Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”) announced
today financial and operating results for the first quarter ended
March 31, 2018.
Highlights for the quarter included the
following:
- Total revenue of $173.6 million, an
increase of 9.3% compared with the first quarter of 2017.
- Freight revenue of $150.5 million
(excludes revenue from fuel surcharges), an increase of 7.4%
compared with the first quarter of 2017.
- Operating income of $6.4 million
and an operating ratio of 95.7%, compared with operating income of
$0.3 million and an operating ratio of 99.8% in the first quarter
of 2017. Operating ratio is defined as: total operating expenses
minus fuel surcharge revenue, divided by freight revenue.
- Net income of $4.4 million, or
$0.24 per diluted share, compared with a net loss of $39 thousand,
or ($0.00) per diluted share in the first quarter of 2017. Net loss
for the first quarter of 2017 included an unfavorable impact
totaling approximately $0.6 million attributable to an increased
reserve in respect to an adverse cargo claim judgment stemming from
a cargo loss in 2008.
Management Discussion—Asset-Based
Truckload OperationsChairman, and Chief Executive Officer,
David R. Parker, made the following comments: “We were pleased that
each of our three asset-based units – expedited, dedicated, and
solo refrigerated – generated an improved operating margin
compared with the 2017 quarter. The expedited and solo
refrigerated units improved by approximately 500 basis points each,
while the more consistent dedicated unit improved by approximately
100 basis points. For the quarter, total revenue in our asset‑based
operations increased to $154.5 million, an increase of $8.9 million
compared with the first quarter of 2017. This increase
consisted of $4.4 million higher freight revenue and $4.5 million
higher fuel surcharge revenue. The $4.4 million increase in freight
revenue related to a 6.3% increase in average freight revenue per
tractor in the 2018 period as compared to the 2017 period,
partially offset by a $3.2 million year-over-year reduction in
intermodal revenues as we effectively discontinued this
consistently unprofitable service offering within our solo
refrigerated business unit during December 2017.
“Average freight revenue per tractor per week
increased to $3,993 during the 2018 quarter from $3,755 during the
2017 quarter. Average freight revenue per total mile increased by
15.4 cents per mile, or 9.5%, compared to the 2017 quarter and
average miles per tractor decreased by 2.9%. The main factors
impacting the decreased utilization was the approximate 420 basis
point decrease in the percentage of our fleet comprised of
team-driven trucks and a lower average seated truck percentage.
Team-driven trucks decreased to an average of 894 teams (or 34.9%
of the total fleet) in the first quarter of 2018 versus an average
of 1,003 teams (or 39.1% of the total fleet) in the first quarter
of 2017. On average, approximately 6.2% of our fleet lacked drivers
during the 2018 quarter compared with approximately 4.2% during the
2017 quarter.
“Salaries, wages and related expenses increased
approximately 3.8 cents per total mile due primarily to employee
pay adjustments since the first quarter of 2017, partially offset
by the reduced percentage of team-driven trucks.
“Net fuel expense decreased by approximately 3.4
cents per total mile in the 2018 quarter, primarily as a result of
improvement in fuel hedging activity, with $0.2 million of fuel
hedge gains in the 2018 quarter compared with $1.2 million of fuel
hedge losses in the 2017 quarter. In addition, our fuel surcharge
recovery was more effective during the 2018 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 $0.45/gallon
higher in the first quarter of 2018 compared with the 2017
quarter.
Management Discussion—Non-Asset Based
Managed Freight and Other OperationsMr. Parker offered the
following comments concerning Covenant Transport Solutions, Inc.
(“Solutions”), the Company’s non-asset based managed freight
subsidiary: “For the quarter, Solutions’ total revenue increased
45.0%, to $19.0 million from $13.1 million in the same quarter of
2017. Operating income was approximately $1.1 million for an
operating ratio of 94.4%, compared with operating income of
approximately $1.4 million and an operating ratio of 89.0% in the
first quarter of 2017. Due primarily to a more competitive market
for sourcing third party capacity, Solutions’ net revenue margin
declined by approximately 800 basis points versus a very strong
2017 quarter, and we expect net revenue margin to remain in the
mid-to-high teens for the balance of 2018. While the revenue
growth in 2018 has helped spread SG&A costs, Solutions’
operating ratio could slip further due to planned investments in
strategic employees, as well as a new transport management system
to enhance our supply chain services and growth potential. In
addition, our 49% equity investment in Transport Enterprise Leasing
(“TEL”) contributed approximately $1.5 million of pre-tax income in
the quarter compared with $1.0 million in the first quarter of
2017.”
Cash Flow, Liquidity and
CapitalizationRichard B. Cribbs, the Company's Executive
Vice President and Chief Financial Officer, added the following
comments: “At March 31, 2018, our total balance sheet debt and
capital lease obligations, net of cash, were $175.5 million, and
our stockholders’ equity was $301.7 million, for a ratio of net
debt to total balance sheet capitalization of 36.8%. At March 31,
2018, the discounted value of future obligations under off-balance
sheet operating lease obligations was approximately $19.6 million.
Since the end of 2017, the Company's balance sheet debt and capital
lease obligations, net of cash, decreased by $22.9 million, while
the present value of financing provided by operating leases
decreased $2.0 million. At March 31, 2018, we had approximately
$57.9 million of borrowing availability under our revolving line of
credit.
“Our net capital expenditures for the three
months ended March 31, 2018 approximated $13.7 million compared to
$15.9 million for the prior year period. In the first quarter of
2018, we took delivery of approximately 286 new company tractors
and disposed of approximately 252 used tractors. Our current
tractor fleet plan for full-year 2018 includes the delivery of
approximately 650 new company tractors, and the disposal of
approximately 690 used tractors. For 2018, the average size of our
tractor fleet is expected to be flat to up 1.0% as compared to the
average for 2017. Our average company tractor fleet age was 2.1
years at March 31, 2018, up slightly from 2.0 years at March 31,
2017.”
OutlookMr. Cribbs remarked on
the Company’s financial outlook: “From a financial perspective, we
are forecasting sequential operating income improvement in each of
the remaining quarters of 2018. Based on our expectation of a
continuation of recent U.S. economic growth, as well as continued
regulatory and demographic capacity constraints on driver
availability, we expect year-over-year average freight revenue per
total mile to be positive over the remainder of the year by a high
single digit percentage. The percentage may be greatest in
the second quarter, when a large portion of our annual contractual
rate revisions are scheduled and the comparison to last year's
quarter is most favorable. The expected increase in yield will be
offset in part by higher employee wages, the potential for miles
per tractor to remain lower than last year, and inflationary
factors. All in all, we expect meaningful year-over-year
improvements in earnings per share each quarter of 2018.”
Mr. Cribbs concluded: “In terms of strategic and
operating considerations, we remain focused on positioning our
service offerings for extended success in their respective markets
and continuing to develop and grow our professional driver employee
base. A key initiative for our business in 2018 is becoming
closer to our customers. As we allocate our capacity in the
currently robust freight market, we are seeking to partner with
customers that will integrate us deeper into their supply chains,
offer operationally friendly and seasonally manageable volumes, and
respect our drivers’ time and value. We expect to increase
our capital allocation toward dedicated, 3PL, and other managed
freight solutions to become the go-to partner for our customers’
most critical transportation and logistics needs. In this regard,
we believe our diverse service offerings provide a valuable asset
that we can leverage to achieve this goal, while our
enterprise-wide sales effort will make it easier to do business
with us. We continue to expect significant earnings contribution
from peak shipments in November-December of each year; however, the
focus on these other services is intended to reduce the seasonal
volatility we have experienced in previous years. As we
pursue our goals, we expect the professional driver environment to
continue to offer significant challenges as well as the opportunity
to differentiate the Covenant group of companies as the carrier of
choice for many drivers. Many small competitors face the
prospect of network disruption and substantially lower paid miles
for their drivers due to the enforcement of mandatory electronic
log requirements. Our network has been built on years of
electronic log compliance, and we are actively working with our
customers to maximize the efficiency and utility of our drivers’
hours of service. We expect to continue to reward our drivers
with pay increases to maintain or improve our seated truck
percentage. In addition, we will continue to be highly focused on
all aspects of our drivers’ experience, giving them the resources
they need to enjoy their time with us, spend more time with their
families, provide excellent customer service, and view us as a safe
and rewarding home.”
Conference Call InformationThe
Company will host a live conference call tomorrow, April 25, 2018,
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 79447829. 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.covenanttransport.com/investors 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 the net
revenue margin and operating ratio for Solutions, supply and demand
relationship, our current tractor fleet plan, average fleet size,
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 2018, any repeal of the
implementation of the rule requiring carriers to use ELDs, changes
in tax laws or in their interpretations, 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 |
|
Three Months Ended March 31, |
($000s, except
per share data) |
2018 |
2017 |
% Change |
Freight revenue |
$150,463 |
$140,126 |
7.4% |
Fuel surcharge
revenue |
23,103 |
18,618 |
24.1% |
Total
revenue |
$173,566 |
$158,744 |
9.3% |
|
|
|
|
Operating
expenses: |
|
|
|
Salaries,
wages, and related expenses |
60,619 |
59,324 |
|
Fuel
expense |
27,181 |
25,402 |
|
Operations and maintenance |
11,730 |
12,413 |
|
Revenue
equipment rentals and |
|
|
|
purchased
transportation |
30,691 |
25,372 |
|
Operating
taxes and licenses |
2,660 |
2,735 |
|
Insurance
and claims |
8,685 |
8,718 |
|
Communications and utilities |
1,741 |
1,628 |
|
General
supplies and expenses |
4,139 |
3,727 |
|
Depreciation and amortization, including gains and |
|
|
|
losses on
disposition of property and equipment |
19,695 |
19,116 |
|
Total operating
expenses |
167,141 |
158,435 |
|
Operating income |
6,425 |
309 |
|
Interest expense,
net |
1,960 |
2,081 |
|
Income from equity
method investment |
(1,490) |
(1,025) |
|
Income (loss) before
income taxes |
5,955 |
(747) |
|
Income tax expense
(benefit) |
1,538 |
(708) |
|
Net income (loss) |
$4,417 |
($39) |
|
|
|
|
|
Basic earnings
(loss) per share |
$0.24 |
($0.00) |
|
Diluted
earnings (loss) per share |
$0.24 |
($0.00) |
|
Basic weighted average
shares outstanding (000s) |
18,331 |
18,256 |
|
Diluted weighted
average shares outstanding (000s) |
18,406 |
18,336 |
|
|
|
|
|
|
Three Months Ended March 31, |
|
2018 |
2017 |
% Change |
($000s) |
SEGMENT REVENUES |
Asset-based truckload
revenues |
$131,445 |
$127,007 |
3.5% |
Non-asset based managed
freight revenues |
19,018 |
13,119 |
45.0% |
Freight
revenue |
$150,463 |
$140,126 |
7.4% |
|
|
|
|
|
OPERATING STATISTICS |
Average freight revenue
per loaded mile |
$1.949 |
$1.799 |
8.4% |
Average freight revenue
per total mile |
$1.770 |
$1.616 |
9.5% |
Average freight revenue
per tractor per week |
$3,993 |
$3,755 |
6.3% |
Average miles per
tractor per period |
29,010 |
29,873 |
-2.9% |
Weighted avg. tractors
for period |
2,560 |
2,565 |
-0.2% |
Tractors at end of
period |
2,576 |
2,570 |
0.2% |
Trailers at end of
period |
6,736 |
7,409 |
-9.1% |
|
SELECTED BALANCE SHEET DATA |
($000s, except
per share data) |
3/31/2018 |
12/31/2017 |
|
Total assets |
$655,333 |
$649,668 |
|
Total stockholders'
equity |
$301,688 |
$295,201 |
|
Total balance sheet
debt, net of cash |
$175,533 |
$198,443 |
|
Net Debt to
Capitalization Ratio |
36.8% |
40.2% |
|
Tangible book value per
basic share |
$16.46 |
$16.11 |
|
|
For further information contact:Richard B. Cribbs, Executive
Vice President and Chief Financial Officer
RCribbs@covenanttransport.com
For copies of Company information contact:Kim
Perry, Administrative Assistant
KPerry@covenanttransport.com
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