UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| 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:
COVENANT LOGISTICS GROUP, INC.
(Exact name of registrant as specified in its charter)
| |
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
or organization) | |
| |
| |
(Address of principal executive offices) | (Zip Code) |
(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 |
The |
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.
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).
| 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 ☐ |
| |
Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
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 | No ☒ |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (May 4, 2022).
Class A Common Stock, $.01 par value:
Class B Common Stock, $.01 par value:
PART I FINANCIAL INFORMATION |
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Page Number |
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Item 1. |
Financial Statements |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited) |
3 | |
Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited) |
4 | |
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (unaudited) |
5 | |
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021 (unaudited) |
6 | |
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited) |
7 | |
Notes to Condensed Consolidated Financial Statements (unaudited) |
8 | |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
37 |
Item 4. |
Controls and Procedures |
38 |
PART II OTHER INFORMATION |
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Page Number |
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Item 1. |
Legal Proceedings |
39 |
Item 1A. |
Risk Factors |
40 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
41 |
Item 3. |
Defaults Upon Senior Securities |
41 |
Item 4. |
Mine Safety Disclosures |
41 |
Item 5. |
Other Information |
41 |
Item 6. |
Exhibits |
42 |
PART I |
FINANCIAL INFORMATION |
FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands, except share data) |
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net of allowance of $ in 2022 and $ in 2021 | ||||||||
Drivers' advances and other receivables, net of allowance of $ in 2022 and $ in 2021 | ||||||||
Inventory and supplies | ||||||||
Prepaid expenses | ||||||||
Assets held for sale | ||||||||
Income taxes receivable | ||||||||
Other short-term assets | ||||||||
Total current assets | ||||||||
Property and equipment, at cost | ||||||||
Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
Net property and equipment | ||||||||
Goodwill | ||||||||
Other intangibles, net | ||||||||
Other assets, net | ||||||||
Noncurrent assets of discontinued operations | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Accrued purchased transportation | ||||||||
Current maturities of long-term debt | ||||||||
Current portion of finance lease obligations | ||||||||
Current portion of operating lease obligations | ||||||||
Current portion of insurance and claims accrual | ||||||||
Other short-term liabilities | ||||||||
Total current liabilities | ||||||||
Long-term debt | ||||||||
Long-term portion of finance lease obligations | ||||||||
Long-term portion of operating lease obligations | ||||||||
Insurance and claims accrual | ||||||||
Deferred income taxes | ||||||||
Other long-term liabilities | ||||||||
Long-term liabilities of discontinued operations | ||||||||
Total liabilities | ||||||||
Commitments and contingent liabilities | - | - | ||||||
Stockholders' equity: | ||||||||
Class A common stock, $ par value; shares authorized; shares issued and outstanding as of March 31, 2022; and shares issued and outstanding as of December 31, 2021 | ||||||||
Class B common stock, $ par value; shares authorized; shares issued and outstanding | ||||||||
Additional paid-in-capital | ||||||||
Treasury stock at cost; and shares as of March 31, 2022 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Retained earnings | ||||||||
Total stockholders' equity | ||||||||
Total liabilities and stockholders' equity | $ | $ |
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 months ended March 31, 2022 and 2021
(In thousands, except per share data)
Three Months Ended March 31, | ||||||||
(unaudited) | ||||||||
2022 | 2021 | |||||||
Revenues | ||||||||
Freight revenue | $ | $ | ||||||
Fuel surcharge revenue | ||||||||
Total revenue | $ | $ | ||||||
Operating expenses: | ||||||||
Salaries, wages, and related expenses | $ | $ | ||||||
Fuel expense | ||||||||
Operations and maintenance | ||||||||
Revenue equipment rentals and purchased transportation | ||||||||
Operating taxes and licenses | ||||||||
Insurance and claims | ||||||||
Communications and utilities | ||||||||
General supplies and expenses | ||||||||
Depreciation and amortization | ||||||||
Gain on disposition of property and equipment, net | ( | ) | ( | ) | ||||
Total operating expenses | ||||||||
Operating income | ||||||||
Interest expense, net | ||||||||
Income from equity method investment | ( | ) | ( | ) | ||||
Income before income taxes | ||||||||
Income tax expense | ||||||||
Income from continuing operations, net of tax | ||||||||
Income from discontinued operations, net of tax | ||||||||
Net income | $ | $ | ||||||
Basic income per share: | ||||||||
Income from continuing operations | $ | $ | ||||||
Income from discontinued operations | ||||||||
Net income | $ | $ | ||||||
Diluted income per share: | ||||||||
Income from continuing operations | $ | $ | ||||||
Income from discontinued operations | ||||||||
Net income | $ | $ | ||||||
Basic weighted average shares outstanding | ||||||||
Diluted weighted average shares outstanding |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE three months ended March 31, 2022 and 2021
(Unaudited and in thousands)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net income | $ | $ | ||||||
Other comprehensive income: | ||||||||
Unrealized gain on effective portion of cash flow hedges, net of tax of ($ ) in 2022 and ($ ) in 2021, respectively | ||||||||
Reclassification of cash flow hedge losses (gains) into statement of operations, net of tax of ($ ) in 2022 and $ in 2021, respectively | ( | ) | ||||||
Reclassification of (gains) on sale of investments classified as available-for-sale | ( | ) | ||||||
Total other comprehensive income | ||||||||
Comprehensive income | $ | $ |
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 months ended March 31, 2022 and 2021
(Unaudited and in thousands)
For the Three Months Ended | ||||||||||||||||||||||||||||
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, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
Net income | ||||||||||||||||||||||||||||
Cash dividend ($ per common share) | ( | ) | ( | ) | ||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||
Share repurchase | ( | ) | ( | ) | ||||||||||||||||||||||||
Stock-based employee compensation expense | ||||||||||||||||||||||||||||
Issuance of restricted shares, net | ( | ) | ( | ) | ||||||||||||||||||||||||
Balances at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ |
For the Three Months Ended |
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Accumulated |
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Additional |
Other |
Total |
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Common Stock |
Paid-In |
Treasury |
Comprehensive |
Retained |
Stockholders' |
|||||||||||||||||||||||
Class A |
Class B |
Capital |
Stock |
Loss |
Earnings |
Equity |
||||||||||||||||||||||
Balances at December 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
Net income |
||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||
Share repurchase |
( |
) | ( |
) | ||||||||||||||||||||||||
Stock-based employee compensation expense |
||||||||||||||||||||||||||||
Issuance of restricted shares, net |
( |
) | ( |
) | ||||||||||||||||||||||||
Balances at March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ |
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 three months ended March 31, 2022 and 2021
(Unaudited and in thousands)
Three Months Ended March 31, | ||||||||
2022 |
2021 |
|||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
||||||||
Provision for losses on accounts receivable |
||||||||
(Reversal) deferral of gain on sales to equity method investee |
( |
) | ||||||
Depreciation and amortization |
||||||||
Deferred income tax expense |
||||||||
Income tax expense arising from restricted share vesting and stock options exercised |
( |
) | ( |
) | ||||
Stock-based compensation expense |
||||||||
Income from equity method investment |
( |
) | ( |
) | ||||
Gain on disposition of property and equipment |
( |
) | ( |
) | ||||
Gain on reversal of contingent loss of discontinued operations |
( |
) | ||||||
Gain on investment in available-for-sale securities |
( |
) | ||||||
Changes in operating assets and liabilities: |
||||||||
Receivables and advances |
( |
) | ||||||
Prepaid expenses and other assets |
( |
) | ||||||
Inventory and supplies |
( |
) | ( |
) | ||||
Insurance and claims accrual |
( |
) | ( |
) | ||||
Accounts payable and accrued expenses |
( |
) | ||||||
Net cash flows provided by operating activities |
||||||||
Cash flows from investing activities: |
||||||||
Acquisition of AAT Carriers, Inc., net of cash acquired |
( |
) | ||||||
Other investment |
( |
) | ||||||
Purchase of available-for-sale securities |
( |
) | ||||||
Acquisition of property and equipment |
( |
) | ( |
) | ||||
Proceeds from disposition of property and equipment |
||||||||
Net cash flows (used) provided by investing activities |
( |
) | ||||||
Cash flows from financing activities: |
||||||||
Change in checks outstanding in excess of bank balances |
( |
) | ( |
) | ||||
Cash dividend |
( |
) | ||||||
Repayments of notes payable |
( |
) | ( |
) | ||||
Repayments of finance lease obligations |
( |
) | ( |
) | ||||
Proceeds under revolving credit facility |
||||||||
Repayments under revolving credit facility and draw note |
( |
) | ( |
) | ||||
Payment of minimum tax withholdings on stock compensation |
( |
) | ( |
) | ||||
Common stock repurchased |
( |
) | ( |
) | ||||
Net cash flows provided (used) by financing activities |
( |
) | ||||||
Net change in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ | $ |
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 |
Basis of Presentation
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.
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, 2021, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore, operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.
Risks and Uncertainties
On July 8, 2020, we sold a portfolio of accounts receivable, contract rights, and associated assets consisting of approximately $
The amended purchase agreement specifically identified approximately $
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. Depreciation of revenue equipment is our largest item of depreciation. We generally depreciate new tractors over
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. | Income Per Share |
Basic 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 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
The following table sets forth, for the periods indicated, the calculation of net income per share included in the condensed consolidated statements of operations:
(in thousands except per share data) | Three Months Ended | |||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Numerators: | ||||||||
Income from continuing operations | $ | $ | ||||||
Income from discontinued operations | ||||||||
Net income | $ | $ | ||||||
Denominator: | ||||||||
Denominator for basic income per share – weighted-average shares | ||||||||
Effect of dilutive securities: | ||||||||
Equivalent shares issuable upon conversion of unvested restricted shares | ||||||||
Equivalent shares issuable upon conversion of unvested employee stock options | ||||||||
Denominator for diluted income per share adjusted weighted-average shares and assumed conversions | ||||||||
Basic income per share: | ||||||||
Income from continuing operations | $ | $ | ||||||
Income from discontinued operations | ||||||||
Net income | $ | $ | ||||||
Diluted income per share: | ||||||||
Income from continuing operations | $ | $ | ||||||
Income from discontinued operations | ||||||||
Net income | $ | $ |
Note 3. |
Fair Value of Financial Instruments |
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. The fair value of the commodity contracts, including our former fuel hedges, is determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk. The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value of available-for-sale securities is based upon quoted prices in active markets. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
● |
Level 1. Observable inputs such as quoted prices in active markets; |
● |
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
● |
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Financial Instruments Measured at Fair Value on a Recurring Basis
(in thousands) |
||||||||
Hedge derivatives |
March 31, 2022 |
December 31, 2021 |
||||||
Net Fair Value of Derivative |
$ | ( |
) | $ | ( |
) | ||
Quoted Prices in Active Markets (Level 1) |
||||||||
Significant Other Observable Inputs (Level 2) |
( |
) | ( |
) | ||||
Significant Unobservable Inputs (Level 3) |
There were no available-for-sale securities recorded as of March 31, 2022 or December 31, 2021. Our financial instruments consist primarily of cash and cash equivalents, certificates of deposit, accounts receivable, commodity contracts, accounts payable, debt, and interest rate swaps. The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments.
Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes. The fair value of our revenue equipment installment notes approximated the carrying value as of March 31, 2022, as the weighted average interest rate on these notes approximates the market rate for similar debt. Borrowings under our revolving Credit Facility (as defined herein) approximate fair value due to the variable interest rate on that facility. There were no fuel hedge derivatives outstanding as of March 31, 2022. The fair value of all interest rate swap agreements that were in effect as of March 31, 2022 was an approximately $
Note 4. | Discontinued Operations |
As of June 30, 2020, our former Factoring reportable segment was classified as discontinued operations as it: (i) was a component of the entity, (ii) met the criteria as held for sale, and (iii) had 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 TFS, which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $
We have reflected the former Factoring reportable segment as discontinued operations in the condensed consolidated statements of operations for all periods presented.
The following table summarizes the results of our discontinued operations for the three months ended March 31, 2022 and 2021:
(in thousands) | Three Months Ended March 31, | |||||||
2022 | 2021 | |||||||
Total revenue | $ | $ | ||||||
Operating expenses | ||||||||
Operating income | ||||||||
Reversal of contingent loss liability | ( | ) | ||||||
Interest expense | ||||||||
Income before income taxes | ||||||||
Income tax expense | ||||||||
Income from discontinued operations, net of tax | $ | $ |
Reversal of contingent liability for the three months ended March 2021 relates to the reduced exposure of future indemnification by the Company to Triumph, as a result of the collection of covered receivables identified in the amended purchase agreement, as described in Note 1.
The following table summarizes the major classes of assets and liabilities included as discontinued operations as of March 31, 2022 and December 31, 2021:
(in thousands) | March 31, 2022 | December 31, 2021 | ||||||
Noncurrent deferred tax asset | $ | $ | ||||||
Noncurrent assets from discontinued operations | ||||||||
Total assets from discontinued operations | $ | $ | ||||||
Liabilities: | ||||||||
Long-term contingent loss liability | ||||||||
Long-term liabilities of discontinued operations | ||||||||
Total liabilities from discontinued operations | $ | $ |
There were
net cash flows related to discontinued operations for the three months ended March 31, 2022 and 2021.
Refer to Note 1, “Significant Accounting Policies” of the accompanying condensed consolidated financial statements for further information about the amended TFS purchase agreement.
Note 5. |
Segment Information |
We have
reportable segments:
● |
Expedited: The Expedited segment primarily provides truckload services to customers with high service freight and 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. |
● |
Dedicated: The Dedicated segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length. Equipment is either owned or leased by the Company. Many of our Dedicated contract customers are automotive companies or shippers of produce, where the nature of the product we ship requires high service standards. |
● |
Managed Freight: The Managed Freight segment includes our brokerage and transport management services (“TMS”). Brokerage services provide logistics capacity by outsourcing the carriage of customers’ freight to third parties. TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs. |
● |
Warehousing: The Warehousing segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. We also provide shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses. |
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Form 10-K for the year ended December 31, 2021. 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 four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three months ended March 31, 2022 and 2021:
(in thousands) |
||||||||||||||||||||
Three Months Ended March 31, 2022 |
Expedited |
Dedicated |
Managed Freight |
Warehousing |
Consolidated |
|||||||||||||||
Total revenue from external customers |
$ | $ | $ | $ | $ | |||||||||||||||
Intersegment revenue |
||||||||||||||||||||
Operating income |
Three Months Ended March 31, 2021 |
Expedited |
Dedicated |
Managed Freight |
Warehousing |
Consolidated |
|||||||||||||||
Total revenue from external customers |
$ | $ | $ | $ | $ | |||||||||||||||
Intersegment revenue |
||||||||||||||||||||
Operating income (loss) |
( |
) |
(in thousands) |
For the Three Months Ended March 31, |
|||||||
2022 |
2021 |
|||||||
Total external revenues for reportable segments |
$ | $ | ||||||
Intersegment revenues for reportable segments |
||||||||
Elimination of intersegment revenues |
( |
) | ( |
) | ||||
Total consolidated revenues |
$ | $ |
Note 6. | Income Taxes |
Income tax expense in both 2022 and 2021 varies from the amount computed by applying the federal corporate income tax rates of
Our liability recorded for uncertain tax positions as of March 31, 2022 has decreased by less than $
The net deferred tax liability of $
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act, among other things, includes provisions for refundable payroll tax credits, deferral for 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. As of September 30, 2021, the Company recorded a benefit of $
On March 11, 2021, President Biden signed the American Rescue Plan ("ARPA") into law. Of relevance to the Company, the ARPA extended the reach of Internal Revenue Code Section 162(m) to include compensation paid to the eight highest-paid individuals (rather than three highest); however, this change is not effective until 2027. There is no material impact to the financial statements at this time.
Note 7. | Debt |
Current and long-term debt and lease obligations consisted of the following as of March 31, 2022 and December 31, 2021:
(in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||||
Current | Long-Term | Current | Long-Term | |||||||||||||
Borrowings under Credit Facility | $ | $ | $ | $ | ||||||||||||
Borrowings under the Draw Note | ||||||||||||||||
Revenue equipment installment notes; weighted average interest rate of 1.8% at March 31, 2022, and 1.2% at December 31, 2021, due in monthly installments with final maturities at various dates ranging from April 2022 to November 2022, secured by related revenue equipment | ||||||||||||||||
Real estate notes; interest rate of 2.0% at March 31, 2022 and 1.8% at December 31, 2021 due in monthly installments with a fixed maturity at August 2035, secured by related real estate | ||||||||||||||||
Total debt | ||||||||||||||||
Principal portion of finance lease obligations, secured by related revenue equipment | ||||||||||||||||
Principal portion of operating lease obligations, secured by related revenue equipment | ||||||||||||||||
Total debt and lease obligations | $ | $ | $ | $ |
We and substantially all of our subsidiaries are parties to the Third Amended and Restated Credit Agreement (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 $
As of March 31, 2022, borrowings under the Credit Facility were classified as either "base rate loans" or "LIBOR loans." Base rate loans accrued interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus
As of March 31, 2022, borrowings under the Credit Facility were subject to a borrowing base limited to the lesser of (A) $110.0 million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i)
We had $
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 April 2022 to November 2022. 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 $
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 $
In connection with the TFS Settlement, in September 2020, TBK Bank, SSB, as lender and agent for Triumph (“TBK Bank”), provided the Company with a $
Note 8. |
Lease Obligations |
The finance leases in effect at March 31, 2022 terminate from May 2022 through November 2023 and contain guarantees of the residual value of the related equipment by us.
A summary of our lease obligations at March 31, 2022 and 2021 are as follows:
(dollars in thousands) |
Three Months Ended |
Three Months Ended |
||||||
March 31, 2022 |
March 31, 2021 |
|||||||
Finance lease cost: |
||||||||
Amortization of right-of-use assets |
$ | $ | ||||||
Interest on lease liabilities |
||||||||
Operating lease cost |
||||||||
Variable lease cost |
||||||||
Total lease cost |
$ | $ | ||||||
Other information |
||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash flows from finance leases |
||||||||
Operating cash flows from operating leases |
||||||||
Financing cash flows from finance leases |
||||||||
Right-of-use assets obtained in exchange for new finance lease liabilities |
||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities |
||||||||
Weighted-average remaining lease term—finance leases (in years) |
||||||||
Weighted-average remaining lease term—operating leases (in years) |
||||||||
Weighted-average discount rate—finance leases |
% | |||||||
Weighted-average discount rate—operating leases |
% |
As of March 31, 2022, and December 31, 2021, right-of-use assets of $
Our future minimum lease payments as of March 31, 2022, are summarized as follows by lease category:
(in thousands) |
Operating |
Finance |
||||||
2022 (1) | $ | $ | ||||||
2023 |
||||||||
2024 |
||||||||
2025 |
||||||||
2026 |
||||||||
Thereafter |
||||||||
Total minimum lease payments |
$ | $ | ||||||
Less: amount representing interest |
( |
) | ( |
) | ||||
Present value of minimum lease payments |
$ | $ | ||||||
Less: current portion |
( |
) | ( |
) | ||||
Lease obligations, long-term |
$ | $ |
(1) Excludes the three months ended March 31, 2022.
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 (the "Board"). On July 1, 2020, the stockholders, upon recommendation of the Board, approved the Second Amendment (the “Second Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan"). The Second Amendment (i) increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional
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, or other equity instruments. As of March 31, 2022, there were
Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is stock-based compensation expense of $
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 March 31, 2022, certain participants elected to forfeit receipt of an aggregate of
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/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. This lawsuit was settled at mediation on April 29, 2021, for an immaterial amount, pending court approval. The Court entered an Order preliminarily approving the Class Settlement on December 31, 2021. Our accruals related to this claim as of March 31, 2022 were sufficient to cover this settlement.
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. The claims set forth in this lawsuit are included in the settlement referenced above.
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 – 24 months, the Plaintiffs added more trucking companies as co-defendants in the lawsuit, including our subsidiary, Covenant Transport, Inc., on April 23, 2020. The lawsuit claims that the named co-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. This lawsuit was settled following mediation on August 20, 2021, for an immaterial amount pending court approval. Our accruals related to this claim as of March 31, 2022 were sufficient to cover this settlement.
On February 11, 2021, a lawsuit was filed against Covenant Transport on behalf of Wesley Maas (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The lawsuit was filed in the Superior Court of San Bernardino County, California. The Complaint alleges claims for failure to pay all lawful wages, failure to provide lawful meal and rest periods or compensation in lieu thereof, failure to timely pay wages, failure to comply with itemized wage statement provisions, failure to indemnify for expenditures, and violations of California Labor Code and unfair competition laws. 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, however, any future liability claims could impact this analysis. 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 March 31, 2022.
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, however, any future liability claims could impact this analysis.
We had $
Note 11. | Equity Method Investment |
We own a
We sold tractors and trailers to TEL for $
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 2022 net income through March 31, 2022, or $
Our accounts receivable from TEL and investment in TEL as of March 31, 2022 and December 31, 2021 are as follows (in thousands):
Description: | Balance Sheet Line Item: | March 31, 2022 | December 31, 2021 | ||||||
Accounts receivable from TEL | Driver advances and other receivables | $ | $ | ||||||
Investment in TEL | Other assets |
Our accounts receivable from TEL related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.
See TEL's summarized financial information below:
(in thousands) | As of March 31, | As of December 31, | ||||||
2022 | 2021 | |||||||
Total Assets | $ | $ | ||||||
Total Liabilities | ||||||||
Total Equity | $ | $ |
(in thousands) | Three Months Ended | |||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | $ | ||||||
Cost of Sales | ||||||||
Operating Expenses | ||||||||
Operating Income | ||||||||
Net Income | $ | $ |
Note 12. | Acquisition of AAT Carriers, Inc. |
On February 9, 2022, we acquired
AAT’s results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Expedited reportable operating segment.
The allocation of the preliminary purchase price detailed below is subject to change based on finalization of the valuation of long-lived and intangible assets, as well as our ongoing evaluation of AAT’s accounting principles for consistency with ours.
February 9, 2022 | ||||
(in thousands) | ||||
Cash paid pursuant to Stock Purchase Agreement | $ | |||
Cash acquired included in historical book value of AAT's assets and liabilities | ( | ) | ||
Net cash paid | $ |
There are no deferred income taxes arising from the acquisition because of our 338(h)(10) election.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.
February 9, 2022 | ||||
Cash and cash equivalents | $ | |||
Accounts receivable | ||||
Prepaid expenses | ||||
Other short-term assets | ||||
Net property and equipment | ||||
Total identifiable assets acquired | ||||
Accounts payable | ( | ) | ||
Accrued expenses | ( | ) | ||
Finance lease obligations | ( | ) | ||
Other long-term liabilities | ( | ) | ||
Total liabilities assumed | ( | ) | ||
Net identifiable assets acquired | ||||
Goodwill | ||||
Net assets acquired | $ |
Goodwill and other intangible assets will change upon the completion of the valuation of the contingent consideration liability and intangible asset as part of the purchase accounting for the AAT acquisition. The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment, and recruiting.
The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended March 31, 2022 are as follows:
(in thousands) | Three months ended | |||
March 31, 2022 | ||||
Total revenue | $ | |||
Net income | $ |
Note 13. |
Goodwill and Other Assets |
On July 3, 2018, we acquired
The Landair trade name has a residual value of $
Amortization expense of $
A summary of other intangible assets as of March 31, 2022 and December 31, 2021 is as follows:
(in thousands) |
March 31, 2022 |
|||||||||||||||
Gross intangible assets |
Accumulated amortization |
Net intangible assets |
Remaining life (months) |
|||||||||||||
Trade name: |
||||||||||||||||
Dedicated |
$ | $ | ( |
) | $ | |||||||||||
Managed Freight |
( |
) | ||||||||||||||
Warehousing |
( |
) | ||||||||||||||
Total trade name |
( |
) | - | |||||||||||||
Customer relationships: |
||||||||||||||||
Dedicated |
( |
) | ||||||||||||||
Managed Freight |
( |
) | ||||||||||||||
Warehousing |
( |
) | ||||||||||||||
Total customer relationships: |
( |
) | ||||||||||||||
Total other intangible assets |
$ | $ | ( |
) | $ |
(in thousands) |
December 31, 2021 |
|||||||||||||||
Gross intangible assets |
Accumulated amortization |
Net intangible assets |
Remaining life (months) |
|||||||||||||
Trade name: |
||||||||||||||||
Dedicated |
$ | $ | ( |
) | $ | |||||||||||
Managed Freight |
( |
) | ||||||||||||||
Warehousing |
( |
) | ||||||||||||||
Total trade name |
( |
) | - | |||||||||||||
Customer relationships: |
||||||||||||||||
Dedicated |
( |
) | ||||||||||||||
Managed Freight |
( |
) | ||||||||||||||
Warehousing |
( |
) | ||||||||||||||
Total customer relationships: |
( |
) | ||||||||||||||
Total other intangible assets |
$ | $ | ( |
) | $ |
The carrying amount of goodwill increased to $
Note 14. |