Good morning, and welcome to the TravelCenters of America Inc. Fourth Quarter 2019 Financial Results Conference Call. . Please note, this event is being recorded. I would now like to turn the conference over to Kristin Brown, 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 Jon Pertchik; followed by Chief Operating Officer, Barry Richards; and Chief Financial Officer, Bill Myers. We'll also have time for questions from analysts. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal Securities Laws.

Thanks Kristin. Good morning, everyone. And thank you for joining us and for your interest in TA. I'll start by briefly touching on our operating results for the fourth quarter, as we ended 2019 with some positive news. Net income was $43.1 million compared to a net loss of $5.9 million last year, boosted by the reinstatement of the Federal Biodiesel Blenders' Tax Credit. For 2018 and '19. The fourth quarter’s adjusted EBITDA of $19.9 million was down modestly from $20.6 million in the 2018 fourth quarter. With lower adjusted fuel gross margin, and an increase in site level operating expense, partially offset by an increase in non-fuel gross margin and lower real-estate rent expense during the 2019 fourth quarter. Fuel sales volume increased by 5.3% in total and on the same site basis. Non-fuel revenues improved by 1.1% in total, and by 70 basis points on a same site basis. The truck service revenues decrease by 1.8% versus an unusually strong, comparable quarter last year. Store and retail services revenue grew 1.7% by growing demand for diesel exhaust fluid. And restaurant revenues grew 4.1% driven by solid demand for our quick service options.

Thanks, Jon. And good morning, everyone. We saw continued momentum from our Travelcenter operations in the fourth quarter for non-fuel revenues turning positively year-over-year, despite an unusually strong trucking, truck freight environment in the comparable quarter last year.

Thank you, Barry. Good morning everyone. For the 2019 fourth quarter, we reported net income of $43.1 million or $5.29 per share, excluding the $70.2 million benefit from the reinstatement of the Biodiesel Blenders' Tax Credit. We reported adjusted loss from continuing operations of $7.2 million compared to an adjusted loss from continuing operations of $6.7 million in the 2018 fourth quarter. We reported adjusted EBITDA of $19.9 million for the 2019 fourth quarter; a decline of approximately $800,000 versus the 2018 fourth quarter. The modest decrease in adjusted EBITDA was primarily due to the decrease in adjusted fuel gross margin, partially offset by lower real-estate rent expense, and higher non-fuel gross margin. Fuel gross margin increased by $61.8 million or 71.9% as compared to the 2018 fourth quarter. Excluding the benefit from the reinstatement of the federal Biodiesel Blenders' Tax Credit, fuel gross margin decreased by $8.4 million or 9.8%, as compared to the 2018 fourth quarter. The decline in adjusted fuel gross margin was due to a higher cost associated with our customer loyalty program, and an unusually strong trucking freight environment in the 2018 fourth quarter. This decline was partially offset by 5.3% increase in fuel sales volume and a more favorable fuel purchasing environment in the 2019 fourth quarter. Adjusted diesel fuel gross margin declined due to a 12.4% decline in margin per gallon due to the higher costs associated with the increased rewards under TA’s customer loyalty program and a lower market price for diesel fuel partially offset by 5.9% increase in diesel gallon sold. Non-fuel revenues increased by $4.6 million or 1.1% primarily as a result of a $3.2 million increase on the same site basis, and sales at new sites. The increase on the same site basis was primarily due to an increase in DEF revenue as a result of a higher number of newer trucks on the road compared to the prior year, as well as the positive impact of our pricing and marketing initiatives and solid performance from our quick service restaurants. Non-fuel gross margin increased by $3.9 million or 1.4% due to a $4.6 million increase in non-fuel revenues and a 20 basis point increase in the non-fuel gross margin percentage to 61.3%. Site level operating expense increased by $5.2 million or 2.3% of which $0.1 million was due to new sites opened during 2019. The balance of the increase was driven by higher labor costs to support our growth in non-fuel revenue. Site level operating expenses as a percentage of non-fuel revenues on the same site basis was 52.4% as compared to 51.6% for the 2018 fourth quarter. The increase in the percentage primarily will reflect higher labor costs as a result of new positions created from the realignment of TA’s regional and field management structure during the 2019 fourth quarter. However, the ratio of non-labor costs to non-fuel revenues on a same site basis was consistent between the 2019 and 2018 fourth quarters. As noted on our previous call in November, we estimate that site level operating expense was increased by approximately $5 million on an annual basis, and that site level operating expense as a percentage of non-fuel revenue will increase proportionally a result of this realignment of our management structure. However, we believe this new structure, in addition to an immediate SG&A savings will overtime boost our overall profitability. SG&A expense for the 2019 fourth quarter was $38.6 million roughly flat with the 2018 fourth quarter, and in line with our expectations. We estimate that the operations management restructuring I just mentioned, will reduce SG&A expense by approximately $7 million on an annual basis. Real-estate rent expense decreased by $7.8 million or 10.9%, and the 2019 fourth quarter primarily due to purchase of 20 travel centers from SVC in January of 2019. As previously discussed, this reduced the annual minimum rent we pay to SVC by $43.1 million. Given our current leasing arrangements, we continue to expect our real estate rent expense to run at a quarterly rate of approximately $64 million. Depreciation and amortization expenses increased by $7 million or 33.4%, primarily due to the purchase of the 20 travel centers from SVC in January of 2019. Finally, we recorded an impairment charge of $2.9 million in 2019 fourth quarter based on our evaluation of certain low performing owned and leased standalone restaurants. Turning to our liquidity and investment matters at December 31st, our cash balance was $17.2 million and we had $84.9 million of availability on our credit facility. We also expect to collect the cash refunds related to the Federal Biodiesel Blenders' Tax Credit over the next six to eight months and to collect the full amount by the 2020 fourth quarter. This cash refunds will be used to fund 2020 initiatives that would have otherwise been financed with the credit facility. In addition, as part of our agreements with IHOP, we may also borrow from IHOP up to $10 million in connection with the cost to convert our restaurants to IHOP. As of December 31, we own 51 travel centers, six standalone restaurants, and a standalone truck service facility that were unencumbered by DEF. Earlier this month, we closed on a $16.6 million secured financing of a TA travel center located in West Greenwich, Rhode Island. This represented a 66% loan-to-value based on an appraised value of $25 million. The loan has a 10-year term with a fixed rate of 3.85% for five years and will then we set for the final five years based on the five-year Federal Home Loan Bank rate plus 198 basis points. During the quarter, we invested $20.8 million in capital expenditures, bringing the full-year total to $84 million. We did not sell any improvements to SVC during 2019. We expect our total capital investment plan to be approximately $118.9 million excluding any acquisitions, and including approximately $35 million for capital expenditures projects that were deferred from 2019, as well as approximately $15 million for IHOP conversion. That concludes our prepared remarks, operator. We are now ready to take the questions.

. The first question comes from Bryan Maher from B. Riley FBR. Please go ahead.

Good morning, guys. I have a few questions. And then I'll stop and go to the back of the queue to see if there's other questions pending. But, Jon, can you talk a little bit more about the site level operating expenses, and where is the opportunity there really to hold that number either steady or to drive it down?

Sure. Thanks, Bryan. Nice to talk to you this morning. We are looking -- I'm looking at both site level SG&A as well as corporate SG&A with a lot of focus, I've been here to 60 days now, I guess, over 60 days. So, the plans are starting to come into view. But, as I mentioned earlier, in my opening remarks, I'm not looking at SG&A, how do we cut this out or how do we carve that out? I'm really looking at it is, how do we need to function as a company? What are we delivering to our customers? And then how do we build an organization around that? And so I -- it's impossible for me to tell you where we are going to go with that right now. But, I'm really confident we are going to find opportunities. I mean, we are already starting to see some of them. And we still have some more work to do. And I'm answering not just your site level question, but also at the corporate level, really top to bottom. I'm really trying to understand how this company could best work and then building a plan and organization around that.

Okay. And then, maybe this is a question for Barry. But Jon, let you decide. You talked on the call and I think Barry said specifically new trucks on the road and maybe that impacting truck revenue service, truck service revenues. That kind of runs countered to the fact that you guys have staffed up over the past year in that area, anticipating those revenues to increase. I mean, at some point if you don't see some material increase in truck service revenues, do you need to halt or reverse that hiring trend?

Yes.

Let me just start Bryan. And then, I'll hand it to Barry to maybe backfill. One of the areas that -- the area not one of the area that this company is most famous for historically, I think is the repair business. And I'm spending a lot of time. And what's great is, we have people on the team who have many years of experience and combining that with maybe outside perspectives that hopefully I can bring along here. We are very focused on some key areas, our tech or repair tech attrition is one. We've undertaken a field reorganization that was part of last year's plan that we spoke to, as we're getting our people trained and our site managers are better support and training. I think that's going to help whether the attrition issue we've had, which in turn I think is going to do. That's really our choke point in terms of growing a performance of that part of our business. But with that, Barry, go ahead, maybe you can backfill even further.

Yes. I think the answer to your question, we certainly can pull back if we see the need but part of the measurement is we have a time waiting metric that we focus on. And the fact is, we still have trucks waiting for repair on average across the country. And until I get that down to near zero, I think there's still opportunity to take in more revenue. So, even though new trucks coming on the road slow us down a little bit like tires on those trucks can last 300,000 miles and oil changes have much longer intervals, things like that. We still have opportunities out there and I still believe having the right technicians on duty at the right time. We can still increase revenue.

I'm going to add one other thing Bryan, it's Jon again. We have three parts to our business. We have OnSite, we have RoadSquad and we have Inbound. On the RoadSquad side, for example, we're beta testing in two places right now, a strategy where we reduced our dispatch times from 108 minutes on average across the company to 52 and 55 minutes. It comes with a cost but right now we're probably going to broaden that beta test. And I'm hopeful and somewhat optimistic we are going to get some real net-net benefit from that. And that's just one example. We are looking at the broader repair business in its three very different parts that I just mentioned a moment ago and looking for opportunities to improve performance.

Okay, shifting gears to the franchising business. I think you guys mentioned that, in addition to kind of the near-term stuff that you have in the IHOP, there's 130 potential sites and various stages of application in diligence. That being said, can you give us some idea what you think might be added in 2020? Is it 5 units, 10 units, 15 units? And then a second part to that question, are the franchises kind of boxed out of a certain miles zone of either TA or SVC owned asset?

Again it’s Jon, Bryan, thanks for the question. I'd rather not yet give the number to you, I really would want to, but we're still -- we're really put a lot of energy into this. It started the level of energy toward the end of last year, since I've been here really, really focused on this. And I've spent time with our Head of Franchise IHOP meeting with some folks. And there are there's a very large number of independent operators who are high quality operators that see great value in accessing fleet business, and they can do it in independence. And so, just turning to speed it on converting those to TA’s has created a very large number of a 130 in counting. It's impossible to say right now, it's too early to say how many of those are going to come down to, pass through or sort of a case and qualifications, evaluation by us. But, I can tell you the number this year is going to be I believe, more significant than last year. And my sites really because it gives us time to really ramp this up around ‘20, the next year 2021. And we have a pretty lofty sort of informal performing goals right now for 2021. We are also looking even in franchising, the truck repair business as independent separate from full truck stops, and TA expresses. That’s an another way to grow the business, that’s an another way to support our existing fleet, customers by having more dots on the map to serve them not just on a full truck stop side or TA Express side but also to support them in terms of repair and service.

Okay.

And Bryan, its Barry again. We do negotiate mileage territories for different franchisees really depends on what part of the country they're in because Montana can be a whole lot different than Pennsylvania, so.

Okay. And then working off the assumption that there's not somebody behind me in the queue and maybe Kristin, you can let me know if that's not the case and I'll stop. Maybe a question for Bill would be -- should we expect more of these property level re-financings, where you can get much better rates on the debt than you might whether it's issuing a baby bond or selling something back to SVC. And then also Bill, how should we think about 2020 and to 2022 fuel margins per gallon in light of the biodiesel fuel credits, should we be going back to something in our models from kind of the 2013, ‘14, ‘15 period of time or do you want to provide some input there?

Well, the first I'll say is for your, your first question regarding sources of financing. We certainly are open to, exploring opportunities with financing that is lower costs. And so, we do continue to look at that. As you know, we didn't have any sales to SVC in 2019. And we don't anticipate to have that in 2020. Thankfully, the biodiesel certainly helped along with our cash for 2020. But, we certainly will continue to look at financing options similar to what we just closed in February related to Washington Trust going forward. As far as fuel margins go, I mean, what I'll say is, as you know, the Biodiesel Blenders' Tax Credit for 2020 through ‘22, it's based into the purchase of the biodiesel. So, we are certainly going to get a benefit for that. But, since it's been announcement and the markets adjusted for it a bit, so we don't expected to be nearly what it was in 2019 or 2018.

Okay. And then a big picture question, and maybe it's for Jon and Barry. Your fuel sales were up and maybe just kind of a three part question. So, fuel sales were up and I think in your prepared comments you discussed that you thought it had something to do with the loyalty program that kind of ramped up last year. But, then I also here heard that you have costs a couple of times you talked about the costs associated with that loyalty program. How should we think about that? And then on the tail end of your answer, if you could talk about your thoughts on the Coronavirus impacting international shipping and then what happens to U.S. truck shipping once that the international ports business slows down if in fact that happens. So, I know that there's a lot in that question. So, I'll let you kind of sort out how you want to answer that.

Barry, maybe want to start on the loyalty program and I can give my thoughts on Coronavirus.

Yes. I think we're pretty well stabilized on the loyalty program. So, I think what we saw in the fourth quarter is indicative of where I expect us to be. No, I don't see those costs really ramping up. And I mean, that program has brought to us exactly what we wanted. It's a distinction with our competitors being able to provide rewards that just aren't out in the open marketplace today.

How much of that 5% increase in fuel volume would you and I know it's just a guess but how much would you attribute to the loyalty program? And I guess that makes the question then how should we be thinking about fuel volume sales going forward if in fact a loyalty program really is pushing that number higher.

Well, we are still looking for growth, despite the fact there's a lot of headwinds out there for achieving that, but I think we are going to get there. I'm sure, if I went back and had somebody look it up, I could tell you exactly how much of this was loyalty, or at least I could get close to it. But it's so mixed then with the results from our commercial sales team that they are told when they make calls, so that's something that's appreciated by the fleets and their drivers. So, it all helps and it's all kind of combined. So, it's really difficult to break that.

I'm going to add Bryan too, its Jon again. We are looking really hard. I'm kind of a bit of a process person. And we are looking really hard at everything from how we price in terms of demand to drive sales, how we price at the street. I think we have tremendous opportunity on that site. And I think we really, really underperform. We are looking hard at the process by which we procure how we price, you know, on the fleet side looking at every one of these areas because statement of the obvious was such overall velocity and volume in a company like this just you know, pennies really matter. So, every one of the processes that relate to and lead to demand, we're looking really hard at right now.

On the Coronavirus, this will be a bit of a punch just because I think we are probably all in equal position, you, we to guess at what's going to happen. I mean clearly, as the Coronavirus appeared in Italy, in Western Europe, the market is now responded. How much is going to spread, how quickly will get contained are impossible to anticipate. I know we're taking some basic precautions within the company in terms of international travel, we are discussing what to communicate to our field teams to see whatever precautions might be appropriate. So, we are doing the responsible thing that we can control. Beyond that, it's really hard to anticipate how this is going to spread and what impact if any it will have on us and our company.

Okay great, thanks. That's all for me today.

Thanks Bryan, for your questions.

Thank you.

There are no other questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Jon Pertchik for closing remarks.

Again, thank you for your interest in TA and for your attention this morning. Have a great day.

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