DEF. We remain on track to have DEF dispensers on the diesel fuel island at all TA Petros nationwide by the end of this year. Importantly, I also wanted to touch on the resiliency of TA's business model. While volatility and uncertainty have created challenges for our national economy, as well as for the consumer motorist side of our business, with inflation and wage compression impacting discretionary spending at the sea stores and on food, these same uncertainties and volatility are also creating the favorable fuel market conditions from which our team has been successful at generating diesel margin upside. Herein lies the resiliency of TA's business model. And on this point of resilience, I do want to offer my outlook for the remainder of 2022. My belief is that we can reasonably expect persistent volatility to remain at least through the end of 2022, led by the war in Ukraine, continuing supply constraints, persistent inflation, and GDP contraction. While we expect this volatility to continue to modestly suppress gasoline volumes and hospitality, we also expect to benefit from favorable diesel margin conditions that we saw in Q2. With continued excellent execution by our fuel team, we should expect TA's fuel margins to remain robust and mitigate macroeconomic-driven softness in other areas, which in turn should provide continuing solid overall performance. We are not increasing our long-term fuel CPG guidance. However, we are clearly signaling a strong likelihood that higher than typical fuel margins should persist through the remainder of this year. In addition, we are not content to rest on our existing performance and momentum. We continue to pursue transformational initiatives in fuel, including expanding TA's new small fleet program and the development of artificial intelligence to support diesel street pricing, among other initiatives. We expect these activities will begin to contribute new and higher margin volumes by the end of 2022 and also may contribute more non-fuel retail and hospitality sales. Moving to growth initiatives, our robust acquisition pipeline totaling five highly probable opportunities and more than 25 locations under serious consideration positions us to add independent sites along active corridors to strengthen the TA network's geographic coverage. Also, I am happy to report that the first two acquisitions we closed in April are significantly outperforming our pro forma EBITDA return expectations of a minimum mid-teens return on investment, largely due to synergies. Acquisitions will provide substantial incremental run rate EBITDA next year and beyond. Furthermore, since the beginning of 2022, we have entered into 50 travel center franchise agreements. Five of these franchise sites began operations during 2020, two during 2021, and one during the second quarter of 2022. We expect to open the balance of these 40-plus travel centers between now and the third quarter of 2024 and have a go-forward target of opening 30 annually. These will begin to contribute meaningful incremental EBITDA starting at the end of 2022 and into 2023. Looking ahead, we are making capital allocation decisions to achieve the best returns and continue to anticipate our non-acquisition capital spend in 2022 to be between $175 and $200 million. Beyond baseline amounts for standard break-fix capital, These expenditures focus heavily on growth opportunities and important remedial expenditures with the primary focus on customer facing and customer impacting opportunities and investments that generate efficiencies. Key areas include the physical plant of our locations and IT systems. In addition, I would like to share a couple of points about our capital allocation philosophy as follows. First, we do not expect money spent to yield a one-and-done performance, but rather contribute a cumulative effect from the many improvements we have made that should clearly demonstrate greater earnings capacity over time. Second, even when considering our ongoing capital needs, we continue to generate substantial amounts of cash flow, which provides significant firepower to drive growth and generate shareholder value. Third, Despite our resilient business model, as I discussed earlier, we believe that maintaining a liquid and robust balance sheet is the important foundation for any deep value growth company. Moving beyond capital allocation, we have spent substantial time in recent years reshaping the profile and prospects of Travel Centers of America. Having achieved strong operating and financial results over the past few years, we are now committed to closing our valuation gap to reflect our greatly improved company. Our current enterprise value in no way reflects the robust earnings and cash flow capacity of TA. We will expand on this message and make the case for a higher valuation during our investor day on September 20th in New York City. Before I turn things over to Peter, I would like to take a moment to share important non-financial achievements and recognition that demonstrate TA's commitment to leadership and excellence. In recent months, TA has been awarded the following. One, return to the Fortune 500 number 461. Two, been named by Crain's as a top workplace for large companies in Northeast Ohio. Three, been selected by USA Today as a top 10 best gas station brand nationwide. Also looking forward, TA is excited about the following, ringing the closing bell at NASDAQ on September 19th, hosting a targeted investor day September 20th at NASDAQ, where we will showcase the depth of our management team and highlight TA's value proposition in tangible ways, and releasing our first ever ESG report in the next month. We have worked hard at transforming this great 50 year old company over the past few years. I think our Q2 results show we are now graduating to a reliable, durable, and resilient company that consistently executes and strongly warrants consideration from deep value to growth oriented investors. Finally, and as always, I would like to end with an expression of gratitude to our teammates, guests, customers, analysts, and shareholders. Thank you all for your continuing commitment to TA Petro. And with that, I will hand over the call to Peter Crage, our CFO. Peter?