Good day, and welcome to the TravelCenters of America First Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Katie Strohacker, Senior Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. We will begin today's call with remarks from TA's Chief Executive Officer, Andy Rebholz; followed by Chief Operating Officer, Barry Richards; and Chief Financial Officer, Bill Myers. We'll also have time for questions from analysts.

Thanks Katie, and good morning, everyone. Thank you for joining us and for your interest in TA. I have a few prepared remarks regarding this quarter’s performance and our business initiatives. And then I’ll turn the call over to Barry for his comments about our operations. Bill will end our prepared remarks with his discussion of financial matters, including the effects of adopting the new lease accounting this quarter.

Thanks Andy, and good morning, everyone. We continue to see positive signs from our travel center operations in the first quarter, strong freight trends. And we believe our business initiatives and marketing efforts lead to increases over the prior year quarter and fuel sales volume, non-fuel revenues and site level gross margin in excess of site level operating expenses on an adjusted basis. Chief among these initiatives, we introduced a revamped UltraOne customer loyalty program in early January. This program continues to be embraced by professional drivers.

Thank you, Barry, and good morning everyone. First, I will discuss the impact of the new lease accounting standard we adopted at the beginning of January, and then I will cover the results for the first quarter. Effective January 1, 2019, we adopted the new lease accounting standard, ASC 842. This resulted in significant changes in our financial statements with the most significant change to our balance sheet. The adoption of this new standard is purely a non-cash accounting change. So there is no impact on the cash we pay for rents. The standard does not require companies to restate prior comparative periods and re-elected not to do so. Consequently the March 31, 2019 balance sheet differs materially from the December 31, 2018 balance sheet. This standard did not impact our statement of operations at significantly but there are some changes that I will walk you through.

First question comes from the line of Bryan Maher with B. Riley FBR. Please go ahead.

A few questions. The first on CapEx, and thanks for those numbers. Can you tell you what the $100 million will be going for? And why now HPT improvements in 2019, when it's been pretty consistent and fairly high for the last several years?

Yes, Brian, I guess to answer the second part first, we are intending to not sell improvements to HPT, so that we can avoid the increased rents when it's simple nothing more than that. Having said that, I mean, that is our intention there will be some circumstances I think in the future where it will make sense to sell certain improvements to HPT. If we had a site where we were, say adding a truck service facility for a few million dollars in the others specific project that has identified return related to it. That makes sense to pay the increased rent to fund that return, but for kind of the normal CapEx that happens on a regular basis that’s more of the sustaining nature, we’re trying to avoid the increased rent. So to the $100 million, what makes that up, it is -- a big chunk of it is the sustaining CapEx sort of amounts. We have a number of IT related initiatives going on right now that are of the cost savings and or revenue generating variety. And then there are number of other what we refer to as growth related projects. A number of them happen to be related to restaurants, remodels or re-brandings, which we spoke about, probably each of the calls last year, where we had restaurants closed to changed to a national brand or convert to QSRs those sorts of things, and there are a number of those projects that we’re continuing into this year. So those are the biggest chunks. I guess the one other big chunk would be investments related to our truck service business. The mobile maintenance and RoadSquad business, I mean their asset life in that they don’t require a lot of buildings necessarily, but we have been adding a number of the trucks necessary for going out to do that work.

And then moving on to your site level operating expenses and maybe feeding a little bit into what you just said about truck servicing. I mean you admittedly are staffing up truck servicing personnel and training an anticipation of increased revenues. What gives you the confidence that those revenues will come to the level that you believe to support those costs?

I think that a couple of things some of it is -- and maybe it depends on where we are adding. Some of those additions are in say our call center. That’s primarily related to the RoadSquad business. There to some extent, maybe your -- you just betting on the fact that more and more fleets will continue to be persuaded by our marketing that we can do that work for them and let them focus on what they’re really in business to do. But more importantly, I think are really the reasons for a lot of the staffing that we -- the reason that we set that in our remarks and I think in the press release. We have customers out there who we do this work for now and we’ve been talking to them about increasing the work we do for them. There are -- there's a large customer of ours who prefers to not be named, but we’ve been doing work for them like the mobile maintenance work, on their trailers at their yards. And we’ve done a very good job of it, which is what we do. And they’ve talked to us about, well, hey we also maybe now want me to have you do work on our tractors. And there are also conversations going on with them about maybe doing even more work at some of their operating terminals. And so there are things like that that we know are on our horizon and you need to get staffed up. And so that's why we have sort of the confidence to make those investments really that come through the income statement.

And then just lastly from me, I think you're talking more and more now about the franchising opportunity. Can you give us any even broad characterization as to how the economics of that will work? And secondarily, I think you might have said something about the potential for 50 sites. Can you clarify and elaborate on that?

Sure. To the economics I think that if you work to way through the math of different numbers that are available in our 10-K, we are averaging for the franchise sites that we've had travel centers, they probably average royalties and add fee payments to us revenues in a year call $300,000 per site. Much of what where going to be adding what we done to date and expect most of what the new franchisees we would sign up would be more the smaller format TA expressed sites. And we're estimating we believe conservatively revenues per year in that $175,000 to $200,000 range. Some will be higher and some likely be lower just the way it works. But I think that that's a reasonable average and that's what we're modeling and expecting from our side. Now as to the accounts, I want to be careful that I don't want to say that we got 50 that are ready to sign up next week, or anything like that. But there is a number that 50-ish kind of number where the operator of the site has expressed some interest to us in franchising. And step one in that is sort of our assessing -- may be their suitability to be a part of our network, what is there site like, what are their financial like, how are they as an operator, the health of their business if you will. And assuming we pass that screen then we provide them with information about the specifics the contract, and the franchise disclosure documents. And so the diligence is really a two way thing. What we like to have them as a part of our network will they service our customers the way our customers expect to be serviced at TA or Petro or TA Express, and then also they like what they are seeing from that, they like the things that we can do to help them improve their business. So it's a two-way street that 50 sites that we throughout. Some we've just gotten the first phone call from and have been really gone through the first screen, some are closer to the end of the process like the three that we talked about being under legal review that, I think really was a way of saying. We expect to be signed pretty soon, but, so that won't turn into 50 signed up franchisees sites over a period of time. But I do expect that there is a good number of future franchise sites in that group. And time wise, my guess is by the time that all of those would be an operating site under a TA Express or a TA or a Petro sign, it’s probably late next year for some of them because some of these sites are an operator who has right now of vacant parcel of land and they want to build a travel center. And that will take some time. So I don’t’ know if that got to the different thoughts to your questions you had about that.

Yes. That’s good enough, and then on the smaller express, as you said $175,000 to $200,000 a year. Is that a net number or a gross number? And if it’s gross, what do you think net is?

I think that is gross, and gross equals net really. I mean our costs related to the franchising business, if you will, is all in SG&A. So if there’s say $200,000 of revenue that’s all going to fall to margin. And to a large part, what we already have in SG&A, it doesn’t change significantly if you add another 20 franchise sites. Maybe at some point you say hey we need another $100,000 or so of SG&A for another analyst to keep track of all the tough paper work and things that need to be that need to be dealt with or another $200,000 for another franchising, regional manager or something like that that really comes in as a step function over time. And right now the size that we are -- we could absorb a number of new franchisees without any kind of additional SG&A.

The next question comes from the line of Steve Dyer with Craig-Hallum. Please go ahead. Q – Steve Dyer: A question from me on fuel margins you’d indicated that sort of tapered off a bit after a really strong Q4 and start to the year. Should we be thinking it about kind of more of a normalized rate in that $0.14 to $0.15 per gallons range point forward. And it should be better than that?

It’s always tricky talking about the fuel margin. But I think that that kind of a normal range is our expectation when we look at our overall fuel margin. The blend between diesel and gasoline and over the remainder of the year, I think that’s the expectation. Having said that, something could happen later today that drives the market one way or another and moves that a penny either direction, good or bad. And I expect wherever a fewer those ships over the remainder of the year. But seems to me, a reasonable expectation for that 14, 15 kind of a range. Q – Steve Dyer: And then the non-fuel margins were very-very good this quarter almost 62%. Is your sense the best at good run rate or were there some unique seasonality or some other things in there that made it a little bit better.

No. I see its continuing on that path. I don’t see any drastic change from that going forward. Q – Steve Dyer: Okay. And then lastly from me, just wondering if you’re able to sort of split ball, it might be taken about free cash flow for this year.

Not really other than, particularly with the rent reduction more than in the prior year. We definitely see improvement in that measure in our future and are trying to manage our spending in a way to make sure that's the case. But we're not really prepared to give a number. Q – Steve Dyer: Would you at least anticipate being positive this year or?

Yes.

The next question comes from the line of Ben Brownlow with Raymond James. Please go ahead.

On the truck service revenue, we have 3%. Is there any way to sort of parse that out in terms of what new customer wins were, you called out 93 fleet for the call center right now. I guess just kind of quantify there, again idea. What does that compared to last year? I’m just trying to get a better sense of what's driving the truck service revenues.

I guess I would have to say what's driving the truck service revenue, primarily is our on-site and our RoadSquad, but it's kind of hard to break those out sometimes because we all relate to each other right? If we send a truck out on an emergency repair for instance, and they sell a tire or put a tire on the truck that goes to tire sales, part of those goes to road squad. There is connection that it's hard to break it up, precisely.

But I do think it's fair to say that right now the biggest drivers in increasing the truck service revenue are the things that Barry talked about. I mean the focus we have on the RoadSquad and having built out the call center and actually our fleet sales folks out there working to convince trucking companies to give their calls to us. Let us be their call center. It's really a capability that we really solidified or stabilized maybe, improved greatly on throughout last year, have a lot of growth just in that group. But the road squad, the mobile maintenance I just think there's still a small piece maybe of our total revenue, but it's growing so fast. And just has such potential because that's the one that of all our businesses maybe RoadSquad a bit too, but that’s the one that really can apply to anybody who owns truck anywhere whereas most of our business being on interstate is largely related to the long-haul truckers. The mobile maintenance is one that can go anywhere and we have had a lot of growth there. And that's when we talked in the past about the nontraditional customers and things like, that's the business that's primarily serving those nontraditional customers, and then the focus that we have on this commercial tire business. And as Barry said, we saw tires in bay, we sell them at road squad, we sell them in mobile maintenance but when you look at the total tires that we're selling. It’s out every month over the same month in the prior year as we’ve, again stabilized sort of our method of going to market in that group and the sales force that we have out there doing that. So and Barry sets on those. A – Barry Richards: Yes, maybe one thing to add. I think it’s important the relationships that we build through the call center supporting these different fleets. Those are confidence. And due to those relationships, we’re who they return to many scheduled maintenance or -- and they work to go along with the emergency roadside repair. So it all fits very nicely. And was that call center continues to grow. And this -- onsite maintenance that we do at peoples terminals, all those relationships are very valuable to us to spread throughout the network.

That’s helpful. How many fleets were signed with the call center a year ago? A – Barry Richards: That was less than 70.

That was somewhere in the 50-60 range so that -- I mean that’s a rough number Ben, but I think order of magnitude and directionally it’s about right.

Okay. So it's significantly year-over-year. And if you think about the labor component, should we -- I mean, are you pretty comfortable with the number of technicians that you have right now. I mean should we think about pretty much just leveraging of that 3% kind of growth in SG&A or switching side level expenses from this point forward?

I would always model the site level operating expenses not as a percentage increase over prior year or prior period. We model what is that as a percentage of the non-fuel revenues because so much of what we do out there serving customers takes people to do, particularly in the truck service and in the restaurants. So you get more of a -- if you have a 5% increase in revenues, you should expect to see whatever our percentage was this quarter. 52-ish percent of those revenues going to site level OpEx because that’s a rough estimate of what it will take to generate those revenues. Now having said that there is a certain amount of our site level operating expenses that’s fixed, managers and property taxes and maintenance and utilities or something like that. But so that percentage should decline over time, every incremental revenue dollar more of which should fall for the bottom line. But using that the 52-ish percent unfortunately talking up on top of my head instead of looking at a piece of data, but that 52%-ish site level OpEx is a percent of non-fuel is the reasonable way to my mind anyway of modeling that cost related to the growth.

We have a follow-up question from the line of Bryan Maher with B. Railey FBR. Please go ahead. Q – Bryan Maher: Yes. So following up on that site level discussion, and it’s really one of the most frequent questions I get is how other than the accounting initiatives that you put in place with those cost savings you discussed earlier. What’s the biggest opportunity that you guys have to lower site level operating as a percentage of non-revenue? And I also think that in prior calls we've discussed getting that number into the high 40s from 52 or so this year, how long do you think that takes? And is that still possible? Thank you.

A couple things Brian, number one that the 52 of this quarter, and we may have last quarter said this. But when you look at on an annual basis for year kind of in that 49-ish 50% is a moralistic number on an annual basis. The first quarter is seasonally our weakest quarter, lowest from a revenue perspective typically or from the level of business. And so that percentage is going to be higher in the first quarter and in the fourth quarter and in the second and third quarters, it will be lower, it will be in the 40s. But the levers to pool to control and/or work to reduce that expense frankly the biggest one is growing revenues. Again, theirs is that pool of fixed costs and the more revenues you have to spread that over that that's what's going to bring that percentage down. But the other things that we work on to improve that metric are labor scheduling and labor scheduling tools because labor is the bigger part of the site level operating expenses. Doing things to be more energy efficient in our site, LED lighting instead of the old style lighting and things like that we can do. It's not a lot of home runs, I guess. It's the way I consider sort of the site accounting functions centralization were -- was a structural change in what we do. Most of it is going to be hitting singles, advancing around our kind of stuff, where it's the little things every day that having managers schedule their labor better. Those kinds of things are the best ways to do that. Q – Bryan Maher: Okay. I just wanted to be clear because a couple of times you used a 52% number and we have modeled for 49.5 for the full year. So to be clear, you guys still if you expect full year numbers in the high 40s certainly not around 52.

Right. If again, I’m not looking at any data right now. 52 was our percentage for the first quarter than, yes, than what we said -- we are about the year with that 49-50. That's the right number, yes. Nothing's changed in our thinking. Q – Bryan Maher: And then why wouldn’t you given how profound the cost savings are with LED lighting, and I’m sure everybody on this call has seen this in their homes. Why when you and maybe you have already made the investments to switch out LED lighting throughout the entirety of the system?

We haven’t done it throughout the entirety of the system. We have done it in a number of sites. And I think it's just remains a balancing or prioritization of where you spend the money. Q – Bryan Maher: I guess when I think of your business, its 24 hours a day and 365 days a year with an awful lot of lighting going on that would be kind of higher on the list. But, anyway, just make you sense. Thank you.

Thanks, Bryan.

This concludes our question-and-answer session. I’d like now to turn the conference back over to Andrew Rebholz for any closing remarks.

Again, everybody I’d like to thank you for your time today and your interest in TA. And look forward to speaking with you again soon. Bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.