Welcome to today's Covenant Logistics Group first-quarter earnings release conference call. Our host for today's call is Tripp Grant. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host. Mr. Grant, you may begin. Yeah, thank you. Good morning, everyone, and welcome to the Covenant Logistics Group first quarter 2024 conference call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings and most recent risk factors. We undertake no obligation to publicly update or revise any forward-looking statements. A copy of the prepared comments and additional financial information is available on our website at www.covenantlogistics.com/investors. I'm joined on the call today by David Parker and Paul Bunn. We were pleased with our first quarter's operational results despite the lingering weakness in the overall freight environment and the severe weather that challenged us early in the quarter. Compared to a year ago, consolidated freight revenue increased by approximately $14.3 million or 6.1%. While each of our business segments grew freight revenue, the asset-based segments consisting of Expedited and Dedicated were the primary contributors with growth in the average tractor fleet and improved utilization compared to a year ago. Adjusted operating income increased approximately $2.2 million or 17.3% compared to the prior year quarter. Our asset-light segments consisting of Managed Freight and Warehousing grew adjusted operating income by a combined $3.3 million, partially offset by $1.1 million of reduced adjusted operating income from our asset-based segments. Compared to the prior period, increased interest expense of $2.6 million and reduced pre-tax income from our equipment leasing company investment, TEL, of $2.3 million resulted in a decline in adjusted net income of approximately $9.7 million to $11.6 million. Key highlights include: all four of our reportable operating segments were successful in growing freight revenue compared to the prior year quarter. Our combined truckload segments navigated difficult weather conditions and improved utilization by 5.4% compared to a year ago, partially offsetting the impact of rate reductions of approximately 1.7%. We successfully executed two new startups in our Dedicated fleet during the quarter and added to the pipeline of new customers in our expedited fleet. Our net capital investment for revenue-producing equipment was approximately $12 million for the quarter, consisting primarily of specialized equipment CapEx for poultry-related growth. The average age of our fleet on March 31st improved to 21 months compared to 26 months a year ago. Within our combined truckload segments, compared to the prior year, operations and maintenance-related expenses declined by $0.07 per total mile or 27%. Fixed equipment-related costs, including lease revenue equipment expenses, depreciations, and gains on sale, increased $0.09 per total mile or 25% as a result of operating newer, more costly equipment in a soft-used equipment market. The sale of revenue equipment resulted in a $0.7 million loss in the quarter compared to a $1.1 million gain in the prior year. TEL produced $0.20 per diluted share compared to $0.31 per diluted share versus the year-ago period. TEL's contribution to pre-tax net earnings declined primarily as a result of the year-over-year softening in the used equipment market, suppressing gains on sale. Our net indebtedness as of March 31st was $252.1 million, yielding an adjusted leverage ratio of approximately 2.1x and debt-to-capital ratio of 38.2%. On an adjusted basis, return on average invested capital was 8.3% for the current quarter versus 14.8% in the prior year. The decline is attributable to reduced year-over-year trailing 12-month operating income, particularly from our asset-light Managed Freight segment, and the increase in the average invested capital base associated with acquisitions, growth CapEx, and reducing the average age of our fleet. Now Paul will provide a little more color on the items affecting the individual business segments. Thanks, Tripp. Expedited performed well in a seasonally soft quarter compounded by severe inclement weather, yielding a 93.9% adjusted operating ratio. In this segment, rates have declined by approximately 5% as a result of the rate reset in the second quarter of 2023, but utilization has improved approximately 7%. The improvement in utilization was principally attributable to more engineered routes and newer equipment in the fleet with less downtime. Dedicated reflected another success story, yielding a 93.5% adjusted OR and successfully executing on two key customer startups during the quarter. Over the past three years, we have worked hard to improve the profitability in this segment by exiting unprofitable business and adding profitable business. This weed-and-feed approach has been uneven but over time has served us well in deploying capital towards opportunities that meet our profitability and return requirements. We are pleased with the year-over-year improvement to adjusted margin and expect to continue to improve upon this segment's size and profitability over the longer term. Managed Freight experienced a 3% increase in freight revenue and a 102% increase in adjusted operating profit. The significant improvement in adjusted operating profit was primarily the result of a large cargo-related claim in 2023. The brokerage environment remains highly competitive, with numerous brokers aggressively competing for volumes at the expense of margin. We anticipate continued margin pressure in this environment. Our Warehouse segment saw a 4% increase in revenue and a 795% increase in adjusted operating profit compared to the prior year as a result of stabilizing labor market, where employee retention has improved and the cost of labor is no longer outpacing the rate at which we can capture rate increases from our customers. Our minority investment in TEL contributed pre-tax income of $3.7 million for the quarter compared to $5.9 million in the prior period. The decrease was largely due to continued deterioration in the equipment market, suppressing gains on sale of used equipment. TEL's revenue in the quarter declined 14%, and pre-tax net income decreased by approximately 35% versus the first quarter of 2023. TEL decreased its truck fleet in the quarter versus a year ago by 119 trucks to 2,082 and reduced its trailer fleet by 292 to 6,824. Regarding our outlook for the future: despite the continuation of a soft freight market, we remain optimistic about our model as a result of the durability of our earnings for the past six quarters and the positive momentum we have taken with us into the second quarter in the form of a strong pipeline of new customers in our Expedited segment, fleet growth in our Dedicated segment, operational efficiencies that come with a young fleet, and improved margins in our Warehousing segment. We anticipate adjusted operating income growth from our core operations to sequentially improve each quarter as we execute throughout the year. Although much of this growth will be offset by higher interest costs and reduced earnings contributions from TEL, we are excited about the direction the company is headed. Thank you for your time, and we will now open up the call for questions. If you would like to ask a question, please press star one on your telephone keypad now. You'll be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star one on your phone now. Our first question today comes from Daniel Imbro with Stephens Inc. Hey, guys. This is Reed Seay for Daniel. Thanks for taking our questions. Firstly, rate per mile was better sequentially than some of your peers came out with. Can you walk us through some of the puts and takes of that result and what you would primarily attribute that to compared to others in the space? Hey, Reed. It's Paul. I would attribute it to our Expedited business has a lot of long-term contracts in it, and so we really have a very limited amount of exposure in the spot market. And then, of course, Dedicated is Dedicated in nature. So I think it's probably due to less spot market exposure than most and a lot more contractual business and contractual business with multi-year terms. One of the things that I would tell you is we made a strategic decision in 2021 and 2022 not to probably take as full advantage of the market as we could and really try to partner with accounts that had been good to us and that we thought would help stabilize our earnings going forward. And so there's probably some trade-offs in lost opportunity, and especially the 2022 market, for more stable results than what we saw in 2023 and 2024. And that's really kind of how we're shaping the business model in the company to try to get out of the peaks and valleys and work with folks we can produce value and make a profit in good market or bad. Yep. No, makes total sense. Kind of along the same vein, we have heard talk of some shippers pulling forward some contract renewals to earlier in the year. Have you seen some of that or maybe just some color around how contract repricing is progressing would be helpful? Yeah, I would say we're pretty much through all of our contracts. I think we've got one of any significance left. And so a lot of those went into effect April, May, some of them in March, some of them in January. So we're pretty much through that process. As I said, one or two more left, but nothing really pulling forward from the end of the year. And so it should be relatively steady sailing from here on out. All right. Perfect. I think that's it from us. Thanks, guys. Thanks, Reed. Our next question will come from Scott Group with Wolfe Research. Hey, guys. Thanks. Good morning. I know just less exposure, obviously, to spot, but just curious your views on cycle and demand trends so far in Q2 and where we are. Are we at the bottom? Is it getting any better yet? Just any thoughts. Yeah, Scott, I'll start it out, and if David wants to add to it. I mean, I think we continue to bounce along the bottom, and we just continue to bounce along the bottom. I think if you think back to 2017, 2018, 2019, the pandemic, everybody had gotten used to the spikes up and the spikes down. It'd kind of gotten spiky and not real U-shaped. And this reminds me of kind of coming out of 2008, 2009. And it's kind of one of those longer recoveries that is probably a little more historically accurate, more U-shaped, longer-term recovery. And I mean, I really don't see with what costs are doing out there. I mean, there are still some companies out there really trying to test the market, but there's not much more the thing can go down with where costs are. People will start parking trucks or downsizing fleets or whatever because it doesn't make sense to take the risk we take in this business to lose money. And so I think we're at the bottom, bouncing along it. And I think the million-dollar question is when enough capacity exits to kind of start heading the other direction. You talked about multi-year contracts. What percentage of that was that as well, I guess? Was that a Dedicated comment, or was that an Expedited comment as well? Both. Both. I would say probably roughly half of Expedited business, 50%-60%, is under multi-year agreements. We've renewed a couple of those thus far this year for additional multi-year agreements, which shows the partnership, again, that we've created with some of these accounts that as I said earlier, we could have really made a lot more money in 2022 and 2021 than we did. But we treated some partner customers right, and they're treating us right through this. And really, I think some of our more niche value-added service offerings, they appreciate the value we create on more than just hauling their freight and some other things we do to really try to make sure we're there for them. And so, yeah, we've renewed multi-year contracts in the first quarter that'll protect some of that business for the years to come in the Expedited space. And then, of course, Dedicated is like most other folks, Dedicated, except for the poultry business and a lot of that stuff's on, I would say, a little longer than normal-term Dedicated contracts. So as you're repricing these multi-year contracts, would you call them are they above market right now or below? Meaning, when you're repricing, are you getting rate increases, or are rates coming down on those? I would say flattish. So yeah, on those multi-year deals, on multi-year deals, we're not taking we're not going backwards because with our costs, it just doesn't make sense. But there's not a lot of there's not a lot of ability to get a significant amount of rate in this market. But a number of those have escalators and out-years and ways where we can go back and retrade with the customers for some incremental ups and downs based on what indices or costs do. But if you've got a good, solid customer that's been with you for a long time and you're making a fair margin, as long as you have a way to adjust it, if your costs go up or down, you should keep making that margin. Yeah, makes sense. And then just last question. I think last quarter, you talked about earnings this year flat to positive. I don't know, just any thoughts, any update? I'd say we're still, that's what we're still targeting. We're still pushing hard every day to make that happen. And I think Tripp said in his comments where we think we'll see sequential improvement every quarter from where we were this quarter. It's going to be a push to get back to where we were last year or maybe grow them incrementally. But I think the market will dictate whether or not we can, whether or not we can grow them. But we're working really hard to get something with a four in front of it. Yeah, I'd agree with that. But Scott, just to add on to that, the thing I'm most proud about is the fact that the base business is growing. And I think we can off if we look year-over-year, I think we can grow operating income year-over-year. But some of the things that have hindered the P&L this year, whether it's TEL or whether it's interest expense, those are going to be a little bit of a, I said, bigger headwind, I would say, year-over-year. So it's kind of going to be offsetting those earnings a little bit but not significantly, I would say, so. Makes sense. All right. Thank you, guys. Appreciate the time. Thanks, Scott. As a reminder, if you would like to ask a question, please signal by pressing star one at this time. We'll move to our next question from Elliot Alper with TD Cowen. Great. Thank you. This is Elliot Alper with Jason Seidel. Wanted to ask about Dedicated tractor count going forward. Stepped up sequentially in the first quarter. How should we think about that going forward? I mean, similar to some other questions we've been hearing about new shippers stepping into Dedicated to lock in some rates given the current environment, I guess, are you guys seeing this at all and expect any pricing pressure there from new business? Yeah, I mean, there's definitely a lot of one-way guys trying to get in and do Dedicated given the market. Let me answer your first question, truck count. I think you'll see the truck count probably Q2, you'll see the truck count grow up a little bit. And then I don't have a lot of visibility past that. But Q2, the truck count will go up, and then I could see it flatlining for a little while because it's a tough market out there to add new business. And so we're going to keep working on the pipeline. Yeah, as far as new entrants, there's no doubt it's competitive out there. But we're still winning as much as we're losing. Okay, great. And then given the softness in the brokerage environment, I guess, how are you able to hold up Managed Freight margins so well? We've seen losses at other carriers. Curious to hear about your outperformance there. You spoke to some margin pressure going forward. I guess, should we think about that maybe similar to margins of second quarter of 2023? Yeah, probably similar to second and third and fourth quarter of last year. I mean, really, Elliot, what we're focusing on is making sure we're not out chasing this stuff so we're not trying to buy a bunch of freight with our brokerage to make ourselves feel good about top-line revenue and lose money. And so if we can help a customer and make a little money on it, we're going to do it. But revenue, just for revenue's sake, in our world, don't make a lot of sense. And so we're just managing our overhead and trying to make sure, can we make a scrape on what we're doing and not chasing stuff to the bottom of the barrel? Thank you, guys. Now, next question will come from Jeff Kaufman with Vertical Research Partners. Thank you very much. Congratulations on a terrific quarter and a very challenging freight environment. I want to follow up on the last question and maybe look beyond the next quarter or two. I know we tend to manage the business in the short term sometimes. But you mentioned the tow new Dedicated startups and the changing face of Dedicated with Lew Thompson. As we look out two years, three years, can you talk about what this means for the Dedicated franchise? And is tractor really the right way to think about growth since some of this new business is shorter haul? Should we really be thinking about miles? And then what could that growth curve look like in a normal environment for, let's say, 24 months, 36 months out? Yeah, Jeff, this is Tripp. One, we're very pleased with the way that Lew Thompson has performed over the last 12 months. In fact, Friday will be the 12-month anniversary of the acquisition, and it has been nothing short of a blessing for them and for us to be partners in this kind of work together. The teams have worked well together. The strategy is working. We've experienced a lot of tailwinds with some immediate growth that, quite honestly, we didn't even model when we were pursuing the acquisition prior to signing the documents. But here's what I would tell you. I do think the future is bright. I'd be hesitant to put some numbers two years, three years out. But I would say that I'm excited with what I've seen. But I would also say that our focus is more on the shorter term because this is such a high-service-oriented business, and it's something that we're new to. And Lou and Josh are kind of guiding us. We've got another really good operator out there that we've moved out there to help learn the business, and he's doing a great job. But we want to make sure that we continue that same standard of service for the previous existing customers and execute well on new startup businesses. So it doesn't sound good for me to say that we're focused on the short term, but it's absolutely critical for all of our team to be focused on that short-term growth, making sure every one of those happy or every one of those customers, whether new or pre-existing, continue to be happy with the level of service. We've got confidence that more growth will come. I do think that it is a good number. It's a number that I wouldn't want to publish or make public, but we're excited about what I would call the momentum that we're taking into 2024 and to 2025. Just to follow up if I can, tractor fleet down to, I think you said, 21 months. That's fantastic, and that's showing up in maintenance cost savings. But I guess, given the operating environment, you said fleet count up a little bit in Dedicated and then kind of leveling out. Is there any thought about shifting capital in this environment? You were talking about the pressure from interest expense in future quarters. Where is your debt relative to your goals and your targets? And does it make sense to shift some capital and maybe reduce that interest expense or no? No, not in my opinion. We've seen a lot of optimization in fuel economy and operational expenses tied to a newer fleet. There's no doubt about it. And yeah, service, driver satisfaction, driver retention, they all like operating younger fleets. And we've saw through the COVID process where there can be, I'm not predicting another COVID event, but there are disruptions to the supply chain. And so we have strategized and worked to lower our fleet count or lower the average age of our fleet because we feel like that gives us a total cost of ownership, the lowest total cost of ownership over the life of that asset. I also think if we were to have a disruption for whatever reason with obtaining new equipment, it gives us a little bit of an additional time before we start seeing service decline and higher maintenance costs and all of that. But I understand your point, and there are pockets. I mean, we don't just keep every truck for I'll just make up a number, 25 months or 28 months or whatever it is. We have different pockets of where different trade cycles based on how many miles the trucks are putting on them a year. And so we're actively looking at each one of those trucks and trying to optimize the pull from it and get the most out of it on the backside and manage it well. So it's not just depreciation expense, and I don't think it's debt. In terms of debt, where we are today, $250 million feels a little bit high. But if you look at some of the new business growth, I think you'll see a nice uptick in the run rate and EBITDA. So I think we'll start throwing off more cash in the future as this new growth takes off to help get the leverage profile down. We're not uncomfortable with 2x leverage. Now, if we were sitting here at 3x, we might be squirming a little bit. But we've never really stated that we ever want to be debt-free. But we may see this based on the plan today, I think you'll see the debt come down a little bit in the back half of the year. But it's nothing that gets us uncomfortable because we're, again, I think that's a little bit shortsighted looking at the interest costs and things like that. But I think that we're poised to take advantage with this younger fleet to take advantage of some new growth opportunities, hopefully, when this upcycle comes, not just in Lew Thompson but in other areas of the group. Jeff, let me add two things to what Tripp said. If you think about a lot of the business we've been adding is shorter length, which is added CapEx to fund the growth, is shorter length to haul business. So what you're going to see is a better free cash flow profile going forward, maybe incrementally, than where we've been because if you're in a higher-mile environment, you're having to flip the trucks out faster. In a shorter environment, as Tripp was saying, you're holding the trucks longer, and so you're able to generate more free cash flow. The other thing, just to think about around equipment, is we're only a couple of years away from that new engine technology being required by the EPA. And there's what's California going to do? What's the EPA going to do? There's a lot of rules and regulations out there that not only us but our whole industry is going to have to adjust to. But the new engine technology is probably the one that we're most sure is probably going to stick. And the numbers you hear engine manufacturers and truck manufacturers talk about, it'll be the largest price increases on trucks that this industry's ever seen. And so there's another side of buy trucks now when they're significantly cheaper than they're going to be 24 months from now. And while you can get them because to Tripp's point, there'll be a lot of people in the next 18 months, there'll be a lot of pre-buy activity, people trying to buy equipment before the significant increase because of the new engine technology. And we don't want to be sitting, we want to sit here with a young average age going into that, not raking and scraping to get every truck we need. So maybe that's just a little more color around your question. No, I appreciate that. I mean, we're hearing 25,000 more for truck. And my recollection when you're trying to fix NOx and particulates is the new vehicles don't always work better than the old vehicles. So I think those are very credible points. And thank you for the detailed response. Once again, if you would like to ask a question, please signal by pressing star one on your phone at this time. Once again, that's star one to ask a question. And there are no further questions at this time. And this will conclude today's conference call. Thank you for attending.