Covenant Transportation Group, Inc. (NASDAQ/GS: CVTI) announced today financial and operating results for the quarter ended Sept. 30, including a rise in freight revenue and operating income.

Highlights for the quarter included the following:

• Freight revenue of $133 million, an increase of 5.1% compared with the third quarter of 2011;
• Operating income of $4.6 million and an operating ratio of 96.5%, compared with operating loss of $9.8 million and an operating ratio of 107.7% in the third quarter of 2011, which included pre-tax non-cash goodwill impairment charge of $11.5 million or approximately 910 basis points of the third quarter of 2011 operating ratio;
• Net income of $1 million, or $0.07 per share, compared with net loss of $11.2 million, or ($0.76) per share in the third quarter of 2011, which included after-tax non-cash goodwill impairment charges of $9.4 million or ($0.64) per share;
• Reduction of $14.4 million in lease-adjusted indebtedness during the quarter, bringing the reduction for the nine months ended September 30, 2012 to $63.6 million;

Chairman, President, and Chief Executive Officer David R. Parker made the following comments: "Our financial and operating performance in the third quarter of 2012 was encouraging in light of a seasonally weak overall freight environment and rising diesel fuel prices. The domestic freight market underperformed expectations for the first two months of the quarter, but improved somewhat in September. Freight for the first three weeks of October has been similar to what we experienced in September. On a year-over-year basis, our comparisons were quite good, principally because the 2011 quarter was negatively impacted by conversion to a new enterprise management software that substantially disrupted our operations during that quarter. Accordingly, we do not consider the increase of 12.9% in our average freight revenue per truck indicative of the operating environment. We were pleased with the more relevant 2.2% sequential increase in average freight revenue per truck per week as compared to the second quarter of 2012. Key factors in the improvement were improved network yields, a higher percentage of seated trucks, and a higher team-driven truck fleet overall and as a percentage of the fleet, which more than overcame slower overall industry demand and fewer business days. Our sales, operations, and driving personnel improved their execution of the business, and we continued to allocate assets to more productive business units. The difference in diesel fuel prices was a significant factor in our financial results for the third quarter of 2012 compared with the second quarter of 2012. After falling sharply during the second quarter of 2012, diesel prices escalated over the first two months of the quarter before steadying during September, averaging approximately eleven cents per gallon higher than in the second quarter of 2012. The lag associated with passing through fuel surcharges as fuel prices escalated unfavorably impacted our earnings per share by approximately 16 cents per share compared with the second quarter of 2012's benefit from the plunging diesel fuel prices experienced during that quarter.

"For the quarter, total revenue in our asset-based operations increased to $161.6 million, an increase of $7.0 million compared with the third quarter of 2011. This increase consisted of higher freight revenues of $6.5 million and higher fuel surcharge revenue of $0.5 million. The $6.5 million increase in freight revenues related to a 12.9% increase in average freight revenue per tractor per week, partially offset by a 6.6% decrease of our average tractor fleet.

"Average freight revenue per tractor per week increased to $3,408 during the 2012 quarter from $3,019 during the 2011 quarter. Average freight revenue per total mile increased by 8.7 cents per mile (or 6.2%) compared to the 2011 quarter, while average miles per unit increased by 6.3%. Our non-revenue miles percentage increased by 25 basis points compared with the 2011 quarter. As of September 30, 2012, our fleet was seated with drivers at a higher percentage compared to September 30, 2011 with an approximately 340 basis point improvement. These significant favorable comparisons to prior year's revenue statistics may not be indicative of the operating environment, so we are also providing what may be a better indication of our current progress by comparing our third quarter of 2012 revenue statistics to our second quarter of 2012 revenue statistics. Average freight revenue per tractor per week increased sequentially to $3,408 during the current quarter from $3,335 during the second quarter. Average freight revenue per total mile increased by 3.0 cents per mile (or 2.1%) compared to the second quarter, while average miles per unit increased by 1.3%. Our non-revenue miles percentage increased by 10 basis points compared with the second quarter. As of September 30, 2012, our fleet was seated with drivers at a higher percentage compared to June 30, 2012 with an approximately 310 basis point improvement.

"We experienced cost pressure in several areas. Salaries, wages and related expenses increased approximately 1.4 cents per mile due to driver pay adjustments since the third quarter of 2011, partially offset by lower workers' compensation expense and decreases due to a higher percentage of owner-operators. Owner-operator expense increased approximately 5.6 cents per mile on a total mile basis compared with the 2011 quarter as the owner-operator miles as a percentage of our total miles climbed to 9.4% in the 2012 quarter from 5.4% in the 2011 quarter. We are continuing our objective of growing our owner-operator fleet as a percentage of our total fleet. Increasing owner-operator capacity has shifted (and assuming all other factors remain equal is expected to continue to shift) expenses to the purchased transportation line item with offsetting reductions in employee driver wages and related expenses, net fuel, maintenance, and capital costs.

"Net fuel cost (fuel and fuel tax, less fuel surcharge revenue) provided a significant benefit during the 2012 quarter compared with the third quarter of 2011. Fuel prices as measured by the Department of Energy averaged approximately $0.07/gallon higher in the third quarter of 2012 compared with the 2011 quarter. However, our improved fuel economy, benefits from our fuel hedging program and slightly improved fuel surcharge recovery overcame higher prices and resulted in an approximately 4.4 cents per company mile reduction in our per mile cost of fuel, net of fuel surcharge revenue. Sequentially, our per company mile cost for fuel, net of fuel surcharge revenue, was approximately 3.1 cents per mile higher in the third quarter than in the second quarter of 2012. We expect to continue managing our idle time and truck speeds, investing in more fuel-efficient tractors, and partnering with customers to adjust fuel surcharge programs which are inadequate to recover a fair portion of rising fuel costs. In addition, we expect to continue using fuel price hedges periodically to mitigate the potential volatility in fuel prices relating to the portion of our fuel usage that is not covered by fuel surcharges, which may result in positive or negative results in any given quarter."

Mr. Parker offered the following comments concerning Covenant Transport Solutions, Inc. ("Solutions"), the Company's freight brokerage subsidiary: "For the quarter, Solutions' total revenue remained basically even with the same quarter of 2011 at $6.8 million for the 2012 quarter. Operating loss was approximately $221,000 for an operating ratio of 103.2%, compared with operating income of $493,000 and an operating ratio of 92.7% in the third quarter of 2011. Solutions' gross margins weakened compared to a very strong 2011 quarter as purchased transportation was 80.6% of total revenue in the current quarter, compared with 75.1% of total revenue in the prior year quarter. Solutions' other operating expenses as a percentage of revenue increased to 22.7% of total revenue in the third quarter of 2012 from 17.6% of total revenue in the third quarter of 2011. The increase in expenses primarily relates to investing in additional personnel, locations and related startup expenses that are expected to expand the capacity and range of services offered to our customers and carrier base in future periods."

Richard B. Cribbs, the Company's Senior Vice President and Chief Financial Officer, added the following comments: "At September 30, 2012, our total balance sheet debt and capital lease obligations, net of cash, were $164.4 million, and the discounted value of future obligations under off-balance sheet operating lease obligations was approximately $68.9 million, including the residual value guarantees under those leases. At September 30, 2012, our stockholders' equity was $94.0 million, and our tangible book value was $93.4 million, or $6.33 per basic share. Since the end of 2011, the Company's balance sheet debt and capital lease obligations, net of cash, has decreased by $74.2 million, while the present value of financing provided by operating leases increased by approximately $10.6 million. At September 30, 2012, our ratio of net debt to total balance sheet capitalization was 63.6%.

"Our existing annual tractor fleet plan for 2012 includes the delivery of approximately 420 tractors and disposal of approximately 750 used tractors, of which we took delivery of approximately 236 tractors and disposed of approximately 600 tractors in the first nine months of fiscal 2012. In addition, our strategy to increase the number and relative percentage of our fleet utilizing less capital-intensive owner-operators has resulted in an increase of approximately 52 owner-operator trucks, or a 24.1% increase, since December 31, 2011. With a relatively young average tractor fleet age of 24 months at September 30, 2012, we believe there is significant flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle and new tractor purchase requirements. We had $34.3 million of available borrowing capacity under our revolving credit facility at September 30, 2012. In addition, we believe we have sufficient financing available from the captive finance subsidiaries of our main tractor suppliers and other available financing to fund our expected revenue equipment purchases in 2012 and 2013.

"We were in compliance with our financial covenants at September 30, 2012. Our leverage ratio as measured under our primary credit facility (total debt, capital leases, the present value of operating leases, and letters of credit outstanding divided by adjusted earnings before interest, taxes, depreciation, amortization and rents ("EBITDAR")), was 3.05, with $42.4 million of undrawn letters of credit included in the calculation. Our 49% equity investment in Transport Enterprise Leasing contributed approximately $0.6 million of pre-tax income in the third quarter."

Covenant Transportation Group, Inc. is the holding company for several transportation providers that offer premium transportation services for customers throughout the United States. The consolidated group includes operations from Covenant Transport and Covenant Transport Solutions of Chattanooga; Southern Refrigerated Transport of Texarkana, Arkansas; and Star Transportation of Nashville. In addition, Transport Enterprise Leasing, of Chattanooga, Tennessee is an integral affiliated company. The Company's Class A common stock is traded on the NASDAQ Global Select under the symbol, "CVTI".