Covenant Logistics Group (CVLG) Q3 2024 earnings summary

Executive summary

• Q3 2024 earnings per diluted share were $0.94, with adjusted EPS at $1.09, as core business performed well despite a weak freight environment and softer expedited volumes.

• Consolidated freight revenue rose 2.1% year-over-year to $258.6 million, driven by new business in the dedicated segment, while total revenue was $287.9 million, down 0.3% due to lower fuel surcharge revenue.

• Adjusted operating income increased by 8.3% to $19.3 million, with growth in dedicated and warehousing segments; operating income rose to $16.2 million.

• Adjusted net income was $15.2 million, flat year-over-year due to higher interest expense and lower earnings from the TEL investment; net income was $13.0 million.

• Asset-based segments contributed 69% of total revenue, with improved truckload margins from more tractors and better revenue per mile, offset by lower utilization and higher costs.

Financial highlights

• Asset-based truckload operations grew average tractor count by 169 units (7.9%), freight revenue by $11.4 million (7.2%), and adjusted operating income by $1.6 million (12.6%).

• Asset-light operations saw a $6.2 million (6.5%) reduction in freight revenue but limited adjusted operating income decline to $0.2 million (3%).

• Net capital investment in revenue-producing equipment was approximately $18 million for the quarter; net capital expenditures for the nine months ended September 30, 2024, were $77.5 million.

• Average fleet age improved to 20 months from 23 months a year ago.

• Net indebtedness declined sequentially by $36.6 million to $236.7 million; adjusted leverage ratio at 1.6x, debt-to-capital at 35.4%.

Outlook and guidance

• Management expects the general freight market to remain challenging and recover slowly due to excess capacity and lack of immediate catalysts.

• Optimism persists due to core business durability, with new dedicated business awards and some customer rate increases, but softer volumes, especially in Expedited, offset gains.

• Q4 expected to see continued operational efficiency improvements and execution on new opportunities.

• Pricing increases of 2%-3% are targeted in upcoming bid cycles, with some customers already agreeing to higher rates.

• CapEx for 2025 projected to decrease to $50-$60 million, mostly for maintenance, down from ~$90 million in 2024.