Covenant Logistics Group, Inc. 17th Annual Midwest IDEAS Conference

Morning, everyone. Thank you for joining us. My name's John McNamara. I'm with Three Part Advisors. Our next presentation is Covenant Logistics. Covenant is a trucking and logistics holding company that has made great progress evolving from a deeply cyclical long-haul trucker to a more diversified logistics platform, reallocating capital to higher return businesses, prioritizing free cash flow, and de-leveraging. Covenant's also a Three Part Advisors advisory client, so if anybody wants to meet with management afterwards, just get in touch with me. I'll be happy to set that up. Stock trades on the New York Stock Exchange under the symbol CVLG. With us today is Tripp Grant, Chief Financial Officer.

Tripp? Thank you, John. I just got back from Missoula, Montana for the last three or four days fly fishing.

If in the middle of my presentation I start telling fish stories or working on my back cast, that's because I've been in a boat for the last three days. But thank you for joining us. Covenant is a place that I've been for the last seven years after swearing that I would never be in transportation. I cut my teeth in consumer healthcare, worked at a company called Chattem in Chattanooga. Worked there for 13 years. In 2010, it was acquired by a French pharmaceutical company, and we launched brands like Allegra and Nasacort Xyzal and sold different products that made a lot of money. That business model was incredibly simple and incredibly profitable.

When we were acquired in 2010, we were acquired by the French pharmaceutical company, and they had a headquarters then. The U.S. headquarters was in Bridgewater, New Jersey versus Chattanooga, where I was born and raised. I remember thinking, I was like, "Well, I'm not going to bring my family up to New Jersey." All of our family's from Chattanooga. Then our former president at Chattem was on the board at Covenant Logistics, and he said, "Well, would you be interested in transportation?" I said, "Bob, I love you, and I have all the respect for you in the world, but I have no interest in transportation. It's too hard. We don't make nearly as much money. It's cyclical. It's risky. It's seasonal. All of the bad stuff. It's capital intensive." He said, "Well, just go. I think you'll like and enjoy talking to the people.

It's got its challenges." So in the summer of 2019, after I was released and they moved the commercial operations up to New Jersey, I went and started talking to the folks at Covenant and fell in love with the people and the culture, and joined at a really pivotal time. What I found just over the years is I was right. Trucking is a really tough business. But it was really about the people. The people that we work with every day, and the management team, especially today, are the most committed people I've ever met, and that's what's made it fun for me. I think that's what's really dialed into a lot of our success or the secret formula behind the success.

It's not a particular line of business or a certain customer or a customer mix or anything, that magic that we're doing, that I'll talk about here in just a minute. It's really a lot of talented, hardworking people that go out and get after it every single day. That's one of the more unique things that I've found about transportation that I really love. Since I got there, I got there at a really interesting time in 2019. We were in the middle of our strategic planning, and we had all of these ideas on what to do, what not to do, what to get out of, what to invest in. They weren't actionable. Right after that, COVID hit, and we weren't sure if COVID was going to last 3 weeks, 3 months, 3 years, or forever. We said, "You know what?

This is a perfect time to go ahead and start executing on a lot of these strategic plans." They were hard things, and they resulted in, I think, only 20% or 30% of the current management team, which is the top 15 people in the company, are with the company today back in 2020. So it was painful. There was a lot of turnover. We reorganized the company, and our desire was really just what this thing highlights, this slide highlights right here. Key investment highlights is really just the stuff we're doing, and it's really just about being different. There is so much commoditized freight in our industry that people try to compete over. What that means is when the market is soft, they're taking hits on rate and utilization and shrinking their fleets.

When the market is tight, because it is a very cyclical industry, then they take rates up, then they grow their truck count and all of this stuff, and it's just a simple supply and demand model. It's a commoditized industry for the whole. There is 1% of it that I fully believe is not commoditized, and we're focused on that 1%. This slide does a good job of talking about some of our keys to success, none of which are earth-shattering, but diversification has been huge for us. We operate in 4 different segments. Two truckload segments, expedited and dedicated, of which we have about 2,200 trucks. Two asset-light segments, managed freight, which if you're familiar with trucking, basically it's an asset-light brokerage and warehousing. Warehousing is our smallest segment, but I think I like that the most.

You don't have fatalities in warehousing. Maybe you have a few work comp claims, but you're not out on the road having catastrophic accidents, which is part of the game in truckload. This diversification has really, really served us well for the last 5 or 6 years, and we've been able to successfully grow it. The other thing I think that makes us different, and it's something I recognized when I got into trucking, started coming to conferences and industry events. Truckers, it's like the Wild West a little bit. They love talking about their trucks, how many trucks they have, how many trailers they have, and their top-line revenue. Nobody really likes to talk about profit or margin or, in trucking world, OR, operating ratio.

But it's something that I'm like, "My goodness, this thing is target-rich environment," because everybody's just competing for revenue and truck count. It's easy to grow with bad revenue, but it's hard to make money consistently. What we've focused our strategy on is just a capital return model that optimizes cash flow. John said it in his intro, and it's simple. It's conferences like these with generalists and micro-cap folks that I talk to a lot that are focused on cash flow. It's so unique because of the trucking-specific conferences I go to, they play the cycle. I think the difference between us is Covenant is focused on making the 2031 or the 2032 Covenant a better Covenant by the actions that we're taking today.

We want to have a great 2026, but we also want to make some strategic decisions in 2026 that are going to make us better for the next 5 years. There's a lot of companies out there in our peer group that are actually making. There's a lot of commercial disruption, I call it, because they're out to strike vengeance. We've been in a 3-year freight recession, the back half of 2022, 2023, 2024, and all of 2025, so 3 and a half years. It started the very tail end of 2025. We started seeing capacity come out of the market through regulation enforcement, and then it has been on the upswing ever since, all of 2026. We think the remainder of 2026 is going to continue to improve. Again, through longer-term thinking versus shorter-term thinking, trying to repair and constantly improve the model.

We are where we are today. I think we've got a good model, but there's always 10% that's underperforming at the bottom that before we start growing our truck count, that we need to purge out, because that 10% is highly underperforming. I'm not going to sit up here and read all these slides. I'll probably be one of the quicker presentations, but we were founded by our founder. You can see David Parker over to the far side. David founded the company 40 years ago. He founded it on Christian principles. He is one of the most upstanding men I've ever met or have had the pleasure to work with. He's also given us the freedom to make really big decisions. I came from a company that wasn't as free. You could make a decision there.

David has, like I said, he's in Florida the last 2 weeks, and he spent probably almost 2 and a half months there a year. He still stays engaged, don't get me wrong. When he's in Chattanooga, he's there every single day, but not to the extent that he was before. I give David a lot of credit for allowing Paul and Dustin, Joey Ballard, and I to make some really big decisions to his company that he founded. We're a public company, but he still owns quite a bit of the stock. He's involved with it day to day, and it is like a third child for him. He loves the company, and I think you can tell that we're a younger generation, I guess, of leadership. David has taught us a lot.

But I think he draws some energy from us because we have a lot of energy and a lot of desires to make the Covenant and the model better. We think outside of the box a little bit more than a very tenured management team. I think that's led to some of our success. Again, this just gives you an idea of where we operate. Our expedited fleet runs all over the country, so there's not really any sort of DOTs or identifiers on this map for our expedited. But each one of these blue circles is a dedicated fleet, and a red dot is where our warehousing units are. You can see where our wheelhouse is and our committed capacity. We run about 2,200 tractors across our fleet, all fleets. We generally have a 2-to-1 tractor-trailer ratio or trailer-tractor ratio.