Covenant Logistics Group, Inc. (NASDAQ:CVLG) Q2 2022 Earnings Conference Call July 26, 2022 10:00 AM ET

Company Participants

David Parker - Chairman and Chief Executive Officer

Joey Hogan - President

Paul Bunn - Senior Executive Vice President and Chief Operating Officer

Tripp Grant - Executive Vice President and Chief Financial Officer

Conference Call Participants

Jason Seidl - Cowen

Scott Group - Wolfe Research

Jack Atkins - Stephens

Bert Subin - Stifel

Operator

Welcome to today’s Covenant Logistics Group Q2 2022 Earnings Release and Investor Conference call. Our host for today’s call is Joey Hogan. [Operator Instructions] I’ll now turn the call over to your host. Mr. Hogan, you may begin.

Joey Hogan

Thanks, Erica. Good morning and welcome to our second quarter conference Call. As a reminder, this 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, they could actual results to differ materially from those contemplated by the forward-looking statements.

We asked you to please review our disclosures in our filings with the SEC, including without limitation, the Risk Factors section, and our most recent Form 10-K and our current year 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 www.covenantlogistics.com in the Investors section.

I'm joined this morning by David Parker, Paul Bunn and Tripp Grant. To start with, we are grateful to our teammates for again producing record earnings per share for any quarter in our history. The transformation of the company that we have been working on for the past five years continues to build our confidence in our direction and leadership team. Our asset-based truckload operations lead the charge in the second quarter improving its operating income 76% despite a significant headwind in operating costs, primarily insurance claims expense and less gain on sale, the combined increased cost has affected us by $.20 a share in quarter.

Additionally, the small acquisition we made in the first quarter, plus the continued pursuit of investing in our undervalued company stock contributed nicely to the improved results versus year ago. Despite the murky economic outlook, we are bullish on Covenant.

In summary, the key highlights of the quarter were; our freight revenue grew 15% to $267 million compared to the 2021 quarter. Adjusted earnings per share increased 70% to $1.63 per share from the year ago quarter. Our asset-based truckload’s freight revenue grew 16% versus the second quarter of 2021 with 80 fewer trucks. Our less asset intensive or asset light managed freight and warehouse segments combined grew 14% compared to the second quarter of 2021. On the safety side, our DOT rate was 2% higher than a strong quarter last year, but development of a small number of prior period claims contributed to almost $.06 per mile increase in insurance expense. Gain on sale was only $400,000 compared to $1.9 million in the year ago quarter. Our TEL leasing company investment produced another record quarter, contributing $0.33 per diluted 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 $10 million after utilizing $28.5 million of cash on share repurchases. We finished the quarter with a leverage ratio of 0.43x, debt to equity ratio of 14.6%, and return on invested capital of 15.7%. Now Paul will provide a little more color on the items affecting the business units.