Q4 2024 Covenant Logistics Group Inc Earnings Call
Yeah.
Welcome to today's Covenant Logistics group fourth quarter earnings release, and Investor Conference call. Our hosts for todays call is trip grant at.
Speaker Change: At this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session.
I'd now like to turn the call over to your host Mr. Grant you may begin.
Good morning, everyone and welcome to the Cabinet Logistics group fourth quarter 2024 conference call. As a reminder, this call will contain forward looking statements under the private Securities Litigation Reform Act.
Speaker Change: You are subject to risks and uncertainties that could cause actual results to differ materially. Please.
Speaker Change: Please review, our SEC filings and most recent risk factors, we undertake no obligation to publicly update or revise any forward looking statements are.
Speaker Change: Our prepared comments and additional financial information are available on our website at www Dot cabinet logistics dot com slash investors.
Speaker Change: Joining me on the call today are CEO, David Parker, President, Paul Bun and C O O Destin Kale.
Speaker Change: Before addressing the quarter's results I would like to take a moment to comment on the year as a whole.
Speaker Change: For the second consecutive year, our business model demonstrated durability and a weak general freight environment, which would not have been possible without the commitment of our talented team executing on a common strategic go in.
Speaker Change: In 2025, we will continue to focus on factors within our control that make covenant, a more profitable and consistent company over the long term.
Speaker Change: We made great strides in 2024, and we will continue to work on improving our model and financial results in the year ahead.
Speaker Change: Focusing now on the quarter, the positives and negatives for the quarter roughly offset to deliver consolidated operating results consistent with our expectations.
Speaker Change: On a segment basis and general dedicated performed below expectations and expedited was on target, while managed freight and warehousing exceeded our profitability expectations.
Year over year highlights for the quarter include consolidated Fright revenue grew by four 6% as a result of the execution of new multiyear customer agreements within our dedicated segment.
Speaker Change: Consolidated adjusted operating income grew four 7% primarily as a result of margin improvements in our asset light segments, which includes managed freight and warehousing.
Speaker Change: Our net indebtedness as of December 31st declined by $28 $7 million to $219 $6 million, yielding an adjusted leverage ratio of approximately 1.5 times and debt to capital ratio of 33, 4%.
Speaker Change: The average age of our tractors at December 31st slightly increased to 20 months compared to 19 months a year ago.
Speaker Change: On an adjusted basis return on average invested capital was eight 1% versus eight 9% in the prior year.
Speaker Change: The decline is primarily attributable to the increase in the average invested capital base associated with acquisitions and growth Capex and reducing the average age of our fleet.
Now, providing a little more color on the performance of the individual business segments.
Speaker Change: Expedited finished the quarter strong and yielded a 92 adjusted operating ratio the impact of network disruptions early in the quarter from Hurricane Helane were largely offset by higher freight rates and volumes within our specialized government services flight a T.
Speaker Change: Compared to the prior year expedited as average fleet size shrunk by 40 units or four 4%.
Speaker Change: 875 average tractors in the period.
We expect the size of this fleet to flex up and down modestly based on various market factors. While we are pleased with the durability of our operating margin in the segment over the past two years as general market conditions improve in 2025, our focus will be on improving margins through rate increases exiting.
Speaker Change: It's a profitable business and adding more profitable business.
Speaker Change: Dedicated experienced average fleet growth in the fourth quarter of 198 units for approximately 16, 2% and group freight revenue by $14 8 million or 22, 4% compared with the 2023 quarter.
Speaker Change: An accomplishment that aligns with our strategic plan of allocating capital to operations with high service requirements.
Speaker Change: Results and more consistent above market returns over the long term.
While we were pleased with the growth in this segment profitability for the quarter fell short of our expectations in the quarter, we experienced both year over year and sequential margin erosion as a result of prolonged customer shut downs and volume reductions due to internal operating issues.
Speaker Change: Hurricane Helane in the southeast and the impact of midweek holidays.
Speaker Change: Costs were also headwinds for the quarter with higher than normal driver wages and salaries claims expense in operations and maintenance expense.
Speaker Change: Going forward, we remain focused on our strategy of growing our dedicated fleet specifically in areas that provide value added services for customers.
Speaker Change: We believe that if we are successful in providing best in class service and controlling our costs.
Speaker Change: Growth and improve profitability will result.
Speaker Change: Managed freight exceeded profitability expectations for the quarter by capitalizing on overflow freight from our asset base segments as well as seizing on peak opportunities is available.
Speaker Change: We believe the margin achieved in the fourth quarter, it's not likely to carry into 2025 going forward, we seek to grow manage freight with profitable revenue from new customers.
Speaker Change: Worked closely with our asset base segment to capitalize on overflow opportunities when available and optimized cost to yield longer term margin goals in the mid single digits, which will generate an acceptable return on capital given the asset light nature of this business.
Speaker Change: Warehousing improved its adjusted operating profit compared to the prior year by 56% reporting an adjusted operating ratio of 97.
Speaker Change: We're pleased with the improvement in profitability within this segment, which struggled to produce adequate returns over the prior two years when the business was rapidly growing and labor inflation outpaced our ability to obtain rate increases from customers in the future. We plan to continue to grow revenue and operating income in this segment throughout.
Speaker Change: Robust organic growth pipeline and cost management.
Speaker Change: Longer term profitability goals are in the high single digits.
Speaker Change: Our minority investment in Tel contributed pretax net income of $3 million for the quarter compared to $4 $7 million in the prior year period.
Speaker Change: The decrease was largely due to the cost of operating a larger fleet of newer more costly equipment bad debt expense for the small number of customers and higher interest expense associated with more debt at a higher weighted average rate.
Speaker Change: Revenue in the quarter increased by 13% and pre tax net income decreased by approximately 36% versus the fourth quarter of 2023.
Speaker Change: <unk> increased its truck fleet in the quarter versus a year ago by 342 trucks to 2000 and 473, an increase its trailer fleet by 1042 trailers to 7852.
Speaker Change: Regarding our outlook for the future we.
Speaker Change: We expect consolidated earnings to improve for 2025, compared with 2024 based on the following assumptions.
Speaker Change: The fundamentals of the general freight industry have improved to a level that is now, allowing us to negotiate pricing from a better posture in the last two years, assuming the trend continues we expect to achieve improved pricing year over year under certain expedited non specialized dedicated and manage.
Speaker Change: Contracts.
Speaker Change: The level of increase is expected to build throughout the year as contracts for new specialized dedicated business is expected to yield new contracts and revenue growth as we are evaluating several expansion opportunities.
Speaker Change: However, startup costs associated with new contracts and a lackluster poultry production forecast for 2025.
Speaker Change: May weigh on margins in this segment there in the near term.
Speaker Change: We will continue to make incremental progress on safety and claims management.
Speaker Change: There are no major fluctuations in the market for new and used equipment.
Speaker Change: Based on these assumptions, we believe 2025 will be a year of recovery for the industry and cabinet. Our goal is to steadily improve our customer and freight mix and our margins, while continuing to review growth opportunities in niche businesses are.
Speaker Change: Our primary objective remains to improve long term returns to our investors by filling network needs developing our team and aligning with customers, who truly need value added services. Additionally, with modest leverage and significant liquidity, we have the full range of capital allocation alternatives available to.
The us.
Speaker Change: Thank you for your time, and we will now open the call for any questions.
Speaker Change: You would like to ask a question. Please press star one on your telephone keypad now you'll be placed into the queue in the order received.
Speaker Change: Please be prepared to ask you a question when prompted.
Speaker Change: Once again, if you have a question. Please press star one on your phone now.
Speaker Change: And our first question will come from Daniel <unk> with Stephens.
Daniel: Yeah, Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: Hey, Daniel.
Speaker Change: They've been tripped me I want to start on a little bit of a higher level you know another quarter here of sequential rate per mile increases it feels like we're seeing some positive indicators in the cycle I guess can you talk about how it really bid seasons going how you feel about rate momentum through the year trip. You. Just mentioned do you expect it to improve and then on the <unk> weather comment can you help us size up how you were thinking about either a rep.
Speaker Change: <unk> profit impact and how does that compare to last January when we also saw some winter weather.
Speaker Change: Yeah I'll.
Speaker Change: I'll take it a day I'll tell you I would.
Speaker Change: I'd say that.
Speaker Change: Yeah. The weather the first two weeks in particular, south but from Houston to Florida as we all know in Atlanta in parent debt. We've got five inches of snow or bear allows us for two or three days, but it's been tough the last two weeks.
Speaker Change: If you can separate for what the weather is done so far in January which I do in my mind, because it is and if it does affect a.
Wednesday Christmas Wednesday, new year's effects.
Speaker Change: And then and then the weather.
Speaker Change: That from that but I would tell you that.
Speaker Change: This is the best that I have felt in two and a half years and what I am something is happening in the market that way.
Speaker Change: <unk> all been waiting on for a long time nothing is happening.
Speaker Change: And I would tell you what I know what I'm, telling all of our teammates within our company for the last month or two couple of months and that is I really believe that.
Speaker Change: Come March that we're gonna say, you know price is pretty good.
Speaker Change: And by June July somewhere in the mid summer, we're gonna say Theres a lot of freight that I really believe that that's where it's at.
Speaker Change: And if I separate the weather out of my mind, and just look at what is happening from a freight environment and our customer environment.
Speaker Change: And both bid activity.
Speaker Change: And what what the accomplishment that we are so far having all right.
Speaker Change: I'm very pleased very happy ecstatic whatever word you want to use.
Speaker Change: From that standpoint, I really think that the that 2025, it's going to be a.
Speaker Change: A very good year for transportation.
Speaker Change: We have we have taken so far you know our goal was back three months ago is that we wanted to go to the market and we believe we could but we weren't sure we could but we were going to go anyway and have talks with our customers.
Speaker Change: You know in September and October for our January effect.
Speaker Change: And.
Speaker Change: Our goal was to get somewhere between two and 3% rate increases added a customer and again. This is in October when we were just saying maybe we can maybe we can but we're going to go try and price not bad breaks okay. It's not what about October, but I think that I think that we can try.
Speaker Change: And so we have and I'm very pleased with what's happening.
Speaker Change: Probably around two 5%.
Speaker Change: Right increase one power, 35% of the business benefits of 55% of the beds. It's about two 5% because our goal is there and of which we told all of our customers that had been gracious enough to give us the increase this in January.
Speaker Change: Now here's what our go in our goal was to get two to three per se yet in the month of January and then expect us in June to come back.
Speaker Change: And I believe that Theres no doubt if the market goes into depression, you're not going to be able to go back in June, but I don't think thats going to happen because of what I'm seeing in the month of January so that and then as I look at bad I'm going to tell you I look into that just in the last couple of days getting.
Caught up on exactly where all the bids.
Speaker Change: We have one more bad numbers this year or in the first three weeks this year than we wanted to six months last year I'm very pleased with that and then it I would tell you that 70% of it.
Speaker Change: As with brand new customers.
Speaker Change: Stuff that's happening at all at all I know some things happening that were that were being successful and the bids are at higher rate than what I was calling.
Speaker Change: You know three weeks ago, two months ago exploding thing so Daniel I hope that I answered your questions, but I'm I'm very pleased with what's happening.
Speaker Change: No that was helpful. And then maybe if I could focus a little bit of a dedicated business. That's been stable maybe theres some customers shut down those field temporary that's continuing into the first quarter. I guess can you shed any way is there any more competition happening there that just kind of transitory, but some of these outside issue then and how should we think about that playing through the year or is there a catch up once these.
Speaker Change: Transitory as you have passed is that revenue just lost but how did that look through the year.
Speaker Change: Yeah, Great Great question I would tell you and you know what I'm, saying here is exactly what we're talking internally to give you a pla.
Speaker Change: <unk>.
Speaker Change: Yeah dedicated.
Speaker Change: In my opinion dedicated the market, it's where it's at it from a standpoint that the customers that wanted their used around 50 trucks in the last two years and now they're running 30 trucks in the last two years I don't have the frame you don't want to get rid of my dedicated that I can't run 20 trucks that need around.
Speaker Change: To obtain a can't run 30 I need that has happened that has happened in the last two years to me that's already built in to where we are at as well as the other dedicated providers I believe that's where the market is that is that we are flat line. It has flat lined where it's at.
Speaker Change: And the customers that are in dedicated today are customers that want to be in dedicated today.
Speaker Change: And the ones that wanted to get out because of the one way market they've already done all of that and.
Speaker Change: The ones that wanted to write that right size their fleet they've already done all of that and so I think that we're going into this year flat land now.
Speaker Change: Now that they are.
Speaker Change: As I continue to learn as we know in year and a half have been in the poultry business.
Speaker Change: I am not good and we all know that but we don't know what that means then it hurt and it and it will continue to her for about another 60 days I would tell you tidbits that I have learned is that when.
Speaker Change: When a I had in particular and as we all know it can be any region.
Speaker Change: Any farm any state, it's not like it and lowered help that you know that's the the goal is that it does that never spray, it's all over the country.
Speaker Change: And so far it has not and it's been stationery.
And just a couple of regions.
Speaker Change: The country is what we have seen so far or what we hear anyway now we're not in all states with our poultry so that may not be a true statement, but for us it's been.
Speaker Change: A couple of farms here in a couple of farms there.
Speaker Change: And it takes the farms because it doesn't it hits certain farm they don't.
Speaker Change: Let's just say that's in the city of Modesto or the city of Fayetteville, Arkansas, It's not that.
Speaker Change: The host city is core and pain.
Speaker Change: Farms within those cities, though it might be two farms that get hurt and the other firms are doing well and so what transpires. There at that time is that the states go into determining of chickens go the chickens bad and they destroy the chickens.
Speaker Change: And that takes two to three weeks for that to process and then the new chicken derive at the farms and depending upon the chicken itself, whether it's chickens are turkeys and can take eight weeks for a new growth chickens or I can take 20 weeks for our growth the turkeys.
Speaker Change: To give you an idea so it's two or three weeks then it's eight weeks turkeys two or three weeks and 20 weeks before you get back and to production now that say Ed.
Speaker Change: What I understand is that when that happens.
Speaker Change: Say 10, or 11 weeks down the road and were on the turkeys Your 23 weeks down the road.
Speaker Change: What ends up happening is that there's a tremendous amount of six day, a week work because they've got to catch up on their suppliers to their customers because now theyre sitting there trying to make sure. They don't lose their account just like we do you don't own events that happened within the trucking as you go to protect your customers where they are protected.
Their customers and they've got to supply them.
Speaker Change: With the poetry as soon as they possibly can and so that's what we have heard and that's what we have seen it does it's not like when tier three farms go down that affects all.
Speaker Change: Oh 600 trucks run in powertrain.
Speaker Change: No.
Speaker Change: Maybe one third of them. So we got a couple of hundred trucks that started in November or December so far now that.
Speaker Change: We've had to be working way up and that's what you're seeing in the numbers there and I think it's probably about.
Speaker Change: Our March event, I think we still got another four or five weeks and then things will be back to normal, hoping and praying that stays.
Speaker Change: Stays normal so I think I personally think on what I understand is that it's really through all of the tough the tough time is over with and then deciding what they do with the chickens they'll go way up and the chickens being disposed Rob is over with and.
Speaker Change: Now is the growing the chickens to get back. So that's why it's happened to us and it's something that I think come March well heal itself and that that part of our business will be extremely good because I expect it to go to six day work weeks instead of five day work weeks.
Speaker Change: Oh really helpful color I appreciate that thanks, David.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our next question will come from Jason Seidl with TD Cowen.
Jason Seidl: Thank you operator, good morning, guys I'm sticking.
Speaker Change: Sticking on bird flu for a second.
Jason Seidl: Last time this year.
Speaker Change: How did how did the recovery look for new Thompson.
Speaker Change: Jason One thing I would say is as Bert Blue hits every year.
Speaker Change: So we had some of this time last year.
Speaker Change: We didn't own the business the year before that but we've talked to them and and so I would say there is some element of it every year.
Speaker Change: The in call it the flu season.
Speaker Change: The winter weather months and kind of what David just said some years or are worse than others last year wasn't too bad of a year, but we had some this year, we've had a little more and so I think the first thing as David pointed out is that its seasonal it's generally not a full year thing and then.
Speaker Change: The other piece I would point out is.
Speaker Change: There are it's short term in nature and then there is some amount of catch up that generally happens after that.
Speaker Change:
Speaker Change: Just dependent on kind of supply and demand.
Speaker Change: With the various in the various industry vertical.
Speaker Change: Does that help any yeah that does I appreciate that Paul.
Speaker Change: Trip I wanted to go back to something I think you said you you mentioned your expectations for I think the.
Speaker Change: The used equipment market to remain flat is that is that what youre, saying in the marketplace right now or did I mishear, you know I think we've seen some stabilization in the used equipment market I think that you know actually from what we've seen in Q4, the volumes were down a little bit in terms of sales, but we're starting to move equipment.
Speaker Change: There is interest in dry vans, there's interest in used tractors and.
Speaker Change: You know, we're looking at it before earlier in the year.
You know, we just weren't getting the volumes of equipment moved in and we were having to take some losses on it. So I think that there is some stabilization. If you will in the used equipment market was at a really good sign because especially in Q4. It was it was a bit of a headwind we've got a lot of cost not just on the fixed side, but also on the variable side of of equipment that that.
Speaker Change: Hit us.
Speaker Change: And you know it was like one of those things, where we had a Q4 that was just kind of.
Speaker Change: I always say this and I joke, but it's true when you have low volumes low revenue numbers and high cost. It's just not the recipe for a good operating ratio and really good solid earnings, but you know we think.
Speaker Change: That'll continue to improve with a market, we're seeing signs that.
Speaker Change: We will come off that stabilization in the used equipment market will start to improve starting in the first quarter, maybe with some spring weather so.
Speaker Change: You know, but no.
Speaker Change: That's right that's right and the stuff that were pulling out on the maintenance side is going to be in really good shape.
Speaker Change: Got behind with Covid for quite a bit.
Speaker Change: Some of the stuff, we were selling last year and even the previous year was pretty beat up stuff. So we've got some quality stuff coming out.
Speaker Change: We expect to maintain our fleet and.
Speaker Change: We're looking forward to.
Speaker Change: What we're seeing in 2025.
Speaker Change: That's really great color there tripling, let me switch over to a dedicated but.
Speaker Change: When youre looking at sort of the regular dedicated marketplace, you know hows the level of competition out there and what are sort of customer accounts existing fleets look like are they or are they maintaining them or they are they are trying to grow them. This year with some enthusiasm are they shrinking.
Speaker Change: You know Joseph Paul what I would say is I'll go back to what David said.
Speaker Change: I don't think I don't think you really see a lot of people shrinking I think most of that happened in the last two years.
Speaker Change: I also think there is a lot of competition out there and a lot of folks are.
Speaker Change: Have been and continue to really lean on incumbency, and so getting new badges, especially in what I call. The more commoditized type dedicated where its at a 53 foot dry van type stuff and you know heavy heavy trailer to truck ratios are still pretty competitive out there I.
Speaker Change: I'd tell you we continue to focus on.
Speaker Change: Maybe the more specialized dedicated so specialized driver specialized truck.
Speaker Change: Specialized driver and and so we continue to lean on that a little harder and there's that.
Speaker Change: The fruit is higher up on the tree is harder to pick but there's some of it out there and we will keep going down that path because I think that's better margin businesses stickier for the long term.
Speaker Change: No that makes sense I want to flip back to the weather a little bit I mean, it feels like this weather is a lot worse than last year, even though last year. We had some I mean youre getting storms are in areas that you just haven't had them before and I think he Pacific commented that their CFO said for the first time I have to talk about snow removal cost for new <unk>.
Speaker Change: Orleans.
Speaker Change: How should we think about this from a dollar amount into <unk>, Oh, knowing full well that there could be more after this right just sort of what you're seeing as I was about to say Jason. We're just here at the end of January and you know a lot of times February can have some severe weather well, but what I would say is first I mean.
Speaker Change: Safety Department has done a fantastic job in helping to navigate us through these weather challenges.
Speaker Change: More so than any time in the last 15 to 20 years. This has been kind of a headwind for us.
Speaker Change: In terms of the the volume of in quantity of roads that have been shut down and things that we're shutting down even before the roads are shut down just for a pure safety purposes. So they've done a fantastic job there.
Speaker Change: It's difficult to say and here's what I would say also that kind of.
Speaker Change: Maybe I'm just reminding myself to help us feel better but this is not just a covenant problem. This is an industry problem because for sure it's widespread weather.
Speaker Change: So I mean, it's not gonna help let me put it that way, it's going to hurt whether it hurts two pennies or three pennies from an earnings perspective.
Speaker Change: It's hard to say, but.
Speaker Change: You know all of US I don't want it to overshadow as part of the business, we're doing a good job managing it.
Speaker Change: And you know focusing on the things that we can control by you know operating.
Speaker Change: Operating safely.
Speaker Change: But other than that like David was saying we've got so much good momentum I don't want is a temporary west.
Speaker Change: Overshadow some of the really good things, we've got going in 'twenty, Jason that David and I were talking yesterday and maybe this maybe this will help you the trips point, what weather's incrementally worse this year versus last year, but if you look at this like the weather forecast.
Speaker Change: When we say a lot of Sunny skies ahead, because we're not dealing with the weather things feel pretty good right now so you've got it you can on what you kind of look at the forecast in the picture and said all right.
Speaker Change: Maybe I'm wrong, maybe it's cloudy, you'll be partly sunny tomorrow, but theres some theres some good beach, where they're coming from the truckers.
Speaker Change: Oh I got my fingers crossed for you guys and last but.
Speaker Change: Not least you know obviously a great job on the warehousing side of things how much can you tell us is from customers just getting worried about tariffs and maybe trying to put some things in the warehouse ahead of time.
Speaker Change: Is there any of that or is it just.
Speaker Change: Real sort of not real but like you know a different type of growth.
Speaker Change: I would say, Jason we're not we don't do a lot we.
Speaker Change: We don't do our warehouses really arent heavily affected by port volumes and so I.
Speaker Change: There are some folks that are probably since out where their warehousing business of ours is just a function of a lot of production from our customers' domestic production and.
Speaker Change: A lot of volume and I think what I would say is you can go back and look at third quarter. Two you are starting to kind of see warehouse settle into a spot where we hope it can run.
Speaker Change: As <unk> said in his prepared remarks that <unk>.
Speaker Change: Hopefully warehouses kind of in a different run rate than it was 12 or 18 months ago, Yeah, just adding onto that and I always want to frame. This up in the context of the larger picture you go back to 2021, our warehouse Division was.
Speaker Change: About $60 million of top line revenue. So we've grown at 70% over the course of a couple of years when labor inflation was.
Speaker Change: Going up every month and growing.
Speaker Change: Growing it with new badges, new businesses trying to optimize it and make it a fishing is one thing, but growing it in an environment with rapid inflation and trying to adjust our customer contracts for rate increases my point is between 'twenty, one and 'twenty three there was a lot of noise going on in terms of growth in <unk>.
Speaker Change: <unk> that.
Speaker Change: We finally got to kind of straighten out through 2024, and so what you've seen is some pretty consistent margins Q4 was probably the best margin.
Speaker Change: For the warehousing division in the year, but they've all been high single digits and we've been really really proud about that group and they've also got a really good organic pipeline for 2025, two to continue growing it in so doing this organically and spinning off the cash that they have done has been fabulous and they've done a great job.
Speaker Change: That sounds good gentlemen, I appreciate the time as always.
Speaker Change: Thanks, Jason.
Speaker Change: As a reminder, if you'd like to ask a question you can signal by pressing star one at this time.
Speaker Change: And our next question will come from Scott Group with Wolfe Research.
Speaker Change: Hey, Thanks, good morning, guys.
So I just want to make sure I'm getting the message right start the call talking about weather in poultry and startup costs and then <unk>.
Speaker Change: David starts talking I know he is ecstatic and something's happening and so I guess ultimately.
Speaker Change: What's the right way to think about the model here I don't know if theres a maybe the answer is there is a difference in how we should think about Q1 in the year, but I don't know what's the how should we think about margins earnings near term for the year and any way to help us sort of think about that.
Speaker Change: So Scott I'll start and then I'll flip it to David I think what Youre hearing US say is that we believe we're going to grow earnings 25 over 24, because we think the fundamentals are setting up for for some acceleration within the within the truckload industry I do think to your point there could be some near term.
Speaker Change: Headwinds because of weather adjusted.
Speaker Change: Just if you think about the cadence of earnings Q2, and Q3 are always going to be our best quarter.
Speaker Change: Q4 will be the next best and just like every transportation company Q1 is probably going to be the worst and so I think what you're hearing us say is.
Speaker Change: Little bit of short term headwinds, but a lot of long term opportunity.
Speaker Change: Okay.
Speaker Change: And then David your comments about Hey March can feel it in by June we're going to really really feel it.
What's the visibility what's the actual visibility to that is that a feel or is there something based on customer discussions that we can really.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: I would tell you the last two years.
Speaker Change: Yeah.
Speaker Change: Thank you all of the analysts and not me.
Speaker Change: Every CEO there as it's all been feel and wondering when it's going to get better and we're all we're hoping but now we're starting to sense that we're starting to see a sense of the field, but we are starting to see it as I said about some of the bid awards that we have just won in the last two to three weeks and we had done that in two years.
Speaker Change: On that type of volume.
Speaker Change: More concrete freight that is coming to us and so that tells me that if that is happening in January.
Speaker Change: Which as we all know January February is less worse, two months of the et cetera et cetera.
Speaker Change: Get better when mommy less unless somehow that's a centre of depression, I don't say that the opposite I think.
Speaker Change: The economy will get better going forward.
Speaker Change: I definitely take why don't see them as we speak and then I believe what I think that the economy is going to do I believe that capacity had layoff capacity will continue to leave it's been slower as any of US wanted it to leap, but it will continue to lead.
Speaker Change: And so capacity will be left out there and theres going to be more freight and is going to help us the whole industry. So.
Speaker Change: That's what I'm attempting to say Scott.
Speaker Change: Okay that makes sense and maybe just lastly.
Speaker Change: You guys have found a couple of.
Speaker Change: Really nice niche acquisitions last few years that have.
Speaker Change: Help.
Speaker Change: Keep up the earnings in this downturn.
Speaker Change: Are we any closer to finding another smaller but nicely profitable deal.
Speaker Change: I'd say we are.
Speaker Change: We're going to operate under the same playbook that we've operated under for the last few years.
Speaker Change: Which includes a number of things dividends share repurchases and acquisitions and.
Speaker Change: You know I think we said this before we've all where we're always looking but we're always going to be disciplined in what we look for in.
Speaker Change: What we sign up for and there's a lot of boxes that need to be checked in.
Speaker Change: So we're on the lookout, but.
Speaker Change: I can't really comment or say that we got one ready to go or not but it is part of the playbook.
Speaker Change: Sounds good thank you guys.
Speaker Change: Thanks Scott.
And we'll move next to Jeff Kauffman with vertical research partners.
Jeff Kauffman: Thank you very much good morning, guys and congratulations lot of challenges this quarter.
Speaker Change: Sure.
Speaker Change: David I wanted to follow up on the comments, you're making about the.
Speaker Change: We will change and kind of what the feel is versus what you're actually seeing.
Speaker Change: Do you believe that.
Speaker Change: Boyd.
Speaker Change: And this decisions in the business confidence, it's changing out there do you believe it's more the market for capacity that's changing out there.
Speaker Change: Great Great question, Jeff I think it's both of those I think that the environment is getting better I think optimism is getting better.
Speaker Change: Think that when people are optimistic they start buying stuff, even more I think that that is in the process of happening or starting to happen or whatever word you want to use there, but I think it's it is definitely part of it optimism I think that.
Speaker Change: Paper are banking on that.
Speaker Change: What happens with the taxes whether.
Speaker Change: Whether it's personal or corporate is going to generate more activity in the United States I was thrilled to say, while the automotive of Jeep is doing it now I think thats the beginning.
Speaker Change: We're getting ready to see from a economic environment, which produces fright for us. So I did I think optimism as one part, but I think the other side of that is capacity I can tell you that.
Some of these bad debt, we have done without these base in the last two or three years.
Speaker Change: Like we just did it we've done in two or three years I didn't win any of the business and we won business that said I'm happy with for the last three weeks, we're renting business at higher rates than they were last year or the year before when I didn't win anything on the beds and so winning on the bed. So that's telling me something.
About capacity.
Speaker Change: No.
Speaker Change: And again I believe if we can get even in January I really believe we could get.
Seven consecutive days or not whether that.
Speaker Change: We would say will be staying on in January that.
Speaker Change: Underneath that price is in a pretty good place.
Speaker Change: So that said that may not happen until margin evident by the thing I said, well what I would tell our teammates I really believe March because we may have two or more snow storms in the south and I agree with the railroad got extra whoever was in New Orleans that.
Speaker Change: When it hits the south it hits Chicago, It hits, Indiana. Its a 10 hour lay up usually they usually get the roads that go on and you know we're down for 10 or 12 hours that were back when it happens in the style, it's two or three days.
Speaker Change: I only know if they started school is back here yet.
Speaker Change: Those kind of things that so that's what happens.
Speaker Change: In the south that hurts, everybody, but I think underneath Dale <unk>. Good for the month of January and I think it's going to keep getting better because of optimism.
Speaker Change: People are going to start spending and companies are going to start reinvesting and I think people are going to go.
Speaker Change: I'll shut up.
Speaker Change: Got you know what I'm, saying.
Speaker Change: On your own or all of this is awesome.
Speaker Change: Question for Chris if I can.
Speaker Change: What are you seeing going on with cost inflation in the business. What what areas are you seeing cost inflation moderating and what areas are you seeing cost inflation still be stubborn right now.
Speaker Change: Yeah, I think we're seeing some moderation in.
Speaker Change: Ops and maintenance costs that thing.
Speaker Change: But I would say, it's hard to define moderation because what we've seen in 'twenty two 'twenty three we're just unprecedented and.
Speaker Change: Considering the capital spend the refreshment in the fleet.
Speaker Change: There's no doubt about it our equipment cost.
Speaker Change: Selling used equipment at fire sale prices and we've taken some shots.
Speaker Change: And profitability in 2024 with equipment.
Speaker Change: And I feel like we're just now starting to get our legs underneath us on the maintenance side of things around the variable side of things by running a younger fleet if you will.
Speaker Change: Yeah. The other thing that really kind of shocked us I would say in 2024, where just the cost of insurance throughout the year and are certainly a headwind in Q4.
Speaker Change: But I am feeling better about where were at in 2025.
Speaker Change: So all that to say Theres, a couple of Wildcards that I'm looking at in 2025, one being fuel.
Speaker Change: That's something that's a little bit of outside of our control, but theres a little bit of volatility there.
Speaker Change: And then the other thing is just driver pay I think that you know.
If you go for a longer period of time, and we see a turn in the market and the market begins to strengthen that you could see some increases to driver pay but I also think that.
Speaker Change: We've absorbed and maybe even be able to see some cost improvement in certain areas.
Speaker Change: In 2025 to help offset some of those increases so I'd be hesitant to say that we're gonna be cost neutral I think we'll see a little bit of inflation next year, but I think that you know.
Speaker Change: Well, if we can get some of these rates in the throughout the year not just the rates that we've gotten but continue to get rate increases I think we can.
Speaker Change: Sure a lot of operational leverage in the business.
Speaker Change: But just the rates dropping down to the bottom line alone.
Speaker Change: Alright. Thank you gentlemen, thank you very much and congratulations.
Jeff Kauffman: Alright, Thank you Jeff.
Speaker Change: Our next question will come from Michael <unk> with Newland capital.
Speaker Change: Hey, gentlemen, how are you doing great.
Just finished here.
Speaker Change: Yes, Thank you quest.
Speaker Change: Question for you, so where it seems like we're entering you know what would you guys look at it as a much better environment right you can't get much worse than it's been.
Speaker Change: Uh huh.
Speaker Change: We're kind of the balance sheet and no one's really touched on the balance sheet here, but that's getting into a pretty good shape.
Speaker Change:
Speaker Change: And you know I like to talk about that as to what the targets are for.
From a leverage standpoint, and then we look at where trading here at 11 to 12 times earnings everybody else's closer to 30. There is a huge disconnect has performed so much better through this downturn.
Speaker Change: Is there a point, where we say all right. We've got the balance sheet. We're in great shape, the future looks as bright as it's been for the past three or four years, it's time to maybe go.
Speaker Change: Start a buyback here.
Speaker Change: How are you guys thinking about that versus the opportunities out there.
Speaker Change: Yes, it's the largest spread we've had versus the group.
Speaker Change: Yeah, without a doubt Mike and here's.
Speaker Change: Here's what I would say.
Speaker Change: Over the longer term I do.
Speaker Change: I believe that we're moving the needle in building the model in and I think time will continue to kind of bridge that gap, but here. We are to your point, we're still at a very very significant discount for perhaps a number of reasons, but just focusing on the things within our control that we're thinking about us.
Speaker Change: We are completely comfortable with where we are from a from a leverage standpoint today, one and a half times or approximately one five times EBITDA leverage we don't have a stated target out there, but we're completely comfortable between one and two times levered.
Speaker Change: But we're gonna be opportunistic if we saw the benefits of some of the acquisitions that we've had in the past and.
Speaker Change: Which may mean that it flexes down to one if we can't find the right thing or you know it may be that we get up to or slightly above two if we find.
Speaker Change: You know the thing that we think is going to be a perfect fit for us and is strongly built for growth and margin and.
Speaker Change: You know like I said earlier I think.
Speaker Change: You can't talk about capital allocation or.
Speaker Change: You know M&A activities without also thinking about share repurchases and we've done it.
Speaker Change: We've done it before pretty successfully I was just looking at you know what we've done in the past and you know in 'twenty, two and 'twenty three we bought.
Speaker Change: I'd say close to you know.
Speaker Change: Gosh, what were the $110 million of stock repurchases.
Speaker Change: You know this is post split it like a $13 average so you know that.
Speaker Change: I think that there's opportunities there to do that as well.
Speaker Change: So we're going to continue to use our playbook the way we've used it in the past and I think that there's a ton of them continued.
Speaker Change: Continued ops upside in the stock as we move forward.
Speaker Change: One thing I would say talks about the playbook, we talked about that all the time.
Speaker Change: We're going to I think we're gonna be operate from a position of offense not defense.
Speaker Change: Be it whatever of those capital allocation alternatives makes the most sense for the long term value creation for for covenant shareholders and so I think just just here, it's not just sitting back passively.
Speaker Change: It comes our way from our playbook.
Speaker Change: We're kind of actively on the offense, we're looking at those and no nothing nothing to announce but we're going to keep.
Speaker Change: Keep pushing to figure out what's the what creates the most value long term.
Speaker Change: Excellent Yeah, I know it just seems that with with how we performed through this downturn and then the outlook we've got it's probably Oh.
Speaker Change: A decent idea here, but yeah.
Speaker Change: Maybe theres better acquisitions out there as well so that's all good choices congrats.
Speaker Change: Congrats guys.
Mike: Thanks, Mike.
Speaker Change: Once again, if you'd like to ask a question. Please signal by pressing star one at this time.
Mike: We'll pause for just a moment.
Mike: And it appears there are no further questions at this time I'd like to turn the conference back to our moderator for any additional or closing remarks.
Speaker Change: Yeah. Thank you everyone for joining us today and your interest in Covenant and we look forward to speaking with you next quarter Ste.
Mike: Stay safe thank you.
And this concludes today's conference call. Thank you for attending.
Mike: The host has ended this call goodbye.