Please be aware that each of your line is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. I'd now like to turn the conference over to Paul Bunn. Sir, please go ahead.

Thank you, Katie. Welcome to the Covenant Logistics Group Fourth Quarter Conference Call. As a reminder, this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties, and actual results could differ materially from those contemplated in the forward-looking statements. Please review our disclosures and files with the SEC, including without limitation, the risk factor section, and our most recent form 10-K and 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements or subsequent or circumstances that may occur. A copy of our prepared comments and additional financial information is available on our website at covenanttransport.com at the investors tab.

Thanks, Paul. The main positives in the second quarter were a robust freight market across all of our service offerings. Number two, a significant reduction in our net indebtedness; and number three, a reduction in fixed costs and better cost absorption given increased asset utilization. Number four, TEL’s improvement in earnings; five, the flexibility and customer service provided by the efficient use of our Managed Freight segment to cover customer needs when Expedited and Dedicated lacked a driver. The main negatives in the quarter were number one, one of the toughest driver recruitment and retention markets in 20 years. Number two, COVID’s negative impact on driver availability. Three, less excess capacity for capitalization on the spot market. Number four, the increase in casualty insurance costs versus both the prior year and prior quarter resulting from several severe accidents in the third and fourth quarter of 2020. And then number five, the loss contingency accrued related to the TBK indemnification.

Thank you, Joey. I want to take just a few minutes and address my transition into a consultant role later this year. But first of all, I have to point out that believe it or not, we're two and a half years from the sale of Landair to Covenant. Integration has gone phenomenally well. We've done a phenomenal job at taking advantage of the strengths of both organizations to create the highest amount of value for the company and its stockholders. Also, I want to point out that one of the things that brought me to this decision was the fact that the team has come a long way in a short period of time, if you look at the plan we laid out almost a year ago, I would tell you, we're about eight to ten months ahead of plan. And it's due to the fact that we've got a phenomenal team; they work well together. They're embracing this management process and system that we put into place.

This is David. I appreciate everything that John has done. He has been a great partner in this. He has been a great friend in this, and he's done a fabulous job. This consultant role was not one of just pick up the phone and say I want to consult. This role is going to be, John's going to be in a couple of days a week helping in areas, particularly on what we bought from Landair, specifically focusing on warehousing and the dedicated and the TMAs. Those areas are where we're absolutely going to brainstorm with John and continue to, but there is no doubt that John's going to be hanging around.

Yes, one other thing. So this management process and this focus on stability. I know Paul was mentioning a number of things around rates and those types of things, but our goal was to take this management process and build an organization that's going to be more consistent. And it's output of income through multiple cycles. That's something I really enjoyed. So I'll be here a lot of time in August, September when we're doing budget, building plans for the next year, but also through the force area to maintain relationships and making ourselves more efficient.

So Katie, we're going to open it up for questions.

Our first question comes from Jason Seidl with Cowen.

Thank you, operator. Good morning, gentlemen. Wanted to touch a little bit on the dedicated side. I think the comment was made that about half the contracts are operating under insufficient terms. Is that purely price or what other terms are in there that need to be changed going forward? If you could remind us what percentage of your contracts roll over on a quarterly basis in 2021, that would be helpful.

So John's going to answer that one.

So, Jason, a couple of things. First of all, we've got about 1,600 trucks running what we call dedicated to that. I would also point to the fact that about 300 of those trucks, we transitioned from one account to another in 2020. That's part of the mix that you're seeing in some of the KPIs like yield and those types of things. We've got many trucks today that we're operating without trailers compared to last year, and we've got four trucks where the fuel is passed through. That's affecting how you look at yield per mile of those. But about 300 trucks were transitioned through the pandemic, which we're very proud of. The other thing I'd add to that is we did cut some deals for the first year of those truck operations that if we didn't know what we were going to be, where we are today, we probably would have been a little more aggressive. But we are in a position as we go into 2022 to materially change the pricing on those agreements and still have the stability of those customers committed to three to five years. If we go through another cycle, we'll be enjoying the decisions we made.

And then as you move these 300 to 350 trucks over, how far below market do you think these things are right now?

Far below. You’re talking about on the pricing?

Yes, on the pricing side, yes.

So the ones from last year are four to five percent. The ones going forward, none.

You know what, Jason, when the automotive shutdown, we had about 300 trucks running in automotive last March, April, May. As the automotive shutdown, not knowing if it'd be one week or six months or a year, there’s no doubt that we took about a bunch of trucks, 200 or 300 trucks and made a special deal with folks that we can’t go back and talk to them until the second quarter of this year to move on dedicated. So that's one of the issues.

The other thing you saw in the fourth quarter around dedicated, Jason, was the fact that in anticipating movements from trucks in 2021, one of the other things that we're doing is hiring what we call flex drivers to put in the trucks, driving for those accounts that we know we're going to be exiting, so that when we move those to a new customer, the driver will go with us because they’re required to be in that flex status. Instead of just having a driver that we've hired for that truck, when we go away from that account because of where they live, or what their job description is, they won’t move with the truck. So it'll give us a more seamless transition from one account to the other through 2021. And then as we get those trucks placed at the right customer over about a 90-day period, we'll put a more permanent driver in that truck, and the salary cost per operation of that truck will start to become more efficient.

And Jason, that’s part of why you saw about a $0.05 per mile increase in driver pay per mile on the dedicated fleet, which was about half of the deterioration of OR from Q3 to Q4. Because those flex drivers are our highest cost drivers in the dedicated operations. To John's point, once those drivers -- once the new business gets seeded, the flex drivers will then move over to do it again, on another account.

It's helping us to be more responsive to that new customer with having the truck stated up and running, replacing the account.

Jason, another side to think through is that both on the expediting and dedicated side, we all know that freight management is not going to operate at a 91 OR. There is no doubt about that. On both those buckets, we went out to the market and grabbed trucks on the dedicated side because we didn't have the drivers, and we had to go fulfill at a market rate. You can do the math. We’re charging the dedicated rate at a market rate just to make sure that we're fulfilling the obligation on both dedicated and expedited. So there's some margin -- freight management that got rewarded for, which is great that came out of the profits of the expedited dedicated.

But we've also been able to take some dedicated accounts that didn't make sense for our assets, and they became a permanent customer of our Solutions Group that we think is going to be a win for us as well.

Okay, appreciate those responses. My other question here, when you look at your trouble seeding the fleet, how much do you think is driver availability? And how much of it would you sort of put on COVID right now?

Well, if I knew the answer to that, I’d be probably doing a lot less work. I mean, the availability of drivers is unprecedented in the 30 years I’ve been in this business. And part of that, Jason, I can tell you a different story depending on the geographic area. So it's tough all over for different reasons. But the more we pay people to stay home, the tougher that's going to get. And the sickness has impacted our population from the standpoint of Monday. I was talking with our Sunoco Group, and we had ten drivers out that were sick. So we have to find ways to fill those trucks. I wish I knew that number.

Here's one data point that could at least illustrate the point. I know in our expediting fleet throughout the second, third, fourth, early part of the fourth quarter, our student hires, which is important for the expedited segment, let’s call it half of our hires are students-ish half are experienced drivers. That was cut in half as school capacity was greatly limited as far as how many they could get to classroom and how many they could put on the truck with a trainer at the school. It really slowed down for everybody, not just us. So that ended up impacting our system. As far as driver availability, our students varied significantly. Now our team has worked extremely hard to add additional capacity on the student side through additional relationships that cost money, frankly, to get that count back up to where it needs to be. We are seeing the results of that starting to pay off. And our expedited fleet, which in this market, we think is very important. If we can pass some of that on to our customers, because, again, at the end of the day, freight's got to move. I've got to have drivers to get it done. So that's one data point that I know is real, it impacted our expedited side significantly, but we have recovered through costs as well as adding additional relationships.

Your next question comes from Jack Atkins with Stephens.

Hey, guys, good morning. Thank you for the time. So I guess, David, this one's for you. But I'd love to hear John or Joey's thoughts on this as well. With all these limitations around capacity out there, that's as tough as it is to find drivers; that's got to be good for rates. Can we maybe kind of talk about, if we go back three months ago, David, you were talking about 6% to 8% type rate increases on the expedited side, 3% to 4% type rate increases on the dedicated side. Has anything changed in terms of your rate outlook for 2021, just based on how the markets are developing early this year?

Yes, there's no doubt that it's a very strong market. As I look at things, there's so many moving parts that you're really not going to see the results of what the numbers are going to be in my mind until about the second quarter. Jack, as you know we’ve got what we usually call the top three, which is actually the top four major accounts or a second-quarter event for us. Most of those, three out of those top four accounts, took rate decreases last year, and all four of them will get very nice increases this year. So it's really a second-quarter phenomenon. The second thing is, I look at it’s critical to make sure that we’re looking at examining the revenue per truck per week. Utilization is up very strongly, but there are just so many moving parts. So when you look at that 6% to 8% increase, yes, we are even out of some of the major customers, even though they won’t go into effect until the second quarter.

Yes, David, no doubt about it. I mean you've transformed the business over the last 12-plus months, and I think we're going to start seeing that as we move through this year, but just trying to get a feel for the market, it's so tight, and it's got to be supportive of what you're trying to do on the right side. Now, I know there's a lot of mix issues there. So okay, that makes sense. I mean, we kind of think about the balance sheet and cash flow for a moment, and Paul, to kind of bring you into the conversation for a minute. How are you thinking about free cash flow this year? And going back to the prepared comments, the stock is trading just above tangible -- just above book value. That new $40 million buyback? How should we think about the plans around that, given where the stock’s trading? You're not getting credit for the changes you've made in this business?

Yes, let me start with, absent any cash that goes out the door for the TBK indemnification or the share repurchase, we're probably going to spin off $50 million plus of free cash flow this year. So you start with around $100 million of net indebtedness, and I think that number’s probably $50 million to $60 million of free cash flow. So absent those two events, you can be down in that $30 million to $40 million of net debt range. We don’t know the timing of anything relative to the TBK indemnification. Triumph and Covenant are working hard every day to minimize that. But as discussed, we put the accrual up for GAAP accounting purposes. For argument's sake, let's assume we have to fully fund the $40 million for the Triumph indemnification; you're still only sitting at $75 million to $80 million at the end of the year, which leads into kind of the share repurchase you talked about. We’re not bothered at all about trying to fully fulfill the $40 million share repurchase. It’s a serious repurchase, the largest repurchase that I believe Covenant has ever announced. So the market will dictate how much of that gets filled versus how much of it doesn’t. We’re fine to fill the full $40 million depending on how the stock trades.

Yes, no, absolutely. It's a totally different class for a balance sheet perspective. So that's great to hear. Maybe last question from me is just on tractor count fleet as we think about this year, relative to the fourth quarter levels. Can you maybe update us on the progress you've been able to make in terms of seeding tractors in January, given the driver wage increase that's gone through, and how should we think about fleet count in general over the balance of this year relative to year-end levels?

Yes, let me start on fleet count. For the balance of the year, I would assume a flat fleet count. You may see a tick up, just a hair, as John was talking about in a minute, as we go to replace in some dedicated accounts and using flex drivers to do it. We may have to flex up on a few fleets for some of the dedicated fleets we’re exiting, come back down at the end of the second quarter. So I wouldn't be surprised at the end of the first quarter to see the truck count grow a little bit, but not a lot. For the balance of the year, though, I think you're going to see a fleet count that’s roundabout what you saw at the end of the fourth quarter. We announced the largest driver pay increase on expedited that the company has ever had. I will tell you it has been successful thus far in saving teams. We're hopeful and prayerful that, that continues, both in terms of new entrants coming into the company and stymieing some turnover.

So when I came back from the New Year holiday, I started acting like a child around two facts. One is we had a lot of unseeded trucks, and a lot of trucks in the shop that were down and costing us revenue. Those two numbers alone on the first day of the year represented about 16% of our fleet. This morning when I came in, that’s down to about 9%. So I think we’re making good progress there. We are committed to becoming a place for a driver to want to work, and we continue to refine our recruiting campaign around building density of drivers in certain geographic pockets. For those drivers, we’re able to offer whatever job fits the needs of their lives based on the season they're in. We're starting to see, as we get on into January, productivity from that. If you would have been in Chattanooga or Greenville, the first two weeks of January, you would have heard me yelling a lot about revenue and concerns. But as we got through last week, and are getting into this week, our daily revenue numbers are starting to show us recovering.

I think I’d add to that Jack, as Paul said, it's both on the recruit -- the pay increase on the expedited side has impacted both the recruiting side and the retention side. The net-net of those since early December, our team count’s up very, very, very nicely. So we’re excited. I won’t say what the number is yet, but we’ll wait till the end of the quarter. But we’re excited about where that is right now.

Our next question comes from Scott Group with Wolfe Research.

Hey, thanks, good morning, guys. We want to take the driver pay increase, the trends as far as COVID costs coming back. How much cost is that? When you balance how good the pricing environments can be with some of these costs, what's your realistic level of margin improvement on the trucking side this year?

Scott, I think you're going to see margins improve. We don't give guidance, but I think the rate increases are definitely going to outpace the driver pay increases and other cost inflation items we talked about before. I think you're probably closer to a margin that's about closer to kind of where we were in Q3, Q4, averaging them out, as opposed to kind of what you saw for Q4. So I think we will continue to get better in 2021, and the revenue increases will outpace the cost increases on a full-year basis.

Do you think you should give away, give or take on the trucking side? You think you can do that in full year 2021?

Yes, I think on the trucking side, that’s in a reasonable range really, depending on the outcome of getting trucks seeded and where it shakes out and insurance claims for the year.

So that’s reasonably better than what you guys were trying to communicate a quarter ago. That just the pricing environment's gotten a lot better?

The pricing environment, yes, Scott, is a lot better. The pricing environment is very good. It’s a lot better than where we were back in October when we visited?

It's really about the pipeline. What we're anticipating the change in the mix of our dedicated business looking at the situation from now until the end of June. Our dedicated pipeline is very robust, to the point that we're not only getting a good rate; we’re being able to negotiate good commitments on contract terms and the time. So that if the cycle does turn, we've got some good cash flow assistance. That would be what I would be speaking to. The expediting business, our freight management business, and our warehousing business today are hitting on all cylinders.

If we can continue to grow our team count, that's just going to get better.

Scott, where the real opportunity is, is transitioning these 300 trucks; they are, quite frankly, the least performing legacy business we have.

So Scott, I think you heard John and Joey just speak to the revenue side, and we've got more visibility. I would say the other thing that's changed is we've got more visibility into cost. I mean, you saw where we firmed up our insurance deal for our primary lawyer. We didn’t know what that looked like the last time we spent time with you. We didn’t know what our driver pay increases were going to look like the last time we talked to you. We've got more visibility into that, and then some of the items where we expect the cost to come back. A big one was group insurance because of the pandemic. We saw a lot of those costs go ahead and come back in the fourth quarter. We've got a bit more solid footing on what we think our cost structure is going to look like. Maybe what you're hearing is, we've got a little more visibility into revenue, and a little more visibility into cost. Yes, we're probably incrementally more positive than we were at the end of the third quarter looking into 2021.

Yes, I think the pipeline is strong. If you say freight, freight was good in October, really good. It’s really good today. I think pricing was really good in October, and it's really good today. I think the visibility on the cost side that Paul mentioned has been significant as far as our picture. I think the one piece that has moved meaningfully is the pipeline. It's not that it wasn't good in October; it’s firmed up and is really strong across all segments right now.

It's not just demand; it’s partnerships, which is what we were concerned about in the third quarter. We knew there'd be a lot of demand; we just didn’t know if there would be a lot of partners out there looking for service providers.

Our next question comes from David Ross with Stifel.

Yes, good morning, gentlemen. Start with a couple of clarification questions. First, on the insurance, you talked about having the $10 million deductible. Was that just for a brief period of time as you didn't have that nine in excess of one covered and now that you've got seven in excess of three, your deductible basically went from a $1 million to $10 million back to $3 million?

Yes, it went to $10 million in August, and effective February one, it's going back to $3 million. Before that, it was $1 million. So yes, we had a -- correct.

Okay. And then during that five, six months of exposure, how many accidents pierced that $3 million to $10 million layer? Did you have any in that range?

None pierced the $3 million to $10 million layer. We did -- you'll see our insurance cost was higher in the fourth quarter, when it ran $0.18 a mile. Truckers can't make good money at $0.18 a mile for insurance. We did have a couple of accidents that pierced the excess of one where we had two where we didn’t have any coverage. So there were a couple that were above the one but less than the three in that intervening period. We also didn't have the premiums in that period because we wrote those off at the end of Q3. So it was probably about a wash. We're looking forward to having more solid coverage to minimize volatility in the next few days.

And then on the TFS sale, I know there's been a lot of puts and takes on that as you're trying to get it done. How should we think about that $45 million indemnification or hold back? Is it effectively going to be a $63 million sale price rather than $108 million, or what's your view?

Well, I think that’s a fair way to look at it.

Yes, I don't think you'll see anything else coming forward out of that. The full potential was 45. I think we put up 44.2. And so I think we said earlier, we're working with Triumph to minimize the exposure on that number; where we stand today, the estimate was 44.

Okay, and then on dedicated, a lot of demand for dedicated right now, given the capacity issues. You've got a 1,600 trucks running in dedicated. You said about half are acceptable, and half are not. That’s 800 trucks running at probably 110 or lower. You said that the pricing is only 4% to 5% below the market. Help me square that because it sounds like pricing is 15% to 20% below market while the costs are just way too high?

Well, those 800 trucks you're referencing, they don’t have quite that many. Remember, part of those we cut deals, as we mentioned, it’s a transition business. But the other part of the business, where we're looking to transition over the next six months. I think that’s kind of what we’re up against. And there are some costs; it's really high in that the drivers we put in those 300 or 400 trucks that we're going to try to move out this year, we've got flex drivers, which are about $150 to $200 a week more expensive than a permanent driver.

Dave, when you're comparing, the math you just did, you're bouncing off the fourth-quarter number, which did have a little bit of that kind of excess insurance in there for some more declines. It did have this flex driver deal that John talked about in there. If you look back to Q3, they ran at 94 or lower. When you do your math, averaging them out or using something in the mid-90s, as opposed to the high 90s, taking out some anomalies in the fourth quarter, that number of trucks and 5% under market, I think gets closer to reconciling.

So once you get through this period of adjusting the contracts past Q2 and changing out some of the business, when you look at 2022 or 2023, what's the targeted OR for the dedicated segment?

I would say given the number of trucks we're offering today, where we don't provide trailers or fuel; it's probably going to be in that 90 area.

Our return on invested capital is really good at a 90. But like I said, we don't have -- we're not investing into fuel we don’t have to try that list.

Oh yes, we said do a fresh kind of last quarter's call; we went through a discussion about long-term dedicated what the hot and the high mark is at 92. On the expedites, the high marks at 86. That’s what we're pushing both divisions too. That’s where we're headed. We're confident we've got a good plan to get there. A lot of it is that type of situation, but that’s where we're heading. 90 would be terrific.

Our next question comes from Roger Brandenburg, a Private Investor.

Hey, good morning. I just wanted to congratulate you on being able to pay down so much debt for the last several years. My question is basically on cash flow. Going forward, it's really exciting to see that the share repurchase program that you've put in place. But going forward, I just want to ask about your methodology about your cash flow. Is there a certain amount of leverage that you feel comfortable with that you're probably going to maintain? What to expect to be able to use your excess cash book?

Yes. So Roger, thanks for the question. A couple of things. In the next year, I would say the excess cash flow would probably be used for some combination of the share repurchase and any of the indemnification payments due to trial. After that, it'll probably be to continue to delever or potentially look at acquisitions when, and if they make sense and were accretive to the business. From a leverage standpoint, we probably target staying below 1.5. But two is probably where we don't want to get below or get above.

I think Roger what you would see, what we did with our Landair acquisition, is you may see it tick over that two or up to it or around it possibly. Our target will be to get it back down below that to heading it back down to that one and a half kind of long-term target as quickly as we can.

Our next question comes from Nick Farwell with Aurora Group.

David, I'm curious what your expedited rate increase was in January. Can you give us an approximation what that number was?

We've averaged -- to give you an idea of the big four. Again, it don’t happen, Nick, until the second quarter. We are at about a 7% increase. If you go down and look at all the other ones that have been done since August. That includes since August, September, and October. We’re actually going back again for another round on those; it makes us average 6.7%. You’ve got some that are five that were done in September, before you really saw what was going on in the marketplace. We will go -- and we're speaking to those customers again. But the big four are such a large portion of the business, over 50%, a big portion of the business. What you get out of those is going to be very nice. We already know that those numbers are -- I’ve got A-plus kind of number almost. We felt confident to have the four done and we're negotiating with the others as we speak and feel like we will get there. We don’t have it done yet. It’s a second quarter event before it does. So, if that gives you any idea.

Yes, do you expect an additional -- who knows, because the economy's fragile at best. But would you expect another dedicated price increase, either this spring, maybe late or early spring, late spring, given what you're seeing in the market today?

Yes, we really don’t; the way in which we're doing the dedicated side. There are a couple of moving parts there and that is one that needs to be addressed as we speak. Those 300 trucks or so that need to be addressed, we’ll be addressing that period as we speak it is the next anyway, that's happening. And then you've got about another 300 trucks on top of that; we were warned that when the automotive shut down in April, we gave the customers long-term contracts. But we can talk right after a year. That year doesn't happen until the second quarter. We will be able to go into these customers and ask for changes to make the rates right. We were grateful last April when they were saying, here it is, and we were saying, is it in the black? If I'm in the black, I'm happy. That's where we were, as automotive was shutting down. So there are 600 of the trucks; the rest of them are ones that we talk about on a yearly basis. What we bid on that is not to take advantage of the marketplace; it is the long-term contracts we get with those customers on 3-5 year agreements, allowing us to go through ups and downs of the cycle. That’s the way in which the dedicated is.

Let me add also, most of our dedicated contracts, since we went to a more committed model of dedicated, have drivers' surcharges or indexes in there. If we see this driver pay situation go for another round, we will absolutely go back to get the customers to reimburse us for that.

I was curious more about the long-haul expedited business. I understand the dedicated because you've addressed that before. I'm just curious about the pricing environment for long-haul.

Yes, the pricing environment for long-haul, I would say on the low end is in that 7%-8%. What I mean by that is accounts that were operating at 85 lamps. 7%, 8% is a good number; it's a good number. So I think on the low end of that sale, that 7%, 8%, last quarter was 6%-8%, 7%-8% somewhere there on great accounts that have been with me forever. I'm not going to go out there and say just because I can get 12 out of them, I'm going to go get a 12 because believe me, a year from now, it may be going negative toil, and we're not going to do that. For an existing piece of business, that'd be a better question. Bringing on a new account today; those rates are essentially 10% higher than our existing rates.

Would you expect, given the current environment, that you might be able to affect another rate increase on long-haul, spring-ish or so?

Yes, sometimes I do. If you were to take away the top four, that 50%, top four, I'm not going to do that. We've been there for 20 years with those guys. We won’t go back and ask them for another one after we get it negotiated. But anything underneath there, most of those are open to saying, hey, it’s time to talk.

Especially the ones you raised back in the envelope.

We’re doing that now.

I'm curious if someone could comment if you have any notion about the impact on your inventory replenishment post-holiday, given the dramatic shift from bricks-and-mortar to online e-commerce. Has that muted your -- what you normally would see is a better retail replenishment cycle?

Oh, wow, that's a great question. What we are seeing out there is there are still a lot of haves and have-nots. As I think about the big box retailers, their inventory levels -- in the last couple of weeks, I have been speaking to some of them. Their inventory levels are still extremely low. It’s interesting; some of their suppliers have gone to just-in-time delivery. We’ve brought on about 60 dedicated trucks in the last 45 days in Mississippi and Ohio, strictly because of the service requirement that the big box retailers are making. You can see a couple of things happening. The big box guys are saying, I’ve got very low inventory. Some of their vendors are increasing inventory levels to make sure they hit on-time performance that the big box guys are now requiring regularly.

So that's something that has just happened, John, in the last five, six months.

Yes, our consumer products companies that we do business with, especially those we do business with on the warehousing side, we're seeing them build what I would call enormous inventories. Products we’re out all over the country finding outside our flex base or companies, warehouse companies that are -- yes, they are exploding. So there's something going on between the retailers and the consumer product companies that those finished goods aren't moving right now.

Or they're moving quickly off the shelf. Some of that stuff, comments, it's going off the shelf quickly; they just can't replenish it fast enough.

That is correct. We're also finding it interesting that the big box are making some of the suppliers increase levels of inventory because it's the only way the suppliers can hit on-time performance that the big retailers are now making. We're growing the warehouse side of our business because of that, and we're growing that dedicated.

And then my last question, could Joey, could you just easily break down between dedicated revenues, not operating revenues between dedicated, expedited, and I'll call freight management warehousing, the third sector, and where they are today and where you might think they would be, as a goal you comment about OR goals, just that same mindset that where do you think the revenue mix would be?

Yes, if you go to the four pieces, warehouse and freight management, our target -- our goal is to double that business in three years. That’s the goal for those two pieces. Today I have to do the math, Paul, what's…

About $200 million per trip.

Yes, between both of them.

Today, as a percentage, they were 35%, 36% in the fourth quarter; that was a big spike.

So we want to double both of those pieces. I would say long-term, our warehousing business should be 79-82%, and on startup expenses for an account and things of that nature. Freight management, frankly, we would be very happy with 95-96% on that business. Our dedicated business, we've already said -- you've heard John say its targets 90. I would say, 92 to 90 at the top end. We are open to growing our dedicated business in total. You heard a lot of wheat and feed; we call it mix changes this year. You kind of put that in the hopper and say, okay, then I go up a little bit down a little bit. But Paul has already said they want to keep it flat. Long-term, we're open to growing dedicated, right time, right place, and right industry. That sub-90, 92 overall. So little capital addition and dedicated, we're fine. Expedited, our mission long-term is we're trying to hold fleet, let’s call it around 900 to 1,000 trucks that are where we're happy. The long-term over the next three-ish years is to drive the margin better. Really focus on margin return industry mix, which is going to be hard to move that because historically, the LTL swallow up a lot of the expedited trucks but hold that. So no more capital, really weeding and feeding inside that book of business, producing more profits, more consistent, if we can, which all revolves around the driver product that we're able to put together for the drivers that are willing to team up. That’s kind of the four buckets. Now the end result of all that, let's say if we achieve all of that -- our return on invested capital should be 12% or higher pretty easily. It's not easy to get all that. But we should be north to a 12% return on invested capital, around a billion plus or minus a little bit of revenue, and producing very good returns on the OR EBIT, gross margin earnings per share.

You look at the billion-dollar plan; it's $100 million of warehousing, $300 million of freight management, $300 million dedicated, $300 million expedited. We’re getting there pretty quickly. What it does though is what you're saying with the announcement we made around the stock buyback that is playing out. Yes, we had a lot of decisions that we made this year to quote survive the virus. Now a lot of those decisions were already in play. We started what we’ll call a terminal rationalization program. But when that hit, we started accelerating those. A lot of things, as John said, are accelerating and moving quickly, the cash flow production is significant. The reduction of leverage is meaningful. Another way to say it, the flexibility around the capital for the enterprise is significant. Our $1 billion model only requires replacement CapEx. We get to affiliate and gross revenue with replacement CapEx, which means just in a conceptual sense, you should be generating very substantial amounts of free cash flow.

Our next question comes from Daniel Moore with Scopus.

Gentlemen, how are we doing? Always good to be in the company with Nick, Nick Farwell. I'm going to dovetail in on some of the questions he was asking, specifically around cash flow because it seems to me that's a very important narrative for the company going forward. I love what you guys are doing. I can’t remember the last time I heard a story like this, and the stock was trading at 8.1 times forward PE. So here’s the question I want to ask. $35 million to $45 million worth of CapEx. Let's break that down if we could just so we have a really good understanding what the buckets are this year, so we can start building things out from here. On the $35 million, Dave, that’s pretty much all tractors this year. No trailers. Are you willing to break it down between expedited and dedicated? I’d just like some granularity so we can understand how that money's being spent so we can start thinking about free cash flow going forward. You're welcome to do it however you'd like, whatever is easiest.

Yes, so I mean, basically, it is all revenue--very, minimal non-revenue equipment, CapEx. So it's pretty much all replacement of -- replacement of trucks that are near end of cycle.

I think probably maybe Dan, that's true. But what is maintenance CapEx given our size?

Maintenance CapEx is probably going to run up to $50 million-$55 million a year.

So this year, as far as the plan is, because of all the huge reduction that we had this year, down 20%, almost 600 trucks to go look at where we are at the end of ‘19. The result of that big rationalization has left us with what we chose to dispose of that has left us with another low CapEx year. So it's all said 35-ish, plus or minus, and that's a $20 million-ish, under normal maintenance CapEx for the 2,600 trucks, plus or minus. You’re going to have $22 million and $20 million; grow back up a couple more million. Trailers will be small again in ’22; just because, again, where our trailer fleet is, because we reduced our trailer fleet significantly, also, plus it's a much longer-lived asset. You move into ‘22, depending on where your view is on EBITDA, being able to swallow another $20 million, we’re confident that. Look through the leverage ratio; that’s what I would draw people to. I think Paul said it earlier, even with TBK; even with a buyback, we’re going to be under -- we're going to be at or under one for this year. For this year, we're going to be at or under one this year. As we lead into ‘22 with the growth that John’s mentioned that I talked about, the non-asset-based businesses, as we move and we continue to grow that, as well as move the margin, and couple of them are already at those tight margins, it gives us a lot of flexibility around what the cash flow and leverage picture looks like over the next couple of years.

So if we could, maybe just as a follow-up transition into the dedicated discussion one more time. We're talking about 1,000 basis points of margin improvement potential. That’s what you're targeting, 800 to 1,000. Timing now, I know we -- second quarter, we're going to see a lot, third quarter, I would imagine as much as well. Could you give us -- can you talk to us about, obviously, we don't have a good sense of whether or not everything's on a one-year contract. But in terms of your ability to progress, are you going to need two years, 18 months, 12 months? Could we talk just a little bit about glide path on achieving that opportunity set? And that’s it, thanks.

As we said, we’re at a, let’s call it 100, 99 OR in the fourth quarter. We have a target to get down to 90-ish, 1,000 points of difference. What do we feel is doable from a margin improvement standpoint from 100 to 90? Is it two years to get there? Is it three years to get there? Is it a year to get there?

Yes, I think it's between four and six OR.

So we're confident, Dan, that we’re going to make some very meaningful improvement this year. I think you’ll see improvement every quarter.

It takes four to six quarters to get there.

And the wild card is simply not concerned about pricing; I am concerned about some of our cost objectives, just because we have to go do the work. The driver environment; one of the things about dedicated is it takes a little longer. Our philosophy has always been to figure out what it takes to get the truck seeded, then go get the money. Sometimes that just takes a little longer. It took us longer to start seeding some of our northeast operations; it took us eight weeks to figure out the right package to keep some operations seeded. But I would say, between four and six quarters, we should be in that range.

Right. It strikes me that we are in definitely in a structurally impaired driver market, the likes of which is unique. You’ve got FedEx, UPS, Amazon, which created a huge pull in terms of driver availability away from over-the-road to milk runs in cities and the like, obviously drug and alcohol clearinghouse and schools being shut down. Yes, I think you're going to have to flip the script on that when you talk to dedicated customers; you've got to have the ability to go back in there. But I appreciate the time, gentlemen. Thank you. Have a good day.

At this time, I am showing no further questions. I am now turning it back over to management for closing remarks.

We appreciate everybody's time today. And Katie, thank you for your assistance. Thanks, everybody.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.