Q2 2026 Covenant Logistics Group Inc Earnings Call

July 30, 2026

Operator: 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. Mr. Grant, you may begin.

Speaker #1: Later, we will conduct a question-and-answer session. I will now elect to turn the call over to your host, Mr. Grant. You may begin.

Speaker #2: Good morning, everyone, and welcome to the COVENANT LOGISTICS GROUP, second quarter 2026 conference call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act.

Tripp Grant: Good morning, everyone, and welcome to the Covenant Logistics Group Q2 2026 conference call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which we 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. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors. Joining me today are CEO David Parker, President Paul Bunn, and COO Dustin Koehl. Before we dive into the quarterly numbers, I want to take a step back and connect a few dots regarding the freight recovery we are now seeing. Ten years ago, Covenant looked very different. We were almost entirely an irregular route carrier without multiple year committed customer contracts.

Speaker #2: Which we are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings and most recent risk factors.

Speaker #2: We undertake no obligation to publicly update or revise any forward-looking statements. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors.

Speaker #2: Joining me today are CEO David Parker, President Paul Bunn, and COO Dustin Kale. Before we dive into the quarterly numbers, I want to take a step back and connect a few dots regarding the freight recovery we are now seeing.

Speaker #2: Ten years ago, COVENANT looked very different. We were almost entirely in irregular route carrier without multiple-year committed customer contracts. That meant our financial results were significantly linked to the ups and downs of the volatile freight cycle.

Tripp Grant: That meant our financial results were significantly linked to the ups and downs of the volatile freight cycle, making it difficult for investors to understand the long-term value proposition of our business. To fix that, we launched a strategy to deeply embed ourselves in our customer supply chains. We began moving away from highly volatile commoditized business, intentionally invested in more specialized value-added businesses such as dedicated and warehousing, which we require multi-year committed relationships. These businesses have performed well and crucially lowered the volatility of our business. We aren't finished, but we are well on our way. Today, we have much less exposure to the extreme swings of the market. We saw the proof of this from 2023 through 2025. When the market bottomed, our margins held up much better than our peer group average and our own historical results. As a result, our stock outperformed.

Speaker #2: This made it difficult for investors to understand the long-term value proposition of our business. To fix that, we launched a strategy to deeply embed ourselves in our customers' supply chains.

Speaker #2: We began moving away from highly volatile commoditized business intentionally invested in more specialized, value-added businesses. Such as dedicated in warehousing. Which we require multi-year committed relationships.

Speaker #2: These businesses have performed well and, crucially, lowered the volatility of our business. We aren't finished, but we are well on our way. Today, we have much less exposure to the extreme swings of the market.

Speaker #2: We saw the proof of this from 2023 through 2025. When the market bottomed, our margins held up much better than our peer group average and our own historical results.

Speaker #2: As a result, our stock outperformed. As we look ahead, we expect this strategy to keep delivering. Over the next few quarters, we are focused on three execution priorities.

Tripp Grant: As we look ahead, we expect this strategy to keep delivering. Over the next few quarters, we are focused on three execution priorities. First, we are transitioning expiring contracts into new long-term commitments. Second, we are moving more of our uncommitted capacity into committed revenue. Third, over time, we expect managed freight gross margin to return to normal levels as contract rates catch up to capacity costs. Given our levels of contractual capacity, our operating margins won't spike as fast or as high as peers who have mostly uncommitted capacity. The flip side is exactly why we built this model. When the market turns down again, our margins should be more stable because we have proven our long-term value to customers. During the last cycle, we proved we could raise the floor on our earnings.

Speaker #2: First, we are transitioning expiring contracts into new, long-term commitments. Second, we are moving more of our uncommitted capacity into committed revenue. And third, over time, we expect managed freight gross margin to return to normal levels as contract rates catch up to capacity costs.

Speaker #2: Given our levels of contractual capacity, our operating margins won't spike as fast or as high as peers who have mostly uncommitted capacity. But the flip side is exactly why we built this model.

Speaker #2: When the market turns down again, our margins should be more stable because we have proven our long-term value to customers. During the last cycle, we proved we could raise the floor on our earnings.

Speaker #2: In this cycle, our goal is to raise the ceiling while establishing an even higher floor. Based on an extended cycle of tight industry driver capacity, and strong execution, we believe we can significantly expand our operating margin.

Tripp Grant: In this cycle, our goal is to raise the ceiling while establishing an even higher floor. Based on an extended cycle of tight industry driver capacity and strong execution, we believe we can significantly expand our operating margin. We expect steady improvements, not a hockey stick. This is where we have been heading for a decade, we are confident in our path forward. With that background, I will move on to the quarter's statistical review. Highlights for the quarter include, while rates and revenue quality improved in the quarter, elevated cost more than offset any improvements to operating margin.

Speaker #2: We expect steady improvements, not a hockey stick. This is where we have been heading for a decade, and we are confident in our path forward.

Speaker #2: With that background, I will move on to the quarter's statistical review. Highlights for the quarter include: While rates and revenue quality improved in the quarter, elevated costs more than offset any improvements to operating margin.

Speaker #2: Consolidated freight revenue increased by 6.6% or approximately 18.2 million dollars to 294.7 million dollars, primarily as a result of the brokerage assets acquired in the fourth quarter of 2025 that are now being operated as store logistics solutions within our managed freight segment.

Tripp Grant: Consolidated freight revenue increased by 6.6% or approximately $18.2 million to $294.7 million, primarily as a result of the brokerage assets acquired in Q4 2025 that are now being operated as Star Logistics Solutions within our Managed Freight segment. Partially offset by approximately 3% less freight revenue from our combined truckload operations as a result of fleet reductions. Consolidated adjusted operating income shrank by 19% to $12.2 million. The largest contributor was lower gross margin and Managed Freight. Dedicated truckload improved its results, and all other declined slightly.

Speaker #2: Partially offset by approximately 3% less freight revenue from our combined truckload operations as a result of fleet reductions. Consolidated adjusted operating income shrank by 19% to 12.2 million dollars.

Speaker #2: The largest contributor was lower gross margin in managed freight. Dedicated truckload improved its results, and all other declined slightly. Adjusted net income declined by 9.8% as a result of the combination of higher pre-tax earnings from our minority investment in tell combined with a favorable tax rate as a result of infrequent discrete items impacting our income tax provision partially overcoming lower operating income.

Tripp Grant: Adjusted net income declined by 9.8% as a result of the combination of higher pre-tax earnings from our minority investment in TEL, combined with a favorable tax rate as a result of infrequent discrete items impacting our income tax provision, partially overcoming lower operating income. Our net indebtedness as of 30 June decreased by approximately $6.6 million to $289.7 million compared to 31 December 2025, yielding an adjusted leverage ratio of approximately 2.2 times and debt to capital ratio of 41.2%. The reduction in net indebtedness in H1 of the year was in line with our expectations. Cash proceeds from operations for the period was impacted by acquisition related earn-out payments, insurance policy renewals, and large claim settlement payments.

Speaker #2: Our net indebtedness as of June 6.6 million dollars to 289.7 million dollars compared to December 31st, 2025. Yielding an adjusted leverage ratio of approximately 2.2 times and debt to capital ratio of 41.2%.

Speaker #2: The reduction in net indebtedness in the first half of the year was in line with our expectations. Cash proceeds from operations for the period was impacted by acquisition-related earn-out payments, insurance policy renewals, and large claim settlement payments.

Speaker #2: For the second half of the year, we anticipate our net capital equipment investment to range between $50 million and $60 million, depending on the timing of deliveries and the prices for used equipment.

Tripp Grant: For H2 of the year, we anticipate our net capital equipment investment to range between $50 million and $60 million, depending on the timing of deliveries and the prices for used equipment. Operational cash flow to improve and net indebtedness to reduce modestly. The average age of our tractors at 30 June was 26 months, up from 22 months compared to a year ago. This growth is in line with our life cycle management plan for our assets-based fleet and consistent with year-over-year reductions to our high mileage Expedited fleet. On an adjusted basis, return on invested capital was 5.2% for the trailing four quarters versus 7% for the same period in the prior year. Now, providing a little more color on the performance of the individual business segment.

Speaker #2: Operational cash flow to improve and net indebtedness to reduce modestly. The average age of our tractors at June 30th was 26 months. Up from 22 months compared to a year ago.

Speaker #2: This growth is in line with our life cycle management plan for our assets based fleet and consistent with year-over-year reductions to our high mileage expedited fleet.

Speaker #2: On an adjusted basis, return on invested capital was 5.2% for the trailing four quarters versus 7% for the same period in the prior year.

Speaker #2: Now, providing a little more color on the performance of the individual business segment, we reported an adjusted operating ratio of 94.6, approximately 70 basis points above the prior year quarter.

Tripp Grant: The Expedited segment reported an adjusted operating ratio of 94.6, approximately 70 basis points above the prior year quarter. The segment's profitability improved sequentially from Q1 by 450 basis points, but still fell short of our expectations for the quarter. Over the past 12 months, this segment has undertaken a considerable amount of transition. While the fleet was reduced 17%, freight revenue per average tractor has improved by 6.8%. Our focus on growing our customer base with high-value cargo through multi-year committed capacity agreements has resulted in improved freight revenue per total mile that has been partially offset with a reduction in miles per average tractor for the period. Elevated insurance-related claims costs also impacted this segment unfavorably in the quarter.

Speaker #2: The segments profitability improved sequentially from the first quarter by 450 basis points, but still fell short of our expectations for the quarter. Over the past 12 months, this segment has undertaken a considerable amount of transition.

Speaker #2: While the fleet was reduced by 17%, freight revenue per average tractor has improved by 6.8%. Our focus on growing our customer base with high-value cargo through multi-year committed capacity agreements has resulted in improved freight revenue per total mile, but this has been partially offset by a reduction in miles per average tractor for the period.

Speaker #2: Elevated insurance-related claims costs also impacted this segment unfavorably in the quarter. As we work to convert this segment to serving more committed capacity freight under multi-year agreements, we are confident that profitability will improve to a level that meets our expectations.

Tripp Grant: As we work to convert this segment to serving more committed capacity freight under multi-year agreements, we are confident that profitability will improve to a level that meets our expectations. Going forward, we have line of sight to steady sequential improvement in this segment's profitability throughout the year. Over time, our goal is to average a double-digit adjusted operating margin across the freight cycle to generate an acceptable return on capital. Dedicated suggested operating ratio of 95 was in line with the prior year quarter. Freight revenue per average tractor for the period improved by 8.6%. Cost headwinds in the quarter, including maintenance and insurance-related claims, offset improved freight revenue in this segment.

Speaker #2: Going forward, we have line of sight to steady sequential improvement in this segment's profitability throughout the year. Over time, our goal is to average a double digit adjusted operating margin across the freight cycle to generate an accepted acceptable return on capital.

Speaker #2: Dedicated adjusted operating ratio of 95 was in line with the prior year quarter. Freight revenue per average tractor for the period improved by 8.6%.

Speaker #2: Cost heads headwinds in the quarter including maintenance and insurance-related claims offset improved freight revenue in this segment. Going forward, our goal is to steadily restore adjusted operating margin to double digits.

Tripp Grant: Going forward, our goal is to steadily restore adjusted operating margin to double digits, grow the fleet serving high service niches, improve profitability with certain legacy customers as contracts renew, and, if applicable, reduce any part of the fleet that is not adequately returning capital in line with our expectations. Managed Freight grew freight revenue 28.4% compared to the prior year, primarily as a result of the brokerage assets acquired in Q4 2025. However, the segment's operating margin in the quarter lagged our longer-term expectations as a result of rising costs to secure quality brokerage capacity, outpacing our ability to secure contractual rate increases from customers. This type of margin compression is normal for an early upcycle.

Speaker #2: Grow the fleet serving high service niches, improve profitability with certain legacy customer as contacts as contracts renew, and if applicable applicable, reduce any part of the fleet that is not adequately returning capital in line with our expectations.

Speaker #2: Managed freight grew freight revenue 28.4% compared to the prior year. Primarily as a result of the brokerage assets acquired in the fourth quarter of 2025.

Speaker #2: However, the segment's operating margin in the quarter lagged our longer-term expectations as a result of rising cost to secure quality brokerage capacity outpacing our ability to secure contractual rate increases from customers.

Speaker #2: This type of margin compression is normal for an early upcycle. As we look ahead, our goal is to improve upon these results with the understanding that cost pressure may remain elevated as carrier capacity may be constrained for some time and higher insurance since claims expense has become a greater risk after the Supreme Court's recent Montgomery decision.

Tripp Grant: As we look ahead, our goal is to improve upon these results with the understanding that cost pressure may remain elevated as carrier capacity may be constrained for some time and higher insurance and claims expense has become a greater risk after the Supreme Court's recent Montgomery decision. The Warehousing segment performed in line with our revenue expectations but disappointed us by failing to improve margins sequentially as a result of a continuation of labor inefficiencies with a new customer. Looking ahead, we remain committed to driving organic growth within this segment and are focused on enhancing our adjusted operating margin with a target of reaching high single digits. Our minority investment in TEL contributed pre-tax net income of $5.3 million for the quarter, compared to $4.3 million in the prior year period.

Speaker #2: The warehouse segment performed in line with our revenue expectations, but disappointed us by failing to improve margins sequentially as a result of a continuation of labor inefficiencies with a new customer.

Speaker #2: Looking ahead, we remain committed to driving organic growth within this segment and are focused on enhancing our adjusted operating margin, with a target of reaching high single digits.

Speaker #2: Our minority investment in tell contributed pre-tax net income of 5.3 million dollars for the quarter compared to 4.3 million dollars in the prior year period.

Speaker #2: While pleased with these improved results, much of it is attributable to higher equipment sale gains. Which we do not anticipate benefiting from in the third quarter.

Tripp Grant: While pleased with these improved results, much of it is attributable to higher equipment sale gains, which we do not anticipate benefiting from in Q3. Regarding our outlook for the future, Q2 marked a positive inflection point for the freight economy following a prolonged downturn, reinforcing our view that 2026 is a transition year for the industry. While elevated costs pressured our profitability in the quarter, we were encouraged by the pace of revenue improvements this early into the upcycle. Through the remainder of the year, we intend to build on this progress by improving the quality and durability of our customer relationships and maintaining disciplined cost controls, resulting in improved operating margin and earnings over time.

Speaker #2: Regarding our outlook for the future. The second quarter marked a positive inflection point for the freight economy following a prolonged downturn. Reinforcing our view that 2026 is a transition year for the industry.

Speaker #2: While elevated cost cost pressured our profitability in the quarter, we were encouraged by the pace of revenue improvements this early into the upcycle. Through the remainder of the year, we intend to build on this progress by improving the quality and durability of our customer relationships and maintaining disciplined cost controls resulting in improved operating margin and earnings over time.

Speaker #2: Although the pace of improvement may be more measured than that of certain peers, we believe the durability of our model and the continued execution of our strategy position us well for long-term performance that meets or exceeds our shareholders' expectations.

Tripp Grant: Although the pace of improvement may be more measured than that of certain peers, we believe the durability of our model and the continued execution of our strategy position us well for long-term performance that meets or exceeds our shareholder expectations. Thank you for your time. We will now open the call for any questions.

Speaker #2: Thank you for your time and we will now open the call for any questions.

Speaker #1: If you would like to ask a question, please press star one on your telephone keypad now. You will be placed into the queue in the order received.

Operator: If you would like to ask a question, please press star one on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star one on your phone now. Our first question comes from Reed Seay from Stephens Inc. Please go ahead, Reed.

Speaker #1: Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star one on your phone now.

Speaker #1: And our first question comes from Reed Saya from Stevens, Inc. Please go ahead, Reed.

Speaker #3: Hey, guys. Thanks for taking my question. I wanted to start by following up on some of the maintenance and insurance costs that you called out.

Reed Seay: Hey, guys. Thanks for taking my question.

Tripp Grant: Hey, Reed.

Reed Seay: I wanted to start by following up on some of the maintenance and insurance costs that you called out. It seems like mostly one time in nature. If you could give us a little more color on how much was in Expedited versus how much was in Dedicated. The insurance does seem to be a pretty prolific problem in the industry, but I was wondering if you could give a little more color on what's behind some of the increased maintenance costs here in Q2.

Speaker #3: It seems like mostly one-time in nature. If we if you could give us a little more color on kind of how much was in expedited versus how much was in dedicated and the insurance does seem to be a pretty prolific problem in the industry, but I was wondering if you could give a little more color on what's behind some of the increased maintenance costs here in the second quarter.

Speaker #4: Yeah, Reed. This is Paul. let me start with the insurance. And and I would tell you probably just from an, you know, OR point perspective, dedicated and expedited both, there's probably you know, one and a half to two excess insurance over our run rate for the last 24 months.

Paul Bunn: Yeah, Reed, this is Paul. Let me start with the insurance, and I would tell you, probably just from an OR point perspective, Dedicated and Expedited both, there's probably

Paul Bunn: 1.5 to 2 OR points of excess insurance over our run rate for the last 24 months. A couple things is we just had a number of mediations pop up in Q2, and as you know, in this litigious environment, if you can get a mediation and get it settled and get it off the books, that's what you do. We probably had more mediations in Q2 than we've had in a number of quarters, and several mediations on some claims that were none of them were monster claims, but it doesn't take much for a claim to be a seven-figure claim anymore. I would just say a heightened number of mediations that just happened to get scheduled in Q2, and we had the opportunity to close a lot of those out at numbers that we were comfortable closing them out with.

Speaker #4: a a couple things is we we just had a number of mediations pop up in the second quarter and as you know in in this litigious environment, if you can get a mediation and get it settled and get it off the books, that's what you do.

Speaker #4: And we just had we probably had more more mediations in second quarter than we've had in a number of quarters and and several mediations on some claims that were you know, none of them were monster claims, but you know, it doesn't take much for a claim to be a a seven-figure claim anymore.

Speaker #4: And and so I would just say a a heightened number of of mediations that just happened to get scheduled in the second quarter and we had the opportunity to close a lot of those out at numbers that you know, we were comfortable closing them out with and and so it was kind of a volume game you know, the other is when you start taking those those higher cost in in a period when the truck counts come down a little bit it it just exacerbates it.

Paul Bunn: It was a volume game. The other is when you start taking those higher costs in a period when the truck counts come down a little bit, it just exacerbates it. Again, it's about 1.5 to 2 OR points on Dedicated and Expedited was the negative impact over what we view a normalized run rate. I would say on the Dedicated side of things, and to a lesser degree, Expedited, we just had some maintenance costs in getting some equipment ready for sales, maintenance costs in some of the protein-based businesses that, again, were just higher than our normal run rate. Some of those could have been deferred and maybe were Q4, Q1 kind of things. That's probably at least 1 OR point on the Dedicated side of increased expenses.

Speaker #4: and and again, it's it's about you know, one and a half to two OR points on the on on dedicated and and expedited was kind of the negative impact over what we kind of view and normalized run rate.

Speaker #4: I I would say on the dedicated side of things, and and I look to a lesser degree expedited. we just had some maintenance cost in in getting some equipment ready for sales maintenance cost in some of the the protein-based businesses that again, we're just higher than our normal run rate.

Speaker #4: And you know, some of those could have been, you know, deferred and maybe were Q4, Q1 kind of things, and so that's probably at least one or more points on the dedicated side of increased expenses.

Speaker #4: So if you kind of normalize for those, we feel a lot better about the results, and we don't expect those to be fully recurring.

Paul Bunn: if you normalize for those, we feel a lot better about the results, and we don't expect those to be fully recurring.

Speaker #3: Got it. And it it does feel like if those are one-time in nature, which it seems like they are, looking to three Q, we should have some pretty solid improvement in margins.

Reed Seay: Got it. It does feel like if those are one-time in nature, which it seems like they are, looking to Q3, we should have some pretty solid improvement in margins. How should we think about that as we look at modeling Q3? Then you all are, as you talked about in your prepared comments, relatively later cycle compared to some of your truckload peers, just based off your end markets and the type of business that you serve. How should we think about margin expansion next year when we see a lot of this benefit actually flow through your bottom line?

Speaker #3: How how should we think about that as we as we look at modeling three Q and then y'all are as you talked about in your prepared comments, relatively later cycle compared to some of your truckload peers just based off of your the your end markets and the type of business that you serve.

Speaker #3: how should we think about margin expansion next year when we see a lot of this benefit actually flow through your your bottom line?

Speaker #4: A a a couple things I'd say. We we feel you know, really comfortable about sequentially and year over year improving earnings from from two to three and and from three last year to three this year.

Paul Bunn: A couple things I'd say. We feel really comfortable about sequentially and year over year improving earnings from Q2 to Q3 and from Q3 last year to Q3 this year. What brokerage margins do, just like a lot of our peers, is going to really affect that number. I think there's two or three buckets. Fuel was a helper for the quarter for us and the whole peer group. What does fuel do? Brokerage margins, what do they do? Everybody across the whole peer group and with us, they were compressed for Q2. Then we do expect insurance and maintenance to normalize a little bit. You take those three or four puts and takes.

Speaker #4: you know, some of the what brokerage margins do just like a lot of our peers is gonna really affect that number. And so you know, I think there's there's two or three buckets.

Speaker #4: I mean, you know, fuel was a helper for the quarter for us and the whole peer group. So what does fuel do? Brokerage margins—what do they do?

Speaker #4: everybody, you know, across the whole peer group and and with us, they were compressed for the second quarter. and then we do expect insurance and and maintenance to normalize a little bit.

Speaker #4: So you kind of take those those three or four puts and takes. We feel like there's gonna be more puts than takes in in the short term and and I think we'll make more in Q3 than we did in Q2 and more in Q4 than we made in Q3.

Paul Bunn: We feel like there's going to be more puts than takes in the short term, I think we'll make more in Q3 than we did in Q2, and more in Q4 than we made in Q3. If you keep doing that every quarter, the numbers keep stacking. That's what we'll get the numbers everybody's excited about.

Speaker #4: And you know, if you keep doing that every quarter, the numbers keep stacking, we'll that's kind of what we're we're we'll get the numbers everybody's excited about.

Speaker #3: Yeah.

Speaker #5: Hey, and Reed, I'd add just a couple of points about insurance. With the amount of self-insurance that we carry, there's no doubt that it can be volatile from quarter to quarter and having to forecast that is is difficult.

Tripp Grant: Hey, Reed, I'd add just a couple of points about insurance. With the amount of self-insurance that we carry, there's no doubt that it can be volatile from quarter to quarter, and having to forecast that is difficult. I'll just paint some color around the number that we put up this quarter. For not having a large claim go through that pierced or was above insurance, it was a bunch of, I won't call smaller claims.

Speaker #5: But I'll just paint some color around the the number that we put up this quarter. It's you know, for not having a large claim go through that pierced or was above insurance, it was a bunch of you know, I won't call smaller claims, but a high volume of claims.

Paul Bunn: Moderatelly

Tripp Grant: A high volume of claims. When that happens, we have a development factor that incurred but not reported, or development on self-insurance that also gets reported. That increased pretty dramatically in the quarter as well. By far, this was the highest quarter historically, looking back on it. Going forward, again, it's an industry issue, and there is a lot of volatility in it, and the trend is not good when you're looking at it. I would say Q3 is a little bit of an anomaly as you're looking at it based on past performance. The other thing I would paint, just adding color to Paul's pace of improvement is I think you'll see a little bit of a better pace of improvement in Expedited. It's a little more fluid.

Speaker #5: and then when that happens, we have a development factor that incur but not reported or development on self-insurance. It get also gets reported. So that increase pretty dramatically in the quarter as well.

Speaker #5: And so, by far, this was the highest quarter historically, looking back on it. But going forward, I mean, again, it's an industry issue, and there is a lot of volatility in it, and the trend is not good when you're looking at it.

Speaker #5: But I would say Q3 is a little bit of an anomaly as you're looking at it, based on past performance. The other thing I would add, just adding color to Paul's pace of improvement, is I think you'll see a little bit of a better pace of improvement in expedited.

Speaker #5: It's a little more fluid. dedicated I think we're gonna just kind of slowly get there and make sure that we're writing making right strategic decisions, not just with rate but customer mix too.

Tripp Grant: Dedicated, I think we're going to just slowly get there and make sure that we're making right strategic decisions, not just with rate, but customer mix too. Making sure we're working with customers that really need our teams or with our dedicated specialized business and that are going to be with us cycle in and cycle out. These are strategic decisions that have multi-year sticky contracts, and they take a little while. I think if you went back and looked and saw how our dedicated improved, we were still on a path of improvement well after the cycle ended. Part of that was acquisition, but part of that is certainly in line with our strategy with getting more specialized and working on things that don't fall into the typical freight cycle.

Speaker #5: Making sure we're working with customers that really need our teams, or with our dedicated, specialized business, and that are going to be with us cycle in and cycle out.

Speaker #5: So these are strategic decisions that have multi-year sticky contracts and they take a little while. I think you if you went back and looked and saw how our dedicated improved, we were still kind of on on a path of improvement well after the cycle ended.

Speaker #5: And part of that was acquisition, but part of that is certainly in line with our strategy with getting more specialized and and and and working on things that don't fall into the typical freight cycle.

Speaker #5: So you know, we're focused on the longer term and we're focused on slow, steady intentional improvement to both of our segments and expedited and dedicated.

Tripp Grant: We're focused on the longer term, and we're focused on slow, steady, intentional improvement to both of our segments in Expedited and Dedicated.

Speaker #3: It makes it makes a lot of sense. And one one quick one left for me and then I'll pass it on is on the transition that y'all talked about, it kind of started late last year, carrying on into this year.

Reed Seay: It makes a lot of sense. One quick one left for me, and then I'll pass it on, is on the transition that you all talked about. It kind of started late last year, carrying on into this year. How much do we have left to churn out of this business that you're trying to get rid of? Have we already gotten rid of all at all, and we should return back to truck growth here soon?

Speaker #3: How how much do we have left to to churn out of this business that you're trying to get rid of or have we already gotten rid of all it all and we should return back to truck growth here soon?

Speaker #5: I I think

Tripp Grant: I think.

Speaker #4: I'd say all the all the all the dedicated side I I think for the most part you're there. on the expedited side, I think the truck count probably is what it is.

Paul Bunn: I'd say on the dedicated side, I think for the most part you're there. On the expedited side, I think the truck count probably is what it is. What we're in the process of doing right now, Reed, is trying to convert as much of the expedited as makes sense, to dedicated teams as opposed to more over-the-road teams. I would say that's in process and we'll see how that shakes out. On the legacy dedicated side and the protein side, I think we're at the numbers. I could see those growing, over time. I think the expedited, we're trying to convert as much of that as we can to dedicated team, and we'll see how that keeps going.

Speaker #4: What we're in the process of of doing right now, Reed, is trying to convert as much of that a much of the as much of the expedited as as makes sense to dedicated teams as opposed to more over the road teams.

Speaker #4: And so I would say that's in process and and and we'll see how that shakes out. But but on the on the legacy dedicated side, and the protein side, I think we're we're kind of at the numbers.

Speaker #4: I could see those growing. over time, I think the expedited we're we're trying to convert as much of that as we can to dedicated team.

Speaker #4: And and we'll see how that keeps going.

Speaker #3: That makes sense. I always appreciate it, guys.

Reed Seay: That makes sense. Appreciate it always, guys.

Speaker #1: And our next question comes from Jason Seidel from TD Cowen. Please go ahead, Jason.

Operator: Our next question comes from Jason Seidel from TD Cowen. Please go ahead, Jason.

Operator: Our next question comes from Jason Seidl from TD Cowen. Please go ahead, Jason.

Speaker #6: Hi. Thank you. This is Elliott Operan for Jason. so in your release, you guys talked about, you know, having all your asset-based businesses under long-term dedicated contracts by the end of this cycle.

[Analyst] (TD Cowen): Hi. Thank you. This is Elliot operating for Jason. In your release, you guys talked about having all your asset-based businesses under long-term dedicated contracts by the end of this cycle. Would be curious to hear your thoughts on maybe the length of this cycle and maybe how pricing is trending and how the market continues to evolve from here. It's been a couple of years since you guys have been in the low 90s for OR. I guess, is this going to be a slow and steady, kind of like you suggested, Tripp? Is this like a multi-year effort, or could this be something a bit sooner since you're kind of rolling some of these contracts off the books quicker?

Jason Seidl: Hi. Thank you. This is Elliot operating for Jason. In your release, you guys talked about having all your asset-based businesses under long-term dedicated contracts by the end of this cycle. Would be curious to hear your thoughts on maybe the length of this cycle and maybe how pricing is trending and how the market continues to evolve from here. It's been a couple of years since you guys have been in the low 90s for OR. I guess, is this going to be a slow and steady, kind of like you suggested, Tripp? Is this like a multi-year effort, or could this be something a bit sooner since you're kind of rolling some of these contracts off the books quicker?

Speaker #6: we'd be curious to hear your thoughts on maybe the length of this cycle and maybe how pricing has trending and how, you know, the market continues to evolve from here.

Speaker #6: It's it's it's been a couple years since you guys have been in the kind of low 90s. for OR, I guess, is this gonna be, you know, a slow and steady kind of like you suggested, Trip?

Speaker #6: Is this like a multi-year effort or could this be, you know, something a bit sooner since you're kind of rolling some of these contracts off the books, quicker?

Speaker #4: Hey, hey, Elliott. This is David. I I tell you, I would much rather the industry us are in a position that I think that the world is gonna shake.

Paul Bunn: Hey, Elliot. This is David. I tell you, I would much rather the industry, us, are in a position that I think that the world is going to shake. I really do. What I've read from some of you all about, on some of the analyst write-ups about, is this long term? Is this a industry What's the word you all been using? That been industry change, long term cycle. I really believe it is. As I look at the backdrop, I don't even think the industry, including us, is at first base. I see a lot of great things that are happening within DOT and FMCSA and everything that they are doing there that is just going to continue to allow this industry to get back to returns that we all want to be at. I'm excited about where we are at. We got challenges.

Speaker #4: I really do. What I've read from some of you all, about some of the analyst write-ups about, you know, is this long-term?

Speaker #4: Is this a industry what's the word y'all been using that I've been industry change long long-term cycle? I really believe it is. I mean, is that as I look, at the at the backdrop, I think that I don't even think the industry, including us, is that first base.

Speaker #4: And I see a lot of great things that are happening within DOT and FMCSA and everything that they are doing there that is just going to that is just going to continue to allow this industry to get back to returns that we all want to be at.

Speaker #4: And so I'm excited about where we are at. We got challenges. The industry has got challenges that we've already talked about here and that's insurance being number one.

Paul Bunn: The industry's got challenges that we've already talked about here, that's insurance being number one, as everybody's insurance expires. Ours don't expire until next year, so we're good for another eight or 10 months before the market. You still have high deductibles and corridors, and it drives me crazy about how much you pay for insurance and about how much you really have, which would be less than what you think you got, on every one of these insurance claims. That's the market. The rates got to go up. The rates are, and the rates will continue to go up because capacity has left, and capacity is going to continue to leave. Keep in mind, as I'm thinking here, Elliot, guys, Here it is December.

Speaker #4: As everybody's insurance expires, the the you know, ours don't expire until next year. So we're good for another 8 or 10 months. Before the market but you still have high deductibles and quarters and I mean, it drives me crazy about how much you pay for insurance and about how much you really have, which would be less than what you think you got.

Speaker #4: on every one of these on every one of these insurance claims. But that's the market. The rate's gotta go up. The and the rates are and the rates will continue to go up because capacity has left and capacity is gonna continue to leave.

Speaker #4: I would tell you that that I have seen from first it's because keep in mind, as I'm thinking here, Elliott, guys, we did not here it is December.

Speaker #4: November, December, eight months ago, we all, including everybody on their phone, said, "Is it turning? Maybe I think it is." First time in four years.

Paul Bunn: November, December, 8 months ago, we all, including everybody on this phone, said, Is it turning? Maybe, I think it is. First time in 4 years. March was 4 years. Is it turning? We were asking that question. I'll never forget sitting here in this company last December saying, I think we can go get rate increases. First time the industry has in 4 years. I think we can go get increases. I'm here to tell you, we went out to the market in middle, end of December, and for January and 1 February, we got 3.4%, and we were high-fiving. We thought, Man, we are doing a job. Because it's the first time in 4 years. Well, by April, 2 and a half months later, that 3.4% was that the market was at 7% or 8%.

Speaker #4: March was four years. "Is it turning?" We were asking that question. I’ll never forget sitting here in this company last December, saying, "I think we can go get rate increases." First time the industry has in four years.

Speaker #4: "I think we can go get increases." I'm here to tell you we went out to the market in middle, end of December and for January and the 1st of February, we got 3.4%.

Speaker #4: And we were high-fiving. We thought, "Man, we are doing a job because of the first time in four years." Well, by April, three month two and a half months later, that 3.4 was that the market was at 7 or 8.

Speaker #4: 7 or 8%. Well, you can't go into your January and February customers that just gave you 3.4 and raise them two months later. So you gotta let some time you know, go by.

Paul Bunn: Well, you can't go into your January and February customers that just gave you 3.4% and raise them 2 months later. You got to let some time go by, say 6, 8, 10 months go by before you can go back to those customers. By current July, June and July, that 7%, 8% was double digits, 10%, 11%, 12%, even higher on certain pieces of business that it's operating.

Speaker #4: Say 6, 8, 10 months go by before you can go back to those customers. But by current July, June, and July, that's 7, 8% was double digits.

Speaker #4: 10, 11, 12% even higher on certain pieces of business that it's operating. So how quickly the market has moved is the backdrop to where we're at.

David R. Parker: How quickly the market has moved is a backdrop to where we're at. That said, I'm happy with where our rate increases are at. If you look at the last 4 years, phenomenal. Us and the industry, unbelievable. Whatever word you want to use. I'm here to tell you that I think it's half of it. I think it's going to continue to climb because we got the cost that are and the tail. I look at those claims we had in Q2, the tail on these things, it's crazy, but that hadn't changed. That's always been there. Every so often, it bites you in the butt, and it bit us in Q2. With the background that the industry is at, I expect great things. I think that. Now, because you asked a question, you or Reed one, about growth.

Speaker #4: So that said, I'm happy with where our rate increases are at. if you look at the last four years, phenomenal. Us and the industry.

Speaker #4: Unbelievable. Whatever word you wanna use. But I'm here to tell you that I think it's half of it. I think that it's gonna continue to climb because we got the cost that are contin and the tail.

Speaker #4: I look at those claims we had in the second quarter. The tail on these things is crazy. But that hadn't changed; that's always been there.

Speaker #4: But every so often, it bites you in the butt and and it and it bit us in the second quarter. But with the with the background that the industry is at and I expect great things I think that now 'cause you asked a question, you were read one, about growth.

Speaker #4: When's growth? I don't know. Because a blessing is that it's getting harder for drivers. It's getting harder to get truck drivers. And that's a negative from a standpoint that I could grow some dedicated right now and we're gonna try to figure out how to grow dedicated and get us some drivers.

David R. Parker: When's growth? I don't know, because a blessing is that it's getting harder for drivers. It's getting harder to get truck drivers. That's a negative from a standpoint that I could grow some dedicated right now, and we're going to try to figure out how to grow dedicated and get us some drivers. It's going to increase driver pay. That's okay. We got to get it out of the rates. At the same time, you're not going to see crazy stuff happening because the driver situation is getting more difficult as we speak. It's going to keep a lid on capacity called the drivers. It's going to keep a lid on capacity called the DOT. They are at first base on this ELDs. I'm here to tell you, 30% of ELD users have cheated.

Speaker #4: It's gonna increase driver pay. That's okay. We gotta get it out of the rates. but at the same time, you're not gonna see crazy stuff happening.

Speaker #4: Because the drivers' situation is getting more difficult as we speak, it's going to keep a lid on capacity—call it the drivers. It's going to keep a lid on capacity—call it the DOT.

Speaker #4: They are at first base. On this EODs I'm here to tell you 30% of EOD users have cheated. 30% of EOD out there running are competing with my teams with a solo driver.

David R. Parker: 30% of EOD out there running are competing with my teams with a solo driver, 30% of them. It could be greater, but it's a big number on EODs, they just hit the ball out of the batter's box. That thing has got a long run as we take out capacity on that. I'm not going to go over all the CDLs and the truck driving training schools and the cabotage, gigantic. When these trucks are not operating in the United States for 30 days, they're either going up and they're going back. They're now starting to measure that. They had to get Homeland Security involved to make sure that they are on top of that. Capacity is leaving. I say all that, Elliot, of when can we grow? I don't know.

Speaker #4: 30% of them. And it could be greater, but it's a big number on EODs and they're they just hit the ball out of the batter's box.

Speaker #4: I mean, that thing is gonna has got a long run as we take out capacity on that. And then I'm not gonna go over all the CDLs and the truck driving training schools and the cabotage gigantic when these trucks are not operating in the United States for 30 days.

Speaker #4: They're either going up and they're going back. And they're now starting to measure that. They had to get home land security involved to make sure that they are on top of that.

Speaker #4: Capacity is leaving. So I say all that, Elliott, of when can we grow? I don't know. The only thing I know is that I’m gonna be a lot more profitable.

David R. Parker: Only thing I know is that I'm going to be a lot more profitable. Only thing I know is I'm going to have a lot more earnings coming to the bottom line. The only thing I know is that my retained earnings are going to go up. We're going to recapture a lot of profitability that we've lost, and we're one of the best ones in the market the last four years that you can go back and look at. There's a lot of earnings that we didn't get, and we're going to go get those earnings. My thing is not how big can I get? How many white trucks do I want to run? Mine is, how profitable can I get? How can I recapture the less earnings that I had over the last four years?

Speaker #4: Only thing I know is I'm gonna have a lot more earnings coming to the bottom line. Only thing I know is that by retained earnings are gonna go up.

Speaker #4: We're gonna recapture a lot of profitability that we've lost and we're one of the best ones in the market the last four years. That you can go back and look at.

Speaker #4: But there's a lot of earnings that we didn't get, and we're going to go get those earnings. So, my thing is not, "How big can I get?"

Speaker #4: How many white trucks do I want to run? Mine is, how profitable can I get? How can I recapture the, the less earnings that I had over the last four years? And guys, this is 53 years I've been in this, and I couldn't be more excited about what's happening that's going to give us the opportunity.

David R. Parker: Guys, this is 53 years I've been in this, and I couldn't be more excited about what is happening that's going to give us the opportunity. Now, is it going to happen Q2? It didn't. Is it going to happen Q3? No. Q4? No. It's going to happen. Saw some of y'all's write-ups in the last six, eight months. Y'all are saying 2027 is going to be a blowout year. I think there's going to be obstacles in 2027, but I think it's going to be a very good year. I do. I think y'all are correct on that in your thoughts. It ain't going to happen in Q2 or Q3. We're going to continue to making progress. You're going to see it in the next two quarters. You're going to see it in 2027.

Speaker #4: Now, is it gonna happen second quarter? It didn't. Is it gonna happen the third quarter? No. Fourth quarter? No. It's gonna happen—I've saw some of y'all's write-ups in the last six, eight months.

Speaker #4: Y'all are saying 27 is gonna be a blowout year. I think there's gonna be obstacles in 27, but I think it's gonna be a very good year.

Speaker #4: I do. I think y'all are correct on that and your thoughts. It ain't gonna happen in the second quarter or the third quarter. We're gonna continue to make progress.

Speaker #4: You're gonna see it in the next two quarters. You're gonna see it in 27. You're gonna see it in 28. I mean, I think this is a long-term three or four-year super cycle is the word I was looking for.

David R. Parker: You're going to see it in 2028. I think this is a long-term, three or four-year super cycle is the word I was looking for. Super cycle, I believe that it is. Anyway, Jason, I'll shut up.

Speaker #4: Super cycle. And I believe that it is. Anyway, Jason, I'll shut up.

Speaker #1: No, very, very helpful. and and then maybe just on you know, you talked about adding some new ag protein business, but exiting some non-specialized contrast.

[Analyst] (TD Cowen): No, very helpful. Maybe just on, you talked about adding some new ag protein business, exiting some non-specialized contracts. Can you talk about the pipeline for Dedicated? I guess, how are customers thinking about the Dedicated offering in light of the Montgomery ruling? This should improve your product offering as more shippers look to high-quality asset-based carriers. Curious your thoughts on if you're starting to see that pipeline expand.

Jason Seidl: No, very helpful. Maybe just on, you talked about adding some new ag protein business, exiting some non-specialized contracts. Can you talk about the pipeline for Dedicated? I guess, how are customers thinking about the Dedicated offering in light of the Montgomery ruling? This should improve your product offering as more shippers look to high-quality asset-based carriers. Curious your thoughts on if you're starting to see that pipeline expand.

Speaker #1: Can you talk about, like, the pipeline for dedicated? I guess, like, how are customers thinking about the dedicated offering in light of the Montgomery ruling?

Speaker #1: I mean, this should improve your product offering as more shippers. You know, look to high-quality asset-based carriers. But curious your thoughts on, you know, if you're starting to see that pipeline expand.

Speaker #4: We are pipeline is the best it's ever been. Period. You agree, Paul? Best pipeline we've ever had on dedicated. The best opportunities. We do.

David R. Parker: We are. Pipeline is the best it's ever been, period. You agree, Paul?

Paul Bunn: Yeah.

Paul Bunn: Best pipeline we've ever had on Dedicated. The best opportunities. We do. We have customers right now that are wanting to grow Dedicated. Yeah, it's exciting. Again, we all got to make sure we got drivers, but there's going to be a lot of opportunities in Dedicated. Yes, what you are sensing or feeling or believing is happening.

Speaker #4: We have customers—we have customers right now that are wanting to grow dedicated. Yeah, it's exciting. Again, we all gotta make sure we've got drivers, but there's going to be a lot of opportunities in dedicated.

Speaker #4: So yes, what you are sensing, feeling, or believing is happening.

Speaker #1: Yeah. And and Elliott, it's even bleeding over. Paul mentioned it a little bit, but I wanna make sure that it's kinda stated that I mean, it's even bleeding over into some of our expedited fleet.

Tripp Grant: Yeah. Elliott, it's even bleeding over. Paul mentioned it a little bit, but I want to make sure that it's stated that it's even bleeding over into some of our Expedited fleet as we lock up multi-year committed capacity with high value freight that's serving the industrial, heavy industrial data type center work. Those trucks are really running, and there's a good pipeline on that too.

Speaker #1: as we kind of lock up multi-year committed capacity with high-value, you know, freight that's serving the kind of the industrial heavy industrial data type center work.

Speaker #1: And those trucks are really, really running, and there's a good pipeline on that too.

Speaker #2: Very helpful. Thank you, guys.

[Analyst] (TD Cowen): Very helpful. Thank you, guys.

Jason Seidl: Very helpful. Thank you, guys.

Speaker #5: And their next question comes from Jeff Kaufman from Citizens Bank. Please go ahead, Jeff.

Operator: Our next question comes from Jeff Kauffman from Citizens Bank. Please go ahead, Jeff.

Speaker #6: Hey, everybody.

Jeff Kauffman: Hey, everybody.

Speaker #4: Hey, Jeff.

Paul Bunn: Hey, Jeff.

Tripp Grant: Hey, Jeff.

Speaker #1: Hey, Jeff.

Speaker #6: So David, thank you for that fantastic answer to the previous question. I I've got a more boring question. Won't be as much of a passion point, but so there was guidance in the release on 50 to 60 million in net capex spend in the second half.

Jeff Kauffman: David, thank you for that fantastic answer to the previous question. I've got a more boring question, won't be as much of a passion point. There was guidance in the release on $50 to $60 million in net CapEx spend in the H2. You talked in the release about not shrinking the fleet anymore at this point. With what is starting to happen in the industry, free cash is eventually going to start to build. As we think about maybe moving beyond 2026 and getting into 2027 and beyond, I know the average fleet age is up and Tripp mentioned that was part of the plan. Is there a CapEx investment that needs to occur as free cash comes along? Do we want to get debt down to a certain level?

Speaker #6: You talked in the release about not shrinking the fleet anymore at this point, but with with what is starting to happen in the industry, free cash is eventually gonna start to build as as we think about maybe moving beyond 26 and getting into 27 and beyond, I know the average fleet age is up and and Trip mentioned that was part of the plan, but is there a capex investment that needs to occur as free cash comes along?

Speaker #6: Do we wanna get debt down to a certain level? Kinda I I don't wanna spend it before you earn it, but, you know, how are we thinking about free cash and capital deployment as as we see the super cycle that David was just talking about?

Jeff Kauffman: I don't want to spend it before you earn it, but how are we thinking about free cash and capital deployment as we see this super cycle that David was just talking about?

Speaker #1: Yeah, Jeff, I can take that. you know, and if you look back in the the past few years, our net capex has been a little bit clunky for for a couple reasons.

Tripp Grant: Yeah, Jeff, I can take that. If you look back in the past few years, our net CapEx has been a little bit clunky for a couple of reasons. We were in a post-COVID recovery where we were recovering from a period of time where we couldn't buy any capital equipment and trying to replace some really old stuff. We acquired Lew Thompson, which requires certain specialized trailers and certain spec tractors. We couldn't just use what we had, and so we were growing that fleet pretty materially and keeping some of the other stuff flat. There's some kind of growth CapEx and specialized stuff and some offset by some reductions and non-specialized stuff. It's been elevated, I would say, for the last few years.

Speaker #1: We were in a post-COVID recovery where where recovering from a period of time where we couldn't buy any capital equipment. And trying to replace some really, really old stuff.

Speaker #1: Then we acquired Lou Thompson, which requires certain specialized trailers and certain spec tractors. and we couldn't just use what we had. And so we were growing that fleet pretty materially and and keeping some of the other stuff flat.

Speaker #1: And so there's some kind of growth capex and specialized stuff and some offset by some reductions and non-specialized stuff. So it's been elevated, I would say, for the last few years.

Speaker #1: This year, in total, I think it's going to be a little bit below our normal capital replacement cycle for a couple of reasons. One, we entered the year in really, really good shape.

Tripp Grant: This year in total, I think it's going to be a little bit below our normal capital replacement cycle for a couple of reasons. One, we entered the year in really good shape. Two, the mix of our freight is changing, becoming more low mile dedicated type stuff that has a longer replacement cycle and less expedited tractors that are putting 180,000 miles on a tractor per year. Even in that fleet, we're seeing the utilization come down a little bit with some of this specialized dedicated-like business that we're doing in expedited. Net, it's a little bit of a clunky year because we had sold a bunch of equipment Q1, and then we bought a bunch of equipment in Q2. Net, we're about even on net capital investment from not really doing anything in H1 of the year.

Speaker #1: two, the mix of our freight is changing. Becoming more l low-mile dedicated type stuff that has a longer replacement cycle. And less expedited tractors that are putting you know, 180,000 miles on a tractor per year.

Speaker #1: And even in that fleet, we're seeing the utilization come down a little bit with some of the specialized, dedicated, light business that we're doing and expedited.

Speaker #1: So, you know, net-net, it's a little bit of a clunky year because we sold a bunch of equipment in Q1, and then we bought a bunch of equipment in Q2.

Speaker #1: So net, we're about even on net cap capital investment from not really doing anything in the first half of the year. And I think what we're gonna see in Q2 and or Q3 and Q4 is kind of that 50 to 60 million dollar range.

Tripp Grant: I think what we're going to see in Q2 or Q3 and Q4 is that $50 to $60 million range. I think we've got to justify the cost of capital before we start ramping capital investments up. I think that while I don't think the fleets are going to be reduced, I still feel like we're in really good shape from an average age, considering the mix change. Our goal is to minimize disruptions from large capital equipment purchases in one single quarter and try to spread it out pretty evenly throughout the year. I think going into next year with a combination of cost and quantities, you'll probably see a little bit more net CapEx. Mostly just replacement CapEx, but there may be a little bit of growth in there. It's too early to tell.

Speaker #1: And so I don't anticipate us I I think we've gotta justify the cost of capital before we start ramping capital investments up. I think that while I don't think the fleets are gonna be reduced, I still feel like we're in really good shape from an average age considering the mix change.

Speaker #1: You know, our goal is to minimize disruptions from large capital equipment purchases in one single quarter, and try to spread it out pretty evenly throughout the year.

Speaker #1: So I think going into next year with a combination of cost and quantities, you'll probably see a little bit more net capex, mostly just replacement capex, but there may be a little bit of growth in there.

Speaker #1: But it's kind of too early to tell. We haven't nailed that number down yet.

Tripp Grant: We haven't nailed that number down yet.

Speaker #6: All right. Trip, thank you. And then just to follow up, you know, terrific contribution from Tell this quarter. it looks like equipment values are beginning to rise.

Jeff Kauffman: All right. Tripp, thank you. Just to follow up. Terrific contribution from TEL this quarter. It looks like equipment values are beginning to rise. I don't want to take this quarter and assume it's a run rate, how should I think about what's going on at TEL and how I should think about that contribution as we move ahead?

Speaker #6: I don't want to take this quarter and assume it's a run rate, but how should I think about what's going on at Tell, and how should I think about that contribution as we move ahead?

Speaker #4: Hey, Jeff. This is Paul. Related to Tell, yeah, they did have a great quarter. I probably wouldn't use that as a run rate.

Paul Bunn: Hey, Jeff, this is Paul. Related to TEL, yeah, they did have a great quarter. I probably wouldn't use that as a run rate. I agree, because it was a little higher than what we expect. I do think somewhere minimum of what they made in Q1, somewhere between Q1 and Q2, maybe, is what they'll see. If you think about it, TEL's customer base, they've been hit pretty hard by this freight recession too, because a lot of their customers were these small to mid-size carriers who were hit pretty hard by the freight recession. Conversely, there were bad debts in there, and they were struggling to keep the lease counts flat and just like truckers are struggling at times to keep enough freight to keep truck counts flat.

Speaker #4: I agree because it was a it was it was a little higher than what we expect. but but I do think you know, s-somewhere minimum of what they made in Q1, somewhere between Q1 and Q2 maybe, i-is is what they'll see.

Speaker #4: If you think about it, Tell's customer base over the last you know, they they've been hit pretty hard by this freight recession too because a lot of their customers were were these small to mid-sized carriers who were who who were hit pretty hard by the freight recession.

Speaker #4: conversely, the you know, and there were bad debts in there and and they had, you know, were were were struggling to to keep the lease counts flat and just like truckers were, you know, struggling at times to keep enough freight to keep truck counts flat.

Speaker #4: I think what we've seen is their customer base that's made it through the the rough years is set to thrive for the next two or three or four years of this cycle.

Paul Bunn: I think what we've seen is their customer base that's made it through the rough years is set to thrive for the next two or three or four years of this cycle. David and I met with the TEL management team a couple of weeks ago, and I think similar to what you heard, I think you're going to see slow, steady progress for TEL over the next couple of years. We're really excited about where they're at and where they're going, and I think they'll continue to build quarter after quarter. I agree, Q2 was a little bit hot based on some large equipment sales they were able to push through. You're going to see a really solid trend for TEL over the next couple of years.

Speaker #4: And and so, you know, David and I met with the Tell management team a couple weeks ago and I think similar to to what you heard, I think you're gonna see slow, steady progress for Tell over the next couple years.

Speaker #4: And so we're really excited about where they're at and where they're going, and I think they'll continue to build quarter after quarter.

Speaker #4: But but I agree that the Q2 was was was a little bit a little bit hot based on some some large equipment sales they were able to push through.

Speaker #4: but you're gonna see a a really solid trend for Tell over the next couple years.

Speaker #1: Yeah. And and I would even add to that what we're seeing in July and not I think this is probably a broader industry comment is a a pretty steep pickup if we speak to we've spoken to a lot of different folks out there.

Tripp Grant: Yeah. I would even add to that what we're seeing in July, and I think this is probably a broader industry comment, is a pretty steep pickup. We've spoken to a lot of different folks out there. We're seeing some strengthening. I would say what we've kind of encountered the H1 of the year is just an appetite for volumes. Haven't seen a lot of price improvement, but just an appetite for volumes, which is step 1. Now what we're seeing is an appetite for volumes and a little bit of a step up in price that hopefully will impact us positively in Q3.

Speaker #1: We're seeing some strengthening. I would say what we've kind of encountered in the first half of the year is just an appetite for volumes. Haven't seen a lot of price.

Speaker #1: We've seen improvement, but just an appetite for volumes, which is kind of step one. And now what we're seeing is an appetite for volumes and a little bit of a step up in price that hopefully will impact us positively in the third quarter.

Speaker #6: And then Trip, finally, I know in the comments in the release, you'd said cost per mile was up about 16 and change percent, and you explained that a fair amount of that was because of all these settlements that you were seeing on on insurance and claims.

Jeff Kauffman: Tripp, finally, I know in the comments in the release, you'd said cost per mile was up about 16% and change, and you explained that a fair amount of that was because of all these settlements that you were seeing on insurance and claims. Did you quantify how much of that you would consider to be an unusual lump in the quarter? As that recedes toward normal levels, what kind of cost per mile increases should we be thinking about in aggregate?

Speaker #6: Did you quantify how much of that you would consider to be an unusual lump in the quarter and kind of is that recedes toward normal levels kind of cost per mile increases?

Speaker #6: Should we be thinking about an aggregate?

Speaker #1: Yeah. I I'd be cautious on when we talk about insurance. I I like to it it's just so volatile, Jeff.

Tripp Grant: Yeah. I'd be cautious when we talk about insurance. It's just so volatile, Jeff.

Speaker #6: Mm-hmm.

Speaker #1: But I will say, I mean, there's no doubt about it, it shocked all of us the way it developed this quarter. And you can look back historically and even with the trend in insurance and claims-related costs going up, this is a spike without a doubt.

Tripp Grant: I will say, there's no doubt about it shocked all of us the way it developed this quarter. You could look back historically, and even with the trend in insurance and claims related costs going up, this is a spike without a doubt. I would say anywhere from the combination of probably, it could be anywhere from probably $0.05 to $0.08 a share probably from just the spike, which I would be cautious in modeling that from Q2 to Q3 to Q4 just because of the volatility of it. It was unusual, without a doubt, historically looking back, that's a fact. The forward-looking guidance, I'm hesitant to say.

Speaker #1: you know, I would say anywhere from, you know, the combination of probably I mean, it could be anywhere from probably 5 to 8 cents a a share probably from just a spike, which I don't know I would be cautious and modeling that from Q2 to Q3 to Q4 just because of the volatility of it.

Speaker #1: It it's it was unusual without a doubt historically looking back, that's a fact. but the the forward-looking guidance is I'm hesitant to say.

Speaker #6: All right. well, congratulations and thank you. Thanks, Jeff.

Jeff Kauffman: All right. Well, congratulations and thank you.

Tripp Grant: Yep.

Paul Bunn: Thanks, Jeff.

Speaker #5: As a reminder, if you would like to ask a question, please press star one on your phone now. And at this time, there appears to be no further questions.

Operator: As a reminder, if you would like to ask a question, please press star one on your phone now. At this time, there appears to be no further questions. I'll turn the call back over to our speakers to close out the call.

Speaker #5: I'll turn the call back over to our speakers for to close out the call.

Speaker #1: All right. Thank you, Ross. We just wanna thank everybody for your interest in COVENANT, and we look forward to speaking with you next quarter.

Tripp Grant: All right. Thank you, Ross. We just want to thank everybody for your interest in Covenant, we look forward to speaking with you next quarter. Thank you.

Speaker #1: Thank you.

Speaker #5: This concludes today's conference call. Thank you for attending.

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

Rachel Smith: The host has ended this call. Goodbye.

Q2 2026 Covenant Logistics Group Inc Earnings Call

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