Covenant Transportation Group Announces Third Quarter Financial and Operating Results

Covenant Transportation Group Announces Third Quarter Financial and Operating
Results

CHATTANOOGA, Tenn., Oct. 26 /PRNewswire-FirstCall/ -- Covenant Transportation
Group, Inc. (Nasdaq: CVTI) announced today financial and operating results
for the third quarter ended September 30, 2009. Highlights included the
following:

-- Freight revenue of $133.3 million, a decrease of 18.2% compared with
the
third quarter of 2008;
-- Operating income of $1.8 million and an operating ratio of 98.6%,
compared with an operating loss of $720,000 and an operating ratio of
100.4% in the third quarter of 2008;
-- Non-cash impairment charge of $11.6 million (with no tax benefit)
relating to the write down of the carrying cost of our investments in
Transplace, Inc.;
-- Net loss of $13.6 million, or ($0.96) per basic and diluted share
(including the impairment charge), compared with a net loss of $3.4
million, or ($0.24) per basic and diluted share in the third quarter
of
2008; and

-- Non-GAAP basic net loss (excluding the impairment charge) of $2.0
million, or ($0.14) per basic and diluted share, compares with a net
loss of $3.4 million, or ($0.24) per basic and diluted share, in the
third quarter of 2008.

Financial and Operating Results

For the third quarter of 2009, total revenue decreased 28.0%, to $153.0
million from $212.5 million in the same quarter of 2008. Freight revenue,
which for these purposes excludes fuel surcharges, decreased 18.2%, to $133.3
million in the 2009 quarter from $162.9 million in the 2008 quarter. The
Company measures freight revenue because management believes that fuel
surcharges tend to be a volatile source of revenue and the removal of such
surcharges affords a more consistent basis for comparing results of operations
from period to period.

The Company reported net loss of $13.6 million, or ($0.96) per basic and
diluted share, in the 2009 quarter. The loss included a non-cash impairment
charge of $11.6 million relating to the write-down of investments in
Transplace. On a non-GAAP basis, excluding the non-cash impairment charge,
the Company's net loss would have been $2.0 million in the 2009 quarter, or
($0.14) per basic and diluted share. This compares with a net loss of $3.4
million, or ($0.24) per basic and diluted share, for the third quarter of
2008.

The following tables reconcile the Company's financial results for the three-
and nine-months ended September 30, 2009, and September 30, 2008, as reported
and, on a non-GAAP basis, excluding the impairment charge:

Items Affecting Net Loss
Comparability: Third Quarter Nine Months Ended
------------- -----------------
(Dollars in Thousands) 2009 2008 2009 2008
---- ---- ---- ----
Reported Net Loss ($13,600) ($3,416) ($22,289) ($13,586)
Impairment Charge on
Transplace $11,596 -- $11,596 --
------- -------
Non-GAAP Basis Net Loss,
Excluding Impairment
Charge ($2,004) ($3,416) ($10,693) ($13,586)
======== ======== ========= =========

Items Affecting Loss Per Share Third Quarter Nine Months Ended
Comparability: ------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
Reported Loss Per Share
(Basic and Diluted) ($0.96) ($0.24) ($1.58) ($0.97)
Impairment Charge on
Transplace $0.82 -- $0.82 --
----- -----
Non-GAAP Basis Loss Per Share,
Excluding Impairment Charge
($0.14) ($0.24) ($0.76) ($0.97)
======= ======= ======= =======

This impairment charge is discussed further below in "Additional Information
Concerning Impairment Charge."

Management Discussion--Asset-Based Operations

Chairman, President, and Chief Executive Officer, David R. Parker, made the
following comments: "On the revenue side of our business, total revenue
decreased $59.5 million, or 28.0%, for the third quarter of 2009 from the
third quarter of 2008. Of this decrease, $29.9 million related to lower fuel
surcharge revenue. The balance of $29.6 million in total revenue decrease as
compared to the third quarter of 2008 related to lower freight revenue
arising, in large part, from a reduction in loads and severe pressure on
freight rates as a result of the economic recession. In anticipation of lower
freight volumes, we proactively reduced our average tractor fleet by
approximately 322 trucks (9.4%) versus the third quarter of 2008. With the
assistance of the fleet reduction, we experienced an approximate 0.8% increase
in average miles per tractor compared with the third quarter of 2008. Freight
rates, measured by average freight revenue per total mile, decreased by 9.4%
compared with the third quarter of 2008. As a result, average freight revenue
per tractor per week, our primary measure of asset productivity, fell by
approximately 8.6% compared with the 2008 quarter. We are somewhat
encouraged, however, that sequentially freight rates were essentially flat and
miles per tractor increased approximately 2.7% compared with the second
quarter of 2009.

"On the expense side of our business, we continued to aggressively reduce our
costs of operation. For the quarter, operating expenses in our asset-based
operations declined 16.6 cents per mile, or 11.8%, compared with the third
quarter of 2008. These improvements more than covered an unprecedented drop
of almost 13.0 cents in average freight revenue per total mile. As a
percentage of freight revenue, our costs of asset-based operations were
reduced 270 basis points, to 98.1%. Although a portion of the cost reductions
resulted from lower fuel prices, the majority of improvement in our cost
structure resulted from closely scrutinizing all areas of our business and
implementing improvements we expect to retain into the future. We view the
continued success of our cost cutting efforts as a significant accomplishment
for the long-term profitability of the Company.

"Our largest area of cost savings for the quarter was in our salaries, wages,
and benefits expense, as we continue to reduce these costs throughout the
organization. For the current quarter, salaries, wages, and benefits expenses
in our asset-based operations were reduced 6.6 cents per mile to 55.2 cents
compared to the 2008 quarter, or a 10.6% reduction on a cost per mile basis.

"A portion of the reduction in costs can be attributed to a decrease in fuel
expense, net of fuel surcharge revenue. On a cost per company mile basis, net
fuel expense was approximately 4.1 cents per mile less than the same quarter
last year, primarily as a result of lower diesel fuel prices and improved fuel
efficiency due to operational improvements.

"We were also able to significantly reduce insurance and claims expense for
our asset-based operations during the quarter. We experienced the lowest
quarterly number of DOT reportable accidents per million miles in our history
and also benefited from reduced severity. As a result, this item was reduced
3.1 cents per mile compared with the 2008 quarter.

"In addition, by reducing the size of our tractor fleet while continuing to
invest prudently in new equipment, we were able to reduce our combined fleet
costs of depreciation, lease expense, interest expense, and operations and
maintenance by almost one cent per mile compared with the 2008 quarter despite
a significant decrease in total miles."

Management Discussion--Non-Asset Based Brokerage Operations

Mr. Parker offered the following comments concerning Covenant Transport
Solutions ("Solutions"), the Company's freight brokerage subsidiary: "For the
quarter, Solutions' total revenue decreased 25.9%, to $12.4 million from $16.7
million in the same quarter of 2008. Load volumes were down 13.0% over the
same period in 2008, and lower fuel prices resulted in lower fuel surcharge
revenue. Solutions' net revenue (total revenue less purchased transportation)
for the quarter decreased 49.4% as purchased transportation was 88.0% of total
revenue in the current quarter, up unfavorably from 82.4% of total revenue in
the prior year quarter. Solutions' other operating expenses as a percentage
of revenue increased to 16.2% of total revenue in the second quarter from
14.8% of total revenue in the third quarter of 2008.

Cash Flow and Liquidity

Richard B. Cribbs, the Company's Senior Vice President and Chief Financial
Officer, added the following comments: "At September 30, 2009, our total
balance sheet debt and capital lease obligations, net of cash, was $187.5
million and the discounted value of future obligations under off-balance sheet
operating lease obligations was approximately $80.9 million, including the
residual value guarantees under those leases. At September 30, 2009, our
stockholders' equity was $97.0 million, and our tangible book value was $83.3
million, or $5.88 per share. Since the end of fiscal 2008, the Company's
balance sheet debt and capital lease obligations, net of cash has increased by
$26.8 million, while the present value of financing provided by operating
leases has decreased by approximately $15.6 million. At September 30, 2009,
our ratio of net debt to total capitalization was 65.9%.

"Consistent with last quarter, our annual tractor fleet plan for 2009 includes
the purchase of approximately 950 tractors and disposal of approximately 1,250
tractors, for expected full-year net capital expenditures of approximately $50
million to $60 million. However, we regularly evaluate our tractor
replacement cycle and new tractor purchase requirements. With an average
fleet age of only 25 months, we have significant flexibility to manage our
fleet.

"At September 30, 2009, we had $29.5 million of available borrowing capacity
under our revolving credit facility and were in compliance with our financial
covenant. In addition, we have financing available from the captive financial
subsidiaries of our main tractor suppliers to fund all of our remaining
expected tractor purchases in 2009."

Additional Information Concerning Non-Cash Impairment Charge

Mr. Cribbs continued: "Our investments in Transplace consisted of $10.7
million representing approximately 12.4% of equity and $2.7 million
representing a note receivable including accrued interest. The equity
investment was recorded on our balance sheet using the cost method of
accounting. Based on the occurrence of an impairment indicator during the
third quarter, as defined by applicable accounting standards, we determined
that the value of our equity investment had become completely impaired, and
the value of the note receivable had become impaired by approximately $0.9
million. As a result, we recorded a non-cash impairment charge of $11.6
million during the quarter. There was no tax benefit recorded in connection
with the unrealized investment impairment charge. In this press release, we
present net loss excluding the impairment charge, a non-GAAP financial
measure, because we believe this measure more accurately reflects ongoing
business performance and allows for a more meaningful comparison to operating
results from various periods. Under our credit agreement, the impairment
charge is added back as a non-cash loss in the computation of the Company's
fixed charge coverage ratio; and therefore does not unfavorably impact our
single financial covenant."

The Company will host a conference call tomorrow, October 27, 2009, at 10:00
a.m. Eastern Time to discuss the quarter. Individuals may access the call by
dialing 800-311-9404 (U.S./Canada) and 334-323-7224 (International), access
code CTG3. An audio replay will be available for one week following the call
at 877-919-4059, access code 11884016. For financial and statistical
information regarding the Company that is expected to be discussed during the
conference call, please visit our website at www.covenanttransport.com under
the icon "Investor Relations".

Covenant Transportation Group, Inc. is the holding company for several
transportation providers that offer premium transportation services for
customers throughout the United States. The consolidated group includes
operations from Covenant Transport and Covenant Transport Solutions of
Chattanooga, Tennessee; Southern Refrigerated Transport of Texarkana,
Arkansas; and Star Transportation of Nashville, Tennessee. The Company's
Class A common stock is traded on the Nasdaq Global Select under the symbol,
"CVTI".

This press release contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of
1934, as amended. Such statements may be identified by their use of terms or
phrases such as "expects," "estimates," "projects," "believes," "anticipates,"
"plans," "intends," and similar terms and phrases. Forward-looking statements
are based upon the current beliefs and expectations of our management and are
inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified, which could cause future events and actual results to
differ materially from those set forth in, contemplated by, or underlying the
forward-looking statements. In this press release, the statements relating to
our overall capital position, equipment purchases and disposals, and net
capital expenditures, are forward-looking statements. Such items have not
been subject to all of the review procedures associated with the release of
actual financial results and are premised on certain assumptions. The
following factors, among others, could cause actual results to differ
materially from those in the forward-looking statements: elevated experience
in the frequency and severity of claims relating to accident, cargo, workers'
compensation, health, and other claims, increased insurance premiums,
fluctuations in claims expenses that result from high self-insured retention
amounts and differences between estimates used in establishing and adjusting
claims reserves and actual results over time, adverse changes in claims
experience and loss development factors, or additional changes in management's
estimates of liability based upon such experience and development factors that
causes our expectations of insurance and claims expense to be inaccurate or
otherwise impacts our results; changes in the market condition for used
revenue equipment and real estate that impact our capital expenditures and our
ability to dispose of revenue equipment and real estate on the schedule and
for the prices we expect; increases in the prices paid for new revenue
equipment and changes in the resale value of our used equipment that impact
our capital expenditures or our results generally; changes in management's
estimates of the need for new tractors and trailers; the effect of any
reduction in tractor purchases on the number of tractors that will be accepted
by manufacturers under tradeback arrangements; our ability to maintain
compliance with the provisions of our credit agreements, particularly the
financial covenant in our revolving credit facility; excess tractor or trailer
capacity in the trucking industry; decreased demand for our services or loss
of one or more of our major customers; our ability to renew dedicated service
offering contracts on the terms and schedule we expect; surplus inventories,
recessionary economic cycles, and downturns in customers' business cycles;
strikes, work slow downs, or work stoppages at the Company, customers, ports,
or other shipping related facilities; increases or rapid fluctuations in fuel
prices, as well as fluctuations in hedging activities and surcharge
collection, including, but not limited to, changes in customer fuel surcharge
policies and increases in fuel surcharge bases by customers; the volume and
terms of diesel purchase commitments; interest rates, fuel taxes, tolls, and
license and registration fees; increases in compensation for and difficulty in
attracting and retaining qualified drivers and independent contractors;
seasonal factors such as harsh weather conditions that increase operating
costs; competition from trucking, rail, and intermodal competitors; regulatory
requirements that increase costs or decrease efficiency, including revised
hours-of-service requirements for drivers; the ability to reduce, or control
increases in, operating costs; changes in the Company's business strategy that
require the acquisition of new businesses, and the ability to identify
acceptable acquisition candidates, consummate acquisitions, and integrate
acquired operations. Readers should review and consider these factors along
with the various disclosures by the Company in its press releases, stockholder
reports, and filings with the Securities Exchange Commission. We disclaim any
obligation to update or revise any forward-looking statements to reflect
actual results or changes in the factors affecting the forward-looking
information.

Covenant Transportation Group, Inc.
Key Financial and Operating Statistics

INCOME STATEMENT DATA
---------------------
Three Months Ended
September 30,
-------------------
($000s, except per share data) 2009 2008 % Change
---- ---- --------
Freight revenue $133,332 $162,901 -18.2%
Fuel surcharge revenue 19,716 49,644
------ ------
Total revenue $153,048 $212,545 -28.0%

Operating expenses
Salaries, wages and related expenses 53,425 65,830
Fuel expense 38,792 74,902
Operations and maintenance 9,052 11,636
Revenue equipment rentals and
purchased transportation 19,741 24,925
Operating taxes and licenses 2,559 3,273
Insurance and claims 8,050 11,970
Communications and utilities 1,352 1,657
General supplies and expenses 5,853 6,409
Depreciation and amortization,
including gains & losses on
disposition of equipment 12,395 12,663
Asset impairment charge - -
- -
Total operating expenses 151,219 213,265
------- -------
Operating income (loss) 1,829 (720)
Other (income) expenses:
Interest expense 3,593 2,914
Interest income (42) (218)
Impairment of investment and note
receivable 11,596 -
Loss on early extinguishment of debt - 726
Other (54) (56)
--- ---
Other expenses, net 15,093 3,366
------ -----
Loss before income taxes (13,264) (4,086)
Income tax expense (benefit) 336 (670)
--- ----
Net loss ($13,600) ($3,416)
======== =======

Basic & diluted earnings (loss)
per share ($0.96) ($0.24)
Basic & diluted weighted avg shares
o/s (000s) 14,177 14,049

Nine Months Ended September 30,
-------------------------------
($000s, except per share data) 2009 2008 % Change
---- ---- --------
Freight revenue $384,708 $471,947 -18.5%
Fuel surcharge revenue 46,199 130,997
------ -------
Total revenue $430,907 $602,944 -28.5%

Operating expenses
Salaries, wages and related expenses 161,802 199,446
Fuel expense 102,086 217,092
Operations and maintenance 26,852 33,481
Revenue equipment rentals and
purchased transportation 56,634 68,543
Operating taxes and licenses 8,605 10,024
Insurance and claims 22,888 25,921
Communications and utilities 4,456 5,074
General supplies and expenses 17,313 18,461
Depreciation and amortization,
including gains & losses on
disposition of equipment 34,223 35,472
Asset impairment charge - -
------- -------
Total operating expenses 434,859 613,514
------- -------
Operating income (loss) (3,952) (10,570)
Other (income) expenses:
Interest expense 9,784 7,395
Interest income (140) (372)
Impairment of investment and note
receivable 11,596 -
Loss on early extinguishment of debt - 726
Other (132) (120)
---- ----
Other expenses, net 21,108 7,629
------ -----
Loss before income taxes (25,060) (18,199)
Income tax expense (benefit) (2,771) (4,613)
------ ------
Net loss ($22,289) ($13,586)
======== ========

Basic & diluted earnings (loss) per
share ($1.58) ($0.97)
Basic & diluted weighted avg shares o/s
(000s) 14,102 14,035

Three Months Ended September 30,
--------------------------------
2009 2008 % Change
---- ---- --------
($000s) SEGMENT REVENUES
----------------
Asset-based
trucking revenues $120,978 $146,228 -17.3%
Covenant Transport
Solutions non-asset
based revenues 12,354 16,673 -25.9%
------ ------
Freight revenue $133,332 $162,901 -18.2%

OPERATING STATISTICS
--------------------
Average freight
revenue per loaded
mile $1.407 $1.554 -9.5%
Average freight
revenue per total
mile $1.260 $1.390 -9.4%
Average freight
revenue per tractor
per week $2,971 $3,252 -8.6%
Average miles per
tractor per period 30,986 30,753 0.8%
Weighted avg.
tractors for period 3,099 3,421 -9.4%
Tractors at end of
period 3,114 3,412 -8.7%
Trailers at end of
period 8,127 8,209 -1.0%

Nine Months Ended September 30,
-------------------------------
2009 2008 % Change
---- ---- --------
($000s) SEGMENT REVENUES
----------------
Asset-based
trucking revenues $349,911 $431,813 -19.0%
Covenant Transport
Solutions non-asset
based revenues 34,797 40,134 -13.3%
------ ------
Freight revenue $384,708 $471,947 -18.5%

OPERATING STATISTICS
--------------------
Average freight
revenue per loaded
mile $1.422 $1.527 -6.9%
Average freight
revenue per total
mile $1.271 $1.368 -7.1%
Average freight
revenue per tractor
per week $2,886 $3,168 -8.9%
Average miles per
tractor per period 88,539 90,660 -2.3%
Weighted avg.
tractors for period 3,113 3,481 -10.6%
Tractors at end of
period 3,114 3,412 -8.7%
Trailers at end of
period 8,127 8,209 -1.0%

SELECTED BALANCE SHEET DATA
---------------------------
($000s, except per share data) 9/30/2009 12/31/2008
--------- ----------
Total assets $382,733 $393,676
Total equity $96,957 $118,820
Total balance sheet debt, net of cash $187,545 $160,739
Debt to Capitalization Ratio 65.92% 57.50%
Tangible book value per share $5.88 $7.44

SOURCE Covenant Transportation Group, Inc.

Richard B. Cribbs, SVP and Chief Financial Officer, +1-423-463-3331,
criric@covenanttransport.com, For copies of Company information contact: Kim
Perry, Administrative Assistant, +1-423-463-3357,
perkim@covenanttransport.com