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Edited Transcript of CVTI earnings conference call or presentation 21-Apr-17 2:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Covenant Transportation Group Inc Earnings Call

Chattanooga Apr 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Covenant Transportation Group Inc earnings conference call or presentation Friday, April 21, 2017 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Ray Parker

Covenant Transportation Group, Inc. - Chairman of the Board and CEO

* Joey B. Hogan

Covenant Transportation Group, Inc. - President

* Richard B. Cribbs

Covenant Transportation Group, Inc. - CFO and EVP

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Conference Call Participants

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* Albert Brad Delco

Stephens Inc., Research Division - MD

* Barry George Haimes

Sage Asset Management, LLC - Managing Partner and Portfolio Manager

* Jason H. Seidl

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Scott H. Group

Wolfe Research, LLC - MD and Senior Transportation Analyst

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Presentation

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Operator [1]

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Excuse me, everyone. We now have all of our speakers in conference. (Operator Instructions) I would now like to turn today's conference over to Richard Cribbs. Sir, you may begin.

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [2]

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All right. Thank you, Samantha. Good morning. Welcome to our first quarter conference call. Joining me on the call this morning are David Parker and Joey Hogan.

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 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 Form 10-Q. We undertake no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances.

A copy of our prepared comments and additional financial information is available on our website at ctgcompanies.com under the Investor Relations tab. Our prepared comments will be brief, and then we will open up the call for questions.

In summary, the key highlights of the quarter were our asset-based division's revenue, excluding fuel, decreased 3.1% to $127 million due primarily to a 2.4% decrease in average tractors. Versus the year-ago period, average freight revenue per total mile was up $0.005 per mile or 0.3% and our miles per truck per week were up 0.6%. Freight revenue per tractor at our Covenant Transport subsidiary experienced an increase of 2.4% versus the prior year quarter. Our Star Transportation subsidiary experienced an increase of 0.4%, while our refrigerated subsidiary, SRT, experienced a decrease of 5%.

The asset-based division's operating cost per mile, net of surcharge revenue, were up approximately $0.069 per mile compared to the year-ago period. This was mainly attributable to higher employee wages, capital costs, ops and maintenance expense, casualty insurance expense and other fixed costs. These increases were partially offset by lower net fuel cost.

We recognized a loss on disposal of equipment of approximately $500,000 in the first quarter of 2017 versus a loss of approximately $300,000 in the first quarter of 2016. The asset-based operating ratio was 100.2% in the first quarter of 2017 compared with the 95.7% in the first quarter of 2016.

Our Solutions logistics subsidiary decreased revenue by 3.4% versus the year-ago quarter. Combined purchased transportation and other operating expenses increased as a percentage of revenue, resulting in operating ratio deterioration to 89% from 86.6% in the year-ago quarter, the result being a decrease of operating income contribution to $1.4 million in the current year quarter from $1.8 million in the prior year quarter.

Our minority investment in Transport Enterprise Leasing contributed $1 million to pretax earnings or $0.03 per share. The average age of our tractor fleet continues to be young at 2 years as of the end of the quarter, although up from 1.7 years a year ago. As we are extending the trade cycle of our tractors, we expect the average age of our tractor fleet to increase over the next 2 or 3 quarters.

Since December 31, 2016, total indebtedness, net of cash and including the present value of off-balance sheet lease obligations has decreased by approximately $11.6 million to $215.2 million.

The main positives in the first quarter were: one, our tangible book value per basic share increased 13.4% to $12.91 from $11.38 a year ago; two, deleveraging with $11.6 million decrease in our total net indebtedness; and three, a 12.5% year-over-year increase in the average tractor fleet at our Star Transportation subsidiary.

The main negatives in the quarter were: one, increased operating costs on a per mile basis, including the unfavorable employee wages, capital, maintenance and casualty insurance costs that were partially offset by the lower net fuel cost; and two, SRT operating at a loss for the fifth consecutive quarter.

Our fleet experienced an increase to 2,570 trucks by the end of March, a 35 truck increase from our reported fleet size of 2,535 trucks at the end of December. Our fleet of team-driven trucks averaged 1,003 teams in the first quarter of 2017, a 2.8% decrease from 1,032 average teams in the fourth quarter of 2016.

Our first quarter freight varied from month to month. January started off strong but weakened at the end of the month, resulting in year-over-year January miles per truck being up 0.7%. February was weak for most of the month, resulting in year-over-year February miles per truck being down 4.7% on 1 less calendar day. And March picked back up, meeting seasonal expectations, with our year-over-year March miles per truck finishing up 2.2%.

For the remainder of 2017, our outlook is mixed. We expect the second quarter of 2017 to remain challenged by negative comparisons in freight revenue per tractor, accelerated depreciation and higher maintenance expense and professional driver wages. These factors will be countered to some extent by year-over-year net fuel expense savings in all remaining quarters and a flattening of the negative year-over-year impact of depreciation in the second half of 2017. At SRT, we are seeing progress and have confidence in our plan and team, and we expect additional progress in the 3 remaining quarters of 2017 versus 2016.

To the extent mandatory ELD implementation and lower truck numbers in our industry decrease effective capacity and economic growth spurs volumes, we expect the supply-demand environment to improve later in 2017 and into 2018. However, the timing and magnitude of these changes are difficult to predict and may be different in each of our markets. We are hopeful that these items will deliver earnings improvement for the second half of 2017 as compared to the second half of 2016. We expect operating cash flow in excess of net capital expenditures and to continue to pay down debt in 2017.

Thank you for your time. We'll now open up the call for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Jason Seidl with Cowen.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [2]

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I wanted to focus a little bit on the recent merger and how that might impact carriers like yourself, because one of the reasons Knight gave was they wanted to have the ability to go after that online marketplace a little bit better due to the supply chain shortening. Does that provide more competition to you? Or is that just going to be something completely separate from the team driver market that you guys are already one of the dominant players in?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [3]

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Jason, I look at that as -- I think predominantly, probably 90% of both of our operations, theirs and ours, is apples and oranges. And they are definitely the -- to me, Knight just became a larger -- much larger with Swift acquisition on the regional market of what they were already doing, and we don't really play in that market that much. So I don't think so. I think that as ELDs come into existence 12 months from now, I think there's going to be a lot of 550-mile length of haul, 600-mile length of hauls that we don't play a whole lot in today, that if a customer wants that next-day delivery, it's going to have to go by a team, because a solo driver is not going to be able to go, the vast majority of them, on a 550 miles if they got any deadhead whatsoever to origin. And so we see the market side requiring team drivers more than it is today 12 months from now. But overall, I think it was a great acquisition, and I think that they will do a great job together, all that wonderful words that we all want to say. So yes, that's really what it is to us.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [4]

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Have any of your customers come to you now with the concern that some of their existing lanes are like that, that 500 to 550 miles that are being done by a solo driver now, but in the future, they might need help from companies like yourself?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [5]

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No, only -- that's a good question, Jason. What we see in a -- from a bid standpoint or they're in rate negotiations or just knowing what our customers have in their freight is that we are able to see it. We don't participate a lot, only because we don't really want a lot of it. And so -- and this is just repositioning trucks from one market to get into a market where we need our -- the teams. And so we see it. There's a lot of it. And the customers, right now, I think similar to us, are just kind of sitting back, saying, "What's going to happen in 12 months from now? That really -- is it really not going to be able to get off? Is this thing really going to dictate me doing something." So I think it's kind of a wait-and-see attitude in that marketplace. But as we all know, there's a lot of that freight.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [6]

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Okay. Last question on SRT. Obviously, progress probably slower than you guys would like. Could you talk a little bit what we should expect for the remainder of the year? Is it going to be sequential progress but just slow and then hopefully, wait as the ELDs really tighten up that reefer marketplace in '18? Is that how we should look at it?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [7]

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Yes. And I'll let Joey and Richard both add a little bit. But I couldn't be more excited on what I'm seeing on the SRT. I mean, the management team is doing a great job at SRT. I'm very pleased, I mean, the -- just the vigor that they've got and the energy that is displayed throughout that company. And all the companies are working so well together. I'm very excited with where they are at, and the example that I've given them is that they've pushed and pushed that ball up that hill, and that ball is almost at the top of that -- of the crest of that hill. And we believe that, as we have said, we believe second quarter is a great time. I was very pleased with SRT's month of March. I mean, it really showed a lot of the hard effort that they've been putting into it, and this gave them a glimpse of what's ahead for them. And so I do believe that we're right on where we believe it is, and that is that second quarter, they will be profitable, and then it will continue to get better in the third and in the fourth quarter. So I think they are really where we thought they would be at, and we're very excited with the turnaround at SRT. Joey, Richard?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [8]

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I think, Jason, there's a couple of things, several things that we can point to that we're seeing (inaudible) results, and that's kind of what happens in a turnaround. Their service is really strong. I'm not saying their service was ever awful, but it had some room for improvement, and it's done quite well. The bleed of customers that we were kind of feeling first half of last year is gone. We wish the freight market was a little stronger. Obviously, the improvement would be seen much quicker.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [9]

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We all do, right?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [10]

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That didn't help, obviously. But the service is really, really strong. The accidents that are going on there have continued to drop. They're doing really strong there. The drivers -- the driver market has been very receptive to the new management team. Its turnover continues to drop. Its network density has been refined -- or redefined, I'll call it, and it's starting to move in the correct direction. So we're excited about that. So I think there's several things from the basic blocking and tackling mechanic. It needed some major movement, and those are happening. At the end of the day, we need some freight. And so I think as that comes on with either new customers or customers they've used in the past that are willing to give us another shot or, obviously, if the market -- when and if the market tightens, I think that's going to help them dramatically. So it's going to be what you said, slow sequential improvements. David's already said we have a goal of breakeven in the second quarter. That will be pretty meaningful. That's not slow. That's a big move from first to second quarter. And so I think that's what you're going to see throughout this year. And we're ready to go. So I think you'll see it throughout this year.

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Operator [11]

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Our next question will come from Scott Group with Wolfe Research.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [12]

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Can you give a little color or commentary on what you're seeing in April? Werner talked about kind of seeing things get better on a year-over-year basis. What are you guys seeing?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [13]

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Scott, as I look at -- a couple of things. Number one, very happy with the month of March at all 3 companies' assets, very happy with the month of March and was happy with the 1st week of April. And then we got to Easter week, and it was a typical Easter week. And -- where Good Friday's kind of 75% of what it ought to be, but that's a number that's always been there. But you had that little slowdown Easter week, and we did not see it pick back up. I mean, it got better. I mean, we didn't have a Good Friday. But the following week, this week, has been very, very similar to a little more negative than what I would like to have seen the week. I hope that it's just a hangover from Easter. That is on the dry side. On the reefer side, I think there has definitely been a pickup, and I'm encouraged by what I'm seeing on the refrigerated side of the business. I think freight is getting pretty decent out there from the refrigerated side. But it's -- we're 2 weeks into April coming off of March and I was very pleased with -- I don't know -- from our standpoint, I don't know if there's a little pause that is happening here for the last week, Good Friday and then this week or not.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [14]

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And Richard, what does that mean for your expectation for miles per truck in the second quarter?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [15]

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I think that we're probably pretty close to on par with what we would expect. The bigger, more important months really are June and May for the quarter. Kind of looking at -- we had probably forecasted the miles to be up a bit in April this year, because April really wasn't that great last year. But now we're probably looking more at flattish, maybe still slightly up but not to the level we had expected. But I'll bet -- my guess is we can probably make that up in May and June.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [16]

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Okay, helpful. Can you talk about what you're seeing from of a bid season perspective and what pricing increases you guys are realizing?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [17]

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I think, Scott, bid season is going, I would say, about as we expected. On a bid, there's 2 things to keep in mind. Not only the rates on same lane, what does that do, but also yield difference, meaning you may trade off lanes or the customer may ask you to trade off lanes. And so the net result is, what does your overall book of business do with that customer versus where you were prior to the bid. Our expedited side is running around 2%-ish is what I would say. Our reefer side, a little bit less than that. But both of them are up. And we're -- the customers are being very aggressive in the marketplace. There's no question. But those that we're able to work through, we're probably a little behind. There's a little -- I'm not going to be too aggressive. I mean, there's a little delay tactic, if you will, going on. But we are able to get some increases, but it's really varying; our overall yield is moving, and so I'm encouraged by that. This is a big quarter. Second quarter is a big, big, quarter. And so we'll be, basically, through most of it by July. Most of all of our big accounts will be done by July. One of our larger top 10 accounts is done. It's a 2-year contract. So that's done, and we knew what it was last year, and that was at 1.5%. So we have that in there. So we feel pretty good. Most of the surveys that I answer, I'm still saying 1% to 2% for the year, and I think that's about where we'll end up.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [18]

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Okay. And just to follow up on that, your point about mix is, I think, an interesting one. And I'm guessing when the market's tight, you can kind of force your mix to go -- push your mix higher. Is this a market where kind of the customers are pushing your mix down? Or do you think you can kind of keep mix stable and realize pricing of 1% to 2%, in line with the 1% to 2% you're getting on bids? Does that make sense?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [19]

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Yes. I think when the market's down, you're working -- there's 2 things going on. Obviously, when the market's good, you have the opportunity to raise rates where you need it as well as move your network a little bit quicker in the areas that you need. When the market's down, you're still trying to move your rates, but we take a little bit more -- you have to be a lot more circumspect on the lanes that you need today, because your network is not as stable, not as robust. So you're willing to be a little bit more aggressive with freight. You're not hauling today [ if it ] fills the network need. And so that can impact yield a little bit negatively, but on the other hand, it's moving trucks into areas that you need to move them in. And as the markets move, you move with that market, so -- but anyway, I said all that to say, our analyst team and our sales team is doing a really good job on an ongoing basis of managing to our network needs, good markets or bad markets. It's just in bad markets, you tend to be a little bit more aggressive, which is obvious.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [20]

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Okay, great.

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [21]

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One of the other areas, Scott, I'd mention real quick, is we have a strong strategic initiative on growing our southbound freight or our Mexico business. And that's providing some neat opportunities for us from a freight standpoint and a yield standpoint. It's early. I think we are hoping for business. The shipping community is understanding that. We're providing an outstanding service into that marketplace. I think we have some unique things that maybe isn't as prevalent in that marketplace down there. When you're able to offer expedited capacity in and out of Mexico, it's not prevalent down there. And so we're already offering that, and we're really pleased with what we're seeing there. The team that's managed that has done a really good job. And that is a nice growth opportunity this year. Still going to be small, but we're real excited about what we see in that, too.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [22]

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Okay, great. And then last one for David, maybe just as we think about Amazon as a customer and how their supply chain needs are evolving. Maybe just talk about how you see their supply chain needs evolving and anything they're doing differently in the market this year versus a year ago with their brokerage platform. And does that mean you're growing with them, not growing with them now, what it means for you? A long question, but however you want to approach the Amazon question.

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [23]

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Everything you said there is all correct. I mean, Amazon, there's 2 or 3 things. Number one, they continue to grow in their company very dramatically. And the way I think that I look at Amazon is that it's very similar to the 1980s of Walmart, and that is Walmart was in a tremendous growth that we all did business with. And the next thing you know, Walmart started adding trucks, and Amazon's adding trucks. They have not told me this, it's been a few months since I heard about it. They're running about 400 trucks or so on their owner-operator program that they have got. So it's somewhere around that number. And Walmart starts adding trucks, and the next thing you know, Walmart's at 6,000 trucks and they need every one of them. And I think Amazon is going to be in the same position. Kind of what we are seeing there is that as they've added some of the trucks, then you lose a lane here and you lose a lane there. But it's hard to tell because their network is such in a continuous change mode. I mean, they open up fulfillment centers, and lanes get changed. Then this lane becomes that lane and goes to that fulfillment center. And you like it, but you don't like the other one, and it's a continuous motion of change. And we have seen a lot of that in February, March kind of time frame. In early April, the last couple of months, there's been a lot of change in their network, and I would say net effect, it has been a negative to us. But we've recently had meetings with Amazon, and they still need what we've got, and they still value the relationship tremendously. And we got to get the business back up to where it's at -- where it was at 6 months ago or 5 months ago. But yes, it has been a little negative from that standpoint of their fleet that they're bringing on. So I think there's just some growth that is going on there and what's in the network. They do believe that their 500, 600, 700-mile length of haul loads are going to continue to explode on them in the foreseeable future. And then there's concerns on the ELD mandates and what solos can do. And so that's not [ take ]. It's a work in progress as it has been for the 2 years that we've done business with Amazon.

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Operator [24]

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Our next question will come from Brad Delco with Stephens.

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Albert Brad Delco, Stephens Inc., Research Division - MD [25]

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Question -- most of mine have been asked, but I was hoping, Richard, maybe you could sort of quantify. I think David gave us good context that the goal is for SRT to turn to profitability in the second quarter. But as we think about what those year-over-year comps look like second, third, fourth quarter for SRT, is there any way you could put into context how much of an earnings drag that segment was to the overall business, so we know kind of what to compare it to going forward?

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [26]

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Well, I'll try. We went into the year saying that we expected to see between $5 million and $10 million of EBIT improvement at SRT. You could read into our first quarter release that we actually were behind a little bit in the first quarter of this year versus first quarter of '15. And so we still have more than $5 million to make up on at a minimum. And I guess I'm on record saying that $10 million is the stretch goal. And so whether we expect that or not, I think that's a little strong goal that we could hit but not as probable as definitely hitting the $5 million number. And if you were going to spread that out over the quarters, I'd say the second quarter has a -- second and third quarter has probably closer to half of that, and then the fourth quarter has the remainder of that, so a lot more in the fourth quarter than in the second and third. Does that help?

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Albert Brad Delco, Stephens Inc., Research Division - MD [27]

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Yes. If I'm reading that correctly, your easiest comp for SRT will be fourth quarter of '17.

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [28]

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That's correct. It should be based on where they're trending and all the work that's gone in there and where we have the equipment and as the sales team continues to progress and what we expect from the economy and capacity, so yes.

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Albert Brad Delco, Stephens Inc., Research Division - MD [29]

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Okay, great. And then, David, maybe this is sort of a tag-on to Scott's question about your relationship with e-commerce or peak season customers. But I remember several years ago, there were arrangements where their capacity allocation during peak would be dependent upon how supportive they are of your business during the out-of-peak season, knowing that it takes time and it's difficult to maintain or to hold on to teams. Is that no longer the case? And could there be ramifications for how you allocate capacity, if that's not the case today? Maybe I'm reading too much into your comments on Scott's question, but it sounds like Amazon's not giving you as much freight right now, and I don't know there's necessarily going to be any repercussions for that decision.

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [30]

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Yes, you're reading more into it than what that is. First of all, keep in mind there's -- besides all of our regular customers, whether it's retail or what the product is, that also go up in their peak season, there's 4 shippers, 4 customers that could take every bit of our peak that we have got available out there. And so we try to do a good job of making sure that we keep all 4 of those as well as our other regular customers year-round, happy. And so those 4 customers, again, could take all of our capacity that we've got. And I would say that those customers have been good to us, and we've already got some peak season that's already been tied up for this coming peak, and it's already been negotiated. And expectations of what it's going to be have already been there as well as they've helped us tremendously in the first quarter. I'm very pleased, overall, with what our customers have done for us in the first quarter. So no, don't take -- we're very, very pleased with what's happening with our peak customers. It's just that, as Scott asked earlier, it's just that Amazon has got fulfillment centers here and lanes changing here and company trucks coming here that affects it. But I think their growth is much greater than that, so you kind of go back 1 step, and then you're going to go up 2 steps. And you'll go back 1 step, and you're going to go up 2 steps as they are growing rapidly. But I'm very pleased with our peak customers, and they have helped us very nicely in the first quarter.

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Albert Brad Delco, Stephens Inc., Research Division - MD [31]

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Great. And then maybe if I can tack on something I thought I picked up in that response. Did you say amongst your, call it, 4 peak, large peak season customers, that you already had some pricing or contracts locked up for this peak season?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [32]

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Yes.

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Albert Brad Delco, Stephens Inc., Research Division - MD [33]

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Could you give us context around what that might look like?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [34]

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No, I don't want to give -- I mean, we're -- yes, we've already got some -- I would say that half of our peak season is already done with on what is expected and what's already sewed up. So here it is, April, that's probably the fastest. Do you agree, Sam? I mean, I think that's probably the fastest, Joey, the fastest we've ever been at this time to say kind of half of our peak season is already figured out. So I don't know if that helps you or not, but I'm very, very pleased that it's actually, again, ahead of the curve.

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Albert Brad Delco, Stephens Inc., Research Division - MD [35]

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When would -- normal would typically be July, August, right?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [36]

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Yes, that's right. And then it doesn't get firmed up until September and those kind of time frames. And then really gets firmed up in October, and so it is a process.

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Operator [37]

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(Operator Instructions) Our next question will come from Barry Haimes with Sage Asset Management.

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Barry George Haimes, Sage Asset Management, LLC - Managing Partner and Portfolio Manager [38]

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Two questions. First one, I know sometimes, in your leasing business, some of those asset-light businesses, you get a window onto what some of the small and medium-sized truckers are doing. These are the ELDs. And I'm wondering if there's anything you're observing or anything anecdotal you might be willing to share in terms of what those guys are doing. Are they mostly installing them, not installing them, waiting until December? So just anything you could share on that. And then I have one follow-up after that.

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Joey B. Hogan, Covenant Transportation Group, Inc. - President [39]

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Yes, Barry. This is Joey. I think through our what we call, let's call it, non-asset or asset-light businesses, and there's 3 of them, between our brokerage, 3PL operation, our leasing business and our factoring business. It's moving on the ELD compliance, but it's moving slow. It's moving but it's moving slow. And so I think there's -- you have the percentage of working on it, growing. But the actual installation is moving slow, and the actual usage is moving slow. So it tells you they're -- we're working on it. We're thinking about it. And I think at the end of the day, they're going to wait as long as they can because -- the reason is pretty obvious. It's pretty meaningful. It's a meaningful impact. The time when freight is fair, let's say across everybody's network, is fair, why would I want to add more potential burden onto my financial situation before I have to? So they're going to push this off as long as they can. It's interesting on the leasing side, our leasing business is still doing, I would say, well. We had a pretty good first quarter. I see the earnings up in our leasing investment nicely. We worked our tails off for the last 4 or 5 quarters, let's call it, rightsizing inventory and/or what's out in the marketplace. Our trailer business is exploding, which makes sense with what's going on in the marketplace. We're adding additional investments in that. But the ELD-specific, and I'm sorry, Barry, I'm kind of getting off your initial question, it's moving, but it's moving slow.

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Barry George Haimes, Sage Asset Management, LLC - Managing Partner and Portfolio Manager [40]

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Got it. No, I appreciate it. And then my other question was -- David, I think you mentioned that one of your large customers, you did a 2-year deal with. And I'm sure you won't want to get into specific numbers, but I wonder if you could just characterize what sort of rate increase you're getting in year 2 relative to the rate increase you're getting in year 1. Are they similar? Are you getting a bigger one in year 2 because of the ELD issues? So I'm just kind of curious how that might look.

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [41]

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Yes. As we said, the one that Joey mentioned there, the large customers, it's 1.5% effective sometime in May. It's where it's at and...

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [42]

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For year 2.

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [43]

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Yes, for year 2. Year 1 was similar to that. To be honest with you, last year, freight was very similar to what it is now, and the trucking -- the market was kind of in that 1% to 2% last year, and we think it's going to be in that 1% to 2% this year kind of number. So 1.5% is what we got out of there, Barry.

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Barry George Haimes, Sage Asset Management, LLC - Managing Partner and Portfolio Manager [44]

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Okay. So I guess I misunderstood. So it's going into year 2 of the year 2 contract in May?

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David Ray Parker, Covenant Transportation Group, Inc. - Chairman of the Board and CEO [45]

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Yes, and then we'll bid it next year again, go through another bid process.

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Operator [46]

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(Operator Instructions)

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Richard B. Cribbs, Covenant Transportation Group, Inc. - CFO and EVP [47]

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Samantha, thank you. I think we'll wrap up the call. Thank you, everyone, for listening in, and we'll talk to you next quarter.

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Operator [48]

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Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.