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Covenant Transportation Group Announces Third Quarter Financial And Operating Results CHATTANOOGA, TENNESSEE

The following excerpt is from the company's SEC filing.

– October 16, 2015 - Covenant Transportation Group, Inc. (NASDAQ/GS: CVTI) announced today financial and operating results for the third quarter ended September 30, 2015.

Highlights for the quarter included the following:

Total revenue of $173.5 million, a decrease of 2.3% compared with the third quarter of 2014.

Freight revenue of $153.5 million (excludes revenue from fuel surcharges), an increase of 8.2% compared with the third quarter of 2014.

Operating income of $14.6 million and an operating ratio of 90.5%, compared with operating income of $5.6 million and an operating ratio of 9 6.1% in the third quarter of 2014. Operating income for the 2014 quarter included a $7.5 million reserve for an adverse judgment in September 2014 stemming from a cargo loss in 2008. This reserve unfavorably impacted the 2014 quarter operating ratio by approximately 530 basis points. Operating ratio is defined as: total operating expenses minus fuel surcharge revenue, divided by freight revenue.

Net income of $7.6 million, or $0.42 per diluted share, compared with net income of $1.9 million, or $0.12 per diluted share in the third quarter of 2014, on a 21.0% increase in weighted average diluted shares resulting primarily from the Company’s public offering of 3,036,000 common shares completed in November 2014. Net income for the 2014 quarter included an unfavorable after-tax impact of approximately $4.6 million, or $0.30 per share, attributable to the adverse cargo claim judgment described above.

Management Discussion—Asset-Based Truckload Operations

Chairman, President, and Chief Executive Officer, David R. Parker, made the following comments: “Overall, we were pleased with our results in an environment characterized by a competitive market for qualified professional drivers, lackluster freight demand, and falling fuel prices that we did not fully attain because of losses on fuel hedging contracts that we put in place two years ago when diesel fuel prices were higher. In this environment, we grew average tractors in operation, increased the percentage of our fleet comprised of driver teams, raised yields, and improved our seated truck percentage versus the year ago period. Total truckload operating ratio improved to 90.2%. Excluding the $7.5 million cargo loss in 2014 mentioned above and a $3.1 million increase in fuel hedging losses, our operational progress produced approximately 320 basis points of margin expansion. Our Covenant Transport (expedited) and Star Transportation (dedicated) service offerings performed relatively better than our SRT (solo refrigerated) operation.

For the quarter, total revenue in our asset-based operations decreased to $159.6 million, a decrease of $7.2 million compared with the third quarter of 2014. This decrease consisted of lower fuel surcharge revenue of $15.7 million, partially offset by higher freight revenue of $8.5 million. The $8.5 million increase in freight revenue related to a 0.4% increase in average freight revenue per tractor per week, a 134 truck (or 5.2%) increase in our average tractor fleet, and a $1.0 million increase of freight revenue contributed from our refrigerated intermodal service offering. Team-driven trucks increased to an average of 966 teams in the third quarter of 2015, an increase of approximately 13.5% over the average of 851 teams in the third quarter of 2014, as well as a 1.6% sequential increase over the average of 951 teams in the second quarter of 2015.

“Average freight revenue per tractor per week increased to $3,814 during the 2015 quarter from $3,797 during the 2014 quarter. Average freight revenue per loaded mile increased by 5.7 cents per mile (or 3.3%) compared to the 2014 quarter on an approximately 3.0% increase in average length of haul. Average miles per unit decreased by 2.5%. The main factor impacting the decreased utilization was a weaker overall freight environment, partially offset by a 260 basis point increase in the percentage of our fleet comprised of team-driven trucks and a higher seated truck percentage. On average, approximately 4.6% of our fleet lacked drivers during the 2015 quarter compared with approximately 5.1% during the 2014 quarter.

“Net fuel expense increased by approximately 3.8 cents per mile to 12.6 cents per mile in the 2015 quarter. Losses from fuel hedging transactions were $3.9 million in the 2015 quarter compared with losses of $0.8 million in the 2014 quarter. These two headwind items were partially offset by improved fuel pricing and improved fuel economy of our tractors. Ultra low sulfur diesel prices as measured by the Department of Energy averaged approximately $1.21/gallon lower in the third quarter of 2015 compared with the 2014 quarter. We expect to continue using fuel price hedges periodically to mitigate the potential volatility in fuel prices relating to the portion of our fuel usage that is not covered by fuel surcharges, which may result in favorable or unfavorable results in any given quarter.

“Salaries, wages and related expenses increased approximately 1.1 cents per mile due to a higher percentage of our fleet comprised of team-driven tractors, employee pay adjustments since the third quarter of 2014, and higher group health insurance expense.

“Insurance and claims per mile cost was 8.0 cents per mile in the third quarter of 2015 versus 19.1 cents per mile in the third quarter of 2014. Even excluding the prior year quarter’s $7.5 million reserve for an adverse judgment in September 2014, insurance and claims per mile cost improved by 1.8 cents per mile from an as adjusted 9.8 cents per mile for the third quarter of 2014. Our chargeable accidents per million miles, as measured by the DOT, improved by approximately 5.0% year-over-year. Additional investment in safety technology, combined with good claims experience, contributed to the cost improvement in this area.

“General supplies and expenses per mile cost was 2.3 cents per mile in the third quarter of 2015 versus 4.7 cents per mile in the third quarter of 2014. In early August 2015, we purchased our Chattanooga headquarters property which had previously been leased since 2006. This purchase reduced building rent in the third quarter of 2015 by approximately $0.5 million and allowed for the favorable $1.2 million reversal of deferred rent expense previously accounted for on our...


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