TravelCenters of America Inc. (NASDAQ:TA) is a leading operator and franchisor of travel centers across the United States. The company has a diverse business model, generating revenue from fuel sales, nonfuel products and services, and rent and royalties from franchisees.
Business Overview
TravelCenters of America operates a network of 286 travel centers, three standalone truck service facilities, and one standalone restaurant as of March 31, 2023. The company's travel centers offer a wide range of products and services, including diesel fuel, gasoline, truck repair and maintenance, full-service restaurants, quick-service restaurants, and various customer amenities. The company's customers include trucking fleets, independent truck drivers, highway and local motorists, and casual diners.In addition to its company-operated locations, TravelCenters of America also collects rents, royalties, and other fees from its franchisees. As of March 31, 2023, the company had 47 franchised travel centers in its network.
Financial Performance
TravelCenters of America reported strong financial results in 2022, with annual revenue of $10,844,990,000 and net income of $164,060,000. The company's annual operating cash flow was $183,664,000, while its annual free cash flow was -$2,824,000.For the three months ended March 31, 2023, the company reported total revenues of $2,239,018,000, a decrease of 2.5% compared to the same period in 2022. This decrease was primarily due to a 4.8% decline in fuel revenues, which was partially offset by a 5.9% increase in nonfuel revenues.
Fuel Revenues and Margins
Fuel revenues are a significant component of TravelCenters of America's business, accounting for approximately 77% of total revenues in the first quarter of 2023. The company's fuel revenues and margins are subject to fluctuations due to changes in market prices and the availability of diesel fuel and gasoline.During the first quarter of 2023, the company experienced a decrease in fuel sales volume, which was primarily due to a decline in market conditions within the freight industry and the initial stabilization of the unprecedented fuel price volatility seen throughout 2022. Despite the lower fuel sales volume, the company believes that future demand for fuel by trucking companies and motorists will remain relatively unchanged in the near-term, subject to a possible economic recession or substantial economic downturn.
Nonfuel Revenues and Margins
Nonfuel revenues, which include truck service, restaurant, and diesel exhaust fluid sales, increased by 5.9% in the first quarter of 2023 compared to the same period in 2022. This increase was primarily driven by inflation-driven price increases, the opening of new restaurants, and recent acquisitions. Nonfuel gross margin also increased by 9.7% during the same period, primarily due to the price increases and higher-value work orders in the truck service business, improved diesel exhaust fluid margins, and efficiency improvements in the restaurant operations.Liquidity and Capital Resources
As of March 31, 2023, TravelCenters of America had a cash balance of $385,903,000 and net cash provided by operating activities of $8,821,000 for the three months ended March 31, 2023. The company has a $200,000,000 revolving credit facility, of which $158,172,000 was available for use as of April 20, 2023.The company also has a $200,000,000 term loan facility, which it used to fund capital expenditures, updates to its information technology infrastructure, and growth initiatives. As of March 31, 2023, the company was in compliance with all covenants related to its debt facilities.
Outlook
TravelCenters of America continues to focus on key growth initiatives, including acquiring high-quality existing travel centers and truck service facilities, expanding its franchised travel center network, and investing in capital projects to enhance the guest experience and introduce new products and services.The company's capital expenditure plan for 2023 contemplates aggregate investments in the range of $135,000,000 to $150,000,000, with approximately 40% of these investments focused on growth initiatives that the company expects to meet or exceed its 15% to 20% cash-on-cash return hurdle.
Additionally, the company is committed to embracing environmentally friendly energy sources through its eTA division, which seeks to deliver sustainable and alternative energy solutions to the marketplace, such as the expansion of biodiesel and renewable diesel blending capabilities, increased availability of diesel exhaust fluid, and the installation of electric vehicle charging stations.