Covenant Transportation Group, Inc. (Nasdaq:CVTI) announced today
financial and operating results for the first quarter ended March
31, 2015.
Highlights for the quarter included the following:
- Total revenue of $167.2 million, an increase of 3.9% compared
with the first quarter of 2014.
- Freight revenue of $143.3 million (excludes revenue from fuel
surcharges), an increase of 13.5% compared with the first quarter
of 2014.
- Operating income of $10.0 million and an operating ratio of
93.0%, compared with operating income of $0.4 million and an
operating ratio of 99.7% in the first quarter of 2014. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $10.2 million, or $0.56 per diluted share,
compared with net loss of $1.4 million, or ($0.09) per diluted
share in the first quarter of 2014, on a 22.7% increase in weighted
average diluted shares resulting primarily from the Company's
public offering of 3,036,000 common shares completed in November
2014.
- Net income and earnings per share for the first quarter of 2015
included a federal income tax credit of approximately $4.7 million,
or $0.26 per diluted share recognized as a discrete item, that is
not expected to continue in future periods.
Management Discussion—Asset-Based Truckload
Operations Chairman, President, and Chief Executive
Officer, David R. Parker, made the following comments: "For the
quarter, total revenue in our asset‑based operations increased to
$157.2 million, an increase of $7.0 million compared with the first
quarter of 2014. This increase consisted of higher freight revenue
of $17.7 million, partially offset by lower fuel surcharge revenue
of $10.7 million. The $17.7 million increase in freight revenue
related to a 12.1% increase in average freight revenue per tractor
per week, a 55 truck (or 2.1%) increase in our average tractor
fleet, and a $1.3 million increase of freight revenue contributed
from our refrigerated intermodal service offering. The 2.1% average
tractor fleet increase is especially gratifying as it marks the
first time we have achieved any year-over-year increase since the
fourth quarter of fiscal 2010. Team-driven trucks increased to an
average of 928 teams in the first quarter of 2015, an increase of
approximately 17.3% over the average of 791 in the first quarter of
2014, as well as a 1.8% sequential increase over the average of 912
teams in the fourth quarter of 2014.
"Average freight revenue per tractor per week increased to
$3,743 during the 2015 quarter from $3,339 during the 2014 quarter.
Average freight revenue per total mile increased by 8.8 cents per
mile (or 5.9%) compared to the 2014 quarter on an approximately
7.4% increase in average length of haul. Average miles per unit
increased by 5.9%. The main factors impacting the improved
utilization were a 450 basis point increase in the percentage of
our fleet comprised of team-driven trucks, a tighter overall
freight network for our service offerings, less harsh weather and a
higher seated truck percentage. On average, approximately 4.9% of
our fleet lacked drivers during the 2015 quarter compared with
approximately 5.6% during the 2014 quarter.
"Our operating cost per mile improved by 1.9 cents per mile
compared with the 2014 quarter. Capital costs (consisting of
depreciation and amortization (which includes gain or loss on
disposition of assets), revenue equipment rentals and interest
expense) decreased by approximately $2.3 million. Combined revenue
equipment rentals and interest expense decreased $3.6 million
primarily resulting from repayments of debt and leases from the
approximately $63.0 million proceeds from our late November public
offering. These cost improvements were partially offset by higher
depreciation expense of $1.3 million for more expensive tractors
and an updated trailer fleet, net of an approximately $0.6 million
increase in gain on sale of assets. We continue to invest in new,
more fuel-efficient equipment that offers dependability, lower
operating costs, improved safety technology, and improved driver
satisfaction. The younger fleet of tractors and trailers also
contributed to an approximately 2.7 cent per mile reduction of our
operations & maintenance expense for the 2015 quarter as
compared to the 2014 quarter.
"Net fuel expense improved meaningfully as a result of our
capital investments in new tractors and aerodynamic trailers,
efficiency initiatives, improved fuel pricing, and favorable
adjustments to fuel surcharge programs from customers, partially
offset by unfavorable fuel hedging results. Net fuel expense was
approximately 10.7 cents per company mile in the 2015 quarter
compared with 12.2 cents per company mile in the 2014 quarter.
Ultra low sulfur diesel prices as measured by the Department of
Energy averaged approximately $1.04/gallon lower in the first
quarter of 2015 compared with the 2014 quarter. Losses from fuel
hedging transactions were $3.1 million in the 2015 quarter compared
with gains of $0.3 million in the 2014 quarter. 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 favorable or unfavorable results in any given quarter.
"Salaries, wages and related expenses increased approximately
2.1 cents per mile due to a higher percentage of our fleet
comprised of team-driven tractors, employee pay adjustments since
the first quarter of 2014, and higher group health insurance
expense, partially offset by lower workers' compensation
expense.
"Insurance and claims per mile cost increased to 13.1 cents per
mile in the first quarter of 2015 from 8.0 cents per mile in the
first quarter of 2014. The increase primarily related to a greater
severity of claims for accidents incurred during the first quarter
of 2015."
Management Discussion—Non-Asset Based Brokerage and
Other Operations
Mr. Parker offered the following comments concerning Covenant
Transport Solutions, Inc. ("Solutions"), the Company's non-asset
based subsidiary: "For the quarter, Solutions' total revenue
decreased 6.9%, to $10.0 million from $10.7 million in the same
quarter of 2014. Operating income was approximately $337,000 for an
operating ratio of 96.6%, compared with operating income of
approximately $541,000 and an operating ratio of 94.9% in the first
quarter of 2014. In addition, our 49% equity investment in
Transport Enterprise Leasing ("TEL") contributed approximately $1.4
million of pre-tax income in the quarter compared with $0.8 million
in the first quarter of 2014."
Cash Flow and Liquidity
Richard B. Cribbs, the Company's Senior Vice President and Chief
Financial Officer, added the following comments: "At March 31,
2015, our total balance sheet debt and capital lease obligations,
net of cash, were $154.1 million, our stockholders' equity was
$180.8 million, and our tangible book value was $180.5 million, or
$9.95 per basic share. At March 31, 2015, our ratio of net debt to
total balance sheet capitalization was 46.0%. At March 31, 2015,
the discounted value of future obligations under off-balance sheet
operating lease obligations was approximately $43.4 million,
including the residual value guarantees under those leases, and we
believe the value of the leased equipment was approximately equal
to the present value of such lease obligations. Since the end of
2014, the Company's balance sheet debt and capital lease
obligations, net of cash, has decreased by $26.9 million, while the
present value of financing provided by operating leases decreased
by approximately $2.3 million. At March 31, 2015, we had
approximately $43.8 million of borrowing availability under our
revolving line of credit.
"In the first quarter of 2015, we took delivery of approximately
105 new company tractors and disposed of approximately 130 used
tractors. Our current tractor fleet plan for full-year 2015
includes the delivery of approximately 700 new company tractors,
and the disposal of approximately 745 used tractors as we reduce
the number of out-of-service tractors from our fleet from the
beginning of the year. With a relatively young average company
tractor fleet age of 1.7 years at March 31, 2015, 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 believe we have sufficient financing
available from the captive finance subsidiaries of our main tractor
suppliers, our revolving credit facility, and other sources to fund
our expected revenue equipment purchases in 2015."
Outlook
"Our outlook for 2015 remains positive. We expect our average
fleet size to be approximately 3%-5% above that of fiscal 2014. In
addition, we expect to report earnings in the second quarter in a
range of $0.38 to $0.48 per diluted share, on approximately 18.5
million weighted average diluted shares. We remain cautious of our
ability to achieve meaningful year-over-year improvements in
earnings per share in the second half of the year (taking into
consideration expected weighted average diluted shares
year-over-year increases of approximately 21% for the third quarter
and 11% for the fourth quarter). Second half performance will
depend to a significant extent on the level of involvement of our
asset-based and Solutions subsidiaries in the supply chains of our
LTL, parcel, and omni-channel shipping customers during the 2015
peak freight season and the associated pricing for our
services."
Conference Call Information
The Company will host a live conference call tomorrow, April 24,
2015, at 10:00 a.m. Eastern time to discuss the quarter.
Individuals may access the call by dialing 800-351-4894
(U.S./Canada) and 800-756-3333 (International), access code
CTG1. An audio replay will be available for one week following
the call at 877-919-4059, access code 73218300. For additional
financial and statistical information regarding the Company that is
expected to be discussed during the conference call, please visit
our website at www.ctgcompanies.com/investor-relations under the
icon "Earnings Info."
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, Tennessee; Southern
Refrigerated Transport of Texarkana, Arkansas; and Star
Transportation of Nashville, Tennessee. In addition, Transport
Enterprise Leasing, of Chattanooga, Tennessee is an integral
affiliated company providing revenue equipment sales and leasing
services to the trucking industry. The Company's Class A common
stock is traded on the NASDAQ Global Select under the symbol,
"CVTI".
This press release contains certain statements that may be
considered forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended,and such statements
are subject to the safe harbor created by those sections and the
Private Securities Litigation Reform Act of 1995, as amended.
Such statements may be identified by their use of terms or
phrases such as "expects," "estimates," "projects," "believes,"
"anticipates," "plans," "intends," "outlook," and similar terms and
phrases. Forward-looking statements are based upon the
current beliefs and expectations of our management and are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified, which could cause future events and
actual results to differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements.
In this press release, the statements relating to equipment
purchases and disposals, sources of funding for such purchases, and
the statements under "Outlook" are forward-looking statements. Such
items have not been subjected to all the review and audit
procedures associated with the release of actual financial results.
The following factors, among others, could cause actual
results to differ materially from those in the forward-looking
statements: elevated experience in the frequency and severity of
claims relating to accident, cargo, workers' compensation, health,
and other claims, increased insurance premiums, fluctuations
in claims expenses that result from our self-insured retention
amounts, including in our excess layers and in respect of claims
for which we commute policy coverage, and the requirement that we
pay additional premiums if there are claims in certain of those
layers, differences between estimates used in establishing and
adjusting claims reserves and actual results over time (including
with respect to the adverse judgment on the 2008 cargo claim
announced in the third quarter of 2014), adverse changes in claims
experience and loss development factors, or additional changes in
management's estimates of liability based upon such experience and
development factors that cause our expectations of insurance and
claims expense to be inaccurate or otherwise impacts our results;
changes in the market condition for used revenue equipment and real
estate that impact our capital expenditures and our ability to
dispose of revenue equipment and real estate on the schedule and
for the prices we expect; increases in the prices paid for new
revenue equipment that impact our capital expenditures and our
results generally; changes in management's estimates of the need
for new tractors and trailers; the effect of any reduction in
tractor purchases on the number of tractors that will be accepted
by manufacturers under tradeback arrangements; our inability to
generate sufficient cash from operations and obtain financing on
favorable terms to meet our significant ongoing capital
requirements; our ability to maintain compliance with the
provisions of our credit agreements, particularly financial
covenants in our revolving credit facility; excess tractor or
trailer capacity in the trucking industry; decreased demand for our
services or loss of one or more of our major customers; our ability
to renew dedicated service offering contracts on the terms and
schedule we expect; surplus inventories, recessionary economic
cycles, and downturns in customers' business cycles; strikes, work
slowdowns, or work stoppages at the Company, customers, ports, or
other shipping related facilities; increases or rapid fluctuations
in fuel prices, as well as fluctuations in hedging activities and
surcharge collection, including, but not limited to, changes in
customer fuel surcharge policies and increases in fuel surcharge
bases by customers; the volume and terms of diesel purchase
commitments and hedging contracts; interest rates, fuel taxes,
tolls, and license and registration fees; increases in compensation
for and difficulty in attracting and retaining qualified drivers
and independent contractors; seasonal factors such as harsh weather
conditions that increase operating costs; competition from
trucking, rail, and intermodal competitors; regulatory requirements
that increase costs, decrease efficiency, or reduce the
availability of drivers, including revised hours-of-service
requirements for drivers and the Federal Motor Carrier Safety
Administration's Compliance, Safety, Accountability program that
implemented new driver standards and modified the methodology for
determining a carrier's DOT safety rating; the ability to reduce,
or control increases in, operating costs; changes in the Company's
business strategy that require the acquisition of new businesses,
and the ability to identify acceptable acquisition candidates,
consummate acquisitions, and integrate acquired operations;
fluctuations in the results of Transport Enterprise Leasing, which
are included as equity in income (loss) of affiliate in our
financial statements. Readers should review and consider these
factors along with the various disclosures by the Company in its
press releases, stockholder reports, and filings with the
Securities and Exchange Commission. We disclaim any obligation to
update or revise any forward-looking statements to reflect actual
results or changes in the factors affecting the forward-looking
information.
Covenant Transportation
Group, Inc. |
Key Financial and
Operating Statistics |
|
|
INCOME STATEMENT
DATA |
|
Three Months
Ended March 31, |
($000s, except per share
data) |
2015 |
2014 |
% Change |
Freight revenue |
$143,335 |
$126,244 |
13.5% |
Fuel surcharge revenue |
23,881 |
34,713 |
|
Total revenue |
$167,216 |
$160,957 |
3.9% |
|
|
|
|
Operating expenses: |
|
|
|
Salaries, wages, and related
expenses |
58,253 |
52,874 |
|
Fuel expense |
31,894 |
43,176 |
|
Operations and maintenance |
10,797 |
12,031 |
|
Revenue equipment rentals and purchased
transportation |
23,208 |
25,335 |
|
Operating taxes and licenses |
2,661 |
2,745 |
|
Insurance and claims |
10,769 |
6,106 |
|
Communications and utilities |
1,527 |
1,437 |
|
General supplies and expenses |
3,682 |
3,809 |
|
Depreciation and amortization, including
gains and losses on disposition of property and equipment |
14,382 |
13,090 |
|
Total operating expenses |
157,173 |
160,603 |
|
Operating income |
10,043 |
354 |
|
Other (income) expenses: |
|
|
|
Interest expense |
2,204 |
2,751 |
|
Interest income |
-- |
(4) |
|
Other |
-- |
-- |
|
Other expenses, net |
2,204 |
2,747 |
|
Equity in income of affiliate |
1,385 |
800 |
|
Income (loss) before income taxes |
9,224 |
(1,593) |
|
Income tax expense (benefit) |
(1,003) |
(219) |
|
Net income (loss) |
$10,227 |
($1,374) |
|
|
|
|
|
Basic earnings (loss) per
share |
$0.56 |
($0.09) |
|
Diluted earnings (loss) per
share |
$0.56 |
($0.09) |
|
Basic weighted average shares outstanding
(000s) |
18,145 |
14,915 |
|
Diluted weighted average shares outstanding
(000s) |
18,307 |
14,915 |
|
|
|
|
|
|
Three Months
Ended March 31, |
|
2015 |
2014 |
% Change |
($000s) |
SEGMENT
REVENUES |
Asset-based trucking revenues |
$133,369 |
$115,541 |
15.4% |
Covenant Transport Solutions non-asset based
revenues |
9,966 |
10,703 |
-6.9% |
Freight revenue |
$143,335 |
$126,244 |
13.5% |
|
|
|
|
|
OPERATING
STATISTICS |
Average freight revenue per loaded mile |
$1.762 |
$1.663 |
5.9% |
Average freight revenue per total mile |
$1.586 |
$1.498 |
5.9% |
Average freight revenue per tractor per
week |
$3,743 |
$3,339 |
12.1% |
Average miles per tractor per period |
30,338 |
28,647 |
5.9% |
Weighted avg. tractors for period |
2,707 |
2,652 |
2.1% |
Tractors at end of period |
2,722 |
2,623 |
3.8% |
Trailers at end of period |
6,690 |
6,952 |
-3.8% |
|
SELECTED BALANCE SHEET
DATA |
($000s, except per share
data) |
3/31/2015 |
12/31/2014 |
|
Total assets |
$528,778 |
$554,017 |
|
Total stockholders' equity |
$180,758 |
$169,204 |
|
Total balance sheet debt, net of cash |
$154,136 |
$181,003 |
|
Net Debt to Capitalization Ratio |
46.0% |
51.7% |
|
Tangible book value per basic share |
$9.95 |
$9.34 |
|
CONTACT: For further information contact:
Richard B. Cribbs,
Senior Vice President and Chief Financial Officer
(423) 463-3331
Richard.Cribbs@ctgcompanies.com
For copies of Company information contact:
Kim Perry, Administrative Assistant
(423) 463-3357
Kimberly.Perry@ctgcompanies.com
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