Covenant Transportation Group, Inc. (NASDAQ:CVTI) Q4 2019 Earnings Conference Call - Final Transcript
Jan 24, 2020 • 11:00 am ET
Richard B. Cribbs
equity investment in TEL compared to the inclusion of a $1.7 million pass-through gain or $0.09 per diluted share in the fourth quarter of 2018.
The average age of our tractor fleet continues to be young at 2 years as of the end of 2018, down from 2.2 years as of end of 2018. During the fourth quarter, we took delivery of 47 new tractors and disposed of 256 used tractors, and at December 31 had approximately 625 tractors, the excess tractors, removed from our operating fleet that are either in the process of being prepared or have already been prepared and our held for sale. We expect to dispose of most of the excess tractor units in the first half of 2020.
Between December 31, 2018 and December 31, 2019 total lease adjusted indebtedness, net of cash, increased by approximately $50 million to $304.6 million. At December 31, 2019, our stockholders' equity was $350.1 million for a ratio of net lease adjusted indebtedness to total cap of 46.5% compared to a 42.6% ratio as of December 31, 2018. In addition, our leverage ratio has increased to 2.4 times from 1.5 times a year ago.
The main positives in the fourth quarter were: one, consistent profitability from our Landair dedicated truckload and managed freight businesses in a difficult freight economy; two, decreased truckload operating costs on a per mile basis; and three, a $24.2 million quarterly decrease in our net lease adjusted indebtedness.
The main negatives in the quarter were: one, the pass-through loss from our investment in TEL; two, the 10.4% year-over-year decrease in average freight revenue per truck for our Truckload segment; and three, the operating margin declines of our expedited and solo refrigerated service offerings on a year-over-year basis; and four, the large amount of excess non-operating equipment at year-end that results in higher indebtedness and related expense until sales proceeds are realized.
Our operational fleet size experienced an increase to 3,021 by the end of December, a small 13 truck increase from our reported fleet size of 3,008 trucks at the end of September.
From a financial perspective, we expect operating cash flows and our leverage ratio to improve for fiscal 2020 compared with fiscal 2019. We expect financial improvements to be weighted towards the second half of the year as year-over-year comparisons and consolidated average freight revenue per total mile and margin performance in certain irregular route Truckload operations are expected to be negative for at least the next several months.
Our expectations for improving performance throughout 2020 are based on assumptions of: declining truckload industry capacity due to, among other factors, a continuation of falling new truck production, competitors exiting the industry and tighter federal drug testing regulations; two, continued US economic expansion; three, the successful disposal of excess real estate and revenue equipment; and four, the reallocation of assets to more profitable operations. The timing and magnitude of these factors will impact our results.
For 2020, we are intensely focused on accelerating our