Covenant Logistics Group Inc. (NASDAQ:CVLG) Q3 2022 Earnings Conference Call October 21, 2022 9:00 AM ET

Company Participants

David Parker - Chief Executive Officer

Joey Hogan - President

Paul Bunn - Senior Executive Vice President, Chief Operating Officer

Tripp Grant - Executive Vice President, Chief Financial Officer

Conference Call Participants

Jason Seidl - Cowen

Scott Group - Wolfe Research

Jack Atkins - Stephens

Bert Subin - Stifel

Barry Haimes - Sage Asset Management

Operator

Welcome to today’s Covenant Logistics Group Q3 2022 earnings release and investor conference call. Our host for today’s call is Joey Hogan.

At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session.

I would now like to turn the call over to your host. Mr. Hogan, you may begin.

Joey Hogan

Thanks Ross. Welcome everyone to the Covenant Logistics Group third quarter conference call. As a reminder to everyone, 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 risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures and filings with the SEC, including without limitation the Risk Factors section in our most recent Form 10-K and our current Form 10-Q. 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 is now available on our website at www.covenantlogistics.com in the Investors section.

I’m joined on the call this morning by David Parker, Paul Bunn, and Tripp Grant.

Opening for the call, despite the challenges of negative GDP growth, overstocked inventories and industry-wide overcapacity that have increased over recent months, combined with major inflationary pressures, we remain grateful to our teammates for producing record adjusted earnings per share for any third quarter in our history.

On a consolidated basis, adjusted net income was up 31% and adjusted earnings per share was up 49% on the strength of revenue growth, flat adjusted operating margin, growing contribution from TEL, and a 12% reduction in diluted share count resulting from our ongoing share repurchases. Return on capital for the trailing four quarters was 23% compared with 12% for the trailing four quarters in 2021.

On the truck side, we were pleased with how our utilization and rates held sequentially from the second quarter, but the impact of delayed deliveries of new equipment and escalating costs of parts, maintenance and other line items compressed our margins in the quarter. Our managed freight group did a great job in holding margin despite reductions in overflow freight from the truck side, and our warehouse team withstood cost headwinds associated with new customer business and investments in additional warehouse capacity for future growth. The contributions of the AAT acquisition, which operates in a less economically sensitive market, TEL, Dedicated, and stock repurchases provided most of the improved earnings per share despite a weaker market compared to the historically strong market a year ago.