We're back at the Three Part New York Conference. I'm Matt Hodges with Three Part Advisors. Next up is Covenant Logistics, ticker CVLG. Covenant is a $600 million market cap logistics service provider based in Chattanooga, Tennessee. Over the last several years, the company has undergone an operational transformation. The company is now much more diversified with a solid balance sheet and a strong management team, which we think makes it a compelling investment opportunity. Presenting today is Paul Bunn, President, and Tripp Grant, CFO. Gentlemen. Thank you. Yeah, thank you Yeah, thank you for your time. You know, since this is our first time at Three Part Advisors Conference and, you know, we've been in front of some of their—yeah, welcome. Thank you. We appreciate the Three Part team and, you know, this is our first time at any of their conferences, and we've done a couple of non-dual road shows with them. What I thought I would do is just start out, as Matt said, Paul Bunn, I'm President and up here today with Tripp Grant, our CFO, just give you a little bit about the Covenant story. Because I think the best thing is if you got to know a little bit about our history and the transformation that Matt mentioned, it'll help you get an understanding and appreciation of kind of where we're going. The company will be 40 years old in the next—actually, at the beginning of the year. Our founder started—you know, left a position and started forming the company 40 years ago, actually, next month, and incorporated it January 1 of 1986. For the last probably 35, 36 years, the company was predominantly a team-based, so two drivers in a truck, long-haul transportation company. As our founder and CEO got in his early 60s, he was tired of the cyclicality. The highs were really high, the lows were really low. It was a very commoditized environment. One day he got some of the management team together and said, "I want to figure out how to get deeper in the supply chain. I don't even really know what that means. So y'all figure it out." You know, kind of challenged us to figure it out. From there, we did an acquisition in 2018 of a company called LandAir that got us in the dedicated and warehousing space. At that point, 2018 was the best year in the company's history. You know, everybody was high-fiving and having a good time. Great acquisition, great freight year, things are going well. In 2019, from a cyclicality standpoint, the market pulled back. We went from, you know, the high highs of the best year at that point in company history to, you know, not near as well. That year we embarked on a really in-depth strategic plan. That plan really was a—I'll call it a glassbreaker type plan, challenge any of the sacred cows. It was tough from a lot of perspectives. We had this list of kind of strategic priorities in the early part of 2020. Everybody remembers what happened in March of 2020 with the COVID pandemic. We made a decision early on in the pandemic to just keep on the plan and just push through as opposed to hit the pause button. We went into the pandemic and levered about 3.7x on our EBITDA. It came out about 18 months later, 0.2x levered. Basically, a lot of people are like, "How did y'all do that?" You know, just in the midst of the pandemic. The first one was we changed out a lot of the management team. I have been there 16 years, Tripp's been there six years, and I've had various roles in the financial function. We changed out a number of the management team members during that time frame. The biggest thing was around getting rid of those sacred cows and really, you know, less overhead and people more focused on this new plan, kind of getting on board. New management team. The second part was unlocking the value of the balance sheet. We had a lot of unproductive assets or lower performing assets that just needed to either be spurred along or disposed of to create capital to do other things. New management team, unlocking the value of the balance sheet, and then taking that capital when we got down to 0.2x levered, we saw some things that were happening in the business and the execution of the strategic plan. The market did not. Our CEO coined another one of his infamous phrases, and it was, "Hey, somebody's going to love us. Either Wall Street's going to love us or we're going to love ourselves." Over about a 12-month period, we bought back about 25% of the public float and then still had a lot of dry powder and went on to doing some accretive M&A. Again, new management team, number one. Number two, unlock the value of the balance sheet. Then three, using that capital through the share repurchases and then accretive M&A. At the same time, trying to refine the legacy business focused on return on invested capital and trying to get out of commoditized businesses. I would say our playbook, we're in the middle of our strategic planning exercise today. A lot of the playbook is the same that it has been for the last four years and, you know, continuing to focus on the management team, unlocking the balance sheet. For the most part, those are done. It is really continuing to look at how do we use the capital that is spun out of the business. We have got $70 million - $80 million of free cash flow a year after maintenance CapEx, dividends, and to put towards something, either accretive M&A, share repurchases, or other uses of capital that may come up. How do we continue to refine the existing business and then use the capital in the ways we have used it before? You know, looking back, and Tripp has it on the slide, 10 years ago, we were a 100% asset-based business. Now we are kind of 65% asset-based, 35% kind of asset-light business. We like that, but, you know, I think in the next three to five years, we can probably be more of a 50-50, 50% asset-based, 50% asset-light. Eventually, hopefully that will get priced into the valuation of the company. You can see we're doing more with less. Tripp tells a story. At one point, at our peak, we got up to 4,000 trucks. We're making four times today with 2,500 trucks what we used to make with 4,000 trucks. That's just a, you know, that's less risk, better return on invested capital. Tripp, hit the next slide if you don't mind. The big story is, and you know, Tripp had the slide that went all the way back to 1986, coming to 2024 here, is this, you know, in the last three to four years, this is a totally different management team, totally different company, and a totally different set of results than what the history would show you. I like to tell folks the stat, if you just downloaded our stock price in Excel from January 1, 2000, to December 31, 2021, and just did a straight average, it'd be about $7, $7.25 a share, a low of about $0.36 during the 2008-2009 financial crisis and a high of about $16 in around that 2018 period. So think low in the pennies, high, you know, $16. If I average the last 24 months, you're going to get about a $24 - $25 share price. You know, trading at, you know, significant multiples of where we were historically because of this new plan. That being said, we still traded at a really steep discount to our peer companies in this trough environment, which is hence why we believe just continuing to execute on the plan, continuing to execute on the values-based business. I mean, our founder and his wife founded a faith-based business 40 years ago, and we continue to try to do things the right way, operate with honesty and integrity in all things we do. Just stay true to our culture, continue to work on this new business model with this new team, and we're really excited about the future. You know, a little bit more about the segments. We operate in four main verticals. The expedited segment is just for those that don't know much about transportation. I know there's a lot of generalists that are looking at this today. It's two drivers in a truck, very high service standards. And that's anything from the linehaul for LTL companies and freight forwarders, air freight companies that, you know, it's a really time-definite need to fresh organic produce coming to the Midwest, Southeast, and Northeast from California, where it being on refrigerated teams picks up a significant amount of shelf life. That's kind of the historic business in expedited. The bolt-on business that we did in 2022 is a business that hauls ammunition and explosives for the Department of Defense. And so a really high margin, high barrier to entry business. And there's some synergies in how we feed drivers between the two that make expedited, you know, what it is from the dedicated business. That is, as it says, where the truck is dedicated generally to one customer. Think of a customer outsourcing a private fleet, wanting control over the trucks, not, you know, you're getting paid more on a revenue per truck per week or a fixed variable type billing model, not as much a rate per mile. That business is a business that we had a little bit of pre-2018, grew in 2018 with the LandAir acquisition, and then again with the Lou Thompson acquisition in 2023. Today that business is about 50% poultry, so live haul and feed. Specialty driver, specialty truck, specialty service requirement. I mean, here's the on the live birds, getting them to the plants. You can't get them if you get them there too early, you get shrinkage and just humane treatment of animal issues. If you get them there too late, you got a large plant of a large production facility many times that have 500 - 800 employees that sit in there idle. You wouldn't think there's a lot of time service needs around live chickens, but there are. The feed, same kind of thing. The chickens have to be fed. You can't let the bins run out of food. We basically work everywhere from California to the Carolinas and everywhere in between. We've taken what was a business that we bought, a 220 truck business in April of 2023, and it's about 660 trucks today. We've got a line of sight into about 1,000 trucks over the next few years. Got a really good pipeline there. Dedicated is about 50% poultry, 50% other. The other is a lot of CPG type companies, chemical companies, and other folks in the industrial space. The managed freight, that's where we use technology and our people and other third parties' trucks to move freight. That is more of an asset-light model. I would say a large piece of that today is overflow freight from our expedited and dedicated customers. Once you acquire the customers and the asset footprint, there are certain businesses that just do not make sense for our network, and they allow us to broker that on our managed freight business. Then our warehousing business is another one of our asset-light businesses. We have got pushing 5 million sq ft of warehousing from California to Pennsylvania to Atlanta, Georgia, Columbus, Ohio, everywhere in between. Most of our warehousing in that space is contract warehousing, and it is longer term in nature. The customers are the likes of John Deere, Colgate, Mars, U.S. Marine Corps, Delta Air Lines, very blue chip customer base. In every one of those instances, there's also a tie to at least one of our other transportation verticals. We are able to cross-sell, you know, whether it's port drayage, shuttle and switching work, dedicated, or even sometimes expedited with those warehousing customers. We call it asset-light because we do not own the real estate. We take down leases on facilities, co-terminus with the customer arrangements. That way we are not exposed on the piece of real estate if a customer wants to move location, change their footprint, they need more space, they need less space at the end of the term. Those are generally three- to five-year deals. Again, there are renewal options on the real estate. If they want to stay, we have the ability to stay in the space with some known cost profiles. If they want to exit, then we're able to, you know, let them exit, either move to a different geography or a different size space. It gives the customer flexibility as well. In addition to our four main consolidated business segments, we have an equity method investment that is an unconsolidated affiliate that's below the line. It's a company called Transport Enterprise Leasing. It's been a really good investment for us. They are an equipment leasing company that, in addition to leasing equipment, also buys and sells used equipment, not only Covenant's used equipment, but also for third parties. You know, they represent on any given year 15% - 20% of our earnings per share. Again, it's a neat investment. We bought in 2011 that has had significant growth and has been very accretive to our earnings over time. Tripp, what other slides would you like us to hit? And, you know, cycle. Everybody asks us about the cycle. We're in a trough. Transportation is in a freight recession. You know, it's arguable where the total economy is, but I think everybody for the last three years, the economy has been in relatively good shape. The freight economy has not been in good shape. There was way too much supply created during the pandemic in 2021 and 2022 when, you know, there were all the supply chain bottlenecks. And then as the supply chain righted itself, as the supply chain righted itself, you had too much trucks chasing too little freight. And so it caused rate reduction. Our earnings and results have held up, I would say, based on industry analysts and different bankers and whatnot. Ours have held up better than anybody in the industry. A lot of it has to do with us trying to be less of a commoditized player. Our goal is not to be in the OTR trucking space. It's, you know, where we can have a specialty truck, specialty trailer, specialty driver, specialty service type. That's where we aim to play. We also diversified, you know, into the, again, the warehousing space, the asset-light business, equipment leasing. You know, we've got the four consolidated verticals and the one unconsolidated vertical. The combination of those and the strategic change in 2020 have allowed our earnings to hold up really well compared to the peer group over the last three years. That said, we still think there's plenty of upside for our results and the stock price in the future as we just continue to execute the playbook. You know, a question we get a lot, and I'll give this group since you guys were blessed us enough to come and see us today is, where are we at in the current trucking cycle? What's happened recently? This is from some, well, that's from Vertical, as I say, one of the investment banks that follows us. We were really concerned in April and early May of what may happen with the lack of boats coming from Asia into the West Coast and what that would do for freight networks, especially ours across the country. You know, I would tell you this is one of those places our CEO and I actually gave our employee base an update two days ago in a video message that we're glad we were wrong. At the end of the day, our outbound volume from California the last three weeks has been the best of any time in the past two years. I would tell this group, what do you attribute that to? I think there were a lot of people who responded to the supply chain issues that happened during COVID and, you know, increased their capacity of warehouses. I think a lot of your big companies got ahead of the tariffs. The supply chains have really changed now versus what they were pre-COVID. At least our customer base got ahead of it. I think given the nature of the things we're in, being relatively defensible, we have not seen that precipitous falloff that we were concerned about. If anything, we've seen a little bit of slight acceleration in volumes in the last few weeks. At the end of the day, as we tell our folks internally, things are still not robust. They're good. They're not great. You know, but thank the Lord they didn't slip into, you know, awful or something with some, you know, big air gap that everybody had predicted when the boats quit hitting the West Coast. You know, opportunities. I would say continuing to do a lot of the same stuff, just continuing to find businesses. You know, the businesses that we have acquired in the last few years have ranged anywhere from $2 million - $20 million in EBITDA. We look for businesses that we can significantly grow. We also, we're not looking for fixer-uppers. We're looking for businesses that have strong margin already. We've found we're more successful in growing already existing good businesses than trying to be turnaround folks. The poultry and ammunition, those are a couple of the larger examples. We've got some other ones. You know, the most recent one was a multi-stop furniture distributor or furniture transportation for a couple of the large manufacturers and industrial, not residential and industrial type furniture. You know, our goal again is just to continue down this capital allocation path, continue to focus on fixing what we can fix in the legacy businesses. If we can't fix it, see if we can liquidate it and get a use for capital somewhere else. Tripp, what's your next? You know, just recent results. We're about a $1 billion a year revenue company. You can see, you know, mid to high single digits from a margin perspective. I know a lot of folks ask when we meet, you know, we're about a $150 million EBITDA company, give or take. That does not include the earnings that come from the Transport Enterprise Leasing investment. That's separate. Maintenance CapEx is around $70 million a year on our fleet. Between dividends and other, you know, non-maintenance CapEx, that's about $10 million. You're kicking off around $70 million a year of free cash flow based on the current results. We currently do have an active share repurchase program in place that we announced in late April. Leverage is in that probably one and a half to two range, and that'll just be dependent upon a combination of earnings and how much of the share repurchase that we end up eating up. Yeah, I'll let Tripp, anything else you want to say, and then we'll open it up for questions. Thank you so much. By the way, I'm Tripp Grant. I'm the Chief Financial Officer. I've been with Covenant six years. I always like to tell this story because of the ironic nature of it. I spent 13 years prior to Covenant in consumer healthcare. I'm not sure how much of y'all follow consumer healthcare, but it is a lot better business and a lot better profit and a lot better cash flow, just about better of everything than transportation. The one thing I knew about transportation was that prior to coming over to Covenant, I did not like it. It was too hard, too cyclical, too capital intensive, all the stuff that can make a business poor. Long story short, a French company bought our consumer healthcare company, moved us up to New Jersey. I was born and raised in Chattanooga. Our former president at Chatham, the company I worked for, was on the board at Covenant and asked me to think about coming over to Covenant. I was like, "Bob, I love you, and I respect your opinion, but I really am not interested in transportation." My mind quickly changed as I started talking to Paul and David Parker, our founder. What I realized really quickly, so much of what you do is about the people you're surrounding yourself with and not necessarily industry. I was right 100% about the industry, but I came in at a great time. This strategic transformation was a lot of fun to be a part of, working with not just Paul and I and David, who's not here today, but the larger group. I would say the top 15 - 17, you know, managers or senior management in the company really, really works well together. I've seen that kind of be the intangible glue that's helped us accomplish what we've accomplished. You know, the other thing I would say, and I don't, I would say new, not necessarily younger, but it's the new generation has ushered in a new way of thinking, challenging the status quo, challenging the balance sheet, challenging sacred cows. I think that's, you know, one of the themes that, or one of the things that the team has brought to the table. I always get the question of like, well, why are you guys such a discount if you're performing so well? I think a couple of points I would say, and it's somewhat tying what Paul had said together, was that one, our story is new. We're a 40-year-old company, and we've only been kind of in this transformational process of which we're, it's always, I never want to say we've hit a finish line. It's always in process. We've transformed the company over the last five years. I still get a tremendous amount of questions from interested parties and investors or people who are close to the space. They set us down 10 years ago, they pick us up today, and they're like, what in the heck happened to Covenant? I have to, Paul and I will get on the phone with them and tell the story. We're a much different story that I don't think the street gets yet. You know, I heard it in 2022. They were saying, y'all are going to fall. Y'all have always fallen. We didn't. We're still performing best in class against all of the public peers, asset-based public peers. I would say, you know, now they're saying, you guys aren't going to rise when the freight economy, you know, swings the other way. I will say, we're looking forward to proving you wrong again. I think we've never been closer to the end of this freight down cycle than we have been. We're starting to see some things on the horizon that I think will be catalysts to improving the freight economy. I think that we've got a lot of operational leverage or dry powder kind of in our tank and are poised and ready for success in the upswing. The other thing I would just say is what makes us different. This is just observations I've had over the years of coming over from consumer healthcare to trucking. At one, I think we're not solely focused on growing to grow. It's capital. It's too expensive. It's too cyclical. Margins are too thin. It's really about growing the return on capital, making sure a balance sheet is working for you. I think that's been a huge kind of tailwind for us is us thinking about things a little bit differently than other truckers. If I've heard one trucker talk about how many trucks they've had and how much revenue they generate each year, it's crazy because nobody wants to talk about profit or capital returns. We are dead set focused on that in our strategic plan. That notion of looking at your balance sheet, challenging it, and holding, you know, capital as precious as you can has been a key tenet of ours. That was, and then, you know, I would say the playbook. I get this question a lot. Capital allocation playbook. We've been successful and the playbook has not changed. We're going to continue to grow and make our company better as we go through it. That's all I had. If there's any questions, we'll be happy to take them. All right. Say a little more about the company segment and where it's going. Yeah. Yeah. We bought the company in April of 2023. We bought it. It was running seated, probably 200 trucks, a $50 million business in freight line, top line revenue. Today, we're about 635 trucks. We liked it because of the specialized nature of it, the high service that Paul talked about. We felt like our operators were best in class and we could do a phenomenal job with not only taking that acquisition, but growing it into a larger geography, if you will, beyond what the previous owner was comfortable operating in. We've been very successful with that. You know, with higher service standards, more pitfalls, all kinds of different things, it creates a better margin opportunity. A lot of the growth we've had in that business is because it is hard for companies outside for higher carriers to come in and compete at a service level that meets that standard. We've grown from a couple of different ways. We've grown from when we acquired it to two different ways, primarily private fleet conversions. Those are the poultry companies that ran their own fleets, and they ran them very inefficiently. They would have, as an example, we did a large takeover private fleet conversion. I think they were running 140 tractors, 160 drivers. We're able to do it with 115 tractors and 120 drivers. We're just, that's what we do. We're in the transportation business. It'd be like us trying to get into the poultry business and growing chickens and turkeys. We're not going to do that. We can do things much more efficiently than those private fleets that went private when COVID happened as kind of a backlash decision when capacity tightened and they couldn't get the trucks they needed from for-hire carriers. The other avenue that we're growing in is just winning business from other customers based on our service standard. I would say 100% of our customers are saying that we are growing with on takeovers from other for-hire carriers. Our services are much better than other carriers out there. If we hold that at the forefront of everything that we're doing, growth and margin and profit and capital returns will take care of themselves. You know, at the forefront, being best in class service providers is where we're focused. I think we've got line of sight. If we're at 650 trucks today, I think we could be at 1,000 in the next couple of years, I would say. What does that throw on the growing? We don't really disclose it, but I would say it's very accretive to, let me just give you a range, somewhere between an 80 - 90 or 80 - 90 operating ratio. If our company enterprise is at a, you know, Q1, I think it was a 93.5 or something, it's very accretive to margin. You're putting 50,000-70,000 mi on a truck per year, so the capital lasts longer than in the expedited business where you're putting up to 200,000 mi on a truck per year. We like it. Short length of haul, drivers, driver retention seems to be good because it's more of a vocational job. They can get home, you know, on the weekends. They get to sleep in their own bed. Their loops are about 50 mi on average where they're going from a feed mill to the poultry or to the farm or to the farm to the production plant. It's very predictable. They drive the same roads, same routes, but do a lot of small loops. I'll say it. I'm sure the question answering. The growth from where we're at today to if we could get, I would say when we get that to 1,000 trucks is probably somewhere between $0.70 - $0.90 a share of our earnings from where we are today. What's the timeline? You know, it's, we've got line of sight. I mean, here's what Tripp, I'll give you a couple of history facts. Bought it, 220 something trucks. It's, I think Tripp's at 636 today. I know there's like a 40 truck bill starting up. Let's just call it, it'll be 750 by the end of the year, hopefully. I'd say to get another 250 trucks, I mean, 24 months maybe, somewhere between 18. You know, strong growth. Yeah. I mean, it's definitely a catalyst. If the rest of the business doesn't improve a nickel, which it will, just getting into a thousand trucks will kick off another $0.5 to a dollar a share. Are you trying to identify any of the verticals? Yes. We are. That's the thing about transportation, I think. The key to our success, I think, or any success that we've had is, we've come to the realization that 95% of this industry is commoditized stuff. We're trying to get into the 5%, which, if you take the industry as a whole, there's plenty enough for us to operate and be successful in that 5%. There are a few other areas that we're looking at. We haven't been real public about it, but there are some other areas that require specialty equipment, high service standards, high driver credentials, in addition to growing what we have. Because part of the success of our acquisition strategy, these companies that you're acquiring need something. A lot of times, you know, one of the big prerequisites is they've got to be able to grow. Lou Thompson, the poultry business, has grown faster than we anticipated. I modeled out something I thought was pretty aggressive. Conservative 15% a year, aggressive 30% a year. Then we doubled it within the next like 10 months of buying it. It was great. We didn't know how much pent-up demand there was for that space outside of the geographies of where they operated before. It's kind of a template. You're looking for good margin, specialty. Owners are willing to stay involved, not looking to just bolt, but looking to take some capital off the table and, you know, enter a stage of life where they're ready to, you know, back it down and just start backing it down, you know, a year at a time. We found that in that ammunition explosives business and with the poultry business, you found, you know, owners are willing to stay involved in a multi-year transition, but start turning the dial back, take capital off the table. You know, one of our kind of screening criteria a lot of times is are folks willing to have do an earn-out type structure. Because if folks are not willing to bet on, if they are not willing to put any money at risk on the future, you got to wonder, you know, why do we want to put that much money into it? I would say each of the last four acquisitions, we did one in kind of the ag space around the peanuts, cashews, pecans. We did another one we just did in the industrial furniture space. We did the poultry. Those two were very small, but very profitable. We bought them for good multiples. All, and then the poultry and the ammunition explosives, all of those have had earn-outs. You know, you're getting people who are wil ling to, they're willing to bet on their business, even in the likes of selling it to us. Can you share any numbers with us about the ammunition? Here's what I'd say. It is a, here's what I'd tell you about the ammunition explosives business. We bought the company. They were running, they had 25 trucks and we had 18 of them seated. A small company. Today, we're running about 45 trucks in that space. There's a lot of barriers to entry. To be a driver in for that business, you've got to have the same initial screening as you'd have to go to work for the FBI. Background checks, clearance, takes anywhere from three to six months to get one driver qualified, but you're trying to get two. And there's two people in the truck because of what they're hauling. They can't use the onboard communications devices like all the other truckers have for logs and tracking because they don't want people tracking these trucks and what's in them. It's a, there's a lot of barriers to entry to the business. I mean, you have to have a pristine safety quality, both for the company, the DOT number it's running over, extreme safety protocols and security protocols. The individual drivers have to make these really rigorous background checks. That is a business that, you know, it's an above average margin business, but I would say if I were to take our general fleet, only one out of about 400 drivers would be qualified to run in that. Very specialty job. The driver retention really varies a lot based on the driver job. Driver jobs where we get drivers home every night, like in this poultry space, 95% - 98% of those drivers, they sleep their head on their pillow in their bed every night. Driver retention in that space is, you know, 50%. You get something like this munitions, ammunition explosive space, the drivers are really highly qualified. I mean, they're true professionals. They're paid incredibly well. You know, it's 10% - 20% turnover. You get some of the more commoditized stuff where the drivers are gone three to five, six weeks at a time. You're probably around that 125% range on turnover. Thank you.