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enant Logistics (CVLG) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated freight revenue increased by 7.8% or approximately $20 million to $276.5 million [4] - Consolidated adjusted operating income decreased by 19.6% to $15 million, primarily due to cost increases in the truckload segment [4] - Net indebtedness increased by $49 million to $268.7 million, resulting in an adjusted leverage ratio of approximately two times and a debt to capital ratio of 39.2% [4] - Average age of tractors increased slightly to 22 months compared to 21 months a year ago [4] - Return on average invested capital was 7% versus 8% in the prior year [5] Business Segment Performance Changes - The expedited segment had an adjusted operating ratio of 93.9, slightly better than the previous year, but below expectations [5] - Expedited's average fleet size decreased by 50 units or 5.5% to 860 tractors [6] - Dedicated segment's adjusted operating ratio improved sequentially but fell short of prior year expectations; freight revenue grew by $8.3 million or 10.2% [6] - Managed freight exceeded both revenue and profitability expectations, benefiting from nonrecurring business [7] - Warehouse segment revenue was flat year-over-year, but adjusted operating profit fell by approximately 45% due to facility-related cost increases [9] Market Data and Key Metrics Changes - The general freight market remains tepid, impacting margins more than desired [10] - The company anticipates a slowly improving general freight market in the second half of the year [11] - The air freight side of the business is showing signs of improvement, particularly related to AI and data center transportation [19] Company Strategy and Industry Competition - The company aims to grow its dedicated fleet, focusing on value-added services and reducing exposure to commoditized markets [7][72] - The strategy includes diversifying the managed freight segment and improving margins through rate increases and exiting less profitable business [6][9] - The company is experiencing increased competition in traditional dedicated markets, prompting a shift towards specialized services [71] Management's Comments on Operating Environment and Future Outlook - Management sees "green shoots" in the market, indicating potential improvements in capacity and pricing [14] - The outlook for the second half of the year includes additional start-ups in the dedicated segment and expectations for a modest peak season [11] - Management believes that improving economic conditions and lower interest rates could stimulate demand for freight services [61] Other Important Information - The company repurchased approximately 1.6 million shares for a total cost of $35.2 million, representing 5.7% of average diluted shares outstanding [3][4] - The company has $13.8 million remaining under its share repurchase authorization [4] - The management team is focused on disciplined capital allocation and improving operational leverage as market conditions improve [11] Q&A Session Summary Question: What are the expectations for the market and customer conversations around peak season? - Management sees some positive signs in the market, with customers expressing interest in capacity and pricing stability [14] Question: How is the LTL business developing? - The LTL side has been challenging, with most customers reporting pressure on volume [18] Question: What is the impact of the recent legislation on CapEx and truck purchases? - The legislation may help cash tax obligations, but the company plans to remain disciplined with its CapEx [21] Question: What drove the record revenues in Q2? - Record revenues were driven by growth in the dedicated fleet and managed freight, along with surge freight in the quarter [78] Question: What are the long-term margin expectations for expedited and dedicated segments? - Long-term expectations for expedited margins are in the range of 83 to 93, while dedicated margins aim to return to the low nineties [50][56]