Attached files
| file | filename |
|---|---|
| 8-K/A - FORM 8-K/A - COVENANT LOGISTICS GROUP, INC. | form8ka.htm |
Exhibit 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On July 8, 2020, Covenant Transport Solutions LLC (“CTS”), doing business as Transport Financial Services (“TFS”) and an indirect wholly owned
subsidiary of Covenant Logistics Group, Inc., a Nevada corporation (the “Company”), entered into an Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Advance Business Capital LLC (“ABC”), an indirect wholly owned subsidiary of
Triumph Bancorp, Inc. (“Triumph”). Pursuant to the Purchase Agreement, CTS sold, and ABC purchased, substantially all of TFS’ operations and assets (the “Transaction”). CTS sold approximately $103.3 million of net accounts receivable and related
transportation factoring assets. In exchange, the Company received gross cash proceeds totaling approximately $108.4 million, plus Triumph common stock valued at approximately $13.9 million, and the opportunity to earn deferred net contingent cash
consideration up to approximately $9.0 million (net of allocations to former TFS management) after the twelve-month period ending July 31, 2021. The Company is estimating transaction costs directly related to the transaction of $0.9 million. The
Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions and includes certain ancillary agreements relating to registration rights, transition services, and ongoing referrals.
The unaudited pro forma consolidated financial information is based on the assumptions set forth in the notes to such information. These adjustments are provisional and subject to
further adjustment as additional information becomes available, additional analyses are performed, and as warranted by changes in current conditions and future expectations. The unaudited pro forma adjustments made in the compilation of the unaudited
pro forma financial information are based upon available information and assumptions that the Company considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative
purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).
The pro forma adjustments have been made solely for informational purposes. The actual results reported by the Company in periods following the disposition may differ significantly
from that reflected in these unaudited pro forma consolidated financial statements. As a result, the unaudited pro forma consolidated information is not intended to represent and does not purport to be indicative of what the Company’s financial
condition or results of operations would have been had the disposition been completed on the applicable dates of this unaudited pro forma consolidated financial information. In addition, the unaudited pro forma condensed consolidated financial
information does not purport to project the future financial condition and results of operations of the Company.
The unaudited pro forma consolidated financial statements are based on various assumptions, including assumptions relating to the consideration received for TFS based on
preliminary estimates. The pro forma assumptions and adjustments are described in the accompanying notes presented on the following pages. Pro forma adjustments are those that are directly attributable to the Transaction, are factually supportable
and, with respect to the unaudited pro forma condensed consolidated statements of income, are expected to have a continuing impact on the Company’s results.
These unaudited pro forma consolidated financial information and the accompanying notes should be read together with (1) the Company’s audited consolidated financial statements and
accompanying notes, as of and for the fiscal year ended December 31, 2019, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, which was filed with the SEC on March 9, 2020 and (2) the Company’s unaudited consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2020 and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, which was filed with the SEC on May 27, 2020.
The unaudited pro forma consolidated balance sheet of the Company as of March 31, 2020 gives effect to the disposition of TFS by the Company as if it had occurred effective March
31, 2020.
The unaudited pro forma consolidated statement of operations of the Company for the three months ended March 31, 2020 gives effect to the disposition of TFS by the Company as if it
had occurred effective January 1, 2020, the beginning of the Company’s 2020 fiscal year.
The unaudited pro forma consolidated statement of operations of the Company for the years ended December 31, 2019, 2018 and 2017 gives effect to the disposition of TFS by the
Company as if it had occurred effective as of the beginning of the Company’s respective fiscal year.
1
|
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
|
|||||||||||||
|
March 31, 2020
|
|||||||||||||
|
ASSETS
|
Covenant Logistics
Group
|
Transaction Adjustments
|
Notes
|
Pro Forma
|
|||||||||
|
Current assets:
|
|||||||||||||
|
Cash and cash equivalents
|
$
|
39,655
|
$
|
5,089
|
(A)
|
$
|
44,744
|
||||||
|
Accounts receivable, net of allowance
|
192,628
|
(108,723
|
)
|
(B)
|
83,905
|
||||||||
|
Drivers' advances and other receivables, net of allowance
|
9,799
|
-
|
9,799
|
||||||||||
|
Inventory and supplies
|
3,812
|
-
|
3,812
|
||||||||||
|
Prepaid expenses
|
7,948
|
-
|
7,948
|
||||||||||
|
Assets held for sale
|
22,691
|
-
|
22,691
|
||||||||||
|
Income taxes receivable
|
4,785
|
(4,623
|
)
|
(C)
|
162
|
||||||||
|
Other short-term assets
|
1,226
|
-
|
1,226
|
||||||||||
|
Total current assets
|
282,544
|
(108,257
|
)
|
174,287
|
|||||||||
|
Property and equipment, net of accumulated depreciation
|
499,518
|
-
|
499,518
|
||||||||||
|
Goodwill
|
42,518
|
-
|
42,518
|
||||||||||
|
Other intangibles, net
|
28,884
|
-
|
28,884
|
||||||||||
|
Other assets, net
|
59,220
|
22,339
|
(A)
|
81,559
|
|||||||||
|
Total assets
|
$
|
912,684
|
$
|
(85,918
|
)
|
$
|
826,766
|
||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|||||||||||||
|
Current liabilities:
|
|||||||||||||
|
Checks outstanding in excess of bank balances
|
$
|
481
|
$
|
-
|
$
|
481
|
|||||||
|
Accounts payable
|
23,742
|
(5,437
|
)
|
(B)
|
18,305
|
||||||||
|
Accrued expenses
|
34,180
|
900
|
(B)
|
35,080
|
|||||||||
|
Current maturities of long-term debt
|
61,403
|
-
|
61,403
|
||||||||||
|
Current portion of finance lease obligations
|
7,062
|
-
|
7,062
|
||||||||||
|
Current portion of operating lease obligations
|
18,452
|
-
|
18,452
|
||||||||||
|
Current portion of insurance and claims accrual
|
21,998
|
-
|
21,998
|
||||||||||
|
Other short-term liabilities
|
1,086
|
-
|
1,086
|
||||||||||
|
Total current liabilities
|
168,404
|
(4,537
|
)
|
163,867
|
|||||||||
|
Long-term debt
|
228,203
|
(103,286
|
)
|
(A)
|
124,917
|
||||||||
|
Long-term portion of finance lease obligations
|
24,901
|
-
|
24,901
|
||||||||||
|
Long-term portion of operating lease obligations
|
36,357
|
-
|
36,357
|
||||||||||
|
Insurance and claims accrual
|
42,902
|
-
|
42,902
|
||||||||||
|
Deferred income taxes
|
78,670
|
2,141
|
(C)
|
80,811
|
|||||||||
|
Other long-term liabilities
|
4,754
|
-
|
4,754
|
||||||||||
|
Total liabilities
|
584,191
|
(105,682
|
)
|
478,509
|
|||||||||
|
Stockholders' equity:
|
|||||||||||||
|
Class A common stock
|
173
|
-
|
173
|
||||||||||
|
Class B common stock
|
24
|
-
|
24
|
||||||||||
|
Additional paid-in-capital
|
142,345
|
-
|
142,345
|
||||||||||
|
Treasury stock at cost
|
(17,515
|
)
|
-
|
(17,515
|
)
|
||||||||
|
Accumulated other comprehensive loss
|
(3,364
|
)
|
-
|
(3,364
|
)
|
||||||||
|
Retained earnings
|
206,830
|
19,764
|
(D)
|
226,594
|
|||||||||
|
Total stockholders' equity
|
328,493
|
19,764
|
348,257
|
||||||||||
|
Total liabilities and stockholders' equity
|
$
|
912,684
|
$
|
(85,918
|
)
|
$
|
826,766
|
||||||
See the accompanying notes to unaudited pro forma consolidated financial statements.
2
|
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|||||||||||||
|
Three Months Ended March 31, 2020
|
|||||||||||||
|
Covenant Logistics
Group
|
Transaction Adjustments
|
Notes
|
Pro Forma Consolidated
|
||||||||||
|
Revenue:
|
|||||||||||||
|
Freight revenue
|
$
|
192,321
|
$
|
(2,739
|
)
|
(B)
|
$
|
189,582
|
|||||
|
Fuel surcharge revenue
|
21,232
|
-
|
21,232
|
||||||||||
|
Total revenue
|
$
|
213,553
|
$
|
(2,739
|
)
|
$
|
210,814
|
||||||
|
Operating expenses:
|
|||||||||||||
|
Salaries, wages, and related expenses
|
82,825
|
(360
|
)
|
(B)
|
82,465
|
||||||||
|
Fuel expense
|
25,265
|
-
|
25,265
|
||||||||||
|
Operations and maintenance
|
12,825
|
-
|
12,825
|
||||||||||
|
Revenue equipment rentals and purchased transportation
|
46,062
|
-
|
46,062
|
||||||||||
|
Operating taxes and licenses
|
3,454
|
-
|
3,454
|
||||||||||
|
Insurance and claims
|
15,614
|
-
|
15,614
|
||||||||||
|
Communications and utilities
|
1,569
|
-
|
1,569
|
||||||||||
|
General supplies and expenses
|
8,568
|
(123
|
)
|
(B)
|
8,445
|
||||||||
|
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
16,663
|
-
|
16,663
|
||||||||||
|
Total operating expenses
|
212,845
|
(483
|
)
|
212,362
|
|||||||||
|
Operating income (loss)
|
708
|
(2,256
|
)
|
(1,548
|
)
|
||||||||
|
Interest expense, net
|
2,892
|
(993
|
)
|
(B)
|
1,899
|
||||||||
|
Loss on equity method investment
|
735
|
-
|
735
|
||||||||||
|
Loss before income taxes
|
(2,919
|
)
|
(1,263
|
)
|
(4,182
|
)
|
|||||||
|
Income tax benefit
|
(706
|
)
|
(322
|
)
|
(E)
|
(1,028
|
)
|
||||||
|
Net loss
|
$
|
(2,213
|
)
|
$
|
(941
|
)
|
$
|
(3,154
|
)
|
||||
|
Income per share:
|
|||||||||||||
|
Basic and diluted net loss per share
|
$
|
(0.12
|
)
|
$
|
(0.17
|
)
|
|||||||
|
Basic and diluted weighted average shares outstanding
|
18,088
|
18,088
|
|||||||||||
See the accompanying notes to unaudited pro forma consolidated financial statements.
3
|
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|||||||||||||
|
Year Ended December 31, 2019
|
|||||||||||||
|
Covenant Logistics
Group
|
Transaction Adjustments
|
Notes
|
Pro Forma
|
||||||||||
|
Revenue:
|
|||||||||||||
|
Freight revenue
|
$
|
800,401
|
$
|
(9,140
|
)
|
(B)
|
$
|
791,261
|
|||||
|
Fuel surcharge revenue
|
94,127
|
-
|
94,127
|
||||||||||
|
Total revenue
|
$
|
894,528
|
$
|
(9,140
|
)
|
$
|
885,388
|
||||||
|
Operating expenses:
|
|||||||||||||
|
Salaries, wages, and related expenses
|
321,997
|
(1,499
|
)
|
(B)
|
320,498
|
||||||||
|
Fuel expense
|
115,307
|
-
|
115,307
|
||||||||||
|
Operations and maintenance
|
59,505
|
-
|
59,505
|
||||||||||
|
Revenue equipment rentals and purchased transportation
|
204,655
|
-
|
204,655
|
||||||||||
|
Operating taxes and licenses
|
13,024
|
-
|
13,024
|
||||||||||
|
Insurance and claims
|
47,724
|
-
|
47,724
|
||||||||||
|
Communications and utilities
|
6,969
|
-
|
6,969
|
||||||||||
|
General supplies and expenses
|
30,434
|
(114
|
)
|
(B)
|
30,320
|
||||||||
|
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
78,879
|
-
|
78,879
|
||||||||||
|
Total operating expenses
|
878,494
|
(1,613
|
)
|
876,881
|
|||||||||
|
Operating income
|
16,034
|
(7,527
|
)
|
8,507
|
|||||||||
|
Interest expense, net
|
11,110
|
(2,892
|
)
|
(F)
|
8,218
|
||||||||
|
Income from equity method investment
|
(7,017
|
)
|
-
|
(7,017
|
)
|
||||||||
|
Income before income taxes
|
11,941
|
(4,635
|
)
|
7,306
|
|||||||||
|
Income tax expense (benefit)
|
3,464
|
(1,182
|
)
|
(E)
|
2,282
|
||||||||
|
Net income
|
$
|
8,477
|
$
|
(3,453
|
)
|
$
|
5,024
|
||||||
|
Income per share:
|
|||||||||||||
|
Basic net income per share
|
$
|
0.46
|
$
|
0.27
|
|||||||||
|
Diluted net income per share
|
$
|
0.45
|
$
|
0.27
|
|||||||||
|
Basic weighted average shares outstanding
|
18,435
|
18,435
|
|||||||||||
|
Diluted weighted average shares outstanding
|
18,635
|
18,635
|
|||||||||||
See the accompanying notes to unaudited pro forma consolidated financial statements.
4
|
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|||||||||||||
|
Year Ended December 31, 2018
|
|||||||||||||
|
Covenant Logistics
Group
|
Transaction Adjustments
|
Notes
|
Pro Forma
|
||||||||||
|
Revenue:
|
|||||||||||||
|
Freight revenue
|
$
|
779,729
|
$
|
(5,038
|
)
|
(B)
|
$
|
774,691
|
|||||
|
Fuel surcharge revenue
|
105,726
|
-
|
105,726
|
||||||||||
|
Total revenue
|
$
|
885,455
|
$
|
(5,038
|
)
|
$
|
880,417
|
||||||
|
Operating expenses:
|
|||||||||||||
|
Salaries, wages, and related expenses
|
304,447
|
(1,005
|
)
|
(B)
|
303,442
|
||||||||
|
Fuel expense
|
121,264
|
-
|
121,264
|
||||||||||
|
Operations and maintenance
|
55,505
|
-
|
55,505
|
||||||||||
|
Revenue equipment rentals and purchased transportation
|
183,645
|
-
|
183,645
|
||||||||||
|
Operating taxes and licenses
|
11,831
|
-
|
11,831
|
||||||||||
|
Insurance and claims
|
43,333
|
-
|
43,333
|
||||||||||
|
Communications and utilities
|
7,061
|
-
|
7,061
|
||||||||||
|
General supplies and expenses
|
23,227
|
(325
|
)
|
(B)
|
22,902
|
||||||||
|
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
76,156
|
-
|
76,156
|
||||||||||
|
Total operating expenses
|
826,469
|
(1,330
|
)
|
825,139
|
|||||||||
|
Operating income
|
58,986
|
(3,708
|
)
|
55,278
|
|||||||||
|
Interest expense, net
|
8,708
|
(1,363
|
)
|
(F)
|
7,345
|
||||||||
|
Income from equity method investment
|
(7,732
|
)
|
-
|
(7,732
|
)
|
||||||||
|
Income before income taxes
|
58,010
|
(2,345
|
)
|
55,665
|
|||||||||
|
Income tax expense (benefit)
|
15,507
|
(598
|
)
|
(E)
|
14,909
|
||||||||
|
Net income
|
$
|
42,503
|
$
|
(1,747
|
)
|
$
|
40,756
|
||||||
|
Income per share:
|
|||||||||||||
|
Basic net income per share
|
$
|
2.32
|
$
|
2.22
|
|||||||||
|
Diluted net income per share
|
$
|
2.30
|
$
|
2.21
|
|||||||||
|
Basic weighted average shares outstanding
|
18,340
|
18,340
|
|||||||||||
|
Diluted weighted average shares outstanding
|
18,469
|
18,469
|
|||||||||||
See the accompanying notes to unaudited pro forma consolidated financial statements.
5
|
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|||||||||||||
|
Year Ended December 31, 2017
|
|||||||||||||
|
Covenant Logistics
Group
|
Transaction Adjustments
|
Notes
|
Pro Forma
|
||||||||||
|
Revenue:
|
|||||||||||||
|
Freight revenue
|
$
|
626,809
|
$
|
(3,128
|
)
|
(B)
|
$
|
623,681
|
|||||
|
Fuel surcharge revenue
|
78,198
|
-
|
78,198
|
||||||||||
|
Total revenue
|
$
|
705,007
|
$
|
(3,128
|
)
|
$
|
701,879
|
||||||
|
Operating expenses:
|
|||||||||||||
|
Salaries, wages, and related expenses
|
241,784
|
(706
|
)
|
(B)
|
241,078
|
||||||||
|
Fuel expense
|
103,139
|
-
|
103,139
|
||||||||||
|
Operations and maintenance
|
48,774
|
-
|
48,774
|
||||||||||
|
Revenue equipment rentals and purchased transportation
|
141,954
|
-
|
141,954
|
||||||||||
|
Operating taxes and licenses
|
9,878
|
-
|
9,878
|
||||||||||
|
Insurance and claims
|
33,155
|
-
|
33,155
|
||||||||||
|
Communications and utilities
|
6,938
|
-
|
6,938
|
||||||||||
|
General supplies and expenses
|
14,783
|
(52
|
)
|
(B)
|
14,731
|
||||||||
|
Depreciation and amortization, including gains and losses on disposition of property and equipment
|
76,447
|
-
|
76,447
|
||||||||||
|
Total operating expenses
|
676,852
|
(758
|
)
|
676,094
|
|||||||||
|
Operating income
|
28,155
|
(2,370
|
)
|
25,785
|
|||||||||
|
Interest expense, net
|
8,258
|
(880
|
)
|
(F)
|
7,378
|
||||||||
|
Income from equity method investment
|
(3,400
|
)
|
-
|
(3,400
|
)
|
||||||||
|
Income before income taxes
|
23,297
|
(1,490
|
)
|
21,807
|
|||||||||
|
Income tax benefit
|
(32,142
|
)
|
(577
|
)
|
(E)
|
(32,719
|
)
|
||||||
|
Net income
|
$
|
55,439
|
$
|
(913
|
)
|
$
|
54,526
|
||||||
|
Income per share:
|
|||||||||||||
|
Basic net income per share
|
$
|
3.03
|
$
|
2.98
|
|||||||||
|
Diluted net income per share
|
$
|
3.02
|
$
|
2.97
|
|||||||||
|
Basic weighted average shares outstanding
|
18,279
|
18,279
|
|||||||||||
|
Diluted weighted average shares outstanding
|
18,372
|
18,372
|
|||||||||||
See the accompanying notes to unaudited pro forma consolidated financial statements.
6
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of transaction
On July 8, 2020, Covenant Transport Solutions LLC (“CTS”), doing business as Transport Financial Services (“TFS”) and an indirect wholly owned subsidiary of Covenant Logistics
Group, Inc., a Nevada corporation (the “Company”), entered into an Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Advance Business Capital LLC (“ABC”), an indirect wholly owned subsidiary of Triumph Bancorp, Inc. (“Triumph”).
Pursuant to the Purchase Agreement, CTS sold, and ABC purchased, substantially all of TFS’ operations and assets (the “Transaction”). CTS sold substantially all of its net accounts receivable and related transportation factoring assets. In exchange,
the Company received cash proceeds, plus Triumph common stock, and the opportunity to earn contingent cash consideration after the twelve-month period ending July 31, 2021. The Company is estimating transaction costs directly related to the
transaction of $0.9 million. The Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions and includes certain ancillary agreements relating to registration rights, transition services, and ongoing
referrals.
Note 2 – Estimate of Consideration Received and Net Assets Disposed
The fair value of the total consideration transferred was $130.7 million. A summary of the consideration received is as follows:
|
(in thousands)
|
||||
|
Estimate of Consideration Received:
|
||||
|
Cash received
|
$
|
108,375
|
||
|
Earnout, net (1)
|
8,397
|
|||
|
Stock Interest as of the Transaction Date
|
13,942
|
|||
|
Total consideration
|
$
|
130,714
|
||
|
Net Assets Disposed:
|
||||
|
Factoring receivables sold
|
$
|
108,723
|
||
|
Less: Advance and rebate liabilities assumed by purchaser
|
(5,437
|
)
|
||
|
Net assets disposed
|
$
|
103,286
|
||
|
Estimated Pre-Tax Gain on Sale (2)
|
$
|
26,528
|
||
|
(1)
|
|
The maximum earnout available under the Purchase Agreement is $9,879. Management believes that an estimate of 85% (after 10% distribution to former TFS management) of the maximum represents the most likely
outcome and accordingly has included this as consideration
|
|
|
|
|
|
(2)
|
|
Represents the difference between estimated consideration received and net assets disposed, less estimated transaction costs of approximately $0.9 million.
|
7
Note 3 – Transaction Adjustments
The transaction adjustments in the unaudited pro forma condensed consolidated financial information are as follows:
|
(A)
|
Represents consideration received. The consideration includes the cash distribution of $108.4 million, stock valued at $13.9 million as of the transaction date, and estimated earn-out of
$8.4 million. Of the cash received, $103.3 million will be used to pay down debt as a result of financing receivables.
|
|
|
(B)
|
The adjustment transactions on the condensed consolidated statements of operations represent direct revenues and expenses attributable to TFS. The adjustment transactions on the condensed
balance sheet represents the removal of assets and liabilities attributable to the Transaction.
|
|
|
(C)
|
Represents the estimated deferred tax impact of the Transaction. The Company used the blended statutory income tax rate in effect for the period presented. The blended statutory income tax
rate is subject to change.
|
|
|
(D)
|
Represents the impact to the Company’s retained earnings from the pro forma adjustments specified in (A), (B), and (C) above, resulting in the tax effected gain from the Transaction. As the
gain is directly attributable to the disposition and is not expected to have a continuing impact on the Company’s operations, it is only reflected in retained earnings on the unaudited pro forma condensed consolidated balance sheet.
|
|
|
(E)
|
To reflect the income tax effect of each of the Transaction adjustments at an effective tax rate of 25.5% for the periods ended 2020, 2019, and 2018 and 38.7% for 2017, the Company’s blended
statutory income tax rate in effect for the periods presented. The blended statutory income tax rate is subject to change.
|
|
|
(F)
|
To reflect reduced interest expense on long term debt incurred as a result of financing TFS receivables. A weighted average interest rate of 4% is used to finance the average net receivables
for each period presented on the unaudited statement of consolidated operations.
|
8