|
||||||||||||||||||||||||||
| SEC Info℠ | | | Home | | | Search | | | My Interests | | | Help | | | Sign In | | | Please Sign In | |||||||
|
||||||||||||||||||||||||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/10/20 Covenant Logistics Group, Inc. 10-Q 6/30/20 77:7.3M RDG Filings/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 968K
2: EX-10.1 Material Contract HTML 50K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 23K
13: R1 Document And Entity Information HTML 79K
14: R2 Condensed Consolidated Balance Sheets (Current HTML 148K
Period Unaudited)
15: R3 Condensed Consolidated Balance Sheets (Current HTML 41K
Period Unaudited) (Parentheticals)
16: R4 Condensed Consolidated Statements of Operations HTML 111K
(Unaudited)
17: R5 Condensed Consolidated Statements of Comprehensive HTML 47K
(Loss) Income (Unaudited)
18: R6 Condensed Consolidated Statements of Comprehensive HTML 26K
(Loss) Income (Unaudited) (Parentheticals)
19: R7 Condensed Consolidated Statements of Stockholders' HTML 63K
Equity (Unaudited)
20: R8 Condensed Consolidated Statements of Cash Flows HTML 115K
(Unaudited)
21: R9 Note 1 - Significant Accounting Policies HTML 39K
22: R10 Note 2 - (Loss) Income Per Share HTML 59K
23: R11 Note 3 - Discontinued Operations HTML 64K
24: R12 Note 4 - Segment Information HTML 66K
25: R13 Note 5 - Income Taxes HTML 31K
26: R14 Note 6 - Restructuring and Cost Savings HTML 45K
Initiatives
27: R15 Note 7 - Debt HTML 56K
28: R16 Note 8 - Lease Obligations HTML 87K
29: R17 Note 9 - Stock-based Compensation HTML 29K
30: R18 Note 10 - Commitments and Contingencies HTML 34K
31: R19 Note 11 - Equity Method Investment HTML 50K
32: R20 Note 12 - Goodwill and Other Assets HTML 92K
33: R21 Note 13 - Equity HTML 26K
34: R22 Note 14 - Liquidity HTML 28K
35: R23 Note 15 - Subsequent Events HTML 29K
36: R24 Significant Accounting Policies (Policies) HTML 47K
37: R25 Note 2 - (Loss) Income Per Share (Tables) HTML 56K
38: R26 Note 3 - Discontinued Operations (Tables) HTML 61K
39: R27 Note 4 - Segment Information (Tables) HTML 53K
40: R28 Note 6 - Restructuring and Cost Savings HTML 41K
Initiatives (Tables)
41: R29 Note 7 - Debt (Tables) HTML 46K
42: R30 Note 8 - Lease Obligations (Tables) HTML 84K
43: R31 Note 11 - Equity Method Investment (Tables) HTML 48K
44: R32 Note 12 - Goodwill and Other Assets (Tables) HTML 90K
45: R33 Note 1 - Significant Accounting Policies (Details HTML 71K
Textual)
46: R34 Note 2 - (Loss) Income Per Share (Details Textual) HTML 25K
47: R35 Note 2 - (Loss) Income Per Share - Calculation of HTML 61K
Net Income Per Share (Details)
48: R36 Note 3 - Discontinued Operations (Details Textual) HTML 45K
49: R37 Note 3 - Discontinued Operations - Results of HTML 78K
Discontinued Operations (Details)
50: R38 Note 3 - Discontinued Operations - Results of HTML 25K
Discontinued Operations (Details) (Parentheticals)
51: R39 Note 4 - Segment Information (Details Textual) HTML 22K
52: R40 Note 4 - Segment Information - Segment by HTML 41K
Operating Fleet Revenue (Details)
53: R41 Note 5 - Income Taxes (Details Textual) HTML 29K
54: R42 Note 6 - Restructuring and Cost Savings HTML 24K
Initiatives (Details Textual)
55: R43 Note 6 - Restructuring and Cost Savings HTML 35K
Initiatives - Summary of Asset Groups Impaired
(Details)
56: R44 Note 6 - Restructuring and Cost Savings HTML 50K
Initiatives - Other Restructuring Gains and
Charges (Details)
57: R45 Note 7 - Debt (Details Textual) HTML 76K
58: R46 Note 7 - Debt - Current and Long-term Debt HTML 53K
(Details)
59: R47 Note 7 - Debt - Current and Long-term Debt HTML 25K
(Details) (Parentheticals)
60: R48 Note 8 - Lease Obligations (Details Textual) HTML 32K
61: R49 Note 8 - Lease - Lease Obligations (Details) HTML 55K
62: R50 Note 8 - Lease - Future Minimum Lease Payments HTML 69K
(Details)
63: R51 Note 9 - Stock-based Compensation (Details HTML 46K
Textual)
64: R52 Note 10 - Commitments and Contingencies (Details HTML 26K
Textual)
65: R53 Note 11 - Equity Method Investment (Details HTML 49K
Textual)
66: R54 Note 11 - Equity Method Investment - TEL's HTML 40K
Summarized Financial Information - Balance Sheets
(Details)
67: R55 Note 11 - Equity Method Investment - TEL's HTML 45K
Summarized Financial Information - Income
Statement (Details)
68: R56 Note 12 - Goodwill and Other Assets (Details HTML 42K
Textual)
69: R57 Note 12 - Goodwill and Other Assets - Intangible HTML 49K
Assets (Details)
70: R58 Note 12 - Goodwill and Other Assets - Expected HTML 36K
Future Amortization (Details)
71: R59 Note 13 - Equity (Details Textual) HTML 29K
72: R60 Note 14 - Liquidity (Details Textual) HTML 29K
73: R61 Note 15 - Subsequent Events (Details Textual) HTML 51K
75: XML IDEA XML File -- Filing Summary XML 141K
12: XML XBRL Instance -- cvti20200630_10q_htm XML 1.65M
74: EXCEL IDEA Workbook of Financial Reports XLSX 78K
8: EX-101.CAL XBRL Calculations -- cvlg-20200630_cal XML 160K
9: EX-101.DEF XBRL Definitions -- cvlg-20200630_def XML 1.20M
10: EX-101.LAB XBRL Labels -- cvlg-20200630_lab XML 950K
11: EX-101.PRE XBRL Presentations -- cvlg-20200630_pre XML 1.22M
7: EX-101.SCH XBRL Schema -- cvlg-20200630 XSD 175K
76: JSON XBRL Instance as JSON Data -- MetaLinks 332± 534K
77: ZIP XBRL Zipped Folder -- 0001437749-20-017342-xbrl Zip 219K
| Page | (sequential) | (alphabetic) | ↑Top | ||
|---|---|---|---|---|---|
| 1 | 1st Page – Filing Submission | ||||
| " | Page 3 | ||||
| " | Page 4 | ||||
| " | Page 5 | ||||
| " | Page 6 | ||||
| " | Page 7 | ||||
| " | Page 8 | ||||
| " | Page 21 | ||||
| " | Page 36 | ||||
| " | Page 37 | ||||
| " | Page 38 | ||||
| " | Page 39 | ||||
| " | Page 40 | ||||
| cvti20190331_10q.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
| i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i June 30, 2020
or
| i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: i 0-24960
COVENANT LOGISTICS GROUP, INC.
(Exact name of registrant as specified in its charter)
| i Nevada | i 88-0320154 |
| (State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
| or organization) | |
| i 400 Birmingham Hwy. | |
| i Chattanooga, i TN | i 37419 |
| (Address of principal executive offices) | (Zip Code) |
i 423- i 821-1212
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| i $0.01 Par Value Class A common stock | i CVLG | i The NASDAQ Global Select Market |
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.
| i Yes ☒ | No ☐ |
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).
| i Yes ☒ | No ☐ |
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.
| Large accelerated filer ☐ |
| i Accelerated filer ☒ |
| Non-accelerated filer ☐ | Smaller reporting company i ☒ | |
| Emerging growth company i ☐ | ||
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).
| Yes i ☐ | No ☒ |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (August 5, 2020).
Class A Common Stock, $.01 par value: i 14,784,214 shares
Class B Common Stock, $.01 par value: i 2,350,000 shares
| PART I FINANCIAL INFORMATION |
||
| Page Number |
||
| Item 1. |
Financial Statements |
|
| Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (unaudited) |
Page 3 | |
| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited) |
Page 4 | |
| Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (unaudited) |
Page 5 | |
| Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2020 and 2019 (unaudited) |
Page 6 | |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited) |
Page 7 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) |
Page 8 | |
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
Page 21 |
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
Page 36 |
| Item 4. |
Controls and Procedures |
Page 37 |
| PART II OTHER INFORMATION |
||
| Page Number |
||
| Item 1. |
Legal Proceedings |
Page 38 |
| Item 1A. |
Risk Factors |
Page 39 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Page 39 |
| Item 3. |
Defaults Upon Senior Securities |
Page 39 |
| Item 4. |
Mine Safety Disclosures |
Page 39 |
| Item 5. |
Other Information |
Page 39 |
| Item 6. |
Exhibits |
Page 40 |
| PART I |
FINANCIAL INFORMATION |
| FINANCIAL STATEMENTS |
| COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (In thousands, except share data) |
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | i 67,127 | $ | i 43,591 | ||||
| Accounts receivable, net of allowance of $4,567 in 2020 and $1,440 in 2019 | i 74,880 | i 81,205 | ||||||
| Drivers' advances and other receivables, net of allowance of $742 in 2020 and $692 in 2019 | i 20,929 | i 8,507 | ||||||
| Inventory and supplies | i 3,571 | i 4,210 | ||||||
| Prepaid expenses | i 10,415 | i 11,707 | ||||||
| Assets held for sale | i 66,005 | i 12,010 | ||||||
| Income taxes receivable | i 4,566 | i 5,403 | ||||||
| Other short-term assets | i 715 | i 1,132 | ||||||
| Current assets of discontinued operations | i 98,131 | i 86,620 | ||||||
| Total current assets | i 346,339 | i 254,385 | ||||||
| Property and equipment, at cost | i 523,677 | i 725,383 | ||||||
| Less: accumulated depreciation and amortization | ( i 130,725 | ) | ( i 208,180 | ) | ||||
| Net property and equipment | i 392,952 | i 517,203 | ||||||
| Goodwill | i 42,518 | i 42,518 | ||||||
| Other intangibles, net | i 26,822 | i 29,615 | ||||||
| Other assets, net | i 52,458 | i 37,919 | ||||||
| Total assets | $ | i 861,089 | $ | i 881,640 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Checks outstanding in excess of bank balances | $ | i 613 | $ | i 592 | ||||
| Accounts payable | i 18,514 | i 19,500 | ||||||
| Accrued expenses | i 37,896 | i 31,840 | ||||||
| Current maturities of long-term debt | i 53,482 | i 54,377 | ||||||
| Current portion of finance lease obligations | i 7,125 | i 7,258 | ||||||
| Current portion of operating lease obligations | i 18,407 | i 19,460 | ||||||
| Current portion of insurance and claims accrual | i 23,810 | i 21,800 | ||||||
| Other short-term liabilities | i 757 | i 185 | ||||||
| Current liabilities of discontinued operations | i 5,494 | i 6,245 | ||||||
| Total current liabilities | i 166,098 | i 161,257 | ||||||
| Long-term debt | i 216,632 | i 200,177 | ||||||
| Long-term portion of finance lease obligations | i 25,609 | i 26,010 | ||||||
| Long-term portion of operating lease obligations | i 30,225 | i 40,882 | ||||||
| Insurance and claims accrual | i 37,036 | i 20,295 | ||||||
| Deferred income taxes | i 70,563 | i 80,330 | ||||||
| Other long-term liabilities | i 7,995 | i 2,578 | ||||||
| Total liabilities | i 554,158 | i 531,529 | ||||||
| Commitments and contingent liabilities | i - | i - | ||||||
| Stockholders' equity: | ||||||||
| Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,168,210 shares issued and 14,740,506 outstanding as of June 30, 2020; and 16,165,145 shares issued and outstanding as of December 31, 2019 | i 173 | i 173 | ||||||
| Class B common stock, $.01 par value; 5,000,000 shares authorized; 2,350,000 shares issued and outstanding | i 24 | i 24 | ||||||
| Additional paid-in-capital | i 142,657 | i 141,885 | ||||||
| Treasury stock at cost; 1,427,704 and no shares as of June 30, 2020 and December 31, 2019, respectively | ( i 17,446 | ) | i - | |||||
| Accumulated other comprehensive loss | ( i 2,964 | ) | ( i 1,014 | ) | ||||
| Retained earnings | i 184,487 | i 209,043 | ||||||
| Total stockholders' equity | i 306,931 | i 350,111 | ||||||
| Total liabilities and stockholders' equity | $ | i 861,089 | $ | i 881,640 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE three and six months ended June 30, 2020 and 2019
(In thousands, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | ||||||||||||||||
| Freight revenue | $ | i 179,564 | $ | i 192,659 | $ | i 369,145 | $ | i 386,573 | ||||||||
| Fuel surcharge revenue | i 12,125 | i 24,381 | i 33,357 | i 47,800 | ||||||||||||
| Total revenue | $ | i 191,689 | $ | i 217,040 | $ | i 402,502 | $ | i 434,373 | ||||||||
| Operating expenses: | ||||||||||||||||
| Salaries, wages, and related expenses | i 74,688 | i 75,424 | i 157,152 | i 154,593 | ||||||||||||
| Fuel expense | i 15,938 | i 29,215 | i 41,202 | i 57,047 | ||||||||||||
| Operations and maintenance | i 12,218 | i 14,898 | i 25,044 | i 30,072 | ||||||||||||
| Revenue equipment rentals and purchased transportation | i 47,011 | i 47,169 | i 93,073 | i 95,839 | ||||||||||||
| Operating taxes and licenses | i 3,123 | i 3,365 | i 6,576 | i 6,549 | ||||||||||||
| Insurance and claims | i 11,562 | i 10,471 | i 27,174 | i 21,705 | ||||||||||||
| Communications and utilities | i 1,782 | i 1,760 | i 3,351 | i 3,478 | ||||||||||||
| General supplies and expenses | i 11,536 | i 7,205 | i 19,894 | i 13,909 | ||||||||||||
| Depreciation and amortization | i 19,663 | i 20,568 | i 37,846 | i 40,413 | ||||||||||||
| Gain on disposition of property and equipment, net | ( i 3,451 | ) | ( i 65 | ) | ( i 4,975 | ) | ( i 208 | ) | ||||||||
| Impairment of long lived property, equipment, and right-of-use assets | i 26,569 | i - | i 26,569 | i - | ||||||||||||
| Total operating expenses | i 220,639 | i 210,010 | i 432,906 | i 423,397 | ||||||||||||
| Operating (loss) income | ( i 28,950 | ) | i 7,030 | ( i 30,404 | ) | i 10,976 | ||||||||||
| Interest expense, net | i 2,084 | i 1,978 | i 3,983 | i 3,850 | ||||||||||||
| (Income) loss from equity method investment | ( i 530 | ) | ( i 2,375 | ) | i 205 | ( i 5,410 | ) | |||||||||
| (Loss) income before income taxes | ( i 30,504 | ) | i 7,427 | ( i 34,592 | ) | i 12,536 | ||||||||||
| Income tax (benefit) expense | ( i 7,336 | ) | i 2,182 | ( i 8,340 | ) | i 3,533 | ||||||||||
| (Loss) income from continuing operations | ( i 23,168 | ) | i 5,245 | ( i 26,252 | ) | i 9,003 | ||||||||||
| Income from discontinued operations, net of tax | i 825 | i 826 | i 1,696 | i 1,501 | ||||||||||||
| Net (loss) income | $ | ( i 22,343 | ) | $ | i 6,071 | $ | ( i 24,556 | ) | $ | i 10,504 | ||||||
| Basic and diluted (loss) income per share: | ||||||||||||||||
| (Loss) income from continuing operations | $ | ( i 1.36 | ) | $ | i 0.28 | $ | ( i 1.49 | ) | $ | i 0.49 | ||||||
| Income from discontinued operations | i 0.05 | i 0.04 | i 0.10 | i 0.08 | ||||||||||||
| Net (loss) income (1) | $ | ( i 1.31 | ) | $ | i 0.33 | $ | ( i 1.40 | ) | $ | i 0.57 | ||||||
| Basic weighted average shares outstanding | i 17,089 | i 18,438 | i 17,584 | i 18,410 | ||||||||||||
| Diluted weighted average shares outstanding | i 17,089 | i 18,606 | i 17,584 | i 18,570 | ||||||||||||
(1) Sum of the individual amounts may not add due to rounding.
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE three and six months ended June 30, 2020 and 2019
(In thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2019 | 2020 | 2019 | ||||||||||||||
| Net (loss) income | $ | ( i 22,343 | ) | $ | i 6,071 | $ | ( i 24,556 | ) | $ | i 10,504 | ||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Unrealized gain (loss) on effective portion of cash flow hedges, net of tax of ($9) and $809 in 2020 and $262 and $425 in 2019, respectively | i 28 | ( i 692 | ) | ( i 2,363 | ) | ( i 1,124 | ) | |||||||||
| Reclassification of cash flow hedge losses (gains) into statement of operations, net of tax of ($115) and ($129) in 2020 and $3 and $7 in 2019, respectively | i 336 | ( i 9 | ) | i 377 | ( i 19 | ) | ||||||||||
| Unrealized holding gain on investments classified as available-for-sale | i 36 | i 11 | i 36 | i 21 | ||||||||||||
| Total other comprehensive income (loss) | i 400 | ( i 690 | ) | ( i 1,950 | ) | ( i 1,122 | ) | |||||||||
| Comprehensive (loss) income | $ | ( i 21,943 | ) | $ | i 5,381 | $ | ( i 26,506 | ) | $ | i 9,382 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE three and six months ended June 30, 2020 and 2019
(Unaudited and in thousands)
| For the Three and Six Months Ended June 30, 2020 |
||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||
| Additional |
Other |
Total |
||||||||||||||||||||||||||
| Common Stock |
Paid-In |
Treasury |
Comprehensive |
Retained |
Stockholders' |
|||||||||||||||||||||||
| Class A |
Class B |
Capital |
Stock |
(Loss) |
Earnings |
Equity |
||||||||||||||||||||||
| Balances at December 31, 2019 |
$ | i 173 | $ | i 24 | $ | i 141,885 | $ | i - | $ | ( i 1,014 | ) | $ | i 209,043 | $ | i 350,111 | |||||||||||||
| Net loss |
i - | i - | i - | i - | i - | ( i 2,213 | ) | ( i 2,213 | ) | |||||||||||||||||||
| Other comprehensive loss | i - | i - | i - | i - | ( i 2,350 | ) | i - | ( i 2,350 | ) | |||||||||||||||||||
| Share repurchase |
i - | i - | i - | ( i 17,515 | ) | i - | i - | ( i 17,515 | ) | |||||||||||||||||||
| Stock-based employee compensation expense |
i - | i - | i 466 | i - | i - | i - | i 466 | |||||||||||||||||||||
| Issuance of restricted shares, net |
i - | i - | ( i 6 | ) | i - | i - | i - | ( i 6 | ) | |||||||||||||||||||
| Balances at March 31, 2020 |
$ | i 173 | $ | i 24 | $ | i 142,345 | $ | ( i 17,515 | ) | $ | ( i 3,364 | ) | $ | i 206,830 | $ | i 328,493 | ||||||||||||
| Net loss | i - | i - | i - | i - | i - | ( i 22,343 | ) | ( i 22,343 | ) | |||||||||||||||||||
| Other comprehensive income |
i - | i - | i - | i - | i 400 | i - | i 400 | |||||||||||||||||||||
| Share repurchase | i - | i - | i - | i 29 | i - | i - | i 29 | |||||||||||||||||||||
| Stock-based employee compensation expense | i - | i - | i 355 | i - | i - | i - | i 355 | |||||||||||||||||||||
| Issuance of restricted shares, net | i - | i - | ( i 43 | ) | i 40 | i - | i - | ( i 3 | ) | |||||||||||||||||||
| Balances at June 30, 2020 | $ | i 173 | $ | i 24 | $ | i 142,657 | $ | ( i 17,446 | ) | $ | ( i 2,964 | ) | $ | i 184,487 | $ | i 306,931 | ||||||||||||
| For the Three and Six Months Ended June 30, 2019 |
||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||
| Additional |
Other |
Total |
||||||||||||||||||||||||||
| Common Stock |
Paid-In |
Treasury |
Comprehensive |
Retained |
Stockholders' |
|||||||||||||||||||||||
| Class A |
Class B |
Capital |
Stock |
(Loss) |
Earnings |
Equity |
||||||||||||||||||||||
| Balances at December 31, 2018 |
$ | i 171 | $ | i 24 | $ | i 142,177 | $ | i - | $ | i 204 | $ | i 200,566 | $ | i 343,142 | ||||||||||||||
| Net income |
i - | i - | i - | i - | i - | i 4,433 | i 4,433 | |||||||||||||||||||||
| Other comprehensive loss |
i - | i - | i - | i - | ( i 432 | ) | i - | ( i 432 | ) | |||||||||||||||||||
| Stock-based employee compensation expense |
i - | i - | i 1,262 | i - | i - | i - | i 1,262 | |||||||||||||||||||||
| Issuance of restricted shares, net |
i 1 | i - | ( i 669 | ) | i - | i - | i - | ( i 668 | ) | |||||||||||||||||||
| Balances at March 31, 2019 |
$ | i 172 | $ | i 24 | $ | i 142,770 | $ | i - | $ | ( i 228 | ) | $ | i 204,999 | $ | i 347,737 | |||||||||||||
| Net income | i - | i - | i - | i - | i - | i 6,071 | i 6,071 | |||||||||||||||||||||
| Other comprehensive loss | i - | i - | i - | i - | ( i 690 | ) | i - | ( i 690 | ) | |||||||||||||||||||
| Stock-based employee compensation expense reversal | i - | i - | ( i 1,433 | ) | i - | i - | i - | ( i 1,433 | ) | |||||||||||||||||||
| Issuance of restricted shares, net | i - | i - | i - | i - | i - | i - | i - | |||||||||||||||||||||
| Balances at June 30, 2019 | $ | i 172 | $ | i 24 | $ | i 141,337 | $ | i - | $ | ( i 918 | ) | $ | i 211,070 | $ | i 351,685 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE six months ended June 30, 2020 and 2019
(In thousands)
| Six Months Ended June 30, | ||||||||
| 2019 | ||||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( i 24,556 | ) | $ | i 10,504 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Provision for (reversal of losses on) accounts receivable | i 3,355 | ( i 32 | ) | |||||
| Reversal of deferred gain on sales to equity method investee | ( i 2 | ) | ( i 7 | ) | ||||
| Depreciation and amortization | i 37,853 | i 40,426 | ||||||
| Impairment of property and equipment | i 26,569 | i - | ||||||
| Amortization of deferred financing fees | i 73 | i 73 | ||||||
| Deferred income tax (benefit) expense | ( i 9,139 | ) | i 3,221 | |||||
| Income tax benefit arising from restricted share vesting and stock options exercised | i 17 | i 668 | ||||||
| Stock-based compensation expense (reversal) | i 822 | ( i 171 | ) | |||||
| Loss (income) from equity method investment | i 205 | ( i 5,410 | ) | |||||
| Gain on disposition of property and equipment | ( i 4,946 | ) | ( i 1,386 | ) | ||||
| Return on investment in available-for-sale securities | ( i 2 | ) | ( i 7 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables and advances | ( i 34,802 | ) | i 164 | |||||
| Prepaid expenses and other assets | i 2,093 | ( i 2,971 | ) | |||||
| Inventory and supplies | i 639 | ( i 75 | ) | |||||
| Insurance and claims accrual | i 18,751 | ( i 4,255 | ) | |||||
| Accounts payable and accrued expenses | i 7,172 | ( i 17,145 | ) | |||||
| Net cash flows provided by operating activities | i 24,102 | i 23,597 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of available-for-sale securities | ( i 405 | ) | ( i 1,780 | ) | ||||
| Acquisition of property and equipment | ( i 46,991 | ) | ( i 79,125 | ) | ||||
| Proceeds from disposition of property and equipment | i 51,479 | i 15,569 | ||||||
| Net cash flows provided by (used in) investing activities | i 4,083 | ( i 65,336 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Change in checks outstanding in excess of bank balances | i 21 | ( i 247 | ) | |||||
| Proceeds from issuance of notes payable | i 55,345 | i 57,555 | ||||||
| Repayments of notes payable | ( i 39,859 | ) | ( i 19,733 | ) | ||||
| Repayments of finance lease obligations | ( i 2,661 | ) | ( i 2,876 | ) | ||||
| Proceeds under revolving credit facility | i 803,397 | i 843,398 | ||||||
| Repayments under revolving credit facility | ( i 803,397 | ) | ( i 829,995 | ) | ||||
| Payment of minimum tax withholdings on stock compensation | ( i 9 | ) | ( i 667 | ) | ||||
| Common stock repurchased | ( i 17,486 | ) | i - | |||||
| Net cash flows (used in) provided by financing activities | ( i 4,649 | ) | i 47,435 | |||||
| Net change in cash and cash equivalents | i 23,536 | i 5,696 | ||||||
| Cash and cash equivalents at beginning of period | i 43,591 | i 23,127 | ||||||
| Cash and cash equivalents at end of period | $ | i 67,127 | $ | i 28,823 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Note 1. | Significant Accounting Policies |
i
Basis of Presentation
On July 1, 2020, the stockholders of Covenant Transportation Group, Inc. approved the amendment to the organization’s Articles of Incorporation to change the Company’s name to Covenant Logistics Group, Inc. All references herein reflect the change of name to Covenant Logistics Group, Inc.
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, 2019, 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.
i
Change in Estimates
The Company reviews the estimated useful lives and salvage values of its assets on an ongoing basis, based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. During the second quarter of 2020, the Company adjusted the useful lives of certain intangible finite-lived assets, including the Landair trade name and non-compete agreement, and certain revenue equipment held under operating leases as the result of management changes, a change in the branding of the organization, and the forward looking use of these assets. These changes are being treated as a change in accounting estimate. During the three and six months ended June 30, 2020, these changes in estimates resulted in an increase in depreciation and amortization expense of approximately $ i 3.2 million, or a $ i 2.2 million, or $ i 0.13 per diluted share increase to net loss.
/i
Risks and Uncertainties
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic, and the President of the United States declared the COVID-19 a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had a continued negative impact on the global economy. In view of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact on our business. However, we are continuing to monitor the progression of the pandemic, further government response and development of treatments and vaccines and their potential effect on our financial position, results of operations, cash flows and liquidity. These events could have an impact in future periods on certain estimates used in the preparation of our second quarter financial results, including, but not limited to impairment of goodwill, other intangible assets and other long-lived assets, income tax provision and recoverability of certain receivables. Should the pandemic continue for an extended period of time, the impact on our operations could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.
Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the current policy period ( April 1, 2018 to March 31, 2021), aggregate limits available in the coverage layer $ i 9.0 million in excess of $ i 1.0 million are estimated to be fully eroded based on current claims expense accruals. As a result, any increase increases to existing claims, and/or new claims filed prior to March 31, 2021, may require additional expense accruals. Additionally, there is the possibility of mandatory reinstatement charges for the expired policy providing coverage in the $ i 10.0 million in excess of $ i 10.0 million layer, for accidents that occurred prior to expiration on March 31, 2020. Due to developments, we may experience additional expense accruals, increased insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations. 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. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations.
On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of TFS, which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $ i 103.3 million of net accounts receivable, which included $ i 108.7 million of gross accounts receivable, less advances and rebates of $ i 5.4 million. Subsequent to the disposition, the Company and the purchaser of TFS’ assets became involved in a dispute related to the disposition of the assets of TFS. See Note 15 for additional information on the risks and uncertainties associated with this dispute.
/
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 over five years to salvage values of approximately i 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 i 25% of their cost. We review, at least annually, 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 property and equipment are included in depreciation expense in the consolidated statements of operations.
/i
Recent Accounting Pronouncements
Accounting Standards not yet adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for our annual reporting period beginning January 1, 2023, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impacts the adoption of this standard will have on the consolidated financial statements.
/
| 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 i 274,000 shares and i 257,000 shares issuable upon conversion of unvested restricted shares for the three and six months ended June 30, 2020, respectively. Such shares were not included in the computation of the diluted loss per share for the same periods as the inclusion would have been anti-dilutive due to the net loss. There were no outstanding stock options at June 30, 2020 or June 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:
i
| (in thousands except per share data) | Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||||
| 2019 | 2020 | 2019 | ||||||||||||||
| Numerators: | ||||||||||||||||
| (Loss) income from continuing operations | $ | ( i 23,168 | ) | $ | i 5,245 | $ | ( i 26,252 | ) | $ | i 9,003 | ||||||
| Income from discontinued operations | i 825 | i 826 | i 1,696 | i 1,501 | ||||||||||||
| Net (loss) income | $ | ( i 22,343 | ) | $ | i 6,071 | $ | ( i 24,556 | ) | $ | i 10,504 | ||||||
| Denominator: | ||||||||||||||||
| Denominator for basic (loss) income per share – weighted-average shares | i 17,089 | i 18,438 | i 17,584 | i 18,410 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Equivalent shares issuable upon conversion of unvested restricted shares | i - | i 168 | i - | i 160 | ||||||||||||
| Denominator for diluted (loss) income per share adjusted weighted-average shares and assumed conversions | i 17,089 | i 18,606 | i 17,584 | i 18,570 | ||||||||||||
| Net (loss) income per share: | ||||||||||||||||
| (Loss) income from continuing operations | $ | ( i 1.36 | ) | $ | i 0.28 | $ | ( i 1.49 | ) | $ | i 0.49 | ||||||
| Income from discontinued operations | i 0.05 | i 0.04 | i 0.10 | i 0.08 | ||||||||||||
| Net (loss) income (1) | $ | ( i 1.31 | ) | $ | i 0.33 | $ | ( i 1.40 | ) | $ | i 0.57 | ||||||
(1) Sum of the individual amounts may not add due to rounding.
/
| Note 3. | Discontinued Operations |
As of June 30, 2020, our Factoring reportable segment was classified as discontinued operations as it: (i) is a component of the entity, (ii) meets the criteria as held for sale, and (iii) has a material effect on the Company's operations and financial results. On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of Transport Financial Services (“TFS”), a division of Covenant Transport Solutions LLC, an indirect wholly owned subsidiary of the Company, which included substantially all of the assets and operations of our Factoring reportable segment.
Beginning with the period ended June 30, 2020, we have reflected the former Factoring reportable segment as discontinued operations in the condensed consolidated statements of operations for all periods presented. Prior periods have been adjusted to conform to the current presentation. The sale consisted primarily of $ i 103.3 million of net accounts receivable, which included $ i 108.7 million of gross accounts receivable, less advances and rebates of $ i 5.4 million.
The following table summarizes the results of our discontinued operations for the three and six months ended June 30, 2020 and 2019:
i| (in thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Total revenue | $ | i 2,516 | $ | i 2,258 | $ | i 5,255 | $ | i 4,106 | ||||||||
| Operating expenses | i 453 | i 444 | i 1,030 | i 813 | ||||||||||||
| Operating income | i 2,063 | i 1,814 | i 4,225 | i 3,293 | ||||||||||||
| Interest expense | i 955 | i 705 | i 1,948 | i 1,278 | ||||||||||||
| Income before income taxes | i 1,108 | i 1,109 | i 2,277 | i 2,015 | ||||||||||||
| Income tax expense | i 283 | i 283 | i 581 | i 514 | ||||||||||||
| Net income from discontinued operations, net of tax | $ | i 825 | $ | i 826 | $ | i 1,696 | $ | i 1,501 | ||||||||
Interest expense not directly attributable to or related to other operations has been allocated to discontinued operations in a manner consistent with debt needed to finance the net average funds employed by the Factoring reportable segment, multiplied by the Company’s weighted average interest rate.
The following table summarizes the major classes of assets and liabilities included as discontinued operations as of June 30, 2020 and December 31, 2019:
| (in thousands) | ||||||||
| Current assets: | ||||||||
| Accounts receivable, net of allowance of $600 in 2020 and $408 in 2019 | $ | i 98,131 | $ | i 86,620 | ||||
| Current assets of discontinued operations | i 98,131 | i 86,620 | ||||||
| Current liabilities: | ||||||||
| Accounts payable | i 5,494 | i 6,245 | ||||||
| Current liabilities of discontinued operations | $ | i 5,494 | $ | i 6,245 | ||||
Net cash flows used by operating activities related to discontinued operations were $ i 10.0 million and $ i 20.0 million for the six months ended June 30, 2020 and 2019, respectively. There were i no investing or financing cash flows related to discontinued operations for either the six months June 30, 2020 or 2019.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Factoring assets were sold as of January 1, 2019.
| (in thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Total revenue | $ | i 191,689 | $ | i 217,040 | $ | i 402,502 | $ | i 434,373 | ||||||||
| (Loss) income from continuing operations | ( i 23,168 | ) | i 5,245 | ( i 26,251 | ) | i 9,003 | ||||||||||
| (Loss) income per basic and diluted share from continuing operations | $ | ( i 1.36 | ) | $ | i 0.28 | $ | ( i 1.49 | ) | i 0.49 | |||||||
The Company and the purchaser of TFS’ assets are involved in a dispute related to the disposition. The purchaser asserts that, subsequent to the closing, it identified that approximately $ i 66.0 million of the assets acquired related to advances against future payments to be made pursuant to long-term contractual arrangements between the obligor on such contracts and TFS’ clients for services that had not yet been performed (as opposed to advances against future payments for services that had been performed), that this fact was not disclosed to the purchaser, and the purchase of such advances was not contemplated by the purchase agreement. The Company is engaged in discussions to determine whether this dispute can be amicably resolved and is also evaluating other options should the discussions not produce an amicable resolution. It is too early to determine the likely outcome of this dispute, any liability or expenses the Company may incur, any cash the Company may need to pay or invest, any impact on the Company’s total leverage, or the gain or loss the Company ultimately may record on the transaction compared with the $ i 26.5 million gain previously estimated. The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found.
| Note 4. | Segment Information |
Until the second quarter of 2020, we had four reportable segments, Highway Services, Dedicated, Managed Freight, and Factoring. As discussed in Note 3, our Factoring reportable segment was classified as discontinued operations as of June 30, 2020.
Our remaining reportable segments are as follows:
| ● | Highway Services: Includes the Company’s Expedited and OTR services, which are typically ad-hoc and do not include long-term contracts. |
| o | Expedited services primarily involves high service freight with delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows. Expedited services generally require two-person driver teams on equipment either owned or leased by the Company. |
| o | OTR services provide customers with one-way load capacity over irregular routes for loads that are typically shorter in nature. |
| ● | Dedicated: Specializes in providing customers with committed capacity over extended contract periods using equipment either owned or leased by the Company. |
| ● | Managed Freight: Includes the Company’s Brokerage, TMS and Warehousing services. |
| o | Brokerage services provide logistics capacity by outsourcing the carriage of customers’ freight to contractual third parties. |
| o | TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs. |
| o | Warehousing services provides day-to-day warehouse management services to customers who have chosen to outsource this function. |
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our 2019 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 total revenue by our three reportable segments, disaggregated to the service offering level, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., organized first by reportable segment and then by service offering for the three and six months ended June 30, 2020 and 2019:
i
| (in thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||||
| 2019 | 2020 | 2019 | ||||||||||||||
| Revenues: | ||||||||||||||||
| Highway Services | ||||||||||||||||
| Expedited | $ | i 67,907 | $ | i 65,230 | $ | i 135,503 | $ | i 126,852 | ||||||||
| OTR | i 11,871 | i 24,433 | i 30,435 | i 51,139 | ||||||||||||
| Total Highway Services | i 79,778 | i 89,663 | i 165,938 | i 177,991 | ||||||||||||
| Dedicated | i 65,940 | i 85,745 | i 147,728 | i 170,078 | ||||||||||||
| Managed Freight: | ||||||||||||||||
| Brokerage | i 28,443 | i 20,277 | i 50,222 | i 44,583 | ||||||||||||
| TMS | i 5,919 | i 9,431 | i 14,877 | i 17,801 | ||||||||||||
| Warehousing | i 11,609 | i 11,924 | i 23,737 | i 23,920 | ||||||||||||
| Total Managed Freight | i 45,971 | i 41,632 | i 88,836 | i 86,304 | ||||||||||||
| Total revenues | $ | i 191,689 | $ | i 217,040 | $ | i 402,502 | $ | i 434,373 | ||||||||
/
| Note 5. | Income Taxes |
Income tax expense in both 2020 and 2019 varies from the amount computed by applying the federal corporate income tax rates of i 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 June 30, 2020 has increased by less than $ i 0.1 million since December 31, 2019.
The net deferred tax liability of $ i 70.6 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 June 30, 2020, for $ i 0.4 million related to certain state net operating loss carryforwards. 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.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions for refundable payroll tax credits, deferral of employer-side social-security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Although the Company is still assessing the impact of the legislation, we do not expect there to be a material income tax impact to our consolidated financial statements at this time.
/
| Note 6. | Restructuring and Cost Savings Initiatives |
In the second quarter of 2020 we made significant changes to our operational business units, overhead structure and branding strategy in an effort to streamline our business in a manner that we believe will allow us to significantly lower our fixed costs, pay down debt and produce consistent acceptable margins. These changes include (i) a reduction in our fleet of tractors and refrigerated trailers, which have historically produced unacceptable or unprofitable operating income, (ii) reallocation of our operating fleet toward our more profitable expedited, dedicated and irregular route operations, (iii) the sale of our Hutchins, Texas terminal and discontinued use of our Texarkana, Arkansas terminal, (iv) changes to key management and reductions to headcount, (v) the closure and early termination of our leased office space in Chattanooga, Tennessee that our brokerage group occupied, (vi) the installation of new operational processes allowing us to abandon or discontinue the use of a number of peripheral information technology infrastructure and applications and (vii) a change in our branding strategy to focus on one company name, phasing out the use of the Landair trade name.
Although the significant majority of restructuring and cost savings initiatives were completed in the second quarter of 2020, we do anticipate additional costs in the third and fourth quarters of 2020, as we continue to optimize our fleet profile and management team.
We discontinued the use of a significant amount of property and equipment, including assets owned and held under operating leases. We have adjusted the carrying value of the owned property and equipment down to fair market value less estimated costs of disposal and classified them as available held for sale as of June 30, 2020. We expect to sell all the assets within the next twelve months. We terminated the lease agreement on a leased office facility in Chattanooga, TN during the second quarter of 2020 and recognized the related loss on the termination of the right of use asset and the abandonment of leasehold improvements within the impairment of property and equipment line item of the condensed consolidated statement of operations. The following table provides a summary of the asset groups impaired, amount of the impairment and a description of the valuation technique used to determine fair value. We believe that these impairment activities are substantially complete. Accordingly, we do not expect to incur additional charges in connection with this activity.
(in thousands)
i
| Description | Amount | Segment(s) Impacted | Value Determination | |||
| Revenue equipment | $ | i 16,779 | Highway Services and Dedicated | Third Party Market Appraisal | ||
| Terminal facility, leasehold improvements, and equipment, Texarkana, AR | i 7,319 | Highway Services and Dedicated | Third Party Market Appraisal | |||
| Leased office facility, Chattanooga, TN | i 2,236 | Managed Freight | Loss on ROU Asset and Leasehold Improvements | |||
| Training and orientation center, Chattanooga, TN | i 235 | Highway Services and Dedicated |
Quoted Market Price | |||
| Impairment of right-of-use asset, long lived properties, and equipment | $ | i 26,569 | ||||
Other restructuring related gains and charges incurred during the second quarter of 2020 are summarized in the table below. Unless noted below, we believe that these other restructuring related gains and charges are substantially complete. Accordingly, we do not expect to incur additional charges in connection with this activity.
(in thousands)
i
| Description | Amount | Segment(s) Impacted | Statement of Operations Line Item | |||
| Gain on sale of Hutchins, TX terminal | $ | ( i 5,712 | ) | Highway Services and Dedicated | Gain on disposition of property and equipment, net | |
| Employee separation costs (1) | i 1,791 | Highway Services, Dedicated and Managed Freight | Salaries, wages, and related expenses | |||
| Abandonment of information technology infrastructure and applications | i 1,048 | Highway Services and Dedicated | Gain on disposition of property and equipment, net | |||
| Change in useful life/abandonment of intangible assets | i 1,331 | Dedicated and Managed Freight | Depreciation and amortization | |||
| Abandonment of revenue equipment held under operating leases | i 825 | Highway Services and Dedicated | Revenue equipment rentals and purchased transportation | |||
| Contract exit costs and restructuring related costs and professional fees | i 695 | Highway Services and Dedicated | General supplies and expenses | |||
| Total | $ | ( i 22 | ) | |||
(1) As of June 30, 2020 we have a $ i 1.0 million current liability related to employee separation costs. We expect to incur additional employee separation costs in the third and fourth quarters of 2020 related to this restructuring activity, but do not have enough information to quantify at this time.
/
| Note 7. | Debt |
Current and long-term debt and lease obligations consisted of the following at June 30, 2020 and December 31, 2019:
i
| (in thousands) | ||||||||||||||||
| Current | Long-Term | Current | Long-Term | |||||||||||||
| Borrowings under Credit Facility | $ | i - | $ | i - | $ | i - | $ | i - | ||||||||
| Revenue equipment installment notes; weighted average interest rate of 3.6% at June 30, 2020, and 3.7% at December 31, 2019, due in monthly installments with final maturities at various dates ranging from July 2020 to April 2025, secured by related revenue equipment | i 52,446 | i 194,526 | i 53,431 | i 177,514 | ||||||||||||
| Real estate notes; interest rate of 1.9% at June 30, 2020 and 3.3% at December 31, 2019 due in monthly installments with a fixed maturity at August 2035, secured by related real estate | i 1,116 | i 22,106 | i 1,093 | i 22,670 | ||||||||||||
| Deferred loan costs | ( i 80 | ) | i - | ( i 147 | ) | ( i 7 | ) | |||||||||
| Total debt | i 53,482 | i 216,632 | i 54,377 | i 200,177 | ||||||||||||
| Principal portion of finance lease obligations, secured by related revenue equipment | i 7,125 | i 25,609 | i 7,258 | i 26,010 | ||||||||||||
| Principal portion of operating lease obligations, secured by related revenue equipment | i 18,407 | i 30,225 | i 19,460 | i 40,882 | ||||||||||||
| Total debt and lease obligations | $ | i 79,014 | $ | i 272,466 | $ | i 81,095 | $ | i 267,069 | ||||||||
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 $ i 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 $ i 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 $ i 95.0 million and a swing line sub facility in an aggregate amount equal to the greater of $ i 10.0 million or i 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 i 0.5%, or LIBOR plus 1.0%, plus an applicable margin ranging from i 0.5% to 1.0%; while LIBOR loans accrue interest at LIBOR, plus an applicable margin ranging from i 1.5% to i 2.0%. The applicable rates are adjusted quarterly based on average pricing availability. The unused line fee is the product of i 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 finance 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) i 85% of eligible accounts receivable, plus (ii) the lesser of (a) i 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) i 95% of the net book value of eligible revenue equipment, or (c) i 35% of the Lenders' aggregate revolving commitments under the Credit Facility, plus (iii) the lesser of (a) $ i 25.0 million or (b) i 75% of the appraised fair market value of eligible real estate, as reduced by a periodic amortization amount. We had i no outstanding borrowings under the Credit Facility as of June 30, 2020, undrawn letters of credit outstanding of approximately $ i 36.7 million, and available borrowing capacity of $ i 58.3 million. As of June 30, 2020, there were i no outstanding base rate or LIBOR loans. Based on availability as of June 30, 2020 and 2019, 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 July 2020 to November 2024. 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 $ i 217.3 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, finance leases, and/or from the Credit Facility.
In April 2020, in an effort to improve our liquidity during the COVID-19 pandemic, we executed a modification to certain of our revenue equipment installment notes, exercising an option to make interest only payments for a period of 90 days, extending the due date of $ i 177.3 million of debt by three months.
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 $ i 28.0 million variable rate note with a third party lender. The note contains certain restrictions and covenants that are usual and customary for a note of this nature. Failure to comply with the covenants and restrictions set forth in the note could result in an event of default. Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to i 4.2%. The note contains certain restrictions and covenants that are usual and customary for a note of this nature. Failure to comply with the covenants and restrictions set forth in the note could result in an event of default. For the second quarter ended June 30, 2020, we obtained a waiver from the third-party lender for a financial covenant that we did not comply with. Absent the waiver we would have been in default under our covenants. We expect to be in compliance with our debt covenants for the next 12 months.
/
| Note 8. | Lease Obligations |
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.
Finance lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility. The finance leases in effect at June 30, 2020 terminate from September 2020 through April 2025 and contain guarantees of the residual value of the related equipment by us. As such, the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum finance lease payments. These lease agreements require us to pay personal property taxes, maintenance, and operating expenses. Our operating lease obligations do not typically include residual value guarantees or material restrictive covenants.
A summary of our lease obligations at June 30, 2020 and 2019 are as follows:
i
| (dollars in thousands) | Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | $ | i 968 | $ | i 1,408 | $ | i 2,005 | $ | i 2,819 | ||||||||
| Interest on lease liabilities | i 278 | i 206 | i 525 | i 433 | ||||||||||||
| Operating lease cost | i 7,445 | i 5,475 | i 14,047 | i 11,657 | ||||||||||||
| Variable lease cost | i 156 | i - | i 314 | i - | ||||||||||||
| Total lease cost | $ | i 8,847 | $ | i 7,089 | $ | i 16,891 | $ | i 14,909 | ||||||||
| Other information | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from finance leases | i 968 | i 1,297 | i 2,005 | i 2,443 | ||||||||||||
| Operating cash flows from operating leases | i 7,601 | i 5,475 | i 14,361 | i 11,657 | ||||||||||||
| Financing cash flows from finance leases | i 278 | i 206 | i 525 | i 433 | ||||||||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | i 2,127 | i - | i 2,127 | i - | ||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | i 2,176 | i 3,089 | i 2,637 | i 6,325 | ||||||||||||
| Weighted-average remaining lease term—finance leases | 2.4 years | |||||||||||||||
| Weighted-average remaining lease term—operating leases | 2.7 years | |||||||||||||||
| Weighted-average discount rate—finance leases | i 3.3 | % | ||||||||||||||
| Weighted-average discount rate—operating leases | i 5.2 | % | ||||||||||||||
During the second quarter of 2020 we recognized approximately $ i 2.2 million of impairment expense related to a leased office facility in Chattanooga, TN held under an operating lease and $ i 0.8 million of additional revenue equipment and purchased transportation expense related to the abandonment of revenue equipment held under an operating lease. At June 30, 2020 and December 31, 2019, right-of-use assets of $ i 46.4 million and $ i 58.8 million for operating leases and $ i 32.0 million and $ i 35.6 million for finance leases, respectively, 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, in the condensed consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the condensed consolidated statement of operations.
Our future minimum lease payments as of June 30, 2020, are summarized as follows by lease category:
i
| (in thousands) | Operating | Finance | ||||||
| 2020 (1) | $ | i 10,885 | $ | i 8,076 | ||||
| 2021 | i 18,682 | i 8,548 | ||||||
| 2022 | i 15,713 | i 9,580 | ||||||
| 2023 | i 6,869 | i 7,524 | ||||||
| 2024 | i 28 | i 1,212 | ||||||
| Thereafter | i 9 | i - | ||||||
| Total minimum lease payments | $ | i 52,186 | $ | i 34,940 | ||||
| Less: amount representing interest | ( i 3,554 | ) | ( i 2,206 | ) | ||||
| Present value of minimum lease payments | $ | i 48,632 | $ | i 32,734 | ||||
| Less: current portion | ( i 18,407 | ) | ( i 7,125 | ) | ||||
| Lease obligations, long-term | $ | i 30,225 | $ | i 25,609 | ||||
(1) Excludes the six months ended June 30, 2020.
/
| Note 9. | Stock-Based Compensation |
Our Third Amended and Restated 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 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 i 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 June 30, 2020, there were i 417,042 shares remaining of the i 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 i 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 $ i 0.4 million and $ i 0.8 million of stock-based compensation expense for the three and six months ended June 30, 2020, respectively, and the reversal of $ i 1.8 million and $ i 0.5 million of stock-based compensation expense for the three and six months ended June 30, 2019, respectively. All stock compensation expense recorded in 2020 and 2019 relates to restricted shares, as no unvested options were outstanding during these periods.
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 June 30, 2020, certain participants elected to forfeit receipt of an aggregate of i 5,119 shares of Class A common stock at a weighted average per share price of $ i 14.15 based on the closing price of our Class A common stock on the dates the shares vested in 2020, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted less than $ i 0.1 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.
/
| Note 10. | 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 drivers 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. The Court has set a bench trial to begin on August 25, 2020. Covenant Transport intends to vigorously defend itself in this matter. 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 June 30, 2020.
On February, 28 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. Covenant Transport intends to vigorously defend itself in this matter. 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 June 30, 2020.
On August 2, 2018, Curtis Markson, et al. (collectively, “Markson”), filed a putative class action case in United States District Court, Central District of California generically claiming that five (5) specified trucking companies (including our subsidiary Southern Refrigerated Transport, Inc.) entered into a "no poaching conspiracy" in which they agreed not to solicit or hire employees in California who were "under contract" with a fellow defendant. The allegations center around new drivers in California who received their commercial driver's license through driving schools associated with, or paid for by, one of the named defendants, in exchange for agreeing to drive for that defendant carrier for a specified amount of time (typically 8-10 months). Over the ensuing 18 – 20 months, the Plaintiffs added Covenant Transport as a co-defendant in the lawsuit on April 23, 2020. The lawsuit claims that the named defendants sent letters to one another, providing notice of "under contract" status, if these new California drivers were hired by another defendant carrier prior to the driver completing their contractual obligations. Plaintiffs contend that these notifications evidence a collusive agreement by the named defendants to restrain competition among trucking companies in California and suppress wages. Southern Refrigerated Transport, Inc. and Covenant Transport are vigorously defending themselves against these claims. 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 June 30, 2020.
Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the current policy period ( April 1, 2018 to March 31, 2021), aggregate limits available in the coverage layer $ i 9.0 million in excess of $ i 1.0 million are estimated to be fully eroded based on current claims expense accruals. As a result, any increases to existing claims, and/or new claims filed prior to March 31, 2021, may require additional expense accruals. Additionally, there is the possibility of mandatory reinstatement charges for the expired policy providing coverage in the $ i 10.0 million in excess of $ i 10.0 million layer, for accidents that occurred prior to expiration on March 31, 2020. The expenses associated with additional liability claims may be substantial and such expenses could have a material adverse effect on our business, financial condition, and results of operations. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations. 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, discussed above, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements.
We had $ i 36.7 million and $ i 35.2 million of outstanding and undrawn letters of credit as of June 30, 2020 and December 31, 2019, respectively. The letters of credit are maintained primarily to support our insurance programs.
/
| Note 11. | 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. TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. We sold i no tractors or trailers to TEL during the six-months ended June 30, 2020 and 2019, and we received $ i 4.4 million and $ i 4.6 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 $ i 0.1 million for the six-months ended June 30, 2020 and 2019, representing i 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 $ i 0.2 million at June 30, 2020, are being carried as a reduction in our investment in TEL. At June 30, 2020 and December 31, 2019, we had accounts receivable from TEL of $ i 1.2 million and $ i 1.3 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 2020 net loss through June 30, 2020, or $ i 0.2 million. We received no equity distribution from TEL during the six-months ended June 30, 2020 and 2019. Our investment in TEL, totaling $ i 31.7 million and $ i 31.9 million, at June 30, 2020 and December 31, 2019, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.
See TEL's summarized financial information below:
i
| (in thousands) | As of June 30, | As of December 31, | ||||||
| 2019 | ||||||||
| Total Assets | $ | i 348,506 | $ | i 374,591 | ||||
| Total Liabilities | i 293,079 | i 318,743 | ||||||
| Total Equity | $ | i 55,427 | $ | i 55,848 | ||||
i
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | ||||||||||||||||
| 2019 | 2020 | 2019 | ||||||||||||||
| Revenue | $ | i 23,997 | $ | i 24,505 | $ | i 49,218 | $ | i 48,715 | ||||||||
| Cost of Sales | i 2,815 | i 3,417 | i 7,584 | i 10,911 | ||||||||||||
| Operating Expenses | i 17,649 | i 13,635 | i 36,525 | i 28,088 | ||||||||||||
| Operating Income | i 3,533 | i 7,453 | i 5,109 | i 9,716 | ||||||||||||
| Net Income (Loss) | $ | i 1,021 | $ | i 4,792 | $ | ( i 421 | ) | $ | i 6,482 | |||||||
/
| Note 12. | Goodwill and Other Assets |
On July 3, 2018, we acquired i 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 reportable segment, while Landair’s logistics operations’ results are reported within our Managed Freight reportable segment.
As a result of management compensation structure changes and a change in the branding strategy of the organization, the Company revised the estimated remaining useful life of the Landair trade name to i 15 months as of June 30, 2020. At the end of its useful life, the Landair trade name will have a residual value of $ i 0.5 million. The non-compete agreement with a former Landair executive was terminated during the second quarter of 2020. These changes resulted in additional amortization of $ i 1.3 million during the second quarter of June 30, 2020, or a $ i 1.0 million, or $ i 0.06 per diluted share, increase in net loss. The remaining useful lives as adjusted are included in the summary of other intangible assets below.
As of June 30, 2020 and December 31, 2019, we had goodwill of $ i 42.5 million.
A summary of other intangible assets as of June 30, 2020 and December 31, 2019 is as follows:
i
| (in thousands) | ||||||||||||||||
| Gross intangible assets | Accumulated amortization | Net intangible assets | Remaining life (months) | |||||||||||||
| Trade name: | ||||||||||||||||
| Dedicated | $ | i 2,402 | $ | ( i 588 | ) | $ | i 1,814 | |||||||||
| Managed Freight | i 1,998 | ( i 490 | ) | i 1,508 | ||||||||||||
| Total trade name | i 4,400 | ( i 1,078 | ) | i 3,322 | i 15 | |||||||||||
| Non-compete agreement: | ||||||||||||||||
| Dedicated | i 914 | ( i 914 | ) | i - | ||||||||||||
| Managed Freight | i 486 | ( i 486 | ) | i - | ||||||||||||
| Total non-compete agreement | i 1,400 | ( i 1,400 | ) | i - | - | |||||||||||
| Customer relationships: | ||||||||||||||||
| Dedicated | i 14,072 | ( i 2,345 | ) | i 11,727 | ||||||||||||
| Managed Freight | i 14,128 | ( i 2,355 | ) | i 11,773 | ||||||||||||
| Total customer relationships: | i 28,200 | ( i 4,700 | ) | i 23,500 | i 120 | |||||||||||
| Total other intangible assets | $ | i 34,000 | $ | ( i 7,178 | ) | $ | i 26,822 | |||||||||
| (in thousands) | ||||||||||||||||
| Gross intangible assets | Accumulated amortization | Net intangible assets | Remaining life (months) | |||||||||||||
| Trade name: | ||||||||||||||||
| Dedicated | $ | i 2,402 | $ | ( i 240 | ) | $ | i 2,162 | |||||||||
| Managed Freight | i 1,998 | ( i 200 | ) | i 1,798 | ||||||||||||
| Total trade name | i 4,400 | ( i 440 | ) | i 3,960 | i 162 | |||||||||||
| Non-Compete agreement: | ||||||||||||||||
| Dedicated | i 914 | ( i 274 | ) | i 640 | ||||||||||||
| Managed Freight | i 486 | ( i 146 | ) | i 340 | ||||||||||||
| Total non-compete agreement | i 1,400 | ( i 420 | ) | i 980 | i 42 | |||||||||||
| Customer relationships: | ||||||||||||||||
| Dedicated | i 14,072 | ( i 1,759 | ) | i 12,313 | ||||||||||||
| Managed Freight | i 14,128 | ( i 1,766 | ) | i 12,362 | ||||||||||||
| Total customer relationships: | i 28,200 | ( i 3,525 | ) | i 24,675 | i 126 | |||||||||||
| Total other intangible assets | $ | i 34,000 | $ | ( i 4,385 | ) | $ | i 29,615 | |||||||||
The above intangible assets have a weighted average remaining life of i 107 months as of June 30, 2020, compared to i 128 months as of December 31, 2019, as a result of the change in estimated useful life as discussed above. The expected amortization of these assets for the remainder of 2020 and the next five successive years is as follows:
i
| (in thousands) | ||||
| 2020 (1) | $ | i 2,304 | ||
| 2021 | i 4,043 | |||
| 2022 | i 2,350 | |||
| 2023 | i 2,350 | |||
| 2024 | i 2,350 | |||
| 2025 | i 2,350 | |||
| Thereafter | i 10,575 | |||
(1) Excludes the six months ended June 30, 2020.
/
| Note 13. |
Equity |
On February 10, 2020, the Company announced that the Board approved the repurchase of up to $ i 20.0 million worth of the Company's outstanding common stock. The program was suspended on March 26, 2020, with approximately $ i 2.5 million worth of the shares remaining authorized for purchase. There were i 1.4 million shares repurchased in the open market for $ i 17.5 million during the three months ended March 31, 2020. There were no changes to the stock repurchase program during the three months ended June 30, 2020. The Company has the ability to reinstate the stock repurchase program as circumstances warrant based on market conditions, cash flow requirements, securities law limitations, and other factors.
/
| Note 14. | Liquidity |
Our business requires significant capital investments over the short-term and the long-term. We generally finance 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. We had working capital (total current assets less total current liabilities) of $ i 180.2 million and $ i 93.1 million at June 30, 2020 and December 31, 2019, respectively. Based on our expected financial condition, net capital expenditures, and results of operations and related net cash flows, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs for at least the next year.
As of June 30, 2020, we had no borrowings outstanding, undrawn letters of credit outstanding of approximately $ i 36.7 million, and available borrowing capacity of $ i 58.3 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.
As part of our strategic focus to reduce overhead costs and in response to the uncertainty of the upcoming economic environment as a result of COVID-19, we have begun taking measures to preserve our liquidity, including capital reductions, financing, cost reduction, and working capital actions. Additionally, we have other potential flexible sources of liquidity that we can leverage if needed, such as currently unencumbered owned revenue equipment.
/
| Note 15. | Subsequent Events |
Our Third Amended and Restated 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 July 1, 2020, the stockholders, upon recommendation of the board of directors, approved the Second Amendment (the “Second Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan"). The Second Amendment (i) increases the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional i 1,900,000 shares, (ii) adds a fungible share reserve feature, under which shares subject to stock options and stock appreciation rights will be counted as i one share for every share granted and shares subject to all other awards will be counted as i 1.80 shares for every share granted, (iii) adds a double-trigger vesting requirement upon a change in control, (iv) eliminates the Compensation Committee’s discretion to accelerate vesting, except in cases involving death or disability, (v) increases the maximum award granted or payable to any one participant under the Incentive Plan for a calendar year from i 200,000 shares of Class A common stock or $ i 2,000,000, in the event the award is paid in cash, to i 500,000 shares of Class A common stock or $ i 4,000,000, in the event the award is paid cash, (vi) re-sets the date through which awards may be made under the Incentive Plan to June 1, 2030, and (vii) makes other miscellaneous, administrative and conforming changes.
On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of TFS, which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $ i 103.3 million of net accounts receivable, which included $ i 108.7 million of gross accounts receivable, less advances and rebates of $ i 5.4 million. The Factoring reportable segment has been classified as discontinued operations for financial reporting purposes.
The Company and the purchaser of TFS’ assets are involved in a dispute related to the disposition. The purchaser asserts that, subsequent to the closing, it identified that approximately $ i 66.0 million of the assets acquired related to advances against future payments to be made pursuant to long-term contractual arrangements between the obligor on such contracts and TFS’ clients for services that had not yet been performed (as opposed to advances against future payments for services that had been performed), that this fact was not disclosed to the purchaser, and the purchase of such advances was not contemplated by the purchase agreement. The Company is engaged in discussions to determine whether this dispute can be amicably resolved and is also evaluating other options should the discussions not produce an amicable resolution. It is too early to determine the likely outcome of this dispute, any liability or expenses the Company may incur, any cash the Company may need to pay or invest, any impact on the Company’s total leverage, or the gain or loss the Company ultimately may record on the transaction compared with the $ i 26.5 million gain previously estimated. The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found. See "Item 1A. Risk Factors," set forth in this Form 10-Q for additional details.
/
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements include the accounts of Covenant Logistics 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 Logistics 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 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, finance leases, and operating leases as means of financing revenue equipment), expected capital expenditures, allocations, and requirements, future customer relationships, expected debt reduction, including future interest expense, future driver market conditions, expected cash flows, expected operating income, 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 the impact of our cost saving measures, 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 finance leases relative to our payment obligations under such operating leases (including residual value guarantees and the proceeds from the sale thereof), the anticipated impact of our investment in TEL, the future impact of our restructuring activities and other strategic initiatives, anticipated levels of and fluctuations relating to insurance, claims, and litigation expenses, , including the erosion of available limits in our aggregate insurance policies and possible additional expense to reinstate certain insurance policies, the impact of the material weakness identified in our internal control over financial reporting, our disposition of the assets of Transport Financial Services, including the dispute arising therefrom and the gain related to such transaction, if any, and the anticipated impact of the COVID-19 outbreak or other similar outbreaks, among others, are forward-looking statements. Forward-looking statements may be identified by the use of terms or phrases such as "believe," "may," "could," "would," "will," "expects," "estimates," "projects," "anticipates," "plans," " outlook," "focus," "seek," "potential," "continue," "goal," "target," "objective," "intends," derivations thereof, 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 sections entitled "Item 1A. Risk Factors," set forth in this Form 10-Q, in our Form 10-K for the year ended December 31, 2019, and our Form 10-Q for the quarter ended March 31, 2020, as amended. Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in this Form 10-Q, in our Form 10-K for the year ended December 31, 2019, and our Form 10-Q for the quarter ended March 31, 2020, as amended, 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
In the second quarter, we made significant progress in our efforts to restructure our business units, terminal network, and management team to focus our talent, time and capital on areas where we believe we have the ability to grow and produce a consistent, acceptable margin. The changes are extensive, and we expect them to be ongoing through the end of the year. In terms of second quarter results, the changes in our business mix, the restructuring gains and charges detailed below, and the impact of COVID-19-related business restrictions, particularly by automotive, airline and certain retail customers, make comparisons difficult. Moreover, certain strategies we implemented reduced our revenue during the quarter while cost savings are expected to be realized on an ongoing basis. Overall, we are pleased with our current position, which features strong liquidity, a de-leveraged balance sheet, lower overhead costs, increased accountability and speed of decision making, and re-aligned business units.
The following is a summary of infrequent transactions that occurred during the second quarter of 2020:
| Gain item: |
|
| Gain on sale of Hutchins, TX terminal |
$ 5.7 million |
| Expense items: |
|
| Impairment of revenue generating equipment |
$17.6 million* |
| Impairment of real estate and related tangible assets |
$9.8 million* |
| Employee separation costs |
$ 1.8 million |
| Abandonment of information technology infrastructure and applications |
$ 1.1 million |
| Abandonment and change in the useful life of intangible assets |
$ 1.3 million |
| Increase in allowance for bad debt |
$ 2.6 million |
| Contract exit costs and other restructuring related professional fees | $ 0.7 million |
| Net strategic restructuring and other second quarter adjustments |
$29.2 million |
* Of the combined $27.4 million, $26.6 million included in impairment on property and equipment and right-of-use asset, while $0.8 million is related to leases and reflected in revenue equipment rentals and purchased transportation.
As of June 30, 2020, our Factoring segment was classified as discontinued operations as it: (i) is a component of the entity, (ii) meets the criteria as held for sale, and (iii) has a material effect on the Company's operations and financial results. On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of Transport Financial Services (“TFS”), a division of Covenant Transport Solutions LLC, an indirect wholly owned subsidiary of the Company, which included substantially all of the assets and operations of our Factoring segment. Beginning with the period ended June 30, 2020, we have reflected the former Factoring segment as discontinued operations in the condensed consolidated statements of operations for all periods presented. Prior periods have been adjusted to conform to the current presentation.
| ● |
Total revenue of $191.7 million, a decrease of 11.7% compared with the second quarter of 2019, and freight revenue of $179.6 million (which excludes revenue from fuel surcharges), a decrease of 6.8% compared with the second quarter of 2019; |
|
| ● |
Operating loss of $29.0 million, compared with operating income of $7.0 million in the second quarter of 2019; |
|
| ● |
Net loss of $22.3 million, or $1.31 per basic and diluted share, compared with net income of $6.1 million, or $0.33 per basic and diluted share, in the second quarter of 2019. Net loss from continuing operations of $23.2 million, or $1.36 per basic and diluted share, compared to net income from continuing operations or $0.28 per basic and diluted share, in the second quarter of 2019. Net income from discontinued operations of $0.8 million, or $0.05 per basic and diluted share, compared to net income from discontinued operations of $0.8 million, or $0.04 per basic and diluted share, in the second quarter of 2019. |
|
| ● |
With available borrowing capacity of $58.3 million under our Credit Facility at June 30, 2020, we do not expect to be required to test our fixed charge covenant in the foreseeable future; |
|
| ● |
Our Managed Freight reportable segment’s total revenue increased to $46.0 million in the 2020 quarter from $41.6 million in the 2019 quarter and the segment had an operating loss of $2.9 million in the 2020 quarter compared to operating income of $1.8 million in the 2019 quarter; |
|
| ● |
Our equity investment in TEL provided $0.5 million of pre-tax earnings in the second quarter of 2020 and provided $2.4 million in the second quarter of 2019; |
|
| ● |
Since December 31, 2019, total indebtedness, net of cash, decreased by $20.2 million to $284.3 million; and |
|
| ● |
Stockholders' equity and tangible book value at June 30, 2020, were $306.9 million and $237.6 million, respectively. |
COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The outbreak of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns.
During the second quarter, we increased our reserves for uncollectible accounts receivable by approximately $2.6 million as a result of the bankruptcy of one customer and the heightened risk we have on certain of our retail related customers as a result of COVID-19. Local, state and national governments continue to emphasize the importance of transportation and have designated it as an essential service. The health and safety of our team members and the community is our first priority, as such, we've put certain measures into place, including remote work arrangements, enforced social distancing and increased sanitation protocols, among others.
We believe we have sufficient liquidity to satisfy our cash needs, however we continue to evaluate and act, as necessary to maintain sufficient liquidity to ensure our ability to operate during these unprecedented times. However, the extent to which COVID-19 could impact our operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain and will depend on future developments. We will continue to evaluate the nature and extent of these potential impacts to our business.
Outlook
For the balance of 2020, our main goals will be (i) to continue to optimize our fleet size, monetize a large percentage of the assets held for sale, and further pay down debt, (ii) to allocate our fleet assets across our contract logistics, expedited, and higher margin irregular route operations, (iii) to continue to significantly lower our fixed costs, and (iv) to return managed freight back to its pre-COVID-19 margin percentage. We believe achieving these goals will position us to enter 2021 with an improved business mix, fleet profile, cost of operation, and leverage ratio. Pursuing our plan will continue to involve difficult decisions and may result in additional strategic restructuring expenses, in addition to those we normally expect. However, we believe the investment will strengthen our position in the U.S. logistics industry and provide for a less-cyclical business model based on more sustainable, higher margin sectors where we can add value to our partner-customers and for our stakeholders.
Non-GAAP Reconciliation
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, excluding amortization of intangibles, and significant unusual items, divided by total revenue, less 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, amortization of intangibles, and significant unusual items. 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 June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
| GAAP Operating Ratio: |
2020 |
OR % |
2019 |
OR % |
2020 |
OR % |
2019 |
OR % |
||||||||||||||||||||||||
| Total revenue |
$ | 191,689 | $ | 217,040 | $ | 402,502 | $ | 434,373 | ||||||||||||||||||||||||
| Total operating expenses |
220,639 | 115.1 | % | 210,010 | 96.8 | % | 432,906 | 107.6 | % | 423,397 | 97.5 | % | ||||||||||||||||||||
| Operating income |
$ | (28,950 | ) | $ | 7,030 | $ | (30,404 | ) | $ | 10,976 | ||||||||||||||||||||||
| Adjusted Operating Ratio: |
2020 |
Adj. OR % |
2019 |
Adj. OR % |
2020 |
Adj. OR % |
2019 |
Adj. OR % |
||||||||||||||||||||||||
| Total revenue |
$ | 191,689 | $ | 217,040 | $ | 402,502 | $ | 434,373 | ||||||||||||||||||||||||
| Fuel surcharge revenue |
(12,125 | ) | (24,381 | ) | (33,357 | ) | (47,800 | ) | ||||||||||||||||||||||||
| Freight revenue (total revenue, excluding fuel surcharge) |
179,564 | 192,659 | 369,145 | 386,573 | ||||||||||||||||||||||||||||
| Total operating expenses |
220,639 | 210,010 | 432,906 | 423,397 | ||||||||||||||||||||||||||||
| Adjusted for: |
||||||||||||||||||||||||||||||||
| Fuel surcharge revenue |
(12,125 | ) | (24,381 | ) | (33,357 | ) | (47,800 | ) | ||||||||||||||||||||||||
| Amortization of intangibles |
(731 | ) | (731 | ) | (1,462 | ) | (1,462 | ) | ||||||||||||||||||||||||
| Bad debt expense associated with customer bankruptcy and high credit risk customers | (2,617 | ) | - | (2,617 | ) | - | ||||||||||||||||||||||||||
| Strategic restructuring adjusting items: | ||||||||||||||||||||||||||||||||
| Gain on sale of terminal | 5,712 | - | 5,712 | - | ||||||||||||||||||||||||||||
| Impairment of real estate and related tangible assets | (9,790 | ) | - | (9,790 | ) | - | ||||||||||||||||||||||||||
| Impairment of revenue generating equipment and related charges (1) | (17,604 | ) | - | (17,604 | ) | - | ||||||||||||||||||||||||||
| Employee separation costs | (1,791 | ) | - | (1,791 | ) | - | ||||||||||||||||||||||||||
| Change in useful life/abandonment of intangible assets | (1,331 | ) | - | (1,331 | ) | - | ||||||||||||||||||||||||||
| Abandonment of information technology infrastructure and applications | (1,048 | ) | - | (1,048 | ) | - | ||||||||||||||||||||||||||
| Contract exit costs and other restructuring related professional fees | (695 | ) | - | (695 | ) | - | ||||||||||||||||||||||||||
| Adjusted operating expenses |
178,619 | 99.5 | % | 184,898 | 96.0 | % | 368,923 | 99.9 | % | 374,135 | 96.8 | % | ||||||||||||||||||||
| Adjusted operating income |
$ | 945 | $ | 7,761 | $ | 222 | $ | 12,438 | ||||||||||||||||||||||||
(1) Of the $17.6 million, $0.8 million is related to operating leases and reflected in revenue equipment rentals and purchased transportation.
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.
Until the second quarter of 2020 we had four reportable segments, Highway Services, Dedicated, Managed Freight, and Factoring Services. As discussed above, our Factoring reportable segment was classified as discontinued operations as of June 30, 2020. Our three remaining reportable segments include:
| ● |
Highway Services: Includes the Company’s Expedited and OTR services, which are typically ad-hoc and do not include long-term contracts. |
| o |
Expedited services primarily involves high service freight with delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows. Expedited services generally require two-person driver teams on equipment either owned or leased by the Company. |
| o |
OTR services provide customers with one-way load capacity over irregular routes for loads that are typically shorter in nature. |
| ● |
Dedicated: Specializes in providing customers with committed capacity over extended contract periods using equipment either owned or leased by the Company. |
| ● |
Managed Freight: Includes the Company’s Brokerage, TMS and Warehousing services. |
| o |
Brokerage services provide logistics capacity by outsourcing the carriage of customers’ freight to contractual third parties. |
| o |
TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs. |
| o |
Warehousing services provides day-to-day warehouse management services to customers who have chosen to outsource this function. |
In our Highway Services and Dedicated reportable segments, 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 Highway Services 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. The main factors that could affect our Dedicated revenue are the rates and utilization under the contracts with our Dedicated customers. 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.
The main expenses that impact the profitability of our Highway Services and Dedicated reportable segments 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. Historically, 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.
Within our asset based transportation service offerings (Highway Services and Dedicated), 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.
Within our Managed Freight reportable segment, we derive revenue from providing Brokerage, TMS, and warehousing services, particularly arranging transportation services for customers directly and through relationships with thousands of third-party carriers and integration with our Highway Services reportable segment, utilizing technology and process management to provide detailed visibility into a customer’s movement of freight – inbound and outbound – throughout the customer’s network providing focused customer support through multiyear contracts, and empowering customers to outsource warehousing management including moving containers and trailers in or around freight yards. We provide Brokerage services directly and through agents, who are paid a commission for the freight they provide. The main factors that impact profitability in terms of expenses are the variable costs of outsourcing the transportation freight for our customers and managing fixed costs, including salaries, facility warehousing costs, and selling, general, and administrative expenses.
In May 2011, we acquired a 49.0% interest in TEL. TEL is a tractor and trailer equipment leasing company and used equipment reseller. 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 since May 2011.
Our main measures of profitability are operating ratio and adjusted operating ratio, which we define as operating expenses, net of fuel surcharge revenue, excluding amortization of intangibles, and significant unusual items, divided by total revenue, less fuel surcharge revenue. See [page 23] for the uses and limitations associated with adjusted operating ratio.
Revenue Equipment
At June 30, 2020, we operated 2,705 tractors and 6,662 trailers. Of such tractors, 1,673 were owned, 782 were financed under operating leases, and 250 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,101 were owned and 1,561 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 June 30, 2020, our fleet had an average tractor age of 1.8 years and an average trailer age of 4.5 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 six months ended June 30, 2020 TO three and six months ended June 30, 2019
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 |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Revenue: |
||||||||||||||||
| Freight revenue |
$ | 179,564 | $ | 192,659 | $ | 369,145 | $ | 386,573 | ||||||||
| Fuel surcharge revenue |
12,125 | 24,381 | 33,357 | 47,800 | ||||||||||||
| Total revenue |
$ | 191,689 | $ | 217,040 | $ | 402,502 | $ | 434,373 | ||||||||
For the quarter ended June 30, 2020, total revenue decreased approximately $25.3 million, or 11.7%, to $191.7 million from $217.0 million in the 2019 quarter. Freight revenue decreased approximately $13.1 million, or 6.8%, to $179.6 million for the quarter ended June 30, 2020, from $192.7 million in the 2019 quarter, while fuel surcharge revenue decreased $12.3 million quarter-over-quarter. The decrease in revenue resulted from a $12.0 million and a $5.5 million decrease in Dedicated and Highway Services freight revenue, respectively, partially offset by an increase of $4.4 million in Managed Freight freight revenue.
For the six months ended June 30, 2020, total revenue decreased approximately $31.9 million, or 7.3%, to $402.5 million from $434.4 million in the same 2019 period. Freight revenue decreased approximately $17.5 million, or 4.5%, to $369.1 million for the period ended June 30, 2020, from $386.6 million in the 2019 period, while fuel surcharge revenue decreased $14.4 million period-over-period. The decrease in revenue resulted from a $13.8 million and $6.3 million decrease in Dedicated, and Highway Services freight revenue, respectively, partially offset by an increase of $2.6 million in Managed Freight freight revenue.
See results of segment operations section for discussion of fluctuations.
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 and is not a substitute for revenue measured in accordance with GAAP. There are limitations to using non-GAAP financial measures. Our Board and management focus on our freight revenue as an indicator of our performance from period to period. We believe our presentation of freight revenue 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 freight revenue improves comparability in analyzing our period-to-period performance, it could limit comparability to other companies in our industry, if those companies define freight revenue differently. Because of these limitations, freight revenue should not be considered a measure of total revenue generated by or available to our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
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 |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Salaries, wages, and related expenses |
$ | 74,688 | $ | 75,424 | $ | 157,152 | $ | 154,593 | ||||||||
| % of total revenue |
39.0 | % | 34.8 | % | 39.0 | % | 35.6 | % | ||||||||
| % of freight revenue |
41.6 | % | 39.1 | % | 42.6 | % | 40.0 | % | ||||||||
Salaries, wages, and related expenses decreased approximately $0.7 million, or 1.0%, for the three months ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, salaries, wages, and related expenses increased to 39.0% of total revenue for the three months ended June 30, 2020, from 34.8% in the same quarter in 2019. As a percentage of freight revenue, salaries, wages, and related expenses increased to 41.6% of freight revenue for the three months ended June 30, 2020, from 39.1% in the same quarter in 2019. These changes were primarily the result of decreases in workers' compensation insurance, a reduction in contract labor support, group health insurance, and discontinuation of the employer contributions to the 401(k) plan, partially offset by employee separation costs related management changes, driver and non-driver pay increases since the first quarter of 2020, and lower revenue to spread these costs.
For the six months ended June 30, 2020, salaries, wages, and related expenses increased approximately $2.6 million, or 1.7%, compared with the same period in 2019. As a percentage of total revenue, salaries, wages, and related expenses increased to 39.0% of total revenue for the six months ended June 30, 2020, from 35.6% for the six months ended June 30, 2019. As a percentage of freight revenue, salaries, wages, and related expenses increased to 42.6% of freight revenue for the six months ended June 30, 2020, from 40.0% in the same period in 2019. These changes were primarily the result of employee separation costs related to the restructuring and driver and non-driver pay increases since the second quarter of 2019 and lower revenue to spread these costs, partially offset by a reduction in contract labor support.
For the remainder of 2020 we believe salaries, wages, and related expenses will remain relatively consistent with that of the second quarter of 2020 as a result of cost saving measures put into place at the beginning of the second quarter 2020 that are expected to remain in place through at least the end of 2020. Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight reportable segment, for which payments are reflected in the purchased transportation line item.
Fuel expense
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Fuel expense |
$ | 15,938 | $ | 29,215 | $ | 41,202 | $ | 57,047 | ||||||||
| % of total revenue |
8.3 | % | 13.5 | % | 10.2 | % | 13.1 | % | ||||||||
| % of freight revenue |
8.9 | % | 15.2 | % | 11.2 | % | 14.8 | % | ||||||||
Total fuel expense decreased $13.3 million to $15.9 million for the three months ended June 30, 2020, compared with $29.2 million the same quarter in 2019. As a percentage of total revenue, total fuel expense decreased to 8.3% of total revenue for the three months ended June 30, 2020, from 13.5% in the same quarter in 2019. As a percentage of freight revenue, total fuel expense decreased to 8.9% of freight revenue for the three months ended June 30, 2020, as compared to 15.2% for the 2019 quarter.
For the six months ended June 30, 2020, total fuel expense decreased approximately $15.8 million, or 27.8%, compared with the same period in 2019. As a percentage of total revenue, total fuel expense decreased to 10.2% of total revenue for the six months ended June 30, 2020, from 13.1% for the six months ended June 30, 2019. As a percentage of freight revenue, total fuel expense decreased to 11.2% of freight revenue for the six months ended June 30, 2020, from 14.8% in the same period in 2019.
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 were $0.69 per gallon and $0.42 per gallon lower in the three and six months ended June 30, 2020 compared with the same periods in 2019.
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 |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Total fuel surcharge |
$ | 12,125 | $ | 24,381 | $ | 33,357 | $ | 47,800 | ||||||||
| Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties |
1,319 | 3,038 | 4,100 | 5,980 | ||||||||||||
| Company fuel surcharge revenue |
$ | 10,806 | $ | 21,343 | $ | 29,257 | $ | 41,820 | ||||||||
| Total fuel expense |
$ | 15,938 | $ | 29,215 | $ | 41,202 | $ | 57,047 | ||||||||
| Less: Company fuel surcharge revenue |
10,806 | 21,343 | 29,257 | 41,820 | ||||||||||||
| Net fuel expense |
$ | 5,132 | $ | 7,872 | $ | 11,945 | $ | 15,227 | ||||||||
| % of freight revenue |
2.9 | % | 4.1 | % | 3.2 | % | 3.9 | % | ||||||||
Net fuel expense decreased $2.7 million, or 34.8%, and $3.3 million, or 21.6%, for the quarter and six months ended June 30, 2020 as compared to the same 2019 periods. As a percentage of freight revenue, net fuel expense decreased to 2.9% from 4.1% for the quarter ended June 30, 2020 and to 3.2% from 3.9% for the six months ended June 30, 2020 compared to the same 2019 periods. The change in net fuel expense is primarily due to lower fuel prices partially offset by $0.3 million of diesel fuel hedge losses for the quarter and six month periods of 2020 compared to the same 2019 periods, as well as a reduction in total miles in the second quarter of 2020 compared to the same 2019 period. As of June 30, 2020, we had fuel hedging contracts with a fair market value of $0.1 million recorded as other liabilities in our condensed consolidated balance sheet. These contracts will be reclassified into fuel expense as they mature. We did not have any fuel hedges in place during the same 2019 periods.
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 operations (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.
Operations and maintenance
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Operations and maintenance |
$ | 12,218 | $ | 14,898 | $ | 25,044 | $ | 30,072 | ||||||||
| % of total revenue |
6.4 | % | 6.9 | % | 6.2 | % | 6.9 | % | ||||||||
| % of freight revenue |
6.8 | % | 7.7 | % | 6.8 | % | 7.8 | % | ||||||||
Operations and maintenance decreased approximately $2.7 million, or 18.0%, for the quarter ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, operations and maintenance decreased to 6.4% of total revenue for the quarter ended June 30, 2020, from 6.9% in the same quarter of 2019. As a percentage of freight revenue, operations and maintenance decreased to 6.8% of freight revenue for the quarter ended June 30, 2020, from 7.7% the same 2019 quarter.
For the six months ended June 30, 2020, operations and maintenance decreased approximately $5.0 million, or 16.7%, compared with the same period in 2019. As a percentage of total revenue, operations and maintenance decreased to 6.2% of total revenue for the six months ended June 30, 2020, from 6.9% for the six months ended June 30, 2019. As a percentage of freight revenue, operations and maintenance decreased to 6.8% of freight revenue for the six months ended June 30, 2020, from 7.8% in the same period in 2019.
The decreases in operations and maintenance for the three and six months ended June 30, 2020, were primarily related to the timing of the trade cycle for our tractors as compared to the same 2019 periods as well as decreased maintenance and repair expense on our younger fleet of tractors, a reduction in unloading charges due to a change in business mix, and a planned reduction in outside driver recruiting expense related to improved efficiency of advertising dollars.
Going forward, we believe this category will fluctuate based on several factors, including our continued ability to maintain a relatively young fleet, accident severity and frequency, weather, and the reliability of new and untested revenue equipment models.
Revenue equipment rentals and purchased transportation
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Revenue equipment rentals and purchased transportation |
$ | 47,011 | $ | 47,169 | $ | 93,073 | $ | 95,839 | ||||||||
| % of total revenue |
24.5 | % | 21.7 | % | 23.1 | % | 22.1 | % | ||||||||
| % of freight revenue |
26.2 | % | 24.5 | % | 25.2 | % | 24.8 | % | ||||||||
Revenue equipment rentals and purchased transportation decreased approximately $0.2 million, or 0.3%, for the three months ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 24.5% of total revenue for the three months ended June 30, 2020, from 21.7% in the same quarter in 2019. As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 26.2% of freight revenue for the three months ended June 30, 2020, from 24.5% in the same quarter in 2019.
For the six months ended June 30, 2020, revenue equipment rentals and purchased transportation decreased approximately $2.8 million, or 2.9%, compared with the same period in 2019. As a percentage of total revenue, revenue equipment rentals and purchased transportation increased to 23.1% of total revenue for the six months ended June 30, 2020, from 22.1% for the six months ended June 30, 2019. As a percentage of freight revenue, revenue equipment rentals and purchased transportation increased to 25.2% of freight revenue for the six months ended June 30, 2020, from 24.8% in the same period in 2019.
These changes were primarily the result of a reduction in the percentage of the total miles run by independent contractors from 13.0% and 12.8% for the three and six months ended June 30, 2019, to 11.1% and 11.6% for the same 2020 periods, partially offset by a more competitive market for sourcing third-party capacity and growth in the freight brokerage service offering within our Managed Freight reportable segment.
We expect purchased transportation to increase as we seek to grow the freight brokerage and TMS services in the Managed Freight reportable 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. If we were to recruit more independent contractors we would expect this line item to increase as a percentage of revenue.
Operating taxes and licenses
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Operating taxes and licenses |
$ | 3,123 | $ | 3,365 | $ | 6,576 | $ | 6,549 | ||||||||
| % of total revenue |
1.6 | % | 1.6 | % | 1.6 | % | 1.5 | % | ||||||||
| % of freight revenue |
1.7 | % | 1.7 | % | 1.8 | % | 1.7 | % | ||||||||
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 |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Insurance and claims |
$ | 11,562 | $ | 10,471 | $ | 27,174 | $ | 21,705 | ||||||||
| % of total revenue |
6.0 | % | 4.8 | % | 6.8 | % | 5.0 | % | ||||||||
| % of freight revenue |
6.4 | % | 5.4 | % | 7.4 | % | 5.6 | % | ||||||||
Insurance and claims, consisting primarily of premiums and deductible amounts for liability, physical damage, and cargo damage insurance and claims, increased approximately $1.1 million, or 10.4% for the three months ended June 30, 2020 compared with the same quarter in 2019. As a percentage of total revenue, insurance and claims increased to 6.0% of total revenue for the three months ended June 30, 2020, from 4.8% in the same quarter in 2019. As a percentage of freight revenue, insurance and claims increased to 6.4% of freight revenue for the three months ended June 30, 2020, from 5.4% in the same quarter in 2019. Insurance and claims per mile cost increased to 15.4 cents per mile in the second quarter of 2020 compared to 12.4 cents per mile in the second quarter of 2019.
For the six months ended June 30, 2020, insurance and claims increased approximately $5.5 million, or 25.2%, compared with the same period in 2019. As a percentage of total revenue, insurance and claims increased to 6.8% of total revenue for the six months ended June 30, 2020, from 5.0% for the six months ended June 30, 2019. As a percentage of freight revenue, insurance and claims increased to 7.4% of freight revenue for the six months ended June 30, 2020, from 5.6% in the same period in 2019. Insurance and claims cost per mile increased to 17.4 cents per mile in the six months ended June 30, 2020 from 13.1 cents per mile in the same 2019 period.
These increases are due to the erosion of our excess insurance coverage, as discussed below, an increase in overall cost per claim, and an increase in fixed premiums expenses, partially offset by a refund of $7.3 million of previously expensed premiums from our commutation of the April 10, 2015 through March 31, 2018 policy for our primary auto liability insurance.
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 the second quarter of 2020, as well as in several past periods we have commuted the policy, which has lowered our insurance and claims expense. 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 June 30, 2020.
Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the current policy period (April 1, 2018 to March 31, 2021), aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million are estimated to be fully eroded based on current claims expense accruals. As a result, any increases to existing claims, and/or new claims filed prior to March 31, 2021, may require additional expense accruals. Additionally, there is the possibility of mandatory reinstatement charges for the expired policy providing coverage in the $10.0 million in excess of $10.0 million layer, for accidents that occurred prior to expiration on March 31, 2020. Effective April 1, 2020, consistent with an extremely difficult insurance market for the industry, our insurance renewal terms include a higher fixed premium expense of approximately $0.5 million per quarter, greater self-insured retention, and lower aggregate limits than prior coverage. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations.
In addition, in future periods, insurance and claims costs may be more volatile depending on our future accident experience, which could have a material adverse effect on our business, financial condition, and results of operations.
Communications and utilities
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Communications and utilities |
$ | 1,782 | $ | 1,760 | $ | 3,351 | $ | 3,478 | ||||||||
| % of total revenue |
0.9 | % | 0.8 | % | 0.8 | % | 0.8 | % | ||||||||
| % of freight revenue |
1.0 | % | 0.9 | % | 0.9 | % | 0.9 | % | ||||||||
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 |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| General supplies and expenses |
$ | 11,536 | $ | 7,205 | $ | 19,894 | $ | 13,909 | ||||||||
| % of total revenue |
6.0 | % | 3.3 | % | 4.9 | % | 3.2 | % | ||||||||
| % of freight revenue |
6.4 | % | 3.7 | % | 5.4 | % | 3.6 | % | ||||||||
General supplies and expenses increased approximately $4.3 million, or 60.1%, for the three months ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, general supplies and expenses increased to 6.0% of total revenue for the three months ended June 30, 2020, compared to 3.3% for the same quarter in 2019. As a percentage of freight revenue, general supplies and expenses increased to 6.4% of freight revenue for the three months ended June 30, 2020, from 3.7% in the same quarter in 2019.
For the six months ended June 30, 2020, general supplies and expenses increased approximately $6.0 million, or 43.0%, compared with the same period in 2019. As a percentage of total revenue, general supplies and expenses increased to 4.9% of total revenue for the six months ended June 30, 2020, from 3.2% for the six months ended June 30, 2019. As a percentage of freight revenue, general supplies and expenses increased to 5.4% of freight revenue for the six months ended June 30, 2020, from 3.6% in the same period in 2019.
These increases primarily relate to additional reserves put in place for potentially uncollectible accounts receivable, increased period over period legal fees incurred to defend class action litigation, and strategic planning and process improvement investments that are part of our organizational restructuring. For the remainder of 2020, we expect the changes in general supplies and expenses versus the prior year period to decrease as a result of cost-saving efforts enacted as part of our strategic focus to reduce overhead costs.
Depreciation and amortization
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Depreciation and amortization |
$ | 19,663 | $ | 20,568 | $ | 37,846 | $ | 40,413 | ||||||||
| % of total revenue |
10.3 | % | 9.5 | % | 9.4 | % | 9.3 | % | ||||||||
| % of freight revenue |
11.0 | % | 10.7 | % | 10.3 | % | 10.5 | % | ||||||||
Depreciation and amortization consists primarily of depreciation of tractors, trailers, and other capital assets, as well as amortization of intangible assets. Depreciation and amortization decreased by $0.9 million, or 4.4%, for the three months ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, depreciation and amortization increased to 10.3% of total revenue for the three months ended June 30, 2020, from 9.5% in the same quarter in 2019. As a percentage of freight revenue, depreciation and amortization increased to 11.0% of freight revenue for the three months ended June 30, 2020, from 10.7% in the same quarter in 2019.
For the six months ended June 30, 2020, depreciation and amortization decreased approximately $2.6 million, or 6.4%, compared with the same period in 2019. As a percentage of total revenue, depreciation and amortization increased to 9.4% of total revenue for the six months ended June 30, 2020, from 9.3% for the six months ended June 30, 2019. As a percentage of freight revenue, depreciation and amortization decreased to 10.3% of freight revenue for the six months ended June 30, 2020, from 10.5% in the same period in 2019.
Depreciation decreased $2.2 million and $3.9 million to $17.6 million and $35.1 million for the three and six months ended June 30, 2020, respectively, compared to $19.8 million and $39.0 million in the same 2019 periods. The decreases in depreciation expense are due to a reduction in the average number of units as we downsized our unprofitable operations. Amortization of intangible assets was $2.1 million and $2.8 million for the three and six months ended June 30, 2020 and $0.7 million and $1.5 million for the same 2019 periods, respectively. The increase is a result of the revised remaining useful life of the Landair trade name to 15 months as of June 30, 2020 and the termination of the non-compete agreement with a former Landair executive as a result of management changes, a change in the branding of the organization, and the forward looking expected use of the Landair trade name.
For the remainder of 2020, we expect our average operational fleet size to be between 2,550 and 2,650 tractors, a reduction of between 250 and 350, from the average for the first six months of 2020, which we expect to reduce depreciation expense going forward.
Gain on disposition of property and equipment, net
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Gain on disposition of property and equipment, net |
$ | (3,451 | ) | $ | (65 | ) | $ | (4,975 | ) | $ | (208 | ) | ||||
| % of total revenue |
(1.8% | ) | (0.0% | ) | (1.2% | ) | (0.0% | ) | ||||||||
| % of freight revenue |
(1.9% | ) | (0.0% | ) | (1.3% | ) | (0.1% | ) | ||||||||
Gain on disposition of property and equipment, net was $3.4 million and $5.0 million for the three and six months ended June 30, 2020, respectively, compared with $0.1 million and $0.2 million for the same 2019 periods. As a percentage of total revenue, gain on disposition of property and equipment, net was 1.8% and 1.2% for the three and six months ended June 30, 2020 As a percentage of freight revenue, gain on disposition of property and equipment, net was 1.9% and 1.3% of freight revenue three and six months ended June 30, 2020. These increases are primarily the result of the second quarter 2020 $5.7 million gain on disposition of our Hutchins, TX terminal facility, which was sold as part of the Company's restructuring plan.
Impairment of long lived property and equipment
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Impairment of long lived property and equipment |
$ | 26,569 | $ | - | $ | 26,569 | $ | - | ||||||||
| % of total revenue |
13.9 | % | 0.0 | % | 6.6 | % | 0.0 | % | ||||||||
| % of freight revenue |
14.8 | % | 0.0 | % | 7.2 | % | 0.0 | % | ||||||||
Impairment of long lived property and equipment, was $26.6 million for the three and six months ended June 30, 2020, compared with none for the same periods of 2019. As a percentage of total revenue, impairment of long lived property and equipment was 13.9% and 6.6% of total revenue for the three and six months ended June 30, 2020. As a percentage of freight revenue, impairment of long lived property and equipment was 14.8% and 7.2% of freight revenue for the three and six months ended June 30, 2020. During the second quarter of 2020, we recognized impairment of $16.8 million on revenue equipment, $7.3 million on our Texarkana, AR terminal, related leasehold improvements, and equipment, $2.2 million on an office facility in Chattanooga, TN held under an operating lease, and $0.2 million on a training and orientation facility in Chattanooga, TN.
Interest expense, net
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Interest expense, net |
$ | 2,084 | $ | 1,978 | $ | 3,983 | $ | 3,850 | ||||||||
| % of total revenue |
1.1 | % | 0.9 | % | 1.0 | % | 0.9 | % | ||||||||
| % of freight revenue |
1.2 | % | 1.0 | % | 1.1 | % | 1.0 | % | ||||||||
For the periods presented, 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. Going forward, we expect this line item to decrease based upon our indebtedness reduction from the TFS disposition and dispositions of terminals and revenue equipment.
Income (loss) from equity method investment
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Income (loss) from equity method investment |
$ | 530 | $ | 2,375 | $ | (205 | ) | $ | 5,410 | |||||||
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 or loss. Our income from equity method investment declined to $0.5 million and a loss of $0.2 million for the three and six months ended June 30, 2020, respectively. The decrease in TEL's contributions to our results for the three and six months ended June 30, 2020 is the result of the revenue impact associated with a customer bankruptcy during the fourth quarter of 2019. We expect the impact on our earnings resulting from our investment in TEL to be down year-over-year as a result of the terminated business but to return to more profitable levels as compared to the first two quarters of 2020 during the latter half of 2020.
Income tax (benefit) expense
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Income tax (benefit) expense |
$ | (7,336 | ) | $ | 2,182 | $ | (8,340 | ) | $ | 3,533 | ||||||
| % of total revenue |
(3.8 | %) | 1.0 | % | (2.1 | %) | 0.8 | % | ||||||||
| % of freight revenue |
(4.1 | %) | 1.1 | % | (2.3 | %) | 0.9 | % | ||||||||
Income tax (benefit) expense decreased approximately $9.5 million, or 436.2%, for the three months ended June 30, 2020, compared with the same quarter in 2019. As a percentage of total revenue, income tax benefit was 3.8% of total revenue for the three months ended June 30, 2020, compared to expense of 1.0% in the same quarter in 2019. As a percentage of freight revenue, income tax benefit was 4.1% of freight revenue for the three months ended June 30, 2020, compared to expense of 1.1% in the same quarter in 2019.
For the six months ended June 30, 2020, income tax (benefit) expense decreased approximately $11.9 million, or 336.1%, compared with the same period in 2019. As a percentage of total revenue, income tax benefit was 2.1% of total revenue for the six months ended June 30, 2020, compared to expense of 0.8% for the six months ended June 30, 2019. As a percentage of freight revenue, income tax benefit was 2.3% of freight revenue for the six months ended June 30, 2020, compared to expense of 0.9% in the same period in 2019.
These decreases were primarily related to the $23.1 million and $22.1 million decreases in the pre-tax income in the three and six months ended June 30, 2020, compared to the same 2019 periods, resulting from the changes in operating income and the decreased earnings on investment in TEL 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 2020 effective income tax rate to be approximately 25.5%.
RESULTS OF SEGMENT OPERATIONS
We have three reportable segments, Highway Services, Dedicated, and Managed Freight. Highway Services represents non-dedicated, irregular route truckload services without fixed volume commitments in the expedited and over-the-road solo markets. Dedicated represents truckload services under long-term contracts that generally include minimum prices and volumes. Our Managed Freight reportable segment has service offerings ancillary to our Highway Services and Dedicated reportable segments, including: freight brokerage service provided both directly and through freight brokerage agents, who are paid a commission for the freight they provide, TMS, and warehousing services. Our Highway Services and Managed Freight operations each consist of multiple service offerings, which are aggregated into our reportable segments due to having similar economic characteristics and meeting the aggregation criteria.
COMPARISON OF three and six months ended June 30, 2020 TO three and six months ended June 30, 2019
The following table summarizes financial and operating data by reportable segment:
| (in thousands) |
Three Months Ended |
Six Months Ended |
||||||||||||||
| June 30, |
||||||||||||||||
| 2019 |
2020 |
2019 |
||||||||||||||
| Revenues: |
||||||||||||||||
| Highway Services |
||||||||||||||||
| Expedited |
$ | 67,907 | $ | 65,230 | $ | 135,503 | $ | 126,852 | ||||||||
| OTR |
11,871 | 24,433 | 30,435 | 51,139 | ||||||||||||
| Total Highway Services |
79,778 | 89,663 | 165,938 | 177,991 | ||||||||||||
| Dedicated |
65,940 | 85,745 | 147,728 | 170,078 | ||||||||||||
| Managed Freight: |
||||||||||||||||
| Brokerage |
28,443 | 20,277 | 50,222 | 44,583 | ||||||||||||
| TMS |
5,919 | 9,431 | 14,877 | 17,801 | ||||||||||||
| Warehousing |
11,609 | 11,924 | 23,737 | 23,920 | ||||||||||||
| Total Managed Freight |
45,971 | 41,632 | 88,836 | 86,304 | ||||||||||||
| Total revenues |
$ | 191,689 | $ | 217,040 | $ | 402,502 | $ | 434,373 | ||||||||
| Operating (Loss) Income: |
||||||||||||||||
| Highway Services |
||||||||||||||||
| Expedited |
$ | (8,781 | ) | $ | 3,995 | $ | (6,806 | ) | $ | 6,162 | ||||||
| OTR |
(4,028 | ) | (2,328 | ) | (7,359 | ) | (5,335 | ) | ||||||||
| Total Highway Services |
(12,809 | ) | 1,667 | (14,165 | ) | 827 | ||||||||||
| Dedicated |
(13,196 | ) | 3,514 | (14,921 | ) | 5,623 | ||||||||||
| Managed Freight: |
||||||||||||||||
| Brokerage |
(3,537 | ) | (498 | ) | (3,549 | ) | 66 | |||||||||
| TMS |
(89 | ) | 867 | 575 | 1,454 | |||||||||||
| Warehousing |
681 | 1,480 | 1,656 | 3,006 | ||||||||||||
| Total Managed Freight |
(2,945 | ) | 1,849 | (1,318 | ) | 4,526 | ||||||||||
| Total operating (loss) income |
$ | (28,950 | ) | $ | 7,030 | $ | (30,404 | ) | $ | 10,976 | ||||||
For the quarter ended June 30, 2020, total revenue decreased approximately $25.3 million, or 11.7%, to $191.7 million from $217.0 million in the 2019 quarter. Freight revenue decreased approximately $13.1 million, or 6.8%, to $179.6 million for the quarter ended June 30, 2020, from $192.7 million in the 2019 quarter, while fuel surcharge revenue decreased $12.3 million quarter-over-quarter. The decrease in revenue resulted from a $12.0 million and a $5.5 million decrease in Dedicated and Highway Services freight revenue, respectively, partially offset by an increase of $4.4 million in Managed Freight freight revenue.
The decrease in Highway Services revenue relates to an 116 (or 8.8%) average tractor decrease partially offset by an increase in average freight revenue per tractor per week of 2.0% compared to the 2019 quarter. The increase in average freight revenue per tractor per week for the quarter ended June 30, 2020 is the result of a 9.3% increase in average miles per unit partially offset by a 12.6 cents per mile (or 6.7%) decrease in average rate per total mile compared to the 2019 quarter. Highway Services team-driven trucks averaged 873 tractors in the second quarter of 2020, an increase of approximately 8.9% from the average of 860 tractors in the second quarter of 2019.
The decrease in Dedicated revenue relates to a 151 (or 8.6%) average tractor decrease and a decrease in average freight revenue per tractor per week of 8.7% compared to the 2019 quarter. The decrease in average freight revenue per tractor per week for the quarter ended June 30, 2020 is the result of a 14.3% decrease in average miles per unit and an 11.6 cents per mile (or 6.5% decrease) in average rate per total mile compared to the 2019 quarter.
Managed Freight total revenue increased $4.4 million for the 2020 quarter compared to the same 2019 quarter, as a result of additional opportunities in the brokerage market as a result of COVID-19. Offsetting the increase in Brokerage revenue are decreases in TMS revenue as a result of certain customers that have been negatively impacted by COVID-19 during the second quarter of 2020.
For the six months ended June 30, 2020, total revenue decreased approximately $31.9 million, or 7.3%, to $402.5 million from $434.4 million in the same 2019 period. Freight revenue decreased approximately $17.5 million, or 4.5%, to $369.1 million for the period ended June 30, 2020, from $386.6 million in the 2019 period, while fuel surcharge revenue decreased $47.8 million period-over-period. The decrease in revenue resulted from a $13.8 million and $6.3 million decrease in Dedicated and Highway Services freight revenue, respectively, partially offset by an increase of $2.6 million in Managed Freight freight revenue.
The decrease in Highway Services revenue relates to a 99 tractor (or 7.3%) average tractor decrease partially offset by an increase in average freight revenue per tractor per week of 2.9% compared to the same 2019 period. The increase in average freight revenue per tractor per week for the six months ended June 30, 2020 is the result of a 9.2% increase in average miles per unit partially offset by a 9.0 cents per mile (or 4.7%) decrease in average rate per total mile compared to the same 2019 period. Highway Services team-driven trucks averaged 860 tractors for the period ended June 30, 2020 compared to 802 tractors in the same 2019 period.
The decrease in Dedicated revenue relates to a 102 tractor (or 5.9%) average tractor decrease and a decrease in average freight revenue per tractor per week of 4.5% compared to the same 2019 period. The decrease in average freight revenue per tractor per week for the period ended June 30, 2020 is the result of a 5.9% decrease in average miles per unit partially offset by a 4.0 cents per mile (or 2.2%) increase in average rate per total mile compared to the same 2019 period.
Managed Freight total revenue increased $2.5 million for the six months ended June 30, 2020 compared to the same 2019 period as a result of additional opportunities in the brokerage market as a result of COVID-19.
For the quarter ended June 30, 2020, total operating loss was $29.0 million compared to operating income of $7.0 million in the 2019 quarter. In addition to the changes in revenue described above, the change in operating income resulted from a $9.1 million and $4.6 million increase in Managed Freight and Highway Services operating expenses, respectively, partially offset by a $3.1 million decrease in Dedicated operating expenses.
For the six months ended June 30, 2020, total operating loss was $30.4 million compared to operating income of $11.0 million during the same 2019 period. In addition to the changes in revenue described above, the change in operating income resulted from an $8.4 million and $2.9 million increase in Managed Freight and Highway Services operating expenses, respectively, partially offset by a $1.8 million decrease in Dedicated operating expenses.
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 finance 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 and Managed Freight reportable segments 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 $180.2 million and $93.1 million at June 30, 2020 and December 31, 2019, 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.
With an average fleet age of 1.8 years at June 30, 2020, 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 were to grow our independent contractor fleet, our capital requirements would be reduced.
As of June 30, 2020 and December 31, 2019 we had $351.5 million and $348.2 million in long-term debt and lease obligations, respectively, consisting of the following:
| ● |
No outstanding borrowings under the Credit Facility, respectively; | |
| ● | $247.0 million and $230.9 million in revenue equipment installment notes, respectively; | |
| ● | $23.2 million and $23.8 million in real estate notes, respectively; | |
| ● | less than $0.1 million and $0.2 million in deferred loan costs (which reduce long-term debt), respectively; | |
| ● | $32.7 million and $33.3 million of the principal portion of financing lease obligations, respectively, and; | |
| ● | $48.6 million and $60.3 million 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 six months of 2020. The decrease in operating lease obligations was primarily due to amortization of the liability during the first three months of 2020.
As of June 30, 2020, we had no borrowings outstanding, undrawn letters of credit outstanding of approximately $36.7 million, and available borrowing capacity of $58.3 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 7, “Debt” of the accompanying condensed consolidated financial statements for further information about material debt agreements.
Our net capital expenditures for the six months ended June 30, 2020 totaled $4.9 million of proceeds as compared to $33.5 million of expenditures for the prior year period. In the second quarter of 2020, we took delivery of approximately 305 new tractors and 155 new trailers, while disposing of approximately 781 used tractors and 219 used trailers. Our current fleet plan for fiscal 2020 includes the delivery of an additional 304 new company replacement tractors and no additional new trailer deliveries and the disposal of 516 used tractors and 882 used trailers from our current operating fleet throughout the remainder of the year. Through the end of 2020, we expect the average operational fleet size to be between 2,575 and 2,650 tractors. Net gains on disposal of equipment and real estate in the second quarter of 2020 were $3.4 million compared to $0.6 million in the prior-year quarter.
As part of our strategic focus to reduce overhead costs and in response to the uncertainty of the upcoming economic environment as a result of COVID-19, we have begun taking measures to preserve our liquidity, including capital reductions, financing, cost reduction, and working capital actions. Additionally, we have other potential flexible sources of liquidity that we can leverage if needed, such as currently unencumbered owned revenue equipment.
In April 2020, in an effort to improve our liquidity during the COVID-19 pandemic, we executed a modification to certain of our revenue equipment installment notes, exercising an option to make interest only payments for a period of 90 days, extending the due date of $177.3 million of debt by three months.
Cash Flows
Net cash flows provided by operating activities remained relatively flat at $24.1 million for the six-month period ended June 30, 2020, compared to $23.6 million for the same 2019 period.
Net cash flows provided by investing activities was $4.1 million for the six-month period ended June 30, 2020, compared to $65.3 million used in the same 2019 period. The change in net cash flows used by investing activities was primarily the result of the disposal of our Orlando and Hutchins properties during the 2020 period as well as timing of our trade cycle whereby we took delivery of approximately 305 new company tractors and disposed of approximately 781 used tractors in the 2020 period compared to delivery and disposal of approximately 726 and 304 tractors, respectively, in the same 2019 period.
Net cash flows used by financing activities were approximately $4.6 million for the six-months ended June 30, 2020, compared to $47.4 million provided in the same 2019 period. The change in net cash flows provided by financing activities was primarily a function of our stock repurchase program during the first quarter of 2020 partially offset by net proceeds from our notes payable and Credit Facility of $15.5 million in 2020 compared to $51.2 million in the same 2019 period.
On February 10, 2020, our Board of Directors approved a stock repurchase program authorizing the purchase of up to $20.0 million of our Class A common stock from time-to-time based upon market conditions and other factors. The stock could be repurchased on the open market or in privately negotiated transactions. The repurchased shares are held as treasury stock and may be used for general corporate purposes as our Board of Directors may determine. On March 26, 2020, our Board of Directors temporarily suspended the stock repurchase program for added flexibility in response to the uncertain impact of the COVID-19 pandemic. Between February 10, 2020 and March 26, 2020, we repurchased 1.4 million shares of our Class A common stock in the open market for $17.5 million. There were no changes to the stock repurchase program during the second quarter of 2020.
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 six months ended June 30, 2020, 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 six months ended June 30, 2020, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 2019 Form 10-K, other than those discussed above.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 confined to the United States, we are not subject to a material amount of foreign currency 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.
COMMODITY PRICE RISK
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. During the quarter ended June
30, 2020, we had fuel hedge contracts with a fair market value of $0.1 million, which are included in other liabilities in our condensed consolidated balance sheet at June 30, 2020. 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 $0.8 million. This sensitivity analysis considers that we expect to purchase approximately 10.4 million gallons of diesel during the remainder of 2020, with an assumed fuel surcharge recovery rate of 81.6% of the cost (which was our fuel surcharge recovery rate during the six months ended June 30, 2020, excluding the impact of gains or losses of fuel hedge settlements). Assuming our fuel
surcharge recovery is consistent during the remainder of 2020, this leaves 1.9 million gallons that are not covered by the natural hedge created by our fuel surcharges. Because we have hedged a portion of our fuel, we will not realize the impact of changes in fuel prices to the same extent as we would have had we not entered into our hedge contracts.
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, we also entered into several 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 item 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. For the periods ended June 30, 2020 and 2019, the fair value of the swap agreements, amounts reclassified from accumulated other comprehensive income (loss) into our results of operations, and amounts expected to be reclassified from accumulated other comprehensive income (loss) into our results of operations during the next twelve months due to interest rate changes, are immaterial. 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 $351.5 million of debt and operating and finance leases, we had $30.4 million of variable rate debt outstanding at June 30, 2020, including our Credit Facility, a real-estate note and certain equipment notes, of which the real-estate note of $23.2 million was hedged with the interest rate swap agreement at 4.2% and certain of our equipment notes totaling $7.2 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 June 30, 2020 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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us, including 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 the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2020.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
For the quarter ended June 30, 2020, we discovered the following deficiency in our internal control over financial reporting that we consider to be a material weakness:
| ● |
Ineffective internal control related to credit approval and monitoring within our Transport Financial Solutions (TFS) subsidiary. We believe that these control deficiencies were a result of: (i) a lack of monitoring controls over credit line increases and certain receivable balances for existing TFS clients; (ii) the ability to override existing credit limits for TFS customer’s (debtors) in the TFS factoring system; and (iii) a lack of required approvals when TFS clients and customers exceeded their credit limits. The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results. |
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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.
We have confidence in our internal controls and procedures. Nevertheless, 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 control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.
Disposition of Transport Financial Services
The Company completed the sale of substantially all assets of TFS on July 8, 2020. Management determined that the material weakness was isolated to the TFS subsidiary and not pervasive across the organization for the following reasons:
| ● |
TFS employees were not involved in credit decisions or credit monitoring of any of the Company’s other subsidiaries; |
|
|
|
| ● |
The system utilized to manage credit, receivables, and revenue of TFS was separate and apart from the systems used by any of the Company’s other subsidiaries; and |
| ● |
Factoring of receivables is not a business line performed within the Company’s other subsidiaries. |
Based upon the foregoing, management believes that material weakness was eliminated upon the sale of TFS.
Changes in Internal Control Over Financial Reporting
Other than the material weakness identified during the quarter, 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 June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| PART II |
OTHER INFORMATION |
| LEGAL PROCEEDINGS |
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 drivers 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. The Court has set a bench trial to begin on August 25, 2020. Covenant Transport intends to vigorously defend itself in this matter. 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 June 30, 2020.
On February, 28 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. Covenant Transport intends to vigorously defend itself in this matter. 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 June 30, 2020.
On August 2, 2018, Curtis Markson, et al. (collectively, “Markson”), filed a putative class action case in United States District Court, Central District of California generically claiming that five (5) specified trucking companies (including our subsidiary Southern Refrigerated Transport, Inc.) entered into a "no poaching conspiracy" in which they agreed not to solicit or hire employees in California who were "under contract" with a fellow defendant. The allegations center around new drivers in California who received their commercial driver's license through driving schools associated with, or paid for by, one of the named defendants, in exchange for agreeing to drive for that defendant carrier for a specified amount of time (typically 8-10 months). Over the ensuing 18 – 20 months, the Plaintiffs added Covenant Transport, Inc. as a co-defendant in the lawsuit on April 23, 2020. The lawsuit claims that the named defendants sent letters to one another, providing notice of "under contract" status, if these new California drivers were hired by another defendant carrier prior to the driver completing their contractual obligations. Plaintiffs contend that these notifications evidence a collusive agreement by the named defendants to restrain competition among trucking companies in California and suppress wages. Southern Refrigerated Transport, Inc. and Covenant Transport, Inc. are vigorously defending themselves against these claims. 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 June 30, 2020.
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, discussed above, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements.
| RISK FACTORS |
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, 2019 and Form 10-Q for the quarter ended March 31, 2020, as amended, in the sections entitled "Item 1A. Risk Factors," describe some of the risks and uncertainties associated with our business. The information presented below supplements such risk factors and should be read in conjunction with the risk factors included in our Form 10-K for the year ended December 31, 2019 and Form 10-Q for the quarter ended March 31, 2020, as amended. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.
We have experienced, and may experience additional, erosion of available limits in our aggregate insurance policies. Furthermore, we may experience additional expense to reinstate insurance policies due to liability claims.
Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the current policy period (April 1, 2018 to March 31, 2021), aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million are estimated to be fully eroded based on current claims expense accruals. Additionally, there is the possibility of mandatory reinstatement charges for the expired policy providing coverage in the $10.0 million in excess of $10.0 million layer, for accidents that occurred prior to expiration on March 31, 2020. The expenses associated with additional liability claims may be substantial and such expenses could have a material adverse effect on our business, financial condition, and results of operations. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations.
We have identified a material weakness in our internal control over financial reporting, and if we are unable to remediate such material weakness and to maintain effective internal control over financial reporting in the future, there could be an elevated possibility of a material misstatement, and such a misstatement could cause investors to lose confidence in our financial statements, which could have a material adverse effect on our stock price.
As disclosed in Part I, Item 4 of this report, we have identified a material weakness as of June 30, 2020 in our internal control over financial reporting related to approval of credit limits for customers in our former Factoring reportable segment. As of June 30, 2020, our Factoring reportable segment was held for sale and its assets were subsequently sold on July 8, 2020, therefore, we will not have remediation efforts related to our Factoring reportable segment. If we fail to maintain effective internal controls in the future, it could result in a material misstatement of our financial statements, which could cause investors to lose confidence in our financial statements or cause our stock price to decline.
We are involved in a dispute arising from our disposition of substantially all of the operations and assets of TFS, which could have a material adverse effect on our business, financial condition, and results of operations.
The Company and the purchaser of TFS’ assets are involved in a dispute related to the disposition. The purchaser asserts that, subsequent to the closing, it identified that approximately $66.0 million of the assets acquired related to advances against future payments to be made pursuant to long-term contractual arrangements between the obligor on such contracts and TFS’ clients for services that had not yet been performed (as opposed to advances against future payments for services that had been performed), that this fact was not disclosed to the purchaser, and the purchase of such advances was not contemplated by the purchase agreement. The Company is engaged in discussions to determine whether this dispute can be amicably resolved and is also evaluating other options should the discussions not produce an amicable resolution. It is too early to determine the likely outcome of this dispute, any liability or expenses the Company may incur, any cash the Company may need to pay or invest, any impact on the Company’s total leverage, or the gain or loss the Company ultimately may record on the transaction compared with the $26.5 million gain previously estimated. The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found.
Any settlement or resolution of the dispute could, among other things, require us to (i) return some of the cash or stock consideration received from the transaction, (ii) forego some or all of the anticipated earnout from the transaction, (iii) incur additional indebtedness, (iv) incur legal and other defense and resolution costs, (v) divert management’s time and attention from operations, including implementation of our strategic plan and organizational restructuring, (vi) defend ourselves in litigation, including from the purchaser in the TFS transaction and in securities actions, and (vii) damage our reputation with investors, customers, vendors, drivers, and employees. Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the quarter ended June 30, 2020, 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.
| DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| MINE SAFETY DISCLOSURES |
Not applicable.
| OTHER INFORMATION |
Not applicable.
| Exhibit Number |
Reference |
Description |
| (1) |
Third Amended and Restated Articles of Incorporation |
|
| (2) |
Fifth Amended and Restated Bylaws |
|
| (1) |
Third Amended and Restated Articles of Incorporation |
|
| (2) |
Fifth Amended and Restated Bylaws |
|
| 10.1 | *# | Form of Restricted Stock Award Notice (Double Trigger Change in Control) |
| # |
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 |
|
| # |
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 M. Paul Bunn, the Company's Principal Financial Officer |
|
| ## |
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 M. Paul Bunn, the Company's Chief Financial Officer |
|
| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) | |
| References: |
||
| (1) |
Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K, filed July 2, 2020. | |
| (2) |
Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed July 2, 2020. | |
| # |
||
| ## |
Furnished herewith. |
|
| * | Management contract or compensatory plan or arrangement. | |
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.
| COVENANT LOGISTICS GROUP, INC. |
||
| Date: August 10, 2020 |
By: |
/s/ M. Paul Bunn |
| Executive Vice President, Chief Financial Officer, and Secretary in his capacity as such and as a duly authorized officer on behalf of the issuer |
||
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 8/1/35 | ||||
| 6/1/30 | ||||
| 3/31/29 | ||||
| 3/31/23 | ||||
| 1/1/23 | ||||
| 4/1/21 | ||||
| 3/31/21 | 10-Q | |||
| 12/31/20 | 10-K, 10-K/A, 11-K, 4 | |||
| 8/25/20 | ||||
| Filed on: | 8/10/20 | 8-K | ||
| 8/5/20 | ||||
| 7/8/20 | 8-K, 8-K/A | |||
| 7/2/20 | 4, 8-K | |||
| 7/1/20 | 3, 3/A, 4, 8-K, DEF 14A | |||
| For Period end: | 6/30/20 | |||
| 4/23/20 | 8-K | |||
| 4/1/20 | ||||
| 3/31/20 | 10-Q, 10-Q/A | |||
| 3/27/20 | 8-K | |||
| 3/26/20 | 8-K | |||
| 2/10/20 | 8-K | |||
| 12/31/19 | 10-K, 11-K, 4 | |||
| 8/1/19 | ||||
| 6/30/19 | 10-Q | |||
| 5/8/19 | 4, 8-K, DEF 14A, PRE 14A | |||
| 3/31/19 | 10-Q | |||
| 1/1/19 | ||||
| 12/31/18 | 10-K, 11-K, 4, 5 | |||
| 11/9/18 | 10-Q | |||
| 8/2/18 | ||||
| 7/3/18 | 8-K, 8-K/A | |||
| 4/1/18 | ||||
| 3/31/18 | 10-Q | |||
| 4/10/15 | SC 13G/A | |||
| 10/31/14 | 4, 5 | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/28/24 Covenant Logistics Group, Inc. 10-K 12/31/23 117:12M RDG Filings/FA 2/28/23 Covenant Logistics Group, Inc. 10-K 12/31/22 103:11M RDG Filings/FA 2/28/22 Covenant Logistics Group, Inc. 10-K 12/31/21 92:10M RDG Filings/FA 9/09/21 Covenant Logistics Group, Inc. SC TO-I/A 2:69K Covenant Logistics Group, Inc. Scudder Law Firm P C/FA 9/07/21 Covenant Logistics Group, Inc. SC TO-I/A 2:69K Covenant Logistics Group, Inc. Scudder Law Firm P C/FA 8/09/21 Covenant Logistics Group, Inc. SC TO-I 9:5.2M Covenant Logistics Group, Inc. Scudder Law Firm P C/FA 4/06/21 Covenant Logistics Group, Inc. 10-K/A 12/31/20 97:11M RDG Filings/FA 3/05/21 Covenant Logistics Group, Inc. 10-K 12/31/20 99:13M RDG Filings/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/10/19 Covenant Logistics Group, Inc. 10-Q 3/31/19 64:4.2M Scudder Law Firm P C/FA 3/14/19 Covenant Logistics Group, Inc. 8-K:5,9 3/10/19 2:125K Scudder Law Firm P C/FA |