enant Logistics (CVLG) - 2024 Q2 - Quarterly Results

Financial and Operating Results for Q2 2024 Covenant Logistics Group reported Q2 2024 diluted EPS of $0.88 and adjusted EPS of $1.04, driven by a 5.3% freight revenue increase and 15.0% adjusted operating income growth Executive Summary & Highlights Covenant Logistics Group reported Q2 2024 diluted EPS of $0.88 and adjusted EPS of $1.04, driven by a 5.3% freight revenue increase and 15.0% adjusted operating income growth Q2 2024 Key Financial Highlights | Financial Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total Revenue | $287.5M | $274.0M | | Freight Revenue | $256.5M | $243.7M | | Operating Income | $15.6M | $11.8M | | Adjusted Operating Income | $18.7M | $16.2M | | Net Income | $12.2M | $12.3M | | Adjusted Net Income | $14.5M | $14.4M | | EPS (Diluted) | $0.88 | $0.91 | | Adjusted EPS (Diluted) | $1.04 | $1.07 | - The company's 49% equity method investment in Transport Enterprise Leasing (TEL) contributed pre-tax net income of $4.1 million ($0.23 per share), a decrease from $5.4 million ($0.29 per share) in Q2 2023, attributed to a weaker used equipment market and higher interest expenses[38] - Management highlighted the company's ability to navigate a prolonged down cycle by focusing on value-added opportunities, allocating investments to profitable operations, and controlling costs[14] Consolidated Financial Performance Q2 2024 saw total revenue increase by 4.9% to $287.5 million and operating income rise to $15.6 million, while net income remained flat at $12.2 million Consolidated Statement of Income (Three Months Ended June 30, $s in thousands) | ($s in 000s) | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Freight revenue | $256,512 | $243,704 | 5.3% | | Total revenue | $287,497 | $274,016 | 4.9% | | Total operating expenses | $271,920 | $262,233 | 3.7% | | Operating income | $15,577 | $11,783 | 32.2% | | Net income | $12,194 | $12,293 | (0.8%) | | Net income per diluted share | $0.88 | $0.91 | (3.3%) | - Key operating expense increases included Salaries, wages, and related expenses (up 5.0%), Insurance and claims (up 55.3%), and Depreciation and amortization (up 16.8%), partially offset by decreases in Fuel expense and Revenue equipment rentals[11] - The company recorded a loss on disposition of property and equipment of $0.8 million in Q2 2024, a reversal from a gain of $2.0 million in Q2 2023, reflecting headwinds in the used equipment market[11][5] Segment Performance Analysis Segment performance was driven by strong 18.2% freight revenue growth in Dedicated Truckload and 10.0% in Combined Truckload, with improved profitability in Warehousing and Managed Freight Freight Revenue by Segment (Q2 2024 vs Q2 2023, $s in thousands) | Segment ($s in 000's) | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Expedited - Truckload | $88,918 | $85,969 | 3.4% | | Dedicated - Truckload | $81,853 | $69,265 | 18.2% | | Combined Truckload | $170,771 | $155,234 | 10.0% | | Managed Freight | $60,366 | $63,281 | (4.6%) | | Warehousing | $25,375 | $25,189 | 0.7% | Combined Truckload Combined Truckload freight revenue increased by 10.0% to $170.8 million, driven by a 9.1% rise in average tractors, despite increased operating costs per mile Combined Truckload Operating Statistics (Q2, $s in millions) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Freight Revenue | $170.8M | $155.2M | 10.0% | | Operating Income | $10.2M | $9.1M | 12.8% | | Adj. Operating Income | $12.8M | $13.0M | (2.0%) | | Avg. Freight Revenue per Tractor per Week | $5,726 | $5,678 | 0.8% | | Weighted Avg. Tractors for Period | 2,294 | 2,103 | 9.1% | - Insurance and claims expense per mile increased by approximately 56% year-over-year, mainly due to higher current period claims and the settlement of a large prior period claim[43] - Fixed expenses related to revenue equipment increased by 8% on a per-mile basis due to operating newer, more costly equipment and losses on the sale of used equipment[5] Expedited Truckload Expedited segment freight revenue grew 3.4% to $88.9 million, but operating income decreased to $4.8 million due to lower average freight revenue per tractor per week Expedited Truckload Operating Metrics (Q2, $s in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Freight Revenue | $88.9M | $86.0M | | Operating Income | $4.8M | $5.8M | | Avg. Freight Revenue per Tractor per Week | $7,516 | $7,734 | | Weighted Avg. Tractors for Period | 910 | 855 | Dedicated Truckload Dedicated segment freight revenue surged 18.2% to $81.9 million, with operating income more than doubling to $5.5 million, driven by increased tractors and revenue per tractor Dedicated Truckload Operating Metrics (Q2, $s in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Freight Revenue | $81.9M | $69.3M | | Operating Income | $5.5M | $3.2M | | Avg. Freight Revenue per Tractor per Week | $4,549 | $4,269 | | Weighted Avg. Tractors for Period | 1,384 | 1,248 | Managed Freight Managed Freight revenue decreased by 4.6% to $60.4 million, but operating income significantly improved by 71.2% to $3.3 million due to cost management Managed Freight Financials (Q2, $s in thousands) | ($000s) | 2024 | 2023 | | :--- | :--- | :--- | | Freight Revenue | $60,366 | $63,281 | | Operating Income | $3,330 | $1,945 | | Adj. Operating Income | $3,594 | $2,070 | Warehousing Warehousing segment freight revenue increased slightly by 0.7% to $25.4 million, with operating income more than doubling to $2.0 million due to cost management Warehousing Financials (Q2, $s in thousands) | ($000s) | 2024 | 2023 | | :--- | :--- | :--- | | Freight Revenue | $25,375 | $25,189 | | Operating Income | $2,029 | $780 | | Adj. Operating Income | $2,288 | $1,118 | Financial Condition, Liquidity, and Capital Expenditures Net indebtedness increased to $273.3 million as of June 30, 2024, driven by $55.4 million in capital expenditures, while the company maintained $89.2 million in available liquidity Selected Balance Sheet Data ($s in thousands) | ($s in '000's) | 6/30/2024 | 12/31/2023 | | :--- | :--- | :--- | | Total assets | $994,987 | $954,438 | | Total stockholders' equity | $419,373 | $403,420 | | Net Indebtedness | $273,332 | $248,329 | | Net Indebtedness to Capitalization Ratio | 39.5% | 38.1% | - At quarter-end, the company had $1.3 million in cash and no borrowings outstanding under its ABL credit facility, with $89.2 million of available borrowing capacity[47] - The company's capital investment plan remains focused on growing the Dedicated business and maintaining a modern fleet to optimize uptime, reduce costs, and improve driver satisfaction, with the average age of tractors remaining steady at 21 months[21][8] Outlook and Forward-Looking Statements Management anticipates a slow freight market recovery, focusing on strategic initiatives to enhance value and efficiency, while acknowledging risks associated with forward-looking statements - Management expressed encouragement with the company's strong financial performance during a weak freight market, attributing it to structural changes made over the last four years[9] - The company's strategic focus is on executing its plan to capitalize on opportunities that add value for customers and create enterprise-wide efficiencies[9] - The press release contains forward-looking statements subject to various risks and uncertainties, including economic factors, competition, driver retention, fuel costs, and regulatory changes[29] Non-GAAP Financial Measures Reconciliation The company provides non-GAAP measures like adjusted operating income, net income, and EPS to offer supplemental insights into profitability and performance, excluding specific non-recurring items - Management uses non-GAAP measures internally to assess profitability and remove items that may not be indicative of core performance from period to period[23] GAAP Net Income to Non-GAAP Adjusted Net Income Reconciliation (Q2, $s in thousands) | ($s in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | GAAP Net income | $12,194 | $12,293 | | Amortization of intangibles | $2,373 | $1,802 | | Contingent consideration liability adjustment | $720 | $492 | | Acquisition transaction costs and executive retirement bonus | - | $2,158 | | Other adjustments & tax effects | ($835) | ($1,900) | | Non-GAAP Adjusted net income | $14,452 | $14,443 | GAAP EPS to Non-GAAP Adjusted EPS Reconciliation (Q2, per diluted share) | (per diluted share) | 2024 | 2023 | | :--- | :--- | :--- | | GAAP Diluted EPS | $0.88 | $0.91 | | Tax effected adjustments | $0.16 | $0.16 | | Non-GAAP Adjusted EPS | $1.04 | $1.07 |