Los Angeles Transportation Club David R. Parker, Chairman & CEO Covenant Transportation Group
DISCLOSURE STATEMENT This presentation and discussion includes forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995. Words such as “expects,” “anticipates,” “intends,” “estimates,” or similar expressions are intended to identify these forward-looking statements. These statements are based on Covenant Transportation Group’s current plans and are not guarantees of future performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results and the company’s plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties are discussed further in Covenant Transportation Group’s reports and filings with the Securities and Exchange Commission. 1
Topics • Company Summary • U.S. Economy • Consumers • Industrial • Truckload Industry Trends • Supply/Demand • Capacity • Fuel • Equipment • Pricing • Summary • Questions 2
Company Summary • Group of companies focused on targeted markets offering just-in-time and other premium transportation and logistics services including team expedited long-haul, refrigerated, regional, event, brokerage, factoring, tractor/trailer sales, and equipment leasing services • Group operates about 2,775 tractors and 6,800 trailers • Young average tractor age (5/31/13): 2.1 years (or 25.3 mos) • Utilize 8 full size terminals and 21 drop yards • Focused on providing exceptional service to our customers • Fiscal 2012 Revenue, including FSC: $674 Million • Headquarters: Chattanooga, TN • NASDAQ GS: CVTI 3
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 • Covenant Transport Solutions (Chattanooga) • 1 Equipment Leasing Company • Transport Enterprise Leasing (Chattanooga) 4 For more information, please visit: www.ctgcompanies.com
Do You Know My Reps? Cindy West Covers Southern CA & AZ wescin@covenanttransport.com Mark Pare’ Covers Northern CA, OR, WA, UT ,Vegas and the Kansas City Area parmar@covenanttransport.com Kent Wickham Covers the Western Region wicken@southernref.com 5
U.S. Economy 6
Economy – GDP Real Gross Domestic Product (quarterly, annualized rate percent change, 2005 dollars) 2010 – Q4 2013 6% 2012 2013 Real GDP +2.2% +2.5% 4% Growth Potential 2% 0% -2% 2010 2011 2012 2013 Sources: BEA and ATA
Economy - Consumers Consumer Spending on Goods Year-over-Year Billions 2012 2013 Percent Change $4,000 10% Goods Spending +4.3% +2.9% 8% $3,900 (Current $) 6% $3,800 4% $3,700 2% $3,600 0% $3,500 -2% $3,400 -4% $3,300 -6% Goods Consumer Spending $3,200 -8% (Seasonally Adjusted $3,100 Annualized Rates) -10% $3,000 -12% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Departm ent of Com m erce & ATA
Economy – Consumers U.S Unemployment Rate 2012 2013 13% 600 Change in Jobs Employment (Avg./month) 181k 196k 12% (Thousands) 400 Rate 8.1% 7.6% 11% 200 10% 0 9% -200 8% Unemployment Rate -400 7% -600 6% -800 5% 4% -1000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Departm ent of Labor & ATA
Economy - Consumers Crude Oil Prices – I m pact? W TI , US$ per Barrel $ 1 1 0 $ 1 0 0 $ 9 0 $ 8 0 $ 7 0 $ 6 0 $ 5 0 $ 4 0 $ 3 0 $ 2 0 $ 1 0 $ 0 2 0 03 2 0 04 2 0 05 2 0 06 2 0 07 2 0 08 2 0 09 2 0 10 2 0 11 2 0 12 2 0 13 10 Source: I HS Global I nsight
Economy - Industrial Housing Is Turning the Corner Millions of Starts Year-over-Year (Single & Multi-family) 60% 2012 2013 Percent Change 2.8 (Speed) Housing 781,000 970,000 Starts (+28%) (+35%) 40% 2.3 20% 1.8 0% 1.3 -20% Level (Direction) 0.8 -40% 0.3 -60% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Census Bureau & ATA
Good Auto Production but Yr/Yr Changes Moderate Yearly changes in auto N.A. Auto Production (M) production moderate 18 in 2013 16.5 15.8 16 Three straight years 13.4 with annual 14 11.9 production increases 12 above 1.5M units 10 8.8 Now good absolute 8 numbers, but slower unit growth 6 2009 2010 2011 2012 2013E Source: BB&TCM; Bloomberg
Truckload Industry Trends 13
TL Supply vs Demand 2005 = 100 110 105 TL Loads Index 100 TL Tractor 95 Count Index 90 Through March 2013 85 Oversupply 80 Source: ATA
LTL Supply vs Demand 2005 = 100 120 115 110 LTL Tractor 105 Count Index 100 95 90 85 Through March 2013 80 75 70 Oversupply 65 LTL Shipments Index 60 Source: ATA
Changes in Loads by Sector (Q1 2013 vs Q1 2012; Seasonally Adjusted) 10% 7.5% 6.8% 6.6% Why? 6.1% 5% 3.1% 1.3% 0% No Spring -3.5% -5% Dry Van Flatbed Temp Tank TL LTL DAT Spot Controlled Intermodal Market Loads Sources: ATA and DAT.com Notes: ATA’s data is a mix of contract freight and spot market. Tank includes bulk and liquid freight.
Bottom Line on Capacity Carrier Fleet Tighter Capacity Reductions 17 Source: ATA
TL Dry Van Carriers: Not As Many Carriers as You Might Think ~600,000 fleets with operating authority, but... • 406,000* can be eliminated due to oddball categories • 70% of the remaining 194,000 operate Class 3-7 trucks • This leaves 58,000 fleets • Approximately 30% of those are private or “not-for-hire” fleets • Of the 41,000 remaining fleets, 58% are dry van • More than half of those 24,000 fleets operate 5 or fewer trucks • About 8,000–10,000 fleets are in the dry van, for-hire market • with more than 5 trucks Top 250 control approximately 35%–45% of the trucks • *Excludes selected categories (migrant, unspecified, US mail, exempt, government, Indian tribe, private property, private passenger bus, private non-passenger bus, road repair and “other” classifications totaling 406,000 fleets) that do not compete in the OTR truckload market Source: ATA, Federal Motor Carrier Safety Administration; Office of Motor Carriers; BB&TCM
Capacity Changes (Percent Change in the Number of Company & IC Tractors) 5% 1.0% 0.6% 0% -0.8% -5% -5.0% -10% -8.3% -15% From Q1 2012 -15.0% -20% From Dec 2007 Small TLs have $30 million or less in annual revenue. -25% Large TLs Small TLs LTLs Source: ATA
Costs and Mileage Productivity–Difficult Trends 2008 2009 2010 2011 2012 Carrier costs per mile (excluding fuel expenses) $1.152 $1.116 $1.20 have risen 12.6% since 2008 $1.062 $1.046 $1.020 $1.10 Numerous fleets have bought $1.00 used tractors and trailers to $0.90 offset the higher costs of new Carrier Costs per Mile (Excluding equipment Fuel) Annual cost inflation has averaged 3.02% Monthly Miles per Truck However, driver wages fell in 12,500 10,946 2009 and were flat in 2010 8,926 10,000 8,250 8,080 7,791 7,604 Driver pay and benefits have 7,500 been increasing since 2010 5,000 and could be entering a highly 2007 2008 2009 2010 2011 2012 inflationary period Source: BB&TCM estimates; ATA Atri division
Tractors: $40,000 More Expensive Since ‘01 but Nothing Added to Residuals; Late-Model Equipment Shortage Will Hurt Many Carriers Lots of late-model used trucks in last $140,000 two downturns; fewer now $125,000 $120,000 5 years, not 4 902,466 1,000,000 $100,000 900,000 $84,210 719,233 Value After 1 Year* 862,082 $80,000 800,000 700,000 $60,000 $87,000 $57,000 600,000 $40,000 500,000 400,000 $20,000 300,000 200,000 $0 1990 2000 2002 2004 2006 2008 2010 2012 100,000 1997- 2003- 2008- Average Selling Price 3-Year Residual Value 2000 2006 2012 4-Year Average Residual *First-year D&A is ~ $38,000, meaning value is $87K after one year. U.S. Class 8 Tractor Sales Sources: Tractor values from Navistar from 2000-2010; from BB&TCM for 1990, 1995, and 2012; Class 8 tractor sales from A.C.T. Research.
Maintenance Costs per Mile Rising, Even for “Young-ish” Fleets Carrier B: 100 OR; Debt- laden Carrier A: Good OR, No Debt $0.26 $0.25 $0.24 $0.21 $0.22 $0.21 $0.20 $0.19 $0.20 $0.20 $0.18 $0.18 $0.15 $0.15 $0.16 $0.16 $0.11 $0.10 $0.14 $0.10 $0.12 $0.11 $0.10 $0.05 2000 2003 2006 2009 2012 2000 2003 2006 2009 2012 Maintenance Costs per Mile Maintenance Costs per Mile Carrier A has >5,000 tractors, Carrier B has ~2,000. Carrier A does not provide trailer ages; Carrier B average trailer age was 3 yrs in 2006; 5.9 at end of 2011; 6.4 at end of 2012. Source: Carrier data.
Productivity Down, Rates up Modestly, Input Costs Up 225 200 175 Annual Miles per Tractor (Productivity) 150 New Class 8 Tractor 125 Price (Input Cost) 100 Tractor/Trailer Price (Input Cost) 75 Avg RPLM (Payment) 50 25 Analysis of a composite of 5 carriers. 0 Trailer tractor ratio was 1.7; 2.0; 1990 1995 2000 2005 2010 2.5; 2.8 and 2.5, respectively. All four data figures began at 100.0 in 1990. Source: BB&TCM analysis;
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