Q3 2023 Covenant Logistics Group Inc Earnings Call
Speaker 1: transcript
Speaker 1: Welcome to today's Covenant Logistics Group, third quarter earnings release conference call. Our host for today's call is Trip Grant. At this time, I'll...
Okay.
Welcome to today's Covenant Logistics group third quarter earnings release Conference call.
For today's call a trip grant.
At this time, all participants will be in a listen only mode. Later we.
We will conduct a question and answer session I would now like to turn the call over to your host trip you may begin.
Thanks Ross.
Speaker 2: transcript
Speaker 2: Good morning everyone and welcome to the Covenant Logistics Group 3rd quarter of 2023 conference call. As a reminder, this call will contain forward looking statements under the private security litigation reform act, which are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings in most recent risk facts.
Good morning, everyone and welcome to the Covenant Logistics Group third quarter 2023 conference call. As a reminder, this call will contain forward looking statements under the private Securities Litigation Reform Act.
You are subject to risks and uncertainties that could cause actual results to do.
Differ materially please review, our SEC filings and most recent risk factors.
Speaker 2: transcript
Speaker 2: We undertake no obligation to publicly update or revise any forward looking statements.
We undertake no obligation to publicly update or revise any forward looking statements.
Speaker 2: transcript
Speaker 2: Copy of the proposed comments and additional financial information is available on our website at www.cavinelogistics.com slash investors.
A copy of the proposed comments and additional financial information is available on our website at www Dot Covenant logistics Dot com slash investors.
Speaker 2: transcript
Speaker 2: I'm joined on the call today by David Porker and Paul Bunn.
I'm joined on the call today by Paul David Parker, and Paul Bun.
Speaker 2: transcript
Speaker 2: We are pleased with our third quarter's results, which benefited from the full quarter effect of the Lutomps and its untrucking acquisition and the second quarter reflected in our dedicated segment.
We are pleased with our third quarter's results, which benefited from the full quarter effect of Delude Thompson and son trucking acquisition in the second quarter reflected in our dedicated segment.
Speaker 2: transcript
Speaker 2: In addition, our expedited segment benefited incrementally from the increase in demand for team driver freight as a result of the closure of yellow. However, more broadly, the overall freight environment remains challenging with few signs of immediate macroeconomic improvement.
In addition, our exit been expedited segment benefited incrementally from the increase in demand for team driver afraid as a result of the closure of yellow. However.
However, more broadly the overall freight environment remained challenging with few signs of immediate macroeconomic improvement.
Speaker 2: transcript
Speaker 2: Compared to a year ago, consolidated freight revenue was down 5%. The decline is primarily attributable to the combination of little to no overflow freight handled by our managed freight segment. And a lower tractor count on a dedicated segment.
Compared to a year ago consolidated freight revenue was down 5%. The decline is primarily attributable to the combination of little to no overflow freight handled by our managed freight segment.
The lower tractor count in our dedicated segment.
Speaker 2: transcript
Speaker 2: The reduction of tractors is found to dedicated resulted from an exiting underperforming legacy contracts partially offset by acquiring Lou Thompson and son. The result was higher earning.
The reduction of tractors assigned a dedicated resulted from an exiting underperforming legacy contracts, partially offset by acquiring Lou Thompson and son.
The result was higher earnings on fewer trucks.
Speaker 2: transcript
Speaker 2: Adjusted operating income declined approximately 4.6 million or 20% compared to the prior year quarter. Primarily as a result of our managed freight segment which declined by approximately 4.7 million dollars.
Adjusted operating income declined approximately $4 6 million or 20% compared to the prior year quarter.
Primarily as a result of our managed freight segment, which declined by approximately $4 $7 million.
Speaker 2: transcript
Speaker 2: Adjusted net income decreased 32% to 15.3 million, and adjusted earnings per share decreased 26% to $1.13 per share compared to the year ago court.
Adjusted net income decreased 32% to $15 3 million and adjusted earnings per share decreased 26% to $8 13 per share compared to the year ago quarter.
Speaker 2: transcript
Speaker 2: Quated average diluted shear's decreases as a result of our shear repurchase program.
Weighted average diluted shares decreased as a result of our share repurchase program.
Speaker 2: transcript
Speaker 2: Kiki Highlights include freight revenue for the quarter with the highest for any quarter of the year, suppressing the second quarter by 4%.
Key highlights include freight revenue for the quarter was the highest for any quarter of the year, surpassing second quarter by 4%.
Speaker 2: transcript
Speaker 2: The Lutomson and Centraking operation continue to perform well with our first new poultry related customers start up in late September and a strong pipeline of additional bids.
Thompson and son tracking operation continued to perform well with our first new poultry related customers start up in late September and a strong pipeline of additional beds.
Speaker 2: transcript
Speaker 2: The average age of our fleet at September 30th improved to 23 months compared to 29 months in the prior year and 26 months at June 30th, 2023.
The average age of our fleet at September 30th improved to 23 months compared to 29 months in the prior year and 26 months at June 32023.
Speaker 2: transcript
Speaker 2: Within our combined truckload segments, compared to the prior year operations and maintenance related expenses declined by six cents, or 21% and fixed equipment costs, including lease revenue equipment expenses, depreciation, gains on sale remain flat on the total cents per mile base.
Within our combined truckload segment compared to the prior year operations and maintenance related expenses declined by six cents or 21% and fixed equipment costs, including leased revenue equipment expenses depreciation and gains on sale remained flat on a total cents per mile basis.
Speaker 2: transcript
Speaker 2: Game on sale of revenue equipment was 0.6 million in the quarter compared to 0.2 million in the prior year.
Gain on sale of revenue equipment was.
$6 million in the quarter compared to $2 2 million in the prior year.
Speaker 2: transcript
Speaker 2: Our tail leasing company investment produced 28 cents per diluted chair compared to 38 cents per diluted chair versus a year ago period.
RTL leasing company investment produced 28 cents per diluted share compared to 38 cents per diluted share versus a year ago period.
Speaker 2: transcript
Speaker 2: Our net indebtedness as of September 30th was 183.4 million, yielding a leverage ratio of approximately 1.7 times, and debt equity ratio of 31.8%.
Our net indebtedness as of September 30th was $183 4 million, yielding a leverage ratio of approximately one seven times and debt to equity ratio of 31, 8% on.
Speaker 2: transcript
Speaker 2: On an adjusted basis, return on invested capital was 10.6% for the current quarter versus 17.5% in the prior year. And now Paul will provide a little more color on the items affecting the individual business sector.
On an adjusted basis return on invested capital was 10, 6% for the current quarter versus 17, 5% in the prior year.
Now Paul will provide a little more color on the items affecting the individual business segments.
Speaker 3: transcript
Speaker 3: Thanks, Triop. The performance of expedited during the third quarter provided for a 90.7 adjusted OR in the midst of a historically weak freight environment.
Thanks trip the performance of expedited during the third quarter provided for 97 adjusted or in the midst of a historically weak freight environment. We believe this says a lot about the work we have done to deploy assets with the right customers to lower our cost per mile improve our utilization and focus on what we can control.
Speaker 3: transcript
Speaker 3: We believe this says a lot about the work we have done to deploy assets with the right customers to lower our cost per mile, improve our utilization, and focus on what we can control. In the context of an 8% decline in revenue per mile, we believe a 12% improvement in utilization, and a lower cost per mile are significant accomplices.
Joel.
In the context of an 8% decline in revenue per mile. We believe a 12% improvement improvement in utilization and a lower cost per mile. Our significant accomplishments the improvement in utilization was principally attributable to newer equipment in the fleet and reduce downtime, which we will look to continue as year over year.
Speaker 3: transcript
Speaker 3: The improvement in utilization was principally attributable to newer equipment in the fleet and reduced downtime, which we will look to continue as year over year freight revenue for total mile compressions are expected to continue and be challenging for the remainder of 23 and into 24.
Revenue per total mile Compressions are expected to continue and be challenging for the remainder of 'twenty three and into 'twenty four.
Speaker 3: transcript
Speaker 3: Dedicated or reflected in other success story centered around our Discipline approach to capital out.
Dedicated reflect another reflected another success story centered around our disciplined approach to capital allocation dedicated improved its adjusted operating ratio to approximately $93 six by effectively weeding and feeding we reduced the overall size of the fleet by 170 trucks ordinarily do.
Speaker 3: transcript
Speaker 3: Dedicated improved its adjusted operating ratio to approximately 93.6 by effectively weeding and feeding. We reduced the overall size of the fleet by 170 trucks, while nearly doubling adjusted operating.
<unk> adjusted operating income.
Speaker 3: transcript
Speaker 3: Trading out approximately 400 legacy contract units for low-tops and and son aligns with our strategy of exiting, unprofitable or underperforming business and replacing it when opportunities arise that meet our profitability and return requirements.
Trading out approximately 400 legacy contract units for Thompson, and son aligns with our strategy of exiting unprofitable or underperforming business and replacing it when opportunities arise that meet our profitability and return requirement.
Speaker 3: transcript
Speaker 3: We are pleased with the year-year improvement to adjust in margin and expect us to continue to improve upon both the segment size and profitability over the long.
We were pleased with the year over year improvement to adjusted margin and expect this to continue to improve upon.
Size and profitability over the long term.
Managed fright experienced an 11% reduction in total freight revenue and a 57% reduction of consolidated adjusted operating profit.
Speaker 3: transcript
Speaker 3: Managed freight experienced it on 11% reduction in tow rate revenue and a 57% reduction of consolidated adjusted operating
Speaker 3: transcript
Speaker 3: This significant reduction in revenue and operating profit was primarily the product of little to know how margin overflow freight from our asset base truck load segments in the 2024 quarter 2023.
The significant reduction in revenue and operating profit was primarily the product of little to no high margin overflow freight from our asset based truckload six months in the 2024, CT 2023 quarter, the brokerage environment remains highly competitive with numerous brokers aggressively competing for volumes at the expense of profit.
Speaker 3: transcript
Speaker 3: The brokerage environment remains highly competitive with numerous brokers aggressively competing for volumes at the expense of profit or margin. We anticipate continued margin pressure in this environment.
Or margin, we anticipate continued margin pressure in this environment.
Speaker 3: transcript
Speaker 3: Our warehouse savings saw 15% increase in revenue and an 82% increase in adjusted operating profit compared to the prior year. The top line growth is a result of new customer startups over the last 12 months.
Our warehouse segment saw a 15% increase in revenue and an 82% increase in adjusted operating profit compared to the prior year. The topline growth as a result of new customer start ups over the last 12 months.
Speaker 3: transcript
Speaker 3: And the operating profit improvement was resolved the combination of new customer business and improved rates for existing costs.
And the operating profit improvement was the result of the combination of new customer business and improved rates for existing customers.
Speaker 3: transcript
Speaker 3: Although we are pleased with the improved profitability within this segment, we will continue to focus on improving profitability more through improved labour utilization and rate increases with existing costs.
Although we were pleased with the improved profitability within this segment, we will continue to focus on improving profitability more through improved labor utilization and rate increases with existing customers.
Speaker 3: transcript
Speaker 3: Our minority investment in tail contributed pre-tax net income of 5.3 million for the quarter compared to 7.4 million in the prior year period.
Our minority investment in Teo contributed pretax net income of $5 3 million for the quarter compared to $7 4 million in the prior year period that.
Speaker 3: transcript
Speaker 3: The decline was largely a result of reduced gains on sale if used equipment compared to year ago. Tills revenue in the quarter to climb 8% and pre-tax net income decreased by 28% versus the third quarter of 2022.
The decline was largely a result of reduced gains on sale of used equipment compared to a year ago.
Sales revenue in the quarter declined 8% and pretax net income decreased by 28% versus the third quarter of 2022.
Speaker 3: transcript
Speaker 3: tail increases truck plate in the quarter, versus a year ago by 42 trucks to 2,195 and crew it's trailer-free by 153 to 7,013.
Taylor increases truck fleet in the quarter versus a year ago by 42 trucks to 2000 190000 grew its trailer fleet by 153 to 7013.
Speaker 3: transcript
Speaker 3: Due to its business model, Gaines and losses on the self equipment are the normal part of business for tail, and he calls earnings to fluctuate from quarter to quarter.
Due to business due to its business model gains or losses on the sale of equipment or the normal part of business for tail and can cause earnings to fluctuate from quarter to quarter.
Speaker 3: transcript
Speaker 3: Our investment entails included in other assets and our consolidated balance sheet and has grown to 61.6 million as a set timber 30 2023 from our original investment of 4.9 million back in 2011.
Our investment in sales included in other assets on our consolidated balance sheet and has grown to $61 6 million as of September 32023 from our original investment of $4 9 million back in 2011.
Speaker 3: transcript
Speaker 3: In 2022, we received 14.7 million in cash dividends from TEL. In the year to date, we received 9.8 million in dividends in the third quarter of 2023.
In 2022, we received $14 7 million in cash dividends from tail and year to date, we have received $9 8 million in dividends in the third quarter of 2023.
Speaker 3: transcript
Speaker 3: For the fourth quarter, we expect our revenue and earnings to experience a modest decline sequentially due to cyber attacks on a major customer in the ongoing United Auto Worker Strike, which is temporary to press load volumes and revenue per truck and are expedited and dedicated to vision.
For the fourth quarter, we expect our revenue and earnings to experience a modest decline sequentially due to cyber attacks on a major customer in the ongoing United Autoworkers strike, which is temporarily depress load volumes and revenue per truck at our expedited and dedicated divisions.
Speaker 3: transcript
Speaker 3: More broadly, however, we are optimistic that the trough of the freight cycle is behind us, but remain cautious about the rate at which we'll see improvement.
More broadly however, we are optimistic that the trough of the freight cycle is behind us, but remain cautious about the rate at which we'll see improvements.
Speaker 3: transcript
Speaker 3: For 2024, we believe that the first half of the year may continue to be challenging and expect our capacity and expect capacity to continue exiting the market.
For 2024, we believe that the first half of the year may continue to be challenging I expect our capacity and expect capacity to continue exiting the market. Although we are eager for the freight environment improve our primary focus remains on the long term by continuing to invest in areas that provide opportunities for us to make forward progress on our strategic plan.
Speaker 1: transcript
Speaker 1: Although we're eager for the freight environment improve, our primary focus remains on the long term. By continuing to invest in areas that provide opportunities for us to make forward progress on our strategic plan by exiting underperforming capital tied to underperforming customers and investing capital in business units and customers that provide adequate returns and proving our safety culture and investing in our people. Thank you for your time. We'll now open up the call for questions. Question one, everyone. How can we get the back on such a good point?
<unk> by exiting underperforming capital tied to underperforming customers and invest in capital and business units and customers provide adequate returns improving our safety culture and investing in our people. Thank you for your time and we'll now open up the call for questions.
If you would like to ask a question. Please press star one on your telephone keypad now and you'll be placed into the queue in the order received please.
Please 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.
Speaker 1: transcript
Speaker 1: to ask your question when prompted. Once again, if you would like to ask a question, please press star.
And our first question comes from Jason Seidl from TD Cowen. Please go ahead Jason.
Thank you operator, good morning, gentlemen, appreciate you guys taking my question.
Could you talk a little bit about the experience with lead Thomson it seems to be going pretty well I know initially when you. When you guys bought them sort of the theory was that you can really start helping them grow maybe sort of how should we expect that into 'twenty four and beyond and then maybe can you expand upon sort of uses of cash going forward.
You've done a pretty good job of.
Dispersing it between a timely acquisitions and also the buyback.
Speaker 2: transcript
Speaker 2: Yeah, yeah, Jason, this is trip. I'll be happy to talk about Lou Thompson first. You know, when we first got Lou Thompson in April of this year, they were about a 200 and just call it 225 truck fleet because some of those trucks are shuttle trucks. But...
Yeah, Yeah, Jason this is trip.
Happy to talk about Blue Thomson first you know when we first got Lou Thompson.
In April of this year, they were about a 200 and just call. It 225 truck fleet, because some of those trucks or shuttle trucks, but.
Speaker 2: transcript
Speaker 2: had a really, really good business, liked it, good culture, good fit, fit with it. Exactly what we were looking for in our strategic plan. And one of the silver linings behind that, which is one of the silver linings that we look for with any acquisition is the opportunity to grow.
<unk> had a really really good business liked it good culture, good fit fit with exactly you know what we were looking for and our strategic plan and one of the silver linings behind that which is one of the silver linings that we look for with any acquisition is the opportunity to grow.
Speaker 2: transcript
Speaker 2: And if you look back at Lou Thompson and how they've operated in the past.
And if you look back at Lou Thompson, and how they've operated in the past they've really being confined to one smaller region and kind of call. It northwest, Arkansas and one of the things that we've brought to them in terms of growth potential is something they've never had before certainly the family had the capital.
Speaker 2: transcript
Speaker 2: They've really been confined to one smaller region and kind of call it Northwest Arkansas. And one of the things that we've brought to them in terms of growth potential is something that they've never had before. Certainly the family had the capital to grow, but getting outside of that wheelhouse of their region is something that they have not done before. And that's something that we've experienced.
To grow, but you know getting outside of that wheelhouse of their region is something that they have not done before and that's something that we've been experience starting to experiment with and see success with evidenced staying in the September this year, our first startup in Tennessee, where the 20 truck fleet.
Speaker 2: transcript
Speaker 2: Starting to experiment with and see success with evidence being in the September of this year our first start-up in Tennessee with a 20 truck fleet.
Speaker 2: transcript
Speaker 2: I could see more substantial growth outside of the Northwest Ork and Saul or Tennessee wheelhouse.
I could see more substantial growth outside of the northwest, Arkansas or Tennessee wheelhouse.
Speaker 2: transcript
Speaker 2: step up in the next year. But because of the, you know, there's a couple of nuances with Lou Thompson that we've got to make sure that we're not, as we grow this business that don't suffer. And one, it's service. And we have to maintain that gold level of service at Lou Thompson maintains. And so we're very careful about the growth and making sure that we're not sacrifice.
The step up in the next year.
But because of that you know there's a couple of nuances with Lou Thompson that we've got to make sure that we're not as we grow this business at that don't suffer and one its service and we have to maintain that gold level of service at Lou Thompson maintains and so we're very careful about the growth in may.
<unk> sure that we're not sacrificing legacy business or new business by just trying to grow for the sake of growth too as you know capital and making sure that we can acquire the capital that we can.
Speaker 2: transcript
Speaker 2: Legacy business or new business by just trying to grow for the sake of growth.
Speaker 2: transcript
Speaker 2: Two is capital making sure that we can acquire the capital that we can
Speaker 2: transcript
Speaker 2: grow with because they do one of the reasons why we like them is because of their unique capital requirements whether they're You know differently spec trucks or differently spec trailers um You know it sets us apart a little bit so capital is a big hurdle, but I do think that um There is lots of opportunity. I'd be hesitant to kind of give numbers right now because we've got a lot of things in the pipeline But that is a big
Grow with because I do one of the reasons why we like them because of their unique capital.
<unk> requirements, whether there no differently spec trucks are definitely spec trailers.
You know what sets us apart a little bit so capital is a big hurdle, but I do think that there is lots of opportunity I'd be hesitant to kind of give numbers right now because we've got a lot of things in the pipeline, but that is a big kind of just call. It feather in our cap next year with just the opportunities that I believe.
Speaker 2: transcript
Speaker 2: Kind of just call it feather in our cap next year with just the opportunity that I believe that we have with Lou Thompson.
That we have with Lou tops and over the next you know call. It 15 months and beyond that Jason to add all this paul to add onto what trips said.
Speaker 3: transcript
Speaker 3: Colored 15 months and beyond that Jason to add on this part of the split trip said is that there is an intentional plan
There is an intentional plan.
Speaker 3: transcript
Speaker 3: to grow the Tomson each and every year for the foreseeable future. The exact pace of that growth I agree with Trip. You know, it's getting the right equipment and we're in process on some customer contracts right now and there's a lot of stuff in the pipeline. So we'll stay balanced, but I think you'll see that business grow year over year for the foreseeable.
To grow low Thompson, each and every year for the for the foreseeable future.
The exact pace of that growth I agree with trip.
Getting getting the right equipment and you know we're in process on some some customer contracts right now and there's a lot of stuff in the pipeline. So we'll stay biologist, but I think youll see that business grow year over year for the for the foreseeable future.
And going back to your original questions on use of cash in.
Speaker 2: transcript
Speaker 2: And going back to your original questions on use of cash and
Speaker 2: transcript
Speaker 2: Here's what I can say that, you know, if we can grow, Luke Thompson, there will be some opportunities for some growth capex and involved next year. And I can't really comment on, you know, future capital allocation plans or decisions that have been made, but what I can do is kind of talk about just in strategy, but giving you a glimpse of what we've done since January 1st of 2022. We repurchased $110 million in front of those trees. But sure, I'm here.
Here's what I can say that you know if.
If we can grow cotton low Thompson, there will be some opportunities for some growth capex and involved next year.
And I can't really comment on future capital allocation plans or decisions that have been made but what I can do is kind of talk about just in strategy, but giving you a glimpse of what we've done since January one 2022.
We repurchased $110 million of stock paid $10 million of dividends had three very accretive acquisitions for $156 million.
Speaker 2: transcript
Speaker 2: paid $10 million of dividends, had three very accretive acquisitions for $156 million. So paid out a total of 275.
So paid out a total of 275.
Speaker 2: transcript
Speaker 2: million dollars that are moving the business forward and moving the valuation forward In terms we've had to sell capital we've had to sell under performing capital two terminals for forty fifty six million dollars
<unk> million dollars that are moving the business forward and moving the evaluation forward you know and.
We've had to sell capital we've had to sell underperforming capital two terminals for $40 million to $56 million.
Speaker 2: transcript
Speaker 2: that weren't producing a return on investment. And certainly, you guys have seen the truck counts come down over the previous quarters. We're selling off under performing capital to help finance these things that are producing above market returns on invested capital. And so...
That werent producing a return on investment and you know certainly.
You guys have seen the truck counts come down over the previous quarters, we're selling off underperforming capital to help finance. These things that are producing above market returns on invested capital and so the.
Speaker 2: transcript
Speaker 2: without getting the secret solstice doing more of what we've done in the past but without getting into any more specifics about you know our specific plans about the next 12 months.
Without getting the secret sauce is doing more of what we've done in the past, but without getting in <unk> and <unk>.
Any more specifics about our specific plans about the next 12 months.
Listen that that makes sense and one question on one more question I'll turn it over to some other people here so.
You hear a lot on the dry van side about sort of where we are with sort of the destocking. It seems like thats largely over.
When do you think that sort of restocking will take place what are your customers, telling you about sort of what to expect in the coming quarters.
Speaker 4: transcript
Speaker 4: Jason, I agree with you. I think the destocking is behind us. And I think we're probably, hopefully in the next six months, we would believe we have to get in some sort of more normalized restocking pattern. A fuel process stay high, hopefully capacity continues to exit the market. And maybe in the next six to nine months, we can get this thing back in balance a little bit. I'll keep my fingers crossed for you guys. Appreciate the time as always, gentlemen.
Jason I agree with you I think the Destocking is behind Us and I think we're probably hopefully in the next six months.
We believe we have to get into some sort of more normalized restocking pattern. You know if fuel prices stay high hopefully capacity continues to exit the market and.
Maybe in the next six to nine months, we can get this thing back in balance a little bit.
I'll keep my fingers crossed for you guys I appreciate the time as always gentlemen.
Okay.
And our next question comes from Scott Group from Wolfe Research. Please go ahead Scott.
Oh.
Okay, Scott actually went out of the queue. So our next question comes from Jack Atkins from Stephens. Please go ahead Jack.
Hello, Jack are you on mute.
I'm here, sorry about that yeah.
Here, we now guys.
Yes, Sir Okay, sorry about that.
Speaker 5: transcript
Speaker 5: Yes, sir. Okay, sorry about that. And thanks for taking my questions.
Thanks for taking my my questions and.
Speaker 5: transcript
Speaker 5: good morning so i i guess uh... maybe just a couple of questions here i'd love to maybe go back all to your comments and prepare remarks about you know the trough of the cycle is behind us and i know you may be touched on a bit in that last answer
Good morning, So I guess, maybe just a couple of follow up questions here I'd Love to maybe go back Paul to your comments in the prepared remarks about the trough of the cycle is behind us and I know you maybe touched on it a bit in that last answer.
Speaker 5: transcript
Speaker 5: to to to uh... jason's question but i mean what what what's kind of driving that that confidence is that maybe you just think of past the exit is it uh... function of maybe you know that the comments around inventory decocking being behind us what was giving confidence that we're beyond the trough for the cycle or maybe we've seen the trough
To to Jason's question, but I mean, what what what's kind of driving that that confidence is it maybe you're just seeing capacity exit is it a is it a.
Function of maybe the comments around inventory destocking being behind us, what what's giving you confidence there.
Beyond the trough of the cycle or maybe we've seen the trough.
Speaker 3: transcript
Speaker 3: Yeah, I think we're probably in it to have seen it, Jack. And I think some of us inventory destocking. I mean, you know, a lot of the, you're seeing a lot of, a lot of these brokers bid stuff at these crazy low rates. And then two weeks later, a month later, you turn around in the same frights back on the market because they can't get carriers to service it. And you know, you're starting to see, you know, in addition to small fleets.
I think we're probably we're probably annette to have seen it Jack and I think some of US the inventory Destocking I mean, you know a lot of the you're saying a lot of a lot of these brokers bid stuff at these crazy low rates and then two weeks later a month later you turned around in the same frights back on the market because they can't get carriers to service it.
You're starting to see.
In addition to small fleets.
Speaker 3: transcript
Speaker 3: be challenged and the capacity of the X in there, you're starting to see some capacity exit in the broker space, where this whole notion of buying business and just trying to grow revenue for the sake of growing and taking horses on it, that I think people are seeing that model doesn't work. And so, I do believe that...
<unk> be challenged in the capacity exiting there you're starting to see some capacity exiting and the broker space, where this whole notion of a bond business and just trying to grow revenue for the sake of growing and taking also is on it that I think people are saying that model doesn't work.
And so you know I.
I do believe that over time and again over the next six to nine months all of that will continue to shake out I mean, you're coming up on people having to buy the tags.
Speaker 3: transcript
Speaker 3: over time and again over the next six to nine months, all that will continue to shake out. I mean, you're coming up on people having to buy tags and...
Speaker 3: transcript
Speaker 3: pay for their annual insurance, and with all the geopolitical things, if fuel goes up, we're going to get to a breaking point here for long where, you know, folks can't run stuff and lose cash in perpetuity.
Pay for their annual insurance and with all the geopolitical things if fuel goes up.
We're going to get to a breaking point are for all.
Bose can't run stuff and lose cash in perpetuity.
Yes no.
Speaker 5: transcript
Speaker 5: No, that makes sense. I just wanted to kind of get you to flesh that out a bit. So a couple other questions for me and I'll hand it over, but when we think about the fourth quarter and some of the shorter term impacts related to either the auto strikes or the cyber attack at a customer, is there any way to maybe frame up the impact that that's having to your fourth quarter results? I mean, absent those, you know, would you have expected maybe?
That makes that makes sense I just wanted to kind of get you to push that out a bit. So just a couple of other questions for me and I'll hand, it over but when we think about the fourth quarter and some of the shorter term impacts related to either the auto strikes or the cyber attack at a customer.
Is there any way to maybe frame up the impact that that's having to to your fourth quarter.
I mean absent those you know would you have expected maybe.
Speaker 5: transcript
Speaker 5: uh... you know results of the flatter maybe improve sequentially from an early perspective
You know results to be flat or maybe improve sequentially from an earnings perspective.
Speaker 3: transcript
Speaker 3: I would Jack I would tell you absent those we probably would have been around flatish quarter over quarter You know, there's there's less work days in Q4 with all the holidays and and there's really you know We don't play much in the peak anymore. There's not much peak out there and so
Our Jack I would tell you absent those we probably would've been around flattish quarter over quarter. Okay.
There's less work days in Q4 with all the holidays and and there's really you know we don't play much in the peak anymore theres not much peak out there and so I.
Speaker 3: transcript
Speaker 3: You know, I would have told you we would have probably been flattish and, you know, kind of like we said, I think we'll be down sequentially, but I still think it'll be a nice fourth quarter.
I would have told you we would have probably been flattish.
And like we said I think what will be down sequentially, but but I still think it'll be a nice fourth quarter. It didnt. It didnt bottoms nagual fall out from under it or anything.
Speaker 3: transcript
Speaker 3: The bottom is not going to fall out from under it or anything.
It'll be modest.
Speaker 5: transcript
Speaker 5: yeah okay that makes it fall and i just uh... i guess maybe kind of shipping years of to one other topic and that's the underline dedicated operations you know margins have improved a good bit there with the addition of newtompson but could you maybe you know i know it's been sort of a longer term strategic focus to improve the profitability of the core dedicated business you've got the auto strikes going on there so i know that kind of clouds in a bed but could you maybe talk about the progress you're making there in terms of the organic dedicated operation
Yeah, Okay, now that makes sense, Paul and I, just I guess, maybe kind of shifting gears to one other topic and that's the underlying dedicated operations margins have improved a good bit there with the additional blue Thompson, but could you maybe I know, it's been sort of a longer term strategic focus to improve the profitability of the core dedicated business you have.
Got the auto strikes going on there so I know that kind of clouds, it a bit but could you maybe talk about the progress youre, making there in terms of the organic dedicated operations.
Speaker 3: transcript
Speaker 3: Yeah, um, yeah, we talked a little bit and then to go about Lou Thompson and Chuck, I think you'll you'll see that grow next year. I think we're probably 90% through
Yeah, Yeah, we talked a little bit and then they go about Thomson and Chuck I think you'll see that grow next year.
We're probably 90% through the weight and feed plan and so you know dedicated has been hard to grow in this environment with the one way truckload market being as low as it is I would tell you our pipeline is really robust, but you know.
Speaker 3: transcript
Speaker 3: I would say our pipeline is really robust, but, you know, folks are reluctant to pull the trigger because they can save a little bit of money by running, you know, three months more or six months more or whatever in the one-way world. But I think you'll see a lot of that capacity come back into dedicated when rates start heading north. I think you'll see a lot of dedicated contracts start getting signed. And so, again, to summarize that, I think we're through the majority of the waiting feed. I would say, you know, 10 percent of the business we're probably still not happy with. I think you're going to see Lou Thompson grow. And we've got a strong pipeline on, call it the non-poultry dedicated.
Folks are reluctant to pull the trigger because they can save a little bit of money, but running you know three months more six months more or whatever in the one way world.
But but I think you'll see a lot of that capacity come back into dedicated what when when rates start heading north I think you'll see a lot of dedicated contracts start getting signed and so again.
Summarize that I think we're through the majority of the weight and fade Theres only I would say.
Speaker 3: transcript
Speaker 3: 10% of the business we're probably still not happy with. I think you're gonna see move Thompson grow. And we've got a strong pipeline on call it the non-pul tree dedicated. It's just gonna be a function of, you know, when one way truckload rate start moving the other direction, you're gonna see some folks I think start locking in on some of this, you know, pipeline work we've been working on for the last year.
10% of the business, we're probably still not happy with I think youre going to stay low Thompson grow.
We've got a strong pipeline on call. It the non poultry dedicated it's just going to be a function of.
When one way truckload rates start moving the other direction youre going to see some folks I think start locking in on some of this pop on work we've been working on for the last year.
Speaker 5: transcript
Speaker 5: Okay, alright guys, I'm gonna head over to somebody else, really appreciate the time. Thank you.
Alright, guys I might hand, it over to somebody else really appreciate the time. Thank you.
And our next question comes from Michael <unk> from Newland Capital. Please go ahead Michael.
Speaker 1: transcript
Speaker 1: And our next question comes from Michael Vermitt from Newland Capital. Please go ahead, Michael.
Hey, guys How're you doing.
Speaker 6: transcript
Speaker 6: Hey, Mike. Hi, Mike. Gotta say it's been an amazing turn at the company to be putting up these kind of numbers at a trough environment. Two quick things, when you're looking on the acquisition front,
Hey, Mike and Mike.
It's been an amazing.
Turn that the company could be putting up these kind of numbers are at a trough environment.
Two quick things one when you look at on the acquisition front.
And if there are what you know what your pipeline look like now are there more.
Speaker 6: transcript
Speaker 6: If there are what you know what your pipeline look like now are there more
Speaker 6: transcript
Speaker 6: potential sellers coming to the market and the verticals that you're focusing on.
Seinfeld salaries coming to the market and the verticals that you're focusing on.
Speaker 3: transcript
Speaker 3: Yeah, a couple things. We continue to look at the market mic for nichey, above average return acquisitions that we think we can grow.
Yeah, a couple of things we continue to look at the market Mike for Medici, you know above average return acquisitions that we think we can grow.
<unk>.
Speaker 3: transcript
Speaker 3: That's answered our first question as far as there are some of those in the market right now And so we just continue to look and see what might be a fit And that kind of answers the second part of your question. You know we we really look for something We can integrate within one of the one of the verticals of the company You know be it expedited or dedicated or or managed trans or warehousing and so we're just gonna It trips at early on we're gonna continue down that path of capital deployment that if if
That's the answer to your first question as far as there are some of those in the market right now and so we just continue to look and see what might be a fit and that kind of answers. The second part of your question. You know, we we really look for something we can integrate within one of the one of the verticals of the company be it.
Expedited or dedicated or or managed trans or warehousing and so we're just going to it trips at it early on and we're going to continue down that path of capital deployment that if if I'm investing in growth Capex is the best return and that's what we're gonna do if it's bought shares back that's what we'll do if if.
Speaker 3: transcript
Speaker 3: Invest in growth cap X is the best return. That's what we're going to do if it's by cares back. That's what we'll do if if the right acquisition with the right profile comes along, that's what we'll do. And so I think the trip played it out really good earlier. We're just going to kind of keep working down that path because that has,
The right acquisition with the right profile comes along that's what we'll do and so I think.
Trip Whited out really good earlier, we're just going to kind of keep working down that path because that has.
It has really turned around the the way we operate the business and the results and you can see those evident from where we were to where routes or probably just keep doing more of the same and.
Speaker 3: transcript
Speaker 3: turned around the way we operate the business and the results. And you can see those evidence from where we were to where we're at. So we're probably just keep doing more to the same.
Speaker 2: transcript
Speaker 2: And I think the key to that is being really disciplined with our approach.
And I think Mike that the key to that as being really disciplined with our approach I mean, we get a lot of semtex come our way and open them and then turn them down within five minutes of opening them and then of those maybe 2% of them. We look at them for a day and talk about them and then turn them down and you know we've been.
Speaker 2: transcript
Speaker 2: We get a lot of, you know, semdex come our way and
Speaker 2: transcript
Speaker 2: Open them and then turn them down within five minutes of opening them. And then of those maybe two percent of them, we look at them for a day and talk about them and then turn them down.
Speaker 2: transcript
Speaker 2: You know, we've been real fortunate lately, I guess, with the last three that have just come up. And I think that, you know, we've talked about it internally when folks publicly know what we're after and what we're looking for and what we're interested in. We're getting to see more volumes of those. And so we're gonna continue to be...
Real fortunate lately I guess with the last three that have just come out and I think that you know we've talked about it internally when folks publicly no what we're after and what we're looking for and what we're interested in we're getting to see more volumes of those and so we're going to continue to be disciplined in our allocation approach.
Speaker 2: transcript
Speaker 2: Disciplined in our allocation approach, careful allocation approach as it comes to M&A, but it seems like the uptick has been really helpful or has really picked up a lot of which is because we've been public about what we're trying to do.
Hello allocation approach as it comes to M&A, but it seems like the uptake has been really helpful or has really picked up a lot of which is because we've been public about you know what we're trying to do.
Got it.
Speaker 6: transcript
Speaker 6: Got it. And that's question, I guess maybe it's for David or, I don't know.
Next question I guess, maybe for David or I don't know.
Speaker 6: transcript
Speaker 6: Yes, we've done such a phenomenal job changing the company and reducing the volatility.
Yes.
Done such a phenomenal job changing the company and reducing the volatility.
<unk>.
Speaker 6: transcript
Speaker 6: Our evaluation, our evaluation pretty much where it was five years ago, right, retreating under 10 times, nine times.
Our evaluation evaluating pretty much where it was.
Five years, Yeah, right, we're trading under 10 times nine times.
Speaker 6: transcript
Speaker 6: the view could trade closer to 20 so you know there's nothing really comparable to us. No one's performed like we have through this cycle.
And the group trade closer to 'twenty. So there's nothing really comparable that no. One performed like we have through the cycle.
Speaker 6: transcript
Speaker 6: Is there a point where you think about taking the company private or doing something, you know, internally, if the
Is there a point, where you think about taking the company private or doing something.
Yeah internally, if the market is not going to reward us.
Speaker 7: transcript
Speaker 7: Hey, my act is David. Hey, number one, I got your same sentiments. Yeah. You know, I don't disagree with anything. You just said there. Of course, we can't talk about going private or anything like that. But.
Hey, Mark it's David.
Number one I got your same sentiments.
Yes.
No I don't disagree with anything you just said there of course, we can't we can't talk about going private or anything like that but.
Speaker 7: transcript
Speaker 7: That's why we got a board. We got a board to talk about all the issues that are there and we're busing our butts and...
That's why we got a board we got a bar to talk about all of the issues that are there and where best in our but then.
Speaker 7: transcript
Speaker 7: And as I said, you know, two or three years ago when we started down this road,
And as I've said, two or three years ago. When we started down this road.
Speaker 7: transcript
Speaker 7: of where we should be at in the market. Somebody's gonna love us. Wall Street can love us.
Where we should be in the market somebody has got a lot of that wall Street loves us.
Speaker 7: transcript
Speaker 7: We're gonna love ourselves. We've bought back 25% of the company and we're doing a great job. This team is doing unbelievable. I could not be any more excited about.
All of our staff, we bought back 25% of the company.
And we're doing a great job. This team is doing an unbelievable I could not be any more excited about what the group is doing.
Speaker 7: transcript
Speaker 7: What the group is doing, they're doing great. And I think that Wall Street will reward us. I think one day that...
They're doing great and.
I think the wall Street, well reward us I think one day that it will wake up and say they are doing well and we will get rewarded.
Speaker 7: transcript
Speaker 7: It will wake up and say they are doing well and we will get rewarded. But again, we bought back 25% of the company. Somebody's going to love us. So we're going to determine who's going to love us.
But again, we bought back 25 understand the company somebody has got a lot of that so we're glad to determine who is going to love us.
Speaker 6: transcript
Speaker 6: And then one other thing, when we look at, let's say we're near the trough here and we're doing four to four, 50, a trough learning.
Excellent and then one other thing when we look at you know what.
Let's say, we're at or near the trough Yeah, we're doing for the fourth at the trough learning.
Speaker 6: transcript
Speaker 6: When we look at what we added in here, layered in the acquisition, what's on the table here? Is there any reason to think we won't be getting back up to the 550 to 650 as we approach another peak? Is the earning power?
When we look at what we've added in here layered in the acquisition what's on the table here is there any reason to think we won't be getting back up there.
To fix it.
As we.
Another piece in the earning power.
Speaker 7: transcript
Speaker 7: stronger at the company now than it was out of doubt without a doubt you know we're working on five-year strategy of course you know five-year strategies that's we all know
Stronger at the company now than it was.
Without a doubt we're working on by your strategy and of course five year strategy that as we all know.
Speaker 7: transcript
Speaker 7: I love us to strategic planning and looking out the next five years because we've been doing this for about a solid three years there this time that you've seen us do what we've you know what we've achieved uh it's been a great strategic plan and then we got five year plans and and again those can change in a year depending upon you know the conditions out there but hey it looks
All of our strategic planning and looking out the next five years, because we've been doing this for about a solid three years during this time.
You've seen us do well.
What we have changed.
It's been a great strategic plan and then we got a five year plan.
And again those can change in a year, depending upon the conditions out there but.
Yes.
Speaker 7: transcript
Speaker 7: i could be any more happier uh... the numbers are we are going to get back to uh... when things turn around we're going to we're going to shoot off very nicely there's no doubt in the mind that we've got the company position to have outstanding an outstanding future
I couldn't be any more happier.
<unk>.
We are going to get back.
Thanks, turnaround where were going to shoot off very nicely and theres no that and now that we've got the company positioned to have outstanding.
An outstanding future.
Again, I couldn't be more proud of where we're at.
Speaker 7: transcript
Speaker 7: Again, I couldn't be more proud if we were at there. And this is probably the most difficult environment. I mean, we can compare to 08, 09, and...
This is probably the most difficult environment I mean, we can compare to OE.
Speaker 7: transcript
Speaker 7: We all could say that it may even be worse than O8 or O9 because, be honest with you.
We all could say that it may even be worse than outweighed our own AD because to be honest with you I'll never forget October Oh wait.
Speaker 7: transcript
Speaker 7: I never forget October of 08, I assume, was 38.
<unk> 38 and <unk>.
Speaker 7: transcript
Speaker 7: And by June , July next, the following year, about eight months later.
June July next year. The following year about eight months later, we were showing extremely not positive internal numbers on utilization and revenue and those kind of things and none of us the industry is saying that in this environment today and we're all sitting there saying is it going to happen now as theyre going to happen in March.
Speaker 7: transcript
Speaker 7: We were showing extremely not-positive, internal numbers on utilization and revenue and you know, those kind of things and none of us, the industry, has seen that in this environment today and we're all sitting there saying it did.
Speaker 7: transcript
Speaker 7: Gonna happen now, they're gonna happen in March, they're gonna happen in next June and...
Which is going to happen in next June.
Speaker 7: transcript
Speaker 7: and nobody knows that and performing the way we're performing
And nobody knows that.
Performing the way we are performing.
Say hallelujah.
Speaker 6: transcript
Speaker 6: Like there's no company that I can find right now in this environment that's performing as well as we are so
Yeah for sure I like that.
There's no company that I can find right out in this environment, that's performing as well as we are so.
Speaker 6: transcript
Speaker 6: You said it five years ago and the company is the completely different company now. So, you know, great job, guys.
You said it five years ago and the company is a completely different company now so.
Great job guys.
Alright, Thank you Mike Thanks, Mike.
Speaker 1: transcript
Speaker 1: And our next question comes from Scott Group from Wolverine Research. Please go ahead Scott.
And our next question comes from Scott Group from Wolfe Research. Please go ahead Scott.
Speaker 8: transcript
Speaker 8: Hey, thanks. Good morning, sorry about that earlier. I was just wondering as we get to 2024 bid season, how are you thinking about expedited rates, dedicated rates? Do you think rates can start moving up next year? Do you think there's some further downside risk to rates that what?
Hey, Thanks, Good morning, sorry about that earlier I was just wondering as you as we get to 2020 for bid season. How are you thinking about expedited rates dedicated rates do you think rates can start moving up next year do there do you think there is some further.
Downside risk to rates.
What's your approach early on to bid season.
Speaker 3: transcript
Speaker 3: I got this Paul, you know, here's what I think. As you know, a lot of the bids are come out early in the year. And so I tell you what worth thinking, expedited is probably.
Scott This is Paul.
Here's what I think as you know a lot of the bids are come out early in the year and and so.
Unknown Executive: Welcome to today's Covenant Logistics Group, third quarter earnings release conference call.
Tell you what were thinking expedited is probably flattish to maybe down a percent or two.
Unknown Executive: Our host for today's call is Trip Grant. At this time off participants will be in a listen only mode. Later we will conduct a question and answer session.
Speaker 3: transcript
Speaker 3: Flatish to maybe down a percent or two and dedicated we think is probably flatish because a lot of that gets done Early in the year. I think on the managed transit You know a lot of that's more in the spot market. So I think they'll get the benefit of things as as the year goes along next year and and so
In dedicated we think is probably flattish because a lot of that gets done early in the year I think on the managed trans side.
Unknown Executive: Now like to turn the call of dear host trip you may begin. Thanks Ross.
A lot of that is more in the spot market. So I think they will get the benefit side of things as the year goes along next year and and so I think there will be some right opportunity by this time next year.
Speaker 3: transcript
But I think there won't be in the early part of the year. So we're now you could kind of say, we're kind of in the in the flattish world.
Because you know a lot of the folks we talk to I mean, it's costs keep going up.
Speaker 3: transcript
Speaker 3: Small guys keep going out of business, I mean this thing, it's getting to a point where folks aren't gonna do this for practice, whether it's small carriers that are, you know, keeping rates depressed through brokerages or large carriers, most people are kind of at the place where they are, where they are.
Small guys keep going out of business.
This thing it's getting to a point where folks are going to do this for practice, whether it's small carriers that are you know keeping rates depressed three brokerages or large carriers. Most people are kind of at the place where they are there they are where they are.
Trip Grant: I'm joined on the call today by David Parker and Paul Bunn. We are pleased with a third quarter's results which benefited from the full quarter effect of the Lou Thompson's untrucking acquisition and the second quarter reflected in our dedicated segment. In addition, our expedited segment benefited incrementally from the increase in demand for team driver freight as a result of the closure of yellow.
Makes sense and so in an environment where rates are flat to maybe down slightly you said, we saw some contemplation of are we confident.
Speaker 8: transcript
Speaker 8: make sense. And so in an environment where rates are flat to maybe down slightly, you said, we felt some concentration. Are we confident about the ability to sort of grow earnings from this low $4 level next year?
Confident about the ability to sort of grow earnings from this slow for dollar level next year.
Yeah, I think well we think we can we can incrementally grow grow earnings next year I mean, I think there's a few key things you know what is our maintenance cost to what is our insurance cost.
Speaker 3: transcript
Speaker 3: Yeah, I think we think we can incrementally grow earnings next year. I mean, I think there's a few key things. You know, what does our maintenance cost do? What does our insurance cost do?
Trip Grant: However, more broadly, the overall freight environment remains challenging with few signs of immediate macro economic improvement. Compared to a year ago, consolidated freight revenue was down five percent. The decline is primarily attributable to the combination of little to no overflow freight handled by a managed freight segment and a lower tractor count or dedicated segment. The reduction of tractors as high into dedicated resulted from an exiting underperforming legacy contracts partially offset by acquiring Lou Thompson and son.
Speaker 3: transcript
You know, how does this, some of this pop line that we were talking about a minute ago?
How does this some of this pipeline that we're talking about a minute ago.
Speaker 3: transcript
you know, when does that come on board and how quick does it get to the, you know, kind of model profitability level, but yeah, we think that we can have some
When does that come on board and how quick does it get to the kind of model profitability level, but but yeah. We think that we can have some incremental earnings growth in 'twenty four off 23, nothing significant next year, but as soon as we're talking about what Mike I'm going to go as soon as things Paul.
Speaker 3: transcript
incremental earnings growth in twenty four off twenty thirty nothing significant next year uh... but as soon as as we're talking about my commitment to go as soon as things pop
Trip Grant: The result was higher earnings on fewer trucks. Adjusted operating income declined approximately 4.6 million or 20% compared to the prior year quarter. Primarily as a result of our managed freight segment which declined by approximately 4.7 million dollars. Adjusted net income decreased 32% to 15.3 million. Adjusted earnings per share decreased 26% to $1.13 per share compared to the year ago quarter. Quated average diluted shares decreased the result of our share repurchase program.
Speaker 1: transcript
I think it's gonna, you'll see a more material amount of earnings growth. And so, that's kind of the way we're modeling it out right now. Okay, make sense.
Mark.
I think it's going to you'll see a more material amount earnings growth and so.
That's kind of the way we're modeling it out right now.
Makes sense. Thank you guys for the time I appreciate it.
Okay.
And at this time there are no further questions I'd like to turn the call back over to Chuck for closing remarks.
Speaker 2: transcript
Yeah, we just like to thank everybody for your participation today and wish everybody a good rest of the week and a good weekend and we'll talk to you next quarter. Thank you very much.
Yeah, we just like to thank everybody for your participation today.
I wish everybody a good rest of the week and a good weekend and we'll talk to you next quarter. Thank you very much.
This concludes today's conference call. Thank you for attending.
Trip Grant: Key highlights include freight revenue for the quarter with the highest for any quarter of the year, suppressing second quarter by 4%. The Lou Thompson and son tracking operation continued to perform well with our first new poultry related customers start up in late September and a strong pipeline of additional bids. The average age of our fleet at September 30 improved at 23 months compared to 29 months in the prior year and 26 months at June 30, 2023.
Yeah.
Speaker 9: transcript
The host has ended this call. Goodbye.
The host has ended this call good.
Trip Grant: Within our combined truckload segment compared to the prior year operations and maintenance related expenses declined by 6 cents or 21% and fixed equipment costs including lease revenue equipment expenses depreciation gains on sale remain flat on the total cents per mile base.
Trip Grant: Cases. Gain on sale of revenue equipment was 0.6 million in the quarter compared to 0.2 million in the prior year. Our tail leasing company investment produced 28 cents per diluted share compared to 38 cents per diluted share versus a year ago period. Our net indebted net sales of September 30th was 183.4 million, yielding a leverage ratio of approximately 1.7 times and debt equity ratio of 31.8%. On an adjusted basis for a turn on invested capital was 10.6% for the current quarter versus 17.5% in the prior year.
Paul Bunn: And now Paul will provide a little more color on the items affecting the individual business segments. Thanks, Triop. The performance of expedited during the third quarter provided for 90.7 adjusted OR in the midst of a historically weak freight environment. We believe this says a lot about the work we have done to deploy assets with the right customers to lower our cost per mile, improve our utilization, and focus on what we can control.
Paul Bunn: In the context of an 8% decline in revenue per mile, we believe a 12% improvement in utilization and a lower cost per mile are significant accomplishments. The improvement in utilization was principally attributable to newer equipment in the fleet and reduced downtime, which we will look to continue as year over year freight revenue per total mile compressions are expected to continue and be challenging for the remainder of 23 and into 24.
Paul Bunn: Dedicated reflected another success story centered around our disciplined approach to capital allocation. Dedicated improved its adjusted operating ratio to approximately 93.6 by effectively weeding and feeding. We reduced the overall size of the fleet by 170 trucks while nearly a doubling of adjusted operating income. Trading out approximately 400 legacy contract units for Lou Thompson and son aligns with our strategy of exiting, unprofitable or underperforming business and replacing it when opportunities arise that meet our profitability and return requirement. We are pleased with the year year improvement to adjusted margin and expected to continue to improve upon both the segment size and profitability over the long term.
Paul Bunn: Managed freight experienced an 11% reduction in total rate revenue and a 57% reduction of consolidated adjusted operating profit. This significant reduction in revenue and operating profit was primarily the product of little to know how margin overflow freight from our asset based truck load segments in the 2024 quarter, 2023 quarter. The brokerage environment remains highly competitive with numerous brokers aggressively competing for volumes at the expense of profit or margin. We anticipate continued margin pressure in this environment.
Paul Bunn: Our warehouse segments saw 15% increase in revenue and an 82% increase in adjusted operating profit compared to the prior year. The top line growth as a result of new customer startups over the last 12 months and the operating profit improvement was a result of the combination of new customer business and improved rates for existing customers. Service. Although we are pleased with the improved profitability within this segment, we will continue to focus on improving profitability more through improved labor utilization and rate increases with existing customers.
Paul Bunn: Our minority investment in tail contributed pre-tax net income of 5.3 million for the quarter compared to 7.4 million in the prior year period. The decline was largely a result of reduced gains on sale of used equipment compared to year ago. Tells revenue in the quarter to 8% and pre-tax net income decreased by 28% versus the third quarter of 2022. Tail increased its truck point in the quarter versus a year ago by 42 trucks to 2,195 and grew its trailer fleet by 153 to 7,013.
Paul Bunn: Due to its business model, gains and losses on the sale of equipment are the normal part of business for tail and can cause earnings to fluctuate from quarter to quarter. Our investment in tail is included in other assets in our consolidated balance sheet and has grown to 61.6 million as a September 30, 2023 from our original investment of 4.9 million back in 2011. In 2022, we received 14.7 million in cash dividends from tail and year-to-date we received 9.8 million in dividends in the third quarter of 2023.
Trip Grant: For the fourth quarter, we expect our revenue and earnings to experience a modest decline sequentially due to cyber attacks on a major customer in the ongoing United Auto Worker Strike, which is temporary to press load volumes and revenue per truck and are expedited and dedicated divisions. More broadly, however, we are optimistic that the trial for the freight cycle is behind us, but it remains cautious about the rate at which we will see improvements.
Trip Grant: For 2024, we believe that the first half of the year may continue to be challenging and expect our capacity and expect capacity to continue exiting the market. Although we are eager for the freight environment to improve, our primary focus remains on the long term. By continuing to invest in areas that provide opportunities for us to make forward progress on our strategic plan by exiting underperforming capital tied to underperforming customers and investing capital in business units and customers and providing adequate returns and improving our safety culture and investing in our people.
Unknown Executive: Thank you for your time. We will now open up the call for questions. If you would like to ask a question, please press star one on your telephone keypad now and you'll be placed into the queue in the order received. Please 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.
Jason Sidel: Our first question comes from Jason Sidel from TD College. Please go ahead, Jason. Thank you, operator. Good morning, gentlemen. I appreciate you guys taking my question. Can you talk a little bit about the experience with Luke Thompson? Seems to be going pretty well. I know initially when you guys bought them sort of the theory was that you could really start helping them grow. Maybe sort of how should we expect that into 24 and beyond. And then maybe can you expand upon sort of uses of cash going forward? You've done a pretty good job of dispersing it between timely acquisitions and also the buyback. Yeah, yeah.
Trip Grant: Jason, this is trip. I'll be happy to talk about Luke Thompson first. You know, when we first got Luke Thompson in April of this year, they were about a 200. Just call it 225 truck fleet because some of those trucks are shuttle trucks. Had a really, really good business, liked it, good culture, good fit, fit with exactly, you know, what we were looking for in our strategic plan. And one of the silver linings behind that, which is one of the silver linings that we look for with any acquisition is the opportunity to grow.
Trip Grant: And if you look back at Lou Thompson and how they've operated in the past, they've really been confined to one, you know, smaller region and kind of call it Northwest Arkansas. And one of the things that we've brought to them in terms of growth potential is something they've never had before. Certainly the family had the capital to grow, but, you know, getting outside of that wheelhouse of their region is something that they have not done before.
Trip Grant: And that's something that we've experienced, starting to experiment with and see success with evidence being in the September of this year, our first startup in Tennessee with a 20 truck fleet. I could see more substantial growth outside of the Northwest Arkansas or Tennessee wheelhouse step up in the next year. But because of the, you know, there's a couple of nuances with Lou Thompson that we've got to make sure that we're not, as we grow this business that don't suffer.
Trip Grant: And one, it's service. And we have to maintain that gold level of service at Lou Thompson maintains. And so we're very careful about the growth and making sure that we're not sacrificing legacy business or new business by just trying to grow for the sake of growth. Two is, you know, capital making sure that we can acquire the capital that we can grow with because they do one of the reasons why we like them is because of their unique capital requirements, whether they're, you know, differently spec trucks or differently spec trailers.
Trip Grant: You know, it sets us apart a little bit. So capital is a big hurdle. But I do think that there is lots of opportunity. I'd be hesitant to kind of give numbers right now because we've got a lot of things in the pipeline. But that is a big, kind of just call it feather in our cap next year with just the opportunities that I believe that we have with Lou Thompson over the next, you know, call it 15 months. And beyond that.
David Parker: Jason, to add on this call to add on to what Tripp said, there is an intentional plan to grow Lou Thompson each and every year for the foreseeable future. The exact pace of that growth I agree with Tripp, you know, it's getting the right equipment. And, you know, we're in process on some customer contracts right now. And there's a lot of stuff in the pipeline. So we'll stay balanced, but I think you'll see that business grow year over year for the foreseeable future.
David Parker: And going back to your original questions on use of cash. And here's what I can say that, you know, if we can grow, Lou Thompson, there will be some opportunities for some growth caps and involved next year. And I can't really comment on, you know, future capital allocation plans or decisions that have been made, but what I can do is kind of talk about just in strategy, but giving you a glimpse of what we've done since January 1st of 2022, we repurchased $110 million of stock, paid $10 million of dividends, had three very accretive acquisitions for $156 million.
David Parker: So paid out a total $275. $1 million that are moving the business forward and moving the valuation forward. In terms, we've had to sell capital, we've had to sell under performing capital, two terminals for $46 million that weren't producing a return on investment. And certainly, you guys have seen the truck counts come down over the previous quarters. We're selling off under performing capital to help finance these things that are producing above market returns on an invested capital. And so, the, without good, the secret solstice is doing more of what we've done in the past, but without getting into any more specifics about, you know, our specific plans about the next 12 months.
Jason Sidel: No, but listen, that makes sense and one more question I'll turn over to some other people here. So, you know, we hear a lot on the drive-inside about sort of where we are with sort of the destocking. It seems like that's largely over. When do you think the sort of restocking will take place? What are your customers telling you about sort of what to expect in the coming quarters? You know, Jason, I agree with you.
Jason Sidel: I think the destocking is behind us and I think we're probably, hopefully, in the next six months, we would believe we have to get in some sort of more normalized restocking pattern. You know, a fuel process to stay high, hopefully, capacity continues to exit the market. And, you know, but maybe in the next six to nine months, we can get this thing back in balance a little bit. I'll keep my fingers crossed for you guys.
Jason Sidel: Appreciate the time as always, gentlemen. Thank you, Jay.
Scott Group: And our next question comes from Scott Group from Wolf Research.
Unknown Executive: Please go ahead, Scott. Oh. Looks like Scott actually went out of the queue.
Jack Adkins: So, our next question comes from Jack Adkins from Steven. Please go ahead, Jack. So, Jack, are you on mute? I'm here. Sorry about that. Yeah. Can you hear me now, guys? Yes, sir. Okay. Sorry about that.
Jack Adkins: And thanks for taking my questions and good morning. So, I guess maybe just a couple of follow-up questions here. I'd love to maybe go back, Paul, to your comments and prepare remarks about, you know, the trough of the cycle is behind us. And I know you maybe touched on it a bit in that last answer to Jason's question. But I mean, what's kind of driving that confidence? Is it maybe you're just seeing capacity exit?
Jack Adkins: Is it a function of maybe, you know, the comments around inventory, destocking, being behind us? Well, what's giving you confidence that we're beyond the trough of the cycle or maybe we've seen the trough? Yeah, I think we're probably in it to have seen it, Jack. And I think some of us inventory destocking, I mean, you know, a lot of the, you're seeing a lot of, a lot of these brokers bid stuff at these crazy low rates and then two weeks later, a month later, you turn around in the same frights back on the market because they can't get carriers to service it.
Jack Adkins: And, you know, you're starting to see, you know, in addition to small fleets, be challenged in the capacity exit there, you're starting to see some capacity exit in the, in the broker space, where this whole notion of, of buying business and just trying to grow revenue for the sake of growing and taking horses on it, that I think people are seeing that model doesn't work. And so, you know, I do believe that over time, and again, over the next six to nine months, all that will continue to shake out, I mean, you're coming up on people having to buy tags Pay for their annual insurance and with all the geopolitical things, a fuel goes up.
Jack Adkins: We're going to get to a breaking point here for long where, you know, folks can't run stuff and lose cash in perpetuity. Yeah, no, that makes that makes sense. I just wanted to kind of get you to push that out of bed.
Jack Adkins: So, you know, a couple other questions for me and I'll hand it over, but, you know, we think about the fourth quarter and some of the, you know, shorter term impacts related to, either the auto strikes or the cyber attack at a customer, you know, is there any way to maybe frame up the impact that that's having to, to your fourth quarter, you know, result? I mean, absent those, you know, would you have expected maybe, you know, results to be flat or maybe improved sequentially from an earnings perspective?
Jack Adkins: Jack, I would tell you absent those, we probably would have been around flatish quarter over quarter. You know, there's less work days in Q4 with all the holidays and there's really, you know, we don't play much in the peak anymore. There's not much peak out there. And so, you know, I would have told you we would have probably been flatish. And, you know, kind of like we said, I think we'll be down sequentially, but, but I still think it'll be a nice fourth quarter. Yeah, and it's in, yeah, the bottom's not going to fall out from under it or anything. Right. It'll be modest to call it. Yeah. Okay. No, that makes sense, Paul.
Paul Bunn: And I just, I guess maybe kind of shipping gears up to one other topic and that's the underlying dedicated operations. You know, margins have improved a good bit there with the addition of Lou Thompson, but could you maybe, you know, I know it's been sort of a longer term strategic focus to improve the profitability of the core dedicated business. You've got the auto strikes going on there, so I know that kind of clouds it a bit, but could you maybe talk about the progress you're making there in terms of the organic dedicated operations?
Paul Bunn: Yeah, we talked a little bit and then to go about Lou Thompson, and so I think you'll see that truck grow next year. I think we're probably 90% through the leading feed plan. And so, you know, dedicated has been hard to grow in this environment with the one way truck load market being as low as it is. I would say our pipeline is really robust, but, you know, folks are reluctant to pull the trigger because they can save a little bit of money by running, you know, three months more or six months more, whatever in the one way world.
Paul Bunn: But I think you'll see a lot of that capacity come back into dedicated when, when right start heading north, I think you'll see a lot of dedicated contracts start getting signed. And so again, I just summarize that. I think we're we're through the majority of the waiting feed. There's only, I would say, you know, 10% of the business we're probably still not happy with. I think you're going to see Lou Thompson grow and we've got a strong pipeline on call it the non-pull tree dedicated.
Paul Bunn: It's just going to be a function of, you know, when one way truck load rate start moving the other direction, you're going to see some folks. I think start locking in on some of this, you know, pop on work we've been working on for the last year.
Jack Adkins: Okay, all right guys, I'm going to hand it over to somebody else really appreciate the time. Thank you.
Michael Vermut: And our next question comes from Michael Vermitt from Newland Capital. Please go ahead, Mike. Hey guys, how you doing? Good to see you. It's been an amazing turn at the company to be putting up these kind of numbers at a trough environment. Two quick things, when you're looking on the acquisition front, if there are, what your pipeline looks like now, are there more technical sellers coming to the market and the verticals that you're focusing on?
Michael Vermut: Yeah, a couple of things. We continue to look in the market mic for nichey, you know, above average return acquisitions that we think we can grow. That's the answer to the first question, as far as there are some of those in the market right now. And so we just continue to look and see what might be a fit. And that kind of answers to the second part of your question. We really look for something we can integrate within one of the, one of the verticals of the company, you know, be it expedited or dedicated or managed trans or warehousing.
Michael Vermut: And so we're just going to, at Tripp said it early on, we're going to continue down that path, the capital deployment that if, if investing in growth cap acts is the best return. That's what we're going to do. If it's buying shares back, that's what we'll do. If the right acquisition with the right profile comes along, that's what we'll do. And so I think Tripp laid it out really good earlier. We're just going to kind of keep working down that path because that has, it has really turned around the way we operate the business and the results and you can see those evident from where we were to where we're at.
Michael Vermut: So we're probably just keep doing more to the same. Yeah. And I think Mike, the key to that is being really disciplined with our approach. I mean, we get a lot of, you know, SIM decks come our way and open them and then turn them down within, you know, five minutes of opening them. And then of those, maybe two percent of them, we look at them for a day and talk about them and then turn them down.
Michael Vermut: And you know, we've been real fortunate lately, I guess, with the last three that have just come up. And I think that, you know, we've talked about it internally when folks publicly know what we're after and what we're looking for and what we're interested in. We're getting to see more volumes of those. And so we're going to continue to be disciplined in our allocation approach, careful allocation approach as it comes to M&A.
Michael Vermut: But it seems like the uptick has been really helpful or has really picked up a lot of which is because we've been public about, you know, what we're trying to do. Got it. Next question, I guess the name is for David or, you know, I don't know. Yeah, we've done such a phenomenal job changing the company and reducing the volatility. And our evaluation, our evaluation pretty much where it was five years ago, right, we're trading under 10 times, nine times, the due to trade closer to 20. So, you know, there's nothing really comparable to us. No one's performed like we have through this cycle.
David Parker: Is there a point where you just think about taking the company private or doing something, uh... You know, internally if the market's not going to reward us. Hey, Mike, David. Hey, number one, I got your same sentiments. Yeah. You know, I don't disagree with anything you just said there. Of course, we can't, we can't talk about going private or anything like that. But that's why we got a board. We got a board to talk about all the issues that are there and we're busing our bus and and as I said, you know, two or three years ago when we started down this road of where we should be at in the market, somebody's going to love us.
David Parker: Wall Street can love us. We're going to love ourselves. We bought back 25% of the company and we're doing a great job. This team is doing unbelievable. I could not be any more excited about what the group is doing and you know, just they're doing great. And I think that Wall Street will reward us. I think one day that it will wake up and say they are doing well and we will get rewarded.
David Parker: But again, we bought back 25% of the company. Somebody's going to love us. So we're going to determine who's going to love us. Excellent. And then one other thing when we look at you, let's say we're near the trough here and we're doing, you know, four to four, fifty of trough learning. When we look at what we added in here, layered in the acquisitions, what's on the table here? Is there any reason to think we won't be getting back up to the five, fifty to six, fifty as we approach another peak, you know, is the earning power stronger at the company now than it was.
David Parker: Without a doubt, without a doubt. But you know, we're working on five-year strategy. Of course, you know, five-year strategy that's we all know is a love us strategic planning and looking out the next five years because we've been doing this for about a solid three years there and this time that you've seen us do what we've achieved has been a great strategic plan. And then we've got five-year plans and again, those can change in a year, depending upon, you know, the conditions out there.
David Parker: But hey, I couldn't be any more happier. The numbers are, we are going to get back to when things turn around. We're going to shoot off very nicely. There's no doubt in my mind that we've got the company position to have outstanding and outstanding future. Again, I couldn't be more proud if we were at there in a, this is probably the most difficult environment. And I mean, we can compare to O8, O9 and we all could say that it may even be worse than O8 or O9 because, be honest with you, I never forget, October of O8, ISL was a 38.
David Parker: And by June, July next, the following year, about eight months later, we were showing extremely nice positive internal numbers on utilization and revenue. And you know, those kind of things. And none of us, the industry has seen that in this environment today. And we're all sitting there saying, is it going to happen now? Is it going to happen in March? Is it going to happen in next June? And nobody knows that.
David Parker: And performing the way we're performing, I say, Hallelujah. Yeah, for sure. There's no company that I can find right now in this environment that's performing as well as we are. So, you know, you said it five years ago and the company is a completely different company now. So, you know, great job, guys. All right.
Michael Vermut: Thank you, Ma. Thanks, Mike.
Scott Group: And our next question comes from Scott Group from I was just wondering, as you as we get to 2024 bid season, how are you thinking about expedited rates, dedicated rates? Do you think rates can start moving up next year? Do there?
Paul Bunn: Do you think there's some further downside risk to rates at what's your approach early on to bid season? I got this, Paul. You know, here's what I think. As you know, a lot of the bids are come out early in the year. And, and so I tell you what we're thinking, expedited is probably flatish to maybe down a percent or two. And dedicated, we think is probably flatish because a lot of that gets done early in the year.
Paul Bunn: I think on the managed transit, you know, a lot of that's more in the spot market. So I think they'll get the benefit of things as the year goes along next year. And, and so I think there will, there will be some rate opportunity by this time next year. But I think there won't be in the early part of the year. So we're, you could kind of say, we're kind of in the, in the flatish world.
Paul Bunn: Because, you know, a lot of the folks we talk to, I mean, it's cost keep going up. Small guys keep going out of business. I mean, this thing, it's getting to a point where folks aren't going to do this for practice, whether it's small carriers that are, you know, keeping rights to press through brokerages or large carriers. Most people are kind of at the place where they're, they are where they are. Makes sense. And so in an environment where rates are flat to maybe down slightly said, we felt some cost inflation.
Paul Bunn: Are we confident about the ability to sort of grow earnings from this low $4 level next year? Yeah, I think, we think we can incrementally grow, grow earnings next year. I mean, I think there's a few, you know, key things, you know, what is our maintenance cost to? What is our insurance cost to? You know, what, how does this, some of this pop line that we were talking about a minute ago, you know, when does that come on board and, and how quick does it get to the, you know, kind of modeled profitability level?
Paul Bunn: But, but yeah, we, we think that we can have some incremental earnings growth in 24 off 23. Nothing significant next year. But as soon as, as we're talking about with Mike, I'm going to go as soon as things pop, I think it's going to, you know, you'll see a more material amount of earnings growth. And so that's kind of the way we're modeling it out right now. Okay. Makes sense. Thank you guys for the time. Appreciate it. Thank you.
Trip Grant: And at this time, there are no further questions like it's turned to call back over the trip for closing remarks. Yeah, we just like to thank everybody for your participation today. And wish everybody a good rest of the week and a good weekend. And we'll talk to you next quarter. Thank you very much. George.
Unknown Executive: This concludes today's conference call. Thank you for it. The host has ended this call.
Unknown Executive: Goodbye.