Item 1. Business
Business Overview
TravelCenters of America Inc. is a Maryland corporation. As of December 31, 2022, we operate or franchise 285 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 December 31, 2022, our business included 281 travel centers in 44 states in the United States, primarily along the U.S. interstate highway system, operated primarily under the “TravelCenters of America,” “TA,” “TA Express,” “Petro Stopping Centers” and “Petro” brand names. Of these travel centers, we owned 56, we leased 181, we operated two for a joint venture and 42 were owned or leased from others by our franchisees. We operated 239 of our travel centers and franchisees operated 42 travel centers. Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as a wide range of truck repair and maintenance services, diesel exhaust fluid, or DEF, full service restaurants, or FSRs, quick service restaurants, or QSRs, and various customer amenities.
As of December 31, 2022, 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.
On April 21, 2021, we completed the sale of our Quaker Steak & Lube, or QSL, business for $5.0 million excluding costs to sell and certain closing adjustments. See Note 3 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report for more information about the sale of our QSL business.
We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because they facilitate our discussion of trends and operational initiatives within our business and industry. In March 2022, we entered into an agreement to sell our only travel center located in a foreign country, Canada, which we did not consider material to our operations, and on April 26, 2022, we ceased all operations at our Canadian travel center. In December 2022, due to circumstances that were considered unlikely at the time the agreement was executed, we exercised our right to terminate the agreement. As a result, we are actively seeking other buyers for the property. See Note 3 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report for more information about the closure of this travel center.
As of December 31, 2022, we employed approximately 15,000 people on a full time basis and 2,500 people on a part time basis at our travel centers, standalone truck service facilities and standalone restaurants and we employed an additional 945 people in field management, corporate and other roles to support our locations. Approximately 48 of our employees at three travel centers are represented by unions. For more information regarding our employees, please refer to “Human Capital Resources” below.
Recent Significant Events
The Proposed Merger
On February 15, 2023, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with BP, Bluestar RTM Inc., a Maryland corporation and an indirect wholly-owned subsidiary of BP, or Merger Subsidiary, pursuant to which Merger Subsidiary will merge with and into the Company, or the Merger, with the Company surviving the Merger.
As a result of the Merger, at the effective time of the Merger, or the Effective Time, each share of our common stock, par value $0.001 per share, outstanding immediately prior to the Effective Time (other than shares of our common stock (i) owned by BP or Merger Subsidiary immediately prior to the Effective Time, or (ii) held by any Subsidiary (as defined in the Merger Agreement) of the Company or BP (other than Merger Subsidiary) immediately prior to the Effective Time), will be converted into the right to receive $86.00 in cash, without interest, or the Merger Consideration.
Immediately prior to the Effective Time, each then-outstanding share of our common stock granted subject to vesting or other lapse restrictions under any Company stock plan that is outstanding immediately prior to the Effective Time will vest in full and become free of such restrictions and will be converted into the right to receive the Merger Consideration under the same terms and conditions as apply to the receipt of the Merger Consideration by holders of our common stock generally.
The closing of the Merger is subject to the satisfaction or waiver of certain conditions, including, among other things, (i) receipt by us of the affirmative vote of the holders of a majority of the outstanding shares of our common stock, or the Company Stockholder Approval, (ii) that there is no temporary restraining order, preliminary or permanent injunction or other judgment issued by any court of competent jurisdiction in effect enjoining or otherwise prohibiting the consummation of the Merger, (iii) the expiration or termination of any applicable waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all other approvals under antitrust laws, (iv) the accuracy of the representations and warranties contained in the Merger Agreement (subject to specified materiality qualifiers), (v) compliance with the covenants and obligations under the Merger Agreement in all material respects; (vi) the absence of a material adverse effect with respect to the Company; and (vii) the execution, release and delivery of the Consent and Amendment Agreement, dated as of February 15, 2023, by and among us, our subsidiary TA Operating LLC, BP, SVC and certain of SVC’s subsidiaries, and all agreements entered into pursuant thereto.
We made customary representations and warranties in the Merger Agreement and agreed to customary covenants regarding the operation of our business and the business of our subsidiaries prior to the Effective Time.
The Merger Agreement also includes a covenant requiring us not to solicit any acquisition proposal, and, subject to certain exceptions, not to enter into or participate or engage in any discussions or negotiations with, related to an acquisition proposal or enter into any letter of intent, acquisition agreement or other similar agreement relating to an acquisition proposal. Further, our Board of Directors will not withhold, withdraw, amend or modify, or publicly propose to do any of the foregoing, its recommendation in a manner adverse to BP, adopt, approve or recommend to our stockholders an acquisition proposal, fail to reaffirm its recommendation within ten business days following BP’s written request, fail to recommend against acceptance of a tender or exchange offer for shares of our common stock within ten business days after the commencement thereof, nor fail to include its recommendation in the proxy statement that will be prepared in connection with the company stockholder meeting and the transactions contemplated by the Merger Agreement or the Proxy Statement. Notwithstanding these restrictions, at any time prior to obtaining the Company Stockholder Approval, if we have received a written, bona fide, unsolicited acquisition proposal from any third party (or a group of third parties) that our board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, constitutes or could reasonably be expected to lead to a superior proposal, and the failure to take the following actions would reasonably be expected to be inconsistent with its duties under applicable law, then we, directly or indirectly through certain specified representatives, may, subject to certain conditions, engage in discussions with such third party and furnish to such third party non-public information relating to the Company or any of its subsidiaries pursuant to an acceptable confidentiality agreement. Further, at any time prior to obtaining the Company Stockholder Approval, in respect to a superior proposal we receive after the date of the Merger Agreement on an unsolicited basis, if our board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be reasonably expected to be inconsistent with its duties under applicable law, the board of directors may, subject to compliance with certain conditions, (i) make an Adverse Recommendation Change (as defined in the Merger Agreement) or (ii) cause us to terminate the Merger Agreement in compliance with the terms of the Merger Agreement in order to enter into a binding written definitive agreement providing for such superior proposal.
Subject to the satisfaction of the conditions to the closing of the Merger, we expect the closing of the transactions contemplated by the Merger Agreement to occur by mid-year 2023.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 to a Current Report on Form 8-K we filed with the Securities and Exchange Commission, or SEC, on February 16, 2023.
Economic Conditions
The United States economy experienced high inflation since the beginning of 2022 and there are market expectations that inflation may further increase and remain at elevated levels for a sustained period. In addition, global supply chain challenges that arose during the second half of 2021 continued in 2022 and, although improvements have since been realized, it is uncertain whether those improvements will be continued and sustained. Also, labor availability has continued to be constrained and market labor costs have continued to increase. The U.S. Federal Reserve Board also increased interest rates multiple times since the beginning of 2022 and once in 2023, with additional rate increases expected in 2023. These conditions may give rise to an economic slowdown, and perhaps a recession, and could further increase our costs and/or impact our revenues. At the same time, these conditions and other factors, as further noted below, have created a volatile market for oil, diesel fuel and gasoline, which resulted in our realizing increased fuel margins and fuel revenues during 2022. It is unclear whether the current economic conditions and government responses to these conditions, including inflation, increasing interest rates, the war between Russia and Ukraine and high fuel prices, will result in an economic slowdown or recession in the United States. If that occurs, demand for the transporting of products across the United States by trucks may decline, which may significantly adversely impact our business, results of operations and financial position.
COVID-19 Pandemic
Many of the restrictions that had been imposed in the United States during the COVID-19 pandemic have since been lifted and commercial activity in the United States generally has increasingly returned to pre-pandemic practices and operations. To date, the COVID-19 pandemic has not had a significant adverse impact on our overall business.
Growth Strategies
We continue to prioritize and focus on key initiatives across our organization including top-line growth through high return capital investments, bottom-line growth through process improvement and cost discipline, continued introduction of efficient technology and systems and defining the future of on-highway mobility through a commitment to energy alternatives, all in support of our core mission to return every traveler to the road better than they came.
Acquiring high quality existing travel centers and viable truck services facilities are key aspects of our strategic network growth plan. Our active acquisition pipeline may enable us to add independent and franchised sites along active corridors to strengthen the geographic coverage of our network and expand our scope of products and services and customer segments through investments of capital and human resources in our truck service business, particularly our TA Truck Service® Emergency Roadside Assistance, TA Truck Service® Mobile Maintenance and TA Commercial Tire Network™ programs. Each of these programs, as further described below under the heading “Operations – TA Truck Service,” can service our traditional long haul trucking customers as well as other truck owner customers we historically have not served.
Our recent acquisition, franchising and development activities are summarized as follows:
Travel Centers. During 2022, we completed the acquisitions of certain assets of seven existing travel centers, including the assumed operation of two travel centers which we own but which were previously leased and franchised to former tenants/franchisees. Since the beginning of 2020, we entered into franchise agreements covering 68 travel centers to be operated under our travel center brand names, with 30 new franchise agreements entered in 2022, reaching our annual target. Five began operations during 2020, two began operations during 2021, and three began operations during 2022, and we expect the remaining 58 to open by the second quarter of 2025.
Typical improvements we make at recently added or refreshed travel centers include adding truck repair facilities and nationally branded QSRs, paving parking lots, rebranding gasoline offerings, replacing outdated fuel dispensers, installing DEF dispensing systems, adding biodiesel blending, changing signage, installing point of sale and other IT systems and general building and cosmetic upgrades. The cost of capital improvements to recently purchased travel centers are often substantial and require a long period of time to plan, design, permit and complete; and, after being completed, the improved travel centers require a period of time to become part of our customers’ supply networks and produce stabilized financial results. Depending on the extent of the improvements we estimate that the travel centers we acquire generally will reach financial stabilization approximately one to three years after completion of improvements, but actual results can vary widely from this estimate due to many factors, some of which are outside our control, and we cannot be certain that acquired locations will operate profitably. For instance, the acquisition of an existing franchised travel center or site refresh could have a financial stabilization period of one year or less, whereas the new construction or significant overhaul of a newly-franchised or company-owned travel center could take up to three years to reach financial stabilization.
Truck Service Facilities. During 2022, we completed the acquisitions of two truck service facilities, and entered into a lease for another facility, which began operating as TA Truck Service® during the year.
See Note 3 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report for more information about recent acquisitions.
Our Travel Centers
Our typical TA or Petro branded travel center includes:
•over 24 acres of land with parking for approximately 200 tractor trailers and 100 cars;
•a FSR and one or more QSRs that we operate as a franchisee under various brands;
•a truck repair facility and parts shop;
•multiple diesel and gasoline fueling points, including DEF dispensers at the diesel lanes; and
•a travel store, game room, lounge and other amenities for professional truck drivers and motorists.
Our typical TA Express branded travel center includes:
•approximately 10 acres of land with parking for approximately 70 tractor trailers and 50 cars;
•one or more QSRs that we operate as a franchisee under various brands;
•multiple diesel, gasoline and DEF fueling points; and
•a travel store and other amenities for professional truck drivers and motorists.
Substantially all of our travel centers are full service sites located on or near an interstate highway exit and offer fuel and nonfuel products and services 24 hours per day, 365 days per year.
Our travel center locations offer a broad range of products and services designed to appeal to our customers, including:
•Fuel. We sell unbranded diesel fuel at separate truck fueling lanes and we sell gasoline and diesel fuel at motorist fuel islands. As of December 31, 2022, we offered branded gasoline at approximately 259 of our locations and unbranded gasoline at nine of our travel centers operated by our franchisees and five of our travel centers operated by us.
•Diesel Exhaust Fluid. DEF is an additive that is required by most truck engines manufactured after 2010. As of December 31, 2022, we offered DEF from dispensers on the diesel fueling island at approximately 278 of our travel centers and plan to have DEF dispensers available in all lanes at our travel centers.
•FSRs and QSRs. Most of our TA and Petro branded travel centers have both FSRs and QSRs, and our TA Express branded travel centers have one or more QSRs that offer customers a wide variety of nationally recognized branded food choices. The substantial majority of our FSRs within our travel centers are operated under our Iron Skillet® and Country Pride® brands and offer menu table service. We recently added the Fork and Compass FSR to our brand portfolio, a new dining experience, at a Petro branded travel center. At certain travel centers we have converted the FSR to a franchised brand, such as IHOP®, Black Bear Diner®, Fuddruckers® and Bob Evans®. We are continuing to evaluate other opportunities to drive value within our FSRs, including the conversion of select FSRs to a fast casual concept, which includes The Kitchen, a new proprietary fast food offering currently located at select TA and Petro locations. We also operate approximately 62 different brands of QSRs, including Popeye’s Chicken & Biscuits®, Subway®, Burger King®, Taco Bell®, Pizza Hut®, Dunkin’® and Starbuck’s Coffee®. As of December 31, 2022, approximately 152 of our travel centers included a FSR, approximately 194 of our travel centers offered at least one QSR and there were a total of approximately 458 QSRs in our 281 travel centers.
•Truck Service. Most of our travel centers have truck repair and maintenance facilities. Our 259 truck repair and maintenance facilities typically have between three and six service bays and are staffed by trained service technicians employed by us or our franchisees. These shops generally operate 24 hours per day, 365 days per year and offer extensive maintenance and emergency repair and road services, ranging from basic services such as oil changes, wheel alignments and tire repair or replacement to specialty services such as diagnostics and repair of air conditioning, brakes and electrical systems. Our repair and maintenance services are generally covered by our nationwide warranty. In addition to work we perform at our facilities, we also provide roadside emergency truck and trailer repair, facilitated by our internal call center and off site Mobile Maintenance repair and maintenance services, as described under the heading “Operations – TA Truck Service” below.
•Travel Stores. Travel stores located in our travel centers have a broad merchandise selection of more than 25,000 items. The General Merchandise selection is designated to support the professional driver’s lifestyle while on the road. It includes the latest electronics, oil and additives, hardware and tools, clothing, and cab and bunk supplies. The Convenience offering includes cold beverages, candy, salty snacks, sweet treats, and traditional grocery items such as meal solutions, pet supplies, and health and beauty products. Each store has fresh food, pre-packaged meal solutions, snacks to grab, freshly brewed coffee, and cold fountain drinks. Each store has unique gifts for guests to buy for family or friends, whether it’s a holiday or moment to celebrate. Guests can also purchase regional souvenirs to remember their trip by.
•Parking. We have a total of approximately 74,000 parking spaces, of which 48,000 are tractor trailer parking spaces and 26,000 are car parking spaces. Many of our travel centers offer the Reserve-It!® parking program, which allows drivers to reserve for a fee a parking space in advance of arriving at a travel center. As of December 31, 2022, we offered the Reserve-It!® parking program at 266 of our travel centers and we had dedicated a total of approximately 7,600 parking spaces for this program.
•Additional Driver Services. We believe that trucking fleets can improve the retention and recruitment of truck drivers by directing them to visit large, high quality, full service travel centers with plentiful overnight parking such as ours. We offer commercial trucker and other customer loyalty programs, the principal program being the UltraOne® Program, that are similar to frequent shopper programs offered by other retailers. Under our loyalty programs, drivers receive points for diesel fuel purchases and for selected nonfuel products and services. These points may be redeemed for discounts on nonfuel products and services at our travel centers. Some of our travel centers offer casino gaming. We strive to provide a consistently high level of service and amenities to professional truck drivers at all of our travel centers, which we believe make our travel centers an attractive choice for trucking fleets. Most of our travel centers provide truck drivers amenities including:
•specialized business services, including an information center where drivers can send and receive faxes, overnight mail and other communications;
•a banking desk where drivers can cash checks and receive funds transfers from fleet operators;
•wi-fi internet access;
•a laundry area with washers and dryers;
•private showers;
•free exercise facilities;
•areas designated for truck drivers only, including a theater or big screen television room with a video player and comfortable seating; and
•ample parking including Reserve-It!® parking.
Operations
Fuel. We sell fuel to our customers at prices that we establish daily or are indexed to market prices and reset daily. For the year ended December 31, 2022, diesel fuel and gasoline revenues represented approximately 90.2% and 9.8%, respectively, of our total fuel revenues. We use discounting as a principal form of competition to grow our business with key customers and channels. For the year ended December 31, 2022, approximately 90.6% of our diesel fuel sales volume was sold at discounts to posted prices under pricing arrangements with fleet customers. We have numerous sources for our diesel fuel and gasoline supply, including nearly all of the large oil companies operating in the United States. We purchase diesel fuel from various suppliers at rates that fluctuate with market prices and generally are reset daily. By establishing diesel fuel supply relationships with several alternate suppliers for most locations, we believe we are able to effectively create competition for our purchases among various diesel fuel suppliers, and also to capitalize on favorable purchasing opportunities that are accretive to our fuel margin. We also believe that purchasing arrangements with multiple diesel fuel suppliers may help us avoid product shortages during times of diesel fuel supply disruptions. At some locations, however, there are few suppliers for diesel fuel in that market and we may have only one viable supplier. Generally we have single sources of supply for gasoline at each of our locations. We offer biodiesel at a number of our travel centers and have a limited number of suppliers for this product at those sites. We continually monitor our fuel purchasing, pricing, supply and inventory management and take actions we believe appropriate and intended to improve fuel margins.
A large majority of truck drivers use a payment method known as truck “fuel cards” that allow truck drivers to purchase fuel and other products and services, and permits trucking companies to track fuel and other purchases made by their drivers throughout the United States. Most of our trucking customers transact business with us by use of these fuel cards, most of which are issued by third party fuel card companies. Currently, the fuel card industry has only two significant participants, FleetCor Technologies, Inc., the parent of Comdata Inc., or Comdata, and its subsidiaries, or FleetCor, and WEX Inc., and its subsidiaries, or WEX. During 2022, we entered into an agreement with WEX and launched a new private label fuel card as a one card solution for diesel, DEF, gasoline, repairs, scales and other services. The card program is underwritten and managed by WEX and offers loyalty perks to cardholders for transactions at TA sites. We believe almost all trucking companies use only a single fuel card provider and have become increasingly dependent upon the data, reports and other services provided by their respective sole fuel card provider to manage their fleets and simplify their data processing.
Generally, our fuel purchases are delivered directly from suppliers’ terminals to our locations and we do not contract to purchase substantial quantities of fuel to hold as inventory; however, we may do so in the future. We generally have only a few days of diesel fuel and gasoline inventory at our travel centers. We believe our exposure to market price increases for diesel fuel and gasoline is partially mitigated by the significant amount of our diesel fuel and gasoline sales that are sold under arrangements that include pricing formulae that reset daily and are indexed to market prices and by us generally not purchasing fuel for delivery other than on the date of purchase. Additionally, there has historically been a significant correlation over time between the indices used in our sales contracts and those used in our purchasing contracts. Due to this correlation, we historically have not engaged in any fixed or hedged price fuel contracts.
Non-Fossil Fuel and Alternative Energy. In anticipation of the possible changes that may eventually affect our industry regarding fuel and energy use, we are evaluating our long term strategies to position ourselves to efficiently and successfully adapt to these changes. These industry changes may include increasing adoption of the use of non-fossil fuel and alternative energy. Among these changes may be the use of electric vehicle, or EV, technologies, which have been led initially by the automotive and light duty truck industries and more recently followed by leaders in commercial trucking, as well as hydrogen fuel, natural gas and other possible sources. While we are in the preliminary stages of evaluating these changes, we believe that a defined strategy, with dedicated internal resources, is important as we position ourselves to successfully incorporate these changes into our business. While we are currently increasing our biodiesel blending capabilities, as well as expanding our ability to offer DEF at the pump, we are also preparing for the future. This preparation includes dedicated internal leadership, agreements with EV charging equipment providers, as well as the potential for direct capital investments in EV infrastructure. We are actively participating with states in their EV infrastructure rollout to support the expected increase in electric vehicles on the road. In the medium and heavy duty truck space, we are preparing to offer hydrogen fuel and high speed EV charging at one of our sites. We recently announced a non-exclusive agreement with Eletrify America, provider of the largest open direct current fast-charging network in the United States, to expand electric vehicle fast-charging infrastructure at our sites nationwide. We continue to actively explore other opportunities regarding alternative fuels and energy.
Nonfuel Products. We have many sources for the large variety of nonfuel products that we sell. We have developed supply relationships with several suppliers of certain nonfuel products and maintain two distribution centers to distribute certain nonfuel products to our locations using a combination of contract carriers. We believe these distribution centers allow us to purchase, maintain and transport inventory and supplies at lower costs.
TA Truck Service. In addition to the truck repair and maintenance services provided at our travel centers, we also provide customers a wide variety of “off site” repair and maintenance services, as described below.
•TA Truck Service® Emergency Roadside Assistance is a roadside truck service program that operates 24 hours per day, seven days per week. As of December 31, 2022, this program included a fleet of approximately 630 heavy duty professionally maintained emergency vehicles equipped with GPS technology at our travel centers and other sites and third party roadside service providers in 49 U.S. states and 10 Canadian provinces with a total of approximately 15,000 locations. We centrally dispatch our service trucks and third party service providers from our call center to assist customers with comprehensive repair services when they are unable to bring their trucks to our travel centers due to a break down.
•TA Truck Service® Mobile Maintenance offers truck and trailer mobile maintenance and repair services performed by certified technicians at customer facilities, with a fleet of approximately 356 trucks in service as of December 31, 2022. TA Truck Service Mobile Maintenance is designed to be a “bay on wheels” fully stocked with standard and specialty parts and state of the art technology that offers various services such as pre-trip truck inspections, U.S. Department of Transportation required inspections, tire repair and replacement, electric systems checks, brake inspections, used truck inspections and complete lubrication services.
•TA Commercial Tire Network™ is a commercial tire program we began in late 2016 through which we sell a variety of branded tires at our truck repair and maintenance facilities, on customers’ lots, distribution centers, through direct sales and under tire manufacturers’ national fleet account programs. The TA Commercial Tire Network™ includes a tire retread facility that is part of the Goodyear Authorized Retread Network, providing a full line of Goodyear commercial tire retread products to fleets, local industries and tire dealers within a 150 mile radius of its location in Bowling Green, Ohio. Many of our truck service facilities have access to the retread tires produced at this plant. We believe the TA Commercial Tire Network™ is the most comprehensive commercial tire purchasing, monitoring and maintenance program in the United States.
Competition
Fuel and nonfuel products and services can be obtained by trucking companies and truck drivers from a variety of sources, including national and regional full service travel centers and pumper only truck stops, some of which are owned or franchised by large chains and some of which are independently owned and operated, and some large service stations. In addition, some trucking companies operate their own terminals to provide fuel and services to their own trucking fleets and drivers. Some of our competitors may have more resources than we do and vertically integrated fuel and other businesses which may provide them competitive advantages. For all of these reasons and others, we can provide no assurance that we will be able to compete successfully.
We believe that although the travel center and truck stop industry is highly fragmented, with approximately 6,500 travel centers and truck stops in the United States, the largest trucking fleets tend to purchase the majority of their fuel from us and our two largest competitors. Based on the number of locations, Pilot Travel Centers LLC (which includes the Flying J brand), or Pilot, Love’s Travel Stops and Country Stores, or Love’s, and TA are the three largest companies focused principally on the travel center industry. We believe that in recent years, both of our principal competitors, Pilot and Love’s, added more travel centers to their networks than we added to our network, and in some cases, competition from new sites added by Pilot and Love’s may have impacted our results. Nevertheless, we believe we are able to compete successfully in part because many of our travel centers were originally developed years ago when prime real estate locations along the U.S. interstate highway system were more readily available than they are today, which we believe would make it difficult to fully replicate our travel center business, and also in part because of our full service offerings and larger locations that are not often replicated by our principal competitors. We compete with other travel center and truck stop chains based primarily on diesel fuel prices and the quality, variety and pricing of our nonfuel products, services and amenities.
Our truck repair and maintenance facilities compete with other providers of truck repair and maintenance facilities, including some at Pilot and Love's locations. For truck maintenance and repair services, we also compete with regional full service travel center and smaller truck stop chains, full service independently owned and operated travel centers and truck stops, fleet maintenance terminals, independent garages, truck and commercial tire dealerships, truck quick lube facilities and other parts and service centers. We also compete with other FSRs, QSRs, mass merchandisers, electronics stores, drugstores, gasoline stations and convenience stores. Some truck fleets own their own fuel and repair and maintenance facilities; however, we believe the long term trend has been toward a reduction in these facilities in favor of obtaining fuel and repair and maintenance services from third parties like us. We believe that we are able to compete successfully because we offer consistent, high quality products and services, and our nationwide travel centers provide an advantage to large trucking fleets, particularly long haul trucking fleets, by enabling them to (i) take advantage of efficiencies afforded by the wide array of products and services our travel centers provide for their equipment and their drivers and (ii) reduce the number of their suppliers by routing their trucks through our broad nationwide footprint of travel centers.
An additional source of competition in the future could result from commercialization of state owned interstate highway rest areas. Some state governments have historically requested that the federal government allow these rest areas to offer fuel and nonfuel products and services similar to that offered at a travel center and certain congressional leaders have historically supported such legislation. If commercialized, these rest areas may increase the number of locations competing with us and these rest areas may have significant competitive advantages over existing travel centers, including ours, because they are generally located on restricted (i.e., toll) roads and have dedicated ingress and egress.
Our Leases with SVC
We have five leases with SVC, 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.
SVC Leases. Pursuant to the SVC Leases, we lease 144 properties under the TA Leases and 35 properties under the Petro Lease. One of our subsidiaries is the tenant under the leases, and we guarantee the tenant’s obligations under the leases.
Term. The TA Leases expire on December 31, 2029, 2031, 2032 and 2033, respectively. The Petro Lease expires on June 30, 2035. We may extend each of these leases for up to two additional periods of 15 years.
Annual Minimum Rent. As of December 31, 2022, our aggregate annual minimum rent payable to SVC under the SVC Leases was $243.9 million. We may request that SVC purchase approved renovations, improvements and equipment additions we make at the leased properties, in return for an increase in our annual minimum rent equal to the amount paid by SVC multiplied by the greater of (i) 8.5% or (ii) a benchmark U.S. Treasury interest rate plus 3.5%. SVC is not required to purchase
any improvements and we are not required to sell any improvements to SVC. During the years ended December 31, 2022 and 2021, we did not sell to SVC any improvements we made to properties leased from SVC.
Percentage Rent. Under the SVC Leases, we incur percentage rent payable to SVC. The percentage rent is 3.5% of the excess of nonfuel revenues for any particular year over the percentage rent base year amount.
Deferred Rent. Under the SVC Leases, we owed deferred rent to SVC in an aggregate amount of $70.5 million, which became payable in 16 equal quarterly installments beginning April 1, 2019. The total amount of deferred rent outstanding as of December 31, 2022, was $4.4 million. This amount was fully paid in January 2023.
In connection with entering into the Merger Agreement, we agreed with BP and SVC to amend and restate our subsidiary’s leases with certain of SVC's subsidiaries and corresponding guaranty agreements, in each case effective at the Effective Time, conditioned on the occurrence of the closing of the Merger.
Relationships with Franchisees
We have franchise agreements with owners of travel centers. We collect franchise, royalty, advertising and other fees under these agreements. The table below summarizes by state information as of December 31, 2022, regarding branding and ownership of the travel centers our franchisees operate and excludes travel centers we operate. Information about the locations we operate is included in Part I, Item 2 of this Annual Report. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Brand Affiliation: | | | Ownership of Sites By: |
| | TA | | TA
Express | | Petro | | | Total | | | TA | | Franchisee or Others |
| Alabama | — | | | — | | | 1 | | | | 1 | | | | — | | | 1 | |
| Arizona | — | | | 1 | | | — | | | | 1 | | | | — | | | 1 | |
| California | 1 | | | — | | | — | | | | 1 | | | | — | | | 1 | |
| Florida | 1 | | | — | | | — | | | | 1 | | | | — | | | 1 | |
| Georgia | — | | | 1 | | | — | | | | 1 | | | | — | | | 1 | |
| Illinois | — | | | 1 | | | 1 | | | | 2 | | | | — | | | 2 | |
| Iowa | 1 | | | — | | | — | | | | 1 | | | | — | | | 1 | |
| Kansas | 1 | | | 1 | | | 1 | | | | 3 | | | | — | | | 3 | |
| Minnesota | — | | | — | | | 2 | | | | 2 | | | | — | | | 2 | |
| Missouri | 2 | | | — | | | 1 | | | | 3 | | | | — | | | 3 | |
| North Carolina | — | | | — | | | 1 | | | | 1 | | | | — | | | 1 | |
| North Dakota | — | | | 1 | | | 1 | | | | 2 | | | | — | | | 2 | |
| Ohio | 1 | | | — | | | 1 | | | | 2 | | | | — | | | 2 | |
| Oregon | 2 | | | 1 | | | — | | | | 3 | | | | — | | | 3 | |
| Pennsylvania | 1 | | | 1 | | | — | | | | 2 | | | | — | | | 2 | |
| South Dakota | — | | | 3 | | | — | | | | 3 | | | | — | | | 3 | |
| Tennessee | 1 | | | — | | | — | | | | 1 | | | | — | | | 1 | |
| Texas | — | | | 7 | | | — | | | | 7 | | | | — | | | 7 | |
| Utah | — | | | 1 | | | — | | | | 1 | | | | — | | | 1 | |
| Virginia | — | | | — | | | 1 | | | | 1 | | | | — | | | 1 | |
| Wisconsin | 1 | | | 1 | | | 1 | | | | 3 | | | | — | | | 3 | |
| Total | 12 | | | 19 | | | 11 | | | | 42 | | | | — | | | 42 | |
Since the beginning of 2020, we entered into franchise agreements covering 68 travel centers to be operated under our travel center brand names, with 30 new franchise agreements entered in 2022, reaching our annual target. Five began operations during 2020, two began operations during 2021, and three began operations during 2022, and we expect the remaining 58 to open by the second quarter of 2025. The table below summarizes by state information regarding branding for the remaining
franchised travel centers we anticipate beginning operations. | | | | | | | | | | | | | | | | | | | | | | | |
| Brand Affiliation: |
| TA | | TA
Express | | Petro | | Total |
| Alabama | 1 | | | — | | | — | | | 1 | |
| Arkansas | 2 | | | 1 | | | — | | | 3 | |
| Arizona | 1 | | | 2 | | | — | | | 3 | |
| California | 3 | | | 9 | | | 1 | | | 13 | |
| Colorado | 1 | | | 2 | | | — | | | 3 | |
| Florida | 1 | | | — | | | — | | | 1 | |
| Georgia | — | | | 2 | | | — | | | 2 | |
| Idaho | 1 | | | — | | | — | | | 1 | |
| Indiana | 1 | | | 1 | | | — | | | 2 | |
| Kansas | 1 | | | — | | | — | | | 1 | |
| Mississippi | 1 | | | 2 | | | — | | | 3 | |
| Missouri | 1 | | | 1 | | | — | | | 2 | |
| Nebraska | 2 | | | — | | | — | | | 2 | |
| New Mexico | 1 | | | — | | | — | | | 1 | |
| Nevada | 1 | | | — | | | — | | | 1 | |
| North Carolina | 1 | | | 1 | | | — | | | 2 | |
| Oklahoma | 1 | | | 3 | | | — | | | 4 | |
| Tennessee | — | | | 2 | | | 1 | | | 3 | |
| Texas | 1 | | | 6 | | | — | | | 7 | |
| Washington | 1 | | | 2 | | | — | | | 3 | |
| Total | 22 | | | 34 | | | 2 | | | 58 | |
TA, TA Express and Petro Franchise Agreements
The following is a summary of the material provisions typically included in our TA, TA Express and Petro travel centers franchise agreements.
Initial Franchise Fee. Franchisees pay an initial franchise fee for a new TA, TA Express or Petro franchise, with reduced fees for multiple sites.
Term of Agreement. The initial term of a franchise agreement is generally 10 years. Our TA, TA Express and Petro franchise agreements generally provide for two five-year renewals on the terms then being offered to prospective franchisees at the time of the franchise renewal.
Protected Territory. Under the terms of our franchise agreements for TA and TA Express travel centers, generally we have agreed not to operate, or allow another person to operate, a travel center or travel center business that uses the TA or TA Express brand in a specified territory for that TA or TA Express branded franchised travel center. Under the terms of our franchise agreements for Petro travel centers, generally we have agreed not to operate, or allow another person to operate, a travel center or travel center business that uses the Petro brand in a specified territory for that Petro branded franchised travel center.
Restrictive Covenants. Generally our franchisees may not operate any travel center or truck stop related business under a franchise agreement, licensing agreement or marketing plan or system of another person or entity. If the franchisee owns the franchised premises, generally for a two year period after expiration or earlier termination of our franchise agreement the franchisee may not operate the premises under a competitive brand.
Nonfuel Product Offerings. Franchisees are required to operate their travel centers in conformity with guidelines that we establish and offer any products and services that we deem to be a standard product or service in our travel centers.
Fuel Purchases and Royalties. Our franchise agreements require the franchisee to pay us a royalty fee per gallon of fuel sold based on sales of certain fuels at the franchised travel center. We also purchase receivables generated by some of our franchisees in connection with sales to common trucking fleet customers through our proprietary billing system on a non-recourse basis in return for a fee.
Royalty Payments on Nonfuel Revenues. Franchisees are required to pay us a royalty fee based on a percentage of nonfuel revenues, including on revenues from branded QSRs, in some cases up to a threshold amount, with a lower percentage fee payable on amounts in excess of the threshold amount.
Advertising, Promotion and Image Enhancement. Our franchisees are required to make additional payments to us as contributions to the applicable brand wide advertising, marketing and promotional expenses we incur.
Termination/Nonrenewal. Generally, we may terminate or refuse to renew a franchise agreement for default by the franchisee. Generally, we may also refuse to renew if we determine that renewal would not be in our economic interest or if the franchisee will not agree to the terms in our then current form of applicable franchise agreement.
Rights of First Refusal. During the term of each franchise agreement, we generally have a right of first refusal to purchase the franchised travel center at the price the franchisee is willing to accept from a third party. In addition, some of our franchise agreements give us a right to purchase the franchised travel center for fair market value, as determined by the parties or an independent appraiser, upon expiration or earlier termination of the franchise agreement.
Regulatory Environment
Environmental Regulation
Extensive environmental laws regulate our operations and properties. These laws may require us to investigate and clean up hazardous substances, including petroleum or natural gas products, released at our owned and leased properties. Governmental entities or third parties may hold us liable for property damage and personal injuries, and for investigation, remediation and monitoring costs incurred in connection with any contamination and regulatory compliance at our locations. We use both underground storage tanks and above ground storage tanks to store petroleum products, natural gas and other hazardous substances at our locations. We must comply with environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting and financial assurance for corrective action in the event of a release. Investigation and remediation of both surface spills and subsurface releases is handled by contracted third party consultants and managed by our environmental staff. 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.
For further information about these and other environmental and climate change matters, see the disclosure under the heading “Environmental Contingencies” in Note 14 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report. In addition, for more information about these environmental and weather events and climate change matters and about the risks which may arise as a result, see elsewhere in this Annual Report, including “Warning Concerning Forward-Looking Statements,” Item 1A “Risk Factors,” and Part II, Item 7 “Management’s Discussion and Analysis – Environmental and Climate Change Matters.”
Franchise Regulation
Subject to certain exemptions, the Federal Trade Commission regulations require that we make extensive disclosure to prospective franchisees and some states require state registration and delivery of specified disclosure documentation to potential franchisees. Some state laws also impose restrictions on our ability to terminate or not renew franchises and impose other limitations on the terms of our franchise relationships or the conduct of our franchise business. The Petroleum Marketing Practices Act imposes special regulations on franchises where petroleum products are offered for sale. Also, a number of states include, within the scope of their petroleum franchising statutes, prohibitions against price discrimination and other allegedly anticompetitive conduct. These provisions supplement applicable federal and state antitrust laws. We believe that we are in compliance with all franchise laws applicable to our business.
Gaming Regulation
Because we have gaming operations at some of our travel centers, we and our concerned subsidiaries are currently subject to gaming regulations in Georgia, Illinois, Louisiana, Montana, Nevada, Pennsylvania and West Virginia. Requirements under gaming regulations vary by jurisdiction but include, among other things:
•findings of suitability by the relevant gaming authorities with respect to, or licensure of, certain of our and our licensed subsidiaries’ directors, officers and key employees and certain individuals having a material relationship with us or our licensed subsidiaries;
•findings of suitability by the relevant gaming authorities with respect to certain of our security holders and restrictions on ownership of certain of our securities;
•prior approval in certain circumstances by the relevant gaming authorities of offerings of our securities;
•prior approval by the relevant gaming authorities of changes in control of us; and
•specified reporting requirements.
Holders of beneficial interests of our voting securities are subject to licensing or suitability investigations by the relevant gaming authorities under various circumstances including, generally, service on our Board of Directors, the attainment of certain levels of ownership of a class of our voting securities, or involvement in the gaming operations of or influence over us or our licensed subsidiaries. Persons or entities seeking to acquire control of us or our operation of the license are subject to prior investigation by and approval from the relevant gaming authorities. Any beneficial owner of our voting securities, regardless of the number of shares owned, may be required by a relevant gaming authority to file an application and have their suitability reviewed in certain circumstances, including if the gaming authority has reason to believe that such ownership of our voting securities would otherwise be inconsistent with its state’s gaming laws. In some jurisdictions, the applicant must pay all costs of investigations incurred in connection with such investigations. Additionally, in the event of a finding by a relevant gaming authority that a person or entity is unsuitable to be an owner of our securities, such person would be prohibited from, among other things, receiving any dividend or interest upon such securities, exercising any voting right conferred through such securities or continuing to hold our securities beyond such period of time as may be prescribed by such gaming authority, managing the licensed business and, in some cases, the stockholders may be required to divest themselves of our voting securities.
Certain of our and our subsidiaries’ directors and officers must also file applications, be investigated and be licensed or found suitable by the relevant gaming authorities in order to hold such positions. In the event of a finding by a relevant gaming authority that a director, officer, key employee or individual with whom we or our licensed subsidiary have a material relationship is unsuitable, we or our licensed subsidiary, as applicable, may be required to sever our relationships with such individual or such individual may be prohibited from serving as our director or officer.
Any violations by us or any of our licensed subsidiaries of the gaming regulations to which we are subject could result in fines, penalties (including the limiting, conditioning, suspension or revocation of any licenses held) and criminal actions. Additionally, certain jurisdictions, such as Nevada, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to periodic reports regarding those gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.
We have a Gaming Compliance Plan, or the Compliance Plan, as required by the Nevada Gaming Commission in connection with our gaming operations at certain of our travel center locations. In connection with the Compliance Plan, we have a Gaming Compliance Committee, or the Compliance Committee, on which a member of our Audit Committee of the Board of Directors serves as the Board of Directors’ liaison to the Compliance Committee pursuant to the terms of the Compliance Plan. The Compliance Committee assists us in monitoring activities relating to our continuing qualifications under applicable gaming laws.
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.
Human Capital Resources
Our core mission is to “Return every traveler to the road better than they came.” Our five values, Welcoming, Empathetic, Integrity, Openness and Team Player, define the behaviors we expect from our employees. We have a longstanding history of supporting the professional truck drivers who keep the U.S. economy moving and those who have served our country, including both retired and active-duty military. We are committed to supporting the local communities we serve.
As of December 31, 2022, we employed approximately 18,500 employees with 5.1% employed at our corporate headquarters and 94.9% across 243 locations throughout the United States. Approximately 81.1% of our field employees were classified as full-time employees and the average tenure of our employees was three years. We are an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, national or ethnic origin, age, marital status, ancestry, sex, gender, pregnancy, gender identity or expression, sexual orientation, mental or physical disability, handicap, military service or veteran status, genetic information or membership in any other category protected by applicable federal, state or local law. Diversity and inclusion are an important part of our hiring, retention and development programs. As of December 31, 2022, 45.1% and 37.9% of our employees were female and non-white, respectively, and 43.0% and 29.0% of our Board of Directors were female and non-white, respectively.
Our employee engagement, immersion and training initiatives center around our Mission Vision & Values. Our recruiting, on-boarding and retention programs and development of on-going training programs currently include the following:
•National Training Center. We maintain a national training center in Lodi, Ohio where we host educational programs to develop employees by teaching new skills and relevant technological changes.
•Manager in Training Program. This training program assists non-management and new management employees in learning the skills and experience to help enable them to advance their career and benefit our business and operations. During the year ended December 31, 2022, 306 field employees were promoted from non-manager to management level positions.
•Healthy Journeys Wellness Plan. We value the health and well-being of all our employees. For this reason, we offer the Healthy Journeys Wellness Program to help eligible employees and their spouses manage their health while controlling their family’s healthcare costs. The program includes many resources to support wellness, including online health courses and a smoking cessation program.
•Educational Assistance Plan. Eligible employees can participate in TA’s Educational Assistance Plan for tuition reimbursement. We pay up to 75.0% of the cost of tuition and certain fees for any approved course taken by a regular full-time employee at an accredited high school, university or college, trade, business or correspondence school. Eligible truck service technicians who graduated from a certified technical school and have education related loan repayment obligations can also earn funds to repay their loan.
Intellectual Property
We own the “Petro Stopping Center®” name and related trademarks and various trade names used in our business including “TA Truck Service® Emergency Roadside Assistance”, “TA Truck Service® Mobile Maintenance”, “UltraOne®”, “Iron Skillet®”, “Reserve-It!®”, “eShop®” and others. We have the right to use the “TA®”, “TA Express®”, “TravelCenters of America®”, “TA Commercial Tire Network™”, “Country Pride®” and certain other trademarks, which are owned by SVC, during the term of each TA Lease. We also license certain trademarks used in the operation of certain of our restaurants. We believe that these trademarks are important to our business, but that they could be replaced with alternative trademarks without significant disruption in our business except for the cost of such changes, which may be significant. We sold the “Quaker Steak & Lube®” name and trademark as part of the sale of our QSL business on April 21, 2021.
Internet Websites
Our internet website address is www.ta-petro.com. Copies of our governance guidelines, our code of business conduct and ethics, our insider trading policy and the charters of our audit, compensation and nominating and governance committees are posted on our website at www.ta-petro.com and also may be obtained free of charge by writing to our Secretary, TravelCenters of America Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634. We also have a policy outlining procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that stockholders can use to report concerns or complaints about accounting, internal controls or auditing matters or violations or possible violations of our code of business conduct and ethics. We make available, free of charge, through the “Investors” section of our website at www.ta-petro.com, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or the SEC. Any material we file with, or furnish to, the SEC is also maintained on the SEC website (www.sec.gov). Security holders may send communications to our Board of Directors or individual Directors by writing to the party for whom the communication is intended at c/o Secretary, TravelCenters of America Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634 or by email at secretary@ta-petro.com. Our website addresses are included several times in this Annual Report as textual references only. The information on or accessible through our websites is not incorporated by reference into this Annual Report or other documents we file with, or furnish to, the SEC. We intend to use our websites as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Those disclosures will be included on our website at www.ta-petro.com in the “Investors” section. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
Item 1A. Risk Factors
Summary of Risk Factors
Our business is subject to a number of risks and uncertainties. The following is a summary of the principal risk factors described in this section:
•Failure to consummate the Merger could negatively impact the price of our capital stock and our future business and financial results;
•The timing of the completion of the Merger is not certain, and is subject to certain conditions, some of which we and BP cannot control, which could result in the Merger not being consummated or being consummated later than we believe it will occur, either of which could negatively impact our share price and our future business and operating results;
•The Merger Agreement contains provisions that restrict our ability to pursue alternatives to the Merger and, in specified circumstances, could require us to pay BP a termination fee;
•While the Merger is pending, we are subject to customary contractual restrictions regarding any non-ordinary course operation of our business or the business of our subsidiaries prior to the Effective Time which could adversely affect our business;
•We could be adversely impacted by the effects of inflation, rising and sustained high interest rates, capital market volatility, geopolitical instability and other economic conditions;
•Our net operating margin is low;
•Increasing motor vehicle fuel efficiency, fuel conservation practices and adoption of alternative fuels or energy sources, may lead customers to purchase less fuel and visit our travel centers less frequently;
•Increased fuel prices, fuel price volatility or an interruption in our fuel supply may adversely affect our results;
•There is limited competition among fuel card providers, which may adversely affect our ability to negotiate fees and increase prices to offset expenses;
•Our financial results are dependent on the demand for trucking services in the United States, which may decline if the U.S economy declines;
•A large percentage of our revenue is concentrated in a few large customers;
•Additional environmental regulations and market reaction to climate change concerns may decrease the demand for diesel fuel, and our compliance with such regulations and attempts to respond to those concerns may be expensive;
•We have substantial combined indebtedness and fixed rent obligations;
•We may be subject to increases in our interest rates, as well as adverse changes in fiscal policies and credit conditions;
•Any failure, inadequacy, interruption or security breach of our information technology could harm our business;
•Compliance with data privacy and security laws may be expensive;
•Our labor costs cannot easily be reduced and inflationary pressures and the passage of minimum wage laws, health insurance requirements or similar legislation will likely cause costs to rise;
•Our insurance may not adequately cover our potential losses;
•Supply chain challenges and U.S. trade policies may negatively affect our business;
•Third party expectations relating to environmental, social and governance (ESG) factors may impose additional costs and expose us to new risks;
•We may not be able to execute or fund our business and growth strategies;
•Acquisitions or development projects may be more difficult, time consuming or costly than anticipated and the anticipated benefits of such acquisitions and projects may not be realized;
•Provisions in our charter, bylaws, material agreements, licenses, and permits may prevent or delay a change in our control; and
•Our stock has experienced significant price and trading volume volatility and may continue to do so.
Our business faces many risks. If any of the events or circumstances described in the following risk factors occur, our business, financial condition or results of operations could suffer and the market prices of our equity or debt securities could decline. Investors and prospective investors should carefully consider the following risks, the risks referred to elsewhere in this Annual Report and the information contained under the heading "Warning Concerning Forward-Looking Statements” before deciding whether to invest in our securities.
Risks Related to the Proposed Merger
Failure to consummate the Merger could negatively impact the price of our common stock and our future business and financial results.
The consummation of the Merger may be later than we believe it will occur, may be consummated on terms different than those contemplated by the Merger Agreement, or may not be consummated at all. Failure to consummate the Merger would prevent our stockholders from realizing the anticipated benefits of the Merger. In addition, the consideration offered by BP reflects a valuation of the Company significantly in excess of the price at which our common stock was trading prior to the public announcement of our entry into the Merger Agreement. The current market price of our common stock may reflect a market assumption that the Merger will occur, and a failure to consummate the Merger could result in a significant decline in the market price of our common stock and a negative perception of us generally.
The timing of the completion of the Merger is not certain, and is subject to certain conditions, some of which we cannot control, which could result in the Merger not being consummated or being consummated later than we believe it will occur, which could negatively impact the share price and future business and operating results of the Company.
Completion of the Merger is subject to several conditions, not all of which are controllable by us and include, among other things, (i) receipt by us of the Company Stockholder Approval, (ii) that there is no temporary restraining order, preliminary or permanent injunction or other judgment issued by any court of competent jurisdiction in effect enjoining or otherwise prohibiting the consummation of the Merger, (iii) the expiration or termination of any applicable waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all other approvals under antitrust laws, (iv) the accuracy of the representations and warranties contained in the Merger Agreement (subject to specified materiality qualifiers), (v) compliance with the covenants and obligations under the Merger Agreement in all material respects, (vi) the absence of a material adverse effect with respect to the Company and (vii) the execution, release and delivery of the Consent and Amendment Agreement and all agreements entered into pursuant thereto. Accordingly, if any of the conditions to completing the Merger are not satisfied or waived in a timely manner, the Merger could be consummated later than we believe it will occur or, if the conditions are not satisfied or waived at all, the Merger may not occur, which could adversely affect the price of our common stock and the results of our operations.
The Merger Agreement contains provisions that restrict our ability to pursue alternatives to the Merger and, in specified circumstances, could require us to pay BP a termination fee.
The Merger Agreement includes a covenant requiring us not to solicit any acquisition proposal, and subject to certain exceptions, not to enter into or participate or engage in any discussions or negotiations with, related to an acquisition proposal or enter into any letter of intent, acquisition agreement or other similar agreement relating to an acquisition proposal. Further, our board of directors will not withhold, withdraw, amend or modify, or publicly propose to do any of the foregoing, its
recommendation in a manner adverse to BP, adopt, approve or recommend to our stockholders an acquisition proposal, fail to reaffirm its recommendation within ten business days following BP’s written request, fail to recommend against acceptance of a tender or exchange offer for shares of our common stock within ten business days after the commencement thereof, nor fail to include its recommendation in the Proxy Statement. Notwithstanding these restrictions, at any time prior to obtaining the Company Stockholder Approval, if we have received a written, bona fide, unsolicited acquisition proposal from any third party (or a group of third parties) that our board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, constitutes or could reasonably be expected to lead to a superior proposal, and the failure to take the following actions would reasonably be expected to be inconsistent with its duties under applicable law, then we, directly or indirectly through certain specified representatives, may, subject to certain conditions, engage in discussions with such third party and furnish to such third party non-public information relating to us or any of our Subsidiaries pursuant to an acceptable confidentiality agreement. Further, at any time prior to obtaining the Company Stockholder Approval, in respect to a superior proposal we received after the date of the Merger Agreement on an unsolicited basis, if our board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be reasonably expected to be inconsistent with its duties under applicable law, our board of directors may, subject to compliance with certain conditions, (i) make an Adverse Recommendation Change (as defined in the Merger Agreement) or (ii) cause us to terminate the Merger Agreement in compliance with the terms of the Merger Agreement in order to enter into a binding written definitive agreement providing for such superior proposal. The Merger Agreement contains certain termination rights for each of us and BP. Upon termination of the Merger Agreement in accordance with its terms, under certain specified circumstances, we will be required to pay BP a termination fee in an amount equal to $51.9 million, including if the Merger Agreement is terminated due to the Company accepting an unsolicited superior proposal or due to the Board changing its recommendation to the Company’s stockholders to vote to approve the Merger Agreement.
While the Merger is pending, we are subject to customary contractual restrictions which could adversely affect our business.
We have agreed to customary covenants regarding the operation of our business and the business of our subsidiaries prior to the Effective Time. The Merger Agreement restricts us from entering into certain corporate transactions, entering into certain material contracts, making certain changes to our capital budget, incurring certain indebtedness and taking other specified actions without the consent of BP, and generally requires us to continue our operations in the ordinary course of business during the pendency of the Merger. These restrictions may prevent us from pursuing attractive business opportunities or adjusting our capital plan prior to the completion of the Merger.
We have and continue to incur substantial transaction-related costs in connection with the Merger. If the Merger does not occur, we will not benefit from these costs.
We may incur a number of non-recurring costs associated with the completion of the Merger, which could be substantial. Nonrecurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors. If the Merger does not occur in a timely manner or at all, we will not benefit from these costs.
Risks Related to Our Business
We could be adversely impacted by the effects of inflation, rising and sustained high interest rates, supply chain conditions, capital market volatility and an economic recession or downturn.
The global economy is experiencing historically high rates of inflation and market and economic volatility, resulting from a number of factors, including rising interest rates, the war between Russia and Ukraine and supply chain constraints. These conditions have increased our costs for fuel, labor, materials, food, utilities and other goods and services. We may not be able to successfully pass these cost increases to our customers and those cost increases we do pass through may result in declines in transactions at our travel centers and other declines in demand for our service offerings or a reduction in their growth. In addition, the current market conditions have caused volatility in the capital markets, which may increase our cost of capital or prevent us from raising capital if we desire or need to do so and may have adverse impacts on our customers’ businesses and ability and willingness to pay for our services. Further, there are market concerns that the United States economy may be in or soon enter a recession. Economic recessions typically result in a reduction in transporting of goods and trucking activity, which could negatively impact our business, financial condition and results of operations in the future if they continue or worsen.
Our net operating margin is low.
Our net operating margin is low. Fuel sales comprise the majority of our revenues and generate low gross margin percentages. A small percentage decline in our future revenues or increase in our future costs, especially revenues and costs related to fuel, may cause our profits to decline or us to incur losses. Fuel pricing is volatile and we may not succeed in increasing or maintaining our fuel cents per gallon margin. In addition, inflation and other conditions may increase our nonfuel costs and we may not be able to pass those cost increases to customers timely or at all. Further, shifts in customer demand for our products and services and related shifts in sales mix could cause our operating margins to narrow and us to incur losses.
Increasing motor vehicle engine fuel efficiency, fuel conservation practices and adoption of alternative fuels or energy sources may adversely impact our business.
An important part of our business is the sale of motor fuel. Truck and other vehicle manufacturers and our customers continue to focus on ways to improve motor vehicle fuel efficiency and conserve fuel, including aerodynamic drag reduction, vehicle monitoring and fuel additives. In addition, advances in alternative fuel technologies and energy sources, such as electric motor technologies that propel a vehicle without an engine, results in lack of demand for diesel fuel. Other technologies becoming commercially available include hybrid electric-diesel/gasoline engines and hydrogen powered vehicles, which may lead to greater adoption by the trucking industry and other motorists. Government regulation may further encourage or require the improved fuel efficiency of motor vehicle engines, other fuel conservation practices and alternative fuels or energy sources. If our customers purchase less motor fuel because their trucks or other vehicles operate more fuel efficiently or use alternative fuels or energy sources, our financial results may decline and we may incur losses unless we are able to offset the declines by providing alternative fuels and other products or services, gaining market share, increasing our gross margins per gallon of fuel sold or reducing our operating costs. It is unclear whether we will be able to operate our travel centers profitably if the amount of motor fuels used by the U.S. trucking industry or other motorists declines materially.
Another significant part of our business is the sale of nonfuel products and services to drivers who visit our locations, often in connection with purchasing fuel. If customers require fewer stops to refuel due to the technological innovations described above or driverless motor vehicle technologies result in fewer individual drivers on the U.S. interstate highways, our customer traffic and sales of nonfuel products may decline. Such reductions may materially and adversely affect our sales and our business.
Fuel price increases and fuel price volatility could negatively affect our business.
Fuel prices have historically been volatile. Fuel prices are subject to the worldwide petroleum products supply chain, which historically has experienced price and supply volatility as a result of, among other things, severe weather, terrorism, political crises, military actions and variations in demand and perceived and/or real impacts on supply that are often the result of changes in the macroeconomic environment. Further, market responses to those factors have at times also exacerbated fuel price volatility. Increasing fuel prices and fuel price volatility have several adverse impacts upon our business. First, high fuel prices result in higher truck shipping costs. This causes shippers to consider alternative means for transporting freight, which reduces trucking business and, in turn, reduces our business. Second, high fuel prices cause our trucking customers to seek cost savings throughout their businesses. This has resulted in many of our customers implementing measures to conserve fuel, including purchasing trucks that have more fuel efficient engines, employing alternative fuel or other technologies, lowering maximum driving speeds and employing other practices to conserve fuel, such as truck platooning and reduced truck engine idling, which measures reduce total fuel consumption and in turn reduce our fuel sales volume. Third, higher fuel prices may result in less disposable income for our customers to purchase our nonfuel products and services. Fourth, higher fuel commodity prices increase the working capital needed to maintain our fuel inventory and receivables, which increases our costs of doing business. Further, increases in fuel commodity prices may place us at a cost disadvantage to our competitors that may have larger fuel inventory or are able to realize greater fuel volume purchasing discounts or execute forward contracts during periods of lower fuel prices. If fuel commodity prices increase, our business and financial results may be negatively impacted.
An interruption in our fuel supplies would materially adversely affect our business.
We generally maintain limited fuel inventory. Accordingly, an interruption in our fuel supplies would adversely affect our business. Interruptions in fuel supplies may be caused by local conditions, such as a malfunction in a particular pipeline or terminal, by weather related events, such as hurricanes in the areas where petroleum or natural gas is extracted or refined, by national or international conditions, such as government rationing, strategic decisions by major oil producing nations and cartels, acts of terrorism or wars, such as the war between Russia and Ukraine and the subsequent trade restrictions on Russian oil, or by cybersecurity attacks, such as the ransomware attack on the Colonial Pipeline in 2021. Further, there have been reports of reduced investment in oil exploration and production as a result of concerns about decreased demand for oil in response to market and governmental factors, including increased demand for alternative energy sources in response to global
climate change. Our fuel suppliers may fail to provide us with fuel due to these or other reasons. Any limitation in available fuel supplies or on the fuel we can offer for sale may cause our profits to decline or us to experience losses.
Limited competition among third party fuel card companies could adversely affect our business.
Limited competition in the fuel card industry and the increasing dependence of trucking companies on their fuel card providers could adversely affect our business. Most of our trucking customers use fuel cards issued by third party fuel card companies to purchase fuel from us. The fuel card industry has only two significant participants, Comdata and WEX, and we cannot easily substitute an alternative fuel card for trucking companies to use to acquire fuel at our locations. We believe almost all trucking companies use only a single fuel card provider with which they have a direct negotiated contractual relationship and trucking companies have become increasingly dependent upon the data, reports and other services provided by their respective fuel card provider to manage their fleets and simplify their data processing. Any effort to convince trucking companies to use an alternative card including TA's new private label card (which is underwritten and managed by WEX) at our locations requires significant time, expense and coordination with the provider of that alternative card, and may not be successful. Our agreements with Comdata and WEX may be terminated in certain circumstances and we may not be able to renew our agreements or enter into new agreements with them. Further, any renewal or new agreement we may enter with either of them may be on terms that are materially less favorable to us than our current agreements with them. If we are required to pay increased fees to Comdata or WEX under any renewed or new agreement we may enter with them, we may not be able to recover the increased expense through higher prices to customers, and our business, financial condition and results of operations may be materially adversely affected.
Our financial results are affected by U.S. trucking industry economic conditions.
The trucking industry is the primary customer for our products and services. Demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S. economy, and can decline for a number of reasons, including inflation, increasing or sustained high interest rates, economic recession, downturns in business cycles of our customers and other economic factors beyond our control. When the U.S. economy declines, demand for goods moved by trucks usually declines, and in turn demand for our products and services typically declines, which could significantly harm our results of operations and financial condition.
The industries in which we operate are highly competitive.
We believe that large trucking fleets and long haul trucking fleets tend to purchase the majority of their fuel from us or our largest competitors at travel centers and truck stops that are located at or near interstate highway exits. Based on the number of locations, Pilot and Love’s are our largest competitors. They may have greater financial and other resources than we do, which may facilitate their ability to compete more effectively. Additionally, certain of our competitors have a more vertically integrated fuel purchasing and distribution system than we do, which could also facilitate their ability to compete more effectively. Increased competition between the major competitors in the travel center and truck stop business could result in a reduction of our gross margins or an increase in our expenses or capital improvement costs, which could negatively affect our profitability and our liquidity. We believe that, in recent years, both Pilot and Love’s, added more travel centers to their networks than we added to our network, and in some cases, competition from their new sites may have negatively impacted our unit results.
Further, the truck repair and maintenance service industry is highly competitive. Such services can be obtained by trucking companies and truck drivers from a variety of sources, including national and regional truck repair and maintenance facilities and roadside assistance fleets, full service travel centers, truck stop chains, fleet maintenance terminals, independent garages, truck and commercial tire dealerships, truck quick lube facilities and other parts and service centers. In addition, some trucking companies operate their own terminals to provide repair and maintenance services to their own trucking fleets and drivers. Pilot and Love’s have increased their respective numbers of truck repair and maintenance facilities and their roadside assistance fleets over the past several years and, should this trend continue, our competitive position could be weakened. Some of our competitors in the truck repair and maintenance service business may have more resources or lower costs than we do and may have vertically integrated businesses, which may provide them competitive advantages. We also compete for qualified personnel. For instance, the entire truck repair and maintenance service industry faces challenges related to recruiting and training technicians, which amplifies these competitive pressures and has impacted our ability to grow.
We also face competition from restaurants in the quick service and casual dining segments of the restaurant industry. These segments are highly competitive and fragmented. Our competition includes a variety of locally owned restaurants and national and regional chains offering dine-in, carry-out, delivery and catering services. Many of our competitors have existed longer than we have and have a more established market presence with substantially greater financial, marketing, personnel and other
resources than we do. Among our competitors are a number of multi-unit, multi-market, fast casual restaurant concepts, some of which are expanding nationally. These competitors may have, among other things, more attractive national brands, lower operating costs, better locations, facilities or management, more effective marketing and more efficient operations. Our inability to compete effectively could reduce customer traffic and sales at our locations and may prevent us from sustaining or increasing our revenue or improving our profitability.
We are dependent upon certain customers for a significant portion of our truck service revenue, and the loss of, or significant reduction in services to, these customers would adversely affect our results of operations.
In truck service, we have concentrations of revenue with certain large customers, although no single customer represents more than 10% of our consolidated total revenues. We expect customer concentrations in truck services to continue for the foreseeable future. The loss of large customers or a significant reduction in sales to them could adversely affect our business, financial condition and results of operations.
Government and market actions in response to concerns about climate change may decrease demand for diesel fuel and require us to make significant changes to our business and to make significant capital or other expenditures.
Governmental actions, including legislation, regulations, treaties and commitments, such as those seeking to reduce greenhouse gas emissions, and market actions in response to concerns about climate change may decrease the demand for our major product, diesel fuel, and may require us to make significant capital or other expenditures related to alternative energy distribution or other changing fuel conservation practices. Federal and state governments require manufacturers to limit emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency’s, or the EPA’s, gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor fuel. Further, legislative and regulatory initiatives requiring increased truck fuel efficiency have accelerated in the United States and these mandates have and may continue to result in decreased demand for diesel fuel. For example, in April 2022, the National Highway Traffic Safety Administration announced more stringent fuel efficiency standards for passenger cars and light duty trucks and has indicated its intent to develop new fuel efficiency standards for medium and heavy duty trucks. In addition, the California Air Resources Board and other similar state government agencies routinely consider rulemaking activity the purpose of which is to improve fuel efficiency and limit pollution from vehicles. Moreover, market concerns regarding climate change may result in decreased demand for fossil fuels and increased adoption of higher efficiency fuel technologies and alternative energy sources. Regulations that limit, or market demands to reduce, carbon emissions may cause our costs at our locations to significantly increase, make some of our locations obsolete or competitively disadvantaged, or require us to make material investments in our properties. For example, we have installed electric charging capacity at one of our travel centers and expect to install them at additional travel centers and we are also preparing to offer hydrogen dispensing as another alternative fuel offering at certain of our travel centers.
Our storage and dispensing of petroleum products, waste and other hazardous substances create the potential for environmental damage, and compliance with environmental laws is often expensive.
Our business is subject to laws relating to the protection of the environment. The locations we operate include fueling areas, truck repair and maintenance facilities and tanks for the storage and dispensing of petroleum products, waste and other hazardous substances, all of which create the potential for environmental damage. Environmental laws expose us to the possibility that we may become liable to reimburse third parties for damages and costs they incur in connection with environmental hazards or become liable for fines and penalties for failure to comply with environmental laws. We cannot predict what environmental legislation or regulations may be enacted or how existing laws or regulations will be administered or interpreted with respect to our products or activities in the future; more stringent laws, more vigorous enforcement policies or stricter interpretation of existing laws in the future could cause us to expend significant amounts or experience losses.
Under the leases between us and SVC, we generally have agreed to indemnify SVC from environmental liabilities it may incur arising at any of the properties we lease from SVC. Although we maintain insurance policies that cover our environmental liabilities, that coverage may not adequately cover liabilities we may incur. To the extent we incur material amounts for environmental matters for which we do not receive insurance or other third party reimbursement or for which we have not recognized a liability in prior years, 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. Also, to the extent we are or become obligated to fund any such liabilities, such funding obligation could materially adversely affect our liquidity and financial position.
We have a substantial amount of combined indebtedness and rent obligations, which could adversely affect our financial condition.
Our indebtedness and rent obligations are substantial. The terms of our SVC Leases require us to pay all of our operating costs and generally fixed amounts of rent. During periods of business decline, our revenues and gross margins may decrease but our minimum rents due to SVC and the interest payable on our fixed rate debt will not nor may certain of our other fixed costs be easily or practically reduced. A decline in our revenues or an increase in our expenses may make it difficult or impossible for us to make payments of interest and principal on our debt or meet our rent obligations and could limit our ability to obtain financing for working capital, capital expenditures, acquisitions, refinancing, lease obligations or other purposes. Our substantial indebtedness and rent obligations may also increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business operations or to our industry overall, and place us at a disadvantage in relation to competitors that have lower relative debt levels. If we default under our SVC Leases, we may be unable to continue our business. Any or all of the above events and factors could have an adverse effect on our results of operations and financial condition.
We rely upon trade creditors for a significant amount of our working capital and the availability of alternative sources of financing may be limited.
Our fuel purchases are our largest operating cost. Historically, we have paid for our fuel purchases after delivery. In the past, as our fuel costs increased with the increase in commodity market prices, some of our fuel suppliers were unwilling to adjust the amounts of our available trade credit to accommodate the increased costs of the fuel volume that we purchased. Also, our historical financial results and general U.S. economic conditions may cause some fuel suppliers to request letters of credit or other forms of security for our purchases. We cannot predict how high or low fuel prices may be in the future, or to what extent our trade creditors will be willing to adjust the amounts of our available trade credit to accommodate increased fuel costs. Fuel commodity prices significantly impact our working capital requirements, and the unavailability of sufficient amounts of trade credit or alternative sources of financing to meet our working capital requirements could materially adversely affect our business.
Our business may be adversely impacted by a material increase in interest rates, including changes resulting from the future phase out of LIBOR, and adverse changes in fiscal policy or credit market conditions.
In an effort to combat rising inflation, the U.S. Federal Reserve raised the federal funds rates multiple times since the beginning of 2022 and may continue to increase rates in 2023. Increases in the federal funds rate cause interest rates and borrowing costs to rise. Material increases in interest rates or market reactions to these increases, or anticipated increases, may have a material adverse effect on our business. In addition, LIBOR was recently phased out for new contracts and will be replaced for pre-existing contracts by June 30, 2023. The interest rate on our Credit Facility and our $200,000 Term Loan Facility, or Term Loan Facility is based on LIBOR. We currently expect that the determination of interest under certain of our credit agreements would be based on the alternative rates provided under those credit agreements or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be certain that, when LIBOR is transitioned, the changes to the determination of interest under our credit agreements would approximate the current calculation in accordance with LIBOR. An alternative interest rate index that may replace LIBOR may result in our paying increased interest.
Our credit agreements impose restrictive covenants on us, and a default under the agreements relating to those credit agreements or under our indenture governing our Senior Notes could have a material adverse effect on our business and financial condition.
Our Credit Facility and Term Loan Facility agreements require us and our subsidiaries, among other obligations, to maintain specified financial ratios under certain circumstances and to satisfy certain financial tests. In addition, our Credit Facility and Term Loan Facility agreements restrict, under certain circumstances, among other things, our ability to incur debt and liens, make certain investments and pay dividends and other distributions including, under certain circumstances, payments on our 2028 Senior Notes, our 2029 Senior Notes and our 2030 Senior Notes, which we refer to collectively as our Senior Notes. Under certain circumstances, we are required to seek permission from the lenders under our Credit Facility and Term Loan Facility agreements to engage in specified corporate actions.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with these covenants, or similar covenants contained in future financing agreements, could result in a default under our Credit Facility and Term Loan Facility agreements, indenture and other agreements containing cross default provisions, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. A default could permit lenders or holders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt and to terminate any commitments to lend. Under these circumstances, we might
not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the Senior Notes. In addition, a default under our Credit Facility and Term Loan Facility agreements or indenture would also constitute a default under the SVC Leases due to cross default provisions in the SVC Leases. Further, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. If our indebtedness were to be accelerated, our assets may not be sufficient to repay such indebtedness in full. In such circumstances, we could be forced into bankruptcy or liquidation and, as a result, investors could lose their investment in our securities.
Our use of joint ventures may limit our flexibility with jointly owned investments.
We are party to certain joint ventures with unrelated third parties and we may in the future acquire, develop or recapitalize properties in joint ventures or enter into other types of joint ventures, with other persons or entities. In addition, we may choose to exit any joint venture arrangement we are party to. Our participation in these joint ventures is subject to risks, including the following:
•we share approval rights over major decisions affecting the ownership or operation of the joint venture;
•we may be required to contribute additional capital if the joint ventures needs additional capital or if other parties to the joint ventures fail to fund their share of any required capital contributions;
•other parties to our joint ventures may have economic or other business interests or goals that are inconsistent with our business interests or goals;
•other parties to our joint ventures may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest;
•our ability to sell the interest on advantageous terms when we so desire may be limited or restricted under the terms of the applicable joint venture agreements; and
•disagreements with other parties to our joint ventures could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.
Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of information technology could harm our business.
We rely on IT systems, including the internet and cloud-based infrastructures, to process, transmit and store electronic information. We purchase some of the IT systems we use from vendors on whom our IT systems materially depend and we may also internally develop some of our IT systems. We rely on commercially available and proprietary IT systems, software, tools and monitoring to maintain and enhance the operational functioning of our IT systems and to provide security for processing, transmission and storage of confidential customer information, such as payment card and credit information.
In addition, the IT systems we use for transmission and approval of payment card transactions, and the technology utilized in payment cards themselves, may put payment card data at risk, and some of these IT systems are determined and controlled by the payment card suppliers, who may be prone to cyber attacks, data breaches and payment frauds, and not by us. Although we take various actions to protect and maintain the operational functioning and security of the IT systems we use and the data processed and maintained in them, it is possible that we could have a failure, disruption and loss of data and our operational and security measures will not prevent the improper functioning of or damage to the IT systems we use, or the improper access to such IT systems or disclosure of personally identifiable or confidential information, such as in the event of a cyberattack. Security breaches, including physical or electronic break ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Flexible working arrangements at our corporate offices, including remote working increased as a result of the COVID-19 pandemic and those arrangements are largely continuing. This and other possible changing work practices have adversely impacted, and may in the future adversely impact, our ability to maintain the security, proper function and availability of our information technology and systems since remote working by our employees could strain our technology resources and introduce operational risk, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that have sought, and may seek, to exploit remote working environments.
Any compromise or breach of our or our provider’s IT systems could cause material interruptions in our operations, damage our reputation, require significant expenditures to determine the severity and scope of the breach and to remedy it, subject us to material liability claims, material claims of banks and payment card companies or regulatory penalties, reduce our customers’ willingness to conduct business with us and could have a material adverse effect on our business, financial condition and results of operations. Moreover, banks and payment card companies continue to adopt new technologies to mitigate the risk of cyberattacks, data breaches and fraud and, if we do not adopt these new technologies by the deadlines set by the banks and payment card companies, those companies may not pay us for fraudulent transactions occurring at our locations with those companies’ cards or may otherwise penalize us.
We may incur significant costs to comply with data privacy and security laws and regulations.
We are subject to data protection laws and regulations, including state security breach notification laws, and federal and state consumer protection laws, such as the California Consumer Privacy Act, which govern the collection, use, disclosure and protection of personal information. Compliance with such laws may require us to incur significant costs, and the failure to comply with such laws could result in legal or reputational risk, as well as significant penalties and sanctions.
A significant amount of our sales are by credit or debit cards. We may experience security breaches in which personal information that we process or maintain, which may include credit and debit card information, is stolen or exposed, and our business operations may be impacted if our systems are not able to process such information due to a cyberattack, ransomware or other system failure. We may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft or unauthorized disclosure of such information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. Any such claim or proceeding could cause us to incur significant expenses and liabilities, which could have a material adverse effect on our business, financial condition and results of operations. Further, adverse publicity resulting from these allegations may have a material adverse effect on our business, financial condition and results of operations.
Many of our labor costs cannot be easily reduced without adversely affecting our business.
To maintain and manage our operations requires certain minimum staffing levels to operate our travel centers 24 hours per day, 365 days per year, and we attempt to manage our staffing to avoid excess, unused capacity. As a result, it may be difficult for us to affect future reductions in our staff without adversely affecting our business prospects. Further, inflationary pressures as well as passage of federal and state legislation, such as minimum wage increases and health insurance requirements, have increased our labor costs and we expect they may continue to do so and may further increase if, for example, legislation is enacted that further increases the minimum wage and health insurance requirements or other costs of our business. Certain aspects of our business require higher skilled personnel, such as truck service technicians. Hiring, training and maintaining higher skilled personnel can be costly, especially if turnover is high. Further, as we grow our business, particularly the aspects of our business that require higher skilled personnel, or significant market changes occur, such as those that arose during the COVID-19 pandemic and which have continued, we have experienced difficulty with staffing those positions with qualified personnel and we may continue to do so. These staffing challenges have resulted in increased costs to attract and attempt to retain staff, particularly highly skilled personnel, and we expect these staffing and cost pressures to continue for at least the near term. Also, certain opportunities for sales may be lost if staffing levels are reduced too much or if we are unable to maintain a sufficient number of highly skilled employees. If this growth is stalled, takes longer to achieve or is not realized, our operating results and cash flows will be adversely impacted. In addition, costs for health care and other benefits, due to regulation, market factors or otherwise, may further increase our labor costs.
Supply chain challenges and changes in U.S. trade policies could reduce the volume of imported goods into the United States and other movement of goods in the United States, which may materially reduce truck freight volume in the United States and our sales.
The global economy, including the U.S. economy, has experienced supply chain challenges that arose during the COVID-19 pandemic and have continued to various degrees, which has, at times, negatively impacted the flow of goods in the United States. The federal government has from time to time taken certain actions that impacted U.S. trade, including entering into trade agreements imposing tariffs on certain goods imported into the United States and imposing, or threatening to impose, punitive trade measures on other nations. For instance, in response to Russia’s invasion of Ukraine, global economic sanctions have been imposed on Russia by the U.S. and the European Union, among others. The war between Russia and Ukraine, and the escalating geopolitical tensions resulting from such conflict, have resulted and may continue to result in sanctions, tariffs, and import-export restriction which, when combined with any retaliatory actions that have been and may be taken by Russia, could cause further inflationary pressures and economic supply chain disruptions. Changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in “trade wars,” in increased costs for goods imported into the United States,
which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States.
Further, market reactions to concerns about supply chain challenges and dependability and geopolitical tensions could result in an increase of onshoring manufacturing and production to locations closer to where the products are consumed. If these consequences are realized, the volume of economic activity in the United States, including trucking freight volume and demand for our nonfuel products, may be materially reduced. Such a reduction may materially and adversely affect our sales and our business. Further, the realization of these matters may increase our cost of goods and, if those costs cannot be passed on to our customers without adversely affecting demand, our business and profits may be materially and adversely affected.
The trucking industry may fail to satisfy market demands for transporting goods or market participants may choose other means to transport goods.
The trucking industry has been experiencing a shortage of qualified truck drivers and trucks. Further, increased regulations on the activities of truck drivers and trucking companies, including increased monitoring and enforcement of the number of hours truck drivers may operate a truck each day, and other matters have limited the ability of trucking companies to satisfy market demands for transporting goods. In addition, other means of transporting goods besides by truck are available, and new means of transportation may be developed. For example, there have been general news reports of other means of transportation being increasingly explored, such as light rail, airplanes and drones. If the trucking industry is 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.
Insurance may not adequately cover our losses.
We maintain insurance coverage for our properties, including for casualty, liability, fire, extended coverage and business interruption loss insurance. We are responsible for obtaining and paying for insurance for the travel center properties that we lease from SVC in accordance with the terms of our SVC Leases. We also require our franchisees to maintain insurance. Insurance costs can be volatile and increases in these costs could have an adverse effect on us. Losses of a catastrophic nature, such as those caused by hurricanes, flooding and earthquakes, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a franchisee may not be able to pay. Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including lost revenues or other costs. Similarly, our other insurance, including our general liability insurance, may not provide adequate insurance to cover our losses. Further, we cannot be certain that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and, in the future, we may discontinue certain insurance coverage on some or all of our properties that we own or are otherwise not obligated to maintain pursuant to agreements with third parties, if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the loss. If an uninsured loss or a loss in excess of insured limits occurs, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property. We might also remain obligated for any financial obligations related to the property, even if the property is irreparably damaged. In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations or liquidity.
Privatization of toll roads or of rest areas may negatively affect our business.
Some states have privatized or are considering privatizing their publicly owned highway rest areas. If publicly owned rest areas along highways are privatized and converted to travel centers in the proximity of some of our locations, our business at those locations may decline and we may experience losses. Similarly, some states have privatized their toll roads that are part of the interstate highway system. We believe it is likely that tolls will increase on privatized highways. In addition, some states may increase tolls for their own account. If tolls are introduced or increased on highways in the proximity of our locations, our business at those travel centers may decline because truck drivers and motorists may seek alternative routes.
Unfavorable publicity could negatively affect our results of operations as well as our future business.
We operate our travel centers and standalone restaurants under a small number of brand names. We sell gasoline under brands we do not own at most of our locations, many of our locations have QSRs that operate under brands we do not own and some locations have FSRs that operate under brands we do not own. In addition, we resell numerous other products we obtain from third parties. If we or the companies or brands associated with our products and offerings become associated with negative publicity, including as a result of customer or employee complaints, our customers may avoid purchasing our products and
offerings at our locations because of our association with the particular company or brand. The use of social media by our customers, employees or other individuals to make negative statements about our products, offerings, service, brands or other matters associated with us could quickly damage our reputation and negatively impact our revenues, and we may not be able to quickly and effectively address or counter the negative publicity. As noted elsewhere in this Annual Report, the control we may exercise over our franchisees is limited. Negative publicity or reputational damage relating to any of our franchisees may be imputed to our entire company and business. If we were to experience these or other instances of negative publicity or reputational damage, our sales and results of operations may be harmed.
Food safety and foodborne illness concerns could have an adverse effect on our business.
We cannot guarantee that our controls and training will be fully effective in preventing all food safety issues at our QSRs, FSRs or our standalone restaurants, including any occurrences of foodborne illnesses. Some foodborne illness incidents could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations. One or more instances of foodborne illness in any of our QSRs, FSRs or our standalone restaurants or related to food products we offer could negatively affect our sales and results of operations if it involves serious illness or is highly publicized. This risk exists even if it were later determined that the illness was wrongly attributed to us. The occurrence of an incident at one or more of our locations, or negative publicity or public speculation about an incident, could have a material adverse effect on our business, financial condition and results of operations.
Our business and operations are subject to risks from adverse weather and climate events.
Severe weather events have in the past caused significant damage to certain sites we operate and severe weather in the future may have similar or worse adverse effects on our and our franchisees’ and the U.S. trucking industry. When severe weather events, such as hurricanes, floods and wildfires, occur near our travel centers, we or our franchisees may need to suspend operations of any impacted travel centers until the event has ended, repairs are made and the impacted travel centers are ready for operation. In addition, severe weather across a geographic region may cause a material decrease in the movement of trucks and other motor vehicles and, as a result, in our business. We or franchisees of our travel centers may in the future incur significant costs and losses as a result of severe weather, both in terms of operating, preparing and repairing our travel centers in anticipation of, during and after a severe weather event and in terms of lost business due to the interruption in operating our travel centers or decreased truck movements. Our insurance and our franchisees’ insurance may not adequately compensate us or them for these costs and losses. Concerns about climate change and increasing storm intensities may increase the cost of insurance for our travel centers or practically render it unavailable to obtain.
Third party expectations relating to ESG factors may impose additional costs and expose us to new risks.
There is an increasing focus from investors, customers, employees and other stakeholders and regulators concerning corporate sustainability. Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with us, if they believe our or their policies relating to corporate responsibility are inadequate. Third party providers of corporate sustainability ratings and reports on companies have increased in number, resulting in varied and in some cases inconsistent standards. In addition, the criteria by which companies’ corporate sustainability practices are assessed are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we elect not to or are unable to satisfy such new criteria or do not meet the criteria of a specific third party provider, some investors may conclude that our policies with respect to corporate sustainability are inadequate. We may face reputational damage in the event that our corporate sustainability procedures or standards do not meet the goals that we have set or the standards set by various constituencies. If we fail to satisfy the expectations of investors and our customers, employees and other stakeholders or any goals or other initiatives we announce are not executed as planned, our reputation and financial results could be adversely affected and our revenues, results of operations and ability to grow our business may be negatively impacted.
Labor disputes or other events may arise that restrict, reduce or otherwise negatively impact the movement of goods by trucks in the United States.
A meaningful aspect of the U.S. trucking industry involves the movement of goods across the United States. Events that restrict, reduce or otherwise negatively impact the movement of those goods may adversely impact the trucking industry. In recent years, there were extended labor disputes at U.S. West Coast ports that slowed the loading and unloading of goods at those ports. A large percentage of the goods that are loaded and unloaded at those ports are transported to and from those ports by trucking companies, including some who are our customers. Future labor disputes could disrupt the transportation of goods
across the United States and remain unresolved for a prolonged period. Such a disruption may adversely affect our business and our ability to operate profitable travel centers.
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 December 31, 2017 will be limited to 80% of taxable income for tax years beginning after December 31, 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 certain that these restrictions will be effective. Please see below 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.”
Risks Related to Our Growth Strategies
We are in the process of executing new and expanded business strategies; we may fail to successfully execute these strategies and these strategies may prove to be unprofitable.
Our success depends on our ability to grow our business and adapt our business model to changing market conditions. We are executing new and expanded business strategies. We launched a new smaller travel center format branded as TA Express, and, as of December 31, 2022, we have converted and opened 29 travel centers under this brand name, and we plan to expand our travel center business, including the TA Express brand, through franchising, development and acquisition opportunities. We also continue to grow our truck service business, particularly within our TA Truck Service® Emergency Roadside Assistance, TA Truck Service® Mobile Maintenance and TA Commercial Tire Dealer Network™ programs. In addition, as of December 31, 2022, we had entered into franchise agreements covering 68 travel centers under our travel center brand names. In addition, in 2021 we formed a new division, eTA, to develop and market alternative energy and sustainable resources. Also, during 2021, we announced our desire to acquire existing travel centers to expand our network of travel centers and have subsequently acquired seven travel centers. These new and expanded business strategies will take time to execute and require additional investment and may be delayed or cost more than initially expected due to market or other conditions, including the current labor shortages, inflation, increasing or sustained high interest rates, supply chain challenges and public health safety concerns, such as the COVID-19 pandemic, which have had such effects; as a result, we were required to delay or modify certain of our initiatives during the COVID-19 pandemic and may need to delay or modify initiatives in the future in response to current or then market or other conditions. While we believe the pursuit of these business strategies will have a positive effect on our business in the long term, we cannot be certain that they will.
Our growth strategies and our locations require regular and substantial capital investment.
Our travel centers are open for business 24 hours per day, 365 days per year. Due to the nature and intensity of the uses of our locations, they require regular and substantial expenditures for maintenance and capital investments to remain functional and attractive to customers. Although we may request that SVC purchase future renovations, improvements and equipment at the properties that we lease from SVC, SVC is not obligated to purchase any amounts and such purchases only relate to improvements to facilities we lease from SVC and not to facilities that we own or lease from others or to general business improvements, such as improvements to our IT systems.
In the near-term, we believe we have sufficient cash and borrowing capacity to fund our planned capital investments. In the future however, we may be unable to obtain capital to fund our capital investments. If we are unable to raise capital at costs that are less than our returns on that capital, our businesses and profits may decline and our growth strategies may fail. Further, if we defer or forgo maintenance expenditures, our properties’ competitiveness would likely be harmed and we may need to make larger capital expenditures in the future. In addition, due to supply chain and labor availability concerns, we had been delayed in completing certain capital projects and these conditions could result in delays in the future, increased costs or a reduction in our capital projects.
Acquisitions may be more difficult, costly or time consuming than expected and the anticipated benefits of our growth strategies or any particular transaction may not be fully realized.
Businesses and properties that we acquire often require substantial improvements to be brought up to our standards or to achieve our expected financial results. For example, improvements to our acquired travel centers are often extensive and require an extended period of time to plan, design, permit and complete, which is then followed by another period of time for the acquired travel center to become part of our customers’ supply networks. Despite our efforts, the actual results of acquired properties may not improve under our management and may vary greatly from the results we expected when we made the acquisitions. These variances may occur due to many factors, including competition, the cost of improvements exceeding our estimates and our realization of less synergies and less cost savings than expected. Some of these factors are outside our control. If improvements are more difficult, costly or time consuming than expected or if reaching maturity takes longer than expected or does not occur at all, our business, financial condition or results of operations could be negatively affected.
The success of our growth strategies, and any particular acquisition, including the realization of anticipated benefits, synergies and cost savings, will depend, in part, on our ability to successfully combine acquired businesses with ours. Integration of acquired businesses may be more difficult, costly or time consuming than expected, may result in the loss of key employees or business disruption to us, or may adversely affect our ability to maintain relationships with customers, suppliers and employees or to fully achieve the anticipated benefits of the growth strategy or acquisition. If we experience difficulties, the anticipated benefits of a growth strategy or particular transaction may not be realized fully or at all, or may take longer to realize than expected.
We may not complete our development projects within the time frame or for the investment we anticipate, or at all, and the anticipated benefits of the new facilities may not be fully realized.
Developing a new location generally may pose greater risk than buying an existing operating location. Any development projects we plan could be delayed or not completed or could require a greater investment of capital or management time, or both, than we expect. Additionally, if we design, plan, permit or construct a project but do not complete it, we may incur substantial costs without realizing any expected benefits. Also, the facilities we construct may not generate the financial returns we anticipate.
Territorial restrictions placed on us by our leases with SVC and our franchise agreements with our franchisees could impair our ability to grow our business.
Under our SVC Leases, without the consent of SVC, we generally cannot own, franchise, finance, operate, lease or manage any travel center or similar property within 75 miles in either direction along the primary interstate on which a travel center owned by SVC is located. Additionally, under our SVC Leases, we have granted SVC a right of first refusal on the properties that are the subject of such leases. Under the terms of our franchise agreements for TA and TA Express travel centers, generally we have agreed not to operate, or allow another person to operate, a travel center or travel center business that uses the TA brand in a specified territory for that TA branded franchise location. Under the terms of our franchise agreements for Petro travel centers, generally we have agreed not to operate, or allow another person to operate, a travel center or travel center business that uses the Petro brand in a specified territory for that Petro branded franchise location. As a result of these restrictions, we may be unable to develop, acquire or franchise a travel center in an area in which an additional travel center may be profitable, thereby losing an opportunity for future growth of our business.
Risks Arising from Certain of Our Relationships and Our Organization and Structure
Our agreements and relationships with SVC, RMR and others related to them may create conflicts of interest, or the perception of such conflicts, and may restrict our ability to grow our business.
We have significant commercial and other relationships with SVC, RMR and others related to them, including:
•we lease a large majority of our travel centers from SVC and our business is substantially dependent upon our relationship with SVC;
•SVC is our second largest stockholder, owning 1.2 million, or approximately 7.8%, of our outstanding shares of common stock as of December 31, 2022;
•RMR provides us with business management services pursuant to a business management agreement and we pay RMR fees for those services based on a percentage of our fuel gross margin and nonfuel revenues. RMR also provides business and property management services to SVC;
•the Chair of our Board of Directors and one of our Managing Directors, Adam D. Portnoy, is the chair of the board of trustees and a managing trustee of SVC, owned approximately 1.1% of SVC’s outstanding common shares as of December 31, 2022, is a managing director and an officer of The RMR Group Inc., is an officer and employee of RMR and is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc. The RMR Group Inc. is the managing member of RMR and RMR is the majority-owned operating subsidiary of The RMR Group Inc.;
•as of December 31, 2022, RMR owned 0.6 million, or approximately 4.1%, of our outstanding shares of common stock;
•our other Managing Director and Chief Executive Officer, Jonathan M. Pertchik, is an Executive Vice President and employee of RMR;
•Peter J. Crage, our Executive Vice President, Chief Financial Officer and Treasurer, and Mark R. Young, our Executive Vice President and General Counsel, are also officers and employees of RMR;
•Adam D. Portnoy and most of our Independent Directors are members of the boards of trustees or boards of directors of other public companies to which RMR or its subsidiaries provide management services; and
•in the event of conflicts between us and RMR, any affiliate of RMR or any publicly owned entity with which RMR has a relationship, including SVC, our business management agreement allows RMR to act on its own behalf and on behalf of SVC or such other entity rather than on our behalf.
In an agreement with SVC entered in 2007 in connection with our spin off from SVC and in our SVC Leases, we granted SVC a right of first refusal to purchase, lease, mortgage or otherwise finance any interest we own in a travel center before we sell, lease, mortgage or otherwise finance that travel center with another party. Under the 2007 agreement, we also granted SVC and other entities to which RMR provides management services a right of first refusal to acquire or finance any real estate of the types in which they invest before we do. Additionally, under the SVC Leases, without the consent of SVC, we generally cannot own, franchise, finance, operate, lease or manage any travel center or similar property within 75 miles in either direction along the primary interstate on which a travel center owned by SVC is located. These rights of first refusal and noncompetition provisions could limit our ability to purchase or finance our properties or properties we may wish to invest in or acquire in the future. Also, under the 2007 agreement we agreed not to take any action that might reasonably be expected to have a material adverse impact on SVC’s ability to qualify as a real estate investment trust, or REIT. For more information regarding our leases and relationship with SVC, see Notes 8 and 13 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report.
These relationships could create, or appear to create, conflicts of interest with respect to matters involving us, SVC, RMR and others related to them. As a result of these relationships, our leases with SVC, management agreement with RMR and other transactions with SVC, RMR and others related to them were not negotiated on an arm’s length basis between unrelated parties, and therefore the terms thereof may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties. In the past, in particular following periods of volatility in the overall market or declines in the market price of a company’s securities, dissident stockholder director nominations, dissident stockholder proposals and stockholder litigation have often been instituted against companies alleging conflicts of interest in business dealings with affiliated and related persons and entities. These activities, if instituted against us, and the existence of conflicts of interest or the perception of conflicts of interest, could result in substantial costs and diversion of our management’s attention and could have a material adverse impact on our reputation, business and the market price of our shares of common stock and other securities.
The large majority of the travel centers that we operate are owned by SVC and our business is substantially dependent on our relationship with SVC. In addition, we have significant commercial arrangements with RMR and we are dependent on those arrangements in operating our business.
Of the 281 travel centers in our network, 179, or 64%, are owned by SVC and, as a result, our business is substantially dependent on our relationship with SVC. We lease these travel centers pursuant to five long term leases with SVC. SVC may terminate our leases in certain circumstances, including if SVC does not receive annual minimum rent on the subject properties or for certain other events of default. The loss of our leases with SVC, or a material change to their terms, could have a material adverse effect on our business, financial condition or results of operations.
Additionally, we are party to a business management agreement with RMR whereby RMR assists us with various aspects of our business. As a result, we are dependent on our arrangements with RMR in operating our business and any adverse
developments at RMR or in those arrangements could have a material adverse effect on our business and our ability to conduct our operations.
Ownership limitations and certain other provisions in our charter, bylaws and certain material agreements may deter, delay or prevent a change in our control or unsolicited acquisition proposals.
Our charter and bylaws contain provisions that prohibit any stockholder from owning more than 5% (in value or in number of shares, whichever is more restrictive) of any class or series of our outstanding shares of capital stock, including our common stock. The ownership limitation in our charter and bylaws helps facilitate our compliance with our contractual obligations with SVC to not take actions that may conflict with SVC’s status as a REIT under the Code and is intended to help us preserve the tax treatment of our tax credit carryforwards, net operating losses and other tax benefits. We also believe these provisions promote good orderly governance. However, these provisions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a stockholder may consider favorable.
Additionally, other provisions contained in our charter and bylaws may also inhibit acquisitions of a significant stake in us and deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a stockholder may consider favorable, including, for example, provisions relating to:
•the division of our Board of Directors into three classes, with the term of one class expiring at each annual meeting of stockholders;
•the authority of our Board of Directors, and not our stockholders, to adopt, amend or repeal our bylaws and to fill vacancies on the Board of Directors;
•limitations on the ability of stockholders to cause a special meeting of stockholders to be held and a prohibition on stockholders acting by written consent unless the consent is a unanimous consent of all our stockholders entitled to vote on the matter;
•required qualifications for an individual to serve as a Director and a requirement that certain of our Directors be “Managing Directors” and other Directors be “Independent Directors,” as defined in the governing documents;
•the power of our Board of Directors, without stockholders’ approval, to authorize and issue additional shares of stock of any class or type on terms that it determines;
•limitations on the ability of our stockholders to propose nominees for election as Directors and propose other business to be considered at a meeting of stockholders;
•a requirement that an individual Director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of stockholders entitled to cast 75% of the votes entitled to be cast in the election of directors;
•a requirement that any matter that is not approved by our Board of Directors receive the affirmative vote of stockholders entitled to cast 75% of the votes entitled to be cast on the matter;
•restrictions on business combinations between us and an interested stockholder that have not first been approved by our Board of Directors (including a majority of Directors not related to the interested stockholder);
•requirements that stockholders comply with regulatory requirements (including Georgia, Illinois, Louisiana, Montana, Nevada, Pennsylvania and West Virginia gaming) affecting us, which could effectively limit stock ownership of us including, in some cases, to 5% of our outstanding shares of common stock; and
•requirements that any person nominated to be a Director comply with any clearance and pre-clearance requirements of state gaming laws applicable to our business.
In addition, the SVC Leases and our business management agreement with RMR each provide that our rights and benefits under those agreements may be terminated in the event that anyone acquires more than 9.8% of our shares of capital stock or we experience some other change in control, as defined in those agreements, without the consent of SVC or RMR, respectively. Also, a change in control under our Credit Agreement or our Term Loan Facility would be deemed to occur if, among other reasons, RMR ceased to provide management services to us, and would constitute an event of default thereunder and under our Credit Facility and the lenders could accelerate the loans under our Credit Facility and our Term Loan Facility. For these reasons, among others, our stockholders may be unable to realize a change in control premium for securities they own of us or otherwise effect a change of our policies or a change of our control.
As changes occur in the marketplace for corporate governance policies, the above provisions may change or be removed, or new ones may be added.
The licenses, permits and related approvals for our operations may restrict ownership of us, or prevent or delay any change in control of us.
We have travel center locations in Georgia, Illinois, Louisiana, Montana, Nevada, Pennsylvania and West Virginia that include gaming operations. As a result, we and our subsidiaries involved in these operations are subject to gaming regulations in those states. Under state gaming regulations, which vary by jurisdiction:
•stockholders whose ownership of our securities exceeds certain thresholds may be required to report their holdings to and to be licensed, found suitable or approved by the relevant state gaming authorities;
•persons seeking to acquire control over us or over the operation of our gaming licenses are subject to prior investigation by and approval from the relevant gaming authorities;
•persons who wish to serve as one of our Directors or officers may be required to be approved, found suitable and in some cases licensed, by the relevant state gaming authorities; and
•the relevant state gaming authorities may limit our involvement with, or ownership of, securities by persons they determine to be unsuitable.
The gaming regulations to which we are subject may discourage or prevent investors from nominating persons to serve as our Directors, from purchasing our securities, from attempting to acquire control of us or otherwise implementing changes that they consider beneficial.
Our rights and the rights of our stockholders to take action against our Directors, officers, SVC and RMR are limited.
Our governing documents limit the liability of our Directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our Directors and officers will not have any liability to us and our stockholders for money damages other than liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our charter also generally requires us, to the fullest extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, our present and former Directors and officers, SVC, RMR, and the respective trustees, directors and officers of SVC and RMR for losses they may incur arising from claims or actions in which any of them may be involved in connection with any act or omission by such person or entity on behalf of or with respect to us, unless, with respect to SVC, RMR, and the respective trustees, directors and officers of SVC and RMR, there has been a final, nonappealable judgment entered by an arbiter determining that such person or entity acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that his, her or its conduct was unlawful. We have entered into individual indemnification agreements with our Directors and officers, which provide similar indemnification obligations with respect to such persons. As a result of these limitations and indemnification obligations, we and our stockholders may have more limited rights against our present and former Directors and officers, SVC, RMR, and the respective trustees, directors and officers of SVC and RMR than might exist with other companies, which could limit stockholder recourse in the event of actions that some stockholders may believe are not in our best interest.
Stockholder litigation against us or our Directors, officers, manager, other agents or employees may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to stockholders asserting claims than in-court litigation.
Our stockholders agree, by virtue of becoming stockholders, that they are bound by our governing documents, including the arbitration provisions of our bylaws and charter, as they may be amended from time to time. Our governing documents provide that certain actions by one or more of our stockholders against us or any of our Directors, officers, manager, other agents or employees, including RMR and its successors, other than any request for a declaratory judgment or similar action regarding the meaning, interpretation or validity of any provision of our governing documents, will be referred to mandatory, binding and final arbitration proceedings if we, or any other party to such dispute, including any of our Directors, officers, manager, other agents or employees, including RMR and its successors, unilaterally so demands. As a result, we and our stockholders would not be able to pursue litigation in state or federal court against us or our Directors, officers, manager, other agents or employees, including RMR and its successors, including, for example, claims alleging violations of federal securities laws or breach of duties, if we or any of our Directors, officers, manager, other agents or employees, including RMR and its
successors, against whom the claim is made unilaterally demands the matter be resolved by arbitration. Instead, our stockholders would be required to pursue such claims through binding and final arbitration.
Our bylaws provide that such arbitration proceedings would be conducted in accordance with the procedures of the Commercial Arbitration Rules of the American Arbitration Association, as modified in our governing documents. These procedures may provide materially more limited rights to our stockholders than litigation in a federal or state court. For example, arbitration in accordance with these procedures does not include the opportunity for a jury trial, document discovery is limited, arbitration hearings generally are not open to the public, there are no witness depositions in advance of arbitration hearings and arbitrators may have different qualifications or experiences than judges. In addition, although our governing documents’ arbitration provisions contemplate that arbitration may be brought in a representative capacity or on behalf of a class of our stockholders, the rules governing such representation or class arbitration may be different from, and less favorable to stockholders than, the rules governing representative or class action litigation in courts. Our governing documents also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any stockholder or such stockholder’s attorneys. The arbitration provisions of our governing documents may discourage our stockholders from bringing, and attorneys from agreeing to represent our stockholders wishing to bring, litigation against us or our Directors, officers, manager, other agents or employees, including RMR and its successors. Our agreements with SVC and RMR have similar arbitration provisions to those in our governing documents.
We believe that the arbitration provisions in our governing documents are enforceable under both state and federal law, including with respect to federal securities laws claims. We are a Maryland corporation and Maryland courts have upheld the enforceability of arbitration bylaws. In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies. However, some academics, legal practitioners and others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims. It is possible that the arbitration provisions of our governing documents may ultimately be determined to be unenforceable.
By agreeing to the arbitration provisions of our governing documents, stockholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our Directors, officers, manager, agents or employees.
Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our Directors, officers, managers, other agents or employees to us or our stockholders; (iii) any action asserting a claim against us or any of our Directors, officers, manager, other agents or employees arising pursuant to Maryland law, our charter or bylaws brought by or on behalf of a stockholder, either on such stockholder’s own behalf, on our behalf or on behalf of any series or class of shares of stock of ours or by our stockholders against us or any of our Directors, officers, manager, other agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of the charter or bylaws or (iv) any action asserting a claim against us or any of our Directors, officers, manager, other agents or employees that is governed by the internal affairs doctrine of the State of Maryland. Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our charter or bylaws. The exclusive forum provision of our bylaws does not apply to any action for which the Circuit Court for Baltimore City, Maryland does not have jurisdiction or to a dispute that has been referred to binding arbitration in accordance with our bylaws. The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act of 1933, as amended, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts. Any person or entity purchasing or otherwise acquiring or holding any interest in our common shares shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. The arbitration and exclusive forum provisions of our bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our Directors, officers, manager, other agents or employees, which may discourage lawsuits against us and our Directors, officers, manger, other agents or employees.
Risks Related to Our Securities
Our capital stock has experienced significant price and trading volume volatility and may continue to do so.
Since we became a publicly traded company in January 2007, our capital stock has experienced significant share price and trading volatility, which may continue. The market price of our shares of capital stock has fluctuated and could fluctuate significantly in the future in response to various factors and events, including, but not limited to, the risks set out in this Annual Report, as well as:
•the liquidity of the market for our capital stock;
•our historic policy to not pay cash dividends;
•changes in our operating results;
•issuances of additional shares of capital stock and sales of our capital stock by holders of large blocks of our capital stock, such as SVC, RMR or our Directors or officers;
•limited analyst coverage, changes in analysts’ expectations and unfavorable research reports; and
•general economic and industry trends and conditions.
In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Recently, global and U.S. financial markets have experienced heightened volatility, including as a result of uncertainty regarding the long-term market impact of potential economic slowdown and recession concerns, the COVID-19 pandemic, the war between Russia and Ukraine, inflation, supply chain challenges, market interest rates and actual and potential shifts in U.S. and foreign trade, economic and other policies. This volatility and uncertainty could have a significant impact on the markets for our capital stock and our Senior Notes, the markets in which we operate and a material adverse impact on our business prospects and financial condition.
Investors may not benefit financially from investing in our Senior Notes.
The indenture under which the Senior Notes were issued contains no financial covenants or other provisions that would afford the holders of the Senior Notes any substantial protection in the event we participate in a material transaction. In addition, the indenture does not limit the amount of indebtedness we may incur or our ability to pay dividends, make distributions or repurchase our shares of common stock. Additionally, investors in our Senior Notes may be adversely affected as a result of the following:
•the Senior Notes are unsecured and effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;
•an active trading market for the Senior Notes may not be maintained or be liquid;
•we depend upon our subsidiaries for cash flow to service our debt, and the Senior Notes are structurally subordinated to the payment of the indebtedness, lease and other liabilities and any preferred equity of our subsidiaries; and
•an increase in market interest rates and other factors could result in a decrease in the value of the Senior Notes.