Q4 2022 Covenant Logistics Group Inc Earnings Call
Welcome to today's Covenant Logistics group fourth quarter earnings release Conference call. Our hosts for todays call with trip grants at this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session I would now like to turn the call over to your host trip you may begin.
Thank you Ross good morning, everyone and welcome to the cabinet logistics groups.
Fourth quarter 2022 conference call as a reminder, this call will contain forward looking statements under the private Securities Litigation Reform Act, which are subject to risks and uncertainties that could cause actual results to differ materially.
Please review, our SEC filings and most recent risk factors, we undertake no obligation to publicly update or revise any forward looking statements.
Copy of the prepared comments and additional financial information is available on our website at www Dot Covenant logistics Dot com slash investors.
I'm joined on the call today by David Parker, Joey Hogan and Paul Bun.
Before jumping into the quarter I'd like to first take a moment to reflect on 'twenty two as a whole.
As it's a remarkable year for us in many ways. It marked the second consecutive year of record earnings.
Record revenue capital returns and safety results we.
We repurchased approximately 20% of the outstanding common stock of the company and acquired a small but highly profitable specialized truckload carrier.
All while maintaining moderately low debt leverage we also made progress on our operating model through improved contracts in our dedicated segment and grew the core business and our asset light segment is comprised of manage freight and warehousing ALDA.
Although the tailwind of a strong freight cycle may well be behind us. We believe the combination of our improved operating model and our strong balance sheet has us well positioned for the future.
Our company today is much improved and we are grateful to all of our team members, whose dedication and commitment made this possible.
Focusing now on the fourth quarter on an adjusted basis, we believe our team performed well well during a market in transition consolidated revenue was essentially flat compared with the fourth quarter of 2021, while improved revenue per tractor and brokerage margin more than overcame the significant inflationary cost.
To generate a better adjusted offer a right operating ratio and higher adjusted net income.
Through acquiring and successfully growing a a T working with long term customers to improve the stability of contracted capacity and our expedited fleet and.
And selectively downsizing, our least efficient dedicated operations, we did more with less.
On an adjusted EPS basis, the impact of our capital allocation towards share repurchase was considerable with adjusted EPS growing 28%.
These results were earned in a difficult environment freight rates were up year over year, but are under sequential pressure.
Volumes turned negative prior to the fourth quarter and are continuing to feel soph.
In addition cost inflation and availability of equipment and parts continue to provide headwinds.
Looking ahead, we expect difficult year over year revenue and income comparisons for the first time in many quarters.
In this environment, our playbook remains consistent and our urgency is high.
The primary adjustments to our reported results resolve around our tractor fleet, particularly.
Particularly a group of underperforming leased units that needed to be removed from operations due to negative driver customer and cost considerations.
Several factors transpired in the quarter, including receiving over half of our 2022, new track to order in the period.
The lighting lease turn ins due to parts available at Villa availability for trade prep unused tractors, whose lease terms have expired and parking additional leased tractors with future lease maturity dates which had been the source of significant operational cost headwinds throughout the year.
The abandonment of these units in the period before the expiration of the lease has caused us to write down the right of use asset in the period and accrue any estimated future disposal costs on these units, resulting in a lease impairment charge although.
Costly in the quarter. We believe this is a this is our best opportunity to start the new year and the most cost efficient manner possible.
Key highlights for the quarter include adjusted net income, increasing 8% to $19 5 million and adjusted earnings per share, increasing 28% to $1 37 per share compared to the year ago quarter as a percentage earnings per share growth outpaced net income growth due to this.
Shares acquired throughout the year under our share repurchase program.
During the quarter, we repurchased approximately 450000 shares bringing the total to $3 4 million for the year.
Total freight revenue declined by 4.4% to $255 million compared to the 2021 quarter.
Our asset based truckload freight revenue grew 11% with 76 fewer trucks are asset light managed freight and warehousing segments combined freight revenue declined by 22% primarily because of the combination of a muted peak peak season, and reduced volumes of overflow brokerage freight compared to the prior.
Year.
Truck route truckload related cost headwinds continued to play a major role in our results for the quarter increase.
Increasing 20 per total mile on an adjusted basis compared to the prior quarter.
Salaries and wages maintenance and insurance all contributed to this increase gain on sale of equipment was $1 million in the quarter compared to <unk> $1 million in the prior year.
On the safety side, we're proud to bird port that our D. O T accident rate per million miles for the year was a new company record, beating last year's previous record by approximately 6%.
Despite two consecutive years of favorable safety results unfavorable development from a small number of prior period claims contributed to almost a six cent per total mile increase in insurance expense compared to the prior year quarter.
The average age of our fleet at December 31st was 26 months or three month reduction from September 30th.
For 2023 we have been able to increase our original tractor order and we anticipate sequential improvement to the average age of our equipment throughout the year.
Airtel lease up leasing company investment produced 21 cents per diluted share.
Compared to 23 cents per diluted share versus a year ago period.
Our net debt net indebtedness at December 31st was $46 4 million million.
Yielding a leverage ratio of <unk>.
Three or four times and debt to equity ratio of 10, 9%.
Return on invested capital for 2022 was 15.3% versus 12, 8% in the prior year.
Now Paul will provide a little more color on the items affecting the individual business segments.
Thanks true, taking a moment to dive deeper into what drove the consolidated results for the quarter, our expedited operating our expedited segments freight revenue grew 26% compared to the prior year quarter as a result of the combination of a 16% rate improvement.
Operating 67 additional tractors.
The increases are related to the a T acquisition, we had it in the first quarter and the loosening driver market, allowing us to see more tractors.
We are pleased with expedite is rate and utilization in the quarter, which was improved by FEMA freight in October that resulted from hurricane Ian.
Cost headwinds from increased salaries and wages maintenance and insurance continued to play a major impact in the quarter and condensed our margins. We believe the combination of our work to resolve a significant number of prior period claims the impact of the equipment replacement plan will help improve costs in this segment going forward.
Driver pay remained stable at the present time.
Our.
<unk> segment had a 5% reduction in freight revenue compared to the 21 quarter that was really sort of a 143 or a 10% reduction in the average number of total trucks in the period offset by a 5% increase in revenue per truck.
Although we are pleased with both the year over year and sequential improvement to the margin. We fell short of our profitability target primarily because of the same cost increases which were impacting our expedited segment.
The fleet reduction we've experienced in this segment is a product of two factors intentionally exiting unprofitable business and reducing fleet counts with existing customers based on reduced volumes were.
We continue to work diligently to improve margins in this segment by improving our customer mix contractual terms and operating a younger more efficient fleet.
Managed freight experienced a 30% reduction of total freight revenue and a 20% reduction in operating profit.
The significant reduction in revenue was the product of less overflow freight from our asset based truckload segments, a reduction in peak revenue offset by FEMA freight in the quarter compared to the prior year.
We were pleased with the fact that managed trade was able to hold margins for the quarter, but we are now experiencing a much more aggressive environment with competitors aggressively competing for volumes at the expense of margin, we anticipate significant margin compression if this softening environment.
Our warehouse segment, although the smallest of all of our business segments saw a 31% increase in revenue compared to the prior year, resulting from the startup of four new customers in the year, the largest of which became operational in December .
We're pleased with the top line revenue growth we've achieved in this segment and the team has done a phenomenal job in executing executing these startups, which are both intense and time consuming however, despite the topline growth in this segment, we've seen sequential deterioration in margins throughout the year. Our focus in 2023 will be to continue to grow.
This segment and restore profitability to the mid to high single digits through improved labor utilization and rate increases with existing customers.
Our minority investment entail produced pretax net income of $3 9 million for the quarter compared to $5 2 million in the prior year period.
Although the fourth quarter is typically soft for tail. It was especially soft due to an adjustment to accelerate depreciation on a specific group of equipment that is expected to be sold in the near term.
The adjustment negatively impacted the quarter's results by approximately 1.5 million tell.
<unk> has a strong track record of producing gains on sale of equipment throughout good and bad cycles and believe we believe this adjustment is isolated to a specific quantity of similar making model equipment.
Sales revenue in the quarter grew 47% and pre tax operating profit decreased by 22% versus the fourth quarter of 'twenty one.
<unk> increased its truck fleet in the quarter versus a year ago about 243 trucks to 2237% and grew its trailer fleet by 654 to 7149.
After receiving more than a $7 million distribution during the quarter our investment in tail, which is included in other assets in our consolidated balance sheet was approximately $55 million as.
As a reminder, tell focuses on managing lease purchase programs for clients leasing trucks and trailers to small fleets and shippers and aiding clients in the procurement of disposition of their equipment through a robust equipment by cell program.
Due to the business model gains and losses on the sale of equipment are a normal part of the business and can cause earnings to fluctuate from quarter to quarter.
Regarding our outlook for the future. There is no doubt that 2023 will be challenging year, but it's also year. Our team has been anticipating and working hard to prepare for.
We view it as a test of the resiliency of our operating model and opportunity to identify areas, where we can continue to improve.
As such our primary focus remains a continued progress on our long term strategic plan.
We are also focused on aggressively improving our operating cost profile with our equipment replacement plan strong and strong safety results, we see opportunities to improve cost in the short term to improve fuel economy reduced operations maintenance and insurance costs in an environment that will be pressured from both rates.
Right and margin perspective, we expect market headwinds from a softer market during the contract renewals as well as continued inflationary pressures. However, based on company specific factors, including investments we've made in our sales team.
T acquisition share repurchase program and the equipment upgrade plan and reduced insurance casualty costs, resulting from our improved safety results. We expect less earnings voluntary then volatility than in prior periods of economic weakness.
Over the past five years, our customer base has been strategically shifted to less cyclical industries through our full service logistics focus even with a heavy equipment investment year, we expect our cash generation low leverage and available liquidity to provide a full range of capital allocation opportunities to benefit our shareholders.
Thank you for your time, and we'll now open up the call for any questions.
If you would like to ask you again.
Please press star one on your telephone keypad now and you will be placed into the queue in order to receive.
Be prepared to ask your question when prompted once again, if you would like to ask a question. Please press star one on your phone now.
And our first question comes from Jason Seidl from Cowen. Please go ahead Jason.
Thank you, operator, Hey, Paul Hey trip.
Wanted to kick things off and talk a little bit about manage freight first then jumping to truckload.
On the managed freight side, you said that basically prepare for significant margin compression I guess, maybe can you give us a range of what you consider significant and then maybe walk us through.
You know.
And maybe some of the puts and takes to just how bad it is out there because it seems like all of this is becoming coming from competitive pressures out in the marketplace.
Yeah, Jason.
Here's what I'd say on the managed freight side.
The market is crazy competitive out there right now as far as I would say, it's going to return to historical truckload brokerage margins.
I think not just us, but a number of our competitors have been running margins. In these brokerage businesses that are you know multiple times more than the historic margins that truckload brokerage is operate.
So you know I've seen several others out there that everybody is kind of returning back to pre pandemic pre supply chain issue brokerage margins levels and you know those are mid mid single digit kind of numbers and so we're seeing it you know just.
Just like our peers return to those numbers.
There's no doubt there are folks out there trying to buy volume in this space right now and a lot of the logistics departments traffic departments are trying to go back and recoup costs from the last few years that said a lot of these rights were saying or just unsustainable, where you know there.
10, 20%, 30% below what a small carrier can run at <unk>.
Is this just kind of a a purge I think the whole industry on the brokerage and the truckload side, it's going to have to go through but you know.
Some of these small carrier stacked up some money running the spot market. The last couple of years and they're making it but you can't run 10 or 20% below what you call Star Forever.
No no.
That's clear and what's your percent of business between contract and transactional right now.
Probably 65, 70% contract you're about 30% spot in that business right now.
That's right.
Is that just more from the spot rate.
What market drying up in terms of loads.
Yes, you know and contract rates the brokerage or you know what those are folks keep doing many be you know you get a number and then they do another bed in and that kind of stuff. So okay.
Okay.
That's good color I want to jump over to the asset base side, now and maybe talk a little bit about some of the deterioration you're seeing you know we held our call a bunch of private companies and.
Earlier, this month and they basically said that the market has deteriorated a lot in the last 60 days what are your expectations for sort of the pricing gains that youre going to get out of the contracts that you signed here during this bid season.
Yeah, Here's what I would say.
A lot of hours just right now quite frankly is coming from <unk>.
Volume reductions because a lot of our customers just don't have the freight they had and our reduced margins are coming from having a tight more broker freight to fill the trucks as opposed to straight up customer price reductions I mean, I'll tell you on the expedited side.
We're somewhere between you know low single digits to flat to up a little on customers I mean, it's on the expedited side theres not a lot of margin pressure, but when customer X Y Z is giving you 10% less loads and they were giving you five months ago, you're either replacement or broker freight.
Right now.
And the freight youre going to get into refill the bucket as you know it is not as profitable as what you got out of and so.
That's what's pushing all true.
<unk> margins.
Okay.
Fair enough on that I wanted to talk a little bit about you know.
The changes in the fleet, obviously, a far newer fleet than you had before probably newer than you thought it was gonna be talk a little bit about the savings that can maybe help offset some of the market pressures we're seeing.
Yeah, I may be able to help with that yeah. There's no doubt about it that new equipment is is more costly than from a price perspective than some of the older equipment that we're taking out.
Of the slate and we've been.
Pretty vocal on the last couple of calls on you know really looking at our ops and maintenance spend the cost of running that older equipment just to frame. This up for you. If you look just on a cents per mile basis, our ops and maintenance costs in our truckload Division ran 21 cents a mile.
In 2021, when we look at 2022 it ran at 29 cents of motto and sequentially, It got worse and worse and worse.
And so you know it was pretty early in the year. When we decided we've got to get in front of this and we got in front of it through being more aggressive on new acquisition.
Acquiring incremental tractors beyond our 2022 trade plant trade plan and those incremental tractors, which were about 250 units landed in the quarter and the fourth quarter on top of what we were scheduled already received we've also bumped up our trade plan for 2002.
Three I think our original water was somewhere in the neighborhood of 600 tractors and anticipating to get closer to 900 now.
And so what this did in the short term and you know that the compounded with the fact, we went out and identified the most expensive tractors in our fleet, which were these leased units that we talk about in the earnings release just call them 600 units. We went ahead and proactively park those units.
And so you know all of that being said and done it created a little bit of a log jam of excess equipment. We had new newer equipment. We had received and deployed that we're setting out you know they were being operated and then we had all of these leased assets that we're generating cost and we werent able to turn them in so.
You know I don't want to get into specific numbers, but I do think that youre going to see meaningful improvement.
And both ops and maintenance costs and I think you also say, even though the cost of equipment is going up.
You know if you think about the little gain on sale that we had this year, which you know.
With just over $2 2 million or about $3 million adjusted when you out you know the terminal sale.
Youre going to see I think meaningful improvement because what we're gonna be selling next year, we're not going be trading in leased vehicles, we're gonna be selling our used vehicles that we own and so you'll see some meaningful improvement in gain on sale next year.
So we think the fixed cost of equipment could be flattish, even though the the price for that equipment is going up but we believe.
Meaningful improvement in ops, and maintenance and also meaningful improvement in fuel economy with that new work with.
Hey trip just two clarifications one when you say next year are you referring to $24 23.
[laughter] I'm stuck in the past [laughter] I'm, a motto today and I've got a I've got to live in the past.
Yeah.
I'm talking about 2020, I'm, sorry, you're right two I was referring to 2023, and then traded mandatory until January Matt Okay. So.
Other thing I wanted to say so you went from 21, such a mile to 29 cents a mile worsening as you went throughout the year what is the maintenance cost on these new trucks that you're bringing in so you can put it into perspective for us per mile.
Exponentially better I think that you know.
No.
There have been cost and I don't know if it's realistic to get back to what we consider all in ops and maintenance costs, a 'twenty one 2021 number of 21 cents per mile. The parts of the cost of tires at parts of labor and the.
Cost of parts all have.
Had significant cost inflation, but I think that you know.
No.
I think you could see that.
Number land somewhere between the 21% and 29 cents per mile.
It's a little bit hard to say because that the other key component to this is uptime and utilization.
You know we had to keep throughout 2022, we had an EBIT.
The considerable number of excess units, particularly in our dedicated fleet in the fleet just because we would have a customer that would require a 15 trucks and we were putting 20 trucks in there because five of them were down and it'll help us with uptime and utilization too so it gets a little bit muddy.
<unk> been trying to do some sort of cost reconciliation by just looking at ops and maintenance, but I think youre going to see an overall improvement in the efficiency of that say in the truckload larger truckload segment, which both includes expedited and dedicate and dedicated.
Congratulation and then the last one I'll turn it over to somebody else.
Expectations for share repurchases, obviously, you guys were very aggressive last year.
Purchasing your own shares and supporting them.
This year is going to be a down year by anybody's estimates in terms of just your overall financials.
Are we going to see you're still be the same aggressive way as you.
In 'twenty one.
I don't want to comment on what we're going to do in the future, but it is public information on what we have out there and what we've repurchased today and we still have about $20 million of availability on you know what we on the plans that have been approved and are in the market today.
Well evaluate that obviously, we have strengthened our balance sheet to do that if we so choose but there's a number of different options that we may choose not to do that so it certainly and are you now in the Arsenal of things that we could act on but.
There's been no decision or no public.
Disclosure of us committing to something additional beyond what's out there today, okay sounds good gentlemen, I really appreciate the time as always.
Okay.
Thanks, Jason.
And our next question comes from Jack Atkins from Stephens. Please go ahead, Jack Okay. Great. Good morning, Good morning, guys. Thanks for taking my questions.
So I guess, maybe maybe.
I'd like to ask.
About sort of the trends in the first quarter here, but maybe we could take a step back and kind of think about Paul going back to the last couple of quarters.
You've got you guys have sort of commented on the cyclicality in the business and sort of how you think you've been able to mute that a bit given all the all the work you've done the last few years, but you do sound a bit more bearish about the trends in the business that youre seeing over the last few months. So I guess as you sort of think about the run rate for that business today.
Based on sort of your outlook for the managed transportation.
Managed freight business being mid single digit margins do you think you do do you think down 25% to 30% peak to trough earnings.
Its still how to think about it or has that changed any over the last few months.
Jack I would say, it's probably that's still our goal that's still what we're shooting for each and every day is down that 25% to 30% range. We haven't given up on that goal internally for for 2023, and so we've had a big meeting on that yesterday.
And we talk about it frequently.
You know to your point you you've taken a step back I will take a long step back I mean, historically peak to trough, we might have been down 750% or 60, 70%. Some years. You know you can go back to the years. We've made 286 in the next year made 61 or something and so you know 75% top reduction.
Or is it going to be 25 is it going to be 30 is it going to be 35% I don't know a lot of that's just going to be what is the market.
For us, but it's not going to be anywhere like you saw in the you know the the team you know the.
10 years ago.
So we're still very confident in the changes in the model reduce that volatility.
Compared to you know I'm going call. It the last 10 or 15 years.
We're still shooting every day for that 25% to 30% reduction and I think it is.
How achievable that is probably is a function of.
How much farther the market in general false and does it bounce off the bottom or does it stay on the bottom for a little while but you know we're still in that whole kind of big vein of becoming less volatile theres no doubt compared to the prior year's were materially less volatile.
No doubt about that and no doubt about that and I think that that's helpful and I appreciate the.
The way you kind of frame that up I guess as you think about the first quarter.
A lot of people kind of look at it.
<unk>.
Should we see better or worse than normal seasonality.
All of the factors that are at play out there you guys. It sounds like you guys had a really strong October .
You know, which may have been kind of boosting the fourth quarter, but you didn't have much peak season in November and December So as you think about the way that.
This is trending into the first quarter.
This is about 90 or so.
Do you feel like that.
I mean do you feel like that's in the right ballpark based on on the <unk>.
That you are seeing in the business today the run rate there I know January is a tough one to two.
Its tough its tough to peg it off January but that's in the range of reasonableness I mean, here's what what data you said October was October was a stout month No peak November December definitely pulled back but I mean.
Chip talked about the insurance, we had 23 cents a mile insurance. We're hopeful we don't run 23 cents a mile insurance and so you know I would tell you that again no doubt things are soft out there, but we are <unk> our cost structure for the first quarters don't look better than our cost structure in the fourth quarter. So revenue.
B is robust, but our cost structure will be better.
Okay. Okay.
Thank you for that that's helpful and I guess, maybe kind of.
We used to get your take on what you know.
Your customers are telling you about you know maybe there.
And sort of how they're thinking about their inventory levels. I mean, do you think that we can get back to maybe.
Normal levels of replenishment normal ordering levels in the second quarter or do you think that's maybe something that we will need to see in the second half of the year just sort of what are your customers, telling you about about the direction of their business.
Hey, Jack this David David.
Yeah, you know three or four.
Sure.
All of the points that I would say is that.
I really believe that first second quarters for making Opex standpoint are going to be negative GDP. That's what I believe I believe that as it relates to.
Transportation.
I think that we hit the bottom around Thanksgiving.
And I think that we have just been there it's worth being we have not seen a second downward trough at all going down below kind of Thanksgiving and we have since that all in the month of January as well, so I'm optimistic that the industry and us are down on the bottom.
Level, there and as I think look at in the second quarter.
Even if first and second quarter of negative GDP when they start buying more Coca cola than the when it gets warm in may and it gets warm and the end of April and Hot dogs, and all those kind of things freight is going to pick up even if it's a negative GDP growth and so I believe that that will be it.
Tailwind for the industry I also believe that it will be about a second quarter event.
The inventory levels are corrected.
And as soon as that happens that in itself will be a.
A tailwind for the industry because right now that's what a lot of our customers are due and are correcting their inventory levels and so we're just having a muddle through it and.
But I'm optimistic that the pipeline.
Good.
And better than you would think it would be in the month.
January I'm optimistic about that.
We've got I'm optimistic about what I've seen from the.
Rate levels thus.
Thus far the <unk>.
Pressure of reduction.
That it's only been three or four accounts, we're not talking about across the board everybody. His brother, beating us up if we were to eliminate.
What's happened on the quote broker side of us having to go to the outside brokerage and get it I'll be very happy of where our pricing is that at the present time.
Take.
Look at this and you know.
Our brokerage has gone from one breath that.
5% kind of usage and the rates on that 5% or 1990, right. I mean, it's the most horrible thing I've ever seen the rates are pathetic, especially coming off the west coast I think a lot of that because everything that's happening in China and the boats are.
M&A added Chinese new year's lasting longer and and that talent. The west coast has been very difficult and so the rates out of there or just horrific rates that they had that take that out of the picture and I'm very pleased with the rates.
And again, we'd probably get two or three more accounts that we got out you know hold our nose and hold our breath and hope and pray that we're able.
To get there because it's Paul I'll start it off.
A little bit down some flat a little up that's what we're seeing it's not everything is down because it's not doubt that if we can replace and I really believe in the next 30 days I hope I'm right because of the pipeline I really believe the next 30 days that we're gonna have a bunch of the brokerage freight.
That's going to be replaced and their rates are almost double what we're a hall and so if I get 6% of that download on rates, it's going to help what I'm seeing so far in January with the market Ben.
Down that just floating all that down we're just it's there I haven't seen it go down again so.
Hopefully that helps them I'll add one thing to what David said is that.
You asked early on your questions about the changes in volatility in peak to trough and all that.
Here's what I would say.
I use the word niche E on last quarter's call and I would tell you everywhere, we're way our niche and people really need our teams are they really need hazmat heavy haul dedicated or are they really need where we're providing value things are holding in there just incredibly well.
In this market so we do have.
A little bit of business its commoditized here and there, but every day, we're trying to find more we can be more value add in EG and the commoditize people are going to do what the commoditize people are going to do I feel like we're probably.
70% down that path.
But we're going to keep working on that path everyday good market or bad market and eventually that 70 is going to become 80 or 90 in that.
That niche stuff, where we add value for our customer and they add value to us we want to get that to 100% and and so that's part of what to David's point is protecting us thus far in this market and it's really it's the pressure points are in two places, where we're still have a little better.
Commoditized business.
And and then where we don't have enough freight in certain geographies and we're having to haul broker freight. So we keep working on those two things it'll be good.
Okay.
That makes it.
All the commentary David Thank you for chime in on that too I guess, maybe just last question, David and I'll hand, it over I'd love to get your take on this.
Because you've seen a lot of.
Cycles over your career.
Such a young man.
Yeah.
You know.
Just capacity attrition.
Talking about rates being at 1990 levels in certain markets.
But it doesn't.
Really feel like we've really seen a lot.
They come out yet at least from what we can tell.
Hum.
I guess, how do you see the capacity situation playing out over the next the next six months or so what do you think needs to happen to really trigger that.
Attrition that we would normally expect to see.
Yeah, I think going forward that we will see quite the reduction in capacity because I think that what has happened. Thus far if you look at new D. O T numbers, it's negative and so there is not new trucking entries coming in to the marketplace. That's number one but I do.
What's happened Jack is that the folks that just grew I mean, not group that came into the market and the spot in Holland for 50 about those where one day Tuesday trucks, those or somebody's got three trucks.
And not many of those trucks have left but you and I have not felt it yet.
Because they became truck drivers for me.
Drivers for Warner truck drivers for you and they just they just started driving company trucks and so we still got the same amount of capacity and so I think that's where the market is today, but two plus two does equal four you can't haul 1990 rates with with cost in 'twenty to 'twenty two.
23 cost and think you're going to stay in business. So I think in the next couple of months, we will stay a rush of capacity than it is going because all of our truckload guys. Our trucks are full virtually were virtually full and so that's what I think you'll start seeing capacity, leaving in the next.
A couple of quarters.
Yes, Jack it's got all the ones that made a lot of money had some capital to hold on for a little while but again you cant run at some of these rights for forever.
I won't mention the vendors, but I've talked to a couple of vendors in the last few weeks that deal with.
Big Truckers, and small truckers, and Theyre small trucker delinquency rates or people hitting their credit limits is.
It's getting there to a spot where eventually.
I don't think we're going to wake up one day, and say Oh, well capacity left yesterday, but over a six to nine month period, you're going to see it trend down.
And again, that's some of that's just talking for vendors that they deal with big Big Truckers and little truckers.
Their credit departments are pretty worried right now.
Well gentlemen, thank you for the time.
Appreciate it.
Thanks, Jeff.
Okay.
And our next question comes from Bertrand <unk> from Stifel. Please go ahead Bruce.
Hey, good morning, Thank you for the time.
Hey, Bert.
Hey, guys.
David maybe just a follow up to some of the comments there.
If I go back a few quarters <unk> been communicating a more bearish positioned toward future freight market fundamentals.
In your comments I think there may be indicate youre starting to become more optimistic at least about where things are trending if even if we go through a little bit of dip here in the first half.
Does that make you from the covenant perspective want to be more aggressive during the downturn.
And in terms of trying to put your.
Finger to the wind in terms of when the market starting to turn.
Is it as simple as you as what your customers are saying or looking at the spot market. When do you think it really becomes more risk on the truckload side.
Yeah number one I am I am more bullish than you know rip.
Reporting some of the negative.
<unk> been down.
Uh huh.
The equipment in those kind of thing.
From a business from a freight standpoint.
Darren.
That we hit the bottom so things are not great, but I am becoming more and more bullish there are more opportunities that are presenting their sales and I do think some of that is because of what Paul talked about is that we've worked hard since 2018, and then 2021.
We have worked hard on to things getting deeper in the supply chain whatever that means getting deeper in the supply chain and number two bringing value to our customer, but that customer bringing value to us and we have those kind of conversations with our customer.
I don't care about 'twenty, one 'twenty or 'twenty, one or 'twenty, three and when you need some freight if I'm not bringing value to that customer and if they're not bringing value to me one of the other is going to leave because we are going to get to the point, where when we started down the road.
Being quote you call, we're not going to be a you call we haul carrier and just hope we get enough phone calls we're gonna have commitments from our customers not that dedicated is running 20 trucks and they need to go to 15, because they have no freight I understand that that's just business, but not okay, we're going to do a bed.
At the end of the day, we used and abused in 'twenty, one and we don't like your pricing let them go do that I don't care. We will go do other things that it means reduced our trucks, whether it means go do acquisitions, whether it means we repurchased stock whatever that means we will do.
Do whatever the market tells us to do so I am bullish they're in a very bleak time out there that there's going to be a lot of opportunities.
Going forward now had all watch that it is said that they are talking about it is through looking at certain things that that we're involved in I mean high security loads right now are popping up a lot for us and that's good because we're one of the few that do high security I would say that.
The last couple of weeks, we got four by the count them. Some good volume accounts that could reap quote replaced all the brokers anyway. Some good volume accounts on high security and so.
That's a great opportunity for us.
Another one would be.
That brokerage number goes down is telling me a little bit about where the market is going to be for us. So I do think that there is.
Attunity is out there.
That can overcome what we're seeing in industrial production and what we're seeing in housing.
I think there are some things that are happening, but also borrowed again, we've been working for years to pay that carrier, that's bringing value why one of the reasons why our rates have not been slammed. So far managed the brokerage and you can do the math on what I told you and you know that.
That'll get you to.
Number that's negative it's not positive.
But as I as I look at that.
I've got Brian David and 65, Bert I forgot what I was going to say.
It would come back in a minute David.
David This is Brad.
Thank you. Thank you Joey Hogan, we're a different company that's worked very hard the last four five years to bring value and the reason why our rates have not dropped like the market has dropped is because our customers recognize it and I mean there.
Barbara lives and that to us and that is our business is down but you do such a great job and you've given us the haynesville, we needed that you give it the dedicated trucks when we needed it and we're not asking for a rate reduction, but we were really fair for the last 24, we have been we have been I think mark that's another piece.
We didn't.
We were pretty fired with a lot of these folks over the last 24 months when we could have taken advantage of some situations and we didn't and and in turn what we're finding is 70% of our customers are being really fired us back right now.
And the 30% that Oracle as Dave said, we'll figure that out.
Obviously, a great color maybe just.
You know all the things you guys talked about on the reduction of volatility.
I think a lot of that has been some things you've done on the expedited side and then obviously improvement in dedicated.
If we think about the two things that likely going to determine whether you end up at 25% down or 35% down in 'twenty three.
B I think your ability to maintain that 92 or better or an expedited and I think it is going to be your ability to keep managed freight at least the sales side of that.
Reasonable range not going back to where it was pre pandemic can you just provide some color on those two items and maybe why you have confidence that.
Both of those segments are going to hold up better because an expedited historically a lot more cyclical.
And managed freight obviously very cyclical and the backdrop like this.
Yeah, I would say managed freight from a confidence standpoint remember other cycles. Bart we didn't have a lot of these long term agreements.
We're.
60% ish of expedited freight tied up in long term agreements and so plus the addition of a T which rolls up into expedited I mean, that's just not sure. It's not your average expedited carrier and what they do and and just the structure and so.
We have a lot of confidence in how expedite is going to hold up in 2023 on the managed freight side. I mean, we said that margins are going to be compressed, but we're still feeling really good about topline revenue. Our team. There has got to as David said, they've still got a really robust pipeline.
And an expedited has a robust pipeline and I think on the dedicated side youre going to continue to see it.
Over the last 24 months, you've seen incremental improvement in dedicated and I think you're going to see incremental improvement in dedicated this next year.
We're gonna be as it's going to be a little harder, but dedicated is going to continue to incrementally improve you got long term agreements and a T and expedited.
Managed trans margins are going what are going to go way down, but they've been white hot but I think the revenue base, we'll be there and then on the warehousing side I think we will I.
I think margins will start to right size as we continue to grow that business and that pipeline is the best we've had since our since we entered that business in 2018.
So Paul maybe just maybe.
So as a follow up to that.
You only saw a modest quarter over quarter impact on the sales side and managed freight are we getting closer to the bottom do you think it can remain that elevated or does that step down in the first quarter and also.
The increase off of the new base.
Yeah, I think managed freight will step down in the first quarter and and that will kind of be your new bikes going forward versus Q4.
From a margin standpoint for the for the color.
Okay.
And gentlemen at this time there appears to be no further questions.
All right everyone. Thank you for joining us.
We look forward to talking to you next quarter.
Thank you can conclude today's conference call. Thank you for attending.
Okay.
The host has ended this call goodbye.