COVENANT LOGISTICS GROUP, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2019
or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number:
0-24960
COVENANT TRANSPORTATION GROUP, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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88-0320154
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(State or other jurisdiction of incorporation
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(I.R.S. Employer Identification No.)
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or organization)
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400 Birmingham Hwy.
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Chattanooga, TN
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37419
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(Address of principal executive offices)
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(Zip Code)
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423-821-1212
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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$0.01 Par Value Class A common stock
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CVTI
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The NASDAQ Global Select Market
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Yes [X]
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No [ ]
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Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes [X]
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No [ ]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [X]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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Emerging growth company [ ]
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes [ ]
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No [X]
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (November 6, 2019).
Class A Common Stock, $.01 par value: 16,111,902 shares
Class B Common Stock, $.01 par value: 2,350,000 shares
Page 1
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PART I
FINANCIAL INFORMATION
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Page
Number
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Item 1.
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Financial Statements
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3
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4
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5
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6
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7
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8
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Item 2.
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17
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Item 3.
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29
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Item 4.
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30
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PART II
OTHER INFORMATION
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Page
Number
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Item 1.
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31
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Item 1A.
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32
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Item 2.
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32
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Item 3.
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32
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Item 4.
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32
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Item 5.
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32
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Item 6.
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33
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PART I
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FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(In thousands, except share data)
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September 30, 2019
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December 31, 2018
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||||||
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(unaudited)
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(unaudited)
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||||||
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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39,795
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$
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23,127
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||||
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Accounts receivable, net of allowance of $1,889 in 2019 and $1,985 in 2018
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167,440
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151,093
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||||||
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Drivers' advances and other receivables, net of allowance of $678 in 2019 and $626 in 2018
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11,415
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16,675
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||||||
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Inventory and supplies
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4,178
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4,067
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||||||
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Prepaid expenses
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12,882
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11,579
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||||||
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Assets held for sale
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6,930
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2,559
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||||||
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Income taxes receivable
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2,400
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1,109
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||||||
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Other short-term assets
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1,028
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1,435
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||||||
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Total current assets
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246,068
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211,644
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||||||
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||||||||
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Property and equipment, at cost
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748,291
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638,770
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||||||
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Less: accumulated depreciation and amortization
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(207,606
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)
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(188,175
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)
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||||
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Net property and equipment
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540,685
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450,595
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||||||
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||||||||
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Goodwill
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42,518
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41,598
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||||||
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Other intangibles, net
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30,346
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32,538
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Other assets, net
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41,990
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37,149
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||||||
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||||||||
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Total assets
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$
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901,607
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$
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773,524
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LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
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Current liabilities:
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||||||||
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Checks outstanding in excess of bank balances
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$
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1,193
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$
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1,857
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Accounts payable
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26,762
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22,101
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Accrued expenses
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30,344
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49,503
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||||||
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Current maturities of long-term debt
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47,810
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28,710
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||||||
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Current portion of finance lease obligations
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7,164
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5,374
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||||||
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Current portion of operating lease obligations
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17,875
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-
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||||||
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Current portion of insurance and claims accrual
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21,692
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19,787
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||||||
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Total current liabilities
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152,840
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127,332
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||||||
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Long-term debt
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229,716
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166,635
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||||||
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Long-term portion of finance lease obligations
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29,097
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35,119
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Long-term portion of operating lease obligations
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36,916
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-
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||||||
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Insurance and claims accrual
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19,996
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22,193
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||||||
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Deferred income taxes
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81,439
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77,467
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||||||
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Other long-term liabilities
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3,169
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1,636
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||||||
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Total liabilities
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553,173
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430,382
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||||||
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Commitments and contingent liabilities
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-
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-
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||||||
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Stockholders' equity:
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||||||||
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Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,111,902 shares issued and outstanding as
of September 30, 2019; 20,000,000 shares authorized and 16,015,708 shares issued and outstanding as of December 31, 2018
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172
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171
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||||||
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Class B common stock, $.01 par value; 5,000,000 shares authorized; 2,350,000 shares issued and outstanding
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24
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24
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||||||
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Additional paid-in-capital
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141,840
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142,177
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||||||
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Accumulated other comprehensive (loss) income
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(1,483
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)
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204
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Retained earnings
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207,881
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200,566
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||||||
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Total stockholders' equity
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348,434
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343,142
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||||||
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Total liabilities and stockholders' equity
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$
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901,607
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$
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773,524
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||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(In thousands, except per share data)
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Three months ended
September 30, (unaudited)
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Nine months ended
September 30, (unaudited)
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2019
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2018
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2019
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2018
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||||||||||||
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Revenues
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||||||||||||||||
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Freight revenue
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$
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199,832
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$
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214,623
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$
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590,511
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$
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535,721
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||||||||
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Fuel surcharge revenue
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23,082
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28,680
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70,882
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77,466
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||||||||||||
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Total revenue
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$
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222,914
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$
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243,303
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$
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661,393
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$
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613,187
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||||||||
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||||||||||||||||
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Operating expenses:
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||||||||||||||||
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Salaries, wages, and related expenses
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84,093
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86,249
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239,376
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211,621
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||||||||||||
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Fuel expense
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28,812
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33,428
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85,859
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89,817
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||||||||||||
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Operations and maintenance
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14,742
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16,457
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44,814
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40,783
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||||||||||||
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Revenue equipment rentals and purchased transportation
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50,428
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47,445
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146,267
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115,525
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||||||||||||
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Operating taxes and licenses
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3,170
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3,377
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9,719
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8,649
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||||||||||||
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Insurance and claims
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14,051
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12,675
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35,758
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31,269
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||||||||||||
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Communications and utilities
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1,791
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1,810
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5,269
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5,216
|
||||||||||||
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General supplies and expenses
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7,685
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6,391
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21,701
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16,833
|
||||||||||||
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Depreciation and amortization, including gains and losses on disposition of property and equipment
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20,073
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19,290
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60,291
|
56,803
|
||||||||||||
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Total operating expenses
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224,845
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227,122
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649,054
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576,516
|
||||||||||||
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Operating (loss) income
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(1,931
|
)
|
16,181
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12,339
|
36,671
|
|||||||||||
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Interest expense, net
|
2,992
|
2,460
|
8,121
|
6,360
|
||||||||||||
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Income from equity method investment
|
(2,138
|
)
|
(2,142
|
)
|
(7,548
|
)
|
(5,407
|
)
|
||||||||
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(Loss) income before income taxes
|
(2,785
|
)
|
15,863
|
11,766
|
35,718
|
|||||||||||
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Income tax expense
|
404
|
4,249
|
4,451
|
9,716
|
||||||||||||
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Net (loss) income
|
$
|
(3,189
|
)
|
$
|
11,614
|
$
|
7,315
|
$
|
26,002
|
|||||||
|
|
||||||||||||||||
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Net (loss) income per share:
|
||||||||||||||||
|
Basic net (loss) income per share
|
$
|
(0.17
|
)
|
$
|
0.63
|
$
|
0.40
|
$
|
1.42
|
|||||||
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Diluted net (loss) income per share
|
(0.17
|
)
|
0.63
|
0.39
|
1.41
|
|||||||||||
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Basic weighted average shares outstanding
|
18,458
|
18,343
|
18,426
|
18,337
|
||||||||||||
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Diluted weighted average shares outstanding
|
18,719
|
18,497
|
18,620
|
18,448
|
||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(In thousands)
|
|
Three months ended
September 30, (unaudited)
|
Nine months ended
September 30, (unaudited)
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
|
||||||||||||||||
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Net (loss) income
|
$
|
(3,189
|
)
|
$
|
11,614
|
$
|
7,315
|
$
|
26,002
|
|||||||
|
|
||||||||||||||||
|
Other comprehensive (loss) income:
|
||||||||||||||||
|
|
||||||||||||||||
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Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $226 and $652 in 2019 and $133 and $782 in 2018, respectively
|
(596
|
)
|
352
|
(1,720
|
)
|
2,065
|
||||||||||
|
|
||||||||||||||||
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Reclassification of cash flow hedge loss (gain) into statement of operations, net of tax of $2 and $5 in 2019 and $155 and $330 in 2018, respectively
|
5
|
(406
|
)
|
(14
|
)
|
(868
|
)
|
|||||||||
|
|
||||||||||||||||
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Unrealized holding gain (loss) on investments classified as available-for-sale
|
26
|
(3
|
)
|
47
|
(3
|
)
|
||||||||||
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Total other comprehensive (loss) income
|
(565
|
)
|
(57
|
)
|
(1,687
|
)
|
1,194
|
|||||||||
|
|
||||||||||||||||
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Comprehensive (loss) income
|
$
|
(3,754
|
)
|
$
|
11,557
|
$
|
5,628
|
$
|
27,196
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited and in thousands)
|
|
For the Three and Nine Months Ended September 30, 2019
|
|||||||||||||||||||||||
|
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Accumulated
|
|||||||||||||||||||||||
|
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Additional
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Other
|
Total
|
|||||||||||||||||||||
|
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Common Stock
|
Paid-In
|
Comprehensive
|
Retained
|
Stockholders'
|
|||||||||||||||||||
|
|
Class A
|
Class B
|
Capital
|
(Loss)
|
Earnings
|
Equity
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
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Balances at December 31, 2018
|
$
|
171
|
$
|
24
|
$
|
142,177
|
$
|
204
|
$
|
200,566
|
$
|
343,142
|
||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
4,433
|
4,433
|
||||||||||||||||||
|
Other comprehensive income
|
-
|
-
|
-
|
(432
|
)
|
-
|
(432
|
)
|
||||||||||||||||
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Stock-based employee compensation expense
|
-
|
-
|
1,262
|
-
|
-
|
1,262
|
||||||||||||||||||
|
Issuance of restricted shares, net
|
1
|
-
|
(669
|
)
|
-
|
-
|
(668
|
)
|
||||||||||||||||
|
Balances at March 31, 2019
|
$
|
172
|
$
|
24
|
$
|
142,770
|
$
|
(228
|
)
|
$
|
204,999
|
$
|
347,737
|
|||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
6,071
|
6,071
|
||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
(690
|
)
|
-
|
(690
|
)
|
||||||||||||||||
|
Stock-based employee compensation expense reversal
|
-
|
-
|
(1,433
|
)
|
-
|
-
|
(1,433
|
)
|
||||||||||||||||
|
Issuance of restricted shares, net
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Balances at June 30, 2019
|
$
|
172
|
$
|
24
|
$
|
141,337
|
$
|
(918
|
)
|
$
|
211,070
|
$
|
351,685
|
|||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
(3,189
|
)
|
(3,189
|
)
|
||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
(565
|
)
|
-
|
(565
|
)
|
||||||||||||||||
|
Stock-based employee compensation expense
|
-
|
-
|
597
|
-
|
-
|
597
|
||||||||||||||||||
|
Issuance of restricted shares, net
|
-
|
-
|
(94
|
)
|
-
|
-
|
(94
|
)
|
||||||||||||||||
|
Balances at September 30, 2019
|
$
|
172
|
$
|
24
|
$
|
141,840
|
$
|
(1,483
|
)
|
$
|
207,881
|
$
|
348,434
|
|||||||||||
|
|
For the Three and Nine Months Ended September 30, 2018
|
|||||||||||||||||||||||
|
|
Accumulated
|
|||||||||||||||||||||||
|
|
Additional
|
Other
|
Total
|
|||||||||||||||||||||
|
|
Common Stock
|
Paid-In
|
Comprehensive
|
Retained
|
Stockholders'
|
|||||||||||||||||||
|
|
Class A
|
Class B
|
Capital
|
(Loss)
|
Earnings
|
Equity
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balances at December 31, 2017
|
$
|
171
|
$
|
24
|
$
|
137,242
|
$
|
293
|
$
|
157,471
|
$
|
295,201
|
||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
4,417
|
4,417
|
||||||||||||||||||
|
Effect of adoption of ASU 2014-09
|
-
|
-
|
-
|
-
|
591
|
591
|
||||||||||||||||||
|
Other comprehensive income
|
-
|
-
|
-
|
671
|
-
|
671
|
||||||||||||||||||
|
Stock-based employee compensation expense
|
-
|
-
|
826
|
-
|
-
|
826
|
||||||||||||||||||
|
Issuance of restricted shares, net
|
-
|
-
|
(18
|
)
|
-
|
-
|
(18
|
)
|
||||||||||||||||
|
Balances at March 31, 2018
|
$
|
171
|
$
|
24
|
$
|
138,050
|
$
|
964
|
$
|
162,479
|
$
|
301,688
|
||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
9,971
|
9,971
|
||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
580
|
-
|
580
|
||||||||||||||||||
|
Stock-based employee compensation expense
|
-
|
-
|
937
|
-
|
-
|
937
|
||||||||||||||||||
|
Issuance of restricted shares, net
|
-
|
-
|
375
|
-
|
-
|
375
|
||||||||||||||||||
|
Balances at June 30, 2018
|
$
|
171
|
$
|
24
|
$
|
139,362
|
$
|
1,544
|
$
|
172,450
|
$
|
313,551
|
||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
11,614
|
11,614
|
||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
(57
|
)
|
-
|
(57
|
)
|
||||||||||||||||
|
Stock-based employee compensation expense
|
-
|
-
|
1,105
|
-
|
-
|
1,105
|
||||||||||||||||||
|
Issuance of restricted shares, net
|
-
|
-
|
(63
|
)
|
-
|
-
|
(63
|
)
|
||||||||||||||||
|
Balances at September 30, 2018
|
$
|
171
|
$
|
24
|
$
|
140,404
|
$
|
1,487
|
$
|
184,064
|
$
|
326,150
|
||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(In thousands)
|
|
Nine months ended September 30, (unaudited)
|
|||||||
|
|
2019
|
2018
|
||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$
|
7,315
|
$
|
26,002
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Provision for accounts receivable
|
13
|
168
|
||||||
|
Reversal of gain on sales to equity method investee
|
(7
|
)
|
(185
|
)
|
||||
|
Depreciation and amortization
|
61,250
|
56,370
|
||||||
|
Amortization of deferred financing fees
|
110
|
111
|
||||||
|
Deferred income tax expense
|
4,632
|
9,172
|
||||||
|
Income tax benefit arising from restricted share vesting and stock options exercised
|
4
|
19
|
||||||
|
Stock-based compensation expense
|
426
|
3,243
|
||||||
|
Income from equity method investment
|
(7,548
|
)
|
(5,407
|
)
|
||||
|
Return on investment in affiliated company
|
1,225
|
-
|
||||||
|
(Gain) loss on disposition of property and equipment
|
(2,137
|
)
|
433
|
|||||
|
Return on investment in available-for-sale securities
|
(4
|
)
|
(6
|
)
|
||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Receivables and advances
|
(9,099
|
)
|
(4,717
|
)
|
||||
|
Prepaid expenses and other assets
|
(977
|
)
|
(2,763
|
)
|
||||
|
Inventory and supplies
|
(111
|
)
|
(102
|
)
|
||||
|
Insurance and claims accrual
|
539
|
1,553
|
||||||
|
Operating lease right-of-use asset amortization/accretion
|
333
|
-
|
||||||
|
Accounts payable and accrued expenses
|
(16,162
|
)
|
17,723
|
|||||
|
Net cash flows provided by operating activities
|
39,803
|
101,614
|
||||||
|
|
||||||||
|
Cash flows from investing activities:
|
||||||||
|
Acquisition of Landair Holdings, Inc., net of cash acquired
|
-
|
(106,060
|
)
|
|||||
|
Purchase of available-for-sale securities
|
(1,380
|
)
|
(1,496
|
)
|
||||
|
Acquisition of property and equipment
|
(129,403
|
)
|
(44,528
|
)
|
||||
|
Proceeds from disposition of property and equipment
|
31,235
|
49,302
|
||||||
|
Net cash flows used by investing activities
|
(99,548
|
)
|
(102,782
|
)
|
||||
|
|
||||||||
|
Cash flows from financing activities:
|
||||||||
|
Change in checks outstanding in excess of bank balances
|
(664
|
)
|
605
|
|||||
|
Proceeds from issuance of notes payable
|
102,796
|
83,746
|
||||||
|
Repayments of notes payable
|
(30,538
|
)
|
(73,376
|
)
|
||||
|
Repayments of finance lease obligations
|
(4,232
|
)
|
(2,608
|
)
|
||||
|
Proceeds under revolving credit facility
|
1,257,755
|
1,153,310
|
||||||
|
Repayments under revolving credit facility
|
(1,247,942
|
)
|
(1,156,162
|
)
|
||||
|
Payment of minimum tax withholdings on stock compensation
|
(762
|
)
|
(81
|
)
|
||||
|
Debt refinancing costs
|
-
|
(10
|
)
|
|||||
|
Net cash flows provided by financing activities
|
76,413
|
5,424
|
||||||
|
|
||||||||
|
Net change in cash and cash equivalents
|
16,668
|
4,256
|
||||||
|
|
||||||||
|
Cash and cash equivalents at beginning of period
|
23,127
|
15,356
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
39,795
|
$
|
19,612
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Note 1.
|
Significant Accounting Policies
|
Basis of Presentation
The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned
subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933. In preparing financial statements, it is necessary for management to make
assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from
estimated amounts. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring
nature.
Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2018, condensed consolidated
balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three months ended September 30, 2019 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2019. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes
thereto included in our Form 10-K for the year ended December 31, 2018. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.
Recent Accounting Pronouncements
Accounting Standards adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which establishes Topic 842 to replace Topic
840 regarding accounting for leases. Topic 842 requires lessees to recognize a right-of-use asset and a lease liability for most leases on the balance sheet. Leases that were previously described as capital leases are now called finance leases, and
operating leases with a term of at least twelve months are now required to be recorded on the balance sheet. We adopted this standard on January 1, 2019 using the modified retrospective approach.
In July 2018, FASB issued ASU 2018-11, which provides an optional transition method allowing application of Topic 842 as of the adoption date and recognition of a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, with no restatement of comparative prior periods. We have adopted the standard using this optional transition method.
Within Topic 842, FASB has provided a number of practical expedients for applying the new lease standard in relation to leases that commenced prior to the standard's
effective date. We have elected the package of practical expedients which allowed us, among other things, to carry forward the operating and capital lease classifications from Topic 840 to the new operating and finance lease classifications under
Topic 842.
The adoption of this ASU resulted in the initial recognition of operating lease assets of $40.1 million and liabilities totaling approximately $41.0 million,
comprised of $15.3 million of current operating lease obligations and $25.7 million of long-term operating lease obligations.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the
estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method. Depreciation of revenue equipment is our largest item of depreciation. We have historically depreciated new tractors
(excluding day cabs) over five years to salvage values of approximately 15% of their cost. We generally depreciate new trailers over seven years for refrigerated trailers and ten years for dry van trailers to salvage values of approximately 25% of
their cost. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the
used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of
operations. Gains and losses on the disposal of revenue equipment are included in depreciation expense in the consolidated statements of operations.
Leases
At the commencement date of a new lease agreement with contractual terms longer than twelve months, we recognize a right-of-use asset and a lease liability and
categorize the lease as either finance or operating. Certain lease agreements have lease and nonlease components, and we have elected to account for these components separately.
Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in
the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. Right-of-use assets also include prepaid lease expenses and initial direct costs of
executing the leases, which are reduced by landlord incentives. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use
assets are tested for impairment in the same manner as long-lived assets.
Right-of-use assets are included in net property and equipment. For finance leases, right-of-use assets are amortized on a straight-line basis over the shorter of
the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest expense, which is recorded in interest expense, net. Operating lease right-of-use assets are amortized over the lease term on a
straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Variable lease payments not included in the lease liability for mileage charges on leased revenue equipment are expensed as incurred.
Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.
|
Note 2.
|
(Loss) Income Per Share
|
Basic (loss) income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted (loss) income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in our earnings. There were approximately 261,000 anti-dilutive shares for the three months ended September 30, 2019. There were no outstanding stock options at September 30, 2019. Income per share is the same for both Class A and Class B
shares.
The following table sets forth, for the periods indicated, the calculation of net (loss) income per share included in the condensed consolidated statements of
operations:
|
(in thousands except per share data)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Numerator:
|
||||||||||||||||
|
Net (loss) income
|
$
|
(3,189
|
)
|
$
|
11,614
|
$
|
7,315
|
$
|
26,002
|
|||||||
|
Denominator:
|
||||||||||||||||
|
Denominator for basic (loss) income per share – weighted-average shares
|
18,458
|
18,343
|
18,426
|
18,337
|
||||||||||||
|
Effect of dilutive securities:
|
||||||||||||||||
|
Equivalent shares issuable upon conversion of unvested restricted shares
|
261
|
154
|
194
|
111
|
||||||||||||
|
Denominator for diluted (loss) income per share adjusted weighted-average shares and assumed conversions
|
18,719
|
18,497
|
18,620
|
18,448
|
||||||||||||
|
|
||||||||||||||||
|
Net (loss) income per share:
|
||||||||||||||||
|
Basic net (loss) income per share
|
$
|
(0.17
|
)
|
$
|
0.63
|
$
|
0.40
|
$
|
1.42
|
|||||||
|
Diluted net (loss) income per share
|
$
|
(0.17
|
)
|
$
|
0.63
|
$
|
0.39
|
$
|
1.41
|
|||||||
|
Note 3.
|
Segment Information
|
We have two reportable segments, Truckload, which is comprised of our truckload services, and Managed Freight, which provides freight brokerage and logistics
services.
The Truckload segment consists of four service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.
The four service offerings that comprise our Truckload segment are as follows: (i) Expedited, provided primarily by Covenant Transport, our historical flagship operation; (ii) Dedicated, provided by all of our operating fleets; (iii) Refrigerated,
provided primarily through our Southern Refrigerated Transport, Inc. ("SRT") subsidiary; and (iv) over-the-road ("OTR"), provided primarily by our Landair Transport, Inc. subsidiary.
In addition, our Managed Freight segment has service offerings ancillary to our Truckload services, including: freight brokerage, transportation management services
("TMS"), and shuttle and switching services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets
the quantitative or qualitative reporting thresholds individually or in the aggregate.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our 2018 Annual Report on Form 10-K.
Substantially all intersegment sales prices are market based. We evaluate performance based on operating income of the respective business units.
The following table summarizes our revenue by our two reportable segments, Truckload and Managed Freight, disaggregated to the operating fleet level as used by our
chief operating decision maker in making decisions regarding allocation of resources and assets, organized first by reportable segment (i.e. Truckload and Managed Freight) and then by operating fleet for the three and nine months ended September 30,
2019 and 2018:
|
(in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Total Revenues:
|
||||||||||||||||
|
|
||||||||||||||||
|
Truckload Segment:
|
||||||||||||||||
|
Expedited
|
$
|
68,306
|
$
|
84,202
|
$
|
197,557
|
$
|
250,553
|
||||||||
|
Dedicated
|
82,692
|
74,493
|
243,436
|
164,966
|
||||||||||||
|
Refrigerated
|
19,368
|
33,672
|
68,107
|
102,107
|
||||||||||||
|
OTR
|
4,592
|
4,686
|
13,926
|
4,686
|
||||||||||||
|
Truckload Revenues
|
174,958
|
197,053
|
523,026
|
522,312
|
||||||||||||
|
|
||||||||||||||||
|
Managed Freight Segment:
|
||||||||||||||||
|
Brokerage
|
24,016
|
26,159
|
68,601
|
68,741
|
||||||||||||
|
TMS
|
9,323
|
6,991
|
27,124
|
6,991
|
||||||||||||
|
Shuttle & Switching
|
3,693
|
3,451
|
10,990
|
3,451
|
||||||||||||
|
Warehouse
|
8,469
|
8,258
|
25,091
|
8,258
|
||||||||||||
|
Factoring
|
2,455
|
1,391
|
6,561
|
3,434
|
||||||||||||
|
Managed Freight Revenues
|
47,956
|
46,250
|
138,367
|
90,875
|
||||||||||||
|
|
||||||||||||||||
|
Total
|
$
|
222,914
|
$
|
243,303
|
$
|
661,393
|
$
|
613,187
|
||||||||
|
Note 4.
|
Income Taxes
|
Income tax expense in both 2019 and 2018 varies from the amount computed by applying the federal corporate income tax rates of 21% to income before income taxes,
primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers. Drivers who meet the requirements to receive per diem
receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and related expenses
are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes
smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will
fluctuate in future periods based on fluctuations in earnings.
Our liability recorded for uncertain tax positions as of September 30, 2019 has decreased by $0.8 million since December 31, 2018 as the result of the settlement of
our uncertain tax position and the reversal of any interest accrued.
The net deferred tax liability of $81.4 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially
off-set by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future
taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax
assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily
generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, a valuation allowance has been established at September 30, 2019, for $0.1 million related to certain state net operating loss
carry-forwards. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.
|
Note 5.
|
Debt and Lease Obligations
|
Current and long-term debt and lease obligations consisted of the following at September 30, 2019 and December 31, 2018:
|
(in thousands)
|
September 30, 2019
|
December 31, 2018
|
||||||||||||||
|
|
Current
|
Long-Term
|
Current
|
Long-Term
|
||||||||||||
|
Borrowings under Credit Facility
|
$
|
-
|
$
|
13,724
|
$
|
-
|
$
|
3,911
|
||||||||
|
Revenue equipment installment notes; weighted average interest rate of 3.8% at September 30, 2019, and 3.7% at December 31, 2018, due in monthly installments with final
maturities at various dates ranging from October 2019 to July 2023, secured by related revenue equipment
|
46,876
|
193,089
|
27,809
|
139,115
|
||||||||||||
|
|
||||||||||||||||
|
Real estate notes; interest rate of 3.8% at September 30, 2019 and 4.1% at December 31, 2018 due in monthly installments with a fixed maturity at August 2035, secured by
related real estate
|
1,081
|
22,947
|
1,048
|
23,763
|
||||||||||||
|
Deferred loan costs
|
(147
|
)
|
(44
|
)
|
(147
|
)
|
(154
|
)
|
||||||||
|
Total debt
|
47,810
|
229,716
|
28,710
|
166,635
|
||||||||||||
|
Principal portion of finance lease obligations, secured by related revenue equipment
|
7,164
|
29,097
|
5,374
|
35,119
|
||||||||||||
|
Principal portion of operating lease obligations, secured by related revenue equipment
|
17,875
|
36,916
|
-
|
-
|
||||||||||||
|
Total debt and lease obligations
|
$
|
72,849
|
$
|
295,729
|
$
|
34,084
|
$
|
201,754
|
||||||||
We and substantially all of our subsidiaries are parties to the Credit Facility with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A.
(together with the Agent, the "Lenders"). The Credit Facility is a $95.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows us to request an increase in the revolving credit
facility of up to $50.0 million subject to Lender acceptance of the additional funding commitment. The Credit Facility includes, within our $95.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $95.0
million and a swing line sub facility in an aggregate amount equal to the greater of $10.0 million or 10% of the Lenders' aggregate commitments under the Credit Facility from time-to-time. The Credit Facility matures in September 2021.
Borrowings under the Credit Facility are classified as either "base rate loans" or "LIBOR loans." Base rate loans accrue interest at a base rate equal to the greater
of the Agent’s prime rate, the federal funds rate plus 0.5%, or LIBOR plus 1.0%, plus an applicable margin ranging from 0.5% to 1.0%; while LIBOR loans accrue interest at LIBOR, plus an applicable margin ranging from 1.5% to 2.0%. The applicable
rates are adjusted quarterly based on average pricing availability. The unused line fee is the product of 0.25% times the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding
principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of
our assets, with the notable exclusion of any real estate or revenue equipment pledged under other financing agreements, including revenue equipment installment notes and capital leases.
Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $95.0 million, minus the sum of the stated amount of all
outstanding letters of credit; or (B) the sum of (i) 85% of eligible accounts receivable, plus (ii) the lesser of (a) 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) 95% of the net book value of eligible revenue
equipment, or (c) 35% of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a) $25.0 million or (b) 75% of the appraised fair market value of eligible real estate, as reduced by a periodic amortization
amount. We had $13.7 million of borrowings outstanding under the Credit Facility as of September 30, 2019, undrawn letters of credit outstanding of approximately $35.2 million, and available borrowing capacity of $46.0 million. The interest rate on
outstanding borrowings as of September 30, 2019, was 5.8% on $13.7 million of base rate loans and there were no outstanding LIBOR loans. Based on availability as of September 30, 2019 and 2018, there was no fixed charge coverage requirement.
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event
of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated. If an event of default occurs under the Credit Facility and the Lenders cause, or have the ability to cause, all
of the outstanding debt obligations under the Credit Facility to become due and payable, this could result in a default under other debt instruments that contain acceleration or cross-default provisions. The Credit Facility contains certain
restrictions and covenants relating to, among other things, debt, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions. Failure to comply with the covenants and restrictions set forth
in the Credit Facility could result in an event of default.
Pricing for the revenue equipment installment notes is quoted by the respective financial affiliates of our primary revenue equipment suppliers and other lenders at
the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts. The notes included in the funding are due in monthly installments with final maturities at various dates ranging
from October 2019 to July 2023. The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do not have any financial or other material covenants or events of default except certain notes totaling $212.5
million are cross-defaulted with the Credit Facility. Additional borrowings from the financial affiliates of our primary revenue equipment suppliers and other lenders are expected to be available to fund new tractors expected to be delivered in 2020,
while any other property and equipment purchases, including trailers, are expected to be funded with a combination of available cash, notes, operating leases, capital leases, and/or from the Credit Facility.
In August 2015, we financed a portion of the purchase of our corporate headquarters, a maintenance facility, and certain surrounding property in Chattanooga,
Tennessee by entering into a $28.0 million variable rate note with a third party lender. Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to 4.2%.
|
Note 6.
|
Stock-Based Compensation
|
Our 2006 Omnibus Incentive Plan, as amended (the "Incentive Plan") governs the issuance of equity awards and other incentive compensation to management and members
of the board of directors. On May 8, 2019, the stockholders, upon recommendation of the board of directors, approved the First Amendment (the “First Amendment”) to the Third Amended and Restated Incentive Plan. The First Amendment (i) increases the
number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 750,000 shares, (ii) implements additional changes designed to comply with certain shareholder advisory group guidelines and best practices,
(iii) makes technical updates related to Section 162(m) of the Internal Revenue Code in light of the 2017 Tax Cuts and Jobs Act, (iv) re-sets the term of the Incentive Plan to expire with respect to the ability to grant new awards on March 31, 2029,
and (v) makes such other miscellaneous, administrative and conforming changes as were necessary.
The Incentive Plan permits annual awards of shares of our Class A common stock to executives, other key employees, consultants, non-employee directors, and eligible
participants under various types of options, restricted stock awards, or other equity instruments. As of September 30, 2019, there were 439,370 remaining of the 2,300,000 shares available for award under the Incentive Plan. No participant in the
Incentive Plan may receive awards of any type of equity instruments in any calendar year that relates to more than 200,000 shares of our Class A common stock. No awards may be made under the Incentive Plan after March 31, 2023. To the extent
available, we have issued treasury stock to satisfy all share-based incentive plans.
Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is the recognition of approximately $0.6 million and
$1.1 million stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively, and the recognition of less than $0.1 million and approximately $2.9 million for the nine months ended September 30, 2019 and 2018,
respectively. All stock compensation expense recorded in 2019 and 2018 relates to restricted shares, as no unvested options were outstanding during these periods. An additional $0.4 million of stock-based compensation was recorded in general supplies
and expenses in the condensed consolidated statements of operations for each of the three- and nine-month periods ended September 30, 2019 and 2018, respectively, as this amount relates to the issuance of restricted stock to non-employee directors.
The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows participants
to deliver to us shares of Class A common stock having a fair market value equal to the minimum amount of such required withholding taxes. To satisfy withholding requirements for shares that vested through September 30, 2019, certain participants
elected to forfeit receipt of an aggregate of 35,735 shares of Class A common stock at a weighted average per share price of $21.33 based on the closing price of our Class A common stock on the dates the shares vested in 2019, in lieu of the federal
and state minimum statutory tax withholding requirements. We remitted $0.8 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.
|
Note 7.
|
Commitments and Contingencies
|
From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and
property damage incurred in connection with the transportation of freight.
Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County,
California. The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The complaint asserts that the time period covered by the lawsuit is from
October 31, 2014 to the present and alleges claims for failure to properly pay for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper
minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code. Since the original filing date, the case has been removed from the Los Angeles Superior Court
to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. We do not currently have enough information to
make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.
Also, in February, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting
civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On August 1, 2019, the Los Angeles Superior Court entered an order staying the
action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount
of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.
We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. In management's
opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying condensed consolidated financial statements.
Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending
litigation, taking into account existing reserves, is not likely to have a materially adverse effect on our consolidated financial statements.
We had $35.2 million and $36.3 million of outstanding and undrawn letters of credit as of September 30, 2019 and December 31, 2018, respectively. The letters of
credit are maintained primarily to support our insurance programs.
|
Note 8.
|
Leases
|
We finance a portion of our revenue equipment, office and terminal properties, computer and office equipment, and other equipment using leases. A number of these
leases include one or more options to renew or extend the agreements beyond the expiration date or to terminate the agreement prior to the lease expiration date, and such options are included in or excluded from the lease term, respectively, when
those options are reasonably certain to be exercised. Our lease obligations do not typically include residual value guarantees or material restrictive covenants. A summary of our lease obligations at September 30, 2019 are as follows:
|
(dollars in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
|
September 30, 2019
|
September 30, 2019
|
||||||
|
|
||||||||
|
Finance lease cost:
|
||||||||
|
Amortization of right-of-use assets
|
$
|
1,406
|
$
|
4,225
|
||||
|
Interest on lease liabilities
|
210
|
644
|
||||||
|
Operating lease cost
|
6,167
|
17,824
|
||||||
|
|
||||||||
|
Total lease cost
|
$
|
7,783
|
$
|
22,693
|
||||
|
|
||||||||
|
Other information
|
||||||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from finance leases
|
1,146
|
3,589
|
||||||
|
Operating cash flows from operating leases
|
6,167
|
17,824
|
||||||
|
Financing cash flows from finance leases
|
210
|
644
|
||||||
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
20,096
|
26,421
|
||||||
|
Weighted-average remaining lease term—finance leases
|
3.0 years
|
|||||||
|
Weighted-average remaining lease term—operating leases
|
3.5 years
|
|||||||
|
Weighted-average discount rate—finance leases
|
3.0
|
%
|
||||||
|
Weighted-average discount rate—operating leases
|
5.0
|
%
|
||||||
Right-of-use assets of $53.4 million for operating leases and $35.3 million for finance leases are included in net property and equipment in our Condensed
Consolidated Balance Sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset.
Our future minimum lease payments as of September 30, 2019, summarized as follows by lease category:
|
(in thousands)
|
Operating
|
Finance
|
||||||
|
2019 (1)
|
$
|
5,381
|
$
|
8,151
|
||||
|
2020
|
19,075
|
8,074
|
||||||
|
2021
|
15,281
|
9,960
|
||||||
|
2022
|
13,050
|
11,245
|
||||||
|
2023
|
4,835
|
362
|
||||||
|
Thereafter
|
2,431
|
1,119
|
||||||
|
Total minimum lease payments
|
$
|
60,053
|
$
|
38,911
|
||||
|
Less: amount representing interest
|
(5,260
|
)
|
(2,650
|
)
|
||||
|
Present value of minimum lease payments
|
$
|
54,793
|
$
|
36,261
|
||||
|
Less: current portion
|
(17,875
|
)
|
(7,164
|
)
|
||||
|
Lease obligations, long-term
|
$
|
36,918
|
$
|
29,097
|
||||
(1) Excludes the nine months ended September 30, 2019
|
Note 9.
|
Equity Method Investment
|
We own a minority investment in Transport Enterprise Leasing, LLC ("TEL"). TEL is a tractor and trailer equipment leasing company and used equipment reseller. We
have not guaranteed any of TEL's debt and have no obligation to provide funding, services, or assets. In May 2016, the operating agreement with TEL was amended to, among other things, remove the previously agreed to fixed date purchase options. TEL’s
majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. We sold no and $0.1 million tractors or trailers to TEL during the nine-months ended September 30,
2019 and 2018, respectively, and we received $7.1 million and $5.9 million, respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment. We recognized a net reversal of previously deferred
gains totaling less than $0.1 million and $0.2 million for the nine-months ended September 30, 2019 and 2018, respectively, representing 49% of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was
subsequently sold to a third party. Deferred gains, totaling $0.2 million at September 30, 2019, are being carried as a reduction in our investment in TEL. At September 30, 2019 and December 31, 2018, we had accounts receivable from TEL of $1.2
million and $5.1 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.
We have accounted for our investment in TEL using the equity method of accounting, and thus our financial results include our
proportionate share of TEL's 2019 net income through September 30, 2019, or $7.5 million. We received an equity distribution from TEL of $1.2 million during the nine-months ended September 30, 2019 and none for the same 2018 period. Our investment
in TEL, totaling $32.4 million and $26.1 million, at September 30, 2019 and December 31, 2018, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.
See TEL's summarized financial information below:
|
(in thousands)
|
As of
September 30,
2019
|
As of
December 31,
2018
|
||||||
|
Total Assets
|
$
|
388,116
|
$
|
299,864
|
||||
|
Total Liabilities
|
331,219
|
254,919
|
||||||
|
Total Equity
|
$
|
56,897
|
$
|
44,945
|
||||
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
|
Revenue
|
$
|
30,709
|
$
|
25,437
|
$
|
82,683
|
$
|
74,152
|
||||||||
|
Cost of Sales
|
6,302
|
6,568
|
17,213
|
23,738
|
||||||||||||
|
Operating Expenses
|
16,634
|
12,493
|
42,775
|
34,322
|
||||||||||||
|
Operating Income
|
7,773
|
6,376
|
22,695
|
16,092
|
||||||||||||
|
Net Income
|
$
|
4,585
|
$
|
4,369
|
$
|
14,452
|
$
|
10,850
|
||||||||
|
Note 10.
|
Goodwill and Other Assets
|
On July 3, 2018, we acquired 100% of the outstanding stock of Landair Holdings, Inc., a Tennessee corporation (“Landair”). Landair is a dedicated and for-hire
truckload carrier, as well as a supplier of transportation management, warehousing and logistics inventory management services. Landair’s results have been included in the consolidated financial statements since the date of acquisition. Landair’s
trucking operations’ results are reported within our Truckload segment, while Landair’s logistics operations’ results are reported within our Managed Freight segment.
The allocation of the purchase price has been subject to change based on finalization of the valuation of long-lived and intangible assets and self-insurance
reserves, as well as our ongoing evaluation of Landair's accounting principles for consistency with ours. The assignment of goodwill and intangible assets to our reportable segments was completed as of June 30, 2019. A summary of the changes in
carrying amount of goodwill is as follows:
|
(in thousands)
|
||||
|
|
||||
|
Balance at December 31, 2018
|
$
|
41,598
|
||
|
Post-acquisition goodwill adjustments
|
920
|
|||
|
Balance at September 30, 2019
|
$
|
42,518
|
||
A summary of other intangible assets as of September 30, 2019 and December 31, 2018 is as follows:
|
(in thousands)
|
September 30, 2019
|
|||||||||||||||
|
|
Gross intangible assets
|
Accumulated amortization
|
Net intangible assets
|
Remaining life (months)
|
||||||||||||
|
Trade name
|
$
|
4,400
|
$
|
(367
|
)
|
$
|
4,033
|
165
|
||||||||
|
Non-Compete agreement
|
1,400
|
(350
|
)
|
1,050
|
45
|
|||||||||||
|
Customer relationships
|
28,200
|
(2,937
|
)
|
25,263
|
129
|
|||||||||||
|
Total
|
$
|
34,000
|
$
|
(3,654
|
)
|
$
|
30,346
|
|||||||||
|
|
December 31, 2018
|
|||||||||||||||
|
|
Gross intangible assets
|
Accumulated amortization
|
Net intangible assets
|
Remaining life (months)
|
||||||||||||
|
Trade name
|
$
|
4,400
|
$
|
(147
|
)
|
$
|
4,253
|
174
|
||||||||
|
Non-Compete agreement
|
1,400
|
(140
|
)
|
1,260
|
54
|
|||||||||||
|
Customer relationships
|
28,200
|
(1,175
|
)
|
27,025
|
138
|
|||||||||||
|
Total
|
$
|
34,000
|
$
|
(1,462
|
)
|
$
|
32,538
|
|||||||||
The above intangible assets have a weighted average remaining life of 131 months as September 30, 2019. The expected amortization of these assets for the next five
successive years is as follows:
|
|
(in thousands)
|
|||
|
2019
|
$
|
731
|
||
|
2020
|
2,923
|
|||
|
2021
|
2,923
|
|||
|
2022
|
2,923
|
|||
|
2023
|
2,783
|
|||
|
Thereafter
|
18,063
|
|||
The condensed consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a Nevada holding company, and its wholly owned
subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation
Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other
financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any
statements of belief and any statements of assumptions underlying any of the foregoing. In this Form 10-Q, statements relating to future reclassification of losses arising from derivative instruments and the performance of counterparties to such
instruments, future impact of accounting standards, future results at SRT, future third party transportation provider expenses, future tax rates, expenses, and deductions, expected freight demand and volumes and trucking industry conditions,
potential results of a default and testing of our fixed charge covenant under the Credit Facility or other debt agreements, expected sources of working capital and liquidity (including our mix of debt, capital leases, and operating leases as means of
financing revenue equipment), expected capital expenditures, allocations, and requirement, future customer relationships, expected debt reduction, future driver market conditions, expected cash flows, expected operating income and earnings per share
improvements, future investments in and growth of our segments and services, future trucking capacity, future rates and prices, future utilization, future depreciation and amortization, future salaries, wages, and related expenses, including driver
compensation and management bonuses, expected net fuel costs, strategies for managing fuel costs, the effectiveness and impact of, and cash flows relating to, our fuel hedging contracts and fuel surcharge programs, future fluctuations in operations
and maintenance expenses, expected effects and mix of our solo and team operations, future fleet size, management, and upgrades, the market value of used equipment, including equipment subject to operating or capital leases relative to our payment
obligations under such operating leases (including residual value guarantees and the proceeds from the sale thereof), future effects of the Landair acquisition, our internal control remediation plan, the anticipated impact of our investment in TEL,
and anticipated levels of and fluctuations relating to insurance, claims, and litigation expenses, among others, are forward-looking statements. Forward-looking statements may be identified by the use of terms or phrases such as "believe," "may,"
"could," "expects," "estimates," "projects," "anticipates," "plans," "intends," and similar terms and phrases. Such statements are based on currently available operating, financial, and competitive information. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2018. Readers should
review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2018, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities
and Exchange Commission.
All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such
forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any
change in the events, conditions, or circumstances on which any such statement is based.
Executive Overview
The freight environment third quarter was much weaker than the 2018 quarter, as excess industry-wide trucking capacity and weak shipping demand combined to pressure
both freight rates and volumes. In addition, new and incumbent freight brokers placed additional pressure on the irregular route truckload market by competing for market share based on what we view as unsustainable pricing. In general, our dedicated
Truckload and Managed Freight operations were profitable and exhibited moderate year-over-year market volatility. Our irregular route expedited and refrigerated truckload operations exhibited significant volatility and swung to being unprofitable
for the quarter, with the largest factors being lower rate per mile and combined insurance and capital cost increases versus the prior year quarter.
The main positives in the third quarter were 1) consistent demand and profitability from our Landair dedicated and managed freight businesses in
a difficult freight economy, 2) steady earnings contributed from our investment in Transport Enterprise Leasing, and 3) increasing our percentage of operating trucks with automatic transmissions to over 95%. The main negatives in the quarter were 1)
the operating margin declines of our expedited and solo refrigerated service offerings, 2) an approximate 9.5% year-over-year decrease in average freight revenue per truck for our Truckload segment, 3) increased Truckload operating costs on a per
mile basis, most notably from unfavorable group health, workers’ compensation and casualty insurance expense, net fuel costs, and capital costs, and 4) the $34.3 million quarterly increase in our total net indebtedness primarily related to the delay
of proceeds from disposals of used revenue equipment to adequately offset the expenditures for a large portion of our annual new tractor deliveries during the quarter.
Additional items of note for the third quarter of 2019 include the following:
|
|
●
|
Total revenue of $222.9 million, a decrease of 8.4% compared with the third quarter of 2018, and freight revenue of $199.8 million (which excludes revenue from fuel surcharges), a decrease
of 6.9% compared with the third quarter of 2018;
|
|
|
|
|
|
|
●
|
Operating loss of $1.9 million, compared with operating income of $16.2 million in the third quarter of 2018;
|
|
|
|
|
|
|
●
|
Net loss of $3.2 million, or $0.17 per basic and diluted share, compared with net income of $11.6 million , or $0.63 per basic and diluted share, in the third quarter of 2018;
|
|
|
|
|
|
|
●
|
With available borrowing capacity of $46.0 million under our Credit Facility at September 30, 2019, we do not expect to be required to test our fixed charge covenant in the foreseeable
future;
|
|
|
|
|
|
|
●
|
Our Managed Freight segment’s total revenue increased to $48.0 million in the 2019 quarter from $46.3 million in the 2018 quarter and operating income decreased to $3.7 million in the 2019
quarter from $4.2 million in the 2018 quarter;
|
|
|
|
|
|
|
●
|
Our equity investment in TEL provided $2.1 million of pre-tax earnings in the third quarter of both 2019 and 2018;
|
|
|
|
|
|
|
●
|
Since December 31, 2018, total indebtedness, net of cash and including operating lease liabilities, increased by $74.3 million to $328.8 million; and
|
|
|
|
|
|
|
●
|
Stockholders' equity and tangible book value at September 30, 2019, were $348.4 million and $275.6 million, respectively.
|
For the fourth quarter of 2019, we expect to remain an important provider in our customers’ peak season supply chains. However, given the current imbalance
of capacity and demand, we expect pricing and volume levels to remain subdued compared with the last several holiday peak seasons. Our focus will be on identifying opportunities to improve the performance of our one-way truckload service offerings
and adding more predictable long-term contracts in our dedicated truckload, transportation management and warehousing service offerings.
In addition to operating ratio, we use "adjusted operating ratio" as a key measure of profitability. Adjusted operating ratio is not a substitute for
operating ratio measured in accordance with GAAP. There are limitations to using non-GAAP financial measures. Adjusted operating ratio means operating expenses, net of fuel surcharge revenue, expressed as a percentage of revenue, excluding fuel
surcharge revenue. We believe the use of adjusted operating ratio allows us to more effectively compare periods, while excluding the potentially volatile effect of changes in fuel prices. Our Board and management focus on our adjusted operating ratio
as an indicator of our performance from period to period. We believe our presentation of adjusted operating ratio is useful because it provides investors and securities analysts the same information that we use internally to assess our core operating
performance. Although we believe that adjusted operating ratio improves comparability in analyzing our period-to-period performance, it could limit comparability to other companies in our industry, if those companies define adjusted operating ratio
differently. Because of these limitations, adjusted operating ratio should not be considered a measure of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these
limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Operating Ratio
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||||||
|
GAAP Operating Ratio:
|
2019
|
OR %
|
2018
|
OR %
|
2019
|
OR %
|
2018
|
OR %
|
||||||||||||||||||||||||
|
Total revenue
|
$
|
222,914
|
$
|
243,303
|
$
|
661,393
|
$
|
613,187
|
||||||||||||||||||||||||
|
Total operating expenses
|
224,845
|
100.9
|
%
|
227,122 |
93.3
|
%
|
649,054
|
98.1
|
%
|
576,516
|
94.0
|
%
|
||||||||||||||||||||
|
Operating (loss) income
|
$
|
(1,931
|
)
|
$
|
16,181
|
$
|
12,339
|
$
|
36,671
|
|||||||||||||||||||||||
|
Adjusted Operating Ratio:
|
2019
|
Adj.
OR %
|
2018
|
Adj.
OR %
|
2019
|
Adj.
OR %
|
2018
|
Adj.
OR %
|
||||||||||||||||||||||||
|
Total revenue
|
$
|
224,914
|
$
|
243,303
|
$
|
661,393
|
$
|
613,187
|
||||||||||||||||||||||||
|
Fuel surcharge revenue:
|
(23,082
|
)
|
(28,680
|
)
|
(70,882
|
)
|
(77,466
|
)
|
||||||||||||||||||||||||
|
Freight revenue (total revenue, excluding fuel surcharge)
|
199,832
|
214,623
|
590,511
|
535,721
|
||||||||||||||||||||||||||||
|
Total operating expenses
|
224,845
|
227,122
|
649,054
|
576,516
|
||||||||||||||||||||||||||||
|
Adjusted for:
|
||||||||||||||||||||||||||||||||
|
Fuel surcharge revenue
|
(23,082
|
)
|
(28,680
|
)
|
(70,882
|
)
|
(77,466
|
)
|
||||||||||||||||||||||||
|
Amortization of intangibles
|
(731
|
)
|
|
|
(731
|
)
|
|
|
(2,192
|
)
|
|
|
(731 |
)
|
|
|
||||||||||||||||
|
Adjusted operating expenses
|
|
201,032 |
100.6
|
%
|
|
197,711 | 92.1 |
%
|
|
575,980
|
97.5 |
%
|
|
498,319
|
93.0
|
%
|
||||||||||||||||
|
Adjusted operating (loss) income
|
$ | (1,200 |
)
|
$
|
16,912 |
$
|
14,531 |
$
|
37,402 | |||||||||||||||||||||||
Revenue and Expenses
We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage. We are a major carrier for
transportation companies such as parcel freight forwarders, less-than-truckload carriers, and third party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as
manufacturers, retailers, and food and beverage shippers. Our four service offerings within the Truckload segment are primarily truckload based and as such we generally dedicate an entire trailer to one customer from origin to destination. We also
generate revenue through providing ancillary services, including freight brokerage and logistics services, warehousing, and accounts receivable factoring.
We have two reportable segments, our truckload services ("Truckload") and freight brokerage, transportation management services, and shuttle and switching services
(“Managed Freight”).
The Truckload segment consists of four service offerings that are aggregated because they have similar economic characteristics and meet the aggregation criteria.
The four service offerings that comprise our Truckload segment are as follows: (i) Expedited; (ii) Dedicated; (iii) Temperature-Controlled; and (iv) OTR.
In our Truckload segment, we primarily generate revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our
truckload services. We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities, and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of
increases in the cost of fuel. The main factors that could affect our Truckload revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, and the number of shipments and miles we generate.
These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability.
Our Truckload segment also derives revenue from fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services. We measure
revenue before fuel surcharges, or "freight revenue," because we believe that fuel surcharges tend to be a volatile source of revenue. We believe the exclusion of fuel surcharges affords a more consistent basis for comparing the results of
operations from period-to-period. Nonetheless, freight revenue represents a non-GAAP financial measure. Accordingly, undue reliance should not be placed on the discussion of freight revenue, and discussions of freight revenue should be considered
in combination with discussions of total revenue. For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue.
The main expenses that impact the profitability of our Truckload segment are the variable costs of transporting freight for our customers. These costs include fuel
expenses, driver-related expenses, such as wages, benefits, training, and recruitment, and purchased transportation expenses, which primarily include compensating independent contractors. Expenses that have both fixed and variable components include
maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, self-insured retention versus insurance premiums, fleet age,
efficiency, and other factors. Our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities, and the compensation of non-driver personnel.
Our main measures of profitability are operating ratio and adjusted operating ratio, which we define as operating expenses, net of fuel surcharge revenue, divided by
total revenue, less fuel surcharge revenue (or freight revenue) and amortization of intangibles. See page 22 for the uses and limitations associated with adjusted operating ratio.
We operate tractors driven by a single driver and also tractors assigned to two-person driver teams. Our single driver tractors generally operate in shorter
lengths-of-haul, generate fewer miles per tractor, and experience more non-revenue miles, but the lower productive miles are expected to be offset by generally higher revenue per loaded mile and the reduced employee expense of compensating only one
driver. In contrast, our two-person driver tractors generally operate in longer lengths-of-haul, generate greater miles per tractor, and experience fewer non-revenue miles, but we typically receive lower revenue per loaded mile and incur higher
employee expenses of compensating both drivers. We expect operating statistics and expenses to shift with the mix of single and team operations.
Managed Freight is comprised primarily of freight brokerage, transportation management services ("TMS"), and shuttle and switching services. These service offerings
are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative reporting thresholds individually or in
the aggregate. but only accounted for $25.1million and $6.6 million of our revenue, respectively, during the nine months ended September 30, 2019.
Revenue Equipment
At September 30, 2019, we operated 3,004 tractors and 6,822 trailers. Of such tractors, 1,878 were owned, 812 were financed under operating leases, and 314 were
provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,203 were owned and 1,619 were financed under finance type leases. We finance a small portion of our tractor fleet and larger portion of our trailer
fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers. At September 30, 2019, our fleet had an average tractor age of 2.0 years and an average trailer age of 4.1 years.
Independent contractors provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile. We do not have the
capital outlay of purchasing or leasing the tractor. The payments to independent contractors and the financing of equipment under operating leases are recorded in revenue equipment rentals and purchased transportation. Expenses associated with
owned equipment, such as interest and depreciation, and expenses associated with employee drivers, including driver compensation, fuel, and other expenses, are not incurred with respect to independent contractors. Obtaining equipment from
independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses, and as such, we evaluate our efficiency using net income margin as well as operating ratio.
RESULTS OF CONSOLIDATED OPERATIONS
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
The following tables set forth the percentage relationship of certain items to total revenue and freight revenue (total revenue less fuel surcharge revenue) for the
periods indicated, where applicable (dollars in thousands):
Revenue
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Freight revenue
|
$
|
199,832
|
$
|
214,623
|
$
|
590,511
|
$
|
535,721
|
||||||||
|
Fuel surcharge revenue
|
23,082
|
28,680
|
70,882
|
77,466
|
||||||||||||
|
Total revenue
|
$
|
222,914
|
$
|
243,303
|
$
|
661,393
|
$
|
613,187
|
||||||||
For the quarter ended September 30, 2019, total revenue decreased approximately $20.4 million, or 8.4%, to $222.9 million from $243.3 million in the 2018 quarter.
Freight revenue decreased approximately $14.8 million, or 6.9%, to $199.8 million for the quarter ended September 30, 2019, from $214.6 million in the 2018 quarter, while fuel surcharge revenue decreased $5.6 million quarter-over-quarter.
The decrease in freight revenue resulted from a $16.5 million decrease in freight revenue from our Truckload segment and a $1.7 million increase in freight revenue from our Managed Freight segment.
The $16.5 million decrease in Truckload revenue relates to a 9.5% decrease in average freight revenue per tractor per week from the 2018 quarter. The decrease in
average freight revenue per tractor per week for the quarter ended September 30, 2019 is the result of a 10.9 cents per mile (or 5.5%) decrease in average rate per total mile and a 4.2% decrease in average miles per unit compared to the 2018
quarter. Team-driven trucks decreased to an average of 829 teams in the third quarter of 2019, a decrease of approximately 5.9% from the average of 881 teams in the third quarter of 2018.
For the nine-month period ended September 30, 2019, total revenue increased $48.2 million, or 7.9% to $661.4 million from $613.2 million in the 2018 period. Freight
revenue increased $54.8 million, or 10.2%, to $590.5 million for the nine months ended September 30, 2019, from $535.7 million in the 2018 period, while fuel surcharge revenue decreased $6.6 million period-over-period. The increase in freight
revenue resulted from a $47.0 million increase in freight revenue from our Managed Freight segment, as well as a $7.8 million increase in freight revenue from our Truckload segment.
The $7.8 million increase in Truckload freight revenue relates to a 344, or 12.5%, increase in average number of units compared to the 2018 period, partially offset
by a 9.6% decrease in average freight revenue per tractor per week from the 2018 period. The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2019 is the result of a 9.1% decrease in average miles per
unit and a 0.8 cent per mile decrease in average rate per total mile. Team driven units decreased approximately 4.4% to an average of 845 teams for the nine-month period ended September 30, 2019 compared to an average of 884 teams during the
same 2018 period.
Managed Freight total revenue increased $1.7 million comparing the 2019 and 2018 quarters, and $47.5 million comparing the 2019 period and 2018 period, primarily as
a result of growth in Landair’s contribution to combined Managed Freight operations compared with 2018. Additionally, our brokerage subsidiary contributed $1.6 million more revenue for the nine months ended September 30, 2019 compared to the same
2018 period.
For comparison purposes in the discussion below, we use total revenue and freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a
percentage of revenue. As it relates to the comparison of expenses to freight revenue, we believe removing fuel surcharge revenue, which is sometimes a volatile source of revenue, affords a more consistent basis for comparing the results of
operations from period-to-period. Nonetheless, freight revenue represents a non-GAAP financial measure. Accordingly, undue reliance should not be placed on the discussion of freight revenue, and discussions of freight revenue should be considered in
combination with discussions of total revenue. For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue.
Salaries, wages, and related expenses
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Salaries, wages, and related expenses
|
$
|
84,093
|
$
|
86,249
|
$
|
239,376
|
$
|
211,621
|
||||||||
|
% of total revenue
|
37.7
|
%
|
35.4
|
%
|
36.2
|
%
|
34.5
|
%
|
||||||||
|
% of freight revenue
|
42.1
|
%
|
40.2
|
%
|
40.5
|
%
|
39.5
|
%
|
||||||||
Salaries, wages, and related expenses decreased approximately $2.2 million, or 2.5%, for the three months ended September 30, 2019, compared with the same quarter in
2018. As a percentage of total revenue, salaries, wages, and related expenses increased to 37.7% of total revenue for the three months ended September 30, 2019, from 35.4% in the same quarter in 2018. As a percentage of freight revenue, salaries,
wages, and related expenses increased to 42.1% of freight revenue for the three months ended September 30, 2019, from 40.2% in the same quarter in 2018. The decrease of $2.2 million is the result of reduced non-driver wages related to lower variable
incentive compensation mostly offset by increases in driver wages, workers' compensation insurance, and group health insurance for the three months ended September 30, 2019.
For the nine months ended September 30, 2019, salaries, wages, and related expenses increased approximately $27.8 million, or 13.1%, compared with the same period in
2018. As a percentage of total revenue, salaries, wages, and related expenses increased to 36.2% of total revenue for the nine months ended September 30, 2019, from 34.5% for the nine months ended September 30, 2018. As a percentage of freight
revenue, salaries, wages, and related expenses increased to 40.5% of freight revenue for the nine months ended September 30, 2019, from 39.5% in the same period in 2018. These increases are primarily due to increased headcount from the 2018 Landair
acquisition, driver and non-driver pay increases since the first quarter of 2018, and increases in workers' compensation insurance and group health insurance compared to the nine months ended September 30, 2018.
When compared to periods prior to the Landair acquisition, we expect salaries, wages and related expenses will be higher as a result of the increased headcount
resulting from the Landair acquisition. We believe salaries, wages, and related expenses will increase going forward as a result of a tight driver market, which continues to offer significant challenges, wage inflation, higher healthcare costs, and,
in certain periods, increased incentive compensation due to better performance. In particular, we expect driver pay to increase as we look to reduce the number of unseated tractors in our fleet in a tight market for drivers. Additionally, as freight
market rates continue to increase, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers. Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of
revenue generated by independent contractors and our Managed Freight segment, for which payments are reflected in the purchased transportation line item.
Fuel expense
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Fuel expense
|
$
|
28,812
|
$
|
33,428
|
$
|
85,859
|
$
|
89,817
|
||||||||
|
% of total revenue
|
12.9
|
%
|
13.7
|
%
|
13.0
|
%
|
14.6
|
%
|
||||||||
|
% of freight revenue
|
14.4
|
%
|
15.6
|
%
|
14.5
|
%
|
16.8
|
%
|
||||||||
Total fuel expense decreased $4.6 million to $28.8 million for the three months ended September 30, 2019, compared with $33.4 million the same quarter in 2018. As a
percentage of total revenue, total fuel expense decreased to 12.9% of total revenue for the three months ended September 30, 2019, from 13.7% in the same quarter in 2018. As a percentage of freight revenue, total fuel expense decreased to 14.4% of
freight revenue for the three months ended September 30, 2019, as compared to 15.6% for the 2018 quarter.
For the nine months ended September 30, 2019, total fuel expense decreased approximately $4.0 million, or 4.4%, compared with the same period in 2018. As a
percentage of total revenue, total fuel expense decreased 1.7% to 13.0% of total revenue for the nine months ended September 30, 2019, from 14.6% in the 2018 period. As a percentage of freight revenue, total fuel expense decreased to 14.5% of
freight revenue from 16.8% for the nine months ended September 30, 2019, compared to the 2018 period.
We receive a fuel surcharge on our loaded miles from most shippers; however, this does not cover the entire increase in fuel prices for several reasons, including the
following: surcharges cover only loaded miles we operate; surcharges do not cover miles driven out-of-route by our drivers; and surcharges typically do not cover refrigeration unit fuel usage or fuel burned by tractors while idling. Moreover, most of
our business relating to shipments obtained from freight brokers does not carry a fuel surcharge. Finally, fuel surcharges vary in the percentage of reimbursement offered, and not all surcharges fully compensate for fuel price increases even on
loaded miles.
The rate of fuel price changes also can have an impact on results. Most fuel surcharges are based on the average fuel price as published by the Department of Energy
("DOE") for the week prior to the shipment, meaning we typically bill customers in the current week based on the previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for
fuel. In periods of declining prices, the opposite is true. Fuel prices as measured by the DOE decreased $0.21 per gallon in the third quarter of 2019 compared with the same quarter in 2018, and decreased $0.12 per gallon for the nine months ended
September 30, 2019 compared to the same period in 2018.
To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent
contractors and other third parties which is included in purchased transportation) from our fuel expense. The result is referred to as net fuel expense. Our net fuel expense as a percentage of freight revenue is affected by the cost of diesel fuel
net of fuel surcharge revenue, the percentage of miles driven by company tractors, our fuel economy, our percentage of deadhead miles, for which we do not receive material fuel surcharge revenues, and the net impact of fuel hedging gains and losses.
Net fuel expense is shown below:
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Total fuel surcharge
|
$
|
23,082
|
$
|
28,680
|
$
|
70,882
|
$
|
77,466
|
||||||||
|
Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties
|
2,898
|
3,388
|
8,878
|
9,214
|
||||||||||||
|
Company fuel surcharge revenue
|
$
|
20,184
|
$
|
25,292
|
$
|
62,004
|
$
|
68,252
|
||||||||
|
Total fuel expense
|
$
|
28,812
|
$
|
33,428
|
$
|
85,859
|
$
|
89,817
|
||||||||
|
Less: Company fuel surcharge revenue
|
20,184
|
25,292
|
62,004
|
68,252
|
||||||||||||
|
Net fuel expense
|
$
|
8,628
|
$
|
8,136
|
$
|
23,855
|
$
|
21,565
|
||||||||
|
% of freight revenue
|
4.3
|
%
|
3.8
|
%
|
4.0
|
%
|
4.0
|
%
|
||||||||
Net fuel expense decreased $0.5 million, or 6.0%, and $2.3 million, or 10.6% for the quarter and nine months ended September 30, 2019, as compared to the same 2018
periods. As a percentage of freight revenue, net fuel expense increased to 4.3% from 3.8% for the quarter ended September 30, 2019 and remained even at 4.0% for the nine months ended September 30, 2019, as compared to the 2018 period. The change in
net fuel expense is primarily due to a lack of the favorable fuel hedging activity that was present in the 2018 periods, partially offset by lower fuel prices in 2019. We have not had any fuel hedges in place since December 2018.
We expect to continue managing our idle time and tractor speeds, investing in more fuel-efficient tractors to improve our miles per gallon, locking in fuel hedges
when deemed appropriate, and partnering with customers to adjust fuel surcharge programs that are inadequate to recover a fair portion of fuel costs. Going forward, our net fuel expense is expected to fluctuate as a percentage of revenue based on
factors such as diesel fuel prices, percentage recovered from fuel surcharge programs, percentage of uncompensated miles, percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus
proportionately more fuel cost as a percentage of revenue), percentage of revenue generated by refrigerated operation (which uses diesel fuel for refrigeration, but usually does not recover fuel surcharges on refrigeration fuel), percentage of
revenue generated from independent contractors, and the success of fuel efficiency initiatives.
Given recent historical lows, we would expect diesel fuel prices to increase over the next few years. However, we expect to continue to experience improved fuel
economy as we upgrade our tractor fleet, and while our fuel surcharge recovery has remained relatively flat, the possibility of further improvement exists if efforts to grow our dedicated business are successful.
Operations and maintenance
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Operations and maintenance
|
$
|
14,742
|
$
|
16,457
|
$
|
44,814
|
$
|
40,783
|
||||||||
|
% of total revenue
|
6.6
|
%
|
6.8
|
%
|
6.8
|
%
|
6.7
|
%
|
||||||||
|
% of freight revenue
|
7.4
|
%
|
7.7
|
%
|
7.6
|
%
|
7.6
|
%
|
||||||||
Operations and maintenance decreased approximately $1.7 million, or 10.4% and increased $4.0 million, or 9.9%, for the quarter and nine months ended September 30,
2019, respectively, compared with the same periods in 2018. As a percentage of total revenue, operations and maintenance decreased to 6.6% and increased to 6.8% of total revenue for the quarter and nine months ended September 30, 2019, respectively,
from 6.8% and 6.7% in the same periods in 2018. As a percentage of freight revenue, operations and maintenance decreased to 7.4% and 7.6% of freight revenue for the quarter and nine months ended September 30, 2019, respectively, from 7.7% and 7.6% in
the same periods in 2018. The change in operations and maintenance for the three months ended September 30, 2019, is primarily related to the timing of the trade cycle for our tractors as compared to the same 2018 quarter. For the nine months ended
September 30, 2019, the increase is primarily the result of the acquisition of Landair and its respective higher average age of tractor and trailer equipment.
Going forward, we believe this category will fluctuate based on several factors, including expected upgrades to Landair’s fleet, our continued ability to maintain a
relatively young fleet in our other operating companies, accident severity and frequency, weather, and the reliability of new and untested revenue equipment models.
Revenue equipment rentals and purchased transportation
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Revenue equipment rentals and purchased transportation
|
$
|
50,428
|
$
|
47,445
|
$
|
146,267
|
$
|
115,525
|
||||||||
|
% of total revenue
|
22.6
|
%
|
19.5
|
%
|
22.1
|
%
|
18.8
|
%
|
||||||||
|
% of freight revenue
|
25.2
|
%
|
22.1
|
%
|
24.8
|
%
|
21.6
|
%
|
||||||||
Revenue equipment rentals and purchased transportation increased approximately $3.0 million, or 6.3%, for the three months ended September 30, 2019, compared with the
same quarter in 2018. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 22.6% of total revenue for the three months ended September 30, 2019, from 19.5% in the same quarter in 2018. As a percentage
of freight revenue, revenue equipment rentals and purchased transportation increased to 25.2% of freight revenue for the three months ended September 30, 2019, from 22.1% in the same quarter in 2018.
For the nine months ended September 30, 2019, revenue equipment rentals and purchased transportation increased approximately $30.7 million, or 26.6%, compared with
the same period in 2018. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 22.1% of total revenue for the nine months ended September 30, 2019, from 18.8% in the same period in 2018. As a
percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 24.8% of freight revenue for the nine months ended September 30, 2019, from 21.6% in the same period in 2018.
These increases were primarily the result of a more competitive market for sourcing third party capacity in our existing Managed Freight segment. Additionally, for
the nine months ended September 30, 2019, the acquisition of Landair's managed freight business added to overall purchased transportation cost but is less reliant on purchased transportation to generate revenue, compared to our existing brokerage and
logistics services. Further, the percentage of the total miles run by independent contractors increased from 11.9% and 11.8% for the three and nine months ended September 30, 2018, respectively, to 12.4% and 12.7% for the same 2019 periods.
We expect revenue equipment rentals to decrease as a percentage of our total equipment during the fourth quarter of 2019 as a result of the timing of our trade cycle
and for 2020 we anticipate our revenue equipment rentals to approximate 2019 levels.
We expect purchased transportation to increase as we seek to grow our Managed Freight segment. In addition, if fuel prices increase, it would result in a further
increase in what we pay third party carriers and independent contractors. However, this expense category will fluctuate with the number and percentage of loads hauled by independent contractors, loads handled by Managed Freight, and tractors,
trailers, and other assets financed with operating leases. In addition, factors such as the cost to obtain third party transportation services and the amount of fuel surcharge revenue passed through to the third party carriers and independent
contractors will affect this expense category. If industry-wide trucking capacity were to tighten in relation to freight demand, we may need to increase the amounts we pay to third party transportation providers and independent contractors, which
could increase this expense category on an absolute basis and as a percentage of freight revenue absent an offsetting increase in revenue. We continue to actively recruit independent contractors and, if we are successful, we would expect this line
item to increase as a percentage of revenue.
Operating taxes and licenses
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Operating taxes and licenses
|
$
|
3,170
|
$
|
3,377
|
$
|
9,719
|
$
|
8,649
|
||||||||
|
% of total revenue
|
1.4
|
%
|
1.4
|
%
|
1.5
|
%
|
1.4
|
%
|
||||||||
|
% of freight revenue
|
1.6
|
%
|
1.6
|
%
|
1.6
|
%
|
1.6
|
%
|
||||||||
For the periods presented, the changes in operating taxes and licenses were not significant as either a percentage of total revenue or freight revenue.
Insurance and claims
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Insurance and claims
|
$
|
14,051
|
$
|
12,675
|
$
|
35,758
|
$
|
31,269
|
||||||||
|
% of total revenue
|
6.3
|
%
|
5.2
|
%
|
5.4
|
%
|
5.1
|
%
|
||||||||
|
% of freight revenue
|
7.0
|
%
|
5.9
|
%
|
6.1
|
%
|
5.8
|
%
|
||||||||
Insurance and claims, consisting primarily of premiums and deductible amounts for liability, physical damage, and cargo damage insurance and claims, increased
approximately $1.4 million, or 10.9% for the three months ended September 30, 2019 compared with the same quarter in 2018. As a percentage of total revenue, insurance and claims increased to 6.3% of total revenue for the three months ended
September 30, 2019, from 5.2% in the same quarter in 2018. As a percentage of freight revenue, insurance and claims increased to 7.0% of freight revenue for the three months ended September 30, 2019, from 5.9% in the same quarter in 2018. Insurance
and claims per mile cost increased to 16.7 cents per mile in the third quarter of 2019 compared to 14.5 cents per mile in the third quarter of 2018. These increases are due to an increase in frequency of incidents and an increase in overall cost per
claim.
For the nine months ended September 30, 2019, insurance and claims increased approximately $4.5 million, or 14.4%, compared
with the same period in 2018. As a percentage of total revenue, insurance and claims increased to 5.4% of total revenue for the nine months ended September 30, 2019 from 5.1% in the same 2018 period. As a percentage of freight revenue, insurance and
claims increased to 6.1% of freight revenue for the nine months ended September 30, 2019, compared to 5.8% for the same period in 2018. Insurance and claims cost per mile increased to 14.3 cents per mile in the nine months ended September 30,
2019 from 13.0 cents per mile in the same 2018 period. The per mile increase is primarily the result of inflation in overall expected cost per claim, development on prior period claims during the nine months ended September 30, 2019, and increased
frequency of incidents compared to the same 2018 period.
Our
auto liability (personal injury and property damage), cargo, and general liability insurance programs include significant self-insured retention amounts. We
are also self-insured for physical damage to our equipment. Because of these significant self-insured exposures, insurance and claims expense may fluctuate significantly from period-to-period. Any increase in frequency or severity of claims, or
any increases to then-existing reserves, could adversely affect our financial condition and results of operations. We periodically evaluate strategies to efficiently reduce our insurance and claims expense. The auto liability policy contains a
feature whereby we are able to retroactively obtain a partial refund of the premium in exchange for taking on the liability for incidents that occurred during the period and releasing the insurers. This is referred to as "commuting" the policy or
"policy commutation." In several past periods we have commuted the policy, which has lowered our insurance and claims expense. We intend to evaluate our ability to commute the current policy and any such commutation could significantly impact
insurance and claims expense. Our prior auto liability policy that ran from October 1, 2014 through March 31, 2018, included a commutation provision if we were to commute the policy for the entire 42 months. Based on claims paid to date the
policy premium release refund could range from zero to $4.9 million, depending on actual claims settlements in the future. Effective April 2018, we entered into new auto liability policies with a three-year term. The policy includes a limit for a
single loss of $9.0 million, an aggregate of $18.0 million for each policy year, and a $30.0 million aggregate for the 36 month term ended March 31, 2021. The policy includes a policy release premium refund or commutation option of up to $14.0
million, less any future amounts paid on claims by the insurer. A decision with respect to commutation of the policy could be made before April 1, 2021. Management cannot predict whether or not future claims or the development of existing claims
will justify a commutation of either policy period, and accordingly, no related amounts were recorded at September 30, 2019.
Communications and utilities
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Communications and utilities
|
$
|
1,791
|
$
|
1,810
|
$
|
5,269
|
$
|
5,216
|
||||||||
|
% of total revenue
|
0.8
|
%
|
0.7
|
%
|
0.8
|
%
|
0.9
|
%
|
||||||||
|
% of freight revenue
|
0.9
|
%
|
0.8
|
%
|
0.9
|
%
|
1.0
|
%
|
||||||||
For the periods presented, the changes in communications and utilities were not significant as either a percentage of total revenue or freight revenue.
General supplies and expenses
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
General supplies and expenses
|
$
|
7,685
|
$
|
6,391
|
$
|
21,701
|
$
|
16,833
|
||||||||
|
% of total revenue
|
3.4
|
%
|
2.6
|
%
|
3.3
|
%
|
2.7
|
%
|
||||||||
|
% of freight revenue
|
3.8
|
%
|
3.0
|
%
|
3.7
|
%
|
3.1
|
%
|
||||||||
General supplies and expenses increased approximately $1.3 million, or 20.2%, for the three months ended September 30, 2019, compared with the same quarter in 2018.
As a percentage of total revenue, general supplies and expenses increased to 3.4% of total revenue for the three months ended September 30, 2019, compared to 2.6% for the same quarter in 2018. As a percentage of freight revenue, general supplies and
expenses increased to 3.8% of freight revenue for the three months ended September 30, 2019, from 3.0% in the same quarter in 2018.
For the nine months ended September 30, 2019, general supplies and expenses increased $4.9 million, or 28.9%, compared with
the same period in 2018. As a percentage of total revenue, general supplies and expenses increased to 3.3% of total revenue for the nine months ended September 30, 2019, from 2.7% in the same period in 2018. As a percentage of freight revenue,
general supplies and expenses increased to 3.7% of freight revenue for the nine months ended September 30, 2019, from 3.1% in the same period in 2018.
The increases for the quarter ended September 30, 2019 primarily relate to investments made in strategic planning and the process improvement review within the
Company. The increases for the nine months ended September 30, 2019 primarily relate to the additional general supplies and expenses of Landair as a result of the acquisition of Landair in the third quarter of 2018, partially offset by increased
legal and professional expenses incurred during the second quarter of 2018 related to that acquisition. Landair contributed $5.8 million to general supplies and expenses for the nine months ended September 30, 2019 compared to $2.1 million for the
three and nine-months ended September 30, 2018. For the fourth quarter of 2019, we expect the changes in general supplies and expenses versus prior year periods to approximate those of the third quarter as we continue to invest in additional process
review and improvement initiatives. Thereafter, we expect the changes to moderate compared to prior year periods.
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
$
|
20,073
|
$
|
19,290
|
$
|
60,291
|
$
|
56,803
|
||||||||
|
% of total revenue
|
9.0
|
%
|
7.9
|
%
|
9.1
|
%
|
9.3
|
%
|
||||||||
|
% of freight revenue
|
10.0
|
%
|
9.0
|
%
|
10.2
|
%
|
10.6
|
%
|
||||||||
Depreciation and amortization, including gains and losses on disposition of property and equipment ("depreciation and amortization"), consists primarily of
depreciation of tractors, trailers, and other capital assets offset or increased, as applicable, by gains or losses on dispositions of capital assets, as well as amortization of intangible assets. Depreciation and amortization increased by $0.8
million, or 4.1%, for the three months ended September 30, 2019, compared with the same quarter in 2018. As a percentage of total revenue, depreciation and amortization increased to 9.0% of total revenue for the three months ended September 30, 2019,
from 7.9% in the same quarter in 2018. As a percentage of freight revenue, depreciation and amortization increased to 10.0% of freight revenue for the three months ended September 30, 2019, from 9.0% in the same quarter in 2018.
For the nine months ended September 30, 2019, depreciation and amortization increased approximately $3.5 million, or 6.1%, compared with the same period in 2018. As
a percentage of total revenue, depreciation and amortization decreased to 9.1% of total revenue for the nine months ended September 30, 2019 from 9.3% in the same period in 2018. As a percentage of freight revenue, depreciation and
amortization decreased to 10.2% of freight revenue for the nine months ended September 30, 2019 from 10.6% in the same period in 2018.
Excluding gains and losses, depreciation increased $1.3 million and $3.4 million to $20.1 million and $59.1 million for the quarter and nine months ended September
30, 2019, respectively, compared to $18.8 million and $55.6 million in the same 2018 periods. Gains on the sale of property and equipment were $0.8 million and $1.0 million in the three and nine months ended September 30, 2019, respectively, compared
to gains of $0.3 million and losses of $0.4 million in the same 2018 periods. Amortization of intangible assets were $0.7 million and $2.2 million for the three and nine months ended September 30, 2019, respectively, compared to $0.7 million in the
2018 periods, due to the Landair acquisition.
We expect depreciation and amortization, including amortization of intangible assets, to remain relatively consistent going forward. However, if the used tractor
market were to decline, we could have to adjust residual values and increase depreciation or experience increased losses on sale.
Interest expense, net
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Interest expense, net
|
$
|
2,992
|
$
|
2,460
|
$
|
8,121
|
$
|
6,360
|
||||||||
|
% of total revenue
|
1.3
|
%
|
1.0
|
%
|
1.2
|
%
|
1.0
|
%
|
||||||||
|
% of freight revenue
|
1.5
|
%
|
1.1
|
%
|
1.4
|
%
|
1.2
|
%
|
||||||||
Interest expense, net increased approximately $0.5 million, or 21.6%, for the three months ended September 30, 2019 compared with the same quarter in 2018. As a
percentage of total revenue, interest expense, net increased to 1.3% of total revenue for the three months ended September 30, 2019 compared to 1.0% for the same quarter in 2018. As a percentage of freight revenue, interest expense, net increased
to 1.5% of freight revenue for the three months ended September 30, 2019, from 1.1% in the same quarter in 2018. These increases are primarily the result of an increase in our balance sheet debt and capital leases of $78.0 million to $313.8 million
as of the three months ended September 30, 2019 from $235.8 million as of the same quarter in 2018, as well as an increase in our weighted average interest rate for the same period.
For the nine months ended September 30, 2019, the changes in interest expense, net were not significant as either a percentage of total revenue or freight revenue.
This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases as well as our
ability to continue to generate profitable results and reduce our leverage.
Income from equity method investment
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Income from equity method investment
|
$
|
2,138
|
$
|
2,142
|
$
|
7,548
|
$
|
5,407
|
||||||||
We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income.
For the three months ended September 30, 2019 our income from equity method investment remained consistent at $2.1 million, while it increased $2.1 million for the nine months ended September 30, 2019 . The increase in TEL's contributions to our
results for the nine months ended September 30, 2019 is primarily due to growth in TEL’s lease offerings compared to the same 2018 periods. We expect the impact on our earnings resulting from our investment in TEL to improve year-over-year, based on
the fixed nature of lease revenue and expenses and the growth experienced during 2018 and 2019.
Income tax expense
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Income tax expense
|
$
|
404
|
$
|
4,249
|
$
|
4,451
|
$
|
9,716
|
||||||||
|
% of total revenue
|
0.2
|
%
|
1.7
|
%
|
0.7
|
%
|
1.6
|
%
|
||||||||
|
% of freight revenue
|
0.2
|
%
|
2.0
|
%
|
0.8
|
%
|
1.8
|
%
|
||||||||
Income tax expense decreased approximately $3.8 million, or 90.5%, for the three months ended September 30, 2019, compared with the same quarter in 2018. As a
percentage of total revenue, income tax expense decreased to 0.2% of total revenue for the three months ended September 30, 2019, from 1.7% in the same quarter in 2018. As a percentage of freight revenue, income tax expense decreased to 0.2% of
freight revenue for the three months ended September 30, 2019, from 2.0% in the same quarter in 2018.
For the nine months ended September 30, 2019, income tax expense decreased approximately $5.3 million, or 54.2%, compared with the same period in 2018. As a
percentage of total revenue, income tax expense decreased to 0.7% of total revenue for the nine months ended September 30, 2019, from 1.6% in the same period in 2018. As a percentage of freight revenue, income tax expense decreased to 0.8% of
freight revenue for the nine months ended September 30, 2019, from 1.8% in the same period in 2018.
These decreases were primarily related to the $18.6 million and $24.0 million decreases in the pre-tax income in the three- and nine-month periods ended September 30,
2019, respectively, compared to the same 2018 periods, resulting from the decline in operating income as discussed above, partially offset by the contribution from TEL’s earnings noted above.
The effective tax rate is different from the expected combined tax rate due primarily to permanent differences related to our per diem pay structure for drivers. Due
to the partial nondeductible effect of the per diem payments, our tax rate will fluctuate in future periods as income fluctuates. We are currently estimating our 2019 effective income tax rate to be approximately 30.6%.
RESULTS OF SEGMENT OPERATIONS
We have two reportable segments, truckload services, which we refer to as Truckload, and Managed Freight. Our Managed Freight segment has service offerings ancillary
to our Truckload services, including: freight brokerage service provided both directly and through freight brokerage agents, who are paid a commission for the freight they provide, transportation management services, and shuttle and switching
services. These service offerings are aggregated due to similar margins and customers. Also included within Managed Freight are our warehousing and accounts receivable factoring businesses, neither of which meets the quantitative or qualitative
reporting thresholds individually or in the aggregate, but only account for $25.1 million and $6.6 million of our 2019 revenue, respectively.
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
The following table summarizes financial and operating data by reportable segment:
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
|
September 30,
|
September 30,
|
||||||||||||||
|
(in thousands)
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
Revenues:
|
||||||||||||||||
|
Truckload
|
$
|
174,958
|
$
|
197,053
|
$
|
523,026
|
$
|
522,312
|
||||||||
|
Managed Freight
|
47,956
|
46,250
|
138,367
|
90,875
|
||||||||||||
|
Total
|
$
|
222,914
|
$
|
243,303
|
$
|
661,393
|
$
|
613,187
|
||||||||
|
|
||||||||||||||||
|
Operating (Loss) Income:
|
||||||||||||||||
|
Truckload
|
$
|
(5,618
|
)
|
$
|
11,960
|
$
|
839
|
$
|
29,055
|
|||||||
|
Managed Freight
|
3,687
|
4,221
|
11,500
|
7,616
|
||||||||||||
|
Total
|
$
|
(1,931
|
)
|
$
|
16,181
|
$
|
12,339
|
$
|
36,671
|
|||||||
For the 2019 quarter, Truckload total revenue decreased $22.1 million due to a $16.5 million decrease in freight revenue, as well as a $5.7 million decrease in fuel
surcharge revenue. The decrease in Truckload freight revenue relates to a 9.5% decrease in average freight revenue per tractor per week from the 2018 quarter. The decrease in average freight revenue per tractor per week for the quarter
ended September 30, 2019 is the result of a 10.9 cents per mile (or 5.5%) decrease in average rate per total mile and a 4.2% decrease in average miles per unit compared to the 2018 quarter. Team-driven trucks decreased to an average of 829 teams in
the third quarter of 2019, a decrease of approximately 5.9% from the average of 881 teams in the third quarter of 2018.
For the nine-month period ended September 30, 2019, Truckload total revenue increased $0.7 million due to a $7.8 million increase in freight revenue, partially offset
by a $7.0 million decrease in fuel surcharge revenue period-over-period. The increase in Truckload freight revenue relates to a 344, or 12.5%, increase in average number of units compared to the 2018 period, partially offset by a 9.6% decrease in
average freight revenue per tractor per week from the 2018 period. The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2019 is the result of a 9.1% decrease in average miles per unit and a 0.8 cent
per mile decrease in average rate per total mile. Team driven units decreased approximately 4.4% to an average of 845 teams for the nine-month period ended September 30, 2019 compared to an average of 884 teams during the same 2018 period.
Our Truckload operating income was $17.6 million and $28.2 million lower for the 2019 quarter and nine months ended September 30, 2019 than for the same 2018 periods,
due to an increase in operating costs per mile, net of fuel surcharge revenue, primarily related to the abovementioned increases in workers' compensation insurance, group health insurance, insurance and claims expense, and purchased transportation.
These increases were partially offset by increases in revenue.
Managed Freight revenue increased $1.7 million quarter-over-quarter and $47.5 million for the nine months ended September 30, 2019, primarily as a result of growth in
Landair’s contribution to combined Managed Freight operations compared with 2018. Additionally, our brokerage subsidiary contributed $1.6 million more revenue for the nine months ended September 30, 2019 compared to the same 2018 period.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires significant capital investments over the short-term and the long-term. Recently, we have financed our capital requirements with borrowings under
our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment. Going forward, we expect revenue equipment
acquisitions through purchases and capital leases to increase as a percentage of our fleet as we decrease our use of operating leases. Further, we expect to increase our capital allocation toward dedicated, transportation management services, and
other managed freight solutions to become the go-to partner for our customers’ most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $93.2 million and $84.3
million at September 30, 2019 and December 31, 2018, respectively. Our working capital on any particular day can vary significantly due to the timing of collections and cash disbursements. Based on our expected financial condition, net capital
expenditures, results of operations, related net cash flows, installment notes, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs and we do not expect to
experience material liquidity constraints in the foreseeable future.
We expect borrowings from the financial affiliates of our primary revenue equipment suppliers to be available to fund most new tractors expected to be delivered in
2019, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of notes, operating leases, finance leases, and/or from the Credit Facility. With a relatively young average fleet age at
September 30, 2019, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options. If we are successful in our attempts to grow our
independent contractor fleet, our capital requirements would be reduced.
As of September 30, 2019 and December 31, 2018, we had $368.6 million and $235.8 million in long-term debt and lease obligations, respectively, consisting of the
following:
|
|
●
|
$13.7 million and $3.9 million in outstanding borrowings under the Credit Facility, respectively;
|
|
|
|
|
|
|
●
|
$240.0 million and $166.9 million in revenue equipment installment notes, respectively;
|
|
|
|
|
|
|
●
|
$24.0 million and $24.8 million in real estate notes, respectively;
|
|
|
|
|
|
|
●
|
$0.2 million and $0.3 million in deferred loan costs (which reduce long-term debt) , respectively;
|
|
|
|
|
|
|
●
|
$36.3 million and $40.5 million of the principal portion of financing lease obligations, respectively; and
|
|
|
|
|
|
|
●
|
$54.8 million and $0 of the operating lease obligations, respectively.
|
The increase in our revenue equipment installment notes was primarily due to the purchase of new company tractors through installment notes in the first nine months
of 2019. The increase in operating lease obligations was primarily due to our adoption of Topic 842, Leases.
As of September 30, 2019, we had undrawn letters of credit outstanding of approximately $35.2 million and available borrowing capacity of $46.0 million under the
Credit Facility. Fluctuations in the outstanding balance and related availability under our Credit Facility are driven primarily by cash flows from operations and the timing and nature of property and equipment additions that are not funded through
notes payable, as well as the nature and timing of collection of accounts receivable, payments of accrued expenses, and receipt of proceeds from disposals of property and equipment. Refer to Note 5, “Debt” of the accompanying consolidated financial
statements for further information about material debt agreements.
Cash Flows
Net cash flows provided by operating activities decreased $61.8 million for the nine-month period ended September 30, 2019 compared with the same 2018 period,
primarily due to the timing and amount of payments on our accrued expenses and trade accounts in the 2019 period compared to the same 2018 period, as well as net income of $7.3 million for the nine-month period ended September 30, 2019 compared with
$26.0 million for the same 2018 period.
Net cash flows used by investing activities was $99.5 million for the nine months ended September 30, 2019, compared to $102.8 million in the same 2018 period. The
change in net cash flows used by investing activities was primarily the result of the timing of our trade cycle whereby we took delivery of approximately 1,211 new company tractors and disposed of approximately 486 used tractors in the 2019 period
compared to delivery and disposal of approximately 525 and 611 tractors, respectively in the same 2018 period.
Net cash flows provided by financing activities was approximately $76.4 million for the nine-months ended September 30, 2019,
compared to $5.4 million in the same 2018 period. The change in net cash flows provided by financing activities was primarily a function of net proceeds from our notes payable and Credit Facility of $82.1 million in 2019 compared to $7.5 million in
the same 2018 period as a result of more new company tractors purchased and fewer disposed tractors, as discussed above, compared to the same 2018 period, partially offset by additional borrowings in the 2018 period in anticipation of funding the
July 2018 acquisition of Landair.
Going forward, our cash flows may fluctuate depending on capital expenditures, future stock repurchases, strategic investments or divestitures, and the extent of
future income tax obligations and refunds.
CONTRACTUAL OBLIGATIONS
During the three and nine months ended September 30, 2019 , there were no material changes in our commitments or contractual liabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make decisions based upon estimates,
assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and
disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated. There have been no material changes to our
most critical accounting policies and estimates during the three and nine months ended September 30, 2019, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in
our 2018 Annual Report on Form 10-K.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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We experience various market risks, including changes in interest rates and fuel prices. We do not enter into derivatives or other financial instruments for trading
or speculative purposes, or when there are no underlying related exposures. Because our operations are mostly confined to the United States, we are not subject to a material amount of foreign currency risk.
COMMODITY PRICE RISK
We engage in activities that expose us to market risks, including the effects of changes in fuel prices and in interest rates. Financial exposures are evaluated as an
integral part of our risk management program, which seeks, from time-to-time, to reduce the potentially adverse effects that the volatility of fuel markets and interest rate risk may have on operating results.
In an effort to seek to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we have periodically entered into
various derivative instruments, including forward futures swap contracts. We have historically entered into hedging contracts with respect to ultra low sulfur diesel ("ULSD"). Under these contracts, we paid a fixed rate per gallon of ULSD and
received the monthly average price of Gulf Coast ULSD. The retrospective and prospective regression analyses provided that changes in the prices of diesel fuel and ULSD were deemed to be highly effective based on the relevant authoritative guidance.
At September 30, 2019, there are no remaining fuel hedge contracts. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.
A one dollar increase in the price of diesel per gallon would decrease our net income by $1.5 million. This sensitivity analysis considers that we expect to purchase approximately 11.7 million gallons of diesel during the remainder of 2019, with an assumed fuel surcharge recovery rate of 82.6% of the cost (which was our fuel surcharge recovery rate during the nine months ended September 30, 2019).
INTEREST RATE RISK
In August 2015, we entered into an interest rate swap agreement with a notional amount of $28.0 million, which was designated as a hedge against the variability in
future interest payments due on the debt associated with the purchase of our corporate headquarters. The terms of the swap agreement effectively convert the variable rate interest payments on this note to a fixed rate of 4.2% through maturity on
August 1, 2035. In 2016 and 2017, we also entered into several other interest rate swaps, which were designated to hedge against the variability in future interest rate payments due on rent associated with the purchase of certain trailers. Because
the critical terms of the swap and hedged items coincide, in accordance with the requirements of ASC 815, the change in the fair value of the derivative is expected to exactly offset changes in the expected cash flows due to fluctuations in the LIBOR
rate over the term of the debt instrument, and therefore no ongoing assessment of effectiveness is required. The fair value of all interest rate swap agreements that were in effect at September 30, 2019 and December 31, 2018 of less than $0.1 million
and $0.3 million, respectively, are included in other short and long-term assets and other short and long-term liabilities, as appropriate based upon each swap agreement's position, in the condensed consolidated balance sheet and is included in
accumulated other comprehensive income, net of tax. Additionally, less than $0.1 million was reclassified from accumulated other comprehensive income into our results of operations as additional interest expense for the three and nine months ended
September 30, 2019, respectively, related to changes in interest rates during such periods. Based on the amounts in accumulated other comprehensive income as of September 30, 2019, we expect to reclassify losses of less than $0.1 million, net of tax,
on derivative instruments from accumulated other comprehensive income into our results of operations during the next twelve months due to changes in interest rates. The amounts actually realized will depend on the fair values as of the date of
settlement.
Our market risk is also affected by changes in interest rates. Historically, we have used a combination of fixed-rate and
variable-rate obligations to manage our interest rate exposure. Fixed-rate obligations expose us to the risk that interest rates might fall. Variable-rate obligations expose us to the risk that interest rates might rise. Of our total $368.6 million
of debt and operating and finance leases, we had $45.7 million of variable rate debt outstanding at September 30, 2019, including our Credit Facility, a real-estate note and certain equipment notes, of which the real-estate note of $24.0 million was
hedged with the interest rate swap agreement at 4.2% and certain of our equipment notes totaling $8.0 million were hedged to provide a weighted average interest rate of 2.9%. The interest rates applicable to these agreements are based on either the
prime rate or LIBOR. Our earnings would be affected by changes in these short-term interest rates. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At our September 30, 2019 level
of borrowing, a 1% increase in our applicable rate would reduce annual net income by less than $0.1 million. Our remaining debt is fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us and our consolidated subsidiaries is made known to the
officers who certify our financial reports and to other members of senior management and the Board of Directors.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that due to a material weakness in our internal control over financial reporting described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, our
disclosure controls and procedures were not effective as of September 30, 2019.
Notwithstanding the identified material weakness, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material
respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. generally accepted accounting principles.
Remediation
Management has been implementing and continues to implement measures designed to address remediation of the control deficiencies that contributed to the material
weakness, such that these controls are designed, implemented, and operating effectively. In accordance with our remediation plan, we have and will continue to (i) develop a training program addressing ITGCs and policies, including educating control
owners concerning the principles and requirements of each control, with a focus on those related to change-management over IT systems impacting financial reporting; (ii) implement controls to address and maintain documentation of completeness and
accuracy of system generated information used to support the operation of the controls; (iii) develop enhanced change-management intake procedures and controls related to changes in IT systems; (iv) implement an IT management review and testing plan
to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and (v) enhance monthly reporting on the remediation measures to the Audit Committee of our Board of Directors.
As of September 30, 2019, we have taken substantial action to implement our remediation plan. We have developed a training program to address ITGCs and related
policies. Management has implemented controls to address system generated information, which includes additional testing of financially significant reports and interfaces before any related changes are made to the underlying systems, reports, or
data. To address intake procedures, we have added additional procedures to identify changes that could impact systems, data or reports that are financially significant. We have key personnel reviewing information technology management review and
testing plans to monitor ITGCs. Finally, management has enhanced reporting to the Audit Committee of our Board of Directors through ongoing review of the Company’s remediation efforts with Audit Committee members during the nine months in fiscal
2019. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are engaged in the
testing of these controls.
Changes in Internal Control Over Financial Reporting
Other than the remediation process described above, the implementation of controls that may materially affect internal controls related to Landair, and the
implementation of controls related to our adoption of Topic 842,
Leases
, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the
Exchange Act) that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal
controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the
design of an internal controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all internal controls systems, no evaluation
of controls can provide absolute assurance that all our controls issues and instances of fraud, if any, have been detected.
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PART II
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OTHER INFORMATION
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ITEM 1.
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From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or
property damage incurred in connection with the transportation of freight.
Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County,
California. The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The complaint asserts that the time period covered by the lawsuit is from
October 31, 2014 to the present and alleges claims for failure to properly pay for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper
minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code. Since the original filing date, the case has been removed from the Los Angeles Superior Court
to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. We do not currently have enough information to
make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.
Also, in February, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting
civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On August 1, 2019, the Los Angeles Superior Court entered an order staying the
action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount
of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2019.
We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain
self-insured retentions. In management's opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying condensed consolidated financial statements.
Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending
litigation, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements.
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ITEM 1A.
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While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be
present. Our Form 10-K for the year ended December 31, 2018, in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially
affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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During the quarter ended September 30, 2019, we did not engage in unregistered sales of securities or any other transactions required to be reported under this Item 2
of Part II on Form 10-Q.
The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under our Credit Facility.
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
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ITEM 4.
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MINE SAFETY DISCLOSURES
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Not applicable.
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ITEM 5.
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OTHER INFORMATION
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Not applicable.
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Exhibit
Number
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Reference
|
Description
|
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(1)
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Second Amended and Restated Articles of Incorporation
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|
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(2)
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Third Amended and Restated Bylaws
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|
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(1)
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Second Amended and Restated Articles of Incorporation
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|
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(2)
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Third Amended and Restated Bylaws
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|
|
#
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Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Principal Executive
Officer
|
|
|
#
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Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Principal Financial
Officer
|
|
|
##
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Chief Executive Officer
|
|
|
##
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Richard B. Cribbs, the Company's Chief Financial Officer
|
|
|
101.INS
|
|
XBRL Instance Document
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|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
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|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
References:
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|
|
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(1)
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Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-Q, filed May 10, 2019.
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(2)
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Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed March 14, 2019.
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|
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#
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Filed herewith.
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|
|
##
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Furnished herewith.
|
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
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COVENANT TRANSPORTATION GROUP, INC.
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Date: November 8, 2019
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By:
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/s/ Richard B. Cribbs
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Richard B. Cribbs
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Executive Vice President and Chief Financial Officer in his capacity as such and as a duly authorized officer on behalf of the issuer
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Page 34
TABLE OF CONTENTS
Part IItem 1. Financial StatementsNote 1. Significant Accounting PoliciesNote 2. (loss) Income Per ShareNote 3. Segment InformationNote 4. Income TaxesNote 5. Debt and Lease ObligationsNote 6. Stock-based CompensationNote 7. Commitments and ContingenciesNote 8. LeasesNote 9. Equity Method InvestmentNote 10. Goodwill and Other AssetsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits