TravelCenters of America Q2 2019 Financial Results

Second Quarter Fuel Sales Volume Increased 3.3% Fuel Gross Margin Increased 3.3%

TravelCenters of America Inc. (Nasdaq: TA) announced financial results for the three and six months ended June 30, 2019:

Andrew J. Rebholz, TA’s CEO, made the following statement regarding the 2019 second quarter results:”We believe that through the first six months of 2019 our strategy to refocus our efforts on our core travel center operations have been successful, including in the second quarter despite cooler, wetter temperatures that generally tempered demand for our truck service business. We have generated increases in both fuel sales volume and nonfuel revenues on both a consolidated and same site basis, and the modest growth in our site level operating expenses and adjusted selling, general and administrative expenses are in line with expectations given our future growth plans.

“Net income for the second quarter of $1.2 million was a $35.1 million improvement over the prior year second quarter, which included a $42.6 million loss from discontinued operations, net of taxes and a net $8.8 million pre-tax benefit from certain unusual items. Adjusted EBITDA for the second quarter was a $1.7 million, or 5.9%, improvement over the prior year.

“Also, we were successful in expanding our travel center network during the second quarter, signing franchise agreements for five additional travel centers. We have a number of additional potential franchise locations in the pipeline and expect to acquire one operating travel center and two development parcels before the end of this year.”

Fuel sales volume for the 2019 second quarter increased by 15.9 million gallons, or 3.3%, as compared to the 2018 second quarter, due to the following factors:

• a same site fuel sales volume increase of 11.9 million gallons, or 2.5%, which primarily resulted from improved market conditions and the success of TA’s marketing initiatives; and
• a net increase of 4.0 million gallons at sites opened or closed since the beginning of the 2018 second quarter.

Fuel revenues decreased by $31.8 million, or 2.8%, in the 2019 second quarter as compared to the 2018 second quarter, primarily due to a decrease in market prices for fuel during the 2019 second quarter, which was partially offset by the increase in fuel sales volume.

Fuel gross margin for the 2019 second quarter increased by $2.4 million, or 3.3%, as compared to the 2018 second quarter. Diesel fuel gross margin was essentially flat for the 2019 second quarter as compared to the 2018 second quarter due to a slightly lower gross margin per gallon, which was largely offset by a 4.6% increase in diesel fuel sales volume. Gasoline gross margin increased for the 2019 second quarter as compared to the 2018 second quarter primarily as a result of TA better managing sales pricing.

Although, the U.S. government has not yet 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 $17.0 million relating to the first six months of 2019 in the period the U.S. government enacts the tax credit reinstatement. Although TA believes reinstatement of this credit is possible, TA cannot be certain that the U.S. government will do so. TA has not recognized any amount of the expected federal biodiesel blenders’ tax credit for 2018 or 2019.

• a $3.3 million net increase at sites opened and closed since the beginning of the 2018 second quarter; and
• a $1.3 million same site increase primarily due to the positive impact of certain of TA’s marketing initiatives in store and retail services, partially offset by a 1.5% decrease in truck service revenues primarily as a result of a decrease in demand due to the impact of cooler weather patterns.

Nonfuel gross margin increased by $1.4 million, or 0.5%, in the 2019 second quarter as compared to the 2018 second quarter, due to the following factors:

• the $4.6 million increase in nonfuel revenues; and
• a decline in the nonfuel gross margin percentage that primarily resulted from a change in the mix of products and services sold, which partially offset the increase in nonfuel revenues.

Net Income (Loss) and Adjusted EBITDA. Net income (loss) for the 2019 second quarter improved by $35.1 million, as compared to the 2018 second quarter and adjusted EBITDA for the 2019 second quarter increased by $1.7 million, as compared to the 2018 second quarter. The net income (loss) improvement was largely due to a $42.6 million loss from discontinued operations, net of taxes, during the 2018 second quarter.

Growth Strategies

Thus far in 2019, TA has entered into seven franchise agreements with four franchisees under TA’s travel center brand names; one of these franchised travel centers opened during the 2019 second quarter and TA anticipates the remaining six travel centers will be added to TA’s network by the end of the 2020 first quarter. In addition, TA has entered into agreements 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.

Revolving Credit Facility

On July 19, 2019, TA and certain of its subsidiaries, as borrowers or guarantors, entered into an amendment, or the Amendment, to its amended and restated loan and security agreement, or the Credit Facility, with Wells Fargo Capital Finance, LLC, as administrative agent for various lenders. The Amendment amended the Credit Facility to, among other things: (i) extend the maturity of the Credit Facility from December 19, 2019, to July 19, 2024; (ii) reduce the applicable margins on borrowings and standby letter of credit fees by 25 basis points and on commercial letter of credit fees by 12.5 basis points; (iii) make certain adjustments to the limitations on investments, dividends and stock repurchases under the Credit Facility in a manner favorable to TA; (iv) reduce the sublimit for issuance of letters of credit under the Credit Facility from $170.0 million to $125.0 million; and (v) make certain adjustments to the borrowing base calculation in a manner TA believes to be favorable. Under the Credit Facility, a maximum of $200.0 million may be drawn, repaid and redrawn until maturity.

Reverse Stock Split

On July 30, 2019, TA announced a reverse stock split of its outstanding common shares at an exchange ratio of five to one, which became effective as of August 1, 2019. As a result of the reverse stock split, every five shares of TA’s issued and outstanding common shares were combined into one share. No fractional common shares were issued in the reverse stock split. Instead, fractional shares that otherwise would have resulted from the reverse stock split were purchased by TA at the closing price of TA’s common shares on July 31, 2019. The common share information included herein has been retrospectively adjusted to reflect this reverse stock split.

Conversion to Corporation

On May 23, 2019, TA announced its plan to convert from a Delaware limited liability company to a Maryland corporation, which became effective as of August 1, 2019. Following the conversion to a Maryland corporation, among other things, TA’s common shares will have a par value of $0.001 per share.

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