CHATTANOOGA, Tenn., July 26, 2023 (GLOBE NEWSWIRE) -- Covenant Logistics Group, Inc. (NASDAQ/GS: CVLG) (“Covenant” or the “Company”) announced today financial and operating results for the second quarter ended June 30, 2023. The Company’s conference call to discuss the quarter will be held at 10:00 A.M. Eastern Time on Thursday, July 27, 2023.
Chairman and Chief Executive Officer, David R. Parker, commented: “We are pleased to report second quarter earnings of $0.91 per diluted share and non-GAAP adjusted earnings of $1.07 per diluted share. The primary EPS adjustments exclude approximately $2.2 million in pre-tax expenses associated with acquisition transaction costs and an executive retirement bonus, approximately $1.8 million in pre-tax non-cash amortization expenses and $1.0 million of tax benefit associated with recent favorable tax regulation change with the state of Tennessee.
“The freight market, consisting of a combination of freight rates and volumes, remained challenging throughout the second quarter. While the 2023 results fall short of our 2022 results, we are pleased with the resiliency of our model in what we believe to be the trough of the freight cycle. We are also pleased with the initial operating results of Lew Thompson and Son Trucking, Inc. and related entities (“Lew Thompson and Son”), acquired on April 26, 2023. Lew Thompson and Son is a dedicated contract carrier specializing in poultry feed and live haul transportation. Their results are consolidated within our Dedicated operating segment.
“Our asset-based segments contributed approximately 68% of total revenue, 93% of operating income, 63% of total freight revenue, and 88% of adjusted operating income in the quarter. Our asset-light segments contributed approximately 32% of total revenue, 7% of operating income, 37% of total freight revenue, and 12% of adjusted operating income in the quarter.
“Our 49% equity method investment with Transport Enterprise Leasing (“TEL”) contributed pre-tax net income of $5.4 million, or $0.29 per share, compared to $7.1 million, or $0.33 per share, in the 2022 quarter. The decline in pre-tax net income for TEL was primarily a result of a reduction on gain on sale of revenue equipment.”
A summary of our second quarter financial performance:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($000s, except per share information) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Total Revenue | $ | 274,016 | $ | 317,377 | $ | 540,867 | $ | 608,962 | ||||||||
| Freight Revenue, Excludes Fuel Surcharge | $ | 243,704 | $ | 266,856 | $ | 477,126 | $ | 524,470 | ||||||||
| Operating Income | $ | 11,783 | $ | 26,873 | $ | 29,415 | $ | 50,720 | ||||||||
| Adjusted Operating Income (1) | $ | 16,235 | $ | 28,349 | $ | 28,860 | $ | 52,784 | ||||||||
| Operating Ratio | 95.7 | % | 91.5 | % | 94.6 | % | 91.7 | % | ||||||||
| Adjusted Operating Ratio (1) | 93.3 | % | 89.4 | % | 94.0 | % | 89.9 | % | ||||||||
| Net Income | $ | 12,293 | $ | 24,526 | $ | 28,928 | $ | 46,693 | ||||||||
| Adjusted Net Income (1) | $ | 14,443 | $ | 25,617 | $ | 27,208 | $ | 48,216 | ||||||||
| Earnings per Diluted Share | $ | 0.91 | $ | 1.56 | $ | 2.10 | $ | 2.86 | ||||||||
| Adjusted Earnings per Diluted Share (1) | $ | 1.07 | $ | 1.63 | $ | 2.00 | $ | 2.96 | ||||||||
| (1) | Represents non-GAAP measures. |
Truckload Operating Data and Statistics
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($000s, except statistical information) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Combined Truckload | ||||||||||||||||
| Total Revenue | $ | 185,267 | $ | 218,410 | $ | 366,407 | $ | 406,154 | ||||||||
| Freight Revenue, excludes Fuel Surcharge | $ | 155,234 | $ | 168,216 | $ | 303,252 | $ | 322,240 | ||||||||
| Operating Income | $ | 9,058 | $ | 17,491 | $ | 25,481 | $ | 29,464 | ||||||||
| Adj. Operating Income (1) | $ | 13,047 | $ | 18,673 | $ | 24,169 | $ | 30,939 | ||||||||
| Operating Ratio | 95.1 | % | 92.0 | % | 93.0 | % | 92.7 | % | ||||||||
| Adj. Operating Ratio (1) | 91.6 | % | 88.9 | % | 92.0 | % | 90.4 | % | ||||||||
| Average Freight Revenue per Tractor per Week | $ | 5,678 | $ | 5,457 | $ | 5,589 | $ | 5,337 | ||||||||
| Average Freight Revenue per Total Mile | $ | 2.32 | $ | 2.45 | $ | 2.35 | $ | 2.41 | ||||||||
| Average Miles per Tractor per Period | 31,775 | 28,956 | 61,407 | 57,183 | ||||||||||||
| Weighted Average Tractors for Period | 2,103 | 2,371 | 2,099 | 2,335 | ||||||||||||
| Expedited | ||||||||||||||||
| Total Revenue | $ | 104,073 | $ | 121,643 | $ | 204,969 | $ | 220,440 | ||||||||
| Freight Revenue, excludes Fuel Surcharge | $ | 85,969 | $ | 92,719 | $ | 167,627 | $ | 173,366 | ||||||||
| Operating Income | $ | 5,815 | $ | 14,610 | $ | 15,091 | $ | 23,941 | ||||||||
| Adj. Operating Income (1) | $ | 7,953 | $ | 15,499 | $ | 15,334 | $ | 24,830 | ||||||||
| Operating Ratio | 94.4 | % | 88.0 | % | 92.6 | % | 89.1 | % | ||||||||
| Adj. Operating Ratio (1) | 90.7 | % | 83.3 | % | 90.9 | % | 85.7 | % | ||||||||
| Average Freight Revenue per Tractor per Week | $ | 7,734 | $ | 7,872 | $ | 7,587 | $ | 7,567 | ||||||||
| Average Freight Revenue per Total Mile | $ | 2.10 | $ | 2.34 | $ | 2.15 | $ | 2.29 | ||||||||
| Average Miles per Tractor per Period | 47,840 | 43,702 | 91,122 | 85,368 | ||||||||||||
| Weighted Average Tractors for Period | 855 | 906 | 855 | 886 | ||||||||||||
| Dedicated | ||||||||||||||||
| Total Revenue | $ | 81,194 | $ | 96,767 | $ | 161,438 | $ | 185,714 | ||||||||
| Freight Revenue, excludes Fuel Surcharge | $ | 69,265 | $ | 75,497 | $ | 135,625 | $ | 148,874 | ||||||||
| Operating Income (Loss) | $ | 3,243 | $ | 2,881 | $ | 10,390 | $ | 5,523 | ||||||||
| Adj. Operating Income (1) | $ | 5,094 | $ | 3,174 | $ | 8,835 | $ | 6,109 | ||||||||
| Operating Ratio | 96.0 | % | 97.0 | % | 93.6 | % | 97.0 | % | ||||||||
| Adj. Operating Ratio (1) | 92.6 | % | 95.8 | % | 93.5 | % | 95.9 | % | ||||||||
| Average Freight Revenue per Tractor per Week | $ | 4,269 | $ | 3,964 | $ | 4,216 | $ | 3,973 | ||||||||
| Average Freight Revenue per Total Mile | $ | 2.67 | $ | 2.60 | $ | 2.66 | $ | 2.57 | ||||||||
| Average Miles per Tractor per Period | 20,770 | 19,837 | 40,996 | 39,949 | ||||||||||||
| Weighted Average Tractors for Period | 1,248 | 1,465 | 1,244 | 1,449 | ||||||||||||
| (1) | Represents non-GAAP measures. |
Combined Truckload Revenue
Paul Bunn, the Company’s President and Chief Operating Officer commented on truckload operations, “For the quarter, total revenue in our truckload operations decreased 15.2%, to $185.3 million, while averaging 268 or approximately 11.3% fewer tractors, compared to 2022. The decrease in total freight revenue consisted of $13.0 million less freight revenue and $20.2 million less fuel surcharge revenue. The decrease in freight revenue primarily related to the ongoing execution of our capital allocation program, including reduction of tractors associated with less profitable contracts, growth of units allocated to the AAT business unit acquired in 2022, and the acquisition of Lew Thompson and Son this quarter.”
Expedited Truckload Revenue
Mr. Bunn added, “Freight revenue in our Expedited segment decreased $6.8 million, or 7.3%. Average total tractors decreased by 51 units or 5.6% to 855, compared to 906 in the prior year quarter. The reduction in tractors was an intentional effort by management to adjust the fleet size down in response to the reduced volumes of available freight with expedited service requirements. Average freight revenue per tractor per week decreased 1.7%.”
Dedicated Truckload Revenue
“For the quarter, freight revenue in our Dedicated segment decreased $6.2 million, or 8.3%. Average total tractors decreased by 217 units or 14.8% to 1,248, compared to 1,465 in the prior year quarter. The decrease in tractors was attributable to the exit of underperforming business, partially offset by the addition of approximately 144 weighted average tractors as result of the Lew Thompson and Son acquisition during the quarter. Average freight revenue per tractor per week increased 7.7%.”
Combined Truckload Operating Expenses
Mr. Bunn continued, “Our truckload operating cost per total mile decreased 28 cents per total mile or 9.7% compared to the prior quarter, primarily as a result of reduced fuel costs. On a non-GAAP or adjusted basis, our truckload operating cost per total mile decreased approximately 5 cents or 2.1%, primarily due to reduced operations and maintenance, purchase transportation and insurance and claims related costs, partially offset by an increase in depreciation and amortization costs.”
“Insurance and claims related expense decreased year-over-year by $2.6 million, or 3 cents per total mile, compared to the 2022 quarter primarily due to the favorable claims experience during the current quarter.
“Operations and maintenance related expense decreased year-over-year by $4.4 million, or 6 cents per total mile, compared to the 2022 quarter, primarily due to replacing older tractors that experienced higher operating costs.
“Purchased transportation decreased year-over-year by $3.6 million, or 5 cents per total mile, compared to the 2022 quarter primarily due to the reduction of leased tractors in the fleet as part of a strategic effort to change the equipment mix of leased and older equipment to newer owned equipment.
“Depreciation and amortization related costs increased $4.6 million to $16.9 million but was offset by a $1.6 million increase in gain on sale of revenue equipment to $2.0 million in the quarter compared to the prior year quarter.”
Managed Freight Segment
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($000s) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Freight Revenue | $ | 63,281 | $ | 80,281 | $ | 124,155 | $ | 166,432 | ||||||||
| Operating Income | $ | 1,945 | $ | 8,627 | $ | 3,163 | $ | 19,458 | ||||||||
| Adj. Operating Income (1) | $ | 2,070 | $ | 8,662 | $ | 3,323 | $ | 19,529 | ||||||||
| Operating Ratio | 96.9 | % | 89.3 | % | 97.5 | % | 88.3 | % | ||||||||
| Adj. Operating Ratio (1) | 96.7 | % | 89.2 | % | 97.3 | % | 88.3 | % | ||||||||
| (1) | Represents non-GAAP measures. |
“For the quarter, Managed Freight’s freight revenue decreased 21.2%, from the prior year quarter. Operating income declined 76.1% compared to the second quarter of 2022, primarily due to reduced volumes of high-margin overflow freight from both Expedited and Dedicated truckload operations. Revenue and operating income in this segment are expected to fluctuate with changes in the freight market and our percentage of contracted versus non-contracted freight.”
Warehousing Segment
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($000s) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Freight Revenue | $ | 25,189 | $ | 18,359 | $ | 49,719 | $ | 35,798 | ||||||||
| Operating Income | $ | 780 | $ | 754 | $ | 771 | $ | 1,798 | ||||||||
| Adj. Operating Income (1) | $ | 1,118 | $ | 1,013 | $ | 1,368 | $ | 2,316 | ||||||||
| Operating Ratio | 96.9 | % | 96.0 | % | 98.5 | % | 95.1 | % | ||||||||
| Adj. Operating Ratio (1) | 95.6 | % | 94.5 | % | 97.2 | % | 93.5 | % | ||||||||
| (1) | Represents non-GAAP measures. |
“For the quarter, Warehousing’s freight revenue increased 37.2% versus the prior year quarter. The increase in revenue was primarily driven by the year-over-year impact of new customer business added during the current year. Operating income and adjusted operating income for the Warehousing segment remain relatively flat compared to the second quarter of 2022.”
Capitalization, Liquidity and Capital Expenditures
Tripp Grant, the Company’s Chief Financial Officer, added the following comments: “At June 30, 2023, our total indebtedness, composed of total debt and finance lease obligations, net of cash (“net indebtedness”), increased by $140.8 million to approximately $187.2 million as compared to December 31, 2022. In addition, our net indebtedness to total capitalization increased to 33.0% at June 30, 2023 from 10.9% at December 31, 2022.
“The increase in net indebtedness in the quarter is primarily attributable to the acquisition of Lew Thompson and Son Trucking announced on April 26, 2023, for approximately $100.0 million, repurchasing approximately 0.7 million shares under our stock repurchase programs for $25.3 million, a post-acquisition earnout payment of $10.0 million related to AAT’s operational performance, and approximately $33.1 million of net capital expenditures for revenue equipment, offset by cash proceeds of $12.4 million from the sale of our Tennessee based terminal in the first quarter and cash flows from operations.
“At June 30, 2023, we had cash and cash equivalents totaling $7.8 million. Under our ABL credit facility, we had $40.2 million borrowings outstanding, undrawn letters of credit outstanding of $21.6 million, and available borrowing capacity of $48.2 million. The sole financial covenant under our ABL facility is a fixed charge coverage ratio covenant that is tested only when available borrowing capacity is below a certain threshold. Based on availability as of June 30, 2023, no testing was required, and we do not expect testing to be required in the foreseeable future.
“Our net capital investment through June 30, 2023 was $15.5 million, which includes $12.4 million of cash proceeds from the sale of our Tennessee based terminal during the first quarter of the year. At the end of the quarter, we had $17.9 million in assets held for sale that we anticipate disposing of within twelve months. The average age of our tractors has remained flat sequentially compared to the first quarter at 26 months, primarily due to the Lew Thompson and Son acquisition, where the average fleet age was approximately 37 months, offset by new equipment acquired and put into service during the quarter. We anticipate the average age of our fleet to decline sequentially throughout the remainder of the year.
“For the balance of 2023, our baseline expectation for net capital equipment expenditures is $45 million to $55 million. Our capital investment plan reflects our priorities of improving operational uptime, lowering operating costs, opportunistically capitalizing on Dedicated contracts, and maintaining a driver-friendly fleet. We expect the benefits of improved utilization, fuel economy and maintenance costs to produce acceptable returns despite increased prices of new equipment and potentially lower values of used equipment.”
Outlook
Mr. Parker concluded, “We are pleased with our second quarter results and are excited about the opportunity Lew Thompson & Son gives us to improve upon them through the combination of a full quarter impact of their operations, as well as anticipated near-term opportunities for growth. Our results were achieved in the midst of what we consider the trough of a very difficult operating environment that spanned across the entire quarter.
“We are optimistic about the future but remain cautious about the pace of recovery in the freight market. Our team is intensely focused on capital allocation and cost control across our entire enterprise. We believe our more resilient operating model, together with the steps
