ta-20200930

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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, 2020

☐ 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

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 o

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

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


Large accelerated filer o						Accelerated filer ☒

Non-accelerated filer o						Smaller reporting company ☒

Emerging growth company o

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

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 November 3, 2020: 14,395,489.

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TABLE OF CONTENTS


		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	1
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	2
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	3
	Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2020 and 2019	4
	Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2020 and 2019	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
	Warning Concerning Forward-Looking Statements	32
PART II — OTHER INFORMATION		35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
SIGNATURE		40

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

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Part I. Financial Information

Item 1. Financial Statements

TravelCenters of America Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands, except par value amount)


	September 30, 2020		December 31, 2019
Assets:
Current assets:
Cash and cash equivalents	$	280,442	$	17,206
Accounts receivable (net of allowance for doubtful accounts of $1,375 and $1,083 as of September 30, 2020 and December 31, 2019, respectively)	113,628		173,496
Inventory	160,913		196,611
Other current assets	29,304		32,456
Total current assets	584,287		419,769

Property and equipment, net	821,208		868,503
Operating lease assets	1,760,914		1,817,998
Goodwill	22,213		25,259
Intangible assets, net	19,060		20,707
Other noncurrent assets	81,859		78,659
Total assets	$	3,289,541	$	3,230,895

Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable	$	155,494	$	147,440
Current operating lease liabilities	110,769		104,070
Other current liabilities	174,154		138,455
Total current liabilities	440,417		389,965

Long term debt, net	338,001		329,321
Noncurrent operating lease liabilities	1,798,500		1,880,188
Other noncurrent liabilities	65,737		58,885
Total liabilities	2,642,655		2,658,359

Stockholders' equity:
Common stock, $0.001 par value, 216,000 and 16,000 shares of common stock authorized as of September 30, 2020 and December 31, 2019, respectively, and 14,396 and 8,307 shares of common stock issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	14		8
Additional paid-in capital	780,557		698,402
Accumulated other comprehensive loss	(190)		(172)
Accumulated deficit	(135,017)		(127,185)
Total TA stockholders' equity	645,364		571,053
Noncontrolling interest	1,522		1,483
Total stockholders' equity	646,886		572,536
Total liabilities and stockholders' equity	$	3,289,541	$	3,230,895

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

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TravelCenters of America Inc.

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

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Fuel	$	791,880	$	1,074,680	$	2,244,219	$	3,175,492
Nonfuel	474,097		492,089		1,304,674		1,409,045
Rent and royalties from franchisees	3,947		3,723		10,482		10,611
Total revenues	1,269,924		1,570,492		3,559,375		4,595,148

Cost of goods sold (excluding depreciation):
Fuel	711,757		995,222		1,990,241		2,944,465
Nonfuel	188,114		197,585		512,784		553,351
Total cost of goods sold	899,871		1,192,807		2,503,025		3,497,816

Site level operating expense	221,864		241,740		655,950		709,105
Selling, general and administrative expense	32,967		40,178		108,171		116,850
Real estate rent expense	65,226		63,911		191,893		194,094
Depreciation and amortization expense	32,299		24,146		89,113		72,118

Income from operations	17,697		7,710		11,223		5,165

Interest expense, net	7,375		7,048		22,064		21,262
Other expense (income), net	233		(60)		1,109		370
Income (loss) before income taxes	10,089		722		(11,950)		(16,467)
(Provision) benefit for income taxes	(1,432)		1,150		4,222		6,819
Net income (loss)	8,657		1,872		(7,728)		(9,648)
Less: net income for noncontrolling interest	52		40		104		89
Net income (loss) attributable to common stockholders	$	8,605	$	1,832	$	(7,832)	$	(9,737)

Other comprehensive (loss) income, net of taxes:
Foreign currency (loss) gain, net of taxes of $27, $(14), $(33) and $37, respectively	$	—	$	(8)	$	(18)	$	38
Interest in equity investee's unrealized (losses) gains on investments	—		(46)		—		91
Other comprehensive (loss) income attributable to common stockholders	—		(54)		(18)		129

Comprehensive income (loss) attributable to common stockholders	$	8,605	$	1,778	$	(7,850)	$	(9,608)

Net income (loss) per share of common stock attributable to common stockholders:
Basic and diluted	$	0.61	$	0.23	$	(0.76)	$	(1.20)

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

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TravelCenters of America Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(7,728)	$	(9,648)
Adjustments to reconcile net loss to net cash provided by operating activities:
Noncash rent credits, net	(15,827)		(14,233)
Depreciation and amortization expense	89,113		72,118
Deferred income tax benefit	(3,045)		(5,660)
Changes in operating assets and liabilities:
Accounts receivable	59,238		(36,615)
Inventory	35,684		1,534
Other assets	3,280		7,472
Accounts payable and other liabilities	43,807		74,027
Other, net	9,050		3,277
Net cash provided by operating activities	213,572		92,272

Cash flows from investing activities:
Acquisitions of travel centers from SVC	—		(309,637)
Capital expenditures	(36,795)		(63,157)
Proceeds from asset sales	1,270		880
Other, net	(1,864)		(1,500)
Net cash used in investing activities	(37,389)		(373,414)

Cash flows from financing activities:
Proceeds from underwritten public equity offering	79,985		—
West Greenwich Loan borrowings	16,600		—
Payments on Credit Facility	(7,900)		—
Distributions to noncontrolling interest	(65)		(105)
Other	(1,589)		(658)
Net cash provided by (used in) financing activities	87,031		(763)

Effect of exchange rate changes on cash	22		64
Net increase (decrease) in cash and cash equivalents	263,236		(281,841)
Cash and cash equivalents at the beginning of the period	17,206		314,387
Cash and cash equivalents at the end of the period	$	280,442	$	32,546

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	$	21,353	$	20,896
Income taxes (received) paid	(56)		145

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

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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) Income		Accumulated Deficit		Treasury Stock		Total TA Stockholders' Equity		Noncontrolling Interest		Total Stockholders' Equity
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

June 30, 2019	8,087	$	8	$	696,878	$	538	$	(172,099)	$	—	$	525,325	$	1,439	$	526,764
Grants under share award plan and stock based compensation, net	(2)	—		680		—		—		(12)		668		—		668
Retirement of treasury stock	—	—		—		—		—		12		12		—		12
Other comprehensive loss, net of taxes	—	—		—		(54)		—		—		(54)		—		(54)
Net income	—	—		—		—		1,832		—		1,832		40		1,872
September 30, 2019	8,085	$	8	$	697,558	$	484	$	(170,267)	$	—	$	527,783	$	1,479	$	529,262

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

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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) Income		Accumulated Deficit		Treasury Stock		Total TA Stockholders' Equity		Noncontrolling Interest		Total Stockholders' Equity
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
Distributions 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

December 31, 2018	8,080	$	8	$	695,307	$	355	$	(246,773)	$	—	$	448,897	$	1,495	$	450,392
Grants under share award plan and stock based compensation, net	5	—		2,251		—		—		(14)		2,237		—		2,237
Retirement of treasury stock	—	—		—		—		—		14		14		—		14
Distributions to noncontrolling interest	—	—		—		—		—		—		—		(105)		(105)
Other comprehensive income, net of taxes	—	—		—		129		—		—		129		—		129
Cumulative effect of adoption of ASC 842, net of taxes	—	—		—		—		86,243		—		86,243		—		86,243
Net (loss) income	—	—		—		—		(9,737)		—		(9,737)		89		(9,648)
September 30, 2019	8,085	$	8	$	697,558	$	484	$	(170,267)	$	—	$	527,783	$	1,479	$	529,262

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

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

1.Business Description and Basis of Presentation

TravelCenters of America Inc. is a Maryland corporation. As of September 30, 2020, we operated or franchised 314 travel centers, standalone truck service facilities and standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.

As of September 30, 2020, our business included 270 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 36 were owned or leased from others by our franchisees. We operated 232 of our travel centers and franchisees operated 38 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 and various customer amenities.

As of September 30, 2020, 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, 2020, our business included 41 standalone restaurants in 12 states in the United States operated primarily under the "Quaker Steak & Lube," or QSL, brand name. Of these standalone restaurants, we operated 14 restaurants (four we owned, eight we leased, one we operated for one of our franchisees and one we operated for a joint venture in which we owned a noncontrolling interest) and 27 were owned by or leased from others and operated by our franchisees.

We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because 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 consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. The disclosures presented do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or our Annual Report. In the opinion of our management, the accompanying consolidated financial statements include all adjustments, including normal recurring adjustments, considered necessary for a fair presentation. All intercompany transactions and balances have been eliminated. While our revenues are modestly seasonal, the quarterly variations in our operating results may reflect greater seasonal differences because our rent expense and certain other costs do not vary seasonally. For this and other reasons, our operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

Fair Value Measurement

Senior Notes

We collectively refer to our $110,000 of 8.25% Senior Notes due 2028, our $120,000 of 8.00% Senior Notes due 2029 and our $100,000 of 8.00% Senior Notes due 2030 as our Senior Notes, which are our senior unsecured obligations. We estimate that, based on their trading prices (a Level 1 input), the aggregate fair value of our Senior Notes on September 30, 2020, was $335,736.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Intangible Assets and Definite Lived Assets Impairment

In March 2020, COVID-19 was declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary declared a public health emergency in the United States in response to the outbreak. As a result of the COVID-19 pandemic and its impact on our operations, we assessed our indefinite and definite lived intangible assets and our definite lived assets for potential indicators of impairment as of September 30, 2020. For information about our impairment assessment of goodwill, please refer to Note 4 of this Quarterly Report on Form 10-Q, or this Quarterly Report.

Indefinite lived intangible assets were assessed for potential indicators of impairment by assessing certain trends and factors, including actual sales, discount rates and other relevant qualitative factors. These trends and factors were compared to, and based on, the assumptions used in the most recent quantitative assessment.

Definite lived intangible assets were assessed using a qualitative analysis that was performed by assessing certain trends and factors, including actual sales, collection of royalties from franchisees, any changes in the manner in which the assets were used that could impact the values of the assets and whether a revision to the remaining period of amortization was required.

Based on our analyses, we concluded that as of September 30, 2020, the fair value of our indefinite and definite lived intangible assets more likely than not exceeded the carrying value. 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 intangible assets and definite lived assets.

Definite lived assets are reviewed for potential indicators of impairment during each reporting period at the individual location level because that is the lowest level of asset groupings for which cash flows are largely independent of cash flows of other asset groups. If indicators of impairment exist, we record an impairment charge to the extent that the carrying value of the asset grouping is not recoverable and exceeds the estimated fair value of the asset grouping. Our estimates of fair value are based on our estimates of likely market participant assumptions, including our current expectations for projected fuel sales volume, nonfuel revenues, fuel and nonfuel gross margins, site level operating expense and real estate rent expense. The discount rate is used to measure the present value of projected future cash flows and is set at a rate we believe is likely to be used by a market participant using a weighted average cost of capital method that considers market and industry data as well as our specific risk factors. The weighted average cost of capital is our estimate of the overall after tax rate of return required by equity and debt holders of a business enterprise. We use a number of assumptions and methods in preparing valuations underlying the impairment tests including estimates of future cash flows and discount rates, and in some instances we may obtain third party appraisals. During the three and nine months ended September 30, 2020, we recorded impairment charges aggregating $6,610 to our property and equipment and $1,262 to our operating lease assets related to certain continued low performing owned and leased standalone QSL restaurants, which were recognized in depreciation and amortization expense and real estate rent expense, respectively, in our consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020.

Recently Issued Accounting Pronouncement and Other Accounting Matters

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, which aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs are to be amortized over the term of the contract. We adopted this standard on January 1, 2020, using the prospective transition method. The implementation of this update did not cause a material change to 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. The CARES Act did not have a material impact on our (provision) benefit for income taxes for the three and nine months ended September 30, 2020. We will continue to assess the effect, if any, the CARES Act will have on our income taxes.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

2. Revenues

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

Disaggregation of Revenues

We disaggregate our revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in our consolidated statements of operations and comprehensive income (loss). Nonfuel revenues disaggregated by type of good or service for the three and nine months ended September 30, 2020 and 2019, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Nonfuel revenues:
Truck service	$	189,630	$	186,430	$	504,584	$	521,056
Store and retail services	179,517		173,033		489,575		500,830
Restaurant	77,665		109,129		233,369		317,139
Diesel exhaust fluid	27,285		23,497		77,146		70,020
Total nonfuel revenues	$	474,097	$	492,089	$	1,304,674	$	1,409,045

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, 2018	$	15,490	$	3,470	$	18,960
Increases due to unsatisfied performance obligations arising during the period	103,228		12,982		116,210
Revenues recognized from satisfied performance obligations during the period	(90,462)		(10,519)		(100,981)
Other	(10,263)		(1,111)		(11,374)
December 31, 2019	17,993		4,822		22,815
Increases due to unsatisfied performance obligations arising during the period	83,637		11,678		95,315
Revenues recognized from satisfied performance obligations during the period	(70,553)		(9,540)		(80,093)
Other	(9,020)		(437)		(9,457)
September 30, 2020	$	22,057	$	6,523	$	28,580

As of September 30, 2020, we expect the unsatisfied performance obligations relating to our customer loyalty programs will be satisfied within 12 months.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

3. Stockholders' Equity

On June 22, 2020, we amended our Articles of Incorporation to increase our authorized shares of common stock from 16,000 to 216,000.

Underwritten Public Equity Offering

On July 6, 2020, we received net proceeds of $79,985, after $291 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 intend to use 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.

Net Income (Loss) Per Share of Common Stock Attributable to Common Stockholders

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 per share of common stock for the three and nine months ended September 30, 2020 and 2019.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss) attributable to common stockholders	$	8,605	$	1,832	$	(7,832)	$	(9,737)
Less: net income (loss) attributable to participating securities	175		70		(273)		(377)
Net income (loss) available to common stockholders	$	8,430	$	1,762	$	(7,559)	$	(9,360)

Weighted average shares of common stock(1)	13,779		7,777		9,890		7,770

Basic and diluted net income (loss) per share of common stock attributable to common stockholders	$	0.61	$	0.23	$	(0.76)	$	(1.20)

(1) Excludes unvested shares of common stock awarded under our share award plans, 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, 2020 and 2019, was 286 and 309, respectively. The weighted average number of unvested shares of common stock outstanding for the nine months ended September 30, 2020 and 2019, was 358 and 313, respectively.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

4. Goodwill

As of September 30, 2020 and December 31, 2019, our goodwill balance consisted of the following:


	September 30, 2020		December 31, 2019
Travel centers business	$	22,213	$	22,213
QSL business	—		3,046
Total	$	22,213	$	25,259

Goodwill Impairment

Goodwill is tested for impairment annually as of July 31, or more frequently if the circumstances warrant, at the reporting unit level. We have two reporting units, travel centers and the QSL reporting unit. During the three months ended June 30, 2020, we evaluated our travel centers and QSL reporting units for potential indicators of impairment, which included evaluating financial trends and industry and market conditions and assessing the reasonableness of the assumptions used in the most recent quantitative analysis. Based on our analyses, we determined that the decline in site level gross margin in excess of site level operating expense for our QSL reporting unit for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019, in conjunction with the impact of the COVID-19 pandemic, were indicators of impairment. Accordingly, we performed an impairment assessment of the goodwill in our QSL reporting unit as of May 31, 2020, using the same quantitative analysis approach that we historically followed for our goodwill impairment assessments. Based on the assessment performed, we recorded a goodwill impairment charge of $3,046, which was recognized in depreciation and amortization expense in our consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2020.

Impairment testing for the travel center reporting unit for 2020 was performed using a quantitative analysis under which the fair value of our reporting unit was estimated using both an income approach and a market approach. The income approach considered discounted forecasted cash flows that were based on our long term operating plan. A terminal value was used to estimate the cash flows beyond the period covered by the operating plan. The discount rate is an estimate of the overall after tax market rate of return we believe may be required by equity and debt holders of a business enterprise. The market approach considered the estimated fair values of possible comparable publicly traded companies. For each comparable publicly traded company, value indicators, or pricing multiples, were considered to estimate the value of our business enterprise. However, due to the lack of comparable publicly traded companies within the travel center industry, we relied solely on the fair value estimated under the income approach. These analyses require the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the timing of expected future cash flows, including revenue growth rates and operating cash flow margins, of the respective reporting unit. For the travel centers reporting unit, we determined a discount rate and perpetual growth rate of 10.5% and 2.5%, respectively, was appropriate as of July 31, 2020. The fair value estimates are sensitive and actual rates and results may differ materially. Applying different assumptions could lead to different results. Based on our analyses, we concluded that as of July 31, 2020, our goodwill was not impaired.

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.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

5. 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, 2020, 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 were classified as finance leases. As of September 30, 2020, our finance lease assets and 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, in our consolidated balance sheet.

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, 2020 and 2019, our lease costs consisted of the following:


	Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss)	Three Months Ended September 30,
		2020		2019
Operating lease costs: SVC Leases	Real estate rent expense	$	59,500	$	59,410
Operating lease costs: other	Real estate rent expense	4,182		2,781
Variable lease costs: SVC Leases	Real estate rent expense	1,372		1,575
Variable lease costs: other	Real estate rent expense	172		145
Total real estate rent expense		65,226		63,911
Operating lease costs: equipment and other	Site level operating expense and selling, general and administrative expense	881		930
Short-term lease costs	Site level operating expense and selling, general and administrative expense	390		710
Amortization of finance lease assets	Depreciation and amortization expense	79		—
Interest on finance lease liabilities	Interest expense, net	32		—
Sublease income	Nonfuel revenues	(542)		(532)
Net lease costs		$	66,066	$	65,019

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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,
		2020		2019
Operating lease costs: SVC Leases	Real estate rent expense	$	178,499	$	180,954
Operating lease costs: other	Real estate rent expense	9,859		8,257
Variable lease costs: SVC Leases	Real estate rent expense	3,073		4,461
Variable lease costs: other	Real estate rent expense	462		422
Total real estate rent expense		191,893		194,094
Operating lease costs: equipment and other	Site level operating expense and selling, general and administrative expense	2,797		2,147
Short-term lease costs	Site level operating expense and selling, general and administrative expense	1,340		2,255
Amortization of finance lease assets	Depreciation and amortization expense	79		—
Interest on finance lease liabilities	Interest expense, net	32		—
Sublease income	Nonfuel revenues	(1,565)		(1,687)
Net lease costs		$	194,576	$	196,809

Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of September 30, 2020, were as follows:


	SVC Leases(1)		Other		Total
Years ended December 31:
2020	$	67,861	$	1,711	$	69,572
2021	270,799		6,414		277,213
2022	268,936		5,054		273,990
2023	255,344		3,050		258,394
2024	251,150		1,721		252,871
Thereafter	2,034,504		7,484		2,041,988
Total operating lease payments	3,148,594		25,434		3,174,028
Less: present value discount(2)	(1,260,157)		(4,602)		(1,264,759)
Present value of operating lease liabilities	$	1,888,437	$	20,832	$	1,909,269

(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, 2020, was approximately 12 years. Our weighted average discount rate for our operating leases as of September 30, 2020, was approximately 9.1%.

During the nine months ended September 30, 2020 and 2019, we paid $207,720 and $208,327, respectively, for amounts that had been included in the measurement of our operating lease liabilities.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

As of September 30, 2020 and December 31, 2019, our operating lease assets and liabilities consisted of the following:


	September 30, 2020		December 31, 2019
Operating lease assets:
SVC Leases	$	1,743,246	$	1,796,406
Other	17,668		21,592
Total operating lease assets	$	1,760,914	$	1,817,998

Current operating lease liabilities:
SVC Leases	$	105,066	$	98,574
Other	5,703		5,496
Total current operating lease liabilities	$	110,769	$	104,070

Noncurrent operating lease liabilities:
SVC Leases	$	1,783,371	$	1,862,060
Other	15,129		18,128
Total noncurrent operating lease liabilities	$	1,798,500	$	1,880,188

Leasing Agreements with SVC. As of September 30, 2020, we leased from SVC a total of 179 properties under five leases, four of which we refer to as the TA Leases and one of which we refer to as the Petro Lease, and which we refer to collectively as the SVC Leases. In January 2019, we entered into agreements, or the Transaction Agreements, with SVC pursuant to which:

•We purchased 20 travel center properties from SVC, which we previously leased from SVC, for a total acquisition cost of $309,637, including $1,437 of transaction related costs.

•Upon completing the transactions contemplated by the Transaction Agreements, these travel centers were removed from the SVC Leases and our annual minimum rent due to SVC was reduced by $43,148.

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

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

•Commencing on January 1, 2020, we are obligated to pay to SVC an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of our annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019.

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

As a result of the Transaction Agreements, our operating lease assets and liabilities each increased by $23,673. In addition, the purchase of the 20 travel center properties resulted in the derecognition of certain operating lease assets and liabilities.

In addition to the payment of annual minimum rent, the SVC Leases provide for payment to SVC of percentage rent, calculated at 3.5% (which includes the 0.5% that was added pursuant to the Transaction Agreements) of the increase in total nonfuel revenues at each property over base year levels. The percentage rent amounts due were $893 and $1,020 for the three months ended September 30, 2020 and 2019, respectively, and $1,742 and $3,047 for the nine months ended September 30, 2020 and 2019, respectively.

We recognized total real estate rent expense under the SVC Leases of $60,872 and $60,985 for the three months ended September 30, 2020 and 2019, respectively, and $181,572 and $185,415 for the nine months ended September 30, 2020 and 2019, respectively.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

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 nine months ended September 30, 2020 and 2019. At September 30, 2020, our property and equipment balance included $51,621 of improvements of the type that qualify for sale to SVC for an increase in annual minimum rent; however, we may elect not to sell some or all of those improvements and SVC is not obligated to purchase these improvements.

We paid $4,404 of deferred rent to SVC for the three months ended September 30, 2020 and 2019, and $13,211 and $8,807 for the nine months ended September 30, 2020 and 2019, respectively. The total amount of deferred rent outstanding as of September 30, 2020, was $44,036. Pursuant to our rent deferral agreement with SVC, deferred rent shall be accelerated and interest shall begin to accrue thereon at 1.0% per month on the deferred rent amounts if certain events occur, including: our default under the SVC Leases; a change of control of us, as defined in the deferral agreement; or our declaration or payment of a dividend or other distribution in respect of our common stock.

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 $542 and $532 for the three months ended September 30, 2020 and 2019, respectively, and $1,565 and $1,687 for the nine months ended September 30, 2020 and 2019, respectively.

As a Lessor

We leased two travel centers to franchisees as of September 30, 2020 and 2019. These two lease agreements expire in June 2022. These leases include rent escalations that are contingent on future events, namely inflation or our investing in capital improvements at these travel centers. Rent revenues from these operating leases totaled $584 and $572 for the three months ended September 30, 2020 and 2019, respectively, and $1,728 and $1,722 for the nine months ended September 30, 2020 and 2019, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of September 30, 2020, were $584 for the remainder of 2020, $2,336 for the year 2021 and $1,168 for the year 2022. See above for information regarding certain travel centers that we leased from SVC in which we sublease a portion of the travel centers to third parties to operate other retail operations.

6. Long Term Debt

As of September 30, 2020, our long term debt, net, consisted of our Senior Notes, the West Greenwich Loan, as defined below, and other long term debt. In addition, we have a revolving credit facility that as of September 30, 2020, had no borrowings outstanding. For more information about our long term debt, please refer to Note 8 to the Consolidated Financial Statements in our Annual Report.

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 one of our travel centers 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. 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. As a result of entering into the West Greenwich Loan, we capitalized $353 of deferred financing costs during the nine months ended September 30, 2020, which was presented as a reduction of long term debt, net in our consolidated balance sheet.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

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 $3,369 and $3,572 for the three months ended September 30, 2020 and 2019, respectively, and $9,513 and $9,983 for the nine months ended September 30, 2020 and 2019, 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, please refer to Note 8 of this Quarterly Report and Notes 13 and 14 to the Consolidated Financial Statements in 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, as the sole trustee of ABP Trust, is the controlling shareholder of The RMR Group Inc. and is 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 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 of several of these public companies and as a managing director or managing trustee of these public companies. 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, 2020, Adam D. Portnoy beneficially owned 622 shares of our common stock (including indirectly through RMR), representing approximately 4.3% of our outstanding shares of common stock. This amount includes 219 shares of our common stock that RMR purchased in our underwritten public equity offering in July 2020 at the public offering price of $14 per share and 105 shares of our common stock that RMR purchased from Andrew J. Rebholz, our former Managing Director and Chief Executive Officer, pursuant to a right of first refusal.

Relationship with SVC

We are SVC's largest tenant and SVC is our principal landlord and one of our largest stockholders. As of September 30, 2020, SVC owned 1,185 shares of our common stock, representing approximately 8.2% of our outstanding shares of common stock, which amount includes 501 shares of our common stock that SVC purchased in our underwritten public equity offering in July 2020 at the public offering price of $14 per share.

As of September 30, 2020, we leased from SVC a total of 179 travel center properties under the SVC Leases. We have also engaged in other transactions with SVC, including in connection with the Transaction Agreements. Please refer to Note 5 for more information about our relationship, agreements and transactions with SVC.

RMR provides management services to both us and SVC, and Mr. Portnoy also serves as a managing trustee and chair of the board of trustees of SVC.

Relationship with AIC

Until its dissolution on February 13, 2020, we, ABP Trust, SVC and four other companies to which RMR provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts.

We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

As of September 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $12 and $298, respectively. These amounts are included in other noncurrent assets in our consolidated balance sheets. In June 2020, we received approximately $286 in connection with AIC's dissolution. We recognized income of $83 and $617 related to our investment in AIC for the three and nine months ended September 30, 2019, respectively, which was included in other expense (income), net in our consolidated statements of operations and comprehensive income (loss). Our other comprehensive (loss) income attributable to common stockholders for the three and nine months ended September 30, 2019, included our proportionate share of unrealized losses and gains on fixed income securities held for sale, which were owned by AIC, related to our investment in AIC.

For more information about these and other such relationships and certain other related party transactions, please refer to Notes 9, 13 and 14 to the Consolidated Financial Statements in our Annual Report.

Retirement and Separation Agreements

In December 2019, we and RMR entered into a retirement agreement with Mr. 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, and we paid Mr. Rebholz a cash bonus in respect of 2019 in the amount of $1,000 in December 2019. Pursuant to the retirement agreement, after his retirement on June 30, 2020, we made an additional cash payment to Mr. Rebholz in the amount of $1,000 and 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, we paid Mr. Myers $300 and fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Myers.

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.

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TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

At September 30, 2020, we had an accrued liability of $2,779 for environmental matters as well as a receivable for expected recoveries of certain of these estimated future expenditures of $801, resulting in an estimated net amount of $1,978 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 insurance of up to $20,000 per incident and up to $20,000 in the aggregate for certain environmental liabilities, subject, in each case, to certain limitations and deductibles, which expires in June 2021. However, we can provide no assurance that we will be able to maintain similar environmental insurance coverage in the future on acceptable terms.

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

Legal Proceedings

We are routinely involved in various legal and administrative proceedings 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. Inventory

Inventory as of September 30, 2020 and December 31, 2019, consisted of the following:


	September 30, 2020		December 31, 2019
Nonfuel products	$	139,577	$	161,560
Fuel products	21,336		35,051
Total inventory	$	160,913	$	196,611

11. Reorganization Costs

On April 30, 2020, we committed to and initiated a reorganization plan, or the Reorganization Plan, to improve the efficiency of our operations. As part of the Reorganization Plan, we reduced our headcount and eliminated certain positions. On April 30, 2020, the Reorganization Plan was communicated to those employees impacted. The costs of the Reorganization Plan were $4,288, which were comprised primarily of severance, outplacement services, stock based compensation expense associated with the accelerated vesting of previously granted stock awards for certain employees and fees for recruitment of certain executive positions. During the nine months ended September 30, 2020, we recognized $4,288 of costs associated with the Reorganization Plan as selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss). As of September 30, 2020, we had a liability recognized relating to the Reorganization Plan of $45, which was included in other current liabilities in our consolidated balance sheet.

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

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or our Annual Report. Amounts are in thousands of dollars, gallons and shares, as applicable, unless indicated otherwise.

Company Overview

As of September 30, 2020, we operated or franchised 270 travel centers, three standalone truck service facilities and 41 standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.

COVID-19

In March 2020, COVID-19 was declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary declared a public health emergency in the United States in response to the outbreak. The COVID-19 pandemic and various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have had, and continue to have, a severe negative impact on the global economy, including the U.S. economy. As a result, most market observers believe the global economy and the U.S. economy are in the midst of a recession. Our business is focused on travel centers and related trucking and driver services, products and amenities. Our business benefited from being recognized by various governmental authorities as a business that provides services to essential businesses, which allowed us to continue operating our travel centers through the pandemic. Further, we also benefited from increased initial demand by businesses and households to stock up on certain products in response to the COVID-19 pandemic, which resulted in increased trucking activity to transport those goods across the United States. We experienced increased diesel fuel sales volume during the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, due to an initial increase in demand for certain products as businesses and households stocked up on those products as the implications of the COVID-19 pandemic began to be more widely understood. Although the initial increase in demand began to decline during April 2020, we recognized increases in diesel fuel sales volume during the three and nine months ended September 30, 2020, as compared to the three and nine months ended September 30, 2019, particularly due to improved market conditions within the freight industry and the success of our marketing initiatives. In addition, during the three and nine months ended September 30, 2020, we experienced increases in fuel gross margin as compared to the three and nine months ended September 30, 2019, as both diesel fuel and gasoline costs declined as a result of disagreements among certain major oil producing countries and cartels that resulted in delays in reducing, or failures to adequately reduce, oil supplies in response to the sharp drop in demand, as well as the benefit recognized in connection with the federal biodiesel blenders' tax credit, which is described further below. In addition, fuel gross margin for the nine months ended September 30, 2020, benefited from a more favorable fuel purchasing environment than the nine months ended September 30, 2019. Due to governmental stay in place orders, social distancing and other reductions in activity, demand for gasoline volume during the second half of March 2020 through September 30, 2020, declined sharply, resulting in reduced gasoline sales volume sold by us during the three and nine months ended September 30, 2020, as compared to the three and nine months ended September 30, 2019, and demand for certain of our nonfuel products and services have declined. In addition, in March 2020 we temporarily closed most of our full service restaurants and limited our product offerings at some of our restaurants and travel centers. As a result, we experienced a decrease in nonfuel revenues for the three and nine months ended September 30, 2020, as compared to the three and nine months ended September 30, 2019. As governments began to lift stay in place orders, we recognized increases in our truck service and store and retail services revenues for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, and we began to reopen more than half of our restaurants. In addition, gasoline sales volume for the three months ended September 30, 2020, improved on a sequential basis.

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States and municipalities across the United States have generally allowed certain businesses to reopen and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or reimposed certain restrictions in response to increases in COVID-19 infections experienced since then. Economic data has indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020, although the U.S. gross domestic product remains below pre-pandemic levels. It is unclear whether the increases in the number of infections will continue and amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy and our business.

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. However, if there is another economic downturn, 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 significantly negatively impacted. Further, these economic conditions may result in trucking companies being unable to continue as going concerns.

We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, including:

•we significantly reduced our planned capital expenditures for 2020 to conserve cash and liquidity;

•we temporarily closed most of our full service restaurants, more than half of which have reopened as of September 30, 2020;

•we have rationalized our hours of operation and employment levels, including furloughing approximately 4,300 field employees, as well as approximately 120 corporate employees. Many of these employees returned to work between May and September 2020 as we began to reopen some of our full service restaurants;

•we have implemented enhanced sanitizing and cleaning procedures at our travel centers in accordance with the U.S. Centers for Disease Control and Prevention, or the CDC, guidance; and

•we have been actively engaging with government authorities, our customers, suppliers and other vendors to try to best execute our business during the pandemic.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

•our trucking customers and their ability to withstand the current economic conditions;

•our operations, liquidity and capital needs and resources;

•conducting financial modeling and sensitivity analyses;

•actively communicating with our customers, vendors and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and

•monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us, our franchisees or our tenants to enable us and them to operate through the current economic conditions and enhance our franchisees' ability to pay us royalties and our tenants’ ability to pay us rent.

We believe that our current financial resources and our expectations as to the future performance of the trucking industry and our operations will enable us to withstand the COVID-19 pandemic and its aftermath. As of November 3, 2020, we had:

•approximately $293,800 of cash and cash equivalents, $79,985 of which was raised through an underwritten public equity offering of our common stock that we completed in July 2020;

• $70,895 of availability under our revolving credit facility, or our Credit Facility;

•no debt maturities until 2024 when our Credit Facility is scheduled to expire;

•our ability to request that Service Properties Trust, or SVC, purchase from us qualified capital improvements we make to the travel centers we lease from SVC in return for increased rent, although SVC is not obligated to agree to make those purchases; and

•unencumbered properties, which had a net book value of $502,323 as of September 30, 2020, that may be a source for financing.

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We have taken various measures to protect the health and safety of our customers, employees and other persons who visit our travel centers and restaurants. These measures include, among others:

•we have supplied masks and gloves to all of our employees;

•we are mandating masks at all of our sites and at our corporate headquarters;

•we have temporarily closed all self service food service stations in the convenience stores in most of our travel centers;

•we have increased the frequency of our routine cleaning and sanitizing schedule, as well as implemented enhanced sanitizing and cleaning procedures at our travel centers and at the fuel pumps and pin pads;

•we are following state and local health department regulations at all of our sites;

•we are encouraging customers and employees to follow CDC recommendations of practicing social distancing;

•we have advised our employees to take care of themselves and to be aware of best practices for preventive safety measures, including frequent hand washing, wearing masks, practicing social distancing when possible and staying home when feeling ill; and

•we temporarily closed all gyms and lounge areas within our travel centers, some of which we began to reopen in September 2020.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include, among others:

•the duration and severity of the current economic downturn;

•the strength and sustainability of any economic recovery;

•the timing and process for how the government and other market participants may continue to oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and

•the responses of governments, businesses and the general public to any increased levels of rates of COVID-19 infections.

We have also implemented enhanced cleaning protocols and social distancing guidelines at our corporate headquarters, as well as business continuity plans to help our employees remain healthy and able to support us remotely, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

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 and risks relating to the COVID-19 pandemic and its aftermath on us and our business, please refer to Part II, Item 1A. "Risk Factors" in this Quarterly Report.

Executive Summary of Financial Results

During the three months ended September 30, 2020 and 2019, we generated income before income taxes of $10,089 and $722, respectively. The $9,367 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 $12,244, which primarily resulted from a decrease in site level operating expense and an increase in fuel gross margin, partially offset by a decrease in nonfuel gross margin as a result of the impact of the COVID-19 pandemic; and

•selling, general and administrative expense decreased by $7,211, which primarily resulted from the elimination of approximately 130 positions as part of a company wide reorganization plan, or the Reorganization Plan, committed to on April 30, 2020, and a reduction in marketing expenses.

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The above factors were partially offset by an increase in depreciation and amortization expense of $8,153, which primarily resulted from $6,610 of impairment charges relating to certain low performing standalone Quaker Steak & Lube, or QSL, restaurants and the $2,372 write off of certain assets related to programs that were canceled during the three months ended September 30, 2020.

During the nine months ended September 30, 2020 and 2019, we generated a loss before income taxes of $11,950 and $16,467, respectively. The $4,517 change in our loss before income taxes was primarily due to the following factors:

•site level gross margin in excess of site level operating expense increased $12,173, which primarily resulted from a decrease in site level operating expense and an increase in fuel gross margin principally as a result of a more favorable fuel purchasing environment and the $20,788 benefit recognized in connection with the federal biodiesel blenders' tax credit during the nine months ended September 30, 2020, partially offset by a decrease in nonfuel gross margin as a result of the impact of the COVID-19 pandemic;

•selling, general and administrative expense decreased $8,679, which primarily resulted from the elimination of approximately 130 positions as part of the Reorganization Plan and approximately 120 corporate employees furloughed in response to the COVID-19 pandemic, as well as a reduction in marketing expenses and travel related expenses, partially offset by $4,288 of non-recurring restructuring costs associated with the Reorganization Plan and expenses related to executive officer retirement and separation agreements; and

•real estate rent expense decreased $2,201, which was primarily the result of our acquisition in January 2019 of 20 travel centers from SVC that we previously leased from SVC, which reduced our annual minimum rent, and a decrease in percentage rent due to SVC as a result of the decrease in our nonfuel revenues during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, partially offset by $1,262 of impairment charges to our operating lease assets related to certain low performing standalone QSL restaurants.

The above factors were partially offset by an increase in depreciation and amortization expense of $16,995, which primarily resulted from the $8,072 write off of certain assets related to programs that were canceled, $6,610 of impairment charges relating to certain low performing standalone QSL restaurants, the $3,046 goodwill impairment charge recognized during the nine months ended September 30, 2020, with respect to our QSL business and the $834 write off of intangible assets associated with three franchised QSL standalone restaurants that closed during the nine months ended September 30, 2020.

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.

Over the past several years there have been significant changes in the cost of fuel. During the three and nine months ended September 30, 2020, fuel prices trended downward, declining 4.1% and 45.1%, respectively, as compared to the beginning of the periods. The decrease in fuel prices for the nine months ended September 30, 2020, primarily resulted from a 52.7% decrease in March and April 2020 as a result of the sharp decrease in demand resulting from the COVID-19 pandemic and the related economic downturn. The average fuel price during the three and nine months ended September 30, 2020, was 38.6% and 37.4%, respectively, lower than the average fuel price during the three and nine months ended September 30, 2019. We generally are able to pass changes in our cost for fuel products to our customers, but typically with a delay, such that during periods of rising fuel commodity prices, fuel gross margin per gallon tends to be lower than it otherwise may have been and during periods of falling fuel commodity prices, fuel gross margin per gallon tends to be higher than it otherwise may have been. Increases in the prices we pay for fuel can have negative effects on our sales and profitability and increase our working capital requirements.

Due to the volatility of our fuel costs and our methods of pricing fuel to our customers, we believe that fuel revenues are not a reliable metric for analyzing our results of operations from period to period. As a result solely of changes in fuel prices, our fuel revenues may materially increase or decrease, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volume or in fuel gross margin, as evidenced by the three and nine months ended September 30, 2020. We therefore consider fuel sales volume and fuel gross margin to be better measures of our performance.

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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, 2020, as compared to the three and nine months ended September 30, 2019. These increases primarily resulted from improved market conditions within the freight industry and the success of our marketing initiatives.

Factors Affecting Comparability

Reorganization Plan

On April 30, 2020, we committed to and initiated the Reorganization Plan to improve the efficiency of our operations. As part of the Reorganization Plan, we reduced our headcount and eliminated certain positions, which we expect to result in approximately $13,100 of net annual savings in selling, general and administrative expense. In addition, we have also made certain changes in our leadership and their roles and created both a corporate development and a procurement team. The costs of the Reorganization Plan were $4,288, which was comprised primarily of severance, outplacement services, stock based compensation expense associated with the accelerated vesting of previously granted stock awards for certain employees and fees for recruitment of certain executive positions. During the nine months ended September 30, 2020, we recognized $4,288 of costs associated with the Reorganization Plan as selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss). Please refer to Note 11 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our Reorganization Plan.

Growth Strategies

We have commenced numerous initiatives across our organization for the purpose of improving and enhancing operational efficiencies and profitability, including the Reorganization Plan. We believe certain other of these initiatives will 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, while focusing on opportunities to further control costs in field operations.

On October 28, 2019, we entered into a multi unit franchise agreement with IHOP Franchisor LLC a subsidiary of IHOP®, or IHOP, in which we agreed to rebrand and convert up to 94 of our full service restaurants to IHOP restaurants over five years, or the IHOP Agreement. Due to the COVID-19 pandemic, we and IHOP agreed to delay the rebranding schedule by one year. Of the 94, we are obligated to convert the initial 20 full service restaurants to IHOP restaurants, with the remaining conversions at our discretion. We currently operate these full service restaurants under our Iron Skillet or Country Pride brand names. The average investment per site to rebrand these restaurants is expected to be approximately $1,400.

Since the beginning of 2019, we have entered into franchise agreements for 23 travel centers to be operated under our travel center brand names; four of these franchised travel centers began operations during 2019, two began operations during the 2020 first quarter, five began operations in the 2020 second quarter, two began operations in the 2020 third quarter, one began operations in the 2020 fourth quarter to date and we anticipate the remaining nine franchised travel centers will be added to our network by the end of 2021. In addition, we have entered into an agreement with one of these franchisees pursuant to which we expect to add two additional franchised travel centers to our network, one within five years and the other within 10 years.

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Lease Amendments and Travel Center Purchases

In January 2019, we acquired from SVC 20 travel centers we previously leased from SVC for $309,637, which includes $1,437 of transaction related costs, and we and SVC amended our five leases such that: (i) the 20 purchased travel centers were removed from the applicable leases and our annual minimum rent was reduced by $43,148; (ii) the term of each of the leases was extended by three years; (iii) the amount of the deferred rent obligation to be paid to SVC was reduced from $150,000 to $70,458 and we began to pay that amount in 16 equal quarterly installments commencing on April 1, 2019; and (iv) commencing on January 1, 2020, we began to pay to SVC an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of the annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019. These lease amendments are further described in Note 5 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Federal Biodiesel Blenders' Tax Credit

In December 2019, the U.S. government retroactively reinstated the federal biodiesel blenders' tax credit for 2018 and 2019, and approved the federal biodiesel blenders' tax credit through 2022. During the three and nine months ended September 30, 2020, we recognized $9,558 and $20,788, respectively, as a reduction to our fuel cost of goods sold relating to the federal biodiesel blenders' tax credit. For the remainder of 2020 through 2022, the benefit of the federal biodiesel blenders' tax credit will be included in the price we pay for biodiesel.

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

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Results of Operations

All of our company operated locations are same site locations with the exception of one standalone restaurant. 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, 2020, as compared to the three and nine months ended September 30, 2019.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		Change		2020		2019		Change
Revenues:
Fuel	$	791,880	$	1,074,680	(26.3)	%	$	2,244,219	$	3,175,492	(29.3)	%
Nonfuel	474,097		492,089		(3.7)	%	1,304,674		1,409,045		(7.4)	%
Rent and royalties from franchisees	3,947		3,723		6.0	%	10,482		10,611		(1.2)	%
Total revenues	1,269,924		1,570,492		(19.1)	%	3,559,375		4,595,148		(22.5)	%

Gross margin:
Fuel	80,123		79,458		0.8	%	253,978		231,027		9.9	%
Nonfuel	285,983		294,504		(2.9)	%	791,890		855,694		(7.5)	%
Rent and royalties from franchisees	3,947		3,723		6.0	%	10,482		10,611		(1.2)	%
Total gross margin	370,053		377,685		(2.0)	%	1,056,350		1,097,332		(3.7)	%

Site level operating expense	221,864		241,740		(8.2)	%	655,950		709,105		(7.5)	%
Selling, general and administrative expense	32,967		40,178		(17.9)	%	108,171		116,850		(7.4)	%
Real estate rent expense	65,226		63,911		2.1	%	191,893		194,094		(1.1)	%
Depreciation and amortization expense	32,299		24,146		33.8	%	89,113		72,118		23.6	%

Income from operations	17,697		7,710		129.5	%	11,223		5,165		117.3	%

Interest expense, net	7,375		7,048		4.6	%	22,064		21,262		3.8	%
Other expense (income), net	233		(60)		488.3	%	1,109		370		199.7	%
Income (loss) before income taxes	10,089		722		NM		(11,950)		(16,467)		27.4	%
(Provision) benefit for income taxes	(1,432)		1,150		(224.5)	%	4,222		6,819		(38.1)	%
Net income (loss)	8,657		1,872		362.4	%	(7,728)		(9,648)		19.9	%
Less: net income for noncontrolling interest	52		40		30.0	%	104		89		16.9	%
Net income (loss) attributable to common stockholders	$	8,605	$	1,832	369.7	%	$	(7,832)	$	(9,737)	19.6	%

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Three Months Ended September 30, 2020, as Compared to Three Months Ended September 30, 2019

Fuel Revenues. Fuel revenues for the three months ended September 30, 2020, decreased by $282,800, or 26.3%, as compared to the three months ended September 30, 2019. The decrease in fuel revenues was primarily due to a decrease in market prices for fuel, partially offset by an increase in fuel sales volume. 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, 2019	511,679	$	1,074,680
Decrease due to petroleum products price changes		(338,835)
Increase due to volume changes	43,518	56,351
Decrease in wholesale fuel sales volume	(95)	(316)
Net change from prior year period	43,423	(282,800)
Results for the three months ended September 30, 2020	555,102	$	791,880

Nonfuel Revenues. Nonfuel revenues for the three months ended September 30, 2020, decreased by $17,992, or 3.7%, as compared to the three months ended September 30, 2019, primarily as a result of a decrease in revenues at both our standalone restaurants and the restaurants in our travel centers due to the temporary closure or limitation of services at those locations as a result of the COVID-19 pandemic, partially offset by increases in our store and retail services and truck service revenue and an increase in diesel exhaust fluid, or DEF, sales as a result of an increase in newer trucks on the road that require DEF.

Rent and Royalties from Franchisees. Rent and royalties from franchisees for the three months ended September 30, 2020, increased by $224, or 6.0%, as compared to the three months ended September 30, 2019, primarily as a result of the 11 franchised travel centers and three franchised standalone QSL restaurants that began operations after September 30, 2019, partially offset by the closure of three franchised standalone QSL restaurants and our purchase of one standalone QSL restaurant from a former franchisee since September 30, 2019.

Fuel Gross Margin. Fuel gross margin for the three months ended September 30, 2020, increased by $665, or 0.8%, as compared to the three months ended September 30, 2019, primarily as a result of an increase in fuel sales volume and the $9,558 benefit recognized in connection with the federal biodiesel blenders' tax credit in the three months ended September 30, 2020, partially offset by a more favorable fuel purchasing environment in the three months ended September 30, 2019, as compared to the three months ended September 30, 2020.

Nonfuel Gross Margin. Nonfuel gross margin for the three months ended September 30, 2020, decreased by $8,521, or 2.9%, as compared to the three months ended September 30, 2019, due to the decrease in nonfuel revenues as a result of the COVID-19 pandemic. Nonfuel gross margin percentage for the three months ended September 30, 2020, improved to 60.3% from 59.8% for the three months ended September 30, 2019, 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, 2020, decreased by $19,876, or 8.2%, as compared to the three months ended September 30, 2019, primarily due to the furloughing of approximately 4,300 field employees in response to the COVID-19 pandemic and a decrease in nonlabor costs such as maintenance, certain utilities and supplies. Site level operating expense as a percentage of nonfuel revenues improved to 46.8% for the three months ended September 30, 2020, from 49.1% for the three months ended September 30, 2019, primarily due to the decrease in both labor and nonlabor costs discussed above.

Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended September 30, 2020, decreased by $7,211, or 17.9%, as compared to the three months ended September 30, 2019. The decrease was primarily attributable to the elimination of approximately 130 positions as part of the Reorganization Plan and a reduction in marketing expenses.

Real Estate Rent Expense. Real estate rent expense for the three months ended September 30, 2020, increased by $1,315, or 2.1%, as compared to the three months ended September 30, 2019, primarily due to $1,262 of impairment charges to our operating lease assets related to certain low performing standalone QSL restaurants recognized during the three months ended September 30, 2020.

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Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended September 30, 2020, increased by $8,153, or 33.8%, as compared to the three months ended September 30, 2019. The increase primarily resulted from $6,610 of impairment charges relating to certain low performing standalone QSL restaurants and the $2,372 write off of certain assets related to programs that were canceled during the three months ended September 30, 2020.

(Provision) Benefit for Income Taxes. We had a provision for income taxes of $1,432 for the three months ended September 30, 2020, as compared to a benefit for income taxes of $1,150 for the three months ended September 30, 2019. The change in the (provision) benefit for income taxes is primarily due to larger pretax income recognized in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

Nine Months Ended September 30, 2020, as Compared to Nine Months Ended September 30, 2019

Fuel Revenues. Fuel revenues for the nine months ended September 30, 2020, decreased by $931,273, or 29.3%, as compared to the nine months ended September 30, 2019. The decrease in fuel revenues was primarily due to a decrease in market prices for fuel, partially offset by an increase in fuel sales volume. 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, 2019	1,485,927	$	3,175,492
Decrease due to petroleum products price changes		(968,222)
Increase due to volume changes	36,405	42,564
Decrease in wholesale fuel sales volume	(2,228)	(5,615)
Net change from prior year period	34,177	(931,273)
Results for the nine months ended September 30, 2020	1,520,104	$	2,244,219

Nonfuel Revenues. Nonfuel revenues for the nine months ended September 30, 2020, decreased by $104,371, or 7.4%, as compared to the nine months ended September 30, 2019, primarily as a result of a decrease in revenues at both our standalone restaurants and the restaurants in our travel centers due to the temporary closure or limitation of services, as well as a decrease in our truck service and store and retail services businesses due to a reduction in trucking activity and consumer travel, all of which were a result of the COVID-19 pandemic. In addition, the nine months ended September 30, 2019, benefited from a particularly strong financial performance in truck service and store and retail services as a result of the extreme cold weather experienced during the beginning of 2019, as compared to unseasonably mild weather experienced during the beginning of 2020. These decreases were partially offset by an increase in DEF sales as a result of an increase in newer trucks on the road that require DEF and the positive impact of certain of our marketing initiatives in our quick service restaurants.

Rent and Royalties from Franchisees. Rent and royalties from franchisees for the nine months ended September 30, 2020, decreased by $129, or 1.2%, as compared to the nine months ended September 30, 2019, primarily as a result of the closure of five franchised standalone QSL restaurants, our purchase of one standalone QSL restaurant from a former franchisee since the beginning of 2019, and the temporary closures of certain franchised standalone QSL restaurants as a result of the COVID-19 pandemic, partially offset by 13 franchised travel centers and six franchised standalone QSL restaurants that began operations since the beginning of 2019.

Fuel Gross Margin. Fuel gross margin for the nine months ended September 30, 2020, increased by $22,951, or 9.9%, as compared to the nine months ended September 30, 2019, primarily as a result of a more favorable fuel purchasing environment, primarily in the first and second quarters of 2020, the $20,788 benefit recognized in connection with the federal biodiesel blenders' tax credit in the nine months ended September 30, 2020, and an increase in fuel sales volume, partially offset by $2,840 of a one time benefit due to the reversal of loyalty award accruals recognized in connection with introducing a revised customer loyalty program during the nine months ended September 30, 2019.

Nonfuel Gross Margin. Nonfuel gross margin for the nine months ended September 30, 2020, decreased by $63,804, or 7.5%, as compared to the nine months ended September 30, 2019, due to the decrease in nonfuel revenues as a result of the COVID-19 pandemic. Nonfuel gross margin percentage was 60.7% for both the nine months ended September 30, 2020 and 2019.

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Site Level Operating Expense. Site level operating expense for the nine months ended September 30, 2020, decreased by $53,155, or 7.5%, as compared to the nine months ended September 30, 2019, primarily due to the furloughing of approximately 4,300 field employees in response to the COVID-19 pandemic and a decrease in nonlabor costs such as maintenance, certain utilities and supplies, partially offset by cash bonuses we paid to certain employees who continued to work at our locations during the COVID-19 pandemic and an increase in medical and workers compensation claims expense. Site level operating expense as a percentage of nonfuel revenues was 50.3% for both the nine months ended September 30, 2020 and 2019.

Selling, General and Administrative Expense. Selling, general and administrative expense for the nine months ended September 30, 2020, decreased by $8,679, or 7.4%, as compared to the nine months ended September 30, 2019. The decrease was primarily due to the elimination of approximately 130 positions during the nine months ended September 30, 2020, as part of the Reorganization Plan, the furloughing of approximately 120 corporate employees in response to the COVID-19 pandemic and a reduction in marketing expenses and travel related expenses. These decreases were partially offset by $4,288 of non-recurring restructuring costs associated with the Reorganization Plan and expenses related to executive officer retirement and separation agreements.

Real Estate Rent Expense. Real estate rent expense for the nine months ended September 30, 2020, decreased by $2,201, or 1.1%, as compared to the nine months ended September 30, 2019. The decrease was primarily the result of our purchase of 20 travel centers we previously leased from SVC in January 2019, which reduced our annual minimum rent due to SVC by $43,148, and a decrease in percentage rent due to SVC as a result of the decrease in our nonfuel revenues during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, partially offset by $1,262 of impairment charges to our operating lease assets related to certain low performing standalone QSL restaurants recognized during the nine months ended September 30, 2020.

Depreciation and Amortization Expense. Depreciation and amortization expense for the nine months ended September 30, 2020, increased by $16,995, or 23.6%, as compared to the nine months ended September 30, 2019. The increase primarily resulted from the $8,072 write off of certain assets related to programs that were canceled, $6,610 of impairment charges relating to certain low performing standalone QSL restaurants, a $3,046 goodwill impairment charge recognized during the nine months ended September 30, 2020, with respect to our QSL business, and the $834 write off of intangible assets associated with three franchised standalone QSL restaurants that closed during the nine months ended September 30, 2020.

Benefit for Income Taxes. We had a benefit for income taxes of $4,222 and $6,819 for the nine months ended September 30, 2020 and 2019, respectively. The decrease in the benefit for income taxes is primarily due to a decrease in our pretax loss recognized in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, and a reduction in certain income tax credits.

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 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 continuing negative impacts from the COVID-19 pandemic, including if the United States experiences a prolonged and significant decline in economic activity that continues to reduce 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;

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

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

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

•increasing labor cost;

•increased cost of fleet card fees;

•increases in our cost of capital that may result if there is a return to increasing market interest rates;

•increased costs we may need to incur to operate our business in response to the COVID-19 pandemic, including enhancing sanitation and other preventative measures; and

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

Our business requires substantial amounts of working capital, including cash liquidity, and our working capital requirements can be especially large because of the volatility of fuel prices. 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 $280,442 at September 30, 2020, and net cash provided by operating activities of $213,572 for the nine months ended September 30, 2020, 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, however, we have sufficient financial resources to fund operations for the foreseeable future.

Lease Amendments and Travel Center Purchases

In January 2019, we acquired from SVC 20 travel centers we previously leased from SVC for $309,637, which includes $1,437 of transaction related costs, and we and SVC amended our five leases, which provided for, among other things, a $43,148 reduction in our annual minimum rent payments and payment by us in 16 equal quarterly installments, which began on April 1, 2019, of deferred rent that aggregate to $70,458 to fully satisfy and discharge our previous deferred rent obligation. Please refer to Note 5 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about these lease amendments.

Revolving Credit Facility

We have a 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, 2020, based on our qualified collateral, a total of $89,037 was available to us for loans and letters of credit under the Credit Facility. At September 30, 2020, there were no borrowings outstanding under the Credit Facility but we had outstanding $18,142 of letters of credit issued under that facility, which reduced the amount available for borrowing under the Credit Facility, leaving $70,895 available for our use as of that date. At September 30, 2020, we were in compliance with all covenants of the Credit Facility. As of November 3, 2020, there were no borrowings outstanding under the Credit Facility and $70,895 available under the Credit Facility for our use as of that date.

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IHOP Secured Advance Note

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, 2020, there were no loans outstanding under the IHOP Note.

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 one of our travel centers 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. Please refer to Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the West Greenwich Loan.

Underwritten Public Equity Offering

Sources and Uses of Cash

During the nine months ended September 30, 2020 and 2019, we had net cash inflows from operating activities of $213,572 and $92,272, respectively. The $121,300 increase was primarily due to the collection of $69,893 of the federal biodiesel blenders' tax credit recognized during 2019, an increase in cash generated from working capital and an increase in operating cash flow during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

During the nine months ended September 30, 2020 and 2019, we had net cash outflows from investing activities of $37,389 and $373,414, respectively. The $336,025 decrease primarily resulted from our purchase for $309,637 of 20 travel centers we previously leased from SVC during the nine months ended September 30, 2019, and a reduction in capital expenditures during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Please refer to Note 5 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our transactions with SVC.

In response to the COVID-19 pandemic and the current economic conditions, we reduced our capital expenditure plan for 2020 in order to preserve our liquidity from the previous budget of $118,905 to approximately $68,000. As revised, our current budget for 2020 capital expenditures is largely focused on maintenance and essential items.

During the nine months ended September 30, 2020 and 2019, we had cash inflows and outflows from financing activities of $87,031 and $763, respectively. The $87,794 increase primarily resulted from the $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 a $7,900 repayment of our borrowings under our Credit Facility during the nine months ended September 30, 2020.

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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 example: SVC is our former parent company, our principal landlord and one of our largest stockholders; RMR provides management services to both us and to SVC; Adam. D. Portnoy, the Chair of our Board of Directors and one of our Managing Directors, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc., a managing director, president and chief executive officer of The RMR Group Inc. and an officer and employee of RMR; and, as of September 30, 2020, SVC and RMR owned approximately 8.2% and 4.3%, respectively, of our outstanding shares of common stock. Our other Managing Director and Chief Executive Officer, Jonathan M. Pertchik, and certain of our other officers and SVC’s managing trustees and officers are also officers and employees of RMR. We also have relationships and historical and continuing transactions with other companies to which RMR or its subsidiaries provide management services and some of which may have directors, trustees and officers who are also directors, trustees or officers of us, SVC or RMR and some of our Directors and officers serve as trustees, directors or officers of these companies.

For further information about these and other such relationships and related party transactions, please refer to Notes 5, 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 2020 Annual Meeting of Stockholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, please refer to the section captioned "Risk Factors" of our Annual Report for a description of risks that may arise as a result of these and other related party transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related parties, including our business management agreement with RMR and our various agreements with SVC are available as exhibits to our filings with the SEC and accessible at the SEC's website, www.sec.gov. We may engage in additional transactions with related parties, including businesses to which RMR or its subsidiaries provide management services.

Environmental and Climate Change Matters

Legislation and regulation regarding climate change, including greenhouse gas emissions, and other environmental matters and market reaction to any such legislation or regulation or to climate change concerns, may decrease the demand for our fuel products, may require us to expend significant amounts and may otherwise negatively impact our business. For instance, federal and state governmental requirements addressing emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency's, or EPA's, gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor fuel, as well as new fuel efficiency standards for medium and heavy duty commercial trucks, have caused us to add certain services and provide certain products to our customers at a cost to us that we may be unable to pass through to our customers. Also, various private initiatives and government regulations to promote fuel efficiency 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 current Presidential Administration, the EPA and the U.S. Department of Transportation have 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. It is difficult to predict what, if any, further changes to existing rules will ultimately occur as a result of federal executive or legislative action or as a result of related legal challenges and, if changes occur, what impact those changes would have on our industry, us or our business. 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 current Presidential Administration has 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.

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Some observers believe severe weather activities in different parts of the country over the last few years evidence global climate change. Such severe weather that may result from climate change may have an adverse effect on individual properties we own, lease or operate, or the volume of business at our locations. We mitigate these risks by owning, leasing and operating a diversified portfolio of properties, by procuring insurance coverage we believe adequately protects us from material damages and losses and by attempting to monitor and be prepared for such events. However, we cannot be sure 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, please refer to 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, 2020.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2020, there were no changes to our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Warning Concerning Forward-Looking Statements

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

•Our expectations about our and the trucking industry's ability to operate through the COVID-19 pandemic and current economic conditions;

•The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our customers, suppliers and other stakeholders;

•Our operating results for the three and nine months ended September 30, 2020, reflect certain improvements such as increases in fuel gross margin, as compared to the three and nine months ended September 30, 2019. 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 sales volume and the costs of our fuel products may increase in the future because of inflation or other reasons. If we are not able to pass increases in fuel costs to our customers, our fuel 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 have been recognized as a business that provides services to essential businesses by many public authorities, which has allowed us to continue operating during the COVID-19 pandemic. This may imply that we will continue to be designated an essential service; however, we could lose that designation, which could result in our having to close or reduce operations at certain or all of our travel centers for an indefinite period;

•We have commenced numerous initiatives which 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 cost more than we anticipate;

•We recognized increases in our store and retail services, truck service and diesel exhaust fluid revenues during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This may imply that we will increase or maintain these improvements and that we will be profitable in the future. However, customer demand and competitive conditions, among other factors, may significantly impact our nonfuel sales. In addition, many parts of the United States have experienced increased numbers of COVID-19 infections and that development may result in adverse economic consequences that may adversely affect us, our customers and our business. If nonfuel sales volume declines, if we are not able to pass increases in nonfuel costs to our customers or if our nonfuel sales mix changes in a manner that negatively impacts our nonfuel gross margin, our nonfuel revenues or our nonfuel gross margin may decline;

•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;

•We expect to recognize annual cost savings of approximately $13.1 million as a result of the Reorganization Plan. However, we may not realize or maintain the cost savings we expect;

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•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 foreseeable future. The COVID-19 pandemic has significantly negatively impacted the U.S. economy; if the current economic conditions continue for a sustained period or worsen, 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 franchisees may not occur or may be delayed, and these franchises may not be successful or generate the royalties for us that we expect;

•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, 2020, based on our eligible collateral at that date, our borrowing and letter of credit availability was $89.0 million, of which we had used $18.1 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;

•We have reduced our capital expenditure budget for 2020 to approximately $68.0 million, largely focused on maintenance and essential items. However, unexpected capital expenditure needs may arise. Further, the capital expenditures we plan to make may cost more than expected. As a result, our 2020 capital expenditures may exceed budget. In addition, to the extent we defer capital expenditures, the scope and cost for those expenditures may be greater in the future;

•We entered into a multi unit franchise agreement with IHOP to rebrand and convert up to 94 of our full service restaurants to IHOP restaurants. However, we are only obligated to convert the 20 full service restaurants to IHOP with the remaining conversions at our discretion. We may fail to convert those 20 restaurants and may determine not to convert some or all of the remaining 74 restaurants. The costs for these conversions may exceed our expectations and we may fail to complete these conversions in accordance with the schedule, or at all. In addition, we may not realize the return on investment we are anticipating and we may incur losses with respect to these conversions; and

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

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

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

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

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

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

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•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;

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

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

•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;

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

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

•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," Item 1A. "Risk Factors" and elsewhere in this Quarterly Report and in the "Risk Factors" section of our Annual Report.

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

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Part II. Other Information

Item 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, 2019, except for the additions below.

Our business, operations, financial results and liquidity have been materially adversely impacted by the COVID-19 pandemic, and it is not known what the duration of this pandemic will be or what its ultimate impact on us and our business will be.

COVID-19 has been declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. COVID-19 has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic recession.

A variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a decline in travel and demand for diesel fuel and gasoline, including but not limited to (i) restrictions on travel and public gatherings imposed by governmental entities and employers; (ii) a decline in the demand for products as a result of certain stay in place practices and reduced hours of operation for businesses, including restaurants and other retail stores; (iii) widespread work from home arrangements; (iv) closed or reduced factory operations; (v) the postponement or cancellation of industry conventions and conferences, music and arts festivals, sporting events and other large public gatherings; and (vi) negative public perceptions of travel and public gatherings in light of the perceived risks associated with the COVID-19 pandemic. The reduced economic activity resulting from these and other factors has and will continue to negatively impact our fuel sales volume and nonfuel sales.

Since March 2020, the demand for diesel fuel declined as a result as fewer goods being transported across the United States and the resulting declines in truck driving mileage due to the COVID-19 pandemic. As a result, our diesel fuel volumes declined in April and May of 2020. In addition, due to the governmental stay in place orders and other reductions in activity, demand for gasoline has declined and is expected to remain at depressed levels during the duration of the current economic downturn. Additionally, due to social distancing and related measures, demand for our nonfuel products has declined, and we temporarily closed most of our restaurants and limited our product offerings at some of our restaurants and travel centers. Although we began reopening some of our restaurants beginning in May 2020 as certain states began allowing restaurants to reopen, the recent increase in COVID-19 infections in several states has resulted in closing or re-closing certain of our restaurants. In addition, quarantines, temporary closures of businesses, states of emergencies and other measures taken to curb the spread of COVID-19 will negatively impact the ability of our businesses to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our operating results. Further, if public authorities remove our “essential service” designation, we may be required to reduce our operations and, in which event, our business, results of operations and liquidity would be further adversely impacted as a result.

We cannot predict the extent and duration of the pandemic or the severity and duration of its economic impact. Potential consequences of the current unprecedented measures taken in response to the spread of COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:

•sudden and/or severe declines in the market price of our common stock;

•our inability to comply with financial covenants that could result in our defaulting under our debt agreements;

•our failure to pay interest and principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility;

•our inability to access debt and equity capital on attractive terms, or at all;

•increased risk of default or bankruptcy for us and our customers and suppliers;

•increased risk of our and our customers’ and suppliers’ inability to weather an extended cessation of normal economic activity and thereby impairing our or their ability to continue functioning as a going concern;

•our inability to execute improvements to our properties due to a construction moratorium or decrease in available construction workers or construction activity, including required inspectors and governmental personnel for permitting and other requirements, or due to a need for us to maintain our liquidity;

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•our inability to operate our business if the health of our management personnel and other employees is affected, particularly if a significant number of individuals are impacted; and

•reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact our and our customers’ and suppliers’ continued viability and the demand for our products and services.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic abates is uncertain and subject to various factors and conditions. Our business, operations and financial positions may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, and we continue to assess and explore other actions, but those actions and plans may not be sufficient to avoid continued and potentially increased substantial harm to our business, operations and financial condition and some of those actions may delay our ability to quickly return to operating levels prior to the COVID-19 pandemic.

We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, including:

•we significantly reduced our planned capital expenditures for 2020 to conserve cash and liquidity;

•we temporarily closed most of our full service restaurants, more than half of which have reopened as of September 30, 2020;

•we have rationalized our hours of operation and employment levels, including furloughing approximately 4,300 field employees, as well as approximately 120 corporate employees, many of whom have returned to work between May and September 2020 as we began to reopen some of our full service restaurants;

•we have implemented enhanced sanitizing and cleaning procedures at our travel centers in accordance with the U.S. Centers for Disease Control and Prevention guidance; and

•we have been actively engaging with government authorities, our customers, suppliers and other vendors to try to best execute our business during the pandemic.

There can be no assurance that these actions or others that we may take will be successful or that they will enable us to maintain sufficient liquidity and withstand the current economic challenges. Further, certain actions we have taken may limit our ability to quickly return to operating at levels prior to the COVID-19 pandemic. For example, if we experience delays in certain actions, such as furloughed employees deciding not to return if and when we request that they do so.

We have significantly reduced our planned capital expenditures.

We have reduced our planned capital expenditures significantly in order to preserve our liquidity in the current economic environment. We reduced our budgeted capital expenditures for 2020 from the previous budget of $118.9 million to a revised budget of approximately $68.0 million. As revised, our current budget for 2020 capital expenditures is largely focused on maintenance and essential items. To the extent we defer capital expenditures, we may be required to make increased capital expenditures in later periods as a result and some of the expenditures may be greater in scope and amount than they may have been if made sooner. In addition, our travel centers may be harmed competitively if other travel centers in the markets where our travel centers are located are newer or undergoing enhanced capital improvements.

The recent sharp decline in and volatility of global oil market prices may negatively impact our fuel supplies.

Earlier this year, the global market prices for oil have recently experienced sharp declines and volatility, with prices most recently increasing from historic low levels. Factors that have caused these declines and volatility include sharp reductions in demand for, and oversupply of, fuel as a result of the COVID-19 pandemic and resulting global economic slowdown, as well as disagreements among major oil producing nations, such as Saudi Arabia and Russia. The current decreased demand for oil may result in oil producers reducing their production. In addition, if the price of oil becomes too low for a sustained period, major oil refineries in the United States may decrease their operations and capacities. If this were to occur, there may arise a shortage of, or longer lead time for us to obtain, fuel supplies. We typically maintain only up to a few days of fuel inventory at our travel centers. As a result, we could face fuel supply shortages. In addition, if oil production and refinery capacity are reduced, that may lead to increases in fuel prices. Increases in fuel prices may reduce our fuel margins and require us to fund increased amounts of working capital, which would adversely impact our results of operations and liquidity.

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Potential long-term changes in market, consumer and workplace practices in response to the COVID-19 pandemic could be detrimental to our business.

Temporary closures of businesses and governmental stay in place orders in response to the COVID-19 pandemic may result in long-term changed market, professional driver and consumer practices that could negatively impact us and our business. For example, consumer demands and preferences for goods may change in a way that results in less transporting of goods over long distances and, hence, reduce demand for long-haul trucking, which would reduce the demand for our diesel fuel. In addition, some changes in consumer practices, including as a result of less driving for commuting for work if workplaces adopt permanent or increased work from home practices that have been adopted in response to the COVID-19 pandemic, would result in decreased demand for gasoline for automobiles. Further, reductions in demand for diesel fuel and gasoline, and reductions of commercial activity generally, would result in less trucking and consumer driving, which, in turn, would lead to fewer customers visiting our travel centers and purchasing nonfuel goods and services at our travel centers, including truck repair services and reductions in our offsite truck repair and maintenance sales. These results would likely materially adversely impact our business, results of operations and financial position.

We may be unable to utilize our net operating loss and tax credit carryforwards.

Net operating losses and other carryforwards are subject to limitations under the U.S. Internal Revenue Code of 1986, as amended, or the Code. For instance, carryforwards of net operating losses arising in taxable years beginning after 2020 generally will be able to offset no more than 80% of taxable income for tax years beginning after 2020. Moreover, net operating losses arising in taxable years prior to 2018 and various tax credits may only be carried forward for a limited number of years. These and other limitations could delay our ability to utilize our existing net operating loss and tax credit carryforwards, and could even cause some of these tax attributes to expire before they are used.

If we experience an ownership change, our net operating loss and tax credit carryforwards, which currently are expected to be utilized to offset future taxable income, may be subject to limitations on usage or elimination. Our governing documents impose restrictions on the transfer and ownership of our shares of common stock that are intended to help us preserve the tax treatment of our net operating loss and tax credit carryforwards; however, we cannot be sure that these restrictions will be effective. Please refer to our Annual Report for a discussion of the risks related to our ownership limitations under the heading "Risks Arising from Certain of Our Relationships and Our Organization and Structure."

We may not realize the benefits we expect from our recently implemented workforce reduction plan.

On April 30, 2020, we implemented a workforce reduction, pursuant to which we eliminated approximately 130 positions and repositioned certain of our management staff. We expect to realize approximately $13.1 million of net annual savings as a result, not including the separation costs of $4.3 million incurred as a result of the plan. Although we believe these actions appropriately position our current work staff and organization, we cannot be sure they will. Our business may be harmed if it turns out that we eliminated too many positions. In addition, we may not be able to maintain our expected cost savings if we need to later adjust to add more staffing or outsourced personnel in response to changed business conditions or otherwise. In addition, we may incur costs in excess of our estimates regarding the plan, including if litigation in connection with the plan arises. As a result, we may not realize the benefits we expect from the workforce reduction plan.

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

Issuer Purchases of Equity Securities

The following table provides information about our purchases of our equity securities during the quarter ended September 30, 2020.


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 2020	—	$	—	—	$	—
August 2020	—	—		—	—
September 2020	1,268	17.56		—	—
Total	1,268	$	17.56	—	$	—

(1) During the quarter ended September 30, 2020, 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


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

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

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

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

Exhibit 3.5			Articles of Amendment to the Articles of Incorporation of TravelCenters of America Inc. (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed June 26, 2020)

Exhibit 3.6			Amended and Restated Bylaws of TravelCenters of America Inc. (Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K filed July 30, 2019)

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

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

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

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

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

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

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

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

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

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

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

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

Exhibit 101.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

Exhibit 101.SCH			XBRL Taxonomy Extension Schema Document (filed herewith)

Exhibit 101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

Exhibit 101.DEF			XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)

Exhibit 101.LAB			XBRL Taxonomy Extension Label Linkbase Document (filed herewith)

Exhibit 101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

Exhibit 104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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 4, 2020

Name:

Peter J. Crage

Title:

Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)