Covenant Logistics Group, Inc. Class A

Welcome to today's Covenant Logistics Group Q1-22 Earnings Relief and Investor Conference Call. Our host for today's call is Joey Hogan. At this time, all participants will be in the listen-only mode. Later, we will conduct the question-and-answer session. I would now like to turn the call to your host, Mr. Hogan. You may begin.

Thank you, Ross. Welcome, everybody, to the Covenant Logistics Group first quarter conference call. As a reminder, this conference call will contain forward-looking statements. Within the meaning of the Private Securities Litigation Reform Act of 1995, forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures with the SEC, including without limitation risk factors in our most recent Form 10-K and our current recent Form 10-Qs. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances. A copy of our prepared comments and additional financial information is available on our website at covenantlogistics.com, the investor section. I'm joined this morning by Paul Bunn, our Chief Operating Officer, and Tripp Grant, our Chief Accounting Officer, and David Parker is available via the phone. In summary... We're very proud and pleased with our first quarter results, which represent yet another quarterly earnings record for any quarter in the company history. In addition, it's the first time in our history where our first quarter earnings were greater sequentially than the fourth quarter. This exciting achievement could not have been accomplished without the contribution from each of our business units. All business units improved its OR versus the fourth quarter. The small acquisition we made in February, combined with a purchase of 655,000 shares and an average price of $22.60 under our share repurchase program, produced earnings accretion to the quarter and is expected to continue. With this strong start to the year and the hard work of our team transforming our business to a less cyclical model, we are confident that we will exceed 2021's full-year adjusted earnings per share target for the four-year of 2022, absent something truly unexpected. The key to my highlights for the quarter were our freight revenue grew 28% to $258 million compared to the 2021 quarter. Adjusted earnings per share increased 141% to $1.35 per share from the year-over-year quarter. Our asset-based truckload freight revenue grew 15% versus the first quarter of 21 with 218 fewer trucks. Our less asset-intensive or asset-light divisions of managed freight and warehouse combined grew 55% compared to the first quarter of 2021. On the safety side, our chargeable DOT accident rate was the lowest on record and 31% lower than a year ago. Our tail leasing company investment produced a record quarter, contributing 30 cents per share. or an additional $0.17 per share versus the year-ago period. Due to the strong cash flow in the quarter, our net indebtedness increased only $22 million after utilizing a combined $52 million of cash and borrowings under our credit facility on the small acquisition and our share repurchases. We finished the quarter with a leverage ratio of slightly less than 0.4 times, a debt equity ratio of 12%, and a return on invested capital of 14%. Now Paul will provide a little color on the items affecting the business.

Thank you, Joey. For the quarter, our asset light business, which are comprised of our managed freight and warehouse, were once again our largest group, both in terms of freight revenue and adjusted operating profit. This group comprised 40% of our total freight revenue and 50% of our consolidated adjusted operating profits. The sheer volume of overflow and special project freight dropped throughout the quarter, but overall revenue margin expanded, covering much of the volume decline. Our warehouse team is doing a great job building a nice pipeline with several startups planned for the remainder of the year. This group remains our top priority for growth, focusing on talent acquisition and technology enhancements. We are very excited about the prospects within this group. The expedited division was 31% of our consolidated freight revenue and produced 38% of our adjusted operating profit in the quarter. It grew its revenue 16% versus the year-ago quarter due to a strong rate environment and contribution from the small acquisition. The acquisition contributed to the sequential weighted average growth of 36 tractors in the quarter. Expedited produced a record first quarter with an 88 adjusted operating ratio, 260 basis points better than the fourth quarter, a first for our company. Even in a slowing environment, new business startups continue, and our team count is growing in the second quarter. After multiple increases in 2021, we feel our driver pay is in good shape at present, but we'll continue to watch it closely. The dedicated division was 29% of our consolidated freight revenue and 12% of our adjusted operating profit in the quarter. This division continued its steady sequential improvements with adjusted OR improving 180 basis points from the fourth quarter and 580 basis points from the year-ago quarter. Revenue per truck continues a sequential improvement of 8% from the fourth quarter, which has been a big key to sustainable gains. Also, the wheat and feed plan for accounts continues, with seven startups completed in the first quarter, totaling 61 trucks, and five or six planned in the second quarter for around 80 trucks. The pipeline for the remainder of the year is robust, supporting our expectation that margin improvement will continue. We plan to begin briefly discussing each quarter the performance of our 49% interest in Transport Enterprise Leasing, or TAIL. TAIL is an investment that we've had since 2011. During that time, TAIL has grown to over 2,000 tractors and 6,500 trailers in its portfolio. Our investment in TAIL is included in other assets in our consolidated balance sheet, and has grown from our initial cash investment of $4.9 million to $51 million, including the cumulative earnings we have recognized. As a reminder, TEL focuses on managing lease purchase programs for its clients, leasing trucks and trailers to smaller fleets and shippers, and aiding clients in the procurement and disposition of their equipment through a robust equipment buying and selling program. TEL contributed a total of $0.30 per share to our overall results. or an additional 17 cents a share versus the year-ago quarter. TEL's revenue in the quarter grew 41%, and pre-tax operating profit margin increased 43%. Due to the business model, gains and losses on self-equipment are the normal part of TEL's business and can cause earnings to fluctuate from quarter to quarter. We are very happy with the TEL leadership team, its future, and its contribution to Covenant's future. TEL is an untapped value for our shareholders. Joey will now walk us through our outlook.