Covenant Logistics Group, Inc. announced today financial and operating results for the first quarter ended March 31, 2025, including a drop in earnings.
Chairman and Chief Executive Officer, David R. Parker commented: “Our first quarter earnings were $0.24 per diluted share or $0.32 per diluted share on a non-GAAP adjusted basis. The decrease in adjusted earnings per share compared with the first quarter of 2024 resulted primarily from sub-par equipment utilization due to prolonged inclement weather conditions and avian influenza outbreaks, which were especially severe this year. Overall, we remain confident in Covenant’s strategy, direction, and market position and our team’s ability to execute on the factors within our control. We enter the second quarter with modest rate increases secured in Expedited, higher margins in Managed Freight, and the expectation of revenue growth in our Dedicated, Managed Freight, and Warehousing divisions compared with the second quarter of 2024.
"We also recently completed a small tuck-in acquisition of a multi-stop distribution carrier that is expected to be immediately accretive to equipment utilization and earnings in our Dedicated division. In the current environment of uncertain demand, slow capacity exits, and escalating uncertainty regarding global trade policies, we continue to allocate capital to defensible niches, focus on cost control, and deliver superior service and value to customers.
"The new $50 million stock repurchase program announced today reaffirms our confidence in Covenant’s future. “Our 49% equity method investment with Transport Enterprise Leasing (“TEL”) contributed pre-tax net income of $3.8 million, or $0.10 per share, roughly in line with the prior year quarter’s results of $3.7 million.”
Paul Bunn, the Company’s President commented on truckload operations, “For the quarter, total revenue in our truckload operations decreased 0.9%, to $188.3 million. The decrease related primarily to $4.8 million less fuel surcharge revenue, which varies with the cost of fuel. Freight revenue grew by $3.1 million, or 2.0%, as a 7.6% increase in average tractor fleet was partially offset by lower equipment utilization.” Expedited Truckload Revenue Mr. Bunn added, “Freight revenue in our Expedited segment decreased $6.4 million, or 7.3%. Average total tractors decreased by 48 units or 5.3% to 852, compared to 900 in the prior year quarter. Average freight revenue per tractor per week decreased 1.1% as a result of a 2.8% decrease in utilization, partially offset by a 1.8% increase in freight revenue per total mile.” Dedicated Truckload Revenue “For the quarter, freight revenue in our Dedicated segment increased $9.5 million, or 13.1%. The average total tractors increased by 212 units or 16.7% to 1,479, compared to 1,267 in the prior year quarter. Average freight revenue per tractor per week decreased 2.1% as a result of a 12.5% decrease in utilization, partially offset by an 11.9% increase in freight revenue per total mile.”
Combined Truckload Operating Expenses Mr. Bunn continued, “Operating expenses in our combined truckload segments were a significant headwind for us in the quarter. The drivers of the increase primarily include salaries, wages and related expenses and operations and maintenance costs to operate our equipment. Expense increases were expected, as they relate to growth in high-service, low-mileage operations. The expense increases were partially offset by a 7.7% increase in revenue per total mile, but not fully covered due to lower than expected equipment utilization among other factors. “Salaries, wages and related expenses increased year-over-year by 15 cents, or approximately 12%, on a per total mile basis. The increase was driven primarily from the year-over-year impact of significant growth in our dedicated protein supply chain business as well as a significant increase to workers compensation claims expenses in the quarter. As we grow our dedicated fleet in niche services, it requires hiring and retaining skilled drivers and maintenance professionals to operate and maintain specialized equipment on loads that typically move heavy weights on non-paved roads with shorter lengths of haul, resulting in higher costs on a per total mile basis. “Operations and maintenance expenses increased 5 cents per total mile, or approximately 28%, compared to the prior year quarter. The primary factors driving the growth is consistent with what we are experiencing in salaries, wages and related expenses. As we grow our dedicated fleet in niche service areas with high stress demands on equipment and short length of hauls, our cost per total mile will continue to increase.
“For the quarter, Warehousing’s freight revenue decreased 6.0% versus the prior year quarter. Operating income and adjusted operating income for the Warehousing segment decreased $0.9 million compared to the first quarter of 2024, driven by the combination of facility-related cost increases for which we have not yet negotiated rate increases with our customers and start-up related costs and inefficiencies related to new business. We expect margins to expand on existing operations as the start-up phase rolls off and rate negotiations are concluded.” Capitalization, Liquidity and Capital Expenditures Tripp Grant, the Company’s Chief Financial Officer, added the following comments: “At March 31, 2025, our total indebtedness, composed of total debt and finance lease obligations, net of cash (“net indebtedness”), increased by $5.8 million to approximately $225.4 million as compared to December 31, 2024. In addition, our net indebtedness to total capitalization increased to 33.7% at March 31, 2025, from 33.4% at December 31, 2024. “The increase to net indebtedness in the quarter is primarily attributable to the payment of the first post-acquisition earnout payment of $12.5 million related to Lew Thompson’s growth, a payment of approximately $6.7 million related to the small tuck-in acquisition and approximately $18.5 million of net capital expenditures for revenue equipment. “At March 31, 2025, we had cash and cash equivalents totaling $11.2 million. Under our ABL credit facility, we had no borrowings outstanding, undrawn letters of credit outstanding of $19.9 million, and available borrowing capacity of $90.1 million.
“At the end of the quarter, we had $2.9 million in assets held for sale that we anticipate disposing of within twelve months. The average age of our tractors slightly decreased to 20 months compared to 21 months a year ago. “For the balance of 2025, our tentative baseline expectations for net capital equipment expenditures is $55 million to $65 million and is subject to change based on growth opportunities in our dedicated fleet and the potential impacts of tariffs during the year. Our equipment plan reflects our priorities of maintaining the average age of our fleet in a manner that allows us to optimize operational uptime and related operating costs and offer 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.” Stock Repurchase Program Authorization On April 23, 2025, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $50 million of the Company's Class A common stock from time-to-time based upon market conditions and other factors. The stock may be repurchased on the open market, in privately negotiated transactions, or other legally permissible means, including pursuant to Rule 10b5-1 trading plans. The Company did not place a limit on the duration of the repurchase program. The stock repurchase program does not obligate the Company to repurchase any specific number of shares, and the Company may suspend or terminate the program at any time without prior notice.
Outlook
Mr. Parker concluded, “Currently, the general freight market appears to be incrementally improving as capacity and demand are better balanced than they have been for approximately two years, and customers are acknowledging this during rate and volume allocation discussions. However, uncertainty around global trade policy may cause a temporary disruption to improvement, delaying the path to a 2025 recovery of the freight economy. Beyond the first quarter, we are focusing on positioning the Company to execute quickly and gain operating leverage as conditions improve, continuing to capture new dedicated contracts to expand the fleet organically, and evaluating multiple acquisition and investment opportunities. Our goal remains to grow profitably and generate meaningful returns for our stockholders while providing world-class career opportunities for our team members.”