Welcome to today's Covenant Logistics Group second quarter earnings release and investor 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. Good morning, everyone, and welcome to the Covenant Logistics Group second quarter 2026 conference call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which we 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. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors. Joining me today are CEO David Parker, President Paul Bunn, and COO Dustin Koehl. Before we dive into the quarterly numbers, I want to take a step back and connect a few dots regarding the freight recovery we are now seeing. 10 years ago, Covenant looked very different. We were almost entirely an irregular route carrier without multiple year committed customer contracts. That meant our financial results were significantly linked to the ups and downs of the volatile freight cycle, making it difficult for investors to understand the long-term value proposition of our business. To fix that, we launched a strategy to deeply embed ourselves in our customer supply chains. We began moving away from highly volatile commoditized business, intentionally invested in more specialized value-added businesses such as Dedicated and warehousing, which we require multi-year committed relationships. These businesses have performed well and crucially lowered the volatility of our business. We aren't finished, but we are well on our way. Today, we have much less exposure to the extreme swings of the market. We saw the proof of this from 2023 through 2025. When the market bottomed, our margins held up much better than our peer group average and our own historical results. As a result, our stock outperformed. As we look ahead, we expect this strategy to keep delivering. Over the next few quarters, we are focused on three execution priorities. First, we are transitioning expiring contracts into new long-term commitments. Second, we are moving more of our uncommitted capacity into committed revenue. Third, over time, we expect Managed Freight gross margin to return to normal levels as contract rates catch up to capacity costs. Given our levels of contractual capacity, our operating margins won't spike as fast or as high as peers who have mostly uncommitted capacity. The flip side is exactly why we built this model. When the market turns down again, our margins should be more stable because we have proven our long-term value to customers. During the last cycle, we proved we could raise the floor on our earnings. In this cycle, our goal is to raise the ceiling while establishing an even higher floor. Based on an extended cycle of tight industry driver capacity and strong execution, we believe we can significantly expand our operating margin. We expect steady improvements, not a hockey stick. This is where we have been heading for a decade. We are confident in our path forward. With that background, I will move on to the quarter's statistical review. Highlights for the quarter include, while rates and revenue quality improved in the quarter, elevated cost more than offset any improvements to operating margin. Consolidated freight revenue increased by 6.6%, or approximately $18.2 million to $294.7 million, primarily as a result of the brokerage assets acquired in the fourth quarter of 2025 that are now being operated as store logistics solutions within our Managed Freight Segment. Partially offset by approximately 3% less freight revenue from our combined truckload operations as a result of fleet reductions. Consolidated adjusted operating income shrank by 19% to $12.2 million. The largest contributor was lower gross margin and Managed Freight. Dedicated Truckload improved its results. All other declined slightly. Adjusted net income declined by 9.8% as a result of the combination of higher pre-tax earnings from our minority investment in TEL, combined with a favorable tax rate as a result of infrequent discrete items impacting our income tax provision, partially overcoming lower operating income. Our net indebtedness as of June 30th decreased by approximately $6.6 million to $289.7 million compared to December 31st, 2025, yielding an adjusted leverage ratio of approximately 2.2x and debt to capital ratio of 41.2%. The reduction in net indebtedness in the first half of the year was in line with our expectations. Cash proceeds from operations for the period was impacted by acquisition-related earn-out payments, insurance policy renewals, and large claim settlement payments. For the second half of the year, we anticipate our net capital equipment investment to range between $50 million-$60 million, depending on the timing of deliveries and the prices for used equipment, operational cash flow to improve, and net indebtedness to reduce modestly. The average age of our tractors at June 30th was 26 months, up from 22 months compared to a year ago. This growth is in line with our life cycle management plan for our assets-based fleet and consistent with year-over-year reductions to our high-mileage expedited fleet. On an adjusted basis, return on invested capital was 5.2% for the trailing four quarters versus 7% for the same period in the prior year. Providing a little more color on the performance of the individual business segments. The Expedited Segment reported an adjusted operating ratio of 94.6, approximately 70 basis points above the prior year quarter. The segment's profitability improved sequentially from the first quarter by 450 basis points. Still fell short of our expectations for the quarter. Over the past 12 months, this segment has undertaken a considerable amount of transition. While the fleet was reduced 17%, freight revenue per average tractor has improved by 6.8%. Our focus on growing our customer base with high-value cargo through multiyear committed capacity agreements has resulted in improved freight revenue per total mile that has been partially offset with a reduction in miles per average tractor for the period. Elevated insurance related claims costs also impacted the segment unfavorably in the quarter. As we work to convert this segment to serving more committed capacity freight under multi-year agreements, we are confident that profitability will improve to a level that meets our expectations. Going forward, we have line of sight to steady sequential improvement in this segment's profitability throughout the year. Over time, our goal is to average a double-digit adjusted operating margin across the freight cycle to generate an acceptable return on capital. Dedicated adjusted operating ratio of 95 was in line with the prior year quarter. Freight revenue per average tractor for the period improved by 8.6%. Cost headwinds in the quarter, including maintenance and insurance related claims, offset improved freight revenue in this segment. Going forward, our goal is to steadily restore adjusted operating margin to double digits, grow the fleet serving high service niches, improve profitability with certain legacy customers as contracts renew, and, if applicable, reduce any part of the fleet that is not adequately returning capital in line with our expectations. Managed Freight grew freight revenue 28.4% compared to the prior year, primarily as a result of the brokerage assets acquired in the fourth quarter of 2025. The segment's operating margin in the quarter lagged our longer term expectations as a result of rising costs to secure quality brokerage capacity, outpacing our ability to secure contractual rate increases from customers. This type of margin compression is normal for an early upcycle. As we look ahead, our goal is to improve upon these results with the understanding that cost pressure may remain elevated as carrier capacity may be constrained for some time and higher insurance and claims expense has become a greater risk after the Supreme Court's recent Montgomery decision. The warehouse segment performed in line with our revenue expectations, disappointed us by failing to improve margins sequentially as a result of a continuation of labor inefficiencies with a new customer. Looking ahead, we remain committed to driving organic growth within this segment and are focused on enhancing our adjusted operating margin with a target of reaching high single digits. Our minority investment in TEL contributed pre-tax net income of $5.3 million for the quarter, compared to $4.3 million in the prior year period. While pleased with these improved results, much of it is attributable to higher equipment sale gains, which we do not anticipate benefiting from in the third quarter. Regarding our outlook for the future, the second quarter marked a positive inflection point for the freight economy following a prolonged downturn, reinforcing our view that 2026 is a transition year for the industry. While elevated cost pressured our profitability in the quarter, we were encouraged by the pace of revenue improvements this early into the upcycle. Through the remainder of the year, we intend to build on this progress by improving the quality and durability of our customer relationships and maintaining disciplined cost controls, resulting in improved operating margin and earnings over time. Although the pace of improvement may be more measured than that of certain peers, we believe the durability of our model and the continued execution of our strategy position us well for long-term performance that meets or exceeds our shareholder expectations. Thank you for your time. We will now open the call for any questions. If you would like to ask a question, please press star, one on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star, one on your phone now. Our first question comes from Reed Seay from Stephens Inc. Please go ahead, Reed. Hey, guys. Thanks for taking my question. Hey, Reed. I wanted to start by following up on some of the maintenance and insurance costs that you called out. It seems like mostly one-time in nature, if you could give us a little more color on how much was in Expedited versus how much was in Dedicated. The insurance does seem to be a pretty prolific problem in the industry, but I was wondering if you could give a little more color on what's behind some of the increased maintenance costs here in the second quarter. Yeah, Reed, this is Paul. I would tell you probably just from an OR point perspective, Dedicated and Expedited both, there's probably 1.5 to 2 OR points of excess insurance over our run rate for the last 24 months. A couple of things is we just had a number of mediations pop up in the second quarter. As you know, in this litigious environment, if you can get a mediation and get it settled and get it off the books, that's what you do. We probably had more mediations in second quarter than we've had in a number of quarters, and several mediations on some claims that none of them were monster claims, but it doesn't take much for a claim to be a seven-figure claim anymore. I would just say a heightened number of mediations that just happened to get scheduled in the second quarter, and we had the opportunity to close a lot of those out at numbers that we were comfortable closing them out with. It was a volume game. The other is when you start taking those higher costs in a period when the truck counts come down a little bit, it just exacerbates it. Again, it's about 1.5 to 2 OR points on Dedicated and Expedited was the negative impact over what we view a normalized run rate. I would say on the Dedicated side of things, and to a lesser degree Expedited, we just had some maintenance costs in getting some equipment ready for sales, maintenance costs in some of the protein-based businesses that again, were just higher than our normal run rate. Some of those could have been deferred and maybe were Q4, Q1 kind of things. That's probably at least one OR point on the Dedicated side of increased expenses. If you normalize for those, we feel a lot better about the results, and we don't expect those to be fully recurring. Got it. It does feel like if those are one-time in nature, which seems like they are, looking to 3Q, we should have some pretty solid improvement in margins. How should we think about that as we look at modeling 3Q? Then you all are, as you talked about in your prepared comments, relatively later cycle compared to some of your truckload peers, just based off your end markets and the type of business that you serve. How should we think about margin expansion next year when we see a lot of this benefit actually flow through your bottom line? A couple of things I'd say. We feel really comfortable about sequentially and year-over-year improving earnings from two to three and from three last year to three this year. What brokerage margins do, just like a lot of our peers, is going to really affect that number. I think there's two or three buckets. Fuel was a helper for the quarter for us and the whole peer group. What does fuel do? Brokerage margins, what do they do? Everybody across the whole peer group and with us, they were compressed for the second quarter. We do expect insurance and maintenance to normalize a little bit. You take those three or four puts and takes. We feel like there's going to be more puts than takes in the short term. I think we'll make more in Q3 than we did in Q2 and more in Q4 than we made in Q3. If you keep doing that every quarter, the numbers keep stacking. That's what we'll get the numbers everybody's excited about. Hey, Reed, I'd add just a couple of points about insurance. With the amount of self-insurance that we carry, there's no doubt that it can be volatile from quarter-to-quarter, and having to forecast that is difficult, but I'll just paint some color around the number that we put up this quarter. For not having a large claim go through that pierced or was above insurance, it was a bunch of smaller claims... Moderate. ...but a high volume of claims. When that happens, we have a development factor that incurred but not reported or development on self-insurance. It also gets reported. That increased pretty dramatically in the quarter as well. By far, this was the highest quarter historically looking back on it. Going forward, again, it's an industry issue, and there is a lot of volatility in it, and the trend is not good when you're looking at it. I would say Q3 is a little bit of an anomaly as you're looking at it based on past performance. The other thing I would paint, just adding color to Paul's pace of improvement is I think you'll see a little bit of a better pace of improvement in Expedited. It's a little more fluid. Dedicated, I think we're going to just slowly get there and make sure that we're making right strategic decisions, not just with rate, but customer mix too. Making sure we're working with customers that really need our teams or with our Dedicated specialized business and that are going to be with us, cycle in and cycle out. These are strategic decisions that have multi-year sticky contracts, and they take a little while. I think if you went back and looked and saw how our Dedicated improved, we were still on a path of improvement well after the cycle ended. Part of that was acquisition, but part of that is certainly in line with our strategy with getting more specialized and working on things that don't fall into the typical freight cycle. We're focused on the longer term, and we're focused on slow, steady, intentional improvement to both of our segments in Expedited and Dedicated. It makes a lot of sense. One quick one left for me, and then I'll pass it on is, on the transition that y'all talked about, it started late last year, carrying on into this year, how much do we have left to churn out of this business that you're trying to get rid of? Have we already gotten rid of it all, and we should return back to truck growth here soon? I think- I'd say on the Dedicated side, I think for the most part you're there. On the Expedited side, I think the truck count probably is what it is. What we're in the process of doing right now, Reed, is trying to convert as much of the Expedited as makes sense to Dedicated teams as opposed to more over-the-road teams. So I would say that's in process, and we'll see how that shakes out. On the legacy Dedicated side and the protein side, I think we're at the numbers. I could see those growing, over time. I think the Expedited, we're trying to convert as much of that as we can to dedicated team, and we'll see how that keeps going. That makes sense. Appreciate it always, guys. Our next question comes from Jason Seidl from TD Cowen. Please go ahead, Jason. Hi, thank you. This is Elliot Alper for Jason. In your release, you guys talked about having all your asset-based businesses under long-term Dedicated contracts by the end of this cycle. Would be curious to hear your thoughts on maybe the length of this cycle and maybe how pricing is trending and how the market continues to evolve from here. It's been a couple of years since you guys have been in the low 90s for OR. I guess, is this going to be a slow and steady like you suggested, Tripp? Is this like a multi-year effort, or could this be something a bit sooner since you're rolling some of these contracts off the books quicker? Hey, Elliot. This is David. I tell you, I would much rather the industry, us, are in a position that I think that the world is going to shake. I really do. What I've read from some of you all on some of the analyst write-ups about, is this long term? Is this an industry? What's the word y'all been using? Industry change, long term cycle? I really believe it is. As I look at the backdrop, I don't even think the industry, including us, is at first base. I see a lot of great things that are happening within DOT and FMCSA and everything that they are doing there that is just going to continue to allow this industry to get back to returns that we all want to be at. I'm excited about where we are at. We got challenges. The industry's got challenges that we've already talked about here, that's insurance being number one as everybody's insurance expires. Ours don't expire until next year, so we're good for another 8- 10 months before the market. You still have high deductibles and corridors, it drives me crazy about how much you pay for insurance and about how much you really have, which would be less than what you think you got, on every one of these insurance claims. That's the market. The rates got to go up. The rates are, and the rates will continue to go up because capacity has left, and capacity is going to continue to leave. I would tell you that I have seen from. Keep in mind, as I'm thinking here, Elliot, guys, we did not. Here it is December. November, December, eight months ago, we all, including everybody on this phone, said, "Is it turning? Maybe I think it is." First time in four years. March was four years. Is it turning? We were asking that question. I'll never forget sitting here in this company last December saying, "I think we can go get rate increases." First time the industry has in four years. "I think we can go get increases." I'm here to tell you, we went out to the market in middle, end of December, for January and the 1st February, we got 3.4%. We were high-fiving. We thought, man, we are doing a job. It's the first time in four years. By April, 2.5 months later, that 3.4% was that the market was at 7% or 8%. You can't go into your January and February customers that just gave you 3.4% and raise them two months later. You got to let some time go by, say six, eight, 10 months go by before you can go back to those customers. By current June and July, that 7%, 8% was double digits, 10%, 11%, 12%, even higher on certain pieces of business that it's operating. How quickly the market has moved is a backdrop to where we're at. With that said, I'm happy with where our rate increases are at. If you look at the last four years, phenomenal, us and the industry. Unbelievable, whatever word you want to use. I'm here to tell you that I think it's half of it. I think that it's going to continue to climb because we got the cost and the tail. I look at those claims we had in the second quarter. The tail on these things is crazy. That hadn't changed. That's always been there. Every so often, it bites you in the butt, and it bit us in the second quarter. With the background that the industry is at, and I expect great things. I think that, now, because you asked a question, you or Reed, one about growth. When's growth? I don't know. A blessing is that it's getting harder for drivers. It's getting harder to get truck drivers. That's a negative from a standpoint that I could grow some dedicated right now, and we're going to try to figure out how to grow Dedicated and get us some drivers. It's going to increase driver pay. That's okay. We got to get it out of the rates. At the same time, you're not going to see crazy stuff happening because the driver situation is getting more difficult as we speak. It's going to keep a lid on capacity called the drivers. It's going to keep a lid on capacity called the DOT. Guys, they are at first base on this ELDs. I'm here to tell you, 30% of ELD users have cheated. 30% of ELDs out there running are competing with my teams with a solo driver, 30% of them. It could be greater, but it's a big number on ELDs. They just hit the ball out of the batter's box. That thing has got a long run as we take out capacity on that. I'm not going to go over all the CDLs and the truck driving training schools and the cabotage, gigantic. When these trucks are not operating in the U.S. for 30 days, they're either going up and they're going back. They're now starting to measure that. They had to get Homeland Security involved to make sure that they are on top of that. Capacity is leaving. I say all that, Elliot, of when can we grow? I don't know. Only thing I know is that I'm going to be a lot more profitable. Only thing I know is I'm going to have a lot more earnings coming to the bottom line. Only thing I know is that my retained earnings are going to go up. We're going to recapture a lot of profitability that we've lost, and we're one of the best ones in the market the last four years that you can go back and look at. There's a lot of earnings that we didn't get, and we're going to go get those earnings. My thing is not how big can I get? How many white trucks do I want to run? Mine is, how profitable can I get? How can I recapture the less earnings that I had over the last four years? Guys, this is 53 years I've been in this, and I couldn't be more excited about what is happening that's going to give us the opportunity. Now, is it going to happen second quarter? It didn't. Is it going to happen the third quarter? No. Fourth quarter? No. It's going to happen. I've saw some of y'all's write-ups in the last six, eight months. Y'all are saying 2027 is going to be a blowout year. I think there's going to be obstacles in 2027, but I think it's going to be a very good year. I do. I think y'all are correct on that in your thoughts. It ain't going to happen in the second quarter or the third quarter. We're going to continue to making progress. You're going to see it in the next two quarters. You're going to see it in 2027. You're going to see it in 2028. I think this is a long-term, three or four-year super cycle is the word I was looking for. super cycle, and I believe that it is. Anyway, Jason, I'll shut up. No, very helpful. Then maybe just on, you talked about adding some new ag protein business, but exiting some non-specialized contracts. Can you talk about the pipeline for Dedicated? I guess, how are customers thinking about the Dedicated offering in light of the Montgomery ruling? This should improve your product offering as more shippers look to high-quality asset-based carriers, but curious your thoughts on if you're starting to see that pipeline expand. Pipeline is the best it's ever been, period. You agree, Paul? Yeah. Best pipeline we've ever had on Dedicated. The best opportunities. We do. We have customers right now that are wanting to grow Dedicated. Yeah, it's exciting. We all got to make sure we got drivers, but there's going to be a lot of opportunities in Dedicated. Yes, what you are sensing or feeling or believing is happening. Yeah. Elliot, it's even bleeding over. Paul mentioned it a little bit, but I want to make sure that it's stated that it's even bleeding over into some of our expedited fleet as we lock up multi-year committed capacity with high value freight that's serving the heavy industrial data type center work. Those trucks are really running, and there's a good pipeline on that too. Very helpful. Thank you, guys. Our next question comes from Jeff Kauffman from Citizens Bank. Please go ahead, Jeff. Hey, everybody. Hey, Jeff. Hey, Jeff. David, thank you for that fantastic answer to the previous question. I've got a more boring question, won't be as much of a passion point. There was guidance in the release on $50 million-$60 million in net CapEx spend in the second half. You talked in the release about not shrinking the fleet anymore at this point. With what is starting to happen in the industry, free cash is eventually going to start to build. As we think about maybe moving beyond 2026 and getting into 2027 and beyond, I know the average fleet age is up and Tripp mentioned that was part of the plan, but is there a CapEx investment that needs to occur as free cash comes along? Do we want to get debt down to a certain level? I don't want to spend it before you earn it, how are we thinking about free cash and capital deployment as we see this super cycle that David was just talking about? Yeah, Jeff, I can take that. If you look back in the past few years, our net CapEx has been a little bit clunky for a couple of reasons. We were in a post-COVID recovery where we're recovering from a period of time where we couldn't buy any capital equipment and trying to replace some really, really old stuff. We acquired Lew Thompson, which requires certain specialized trailers and certain spec tractors, and we couldn't just use what we had. We were growing that fleet pretty materially and keeping some of the other stuff flat. There's some kind of growth CapEx and specialized stuff and some offset by some reductions and non-specialized stuff. It's been elevated, I would say, for the last few years. This year in total, I think it's going to be a little bit below our normal capital replacement cycle for a couple of reasons. One, we entered the year in really, really good shape. Two, the mix of our freight is changing, becoming more low mile dedicated type stuff that has a longer replacement cycle and less expedited tractors that are putting 180,000 miles on a tractor per year. Even in that fleet, we're seeing the utilization come down a little bit with some of this specialized dedicated light business that we're doing in Expedited. Net, net, it's a little bit of a clunky year because we had sold a bunch of equipment Q1, we bought a bunch of equipment in Q2. Net, we're about even on net capital investment from not really doing anything in the first half of the year. I think what we're going to see in Q2 or Q3 and Q4 is that $50 million-$60 million range. I don't anticipate us. I think we've got to justify the cost of capital before we start ramping capital investments up. I think that while I don't think the fleets are going to be reduced, I still feel like we're in really good shape from an average age considering the mix change. Our goal is to minimize disruptions from large capital equipment purchases in one single quarter and try to spread it out pretty evenly throughout the year. I think going into next year with a combination of cost and quantities, you'll probably see a little bit more net CapEx, mostly just replacement CapEx, but there may be a little bit of growth in there. It's too early to tell. We haven't nailed that number down yet. All right. Tripp, thank you. Just to follow up, terrific contribution from TEL this quarter. It looks like equipment values are beginning to rise. I don't want to take this quarter and assume it's a run rate, how should I think about what's going on at TEL and how I should think about that contribution as we move ahead? Hey, Jeff, it's Paul. Related to TEL, yeah, they did have a great quarter. I probably wouldn't use that as a run rate. I agree, because it was a little higher than what we expect. I do think somewhere minimum of what they made in Q1, somewhere between Q1 and Q2 maybe is what they'll see. If you think about it, TEL's customer base over the last-- They've been hit pretty hard by this freight recession too, because a lot of their customers were these small to mid-size carriers who were hit pretty hard by the freight recession. Conversely, there were bad debts in there, and they were struggling to keep the lease counts flat. Just like truckers were struggling at times to keep enough freight to keep truck counts flat. I think what we've seen is their customer base that's made it through the rough years is set to thrive for the next two or three or four years of this cycle. David and I met with the TEL management team a couple of weeks ago, I think similar to what you heard, I think you're going to see slow, steady progress for TEL over the next couple of years. We're really excited about where they're at and where they're going, I think they'll continue to build quarter after quarter. I agree, the Q2 was a little bit hot based on some large equipment sales they were able to push through. You're going to see a really solid trend for TEL over the next couple of years. Yeah. I would even add to that what we're seeing in July, I think this is probably a broader industry comment, is a pretty steep pickup if we speak to We've spoken to a lot of different folks out there. We're seeing some strengthening. I would say what we've kind of encountered the first half of the year is just an appetite for volumes. Haven't seen a lot of price improvement, but just an appetite for volumes, which is step one. Now what we're seeing is an appetite for volumes and a little bit of a step up in price that hopefully will impact us positively in the third quarter. Tripp, finally, I know in the comments in the release, you'd said cost per mile was up about 16% and change, You explained that a fair amount of that was because of all these settlements that you were seeing on insurance and claims. Did you quantify how much of that you would consider to be an unusual lump in the quarter and as that recedes toward normal levels, what kind of cost per mile increases should we be thinking about in aggregate? Yeah. I'd be cautious when we talk about insurance. It's just so volatile, Jeff. I will say, there's no doubt about it shocked all of us the way it developed this quarter, and you could look back historically and even with the trend in insurance and claims related costs going up, this is a spike without a doubt. I would say anywhere from the combination of probably, it could be anywhere from probably $0.05-$0.08 a share probably from just the spike, which I would be cautious in modeling that from Q2 to Q3 to Q4 just because of the volatility of it. It was unusual without a doubt historically looking back, that's a fact. The forward-looking guidance, I'm hesitant to say. All right. Well, congratulations and thank you. Yep. Thanks, Jeff. As a reminder, if you would like to ask a question, please press star, one on your phone now. At this time, there appears to be no further questions. I'll turn the call back over to our speakers to close out the call. All right. Thank you, Ross. We just want to thank everybody for your interest in Covenant, and we look forward to speaking with you next quarter. Thank you. This concludes today's conference call. Thank you for attending.