Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”) announced
today financial and operating results for the third quarter ended
September 30, 2017.
Highlights for the quarter included the
following:
- Total revenue of $178.6 million, an increase of 8.6% compared
with the third quarter of 2016.
- Freight revenue of $159.5 million (excludes revenue from fuel
surcharges), an increase of 7.6% compared with the third quarter of
2016.
- Operating income of $9.0 million and an operating ratio of
94.3%, compared with operating income of $5.4 million and an
operating ratio of 96.3% in the third quarter of 2016. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $4.6 million, or $0.25 per diluted share,
compared with net income of $2.9 million, or $0.16 per diluted
share in the third quarter of 2016.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “Overall, freight demand
was strong and trucking capacity was tight during the third
quarter. The market improved each month and has continued at a
strong level in October. Equipment utilization measured by miles
per tractor improved in July and August. However, significant
disruption of freight activity from the two hurricanes depressed
September utilization. Consistent with a favorable balance of
supply and demand, we experienced significant growth in our average
rate per total mile for the quarter sequentially and on a
year-over-year basis. On a year-over-year basis from a cost
perspective, our margins were pressured by increasing employee pay
and equipment maintenance, somewhat offset by improved net fuel
expense and capital costs.”
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations increased to
$153.1 million, an increase of $4.5 million compared with the third
quarter of 2016. This increase consisted of a $1.6 million
increase in freight revenue and a $2.9 million increase in fuel
surcharge revenue. The $1.6 million increase in freight revenue
related to a 4.1% increase in average freight revenue per tractor
in the 2017 period as compared to the 2016 period, partially offset
by a 69 truck (or 2.6%) decrease in our average tractor fleet.
Team-driven trucks decreased to an average of 967 teams in the
third quarter of 2017, a decrease of approximately 2.9% versus the
average of 996 teams in the third quarter of 2016.
“Average freight revenue per tractor per week
increased to $3,922 during the 2017 quarter from $3,768 during the
2016 quarter. Average freight revenue per total mile increased by
7.0 cents per mile (or 4.4%) compared to the 2016 quarter and
average miles per tractor decreased by 0.3%. The main factor
impacting the decreased utilization was the disruption of the two
hurricanes during the 2017 quarter, partially offset by the tighter
freight market and a higher average seated truck percentage. On
average, approximately 4.9% of our fleet lacked drivers during the
2017 quarter compared with approximately 6.4% during the 2016
quarter.
“At SRT, our solo-driver refrigerated truckload
subsidiary, our operating loss narrowed sequentially and reflected
a substantial improvement over the operating loss SRT recognized in
the third quarter of 2016. The improved year-over-year results
reflect improvement in average rate per total mile, as well as
improved utilization, even with the disruption to SRT’s freight
network resulting from the hurricanes in the third quarter of
2017.
“Salaries, wages and related expenses increased
approximately 5.2 cents per mile due primarily to employee pay
adjustments since the third quarter of 2016.
“Operations and maintenance expenses increased
approximately 2.6 cents per mile due primarily due to additional
tractor maintenance expense associated with extending the trade
cycle of our tractors we commenced in the second half of 2016.
“Net fuel expense decreased by approximately 3.9
cents per mile to 8.9 cents per total mile in the 2017 quarter,
primarily as a result of lower fuel hedging losses, which were $1.0
million in the 2017 quarter compared with $4.0 million in the 2016
quarter. In addition, our fuel surcharge recovery was more
effective during the 2017 quarter and we expect to continue to
experience improved fuel economy as we upgrade our tractor
fleet. These favorable items were partially offset by
increased fuel pricing. Ultra-low sulfur diesel prices as measured
by the Department of Energy averaged approximately $0.24/gallon
higher in the third quarter of 2017 compared with the 2016
quarter.
“Capital costs (combined depreciation and
amortization, revenue equipment rentals, and interest expense)
decreased by approximately $1.3 million. The main factor was a $1.7
million year-over-year decrease in depreciation expense, resulting
from a smaller fleet and the disposal of a large portion of our
tractors for which we accelerated depreciation during the third
quarter of 2016 and replacing them with new tractors with lower
monthly depreciation per tractor. These savings were partially
offset by a $0.3 million increase in year-over-year loss on
disposal of equipment due to the soft used truck market.”
Management Discussion—Non-Asset Based
Logistics and Other OperationsMr. Parker offered the
following comments concerning Covenant Transport Solutions, Inc.
(“Solutions”), the Company’s non-asset based logistics
subsidiary: “For the quarter, Solutions’ total revenue
increased 60.8%, to $25.6 million from $15.9 million in the same
quarter of 2016. Approximately $3.4 million of the increased 2017
quarter revenue was associated with spot operations related to the
hurricane-affected regions. Operating income was approximately $2.5
million for an operating ratio of 90.3%, compared with operating
income of approximately $1.8 million and an operating ratio of
88.5% in the third quarter of 2016. In addition, our 49% equity
investment in Transport Enterprise Leasing (“TEL”) contributed
approximately $0.8 million of pre-tax income in the quarter
compared with $0.5 million in the third quarter of 2016.”
Cash Flow, Liquidity and
CapitalizationRichard B. Cribbs, the Company's Executive
Vice President and Chief Financial Officer, added the following
comments: “At September 30, 2017, our total balance sheet debt and
capital lease obligations, net of cash, were $211.6 million, and
our stockholders’ equity was $244.4 million, for a ratio of net
debt to total balance sheet capitalization of 46.4%. At September
30, 2017, the discounted value of future obligations under
off-balance sheet operating lease obligations was approximately
$14.4 million. Since the end of 2016, the Company's balance sheet
debt and capital lease obligations, net of cash, increased by $3.5
million, while the present value of financing provided by operating
leases decreased $4.3 million. At September 30, 2017, we had
approximately $55.6 million of borrowing availability under our
revolving line of credit.
“Our net capital expenditures for the nine
months ended September 30, 2017 approximated $52.0 million compared
to $46.0 million for the prior year period. In the first nine
months of 2017, we took delivery of approximately 605 new company
tractors and disposed of approximately 343 used tractors. Our
current tractor fleet plan for full-year 2017 includes the delivery
of approximately 640 new company tractors, and the disposal of
approximately 650 used tractors. For 2017, the average size of our
tractor fleet is expected to be approximately down 1.0% to 2.0% as
compared to 2016. Our average company tractor fleet age was 2.2
years at September 30, 2017, up from 1.7 years at September 30,
2016.”
OutlookMr. Cribbs continued:
“Our outlook for the fourth quarter of 2017 is positive. Our goal
remains to deliver earnings improvement for the fourth quarter of
2017 as compared to the fourth quarter of 2016. We expect strong
customer demand to continue throughout the fourth quarter in all of
our service offerings, as well as tightening of truckload supply as
the mandatory ELD implementation date approaches. However, the
timing and magnitude of these changes are difficult to predict and
may be different in each of our markets. We expect year-over-year
net fuel expense savings, and a flattening of the year-over-year
impact of the changes to our depreciation policy adopted in the
third quarter of 2016, somewhat offset by higher maintenance
expense and professional driver wages. At SRT, we expect additional
progress in the remaining quarter of 2017 versus 2016.”
Conference Call InformationThe
Company will host a live conference call tomorrow, October 20,
2017, at 11:00 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
CTG3. An audio replay will be available for one week
following the call at 877-919-4059, access code 56362687. 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 market 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 supply and
demand relationship, fuel economy on our new tractor fleet, our
current tractor fleet plan, average fleet size, the value of leased
equipment, and the statements under “Outlook” are forward-looking
statements. The following factors, among others, could cause actual
results to differ materially from those in the forward-looking
statements: the rates and volumes realized during our peak business
during the fourth quarter, any delay or repeal of the
implementation of the rule requiring carriers to use ELDs, 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, 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; the number of shares repurchased, if any; the
effects of repurchasing the shares on debt, equity, and liquidity;
the effects of repurchasing no or a nominal number of shares; and
the ultimate uses of repurchased shares, if any. 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 |
|
INCOME STATEMENT DATA |
|
|
Three Months Ended Sep 30, |
|
Nine Months Ended Sep 30, |
($000s, except per share data) |
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
Freight
revenue |
$159,500 |
|
$148,229 |
|
7.6% |
|
|
$445,212 |
|
$437,344 |
|
1.8% |
|
Fuel
surcharge revenue |
|
19,131 |
|
|
16,271 |
|
17.6% |
|
|
|
56,489 |
|
|
42,329 |
|
33.5% |
|
|
Total
revenue |
$178,631 |
|
$164,500 |
|
8.6% |
|
|
$501,701 |
|
$479,673 |
|
4.6% |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Salaries,
wages, and related expenses |
|
60,732 |
|
|
57,972 |
|
|
|
|
178,639 |
|
|
171,666 |
|
|
|
Fuel
expense |
|
25,998 |
|
|
26,436 |
|
|
|
|
76,310 |
|
|
75,989 |
|
|
|
Operations and maintenance |
|
13,046 |
|
|
11,359 |
|
|
|
|
37,504 |
|
|
34,227 |
|
|
|
Revenue
equipment rentals and |
|
|
|
|
|
|
|
|
purchased
transportation |
|
36,361 |
|
|
27,831 |
|
|
|
|
90,719 |
|
|
80,308 |
|
|
|
Operating
taxes and licenses |
|
2,364 |
|
|
2,815 |
|
|
|
|
7,197 |
|
|
8,404 |
|
|
|
Insurance
and claims |
|
7,681 |
|
|
8,362 |
|
|
|
|
24,313 |
|
|
21,985 |
|
|
|
Communications and utilities |
|
1,747 |
|
|
1,546 |
|
|
|
|
5,081 |
|
|
4,488 |
|
|
|
General
supplies and expenses |
|
3,729 |
|
|
3,405 |
|
|
|
|
10,919 |
|
|
10,193 |
|
|
|
Depreciation and amortization, including gains and |
|
|
|
|
|
|
|
|
losses on
disposition of property and equipment |
|
17,932 |
|
|
19,328 |
|
|
|
|
57,707 |
|
|
52,232 |
|
|
Total
operating expenses |
|
169,590 |
|
|
159,054 |
|
|
|
|
488,389 |
|
|
459,492 |
|
|
Operating
income |
|
9,041 |
|
|
5,446 |
|
|
|
|
13,312 |
|
|
20,181 |
|
|
Interest
expense, net |
|
2,174 |
|
|
1,959 |
|
|
|
|
6,216 |
|
|
6,210 |
|
|
Income from
equity method investment |
|
(750 |
) |
|
(450 |
) |
|
|
|
(2,575 |
) |
|
(2,450 |
) |
|
Income
before income taxes |
|
7,617 |
|
|
3,937 |
|
|
|
|
9,671 |
|
|
16,421 |
|
|
Income tax
expense |
|
2,985 |
|
|
1,068 |
|
|
|
|
3,530 |
|
|
5,568 |
|
|
Net
income |
$4,632 |
|
$2,869 |
|
|
|
$6,141 |
|
$10,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$0.25 |
|
$0.16 |
|
|
|
$0.34 |
|
$0.60 |
|
|
Diluted earnings per share |
$0.25 |
|
$0.16 |
|
|
|
$0.33 |
|
$0.59 |
|
|
Basic
weighted average shares outstanding (000s) |
|
18,288 |
|
|
18,194 |
|
|
|
|
18,275 |
|
|
18,177 |
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,424 |
|
|
18,287 |
|
|
|
|
18,373 |
|
|
18,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Sep 30, |
|
Nine Months Ended Sep 30, |
|
|
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
Asset-based
trucking revenues |
$133,935 |
|
$132,332 |
|
1.2% |
|
|
$389,832 |
|
$393,726 |
|
-1.0% |
|
Covenant
Transport Solutions non-asset based revenues |
|
25,565 |
|
|
15,897 |
|
60.8% |
|
|
|
55,380 |
|
|
43,618 |
|
27.0% |
|
|
Freight
revenue |
$159,500 |
|
$148,229 |
|
7.6% |
|
|
$445,212 |
|
$437,344 |
|
1.8% |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
Average
freight revenue per loaded mile |
$1.872 |
|
$1.797 |
|
4.2% |
|
|
$1.827 |
|
$1.802 |
|
1.4% |
|
Average
freight revenue per total mile |
$1.689 |
|
$1.619 |
|
4.4% |
|
|
$1.642 |
|
$1.614 |
|
1.7% |
|
Average
freight revenue per tractor per week |
$3,922 |
|
$3,768 |
|
4.1% |
|
|
$3,810 |
|
$3,750 |
|
1.6% |
|
Average
miles per tractor per period |
|
30,511 |
|
|
30,595 |
|
-0.3% |
|
|
|
90,489 |
|
|
90,930 |
|
-0.5% |
|
Weighted
avg. tractors for period |
|
2,533 |
|
|
2,602 |
|
-2.6% |
|
|
|
2,557 |
|
|
2,605 |
|
-1.8% |
|
Tractors at
end of period |
|
2,550 |
|
|
2,581 |
|
-1.2% |
|
|
|
2,550 |
|
|
2,581 |
|
-1.2% |
|
Trailers at
end of period |
|
7,114 |
|
|
7,090 |
|
0.3% |
|
|
|
7,114 |
|
|
7,090 |
|
0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED BALANCE SHEET DATA |
|
|
|
|
($000s, except per share data) |
9/30/2017 |
12/31/2016 |
|
|
|
|
|
Total
assets |
$650,289 |
|
$620,538 |
|
|
|
|
|
|
Total
stockholders' equity |
$244,392 |
|
$236,414 |
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$211,557 |
|
$208,075 |
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
|
46.4% |
|
|
46.8% |
|
|
|
|
|
|
Tangible
book value per basic share |
$13.36 |
|
$12.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For further information contact:Richard B.
Cribbs, Executive Vice President and Chief Financial
Officer Richard.Cribbs@ctgcompanies.com
For copies of Company information contact:Kim
Perry, Administrative
Assistant Kimberly.Perry@ctgcompanies.com
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