Covenant Transportation Group, Inc.(NASDAQ/GS: CVTI) (“CTG”) announced today that it has completed the acquisition of Landair Holdings, Inc. (“Landair”) of Greeneville, Tennessee, the holding company for Landair Transport, Inc. and Landair Logistics, Inc. Landair is a leading dedicated and for-hire truckload carrier, as well as a supplier of 3PL transportation, warehousing and logistics inventory management services.

Under the terms of the agreement, CTG purchased 100% of Landair’s outstanding stock in exchange for approximately $83.0 million in cash. At closing, Landair also had approximately$15.5 million of debt which CTG has refinanced. The acquisition was funded by cash on hand of approximately $45.5 million accumulated from positive operating cash flows since the end of February 2018 and approximately $53.0 million of previously unencumbered used revenue equipment financing. At March 31, 2018, CTG’s net balance sheet debt-to-EBITDA ratio was approximately 1.5x. Following the transaction, CTG’s pro forma net balance sheet debt-to-
EBITDA is expected to be approximately 1.9x-2.0x. Net balance sheet debt is defined as total balance sheet debt and capital lease obligations, net of cash and cash equivalents.

Transaction Highlights:

  • Landair is expected to be immediately accretive to CTG’s earnings.
  • John Tweed will continue to lead the Landair business as its President.
  • CTG expects to maintain Landair’s Greeneville, Tennessee headquarters.
  • Landair’s employees and customers should notice little change moving forward.
  • Landair Transport’s results will be reported within CTG’s Truckload segment.
  • Landair Logistics’ results will be reported within CTG’s Managed Freight segment.

Landair was founded in 1981 by Scott Niswonger and Ed Sayler. Presently, Landair operates approximately 430 trucks and 900 trailers, as well as managing 12 distribution facilities covering approximately 1.8 million square feet of warehouse space. Landair also has a safe and experienced corps of professional drivers. Landair generated approximately $121 million in total revenue for the year ended December 31, 2017. Approximately $60 million of Landair’s fiscal 2017 total revenue related to dedicated truckload operations, $41 million related to managed freight services, and the remaining $20 million related to one-way truckload operations.

CTG’s Chairman and Chief Executive Officer, David R. Parker, offered the following comments: “We are very pleased to welcome the entire Landair team to the Covenant family. We pursued Landair because of their proven record of growth and profitability in the dedicated and 3PL markets, their talented management team led by John Tweed, and the quality and integrity of their culture represented by their co-founder, Scott Niswonger. Landair is a perfect fit with our strategy to grow in areas where we can get closer and more heavily integrated with customers. We believe the backing of CTG will provide additional resources to expand Landair’s dedicated truckload operations to best meet the needs of its strong customer base, as well as improve profit margins through identified cost synergies. Additionally, Landair’s existing managed freight business is expected to immediately improve CTG’s collective managed freight service offering, adding experience, human capital and important additional systems capabilities.”

Scott Niswonger added; “Today is the start of the next chapter in the Landair story. We are blessed to have identified a strategic buyer that was founded on faith-based principles and is committed to continued investment in our business and people.”

“I am excited about this combination because it will give Landair and its customers access to, and the benefit of, the comprehensive resources of CTG,” commented John Tweed, President of Landair. “Continued growth at the pace we are experiencing requires access to the resources and support of a strong partner like CTG. The alignment in company cultures should enable a smooth integration of the two well-respected organizations.”

The Landair acquisition is expected to be immediately accretive to CTG’s earnings. CTG’s estimate of Landair’s pro forma fiscal 2018 EBITDA is a range of $18.5 to $19.0 million. The transaction is expected to add in the range of $0.04 to $0.08 per diluted share to CTG’s consolidated earnings for the second half of fiscal 2018, and $0.16 to $0.20 per diluted share to consolidated earnings for the full fiscal 2019 year. Cost reduction opportunities at Landair have been identified in equipment, fuel, workers’ compensation and casualty insurance, over the road services, and other areas. The range of earnings accretion expectations should narrow as additional information becomes available concerning the allocation of intangibles and determination of the magnitude of non-cash amortization associated with the acquisition, as well as the pace at which we will be able to drive cost and revenue synergies through the combined organization.

Update on Second Quarter Financial Results:
Mr. Parker added the following comments regarding CTG’s second quarter financial results: “Related to the acquisition of Landair, general supplies and expenses will include acquisition-related expenses of approximately $1.2-$1.5 million in the second quarter of 2018. The continued strength of the truckload freight environment through the month of June 2018 allowed us the ability to affirm our previous expectation to report consolidated earnings for the full second quarter of 2018 in a range of $0.45 to $0.53 per diluted share, even with the unfavorable impact of the acquisition-related expenses. These expected results compare to a reported consolidated net income of approximately $1.5 million, or $0.08 per diluted share, for the second quarter of 2017.

Covenant Transportation Group, Inc. is the holding company for several transportation providers that offer premium transportation services for customers throughout the United States. The consolidated group includes operations from Covenant Transport and Covenant Transport Solutions of Chattanooga, Tennessee; Southern Refrigerated Transport of Texarkana, Arkansas; and Star Transportation of Nashville, Tennessee. In addition, Transport Enterprise Leasing, of Chattanooga, Tennessee is an integral affiliated company providing revenue equipment sales and leasing services to the trucking industry. The Company’s Class A common stock is traded on the NASDAQ Global Select market under the symbol, “CVTI”.