BB_T Conference Presentation - Covenant Transport Group by yantingting


									2013 BB&T Transportation Conference
             February 2013

 This presentation and discussion includes forward-looking statements within the
 meaning of the Private Securities Litigation reform Act of 1995. Words such as
 “expects,” “anticipates,” “intends,” “estimates,” or similar expressions are intended to
 identify these forward-looking statements. These statements are based on Covenant
 Transportation Group’s current plans and are not guarantees of future performance.
 These forward-looking statements are subject to risks and uncertainties that could
 cause actual results and the company’s plans and objectives to differ materially from
 those expressed in the forward-looking statements. Such risks and uncertainties are
 discussed further in Covenant Transportation Group’s reports and filings with the
 Securities and Exchange Commission.


David R. Parker – Chairman & CEO

Richard B. Cribbs – SVP & CFO

 Investment Summary
• Truckload carrier focused on targeted markets offering just-in-time and other
  premium transportation and logistics services including team expedited long-
  haul, refrigerated, regional and brokerage services
• Group operates about 2,900 tractors and 6,900 trailers
• Young average tractor age (12/31/12): 2.1 years (or 25 months)
• Utilize 8 full size terminals and 25+ drop yards
• Fiscal 2012 Revenue, including FSC: $674 Million
• Headquarters: Chattanooga, TN

Who/What is CTG
CTG is a holding company:

  • 3 Specialized Asset-Based Trucking Companies
     • Expedited (Covenant Transport - Chattanooga)
     • Regional (Star Transportation – Nashville)
     • Refrigerated (SRT - Texarkana)

  • 1 Non-Asset Based Brokerage & Logistics
     • Covenant Transport Solutions (Chattanooga)

  • 1 Equipment Sales & Leasing Company
     • Transport Enterprise Leasing (Chattanooga)


                    For more information, please visit:
Revenue Breakdown                          % of Total Revenue

                                  Trucks     2012    2013 est.
     Expedited    (Team & Solo)   1,140      45%       45%
     *Includes Reefer

     Dedicated                     360       11%        8%
                                  1,500      56%       53%

     Temperature Control          1,050      30%       32%

     Dedicated/Regional            350        9%        8%

     Brokerage/Logistics            0         5%        7%
                                  2,900                          6
            Targeted Premium
                  % of Total Revenue

Expedited                                        5%


                           Temperature Control
                      Tangible Book & Market Value/Share

$6.00                                                     $6.33                 $6.38         $5.76
                           $5.97           $6.01
        $5.85                                                                           At 2/10/13
$5.00   Tangible BV

$4.00                                      $3.74

                                                                   At 2/10/13, Market
        Market Value
                                                                   Value trading at only ≈
$2.00                                                              0.9 of Tangible Book
                                                                   Value vs. ≈ 1.3 – 1.4
                                                                   industry average (A)

        Dec-11             Mar-12         Jun-12          Sep-12               Dec-12

                        (A) Includes WERN, CGI, KNX, MRTN, PTSI, USAK, and CVTI
Truckload Industry Trends

            Industry Trends - Capacity
Capacity conclusions – Outlook for 2013
• Fleets still cautious about capacity expansion (Large TL fleets
  up 1.3% since Dec 2011, Small TL fleets even since Dec 2011)
• Fleets need to replace a significant amount of aged tractors in
  the next few years to come, if they can afford them (average
  industry age is now 6.6 years vs. CTG at 2.1 years)
• Government regulations will further limit capacity (Electronic
  logs, HOS, CSA rules)
• Driver shortage remains biggest problem for the future
• “If economy were to surprise on the upside, there simply
  wouldn’t be enough trucks on the road today to handle all of
  the freight” – Bob Costello, ATA’s Chief Economist
                Industry Trends - Pricing
• Many inflationary cost pressures to overcome
  •   Driver wages
  •   Equipment (tractors and trailers)
  •   Tires, vehicle replacement parts, maintenance
  •   Casualty insurance
  •   Regulations (CSA, EOBR, HOS, California CARB)

• Contract pricing began moving up in Q3-2010 and
  has not slowed
• Overall pricing for the large fleets should be up 2% to
  4% in 2013 over 2012

Q4-12 Highlights

            Where is our balance sheet?
             Assets = $400 million

               Liabilities =$305 million

               Equity =              $ 95 million
              Available Borrowing Capacity
              ≈$52.7 million on ABL revolver @12/31/12

Effective 12/31/12, amended Revolving Credit Facility to extend maturity date 3 years to
September 2017, provide increased availability of $15 million, added springing provision
to Fixed Charge Coverage Ratio covenant making it inoperative for the foreseeable
future and eliminate the Leverage Ratio covenant, improve pricing grid by ≈ 75 bps on
letters of credit and any outstanding loan balance.
CTG paid off $55 million of lease-adjusted debt during the 2012 fiscal year to reduce our
overall indebtedness to $242 million from $297 million at the end of fiscal 2011.
                    Q4-12 Overview
• Net income of $1.5 million or $0.10/share compared to net loss of $2.2
  million or ($0.05)/share in Q4-11
• Operating ratio improved by 280 basis points vs. year ago period to 96.3%
• Freight revenue per tractor increased 14% vs. Q4-11
• Average freight revenue per total mile increased 8% vs. Q4-11
• Improved utilization (miles/truck) by 6% vs. Q4-11
• 49% Transport Enterprise Leasing equity investment provided $650
  thousand of pretax income to CTG vs. $200 thousand in Q4-11

                 Q4-12 Overview
• Driver wages increased 3.2 cents per mile (“cpm”) through
improved driver pay in order to seat trucks
• Workers comp expense increased 1.6 cpm
• Casualty insurance expense increased 0.9 cpm
• Owner-operator cost per total mile increased 3.3 cpm as our
percentage of owner-op miles increased to 9.0% from 6.8%
• Fuel costs, net of surcharges, decreased 3.4 cpm, even with a
$0.15/gallon increase in the average DOE cost of fuel vs. Q4-11, as
impacted by greater % of owner-op miles as well as improved fuel
economy and maintained a disciplined fuel hedging strategy

2013 Goals
                        2013 Goals

• Sustain YOY Profitability in 1H’13 and Improve Profitability in
      • Continue rate/yield improvement initiative
      • Increase owner-operator % of fleet
      • Allocate capital to higher margin business units and reduce capital to
        under-performing business units
      • Improved full year results of previous years’ investments in new lanes and
        service offerings

  2013 Revenue Trends (Year-over-year)
  • Average fleet size growth of 1%-3%
  • Revenue per truck expected improvement from 5%-8%.
  • Utilization expected to improve 3%-5%
  • Rates/total mile expected to improve modestly up 2%-3%
• Cost Trends           2013 Goals
   • Targeted cost savings areas include:
            Driver retention
            Improved safety (accident frequency reduction)
            Reduced interest cost from amended credit facility
            Fuel cost, net of fuel surcharge trending down
                Better fuel surcharge recovery and improved fuel economy, as well as
                   benefit of increased owner-op percentage
    •   Higher driver wages and continued driver wage pressure
    •   Higher casualty insurance expense with no estimated insurance
        commutation gain in fiscal 2013 and elevating medical costs
    •   Increased owner-operator expense from planned expansion of
        owner-operator truck count (and overall percentage of fleet)
    • Higher capital costs (depreciation and operating leases) related to
      reduced gains on disposal from equipment and headwind of $2.4
      million gain on sale of terminal recorded in Q1-12, somewhat offset
      by reduced trailer count and reduced company-owned tractors
                            2013 Goals
• Long-Term Investments
     • Efficiency gains through technology and human capital
          TMW (fully integrated operations and financial system)
            Operational at Covenant subsidiary July 2011, SRT expected
            January 2014 – Now starting to see efficiency benefits in
            operations, driver analytics, back office consolidation
          Transport Enterprise Leasing expected to grow and contribute
            additional earnings in 2013
          Use of Franklin Covey’s 4 Disciplines of Execution (4DX)
            methodology to complete strategic initiatives
•   Solutions Brokerage Subsidiary
     • Growth strategy with additional service offerings and maturing fiscal
       2012 start-up operations

   With significant operating leverage, small changes in asset
   productivity can yield a significant impact
Estimated Annual Increase or Decrease in Freight Revenue and Operating Income
Attributable To:
(Dollars in thousands)
                                                                                 One Cent Change in            100 Basis Point
                                                     1% Change in                Rate Per Total Mile             Change in
                                                   Miles/Truck/Week                                            Operating Ratio
Freight revenue                                          $5,050                         $3,450                       N/A

Operating income                                         $1,500                         $3,450                     $5,020

  Disclaimer> In general, our miles per truck, rate per mile, and operating ratio are affected by industry-wide freight volumes,
  industry-wide trucking capacity, and the competitive environment, which factors are beyond our control. Estimates are not
  reflective of the current beliefs or expectations of our management as to future results and are inherently subject to risks and
  uncertainties. Please see the "DISCLOSURE STATEMENT” attached hereto and refer to the various disclosures by the Company
  in its press releases, stockholder reports, and filings with the Securities and Exchange Commission.


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