TravelCenters of America Inc. Announces Fourth Quarter and Full Year 2019 Financial Results

25 Feb by Vitaliy Dadalyan

TravelCenters of America Inc. Announces Fourth Quarter and Full Year 2019 Financial Results

Fuel Sales Volume Increased 5.3% for the 2019 Fourth Quarter

TA Recognized $70.2 million Federal Biodiesel Blenders’ Tax Credit

Nonfuel Gross Margin Increased 1.4% for the 2019 Fourth Quarter

WESTLAKE, Ohio–(BUSINESS WIRE)–TravelCenters of America Inc. (Nasdaq: TA) today announced financial results for the three months and year ended December 31, 2019.

Jonathan M. Pertchik, TA’s CEO, made the following statement regarding the 2019 fourth quarter results:

“TA ended the year on a positive note. Net income for the fourth quarter benefited from a significant increase in fuel gross margin as a result of the reinstatement of the federal biodiesel blenders’ tax credit for 2018 and 2019, a 5.3% increase in fuel sales volume and a more favorable fuel purchasing environment, as well as a 1.4% increase in nonfuel gross margin. The company also made progress in its key business initiatives during the fourth quarter, including expanding its travel center network with two new franchise agreements, extending truck service programs through the TechOn-Site® and RoadSquad® services and agreeing to convert up to 94 full service restaurants to IHOP over the next five years.”

The following table summarizes TA’s financial results for the 2019 and 2018 fourth quarters.

(in thousands, except per share amounts)

Three Months Ended
December 31,

2019

 

2018

Income (loss) from continuing operations

$

43,117

 

 

$

(6,973)

 

Net income (loss)

43,117

 

 

(5,921)

 

Net income (loss) attributable to common stockholders

43,082

 

 

(5,949)

 

 

 

 

 

Income (loss) per share of common stock from continuing operations

attributable to common stockholders (basic and diluted)(1)

$

5.29

 

 

$

(0.87)

 

(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 2019 and 2018 fourth quarters.

(in thousands, except per share amounts)

Three Months Ended
December 31,

2019

 

2018

Non-GAAP measures:(1)

 

Adjusted loss from continuing operations

$

(7,210

)

$

(6,699

)

Adjusted loss per share of common stock from continuing operations

attributable to common stockholders (basic and diluted)(2)

$

(0.89

)

$

(0.84

)

EBITDA$

89,511

 

$

20,309

 

Adjusted EBITDA

19,861

 

 

20,673

 

(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 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 Fuel Gross Margin. The following table presents details for TA’s fuel sales for the 2019 and 2018 fourth quarters.

(in thousands, except per gallon amounts)

Three Months Ended
December 31,

 

 

2019

 

2018

 

Change

Fuel sales volume (gallons):

 

 

 

 

 

Diesel fuel

 

423,943

 

 

 

400,506

 

 

5.9

 

%

Gasoline

 

73,259

 

 

 

71,696

 

 

2.2

 

%

Total fuel sales volume

 

497,202

 

 

 

472,202

 

 

5.3

 

%

 

 

 

 

 

 

Fuel revenues

$

1,071,577

 

 

$

1,086,987

 

 

(1.4

)

%

Fuel gross margin

 

147,691

 

 

 

85,904

 

 

71.9

 

%

Adjusted fuel gross margin(1)

 

77,462

 

 

 

85,904

 

 

(9.8

)

%

Fuel gross margin per gallon

$

0.297

 

 

$

0.182

 

 

63.2

 

%

Adjusted fuel gross margin per gallon(1)

 

0.156

 

 

 

0.182

 

 

(14.3

)

%

(1) The 2019 fourth quarter amount excludes the $70.2 million benefit from the federal biodiesel blenders’ tax credit TA recognized in December 2019. See the reconciliations from fuel gross margin to adjusted fuel gross margin and fuel gross margin per gallon to adjusted fuel gross margin per gallon in the supplemental tables below.

Fuel sales volume for the 2019 fourth quarter increased by 25.0 million gallons, or 5.3%, as compared to the 2018 fourth quarter due to the following factors:

  • a same site fuel sales volume increase of 24.6 million gallons, or 5.3%, as compared to the 2018 fourth quarter primarily due to the success of TA’s marketing initiatives; and
  • an increase of 0.4 million gallons at sites opened since the beginning of the 2018 fourth quarter.

Fuel revenues for the 2019 fourth quarter decreased by $15.4 million, or 1.4%, as compared to the 2018 fourth quarter primarily due to a decrease in market prices for fuel during the 2019 fourth quarter, partially offset by an increase in fuel sales volume.

In December 2019, the U.S. government retroactively reinstated the federal biodiesel blenders’ tax credit for 2018 and 2019, as well as approved the federal biodiesel blenders’ tax credit through 2022. As a result, TA recognized $70.2 million as a reduction to TA’s fuel cost of goods sold in the 2019 fourth quarter relating to 2018 and 2019. It typically has taken TA approximately six to eight months to collect the cash refunds related to the federal biodiesel blenders’ tax credit and TA expects to collect the full amount for 2018 and 2019 by the 2020 fourth quarter. For the years 2020 through 2022, the benefit of the federal biodiesel blenders’ tax credit will be included in the price TA pays for biodiesel. TA anticipates the benefit it will realize in future periods for the federal biodiesel blenders’ tax credit may be less than the benefit realized for each of the years 2017 through 2019.

Fuel gross margin for the 2019 fourth quarter increased by $61.8 million, or 71.9%, as compared to the 2018 fourth quarter primarily due to the $70.2 million benefit from the federal biodiesel blenders’ tax credit that was retroactively reinstated for 2018 and 2019 and recognized in December 2019, a 5.3% increase in fuel sales volume and a more favorable fuel purchasing environment in the 2019 fourth quarter as compared to the 2018 fourth quarter. The increase was partially offset by the higher cost associated with increased rewards under TA’s customer loyalty program to incentivize drivers to purchase higher fuel volume.

Adjusted fuel gross margin for the 2019 fourth quarter decreased by $8.4 million, or 9.8%, as compared to the 2018 fourth quarter primarily due to the higher cost associated with increased rewards under TA’s customer loyalty program and an unusually strong trucking freight environment in the 2018 fourth quarter, partially offset by the increase in fuel sales volume and a more favorable fuel purchasing environment in the 2019 fourth quarter.

Nonfuel Revenues and Nonfuel Gross Margin. The following table presents details for TA’s nonfuel revenues during the 2019 fourth quarter as compared to the 2018 fourth quarter.

(in thousands)

Three Months Ended
December 31,

 

 

2019

 

2018

 

Change

Nonfuel revenues:

 

 

 

 

 

Store and retail services

$

186,004

 

 

$

182,894

 

 

1.7

%

Truck service

153,147

 

 

155,896

 

 

(1.8)

%

Restaurant

107,951

 

 

103,664

 

 

4.1

%

Total nonfuel revenues

447,102

 

 

442,454

 

 

1.1

%

 

 

 

 

 

 

Nonfuel gross margin

$

274,035

 

 

$

270,151

 

 

1.4

%

Nonfuel gross margin percentage

61.3

%

 

61.1

%

 

20

pts

Nonfuel revenues for the 2019 fourth quarter increased by $4.6 million, or 1.1%, as compared to the 2018 fourth quarter due to the following factors:

  • a $3.2 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 in its stores and quick service restaurants, partially offset by a 1.8% decrease in truck service revenues; and
  • a $1.4 million net increase at sites opened or closed since the beginning of the 2018 fourth quarter.

Nonfuel gross margin for the 2019 fourth quarter increased by $3.9 million, or 1.4%, as compared to the 2018 fourth quarter primarily due to the $4.6 million increase in nonfuel revenues, as noted above.

Rent and Royalties from Franchisees Revenues. Rent and royalties from franchisees revenues for the 2019 fourth quarter decreased by $0.6 million, or 14.3%, as compared to the 2018 fourth quarter primarily due to the following factors:

  • an $0.8 million decrease in royalties earned in the 2019 fourth quarter from one travel center TA acquired from a former franchisee in November 2018; and
  • a $41.0 thousand decline from Quaker Steak & Lube, or QSL, franchised restaurants for which the franchise agreements were terminated since the beginning of the 2018 fourth quarter.

Expenses. Site level operating expense for the 2019 fourth quarter increased by $5.2 million, or 2.3%, as compared to the 2018 fourth quarter. New sites accounted for $0.1 million of this increase. On a same site basis, site level operating expense increased by $5.1 million primarily due to increased labor costs to support TA’s growth in nonfuel revenues. Site level operating expense as a percentage of nonfuel revenues on a same site basis was 52.4% for the 2019 fourth quarter as compared to 51.6% for the 2018 fourth quarter. The increase in this percentage primarily reflects higher labor costs primarily due to new positions created as a result of a realignment of TA’s regional and field management structure during the 2019 fourth quarter; the ratio of nonlabor costs to nonfuel revenues on a same site basis was consistent between the 2019 and 2018 fourth quarters.

Selling, general and administrative expense for the 2019 fourth quarter remained consistent with the 2018 fourth quarter.

Real estate rent expense for the 2019 fourth quarter decreased by $7.8 million, or 10.9%, as compared to the 2018 fourth 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, that TA formerly leased, partially offset by increases that resulted from TA’s sales to, and lease back from, SVC of improvements at leased sites during the 2018 fourth quarter and $0.6 million of impairment charges to operating lease assets related to certain standalone restaurants.

Depreciation and amortization expense for the 2019 fourth quarter increased by $7.0 million, or 33.4%, as compared to the 2018 fourth quarter primarily due to TA’s purchase of 20 travel centers from SVC in January 2019 and $2.4 million of impairment charges related to certain standalone restaurants.

Net Income (Loss) and Adjusted EBITDA. Net income (loss) for the 2019 fourth quarter increased by $49.0 million as compared to the 2018 fourth quarter primarily due to the $70.2 million benefit from the federal biodiesel blenders’ tax credit that was retroactively reinstated for 2018 and 2019 and recognized in December 2019. Adjusted EBITDA for the 2019 fourth quarter decreased by $0.8 million as compared to the 2018 fourth quarter primarily as a result of the decrease in adjusted fuel gross margin as a result of the higher cost associated with increased rewards under TA’s customer loyalty program and the increase in site level operating expense.

Growth Strategies

On October 28, 2019, TA entered into a multi unit franchise agreement with IHOP Franchisor 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, TA has agreed to, among other things, 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%.

During 2019, TA entered into franchise agreements for 12 travel centers to be operated under TA’s travel center brand names; four of these franchised travel centers began operations under one of TA’s travel center brands during 2019, two began operations in the 2020 first quarter to date and TA anticipates six franchised travel centers to begin operations by the end of 2020. 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 TA’s network, one within five years and the other within 10 years.

During 2019, TA entered into franchise agreements for six standalone restaurants to be operated under the QSL brand name; three of these franchised restaurants began operations during 2019, and TA anticipates the remaining three restaurants will be added to its network by the end of the 2020 second quarter.

TA currently has a contract in place for the purchase of a parcel of land for $1.4 million (expected to close by the end of the 2020 second quarter) on which TA, or one of its franchisees, plans to develop a TA Express travel center.

West Greenwich Term Loan

On February 7, 2020, TA entered into a 10 year term loan for $16.6 million with The Washington Trust Company, or the West Greenwich Loan. The West Greenwich Loan is secured by a mortgage encumbering one of TA’s travel centers. The interest rate is fixed at 3.85% for five years based on the five year Federal Home Loan Bank rate plus 198 basis points, and will reset thereafter. The West Greenwich Loan requires TA to make principal and interest payments monthly. TA plans to use the proceeds from the West Greenwich Loan for general business purposes. TA may, at its option with 60 days prior written notice, at a nominal penalty within the first three years, at any time repay the loan in full prior to the end of the 10 year term.

Conference Call

On Tuesday, February 25, 2020, 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 and year ended December 31, 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 10137793.

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 fourth 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.

TRAVELCENTERS OF AMERICA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

Fuel

$

1,071,577

 

 

$

1,086,987

 

 

$

4,247,069

 

 

$

4,395,731

 

Nonfuel

 

447,102

 

 

 

442,454

 

 

 

1,856,147

 

 

 

1,820,341

 

Rent and royalties from franchisees

 

3,532

 

 

 

4,121

 

 

 

14,143

 

 

 

16,143

 

Total revenues

 

1,522,211

 

 

 

1,533,562

 

 

 

6,117,359

 

 

 

6,232,215

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding depreciation):

 

 

 

 

 

 

 

Fuel

 

923,886

 

 

 

1,001,083

 

 

 

3,868,351

 

 

 

4,075,704

 

Nonfuel

 

173,067

 

 

 

172,303

 

 

 

726,418

 

 

 

710,465

 

Total cost of goods sold

 

1,096,953

 

 

 

1,173,386

 

 

 

4,594,769

 

 

 

4,786,169

 

 

 

 

 

 

 

 

 

Site level operating expense

 

234,705

 

 

 

229,513

 

 

 

943,810

 

 

 

914,730

 

Selling, general and administrative expense

 

38,624

 

 

 

38,481

 

 

 

155,474

 

 

 

137,945

 

Real estate rent expense

 

63,668

 

 

 

71,440

 

 

 

257,762

 

 

 

283,476

 

Depreciation and amortization expense

 

28,142

 

 

 

21,103

 

 

 

100,260

 

 

 

83,179

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

60,119

 

 

 

(361

)

 

 

65,284

 

 

 

26,716

 

 

 

 

 

 

 

 

 

Interest expense, net

 

7,094

 

 

 

7,040

 

 

 

28,356

 

 

 

29,003

 

Other (income) expense, net

 

(1,250

)

 

 

433

 

 

 

(880

)

 

 

2,060

 

Income (loss) before income taxes and

discontinued operations

 

54,275

 

 

 

(7,834

)

 

 

37,808

 

 

 

(4,347

)

(Provision) benefit for income taxes

 

(11,158

)

 

 

861

 

 

 

(4,339

)

 

 

1,574

 

Income (loss) from continuing operations

 

43,117

 

 

 

(6,973

)

 

 

33,469

 

 

 

(2,773

)

Income (loss) from discontinued operations,

net of taxes

 

 

1,052

 

 

 

 

(117,631

)

Net income (loss)

 

43,117

 

 

 

(5,921

)

 

 

33,469

 

 

 

(120,404

)

Less: net income for noncontrolling interest

 

35

 

 

 

28

 

 

 

124

 

 

 

149

 

Net income (loss) attributable to

common stockholders

$

43,082

 

 

$

(5,949

)

 

$

33,345

 

 

$

(120,553

)

 

 

 

 

 

 

 

 

Net income (loss) per share of common

stock attributable to common

stockholders(1):

 

 

 

 

 

 

 

Basic and diluted from continuing operations

$

5.29

 

 

$

(0.87

)

 

$

4.12

 

 

$

(0.37

)

Basic and diluted from

discontinued operations

 

 

0.13

 

 

 

 

(14.72

)

Basic and diluted

 

5.29

 

 

 

(0.74

)

 

 

4.12

 

 

 

(15.09

)

(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 Annual Report on Form 10-K for the year ended December 31, 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 loss from continuing operations, adjusted 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 income (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 (loss) 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 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 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 months and years ended December 31, 2019 and 2018.

Calculation of adjusted loss from

continuing operations:

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2019

 

2018

 

2019

 

2018

Income (loss) from continuing operations

 

$

43,117

 

 

$

(6,973

)

 

$

33,469

 

 

$

(2,773

)

Add: Costs of SVC transactions(1)

 

 

 

364

 

 

 

458

 

 

 

364

 

Less: Loyalty award expiration(2)

 

 

 

 

(2,911

)

 

Add: Executive officer retirement agreement

expenses(3)

 

 

 

 

 

3,571

 

Less: Comdata legal reimbursements, net of

expenses(4)

 

 

 

 

 

(9,967

)

Less: Comdata interest income(4)

 

 

 

 

 

(568

)

Less: Federal biodiesel blenders’ tax credit(5)

 

 

(70,229

)

 

 

 

(70,229

)

 

 

(23,251

)

Add: Impairment of property and equipment(6)

 

 

2,369

 

 

 

 

2,369

 

 

Add: Impairment of operating lease assets(6)

 

 

579

 

 

 

 

579

 

 

Add (less): Net income tax impact(7)

 

 

16,954

 

 

 

(90

)

 

 

17,572

 

 

 

7,373

 

Adjusted loss from continuing operations

 

$

(7,210

)

 

$

(6,699

)

 

$

(18,693

)

 

$

(25,251

)

Calculation of adjusted loss per share of

common stock from continuing operations

attributable to common stockholders

(basic and diluted):

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2019

 

2018

 

2019

 

2018

Income (loss) per share of common stock from

continuing operations attributable to common

stockholders (basic and diluted)

 

$

5.29

 

 

$

(0.87

)

 

$

4.12

 

 

$

(0.37

)

Add: Costs of SVC transactions(1)

 

 

 

0.05

 

 

 

0.06

 

 

 

0.05

 

Less: Loyalty award expiration(2)

 

 

 

 

(0.36

)

 

Add: Executive officer retirement agreement

expenses(3)

 

 

 

 

 

0.45

 

Less: Comdata legal reimbursements, net of

expenses(4)

 

 

 

 

 

(1.25

)

Less: Comdata interest income(4)

 

 

 

 

 

(0.07

)

Less: Federal biodiesel blenders’ tax credit(5)

 

 

(8.62

)

 

 

 

(8.67

)

 

 

(2.91

)

Add: Impairment of property and equipment(6)

 

 

0.29

 

 

 

 

0.29

 

 

Add: Impairment of operating lease assets(6)

 

 

0.07

 

 

 

 

0.07

 

 

Add (less): Net income tax impact(7)

 

 

2.08

 

 

 

(0.02

)

 

 

2.17

 

 

 

0.92

 

Adjusted loss per share of common stock from

continuing operations attributable to common

stockholders (basic and diluted)

 

$

(0.89

)

 

$

(0.84

)

 

$

(2.32

)

 

$

(3.18

)

Contacts

Kristin Brown, Director of Investor Relations

(617) 796-8251

www.ta-petro.com

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