Q2 2024 Covenant Logistics Group Inc Earnings Call
Operator: Welcome to today's Covenant Legislation Second Quarter Earnings Release and Investor Accomplishments call. All participants will be in a listen-only mode.
Unknown Executive: Logistics Group, second quarter earnings release and investor conference call. Our host for today's call is Trip Grant. At this time, all participants will be in a listening mode.
Welcome to today's Covenant Logistics Group second quarter earnings release and investor conference call. Our host for today's call is Tripp Grant. 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, Tripp Grant. You may begin.
Unknown Executive: Later, we will conduct a question-and-answer session.
Trip Grant: I would now like to turn the call over to your host, Trip Grant. You may be in.
Operator: I'd now like to turn the call over to your host, Tripp Grant. Thank you. Good morning, everyone, and welcome to the Covenant Logistics Group's second quarter 2024 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 statement.
Trip Grant: Thank you. Good morning, everyone, and welcome to the Kevin L. Agesit Group, second quarter 2024 conference call.
James Grant: A copy of the prepared comments and additional financial information is available on our website at www.covenantlogistics.com slash investor. I'm joined on the call today by David Parker and Paul Bunn. Our core business performed well in the second quarter, overcoming lingering weakness in the overall freight environment. Compared to a year ago, consolidated freight revenue increased approximately $12.8 million, or 5.3%, to $256.5 million, and adjusted operating income increased by $2.4 million, or 15%, to $18.7 million.
James Grant: Thank you.
James Grant: The year-over-year increase in freight revenue was primarily derived from growth in average tractor counts within our asset-based truckload segments, consisting of expedited and dedicated. The growth in adjusted operating income was principally derived from our asset-based dedicated segment and both of our asset light segments, consisting of managed freight and warehouse. Adjusted net income of $14.5 million for the quarter was essentially flat with the second quarter of 2023 primarily because higher adjusted operating income was offset by a $1.7 million increase in pre-tax interest and a $1.3 million reduction in pre-tax earnings from our equity leasing company investment portfolio.
James Grant: Good morning, everyone, and welcome to the Covenant Logistics Group's second quarter 2024 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.
Trip Grant: As a reminder, this call contained 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. A copy of the prepared comments and additional financial information is available on our website at www.covenantlogistics.com/investors. I'm joined on the call today by David Parker and Paul Bun. Our core business performed well on the second quarter of her coming, overcoming lingering weakness in the overall freight environment.
James Grant: 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.
Trip Grant: Compared to a year ago, consolidated freight revenue increased approximately 12.8 million or 5.3% to 256.5 million dollars, and adjusted operating income increased by 2.4 million dollars or 15% to 18.7 million dollars. The year-over-year increase in freight revenue was primarily derived from growth and average tractor counts within our asset-based truckload segments consisting of expedited and dedicated. The growth and adjusted operating income was principally derived from our asset-based dedicated segment in both of our asset-like segments consisting of managed freight and warehousing. Adjusted net income of $14.5 million for the quarter was essentially flat with a second quarter of 2023 primarily because higher adjusted operating income was offset by $1.7 million increase in free tax interest expense and a $1.3 million reduction in free tax earnings from our equity-leasing company investment tail.
James Grant: and a $1.3 million reduction in pre-tax earnings from our equity leasing company investment till.
Trip Grant: Key highlights for the quarter include our combined truckload segments grew the average total tractor count by 1,091 units or 9.1%. And improved freight revenue per tractor by approximately 8 per point eight percent compared to a year ago. Our dedicated fleet achieved the lowest adjusted operating ratio in company history with a 90.9 and grew its average tractor count by 136 units, or 10.9%, compared to the prior year. Within our combined truckload segments, compared to the prior year, operations and maintenance related expenses declined by two cents per total mile, or 10%. Fixed equipment related costs, including least revenue equipment expenses, depreciation, and net gain/loss on sale, increased three cents per total mile or 8% as a result of operating newer, more costly equipment and a soft-use equipment market.
James Grant: Key highlights for the quarter include: Our combined truckload segments grew the average total tractor count by 191 units, or 9.1%, and improved freight revenue per tractor by approximately 0.8% compared to a year ago. Additionally, our dedicated fleet achieved the lowest adjusted operating ratio in company history with a 90.9 and grew its average tractor count by 136 units, or 10.9%, compared to the prior year. Within our combined truckload segments, compared to the prior year, operations and maintenance-related expenses declined by 2 cents per total mile, or 10 percent.
James Grant: Our combined truckload segments grew the average total tractor count by 191 units, or 9.1%, and improved freight revenue per tractor by approximately 0.8% compared to a year ago.
Speaker Change: Within our combined truckload segments, compared to the prior year, operations and maintenance-related expenses declined by 2 cents per total mile, or 10 percent.
James Grant: Fixed equipment-related costs, including leased revenue equipment expenses, depreciation, and net gain loss on sale increased three cents per total month, or 8%, as a result of operating newer, more costly equipment and a soft used equipment. Insurance and claims expense increased 8 cents per total mile, or 56%, compared to the prior year as a result of increases in new current period claims expense and the development and settlement of one large prior period. Our net capital investment for revenue-producing equipment was approximately $43 million for the quarter, consisting both of Specialized Equipment CapEx for growth and Maintenance CapEx.
Trip Grant: Insurance and claims expense increased eight cents per total mile or 56% compared to the prior year as a result of increases and new current period claims expense and the development settlement of one large prior period.
Speaker Change: Insurance and claims expense increased 8 cents per total mile or 56% compared to the prior year as a result of increases in new current period claims expense and the development settlement of one large prior period claim.
Trip Grant: Clay. Our net capital investment for revenue producing equipment was approximately $43 million for the quarter, consisting both specialized equipment capex for growth and maintenance capex. The average age of our fleet at June 30 improved to 21 months compared to 26 months a year ago. The sale of revenue equipment resulted in a $0.9 million loss in the quarter compared to a prior year. Tel produced 23 cents per diluted share compared to 29 cents per diluted share versus a year ago period. Tel's contribution to pre-tax net earnings declined primarily as a result of the year-over-year softening in the used equipment market, suppressing gains on sale and increased interest expense.
James Grant: The average age of our fleet at June 30th improved to 21 months compared to 26 months a year ago. The sale of revenue equipment resulted in a $0.9 million loss in the quarter compared to a $2 million gain in the prior year.
Speaker Change: The sale of revenue equipment resulted in a $0.9 million loss in the quarter compared to a $2 million gain in the prior year.
James Grant: Tell produced $0.23 per diluted share compared to $0.29 per diluted share versus a year ago. Tell's contribution to pre-tax net earnings declined primarily as a result of the year-over-year softening in the used equipment market, suppressing gains on sale, and increased interest expense. Our net indebtedness as of June 30th was $273.3 million, yielding an adjusted leverage ratio of approximately two times and a debt to capital ratio of 39.5%.
Speaker Change: Tell produced $0.23 per diluted share compared to $0.29 per diluted share versus a year ago period.
Trip Grant: Our net indebtedness as of June 30th was 273.3 million dollars, yielding an adjusted leverage ratio of approximately two times and a debt to capital ratio of 39.5%. On an adjusted basis, return on an average invested capital was 8% for the current quarter, versus 13% in the prior year. The decline is attributable to reduced year over year, trailing 12 months operating income, particularly from our asset light managed freight segment, and the increase in average invested capital based associated with acquisitions growth cap eggs and reducing the average age of our fleet.
Speaker Change: Our net indebtedness as of June 30th was $273.3 million, yielding an adjusted leverage ratio of approximately two times, and a debt to capital ratio of 39.5%.
Paul Bunn: On an adjusted basis, return on average invested capital was 8% for the current quarter versus 13% in the prior year. The decline is attributable to reduced year-over-year trailing 12-month operating income, particularly from our asset-light managed freight segment, and the increase in average invested capital base associated with acquisitions, growth capex, and reducing the average age of our. Now Paul will provide a little more color on the items affecting the individual businesses. Thanks Tripp.
Speaker Change: On an adjusted basis, return on an average invested capital was 8% for the current quarter versus 13% in the prior year.
Speaker Change: The decline is attributable to reduced year-over-year trailing 12-month operating income, particularly from our asset-light managed freight segment, and the increase in average invested capital base associated with acquisitions, growth capex, and reducing the average age of our fleet.
Paul Bun: Now Paul will provide a little more color on the items affecting the individual business segments. Thanks, Triope. Expedative was successful in growing freight revenue by approximately 3 million or 3.4%, but experienced a 330 basis point at your ratio in profitability compared to the prior year within adjusted operating ratio of 94%.
Speaker Change: And now Paul will provide a little more color on the items affecting the individual business segments.
Paul Bunn: Expedited was successful in growing freight revenue by approximately $3 million, or 3.4%, but experienced a 330 basis point deterioration in profitability compared to the prior year with an adjusted operating ratio of 95%. Although our average tractor count grew by 6.4%, profitability fell short of our expectations, primarily as a result of cost headwinds from significant casualty claims and year-over-year declines in both rate and utilization. Dedicated was successful in growing both freight revenue and operating income while yielding the best adjusted operating ratio in company history with a 90.9, representing a 170 basis point improvement compared to the prior year.
Paul: Thanks, Tripp. Expedited was successful in growing freight revenue by approximately 3 million, or 3.4%, but experienced a 330 basis point deterioration in profitability compared to the prior year with an adjusted operating ratio of 94.
Paul Bun: Although our average tractor count grew by 6.4%, profitability fell short of her expectations, primarily as a result of call set winds, from significant casualty claims and year over year to cons and both right and utilization. Dedicated was successful in growing both freight revenue and operating income while yielding the best adjusted operating ratio in telling me history, with a 90.9 representing 170 basis point improvement compared to the prior year. During the quarter, the team successfully executed a second large start-up for the year, increasing the fleet's average tractor count by 10.9% year over year. Managed freight experience to 4.6% reduction in freight revenue and a 73.6% increase in adjusted operating profit compared to the prior year, reporting in adjusted operating ratio of 94.
Paul: Although our average tractor count grew by 6.4%, profitability fell short of our expectations primarily as a result of cost headwinds from significant casualty claims and year over year declines in both rate and utilization.
Paul: Dedicated was successful in growing both freight revenue and operating income while yielding the best adjusted operating ratio in company history with a 90.9, representing a 170 basis point improvement compared to the prior year.
Paul: During the quarter, the team successfully executed a second large start-up for the year, increasing the fleet's average tractor count by 10.9% year-over-year.
Paul Bunn: During the quarter, the team successfully executed a second large startup for the year, increasing the fleet's average tractor count by 10.9% year over year. Managed freight experienced a 4.6% reduction in freight revenue and a 73.6% increase in adjusted operating profit compared to the prior year, reporting an adjusted operating ratio of 94.
Paul: Managed freight experienced a 4.6% reduction in freight revenue and a 73.6% increase in adjusted operating profit compared to the prior year, reporting an adjusted operating ratio of 94.
Paul Bunn: The significant improvement to adjusted operating profit was primarily the result of a combination of improved purchase transportation costs, the year-over-year impact of the CIMS transport acquisition, and reduced cargo-related claims compared to the prior year quarter. Our warehouse segment saw a 0.7% increase in freight revenue and a 104.7% increase in adjusted operating profit compared to the prior year, reporting an adjusted operating ratio of 91. We are pleased with the improvement and profitability within this segment, which struggled to produce adequate returns during historical periods of rapid growth and significant labor.
Paul Bun: The significant improvement to adjusted operating profit was primarily the result of a combination of improved purchase transportation calls. The year over year impacted the same transport acquisition and reduced cargo related claims compared to the prior year quarter. Our warehouse segment saw a 0.7% increase in freight revenue and a 104.7% increase of adjusted operating profit compared to the prior year, reporting an adjusted operating ratio of 91.
Paul: The significant improvement to adjusted operating profit was primarily the result of a combination of improved purchase transportation costs, the year-over-year impact of the CIMS transport acquisition, and reduced cargo-related claims compared to the prior year quarter.
Paul Bun: We are with the improvement and profitability within this segment, which struggled to produce adequate returns during historical periods of rapid growth as significant labor.
Paul: We are pleased with the improvement and profitability within this segment, which struggled to produce adequate returns during historical periods of rapid growth and significant labor inflation.
Paul Bunn: Our minority investment entail contributed pre-tax income of $4.1 million for the quarter compared to $5.4 million in the prior year. The decrease was largely due to the continued deterioration in the equipment market, suppressing gains on the sale of used equipment. Revenue for the Quarter declined 4.1%, and pre-tax income decreased by approximately 24% versus the second quarter of 2013. Tell decreased its truck fleet in the quarter versus a year ago by 77 trucks to 2,206 and reduced its trailer fleet by 17 to 7,014.
Paul: Our minority investment in TEL contributed pre-tax income of $4.1 million for the quarter compared to $5.4 million in the prior year period.
Paul: The decrease was largely due to the continued deterioration in the equipment market, suppressing gains on sale of used equipment.
Paul: Tells revenue for the quarter declined 4.1% and pre-tax income decreased by approximately 24% versus the second quarter of 2030.
Paul: Tell decreased its truck fleet in the quarter versus a year ago by 77 trucks to 2,206 and reduced its trailer fleet by 17 to 7,014.
James Grant: Regarding our outlook for the future, as we head into the third quarter of the year, we believe freight fundamentals are continuing to improve as excess carrier capacity slowly exits the market with unsustainable conditions. However, absent an outside catalyst to facilitate improved demand, we remain uncertain about the pace at which general freight conditions will meaningfully improve. Despite these challenges, we remain optimistic about our business model, as evidenced by the durability and growth of our core operations over the last 12 months.
Speaker Change: Regarding our outlook for the future, as we head into the third quarter of the year, we believe freight fundamentals are continuing to improve by excess carrier capacity slowly exiting the market with unsustainable conditions.
Speaker Change: Absent an outside catalyst to facilitate improved demand, we remain uncertain about the pace at which general freight conditions will meaningfully improve.
Speaker Change: Despite these challenges, we remain optimistic about our business model as evidenced by the durability and growth of our core operations over the last 12 months. In the third quarter, we believe we have the momentum necessary to produce sequential operating income growth throughout the year.
James Grant: In the third quarter, we believe we have the momentum necessary to produce sequential operating income growth throughout the year. Although much of this growth will be offset by higher interest costs and the reduced earnings contributions from TEL, we are excited about the direction of our company. Lastly, it is sad news that we recognize the passing of Doug Carmichael, founder and CEO of Covenant. Doug was a true partner with Covenant and a friend to all who worked with him. Known for his entrepreneurial spirit, quick wit, and deep generosity, Doug will be missed dearly by all who are fortunate enough to know him.
Speaker Change: Although much of this growth will be offset by higher interest costs and reduced earnings contributions from TEL, we are excited about the direction of our company.
Speaker Change: Lastly, it is with sad news that we recognize the passing of Doug Carmichael, founder and CEO of Tail.
Speaker Change: Doug was a true partner with Covenant, and a friend to all who worked with him. Known for his entrepreneurial spirit, quick wit, and deep generosity, Doug will be missed dearly by all who are fortunate enough to know him.
James Grant: Although we will miss Doug, he leaves behind the most talented management team TEL has ever had. We look forward to working with this team more closely to honor Doug's legacy and ensure the continued success of this program. Thank you for your time, and we will now open up the call for questions. Star One on your telephone.
Speaker Change: Although we will miss Doug, he leaves behind the most talented management team TEL has ever had. We look forward to working with this team more closely to honor Doug's legacy and ensuring the continued success of this business. Thank you for your time and we will now open up the call for questions.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad now. You will be placed into the queue in the order received.
Operator: Placed into the queue in the Be prepared to ask your question when... and if you have a Star One on your phone. This question will come from... Hey, thanks. Morning, guys. Appreciate the time. So, just maybe start with, if we can, your perspectives of the market night talk last night about their own spot rates starting to move above contract rates, increasingly confident thinks about them, sounds like you're seeing some of the same, your broader perspective on where we are and how quickly things can recover. Hey, Scott, this is David.
Speaker Change: Please be prepared to ask your question when prompted. Once again, if you have a question, please press star 1 on your phone now.
Speaker Change: And our first question will come from Scott Group with Wolf Research.
Scott H. Group: Hey thanks, morning guys, appreciate the time. So just maybe start with, if we can, your perspectives of the market. Knight talked last night about
Speaker Change: their own spot rate starting to move above contract rates, increasingly confident that, you know,
Speaker Change: It sounds like you're seeing some of the same things, but just your broader perspective on where we are and how quickly things can recover from here.
David Ray Parker: Yeah, I definitely think that we've hit bottom, and I think that we started seeing it. In the middle of May, things just started feeling a lot better, and freight was more available to us. And then all of June was the same way.
Speaker Change: Hey, Scott, this is David. Yeah, I definitely think that we've hit bottom. And I think that we started seeing it the middle of May, we started
David Ray Parker: Pretty, pretty good month in the month of June. And that held true for the first 20 or so days of July. So it was really the middle of May where we started to see it.
Speaker Change: Things just started feeling a lot better and freight was more available to us about the middle of May and then all of June was the same way. Pretty good month in the month of June and that has held true for the first
Speaker Change: 20 or so days of July . So it was really the middle of May where we started to see it. So I think things have bottomed out.
Speaker Change: And I do think that, and that's all because the capacity that has left, that we've all been figuring out how long it's going to take in the last two years for capacity to leave. But I got a feeling that...
David Ray Parker: So I think things have bottomed out, and I do think that, and that's all because of the capacity that has left. We've all been figuring out how long it's going to take for capacity to leave in the last two years. But I got a feeling that until capacity continues to leave, I kind of think that what we're sensing today is kind of where we're going to be for the next few months.
Speaker Change: Until capacity continues to leave, I kind of think that what we're sensing today is kind of where we're going to be at for the next few months. So anyway, that's kind of my take on the environment. But I'm pleased with that to give you an idea.
Speaker Change: which we're thrilled with. We've actually taken...
Speaker Change: three rate increases in the last 45 days, and we haven't done that in two years. And so, and we actually have got customers that are at least open and willing to have discussions about.
David Ray Parker: So anyway, that's kind of my take on the environment, but I'm pleased with that. To give you an idea, which we're thrilled with, we've actually taken three rate increases in the last 45 days, and we haven't done that in two years. And so, we actually have customers that are at least open and willing to have discussions about our costs and those kinds of things. So those are events that have not happened in the last two years that are starting to happen again.
Speaker Change: Our Cost, and those kind of things, so those are events that have not happened in the last two years that are starting to happen now. We don't have the momentum yet to go full-fledged and say,
Speaker Change: Rollout rate increases all over, you know, all over to every customer, but we're looking at that, and the ones that are not performing well are the ones that we're going to go have talks with.
David Ray Parker: Now, we don't have the momentum yet to go full fledged and say, rollout rate increases all over, you know, all over to every customer. But we're looking at that. And the ones that are not performing well are the ones that we're going to have talks with. That's helpful. Any like, do you have any perspective? You said like three rate increases, like, is that three out of four? Five, three out of a hundred. I don't know.
Speaker Change: That's helpful. Do you have like any perspective, you said like three rate increases like...
Speaker Change: Is that three out of...
David Ray Parker: Three. Three. Three out of, let's say, three out of 75 or so that really mean anything to the business. I mean, it's literally, and that's all in the last couple of weeks, Scott, so that is just the beginning. The question would be, as we get on our third quarter conference call, is that three going to become 23? So, you know, that's really where it's at. Hey, but in two years, I'm thrilled with three. That's three more than we've gotten in two years. And yeah, no, totally.
Unknown Speaker: Unknown Speaker 3 out of, let's say 3 out of 75 or so that really mean anything to, to the business. I mean, it's literally and that's all in the last couple of weeks, Scott. So
Scott H. Group: That is just the beginning. The question would be, as we get on our third quarter conference call, is that three going to become 23? And so, you know, that's really where it's at. Hey, but in two years, I'm thrilled with three. That's three more than we've gotten into. That's three more than I've had in two years.
David Ray Parker: And then, you know, your margins have obviously held up so much better than anybody else's. Does that, you know, preclude you and you think in any way from seeing a lot of margin improvement whenever the cycle turns? I think the only thing that won't be there for us, and this is exactly as you know, Scott going, you know, following us during this turnaround for the last four or five years, but the lows are not going to be as low as you think about what you're seeing.
Scott H. Group: And yeah, no, totally. And then, you know, your margins have obviously
Scott H. Group: held up just so much better than anybody else's.
Speaker Change: Does that...
Speaker Change: I'm going to preclude you and your thinking anyway from...
Speaker Change: Seeing a lot of margin improvement whenever the cycle turns.
Speaker Change: I think the only thing that won't be there for us, and this is exactly, as you know, Scott, going, you know, following us during this turnaround for the last four or five years, but
Speaker Change: The lows are not going to be as low, Evan, about what you're seeing, and you could say the highs are not going to be as high from a standpoint that we, the spot market is about 2 or 3% of our business.
David Ray Parker: And you can say the highs are not going to be as high from a standpoint that the spot market is about two or 3% of our business. We just do not participate much in the spot market. So if it goes back up to $4 a mile, and it's 20% of your business, we're not going to we're not going to experience that big uplift like that. But we will have our uplift if rates in the market go up 567%.
Speaker Change: We just do not participate much in the spot market, so if it goes back up to $4 a mile and it's 20% of your business, we're not going to experience that big uplift like that, but we will have our uplift. If rates in the market go up,
David Ray Parker: We're going to get our five or 6%. But we won't get 20% of the spot rate if that's where somebody's at. You know what I'm saying? Yeah, Scott. I'm glad about this, Paul. I don't know what David said about that.
Scott H. Group: 5, 6, 7 percent, we're going to get our 5 or 6 percent, but we won't get 20 percent of the spot rate if that's where somebody's at. You know what I'm saying? Yeah, Scott, I'm going to add on this, Paul, I don't know what David said about that. Yeah, I mean, it's, when spot rates go crazy and...
Paul Bunn: Yeah. I mean, when spot rates go crazy, and some of these carriers drop down, and they're running in the 70 hours consolidated, you know, our model doesn't have the ability to do that. On the other hand, I think what we haven't seen is, you know, we purchased back a huge percentage of the shares, kind of in the 21-22 period. And so I do think we've got a lot of earnings leverage with just a little bit of rate.
Speaker Change: Some of these carriers drop down and they're running in the 70 ORs consolidated. You know, our model doesn't have the ability to do that. On the other hand,
Speaker Change: I think what we haven't seen is, as you know, we purchased back a huge percentage of the shares.
Speaker Change: kind of in the 21-22 period. And so I, I do think we've got a lot of earnings leverage.
Paul Bunn: So a little bit of rate can go a long way. You know, when, as David said, when and if we get to that point, and, you know, we're not at that point now. And so I think it's kind of a, it's kind of a balancer effect. I mean, yeah, we're not gonna look up and have a 77 OR one quarter. It just, that's not the model. On the other hand, you ain't gonna look up and get a 97 or one quarter either.
Scott H. Group: with just a little bit of rate. So a little bit of rate can go a long way. You know, when, as David said, when and if we get to that point, you know, we're not at that point now. And so I think it's kind of a, it's kind of a balancer effect. I mean, yeah, we're not going to...
David: We're not going to look up and have a 77 OR one quarter, it's just not the model. On the other hand, you ain't going to look up and get a 97 OR one quarter either, and we should get some benefit of the rate given the low share count.
Paul Bunn: And we should get some benefit of the rate given the low share. That all makes sense. If I could just ask one last question.
Paul Bunn: You talked about sequential improvement in Q3 and any way to just put some color around sort of how you're thinking about margins, earnings, whatever. You know what I'd say, the third quarter, you know, the third quarter's got a lot of work days, and weather's generally pretty good. And, and so I think I'll let Tripp give any color he wants to give.
Speaker Change: That all makes sense. If I could just ask one last one. You talked about sequential improvement in Q3. Any way to just put some color around sort of how you're thinking about margins, earnings, whatever, in the third quarter?
Speaker Change: You know, what I'd say is the third quarter, you know, third quarter's got a lot of work days, weather's generally pretty good. And, and so, I mean, I think
James Grant: But we're pretty confident in sequential improvement. I don't know that we want to put a number out there. Yeah, Scott. This is Tripp.
James Grant: I'll let Tripp give any color he wants to give, but we're pretty confident on sequential improvement. I don't know that we want to put a number out there. Yeah, Scott, this is Tripp. You know, with our model change, I generally look at our Q3.
James Grant: You know, with our model change, I generally look at our Q3. Absent something strange or unexpected happening, our Q3 typically should be our best quarter of the year because a lot of our business is contractual, and we have a lot of shutdowns and Christmas holidays, and Thanksgiving holidays that impact Q4 negatively. We don't play in the peak market very much anymore.
James Grant: You know, absent something strange or unexpected happening, our Q3 typically should be our best quarter of the year.
Speaker Change: because we're a lot of our.
Scott H. Group: A lot of our business is contractual and we have a lot of shutdowns and Christmas holidays and Thanksgiving holidays that impact Q4 negatively. And we don't play in the peak market very much anymore. So Q3 is a very good quarter for us operationally.
James Grant: So Q3 is a very good quarter for us operationally. The poultry business gets hot with the, you know, getting ready for Thanksgiving and the holidays, and so there's a lot of volume improvement in the third quarter. To Paul's point, there are a lot of work days on the legacy side of the dedicated business, and I think you could see some similar trends to what you saw last year where there was a little bit of an improvement in Q3, I don't want to put any numbers on it, but compared to Q2, taken from increased volumes, I would say, and hopefully some better costs.
Speaker Change: The poultry business gets hot with the, you know, getting ready for Thanksgiving and the holidays and so there's a lot of volume improvement in the third quarter.
Speaker Change: To Paul's point, there's a lot of work days on the legacy side of the dedicated business and
Speaker Change: I think you could see some similar trends of what you saw last year where a little bit of an improvement in Q3, I don't want to put any numbers on it, but compared to Q2, taken from increased volumes I would say and hopefully some better costs. We called out the insurance.
James Grant: We called out insurance, and I'm hoping we can get a little bit better there, but, you know, the depreciation headwinds are here to stay. We've absorbed a lot of costs that we're not seeing any reductions on, but I do think that, you know, insurance is one of those things we called out in the release, and I do think that, you know, we can get better on that. So I think a little bit of the margin may be coming from costs. Thanks, guys. I appreciate the time.
Speaker Change: I'm hoping we get a little bit better there.
Speaker Change: You know, the depreciation headwinds are here to stay. We've absorbed a lot of costs that we're not seeing any reductions on. But I do, you know, insurance is one of those things we called out in the release that I do think that, you know, we can get better on that. So I think a little bit of margin may be coming from cost.
Speaker Change: Thanks guys, appreciate the time.
Jason H. Seidl: Thanks, Scott. This question will come from Jason Seidl. Thank you, operator. David, all trip, morning here, and my condolences to Doug and the family.
Scott H. Group: Thanks Scott.
Speaker Change: Our next question will come from Jason Seidl with TD Cowen.
Jason H. Seidl: Thank you, operator. David, Paul, Tripp, good morning here and my condolences to Doug and the family. I wanted to drill down a little bit on
Jason H. Seidl: I wanted to drill down a little bit on how we should look at some of your segments. I think dedicated sort of surprised us a little bit. It was stronger than we expected. Exploited maybe a little bit.
Jason H. Seidl: on how we should look at some of your segments. I think dedicated sort of surprised us a little bit, was stronger than we expected, expedited maybe a little bit weaker. How should we think about the dedicated tractor count as we move forward through this year? And then maybe if you can give us a little insight into next year? And then how should we look at sort of how
Jason H. Seidl: How should we think about the dedicated tractor count as we move forward through this year? And then maybe if you could give us a little insight into next year? And then how should we look at sort of how the claims impacted, expedited, and then maybe how the claims positively impacted managed freight?
Speaker Change: The claims impacted, expedited, and then maybe how the claims positively impacted the Managed Freight Division as we move forward from 2Q to 3Q.
Unknown Executive: Yeah, I mean, I think, and I'll provide some color commentary, I think on dedicated, I would say the truck count is flattish for the rest of the year. I mean, we've got some new deals coming on, and, you know, we got a few deals going off. And so I don't see a significant, I mean, you know, it might be plus or minus 25.
Speaker Change: Yeah, I mean, I think, and I'll provide some color commentary, I think on dedicated
Speaker Change: I would say the truck count, I would say it's flat-ish the rest of the year.
Speaker Change: I mean, we've got some new deals coming on, and we've got a few deals going off, and so I don't see a significant, I mean, it might be plus or minus 25, but the dedicated truck count kind of is what it is.
Unknown Executive: But the dedicated truck count kind of is what it is. But I would tell you we're budgeting for a little bit of truck count growth in 2025. I mean, that's our goal.
Speaker Change: But but I would tell you we're budgeting for a little bit of truck count growth in in 2025 I mean, that's our goal. So I'm seeing
Unknown Executive: So I'm seeing dedicated shippers more willing to take calls in the last two months, more willing than they've been in the last two years. And, and so the pipelines are out there, but the pipelines probably more Q1 ish, Q2 ish of next year, not as much the balance of this year, as you know, we've already grown a lot and dedicated. I think you said it, Jason and Tripp called it out, the insurance headwinds that affected Expedited. I think from a cost standpoint, that number will get better next quarter.
Speaker Change: Dedicated shippers more willing to take calls in the last two months.
Speaker Change: More will than they've been in the last two years and and so the the pipelines out there But the pipelines probably more Q1 ish q2 ish of next year not as much the balance of this year as you know we've already grown a lot and dedicated
Speaker Change: I think you said it, Jason and Tripp called it out, the insurance headwinds that affected
Speaker Change: that affected expedited, I think from a cost standpoint, that number will get better next quarter. And so I think you'll see expedited get back in Q3 and Q4 to a number that you're expecting to see this quarter.
Unknown Executive: And so I think you'll see Expedited get back in Q3 and Q4 to a number that you're expecting to see this quarter for managed freight and warehousing. We're both, you know, two of our smaller segments, but we're really proud of how they're operating. I mean, the claims, the claims were a benefit versus last year's quarter, but we didn't, we didn't make a lot of money last year. And so, you know, I think that those managed freight divisions probably in that, you know, 95 to 97; we're not going to run a brokerage during 103 OR.
Speaker Change: Managed Freight and Warehousing, two of our smaller segments, but we're really proud of how they're operating.
Speaker Change: Bye-bye.
Speaker Change: The claims were a benefit versus last year quarter, but we didn't make a lot of money last year. And so, you know, I mean, I think that that managed freight divisions probably in that, you know,
Unknown Executive: I mean, it just, that's just not our model. And so we'll take less revenue and less exposure to make sure that things are in the black every month. And, and so I think you're going to keep seeing stuff in that range. And the warehousing business, similar, you know, had some cost issues in 23, because we doubled the business in 24. And it took a little while to work out of that slump, but you've seen two, two quarters of back-to-back solid numbers, and I don't see anything changing in that going forward. Well, that's a great color.
Speaker Change: 95 to 97 kind of OR. We're not going to run a brokerage run 103 OR. I mean, it just
Speaker Change: That's just not our model. And so we'll take less revenue, and less exposure to make sure things in the black every month. And, and so I think you're going to keep seeing stuff in that range.
Speaker Change: The warehousing business similar, you know, had some cost issues in 23, because we we doubled the business in 24. And it took a lot of work out of that slot. But you've seen two, two quarters of back to back solid numbers, and I don't see anything changing in that going forward.
Unknown Executive: Let me shift gears a little bit. I mean, obviously, you guys have been very successful with your M&A strategy over the last few years. I would tell you that we're always looking, and I think that, Probably, the best thing that's happened, Jason, is that every truckload carried in the United States that's for sale is not coming across our desk anymore, like, you know, all that can be flooded upon you. And we're starting to, as people have seen what we purchase and what our interest is, those kind of acquisition opportunities are really what are coming across to us. So that's number one.
Speaker Change: Well, that's great color. Let me shift gears a little bit. I mean, obviously, you guys have been very successful with your M&A strategy over the last few years, adding some really, I think, strong components to your network. How should we think about M&A going forward, and how does the pipeline look for you guys?
Unknown Executive: has been very successful with your M&A strategy over the last few years, adding some really a strong component to your network. How should we think about M&A going forward, and how does the pipeline look for you guys? I would tell you that we're always looking, and I think that the best thing to tap Jason is that every truck located in the United States is for sale. It's not coming across our desk anymore, like I'll be flooded upon you, and we're starting to, as people have seen what we purchase and what our interest is, those kind of acquisition opportunities are really what are coming across to us. So that's number one, and I would say that one out of five kind of peaks are interest, and you know, you may have discussions on one out of five. We're open to acquisitions when the timing and the opportunity presents itself, so it's not something that's closed, but it's not something that we got ready to do something tomorrow on anybody or any company, but it is something that we like.
Speaker Change: I would tell you that we're always looking and I think that
Speaker Change: Probably the best thing that's happened, Jason, is that every truckload carried in the United States that's for sale is not coming across our desk anymore, like, you know, like all, like, can be flooded upon you, and we're starting to, as people have seen what we purchase and what our interest is,
Speaker Change: Those kind of acquisition opportunities are really what.
David Ray Parker: And I would say that one out of five kind of piques our interest. And, you know, you may have discussions on one out of five. We're open to acquisitions when the timing and the opportunity present themselves. So it's not something that's closed, but it's not something that we are ready to do something tomorrow with anybody or any company, but it is something that we like. Yeah, and I'll add to David's comments on that, too, Jason.
Speaker Change: are coming across to us, so that's number one.
Speaker Change: and I would say that one out of five.
Speaker Change: kind of piques our interest in...
Speaker Change: You know, you may have discussions on one out of five. We're open to acquisitions when the timing and the opportunity presents itself. So it's not something that's closed, but it's not something that we got ready to do something tomorrow on any, on anybody or any company. But it is something that we're open to.
Unknown Executive: Yeah, and now I had to David's comments on that too, Jason, you know, thinking about our position and thinking about the M&A that we've done in the past and what we've been quite honestly blessed with, with some really good opportunities that we've executed on and some of that, be able to add some really great partners to the covenant family. And, you know, I think right now if you look at our debt level and if you look at the fact that we're actually growing as a business together in an environment like this and hopefully we are on the cusp of an upswing, whether that happens next quarter or whether it happens in the third quarter of 2025, I don't know, I don't know if anybody really knows, but I do know that we're closer to the end of this thing than we are to the beginning. And I just think, and the other thing I was going to mention is, you know, with the addition of best in our new chief operating officer and some additional promotions and leadership opportunities that we've given to people within the company, we've got our hands full with a lot of good things going for us today. And while I agree that we are always looking and if we had another perfect acquisition land into our labs and we would probably jump on it, but we're in a position now, I guess is what I'm trying to say, we can be very disciplined about what we choose to do in terms of an M&A deal, and I think we're going to exercise that discipline for a period of time.
Unknown Executive: You know, thinking about our position and thinking about the M&A that we've done in the past, we've been quite honestly blessed with some really good opportunities that we've executed on and been able to add some really great partners to the Covenant family. And, you know, I think right now that, if you look at our debt level and if you look at the fact that we're actually growing as a business together in an environment like this, and, you know, hopefully, we are on the cusp of an upswing, whether that happens next quarter or whether it happens in the third quarter of 2025. I don't know. I don't know if anybody really knows, but I do know that we're closer to the end of this thing than we are to the beginning.
Speaker Change: We'd like.
Speaker Change: Yeah, and I'll add to David's comments on that too, Jason.
Speaker Change: You know, thinking about our position and thinking about the M&A that we've done in the past and we've been quite honestly blessed with with some really good opportunities that we've executed on and some that be able to add some really great partners to the Covenant family and
Speaker Change: You know, I think right now if you look at our debt level, and if you look at the fact that we're actually growing as a business together in an environment like this, and you know, hopefully we are on the cusp of an upswing, whether that happens next quarter or whether it happens in the third quarter of
Unknown Executive: And I just think, and the other thing I was going to mention is, you know, with the addition of Dustin, our new Chief Operating Officer, and some additional promotions and leadership opportunities that we've given to people within the company, we've got our hands full with a lot of good things going for us today. And while I agree that we are always looking, and if we had another perfect acquisition land fall into our laps, we would probably jump on it.
Speaker Change: And I just think, and the other thing I was going to mention is...
Speaker Change: You know, with the addition of Dustin, our new Chief Operating Officer, and some additional promotions and leadership opportunities that we've given to people within the company.
Unknown Executive: But we're in a position now, I guess what I'm trying to say, where we can be very disciplined about what we choose to do in terms of an M&A deal, and I think we're going to exercise that discipline for a period of time. Sounds good, gentlemen. I appreciate the time, as always.
Speaker Change: What we choose to do in terms of an M&A deal. And I think we're going to exercise that discipline for a period of time.
Unknown Executive: Sounds good, gentlemen. I appreciate the time, as always. Thanks, thanks, thanks, Jason.
Speaker Change: Sounds good, gentlemen. I appreciate the time, as always.
Daniel Imbro: Our next question will come from Daniel in Bro with Stevens. Yeah, thank you, I'll start on the on the dedicated side. I think you guys talked about some startups in the quarter. Can you talk about this? What kind of businesses those are those in the more specialized side, like live haul, and then broadly accused, it's found as you've grown into that and continued to win more business if that is what it is. What are the competitive advantages you have? Why aren't other growing your views? Talk about maybe, what's given you guys the advantage to keep winning this is.
Daniel Embrough: Welcome from Daniel Embrough. Hey, good morning, guys. Thanks for taking our questions. Hey, Daniel, Daniel, maybe I'll start on the dedicated side. I think you guys talked about some startups in the quarter. Can you talk about just what kind of businesses those are, those on the more specialized side like live hall?
Chase: Thanks, Chase. Thanks, Chase.
Speaker Change: Our next question will come from Daniel Imbro with Stevens.
Daniel Embrough: And then, broadly, can you expound on how you've grown into that and continue to win more business if that is what it is? What are the competitive advantages you have? Why aren't others growing here?
Daniel Imbro: Hey, good morning guys. Thanks for taking our questions.
Daniel Imbro: Hey Daniel. Hey Daniel. Maybe I'll start on the dedicated side. I think you guys talked about some startups in the quarter. Can you talk about just what kind of businesses those are, those in the more specialized side, like live haul? And then broadly, can you expound as you've grown into that and continue to win more business, if that is what it is,
Daniel Embrough: Can you talk about maybe what's given you guys the advantage to keep winning this business? So a couple things, Daniel. Yeah, I mean, the larger startup in Q2 was on the, you know, more specialty side of the business. That said, we had startups on the legacy side as well. And, and so, you know, we continue to attack both what I call our legacy dedicated and, you know, poultry or specialized businesses.
Speaker Change: What are the competitive advantages you have? Why aren't others growing here? Can you talk about maybe what's giving you guys the advantage to keep winning this business?
Daniel Imbro: So a couple of things, Daniel. Yeah, I mean the larger startup in Q2 was on the, you know, more specialty side of the business. That said, we had startups in the legacy side as well, and so you know we continue to attack both what I call our legacy dedicated and you know poultry or specialized businesses. You know I think our the team in that space has got a really good reputation and I think there's some some really good things we do operationally that the customers like and so we're you know we're going to keep trying to grow all kinds of dedicated business especially those that have specialized trailer specialized drivers, time sensitive requirements.
Daniel Embrough: You know, I think our model, our team in that space has got a really good reputation, and I think there are some really good things we do operationally that the customers like. And so we're, you know, we're gonna keep trying to grow all kinds of dedicated business, especially those that have specialized trailers, specialized drivers, time-sensitive requirements. That's our focus. And then maybe, because the data is harder to find, I guess when we think about seeing capacity leave the market, this is a more specialized subsector. Have we seen capacity similarly exit this part of the market that gives you pricing power across that as well? I don't think so in the specialized space.
Speaker Change: So a couple things, Daniel. Yeah, I mean, the the larger startup in Q2 was on the, you know, more specialty side of the business. That said, we had startups in the legacy side as well. And, and so, you know, we continue to attack both what I call our legacy dedicated and
Speaker Change: You know, poultry or specialized businesses. You know, I think our model, the team in that space has got a really good reputation. And I think there's some
Speaker Change: Some really good things we do operationally that the customers like. And so we're, you know, we're going to keep trying to grow all kinds of dedicated business, especially those that have
Daniel Imbro: I mean, that's our, that's our, that's our focus. And then maybe because it is harder to fogist, what do we think about seeing capacity to leave the market. This is a more specialized sector. Have we seen capacity similarly exit this part of the market that gives you pricing power across across that as well. I don't think in the specialized space. Yeah, I think most of the dedicated deals work, work and peat and against. Yeah, and we got a couple deals after right now, and it's a lot of pretty well capitalized. Carriers and so most of the dedicated deals in that specialized space are not the mom and pops that are going out of business.
Speaker Change: Specialized Trailers, Specialized Drivers, Time Sensitive Requirements, I mean that's our, that's our, that's our focus.
Speaker Change: And then maybe because the data is harder to fog us, when we think about seeing capacity to leave the market, this is a more specialized subsector. Have we seen capacity similarly exit this part of the market that gives you pricing power across that as well?
Daniel Embrough: Yeah, I think most of the dedicated deals we're competing against, and we got a couple deals after right now, and there are a lot of pretty well-capitalized carriers, and so most of the dedicated deals in that specialized space are are not the mom and pops that are going out of business. That makes sense. And then maybe stepping back a little bit.
Speaker Change: I don't think in the specialized space. Yeah, I think I think most of the dedicated deals we're competing against
Speaker Change: Yeah, and we got a couple deals after right now and it's a it's a lot of pretty well capitalized Carriers and so most of the dedicated deals in that specialized space are Are not the are not the mom-and-pops that are going out of business
Unknown Executive: That makes sense, and then maybe taking back a little bit.
David Parker: David, you mentioned some more seasonally normal demand beginning in May, I guess. As you speak with your customers, are you getting a sense this is a pull forward? Is this inventory building ahead of peak season? Like, what do you think is driving? This more using the normal shape of the curve. That's a great question; it is the same question that we're asking internally. That say you know we do we don't do much retail, and so therefore it's. You know I can tell. I mean I want to see that this is retail business. But I did, I think some analysts, some, you know, some folks have written on is there a pretty high pre-peak that is going on which may be wondering question.
David Ray Parker: David, you mentioned some more seasonally normal demand beginning in May. As you speak with your customers, do you get the sense this is a pull-forward of this inventory building ahead of peak season? Like, what do you think is driving this more seasonally normal shape of the curve?
Speaker Change: That makes sense. And then maybe stepping back a little bit, David, you mentioned some more seasonally normal demand beginning in May, I guess.
Unknown Speaker: As you speak with your customers, are you getting the sense this is a pull forward? Is this inventory building ahead of peak season? Like what do you think is driving this more seasonally normal shape of the curve? Unknown Speaker
David Ray Parker: That's a great question. It's the same question that we ask internally. That said, you know, we don't do much retail. And so, therefore, you know, I can say, I mean, like 1% is the retail business. But I did, I've seen some analysts, some of you know, some folks have written on whether there is a pre-buy pre-peak that is going on, which made me wonder about that question. Because you definitely see all the port business, the vast majority of the port business is up, is up very nicely, which will make you think. But so I'm not sure. I'm just not sure.
David: That's a great question. It's the same question that we're asking internally. That said, you know, we do, we don't do much retail. And so therefore, it's...
David Ray Parker: Dang, I do believe, though, that non retail is not. I don't see any peak, a pre-peak, in the non retail business that we're doing. And we don't do enough retail to wonder about it. You know, I am saying, you know, some of the, [inaudible] And both of those are definitely up, but I'm not ready to contribute that it's some pre-peak season, but you know, we may be sensing some of that. I don't know.
Speaker Change: You know, I can say, I mean, like, 1% is retail business.
Speaker Change: But I did, I've seen some analysts, you know, some folks have written on, is there a pre-peak that is going on, which made me wonder and question. Because you definitely see all the port business, the vast majority of the port business is up, is up very nicely.
David Parker: Because you definitely see all the poor business. The best majority of the poor businesses up is very nicely. Which will make you think, but so I'm not sure. I'm just not sure day I do believe, though, that. Non retail is not I don't see any peak a pre peak in the non retail business that we're doing and we don't do enough retail. I don't know what to wonder about it. You know, I am seeing, you know, some of the. You're getting ready for the Apple launch, and that kind of freight that is out there, but we have that every year.
Speaker Change: which would make you think, but so I'm not sure. I'm just not sure, Dan. I do believe, though, that
David: non-retail.
Dan: I don't see any pre-peak in the non-retail business that we're doing, and we don't do enough retail to...
David: Wonder about it. You know, I am saying, you know, some of the
David: You know, getting ready for the Apple launch and that kind of freight that is out there. But we have that every year in a September kind of time frame. And we're getting ready for that big little bit. But that's an every-year deal. So.
David Parker: In a September kind of time frame, and we're getting ready for that big little bit, but that's every every year deal. So I'm just not sure because really to us the pre peak would be our freight out of Los Angeles and our freight out of Savannah because those are the two main ports to the little bit out of Houston. And both of those are definitely up, but I'm not ready to contribute that it's some pre-peak season but. You know we may be sitting some of that. I don't know. I just know what we're feeling. Every one of us truckers are like and what we're feeling. I just hope it.
Speaker Change: I'm just not sure, because really to us, the pre-peak would be our freight out of Los Angeles and our freight out of Savannah, because those are the two main ports, and a little bit out of Houston.
David: And both of those are definitely up, but I'm not ready to contribute that it's some pre-peak season. But, you know, we may be sensing some of that. I don't know. I just know what we're feeling. Every one of us truckers are liking what we're feeling. I just hope it lasts.
David Ray Parker: I just know what we're feeling. Every one of us truckers is liking what we're feeling. I just hope it lasts. I appreciate all the color and best of luck, y'all.
Unknown Executive: Cast. I appreciate all the color, and best of luck y'all. Thanks, thank you. Thank you.
Daniel Embrough: Thanks, Dan. Thank you. Thank you, Coordinator. If you would like to ask a question, please do so now. Signal by pressing star 1, from Jeff Kauffman with Vertical.
Speaker Change: I appreciate all the color and best of luck, y'all. Thanks, Daniel. Thank you. Thank you.
Unknown Executive: As a reminder, if you would like to ask a question, you may signal by pressing *1 on your telephone keypad.
Speaker Change: As a reminder, if you would like to ask a question, you may signal by pressing star 1 on your telephone keypad.
Jeffrey Kauffman: In our next question, we'll come from Jeff Kaufman with Vertical Research Partners. We since just terrific results in a very tough environment this quarter. I'm kind of curious; you know, I've heard the commentary about things that we hope are changing, you know, or behaviors that are changing that could lead to positive events. But, you know, in terms of what you're seeing within the industry itself, you know, there's the things you can't control, and then there's the things you can button down and control yourself. How has your view of both of those things changed over the last three months?
Speaker Change: And our next question will come from Jeff Kauffman with Vertical Research Partners.
Jeffrey Asher Kauffman: David Parker, Unknown Executive, Covenant; Jeffrey Kauffman, Unknown Executive, Covenant, You know, there are the things you can't control. And then there are the things you can button down and control yourselves. How has your view of both of those things changed over the last three years? Well, those are great questions.
Speaker Change: It's just terrific, results in a very tough environment this quarter.
Speaker Change: I'm kind of...
Jeffrey Asher Kauffman: Kind of curious, you know, I've heard the commentary about things that we hope are changing, you know, or behaviors that are changing that that could lead to positive events. But, you know, in terms of what you're seeing within the industry itself,
Speaker Change: You know, there's the things you can't control, and then there's the things you can button down and control yourselves. How has your view of both of those things changed over the last three months?
David Parker: Well, yeah, there are great questions. I think that we've, for the last five or six years anyway, as we've been on our journey, I think that we've looked very strongly at the things that we can control and attempt to get involved in the things that we can't control. And it has been something that, you know, that we worked very diligently. But I will say in the last two years, the trucking industry is not immune to 20% inflation. I mean, it's not immune to retire people walking in and raising and truck people and trying to people and, you know, all these segments that have walked into this door and reinsurance.
David Ray Parker: I think that we've, for the last five or six years, anyway, as we've been on our journey, I think that we've looked very strongly at the things that we can control and attempted to get involved in the things that we can't control. It has been something that, you know, we work very diligently at. But I will say in the last two years, the trucking industry is not immune to 20% inflation. I mean, it's not immune to tire people walking in and raising prices and truck people and trailer people and, you know, all these segments that have walked into this door and reinsurance and, I mean, the P&L, you can go down and payroll and those kind of things. So, you know, we're some of the areas that we can't control; we try to just negate it as much as we possibly can.
Speaker Change: Well, yeah, those are great questions. I think it's...
Speaker Change: I think that we've, for the last five or six years anyway, as we've been on our journey, I think that we've looked very strongly at the things that we can control and attempt to get involved in the things that we can't control. And
Speaker Change: It has been something that...
Jeffrey Asher Kauffman: You know that we work very diligently, but I will say in the last two years.
Jeffrey Asher Kauffman: The trucking industry is not immune to 20% inflation.
Jeffrey Asher Kauffman: I mean it's not immune to tire people walking in and raising and truck people and trailer people and...
David Parker: And I mean, the P&L you can go down and pay row and those kind of things. So, you know, we're some of the areas that we can't control. We try to just negate it as much as we possibly can. And we've been successful in a lot of that. Being able to put, take some cost out, even though the line items are tremendously up in a lot of areas. So, we continue again. I mean, to give an example, anything that says that we're buying for, you know, 10 cents can we buy for a nickel. We're, we're scrubbing the P&L to make sure that we do not, so we look up and we took out a dollar.
Jeffrey Asher Kauffman: You know, all these segments that have walked into this door and reinsurance and I mean, the P&L you can go down and payroll and
Jeffrey Asher Kauffman: Those kind of things so you know we're some of the areas that we
Jeffrey Asher Kauffman: can't control. We try to just negate it as much as we possibly can and we've been successful in a lot of that of being able to put take some cost out even though the line items are
David Ray Parker: And we've been successful in a lot of that, being able to take some cost out even though the line items are tremendously up in a lot of areas. So we continue again, I mean, to give an example, anything that says that we're buying for, you know, 10 cents, can we buy for a nickel, we're scrubbing the P&L to make sure that we do not suddenly look up and, and we took out $1.
Jeffrey Asher Kauffman: Tremendously up in a lot of areas.
Jeffrey Asher Kauffman: So, we continue again, I mean, to give an example, anything that says that we're buying for...
Jeffrey Asher Kauffman: you know, 10 cents, can we buy it for a nickel? We are scrubbing the P&L to make sure that we do. And all of a sudden, we look up and we took out a dollar. And that's what we've been doing, Jeff, for the last two years. That's why our earnings have been, you know...
David Parker: And that's what we've been doing, Jeff, for the last two years. It's why our earnings have been, you know, good, leading the effort, is because of that. Because it's not because of rating creases. Very little of those things that have happened. And so, I am proud of this team. I'm really am of, of controlling the things they can control and the things they can't control to try to make it. And at least hurt as they possibly can. And I think that's really been the philosophy for the last couple of years.
David Ray Parker: And that's what we've been doing, Jeff, for the last two years. That's why our earnings have been, you know, good, leading the effort is because of that, because it's not because of rate increases, very little of those things that have happened. And so I am proud of this team, I really am, for controlling the things they can control and the things they can't control to try to make it as least hurt as they possibly can.
Speaker Change: Good, leading the effort is because of that, because it's not because of rate increases. Very little of those things that have happened.
Speaker Change: And so, I am proud of this team, I really am, of controlling the things they can control and the things they can't control to try to make it as least hurt as they possibly can. And I think that's really been the philosophy for the last couple of years.
Unknown Executive: And I think that's really been our philosophy for the last couple of years. Yeah, and I would add to that, just expanding on what David had said about talking about the income statement, and but I think what this team has done really well, or done a good job with two, is just looking at capital, looking at the balance sheet, and trying to make sure we're optimizing that as much as possible.
David Parker: Yeah, and I would add to that just to expanding on what David had said on, you know, the talking about the income statement. And, but I think what this team has done really well or done again job with too is just looking at capital, looking at the balance sheet and trying to make sure we're optimizing that as much as possible. And I think a big part of our story. Over the last few years has been capital allocation, which is, you know. and I'm pretty simple persons. I just try to keep it pretty simple sometimes. And it's your point.
Jeffrey Asher Kauffman: Yeah, and I would add to that, just expanding on what David had said on, you know, talking about the income statement and...
Speaker Change: but I think what this team has done really well or done a good job with too is just looking at capital looking at the balance sheet and trying to make sure we're optimizing that as much as possible and I think a big part of our story over the last few years has been capital allocation which is you know
Unknown Executive: And I think a big part of our story over the last few years has been capital allocation, which is, you know, Starting in 2020, with the downsizing of a lot of the freight that we were moving, or a lot of the assets tied to the freight we were moving, disposal and sale of a lot of terminals, the factoring business went away, and it provided us with some opportunities, and we started seeing the benefits of what it meant to be It allows us to be more nimble, a little more flexible.
Speaker Change: Starting in 2020 with the downsizing of a lot of the freight that we were moving or a lot of the assets tied to the freight we were moving, disposal and sale of a lot of terminals, the factoring business went away and it provided us some opportunities and we started seeing the benefits of
Jeffrey Asher Kauffman: what it meant to be a more focused logistics provider. It allows us to be more nimble, a little more flexible, but whatever it is we decide to do, we've got to be really good at.
Unknown Executive: But whatever it is we decide to do, we've got to be really good at it. And I think that that approach to capital allocation has served us well and is something that we will continue to do. And I'd give you a couple of more examples, Jeff.
Speaker Change: That approach to capital allocation has served us well and is something that we continue to do. And I'll give you a couple more examples, Jeff.
David Ray Parker: Let's take, even though we're not showing it, two statements. I've heard Tripp say, you know, hey, I'm hoping that we'll get some, we'll start seeing some good things on the insurance line item going forward. We hope that's the case. I can tell you that for the last two years, our accidents are at historical lows.
Jeffrey Asher Kauffman: Even though we're not showing it, two statements. I've heard Tripp say, hey, I'm hoping that we'll start seeing some good things on the insurance line item that.
Jeffrey Asher Kauffman: going forward. We hope that's the case. I can tell you...
James Grant: For the last two years, our accidents are at historical lows.
David Ray Parker: When you look at DOT, you know, per million mile accidents and critical accidents, Tripp also made, internally made the statement, said, told us that he'd also been expecting this for the last two years. And that's a correct statement, too. But if we can keep the accidents from happening, which we are, it's got to eventually flow through to us that something that we got on the books for a million dollars that all of a sudden becomes 1.5, and you got eight of those, next thing you know, you report, you know, 25 cents a mile insurance costs because of that stuff. Well, eventually, you're running out of those accidents.
Speaker Change: When you look at DOT, you know, per million mile accidents and critical accidents, Tripp also made, internally made the statement, says,
James Grant: told us that I've also been expecting this for the last two years. And that's a correct statement, too. But if we can keep the accidents from happening, which we are, it's got to eventually flow through to us.
Speaker Change: that something that we got on the books for a million dollars all of a sudden becomes 1.5 and you got eight of those next thing you know you report
Speaker Change: You know, 25 cent a mile insurance costs because that stuff, well eventually you're running out of those accidents, and so if we keep those accidents low, which we have, then we've got to start reaping the benefits. So there's an example of something that.
David Ray Parker: And so if we keep those accidents low, which we have, then we've got to start reaping the benefits. So this is an example of something that we can't control the settlements or the court cases; we can control the accidents to the best of our ability. And that will help us, not in the second quarter.
James Grant: We can't control the settlements or the court cases. We can...
James Grant: control the accidents to the best of our ability, and that will help us, not in second quarter. We think, though, down the line, it's going to start.
David Ray Parker: We think, though, down the line, it's going to start showing up. I look at the expedited side, even though utilization was down just a little bit in the second quarter, I would say this year, utilization year-to-date's up 12, 13 percent for the six months, or definitely double-digit numbers for the six months. So in a horrible environment, we're making sure that we're going to the right places, the right destinations. And we may be saying no to freight during a time when we need freight, but even the fact that our utilization's up double-digit numbers, we're making some great decisions on that.
Showing up. I look at the expedited side even though utilization was down just a little bit in the second quarter I would say this year utilization year-to-date up 12 13 percent
James Grant: for the for the six months are definitely double digit kind of numbers for the six months. So in a horrible environment, we're making sure that we're going to the right places, the right destinations. And we may be saying no to freight during a time we need freight.
James Grant: But Evan, about the fact that our utilization is up double-digit numbers, we're making some great decisions.
David Ray Parker: And as you said earlier, as somebody said, once the insurance helps us there, you'll start seeing the numbers on expedited being what we think that they will be. So those are a couple of examples of things that we can control, but things that we can't control, but how are we getting better at? Thank you for those answers, and that kind of. Gatz, the next.
Evan: on that. And once, as you said earlier, as somebody said, once insurance helps us there, you'll start seeing the numbers on expedited be and what we think that they will be. So those are a couple of examples of things that can control, but things that we can't control, but how are we getting better at it?
Speaker Change: Well, thank you for those answers, and that kind of begets the next part of that question, which is, you know, every downturn changes things.
Jeffrey Asher Kauffman: Part of that question, which is, every downturn changes things in some way, shape, or form. And even though we're not finished with this one, I think your comments are, we think we see, you know, the light at the end of the tunnel. What do you think, Scott? about the market as a result of this downturn and kind of how it's played out. How is that enough? Yeah, you know, I think a couple of things that have thrilled me over the last couple of years is that even though we have moved out of quote, the OTR, even though you could say expedited is OTR, but it's also specialized. We have, you know, the largest team fleet in the United States.
Speaker Change: in some way, shape or form. And even though we're not finished with this one, I think your comments are we think we see, you know, the light at the end of the tunnel here. What do you think is going to be different about the market as a result of this downturn and kind of how it's played out? And how is that an opportunity for you?
Evan: when the markets do eventually stabilize.
Jeffrey Asher Kauffman: So everybody's brother does not run the amount of team drivers that we run. And so it is OTR, but it's specialized OTR. We're down to less than 100 trucks, running solo OTR, and I'm worried about how am I going to load them out in Chicago or in New Jersey today.
Speaker Change: Yeah, you know, I think a couple of things that thrilled me through this last couple of years.
Speaker Change: is that.
Speaker Change: Even, you know, as we have moved out of, quote, the OTR, even though you could say expedited is OTR, but it's also specialized. We got, you know, the largest team fleet in the United States. So everybody's brother does not run the amount of team drivers that we run. And so it is OTR, but it's specialized OTR. We're down to less than a hundred trucks.
Speaker Change: Running Solo, OTR, and I'm worried about how am I going to load them out of Chicago or New Jersey today. That, we're down to just very little, but the specialized, and we have got...
David Ray Parker: That We're down to just very little, but the specialized, and we have got long-term agreements that we entered into, and probably one of the best things we did was we entered into that in 22 and a little bit of 23. When our customers could not find trucks, could not find trucks out there, we all on this phone realized, and we went to our customers and said, we want to make a partnership with you.
Evan: Long-term agreements that we entered and probably one of the best things we did was we entered that in 22 and a little bit of 23
Evan: when our customers could not find trucks.
Evan: Could not find trucks out there that we all on this phone realized and we went to our customers And said we want to make a partnership with you and that is we will give you the trucks right now at a fair rate
David Ray Parker: And that is, we will give you the trucks right now at a fair rate, a scale of one to 10, a rate of seven or eight, not a 12 on a scale of one to 10, Darren, 22.
Speaker Change: A scale of 1 to 10, a rate on a 7 or 8, not a 12 on a scale of 1 to 10 during 22. And let me tell you, that's about 55% of expedited revenue is on long-term agreements of which
David Ray Parker: And let me tell you, that's about 55% of expedited revenue is on long-term agreements, of which most of them have been re-upped this year for two to three more years. And those customers have treated us right. We have treated them right.
Evan: Most of them have been re-upped this year for two to three more years and those customers have treated us right.
David Ray Parker: And it's been a great, great partnership. That's one of the things that has changed for us, that we will be there during the good times and we will be there when it comes out for our customers, because they have proven to us that they're going to be there for us, even if it means taking freight away from our competitors and giving it to us. That's what they have done in the last 12 months.
Evan: We treated them right, and it's been a great, great partnership. That's one of the things that has changed.
Evan: For us
Evan: We will be there during the good times, and we will be there when it comes out for our customers because they have proven to us that they're going to be there for us. Even if it means taking freight away from our competitors and giving to us, that's what they've done in the last 12 months.
David Ray Parker: And so we have shaped the market dedicated, I would say, JLFET, on the dedicated side of our business. I want to say, Paul, that 70, 80% of it is specialized. Is that a true number? Yeah, I'd say, yeah, 50, 60% for sure, 50 to 70% specialized.
Evan: And so we have shaped the market, dedicated, I would say, JLFET, on the dedicated side of our business. I want to say, Paul, that
Paul: 70, 80% of it is specialized. Is that a true number? Yeah, I'd say, yeah, 50, 60% for sure. 50 to 70% specialized. And I would say that we have, that we are out, I would say that we're 95% out of commoditized, out of commoditized of the last two years. And so that's been a blessing that now the dedicated side, we're really got it with customers that need us and we want them. And it's not one that we're worried about what did spot market do and we're going to lose, we've already gotten rid of all those. So that's on the dedicated. I just told you about the expedited. I couldn't be more happier with our warehouse. I mean those guys
Paul Bunn: And I would say that we are out. I would say that we're 95% out of commoditized for the last two years. And so that's been a blessing that now the dedicated side, we're really got it with customers that need us, and we want them. And it's not one that we're worried about what the spot market will do, and we've already got rid of all those. So that's on the dedicated, I just told you about the expedited. I couldn't be happier with our warehouse.
Paul Bunn: I mean, those guys have knocked it out of the park when it comes to operating it, growing it, doubling it, had to take a couple of steps back, but the team did, reshaped it, and you can see what the warehouse side is doing so that they won't feel left out. I am thrilled with our managed freight. I mean, I went back there about a month ago and gave them a hug. I mean, those guys are doing great. Yeah, they are.
Evan: have knocked it out of the park.
Evan: Own.
Speaker Change: operating it, growing it, doubling it, had to take a couple of steps back, the team did, reshaped it, and you can see what the warehouse side has decided to do and then so that they won't feel left out. I am thrilled with our managed freight. I mean I went back there about a month ago and gave them a hug.
David Ray Parker: They're doing, the guys and gals back there. I mean, in this environment, to be in the black, because, as you see, most of them are in the red. We're not in the black, and we're not going to be in the black. So anyway, I'll shut up. No, that was awesome.
Speaker Change: I mean those guys are are doing great. Yeah, they are they're doing the guys and gals back there I mean in this environment to be in the black because as you see most of them are in the red We're not in the black and we're not going to be in the black. So Anyway, I'll shut up
Speaker Change: No, that was awesome. Thank you very much.
Jeffrey Asher Kauffman: Thank you very much. We'll come from Michael Vermut with Newland. Hi guys, how are you doing? Congratulations on a great year so far and a great quarter. So obviously, we're all sitting here, or at least I have been a shareholder for years and years. We've come out of this downturn looking better than anyone.
Evan: And our next question will come from Michael Vermut with Newland Capital.
Michael David Vermut: Hi guys, how are you doing? Congratulations on a great year so far and quarter.
Michael David Vermut: So, obviously, we're all sitting here, or at least I am, as a shareholder for years and years.
Michael David Vermut: There's no one that's compared to what you've done with this company, right, the way that transformed this company, you know. Fifteen years ago, we would have been losing money in these quarters, no question, right? It's a completely different company here, and I, we're still trading at a 10 multiple point discount, let's say to the group on average, and I, and I do think Now that we've come through this, and probably one of the worst downturns we've had in years, doing so well with, you know, what we've been given and the way that we've built this company now, we don't see how I know this question was asked before.
Speaker Change: We've come out of this downturn.
Speaker Change: Looking better than anyone else. There's no one that's compared to what you've done with this company, right? The way that we've transformed this company, you know, 15 years ago we would have been losing money in these quarters, no question, right? So...
Speaker Change: It's a completely different company here, and I think we're still trading at a 10 multiple point discount let's say to the group on average, and I and I do think it's
Michael David Vermut: Now that we've come through this and you know the probably one of the worst downturns we've had in years.
and doing so well with
Speaker Change: You know what we've been given and and the way that we've built this company now that we don't see how it's going to transform as The market turns right and as the next downturn comes is this is this something that
James Grant: I know it's changed, but we're still there. So we're doing $4 roughly this year, and it goes to $6 at the peak. And I think people don't understand that that leverage is still there in this model and that on the contract side, we'll still see that. Is there anything that we're not understanding here? Because there's something that the street doesn't understand with what has happened at Covenant. No, and I can start on this, Mike. This is Tripp, and I'll let Paul kind of finish it off.
Speaker Change: The leverage in the model, I know this question was asked before.
I know it's changed, but that we're still there. So we're doing $4 roughly this year, and it goes to $6 at the peak. And I think people don't understand that, that leverage is still there in this model, and that on the contract side, we'll still see that.
Speaker Change: Is there anything that we're not understanding here? Because there's something that the street doesn't understand with what has happened at Covenant so far.
James Grant: I think that there are plenty of opportunities for operating leverage. You know, the timing of that may be a little bit different from the timing of some of the other public carriers out there because of the fact that we're 99% contractual and almost all of our truckload stuff, you may start seeing it in the brokerage world a little bit quicker than some of the truckload customers. But what I would say is that we've got to be very intentional about how we go about this.
No, and I can start on this, Mike. This is Tripp and let Paul kind of finish it off. I think that there's...
Plenty of opportunities for operating leverage.
You know, the timing of that may be a little bit different from the timing of some of the other public carriers out there because of the, I mean, we're 99% contractual and almost all of our truckload stuff, you may start seeing it in the brokerage world a little bit quicker than some of the truckload.
customers, but what I would say is
James Grant: And I think going back to 21 and 22, and David mentioned this, we really took the opportunity to improve our customer mix and be fair to the customers who were fair to us in downturns, and we were fair to them when things got tight, when we absolutely could have gone to them with 10, 12% raises. And, you know, we asked for fairness, and we provided a good-valued service for a good, good-value return. And so it is on a customer by customer basis.
We've got to be very intentional about how we go about this. And I think going back to 21 and 22, and you know, one of the best things that we did, and David mentioned this, we really took the opportunity to
to improve kind of our customer mix and be fair to the customers who were fair to us and downturns and we were fair to them when when things got tight when we absolutely could have gone to them with 10 12 percent raises and you know we asked for fairness and and we provide a good valued service for
Paul Bunn: And we're in the process of kind of going through and understanding, you know, who we need to get in front of. And I think the key for us is to, you know, be very fair to the customers who've been fair to us, and we're making adequate returns on, and be urgent in front of the people and the customers that we need, you know, quick rate increases. But all that said and done, I think that there are a ton of opportunities for us to improve margins and get this thing up to the kind of numbers that you had mentioned earlier.
a good value return and so it is on a customer by customer basis and we're in the process of kind of going through and understanding.
you know, who do we need to get in front of? And I think the key is for us is to
Be very fair to the customers who've been fair to us and we're making adequate returns on and be urgent in front of the people and the customers that we need quick rate increases. But all that said and done, I think that there's a ton of opportunities for us to improve margins.
and get this thing, you know, up to kind of numbers that you had mentioned earlier. You know, so I think the only thing I'd add to what Tripp said, Mike, is, you know, it's a.
Paul Bunn: You know, so I think the only thing I'd add to what Tripp said, Mike, is that I'm a pretty simple person. So I try to keep it pretty simple sometimes. And it's, To your point, we're gonna do $4 a share or better this year. In a period with no rate increases and increasing costs, the leverage comes to whenever you can get some rates, and hopefully, you've already absorbed a lot of those costs, the flow through to the bottom line, you know, should happen.
I'm a pretty simple person, so I just try to keep it pretty simple sometimes.
David Parker: We're going to do $4 a share of better this year in a period with no rating creases and increasing cost. The leverage comes to whenever you can get some rate, and hopefully you've already absorbed a lot of those costs. The flow through to the bottom line should happen. And again, as we told one of the other collars, I think the other leverage is going into this with less share count than we've had historically; should create that earnings leverage that you refer to, to give the ability to push those numbers high. People could model out what a 3% on rates or 5% on rates, or whatever numbers over a couple of people can model that out, and I think they'll lock the internet.
Speaker Change: To your point, we're going to do, should do $4 a share or better this year.
Paul Bunn: And again, as we told one of the other callers, I think the other leverage is going into this with, you know, less share count than we've had historically should create that earnings leverage that you refer to to give the ability to push those numbers higher, and people could model out what a 3% on rates or 5% on rates or whatever numbers over a couple of years. People can model that out, and I think they'll like the answer they get.
In a period with no rate increases and increasing cost, the leverage comes to whenever you can get some rate.
And hopefully you've already absorbed a lot of those costs, the flow through to the bottom line should happen. And again, as we told one of the other callers, I think the other leverage is...
Going into this with, you know,
Less share count than we've had historically should create that earnings leverage that you refer to, to give the ability to push those numbers high. And, you know, people could model out what a
you know, 3% on rates or 5% on rates or whatever numbers over a couple, I mean, people can model that out. And I think they'll like the answer. Yeah, I think they'll like the answer they get.
Unknown Executive: I think they'll lock the internet. Excellent.
Unknown Executive: Yeah, and because you look at it with the way we performed in this downturn, you would think we'd be trading at a premium, not at a discount that we are. So I have a great 100% that no one's done what you guys have done in this downturn; let me tell you.
Michael David Vermut: Excellent. Yeah, and if you look at it with the way we've performed in this downturn, you would think we'd be trading at a premium, not at a discount that we are. I agree 100%. No, no one.
Yeah.
Speaker Change: Excellent. Yeah, and if you look at it with the way we've performed in this downturn, you would think we'd be trading at a premium, not at a discount that we are.
I agree 100%. No one's done what you guys have done in this downturn, let me tell you. The second thing is, on the M&A, just following up on what Jason was asking,
Michael David Vermut: No one's done what you guys have done in this downturn, let me tell you. The second thing is on the M&A front, just following up on what Jason is asking. Are there more specialized carriers?
Unknown Executive: The second thing is on the eminators finally. A politician, Jason, was asking, are there more specialized carriers? Will that be the focus when we're looking when we finally do it in more specialized areas? Yeah, yeah, I'd say specialized something. Yeah, it's a, yeah. Substance hard, something that is a great niche, something that everybody's brother, something that's difficult, something that's all that. Yeah.
Unknown Executive: Is that will be the focus when we're looking when we finally do it in more specialized areas? Yeah, yeah, I'd say specialize in something. I mean, it's, yeah, something's hard, something that is a great niche, something that everybody's brother, something that's difficult, something that's all that.
Are there more specialized carriers? Is that, will that be the focus?
When we're looking when we finally do it in more specialized areas. Yeah. Yeah, I'd say specialize something I mean, it's yeah
Something's hard, something that is a great niche, something that everybody's brother, something that's difficult, something that, all that, yes.
Unknown Executive: Excellent. All right, we'll look, you guys, it's amazing to see what you've done. It's a covenant. So keep on going, and one day we'll be really rewarded. We will. I believe that. Thank you, man. As a reminder, if you'd like to ask a question, you may signal by pressing *1 at this time. And we'll pause for just a moment to allow everyone an opportunity to signal. And it appears there are no further questions at this time.
Unknown Executive: Yeah. All right, well, look, you know, you guys, it's... Amazing to see what you've done. Covenant. So keep on going, and one day we'll be really rewarded. We will, I believe that.
Excellent.
Well look, you guys, it's amazing to see what you've done.
So keep on going and one day we'll be really rewarded. We will. I believe that. Thank you, Mark. Thank you, Mark.
Michael David Vermut: Thank you, man. Thank you, Mark. Star One, a moment to allow everyone an opportunity to signal, and it appears there are no further, Thank you, Jim. I just want to thank everybody for participating in their interest in Covenant logistics this quarter, and we just look forward to next quarter's conference call. Thank you.
And as a reminder, if you'd like to ask a question, you may signal by pressing star 1 at this time.
And we'll pause for just a moment to allow everyone an opportunity to signal.
Trip Grant: Mr. Grant, I'll turn the conference back to you. Yeah, thank you, Jen. I just want to thank everybody for participating in their interest in Covenant Logistics this quarter, and we just look forward to the next quarter's conference call.
And it appears there are no further questions at this time. Mr. Grant, I'll turn the conference back to you.
Yeah, thank you, Jen. I just want to thank everybody for participating in their interest in Covenant logistics this quarter, and we just look forward to next quarter's conference call. Thank you.
Unknown Executive: Thank you.
Unknown Executive: This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.
And this concludes today's conference call. Thank you for attending.