Covenant Logistics Group, Inc. Q3 FY2021 Earnings Call

Excuse me, everyone. We now have our speakers in conference. 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 would now like to turn the conference over to Joey Hogan. Please begin.

Thanks, Victoria. Good morning everybody. Welcome to Covenant Logistics Group Third Quarter Conference Call. As a reminder for everybody, 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 that could cause results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures in our filings with the SEC, including without limitation, the Risk Factors section in our most recent Form 10-K and our current year Form 10-Qs. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances. A copy of our prepared comments and additional financial information is available on our new website at www.covenantlogistics.com, in the Investors section of that new website. I'm joined this morning by our Chairman and CEO, David Parker; our Chief Operating Officer, Paul Bunn; and our Chief Accounting Officer, Tripp Grant. We're going to start with a summary for the quarter. After a strong second quarter, we once again achieved record revenue and earnings per share. We're extremely proud and appreciative of our teammates' efforts as we continue to transform our business into a full service logistics provider. We still have more work to do. We know what the issues are, we have good plans, and we remain focused on our strategic direction. Additionally, during this time of supply chain disruption, we will remain extremely proud to be a product and industry that has stayed behind the wheel consistently since the pandemic began. The industry has shown great resolve, leadership, and sacrifice to keep goods moving on the road and within our warehouse communities. I'm certain we will continue. In summary, the key highlights of the quarter were freight revenue grew 28% to $250 million compared to the previous year. Our asset-based truckload group revenue grew 7% versus the third quarter of last year with 157 less trucks. Our less asset-intensive Managed Freight and warehouse segments combined grew 73% compared to the third quarter of last year. On the safety side, we produced another solid quarter for DOT accident rate per mile being 13% below the year ago period, the lowest third quarter rate in 10 years. Although rising insurance premiums and inflation in claims costs across our industry offset some of this benefit. Our TEL leasing company investment produced another strong quarter contributing an additional $0.09 per share versus the year ago period. Lastly, we're able to continue to capitalize on strong cash flows by reducing our net indebtedness by another $25 million since the second quarter of this year for a total of $39 million since the year began. Providing a little bit more color on the items affecting each of the business units. Our Managed Freight division continued its strong performance for the year. For the first time, it's our largest division inside the group. Its revenue for the quarter grew 88% versus the year ago quarter and eclipsed the $200 million mark on a year-to-date basis in the quarter. Results for the quarter were primarily attributable to the robust freight market. Growing its own customer base, handling over freight from expedited and dedicated, plus capitalizing on our heritage of providing profit capacity for various retail customers. This unit remains a strategic growth provision for Covenant, and its high return on investment dynamics. Even though we continue to be cautious about the long-term sustainability of the top-line revenue and operating ratio within this unit, the leadership team is doing a great job for our customers, but also diligent on adding and developing sustainable relationships with the right customers in the right industries. The Expedited division continues to produce strong results, as the supply/demand imbalance in the marketplace continues to lead us to customers that really need end value, team supply for the long-term. We're focused on partners with shippers that are looking past the day's freight, ensuring capacity that keeps our teams busy and productive even during the slow times. We're very excited about where this project and strategic direction is at today. We've been able to improve our operating ratio by 730 basis points and 84.8 OR led by a 21% increase in revenue per truck. Both pricing and utilization are up nicely. On the negative side, we've lost some capacity, as our average tractors are down 156, but the driver market is as bad as it's ever been. Driver wages in this segment are up 15% compared to the year-ago period. With this being the number one issue in this division. The Dedicated division fell slightly short of our goal of a high 90s OR in the third quarter. With the transition of mostly automotive but other businesses as well in July, July was a rough month with a lot of equipment movement, shutdown expenses, and driver wages. The month of August and September did hit our hot 90s target. However, revenue per truck improvement is beginning to accelerate being up 5% sequentially versus the second quarter, and up 13% versus the quarter of last year. Another positive in the quarter is that our open truck situation is the lowest we've seen in several quarters, with only 7% of the fleet open at quarter end. Continued progress on rates and utilization, particularly among a handful of customers, remains necessary. Nevertheless, we are on track for meaningful improvement in 2022. Despite the rare loss of one customer early in the quarter, the Warehousing division continues to grow from a revenue perspective, but took a step back from a profitability perspective in the quarter. We added one new customer late in the quarter with a strong pipeline for the next several months. Operating income was negatively impacted due to additional contract labor costs as it relates to the pandemic, a tight labor market, and additional building rent for a relocated customer facility prior to resumption of revenue and additional revenue at that location. We remain very excited and committed to this strategic growth division. Regarding our outlook for the future. For the balance of 2021, our focus remains to improve the profitability of our dedicated segment and continue running Expedited and Managed Freight for the long term. We're not getting caught up in the spot market. Additionally, peak will be small for us relative to our past, further allowing us to remain focused on the previous initiatives. We continue to anticipate cost headwinds in driver and non-driver compensation and benefits, along with equipment and parts supply. Inflation is definitely affecting transportation and logistics. On the bright side, we expect to be able to pass through cost increases to customers that value our services. As we expect the supply/demand imbalance to continue for the next few quarters. All things considered, we feel we're going to close out 2021 on a very strong note, with earnings approximating third quarter results. Thank you for your time for this opening, and Victoria, we will now open up the call for questions.

Thank you. And we’ll take our first question.

Hey. It's Scott Group from Wolfe Research. Good morning, guys. Thank you.

Hey, Scott. Good morning.

I want to follow up on that comment about the seated tractor counts starting to improve. Maybe just talk about what you're seeing from a driver standpoint, and if you think that that's sort of broadly happening in the industry or more specific to you with respect to the driver market?

Yes, hi Scott, this is Paul. Let me give you a sequential overview. We implemented several pay increases in Dedicated and Expedited due to the challenging unseated situation that persisted through July and August. I would note that the driver count in Expedited actually decreased throughout the quarter, despite a significant pay increase we introduced in early July. It's not necessary to differentiate between Dedicated and Expedited, as they present different scenarios. In Dedicated, while we had some excellent trucks, the unseated issue worsened as the quarter progressed. It’s only recently, in the last couple of weeks, that we've begun to see some improvement in early October. The increase has been noticeable, but we haven't seen a complete turnaround in Expedited. On the Dedicated side, there were substantial pay raises in June and July, and by late August into early September, we observed stabilization in unseated counts. By late September, we were attracting the drivers we needed, but that trend saw a decline again in the last couple of weeks. Both areas show volatility; Dedicated improved but then declined again recently, while Expedited worsened and has since started to recover slightly. When considering the larger picture, the last week of September and the first few weeks of October show better trends overall compared to June and July, but not by a significant margin.

Okay. That's helpful. And then, maybe just do you have some preliminary thoughts around pricing for next year? And just what are the puts and takes that you see in terms of the ability to grow earnings again next year from pretty amazing results this year?

Hey, Scott. This is David. There are two things to consider for next year. Depending on the state of the economy, if it stays as it is today, we might see double-digit increases across the market; however, if it declines, the truck performance won’t match this year’s level. That’s something we need to monitor closely. I believe the supply chain issues will continue to be a significant challenge. Ultimately, our outlook for the economy will influence the trend of rates. Even if the economy slows, I anticipate rates will still rise due to various cost pressures, including increases in driver pay, equipment, personnel, and maintenance. These costs will ultimately be passed on through rate increases.

Is 2022 bid season starting at all yet or not yet?

Not yet. No.

Okay.

By the time we have our fourth quarter conference call, that's kind of when it will start.

Got you. Okay. All right. Thank you guys. Appreciate the time.

Okay. Thanks Scott.

Thank you. Our next question comes from Jack Atkins with Stephens.

Good morning, everyone. Thank you for taking my questions. I would like to start by asking Joey or Paul about the steps you are taking to secure longer-term commitments, especially in Managed Freight and Expedited. Can you provide an update on the status of that process and how you feel about it as we move into 2022?

Yes. I would say only on the Expedited side, Jack, we're feeling really good. I don't know that we want to give an exact percentage as to where we are on what we're calling longer term agreements. But I would say there are a couple of things. This is a significant portion of the business that we've worked to engineer and try to optimize freight within an Expedited network, so it is stickier from a customer standpoint and a driver standpoint. So, hopefully by doing that, it's not as OTR filling-ish. It's not dedicated, but it's not OTR. It's kind of somewhere in between. And it depends on the customer exactly how those agreements look and there are some hybrids of things in there. I think we're continuing to push down that path nicely. On the Managed Freight right side, the base business, there's a lot of spot business in there, no doubt. We're working hard with a handful of customers right now to lock in some, I'll call it 12 months or greater type contracts. I would say that's not as great of a percentage, but it's something we're continuing to work on every day.

That's encouraging to hear. I would be curious about how you see the business trend over the cycles. How do you feel the business is positioned once you secure those longer-term contracts and commitments? What are your thoughts on navigating a potentially challenging freight market in 2023?

I'm incredibly excited about what the team has accomplished over the last year and a half, particularly since early 2020. Our strategic plan is well underway, and I believe the next slowdown won’t impact us as significantly because a large portion of our business will be under contractual agreements, making it harder for customers to get out of their commitments. While utilization might dip slightly when loads are inconsistent, customers won't be able to remove the trucks. We're also in discussions with several large customers and have an 80% chance of finalizing those deals, which will provide protection for our Expedited business. Yes, slowdowns will still affect us, but not as dramatically as before, as evidenced by our performance in recent quarters. On the Dedicated side, we’re making excellent progress. We only need to engage with about a dozen key accounts, and we're actively working on that. Once we secure these accounts, we expect improved operating ratios and profitability. In my 35 years here, I can confidently say this has been our best quarter ever, and we have significant growth potential ahead, which excites me. Regarding Managed Freight, aside from the spot market, there are about five or six customers we need to focus on. We're making progress with a few of them and will be having meetings in the coming months to address the rest. I'm pleased with our successes and look forward to building on them.

No, absolutely. And I know another strategic priority over the last couple of years has been to really strengthen the balance sheet. You guys made another significant step over the last quarter paying down debt. And it gives you a lot of flexibility here. You have the Dutch tender that you announced during the quarter. Would you speak to maybe curious to kind of hear how you guys are thinking about the opportunities to use the balance sheet strategically both in returning capital to shareholders perhaps, but also maybe M&A opportunities? How are you guys looking at that as you kind of move forward over the next year and a half?

We are feeling more optimistic about our M&A prospects overall. My view is that the business is in a much better position and our model is performing well. Given our current balance sheet, we are indeed prepared to pursue M&A opportunities, whether internally or externally. While the market is currently very active, we are taking a strategic approach to identify opportunities that will complement our existing operations and enhance our growth services. It’s a favorable situation for us, and everyone is aligned with this strategy. We also see potential in our dedicated division which offers valuable insights. We have confidence in the long-term stability of the Expedited franchise, although the lingering question is whether it will hold up during a downturn. We believe most, if not all, of it will endure, but time will tell. Our agreements with long-term customers and partners give us strong assurance of their commitment. In brokerage, or managed freight, the returns are currently very strong. We have a long history of being a major project supplier for our shippers, whether during peak seasons or product launches. We've consistently proved our capabilities, such as managing 800 loads for the Allegro launch in just two weeks. We will continue to leverage this experience, and we aim to secure our internal growth while maintaining our market position. The current external market dynamics make it challenging to predict future performance, but we are dedicated to providing excellent service to our shippers. In terms of managed freight, it has emerged as our largest division, generating 36% of our revenue, while Expedited and Dedicated each contribute approximately 29%. Our warehouse operations account for 6% and are on the rise. Overall, the model is showing positive results, which is something I am particularly excited about.

Yeah, just to add on to Joey's point. I went back yesterday, I was looking at net debt, 18 months ago we were sitting at $337 million of net debt, but we've had $272 million of improvement from where we were at March 31st of 2020 to where we are today. We've got no goal of becoming debt-free, but we're certainly quickly moving in that direction. Again, that's not a goal. But what that does is provide us opportunities. Joey has said this before, our biggest opportunity has been internally with our current business that we have. I've been impressed because there's a lot of M&A opportunities out there. They're flying all over the place. I've been impressed with the discipline that we've had to stay focused on the internal business and look at the opportunities that really align with our strategic priorities. So the discipline of doing that has really been impressive to me.

Sounds great. Thanks again for the time guys, really appreciate it.

Thanks, Jack.

Thanks, Jack.

Thank you. We'll take our next question. Caller, please go ahead.

Hey, good morning. Thanks for the time.

Who is it? I'm sorry, we didn't hear your name.

Sorry, the thing went blank. This is Bert Subin with Stifel.

Hey, Bert.

Hi, Bert. Sure.

Hi, guys. How are you doing?

Good.

You mentioned the impact of inflation on your business in your prepared remarks. Do you think that's what's keeping the smaller carrier growth at bay? So even if you end up paying higher wages across the board, the supply part of the equation just doesn't pick up back up as fast as typically as just because of the cost side of the equation? Is that the right way to think about it? And do you think that's a tailwind that maybe gets you beyond 2022?

Yeah, I think depending on how we all think about what the economy is or is not going to do. But yes, there is a big inflation that we all have got, but the small carrier is going to be decimated by that. I mean, it's going to be a difficult time for small carriers. And we're negotiating equipment right now on numbers that are not hurting. I don't know what a small guy, a small company does. And so yeah, they are going to have a wall that they're going to have to go through. If there's any slowdown in the economy, some of those costs are not going to stop. It's going to be very difficult for the small carrier. There's no doubt about it.

Bert, we were discussing the other night about the cost and availability of equipment. Right now, driving trailers are extremely valuable, with rising costs and limited availability. Everyone we speak to believes this situation will not improve for the next 12 months. So, we need to consider what the landscape will look like a year from now, extending out to 2030 and beyond. We’ve also been in discussions with an equipment leasing and resale company that mentioned upcoming EPA engine changes expected around 2024 to 2025. This could lead to a significant squeeze on equipment availability in the next 24 to 36 months. I think this could potentially serve as a tailwind for us.

I would hate to be a small carrier running a seven-year-old truck, I mean, we're still at an average age of 22 months or so. Our average age is 22. The manufacturers, whether these are tractors or trailers, but let's just talk about tractors. We're not going to get our order that we want next year. We're not going to get a total order. I mean, it's going to – our average age will continue to increase not because of our dues, but because they can't manufacture the trucks and you're sitting there with a seven-year-old truck that you're going to run another two years, I mean, their maintenance – maintenance costs in itself will implode them.

Remember, as we know, the average size is seven trucks. And that includes Knights 18,000 and RR 2,500, which is dominated by the small carrier. So they don’t buy new trucks. They buy in the used market. And so the used market right now is silly, as far as what a used truck is selling for. So is that obviously, the spot markets holding up the market, if you will, assuming it's being hauled by smaller carriers. And so that's been propped up. And then if you have needs to, you need to add a truck or locked add a truck or replace a truck, the smaller folks are paying goodness 20%, 30% more than they would normally, and so they still got to fund that. Yeah, the interest rates are cheap today. But how are they going to pay for that capital in the future? Whenever the future, whether let’s call it that effects the economy or freight. And so, that's a pretty big question is you kind of worked your way through that in the next two or three years in the cycles. The good thing for us is that, our equipment plans, we can weather an equipment storm whatever that means, and the larger fleets are, because you got flexibility, you got capital structure, you got the flexibility to extend, if you have to. The big issue is just supply. Can I continue my trade cycle in the normal course of business? And right now it's really tough. So I could argue, until that moves, there's some inflation coming with that. If you're not able to move with that because and then the other thing, everybody shouldn't get all geeked up about again on sale, all of us we're in the business of moving equipment. We're – I mean moving freight, yes, we're in the business of moving freight. If you were to sell a truck today, you're going to make money on it. So okay, what about tomorrow? What's the business tomorrow? What's the cost tomorrow? What's the – so to run a business off again on a sale isn't an answer, because that's not what your business is. And so I think there's some obviously some opportunity to help earnings. We're gaining on sales, I don’t want to price stock list. And folks that have a trade cycle that’s big and we're able to keep their order for this year, you're going to have big gains helping our zone. Ones ahead of low cycle for this year aren't. I think the smaller folks, the equipment issue is a huge – is a massive issue over the next two or three years, which in my opinion is bullish is good for the survivors. I think it's a good thing for the survivors. It's going to help the supply-demand imbalance question whenever the prices hit, in my opinion.

If you could say it like this, nobody thinks labor is going down. Nobody thinks maintenance is going down. Nobody thinks trucks are going down. Nobody thinks fuel is probably going down. But if you just take – if you think you're in an inflationary environment, whenever you have different spot rates, the people that run on spot rates it's going to hurt bad.

Yes, no, that's a great answer. I guess I look at it as the equipment side is, to some degree, transitory, maybe insurance, maintenance, tires, other inputs are less so and so when you got three trucks versus 3,000, your ability to unitize, that's a little different. So it sounds like you guys would agree with that.

Yes.

Yes.

So appreciate that. Just one follow-up for me. On the dedicated side, would you say competition has been a challenge? Clearly there's been a lot of carriers moving into the space over the last year, just by virtue of the labor situation. It sounds like some of your shippers are okay exiting contracts. So, I mean, what do you think, why would they exit if they didn't have an alternative?

I would say it seems that we might be exiting more than they are in certain situations, where they believe they can achieve better results with a one-way model or some other top model due to the increase in rates.

And we all know, when we started the pandemic, we had, what, 300 plus trucks run in automotive. We had a big portion, what, 20% of our fleet was automotive and we're still living that nightmare that they're going through. We're about halfway through that on our sales. We've taken that from 20% of the fleet down to about 10% of the fleet. One of the things you saw in the second quarter is, when you start getting rid of 150 trucks or so, and there's 400 trailers that are all over the United States, think about the costs that are involved in saying, never going to come back, but I can't handle this, shutting down a plant every other week. I mean, I can't do that. We had the pipeline from 150 trucks and put them in the other half of the business, but the second quarter got a tremendous amount of cost of doing that, and you see where that goes. I mean, it may need to go to zero, but we'll determine where that's going to go.

Maybe just one quick follow-up on that. You mentioned that you've typically focused on pursuing smaller business opportunities with around 10, 15, or 20 trucks instead of larger contracts. Do you think that approach is still the right strategy, and is it proving effective?

It takes time to achieve that. Making smaller adjustments can be challenging while larger modifications tend to yield quicker results, but they require more effort to implement in larger contracts. We're primarily focusing on acquiring those top accounts. However, as David mentioned, when losing significant contracts, replacing them with smaller ones involves considerable costs for relocating trucks, trailers, and drivers. Additionally, four of our top ten dedicated customers experienced serious supply chain disruptions in the third quarter, three of which were related to the forks. This situation contributes to the difficulties we've faced, especially when significant customers have major supply chain challenges throughout the entire quarter.

Hey, guys. This is Jason Seidl from Cowen.

Hello, Jason.

So apology, I jumped on a little bit late here but wanted to drill down on the Dedicated and how you're looking at that improvement. Understand, you got rid of some accounts, and there were some supply chain issues in the quarter. But what sort of improvement do you think that we're going to see quarter-over-quarter, and then how should we look at some of the new accounts that you're speaking of at their level of profitability as we look on 2022?

Here's what I would say. We ran kind of that high 80s, high 90s OR in September once we got through August and September, once we got through all of that cost in July. We feel confident that we're going to be a bit improved sequentially from three to four. We're trying to leave it at that right now Jason, but it's going to improve from what you saw in Q3 and the fourth quarter. I think you'll see some incremental improvement from Q4 to Q1, so the incremental improvement is coming.

Let me ask it another way. What percent of your business changed over in the quarter to new customers?

Here in the quarter, it was probably 10%, and then we got another 5% in process right now.

Another 5%. Is it safe to say that the accounts that have changed over are well in the profitability levels?

Yes.

Okay. That's a good way to look at it. Perfect. I want to follow up on a question that Scott asked. He asked about CD trucks. I want to comment that from another angle. When you look at increased driver pay, look at increased recruiting costs, what on a percentage basis, how much more does it cost you to put a new button in a seat right now?

Well, the driver pay Q2 over Q3 just in the Dedicated just about 12%, and then you're going to have the increased cost of recruiting, so it's about 15%, 20% from Q2 to Q3. The rates are up nicely as well too, but rates are up but so are the costs. On the Expedited side, we raised pay as we said in July, and we're going to have another pretty sizable pay increase coming out on the Expedited side in the next few weeks.

Okay, fair enough. Switching over a little bit to the warehousing side of things. Obviously, we saw a spike up there in the OR. How should we look at that business? You talked about partially offsetting some of the costs going forward. Is this where you can get somewhere between Q3 and Q2 in terms of the OR?

Here’s what I would say, Q3, Q4 investment for growth. I think you'll see more revenue and more OR in Q1.

That sounds fair enough. Lastly, talk a little bit, obviously, your Dutch tender. You probably didn't get anywhere near as many shares as you wanted. Unfortunately, today you're getting another bite of the apple in terms of a much lower stock price than where you were before. Any thoughts on repurchasing your shares on a regular basis at these current levels?

Yes, I think, Jason, we were disappointed. We saw really good value. The market wasn't recognizing it. We came out big, and we wanted to go after it. Obviously, the market didn't play with us, and said, oh, wait a minute, that's too cheap, I'm not going to sell it like that. So the market moves. So I want our strategy, we want to buy. And so that desire is dependent on value and the recognition of value and our progress which remains on the table. I'm not going to comment if we're going to institute a regular program or whatever. But as Tripp said earlier and I said, I think anything around capital structure and/or growth opportunities that make sense, because of where the balance sheet is, is we're looking at everything very, very closely.

You're in a much nicer position now than you were a few years ago. That's for sure. Gentlemen, appreciate your time as always.

Thank you, Jason.

Thank you. We'll take our next question.

This is Nick Barwell. Joey, could you comment a little bit about your hedging strategy, fuel hedging strategy? To what degree have you implemented it? To what degree are you going to implement it? And where do you stand on that?

We currently don't have any outstanding hedges, and in retrospect, we wish we did. Historically, we've been quite active in the market, experiencing both good and bad periods. The key difference now is that in the past, we focused on keeping our costs as fixed as possible, which led us to invest in insurance to manage those costs during transitional times. Today, while we acknowledge some negative aspects overall, we have also encountered successful periods alongside significant losses. However, our costs remained stable. We have adopted a more aggressive approach, aiming to ride the market instead of hedging as much as before. We're still committed to our surcharge program, which is performing well, and the recovery percentage is on the rise. In terms of fuel costs, I am more concerned about their impact on the economy than on our operations, thanks to the robustness of our surcharge program.

If you take into consideration the time lag and the surcharge, how much does that cover as a gross statement sort of the swing in energy prices?

About 75%.

Okay. Okay. As you restructure Expedited and focus more on long-term customers, how is this change affecting your geographic activities and lanes? Has it reduced your average length of haul? Has it shifted your focus away from the West Coast or towards the Northeast? What are the implications of these changes?

Hey, Nick. This is Paul. No, it's linked to haul and the Expedited franchise is probably, as long as it's been an average or less in the last five or six years. So I'd say it's more of the same.

Great, Thank you, Paul.

I would say, what we did Nick is that the long-term contracts with the customers versus having some of those customers, we've had a lot of them for years and years and years, but we just firmed it up, so that during the downtime, they'll be taking us to haul that load than somebody that's a nickel a mile cheaper than us during the tough times. So that's really what the contract does. And again, there's no dedicated quote in the Expedited. But we've got 60% of our freight that's engineered.

Yeah.

I mean, it's going from A to B to back to A or ABC back to A. We started this year, that number was probably about 20%. We're up to 60% of freight that's engineered. The turnover is unbelievably better among that group of drivers that have the consistency.

I say...

And in another way, we're addressing this matter.

No. I was going to say that anecdotally, which is a weak insight but perhaps an insight: driving in – I'm in California and driving up to Lake Tahoe or down to the southern part of the state. In the past, I've seen Covenant trucks at a fair number. Obviously, Gordon and US, etc. And it's very unusual over the last three, four months, for whatever it's worth, very few name take. What would I call brand name long-haul truckers, the Gordon, UGAI, US freight, etcetera. It's almost all logistics. I find that confusing. Maybe you can enlighten me on why that's the case, especially around the port of LA. It just, but I'm astounded. You've got – first of all, our freight going to in particular California has not changed a bit. We're still running the same volume I'd say 90% of them are the same lanes that we've always ran.

Yeah.

So you're just not seeing the trucks. But that said, there are a lot of carriers are saying, 'Hey, Managed Freight a Covenant, let's someone else that wants to go to California take my assets off it and grow grid out, going to the West Coast.' Covenant really does not do that. We've been committed to California for many years, but that's another reason you're seeing logistics and all brands. And who’s that? I guarantee those carriers that you used to see are still controlling the freight, but they're saying why am I going to California, let somebody else go?

Well, I’ll leave here a second. And I can totally endorse what you're saying. Thank you very much, David. That has surprised me.

Thank you. That concludes today's question-and-answer session. Mr. Hogan. At this time, I'll turn the conference back to you for any additional or closing remarks.

Okay. Thanks, everybody, for participating. Victoria, thanks for your help. And we'll talk to everybody next quarter. Thanks a lot.

This concludes today's call. Thank you for your participation. You may now disconnect.