TravelCenters of America (TA) Q1 2021 Earnings Call Transcript

TravelCenters of America (TA)
Q1 2021 Earnings Call
May 04, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome. This call is being recorded. At this time, for opening remarks and introductions, I would like to introduce TA's director of investor relations, Ms. Kristin Brown.

Please go ahead.

Kristin Brown -- Director of Investor Relations

Thank you. Good morning, everyone. We will begin today's call with remarks from TA's chief executive officer, Jon Pertchik; followed by chief financial officer, Peter Crage; and president, Barry Richards, for our analyst 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 4, 2021. Forward-looking statements and their implications are not guaranteed to occur and they may not occur. TA undertakes no obligation to revise or 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 at the SEC's website or by referring to the investor relations section of TA's 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 net loss, EBITDA, EBITDAR, adjusted EBITDA and adjusted EBITDAR. The reconciliation of these non-GAAP measures to the most comparable GAAP amounts are available in our press release that can be found on our website.

The financial and operating measures implied and/or stated on today's call, as well as any qualitative comments regarding performance should be assumed to be in regard to the first quarter of 2021 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, Jon.

Jon Pertchik -- Chief Executive Officer

Thanks, Kristin. Good morning, everyone, and thank you for your continuing interest in TA. 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 in adjusted net loss; a 107% increase in adjusted EBITDA, in other words, we more than doubled adjusted EBITDA; and a nearly 20% increase in adjusted EBITDAR, a key metric in measuring our results.

This improvement versus the prior-year quarter was driven by solid performance from our fuel and nearly every nonfuel business and our focus on managing costs, offset by COVID-related decreases in four-wheel traffic and in our full-service restaurants. On the fuel side of the business, our overall fuel volume increased 11.2%, driven by a 13.6% increase in diesel fuel volume due to an increase in 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. 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 unpacking 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 are taking to benefit our diesel margin over the course of this year. On the nonfuel side of the business, we continue to reopen full-service restaurants cautiously and carefully while exploring alternative operating models in other brands.

We have five IHOP conversions under way, which each cost approximately $1.4 million per site and will open in 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 a one-size-fits-all approach for our full-service restaurants, as we are beginning to conclude that different locations and markets have different demands and preferences, and we are designing an overall strategy and plan around those local and regional differences to achieve the best and most profitable overall results. We also completed the divestment of our stand-alone restaurant business for $5 million in April, which included 41 locations primarily branded as Quaker Steak & Lube, or QSL.

This business did not fit strategically within our long-term goals for the company, absorbed a disproportionate amount of companywide energy relative to 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 centralize 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 reorienting how we merchandise are all beginning to have a positive financial effect, as are changes in 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 in work orders and labor sales. We have 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 are central targets to drive continued improvement.

Truck service remains a continuing important focus and key competitive advantage for TA. Nonfuel revenues also continue 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 DEF was also boosted by higher diesel fuel volumes in the quarter and as part of our current capital plan we expect to make DEF dispensers available in 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 toward stabilizing at a target level in excess of 30 per year. We are also very interested in 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 have demonstrated thus far, particularly in light of the fact that our transformation plan shifted from a year ago of planning and preparation in 2020 to a year of investing in growth in 2021, and we expect much of the positive impact to take effect later in the year and into 2022. When I say investing in growth, I'm referring to continuing upgrades in talent and people and leveraging outside consultant accelerant expertise on an interim basis, investing in our operational initiatives and, of course, our robust capital plan, which focuses on a site-level refresh and remediation program, as well as IT and systems improvements, much of which is customer-facing and intended to drive efficiency and financial performance. Again, we're investing in 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 study of our assets, as well as their positioning in their micro-market competitive sets.

The results of this study have led to a tiered approach based on levels of spend and anticipated ability to move the proverbial financial needle. Four levels are being applied: platinum, gold, silver and bronze. We expect to complete the site refresh program through this year and into next. I also want to pick up an 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 a significant portion of this quarter. Despite those headwinds, we more than doubled year-over-year EBITDA, due in part to overall resiliency, combined with strong diesel volumes, as well as our nonfuel businesses. Despite the solid quarter, those challenges brought into view 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 in creating our hospitality division last year by bringing together restaurants, retail and gaming into a singular symbiotic whole, we have created a single commercial division this past quarter, which combines 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 in 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 TA's commitment to sustainability and alternative energy. The new administration has made very clear its commitment to a massive infrastructure plan in support of sustainable and alternative energy. On this note, TA made a major announcement on April 22, Earth Day, that we have created a new business division called eTA, that's e-T-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 opportunities. We announced a new leader, SVP, John Thomas, who was the original project manager of the Tesla Model S and has had many leadership roles in the automotive and trucking industries over several decades and is an engineer by background and education.

We are taking concrete steps toward 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 Nikola along routes where contractual commitments to hydrogen vehicles are in place. We are also expanding biodiesel blending, as well as DEF across the locations in 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 opportunities for funding.

To conclude, I am proud of the strong positive results our team generated in this quarter, particularly despite the ongoing pandemic. The strength of these results is evidence that this resilient team can execute effectively to 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 end my remarks, as always, by offering gratitude to our teammates and colleagues around the country for their hard work and dedication, as well as all the professional drivers and fleet managers for allowing TA to serve you as we continue to successfully navigate through this unprecedented yet opportune time together.

And with that, I will hand the call over to Peter to discuss the quarter's financial results in detail. Peter?

Peter Crage -- Chief Financial Officer

Thank you, Jon, and good morning, everyone. As Jon mentioned, we are very pleased with our results in the first quarter, particularly given the ongoing challenges presented by the pandemic, as well as some business disruption in Texas due to severe winter weather in February. In my remarks that follow I'll be referring to the 2021 first quarter as compared to the 2020 first quarter, unless stated otherwise. For the quarter, we improved our net loss by $12.8 million, or 69%, to $5.7 million, or $0.40 per share, compared to a net loss of $18.5 million, or $2.23 per share.

Excluding a few onetime items in the prior-year quarter, as detailed in our earnings release, we generated an adjusted net loss of $5.3 million, or $0.37 per share, compared to $12.4 million, or $1.29 per share, an improvement of 58%. EBITDA was $28.6 million, an increase of approximately $17.9 million, or 167%, while adjusted EBITDA, which reflects two onetime items in 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 nonfuel gross margin, partially offset by a decline in fuel gross margin. Fuel gross margin decreased $4.5 million to $77.4 million, or 5.5%.

While our fuel sales volume increased by 55 million gallons, or 11.2%, to 544 million gallons, margin cents per gallon softened beginning in the fourth quarter as a result of a difficult purchasing environment, with low volatility in the diesel fuel wholesale market. These conditions persisted into January and February before recovering in early March. Lower gasoline sales volume as a result of reduced four-wheel traffic also weighed on 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 nonfuel 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. Nonfuel revenues for the quarter increased by $22.9 million, or 5.4%. The increase was due to strong growth in store and retail services, truck service and DEF, offset by the temporary closure or limitation of services at both our travel center and stand-alone full-service restaurants, roughly a third of which remain closed.

Excluding full-service restaurants, nonfuel revenues increased 12%. Total nonfuel gross margin increased by $12.4 million, or 4.7%. Excluding the full-service restaurants, which of course continue to feel the effects of the pandemic, nonfuel gross margin increased $26.9 million, or 11.7%; this, of course, driven by improvement in store, retail services, truck service and DEF. Site-level operating expense decreased by $9.3 million, or 3.9%, 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 reopenings are cash flow positive. SG&A expense for the quarter decreased by $1.3 million, or 3.5%. This decrease reflects the full quarterly impact of last April's reorganization plan, which eliminated approximately 130 positions, as well as reductions in some low-priority marketing costs. This has been offset somewhat by investing in key leadership positions and consultant accelerant costs to drive improved cost efficiency.

In addition, and to a lesser extent, as we move to the cloud from bespoke implementations in 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. 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 valueless in the prior-year quarter. The first quarter of 2021 also includes an additional $650,000 impairment charge related to the Quaker Steak & Lube, QSL, sale in April.

With respect to the sale of QSL, 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, a stand-alone truck service facility that were unencumbered by debt and four stand-alone restaurants that were sold, of course, in April as part of our QSL transaction.

We invested $12.3 million in capital expenditures during the first quarter, and our capital expenditures planned for 2021 still contemplates aggregate investments in the range of $175 million to $200 million as we ramp up the site refresh program and technology investments in the second and third quarters. In addition, we continue to be interested in 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Paul Lejuez, from Citibank. Please go ahead.

Paul Lejuez -- Citi -- Analyst

Hey, guys. A couple of questions. Curious how much of the sequential improvement in margin per gallon that you saw was due to market conditions, that turnaround that you saw in March, versus just an improvement in your overall buying. Second, curious if you can give us an update on franchise centers that have begun operations over the past year to two years, just how you're seeing those businesses improve once they come under your wing.

And then, last, on the eTA initiative, where do you feel like you're ahead of the curve relative to competitors versus where you're playing catch-up? Thanks.

Jon Pertchik -- Chief Executive Officer

Paul, thanks for those couple of questions. I'll start in the order you asked. On the question of diesel margin improvement, how much was market versus buying or other initiatives, no question market moved and has come to a more favorable and more normalized place for us as we got through the quarter. Again, it started with some challenges that were fairly historically low, actually, a challenging period between the end of last year and beginning of this year, even when we look back many, many years.

So without question, a significant part of it is the market returning to more of a, for us, normal stable kind of normal state for us. But as well as we got to, and we had signaled this earlier, I guess, in the third and maybe fourth quarter of last year, we spoke of running an RFP to purchase more, to consolidate more of our diesel gallons 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 $0.01, a hair over $0.01, per gallon.

Now when I say saving, again, because we rise and flow as the tides in markets rises and flows, that's relative to any moment in time. It doesn't mean from one week to the next there's $0.01 of improvement in COGS. It means relative to that one moment in time. So the effect of that started to course through our system toward the end of the quarter.

So that was a piece of it, as well. On the franchise side, we've hired through the quarter, ended last year, I think, or maybe early first quarter, a franchise sales role and a function as opposed to just sort of signaling out that we're in business here and we are willing to franchise and people more passively coming along. We've been more proactive about that. And I think that's why we're seeing a pace that's picking up to that 22 we'll open as we get from this year into next year and with that target in excess of 30.

And generally speaking, the feedback I get -- it's relatively early innings still, relatively speaking. We only got into the game a little bit at the end of '19 and into last year. But generally speaking, the feedback from the franchisees, the new franchisees, is positive. It's a little early to say to what extent mathematically how successful or not they are 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 eTA and your question about how do we compare to our competitors, generally speaking, I believe, and as everybody knows, our primary competitors, who are great competitors, they're 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 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 there's a whole universe that exists there and only accelerating. So I don't feel like we're playing catch-up. I feel like, in a way, 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.

Paul Lejuez -- Citi -- Analyst

Yeah, definitely. Thank you. Good luck.

Jon Pertchik -- Chief Executive Officer

Thank you.

Operator

The next question comes from Bryan Maher, from B. Riley FBR. Please go ahead.

Bryan Maher -- B. Riley FBR -- Analyst

Good morning, and thanks for that commentary so far. A couple of questions for me and maybe a point of clarification. You touched a little bit about M&A as a topic. And I just want to clarify that if you were to do some M&A, that would be only travel centers? And if so, who are the sellers in the marketplace today?

Jon Pertchik -- Chief Executive Officer

So thanks for that, Bryan. I hope you're doing well. Thanks for the question. So we're very -- again, I keep using, I want to stick to this terminology, and I'll be specific in answering your question.

We're investing in our asset base. So there's some history about some investments that were maybe not that. They were outside of who and what we are as a company. And really, we're very focused 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, truck stops and travel centers that are along highways that focus on, at least in large part, diesel. Obviously, that will evolve with alternative energy, but along routes that support sort of trucking and that kind of infrastructure. That's what we mean.

To some lesser extent, we're paying a lot of attention to more on the JV side and less M&A side on alternative energy opportunities. Again, more JV and partnerships than M&A. And we're also, like in the truck service business, to some extent, technology. I'm curious to understand what's out there, and we're very interested in sort of seeing what's out there.

But it's only going to be things that are not some kind of stand-alone business that are maybe completely off-highway. These will be businesses that are either exactly our business or very, very sort of directly integral to the functioning and success of our business. And that's what I mean.

Bryan Maher -- B. Riley FBR -- Analyst

OK. And then, when we think of the franchise initiative, what are those properties currently kind of before they transition to being a TA? I'm assuming they're not any Love's or Pilot Flying J's. Are they predominantly mom-and-pops? And are they predominantly kind of A locations or B-plus locations?

Jon Pertchik -- Chief Executive Officer

So again, thanks for the question on franchise, too. For the most part, they're independents, more like "mom-and-pops," who are 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 they're B plus and better locations. And so the opportunity to pay, effectively make a capital investment with a onetime fee on the front end and then, a recurring fee or fees, royalty kinds of fees, they have to conclude of course what they're going to get in terms of access, support and access to other kinds of business that they're 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.

Bryan Maher -- B. Riley FBR -- Analyst

And then, last for me, and I think I saw something on CNBC or so just in the last day or two, there continues to be this trucker shortage, to the tune of at least 50,000 available positions to be filled. And I think that the industry is working on that. But how much are you seeing in your day-to-day? And how much upside is there do you think to your business if the industry is successful at bringing those people onboard?

Jon Pertchik -- Chief Executive Officer

Again, great question. I know I still very actively talk to CEOs of our biggest customers. And while I won't name any, I've just recently had some conversations. One, in particular, is sort of taking the lead on increasing trucker compensation significantly.

It's very significant double-digits increase in comp. And that is showing signs of success. Again, that's more somewhat robbing from Peter to take from Paul. That doesn't make for more drivers.

But it is a choke point in 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 these CEOs about this, is as alternative energy over this next half decade on the heavy-duty truck side starts to take hold a little bit, it may be more interesting the tech universe. For example, the job to work on electric or hydrogen is sort of "more sexy" than maybe what diesel, the perception about being a diesel mechanic might have been in the past or a driver, as well.

So we may, as an industry, looking further ahead, there may be opportunity to be more attractive and more competitive to draw labor from other places as some of these new technologies are embraced. And that brings some excitement and newness and maybe a younger audience to bear, as well. But I think there's only upside with respect to that.

Bryan Maher -- B. Riley FBR -- Analyst

OK, thank you very much.

Jon Pertchik -- Chief Executive Officer

Thanks, Bryan.

Operator

[Operator instructions] The next question comes from Jim Sullivan, from BTIG. Please go ahead.

Jim Sullivan -- BTIG -- Analyst

Thank you. So Jon, 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 sequential quarters, the diesel gallons sold, and I understand seasonality could be a factor here, but the amount of diesel gallons sold has been pretty similar 3Q '20, 4Q '20, 1Q '21.

And you had cited -- but of course up substantially from the year-earlier periods in each case. You cited your ability to take market share through some of the larger fleet customers, and that's been a stated initiative for a while. 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 expect to continue to do that, how you take market share, as opposed to what you described as kind of the general increase in trucking activity?

Jon Pertchik -- Chief Executive Officer

Right. Thanks for that, Jim, and hope you're well. One other factor that really played into volumes this season, 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 or four weeks, and then, the ripple effect continued, that really actually had a negative effect on us very significantly in this area.

So that 13% growth same period year over year would probably have been significantly greater if we had not had that pretty extreme weather event that affected -- I call it the Texas storm, but it affected much more than Texas. So we're still growing our fleet and aggregator businesses significantly. 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 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 retail business. It has just not been a huge area of focus in the same way that -- and it needs to be, and it is now. So that's an area of significant focus for Barry and for the team. And I think with this new construct, we're going to have success there.

Jim Sullivan -- BTIG -- Analyst

OK, thanks for that. And second question I had is really on the site-level operating costs, which is the biggest cost center for the company and something you've cited before as perhaps an opportunity for savings and efficiency and helping to drive the EBITDA number up. But over the prior four quarters here, this has, obviously, been a very volatile line item. You had furloughed 4,300, I think it was, staff last year.

And as Peter said in his comments, there are still 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 it the intention -- well, first of all, I guess, how many of the 4,300 original furloughs have returned, number one? Number two, do you expect all of them ultimately to return? And then, kind of number three, just like the situation that was described, the previous question regarding truck driver 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 costs as an opportunity for efficiency, how much is there to go here? And in particular, if you could address the furlough, how many furloughed staff have not returned?

Jon Pertchik -- Chief Executive Officer

Great. Thanks, Jim. Thanks for that. I'll turn it to Peter in a second, but I'll start.

There's no question there are sort of countervailing forces happening here. Some lurking potentially in the background, whether it's 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, returning people who were furloughed last year, or it's not on the other hand, it's on the same hand. But on the other hand, we finished some work with some outside consultative help, really doing a deep dive into our site-level expenses, and I know we're finding opportunities there.

So how that all sort of offsets one another is really the essence of what you're getting at. I'll turn it to Peter here in a second. With respect to just one question on the furlough, the 4,300 or thereabouts, all will not return. We've set a new -- we are in a universe of a new normal, where we do not have plans to have all of them return.

And I'm going to hand it to Peter to get into maybe a little bit more on that. So Peter, if you could, maybe start with Jim's question on the 4,300. If you have the detail, who has returned, how many, and some sense of new normal.

Peter Crage -- Chief Financial Officer

Sure. Jim, of the 4,300, whether those returned or they left, we brought other employees in, we have about, I believe, less than 1,000, I don't have the exact number, I can get back to you with it, that are still on furlough. But in the restaurant, particularly in the restaurant space, where also, as Jon mentioned and I mentioned in the prepared remarks, we're being very careful about not reopening just because we no longer have a mandate to remain closed. Number one, obviously, we have to have an offering at the location, a food offering, but we're being very careful.

So we're also making, obviously, decisions around reopening those locations. With respect to run rate, I don't have an exact number for you, even a range for you. A couple of things are happening. Number one, as Jon mentioned, we brought some consultant help in, and we're looking at ways to create efficiency as revenues ramp.

We can see revenues are ramping rapidly. We've been very careful about not getting out over our skis with bringing costs back into the system. So we're beginning to implement some of those opportunities for savings. I think as the year goes on, on a year-over-year basis it's going to be trickier, right? We made some really significant cuts last year.

We improved our flow-through, obviously, what flow-through we had. So those are just a few things that I would mention. And hopefully, that's helpful.

Jon Pertchik -- Chief Executive Officer

And just one thing to add, Jim, and thanks, Peter, as we just measure ourselves, sort of this should be obvious, but I'll just say it, as we measure ourselves to last year, 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 in the year as a result of our reaction to COVID that looking for some kind of recent but stable state. So we look to '19 to somewhat measure ourselves just as we operate, going forward.

Jim Sullivan -- BTIG -- Analyst

OK, that's helpful. And then, a final question for me. In your prepared comments, you made mention of expanding the biodiesel blended product availability, as well as the DEF availability. So again, two-part question.

How many of the centers currently do not have that product available? And is there any capital spending for that that's assumed in the $175 million to $200 million number that you've talked about?

Jon Pertchik -- Chief Executive Officer

Thanks, Jim. Yes. So on that, we have some tight numbers. So on biodiesel, we're adding 16 locations.

Those dollars are in the queue. They've been approved and released. So 16 locations for biodiesel. And 40 locations for DEF at the pump.

We sell DEF in these big boxes at the retail stores. But when you put DEF in your vehicle, when a trucker does, not being able to pump it at the same time as the diesel is very inconvenient. And these big five-gallon jug things to pour in is -- I think the sales of those are affected dramatically compared to when you can pull up at the lane and pump it. So of those 40 locations we're adding DEF, which, by the way, DEF is 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 DEF, is about $15 million to $20 million we'll spend over the course of this year.

Jim Sullivan -- BTIG -- Analyst

OK, terrific. Thanks, Jon.

Jon Pertchik -- Chief Executive Officer

Thanks for the questions, Jim.

Operator

Next question comes from Chris Sakai, from Singular Research. Please go ahead.

Chris Sakai -- Singular Research -- Analyst

Hi, good morning. I just had a question, I guess, on the restaurant segment. I wanted to get a sense as far as, as the vaccinations in the U.S. increase, are you guys seeing an uptick in restaurants?

Jon Pertchik -- Chief Executive Officer

Thanks, Chris, and good morning. We are seeing when I look at this week-over-week and I look at sales numbers and also requests for approval come to me if we want to reopen, there has been a -- it has not been sort of an abrupt moment where one month or one week something spiked, but there has been a slow but progressive improvement in that area. Again, talking sales, which is the litmus test for 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.

You're hearing and even the most -- maybe the most-closed environments, like a New York City, not that we have a lot of travel centers in New York City, but just as an example, when you hear the mayor and governor of that city and that state 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, movement of trucks, as well as movement of gasoline, which gasoline still is materially down in the same way the restaurants are down. So it's going to be an interesting summer 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 in the restaurant side as -- I think it's fair to assume it relates to vaccination rates and people getting vaccinated.

Chris Sakai -- Singular Research -- Analyst

OK, great. And then, I guess, a question on the lines of IHOP. How is that going?

Jon Pertchik -- Chief Executive Officer

So we're doing -- we have a commitment with IHOP to do a certain number, and we'll absolutely honor that commitment. We're right now in the process of building out five. And we're monitoring and I really want to get this right. We really have, in a strange way, COVID gave us an odd opportunity to understand this 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. We're not going to be a travel center company that has only IHOPs or only something else. It's very likely that -- we're likely, I think, in the end, to have a number of brands, including IHOPs, that we're offering, potentially, as well as some self-performing owned, company-owned name brands that we'll develop.

And then, lastly, we are also in the process of exploring, and I've mentioned this historically, too, but we've made progress here in exploring a landlord execution, where effectively we lease space. That leasing could be to an IHOP operator, where, yes, it's an IHOP coming in, but it's not us as the operator, and it could be another brand. So those are the various things we're continuing to march forward along. But so far, the IHOPs 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 in capex for those, as well.

Chris Sakai -- Singular Research -- Analyst

OK, great thing.

Jon Pertchik -- Chief Executive Officer

Thanks, Chris.

Operator

The next question is a follow-up from Bryan Maher, from B. Riley FBR. Please go ahead.

Bryan Maher -- B. Riley FBR -- Analyst

Great. Thanks. And that was some really good color on the restaurants. So just one follow-up for me.

On the fuel margins, and admittedly, there's been these headwinds in the latter part of the fourth quarter and the early part of the first quarter, but do you guys have a targeted kind of fuel margin in mind that would include the biodiesel fuel credit? So that's kind of Part 1. And Part 2, have you found that there's kind of a real advantage to buying in bulk? Or I think when I covered this company years ago, they would talk about how they would only kind of have one to three days' worth of fuel in inventory, more of a spot market buying. Can you talk about kind of the puts and takes of your thought process on the fuel margins regarding those two things?

Jon Pertchik -- Chief Executive Officer

Sure. Thanks, Bryan. So first, on sort of -- without the biodiesel tax credit, my view, my sort of sense, historically, sort of a healthy level of margin for diesel, not combined, is in that 14, 15 range. And anything we can do incrementally is 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, an historically low at the end of last year, early this first quarter, where because of market volatility it reduces significantly below that. And so we're very focused on that volatility question. And there's a sort of a spectrum of approaches to addressing it. And a couple of examples, I think I mentioned indirectly, I'll be a little more specific, are increasing our capacity to hold inventory so we can buy when it's low and have more capacity to hold longer for when it changes.

And so that's something we're really diving into an understanding. And then, separately, on the far end of the needle, the other end of the spectrum, is trading and hedging. And trading and hedging is something that's fairly sophisticated. It's something our competitors do very, very actively and I think, frankly, they do very well.

It's not something that 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 are two. And then, part of Barry's universe with this new division is really owning all things diesel margin so there's no lateral finger-pointing, well, different people own different parts of what contributes to that whole.

It 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 buying in bulk, what I mean by that when I say that, we can still cancel loads and we have the ability to buy sort of interregionally, but we make commitments over a period of time to a certain total volume, and we're buying to an index. And so when I say we're saving that $0.01 times 80%, that's an indexed thing.

And that's why for any moment in time we'd realize the savings. But from one moment to the next, it changes. And I'm definitely of the strong belief that what we're doing now will create some advantage and already I think is, to some extent. Hopefully, that answers your questions.

Bryan Maher -- B. Riley FBR -- Analyst

Yeah. Thank you.

Jon Pertchik -- Chief Executive Officer

Right. Thanks, Bryan.

Operator

The next question is a follow-up from Jim Sullivan, from BTIG. Please go ahead.

Jim Sullivan -- BTIG -- Analyst

Thanks. Jon, in your comments earlier to an earlier question about M&A, you stressed that to the extent the company were to acquire the truck centers, you mentioned company-owned truck centers, as opposed to leased truck centers. And elsewhere, and I think in your filings, you've indicated the practice that the company used to do where capex spend at the sites would typically be -- you'd be reimbursed by service properties and the rent would adjust, but you're not expecting to do that anymore. So I guess, the question I have is, is that current focus on the company investing its capital in either buying new centers or expanding them or spending the capex, is that kind of a shift in the long-term strategy for the company? Or is it, on the other hand, simply a result of kind of the lack of liquidity that service centers currently faces.

They do have a covenant waiver agreement in place, and they've had their own issues with the hotel business, as we know. So what's the driver of that, the change in strategy?

Jon Pertchik -- Chief Executive Officer

In the end, in the first instance, we're trying to just correct the company, right? Just sort of the blocking and tackling, and last year was that year of planning and preparation. As I've said, this is a year of growth, right, and investing in growth. Ultimately, in the long, long run, my interpretation, 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 things like alternative energy create certain opportunities to grow, and I'm really excited about that stuff.

But more to your question, the financing, in effect, of leasehold improvements is expensive. And so 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 it's incredibly capital efficient, and that's great, and it's low-hanging fruit, and it's a very simple value proposition I shared earlier, where all that they, an independent, needs to conclude is that access to fleet and other support that we provide is greater than the royalties, the fees. And people are concluding that.

So that's sort of a low-hanging fruit way of growth. It's relatively easy. It's not that intensive in terms of the energy necessary for the organization to support it. It's highly scalable.

And as you grow and if we do 30 to 40 a year and sustain that, so much is just adding to the bottom line and just compounding over time. At the same time, owning new stores and new locations is, obviously, much more contributive, if that's a 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 own, to the extent we can have a transformational bolt-on acquisition. At my last company, I know I mentioned it was a low price point, 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 a 50-pack 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 there's a lot of fear out there.

And for the smaller folks that don't have the infrastructure and scale, the threat of alternative energy is more of a threat than an opportunity. It's an opportunity for us. It's a threat to the smaller guys, in my mind. And I think there's 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 a business post World War II and into the '60s and '70s, the proliferation of the travel center business as a business, as an industry, generationally, folks that were getting into this business in the '60s and '70s 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 in the industry and alternative energy. I think some of those sort of secular dynamics create an opportunity for us.

And so we'll see how that theory plays out with respect to the company owned, but we are very focused on it through M&A. Hopefully, that addresses the different parts of your question.

Jim Sullivan -- BTIG -- Analyst

Yeah. I appreciate it. Thanks, Jon.

Jon Pertchik -- Chief Executive Officer

Right. Thanks, Jim.

Operator

There are no more questions in the queue. This has concluded. This concludes our question-and-answer session. I'd like to turn the conference back over to Jon Pertchik for closing remarks.

Jon Pertchik -- Chief Executive Officer

Thank you, Jason. Again, thank you for your interest in TA and your attention this morning. Everybody, have a great day.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Kristin Brown -- Director of Investor Relations

Jon Pertchik -- Chief Executive Officer

Peter Crage -- Chief Financial Officer

Paul Lejuez -- Citi -- Analyst

Bryan Maher -- B. Riley FBR -- Analyst

Jim Sullivan -- BTIG -- Analyst

Chris Sakai -- Singular Research -- Analyst

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