Covenant Logistics (CVLG) 28 Apr 232023 Q1 Earnings call transcript

Welcome to today's Covenant Logistics Group Q1 '23 Earnings Release Conference Call.

Our host for today's call is Tripp Grant. [Operator Instructions].

I would now like to turn the call over to your host. Tripp, you may begin.

Yes. Ross. you, Thank and Quarter everyone, the Logistics Covenant Good Conference welcome Call. First XXXX Group morning, to

As information this are Private results SEC Securities and a under that to Litigation statements reminder, uncertainties to Reform call differ our most and will materially. or We prepared Act, review cause which any at statements. forward-looking factors. and revise of comments could obligation the subject Please risks on no filings forward-looking undertake to actual risk is additional www.covenantlogistics.com/investors. financial A website recent contain update to our available the copy publicly

I'm the today Joey Parker, joined on by and David Bunn. call Paul Hogan

because to cycles. becoming a Son by the to market We well-diversified to niche it I'd the Lew sensitive typical our freight acquisition year, in family. start strategic plan aligns Trucking like a service with of team that Thompson & provider Covenant less First, this is welcoming pursued

of Thompson their reputation Lew to service the growth future opportunities the Son in industry, added attractiveness. to customers & combined for with Trucking's providing first-class poultry

to goal and their not our territory to results be in in home to the financial allow segment's maintain combined Dedicated service included grow their standard required currently team they operations. that operate. is do territories and our support Their Our in to will provide

XXXX our and fleet a to first of earnings had quarter, return with Dedicated Consistent trucks, are generate which regrowing accretion quarter capital, today's on double-digit share. With XXX exiting action, fleet capital invested expected are since with our focus on per Lew approximately reduced our Thompson's the we on to immediate we the XXX returns the first low-return profits through and by contracts. trucks by

quarter's Now results. on focusing first the

revenue segment a and the decline Given of freight that with we a year Freight market down contractual team in freight overall The quickly our carve in responded less our as X%. handled underperforming to demand. results experienced to the ago, efforts was pleased freight Compared consolidated overflow due related transition. expected Dedicated result to and segment was a our This how our to by Managed primarily softness are primarily reductions in revenue, business. market, out also lower freight

fell million as operating result asset-light to Managed of and $X the quarter, Adjusted and which $XX $XX XX% year or approximately prior declined million compared a Freight income Warehousing respectively. segments, million, primarily approximately our

Dedicated, and net truckload margin pleased the the period resiliency per our repurchase of side, On we decreased earnings compared million to any result in in the of shares to decreased income diluted were which a our share decreased $XX.X per XX% to its as $X.XX Adjusted program. year. year-ago year-over-year prior margins, with share reportable to improved particularly adjusted Weighted XX% share the quarter. compared average

approximately sale results the approximately transaction our to adjustment pretax the quarter. terminal during the gain of exclude were reported $XX.X on primary The Tennessee-based million $X.X Proceeds on million.

equipment, depreciation within $X.XX XX to mile by a of our on Key total on $X.XX XX, expense including equipment compared flat combined Fixed age in leased at a or sequentially year-over-year average and quarter related the of was XXXX. in decreased Gain to or revenue maintenance was gain total as The months, plan. $X.X our year. $X.X quarter X%. of replacement equipment operations December XX prior X% sale the revenue over result and operations, cents million the compared per fleet highlights for on equipment basis truckload include, mile declined by costs, sale our per March million

age remainder to the of our current improvements on XXXX average fleet. of anticipate equipment For based we sequential order, our the

$X.XX diluted share the produced period. year-ago company per leasing investment $X.XX share TEL per compared Our to versus

on XX, the Return December XXXX. was shares XX.Xx representing of $XX at XXX,XXX year. in a XX of prior approximately Our versus and outstanding purchased the March million, yielding ratio XX.X%. as the leverage current XX.X% We quarter, capital indebtedness debt-to-equity of invested X.X% in XX.X% approximately for quarter was shares the net ratio of

to transaction, on net approximately X.Xx effect net rate the we expect approximately ratio measured X.Xx EBITDA by of a including million, leverage divided of line credit. indebtedness cash liquidity, indebtedness Lew of million Giving of adjusted and Thompson by $XX and run to $XXX availability remaining our

affecting Now individual Paul color the on little more a segments. the items will provide business

what into the Tripp. Thanks, a quarter. for dive moment results to Taking drove consolidated deeper the

segment's to prior by miles offset The average year X% in was Expedited driven fleet. per the an rate grew in total with a total despite average mile largely X% X% freight improvement year-ago compared truck approximate Our decrease the compared increase the average to revenue a period. in X% reduction per

pleased we year-over-year the we we become progress improvement, While are throughout comparisons revenue utilization total with the recognize segment's per that increasingly freight will as challenging mile year.

with While from fixed improvements to quarter. for cost both were offset and cost condensed equipment based and and headwinds these salaries variable somewhat the margins, wages insurance

replacement Our second initiated XXXX which pay quarter is plan, aggressive equipment off. of to in beginning was the

we declined to progress average and age sequentially. this the throughout of continue as XXXX, expect We trend our fleet

truck. number Dedicated XX% both with business and segment to by our unprofitable freight sequential improvement margin our this replacing business a XXX reduction adjusted of We increase progresses. segment's expect and with revenue total or compared a in profitability Dedicated of to segment pleased our result reduction to requirements. improvement fleet underperforming the return with the that XX% meets in year-over-year the in strategy in as or of as and were a The continue profitability revenue aligns reduction year in the X% trucks Our XXXX per experienced quarter average offset

reduction profit a operating in of our -- reduction profit. revenue no revenue adjusting experienced overflow significant freight Managed little and an from segments. freight consolidated XX% asset-based total profit a adjusted in XX% was in product and the Freight reduction primarily The high-margin truckload to operating

period. our an claim In results in include addition, $X cargo-related million approximate the

of pressure environment. this continued brokers numerous with expense highly is competing margin. anticipate the at aggressively competitive for in margin volumes environment We The

the from X of segments although in all year-ago new revenue of the our customers XX% increase during segment, freight months. start-up Warehouse period, smallest compared the a of previous the XX to saw Our resulting

pleased with growth done segment, time are are the phenomenal executing and has a start-ups, achieved We both line job intense we've and which consuming. in team the these this top

despite the this growth in line However, top sequential segment, seen margins. we've in deterioration

for increases to segment continue to rate utilization Our will existing to focus labor profitability XXXX customers. restore be grow mid-single through and and improved digits with this

decline contributed the versus of quarter and year-ago of in of trucks first pretax the to Our X,XXX. reduced XXX 'XX. decreased income by TEL's minority the period gains X,XXX, million period. to largely a by the the the compared truck investment for the grew pretax year-ago The equipment quarter TEL to compared quarter for revenue XXX grew income of $X.X million period. quarter net prior was result year sale its XX% used and on $X.X its fleet net versus by increased to fleet in trailer TEL XX% in

focuses purchase As a to aiding lease trailers shippers on TEL and small equipment. and of procurement or leasing trucks reminder, clients their fleets programs, and the managing disposition in

of and the earnings are fluctuate normal the quarter-to-quarter. cause Units and part business sale on the losses to can business of from model gains equipment

million $X.X has included received during anticipate from million is this and TEL although we from with investment in In grown of on at $XX.X cash sheet, to we March TEL, consolidated Our million. have investment as other XXXX, XXXX, in XXXX, no plans our and our $XX similar we a balance dividends of in XX, assets original confirmation amount dividend time.

challenging. future. Regarding that no be XXXX doubt will the our is outlook There for

working with first pleased profile. cost savings are and In are also we While this improve our to results, so. operating quarter's see to to our are environment, focused we diligently opportunities do from improve intensely them we cost on

term primary on in term to by opportunities to forward the on is long the our strategic us and continuing areas by is that new -- equipment, and remains plan the make technology. focus progress for However, invest revenue-generating people provide in investing our long

the as pressures. For as a of continued the well expect from market remainder inflationary market we softer year, headwinds

of less on However, company-specific factors, than periods volatility based expect in weakness. we economic prior earnings

our customer full to to a our to of cyclical allocation benefit range hard weak available opportunities shareholders. strategically our liquidity worked offering. we for a industries and expect less with generation, leverage continue have through base Even freight capital cash market, full-service our We to provide logistics to shift moderate

for you open now We'll time. your the Thank up call questions. for

Atkins [Operator Jack Instructions]. from first from question Stephens. And comes our

And both there. strong out and I on think, really, congrats acquisition the the all a quarter challenges despite

congratulations. So

what's So I or on a love there's guess there. and customer lot and start, It's out individual market end on Paul, feels volatility David on to maybe going your like if I'd just companies. depending it get of -- sort just of we take could

thought, expecting the with think you couple was up? half a view at and are take the us shake a from And bit next that of could ago. So from kind your Is X all? lot spring a you months folks second peak out could I you how maybe of talk of a of give market not If guys, much little maybe sort then know you you both changing that build months the of build just kind could first? of back? about but

we has the market is just market been and flat. been. that think dropped That's where really yes, in Jack, saw -- Yes. it around what I there. the November, Thanksgiving it's in

since is from a have standpoint, downward on just economic freight seen We same activity level were second been we it that November. at And better anticipating we're we would not think have this the to that a year my spiral we're of business but am this going in continue standpoint, start in kind rest but thoughts. second in that the getting where of I for in that I half, of sluggishness

first of is continues that this the I was doubt to is if that's to on don't There going glad inventories that care waiting some reduced to have I number is reduced to that because inventory on what why are eventually for economy quarter be GDP inventory levels because they're levels refill all as go. were see call to us doing, no

So spot. bright that was a

the lake available. we doing, going start to no and And that there's we economy as and up the open I going what more grilling out all Coca-Cola, think is know, freight be as matter to

that so going help a but is sluggish. to is it And again,

the I out. is in think process capacity being taken will That of help.

onesie, market, so that far twosies Those this anybody, I have is onesie, operated folks foursie the are are that we what threesie, seen spot gone. that year twosie, gone. in the those think

left. that fleet. said, that us and our But filled driving Swift Warner those and everybody for all are drivers and all is that capacity now Now of else

left. shifted a It's not capacity -- So as just they has to the just one whole other. been from

So of that with the is stay go there today, and in carriers business. some pricing cannot as forward we out

and in areas a mile happening that's is a You at and $X.XX under $X.XX lot cannot what $X.XX operate and cost, of your today.

So capacity be to leaving. going is

think I that will So sluggish going that. of it's background of fill all is this we the remainder year. the to But remain that for

-- have. base that I think I but David, a think pick case up, makes and that Well, to Okay. things sense, I good hope that's

to new business you customers Thompson. grow capital would I bit for the that's can as with freight you to in question, see further of love love in acquisition. company or to that customers more dig insulate Lew some either little a existing about of to cycle. of follow-up of from more on talk sort Do my just like the opportunities kind get business more, the that you a there? some seems kind I'd Lew And It helps guess the Thompson more volatility put

contracts a it's I true We're really it's with it, Paul. specialized and you mean equipment, think multiyear excited. Jack, Yes, dedicated one. business, if about

those businesses always so attractive. And are

I'm The say business specialized one the at with especially protein got to start the equipment, say, that and going a space but recession-resistant. then looking recession-proof, is, poultry not okay, is you protein, but -- would I the other dedicated is you commodities

And for so you that the -- on hit it and growth. then potential

works in think a a said new just because from operate, perspective that reputation just as up really with earlier, they other into customers only and for product and wired regions I opportunities are, growth, the mean that same but got well. we great provide expanding they've how really there region not thing's and Tripp service customers stellar the a

do we months in start the the And come. to that see ability so expanding to

as be It nichey will -- growth. not it's that's talked sticky, on I can it's that we've off, capital you about, good just -- a return it's a and slow business. mean that business take but

excited, said, family. couldn't we as to them be more to welcome Tripp so the And

accretion Or can too you a hand from feel I'll question, improve kind this acquisition a to We'll Last Okay. tough to year? that. little and in profitability just that's when quarter-over-quarter, actions things and May just with incremental XQ? Dedicated XQ like given and the you over. and the like improve see Do climb about think backdrop, maybe June. But combined hill seasonality of of to the some earnings of you freight it that, continued bit

Yes.

would if kind think I the previous compared will I -- the And XX% you Lew to we EPS. improve the you, calls, Thompson think standing we're year, down back still that we to that prior last we're with go year's in acquisition, earnings the tell quarter-over-quarter. to from be of we're we'll XX% -- by still

question next Stifel. our from And comes Subin from Bert

just maybe last Paul, follow-up a answer to that there.

a the Lew north net basis. the as acquisition year Thompson and on and million, & full EBITDA then ballpark looks of So of add annualized your $X could interest of XX% we this Son to something like all rises sort is in

days the full a relative gave, do think -- the XX of as then last and have just year. you simple $X.XX changed and offsets gets sort deal the to some you that the X how roughly Do the to that like where you that in equation? -- Or market? that things do think layering you sequentially weakness deal for EPS incremental that math and in were weakness there's So grows? offsets months the in some ago about think the sort trying think top-up to of we outlook is maybe layering you Just business of

Well, things. a couple of

with and in call about Lew replacing and profitable think you we're talked If the the it, unprofitable Thompson. I'll about script, to we marginally it business release it, some, in the

combination our of on because lot it's of some and your business, to last us think the marginally XX% the EPS said combined QX just kind think of in going hey, other some year, we to all to XX% with reduction past. And profitable I big a still And things point, places the year-over-year I Bert, goal we exiting that what said, that's where of Lew it's kind so Jack, were I is backwards, QX same all path been and better QX, Thompson than in puts we've a thinking offset.

when think out it you're same I still wash kind comes that So of within range. and all in the

Paul. Okay. response. to there and That's other David's super maybe follow-up question Jack's And helpful, to

will noted consensus and view be maybe this And in forming bit little been there's year, getting think discounted I David improvement now weak. sort that's of there's that's later that 'XX of that. the a but

that and and you beyond is it we to think if is 'XX your that? on multiyear your that is is Freight an you does 'XX think things And point As upcycle? better 'XX, impending want view your the view then businesses just Expedited unfold, inflection Managed as than about how make that bolster

Yes. is Yes, Bert. David, do. This I

'XX. we're that think here I for

for getting I And economy. 'XX. I think better it that things think a good on some set year, election the start we'll 'XX up it does going

to will these the growth think, show what worked. but is -- of next that over grow to And said all agree cycle, is the you couple verticals what to attempt continue us, in we've years be we to good all continue for So I with. I so of going or

years. land is We're July purchase there X 'XX. X going we when of on

of becoming as logistics. So going an a on I years here we're trucking couple months X think company. a I think in us truly carrier. don't of a -- don't OTR not we're of

haul today. we get I calls I enough call, phone You that and hope

our there to want need We value today. customers, we giving bringing of to are in the into that what be niches we are out that customers

it a 'XX we whatever in, up four And next presents so I areas all sets grow that said, opportunities in think come of in as in of those our goal to it of four 'XX, I 'XX turning and around And lot for sluggishness think all in years. great segments. of off we're couple is starts do and that these the

because Expedited, Bert me and adding we in to turns, volumes We it and badges folks exactly when said, in working getting to business be on it's of not we're doing Let in lot contract the going add of folks salesperson up now. well it on going you really trans, new But Managed right But and we're we're what new been just already give. there, Warehousing and these what set on now right said. have David getting want exact big of Brokerage, don't tough in them. is have in still a Dedicated a may with have out a to volumes

so And on we're focusing yes, what talked you about.

response. No, great Great.

worst at Just my years. years quarters XXs Expedited and could sort highlighted good final run the A that of XX question. you in ago, couple in of run thought Joey he and had of OR the

a you've a the you gotten case? to of As think bit that's and recession, we've the -- the seen bid still greater of season little do as start unfold seen appraisal freight

we're couple effect of I that still we're them got we've in have of but to roll that mean yes, signed, range needs think think in. contracts left range. I But in been reasonableness. the of a that I still

from next Research. Scott Our Group question from comes Wolfe

Just to go on QX and expect just through maybe you different through Can sequential to where you walk follow earnings want the and from QX. growth the up not... businesses that

I you. what tell would Here's

think be flattish, I Scott, based just on seeing will what Expedited, we're today.

I Dedicated a get little think would better.

-- have wildcard. it's most, better. Freight, we negatively and up probably Warehousing, QX. April mean albeit I softer you we as small, than affected that's earnings. QX that was think Managed the say that's I did said, claim in that's cargo it the [indiscernible] the in would where backed And I that in

Expedited Freight is And flat, and is flat. flat, Dedicated's better so argue, Managed to I Warehousing's better could

for does Expedited look then Okay. down like year? rate What how -- that X% And per mile the only

think. Here's what I

stuff ago quick the they're to freight, think the broker reductions of just I bit And the come going up going have we when a stuff, new full minute I how effect market there's little see I We you'll some down a got -- talking pipeline. started bit the any back in see badges think a QX. adding bit little there's started there hardly contractual good go and the do But we'll freight don't it QX. few QX Expedited QX. and really in It's and in up. rate to of about little but -- team because probably see spot in we've you're a get quarter it in

and I think and replace up I But new we'll then to rate back go QX in bit down it in on little So QX. QX. or that the could be freight, working get come broker a board will business think

I'd that that And over been business another And that got long-term holding, thing, entered is a back Scott, agreements with they're say find they're of really And our those partner those couldn't side, showing with on great agreements. not they partnership. there And and , that. -- and this Expedited came and the, in relationships have really and teams, XX% made that been we've very an good They've us. long-term they agreements we saying, partner. have and they they need 'XX, to in now and extraordinary do our do do trucks, we any

in give has is, to is to how the know There today's upon hit have brokerage from and only be said, up environment other through gone this, negative side that couple our X% bad the speak. X% a out down you -- of are a the as you to rate. -- Paul have are as couple bad a said, going to that the the XX% you we that brokerage freight that to the there so we volume X%. to And a to -- it's more as But dependent is business are where of rolling negative, gone do how but brokerage but -- our give

rates a is down doing are we're our bad rate but so total So X%, it bringing $X.XX mile. that by X% only the

get as down be like it of to a number, replace X.X%, So X% we that almost back X% X% increase. kind it's and to taking going rate

things on of And we're working offset rates. some negative so great there's to that possibilities

you to right Do profitable to really nichey, to able a kind have but of you many you seem many can be of X companies. many guys seem want are doing how there? you two these Is keep How found number? then them? do? -- now trucking How the to And . year -- small

Here day. we're hunting but think them is for I like, to we're every going launch leverage

on Scott, to add I this. can

dozens been how will level, things consistently. in the next for to X I and And really I I talk week, kind really, of it pretty we're at our we've we'll those that every turning just things think over about approach like about last turning [indiscernible] just we've get, looked down in few pass down M&A XXX quickly. seems my to And years. and and disciplined down get every position, turn or we'll generally, we'll of X the get

really to up. as helped X and we done to going transactions strategic really been where Son we harder of last good. and have wanted be work the years, they've to I the leg of want did to two it in Thompson us And Lew just popped we some think our & really diligence, we where things all -- things, we have And identifying in over identify and is out worked for, and some just positive knew we quickly these up, especially two that to pretty want as just pursue where and and we've AAT, was after But want that play expand. these plan look showed kind of it's these hundreds the

to about really of also so if opportunity to. Like have I more And of going be balance to sheet, think both discipline plan we're that grow. to need We're a our to continue not and on them. but lose to But we're the still going moderately we're not think grow I acquisitions. again, that disciplined. we sticking leveraged we we're just to do watch Paul going excited leverage, And said, to kind got we've to of going

have of shot. calls, downturn, guys, into on but Makes congrats sense. pretty ask I me, if these to heading no nasty about trucking for try $X were earnings talking and would you never say I we'd said a if you earnings be

Kudos. guys. done, well So

TD question next from our from comes Alper And Cowen. Elliot

business know Can And Dedicated the decreased I along that that I some trucks in just are kind or other how guess about -- you far at much of about less are kind XX.X% needing environment? of customers of in talked underperforming the there business any is you play? given talk quarter. factors if existing how you in So volume process?

business -- Elliot, XX, customers mix, XX, I that underperforming just had XX. a had of and I XX. It's

I Now XX. need

Here's what that think think -- I'd They we've tell we you, absorbed are already where demand of would doing people I kind they know from the most the of were I reductions. standpoint.

And so through -- and I the feed QX, we'll XX% think we'll weed and end this probably of by effort. be XX%,

So of truck came of that of X,XXX truck as Tripp back number, count up this we trucks and go talked couple the to about, down, ran than some-odd kind by back more quarter. up hundred QX a end

And their questions, those so changes customers both requirements and feed process. mix that through just about and answer profitability your a meet feeding -- in the of downsized. of didn't And just it we us they've to probably profile demand about XX% it's and weed weeding and because

Great. Okay.

lot back XXXX. in what should Dedicated? bought terms last your quarter is kind question less to dovetailing assume you guess about allocation How in of for focus thinking And Maybe primarily forward? you of the going So we on be buybacks? compared capital the to kind M&A, a in are I kind of going of

and plan, about of with open it X.X% about does XXbX from what stick what about XXXX XX, The is itself back we that of an certain going shares don't us, bought for that outstanding plan we comment the We question, was first non-disclosed purchasing your actually XXbX there, criteria got an is still have it, out a answer plan public but to today. quarter, there so we plans. we forward we've consider shares that. is don't during and XXXX. associated there the amount. like what any kind small to But XXX,XXX comment open we're has don't out generally December we It but on Well, with

be perfect would terms M&A it to think In to that have we'll fit. look, a I and forward, of continue going

I and think Son new that to, a make will that understand understand Lew us in of way working first them. sure are we us -- want all, & that them we Thompson with in help business help

a on stuff. them the continue And with be attention there'll operations. integration They're lot some going So few to on their next headquartered just out working of to of that months. over operate

And so trying of no together work other. understand to beyond just kind each and integration plans

not actively always M&A kind we're for crossing -- analyzing desk right probably they're of the we're had and looking but them mentioned, hungry opportunities, immediate deal. Paul like for you'll our and So always

whether the thing right if one So Dedicated in could it came other segments. of be along, possible, or the it's

growing for we've fleet Expedited and along met pretty Expedited until an boxes vocal opportunity that for look came about different it And Before, doing. strategically. to were not weren't looking that AAT, been checked we we was all AAT criteria the we something we do in the of what of

that, would to really something at. that love be look be could there that else you. like to tell along we But comes so it'd hard And

all plan never something on love and on absolutely, up. growing. and Dedicated Yes. is what just comes We're we're in we we that but really you -- Dedicated, But know

questions. [Operator to further no time, And at this gentlemen, there be appears Instructions].

with thank everybody, joining speaking and look today, Well, quarter. you, right. us a good we forward you weekend. next All for Have to

conference today's Thank concludes call. you attending. for This