TravelCenters of America Inc. /MD/ - Quarter Report: 2021 September (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 September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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) | ||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered | ||||||||||||
| Shares of Common Stock, $0.001 Par Value Per Share | 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 ☒ No ☐
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 ☒ No ☐
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 ☐ | Accelerated filer ☒ | |||||||
Non-accelerated filer ☐ | Smaller reporting company ☒ | |||||||
Emerging growth company ☐ | ||||||||
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of the registrant's shares of common stock outstanding as of October 29, 2021: 14,579,621.
TABLE OF CONTENTS
| Page | ||||||||
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.
Part I. Financial Information
Item 1. Financial Statements
TravelCenters of America Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except par value amount)
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets: | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 621,103 | $ | 483,151 | |||||||
Accounts receivable (net of allowance for doubtful accounts of $1,343 and $1,016 as of September 30, 2021 and December 31, 2020, respectively) | 149,410 | 94,429 | |||||||||
| Inventory | 169,543 | 172,830 | |||||||||
| Other current assets | 22,129 | 35,506 | |||||||||
| Total current assets | 962,185 | 785,916 | |||||||||
| Property and equipment, net | 789,403 | 801,789 | |||||||||
| Operating lease assets | 1,680,902 | 1,734,883 | |||||||||
| Goodwill | 22,213 | 22,213 | |||||||||
| Intangible assets, net | 11,060 | 11,529 | |||||||||
| Other noncurrent assets | 110,438 | 87,530 | |||||||||
| Total assets | $ | 3,576,201 | $ | 3,443,860 | |||||||
| Liabilities and Stockholders' Equity: | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 249,982 | $ | 158,075 | |||||||
| Current operating lease liabilities | 116,046 | 111,255 | |||||||||
| Other current liabilities | 207,311 | 175,867 | |||||||||
| Total current liabilities | 573,339 | 445,197 | |||||||||
| Long term debt, net | 524,925 | 525,397 | |||||||||
| Noncurrent operating lease liabilities | 1,685,084 | 1,763,166 | |||||||||
| Other noncurrent liabilities | 104,602 | 69,121 | |||||||||
| Total liabilities | 2,887,950 | 2,802,881 | |||||||||
| Stockholders' equity: | |||||||||||
Common stock, $0.001 par value, 216,000 shares of common stock authorized as of September 30, 2021 and December 31, 2020, and 14,579 and 14,574 shares of common stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 14 | 14 | |||||||||
| Additional paid-in capital | 783,778 | 781,841 | |||||||||
| Accumulated other comprehensive loss | (194) | (205) | |||||||||
| Accumulated deficit | (95,347) | (141,084) | |||||||||
| Total TA stockholders' equity | 688,251 | 640,566 | |||||||||
| Noncontrolling interest | — | 413 | |||||||||
| Total stockholders' equity | 688,251 | 640,979 | |||||||||
| Total liabilities and stockholders' equity | $ | 3,576,201 | $ | 3,443,860 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
TravelCenters of America Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Fuel | $ | 1,424,997 | $ | 791,880 | $ | 3,830,886 | $ | 2,244,219 | |||||||||||||||
| Nonfuel | 511,063 | 474,097 | 1,460,787 | 1,304,674 | |||||||||||||||||||
| Rent and royalties from franchisees | 3,886 | 3,947 | 11,649 | 10,482 | |||||||||||||||||||
| Total revenues | 1,939,946 | 1,269,924 | 5,303,322 | 3,559,375 | |||||||||||||||||||
| Cost of goods sold (excluding depreciation): | |||||||||||||||||||||||
| Fuel | 1,318,987 | 711,757 | 3,547,154 | 1,990,241 | |||||||||||||||||||
| Nonfuel | 206,265 | 188,114 | 577,195 | 512,784 | |||||||||||||||||||
| Total cost of goods sold | 1,525,252 | 899,871 | 4,124,349 | 2,503,025 | |||||||||||||||||||
| Site level operating expense | 246,871 | 221,864 | 708,097 | 655,950 | |||||||||||||||||||
| Selling, general and administrative expense | 39,563 | 32,967 | 112,083 | 108,171 | |||||||||||||||||||
| Real estate rent expense | 63,898 | 65,226 | 191,378 | 191,893 | |||||||||||||||||||
| Depreciation and amortization expense | 24,276 | 32,299 | 72,244 | 89,113 | |||||||||||||||||||
| Other operating expense (income), net | 230 | — | (642) | — | |||||||||||||||||||
| Income from operations | 39,856 | 17,697 | 95,813 | 11,223 | |||||||||||||||||||
| Interest expense, net | 11,843 | 7,375 | 34,966 | 22,064 | |||||||||||||||||||
| Other (income) expense, net | (1,034) | 233 | 1,667 | 1,109 | |||||||||||||||||||
| Income (loss) before income taxes | 29,047 | 10,089 | 59,180 | (11,950) | |||||||||||||||||||
| (Provision) benefit for income taxes | (6,847) | (1,432) | (13,776) | 4,222 | |||||||||||||||||||
| Net income (loss) | 22,200 | 8,657 | 45,404 | (7,728) | |||||||||||||||||||
Less: net income (loss) for noncontrolling interest | — | 52 | (333) | 104 | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 22,200 | $ | 8,605 | $ | 45,737 | $ | (7,832) | |||||||||||||||
| Other comprehensive income (loss), net of taxes: | |||||||||||||||||||||||
Foreign currency income (loss), net of taxes of $(36), $27, $(1) and $(33) respectively | $ | 28 | $ | — | $ | 11 | $ | (18) | |||||||||||||||
| Other comprehensive income (loss) attributable to common stockholders | 28 | — | 11 | (18) | |||||||||||||||||||
| Comprehensive income (loss) attributable to common stockholders | $ | 22,228 | $ | 8,605 | $ | 45,748 | $ | (7,850) | |||||||||||||||
| Net income (loss) per share of common stock attributable to common stockholders: | |||||||||||||||||||||||
| Basic and diluted | $ | 1.52 | $ | 0.61 | $ | 3.14 | $ | (0.76) | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
TravelCenters of America Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 45,404 | $ | (7,728) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Noncash rent credits, net | (17,527) | (15,827) | |||||||||
| Depreciation and amortization expense | 72,244 | 89,113 | |||||||||
| Deferred income tax benefit (provision) | 13,336 | (3,045) | |||||||||
| Gain on sale of assets, net | (642) | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (55,345) | 59,238 | |||||||||
| Inventory | 3,288 | 35,684 | |||||||||
| Other assets | 8,700 | 3,280 | |||||||||
| Accounts payable and other liabilities | 108,369 | 43,807 | |||||||||
| Other, net | 3,459 | 9,050 | |||||||||
| Net cash provided by operating activities | 181,286 | 213,572 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (46,782) | (36,795) | |||||||||
| Proceeds from other asset sales | 8,803 | 1,270 | |||||||||
| Investment in equity investee | (1,350) | — | |||||||||
| Other | 148 | (1,864) | |||||||||
| Net cash used in investing activities | (39,181) | (37,389) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from underwritten public equity offering | — | 79,985 | |||||||||
| West Greenwich Loan borrowings | — | 16,600 | |||||||||
| Payments on West Greenwich Loan | (498) | — | |||||||||
| Payments on Revolving Credit Facility | — | (7,900) | |||||||||
| Payments on Term Loan Facility | (1,500) | — | |||||||||
| Distributions to noncontrolling interest | (80) | (65) | |||||||||
| Acquisition of stock from employees | (110) | — | |||||||||
| Other, net | (2,029) | (1,589) | |||||||||
| Net cash (used in) provided by financing activities | (4,217) | 87,031 | |||||||||
| Effect of exchange rate changes on cash | 64 | 22 | |||||||||
| Net increase in cash and cash equivalents | 137,952 | 263,236 | |||||||||
| Cash and cash equivalents at the beginning of the period | 483,151 | 17,206 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 621,103 | $ | 280,442 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Lease modification (operating to finance lease) | $ | 28,201 | $ | — | |||||||
| Interest paid, net of capitalized interest | 33,069 | 21,353 | |||||||||
| Income taxes paid (refunded) | 74 | (56) | |||||||||
3
TravelCenters of America Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)
(in thousands)
| Number of Shares of Common Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total TA Stockholders' Equity | Noncontrolling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2021 | 14,581 | $ | 14 | $ | 783,137 | $ | (222) | $ | (117,547) | $ | 665,382 | $ | — | $ | 665,382 | ||||||||||||||||||||||||||||||||||||||
Grants under share award plan and stock based compensation, net | (2) | — | 641 | — | — | 641 | — | 641 | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of taxes | — | — | — | 28 | — | 28 | — | 28 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 22,200 | 22,200 | — | 22,200 | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | 14,579 | $ | 14 | $ | 783,778 | $ | (194) | $ | (95,347) | $ | 688,251 | $ | — | $ | 688,251 | ||||||||||||||||||||||||||||||||||||||
| June 30, 2020 | 8,298 | $ | 8 | $ | 700,619 | $ | (190) | $ | (143,622) | $ | 556,815 | $ | 1,470 | $ | 558,285 | ||||||||||||||||||||||||||||||||||||||
Grants under share award plan and stock based compensation, net | (2) | — | (41) | — | — | (41) | — | (41) | |||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from underwritten public equity offering | 6,100 | 6 | 79,979 | — | — | 79,985 | — | 79,985 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 8,605 | 8,605 | 52 | 8,657 | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2020 | 14,396 | $ | 14 | $ | 780,557 | $ | (190) | $ | (135,017) | $ | 645,364 | $ | 1,522 | $ | 646,886 | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
TravelCenters of America Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)
(in thousands)
| Number of Shares of Common Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total TA Stockholders' Equity | Noncontrolling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | 14,574 | $ | 14 | $ | 781,841 | $ | (205) | $ | (141,084) | $ | 640,566 | $ | 413 | $ | 640,979 | ||||||||||||||||||||||||||||||||
Grants under share award plan and stock based compensation, net | 5 | — | 2,537 | — | — | 2,537 | — | 2,537 | |||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | (80) | (80) | |||||||||||||||||||||||||||||||||||||||
| Other changes | — | — | (600) | — | — | (600) | — | (600) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of taxes | — | — | — | 11 | — | 11 | — | 11 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | 45,737 | 45,737 | (333) | 45,404 | |||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | 14,579 | 14 | 783,778 | (194) | (95,347) | 688,251 | — | 688,251 | |||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 8,307 | $ | 8 | $ | 698,402 | $ | (172) | $ | (127,185) | $ | 571,053 | $ | 1,483 | $ | 572,536 | ||||||||||||||||||||||||||||||||
Grants under share award plan and stock based compensation, net | (11) | — | 2,176 | — | — | 2,176 | — | 2,176 | |||||||||||||||||||||||||||||||||||||||
| Proceeds from underwritten public equity offering | 6,100 | 6 | 79,979 | — | — | 79,985 | — | 79,985 | |||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | (65) | (65) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of taxes | — | — | — | (18) | — | (18) | — | (18) | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | (7,832) | (7,832) | 104 | (7,728) | |||||||||||||||||||||||||||||||||||||||
| September 30, 2020 | 14,396 | 14 | 780,557 | (190) | (135,017) | 645,364 | 1,522 | 646,886 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
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. We operate or franchise 279 travel centers, standalone truck service facilities and a standalone restaurant. 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.
As of September 30, 2021, our business included 275 travel centers in 44 states in the United States and the province of Ontario, Canada, primarily along the U.S. interstate highway system, operated primarily under the "TravelCenters of America," "TA," "TA Express," "Petro Stopping Centers" and "Petro" brand names. Of these travel centers, we owned 51, we leased 181, we operated two for a joint venture in which we owned a noncontrolling interest and 41 were owned or leased from others by our franchisees. We operated 232 of our travel centers and franchisees operated 43 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, diesel exhaust fluid, full service restaurants, quick service restaurants, travel stores and various customer amenities.
As of September 30, 2021, our business included three standalone truck service facilities operated under the "TA Truck Service" brand name. Of these standalone truck service facilities, we leased two and owned one. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks.
As of September 30, 2021, our business included one standalone restaurant that we operated for a joint venture in which we owned a noncontrolling interest.
On April 21, 2021, we completed the sale of our Quaker Steak & Lube, or QSL, business for $5,000, excluding costs to sell and certain closing adjustments. See Note 3 of this Quarterly Report for more information about the sale of our QSL business.
We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because they facilitate 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.
The accompanying interim consolidated financial statements are unaudited. These unaudited interim consolidated 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, 2020, or our Annual Report. In the opinion of our management, the accompanying unaudited interim 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. The COVID-19 pandemic has, and economic conditions occasionally in the past have, significantly altered the seasonal aspects of our business, and they may have similar impacts in the future. 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.
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 2 input), the aggregate fair value of our Senior Notes on September 30, 2021, was $354,756.
6
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Recently Issued Accounting Pronouncement and Other Accounting Matters
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. We adopted this standard on January 1, 2021, using the prospective transition method. The implementation of this update did not have a material impact on our consolidated financial statements.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as a response to the economic uncertainty resulting from the COVID-19 pandemic, which, among other things, included several temporary changes to corporate income tax provisions such as modifications to limitations on deductibility of net operating losses and business interest, provisions relating to the deferral of the employer portion of social security taxes incurred through December 31, 2020, and employee retention tax credit, which is a refundable payroll credit for certain qualified wages and health benefits. As of September 30, 2021, we have deferred $23,340 of employer social security payments, and have included this amount in other current liabilities in our consolidated balance sheets. On December 27, 2020 and March 11, 2021, the CARES Act was modified by the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021, respectively, extending the employee retention tax credit through December 31, 2021. During the year ended December 31, 2020, we recognized $3,268 relating to the employee retention tax credit, which is included in accounts receivable in our consolidated balance sheets. We continue to evaluate the total amount of employee retention tax credits for which we may be eligible and the $3,268 outstanding receivable as of September 30, 2021 is still our best estimate. We will continue to evaluate the impact of this legislation on our operations and consolidated financial statements in future periods to the extent additional guidance and regulations are issued.
2. Revenues
We recognize revenues based on the consideration specified in the contract with the customer, net of any sales incentives (such as customer loyalty programs and customer rebates) and excluding 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 nine months ended September 30, 2021 and 2020, were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Nonfuel revenues: | |||||||||||||||||||||||
| Store and retail services | $ | 197,842 | $ | 179,517 | $ | 564,054 | $ | 489,575 | |||||||||||||||
| Truck service | 200,192 | 189,630 | 565,520 | 504,584 | |||||||||||||||||||
| Restaurant | 79,850 | 77,665 | 233,657 | 233,369 | |||||||||||||||||||
| Diesel exhaust fluid | 33,179 | 27,285 | 97,556 | 77,146 | |||||||||||||||||||
| Total nonfuel revenues | $ | 511,063 | $ | 474,097 | $ | 1,460,787 | $ | 1,304,674 | |||||||||||||||
7
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, 2019 | $ | 17,993 | $ | 4,822 | $ | 22,815 | |||||||||||
Increases due to unsatisfied performance obligations arising during the period | 115,792 | 15,791 | 131,583 | ||||||||||||||
Revenues recognized from satisfied performance obligations during the period | (98,147) | (12,879) | (111,026) | ||||||||||||||
| Other | (12,817) | (589) | (13,406) | ||||||||||||||
| December 31, 2020 | 22,821 | 7,145 | 29,966 | ||||||||||||||
Increases due to unsatisfied performance obligations arising during the period | 95,943 | 9,762 | 105,705 | ||||||||||||||
Revenues recognized from satisfied performance obligations during the period | (89,444) | (8,609) | (98,053) | ||||||||||||||
| Other | (2,804) | (1,496) | (4,300) | ||||||||||||||
| September 30, 2021 | $ | 26,516 | $ | 6,802 | $ | 33,318 | |||||||||||
As of September 30, 2021, we expect the unsatisfied performance obligations relating to our customer loyalty programs and other contract liabilities will generally be satisfied within 12 months.
3. Disposition Activity
On April 21, 2021, we completed the sale of our QSL business for $5,000, excluding costs to sell and certain closing adjustments. We had classified our QSL business as held for sale as of December 31, 2020. We did not treat the sale of QSL as a discontinued operation, as we concluded that its effect was not material and did not represent a strategic shift in our business. As of the date of sale, our QSL business included 41 standalone restaurants in 11 states in the United States operated primarily under the QSL brand name.
During the first quarter of 2021, we recorded impairment charges of $650, primarily resulting from the change in fair value of underlying assets sold, which were included in depreciation and amortization expense in our consolidated statements of operations and comprehensive income (loss). During the second quarter of 2021, we recognized a $606 loss on the sale of QSL, which was included in other operating expense (income), net, in our consolidated statements of operations and comprehensive income (loss). Impairment charges relating to our QSL net asset disposal group cumulatively totaled $14,365, which includes a $13,715 impairment charge recognized during the year ended December 31, 2020 and were included in depreciation and amortization expense in our consolidated statements of operations and comprehensive income (loss).
4. Stockholders' Equity
The following table presents a reconciliation of net income (loss) attributable to common stockholders to net income (loss) available to common stockholders and the related earnings (loss) per share of common stock for the three and nine months ended September 30, 2021 and 2020.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | 22,200 | $ | 8,605 | $ | 45,737 | $ | (7,832) | |||||||||||||||
| Less: net (income) loss attributable to participating securities | 497 | 175 | 1,048 | (273) | |||||||||||||||||||
Net income (loss) available to common stockholders | $ | 21,703 | $ | 8,430 | $ | 44,689 | $ | (7,559) | |||||||||||||||
Weighted average shares of common stock(1) | 14,254 | 13,779 | 14,239 | 9,890 | |||||||||||||||||||
| Basic and diluted net income (loss) per share of common stock attributable to common stockholders | $ | 1.52 | $ | 0.61 | $ | 3.14 | $ | (0.76) | |||||||||||||||
(1) Excludes unvested shares of common stock awarded under our share award plans, in which shares of common stock are considered participating securities because they participate equally in earnings and losses with all of our other shares of common stock. The weighted average number of unvested shares of common stock outstanding for the three months ended September 30, 2021 and 2020, was 327 and 286, respectively. The weighted average number of unvested shares of common stock outstanding for the nine months ended September 30, 2021 and 2020, was 334 and 358, respectively.
5. Goodwill
The Goodwill balance as of September 30, 2021 and December 31, 2020 was $22,213, all of which relates to our travel centers reporting unit. Goodwill is tested for impairment annually as of July 31, or more frequently if circumstances warrant, at the reporting unit level. As of July 31, 2021, we evaluated our travel centers reporting unit for impairment using a qualitative analysis which included evaluating financial trends, industry and market conditions and assessing the reasonableness of the assumptions used in the most recent quantitative analysis, including comparing actual results to the projections used in the quantitative analysis.
After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of the travel centers reporting unit was less than its carrying amount.
The impact of the COVID-19 pandemic on our operations was included in our analyses. However, we are unable to predict the duration and severity of the COVID-19 pandemic and as a result, we are unable to determine what the ultimate impact will be on our financial results and financial position. We will continue to closely monitor the impact of the COVID-19 pandemic on the fair value of our travel centers reporting unit.
6. Leasing Transactions
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 Service Properties Trust, or SVC, which are further described below. Certain of our leases include renewal options, and certain leases include escalation clauses 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 September 30, 2021, most of our SVC Leases (as defined below), the leases covering our other properties, and most of our equipment leases, were classified as operating leases and certain of our other equipment leases and one ground lease pursuant to one SVC Lease were classified as finance leases. As of September 30, 2021, our non-SVC finance lease assets and
8
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
liabilities were immaterial to our consolidated financial statements. Finance lease assets were included in other noncurrent assets, with the corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, on our consolidated balance sheets.
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 SVC Leases.
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 nine months ended September 30, 2021 and 2020, our lease costs consisted of the following:
| Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss) | Three Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Operating lease costs: SVC Leases | Real estate rent expense | $ | 58,951 | $ | 59,500 | ||||||||||||
| Operating lease costs: other | Real estate rent expense | 2,447 | 4,182 | ||||||||||||||
| Variable lease costs: SVC Leases | Real estate rent expense | 2,332 | 1,372 | ||||||||||||||
| Variable lease costs: other | Real estate rent expense | 168 | 172 | ||||||||||||||
| Total real estate rent expense | 63,898 | 65,226 | |||||||||||||||
Operating lease costs: equipment and other | Site level operating expense and selling, general and administrative expense | 710 | 881 | ||||||||||||||
Financing lease costs: equipment and other | Site level operating expense | 53 | — | ||||||||||||||
| Short-term lease costs | Site level operating expense and selling, general and administrative expense | 171 | 390 | ||||||||||||||
| Amortization of finance lease assets: SVC Leases | Depreciation and amortization expense | 553 | — | ||||||||||||||
| Amortization of finance lease assets: other | Depreciation and amortization expense | 553 | 79 | ||||||||||||||
| Interest on finance lease liabilities: SVC Leases | Interest expense, net | 305 | — | ||||||||||||||
| Interest on finance lease liabilities: other | Interest expense, net | 134 | 32 | ||||||||||||||
| Sublease income | Nonfuel revenues | (502) | (542) | ||||||||||||||
| Net lease costs | $ | 65,875 | $ | 66,066 | |||||||||||||
9
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
| Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss) | Nine Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Operating lease costs: SVC Leases | Real estate rent expense | $ | 177,040 | $ | 178,499 | ||||||||||||
| Operating lease costs: other | Real estate rent expense | 7,529 | 9,859 | ||||||||||||||
| Variable lease costs: SVC Leases | Real estate rent expense | 6,303 | 3,073 | ||||||||||||||
| Variable lease costs: other | Real estate rent expense | 506 | 462 | ||||||||||||||
| Total real estate rent expense | 191,378 | 191,893 | |||||||||||||||
Operating lease costs: equipment and other | Site level operating expense and selling, general and administrative expense | 2,332 | 2,797 | ||||||||||||||
Financing lease costs: equipment and other | Site level operating expense | 152 | — | ||||||||||||||
| Short-term lease costs | Site level operating expense and selling, general and administrative expense | 513 | 1,340 | ||||||||||||||
| Amortization of finance lease assets: SVC Leases | Depreciation and amortization expense | 1,290 | — | ||||||||||||||
| Amortization of finance lease assets: other | Depreciation and amortization expense | 1,212 | 79 | ||||||||||||||
| Interest on finance lease liabilities: SVC Leases | Interest expense, net | 716 | — | ||||||||||||||
| Interest on finance lease liabilities: other | Interest expense, net | 323 | 32 | ||||||||||||||
| Sublease income | Nonfuel revenues | (1,505) | (1,565) | ||||||||||||||
| Net lease costs | $ | 196,411 | $ | 194,576 | |||||||||||||
Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows:
SVC Leases(1) | Other | Total | |||||||||||||||
| Years ended December 31: | |||||||||||||||||
| 2021 | $ | 67,350 | $ | 1,134 | $ | 68,484 | |||||||||||
| 2022 | 268,980 | 4,133 | 273,113 | ||||||||||||||
| 2023 | 255,407 | 2,601 | 258,008 | ||||||||||||||
| 2024 | 251,234 | 1,463 | 252,697 | ||||||||||||||
| 2025 | 251,221 | 1,334 | 252,555 | ||||||||||||||
| Thereafter | 1,789,682 | 3,483 | 1,793,165 | ||||||||||||||
| Total operating lease payments | 2,883,874 | 14,148 | 2,898,022 | ||||||||||||||
Less: present value discount(2) | (1,094,815) | (2,077) | (1,096,892) | ||||||||||||||
| Present value of operating lease liabilities | $ | 1,789,059 | $ | 12,071 | $ | 1,801,130 | |||||||||||
(1) Includes rent for properties we sublease from SVC and pay directly to SVC's landlords.
(2) The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the SVC Leases and our incremental borrowing rate for all other leases.
The weighted average remaining lease term for our operating leases as of September 30, 2021, was approximately 12 years. Our weighted average discount rate for our operating leases as of September 30, 2021, was approximately 9.1%.
During the nine months ended September 30, 2021 and 2020, we paid $208,905 and $208,327, respectively, for amounts that had been included in the measurement of our operating lease liabilities.
10
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
As of September 30, 2021 and December 31, 2020, our operating lease assets and liabilities consisted of the following:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Operating lease assets: | |||||||||||
| SVC Leases | $ | 1,669,329 | $ | 1,724,428 | |||||||
| Other | 11,573 | 10,455 | |||||||||
| Total operating lease assets | $ | 1,680,902 | $ | 1,734,883 | |||||||
| Current operating lease liabilities: | |||||||||||
| SVC Leases | $ | 112,030 | $ | 106,788 | |||||||
| Other | 4,016 | 4,467 | |||||||||
| Total current operating lease liabilities | $ | 116,046 | $ | 111,255 | |||||||
| Noncurrent operating lease liabilities: | |||||||||||
| SVC Leases | $ | 1,677,029 | $ | 1,756,449 | |||||||
| Other | 8,055 | 6,717 | |||||||||
| Total noncurrent operating lease liabilities | $ | 1,685,084 | $ | 1,763,166 | |||||||
On March 9, 2021, we and SVC amended one of the SVC Leases to reflect the renewal of a third party ground lease at one of the 179 travel center properties that we lease from SVC. This ground lease, which was previously accounted for as an operating lease, is now accounted for as a finance lease. As a result of this ground lease modification, the applicable ground lease has balances, as of September 30, 2021, of $27,095 in other noncurrent assets, $1,487 in other current liabilities and $26,346 in other noncurrent liabilities on our consolidated balance sheets.
Maturities of the financing lease liabilities related to the amended ground lease noted above that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows:
Finance Ground Lease | |||||
| Years ended December 31: | |||||
| 2021 | $ | 644 | |||
| 2022 | 2,591 | ||||
| 2023 | 2,656 | ||||
| 2024 | 2,722 | ||||
| 2025 | 2,790 | ||||
| Thereafter | 24,986 | ||||
| Total financing lease payments | 36,389 | ||||
Less: present value discount(1) | (8,556) | ||||
| Present value of financing lease liabilities | $ | 27,833 | |||
(1) The discount rate used to derive the present value of unpaid lease payments is based on the rate implicit in the SVC Lease.
11
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Leasing Agreements with SVC. As of September 30, 2021, we leased from SVC a total of 179 properties under five leases that expire between 2029 and 2035, subject to our right to extend those leases. We refer to these five leases collectively as the SVC Leases.
We recognized total real estate rent expense under the SVC Leases of $61,283 and $60,872 for the three months ended September 30, 2021 and 2020, respectively, and $183,343 and $181,572 for the nine months ended September 30, 2021 and 2020, respectively. Included in these rent expense amounts are percentage rent payable of $1,850 and $893 for the three months ended September 30, 2021 and 2020, respectively, and $4,827 and $1,742 for the nine months ended September 30, 2021 and 2020, respectively, which are based on a percentage of the increases in total nonfuel revenues at each leased property over base year levels, deferred rent of $4,404 and $13,211 for the three and nine month periods, respectively, and adjustments to record minimum annual rent on a straight line basis over the terms of the leases and estimated future payments by us for the cost of removing underground storage tanks on a straight line basis. The remaining balance of our deferred rent obligations was $26,422 as of September 30, 2021.
Pursuant to the SVC Leases, we may request that SVC purchase qualifying capital improvements we make at the leased travel centers in return for increased annual minimum rent. We did not sell to SVC any improvements we made to properties leased from SVC for the three and nine months ended September 30, 2021 and 2020.
As permitted by the SVC Leases, we sublease a portion of certain travel centers to third parties to operate other retail operations. These subleases are classified as operating leases. We recognized sublease rental income of $502 and $542 for the three months ended September 30, 2021 and 2020, respectively, and $1,505 and $1,565 for the nine months ended September 30, 2021 and 2020, respectively.
As a Lessor
We leased two travel centers to franchisees as of September 30, 2021 and 2020. Rent revenues from these operating leases totaled $595 and $584 for the three months ended September 30, 2021 and 2020, respectively, and $1,763 and $1,728 for the nine months ended September 30, 2021 and 2020, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of September 30, 2021, were $595 for the remainder of 2021 and $1,190 for 2022. See above for information regarding certain travel centers that we lease from SVC in which we sublease a portion of the travel centers to third parties to operate other retail operations. We also lease portions of owned properties to third parties to operate other retail operations.
7. Business Management Agreement with RMR
The RMR Group LLC, or RMR, provides us certain services that we require to operate our business, and which relate to various aspects of our business. RMR provides these services pursuant to a business management agreement. Pursuant to the business management agreement, we incurred aggregate fees and certain cost reimbursements payable to RMR of $3,822 and $3,369 for the three months ended September 30, 2021 and 2020, respectively, and $10,418 and $9,513 for the nine months ended September 30, 2021 and 2020, respectively, which included reimbursements for our share of RMR's costs for providing internal audit services. These amounts are included in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss). For more information about our relationship with RMR, see Note 8 of this Quarterly Report and our Annual Report.
8. Related Party Transactions
We have relationships and historical and continuing transactions with SVC, RMR and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have directors, trustees or officers who are also our Directors or officers. RMR is a majority owned subsidiary of The RMR Group Inc. The Chair of our Board of Directors and one of our Managing Directors, 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. Mr. Portnoy is also a managing director and the president and chief executive officer of The RMR Group Inc. and an officer and employee of RMR. Jonathan M. Pertchik, our other Managing Director and Chief Executive Officer, also serves as an officer and employee of RMR. Certain of our other officers and SVC's officers also serve as officers and employees of RMR. Some of our Independent Directors also
12
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the boards of trustees or boards of directors and as a managing director or managing trustee of these public companies, including SVC. Other officers of RMR, including certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies.
As of September 30, 2021, Mr. Portnoy beneficially owned 659 shares of our common stock (including indirectly through RMR), representing approximately 4.5% of our outstanding shares of common stock.
Relationship with SVC
We are SVC's largest tenant and SVC is our principal landlord and second largest stockholder. As of September 30, 2021, SVC owned 1,185 shares of our common stock, representing approximately 8.1% of our outstanding shares of common stock. As of September 30, 2021, we leased from SVC a total of 179 travel center properties under the SVC Leases. See Note 6 of this Quarterly Report for more information about our lease agreements with SVC.
Our Manager, RMR
RMR provides certain services we require to operate our business. We have a business management agreement with RMR to provide management services to us, which relates to various aspects of our business generally. See Note 7 of this Quarterly Report for more information about our business management agreement with RMR.
Retirement and Separation Arrangements
In December 2019, we and RMR entered into a retirement agreement with Andrew J. Rebholz. Pursuant to his retirement agreement, Mr. Rebholz continued to serve, through June 30, 2020, as a non-executive employee in order to assist in transitioning his duties and responsibilities to his successor. Under Mr. Rebholz's retirement agreement, consistent with past practice, we paid Mr. Rebholz his current annual base salary of $300 until June 30, 2020, a cash bonus in the amount of $1,000 in December 2019 and an additional cash payment in the amount of $1,000 in June 2020, and we fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Rebholz.
In February 2020, we and RMR entered into a separation agreement with our former Executive Vice President, Chief Financial Officer and Treasurer, William E. Myers. Pursuant to his separation agreement, in 2020, we paid Mr. Myers $300 and fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Myers.
Sale of Property
In May 2021, we sold a property located in Mesquite, Texas to Industrial Logistics Properties Trust, or ILPT, for a sales price of $2,200, excluding selling costs of $15. RMR provides management services to ILPT and Mr. Portnoy serves as the chair of the board of trustees and as a managing trustee of ILPT. The gain on sale of assets of $1,504 was included in other operating expense (income), net for the nine months ended September 30, 2021.
For more information about these and other such relationships and certain other related person transactions, see our Annual Report.
13
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
9. 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 SVC Leases, we generally have agreed to indemnify SVC for any environmental liabilities related to properties that we lease from SVC and we are required to pay all environmental related expenses incurred in the operation of the leased properties. We have entered into certain other arrangements 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.
As of September 30, 2021, we accrued a current liability of $2,355 and a noncurrent liability of $1,268 for environmental matters as well as a receivable, which is recorded in noncurrent assets in our consolidated balance sheets, for expected recoveries of certain of these estimated future expenditures of $972, resulting in an estimated net amount of $2,651 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.
We currently have primary 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. Our current insurance policy expires in June 2024 and 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 of 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 incidental to the ordinary course of business, including commercial disputes, employment related claims, wage and hour claims, premises liability claims and tax audits among others. 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.
14
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
10. Inventory
Inventory as of September 30, 2021 and December 31, 2020, consisted of the following:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Nonfuel products | $ | 131,327 | $ | 143,440 | |||||||
| Fuel products | 38,216 | 29,390 | |||||||||
| Total inventory | $ | 169,543 | $ | 172,830 | |||||||
11. Equity Investments
On April 30, 2021, we reduced our ownership in Epona, LLC, owner of QuikQ LLC, an independent full-service fuel payment solutions provider, from 50% to less than 50%, for which a pre-tax loss of $1,826 was included in other expense (income), net in our consolidated statements of operations and comprehensive income (loss) during the nine months ended September 30, 2021. This investment will continue to be accounted for under the equity method.
15
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
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, 2020, or our Annual Report. Unless indicated otherwise, amounts are in thousands of dollars, gallons and shares of common stock, as applicable, other than percentage amounts.
Company Overview
As of September 30, 2021, we operated or franchised 275 travel centers, three standalone truck service facilities and one standalone restaurant. 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.
We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because they facilitate 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.
We and our suppliers and customers are experiencing negative impacts from the current reduced market labor availability, including truck driver shortage, increased labor costs and related market pressures which may continue to present us with challenges and could negatively impact our business and operations if these conditions continue.
COVID-19 Pandemic
In March 2020, the World Health Organization, or WHO, declared the outbreak of COVID-19 a pandemic, and, in response to the outbreak, the U.S. Health and Human Services Secretary and many states and municipalities declared public health emergencies. Various governmental responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy.
We believe that our travel centers and the truck drivers that we serve are critical to sustaining a resilient supply chain to support essential services and daily consumption across the United States. Our business has benefited from an increased demand for e-commerce and from being recognized by various governmental authorities as a provider of services essential to businesses, which allowed us to continue operating our travel centers through the COVID-19 pandemic. Further, we also benefited from increased initial demand by businesses and households to stock up on certain products in response to the pandemic, which resulted in increased trucking activity to transport those goods across the United States. However, if there is another economic downturn as a result of the continued impact of the pandemic, demand for the transporting of products across the United States by trucks may decline, possibly significantly. If that occurs, our business, results of operations and financial position may become increasingly negatively impacted.
We have taken various actions in response to the pandemic to address its operating and financial impact and to protect the health and safety of our customers, employees and other persons who visit our travel centers and restaurants. In addition, we are continuing to closely monitor the impact of the pandemic on all aspects of our business. See our Annual Report for further information regarding these actions and monitoring activities.
The U.S. economy has been growing as COVID-19 pandemic conditions have significantly improved in the United States from their low points. Commercial activities in the United States have been returning to pre-pandemic practices and operations and as a result of recent and expected future government spending on pandemic relief, infrastructure and other matters. This recent economic growth may have had some impact on our third quarter of 2021 as diesel fuel sales volume increased 5.8% and total nonfuel revenues increased 7.8%, as compared to the prior year quarter. However, there remains uncertainty as to the ultimate duration and severity of the pandemic on commercial activities, supply chain issues and labor availability, including risks that may arise from variants (such as the Delta variant), mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity and the impact on the U.S. economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus. We face potential risks as a result of proposed regulations announced by the Biden administration in September 2021 concerning mandatory COVID-19 vaccinations or required testing for certain employers with over 100 employees as well as proposed regulations to be announced by other government agencies. Implementation could have an adverse effect on our operations given the uncertainty around how the mandate would be administered, how compliance would be documented, and the degree of employee attrition that may result.
16
As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our and our customers', vendors' and other stakeholders' businesses, operations, financial results and financial position. For further information on the impact the pandemic has had on our business and risks relating to the pandemic and its aftermath on us and our business, see Item 1A. "Risk Factors" in our Annual Report.
Executive Summary of Financial Results
During the three months ended September 30, 2021 and 2020, we generated income before income taxes of $29,047 and $10,089, respectively. The $18,958 increase in income before income taxes was primarily due to the following factors:
•site level gross margin in excess of site level operating expense increased $19,634, which primarily resulted from incremental margin due to increases in nonfuel and fuel revenues when comparing the three months ended September 30, 2021 and 2020, partially offset by increased labor costs in truck services and field employees who returned to work for restaurant re-openings during 2021 and other operating expenses for the three months ended September 30, 2021; and
•depreciation and amortization expense decreased $8,023, which primarily resulted from a $6,610 property and equipment impairment charge recognized with respect to our QSL business during the three months ended September 30, 2020, and a $2,372 write off of certain assets related to truck service programs that were canceled during the three months ended September 30, 2020.
The above factors were partially offset by an increase in selling, general and administrative expense of $6,596, which primarily resulted from increases related to the impact of filling open positions, expenses related to consultant fees to assist with identifying and implementing cost reduction and other opportunities, and costs related to increased deployments of cloud-based technology solutions during the three months ended September 30, 2021 and a $4,468 increase in interest expense, net, which primarily resulted from the Term Loan Facility (as defined below) that we entered into in December 2020.
During the nine months ended September 30, 2021 and 2020, we generated income and loss before income taxes of $59,180 and $11,950, respectively. The $71,130 change from a loss to income before income taxes was primarily due to the following factors:
•site level gross margin in excess of site level operating expense increased $70,476, which primarily resulted from the incremental margin due to increases in nonfuel and fuel revenues when comparing the nine months ended September 30, 2021 and 2020, partially offset by increased labor costs in truck services and field employees who returned to work for restaurant re-openings during 2021 and other operating expenses for the nine months ended September 30, 2021; and
•depreciation and amortization expense decreased $16,869, which primarily resulted from $8,072 of write offs of certain assets related to truck service programs that were canceled during the nine months ended September 30, 2020, a $6,610 property and equipment impairment charge recognized with respect to our QSL business during the nine months ended September 30, 2020, a $3,046 goodwill impairment charge recognized during the nine months ended September 30, 2020 with respect to our QSL business and a $834 write off of intangible assets associated with three franchised standalone restaurants that closed during the nine months ended September 30, 2020, partially offset by a $650 impairment charge related to the QSL sale during the nine months ended September 30, 2021.
The above factors were partially offset by an increase in selling, general and administrative expense of $3,912, which primarily resulted from the impact of filling open positions, increases in consultant fees to assist with identifying and implementing cost reduction and other opportunities, and costs related to increased deployments of cloud-based technology solutions, partially offset by expenses related to the Reorganization Plan and executive officer retirement and separation agreements recognized in the nine months ended September 30, 2020 and a $12,902 increase in interest expense, net, which primarily resulted from the Term Loan Facility (as defined below) that we entered into in December 2020.
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Effects of Fuel Prices and Supply and Demand Factors
Our revenues and income are subject to fluctuations, sometimes material, as a result of market prices and the availability of, and demand for, 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, as well as other actions by governments regarding trade policies, may impact fuel prices. Further, there have been reports of reduced investment in oil exploration and production as a result of concerns about decreased demand for oil in response to market and governmental factors, including increased demand for alternative energy sources in response to global climate change. These and other factors are believed to have contributed to recent increases in the cost of oil and other fossil energy sources.
Although there are several components that comprise and impact our fuel costs of goods sold, including the cost of fuel, freight and mix, the cost of fuel is the primary driver. Over the past several years there have been significant changes in the cost of fuel. During the three and nine months ended September 30, 2021, fuel prices trended upward, increasing 14.0% and 63.6%, respectively, as compared to the beginning of the period. During the three months ended September 30, 2020, fuel prices trended downward, ending at a 4.1% lower price than at the beginning of the period. The decrease in fuel prices for the three months ended September 30, 2020, primarily resulted from a 5.7% decrease in September 2020 as a result of the decreased demand and reduced production. During the nine months ended September 30, 2020, fuel prices trended downward, ending at a 45.1% lower price than at the beginning of the period. The decrease in fuel prices for the nine months ended September 30, 2020, primarily resulted from decreased demand during the 2021 period due to the pandemic. The average fuel price during the three and nine months ended September 30, 2021, was 70.8% and 50.7% higher than the average fuel price during the three and nine months ended September 30, 2020, respectively. 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 higher than it otherwise may have been and during periods of falling fuel commodity prices, fuel gross margin per gallon tends to be lower 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, as evidenced by the three and nine months ended September 30, 2021. We therefore consider fuel sales volume and fuel 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 realize, fuel sales volume increased during the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020. These increases primarily resulted from improved market conditions within the freight industry, traffic increases associated with the ongoing pandemic recovery and the success of our marketing initiatives.
Factors Affecting Comparability
COVID-19 Pandemic
See our discussion regarding the COVID-19 pandemic and its impact on us and our business above.
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Growth and Cost Control Strategies
During the 2020 second quarter, we commenced a strategic transformation and turnaround plan, or our Transformation Plan, consisting of numerous initiatives across our organization for the purpose of expanding our travel center network, improving and enhancing operational efficiencies and profitability, strengthening our financial position all in support of our core mission to return every traveler to the road better than they came. Among these initiatives was a corporate restructuring that resulted in immediate selling, general and administrative expense savings and the hiring of many new members of management. We also created a centralized procurement group to drive economies of scale in pricing and increased leverage in vendor negotiations, which is leading to substantial purchasing savings and a streamlined operation. Other key initiatives are focused in areas of liquidity, expanding our franchise base, increasing diesel fuel and gasoline gross margin and fuel sales volume, increasing market share in the truck service business, improving merchandising and increasing gross margin in store and retail services, improving operating effectiveness in our food service offerings and improving information technology systems, while focusing on opportunities to control and rationalize costs.
Since the beginning of 2019, we have entered into franchise agreements for 52 travel centers to be operated under our travel center brand names; four of these franchised travel centers began operations during 2019, 10 began operations during 2020 and four began operations during the nine months ended September 30, 2021. We expect the remaining 34 to open by the third quarter of 2023.
As a result of nationwide labor and supply chain challenges, our capital expenditures plan has been impacted and it is currently expected to be in the range of $80,000 to $100,000 in 2021. We do not believe that this delay will have a material impact on the underlying operating business. The 2021 capital expenditures include projects to enhance the guest experience through significant upgrades at our travel centers and to improve our technology systems infrastructure. Approximately half of our capital expenditures in 2021 are focused on growth initiatives that we expect will meet or exceed our 15% to 20% cash on cash return hurdle.
Importantly, we are committed to embracing environmentally friendly sources of energy through our eTA division, which seeks to deliver sustainable and alternative energy to the marketplace and focus on working with the public sector, private companies and customers to facilitate a possible industry transformation. This business division extends our commitment to providing the widest range of commercially prudent and practicable nonfuel offerings across our sites. Recent accomplishments include continued expansion of our biodiesel blending capabilities, availability of DEF at the pump and placement of electric vehicle charging stations. We believe our large, well-located sites and our focus as a pure supplier may provide us with the opportunity to make both fossil and, eventually, non-fossil fuels available and to potentially balance or adjust our product and service offerings as we may determine and subject to availability.
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. The COVID-19 pandemic has, and economic conditions occasionally in the past have, significantly altered the seasonal aspects of our business, and they may have similar impacts in the future.
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Results of Operations
All of our company operated locations are same site locations with the exception of one standalone truck service facility. As a result, same site operating results are not presented as part of this discussion and analysis as they would not provide materially different information from our consolidated results.
Consolidated Financial Results
The following table presents changes in our operating results for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020.
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Fuel | $ | 1,424,997 | $ | 791,880 | $ | 633,117 | 80.0 | % | |||||||||||||||
| Nonfuel | 511,063 | 474,097 | 36,966 | 7.8 | % | ||||||||||||||||||
| Rent and royalties from franchisees | 3,886 | 3,947 | (61) | (1.5) | % | ||||||||||||||||||
| Total revenues | 1,939,946 | 1,269,924 | 670,022 | 52.8 | % | ||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||
Fuel | 106,010 | 80,123 | 25,887 | 32.3 | % | ||||||||||||||||||
| Nonfuel | 304,798 | 285,983 | 18,815 | 6.6 | % | ||||||||||||||||||
| Rent and royalties from franchisees | 3,886 | 3,947 | (61) | (1.5) | % | ||||||||||||||||||
Total gross margin | 414,694 | 370,053 | 44,641 | 12.1 | % | ||||||||||||||||||
| Site level operating expense | 246,871 | 221,864 | 25,007 | 11.3 | % | ||||||||||||||||||
| Selling, general and administrative expense | 39,563 | 32,967 | 6,596 | 20.0 | % | ||||||||||||||||||
| Real estate rent expense | 63,898 | 65,226 | (1,328) | (2.0) | % | ||||||||||||||||||
| Depreciation and amortization expense | 24,276 | 32,299 | (8,023) | (24.8) | % | ||||||||||||||||||
| Other operating expense, net | 230 | — | 230 | — | % | ||||||||||||||||||
| Income from operations | 39,856 | 17,697 | 22,159 | 125.2 | % | ||||||||||||||||||
| Interest expense, net | 11,843 | 7,375 | 4,468 | 60.6 | % | ||||||||||||||||||
| Other (income) expense, net | (1,034) | 233 | (1,267) | (543.8) | % | ||||||||||||||||||
| Income before income taxes | 29,047 | 10,089 | 18,958 | 187.9 | % | ||||||||||||||||||
| Provision for income taxes | (6,847) | (1,432) | (5,415) | (378.1) | % | ||||||||||||||||||
| Net income | 22,200 | 8,657 | 13,543 | 156.4 | % | ||||||||||||||||||
Less: net income for noncontrolling interest | — | 52 | (52) | (100.0) | % | ||||||||||||||||||
Net income attributable to common stockholders | $ | 22,200 | $ | 8,605 | $ | 13,595 | 158.0 | % | |||||||||||||||
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| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Fuel | $ | 3,830,886 | $ | 2,244,219 | $ | 1,586,667 | 70.7 | % | |||||||||||||||
| Nonfuel | 1,460,787 | 1,304,674 | 156,113 | 12.0 | % | ||||||||||||||||||
| Rent and royalties from franchisees | 11,649 | 10,482 | 1,167 | 11.1 | % | ||||||||||||||||||
| Total revenues | 5,303,322 | 3,559,375 | 1,743,947 | 49.0 | % | ||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||
Fuel | 283,732 | 253,978 | 29,754 | 11.7 | % | ||||||||||||||||||
| Nonfuel | 883,592 | 791,890 | 91,702 | 11.6 | % | ||||||||||||||||||
| Rent and royalties from franchisees | 11,649 | 10,482 | 1,167 | 11.1 | % | ||||||||||||||||||
Total gross margin | 1,178,973 | 1,056,350 | 122,623 | 11.6 | % | ||||||||||||||||||
| Site level operating expense | 708,097 | 655,950 | 52,147 | 7.9 | % | ||||||||||||||||||
| Selling, general and administrative expense | 112,083 | 108,171 | 3,912 | 3.6 | % | ||||||||||||||||||
| Real estate rent expense | 191,378 | 191,893 | (515) | (0.3) | % | ||||||||||||||||||
| Depreciation and amortization expense | 72,244 | 89,113 | (16,869) | (18.9) | % | ||||||||||||||||||
| Other operating income, net | (642) | — | (642) | — | % | ||||||||||||||||||
| Income from operations | 95,813 | 11,223 | 84,590 | 753.7 | % | ||||||||||||||||||
| Interest expense, net | 34,966 | 22,064 | 12,902 | 58.5 | % | ||||||||||||||||||
| Other expense, net | 1,667 | 1,109 | 558 | 50.3 | % | ||||||||||||||||||
| Income (loss) before income taxes | 59,180 | (11,950) | 71,130 | 595.2 | % | ||||||||||||||||||
| (Provision) benefit for income taxes | (13,776) | 4,222 | (17,998) | (426.3) | % | ||||||||||||||||||
| Net income (loss) | 45,404 | (7,728) | 53,132 | 687.5 | % | ||||||||||||||||||
Less: net (loss) income for noncontrolling interest | (333) | 104 | (437) | (420.2) | % | ||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | 45,737 | $ | (7,832) | $ | 53,569 | 684.0 | % | |||||||||||||||
Three Months Ended September 30, 2021, as Compared to Three Months Ended September 30, 2020
Fuel Revenues. Fuel revenues for the three months ended September 30, 2021, increased by $633,117, or 80.0%, as compared to the three months ended September 30, 2020, primarily as a result of an increase in fuel sales volume in addition to an increase in market prices for fuel. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods. See "Effects of Fuel Prices and Supply and Demand Factors" for more information regarding the impact market prices for fuel has on our financial results.
| Gallons Sold | Fuel Revenues | ||||||||||
| Results for the three months ended September 30, 2020 | 555,102 | $ | 791,880 | ||||||||
| Increase due to petroleum products price changes | 562,189 | ||||||||||
| Increase due to volume changes | 27,214 | 65,204 | |||||||||
| Increase in wholesale fuel sales volume | 3,532 | 5,724 | |||||||||
| Net change from prior year period | 30,746 | 633,117 | |||||||||
| Results for the three months ended September 30, 2021 | 585,848 | $ | 1,424,997 | ||||||||
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Nonfuel Revenues. Nonfuel revenues for the three months ended September 30, 2021, increased by $36,966, or 7.8%, as compared to the three months ended September 30, 2020, as a result of increases in our store and retail services, truck service, restaurants and diesel exhaust fluid revenues. These increases were primarily due to the impact the COVID-19 pandemic had on nonfuel revenues for the three months ended September 30, 2020, including the additional sales from certain travel center restaurants that have now re-opened or are operating with expanded hours as compared to the pandemic conditions experienced in the prior year, and the progress of our Transformation Plan.
Rent and Royalties from Franchisees. Rent and royalties from franchisees for the three months ended September 30, 2021, decreased by $61, or 1.5%, as compared to the three months ended September 30, 2020, primarily as a result of the sale of franchised standalone restaurants in the sale of our QSL business in April 2021, partially offset by franchised travel centers that began operations after September 30, 2020.
Fuel Gross Margin. Fuel gross margin for the three months ended September 30, 2021, increased by $25,887, or 32.3%, as compared to the three months ended September 30, 2020, primarily as a result of an increase in fuel sales volume and a more favorable purchasing environment during the three months ended September 30, 2021.
Nonfuel Gross Margin. Nonfuel gross margin for the three months ended September 30, 2021, increased by $18,815, or 6.6%, as compared to the three months ended September 30, 2020, due to the increase in total nonfuel revenues. Nonfuel gross margin percentage for the three months ended September 30, 2021, decreased 70 basis points to 59.6% from 60.3% compared to the three months ended September 30, 2020, primarily due to a change in the mix of products and services sold and certain pricing and marketing initiatives.
Site Level Operating Expense. Site level operating expense for the three months ended September 30, 2021, increased by $25,007, or 11.3%, as compared to the three months ended September 30, 2020, primarily due to increased labor costs in truck services and field employees who returned to work during 2021 to support our restaurant re-openings as compared to furloughs and lower staffing levels in 2020 in response to the COVID-19 pandemic and increased other operating expenses for the three months ended September 30, 2021. Site level operating expense as a percentage of nonfuel revenues increased 150 basis points to 48.3% for the three months ended September 30, 2021, from 46.8% for the three months ended September 30, 2020, primarily due to higher labor costs for the three months ended September 30, 2021 as we restaffed in response to improved business conditions and re-opening of certain full service restaurants.
Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended September 30, 2021, increased by $6,596, or 20.0%, as compared to the three months ended September 30, 2020, primarily as a result of increases related to the impact of filling open positions, expenses related to consultant fees to assist with identifying and implementing cost reduction and other opportunities, and costs related to increased deployments of cloud-based technology solutions during the three months ended September 30, 2021.
Real Estate Rent Expense. Real estate rent expense for the three months ended September 30, 2021, decreased by $1,328, or 2.0%, as compared to the three months ended September 30, 2020, primarily as a result of a $1,262 impairment charge recognized to operating lease assets with respect to our QSL business during the three months ended September 30, 2020.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended September 30, 2021, decreased by $8,023, or 24.8%, as compared to the three months ended September 30, 2020, primarily as a result of a $6,610 property and equipment impairment charge recognized with respect to our QSL business during the three months ended September 30, 2020, and a $2,372 write off of certain assets related to truck service programs that were canceled during the three months ended September 30, 2020.
Interest Expense, Net. Interest expense, net for the three months ended September 30, 2021, increased by $4,468, or 60.6%, as compared to the three months ended September 30, 2020, primarily as a result of the Term Loan Facility (as defined below) that we entered into in December 2020.
(Provision)Benefit for Income Taxes. Provision for income taxes for the three months ended September 30, 2021 increased to $6,847 compared to $1,432 for the three months ended September 30, 2020. The increase in the income tax provision is primarily due to higher pretax income recognized in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.
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Nine Months Ended September 30, 2021, as Compared to Nine Months Ended September 30, 2020
Fuel Revenues. Fuel revenues for the nine months ended September 30, 2021, increased by $1,586,667, or 70.7%, as compared to the nine months ended September 30, 2020, primarily as a result of an increase in fuel sales volume in addition to an increase in market prices for fuel. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods. See "Effects of Fuel Prices and Supply and Demand Factors" for more information regarding the impact market prices for fuel has on our financial results.
| Gallons Sold | Fuel Revenues | ||||||||||
| Results for the nine months ended September 30, 2020 | 1,520,104 | $ | 2,244,219 | ||||||||
| Increase due to petroleum products price changes | 1,163,614 | ||||||||||
| Increase due to volume changes | 184,259 | 408,131 | |||||||||
| Increase in wholesale fuel sales volume | 8,988 | 14,922 | |||||||||
| Net change from prior year period | 193,247 | 1,586,667 | |||||||||
| Results for the nine months ended September 30, 2021 | 1,713,351 | $ | 3,830,886 | ||||||||
Nonfuel Revenues. Nonfuel revenues for the nine months ended September 30, 2021, increased by $156,113, or 12.0%, as compared to the nine months ended September 30, 2020, primarily as a result of increases in our store and retail services, truck service, restaurants and diesel exhaust fluid revenues. These increases were primarily due to the impact the COVID-19 pandemic had on nonfuel revenues for the nine months ended September 30, 2020, including the additional sales from certain travel center restaurants that have now re-opened or are operating with expanded hours as compared to the pandemic conditions experienced in the prior year, and the progress of our Transformation Plan.
Rent and Royalties from Franchisees. Rent and royalties from franchisees for the nine months ended September 30, 2021, increased by $1,167, or 11.1%, as compared to the nine months ended September 30, 2020, primarily as a result of the franchised travel centers that began operations since the beginning of 2020, partially offset by the sale of franchised standalone restaurants from the sale of our QSL business in April 2021.
Fuel Gross Margin. Fuel gross margin for the nine months ended September 30, 2021, increased by $29,754, or 11.7%, as compared to the nine months ended September 30, 2020, primarily as a result of an increase in fuel sales volume and a more favorable purchasing environment during the nine months ended September 30, 2021.
Nonfuel Gross Margin. Nonfuel gross margin for the nine months ended September 30, 2021, increased by $91,702, or 11.6%, as compared to the nine months ended September 30, 2020, primarily as a result of the increase in total nonfuel revenues. Nonfuel gross margin percentage for the nine months ended September 30, 2021, remained essentially flat at 60.5% as compared to the nine months ended September 30, 2020.
Site Level Operating Expense. Site level operating expense for the nine months ended September 30, 2021, increased by $52,147, or 7.9%, as compared to the nine months ended September 30, 2020, primarily due to increased labor costs in truck services and field employees who returned to work during 2021 to support our restaurant re-openings as compared to furloughs and lower staffing levels in 2020 in response to the COVID-19 pandemic and increased other operating expenses for the nine months ended September 30, 2021. This increase was partially offset by $3,769 of bonuses paid to support those who continued to work at our locations during the COVID-19 pandemic during the nine months ended September 30, 2020. Site level operating expense as a percentage of nonfuel revenues decreased 180 basis points to 48.5% for the nine months ended September 30, 2021, from 50.3% for the nine months ended September 30, 2020, primarily due to the increase in nonfuel revenues and management of cost reintroduction as business conditions improved and we re-opened certain full service restaurants.
Selling, General and Administrative Expense. Selling, general and administrative expense for the nine months ended September 30, 2021, increased by $3,912, or 3.6%, as compared to the nine months ended September 30, 2020, primarily as a result of the impact of filling open positions, increases in consultant fees to assist with identifying and implementing cost reduction and other opportunities, and costs related to increased deployments of cloud-based technology solutions, partially offset by expenses related to the Reorganization Plan and executive officer retirement and separation agreements recognized in the nine months ended September 30, 2020.
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Real Estate Rent Expense. Real estate rent expense for the nine months ended September 30, 2021, decreased by $515, or 0.3%, as compared to the nine months ended September 30, 2020, primarily as a result of a $1,262 impairment charge recognized to operating lease assets with respect to our QSL business during the nine months ended September 30, 2020, partially offset by an increase in percentage rent due to SVC as a result of the increase in total nonfuel revenues during the nine months ended September 30, 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense for the nine months ended September 30, 2021, decreased by $16,869, or 18.9%, as compared to the nine months ended September 30, 2020, primarily as a result of $8,072 of write offs of certain assets related to truck service programs that were canceled during the nine months ended September 30, 2020, a $6,610 property and equipment impairment charge recognized with respect to our QSL business during the nine months ended September 30, 2020, a $3,046 goodwill impairment charge recognized during the nine months ended September 30, 2020, with respect to our QSL business and a $834 write off of intangible assets associated with three franchised standalone restaurants that closed during the nine months ended September 30, 2020, partially offset by a $650 impairment charge related to the QSL sale during the nine months ended September 30, 2021.
Interest Expense, Net. Interest expense, net for the nine months ended September 30, 2021, increased by $12,902, or 58.5%, as compared to the nine months ended September 30, 2020, primarily as a result of the Term Loan Facility (as defined below) that we entered into in December 2020.
(Provision) Benefit for Income Taxes. Provision for income taxes for the nine months ended September 30, 2021 increased to $13,776 as compared to an income tax benefit of $4,222 for the nine months ended September 30, 2020. The increase in the income tax provision is primarily due to pretax income recognized in the nine months ended September 30, 2021, as compared to a pretax loss in the nine months ended September 30, 2020.
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 Credit Facility (as defined below) with a current maximum availability of $200,000 subject to limits based on our qualified collateral;
•potential sales to SVC of improvements we make to the sites we lease from SVC;
•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:
•the potential intensifying of the negative impacts from the COVID-19 pandemic, including if the United States experiences a prolonged and significant decline in economic activity that reduces demand for our products and services;
•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 costs;
•labor availability;
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•increased cost of fleet card fees;
•increased costs for nonfuel products that we may not be able to pass through to our customers;
•increases in our cost of capital due to increasing market interest rates;
•adverse impacts from the current supply chain challenges;
•increased costs we may need to incur to operate our business in response to the COVID-19 pandemic, including enhancing sanitation, other preventative measures, and the potential implementation of a vaccine mandate and testing; and
•the negative impacts on our gross margins and working capital requirements due to the higher level of prices for petroleum products 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. 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 $621,103 at September 30, 2021, and net cash provided by operating activities of $181,286 for the nine months ended September 30, 2021, 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. We believe we have sufficient financial resources to fund operations and required capital expenditures for greater than 12 months.
Our Investment and Financing Liquidity and Resources
Revolving Credit Facility
On December 14, 2020, we and certain of our subsidiaries entered into an amendment to our Amended and Restated Loan and Security Agreement, or the Credit Facility, with a group of commercial banks that matures on July 19, 2024. Under the Credit Facility, a maximum of $200,000 may be drawn, repaid and redrawn until maturity. The availability of this 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 September 30, 2021, based on our qualified collateral, a total of $108,212 was available to us for loans and letters of credit under the Credit Facility. At September 30, 2021, there were no borrowings outstanding under the Credit Facility but we had outstanding $14,128 of letters of credit issued under that facility, which reduced the amount available for borrowing under the Credit Facility, leaving $94,084 available for our use as of that date. At September 30, 2021, we were in compliance with all covenants of the Credit Facility. As of October 29, 2021, there were no borrowings outstanding under the Credit Facility and approximately $94,084 available under the Credit Facility for our use as of that date.
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Term Loan Facility
On December 14, 2020, we entered into a $200,000 Term Loan Facility, or the Term Loan Facility, which is secured by a pledge of all the equity interests of substantially all of our wholly owned subsidiaries, a pledge, subject to the prior interest of the lenders under our Credit Facility, of substantially all of our other assets and the assets of such wholly owned subsidiaries and mortgages on certain of our fee owned real properties. We have been using the $190,062 in net proceeds from our Term Loan Facility for general business purposes, including the funding of deferred capital expenditures, updates to key information technology infrastructure and growth initiatives consistent with our Transformation Plan. Interest on amounts outstanding under the Term Loan Facility are calculated at LIBOR, with a LIBOR floor of 100 basis points, plus 600 basis points, and the Term Loan Facility matures on December 14, 2027. Our Term Loan Facility requires monthly interest payments and quarterly principal payments of $500, or 1.0% of the original principal amount annually. Remaining principal amounts outstanding under the Term Loan Facility may be prepaid beginning on December 14, 2022.
Underwritten Public Equity Offering
On July 6, 2020, we received net proceeds of $79,980, after $296 of offering costs and $5,124 of underwriting discounts and commissions, from the sale and issuance of 6,100 shares of common stock in an underwritten public equity offering. We have been using the net proceeds from this offering to fund deferred maintenance and other capital expenditures necessary to enhance property conditions and implement growth initiatives, for working capital and for general corporate purposes.
West Greenwich Loan
On February 7, 2020, we entered into a 10 year term loan for $16,600 with The Washington Trust Company, or the West Greenwich Loan. The West Greenwich Loan is secured by a mortgage encumbering our travel center located in West Greenwich, Rhode Island. The interest rate is fixed at 3.85% for five years based on the five year Federal Home Loan Bank rate plus 198 basis points, and will reset thereafter. The West Greenwich Loan requires us to make principal and interest payments monthly. The proceeds from the West Greenwich Loan were used for general business purposes. We may, at our option with 60 days prior written notice, repay the loan in full prior to the end of the 10 year term plus, if repaid prior to February 7, 2023, a nominal penalty.
IHOP Secured Advance Note
On October 28, 2019, we entered into a multi-unit franchise agreement with IHOP Franchisor LLC, or IHOP, in which we agreed to rebrand and convert up to 94 of our full service restaurants to IHOP restaurants over the next five years, or the IHOP Agreement. Concurrent with entering into the IHOP Agreement, we entered into a Secured Advance Note with IHOP, or the IHOP Note, pursuant to which we can borrow up to $10,000 in connection with the costs to convert our full service restaurants to IHOP restaurants. As of September 30, 2021, there were no loans outstanding under the IHOP Note.
Sources and Uses of Cash
The following is a summary of our sources and uses of cash for the nine months ended September 30, 2021 and 2020, as reflected in our consolidated statements of cash flows:
| Nine Months Ended September 30, | |||||||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | ||||||||||||||
| Cash and cash equivalents at the beginning of the period | $ | 483,151 | $ | 17,206 | $ | 465,945 | |||||||||||
| Net cash provided by (used in): | |||||||||||||||||
| Operating activities | 181,286 | 213,572 | (32,286) | ||||||||||||||
| Investing activities | (39,181) | (37,389) | (1,792) | ||||||||||||||
| Financing activities | (4,217) | 87,031 | (91,248) | ||||||||||||||
| Effect of exchange rate changes on cash | 64 | 22 | 42 | ||||||||||||||
| Cash and cash equivalents at the end of the period | $ | 621,103 | $ | 280,442 | $ | 340,661 | |||||||||||
Cash Flows from Operating Activities. During the nine months ended September 30, 2021 and 2020, we had net cash inflows from operating activities of $181,286 and $213,572, respectively. The $32,286 change was primarily due to a decrease in cash generated from working capital, primarily as a result of lower receivable collections due to the collection of the
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biodiesel credit in 2020, partially offset by higher earnings in 2021 during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.
Cash Flows from Investing Activities. During the nine months ended September 30, 2021 and 2020, we had net cash outflows from investing activities of $39,181 and $37,389, respectively. The $1,792 change primarily resulted from an increase in capital expenditures, partially offset by proceeds from the sale of assets during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.
Cash Flows from Financing Activities. During the nine months ended September 30, 2021 and 2020, we had net cash outflows and inflows from financing activities of $4,217 and $87,031, respectively. The $91,248 change primarily resulted from $79,985 proceeds received from the underwritten public equity offering and $16,600 proceeds received under the West Greenwich Loan during the nine months ended September 30, 2020, partially offset by repayments of $1,500 on our Term Loan Facility and repayments of $498 on the West Greenwich Loan during the nine months ended September 30, 2021 and a $7,900 repayment of our borrowings under our Credit Facility during the nine months ended September 30, 2020.
Related Party Transactions
We have relationships and historical and continuing transactions with SVC, The RMR Group LLC, or RMR, and others related to them. For further information about these and other such relationships and related party transactions, see Notes 6, 7 and 8 to the Consolidated Financial Statements included in Item 1. of this Quarterly Report, our Annual Report, our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders and our other filings with the Securities and Exchange Commission. In addition, see Item 1A. "Risk Factors" in our Annual Report for a description of risks that may arise as a result of these and other related party transactions and relationships. 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. Environment 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 and control air pollutant emissions from the trucking industry may raise the cost of trucking as compared to other types of freight transport, as a result decreasing the demand for our fuel products and negatively impacting our business.
For example, in August 2016 the EPA and the National Highway Traffic Safety Administration established final regulations intended to phase in more stringent greenhouse gas emission and fuel efficiency standards for medium and heavy duty trucks. Under the Trump Administration, the EPA and the U.S. Department of Transportation rolled back various rules relating to greenhouse gas emissions and fuel efficiency standards for trucks and other motor vehicles, including portions of the rule discussed above. President Biden has signed executive orders requiring federal agencies to review certain actions taken by the Trump Administration with respect to fuel efficiency standards and the U.S. Congress is considering legislation that would dedicate significant resources to environmental initiatives, but it is difficult to predict what, if any, changes to existing rules will occur under the Biden Administration or as a result of federal legislative action or due to related legal challenges and, if changes occur, what impact those changes would have on our industry, us or our business. In addition, the California Air Resources Board, or CARB, routinely considers rulemaking activity the purpose of which is to make heavy duty truck fleets operating in the state more fuel efficient and less polluting. The Trump Administration challenged CARB's ability to take such actions, and legal challenges remain to the enforceability of CARB's rulemaking. Because of the size of the California market and economy, fleet rules adopted by CARB frequently have influence throughout the United States. 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 and pollution reduction efforts under federal or state rules or as a result of other existing or future regulation or changes in customer demand.
Many observers believe severe weather activities in different parts of the country over the last few years are evidence of global climate change. Such severe weather may have an adverse effect on individual properties we own, lease or operate, or
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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, we cannot be certain that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes 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 9 to the Consolidated Financial Statements included in Item 1. of this Quarterly Report, which disclosure is incorporated herein by reference.
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 September 30, 2021.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2021, 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 include statements that:
•Our expectations about our and the trucking industry's ability to operate through the COVID-19 pandemic;
•The duration and severity of any adverse economic impact that might result from the COVID-19 pandemic on us and our customers, suppliers and other stakeholders;
•Our operating results for the three and nine months ended September 30, 2021, reflect certain improvements as compared to the three and nine months ended September 30, 2020. 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 fuel and nonfuel revenues and the costs of our fuel and nonfuel products may increase in the future because of inflation or other reasons. If fuel gross margin per gallon, or fuel or nonfuel sales volume, decline, if we are not able to pass increases in fuel or 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 fuel and 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 are executing our Transformation Plan, which includes numerous initiatives that we believe will improve and enhance our operational efficiencies and profitability, increase diesel fuel and gasoline gross margin and fuel sales volume, increase market share in the truck service industry, improve merchandising and gross margin in store and retail services, improve operating effectiveness in our full service restaurants and expand our franchise base. However, we may not be able to recognize the improvements to our operating results that we anticipate. In addition, the costs incurred to complete the initiatives may be greater than we anticipate;
•We have incurred costs to support our anticipated business growth. This statement may imply that these costs will result in increased revenues and us receiving the expected return on our investments in growing our business. However, these costs may exceed any increased revenue we may receive from this growth or the returns on these investments may be less than expected;
•Our belief that our sites are large and well-located may prove otherwise and, if so, we may not realize the benefits we expect based on the characteristics of our sites;
•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;
•Our belief that, as of the date of this Quarterly Report, we had sufficient financial resources to fund operations for the at least 12 months. However our business is subject to risks, including risks beyond our control. If economic conditions decline for an extended period or if we fail to operate our business and compete successfully, our business, results of operations and financial condition may be materially adversely impacted, which may result in our not having sufficient financial resources to fund operations for the foreseeable future;
•We expect to expand our network by entering into new franchise agreements. However, we may not succeed in entering these agreements and the commencement and stabilization of any new franchises may not occur, may be delayed or may not open, and these franchises may not be successful or generate the royalties for us that we expect;
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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, inventory, equipment and intangible assets 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 September 30, 2021, based on our eligible collateral at that date, our borrowing and letter of credit availability was $108.2 million, of which we had used $14.1 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 not spend the $80.0 million to $100.0 million of capital expenditures in 2021 that we currently expect to spend, we may spend more or less than these amounts, and we may not reach our expected cash on cash return hurdle.
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, alternative forms of energy 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 two 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;
•The costs we have incurred and expect to incur to support our planned and expected growth of our business may exceed any increased revenue we may receive from this growth or result in our returns on these investments being less than we expect and target;
•Fuel supply disruptions may occur, which may limit our ability to purchase fuel for resale;
•We and our suppliers and customers are experiencing negative impacts from the current reduced market labor availability, including truck driver shortage, and related market pressures which may continue to present us with challenges and could negatively impact our business and operations if these conditions continue;
•Continued supply chain challenges may limit our growth, reduce our scale and scope of operations, increase our operating costs, continue to expand the time to complete our capital projects, and adversely impact our results of operations and financial condition;
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•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;
•Trucking companies have incurred, and may incur additional, increased labor costs to retain and hire truck drivers, which may reduce the amount these companies are willing to pay for our services;
•Adverse weather events, natural disasters and global climate change may adversely impact our travel centers and other properties, operations and financial condition;
•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, competition 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;
•Acts of terrorism, geopolitical risks, wars, public health crises, such as the ongoing COVID-19 pandemic, 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 SVC, 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 Item 1A. "Risk Factors," and elsewhere in this Quarterly 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 1A. Risk Factors
There have been no material changes during the period covered by this Quarterly Report on Form 10-Q 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, 2020.
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 three months ended September 30, 2021.
| 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 | ||||||||||||||||||||||
| July 2021 | 772 | $ | 29.24 | — | $ | — | ||||||||||||||||||||
| August 2021 | — | — | — | — | ||||||||||||||||||||||
| September 2021 | — | — | — | — | ||||||||||||||||||||||
| Total | 772 | $ | 29.24 | — | — | |||||||||||||||||||||
(1) During the three months ended September 30, 2021, all common stock purchases were made to satisfy share award recipients' tax withholding and payment obligations in connection with the vesting of awards of shares of common stock, which were repurchased by us based on their fair market value on the repurchase date.
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Item 6. Exhibits
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document (filed herewith) | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | |||||||
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| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission. | ||||||||
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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/ Peter J. Crage | ||||||||||||||||||||||
| Date: | November 2, 2021 | Name: | Peter J. Crage | ||||||||||||||||||||
| Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||||||||||||||||||
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