2013 Goals - Covenant Transportation Group

Report
2013 BB&T Transportation Conference
February 2013
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DISCLOSURE STATEMENT
This presentation and discussion includes forward-looking statements within the
meaning of the Private Securities Litigation reform Act of 1995. Words such as
“expects,” “anticipates,” “intends,” “estimates,” or similar expressions are intended to
identify these forward-looking statements. These statements are based on Covenant
Transportation Group’s current plans and are not guarantees of future performance.
These forward-looking statements are subject to risks and uncertainties that could
cause actual results and the company’s plans and objectives to differ materially from
those expressed in the forward-looking statements. Such risks and uncertainties are
discussed further in Covenant Transportation Group’s reports and filings with the
Securities and Exchange Commission.
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Attendees
David R. Parker – Chairman & CEO
Richard B. Cribbs – SVP & CFO
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Investment Summary
• Truckload carrier focused on targeted markets offering just-in-time and other
premium transportation and logistics services including team expedited longhaul, refrigerated, regional and brokerage services
• Group operates about 2,900 tractors and 6,900 trailers
• Young average tractor age (12/31/12): 2.1 years (or 25 months)
• Utilize 8 full size terminals and 25+ drop yards
• Fiscal 2012 Revenue, including FSC: $674 Million
• Headquarters: Chattanooga, TN
• NASDAQ: CVTI
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Who/What is CTG
CTG is a holding company:
• 3 Specialized Asset-Based Trucking Companies
• Expedited (Covenant Transport - Chattanooga)
• Regional (Star Transportation – Nashville)
• Refrigerated (SRT - Texarkana)
• 1 Non-Asset Based Brokerage & Logistics
• Covenant Transport Solutions (Chattanooga)
• 1 Equipment Sales & Leasing Company
• Transport Enterprise Leasing (Chattanooga)
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For more information, please visit: www.ctgcompanies.com
Revenue Breakdown
% of Total Revenue
Trucks
2012
2013 est.
Expedited
1,140
45%
45%
Dedicated
360
11%
8%
1,500
56%
53%
Temperature Control
1,050
30%
32%
Dedicated/Regional
350
9%
8%
Brokerage/Logistics
0
5%
7%
(Team & Solo)
*Includes Reefer
2,900
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Targeted Premium
Markets
% of Total Revenue
Brokerage
5%
Regional
5%
Expedited
41%
Dedicated
15%
Temperature Control
34%
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Tangible Book & Market Value/Share
$7.00
$6.33
$6.00
$5.85
$5.00
$5.97
$6.01
Tangible BV
$5.76
$6.38
$5.53
At 2/10/13
$4.60
$3.74
$4.00
$2.97
$3.20
$3.00
At 2/10/13, Market
Value trading at only ≈
0.9 of Tangible Book
Value vs. ≈ 1.3 – 1.4
industry average (A)
Market Value
$2.00
$1.00
$Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
(A) Includes WERN, CGI, KNX, MRTN, PTSI, USAK, and CVTI
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Truckload Industry Trends
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Industry Trends - Capacity
Capacity conclusions – Outlook for 2013
• Fleets still cautious about capacity expansion (Large TL fleets
up 1.3% since Dec 2011, Small TL fleets even since Dec 2011)
• Fleets need to replace a significant amount of aged tractors in
the next few years to come, if they can afford them (average
industry age is now 6.6 years vs. CTG at 2.1 years)
• Government regulations will further limit capacity (Electronic
logs, HOS, CSA rules)
• Driver shortage remains biggest problem for the future
• “If economy were to surprise on the upside, there simply
wouldn’t be enough trucks on the road today to handle all of
the freight” – Bob Costello, ATA’s Chief Economist
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Industry Trends - Pricing
• Many inflationary cost pressures to overcome
including:
•
•
•
•
•
Driver wages
Equipment (tractors and trailers)
Tires, vehicle replacement parts, maintenance
Casualty insurance
Regulations (CSA, EOBR, HOS, California CARB)
• Contract pricing began moving up in Q3-2010 and
has not slowed
• Overall pricing for the large fleets should be up 2% to
4% in 2013 over 2012
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Q4-12 Highlights
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Where is our balance sheet?
Assets = $400 million
Liabilities =$305 million
Equity =
$ 95 million
Available Borrowing Capacity
≈$52.7 million on ABL revolver @12/31/12
Effective 12/31/12, amended Revolving Credit Facility to extend maturity date 3 years to
September 2017, provide increased availability of $15 million, added springing provision
to Fixed Charge Coverage Ratio covenant making it inoperative for the foreseeable
future and eliminate the Leverage Ratio covenant, improve pricing grid by ≈ 75 bps on
letters of credit and any outstanding loan balance.
CTG paid off $55 million of lease-adjusted debt during the 2012 fiscal year to reduce our
overall indebtedness to $242 million from $297 million at the end of fiscal 2011.
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Q4-12 Overview
• Net income of $1.5 million or $0.10/share compared to net loss of $2.2
million or ($0.05)/share in Q4-11
• Operating ratio improved by 280 basis points vs. year ago period to 96.3%
• Freight revenue per tractor increased 14% vs. Q4-11
• Average freight revenue per total mile increased 8% vs. Q4-11
• Improved utilization (miles/truck) by 6% vs. Q4-11
• 49% Transport Enterprise Leasing equity investment provided $650
thousand of pretax income to CTG vs. $200 thousand in Q4-11
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Q4-12 Overview
• Driver wages increased 3.2 cents per mile (“cpm”) through
improved driver pay in order to seat trucks
• Workers comp expense increased 1.6 cpm
• Casualty insurance expense increased 0.9 cpm
• Owner-operator cost per total mile increased 3.3 cpm as our
percentage of owner-op miles increased to 9.0% from 6.8%
• Fuel costs, net of surcharges, decreased 3.4 cpm, even with a
$0.15/gallon increase in the average DOE cost of fuel vs. Q4-11, as
impacted by greater % of owner-op miles as well as improved fuel
economy and maintained a disciplined fuel hedging strategy
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2013 Goals
2013 Goals
• Sustain YOY Profitability in 1H’13 and Improve Profitability in
2H’13
• Continue rate/yield improvement initiative
• Increase owner-operator % of fleet
• Allocate capital to higher margin business units and reduce capital to
under-performing business units
• Improved full year results of previous years’ investments in new lanes and
service offerings
2013 Revenue Trends (Year-over-year)
• Average fleet size growth of 1%-3%
• Revenue per truck expected improvement from 5%-8%.
• Utilization expected to improve 3%-5%
• Rates/total mile expected to improve modestly up 2%-3%
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2013 Goals
• Cost Trends
• Targeted cost savings areas include:




•
•
•
Driver retention
Improved safety (accident frequency reduction)
Reduced interest cost from amended credit facility
Fuel cost, net of fuel surcharge trending down
 Better fuel surcharge recovery and improved fuel economy, as well as
benefit of increased owner-op percentage
Higher driver wages and continued driver wage pressure
Higher casualty insurance expense with no estimated insurance
commutation gain in fiscal 2013 and elevating medical costs
Increased owner-operator expense from planned expansion of
owner-operator truck count (and overall percentage of fleet)
• Higher capital costs (depreciation and operating leases) related to
reduced gains on disposal from equipment and headwind of $2.4
million gain on sale of terminal recorded in Q1-12, somewhat offset
by reduced trailer count and reduced company-owned tractors
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2013 Goals
• Long-Term Investments
•
• Efficiency gains through technology and human capital
 TMW (fully integrated operations and financial system)
Operational at Covenant subsidiary July 2011, SRT expected
January 2014 – Now starting to see efficiency benefits in
operations, driver analytics, back office consolidation
 Transport Enterprise Leasing expected to grow and contribute
additional earnings in 2013
 Use of Franklin Covey’s 4 Disciplines of Execution (4DX)
methodology to complete strategic initiatives
Solutions Brokerage Subsidiary
• Growth strategy with additional service offerings and maturing fiscal
2012 start-up operations
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With significant operating leverage, small changes in asset
productivity can yield a significant impact
Estimated Annual Increase or Decrease in Freight Revenue and Operating Income
Attributable To:
(Dollars in thousands)
1% Change in
Miles/Truck/Week
One Cent Change in
Rate Per Total Mile
100 Basis Point
Change in
Operating Ratio
Freight revenue
$5,050
$3,450
N/A
Operating income
$1,500
$3,450
$5,020
Disclaimer> In general, our miles per truck, rate per mile, and operating ratio are affected by industry-wide freight volumes,
industry-wide trucking capacity, and the competitive environment, which factors are beyond our control. Estimates are not
reflective of the current beliefs or expectations of our management as to future results and are inherently subject to risks and
uncertainties. Please see the "DISCLOSURE STATEMENT” attached hereto and refer to the various disclosures by the Company
in its press releases, stockholder reports, and filings with the Securities and Exchange Commission.
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Questions?
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