TravelCenters of America Inc. Announces Third Quarter 2019 Financial Results

Third Quarter Income From Continuing Operations Increased 17.8%;

Fuel Sales Volume Increased 4.3%;

TA Enters IHOP Agreement to Rebrand 94 Restaurants to IHOP Brand

WESTLAKE, Ohio–(BUSINESS WIRE)–TravelCenters of America Inc. (Nasdaq: TA) today announced financial results for the three and nine months ended September 30, 2019.

Andrew J. Rebholz, TA’s CEO, made the following statement regarding the 2019 third quarter results:

“Our third quarter operating results reflect continued growth in our business. As compared to the prior year quarter, we posted increases in both total and same site fuel sales volume, both total and same site nonfuel revenues, income from continuing operations and net income (loss), and we also increased our EBITDA. The growth in site level operating expense was largely in line with, and due to, our increased level of nonfuel sales other than for certain increases in maintenance, insurance and property tax expenses. Our selling, general and administrative expense for the 2019 third quarter was largely flat sequentially. We believe our strategy is working, although freight market headwinds somewhat tempered the growth in our business.

“Net income for the third quarter of $1.9 million was a $72.4 million improvement over the prior year third quarter, which included a $72.1 million loss from discontinued operations, net of taxes; discontinued operations aside, we increased income from continuing operations by 17.8% and EBITDA by 1.7% over the prior year third quarter.

“We continued to expand our travel center network during the third quarter, signing franchise agreements for three additional travel centers, bringing the total for 2019 to 10, of which three have started operations under our brands thus far. We have a number of additional potential franchise locations in the pipeline and expect to acquire one operating travel center business and one development parcel of land in the next few months.

“Also, I am pleased to note that we continue to accelerate our restaurant rebranding program pursuant to the franchise development agreement we recently entered with IHOP to rebrand and convert up to 94 of the restaurants at our travel centers to IHOP over the next five years. I believe the introduction of this brand to our travel centers will earn a 20% return on our investment, due in part to increased gasoline sales volume and additional store sales from the anticipated increase in customers visiting our sites.

“The strategy we adopted in May 2018 to refocus our efforts on our core travel center operations, to grow that business and reduce our financial leverage has been successful to date and we expect to continue to pursue this strategy.”

The following table summarizes TA’s financial results for the three and nine months ended September 30, 2019 and 2018.

⁽¹⁾ Income (loss) per share of common stock from continuing operations attributable to common stockholders has been retrospectively adjusted to reflect the reverse stock split of TA’s outstanding shares of common stock effective August 1, 2019.

The following table summarizes TA’s non-GAAP financial measures for the three and nine months ended September 30, 2019 and 2018.

⁽¹⁾ Reconciliations from income (loss) from continuing operations, income (loss) per share of common stock from continuing operations attributable to common stockholders and net income (loss), as applicable, the financial measures determined in accordance with U.S. generally accepted accounting principles, or GAAP, to the non-GAAP measures disclosed herein are included in the supplemental tables below.

⁽²⁾ Adjusted income (loss) per share of common stock from continuing operations attributable to common stockholders has been retrospectively adjusted to reflect the reverse stock split of TA’s outstanding shares of common stock effective August 1, 2019.

Financial Results Commentary

Fuel Sales Volume and Gross Margin. Fuel sales volume for the 2019 third quarter increased by 21.2 million gallons, or 4.3%, as compared to the 2018 third quarter due to the following factors:

• a same site fuel sales volume increase of 18.7 million gallons, or 3.9%, which primarily resulted from improved market conditions and the success of TA’s marketing initiatives; and
• an increase of 2.5 million gallons at sites opened since the beginning of the 2018 third quarter.

Fuel revenues for the 2019 third quarter decreased by $98.2 million, or 8.4%, as compared to the 2018 third quarter primarily due to a decrease in market prices for fuel during the 2019 third quarter, which was partially offset by the increase in fuel sales volume.

Fuel gross margin for the 2019 third quarter increased by $2.6 million, or 3.4%, as compared to the 2018 third quarter. Diesel fuel gross margin was essentially flat for the 2019 third quarter as compared to the 2018 third quarter due to a slightly lower diesel fuel gross margin per gallon, which was largely offset by a 5.6% increase in diesel fuel sales volume. The decline in diesel fuel gross margin per gallon primarily was due to the higher cost associated with increased rewards under TA’s new loyalty program to incentivize drivers to purchase higher fuel volumes and a reduced benefit realized from biodiesel blending. Gasoline gross margin increased for the 2019 third quarter as compared to the 2018 third quarter primarily as a result of TA managing sales pricing to balance sales volume and profitability.

The following table presents details for TA’s fuel sales during the 2019 third quarter as compared to the 2018 third quarter.

Although the U.S. government to date has not retroactively reinstated the federal biodiesel blenders’ tax credit for 2018 or 2019, TA believes the U.S. government may do so before the end of 2019. If the federal biodiesel blenders’ tax credit is reinstated for 2018 and 2019, TA expects to recognize reductions in fuel cost of goods sold of approximately $35.0 million relating to 2018 and $28.9 million relating to the nine months ended September 30, 2019, in the period the U.S. government enacts the tax credit reinstatement. While TA would recognize a benefit to its fuel cost of goods sold in the period the related legislation is enacted, it typically has taken TA approximately six to eight months to collect the related cash refunds. Although TA believes reinstatement of this credit is possible, TA cannot be certain that the U.S. government will choose to do so. TA has not recognized any amount of the expected federal biodiesel blenders’ tax credit for 2018 or 2019.

Nonfuel Revenues and Gross Margin. Nonfuel revenues for the 2019 third quarter increased by $9.5 million, or 2.0%, as compared to the 2018 third quarter due to the following factors:

• an $8.8 million same site increase primarily due to an increase in diesel exhaust fluid sales as a result of newer trucks on the road, and the positive impact of certain of TA’s pricing and marketing initiatives. These increases were partially offset by the impact of the planned closure and remodeling of certain full service restaurants; and

• a $0.7 million net increase at sites opened or closed since the beginning of the 2018 third quarter.

Nonfuel gross margin for the 2019 third quarter increased by $4.4 million, or 1.5%, as compared to the 2018 third quarter due to the following factors:

• the $9.5 million increase in nonfuel revenues; and
• a partially offsetting slight decline in the nonfuel gross margin percentage that primarily resulted from a change in the mix of products and services sold.

The following table presents details for TA’s nonfuel revenues during the 2019 third quarter as compared to the 2018 third quarter.

Rent and Royalties from Franchisees. Rent and royalties from franchisees revenues for the 2019 third quarter declined by $0.1 million, or 3.6%, as compared to the 2018 third quarter primarily due to the following factors:

• a $0.3 million decline from rent and royalties earned in the 2018 third quarter from two travel centers TA owns and now operates that had been leased to franchisees until September and November 2018;

• a $0.1 million decline from Quaker Steak & Lube, or QSL, franchised restaurants for which the franchise agreements were terminated since the beginning of the 2018 third quarter; and

• a $0.1 million offsetting increase in royalties from travel centers or QSL restaurants added to TA’s network during 2019.

Expenses. Site level operating expense for the 2019 third quarter increased by $8.4 million, or 3.6%, as compared to the 2018 third quarter. New sites accounted for $1.3 million of this increase. On a same site basis, site level operating expense increased $7.1 million, primarily due to increased labor costs to support TA’s growth in nonfuel revenues, as well as higher maintenance, insurance and property tax expenses. Site level operating expense as a percentage of nonfuel revenues on a same site basis was 48.8% for the 2019 third quarter as compared to 48.2% for the 2018 third quarter. The increase in this percentage primarily reflects higher nonlabor costs such as maintenance, insurance and property taxes; the ratio of labor costs to nonfuel revenues on a same site basis was consistent between the 2019 and 2018 third quarters.

Selling, general and administrative expense for the 2019 third quarter increased by $4.7 million, or 13.2%, as compared to the 2018 third quarter primarily due to a $2.6 million increase in legal costs and increased compensation expense as a result of annual salary increases and increased headcount to support the growth in TA’s business.

Real estate rent expense for the 2019 third quarter decreased by $7.2 million, or 10.1%, as compared to the 2018 third quarter primarily as a result of TA’s purchase of 20 travel centers from Service Properties Trust (formerly known as Hospitality Properties Trust), or SVC, in January 2019, partially offset by increases that resulted from TA’s sales to, and lease back from, SVC of improvements at leased sites during 2018.

Depreciation and amortization expense for the 2019 third quarter increased by $3.7 million, or 18.3%, as compared to the 2018 third quarter primarily due to TA’s acquisition of 20 travel centers from SVC in January 2019.

Net Income (Loss) and Adjusted EBITDA. Net income (loss) for the 2019 third quarter improved by $72.4 million, as compared to the 2018 third quarter primarily due to a $72.1 million loss from discontinued operations, net of taxes, during the 2018 third quarter. Adjusted EBITDA for the 2019 third quarter increased by $0.5 million, as compared to the 2018 third quarter primarily as a result of the decrease in real estate rent expense due to the purchase of 20 travel centers from SVC in January 2019.

Growth Strategies

Thus far in 2019, TA has entered into franchise agreements covering 10 travel centers to be operated under TA’s travel center brand names; two of these franchised travel centers began operations under one of TA’s travel center brands during the nine months ended September 30, 2019, one started in the 2019 fourth quarter to date, and TA anticipates four franchised travel centers to begin by the end of 2019, with the remaining three franchised travel centers expected to be added to TA’s network by the end of the 2020 third quarter. In addition, TA has entered into an agreement with one of these franchisees pursuant to which TA expects to add two additional franchised travel centers to its network, one within five years and the other within 10 years.

TA currently has contracts in place for the purchase of an existing travel center business for $11.6 million (expected to close in January 2020) and for a parcel of land for $1.4 million (expected to close in November 2019) on which TA plans to develop a TA Express travel center for approximately $12.6 million.

Thus far in 2019, TA has entered into franchise agreements covering six restaurants to be operated under the QSL brand name; three of these franchised restaurants opened in the 2019 third quarter and TA anticipates the remaining three restaurants will be added to its network by the end of the 2020 first quarter.

On October 28, 2019, TA entered into a multi unit franchise agreement with International House of Pancakes, LLC, or IHOP, in which TA agreed to rebrand and convert up to 94 of its full service restaurants to IHOP restaurants over the next five years, or the IHOP Agreement. Of the 94, TA is obligated to convert the initial 20 full service restaurants to IHOP restaurants with the remaining conversions at its discretion. TA currently operates these full service restaurants under the Iron Skillet or Country Pride brand names. Pursuant to the IHOP Agreement, among other things, TA has agreed to rebrand 15 full service restaurants by the end of 2020, 20 full service restaurants in each of 2021, 2022 and 2023 and 19 full service restaurants in 2024. The average investment per site to rebrand these restaurants is expected to be approximately $1.1 million and TA anticipates a return on its investment of approximately 20%.

Concurrent with entering into the IHOP Agreement, TA entered into a Secured Advance Note with IHOP, or the IHOP Note, pursuant to which it can borrow up to $10.0 million in connection with the costs to convert its full service restaurants to IHOP restaurants.

Conference Call

On Tuesday, November 5, 2019, at 10:00 a.m. Eastern time, TA will host a conference call to discuss its financial results and other activities for the three months ended September 30, 2019. Following management’s remarks, there will be a question and answer period.

The conference call telephone number is 877-329-4614. Participants calling from outside the United States and Canada should dial 412-317-5437. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available for about a week after the call. To hear the replay, dial 412-317-0088. The replay pass code is 10134934.

A live audio webcast of the conference call will also be available in a listen only mode on TA’s website at www.ta-petro.com. To access the webcast, participants should visit TA’s website about five minutes before the call. The archived webcast will be available for replay on TA’s website for about one week after the call. The transcription, recording and retransmission in any way of TA’s third quarter conference call is strictly prohibited without the prior written consent of TA. The Company’s website is not incorporated as part of this press release.

About TravelCenters of America Inc.

TA’s nationwide business includes travel centers located in 44 U.S. states and in Canada, standalone truck service facilities located in two states and standalone restaurants located in 12 states. TA’s travel centers operate under the “TravelCenters of America,” “TA,” “TA Express,” “Petro Stopping Centers” and “Petro” brand names and offer diesel fuel and gasoline, restaurants, truck repair services, travel/convenience stores and other services designed to provide attractive and efficient travel experiences to professional drivers and other motorists. TA’s standalone truck service facilities operate under the “TA Truck Service” brand name. TA’s standalone restaurants operate principally under the “Quaker Steak & Lube” brand name.

⁽¹⁾ Net income (loss) per share of common stock attributable to common stockholders has been retrospectively adjusted to reflect the reverse stock split of TA’s outstanding shares of common stock effective August 1, 2019.

These financial statements should be read in conjunction with TA’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, to be filed with the U.S. Securities and Exchange Commission.

TRAVELCENTERS OF AMERICA INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, unless indicated otherwise)

TA believes the non-GAAP financial measures presented in the tables below are meaningful supplemental disclosures because they may help investors gain a better understanding of changes in TA’s operating results and its ability to pay rent or service debt when due, make capital expenditures and expand its business. These non-GAAP financial measures also may help investors to make comparisons between TA and other companies and to make comparisons of TA’s financial and operating results between periods.

TA believes that adjusted income (loss) from continuing operations, adjusted income (loss) per share of common stock from continuing operations attributable to common stockholders, EBITDA, adjusted EBITDA, adjusted fuel gross margin and adjusted fuel gross margin per gallon are meaningful disclosures that may help investors to better understand TA’s financial performance by providing financial information that represents the operating results of TA’s continuing operations without the effects of items that do not result directly from TA’s normal recurring operations and may allow investors to better compare TA’s performance between periods and to the performance of other companies. Management uses these measures in developing internal budgets and forecasts and analyzing TA’s performance. TA calculates EBITDA as net income (loss) before loss from discontinued operations, interest, taxes, and depreciation and amortization, as shown below. TA calculates adjusted EBITDA by excluding items that it considers not to be normal, recurring, cash operating expenses or gains or losses.

The non-GAAP financial measures TA presents should not be considered as alternatives to net income (loss) attributable to common stockholders, net income (loss), income (loss) from continuing operations, income from operations or income (loss) per share of common stock from continuing operations attributable to common stockholders as an indicator of TA’s operating performance or as a measure of TA’s liquidity. Also, the non-GAAP financial measures TA presents may not be comparable to similarly titled amounts calculated by other companies.

TA believes that income (loss) from continuing operations is the most directly comparable GAAP financial measure to adjusted income (loss) from continuing operations; income (loss) per share of common stock from continuing operations attributable to common stockholders is the most directly comparable GAAP financial measure to adjusted income (loss) per share of common stock from continuing operations attributable to common stockholders; net income (loss) is the most directly comparable GAAP financial measure to EBITDA and adjusted EBITDA; and that fuel gross margin and fuel gross margin per gallon are the most directly comparable GAAP financial measures to adjusted fuel gross margin and adjusted fuel gross margin per gallon, respectively. The following tables present the reconciliations of the non-GAAP financial measures to the respective most directly comparable GAAP financial measures for the three and nine months ended September 30, 2019 and 2018.

Contacts

Contact:

Kristin Brown, Director of Investor Relations

(617) 796-8251

www.ta-petro.com

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