Covenant acquires hazmat hauler, announces $30M stock buyback plan

Covenant Logistics Group announced Thursday it has completed the acquisition of AAT Carriers, which will become part of Covenant’s expedited segment.

Covenant also announced a plan to buy back up to $30 million of its Class A common stock.

“Today’s announcements, along with the recent announcement of our first quarterly dividend, are consistent with our capital allocation strategy and commitment to delivering stockholder value,” David Parker, Covenant’s chairman and CEO, said in a statement. “With visibility to a more consistent business model, we are focused on actively managing our balance sheet to provide growth and improve returns.”

Chattanooga, Tennessee-based Covenant (NASDAQ: CVLG) declared its first-ever dividend Jan. 28, giving shareholders a quarterly cash dividend of 6.25 cents per share in the first quarter of 2022.

AAT Carriers Inc., founded in 2007 and also Chattanooga-based, transports hazardous materials, commercial explosives and dromedary, and provides government and commercial shipping services. The company handles van, flatbed, reefer and specialized freight.

AAT Carriers has 40 power units and 65 drivers, according to the Federal Motor Carrier Safety Administration (FMCSA).

“The acquisition offers attractive margins along with entry into a market with higher barriers to entry and less sensitivity to economic cycles than most expedited freight,” Parker said. “While expedited is not the primary focus of our growth efforts, this deal was attractive due to its projected cash flow profile and the opportunity to diversify our end markets and provide consistent miles for our team drivers.”

The cost of the acquisition is expected to range from $35 million to $55 million. The purchase price includes a substantial earnout component based on AAT Carriers’ adjusted earnings before interest, taxes, depreciation and amortization reported for the first and second years following the closing of the acquisition. In 2021, AAT Carriers generated $25 million in revenue.

Covenant has 1,094 power units and 2,171 drivers, according to the FMCSA.

Parker said the $30 million stock repurchase program is intended to acquire shares when financially attractive for the company. Covenant recently reported fourth-quarter 2021 earnings of $1.07 per share on total revenue of $294.2 million.

“Based on our anticipated cash flows from operations and net capital expenditures, we expect to finish the year with a net leverage ratio (measured as quarter-end debt, net of cash, divided by adjusted EBITDA) of less than 1.0 to 1.0 after giving effect to this acquisition and assuming completion of the entire stock repurchase program,” Parker said. “This outlook gives us confidence as we continue to review opportunities to deploy capital.”

Covenant has about 14.4 million shares outstanding and a market capitalization of around $346 million.

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Covenant Logistics Group (No. 45).