Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”)
announced today financial and operating results for the second
quarter ended June 30, 2018.
Highlights for the quarter included the
following:
- Total revenue of $196.3 million, an
increase of 19.5% compared with the second quarter of 2017.
- Freight revenue of $170.6 million
(excludes revenue from fuel surcharges), an increase of 17.2%
compared with the second quarter of 2017.
- Operating income of $14.1 million
and an operating ratio of 91.8%, compared with operating income of
$4.0 million and an operating ratio of 97.3% in the second quarter
of 2017. Operating ratio is defined as: total operating expenses
minus fuel surcharge revenue, divided by freight revenue.
- Net income of $10.0 million, or
$0.54 per diluted share, compared with net income of $1.5 million,
or $0.08 per diluted share in the second quarter of 2017.
Management Discussion—Truckload
OperationsChairman and Chief Executive Officer, David R.
Parker, made the following comments: “We are pleased with our
truckload operating margin improvement. Our truckload operations’
91.9% operating ratio for the second quarter of 2018 represents 620
basis points of improvement on a year-over-year basis and 400 basis
points of sequential improvement as compared to the first quarter
of 2018. For the quarter, total revenue in our truckload operations
increased to $170.7 million, an increase of $23.1 million compared
with the second quarter of 2017. This increase consisted of
$16.1 million higher freight revenue and $7.0 million higher fuel
surcharge revenue. The $16.1 million increase in freight revenue
related to a 14.2% increase in average freight revenue per tractor
in the 2018 period as compared to the 2017 period, partially offset
by a $3.3 million year-over-year reduction in intermodal revenues
as we effectively discontinued this consistently unprofitable
service offering within our solo-driver refrigerated truckload unit
during December 2017. I’m pleased to note that our solo-driver
refrigerated truckload unit posted its best operating ratio quarter
since the second quarter of 2012.
“Average freight revenue per tractor per week
increased to $4,287 during the 2018 quarter from $3,754 during the
2017 quarter. Average freight revenue per total mile increased by
23.9 cents per mile, or 14.7%, compared to the 2017 quarter and
average miles per tractor decreased by 0.4%. The main factors
impacting the decreased utilization was the 560 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 878 teams (or 33.7% of the total
fleet) in the second quarter of 2018 versus an average of 1,012
teams (or 39.3% of the total fleet) in the second quarter of 2017.
On average, approximately 5.2% of our fleet lacked drivers during
the 2018 quarter compared with approximately 4.8% during the 2017
quarter.
“Salaries, wages and related expenses increased
7.3 cents per total mile due primarily to employee pay adjustments
since the second quarter of 2017, partially offset by the reduced
percentage of team-driven trucks and improved workers’ compensation
expense.
“Insurance and claims expense increased to 12.6
cents per mile in the second quarter of 2018 versus 10.1 cents per
mile in the second quarter of 2017. Our rate of accidents per
million miles, as measured by the U.S. Department of
Transportation, remained essentially constant compared with the
2017 quarter, but the expected outcome of certain casualty
insurance claims resulted in an overall increase to expense.
“Net fuel expense decreased by 3.4 cents per
total mile in the 2018 quarter, primarily as a result of
improvement in fuel hedging activity, with $0.5 million of fuel
hedge gains in the 2018 quarter compared with $1.5 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 $0.65/gallon
higher in the second quarter of 2018 compared with the 2017
quarter.
“Depreciation and amortization (which includes
gain or loss on disposition of assets) decreased by $2.9 million
primarily resulting from recognition of a $0.4 million gain on
disposal of equipment in the current year quarter as compared to a
$2.1 million loss on disposal of equipment in the prior year
quarter. The improvement in gain/loss on disposition resulted from
a strengthening market for used tractors and trailers.
“In addition to the items mentioned above, in
connection with our acquisition of Landair Holdings and its
subsidiaries (“Landair”), general supplies and expenses included
acquisition-related legal and professional expenses totaling
approximately $1.5 million, as well as the write-off of
approximately $0.3 million of previously capitalized in-process
software investment costs that were deemed to be redundant in
connection with the Landair acquisition.”
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
53.4%, to $25.6 million from $16.7 million in the same quarter of
2017. Operating income was $2.3 million for an operating ratio of
90.9%, compared with operating income of $1.6 million and an
operating ratio of 90.5% in the second quarter of 2017. Due
primarily to a more competitive market for sourcing third party
capacity, Solutions’ net revenue margin declined by 510 basis
points versus a strong 2017 quarter. However, the revenue growth in
the 2018 quarter helped spread the SG&A costs so that the
operating ratio did not slip significantly as compared to the 2017
quarter. We expect net revenue margin to be in the mid-to-high
teens for the balance of 2018. In addition, our 49% equity
investment in Transport Enterprise Leasing contributed $1.8 million
of pre-tax income in the quarter compared with $0.8 million in the
second quarter of 2017.”
Capitalization, Liquidity and Capital
ExpendituresRichard B. Cribbs, the Company's Executive
Vice President and Chief Financial Officer, added the following
comments: “At June 30, 2018, our total balance sheet debt and
capital lease obligations, net of cash, were $146.4 million, and
our stockholders’ equity was $313.6 million, for a ratio of net
debt to total balance sheet capitalization of 31.8%. At June 30,
2018, the discounted value of future obligations under off-balance
sheet operating lease obligations was $17.5 million. Between
December 31, 2017 and June 30, 2018, the Company's balance sheet
debt and capital lease obligations, net of cash, decreased by $52.1
million, while the present value of financing provided by operating
leases decreased $4.1 million. At June 30, 2018, we had $56.4
million of borrowing availability under our revolving line of
credit.
“After the end of the second quarter, in
connection with the acquisition of Landair announced on July 5,
2018, we expended approximately $83.0 million in cash in exchange
for 100% of Landair’s outstanding stock and approximately $15.5
million in cash to refinance Landair’s outstanding debt. Our
capitalization and liquidity information provided in the preceding
paragraph excludes the subsequent impact of the Landair
acquisition.
“Our net capital expenditures for the three
months ended June 30, 2018 generated $20.1 million of net proceeds
compared to $8.2 million of net expenditures for the prior year
period. In the first six months of 2018, we took delivery of
approximately 400 new company tractors and disposed of
approximately 465 used tractors. Our current tractor fleet plan for
full-year 2018 includes the delivery of approximately 880 new
company tractors, and the disposal of approximately 940 used
tractors, including the planned tractor deliveries and disposals
for the Landair operations for the balance of 2018.”
OutlookMr. Cribbs commented on
the Company’s outlook: “We expect the overall balance of business
conditions to remain favorable through the second half of 2018 and
into 2019. Freight demand has been, and remains,
exceptionally strong across our business units, and indications
from our holiday peak season customers indicate robust expectations
for the fourth quarter. From a capacity perspective,
attracting and retaining highly qualified, over the road
professional truck drivers remains our largest challenge. Low
unemployment, alternative careers, and an aging driver population
are creating an increasingly competitive environment. The market
for used tractors and trailers is expected to generate moderate
gains on our dispositions of equipment over the remainder of the
year. In this environment, we continue to work actively with
our customers to improve driver compensation, efficiency, and
working conditions while providing a high level of service and
generating acceptable financial returns. We intend to
continue to allocate our assets where the returns are justified and
use our managed freight units to supplement our internal
capacity.
“From an earnings perspective, we expect our
consolidated operating ratio for the third quarter to be similar to
our consolidated operating ratio for the second quarter, but with
the addition of revenue from Landair’s operations. For the fourth
quarter, we expect to remain a major participant in the holiday
peak shipping season and anticipate our consolidated operating
ratio and consolidated earnings per diluted share to improve
compared with the fourth quarter of 2017. However, due to
changes in team versus solo-driver mix, dedicated versus irregular
route capacity, and managed freight capacity, as well as the need
to complete purchase accounting entries relating to the Landair
transaction, we are not offering more specific earnings guidance.
In addition, our prior comments about expectations for the second
half of 2018, including percentage rate improvements versus prior
periods, are superseded.”
Conference Call InformationThe
Company will host a live conference call tomorrow, July 26, 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
CTG2. An audio replay will be available for one week
following the call at 877-919-4059, access code 77436340. 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;
Landair Transport and Landair Logistics of Greeneville, Tennessee;
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 for Solutions, supply and demand relationship, the
expected fuel economy of new tractors, our current tractor fleet
plan, 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.
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
AssistantKPerry@covenanttransport.com
Covenant Transportation Group,
Inc. |
Key Financial and Operating
Statistics |
|
|
|
|
|
|
|
|
|
|
|
INCOME STATEMENT DATA |
|
INCOME STATEMENT DATA |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
($000s, except per share data) |
|
2018 |
|
|
2017 |
|
% Change |
|
|
2018 |
|
|
2017 |
|
% Change |
Freight
revenue |
$170,635 |
|
$145,586 |
|
17.2 |
% |
|
$321,097 |
|
$285,712 |
|
12.4 |
% |
Fuel
surcharge revenue |
|
25,683 |
|
|
18,740 |
|
37.0 |
% |
|
|
48,787 |
|
|
37,358 |
|
30.6 |
% |
|
Total revenue |
$196,318 |
|
$164,326 |
|
19.5 |
% |
|
$369,884 |
|
$323,070 |
|
14.5 |
% |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Salaries, wages, and
related expenses |
|
64,633 |
|
|
58,584 |
|
|
|
|
125,253 |
|
|
117,908 |
|
|
|
Fuel expense |
|
29,209 |
|
|
24,911 |
|
|
|
|
56,390 |
|
|
50,313 |
|
|
|
Operations and
maintenance |
|
12,595 |
|
|
12,044 |
|
|
|
|
24,325 |
|
|
24,457 |
|
|
|
Revenue equipment
rentals and purchased transportation |
|
37,388 |
|
|
28,987 |
|
|
|
|
68,079 |
|
|
54,358 |
|
|
|
Operating taxes and
licenses |
|
2,613 |
|
|
2,097 |
|
|
|
|
5,273 |
|
|
4,832 |
|
|
|
Insurance and
claims |
|
9,908 |
|
|
7,914 |
|
|
|
|
18,593 |
|
|
16,632 |
|
|
|
Communications and
utilities |
|
1,666 |
|
|
1,706 |
|
|
|
|
3,406 |
|
|
3,334 |
|
|
|
General supplies and
expenses |
|
6,423 |
|
|
3,462 |
|
|
|
|
10,562 |
|
|
7,190 |
|
|
|
Depreciation and
amortization, including gains and losses on disposition of property
and equipment |
|
17,818 |
|
|
20,659 |
|
|
|
|
37,513 |
|
|
39,775 |
|
|
Total
operating expenses |
|
182,253 |
|
|
160,364 |
|
|
|
|
349,394 |
|
|
318,799 |
|
|
Operating
income |
|
14,065 |
|
|
3,962 |
|
|
|
|
20,490 |
|
|
4,271 |
|
|
Interest
expense, net |
|
1,941 |
|
|
1,961 |
|
|
|
|
3,900 |
|
|
4,041 |
|
|
Income from
equity method investment |
|
(1,775 |
) |
|
(800 |
) |
|
|
|
(3,265 |
) |
|
(1,825 |
) |
|
Income
before income taxes |
|
13,899 |
|
|
2,801 |
|
|
|
|
19,855 |
|
|
2,055 |
|
|
Income tax
expense |
|
3,928 |
|
|
1,253 |
|
|
|
|
5,467 |
|
|
545 |
|
|
Net
income |
$9,971 |
|
$1,548 |
|
|
|
$14,388 |
|
$1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$0.54 |
|
$0.08 |
|
|
|
$0.78 |
|
$0.08 |
|
|
Diluted earnings per share |
$0.54 |
|
$0.08 |
|
|
|
$0.78 |
|
$0.08 |
|
|
Basic
weighted average shares outstanding (000s) |
|
18,337 |
|
|
18,281 |
|
|
|
|
18,334 |
|
|
18,269 |
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,441 |
|
|
18,359 |
|
|
|
|
18,424 |
|
|
18,347 |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2018 |
|
|
2017 |
|
% Change |
|
|
2018 |
|
|
2017 |
|
% Change |
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
Asset-based
truckload revenues |
$145,028 |
|
$128,891 |
|
12.5 |
% |
|
$276,472 |
|
$255,898 |
|
8.0 |
% |
Non-asset
based managed freight revenues |
|
25,607 |
|
|
16,695 |
|
53.4 |
% |
|
|
44,625 |
|
|
29,814 |
|
49.7 |
% |
|
Freight
revenue |
$170,635 |
|
$145,586 |
|
17.2 |
% |
|
$321,097 |
|
$285,712 |
|
12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
Average
freight revenue per loaded mile |
$2.028 |
|
$1.810 |
|
12.1 |
% |
|
$1.990 |
|
$1.804 |
|
10.3 |
% |
Average
freight revenue per total mile |
$1.860 |
|
$1.621 |
|
14.7 |
% |
|
$1.816 |
|
$1.619 |
|
12.2 |
% |
Average
freight revenue per tractor per week |
$4,287 |
|
$3,754 |
|
14.2 |
% |
|
$4,142 |
|
$3,755 |
|
10.3 |
% |
Average
miles per tractor per period |
|
29,974 |
|
|
30,105 |
|
-0.4 |
% |
|
|
58,989 |
|
|
59,978 |
|
-1.6 |
% |
Weighted
avg. tractors for period |
|
2,602 |
|
|
2,573 |
|
1.1 |
% |
|
|
2,581 |
|
|
2,569 |
|
0.5 |
% |
Tractors at
end of period |
|
2,632 |
|
|
2,577 |
|
2.1 |
% |
|
|
2,632 |
|
|
2,577 |
|
2.1 |
% |
Trailers at
end of period |
|
6,340 |
|
|
7,271 |
|
-12.8 |
% |
|
|
6,340 |
|
|
7,271 |
|
-12.8 |
% |
|
|
SELECTED BALANCE SHEET DATA |
|
($000s, except per share data) |
6/30/2018 |
12/31/2017 |
|
|
|
|
|
Total
assets |
$729,826 |
|
$649,668 |
|
|
|
|
|
|
Total
stockholders' equity |
$313,551 |
|
$295,201 |
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$146,365 |
|
$198,443 |
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
31.8% |
|
40.2% |
|
|
|
|
|
|
Tangible
book value per basic share |
$17.09 |
|
$16.11 |
|
|
|
|
|
|
Covenant Transportation (NASDAQ:CVTI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Covenant Transportation (NASDAQ:CVTI)
Historical Stock Chart
From Jul 2023 to Jul 2024