enant Logistics (CVLG) - 2023 Q2 - Quarterly Report

PART I Item 1. Financial Statements Condensed financial statements for Q2 2023 reflect decreased revenue and net income due to a challenging freight market, with balance sheet expansion from the LTST acquisition Q2 and Six-Month Financial Performance Summary (2023 vs 2022) | Financial Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $274.0M | $317.4M | $540.9M | $609.0M | | Operating Income | $11.8M | $26.9M | $29.4M | $50.7M | | Net Income | $12.3M | $24.5M | $28.9M | $46.7M | | Diluted EPS | $0.91 | $1.56 | $2.10 | $2.86 | Condensed Consolidated Balance Sheet Summary | Balance Sheet Item | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $198.9M | $222.7M | | Total Assets | $870.5M | $796.6M | | Total Current Liabilities | $154.0M | $156.1M | | Total Liabilities | $490.8M | $419.5M | | Total Stockholders' Equity | $379.7M | $377.1M | - Net cash provided by operating activities for the first six months of 2023 decreased significantly to $12.4 million from $76.9 million in the prior-year period, primarily due to lower net income and an increase in accounts receivable[137][303] - The company acquired Lew Thompson & Son Trucking, Inc. (LTST) on April 26, 2023, for a total consideration of $109.9 million, including cash and contingent consideration, reported within the Dedicated segment[176][227] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 financial declines due to a challenging freight market, highlighting operational resilience, strategic acquisitions, and liquidity management Executive Overview Management acknowledges challenging market conditions and lower Q2 2023 results, emphasizing operational resilience, strategic diversification via LTST acquisition, and strong liquidity - Q2 2023 diluted EPS was $0.91, down from $1.56 in Q2 2022, reflecting what management believes to be the trough of the freight cycle[243][245] - The company acquired LTST on April 26, 2023, a dedicated contract carrier specializing in poultry transportation, to build a more resilient and diversified operating model[243] - Total indebtedness, net of cash, increased by $140.9 million since year-end 2022, primarily due to the LTST acquisition ($99.9 million net cash paid) and stock repurchases ($25.3 million)[4] - The company's asset-based segments (Expedited and Dedicated) contributed approximately 68% of total revenue and 93% of operating income in Q2 2023[3] Results of Consolidated Operations Consolidated Q2 2023 revenue decreased by 13.7% due to segment declines, while operating expenses showed mixed changes, with increased depreciation and amortization Consolidated Revenue (Q2 2023 vs Q2 2022) | Revenue Type | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Freight Revenue | $243.7M | $266.9M | (8.7%) | | Fuel Surcharge Revenue | $30.3M | $50.5M | (40.0%) | | Total Revenue | $274.0M | $317.4M | (13.7%) | - Salaries, wages, and related expenses increased slightly to $101.3 million from $101.1 million in Q2 2022, primarily due to driver and non-driver pay increases and executive retirement costs, which offset the impact of reduced miles[257][283] - Net fuel expense as a percentage of freight revenue increased to 1.4% in Q2 2023 from 0.5% in Q2 2022, due to lower fuel surcharge recovery despite a 29.0% year-over-year decrease in DOE fuel prices[16][17][77] - Depreciation and amortization increased to $18.9 million in Q2 2023 from $13.9 million in Q2 2022, driven by higher costs for new equipment and amortization from the AAT and LTST acquisitions[267][293] Results of Segment Operations Q2 2023 segment performance shows declines in Expedited and Managed Freight, reduced Dedicated revenue with increased operating income, and growth in Warehousing Segment Performance (Q2 2023 vs Q2 2022) | Segment | Revenue Q2 2023 | Revenue Q2 2022 | Operating Income Q2 2023 | Operating Income Q2 2022 | | :--- | :--- | :--- | :--- | :--- | | Expedited | $104.1M | $121.6M | $5.8M | $14.6M | | Dedicated | $81.2M | $96.8M | $3.2M | $2.9M | | Managed Freight | $63.3M | $80.3M | $1.9M | $8.6M | | Warehousing | $25.5M | $18.7M | $0.8M | $0.8M | - Expedited revenue and operating income fell due to a 10.3% decrease in average rate per total mile, despite a 9.5% increase in miles per unit[322] - Dedicated revenue decreased due to a 14.8% reduction in average tractors as the company exited underperforming contracts, partially offset by the LTST acquisition[3][28] - Managed Freight profitability dropped sharply as a result of reduced volumes of high-margin overflow freight from the Expedited and Dedicated segments[51][219] Liquidity and Capital Resources The company maintains adequate liquidity with $48.2 million available under its Credit Facility, despite decreased working capital and significant cash uses for acquisitions and capital expenditures - Net capital expenditures for the first six months of 2023 were $111.9 million, compared to $63.0 million in the prior year period, reflecting the delivery of 234 new tractors and 262 new trailers[54] - Net cash provided by financing was $40.1 million for the first six months of 2023, driven by net borrowings of $76.9 million, partially offset by $25.4 million in stock repurchases and $2.9 million in dividends[81] - The Board amended the stock repurchase program in January 2023, authorizing purchases up to $55.0 million, with the company repurchasing a total of 2.7 million shares of its Class A common stock since May 2022[34][216] - As of June 30, 2023, the company had working capital of $44.9 million and available borrowing capacity of $48.2 million under its Credit Facility[4][300][301] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in market risks were reported since the 2022 Form 10-K - No material changes in market risks were reported since the 2022 Form 10-K[331] Item 4. Controls and Procedures Disclosure controls were ineffective due to an incorrect input in the LTST acquisition significance calculation, leading to a delayed Form 8-K filing, though financial statements were unaffected - A deficiency was identified where an incorrect input was used in the significance calculation for the LTST acquisition[37] - This resulted in the failure to file required LTST audited financial statements and pro forma information on Form 8-K, with an amendment filed to disclose this and statements to be filed when available[37] - The deficiency did not impact the company's current or historical financial statements[37] - No other material changes to internal control over financial reporting occurred during the quarter[38] PART II OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings, primarily routine personal injury and property damage claims, are detailed in Note 10 of the financial statements - Legal proceeding details are located in Note 10 of the financial statements[39] - The company is involved in ordinary course litigation, primarily related to personal injury and property damage claims from freight transportation[200] Item 1A. Risk Factors No material changes to business risk factors were reported compared to prior 10-Q and 2022 10-K filings - No material changes to risk factors were reported compared to the prior 10-Q and the 2022 10-K[40] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 129,320 shares for $4.5 million in Q2 2023, with $32.6 million remaining under the authorized stock repurchase program Stock Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining | | :--- | :--- | :--- | :--- | | April 1-30, 2023 | 129,320 | $34.71 | $32,620,200 | | May 1-31, 2023 | - | - | $32,620,200 | | June 1-30, 2023 | - | - | $32,620,200 | | Total | 129,320 | | $32,620,200 | - The Board amended the stock repurchase program on January 30, 2023, authorizing the purchase of up to an aggregate $55.0 million of Class A common stock[311][34] Item 3. Defaults Upon Senior Securities This item is not applicable - Not applicable[84][312] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2023[68] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and LTST acquisition agreements - Key exhibits filed include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and the Stock Purchase Agreement for the LTST acquisition (Exhibit 10.4)[69]