Q1 2021 Travelcenters of America Inc Earnings Call
At this time for opening remarks, and introductions I would like to introduce Tas director of Investor Relations Ms. Kristin Brown. Please go ahead.
Thank you good morning, everyone.
We will begin today's call with remarks from changed Chief Executive Officer, John Project, followed by Chief Financial Officer, Peter Krage, and President Barry Richards for Analysts' Q&A.
Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and Federal Securities laws.
These forward looking statements are based on Ta's present beliefs and expectations as of today may four 2021.
Forward looking statements and their implications are not guaranteed to occur and they may not occur.
Ta undertakes no obligation to revise or public agreement publicly release any revision to the forward looking statements made today other than as required by law.
Actual results may differ materially from those implied or included in these forward looking statements.
Additional information concerning factors that could cause our forward looking statements not to occur is contained in our filings with the securities and exchange Commission or SEC that are available free of charge of the SEC's website or by referring to the Investor Relations section of Tas website investors are cautioned not to place undue reliance upon any forward looking.
Statements.
During this call we will be discussing non-GAAP financial measures, including adjusted adjusted net loss EBITDA EBITDAR adjusted EBITDA and adjusted EBITDAR.
The reconciliation of these non-GAAP measures to the most comparable GAAP amounts are available on our press release that can be found on our website.
The financial and operating measures implied <unk> standard on today's call as well as any qualitative comments regarding performance should be assumed to be in regard to the first quarter of 2020, one as compared to the first quarter of 2020, unless otherwise stated.
Finally, I would like to remind you that the recording and retransmission of today's conference call is permitted without the prior written consent of Ta with that I'll turn the call over to you John.
Thanks, Kristen and good morning, everyone and thank you for your continuing interest and T. A.
While COVID-19 continues to adversely impact our full service restaurants, and gasoline volumes, we've had a successful quarter with significant financial improvement.
For the first quarter of 2021 compared to the prior year quarter, we produced the following a 58% improvement and adjusted net loss.
A 107% increase and adjusted EBITDA and other words, we more than doubled adjusted EBITDA and the nearly 20% increase and adjusted EBITDAR of key metric in measuring our results.
This improvement versus the prior year quarter was driven by solid performance from our fuel and nearly every non fuel business and our focus on managing costs offset by COVID-19 related decreases and four wheel traffic and then our full service restaurants.
On the fuel side of the business. Our overall fuel volume increased 11, 2% driven by a 13, 6% increase and diesel fuel volume.
Due to an increase and trucking activity. The addition of new fleet customers and overall increased volume from existing customers due to the early success of a variety of initiatives.
Gasoline volumes have continued to be adversely impacted by COVID-19 also as we previously noted we began the quarter facing diesel margin headwinds. However, those challenges dissipated midway through the quarter.
The management team is dedicating tremendous energy and focus to unpack and diesel margin to drive both higher margin as well as to improve stability. The latter of which may include how much inventory, we hold at any given time as well as the potential for trading and hedging.
Later I'll discuss some additional steps we were taking the benefit our diesel margin over the course of this year.
On the non fuel side of the business, we continue to reopen and full service restaurants cautiously and carefully.
While exploring alternative operating models and all of their brands.
We have five IHOP conversions underway, which each cost approximately $1 4 million per site and will open and the third and fourth quarter. This year.
We are wrapping up customer segmentation as well as brand and restaurant design work on parallel with having conversations with other brands.
It is highly likely we will not end up with the one size fits all approach for our full service restaurants. As we are beginning to conclude the different locations and markets have different demands and preferences and we are designing and overall strategy and plan around those local and regional differences to achieve the best and most profitable overall result.
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We also completed the divestment of our Standalone restaurant business were $5 million in April.
Which included 41 locations, primarily branded as Quaker steak, and lube or U S. L.
This business did not fit strategically within our long term goals for the company absorbed the disproportionate amount of company wide energy relative to the financial result, and the sale will allow us to focus our efforts on our core travel center business.
For store and retail services improved management and merchandising have begun to have a positive impact and for the quarter versus 2020.
Revenues increased by 13, 1%.
Also we are working to centralized purchasing and manage inventory more efficiently, which we believe is already translating into a better margin for these businesses.
Our customer segmentation work and completely reorient reorienting, how we merchandise are all beginning to have a positive financial effect as our changes and mid level leadership.
Truck service revenue showed a solid improvement with an 11, 1% increase compared to the prior year quarter, driven by an increase and work orders and labor cells. We've retooled this entire business with new senior leadership as well as created a new middle manager role to improve accountability.
Technician retention compensation and training of our central targets to drive continued improvement.
Truck service remains of continuing important focus and key competitive advantage for Ta.
Non fuel revenues also continued to benefit from strong demand for diesel exhaust fluid or Def and we expect the demand for Def to continue growing as more pre 2011 model year trucks are retired each year.
Demand for depth was also boosted by higher diesel fuel volumes and the quarter and as part of our current capital plan, we expect to make depth dispensers available and all lanes at our travel centers by the end of 2021.
Shifting to network expansion through franchising.
We have signed 38, new franchise agreements since the beginning of 2019 and opened 16, new franchise locations for the same period.
We anticipate 22 additional franchise locations will begin operations by the second quarter of 2022, as we work our way towards stabilizing of the target level and excess of 30% per year.
We're also very interested and M&A activity to add company owned locations that fit our business model and once again, we only invest in our asset base.
We are pleased with this quarter and the significant financial improvements we've demonstrated thus far particularly in light of the fact that our transformation plan and shifted from a year ago of planning and preparation and 2020.
And two a year of investing in growth and 2021, and we expect much of the positive impact to take effect later in the year and into 2022.
When I say investing and growth I'm, referring to continuing upgrades and talented people and leveraging outside consultant accelerant expertise on an interim basis.
Investing and our operational initiatives and of course, our robust capital plan, which focuses on the site level of refresh and remediation program as well as the I T and systems improvements.
Much of which is customer customer facing and intended to drive efficiency and financial performance.
Again, we're investing and our asset base through our people, our technology and infrastructure and our site conditions, including aesthetic branding and functional improvements all designed around our customers' needs to improve their experience.
With respect to our site refresh program, which goes beyond mere corrective remedial catch up we have performed a detailed detailed study of our assets as well as their positioning and their micro market competitive sets.
The results of the study have led to a tiered approach based on levels of spend and anticipated the ability to move the proverbial financial needle.
Four levels are being applied platinum gold and silver and bronze and we expect to complete the site refresh program through this new this year and into next.
I also want to pick up and important comment earlier in my remarks and from our previous earnings call diesel margin headwinds.
These headwinds, which we experienced at the end of 2020 and into January and February of Q1, 2021 have largely dissipated.
Although they did affect the significant portion of this quarter despite.
Despite those headwinds we more than doubled year over year EBITDA due in part to overall resiliency combined with strong diesel fuel diesel volumes as well as our non fuel businesses.
Despite the solid quarter those challenges brought interview certain opportunities, which we have embraced and like any successful company, we will be measured by how we adapt to adversity.
For example, following the success, we have had and creating our hospitality division last year by bringing together restaurants retail and gaming into a singular symbiotic coal we've created a single commercial division this past quarter, which combined fleet fuel and truck service into one operating unit.
This change improves visibility and more importantly, accountability over all things that affect diesel fuel gross margin.
Our president Barry Richards, who has tremendous knowledge and each of these areas and who reports directly to me.
Is the owner and leader of this new combined division.
In addition, and under this new construct we're extremely focused on methods for growing our retail diesel which provides the highest margin opportunity for ta while also carefully exploring methods for addressing volatility.
I also want to provide a few comments about <unk> commitment to sustainability and alternative energy the.
The New administration has made very clear its commitment to a massive infrastructure plan to support in support of sustainable and alternative energy.
On this note Ta made of major announcement on April 22nd Earth Day that we've created a new business division called each day, that's literally capital T capital a to focus on the opportunities in front of us to help transform ta and to embrace and capitalize on the changes that are coming including funding.
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We announced the new leader SVP, John Thomas who was the original project manager of the Tesla model S. And has had many leadership roles and the automotive and trucking industries over several decades and as an engineer by background and education.
We are taking concrete steps towards this transformation.
In California, we have been awarded a grant to install medium and heavy duty electric vehicle charging and storage at two sites and have also announced a collaboration to build hydrogen supply at two sites with Nicola along routes, where contractual commitments to hydrogen vehicles are in place.
We are also expanding biodiesel blending as well as depth across the locations and our network where it is currently not offered.
And finally, we are exploring a range of other partnerships and collaborations as we track federal and state of opportunities for funding.
To conclude I am proud of the strong positive results our team generated and this quarter, particularly despite the ongoing pandemic. The strength of these results as evidence that this resilient team can execute effectively the transform this great half century old company and I believe that we have started to deliver on the promise to rebuild trust and.
Credibility with the marketplace.
I am confident that this team of leaders will prudently and effectively deal with whatever challenges that may come along and I'm. Most excited to see our capital plan take hold later this year and into next to effectively drive growth and long term stockholder value.
I would like to and my remarks, as always by offering gratitude to our teammates and colleagues around the country for their hard work and dedication as well as the all the professional drivers and fleet managers for allowing <unk> to serve you as we continue to successfully navigate through this unprecedented yet opportune time together.
And with that I'll hand, the call over to Peter to discuss the quarter's financial results and detail Peter.
Thank you John and good morning, everyone.
As John mentioned, we are very pleased with our results and the first quarter.
And particularly given the ongoing challenges presented by the pandemic as well as some business disruption and Texas due to severe winter weather in February and.
And my remarks that follow I'll be referring to the 2021 first quarter as compared to the 2021st quarter unless stated otherwise.
For the quarter, we improved our net loss by $12 $8 million or 69% to $5 7 million.
And were <unk> 40 per share.
Compared to a net loss of $18 $5 million or $2 23 per.
Per share excluding.
And excluding a few onetime items and the prior year quarter as detailed in our earnings release, we generated and adjusted net loss of $5 3 million or <unk> 37 per share.
Compared to $12 4 million.
Our $1.29 per share and improvement of 58%.
EBITDA was $28 $6 million and increase of approximately $17 9 million or 167%.
While adjusted EBITDA, which reflects two one time items and the prior year increased $14 8 million or 107%.
The increase in EBITDA was primarily due to our continued close management of site level operating expense and selling general and administrative expense and positive non fuel gross margin, partially offset by a decline and fuel gross margin.
Fuel gross margin decreased $4 5 million to 77 point.
$4 million or five 5%.
While our fuel sales volume increased by 55 million gallons or 11, 2% to 544 million gallons margin cents per gallon soften the beginning in the fourth quarter as a result of of difficult purchasing environment with low volatility and the diesel fuel wholesale market.
These conditions persisted into January and February February before recovering in early March.
Lower gasoline sales volume as a result of reduced four wheel traffic also weighed on the fuel gross margin during the quarter.
Beginning this quarter you will note that we have discontinued reporting adjusted fuel gross margin adjusted fuel gross margin per gallon and adjusted fuel gross margin and non fuel revenues.
This is due to the fact that the biodiesel tax credit is now included in our reported numbers for both years. So no adjustment is required for comparability purposes on a year over year basis.
Yes.
Non fuel revenues for the quarter increased by $22 9 million or five 4%.
The increase was due to strong growth and store and retail services truck service and Def offset by the temporary closure or limitation of services and both of our travel center and Standalone full service restaurants, roughly a third of which remain closed.
Excluding full service restaurants.
Non fuel revenues increased 12%.
Total non fuel gross margin increased by $12 4 million or four 7%.
Excluding the full service restaurants, which of course continue to feel the effects of the pandemic.
Non fuel gross margin increased $26 9 million.
And were 11, 7%.
This of course, driven by improvement and store retail services truck service and Def.
Site level operating expense decreased by $9 $3 million or three 9% as we continue to focus on rationalizing and managing costs throughout the company.
Although the pandemic does continue to impact the restaurant business and we still have employees on furlough. We are also keenly focused on ensuring reopening are cash flow positive.
SG&A expense for the quarter decreased by $1 3 million or three 5%.
This decrease reflects the full quarterly impact of last April's reorganization plan, which eliminated approximately 130 positions as well as reductions and some low priority marketing costs.
This has been offset somewhat by investing in key leadership positions and consultant accelerate accelerant cost to drive improved cost efficiency.
In addition, and to a lesser extent as we move to the cloud from bespoke implementations and the technology area. We will see some natural operating expense increases in lieu of larger capital outlays.
Our focus though here is to tap the most efficient use of capital as we transform our technology backbone.
Yes.
Depreciation and amortization expense decreased by $4 $7 million or 16, 6% in the quarter, primarily due to $5 $2 million related to truck service programs that were canceled and deemed value list in the prior year quarter.
The first quarter of 2021 also includes an additional $650000 of impairment charge related to the Quaker steak and moved the <unk> sale in April.
With respect to the sale of <unk> the results of that business were immaterial to our overall performance in 2020.
Turning to our balance sheet briefly.
At March 31, 2021, we had cash and cash equivalents of $520 million no amounts outstanding on our $200 million revolving credit facility as of April 25 of this year.
And no near term debt maturities.
As of March 31, 2021, we owned 50 travel centers of Standalone truck service facility that were on unencumbered by debt and for Standalone restaurants that were sold of course and April as part of our <unk> transaction.
We invested $12 3 million and capital expenditures during the first quarter.
And our capital expenditures planned for 2021 still contemplates aggregate investments and the range of $175 million to $200 million.
As we ramp up the site refresh program and technology investments and the second and third quarters.
In addition.
We continue to be interested and the addition of company owned locations that fit our business model and meet the 15% to 20% cash on cash return hurdle, we've set for capital investment.
That concludes our prepared remarks, operator, we are now ready to take questions.
Thank you will.
Now begin the question and answer session.
To ask a question and you May Press Star then one on your Touchtone phone.
And if youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
Our first question comes from Paul <unk> from Citibank. Please go ahead.
Hey, guys couple of questions and I'm curious how much of the sequential improvement and margin per gallon and that you saw was due to market conditions. The turnaround that you saw on March.
Versus just an improvement and your overall buying.
Second I'm curious if you can give us an update on franchise centers that have begun operations over the past year to two years, just how youre seeing those those businesses improved once they come under your wing and then last on the EPA initiatives, where do you feel like you're ahead of the curve.
All of them to competitors versus where you're playing catch up.
Thanks, Paul Thanks for those couple of questions. So I'll start and the order you asked.
On the question of diesel margin improvement, how much was market versus buying our other other initiatives no question market moved and it has come to a more favorable and more normalized place for us as we got through the quarter again, it started with some challenges.
And that were fairly historically low actually challenging period between the end of last year and beginning of this year, even when we look back many many years.
So without question of significant part of it is the market returning to more of a normal for us normal stable kind of normal.
The normal state for us, but as well as we got to and I. We had signaled this earlier I guess in the third and maybe fourth quarter of last year, we spoke of running and RSP to purchase more.
To consolidate more of our diesel gallons as.
And as we got into this year and in fact, we did so and on that consolidation.
Roughly 80% of our gallons now we're saving about a penny of hair over a penny per gallon now when I say saving again, because we rise and flow as the tides and market rises and flows that's relative to any moment in time. It doesn't mean from one week to the next there is of a penny of improvement and Cogs. It means.
For that relative to that one moment in time, so that started that that the effect of that starting started of course through our system.
Toward the end of the quarter, so that would that was a piece of it as well on the franchise side.
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We hired through this last.
The through the quarter ended last year, I think or maybe early first quarter of franchise sales role and of function as opposed to just sort of <unk>.
Signaling out that we're in business here and we are willing to franchise and people more possibly coming along we've been more proactive about that and I think that's why we're seeing of pace thats picking up to that 'twenty. Two will open as we get from this year end of next year and with that target and excess of 30%.
And generally speaking the feedback I get from its relatively early innings still relatively speaking, we only got into the game a little bit at the end of 19, and then to last year, but generally speaking the feedback from the franchisees new franchisees is positive it's a little early to say to what extent, there mathematically how successful or not.
Our for the franchisees, but the fact that we're getting increasing interest and it continues to increase tells me that it's successful enough for them.
And for US, it's sort of meeting our expectations.
Lastly on <unk> and your question about how do we compare to our competitors.
Generally speaking I believe and as everybody knows our primary competitors, who are of great competitors. There are private companies and family owned businesses. Historically, so we don't have terrific visibility, but I believe they've been paying attention to this stuff for a period of time as well.
And it's hard to say, if we're ahead or behind but I like to always think like we're behind just because of that motivates us to drive even harder and it's amazing how we're just scratching the surface on some of the funding opportunities even as we ended last year before the new administration and.
And there's a whole universe that exists there and and only accelerating.
So I don't feel like we're playing catch up I feel like in a way. We're just we're sort of right at the right time with the New administration really accelerating all of this stuff and us having already started to put steps in place to embrace it I feel like we're in a very good spot right now.
And hopefully that answers your questions Paul Yes, definitely thank you. Good luck. Thank you.
The next question comes from Bryan Maher from B Riley FBR. Please go ahead.
Good morning, and thanks for that commentary so far.
Couple of questions from me and maybe point of clarification on you touched a little bit about M&A and the topic and I just want to clarify that if you were to do some M&A that would be only travel centers and.
It's the who are the sellers and the marketplace today so.
So thanks for that Brian and Hi, hope you're doing well thanks for the question.
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We're very again I keep using I want to stick to this terminology and I'll be specific and answering the question, we're investing and in our asset base. So there is some history about some investments that were maybe not that they were outside of who and what we are as the company and really we're very focused on.
On on sort of our mission and what we do and so anything we're going to do has to be sort of down the sweet spot of who we are and what we do and what we do well and so the focus when we say M&A is without question travel center, because truck stops and travel centers that are along highways.
And that in.
<unk> focus on at least in large part diesel obviously that will evolve and alternative energy, but on a long routes that support sort of trucking and that kind of infrastructure.
And that's what we mean.
To some lesser extent, we're paying a lot of attention to.
More on the JV side of the less M&A side, but on alternative energy opportunities again, more JV and partnerships and M&A.
And we're also on.
Unlike the trucks in the truck service business.
To some extent technology I'm curious to understand what's out there and we're we're very interested and sort of seeing what's out there, but it's only going to be things that are not some kind of standalone business that are may be completely off highway. These will be businesses that are either exactly or business or very very sort of directly integral to the.
<unk> and success of our business and that's what I mean.
Okay, and then when we think of the franchise and Miss.
Yeah.
What are those properties currently kind of before they transition to being of Ta.
Assuming they're not and he loves our pilot flying J are they produce.
Dominantly mom and Pops and on a day predominantly kind of a locations or b plus locations.
So again, thanks for the question on franchise too.
The most part of their independents more like you've put in quotes mom and Pops, who were not accessing some of the fleet business, who don't have some of the support and infrastructure that we can provide.
And generally speaking I'd say there'll be plus and better locations.
And so the opportunity to pay effectively a cap and make a capital investment.
The one time fee on the front end and then of recurring fee or fees royalty kinds of fees.
They have to conclude of course, what theyre going to get in terms of access and support and access to other kinds of business that theyre not seeing is greater than those fees and people are concluding that and I think increasingly so and that's why we're having success.
And then last from me and I think I saw something on CNBC or so just and the last day or two.
And that continues to be the trucker shortage to the tune of at least 50000 available positions to be filled and and I think that the industry is working on that but how much are you seeing and your day to day and how much upside and is there do you think to your business if the industry's success.
Full of bringing those people on board.
And again, great question, I know I still very actively talked to our CEO of Ceos of our biggest customers and while I won't name any of just recently had some conversations one in particular is sort of taking the lead on increasing trucker compensation significantly.
And it's very significant double digit increase in comp and.
That is showing signs of success again, thats more somewhat robbing from Peter to take from Paul.
Doesn't make for more and more drivers, but it is a chokepoint and the business and I think there's only upside to the extent more truckers are on the road, putting more miles on and are attracted to this business. It's an interesting longer term the question and I chat with the Ceos about this is it.
And those of alternative energy over this next.
Half decade of on the heavy duty truck side starts to take hold of little bit.
May be more interesting the tech universe for example, the job to work on electric or hydrogen is sort of and quotes more sexy than maybe what what diesel of the perception about being of diesel mechanic might've been in the past or of driver as well. So we may as an industry looking farther ahead, there may be opportunity.
To be more attractive and more competitive to draw of labor from other places at some of these new technologies are embraced and that bring some excitement and newness and maybe a younger audience to bear as well, so but I think there's only upside with respect to that.
Okay. Thank you very much thanks, Brian.
And again, if you have the question. Please press Star then one.
The next question comes from Jim Sullivan from <unk>. Please go ahead.
Thank you.
On.
So John My first question has to do with the comment you made talking about.
The amount of diesel gallons sold and the reasons for your success there.
And you cited a couple of different reasons.
And if we look at kind of the the sequential quarters.
And the diesel gallons sold and.
And seasonality could be of factor here, but the.
The amount of the diesel gallons sold has been pretty similar.
<unk> 20, <unk> 20, <unk> 21.
And you had cited but of course up substantially from the year earlier periods and each case.
You cited the.
And your ability to take market share through some of the larger the fleet customers and that's been.
Stated initiative for a while and and I just wonder if you could kind of.
Give us a sense for how much of the success in terms of diesel gallons is attributable to that and whether you can and whether you expect to continue to do that now you take market share as opposed to what you described as kind of the general increase and trucking activity.
So right, thanks, and obviously, thanks for that Jim and hope you're well.
One of them.
Let me add one other factor that really played into volumes on.
This season and bad weather generally favors this part of our business.
But extremely bad weather like those Texas storms, which we forget about but that lasted for three.
And three or four weeks and then the ripple effect continued that really actually had a negative effect on us very significantly and this area. So that 13% growth Europe same period year over year.
And would probably have been significantly greater if we.
We had not had that pretty extreme weather event that affected I call. It the Texas storm, but it was it affected much more than Texas.
So we're still growing our fleet and.
And aggregator businesses significantly.
And and.
And the area that we're really focused on now and partly under this new commercial division under Barry is really driving one very big area of opportunity for us has been to drive sort of call. It the small fleet and retail business and so I think we're going to continue to keep growing our what we've been growing and that is our.
Fleet business, but I think in addition, incrementally we have opportunity to grow significantly our small fleet and.
And retail business, it's just not been a huge area of focus and and in the same way that it is and it needs to be and it is now so that's an area of significant focus for Berry and for the team and I think with this new construct we're going to have success there.
Okay. Thanks for that.
And second question I had is.
And really on the site level operating costs, which is the biggest cost center for the for the company and something you've cited before as perhaps an opportunity.
And for savings and efficiency and helping to drive the EBITDA number up.
But over the the.
The prior four quarters here. This has obviously been a very volatile line items.
You had furloughed 4300, and I think it was.
Staff last year and it is.
Peter said in his comments there are still some.
Some of those furloughed people, who have not come back.
So I guess I'm trying to understand as we think about what should be the run rate here is the day intention well first of all I guess, how much of the or how many of the 4300 of original furloughs have returned the.
The number one number two do you expect all of them ultimately to return and then kind of and number three.
Just like the situation that was described in the previous question regarding truck driver of comp we keep hearing that labor costs are coming under pressure everywhere and it's hard to find staff. So.
If you think about site level operating cost as an opportunity for efficiency.
Much of is there to go here and and.
And in particular, if you could address the furlough, how many furloughed staff of not returned great.
So I'll thanks, Jim Thanks for that I'll turn it to Peter on the second but I'll start.
There is no question there of sort of countervailing forces happening here.
Some lurking potentially in the background whether it's.
The inflationary forces that May take hold later this year and things that we don't control of course, and that would trickle down and into labor costs on the other hand and.
On the other hand, returning people who were furloughed last year or it's not on the other hand on the same and but on the other hand. We are we finished some work with some outside consultative help really doing a deep dive into our site level of expenses and I know, we're finding opportunities there. So how that all sort of offset one another is really the essence of what youre getting out of them.
Turn it to Peter here in the second.
With respect to just one question on the furloughs of 4300 of Thereabouts all will not return we've set of noon. We are in the universe of the new normal wear and that we do not have plans to have all of them return and I guess I'm going to hand, it to Peter to get into maybe a little bit more on that so Peter if you could maybe assure and start with Jim's question on the <unk> 43.
<unk> sure if you have the detail whats, whose return how many and.
Some sense of new normal share hi, Jim of the <unk>.
300.
Whether the <unk> returned or would they left and we brought other other employees and we have we.
We have we have about I believe less and a 1000 I don't have the <unk>.
Exact number and get back to you with it.
And that are still on furlough, but and the restaurant, particularly in the restaurant space. We're also as John mentioned and I mentioned on the prepared remarks, we are being very careful about not reopening just because.
We no longer have a mandate to remain closed and our number one obviously, we have to have and offering at the location of food offering, but we're being very careful. So we're also making obviously.
Decisions around reopening of those locations with respect to run rate.
I don't have an exact number for you or even a range for you a couple of things are happening number one as Jon mentioned.
We bought some consulting help in and we're looking at ways to create efficiency as revenues ramp. We can see revenues are ramping rapidly. We were we've been very careful about not getting out over our skis with bringing cost back into the system.
We're beginning to implement some of those opportunities for savings I think as the year goes on on a year over year basis, its going to be trickier right. We made some really significant cuts last year, we improved our flow through of obviously what flow through we had.
So those are just a few things that I would mention.
And hopefully that's helpful and just one thing to add Jim and thanks Peter.
Our as we've just measure ourselves to sort of this should be obvious, but I'll just say it as we measure ourselves to last year you know we look at.
A variety of things. We're also looking back two years, just because last year to your point is there's so much noise and the year.
As a result of our reaction to COVID-19 that we're looking for some kind of recent but stable state. So we looked at 19.
To somewhat measure ourselves just as as we operate going forward.
Okay. That's helpful. And then the final question from me in your prepared comments you made mention of <unk>.
Expanding the the biodiesel blended.
The product availability as well as the depth of availability. So again two part question.
How much how.
And how many of the centers.
Currently do not have the.
Net product available and is is there any capital spending.
For that Thats assumed in the 175 to 200 number that you've talked about thanks, Jim So on that and you have some tight numbers. So on biodiesel were adding 16 locations. Those dollars are in the queue and approved and released.
The 16 locations from biodiesel and 40 locations for depth at the pump, we sell death and these big boxes at the retail stores.
But when.
When you put depth and your vehicle one of the trucker does not being able to pump. It at the same time as the diesel is very inconvenient and these big gallon five gallon jug things to point is I think the sales of those are affected dramatically compared to when you can pull up at the lane and pump at some of those 40 locations, we're adding depth, which by the way of depth of significant margin.
We're adding 173 lanes and so those dollars the order of magnitude of these dollars I'll just give you a rough range for combined biodiesel and depth is about 15% to $20 million, we will spend over the course of this year.
Okay terrific. Thanks, John Thanks, Thanks for the question Jim.
Yes.
Next question comes from Chris Sakai from singular research. Please go ahead.
Hi, good morning.
And just had a question I guess on on the restaurant segment I wanted to get a sense as far as <unk> as the vaccinations and the U S increase are you guys seeing an uptick in the restaurant.
So thanks, Chris and good morning, we are seeing you know what I look at this week over week and I look at the sales numbers.
And also the raw.
Request for approval to come to me, if we want to reopen.
There has been of.
It has not been sort of on an abrupt moment, where one month of one week something spiked, but there has been a slow but progressive improvement in that area again talking sales of which is the litmus test before the question, you're asking and I think that's going to continue.
And it's going to be interesting to see what the summer brings.
Youre hearing and even the most.
Maybe most close environments like the New York City, not that we have a lot of travel centers and New York City, but just as an example, when youre here.
Mayor and governor of that city and that States, saying New York City is opening up in July you can imagine what those kinds of facts as that happens around the country are likely to mean for our movement of diesel diesel and movement of trucks as well as movement of gasoline, which gasoline and still is materially down and the same way the restaurants are down so.
It's going to be and interesting summer as we as some of these.
Local governments start, making these proclamations and I think yes, it's fair to say, we are seeing a progressive improvement and the restaurant side is back I think it's fair to assume it relates to vaccination rates and people getting vaccinated.
Okay, Great and then.
I guess the question on the lines of the IHOP, how is that going on.
So we're doing we have a commitment with IHOP to do a certain number and we will absolutely honor that that commitment. We're right now on the process of building out five.
And we're monitoring and I really want to get this right. We really have on a strange way COVID-19 gave us an odd opportunity to understand the most labor intensive part of our business and I just want to make sure across the portfolio of 160, plus full service restaurants that we really get it right and as I said in my remarks, it's not going to be a one size fits all.
And we're not going to be.
Travel center of company that has only IHOP or only.
Els, it's very likely that we're likely I think to the.
And the yen to have a number of brands, including IHOP.
And that we're offering potentially as well as some performing self performing owned company owned on name brands that will develop.
And then lastly, we are also on the process of exploring.
And I've mentioned this historically too but were made made progress here and exploring of landlord execution, where effectively we lease space that leasing could be two of IHOP, operator, where yes, it's the IHOP coming in but its not us as the operator and it could be another brand. So those of the various things we're continuing the March forward along and.
But so far the <unk> are doing well in terms of the construction and getting them sort of prepared and ready to open.
And we're actually doing better than what we budgeted and capex for those as well.
Okay, great. Thanks.
Thanks, Chris.
The next question is a follow up from Bryan Maher from B Riley FBR. Please go ahead.
Great, Thanks, and and that with some really good color on the restaurants. So thanks for that so just one follow up from me on the fuel margins and admittedly you know theres been these headwinds and the latter part of the fourth quarter and the early part of the first quarter, but do you guys have of targeted kind of fuel margin in mind that would include.
And the biodiesel fuel credit so that's kind of part one and part two and <unk>.
And found that there is kind of of real advantage to buying in bulk.
Or I think what I covered the company years ago. They would talk about how they would only kind of had one to three days worth of fuel and inventory more of a spot market buying can you talk about kind of the puts and takes of of your thought process on the fuel margins regarding those two things.
Sure Thanks, Brian So.
So first on on sort of.
Without the biodiesel tax credit of my my my view my sort of sense. Historically this sort of a healthy level of margin for diesel not combined is in that $14 15 range and anything we can do incrementally is as a positive and that's what we're very focused on separately.
But to maintain levels like that over time.
We also have to address those windows, where we have like and historically low at the end of last year. Early this this first quarter, where because of market volatility.
<unk> reduces significantly below that and so we're very focused on that volatility question and there's a lot. There is a sort of a spectrum of of approaches to addressing it and.
Couple of examples I think I mentioned indirectly I'll be a little more specific or increasing our capacity to hold inventories. So we can.
By when it's low and have more capacity to hold longer from when it changes and so that's something where we're really diving into and understanding and then separately on the far end of the needle. The other end of the spectrum is is trading and hedging and trading and hedging is is it something thats fairly sophisticated.
Our competitors do very very actively and I think frankly, they do very well, it's not something that's necessarily contributes to more margin. It's something that gives more certainty and a narrower bandwidth of the highs and the lows and so that's something we're also exploring too and we want to be really smart on before we just dive into that pool and so those.
Or two and then.
Part of Berry's universe with this new division is really owning all things diesel margins. So there's no you know.
Lateral fingerpointing well.
Different people on different parts of what contributes to that hole and now all rests in one place and I think that alone that just organizational change is going to be very significant toward us approaching some theoretically more optimized level of margin.
And on buying in bulk what I mean by that when I say that we can still cancel loads and and we have the ability to buy sort of intra inter regionally, but we make commitments over a period of time two of certain total volume and were buying two of index and so when I say, we're saving that.
Penni times, 80% that's true.
That's an index thing and that's why for any moment in time, we would realize the savings but from one moment to the next the changes and I'm definitely of the strong belief of what we're doing now will create some advantage and already I think and.
And to some extent.
Okay, so that answers your questions.
Thank you alright, thanks, Brian.
The next question is a follow up from Jim Sullivan from <unk>. Please go ahead.
Thanks.
John and in your car.
Comments earlier to an earlier question about M&A.
Dress that.
And to the extent of the company or two.
Acquirer of the truck centers day would be.
You mentioned company owned trucks centers as opposed to leased truck centers.
And elsewhere, and I think and your filings you have indicated that.
The practice that the company used to do where.
The capex spend at the sites would typically be.
You'd be reimbursed by service service properties, and the rent would adjust and.
And but youre not expecting to do that anymore. So I guess the question I have is.
Is that.
Current focus on.
The company investing its capital and either buying new centers or expanding that and we're spending the capex is the.
The kind of a shift and the long term strategy for the company or is it.
Is it on the other hand simply a result of the.
Kind of the lack of liquidity that service centers currently faces and when they do have a covenant waiver agreement in place and they've had their own issues with the hotel business as we know so.
Yes.
And what's the driver of that change.
Change in strategy.
You know in the and.
And the first instance, we're trying to just correct of the company right just sort of the blocking and tackling and Thats last year was that you are planning and preparation as I've said this a year of growth right and investing in growth.
Ultimately and the long long run and my interpretation of my mind to provide long term shareholder value. We've got to have this company running efficiently and we need to be a growth engine and you know things like alternative energy create certain opportunities to grow and I'm really excited about that stuff, but more to your question.
And the financing and effect of of leasehold improvements is expensive.
And so it is I think it's fair to say, it's a shift in strategy since I've been here and we're going to grow through franchise, because its incredibly capital efficient and thats, great and it's low hanging fruit and it's a very simple value proposition I shared earlier we're on.
All of that they are and independent needs to conclude is that access to fleet and other support that we provide is greater than the the royalties of fees and people are concluding that so that's sort of low hanging of low hanging.
The low hanging fruit way of growth, it's relatively easy it's not that intensive on you know in terms of the energy necessary for the organization to two supported it is highly scalable.
And as you grow and if we do 30% to 40, a year and sustain that.
So much as just adding to the bottom line and just and just compounding over time.
At the same time owning new stores and new locations is obviously much more contributor of if that's the word it contributes a lot more to the bottom line. It obviously takes more intensity and so I like the sort of combined approach, where we can to some extent potentially maybe cherry pick some opportunities we see to one two.
And the extent, we can have a transformational bolt on acquisition you know on my last company I know I mentioned was the low price points extended stay hotel chain within a month or two of getting to that company. We bought a four pack I think it was and then we bought of 50 pack of about six months later I'm not suggesting that will be here that that will exist today, but on the other hand.
At the highest level sort of thesis here for opportunities to own is that theres a lot of fear out there and for the smaller folks that don't have the infrastructure and scale.
The the threat of alternative energy as more of a threat and an opportunity it's an opportunity for us it's a threat to us of the smaller guys and my mind.
And I think there is some fear and maybe to some extent if you're a smaller more independent well founded fear and so I think there may be opportunities because of that and also the timing that this business became of business Post World War, two and into the $60 70 as of the proliferation of the travel center businesses of businesses as an industry generationally.
Folks that we're getting into this business and the <unk> and <unk> are aging and they may not have family members, who are necessarily dialed into this or that combined with the threat and fears about changes and the industry and alternative energy.
Think of those some of those are sort of secular dynamics create an opportunity for us and so we'll see how that theory of plays out but we are with respect of the company owned but we are very focused on it through through M&A.
Hopefully that addresses the different parts of your question.
Yeah. It does I appreciate it thanks, Joe and Greg.
Thanks, Jim.
There are no more questions and the queue and this does concluded. This concludes our question and answer session.
I'd like to turn the conference back over to <unk>.
John <unk> for closing remarks.
Thank you Jason again, thank you for your interest and Ta and your attention. This morning, everybody have a great day.
So you guys.
Bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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