TravelCenters of America (TA) 10-Q2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 or

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 ☐

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 August 1, 2022: 14,855,942.

TravelCenters of America Inc.

Consolidated Balance Sheets (Unaudited)

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

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

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

TravelCenters of America Inc. is a Maryland corporation. As of June 30, 2022, we operated or franchised 282 travel centers, standalone truck service facilities and 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 June 30, 2022, our business included 276 travel centers in 44 states in the United States, 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 52, we leased 181, we operated 2 for a joint venture and 41 were owned or leased from others by our franchisees. We operated 234 of our travel centers and franchisees operated 42 travel centers. As of July 8, 2022, we now operate 235 of our travel centers and franchisees operated 41 travel centers. 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 and various customer amenities.

As of June 30, 2022, our business included 5 standalone truck service facilities operated under the "TA Truck Service" brand name. Of these standalone truck service facilities, we leased 3 and owned 2. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks.

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 on Form 10-Q, or this Quarterly Report, for more information about the sale of our QSL business.

We manage our business as 1 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. On April 26, 2022, we ceased operations at our only travel center located in a foreign country, Canada, which we did not consider material to our operations. On March 2, 2022, we entered into an agreement to sell our Canadian travel center for C$26,000 (approximately US$20,000), excluding costs to sell and certain closing adjustments. See Note 3 of this Quarterly Report for more information about the potential sale of this travel center.

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, 2021, 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 current economic conditions have, and may in the future, significantly alter the seasonal aspects of our business. 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.

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 June 30, 2022, was $331,312.

The following table summarizes recent accounting standard updates, or ASUs, issued by the Financial Accounting Standards Board, or FASB, that could have an impact on our consolidated financial statements.

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

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. Nonfuel revenues disaggregated by type of good or service for the three and six months ended June 30, 2022 and 2021, were as follows:

As of June 30, 2022, we expect the unsatisfied performance obligations, relating to our customer loyalty programs and other contract liabilities, will generally be satisfied within 12 months.

On April 1, 2022 , we acquired certain assets of our previously franchised travel center sites in Lexington, Virginia and Raphine, Virginia for total cash consideration of $51,788, inclusive of certain closing costs and other purchase price adjustments, in order to expand our company owned network of travel centers. TA Lexington and Petro Raphine are located along a strategic interstate highway corridor, and had been franchise locations since 2011. We have included the operating results of the acquisition and a preliminary purchase price allocation in our Consolidated Financial Statements beginning on April 1, 2022. The pro forma impact of these acquisitions, including the respective results of operations from the beginning of the periods presented, are not material to our consolidated financial statements.

We continue to obtain information to complete the valuation of certain assets and liabilities, and expect to complete these valuations no later than one year from the date of acquisition. We will make adjustments to the fair values of the identifiable assets acquired and liabilities assumed as those valuations are finalized. We do not expect these adjustments to be material.

As of June 30, 2022, the following table summarizes the preliminary fair values we recorded for the assets acquired and liabilities assumed. The intangible assets, net figure represents a reacquired franchise right with a weighted average amortization period of approximately four years based on the contractual lives of the applicable franchise agreements.

During the second quarter of 2022, we also acquired 1 standalone truck service facility in Stewartsville, New Jersey and assumed operation of a travel center located in Montgomery, Alabama, which is owned by us, but which was previously leased and franchised by us to a former tenant/franchisee. In connection with such assumption, we purchased from the former tenant/franchisee certain assets used in connection with the operation of the travel center. The aggregate amount of the assets purchased for both transactions was $2,435 in cash.

On July 8, 2022, we assumed operation of a travel center located in Sweetwater, Texas, which is owned by us, but which was previously leased and franchised by us to a former tenant/franchisee. In connection with such assumption, we purchased from the former tenant/franchisee for an immaterial amount certain assets used in connection with the operation of the travel center.

On July 27, 2022, we acquired the assets of a previously franchised travel center site in Oak Grove, Missouri for total cash consideration of $15,349, inclusive of certain closing costs and other purchase price adjustments, in order to expand our company owned network of travel centers. Operating results of the acquisition will be included in our Consolidated Financial Statements beginning on July 27, 2022. We are in the process of determining the fair value of certain identifiable assets, and the purchase price allocation will be completed with finalization of these valuations in future quarters.

In connection with the closure of the travel center in April 2022, during the six months ended June 30, 2022, we recognized expenses of $375 for employee termination benefits, which were paid during the second quarter of 2022, and $630 related to environmental remediation. These expenses were included in site level operating expense in our consolidated statements of operations and comprehensive income.

2021 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 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.

which were included in depreciation and amortization expense in our consolidated statements of operations and comprehensive income.

We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our 5 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 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 $481 and $517 for the three months ended June 30, 2022 and 2021, respectively, and $904 and $1,003 for the six months ended June 30, 2022 and 2021, respectively.

Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income, as shown in the following tables. For the three and six months ended June 30, 2022 and 2021, our lease costs consisted of the following:

Lease Assets and Liabilities

The weighted average remaining lease term for our operating leases as of June 30, 2022, was approximately 11 years. Our weighted average discount rate for our operating leases as of June 30, 2022, was approximately 9.1%.

We leased 1 travel center to a franchisee as of June 30, 2022, and 2 travel centers to franchisees as of June 30, 2021. Rent revenues from these operating leases totaled $595 and $584 for the three months ended June 30, 2022 and 2021, respectively, and $1,190 and $1,168 for the six months ended June 30, 2022 and 2021, respectively. We acquired the operating assets of these franchisee-operated travel centers in the second and third quarters of 2022. See Note 3 of this Quarterly Report

for more information about these acquisitions. 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 properties we own to third parties to operate other retail operations.

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 1 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., the chair of the board of directors, a managing director, 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 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 board 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 June 30, 2022, Mr. Portnoy beneficially owned (including indirectly through RMR) approximately 4.5% of our outstanding shares of common stock.

We are SVC's largest tenant and SVC is our principal landlord and second largest stockholder. As of June 30, 2022, SVC owned approximately 8.0% of our outstanding shares of common stock. As of June 30, 2022, we leased from SVC a total of 179 travel center properties under the SVC Leases. See Note 5 of this Quarterly Report for more information about our lease agreements with SVC.

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 6 of this Quarterly Report for more information about our business management agreement with RMR.

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 income, net for the three and six months ended June 30, 2021.

For more information about these and other such relationships and certain other related person transactions, see our Annual Report.

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. Investigation and remediation of both surface spills and subsurface releases is handled by contracted third party consultants and managed by TA's Environmental Department. 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 June 30, 2022, we accrued a current liability of $2,685, of which $626 related to the potential sale of our travel center located in Canada, and a noncurrent liability of $1,108 for environmental matters as well as a receivable, which is recorded in noncurrent assets in our consolidated balances sheets, for expected recoveries of certain of these estimated future expenditures of $868, resulting in an estimated net amount of $2,925 that we expect to fund in the future.  See Note 3 of this Quarterly Report for more information about the potential sale of our travel center in Canada. 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 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.

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.

10. Equity Investments

QuikQ, an independent full service fuel payment solutions provider, is a joint venture between us and Love's Travel Stops & Country Stores, Inc. On April 30, 2021, we reduced our ownership in Epona, LLC, owner of QuikQ, from 50% to less than 50%, for which a pre-tax loss of $1,826 was recognized in other (income) expense, net in our consolidated statements of operations and comprehensive income during the three months ended June 30, 2021. The investment will continue to be accounted for under the equity method.

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, 2021, or our Annual Report. Unless indicated otherwise, amounts are in thousands of dollars, gallons and shares of common stock, as applicable, unless indicated otherwise.

TravelCenters of America Inc. is a Maryland corporation. As of June 30, 2022, we operated or franchised 276 travel centers, standalone truck service facilities and 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.

The United States economy experienced high inflation during the first half of 2022 and there are market expectations that inflation may remain at elevated levels for a sustained period. In addition, global supply chain challenges during the second half of 2021 have continued in 2022. Also, labor availability has continued to be constrained and market labor costs have continued to increase. The U.S. Federal Reserve Board also increased interest rates during the first half of 2022 and in July with additional rate increases expected in the coming months. These conditions may give rise to an economic slowdown, and perhaps a recession, and could further increase our costs and/or impact our revenues. At the same time, these conditions and other factors, as further noted below, have created a volatile market for oil, diesel fuel and gasoline, which has had the effect of increased fuel margins and fuel revenues during the second quarter of 2022. It is unclear whether the current economic conditions and government responses to these conditions, including inflation, increasing interest rates, the war between Russian and Ukraine and high fuel prices will result in an economic slowdown or recession in the United States. If that occurs, demand for the transporting of products across the United States by trucks may decline, possibly significantly, which may significantly adversely impact our business, results of operations and financial position.

The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have had a significant impact on the global economy, including the U.S. economy. Many of the restrictions that had been imposed in the United States during the pandemic have since been lifted and commercial activity in the United States generally has increasingly returned to pre-pandemic practices and operations. To date, the COVID-19 pandemic has not had a significant adverse impact on our business. However, the ultimate impact of the COVID-19 pandemic remains uncertain and we continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1A, “Risk Factors”, of our Annual Report.

During the three months ended June 30, 2022 and 2021, we generated income before income taxes of $84,268 and $36,726, respectively. The $47,542 change in income before income taxes was primarily due to site level gross margin in excess of site level operating expense increasing $58,998, primarily resulting from incremental diesel fuel margin, the result of fuel market volatility and increased prices creating favorable market conditions for our business, and increases in nonfuel revenues primarily due to higher value work orders and price increases in truck service and the re-opening and expanded hours of more restaurants during the three months ended June 30, 2022, partially offset by higher labor costs due to wage increases and higher operating expenses.

The above factors were partially offset by higher selling, general and administrative expense for the three months ended June 30, 2022, which increased by $9,810 or 26.8%, as compared to the three months ended June 30, 2021. The increase was primarily due to higher wages and compensation costs, costs related to the transition to cloud-based technology solutions, an increase in revenue-based management fees paid to The RMR Group LLC, or RMR, and higher general corporate expenses.

During the six months ended June 30, 2022 and 2021, we generated income before income taxes of $105,421 and $30,133, respectively. The $75,288 change in income before income taxes was primarily due to site level gross margin in excess of site level operating expense increasing $89,231, primarily resulting from incremental diesel fuel margin, the result of fuel market volatility and increased prices creating favorable market conditions for our business, and increases in nonfuel revenues primarily due to higher value work orders and price increases in truck service and the re-opening and expanded hours of more restaurants during the six months ended June 30, 2022, partially offset by higher labor costs driven by wage increases and compensation costs and higher operating expenses.

The above factors were partially offset by higher selling, general and administrative expense, which increased by $15,189 or 20.9% when comparing the six months ended June 30, 2022 and 2021. The increase was primarily due to higher wages and compensation costs, costs related to the transition to cloud-based technology solutions, an increase in revenue-based management fees paid to RMR and higher general corporate expenses.

Our fuel revenues and fuel gross margin 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 and perceived and/or real impacts on supply 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 wholesale and retail 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, for example the ongoing war between Russia and Ukraine and various countries’ actions in response to that war, are believed to have contributed to recent fears of supply constraint and, as a result, 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 factor. Over the past several years there have been significant changes in the cost of fuel. During the three and six months ended June 30, 2022, fuel prices trended upward, increasing 14.4% and 70.1%, respectively, as compared to the beginning of the period. The average fuel price during the three and six months ended June 30, 2022, was 133.6% and 110.2% higher than the average fuel price during the three and six months ended June 30, 2021, respectively. These increases in fuel prices during the first half of 2022 and year over year were primarily due to the recent uncertainty in fuel supply markets, impacted, at least in part, by the war between Russia and Ukraine and the various economic sanctions and other punitive measures the United States and other countries have taken against Russia in response, including with respect to Russian oil exports. This uncertainty also contributed to higher-than-normal fuel price volatility in the United States in the first half of 2022; however, favorable market conditions for certain purchasing arrangements and the significant index correlation of our fuel purchasing and sales contracts mitigated the potential downside risk of this volatility on our per gallon fuel margin this quarter and enabled us to deliver strong fuel margins for the quarter. In the aggregate, we generally are able to pass changes in our cost for fuel products to our customers, but typically with timing differences associated with on-hand inventory, such that during periods of volatile and rising fuel commodity prices, fuel gross margin per gallon tends to be

higher than it otherwise may have been and during periods of static and falling fuel commodity prices, fuel gross margin per gallon tends to be lower than it otherwise may have been. For example, steadily rising fuel prices typically improve short-term fuel margins due to the sell-through of lower cost inventory at current market prices. Increases in the prices we pay for fuel can 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 six months ended June 30, 2022. We therefore consider fuel sales volume and fuel gross margin to be better measures of our performance.

While we experienced lower fuel sales volumes during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to higher fuel prices and inflationary pressures, we believe that demand for fuel by trucking companies and motorists for a constant level of miles driven will remain relatively unchanged in the near-term but could 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, may impact the level of fuel sales volume we realize, fuel sales volume slightly increased during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. For the first six months of 2022, 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 to increase our market share, however these factors were less significant in the second quarter of 2022 as our fuel sales volume was down slightly as compared to a strong recovery quarter in the prior year.

Our strategic transformation and turnaround plan, or our Transformation Plan, consists of numerous initiatives across our organization for the purpose of expanding our travel center network, improving the guest experience, improving and enhancing operational profitability and efficiency, and strengthening our financial position all in support of our core mission to return every traveler to the road better than they came.

Franchising is a key aspect of our strategic network growth plan. Since the beginning of 2020, we have entered into franchise agreements covering approximately 50 travel centers to be operated under our travel center brand names. Five of these franchised travel centers began operations during 2020, two began operations during 2021 and one began operations during the second quarter of 2022. We expect the remaining 42 to all open by the third quarter of 2024.

Our growth strategy also includes our intent to acquire high quality, existing travel centers to expand our network of travel centers. We completed the acquisitions of two previously franchised travel centers and one standalone truck service facility in April 2022, and another previously franchised travel center in July 2022. We also acquired two of our company-owned, franchisee-operated travel centers in the second and third quarters of 2022. See Note 3 in Item 1. of this Quarterly Report for more information about these acquisitions.

Importantly, we are committed to embracing environmentally friendly energy sources through our eTA division, which seeks to deliver sustainable and alternative energy to the marketplace by working with the public sector, private companies and customers and guests to facilitate this initiative. Recent accomplishments include expanding of our biodiesel and renewable diesel blending capabilities, increasing the availability of diesel exhaust fluid, or DEF, at all diesel pumps nationwide and installing electric vehicle charging stations. We are also exploring ultra-high power truck charging and hydrogen fuel dispensing in parallel with traditional fossil fuels to provide energy alternatives as the transportation sector transitions to a lighter carbon footprint. We believe our large, well-located sites will allow us to make both fossil and, eventually, non-fossil fuels available throughout our nationwide network of sites.

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 and economic conditions have significantly altered the seasonal aspects of our business, and they may have similar impacts in the future.

All of our company operated locations are same site locations with the exception of the two recently acquired travel centers and one standalone truck service facility and the travel center located in Canada that we stopped operating during the second quarter of 2022 . 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. See Note 3 in Item 1. of this Quarterly Report for more information about acquisition and disposition activity.

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:

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

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 $565,146 at June 30, 2022, and net cash provided by operating activities of $175,532 for the six months ended June 30, 2022, 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.

Revolving Credit Facility

We and certain of our subsidiaries are parties to an 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 June 30, 2022, based on our qualified collateral, a total of $200,000 was available to us for loans and letters of credit under the Credit Facility. At June 30, 2022, there were no borrowings outstanding under the Credit Facility and $14,576 of letters of credit issued under that facility, which reduced the amount available for borrowing under the Credit Facility, leaving $185,424 available for our use as of that date. At June 30, 2022, we were in compliance with all covenants of the Credit Facility. As of August 1, 2022, there were no borrowings outstanding under the Credit Facility and approximately $185,424 available under the Credit Facility for our use as of that date.

Term Loan Facility

We have 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 used the net proceeds of $190,062 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 periodic interest payments based on the interest period selected and quarterly principal payments of $500, or 1.0% of the original principal amount annually. In addition, beginning with the year ended December 31, 2021 and for each twelve month calendar year period thereafter (each considered an “Excess Cash Flow Period”, as defined), we are required to calculate Excess Cash Flow, as defined, and prepay an amount equal to Excess Cash Flow less other specified adjustments. The prepayment, as calculated, is due 95 days after the end of the respective Excess Cash Flow Period. There was no required prepayment due for the Excess Cash Flow Period ended December 31, 2021. Remaining principal amounts outstanding under the Term Loan Facility may be prepaid, without penalty, beginning on December 14, 2022. At June 30, 2022, we were in compliance with all covenants of the Term Loan Facility.

West Greenwich Loan

We have a term loan for $16,600 with The Washington Trust Company, or the West Greenwich Loan. The West Greenwich Loan matures on February 7, 2030 and is secured by a mortgage encumbering our travel center located in West Greenwich, Rhode Island. The interest rate is fixed at 3.85% through February 7, 2025, and resets thereafter, based on the five year Federal Home Loan Bank rate plus 198 basis points. 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 maturity plus, if repaid prior to February 7, 2023, a nominal penalty.

We are party to a multi-unit franchise agreement with IHOP Franchisor LLC, or IHOP, pursuant to which we agreed to rebrand and convert certain of our full service restaurants to IHOP restaurants over a period through October 2024, or the IHOP Agreement. We are also a party to 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 June 30, 2022, there were no loans outstanding under the IHOP Note.

We have relationships and historical and continuing transactions with SVC, RMR and others related to them. For further information about these and other such relationships and related party transactions, see Notes 5, 6 and 7 to the Consolidated Financial Statements included in Item 1. of this Quarterly Report, our Annual Report, our definitive Proxy Statement for our 2022 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.

Governmental actions, including legislation, regulations, treaties and commitments, such as those seeking to reduce greenhouse gas emissions, and market actions in response to concerns about climate change, may decrease the demand for our major product, diesel fuel, and may require us to make significant capital or other expenditures related to alternative energy distribution or other changing fuel conservation practices. Federal and state governments require manufacturers to limit emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency, or EPA’s, gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor fuel. Further, legislative and regulatory initiatives requiring increased truck fuel efficiency have accelerated in the United States and these mandates have and may continue to result in decreased demand for diesel fuel.

For example, in August 2021 the EPA and the National Highway Traffic Safety Administration proposed new rules intended to phase in more stringent fuel efficiency standards for passenger cars and light duty trucks. In addition, the California Air Resources Board, and other similar state government agencies routinely consider rulemaking activity the purpose of which is to improve fuel efficiency and limit pollution from vehicles. Moreover, market concerns regarding climate change may result in decreased demand for fossil fuels and increased adoption of higher efficiency fuel technologies and alternative energy sources. Regulations that limit, or market demands to reduce carbon emissions, may cause our costs at our locations to significantly increase, make some of our locations obsolete or disadvantaged, or require us to make material investments in our properties. In pace with customer demand for alternative energy sources, we have installed electric charging capacity at certain of our travel centers and expect to install them at additional travel centers over time. We are also evaluating hydrogen dispensing as another alternative fuel offering at certain of our travel centers, have expanded DEF availability and installed additional biodiesel blending infrastructure. We are also evaluating the use of hydrogen fuel cell and natural gas generators for both emergency power and base electric load support.

Severe weather-related events due to climate change may have an adverse effect on individual properties we own, lease or operate, or the volume of business at our locations. We mitigate these risks by owning, leasing and operating a geographically 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 weather-related events or other climate changes that may occur will not have an 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 8 to the Consolidated Financial Statements included in Item 1. of this Quarterly Report, which disclosure is incorporated herein by reference.

Our Credit Facility is secured by substantially all of our cash, accounts receivable, inventory, equipment and intangible assets. As of June 30, 2022, no loans were outstanding under this Credit Facility. We borrow under this Credit Facility in U.S. dollars and those borrowings require us to pay interest at floating interest rates, which are based on LIBOR or a base rate, plus a premium. Interest on amounts outstanding under our Term Loan Facility are also calculated based on LIBOR plus a premium. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates. A change in interest rates generally would not affect the fair value of any outstanding floating rate debt but could affect our operating results. For example, if the $200,000 stated maximum amount was drawn under our Credit Facility and interest rates decreased or increased by 100 basis points per annum, our interest expense would decrease or increase by $2,000 per year. If interest rates were to change gradually over time, the impact would occur over time.

We are exposed to risks arising from market price changes for diesel and gasoline fuel. These risks have historically resulted from changes in supply and demand for fuel and from market speculation about future changes. Some supply changes may arise from local conditions, such as a malfunction in a particular pipeline or at a particular terminal. However, in the recent past most of the supply risks have arisen from national or international conditions, such as weather-related shutdowns of oil drilling or refining capacities, political instability in oil producing regions of the world, war or other hostilities, or terrorism. Concerted efforts by major oil producing countries and cartels to limit oil supply may also impact prices. Because petroleum products are regularly traded in commodity markets, material changes in demand for and the price of fuel worldwide and financial speculation in these commodities markets may have a material effect upon the prices we have to pay for fuel and may also impact our customers’ demand for fuel and other products we sell. Almost all of these risks are beyond our control. Nevertheless, we attempt to mitigate our exposure to fuel commodity price market risks in three ways. First, whenever possible,

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at June 30, 2022.

During the three months ended June 30, 2022, 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.

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.

Issuer Purchases of Equity Securities