Covenant Logistics Group, Inc. announced Tuesday financial and operating results for the first quarter ended March 31.
Chairman and Chief Executive Officer David R. Parker said, “We are pleased to report first quarter earnings of $0.29 per diluted share and non-GAAP adjusted earnings of $0.84 per diluted share. The primary EPS adjustment excludes approximately $8.1 million in pre-tax acquisition related contingent consideration expense for the achievement of certain growth goals for the Lew Thompson & Son poultry feed and live haul business acquired in the second quarter of 2023.
“We were pleased with how our team navigated the environment by capitalizing on opportunities where available, allocating equipment investments toward more profitable operations, and controlling costs. We believe that successfully executing two major startups in our Dedicated segment during the quarter will continue the momentum in future quarters as they fully ramp up. Our results during the first quarter continued to demonstrate the power of our diversified logistics service offerings. The first quarter’s freight market, consisting of freight rates and volumes, remained soft and in many ways comparable to a year ago. Adding to the general market headwinds, used equipment prices continued to decline and adverse weather conditions experienced in January created incremental cost and operational challenges.
“Our 49 percent equity method investment with Transport Enterprise Leasing contributed pre-tax net income of $3.7 million, or $0.20 per share, compared to $5.9 million, or $0.31 per share, in the 2023 quarter. The decrease in pre-tax net income for TEL was primarily a result of continued deterioration in the equipment market, suppressing gains on sale of used equipment.”
Paul Bunn, the company’s president and chief operating officer commented on truckload operations, “For the quarter, total revenue in our truckload operations increased 4.9 percent, to $190.0 million compared to 2023. The revenue increase consisted of $11.2 million more freight revenue and $2.4 million less fuel surcharge revenue. The increase in freight revenue primarily related to operating 72 or 3.4 percent more average tractors combined with improved utilization, offset by lower freight revenue per total mile compared to the prior year.”
Expedited Truckload Revenue
Mr. Bunn added, “Freight revenue in our Expedited segment increased $4.9 million, or 6.1 percent. Average total tractors increased by 44 units or 5.1 percent to 900, compared to 856 in the prior year quarter. Average freight revenue per tractor per week was comparable to the prior year as a result of a 6.6 percent improvement to utilization, offset by a reduction in average freight revenue per total mile. The improvement in utilization in a quarter plagued by winter weather is a testament to the
team’s ability to safely navigate obstacles during difficult conditions.”
Dedicated Truckload Revenue
“For the quarter, freight revenue in our Dedicated segment increased $6.2 million, or 9.4 percent. Average total tractors increased by 28 units or 2.3 percent to 1,267, compared to 1,239 in the prior year quarter. Average freight revenue per tractor per week increased 5.8 percent. Our strategy of exiting underperforming business and investing in niche areas with true value added services are driving improvements to our top line and bottom line results in this segment.”
Combined Truckload Operating Expenses
Mr. Bunn continued, “Our truckload operating cost per total mile are difficult to compare on a year over year basis because of the significant gain on sale of a terminal in the first quarter of 2023 and the large contingent consideration expense recorded in the first quarter of 2024. On a non-GAAP or adjusted basis, our truckload operating cost per total mile was comparable year over year, because of increases to fixed expenses related to revenue equipment and insurance related expenses, offset by reductions in compensation and operations and maintenance activities.”
“Salaries and wages and related expenses decreased year-over-year by 4 cents or approximately 3 percent on a per total mile basis, compared to the prior year primarily due to improved tractor utilization that more efficiently covered fixed compensation expense and lower overall driver cost based on the hiring and retention market.
“Operations and maintenance related expense decreased by 7 cents or approximately 27 percent on a per total mile basis, compared to the 2023 quarter, due to the reduction in the average age of our fleet and the improvement in both availability and cost of tires and maintenance related parts.
“Insurance and claims expense increased by 6 cents or approximately 36 percent on a per total mile basis, compared to the prior year quarter as a result of increases in current period claims expense and the development of prior period claims. Given our self-insurance limits, the amount of expense recognized from period to period can fluctuate.
“Fixed expenses related to revenue producing equipment, including depreciation, gain on sale, rent and lease expense increased in the first quarter by approximately $7.9 million or 9 cents per total mile compared to the prior year due to operating newer more costly equipment and a reduction of gain on sale of used equipment. In the first quarter of 2024, we recognized a loss on sale of equipment of $0.7 million, compared to a gain of $1.1 million in the prior year quarter.”
“For the quarter, Managed Freight’s freight revenue increased 3.4 percent, from the prior year quarter. Operating income improved 86.3 percent and adjusted operating income improved 102.2 percent compared to the first quarter of 2023, because the prior year included a large cargo related claim.”
“For the quarter, Warehousing’s freight revenue increased 4.3 percent versus the prior year quarter. Operating income and adjusted operating income for the Warehousing segment increased $2.0 million compared to the first quarter of 2023. The increase in revenue and operating income was primarily attributable to the year over year impact of customer rate increases that have taken effect.
Capitalization, Liquidity and Capital Expenditures
Tripp Grant, the company’s chief financial officer, said, “At March 31, our total indebtedness, composed of total debt and finance lease obligations, net of cash (“net indebtedness”), increased by $3.8 million to approximately $252.1 million as compared to Dec. 31. In addition, our net indebtedness to total capitalization increased to 38.2 percent at March 31 from 38.1 percent at Dec. 31.
"The increase in net indebtedness in the quarter is primarily attributable to the final post-acquisition earnout payment of $10.0 million related to AAT’s operational performance and approximately $12.0 million of net capital expenditures for revenue equipment, offset by cash flows from operations.
“At March 31, we had cash and cash equivalents totaling $3.0 million. Under our ABL credit facility,
we had no borrowings outstanding, undrawn letters of credit outstanding of $21.0 million, and available borrowing capacity of $89.0 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 March 31, no testing was required, and we do not expect testing to be required in the foreseeable future.
“At the end of the quarter, we had $8 million in assets held for sale that we anticipate disposing of within 12 months. The average age of our tractors has increased sequentially to 21 months compared to 19 months for the December 2023 quarter.
"For the balance of 2024, our baseline expectation for net capital equipment expenditures is $60 million to $70 million. Our current capital investment plan reflects our priorities of growing Dedicated with new poultry related business, maintaining the average age of our fleet in a manner that allows us to optimize operational uptime and related operating costs, and offering a fleet of equipment that our professional drivers are proud to operate. 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.”
Mr. Parker concluded, “We are once again pleased with our quarterly results, which were achieved during a very difficult operating environment. Although we believe freight market fundamentals are slowly improving, the second quarter has provided little evidence of a 2024 recovery. Regardless of the operating environment, we remain focused on our strategic plan and the tactical steps it takes to make us better every day. We will continue to execute on opportunities to dive deeper into the supply chain, add value for our customers, and create efficiencies across our enterprise, which we believe will allow us to become a stronger, more profitable, and more predictable business.”