TravelCenters of America Inc. /MD/ - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

Commission File Number: 001-33274



TravelCenters of America Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland		20-5701514
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

	24601 Center Ridge Road, Westlake, OH 44145-5639
	(Address and Zip Code of Principal Executive Offices)

	(440) 808-9100
	(Registrant's Telephone Number, Including Area Code)

	TravelCenters of America LLC
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Shares	TA	The Nasdaq Stock Market LLC
8.25% Senior Notes due 2028	TANNI	The Nasdaq Stock Market LLC
8.00% Senior Notes due 2029	TANNL	The Nasdaq Stock Market LLC
8.00% Senior Notes due 2030	TANNZ	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company x

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of the registrant's common shares outstanding as of August 2, 2019: 8,087,099.

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TABLE OF CONTENTS



		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018	2
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	3
	Consolidated Statements of Shareholders' Equity for the Three Months Ended June 30, 2019 and 2018	4
	Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 2019 and 2018	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	Warning Concerning Forward-Looking Statements	30
PART II — OTHER INFORMATION		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	37
SIGNATURE		39

As used herein the terms "we," "us," "our" and "TA" include TravelCenters of America Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

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Part I. Financial Information

Item 1. Financial Statements

TravelCenters of America Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands)



	June 30, 2019			December 31, 2018
Assets:
Current assets:
Cash and cash equivalents	$	25,785		$	314,387
Accounts receivable (net of allowance for doubtful accounts of $756 and $959 as of June 30, 2019 and December 31, 2018, respectively)	147,620			97,449
Inventory	199,715			196,721
Other current assets	27,437			35,119
Total current assets	400,557			643,676

Property and equipment, net	880,142			628,537
Operating lease assets	1,817,701			—
Goodwill	25,259			25,259
Intangible assets, net	21,683			22,887
Other noncurrent assets	99,988			121,749
Total assets	$	3,245,330		$	1,442,108

Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable	$	194,895		$	120,914
Current operating lease liabilities	97,298			—
Current HPT Leases liabilities	—			42,109
Other current liabilities	153,717			125,668
Total current liabilities	445,910			288,691

Long term debt, net	320,971			320,528
Noncurrent operating lease liabilities	1,898,832			—
Noncurrent HPT Leases liabilities	—			353,756
Other noncurrent liabilities	52,853			28,741
Total liabilities	2,718,566			991,716

Shareholders' equity:
Common shares, no par value, 8,674 shares authorized as of June 30, 2019 and December 31, 2018, and 8,087 and 8,080 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	696,886			695,315
Accumulated other comprehensive income	538			355
Accumulated deficit	(172,099		)	(246,773		)
Total TA shareholders' equity	525,325			448,897
Noncontrolling interest	1,439			1,495
Total shareholders' equity	526,764			450,392
Total liabilities and shareholders' equity	$	3,245,330		$	1,442,108

The accompanying notes are an integral part of these consolidated financial statements.

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TravelCenters of America Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(in thousands, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Fuel	$	1,117,671		$	1,149,486		$	2,100,812		$	2,135,831
Nonfuel	476,082			471,442			916,956			895,317
Rent and royalties from franchisees	3,611			4,049			6,888			8,159
Total revenues	1,597,364			1,624,977			3,024,656			3,039,307

Cost of goods sold (excluding depreciation):
Fuel	1,040,849			1,075,108			1,949,243			1,978,556
Nonfuel	187,498			184,244			355,766			345,655
Total cost of goods sold	1,228,347			1,259,352			2,305,009			2,324,211

Site level operating expense	234,645			228,861			467,365			451,873
Selling, general and administrative expense	39,562			27,480			76,672			63,974
Real estate rent expense	63,770			70,684			130,183			140,920
Depreciation and amortization expense	23,213			21,123			47,972			41,669

Income (loss) from operations	7,827			17,477			(2,545		)	16,660

Interest expense, net	7,164			6,865			14,214			14,445
Other (income) expense, net	(144		)	903			430			2,196
Income (loss) before income taxes and discontinued operations	807			9,709			(17,189		)	19
Benefit (provision) for income taxes	402			(1,071		)	5,669			2,592
Income (loss) from continuing operations	1,209			8,638			(11,520		)	2,611
Loss from discontinued operations, net of taxes	—			(42,562		)	—			(46,613		)
Net income (loss)	1,209			(33,924		)	(11,520		)	(44,002		)
Less: net income for noncontrolling interest	31			54			49			88
Net income (loss) attributable to common shareholders	$	1,178		$	(33,978	)	$	(11,569	)	$	(44,090	)

Other comprehensive income (loss), net of taxes:
Foreign currency gain (loss), net of taxes of $26, $(28), $51 and $(64), respectively	$	15		$	(41	)	$	46		$	(103	)
Equity interest in investee's unrealized gains (losses) on investments	71			10			137			(83		)
Other comprehensive income (loss) attributable to common shareholders	86			(31		)	183			(186		)

Comprehensive income (loss) attributable to common shareholders	$	1,264		$	(34,009	)	$	(11,386	)	$	(44,276	)

Net income (loss) per common share attributable to common shareholders:
Basic and diluted from continuing operations	$	0.15		$	1.07		$	(1.43	)	$	0.32
Basic and diluted from discontinued operations	—			(5.32		)	—			(5.83		)
Basic and diluted	0.15			(4.25		)	(1.43		)	(5.51		)

The accompanying notes are an integral part of these consolidated financial statements.

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TravelCenters of America Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(11,520	)	$	(44,002	)
Less: loss from discontinued operations, net of taxes	—			(46,613		)
(Loss) income from continuing operations	(11,520		)	2,611
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities of continuing operations:
Noncash rent adjustments	(8,487		)	(7,232		)
Depreciation and amortization expense	47,972			41,669
Deferred income tax benefit	(5,134		)	(2,977		)
Changes in operating assets and liabilities:
Accounts receivable	(49,968		)	(37,266		)
Inventory	(2,975		)	(5,029		)
Other assets	7,468			767
Accounts payable and other liabilities	80,282			73,117
Other, net	1,275			10,656
Net cash provided by operating activities of continuing operations	58,913			76,316
Net cash provided by operating activities of discontinued operations	—			5,717
Net cash provided by operating activities	58,913			82,033

Cash flows from investing activities:
Acquisitions of travel centers from HPT	(309,637		)	—
Capital expenditures	(37,189		)	(62,423		)
Proceeds from asset sales to HPT	—			28,345
Proceeds from asset sales	890			—
Other	(1,500		)	141
Net cash used in investing activities of continuing operations	(347,436		)	(33,937		)
Net cash used in investing activities of discontinued operations	—			(5,725		)
Net cash used in investing activities	(347,436		)	(39,662		)

Cash flows from financing activities:
Proceeds from sale leaseback transactions with HPT	—			491
Distributions to noncontrolling interest	(105		)	(101		)
Sale leaseback financing obligation payments	—			(479		)
Other	(55		)	(52		)
Net cash used in financing activities	(160		)	(141		)

Effect of exchange rate changes on cash	81			(123		)
Net (decrease) increase in cash and cash equivalents	(288,602		)	42,107
Cash and cash equivalents at the beginning of the period	314,387			36,082
Cash and cash equivalents at the end of the period	25,785			78,189
Less: cash of discontinued operations at the end of the period	—			548
Cash and cash equivalents of continuing operations at the end of the period	$	25,785		$	77,641

Supplemental disclosure of cash flow information:
Interest paid (including rent classified as interest and net of capitalized interest)	$	13,783		$	14,617
Income taxes paid, net of refunds	106			91

The accompanying notes are an integral part of these consolidated financial statements.

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TravelCenters of America Inc.

Consolidated Statements of Shareholders' Equity (Unaudited)

(in thousands)



	Number of Common Shares		Common Shares		Accumulated Other Comprehensive Income			Accumulated Deficit			Treasury Shares			Total TA Shareholders' Equity			Noncontrolling Interest			Total Shareholders' Equity
March 31, 2019	8,080		$	696,017	$	452		$	(173,277	)	$	—		$	523,192		$	1,484		$	524,676
Grants under share award plan and share based compensation, net	7		869		—			—			(2		)	867			—			867
Retirement of treasury shares	—		—		—			—			2			2			—			2
Distributions to noncontrolling interest	—		—		—			—			—			—			(76		)	(76		)
Other comprehensive income, net of taxes	—		—		86			—			—			86			—			86
Net income	—		—		—			1,178			—			1,178			31			1,209
June 30, 2019	8,087		$	696,886	$	538		$	(172,099	)	$	—		$	525,325		$	1,439		$	526,764

March 31, 2018	8,000		$	692,706	$	425		$	(136,332	)	$	—		$	556,799		$	1,481		$	558,280
Grants under share award plan and share based compensation, net	(46	)	2,143		—			—			—			2,143			—			2,143
Distributions to noncontrolling interest	—		—		—			—			—			—			(101		)	(101		)
Other comprehensive loss, net of taxes	—		—		(31		)	—			—			(31		)	—			(31		)
Net (loss) income	—		—		—			(33,978		)	—			(33,978		)	54			(33,924		)
June 30, 2018	7,954		$	694,849	$	394		$	(170,310	)	$	—		$	524,933		$	1,434		$	526,367

The accompanying notes are an integral part of these consolidated financial statements.

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TravelCenters of America Inc.

Consolidated Statements of Shareholders' Equity (Unaudited)

(in thousands)



	Number of Common Shares		Common Shares		Accumulated Other Comprehensive Income			Accumulated Deficit			Treasury Shares			Total TA Shareholders' Equity			Noncontrolling Interest			Total Shareholders' Equity
December 31, 2018	8,080		$	695,315	$	355		$	(246,773	)	$	—		$	448,897		$	1,495		$	450,392
Grants under share award plan and share based compensation, net	7		1,571		—			—			(2		)	1,569			—			1,569
Retirement of treasury shares	—		—		—			—			2			2			—			2
Distributions to noncontrolling interest	—		—		—			—			—			—			(105		)	(105		)
Other comprehensive income, net of taxes	—		—		183			—			—			183			—			183
Cumulative effect of adoption of ASC 842, net of taxes	—		—		—			86,243			—			86,243			—			86,243
Net (loss) income	—		—		—			(11,569		)	—			(11,569		)	49			(11,520		)
June 30, 2019	8,087		$	696,886	$	538		$	(172,099	)	$	—		$	525,325		$	1,439		$	526,764

December 31, 2017	7,997		$	690,688	$	580		$	(126,220	)	$	—		$	565,048		$	1,447		$	566,495
Grants under share award plan and share based compensation, net	(43	)	4,161		—			—			—			4,161			—			4,161
Distributions to noncontrolling interest	—		—		—			—			—			—			(101		)	(101		)
Other comprehensive loss, net of taxes	—		—		(186		)	—			—			(186		)	—			(186		)
Net (loss) income	—		—		—			(44,090		)	—			(44,090		)	88			(44,002		)
June 30, 2018	7,954		$	694,849	$	394		$	(170,310	)	$	—		$	524,933		$	1,434		$	526,367

The accompanying notes are an integral part of these consolidated financial statements.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)


1.	Business Description and Basis of Presentation

TravelCenters of America Inc. is a Maryland corporation. Prior to August 1, 2019, we were organized as a Delaware limited liability company. As of June 30, 2019, we operated or franchised 301 travel centers, standalone truck service facilities and standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.

On August 1, 2019, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. The common share information included within this Quarterly Report on Form 10-Q, or this Quarterly Report, has been retrospectively adjusted to reflect this reverse stock split for all periods and at all dates presented. See Note 5 for more information about our reverse stock split.

As of June 30, 2019, our business included 258 travel centers in 43 states in the United States, primarily along the U.S. interstate highway system, and the province of Ontario, Canada, operated primarily under the "TravelCenters of America," "TA," "TA Express," "Petro Stopping Centers" and "Petro" brand names. Of our 258 travel centers at June 30, 2019, we owned 51, we leased 181, we operated two for a joint venture in which we own a noncontrolling interest and 24 were owned or leased from others by our franchisees. We operated 232 of our travel centers and franchisees operated 26 travel centers, including two we leased to franchisees. Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, full service restaurants, quick service restaurants and various customer amenities.

As of June 30, 2019, our business included two standalone truck service facilities operated under the "TA Truck Service" brand name. Of our two standalone truck service facilities, we leased one and owned one. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks.

As of June 30, 2019, our business included 41 standalone restaurants in 13 states in the United States operated primarily under the "Quaker Steak & Lube," or QSL, brand name. Of our 41 standalone restaurants at June 30, 2019, we operated 15 restaurants (six we owned, eight we leased and one we operated for a joint venture in which we own a noncontrolling interest) and 26 were owned or leased from others and operated by our franchisees.

We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because it facilitates our discussion of trends and operational initiatives within our business and industry. We have a single travel center located in a foreign country, Canada, that we do not consider material to our operations.

On December 5, 2018, we sold 225 convenience stores, one standalone restaurant and certain related assets, or our convenience stores business, pursuant to an agreement we entered into on September 1, 2018. As a result, the results of our convenience stores business are reported as discontinued operations for the three and six months ended June 30, 2018, in our consolidated statements of operations and comprehensive income (loss). See Note 4 for more information about our discontinued operations.

The accompanying consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. The disclosures presented do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or our Annual Report. In the opinion of our management, the accompanying consolidated financial statements include all adjustments, including normal recurring adjustments, considered necessary for a fair presentation. All intercompany transactions and balances have been eliminated. While our revenues are modestly seasonal, the quarterly variations in our operating results may reflect greater seasonal differences because our rent expense and certain other costs do not vary seasonally. For this and other reasons, our operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

Reclassifications. Certain prior year amounts have been reclassified to be consistent with the current year presentation within our consolidated financial statements.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Fair Value Measurement

Senior Notes

We collectively refer to our $110,000 of 8.25% Senior Notes due 2028, our $120,000 of 8.00% Senior Notes due 2029 and our $100,000 of 8.00% Senior Notes due 2030 as our Senior Notes, which are our senior unsecured obligations. We estimate that, based on their trading prices (a Level 1 input), the aggregate fair value of our Senior Notes on June 30, 2019, was $333,296.

Changes in Accounting Principles

In February 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update 2016-02, Leases, and in August 2018, the FASB issued Accounting Standards Update 2018-11, Targeted Improvements to ASC 842, collectively referred to as ASC 842, which established a comprehensive lease standard under GAAP for virtually all industries. We adopted ASC 842 on January 1, 2019, using the modified retrospective transition method, and elected to not restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases. See Note 6 for more information about the impact of ASC 842.

In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation - Stock Compensation, or ASU 2018-07, which aligns the accounting for share based payments to nonemployees with the accounting for share based payments to employees. We adopted ASU 2018-07 on January 1, 2019, using the modified retrospective transition method, which had no impact on our prior year comparative period. Historically, compensation expense related to share awards granted to nonemployees was determined based on the vesting date fair value. Under ASU 2018-07, compensation expense relating to all share awards is now measured at the grant date fair value and amortized to expense over the related vesting period. Upon adoption of ASU 2018-07, share awards to nonemployees were remeasured using the adoption date fair value, or the market value of our shares as of January 1, 2019. We include share based compensation expense in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss).


2.	Revenues

We recognize revenues based on the consideration specified in the contract with the customer, excluding any sales incentives (such as customer loyalty programs and customer rebates) and amounts collected on behalf of third parties (such as sales and excise taxes). The majority of our revenues are generated at the point of sale in our retail locations. Revenues consist of fuel revenues, nonfuel revenues and rents and royalties from franchisees.

Disaggregation of Revenues

We disaggregate our revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in our consolidated statements of operations and comprehensive income (loss). Nonfuel revenues disaggregated by type of good or service for the three and six months ended June 30, 2019 and 2018, were as follow:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Nonfuel revenues:
Store and retail services	$	193,895	$	187,935	$	374,320	$	358,325
Truck service	173,431		176,115		334,626		332,635
Restaurant	108,756		107,392		208,010		204,357
Total nonfuel revenues	$	476,082	$	471,442	$	916,956	$	895,317

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Contract Liabilities

Our contract liabilities, which are presented in our consolidated balance sheets in other current and other noncurrent liabilities, primarily include deferred revenues related to our customer loyalty programs, gift cards, rebates payable to customers and other deferred revenues. The following table shows the changes in our contract liabilities between periods.



	Customer Loyalty Programs			Other			Total
December 31, 2017	$	15,165		$	4,681		$	19,846
Increases due to unsatisfied performance obligations arising during the period	81,517			10,083			91,600
Revenues recognized from satisfying performance obligations during the period	(74,548		)	(10,064		)	(84,612		)
Other	(6,644		)	(1,230		)	(7,874		)
December 31, 2018	15,490			3,470			18,960
Increases due to unsatisfied performance obligations arising during the period	48,904			6,479			55,383
Revenues recognized from satisfying performance obligations during the period	(42,840		)	(5,311		)	(48,151		)
Other	(4,718		)	(621		)	(5,339		)
June 30, 2019	$	16,836		$	4,017		$	20,853

As of June 30, 2019, we expect the unsatisfied performance obligations relating to our customer loyalty programs will be satisfied within 12 months.


3.	Acquisitions

In January 2019, we entered into agreements with Hospitality Properties Trust, or HPT, or the Transaction Agreements, pursuant to which, among other things, we purchased 20 travel centers for $309,637, which amount includes $1,437 of transaction related costs. These acquisitions were accounted for as asset acquisitions that resulted in the derecognition of certain operating lease assets and liabilities for a net recognized aggregate cost basis of the acquired assets of $284,902. See Note 6 for more information about the Transaction Agreements and our leases with HPT and Note 9 for more information about our relationship with HPT.

As of June 30, 2019, we had entered into agreements to acquire one travel center property and certain assets for $11,600, which we expect to account for as a business acquisition, and two parcels of land for a total purchase price of $2,428, which we expect to account for as asset acquisitions. We expect to complete these acquisitions in the fourth quarter of 2019, but these purchases are subject to conditions and may not occur, may be delayed or the terms may change.


4.	Discontinued Operations

On December 5, 2018, we completed the sale of our convenience stores business for an aggregate sales price of $330,609, pursuant to an agreement we entered into on September 1, 2018. We received net proceeds from this sale of $319,853 after transaction related costs of $9,650 and cash sold of $1,106. For more information about our discontinued operations, refer to Note 4 to the Consolidated Financial Statements in our Annual Report.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

The following table presents the results of operations for our discontinued operations for the three and six months ended June 30, 2018.



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Revenues	$	216,101		$	386,844
Cost of goods sold (excluding depreciation)	177,611			317,315
Site level operating expense	27,423			53,971
Selling, general and administrative expense	2,872			4,799
Real estate rent expense	573			1,149
Depreciation and amortization expense	8,795			15,797
Impairment of goodwill	51,500			51,500
Loss from discontinued operations before income taxes	(52,673		)	(57,687		)
Benefit for income taxes	10,111			11,074
Loss from discontinued operations, net of taxes	$	(42,562	)	$	(46,613	)


5.	Earnings Per Share from Continuing Operations

On August 1, 2019, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. 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 us at the closing price of our common shares on July 31, 2019. The common share information included within this Quarterly Report has been retrospectively adjusted to reflect this reverse stock split.

The following table presents a reconciliation of income (loss) from continuing operations to income (loss) from continuing operations available to common shareholders and the related earnings per share.



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019			2018
Income (loss) from continuing operations	$	1,209	$	8,638	$	(11,520	)	$	2,611
Less: net income for noncontrolling interest	31		54		49			88
Income (loss) from continuing operations attributable to common shareholders	1,178		8,584		(11,569		)	2,523
Less: income (loss) from continuing operations attributable to participating securities	46		427		(450		)	126
Income (loss) from continuing operations available to common shareholders	$	1,132	$	8,157	$	(11,119	)	$	2,397

Weighted average common shares⁽¹⁾	7,770		7,605		7,767			7,601

Basic and diluted income (loss) per common share from continuing operations attributable to common shareholders	$	0.15	$	1.07	$	(1.43	)	$	0.32

⁽¹⁾

Reflects the retrospective adjustment related to the reverse stock split completed on August 1, 2019, and excludes unvested shares awarded under our share award plans, which shares are considered participating securities because they participate equally in earnings and losses with all of our other common shares. The weighted average number of unvested shares outstanding for the three months ended June 30, 2019 and 2018, was 313 and 398, respectively. The weighted average number of unvested shares outstanding for the six months ended June 30, 2019 and 2018, was 314 and 400, respectively.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)


6.	Leasing Transactions

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method and elected to not restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases.

As a result of adopting ASC 842 on January 1, 2019, we recognized operating lease assets of $1,785,866 and operating lease liabilities of $1,996,957. We also recognized an adjustment to our beginning accumulated deficit, net of taxes, of $86,243 consisting of (i) the previously recognized deferred gain on sale leaseback transactions of $113,712, (ii) the previously recognized liability for certain failed sale leaseback transactions recognized as financings of $1,591 and (iii) the related tax effect of $29,060.

As a Lessee

We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our five leases with HPT, which are further described below. Certain of our leases include renewal options and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. As of June 30, 2019, all of our leases were classified as operating leases.

Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the HPT Leases (as defined below).

Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the three and six months ended June 30, 2019, our lease costs consisted of the following:



	Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease costs: HPT Leases	Real estate rent expense	$	59,424		$	121,544
Operating lease costs: other	Real estate rent expense	2,752			5,476
Variable lease costs: HPT Leases	Real estate rent expense	1,465			2,886
Variable lease costs: other	Real estate rent expense	129			277
Total real estate rent expense		63,770			130,183
Operating lease costs: equipment and other	Site level operating expense and selling, general and administrative expense	647			1,217
Short-term lease costs	Site level operating expense and selling, general and administrative expense	732			1,545
Sublease income	Nonfuel revenues	(591		)	(1,155		)
Net lease costs		$	64,558		$	131,790

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year and the amount of those liabilities as of June 30, 2019, were as follows:



	HPT Leases⁽¹⁾			Other			Total
Years ended December 31:
2019	$	135,712		$	3,493		$	139,205
2020	271,331			6,073			277,404
2021	270,794			4,952			275,746
2022	268,931			3,922			272,853
2023	255,338			2,697			258,035
Thereafter	2,289,605			7,890			2,297,495
Total operating lease payments	3,491,711			29,027			3,520,738
Less: present value discount⁽²⁾	(1,519,135		)	(5,473		)	(1,524,608		)
Present value of operating lease liabilities	$	1,972,576		$	23,554		$	1,996,130


⁽¹⁾	Includes rent for properties we sublease from HPT and pay directly to HPT's landlords.


⁽²⁾	The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the leases, if available, or our incremental borrowing rate.

The weighted average remaining lease term as of June 30, 2019, was 14 years. Our weighted average discount rate as of June 30, 2019, was 9.4%.

During the six months ended June 30, 2019, we paid $138,670 for amounts that had been included in the measurement of our operating lease liabilities.

As of June 30, 2019, our operating lease assets and liabilities consisted of the following:



	HPT Leases		Other		Total
Operating lease assets	$	1,795,375	$	22,326	$	1,817,701
Current operating lease liabilities	91,638		5,660		97,298
Noncurrent operating lease liabilities	1,880,938		17,894		1,898,832

As previously disclosed in our Annual Report and under the previous lease accounting standard, future minimum lease payments required under leases that had remaining noncancelable lease terms in excess of one year as of December 31, 2018, were as follows (included herein are the full payments then due under the HPT Leases, including the amount attributed to the lease of those sites that were accounted for as a financing as of December 31, 2018, in our consolidated balance sheet as reflected in the sale leaseback financing obligations):



	Total
Years ended December 31:
2019	$	302,855
2020	301,220
2021	299,393
2022	296,551
2023	295,534
Thereafter	1,980,078
Total	$	3,475,631

The amounts in the table above are as of December 31, 2018, and do not reflect the $43,148 annual minimum rent reduction resulting from the Transaction Agreements entered into in January 2019, as further described below.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Leasing Agreements with HPT

As of June 30, 2019, we leased from HPT a total of 179 properties under five leases, four of which we refer to as the TA Leases and one of which we refer to as the Petro Lease, and which we refer to collectively as the HPT Leases. In January 2019, we entered into the Transaction Agreements, pursuant to which:


•	In January 2019, we purchased from HPT 20 travel center properties, which we previously leased from HPT, for a total purchase price of $309,637, including $1,437 of transaction related costs.


•	As a result of our purchases of the 20 travel center properties, our annual minimum rent due to HPT was reduced by $43,148.


•	The term of each HPT Lease was extended by three years.


•	Commencing on April 1, 2019, we paid to HPT the first of 16 quarterly installments of approximately $4,404 each (an aggregate of $70,458) to fully satisfy and discharge our $150,000 deferred rent obligation to HPT that otherwise would have become due in five installments between 2024 and 2030.


•	Commencing with the year ending December 31, 2020, we will be obligated to pay to HPT an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of our annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019.


•	Certain of the 179 travel center properties that we continue to lease from HPT were reallocated among the HPT Leases.

As a result of the Transaction Agreements, our operating lease assets and liabilities each increased by $23,673. In addition, the purchase of the 20 travel center properties resulted in the derecognition of certain lease assets and liabilities. See Note 3 for more information about these acquisitions.

In addition to the payment of annual minimum rent, the TA Leases provide for payment to HPT of percentage rent, based on increases in total nonfuel revenues at a property over base year levels (3.0% of nonfuel revenues above 2015 nonfuel revenues) and the Petro Lease provides for payment to HPT of percentage rent based on increases in total nonfuel revenues at a property over base year levels at such property (3.0% of nonfuel revenues above 2012 nonfuel revenues). The percentage rent amounts due were $958 and $862 for the three months ended June 30, 2019 and 2018, respectively, and $2,027 and $1,672 for the six months ended June 30, 2019 and 2018, respectively.

We recognized total rent expense under the HPT Leases of $60,889 and $68,068 for the three months ended June 30, 2019 and 2018, respectively, and $124,430 and $135,706 for the six months ended June 30, 2019 and 2018, respectively.

During the six months ended June 30, 2018, we sold to HPT $28,836 of improvements we made to properties leased from HPT; as a result, pursuant to the terms of the HPT Leases, our annual minimum rent payable to HPT increased by $2,451. During the six months ended June 30, 2019, we did not sell to HPT any improvements we made to properties leased from HPT. At June 30, 2019, our property and equipment balance included $26,095 of improvements of the type that we typically request that HPT purchase for an increase in annual minimum rent; however, we may elect not to sell some of those improvements and HPT is not obligated to purchase these improvements.

Pursuant to a rent deferral agreement with HPT, deferred rent shall be accelerated and interest shall begin to accrue thereon at 1.0% per month on the deferred rent amounts if certain events occur, including: our default under the HPT Leases; a change of control of us, as defined in the deferral agreement; or our declaration or payment of a dividend or other distribution in respect of our common shares.

The HPT Leases allow us to sublease a portion of the leased properties to a third party. We sublease a portion of certain travel centers to third parties to operate other retail operations, which are classified as operating leases. We recognized sublease rental income of $591 and $598 for the three months ended June 30, 2019 and 2018, respectively, and $1,155 and $1,178 for the six months ended June 30, 2019 and 2018, respectively.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

The following table summarizes the various amounts related to the HPT Leases that were included in our consolidated balance sheet as of December 31, 2018.



	December 31, 2018
Current HPT Leases liabilities:
Accrued rent	$	24,721
Sale leaseback financing obligations⁽¹⁾	1,032
Straight line rent accrual⁽²⁾	2,458
Deferred gain⁽³⁾	10,128
Deferred tenant improvements allowance⁽⁴⁾	3,770
Total current HPT Leases liabilities	$	42,109

Noncurrent HPT Leases liabilities:
Deferred rent obligation⁽⁵⁾	$	150,000
Sale leaseback financing obligations⁽¹⁾	22,365
Straight line rent accrual⁽²⁾	46,431
Deferred gain⁽³⁾	100,913
Deferred tenant improvements allowance⁽⁴⁾	34,047
Total noncurrent HPT Leases liabilities	$	353,756

⁽¹⁾

Sale Leaseback Financing Obligations. As of December 31, 2018, the assets related to two travel centers we leased from HPT were reflected in our consolidated balance sheet, as were the related financing obligations. This accounting was required primarily because, at the time of the inception of the prior leases with HPT, more than a minor portion of these two travel centers was subleased to third parties. Upon adoption of ASC 842 on January 1, 2019, these failed sale leasebacks were reclassified as operating leases, which resulted in a gain that was recognized in our beginning accumulated deficit. See above for more information about the impact of adopting ASC 842.

⁽²⁾

Straight Line Rent Accrual. As of December 31, 2018, the straight line rent accrual included the accrued rent expense from 2007 to 2012 for stated increases in our annual minimum rent due under our then existing TA Lease. The TA Leases we entered into in connection with a transaction agreement we entered into with HPT in 2015 contain no stated rent payment increases. Prior to the adoption of ASC 842, we amortized this accrual on a straight line basis over the current terms of the TA Leases as a reduction of real estate rent expense. The straight line rent accrual also included our obligation for the estimated cost of removing underground storage tanks at properties leased from HPT at the end of the related lease; we recognized these obligations on a straight line basis over the term of the related leases as additional real estate rent expense. As of January 1, 2019, the straight line rent accrual was reclassified as a reduction to our operating lease assets and the obligation for the estimated cost of removal of underground storage tanks was reclassified to other noncurrent liabilities.

⁽³⁾

Deferred Gain. The deferred gain primarily includes $145,462 of gains from the sales of travel centers and certain other assets to HPT during 2015 and 2016. Prior to the adoption of ASC 842, we amortized the deferred gains on a straight line basis over the terms of the related leases as a reduction of real estate rent expense. Upon adoption of ASC 842 on January 1, 2019, we recognized the unamortized deferred gain of $85,053, net of taxes, in our beginning accumulated deficit. See above for more information about the impact of adopting ASC 842.

⁽⁴⁾

Deferred Tenant Improvements Allowance. HPT funded certain capital projects at the properties we lease under the HPT Leases without an increase in rent payable by us. In connection with HPT's initial capital commitment, we recognized a liability for rent deemed to be related to this capital commitment as a deferred tenant improvements allowance. Prior to the adoption of ASC 842, we amortized the deferred tenant improvements allowance on a straight line basis over the terms of the HPT Leases as a reduction of real estate rent expense. Upon the adoption of ASC 842 on January 1, 2019, the unamortized balance of the deferred tenant improvements allowance was reclassified as a reduction to our operating lease assets.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

⁽⁵⁾

Deferred Rent Obligation. Pursuant to a rent deferral agreement with HPT, we previously deferred as of December 31, 2010, a total of $150,000 of rent payable to HPT, which remained outstanding as of December 31, 2018, and had been due in five installments between 2024 and 2030. Upon the adoption of ASC 842 on January 1, 2019, these future lease payments were included in our calculation of our operating lease assets and liabilities and the deferred rent obligation was reclassified as a reduction to our operating lease assets. In January 2019, as described above and pursuant to the terms of the Transaction Agreements, our deferred rent obligation was reduced to $70,458, payable in 16 equal quarterly installments commencing on April 1, 2019, and our operating lease assets and liabilities were remeasured using these revised payment amounts.

As a Lessor

As of June 30, 2019, we leased two travel centers to franchisees. These two lease agreements expire in June 2022. These leases include rent escalations that are contingent on future events, namely inflation or our investing in capital improvements at these travel centers. During the six months ended June 30, 2018, we leased four travel centers to franchisees, one of which expired prior to June 30, 2018, and one expired in the 2018 third quarter. Rent revenue from these operating leases totaled $599 and $815 for the three months ended June 30, 2019 and 2018, respectively, and $1,150 and $1,812 for the six months ended June 30, 2019 and 2018, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of June 30, 2019, was $1,125 for the remainder of 2019, $2,250 for each of the years 2020 and 2021 and $1,125 for 2022.


7.	Revolving Credit Facility

On July 19, 2019, we and certain of our subsidiaries, as borrowers or guarantors, entered into an amendment, or the Amendment, to our amended and restated loan and security agreement, or the Credit Facility, dated October 25, 2011, 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 us; (iv) reduce the sublimit for issuance of letters of credit under the Credit Facility from $170,000 to $125,000; and (v) make certain adjustments to the borrowing base calculation in a manner we believe favorable to us.

Under the Credit Facility, a maximum of $200,000 may be drawn, repaid and redrawn until maturity. The availability of the maximum amount is subject to limits based on qualified collateral. Subject to available collateral and lender participation, the maximum amount of this Credit Facility may be increased to $300,000. The Credit Facility may be used for general business purposes and allows for the issuance of letters of credit. Generally, no principal payments are due until maturity. Under the terms of the Credit Facility, interest is payable on outstanding borrowings at a rate based on, at our option, LIBOR or a base rate, plus a premium (which premium is subject to adjustment based upon facility availability, utilization and other matters).

As of July 19, 2019, the applicable margin was 1.25% for LIBOR borrowings and standby letter of credit fees, 0.25% for Base Rate borrowings and 0.625% for commercial letter of credit fees, in each case subject to adjustment based on facility availability, utilization and other matters. As of July 19, 2019, the unused line fee was 0.25% per annum, subject to adjustment according to the average daily principal amount of unused commitments under the Credit Facility.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

The Credit Facility requires us to maintain certain levels of collateral, limits our ability to incur debt and liens, restricts us from making certain investments and paying dividends and other distributions, requires us to maintain a minimum fixed charge ratio under certain circumstances and contains other customary covenants and conditions. The Credit Facility provides for the acceleration of principal and interest payments upon an event of default including, but not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the Credit Facility, and our default under certain contracts, including our leases with HPT and our business management agreement with The RMR Group LLC, or RMR. Our Credit Facility is secured by substantially all of our cash, accounts receivable, inventory, equipment and intangible assets. The amount available to us is determined by reference to a borrowing base calculation based on eligible collateral. At June 30, 2019, based on our qualified collateral, a total of $142,143 was available to us for loans and letters of credit under the Credit Facility. At June 30, 2019, there were no loans outstanding under the Credit Facility but we had outstanding $14,813 of letters of credit issued under that facility, securing certain trade payables, insurance, fuel tax and other obligations. These letters of credit reduce the amount available for borrowing under the Credit Facility, leaving $127,330 available for use as of that date.


8.	Business Management Agreement with RMR

RMR provides us certain services pursuant to a business management agreement that we require to operate our business, and which relate to various aspects of our business. We incurred aggregate fees payable to RMR of $3,246 and $3,650 for the three months ended June 30, 2019 and 2018, respectively, and $6,269 and $6,960 for the six months ended June 30, 2019 and 2018, respectively, for these services. In addition, we recognized internal audit costs of $71 and $55 for the three months ended June 30, 2019 and 2018, respectively, and $142 and $124 for the six months ended June 30, 2019 and 2018, respectively, for reimbursements to RMR pursuant to our business management agreement. These amounts are included in selling, general and administrative expense and loss from discontinued operations, net of taxes in our consolidated statements of operations and comprehensive income (loss). For more information about our relationship with RMR please refer to Note 9 of this Quarterly Report and Notes 13 and 14 to the Consolidated Financial Statements in our Annual Report.


9.	Related Party Transactions

We have relationships and historical and continuing transactions with HPT, RMR, Affiliates Insurance Company, or AIC, and others related to them, including other companies to which RMR or its subsidiaries provide management services and which have directors, trustees and officers who are also our Directors or officers.

Relationship with HPT

We are HPT's largest tenant and HPT is our principal landlord and largest shareholder. As of June 30, 2019, HPT owned 684 of our common shares, representing approximately 8.5% of our outstanding common shares.

As of June 30, 2019, we leased from HPT a total of 179 properties under the HPT Leases. RMR provides management services to both us and HPT, and Adam D. Portnoy, the Chair of our Board of Directors and one of our Managing Directors, also serves as a managing trustee of HPT and is chair of HPT's board of trustees. See Note 6 for more information about our lease agreements and transactions with HPT.

Relationship with RMR

We have an agreement with RMR to provide management services to us. Adam D. Portnoy is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc., and The RMR Group Inc. is the managing member of RMR. See Note 8 for more information regarding our management agreement with RMR. As of June 30, 2019, RMR owned 299 of our common shares, representing approximately 3.7% of our outstanding common shares.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Relationship with AIC

We, HPT and five other companies to which RMR provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders historically participated in a combined property insurance program arranged and reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of June 30, 2019 and December 31, 2018, our investment in AIC had a carrying value of $9,303 and $8,632, respectively. These amounts are included in other noncurrent assets in our consolidated balance sheets. We recognized income of $130 and $12 related to our investment in AIC for the three months ended June 30, 2019 and 2018, respectively, and $534 and $56 for the six months ended June 30, 2019 and 2018, respectively, which amounts are included in other (income) expense, net in our consolidated statements of operations and comprehensive income (loss). Our other comprehensive income (loss) attributable to common shareholders includes our proportionate share of unrealized gains (losses) on fixed income securities held for sale, which are owned by AIC, related to our investment in AIC.

For more information about these and other such relationships and certain other related party transactions, refer to our Annual Report.


10.	Contingencies

Environmental Contingencies

Extensive environmental laws regulate our operations and properties. These laws may require us to investigate and clean up hazardous substances, including petroleum or natural gas products, released at our owned and leased properties. Governmental entities or third parties may hold us liable for property damage and personal injuries, and for investigation, remediation and monitoring costs incurred in connection with any contamination and regulatory compliance at our locations. We use both underground storage tanks and above ground storage tanks to store petroleum products, natural gas and other hazardous substances at our locations. We must comply with environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting and financial assurance for corrective action in the event of a release. At some locations we must also comply with environmental laws relative to vapor recovery or discharges to water. Under the terms of the HPT Leases, we generally have agreed to indemnify HPT for any environmental liabilities related to properties that we lease from HPT and we are required to pay all environmental related expenses incurred in the operation of the leased properties. We have entered into certain other agreements in which we have agreed to indemnify third parties for environmental liabilities and expenses resulting from our operations.

From time to time we have received, and in the future likely will receive, notices of alleged violations of environmental laws or otherwise have become or will become aware of the need to undertake corrective actions to comply with environmental laws at our locations. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances at our locations. In some cases we have received, and may receive in the future, contributions to partially offset our environmental costs from insurers, from state funds established for environmental clean up associated with the sale of petroleum products or from indemnitors who agreed to fund certain environmental related costs at locations purchased from those indemnitors. To the extent we incur material amounts for environmental matters for which we do not receive or expect to receive insurance or other third party reimbursement and for which we have not previously recorded a liability, our operating results may be materially adversely affected. In addition, to the extent we fail to comply with environmental laws and regulations, or we become subject to costs and requirements not similarly experienced by our competitors, our competitive position may be harmed.

At June 30, 2019, we had an accrued liability of $3,658 for environmental matters as well as a receivable for expected recoveries of certain of these estimated future expenditures of $1,659, resulting in an estimated net amount of $1,999 that we expect to fund in the future. We cannot precisely know the ultimate costs we may incur in connection with currently known environmental related violations, corrective actions, investigation and remediation; however, we do not expect the costs for such matters to be material, individually or in the aggregate, to our financial position or results of operations.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

We currently have insurance of up to $20,000 per incident and up to $20,000 in the aggregate for certain environmental liabilities, subject, in each case, to certain limitations and deductibles, which expires in June 2021. However, we can provide no assurance that we will be able to maintain similar environmental insurance coverage in the future on acceptable terms.

We cannot predict the ultimate effect changing circumstances and changing environmental laws may have on us in the future or the ultimate outcome of matters currently pending. We cannot be certain that contamination presently unknown to us does not exist at our sites, or that a material liability will not be imposed on us in the future. If we discover additional environmental issues, or if government agencies impose additional environmental requirements, increased environmental compliance or remediation expenditures may be required, which could have a material adverse effect on us.

Legal Proceedings

We are routinely involved in various legal and administrative proceedings, including tax audits, incidental to the ordinary course of our business. We do not expect that any litigation or administrative proceedings in which we are presently involved, or of which we are aware, will have a material adverse effect on our business, financial condition, results of operations or cash flows.

On April 5, 2019, two plaintiffs filed a class action complaint against us in Ohio state court alleging that certain credit and debit card receipts printed by us included more information than permitted by the Fair and Accurate Credit Transactions Act. The complaint does not seek any actual damages, but plaintiffs seek statutory damages for the individual plaintiffs and members of the class, as well as declaratory relief, punitive damages, attorneys' fees and costs. In June 2019, we filed a motion to dismiss. On July 5, 2019, plaintiffs filed an amended complaint, which added a request for injunctive relief and on August 2, 2019, we filed a renewed motion to dismiss. We intend to vigorously defend against these claims. However, the outcome of litigation is inherently uncertain and we are not able to assess our exposure at this time.


11.	Inventory

Inventory at June 30, 2019 and December 31, 2018, consisted of the following:



	June 30, 2019		December 31, 2018
Nonfuel products	$	166,719	$	163,302
Fuel products	32,996		33,419
Total inventory	$	199,715	$	196,721

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or our Annual Report. Amounts are in thousands of dollars or gallons unless indicated otherwise. Unless the context indicates otherwise, references to our truck service facilities and restaurants refer to our standalone truck service facilities and restaurants and not the truck service facilities and restaurants located at our travel centers.

On August 1, 2019, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. The common share information included within this Quarterly Report has been retrospectively adjusted to reflect this reverse stock split. See Note 5 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our reverse stock split.

Company Overview

As of June 30, 2019, we operated or franchised 258 travel centers, two standalone truck service facilities and 41 standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.

Executive Summary of Financial Results

During the three months ended June 30, 2019 and 2018, we had income before income taxes and discontinued operations of $807 and $9,709, respectively. The $8,902 decrease in our income before income taxes and discontinued operations was primarily due to the following factors:


•	selling, general and administrative expense increased $12,082, which was primarily due to $10,082 of reimbursed litigation costs collected from Comdata Inc., or Comdata, during April 2018;


•	site level gross margin in excess of site level operating expense declined $2,392, which primarily resulted from higher maintenance costs and the hiring and training of additional truck service personnel to support the planned increase in sales in that department; and


•	depreciation and amortization expense increased $2,090, primarily as a result of the 20 travel centers acquired from Hospitality Properties Trust, or HPT, in January 2019.

The factors noted above for the decrease in our income before income taxes and discontinued operations were partially offset by a decrease in real estate rent expense of $6,914, which was primarily due to the decrease in annual minimum rent as a result of the agreements entered into with HPT in January 2019, or the Transaction Agreements.

During the six months ended June 30, 2019 and 2018, we had a loss before income taxes and discontinued operations of $17,189 and income before income taxes and discontinued operations of $19, respectively. The $17,208 change in our (loss) income before income taxes and discontinued operations was primarily due to the following factors:


•	selling, general and administrative expense increased $12,698, which was primarily due to $10,082 of reimbursed litigation costs collected from Comdata during April 2018;


•	site level gross margin in excess of site level operating expense declined $10,941, which primarily resulted from the $23,251 benefit from the federal biodiesel blenders' tax credit that was retroactively reinstated for 2017 and recognized in February 2018 that has not yet been reinstated for 2018; and


•	depreciation and amortization expense increased $6,303, primarily as a result of the 20 travel centers acquired from HPT in January 2019.

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The factors noted above for the change in our income before income taxes and discontinued operations were partially offset by a decrease in real estate rent expense of $10,737, which was primarily due to the decrease in annual minimum rent as a result of the Transaction Agreements.

Excluding the benefit of the federal biodiesel blenders' tax credit recognized in the 2018 first quarter of $23,251, loss before income taxes and discontinued operations would have improved by $6,043 for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. The improvement was primarily due to a higher fuel gross margin as a result of an increase in fuel sales volume and a more favorable fuel purchasing environment in the six months ended June 30, 2019, than the six months ended June 30, 2018.

Although, as of the date of this Quarterly Report, the U.S. government has not yet retroactively reinstated the federal biodiesel blenders' tax credit for 2018 or 2019, we believe 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, we expect the reinstatement may reduce our fuel cost of goods sold by approximately $35,000 relating to 2018 and $17,000 relating to the first six months of 2019 in the period the U.S. government enacts the tax credit reinstatement. Although we believe reinstatement of this credit is possible, we cannot be certain that the U.S. government will choose to do so. We have not recognized any amount of the expected federal biodiesel blenders' tax credit for 2018 or 2019.

Effects of Fuel Prices and Supply and Demand Factors

Our revenues and income are subject to material changes as a result of market prices and the availability of diesel fuel and gasoline. These factors are subject to the worldwide petroleum products supply chain, which historically has experienced price and supply volatility as a result of, among other things, severe weather, terrorism, political crises, military actions and variations in demand that are often the result of changes in the macroeconomic environment. Also, concerted efforts by major oil producing countries and cartels to influence oil supply may impact prices. In addition, other actions by governments regarding trade policies may impact fuel prices, such as the U.S. presidential administration's recent statements indicating that it may not extend the duration of previously granted waivers to certain countries from the U.S. presidential administration's sanctions on purchases of oil from Iran.

Over the past few years there have been significant changes in the cost of fuel. During the first three months of 2019, fuel prices trended upward, ending at a 15.6% higher price than at the beginning of the period. During the three months ended June 30, 2019, fuel prices trended downward, ending at a 3.8% lower price than at the beginning of the period. During the three and six months ended June 30, 2018, fuel prices trended upward ending at an 11.7% and 9.3% higher price, respectively, than at the beginning of those periods. The average fuel price during the three and six months ended June 30, 2019, was 7.3% and 4.2%, respectively, lower than the average fuel price during the three and six months ended June 30, 2018. We generally are able to pass changes in our cost for fuel products to our customers, but typically with a delay, such that during periods of rising fuel commodity prices, fuel gross margin per gallon tends to be lower than it otherwise may have been and during periods of falling fuel commodity prices, fuel gross margin per gallon tends to be higher than it otherwise may have been. Increases in the prices we pay for fuel can have negative effects on our sales and profitability and increase our working capital requirements.

Due to the volatility of our fuel costs and our methods of pricing fuel to our customers, we believe that fuel revenues are not a reliable metric for analyzing our results of operations from period to period. As a result solely of changes in fuel prices, our fuel revenues may materially increase or decrease, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volume or in fuel gross margin. We therefore consider fuel sales volume, fuel gross margin, nonfuel revenues and nonfuel gross margin to be better measures of our performance.

We believe that demand for fuel by trucking companies and motorists for a constant level of miles driven will continue to decline over time because of technological innovations that improve fuel efficiency of motor vehicle engines, other fuel conservation practices and alternative fuels and technologies. Although we believe these factors, combined with competitive pressures, impact the level of fuel sales volume we realized on a same site basis, fuel sales volume increased both on a consolidated and same site basis during the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018. We believe these increases resulted from improved market conditions and the success of our marketing initiatives.

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Factors Affecting Comparability

Lease Amendments and Travel Center Purchases

In January 2019, we acquired from HPT 20 travel centers we previously leased from HPT for $309,637, which amount includes $1,437 of transaction related costs, and amended our five existing leases with HPT such that: (i) the 20 purchased travel centers were removed from the applicable leases and our annual minimum rent was reduced by $43,148; (ii) the term of each of the leases was extended by three years; (iii) the amount of the deferred rent obligation to be paid to HPT was reduced from $150,000 to $70,458 and we began to pay that amount in 16 equal quarterly installments commencing on April 1, 2019; and (iv) commencing with the year ended December 31, 2020, we will be obligated to pay to HPT an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of the annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019. These lease amendments are further described in Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Sale of Convenience Stores Business

On December 5, 2018, we sold 225 convenience stores, one standalone restaurant and certain related assets, or the convenience stores business, for an aggregate sale price of $330,609, resulting in net proceeds of $319,853 after transaction related costs and cash sold. As a result of the completion of this sale, the results of the convenience stores business are presented as discontinued operations for the three and six months ended June 30, 2018, in our consolidated statements of operations and comprehensive income (loss). See Note 4 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our discontinued operations.

Recently Acquired Sites

We believe that travel centers we acquire or develop generally require a three year period after they open under our operation, and any related renovations are completed, to reach our expected stabilized financial results.

During the 12 months ended June 30, 2019, we acquired operation of two travel centers, one from a franchisee that owned the site and one from a franchisee that previously leased the site from us, for a total investment (including the planned costs of initial improvements) of $14,126 as of June 30, 2019. These two sites generated site level gross margin in excess of site level operating expense of $1,182 for the 12 months ended June 30, 2019. Prior to acquiring these travel centers, we collected rent and royalties from these franchisees totaling $1,083 and $1,253 during the 12 months ended June 30, 2019 and 2018, respectively.

During the 12 months ended June 30, 2018, we acquired operation of two travel centers, one from a franchisee that owned the site and one from a franchisee that previously leased the site from us, for a total investment (including the costs of initial improvements) of $18,992 as of June 30, 2019. These two sites generated site level gross margin in excess of site level operating expense of $3,673 and $2,192 during the 12 months ended June 30, 2019 and 2018, respectively. Prior to acquiring these travel centers, we collected rent and royalties from these franchisees totaling $1,239 during the 12 months ended June 30, 2018.

Growth Strategies

Thus far in 2019, we have entered into seven franchise agreements with four franchisees under our travel center brand names; one of these franchised travel centers opened during the 2019 second quarter and we anticipate the remaining six travel centers will be added to our network by the end of the 2020 first quarter. In addition, we have entered into an agreement with one of these franchisees pursuant to which we expect to add two additional franchised travel centers to our network, one within five years and the other within 10 years.

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Adoption of New Lease Accounting Standard

On January 1, 2019, we adopted Accounting Standards Update 2016-02, Leases, and Accounting Standards Update 2018-11, Targeted Improvements to ASC 842, collectively referred to as ASC 842, which established a comprehensive lease standard under U.S. generally accepted accounting principles for virtually all industries. We adopted ASC 842 using the modified retrospective transition method and elected not to restate prior year comparative periods. Upon adoption, we recognized an adjustment to our beginning accumulated deficit, net of taxes, of $86,243, which had previously been recognized on a straight line basis over the terms of the HPT Leases as a reduction of real estate rent expense. We also recognized operating lease assets of $1,785,866 and total operating lease liabilities of $1,996,957 as of January 1, 2019. See Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of ASC 842.

Seasonality

Our sales volumes are generally lower in the first and fourth quarters than the second and third quarters of each year. In the first quarter, the movement of freight by professional truck drivers as well as motorist travel are usually at their lowest levels of the calendar year. In the fourth quarter, freight movement is typically lower due to the holiday season. While our revenues are modestly seasonal, quarterly variations in our operating results may reflect greater seasonal differences as our rent expense and certain other costs do not vary seasonally.

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Results of Operations

As part of this discussion and analysis of our operating results, we refer to increases and decreases in results on a same site basis. We include a location in the same site comparisons only if we continuously operated it since the beginning of the earliest comparative period presented, except we do not include locations we operate that are owned by an unconsolidated joint venture in which we own a noncontrolling interest. Same site data also excludes revenues and expenses at locations not operated by us, such as rents and royalties from franchisees, and corporate level selling, general, and administrative expense, as well as the revenues and expenses associated with our discontinued operations. We do not exclude locations from the same site comparisons as a result of capital improvements to the site or changes in the services offered.

Consolidated Financial Results

The following table presents changes in our operating results for the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018.



	Three Months Ended June 30,								Six Months Ended June 30,
	2019			2018			Change		2019			2018			Change
Revenues:
Fuel	$	1,117,671		$	1,149,486		(2.8	)%	$	2,100,812		$	2,135,831		(1.6	)%
Nonfuel	476,082			471,442			1.0	%	916,956			895,317			2.4	%
Rent and royalties from franchisees	3,611			4,049			(10.8	)%	6,888			8,159			(15.6	)%
Total revenues	1,597,364			1,624,977			(1.7	)%	3,024,656			3,039,307			(0.5	)%

Gross margin:
Fuel⁽¹⁾	76,822			74,378			3.3	%	151,569			157,275			(3.6	)%
Nonfuel	288,584			287,198			0.5	%	561,190			549,662			2.1	%
Rent and royalties from franchisees	3,611			4,049			(10.8	)%	6,888			8,159			(15.6	)%
Total gross margin⁽¹⁾	369,017			365,625			0.9	%	719,647			715,096			0.6	%

Site level operating expense	234,645			228,861			2.5	%	467,365			451,873			3.4	%
Selling, general and administrative expense	39,562			27,480			44.0	%	76,672			63,974			19.8	%
Real estate rent expense	63,770			70,684			(9.8	)%	130,183			140,920			(7.6	)%
Depreciation and amortization expense	23,213			21,123			9.9	%	47,972			41,669			15.1	%

Income (loss) from operations	7,827			17,477			(55.2	)%	(2,545		)	16,660			(115.3	)%

Interest expense, net	7,164			6,865			4.4	%	14,214			14,445			(1.6	)%
Other (income) expense, net	(144		)	903			(115.9	)%	430			2,196			(80.4	)%
Income (loss) before income taxes and discontinued operations	807			9,709			(91.7	)%	(17,189		)	19			NM
Benefit (provision) for income taxes	402			(1,071		)	137.5	%	5,669			2,592			118.7	%
Income (loss) from continuing operations	1,209			8,638			(86.0	)%	(11,520		)	2,611			(541.2	)%
Loss from discontinued operations, net of taxes	—			(42,562		)	NM		—			(46,613		)	NM
Net income (loss)	1,209			(33,924		)	103.6	%	(11,520		)	(44,002		)	73.8	%
Less: net income for noncontrolling interests	31			54			(42.6	)%	49			88			(44.3	)%
Net income (loss) attributable to common shareholders	$	1,178		$	(33,978	)	103.5	%	$	(11,569	)	$	(44,090	)	73.8	%

⁽¹⁾

The amount for the six months ended June 30, 2019, includes $2,840 of a one time benefit due to the reversal of loyalty award accruals recognized in connection with introducing a revised customer loyalty program, and the amount for the six months ended June 30, 2018, includes the $23,251 benefit from the federal biodiesel blenders' tax credit that the U.S. government retroactively reinstated for 2017 in February 2018. The U.S. government has not yet reinstated the federal biodiesel blenders' tax credit for 2018 or 2019.

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The following table presents our same site operating results for the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018.



	Three Months Ended June 30,								Six Months Ended June 30,
	2019			2018			Change		2019			2018			Change
Number of same site company operated locations	241			241			—		241			241			—

Diesel sales volume (gallons)	417,930			402,612			3.8	%	818,178			790,506			3.5	%
Gasoline sales volume (gallons)	71,221			74,653			(4.6)	%	131,059			137,840			(4.9)	%
Total fuel sales volume (gallons)	489,151			477,265			2.5	%	949,237			928,346			2.3	%

Fuel revenues	$	1,082,594		$	1,127,213		(4.0)	%	$	2,035,211		$	2,097,030		(2.9)	%
Fuel gross margin⁽¹⁾	76,289			73,598			3.7	%	150,442			155,754			(3.4)	%
Fuel gross margin per gallon	$	0.156		$	0.154		1.3	%	$	0.158		$	0.168		(6.0)	%

Nonfuel revenues	$	470,663		$	469,367		0.3	%	$	904,890		$	892,085		1.4	%
Nonfuel gross margin	285,272			285,764			(0.2)	%	553,597			547,283			1.2	%
Nonfuel gross margin percentage	60.6		%	60.9		%	(30	)pts	61.2		%	61.3		%	(10	)pts

Total gross margin⁽¹⁾	$	361,561		$	359,362		0.6	%	$	704,039		$	703,037		0.1	%
Site level operating expense	230,520			226,961			1.6	%	459,141			448,871			2.3	%
Site level operating expense as a percentage of nonfuel revenues	49.0		%	48.4		%	60	pts	50.7		%	50.3		%	40	pts
Site level gross margin in excess of site level operating expense⁽¹⁾	$	131,041		$	132,401		(1.0)	%	$	244,898		$	254,166		(3.6)	%

⁽¹⁾

The amount for the six months ended June 30, 2019, includes $2,812 of a one time benefit due to the reversal of loyalty award accruals recognized in connection with introducing a revised customer loyalty program, and the amount for the six months ended June 30, 2018, includes the $23,234 benefit from the federal biodiesel blenders' tax credit that the U.S. government retroactively reinstated for 2017 in February 2018. The U.S. government has not yet reinstated the federal biodiesel blenders' tax credit for 2018 or 2019.

Three months ended June 30, 2019, as compared to the three months ended June 30, 2018

Fuel Revenues. Fuel revenues for the three months ended June 30, 2019, decreased as compared to the three months ended June 30, 2018, by $31,815, or 2.8%. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods.



	Gallons Sold		Fuel Revenues
Results for the three months ended June 30, 2018	486,447		$	1,149,486
Decrease due to petroleum products price changes			(65,536		)
Increase due to same site volume changes	11,886		25,624
Increase due to locations opened	4,301		8,764
Decrease due to locations closed	(32	)	(74		)
Decrease in wholesale fuel sales volume	(256	)	(593		)
Net change from prior year period	15,899		(31,815		)
Results for the three months ended June 30, 2019	502,346		$	1,117,671

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The decrease in fuel revenues for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, was primarily due to a decrease in market prices for fuel. The decrease was partially offset by an increase in fuel sales volume at same sites and new sites.

Nonfuel Revenues. Nonfuel revenues for the three months ended June 30, 2019, increased by $4,640, or 1.0%, as compared to the three months ended June 30, 2018, primarily as a result of sales at new sites and a $1,296 increase on a same site basis. The increase on a same site basis was primarily due to the positive impact of certain of our 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 wetter and cooler weather.

Rent and Royalties from Franchisees Revenues. Rent and royalties from franchisees revenues for the three months ended June 30, 2019, decreased by $438, or 10.8%, as compared to the three months ended June 30, 2018, primarily as a result of the purchase of three travel centers from former franchisees and the closure of seven franchised standalone restaurants since the beginning of the three months ended June 30, 2018.

Fuel Gross Margin. Fuel gross margin for the three months ended June 30, 2019, increased by $2,444, or 3.3%, as compared to the three months ended June 30, 2018, primarily due to the increase in gasoline gross margin as a result of managing sales pricing to balance sales volume and profitability. Diesel fuel gross margin was essentially flat for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, primarily due to a slightly lower gross margin per gallon, which was largely offset by an increase in diesel fuel sales volume.

Nonfuel Gross Margin. Nonfuel gross margin for the three months ended June 30, 2019, increased by $1,386, or 0.5%, as compared to the three months ended June 30, 2018, due to the increase in nonfuel revenues. Nonfuel gross margin percentage was 60.6% and 60.9% for the three months ended June 30, 2019 and 2018, respectively. The decline in the nonfuel gross margin percentage was primarily due to a change in the mix of products and services sold.

Site Level Operating Expense. Site level operating expense for the three months ended June 30, 2019, increased by $5,784, or 2.5%, as compared to the three months ended June 30, 2018, primarily due to increased labor costs in store and retail services and truck service to support our growth initiatives, as well as higher maintenance costs and property taxes. Site level operating expense as a percentage of nonfuel revenues was 49.3% for the three months ended June 30, 2019, as compared to 48.5% for the three months ended June 30, 2018. The increase in this percentage reflects, among other things, the hiring and training of additional truck service personnel to support the planned increase in sales in that department.

Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended June 30, 2019, increased by $12,082, or 44.0%, as compared to the three months ended June 30, 2018. This increase was primarily due to $10,082 of reimbursed litigation costs collected from Comdata during the three months ended June 30, 2018, and increased compensation expense as a result of annual salary increases and increased headcount, partially offset by $1,792 of expenses related to an executive officer retirement agreement recognized in the three months ended June 30, 2018.

Real Estate Rent Expense. Real estate rent expense for the three months ended June 30, 2019, decreased by $6,914, or 9.8%, as compared to the three months ended June 30, 2018. The decrease in real estate rent expense was primarily the result of our purchase of 20 travel centers from HPT in January 2019, which reduced our annual minimum rent due to HPT by $43,148, partially offset by increases that resulted from our sales to, and lease back from, HPT of improvements at leased sites during 2018.

Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2019, increased by $2,090, or 9.9%, as compared to the three months ended June 30, 2018. This increase primarily resulted from an increase, since June 30, 2018, in our amount of depreciable assets as a result of the locations we acquired (primarily the 20 travel centers acquired from HPT in January 2019) and other capital investments we completed (and did not subsequently sell to HPT).

Benefit (Provision) for Income Taxes. We had a benefit for income taxes of $402 for the three months ended June 30, 2019, due to certain income tax credits that more than offset the provision calculated at our effective tax rate. We had a provision for income taxes of $1,071 for the three months ended June 30, 2018. The change in the benefit (provision) for income taxes is primarily due to lower pretax income recognized in the three months ended June 30, 2019, as compared to the three months ended June 30, 2018.

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Six months ended June 30, 2019, as compared to the six months ended June 30, 2018

Fuel Revenues. Fuel revenues for the six months ended June 30, 2019, decreased as compared to the six months ended June 30, 2018, by $35,019, or 1.6%. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods.



	Gallons Sold		Fuel Revenues
Results for the six months ended June 30, 2018	944,693		$	2,135,831
Decrease due to petroleum products price changes			(97,305		)
Increase due to same site volume changes	20,891		44,855
Increase due to locations opened	9,392		19,029
Decrease due to locations closed	(373	)	(778		)
Decrease in wholesale fuel sales volume	(355	)	(820		)
Net change from prior year period	29,555		(35,019		)
Results for the six months ended June 30, 2019	974,248		$	2,100,812

The decrease in fuel revenues for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, was primarily due to a decrease in market prices for fuel. The decrease was partially offset by an increase in fuel sales volume at same sites and new sites.

Nonfuel Revenues. Nonfuel revenues for the six months ended June 30, 2019, increased by $21,639, or 2.4%, as compared to the six months ended June 30, 2018, primarily as a result of a $12,805 increase on a same site basis and sales at new sites. The increase on a same site basis was primarily due to the positive impact of certain of our marketing initiatives in store and retail services.

Rent and Royalties from Franchisees Revenues. Rent and royalties from franchisees revenues for the six months ended June 30, 2019, decreased by $1,271, or 15.6%, as compared to the six months ended June 30, 2018, primarily as a result of the purchase of three travel centers from former franchisees and the closure of seven franchised standalone restaurants since the beginning of 2018.

Fuel Gross Margin. Fuel gross margin for the six months ended June 30, 2019, decreased by $5,706, or 3.6%, as compared to the six months ended June 30, 2018, primarily as a result of the $23,251 benefit recognized in the six months ended June 30, 2018, in connection with the February 2018 reinstatement for 2017 of the federal biodiesel blenders' tax credit, partially offset by an increase in fuel sales volume and a more favorable fuel purchasing environment in the six months ended June 30, 2019, than in the six months ended June 30, 2018. As of the date of this Quarterly Report, the U.S. government has not enacted legislation reinstating the federal biodiesel blenders' tax credit for 2018 or 2019 and we have not recognized any amounts for the expected federal biodiesel blenders' tax credit for 2018 or 2019.

Nonfuel Gross Margin. Nonfuel gross margin for the six months ended June 30, 2019, increased by $11,528, or 2.1%, as compared to the six months ended June 30, 2018, due to the increase in nonfuel revenues. Nonfuel gross margin percentage was 61.2% and 61.4% for the six months ended June 30, 2019 and 2018, respectively. The slight decline in the nonfuel gross margin percentage was primarily due to a change in the mix of products and services sold.

Site Level Operating Expense. Site level operating expense for the six months ended June 30, 2019, increased by $15,492, or 3.4%, as compared to the six months ended June 30, 2018, primarily due to increased labor costs to support the increase in nonfuel sales, as well as higher maintenance costs and property taxes. Site level operating expense as a percentage of nonfuel revenues was 51.0% for the six months ended June 30, 2019, as compared to 50.5% for the six months ended June 30, 2018. The increase in this percentage reflects, among other things, the hiring and training of additional truck service personnel to support the planned increase in sales in that department.

Selling, General and Administrative Expense. Selling, general and administrative expense for the six months ended June 30, 2019, increased by $12,698, or 19.8%, as compared to the six months ended June 30, 2018. This increase was primarily due to $10,082 of reimbursed litigation costs collected from Comdata during the six months ended June 30, 2018, and an increase in compensation expense as a result of annual salary increases and increased headcount, partially offset by $3,571 of expenses related to an executive officer retirement agreement recognized in the six months ended June 30, 2018.

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Real Estate Rent Expense. Real estate rent expense for the six months ended June 30, 2019, decreased by $10,737, or 7.6%, as compared to the six months ended June 30, 2018. The decrease in real estate rent expense was primarily the result of our purchase of 20 travel centers from HPT in January 2019, which reduced our annual minimum rent due to HPT by $43,148, partially offset by increases that resulted from our sales to, and lease back from, HPT of improvements at leased sites during 2018.

Depreciation and Amortization Expense. Depreciation and amortization expense for the six months ended June 30, 2019, increased by $6,303, or 15.1%, as compared to the six months ended June 30, 2018. This increase primarily resulted from an increase, since June 30, 2018, in our amount of depreciable assets as a result of the locations we acquired (primarily the 20 travel centers acquired from HPT in January 2019) and other capital investments we completed (and did not subsequently sell to HPT).

Benefit for Income Taxes. We had a benefit for income taxes of $5,669 and $2,592 for the six months ended June 30, 2019 and 2018, respectively. The increase in the benefit for income taxes is primarily due to a pretax loss recognized in the six months ended June 30, 2019, as compared to pretax income recognized in the six months ended June 30, 2018.

Liquidity and Capital Resources

Our principal liquidity requirements are to meet our operating and financing costs and to fund our capital expenditures, acquisitions and working capital requirements. Our principal sources of liquidity to meet these requirements are our:


•	cash balance;


•	operating cash flow;


•	our revolving credit facility, or our Credit Facility, with a current maximum availability of $200,000 subject to limits based on our qualified collateral;


•	sales to HPT of improvements we make to the sites we lease from HPT;


•	potential issuances of new debt and equity securities; and


•	potential financing or selling of unencumbered real estate that we own.

We believe that the primary risks we currently face with respect to our operating cash flow are:


•	continuing decreased demand for our fuel products resulting from regulatory and market efforts for improved engine fuel efficiency, fuel conservation and alternative fuels and technologies;


•	decreased demand for our products and services that we may experience as a result of competition or otherwise;


•	the fixed nature of a significant portion of our expenses, which may restrict our ability to realize a sufficient reduction in our expenses to offset a reduction in our revenues;


•	the costs and funding that may be required to execute our growth initiatives;


•	the possible inability of acquired or developed properties to generate the stabilized financial results we expected at the time of acquisition or development;


•	increasing labor cost inflation;


•	increasing market interest rates that may increase our cost of capital;


•	the risk of an economic slowdown or recession in the U.S. economy; and


•	the negative impacts on our gross margins and working capital requirements if there were a return to the higher level of prices for petroleum products we experienced in prior years or due to increases in the cost of our fuel or nonfuel products resulting from inflation generally.

Our business requires substantial amounts of working capital, including cash liquidity, and our working capital requirements can be especially large because of the volatility of fuel prices. Our growth strategy of selectively acquiring additional properties and businesses and developing new sites requires us to expend substantial capital for any such properties, businesses or developments. In addition, our properties are high traffic sites with many customers and large trucks entering and exiting our properties daily, requiring us to expend capital to maintain, repair and improve our properties. Although we had a cash balance of $25,785 at June 30, 2019, and net cash provided by operating activities of $58,913 for the six months ended June 30, 2019, we cannot be sure that we will maintain sufficient amounts of cash, that we will generate future profits or positive cash flows or that we will be able to obtain additional financing, if and when it becomes necessary or desirable to pursue business opportunities.

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Proceeds from Sale of Convenience Stores Business

In December 2018, we sold our convenience stores business for an aggregate sales price of $330,609. This sale generated net cash proceeds of approximately $319,853 after transaction related costs and cash sold. See Note 4 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the sale of our convenience stores business.

Lease Amendments and Travel Center Purchases

In January 2019, we acquired from HPT 20 travel centers we previously leased from HPT for $309,637, which amount includes $1,437 of transaction related costs, and amended our leases with HPT, providing for, among other things, a $43,148 reduction in our annual minimum rent payments and payment in 16 equal quarterly installments, which began on April 1, 2019, of deferred rent that aggregate to $70,458 to fully satisfy and discharge our previous $150,000 deferred rent obligation. See Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about these lease amendments.

Revolving Credit Facility

On July 19, 2019, we entered into an amendment, or the Amendment, to our Credit Facility. The Amendment amended our Credit Facility to, among other things: (i) extend the maturity of the Credit Facility 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; (iv) reduce the sublimit for issuance of letters of credit under the Credit Facility from $170,000 to $125,000; and (v) make certain adjustments to the borrowing base calculation. Under the Credit Facility, a maximum of $200,000 may be drawn, repaid and redrawn until maturity. See Note 7 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the Amendment.

The availability of the maximum amount is subject to limits based on qualified collateral. Subject to available collateral and lender participation, the maximum amount of this Credit Facility may be increased to $300,000. The Credit Facility may be used for general business purposes and allows for the issuance of letters of credit. Generally, no principal payments are due until maturity. Under the terms of the Credit Facility, interest is payable on outstanding borrowings at a rate based on, at our option, LIBOR or a base rate, plus a premium (which premium is subject to adjustment based upon facility availability, utilization and other matters). At June 30, 2019, based on our qualified collateral, a total of $142,143 was available to us for loans and letters of credit under the Credit Facility. At June 30, 2019, there were no loans outstanding under the Credit Facility but we had outstanding $14,813 of letters of credit issued under that facility, which reduced the amount available for borrowing under the Credit Facility, leaving $127,330 available for our use as of that date.

Sources and Uses of Cash

During the six months ended June 30, 2019 and 2018, we had net cash inflows from operating activities of continuing operations of $58,913 and $76,316, respectively. This $17,403 decrease was primarily due to the reimbursement of litigation costs from Comdata and the enactment of the federal biodiesel blenders' tax credit during the six months ended June 30, 2018, that did not recur during the six months ended June 30, 2019. This decrease was partially offset by higher operating cash flow in the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, after excluding the impact of the Comdata litigation costs and the federal biodiesel blenders' tax credit.

During the six months ended June 30, 2019 and 2018, we had net cash outflows from investing activities of continuing operations of $347,436 and $33,937, respectively. The increase in net cash outflows from investing activities of continuing operations primarily resulted from the purchase for $309,637 of 20 travel centers we previously leased from HPT, and also reflects reduced amounts of capital expenditures and sales of improvements to HPT in the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. See Notes 3 and 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our transactions with HPT.

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Related Party Transactions

We have relationships and historical and continuing transactions with HPT, The RMR Group LLC, or RMR, Affiliates Insurance Company, or AIC, and others related to them. For example: HPT is our former parent company, our largest shareholder and our principal landlord; RMR provides management services to both us and to HPT and RMR employs certain of our and HPT's executive officers, as well as our Managing Directors and HPT's managing trustees, and, as of June 30, 2019, HPT and RMR owned approximately 8.5% and 3.7%, respectively, of our outstanding common shares. We also have relationships and historical and continuing transactions with other companies to which RMR or its subsidiaries provide management services and some of which may have directors, trustees and officers who are also directors, trustees or officers of us, HPT or RMR. For further information about these and other such relationships and related party transactions, see Notes 6, 8 and 9 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report, our Annual Report, our definitive Proxy Statement for our 2019 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, please see the section captioned "Risk Factors" of our Annual Report for a description of risks that may arise as a result of these and other related party transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related parties, including our business management agreement with RMR and our various agreements with HPT, are available as exhibits to our filings with the SEC and accessible at the SEC's website, www.sec.gov. We may engage in additional transactions with related parties, including businesses to which RMR or its subsidiaries provide management services.

Environmental and Climate Change Matters

Legislation and regulation regarding climate change, including greenhouse gas emissions, and other environmental matters and market reaction to any such legislation or regulation or to climate change concerns, may decrease the demand for our fuel products, may require us to expend significant amounts and may otherwise negatively impact our business. For instance, federal and state governmental requirements addressing emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency's, or EPA's, gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor fuel, as well as new fuel efficiency standards for medium and heavy duty commercial trucks, have caused us to add certain services and provide certain products to our customers at a cost to us that we may be unable to pass through to our customers. Also, various private initiatives and government regulations to promote fuel efficiency that raise the cost of trucking as compared to other types of freight transport, may decrease the demand for our fuel products and negatively impact our business.

For example, in August 2016 the EPA and the National Highway Traffic Safety Administration established final regulations that will phase in more stringent greenhouse gas emission and fuel efficiency standards for medium and heavy duty trucks beginning in model year 2021 (model year 2018 for certain trailers) through model year 2027, and these regulations are estimated to reduce fuel usage between 9% and 25% (depending on vehicle category) by model year 2027. Under the Trump Administration, the EPA and the U.S. Department of Transportation have publicly announced that they will review and reconsider various rules relating to greenhouse gas emissions and fuel efficiency standards for trucks and other motor vehicles, including portions of the rule discussed above, and have proposed, for example, changes to the rule's application to certain types of vehicles. It is difficult to predict what, if any, changes to the existing rule will ultimately occur as a result of the Trump Administration's review or as a result of related legal challenges and, if changes occur, what impact those changes would have on our industry, us or our business. We may not be able to completely offset the loss of business we may suffer as a result of increasing engine efficiency and other fuel conservation efforts under this rule or as a result of other existing or future regulation or changes in customer demand.

Some observers believe severe weather activities in different parts of the country over the last few years evidence global climate change. Such severe weather that may result from climate change may have an adverse effect on individual properties we own, lease or operate, or the volume of business at our locations. We mitigate these risks by owning, leasing and operating a diversified portfolio of properties, by procuring insurance coverage we believe adequately protects us from material damages and losses and by attempting to monitor and be prepared for such events. However, there can be no assurance that our mitigation efforts will be sufficient or that storms that may occur due to future climate change or otherwise could not have a material adverse effect on our business.

For further information about these and other environmental and climate change matters, and the related risks that may arise, see the disclosure under the heading "Environmental Contingencies" in Note 10 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report, which disclosure is incorporated herein by reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at June 30, 2019.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2019, there were no changes to our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Warning Concerning Forward-Looking Statements

This Quarterly Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever we use words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "will," "may" and negatives and derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Among others, the forward-looking statements that appear in this Quarterly Report that may not occur include statements that:

•

Our operating results for the three and six months ended June 30, 2019, reflect certain improvements such as increases in nonfuel revenues and nonfuel gross margin over the same period last year. This may imply that we will increase or maintain these improvements and that we will be profitable in the future. However, certain of these improvements resulted from unique items that may not occur in the future. In addition, customer demand and competitive conditions, among other factors, may significantly impact our nonfuel revenues and the costs of our nonfuel products may increase in the future because of inflation or other reasons. If nonfuel sales volume declines, if we are not able to pass increases in nonfuel costs to our customers or if our nonfuel sales mix changes in a manner that negatively impacts our nonfuel gross margin, our nonfuel revenues or our nonfuel gross margin may decline. In fact, since we became a public company in 2007, we have been able to produce only occasional profits and we have accumulated significant losses. We may be unable to produce future profits and our losses may increase;

•

We expect that locations we acquire, develop or renovate will produce stabilized financial results after a period of time following acquisition, development or renovation. This statement may imply that stabilization of our acquired, developed or renovated sites will occur as expected, and if so, will generate increased operating income. However, many of the locations we have acquired or may acquire in the future produced operating results that caused the prior owners to exit these businesses. Our ability to operate these acquired, developed or renovated locations profitably depends upon many factors, some of which are beyond our control. Accordingly, these locations may not generate increased operating income or it may take longer than we expect to realize any such increases;

•

We have made acquisitions and developed new locations and we may make acquisitions and develop new locations in the future including adding sites through franchising. Managing and integrating acquired, developed or franchised locations can be difficult, time consuming and/or more expensive than anticipated and involve risks of financial losses. We may not operate our acquired or developed locations as profitably as we may expect. In addition, acquisitions or property development may subject us to greater risks than our continuing operations, including the assumption of unknown liabilities;

•

We believe the U.S. government may retroactively reinstate the federal biodiesel blenders' tax credit for 2018 and 2019 before the end of 2019 and that we may recognize a reduction in our fuel cost of goods sold for the refund from this credit of approximately $35.0 million relating to 2018 and $17.0 million relating to the first six months of 2019, respectively, in the period in which the U.S. government enacts the tax credit reinstatement. However, the U.S. government may not retroactively reinstate this tax credit at the level we expect or at all and we may not realize the reductions in our fuel cost of goods sold that we expect. In addition, these statements about the federal biodiesel blenders' tax credit may imply that the U.S. government will extend or retroactively reinstate the federal biodiesel blenders’ tax credit for future years. However, the U.S. government may choose not to do so;

•

Statements about the franchise agreements we entered with franchisees pursuant to which we expect to add TA branded travel centers to our network, as well as, the pipeline of site acquisition opportunities being pursued. These franchise agreements are subject to conditions and these franchise arrangements may not occur or may be delayed, and the terms of the arrangements may change. In addition, acquisition opportunities may not occur or may subject us to greater risks than anticipated. These opportunities may not result in the increased EBITDA and cash flows as expected;

•

We expect to realize increased sales from our truck service programs and have incurred costs to hire and train additional truck service personnel to support that planned increase in sales. Our truck services are subject to significant and increasing competition. We may not realize the increased sales from our truck services that we expect and any increased sales we may realize may not exceed the increased costs we incur;

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•

We have a Credit Facility with a current maximum availability of $200.0 million. The availability of this maximum amount is subject to limits based on our qualified collateral, including our eligible cash, accounts receivable and inventory, that varies in amount from time to time. Accordingly, our borrowing and letter of credit availability at any time may be less than $200.0 million. At June 30, 2019, based on our eligible collateral at that date, our borrowing and letter of credit availability was $142.1 million, of which we had used $14.8 million for outstanding letters of credit. The maximum amount available under the Credit Facility may be increased to $300.0 million, the availability of which is subject to limits based on our available collateral and lender participation. However, if we do not have sufficient collateral or if we are unable to identify lenders willing to increase their commitments or join our Credit Facility, we may not be able to increase the size of our Credit Facility or the availability of borrowings when we may want or need to do so; and


•	We may seek to finance or sell unencumbered real estate that we own. However, we do not know the extent to which we can monetize our existing unencumbered real estate or what the terms of any such financing or sale would be.

These and other unexpected results may be caused by various factors, some of which are beyond our control, including:


•	Continued improved fuel efficiency of motor vehicle engines and other fuel conservation and alternative fuel practices and sources employed or used by our customers and alternative fuel technologies or other means of transportation that may be developed and widely adopted in the future may continue to reduce the demand for the fuel that we sell and may adversely affect our business;


•	Competition within the travel center, truck repair and restaurant industries may adversely impact our financial results. Our business requires substantial amounts of working capital and our competitors may have greater financial and other resources than we do;


•	Future increases in fuel prices may reduce the demand for the products and services that we sell;


•	Future commodity fuel price increases, fuel price volatility or other factors may cause us to need more working capital to maintain our inventory and carry our accounts receivable at higher balances than we now expect and the general availability of, demand for and pricing of motor fuels may change in ways which lower the profitability associated with our selling motor fuels;

•

Our suppliers may be unwilling or unable to maintain the current credit terms for our purchases. If we are unable to purchase goods on reasonable credit terms, our required working capital may increase and we may incur material losses. Also, in times of rising fuel and nonfuel prices, our suppliers may be unwilling or unable to increase the credit amounts they extend to us, which may increase our working capital requirements. The availability and the terms of any credit we may be able to obtain are uncertain;

•

Most of our trucking company customers transact business with us by use of fuel cards issued by third party fuel card companies. Fuel card companies facilitate payments to us and charge us fees for these services. The fuel card industry has only a few significant participants. We believe almost all trucking companies use only a single fuel card provider and have become increasingly dependent upon services provided by their respective fuel card provider to manage their fleets. Continued lack of competition among fuel card companies may result in future increases in our transaction fee expenses or working capital requirements, or both;


•	Our labor costs may continue to increase in response to business and market demands and conditions, business opportunities or pursuant to legal requirements;


•	Fuel supply disruptions may occur, which may limit our ability to purchase fuel for resale;


•	If trucking companies are unable to satisfy market demands for transporting goods or if the use of other means of transporting goods increases, the trucking industry may experience reduced business, which would negatively affect our business, results of operations and liquidity;


•	Compliance with, and changes to, federal, state and local laws and regulations, including those related to tax, employment and environmental matters, accounting rules and financial reporting standards, payment card industry requirements and similar matters may increase our operating costs and reduce or eliminate our profits;


•	We are routinely involved in litigation. Discovery during litigation and court decisions often have unanticipated results. Litigation is usually expensive and can be distracting to management. We cannot be sure of the outcome of any of the litigation matters in which we are or may become involved;

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•	Acts of terrorism, geopolitical risks, wars, outbreaks of so called pandemics or other man made or natural disasters beyond our control may adversely affect our financial results; and


•	Although we believe that we benefit from our relationships with our related parties, including HPT, RMR and others affiliated with them, actual and potential conflicts of interest with related parties may present a contrary perception or result in litigation, and the benefits we believe we may realize from the relationships may not materialize.

Results that differ from those stated or implied by our forward-looking statements may also be caused by various changes in our business or market conditions as described more fully in our Annual Report, including under "Warning Concerning Forward-Looking Statements" and elsewhere in this Quarterly Report and in the "Risk Factors" section of our Annual Report.

You should not place undue reliance upon forward-looking statements. Except as required by law, we undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.

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Part II. Other Information

Item 1. Legal Proceedings

The disclosure under the heading "Legal Proceedings" in Note 10 to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, or this Quarterly Report, is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes during the period covered by this Quarterly Report to the risk factors previously disclosed under the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or our Annual Report, except for the additions below.

Ownership limitations and certain other provisions in our charter, bylaws and certain material agreements may deter, delay or prevent a change in our control or unsolicited acquisition proposals.

Our charter, or our Articles, and amended and restated bylaws, or bylaws, contain provisions that prohibit any stockholder from owning more than 5% (in value or in number of shares, whichever is more restrictive) of any class or series of our outstanding shares of capital stock, including our common stock. The 5% ownership limitation in our Articles and bylaws is consistent with our contractual obligations with Hospitality Properties Trust, or HPT, to not take actions that may conflict with HPT’s status as a REIT under the Code and is intended to help us preserve the tax treatment of our tax credit carryforwards, net operating losses and other tax benefits. We also believe these provisions promote good orderly governance. However, these provisions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a stockholder may consider favorable.

Additionally, other provisions contained in our Articles and bylaws may also inhibit acquisitions of a significant stake in us and deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a stockholder may consider favorable, including, for example, provisions relating to:


•	the division of our Board of Directors into three classes, with the term of one class expiring at each annual meeting of stockholders;


•	the authority of our Board of Directors, and not our stockholders, to adopt, amend or repeal our bylaws and to fill vacancies on the Board of Directors;


•	limitations on the ability of stockholders to cause a special meeting of stockholders to be held and a prohibition on stockholders acting by written consent unless the consent is a unanimous consent of all our stockholders entitled to vote on the matter;


•	required qualifications for an individual to serve as a Director and a requirement that certain of our Directors be “Managing Directors” and other Directors be “Independent Directors,” as defined in the governing documents;


•	the power of our Board of Directors, without stockholders’ approval, to authorize and issue additional shares of stock of any class or type on terms that it determines;


•	limitations on the ability of our stockholders to propose nominees for election as Directors and propose other business to be considered at a meeting of stockholders;


•	a requirement that an individual Director may be removed only for cause (as defined in our Articles) and then only by the affirmative vote of stockholders entitled to cast 75% of the votes entitled to be cast in the election of directors;


•	a requirement that any matter that is not approved by our Board of Directors receive the affirmative vote of stockholders entitled to cast 75% of the votes entitled to be cast on the matter;


•	our elections being subject to Section 3-601 et seq. of the Maryland General Corporation Law, which generally prohibits us from engaging in a business combination with an interested stockholder (as defined in the statute);


•	requirements that stockholders comply with regulatory requirements (including Illinois, Louisiana, Montana and Nevada gaming and Indiana insurance licensing requirements) affecting us which could effectively limit stock ownership of us, including in some cases, to 5% of our outstanding shares of common stock; and

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•	requirements that any person nominated to be a Director comply with any clearance and pre-clearance requirements of state gaming or insurance licensing laws applicable to our business.

In addition, the HPT Leases, our business management agreement with The RMR Group LLC, or RMR, and our credit agreement for our $200.0 million secured revolving credit facility, or our Credit Facility, each provide that our rights and benefits under those agreements may be terminated in the event that anyone acquires more than 9.8% of our shares of capital stock or we experience some other change in control, as defined in those agreements, without the consent of HPT, RMR or the lenders under our Credit Facility, respectively. In addition, our obligation to repay deferred rent then outstanding under our amended leases with HPT may be accelerated if, among other things, a Director not nominated or elected by the then members of our Board of Directors is elected to our Board of Directors or if our stockholders adopt a proposal (other than a precatory proposal) not recommended for adoption by the then members of our Board of Directors. For these reasons, among others, our stockholders may be unable to realize a change in control premium for securities they own of us or otherwise effect a change of our policies or a change of our control.

Our rights and the rights of our stockholders to take action against our Directors, officers, HPT and RMR are limited.

Our governing documents limit the liability of our Directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our Directors and officers will not have any liability to us and our stockholders for money damages other than liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services; or (ii) active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

Our Articles also generally require us, to the fullest extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, our present and former Directors and officers, HPT, RMR, and the respective trustees, directors and officers of HPT and RMR for losses they may incur arising from claims or actions in which any of them may be involved in connection with any act or omission by such person or entity on behalf of or with respect to us, unless, with respect to HPT, RMR, and the respective trustees, directors and officers of HPT and RMR, there has been a final, nonappealable judgment entered by an arbiter determining that such person or entity acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that his, her or its conduct was unlawful. We expect to enter into individual indemnification agreements with our Directors and officers, which we expect will provide similar indemnification obligations with respect to such persons. As a result, we and our stockholders may have more limited rights against our present and former Directors and officers, HPT, RMR, and the respective trustees, directors and officers of HPT and RMR than might otherwise exist absent the provisions in our Articles and our anticipated indemnification agreements or that might exist with other companies, which could limit our stockholders’ recourse in the event of actions not in our stockholders’ best interest.

Stockholder litigation against us or our Directors, officers, manager, other agents or employees may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to stockholders asserting claims than in-court litigation.

Our stockholders agree, by virtue of becoming stockholders, that they are bound by our governing documents, including the arbitration provisions of our bylaws and Articles, as they may be amended from time to time. Our governing documents provide that certain actions by one or more of our stockholders against us or any of our Directors, officers, manager, other agents or employees, including RMR and its successors, other than any request for a declaratory judgment or similar action regarding the meaning, interpretation or validity of any provision of our governing documents, will be referred to mandatory, binding and final arbitration proceedings if we, or any other party to such dispute, including any of our Directors, officers, manager, other agents or employees, including RMR and its successors, unilaterally so demands. As a result, we and our stockholders would not be able to pursue litigation in state or federal court against us or our Directors, officers, manager, other agents or employees, including RMR and its successors, including, for example, claims alleging violations of federal securities laws or breach of duties, if we or any of our Directors, officers, manager, other agents or employees, including RMR and its successors, against whom the claim is made unilaterally demands the matter be resolved by arbitration. Instead, our stockholders would be required to pursue such claims through binding and final arbitration.

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Our bylaws provide that such arbitration proceedings would be conducted in accordance with the procedures of the Commercial Arbitration Rules of the American Arbitration Association, as modified in our governing documents. These procedures may provide materially more limited rights to our stockholders than litigation in a federal or state court. For example, arbitration in accordance with these procedures does not include the opportunity for a jury trial, document discovery is limited, arbitration hearings generally are not open to the public, there are no witness depositions in advance of arbitration hearings and arbitrators may have different qualifications or experiences than judges. In addition, although our governing documents’ arbitration provisions contemplate that arbitration may be brought in a representative capacity or on behalf of a class of our stockholders, the rules governing such representation or class arbitration may be different from, and less favorable to stockholders than, the rules governing representative or class action litigation in courts. Our governing documents also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any stockholder or such stockholder’s attorneys. The arbitration provisions of our governing documents may discourage our stockholders from bringing, and attorneys from agreeing to represent our stockholders wishing to bring, litigation against us or our Directors, officers, manager, other agents or employees, including RMR and its successors. Our agreements with HPT and RMR have similar arbitration provisions to those in our governing documents.

We believe that the arbitration provisions in our governing documents are enforceable under both state and federal law, including with respect to federal securities laws claims. In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies. However, some academics, legal practitioners and others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims. It is possible that the arbitration provisions of our bylaws may ultimately be determined to be unenforceable.

By agreeing to the arbitration provisions of our governing documents, stockholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.

Our governing documents designate the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, manager, agents or employees.

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a duty owed by any director, officer, manager, agent or employee of ours to us or our stockholders; (3) any action asserting a claim against us or any director, officer, manager, agent or employee of ours arising pursuant to Maryland law or our Articles or bylaws brought by or on behalf of a stockholder either on such stockholder’s own behalf, on our behalf or on behalf of any series or class of our shares of stock or stockholders against us or any of our directors, officers, manager, agents or employees, including any claims relating to the meaning, interpretation, effect, validity, performance or enforcement of our Articles or bylaws; or (4) any action asserting a claim against us or any director, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine of the State of Maryland. The exclusive forum provision of our bylaws does not apply to any dispute that has been referred to binding arbitration in accordance with our Articles or bylaws. The exclusive forum provision of our bylaws does not purport to establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts. Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of common stock shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. The arbitration and exclusive forum provisions of our bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers, managers, employees or agents, which may discourage lawsuits against us and our directors, officers, employees or agents. Alternatively, if a court were to find either the exclusive forum or arbitration provisions unenforceable in any respect, we may incur additional costs associated with resolving such matters, which could adversely affect our business, financial condition or results of operations. We adopted these provisions because we believe each makes it less likely that we will be forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements.

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Our capital stock has experienced significant price and trading volume volatility and may continue to do so.

Since we became a publicly traded company in January 2007, our capital stock has experienced significant share price and trading volatility, which may continue. The market price of our shares of capital stock has fluctuated and could fluctuate significantly in the future in response to various factors and events, including, but not limited to, the risks set out in our Annual Report as well as:


•	the liquidity of the market for our capital stock;


•	our historic policy to not pay cash dividends;


•	changes in our operating results;


•	issuances of additional shares of capital stock and sales of our capital stock by holders of large blocks of our capital stock, such as HPT, RMR or our Directors or officers;


•	a lack of analyst coverage, changes in analysts’ expectations and unfavorable research reports; and


•	general economic and industry trends and conditions.

In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Recently, global and U.S. financial markets have experienced heightened volatility, including as a result of uncertainty regarding actual and potential shifts in U.S. and foreign, trade, economic and other policies, and, more recently, concerns over increasing interest rates (particularly short -term rates), uncertainty regarding the short- and long-term effects of tax reform in the United States and uncertainty regarding trade policies and tariffs implemented by the Administration. This volatility and uncertainty could have a significant impact on the markets for our capital stock and our Senior Notes, the markets in which we operate and a material adverse impact on our business prospects and financial condition.

The nature of our business exposes us to litigation.

We have been, are currently, and expect in the future to be involved in claims and lawsuits arising in the ordinary course of our business, some of which may involve material amounts. For example, we are currently defendants in a lawsuit alleging that we violated the Fair and Accurate Credit Transactions Act and for which the plaintiffs seek statutory damages, punitive damages and certain costs. Other types of claims that we may be subject to from time to time include commercial disputes, employment related claims, including wage and hour claims, and premises liability claims, among others.

Defending litigation may distract management and be expensive, and any adverse rulings or judgments in such litigation may materially impact our business, operating results and liquidity. For more information regarding certain of our legal proceedings see the heading "Legal Proceedings" in Note 10 to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about our purchases of our equity securities during the quarter ended June 30, 2019.



Calendar Month	Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 2019	75	$	20.90	—	$	—
June 2019	500	18.10		—	—
Total	575	$	18.47	—	$	—


⁽¹⁾	During the quarter ended June 30, 2019, all common share purchases were made to satisfy share award recipients' tax withholding and payment obligations in connection with the vesting of awards of common shares, which were repurchased by us based on their fair market value on the repurchase dates.

Item 6. Exhibits



Exhibit 3.1	Plan of Conversion (Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed July 30, 2019)

Exhibit 3.2	Certificate of Conversion of TravelCenters of America LLC (Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed July 30, 2019)

Exhibit 3.3	Articles of Conversion of TravelCenters of America LLC (Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K filed July 30, 2019)

Exhibit 3.4	Articles of Incorporation of TravelCenters of America Inc. (Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K filed July 30, 2019)

Exhibit 3.5	Amended and Restated Bylaws of TravelCenters of America Inc. (Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K filed July 30, 2019)

Exhibit 4.1	Form of Stock Certificate (Incorporated by reference to Exhibit 4.3 to our Post Effective Amendment to our Registration Statement on Form S-3 filed August 1, 2019)

Exhibit 4.2	Indenture by and between TravelCenters of America LLC and U.S. Bank National Association, as trustee, dated as of January 15, 2013 (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed January 15, 2013)

Exhibit 4.3	First Supplemental Indenture by and between TravelCenters of America LLC and U.S. Bank National Association, as trustee, dated as of January 15, 2013 (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed January 15, 2013)

Exhibit 4.4	Second Supplemental Indenture by and between TravelCenters of America LLC and U.S. Bank National Association, as trustee, dated as of December 16, 2014 (Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form 8-A (File No. 001-33274) filed December 16, 2014)

Exhibit 4.5	Third Supplemental Indenture by and between TravelCenters of America LLC and U.S. Bank National Association, as trustee, dated as of October 5, 2015 (Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form 8-A (File No. 001-33274) filed October 5, 2015)

Exhibit 4.6	Fourth Supplemental Indenture by and between TravelCenters of America Inc. (as successor by statutory conversion to TravelCenters of America LLC) and U.S. Bank National Association, as trustee, dated as of August 1, 2019 (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed August 1, 2019)

Exhibit 4.7	Form of 8.25% Senior Notes due 2028 (included in Exhibit 4.3 above)

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Exhibit 4.8	Form of 8.00% Senior Notes due 2029 (included in Exhibit 4.4 above)

Exhibit 4.9	Form of 8.00% Senior Notes due 2030 (included in Exhibit 4.5 above)

Exhibit 10.1	Summary of Director Compensation (filed herewith)

Exhibit 10.2	Amendment No. 3 to Amended and Restated Loan and Security Agreement (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed July, 22, 2019)

Exhibit 31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith)

Exhibit 31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith)

Exhibit 32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith)

Exhibit 101.1	The following materials from TravelCenters of America Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders' Equity and (v) related notes to these financial statements, tagged as blocks of text (filed herewith)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TRAVELCENTERS OF AMERICA INC.

		By:	/s/ William E. Myers
Date:	August 5, 2019		Name:	William E. Myers
			Title:	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)