Excuse me everyone, we now have all of our speakers in conference. Please be aware that each of your line is in a listen-only mode. After conclusion of today’s presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question. Thank you. I’d now like to turn the conference over to Richard Cribbs. Sir, you may begin.

Thank you Josh. Good morning. Welcome to our Second Quarter Conference Call. Joining me on this call this morning are David Parker and Joey Hogan, along with various members of our management team. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures and filings with the SEC, including, without limitations, the Risk factors section in our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. As a reminder, a copy of our prepared comments and additional financial information is available on our Web site at www.ctgcompanies.com under our Investor Relations tab. Our prepared comments will be brief and then we will open up the call for questions. In summary, the key highlights of the quarter were; our asset-base division’s revenues, excluding fuel, decreased 6.6% to $130.3 million due to a 4.1% decrease in average tractors, a 3.2% decrease in average freight revenue per truck partially offset by an increase in our refrigerated intermodal freight revenue. Versus the year ago period, average freight revenue per loaded mile was up $0.9 per mile or 0.5% and our miles per truck were down 3.3%. Freight revenue per tractor at our Covenant Transport subsidiary experienced a decrease of only 0.7% versus the prior year quarter, while our refrigerated subsidiary, SRT, experienced a decrease of 7.6%, and our Star Transportation subsidiary experienced a decrease of 2.1%. Excluding the second quarter 2015 favorable impact totaling approximately $3.5 million pretax or $0.041 per total mile as previously expensed casualty insurance premium for an insurance commutation,…

At this time we will open the floor for your questions. [Operator Instructions] We now have our first quarter coming from Jason Seidl from Cowen.

A couple of quick things I think it’s good now that you have put somebody in charge of SRT, can you talk a little bit about what went wrong and I know it is not a new trend it has actually been very, very clear from the beginning on that. And what sort of specific steps that you think you’ve taken there?

Jason this is David. Yes it’s been a kind of a pretty eager I use the word turnaround but the focus that we’ve had and I think that we were close to making some headway until this last freight recession that we ran into. I mean you can go back and as I quote at some of the road shows that Richard and I have gone on the last 3 or 4, 5 months I do think that SRT is a clear example of the potential what ELDs are going to do in 2017 because as I look we have SRT through our operating in the mid-90s, 94, 95 kind of number then in 2012 when they went on ELDs within a very short period of time, they basically went ran at a 95 0R in that ’12 and so that’s up and then we could work on but they saw immediate 10% to 15% reduction in utilization when they went on ELDs. And again I think it’s what I have said it’s a great example of what I think the future holds for the vast majority of carriers because their model was high utilization when I’m talking high utilization, up to 2,500 miles a week but definitely in that 2,250 to 2,400 mile on a consistent basis and their rates were on a scale of 1 to 10 were up 5 or a 6 and high utilization medium rates equate to the profitability. And so that started the process and then followed by 2013 with the new hours of service rules that went into effect on a high utilization and so that took some more problems or gave some more problems it turns up the utilization there and actually within that 2013 that you know they started getting a lot of our internal focus because the team side was doing quite well during that period of time. And we started to focusing on that area and we were able to raise rates over the next 2 years about 12%-13% Richard somewhere around that or we are about…

Yes.

Okay, I am thinking it was around a 12% kind of number over a 3 year period of time and fighting the high, the low utilizations, excuse me the low utilizations and getting the rate back up on a scale of 1 to 10 to pay up to the 7 and predominantly our competitors thought we were measure of, the ones that we could measure in the public arena in particular or any other magazine that we could find in any articles, but everybody was raising their rates as we all know, when we go back and looked at the history of it but we were able to raise rates 1% to 2%, where I am thinking it’s 12% to 13% the industry is kind of around that 10% kind of number. So we did gain some ground not the whole industry was raised, and so that made it a lot easier but we were able to gain ground and then had last year and by 12 months has affected in particular the last 6 months this year of 2016, rates went flat we just did not have any pricing power. So whatever advantage that we were able to make in getting the company headed in the right direction in my mind was taken back to the last 6 months own rates that went flat on this the cost increased and you read there about the prediction on the cash side of their business went up to capacity pretty dramatically and so they did not have not had the ability to raise the pricing. So at the end of the day that is really a good thing that has really made SRT where they are at today.

Okay, and that’s a good explanation of what’s going on there. Another question you mentioned now you got your percentage teams up to about 39%, it sounds like you want to keep growing that number, is there an optimal percentage of the fleet that teams should be in your mind?

No I think, Jason this is Joey. We talked about that a lot as far as what percentage of the cost inside of the consolidated model that it should have. Along with the view of the expedited marketplace we’re still very bullish about that space and frankly right now we still have and we are not going to pedal down on that safely but pedal down on that because it is so harder to get, it is so hard to get and once you start showing recent historical over 20 years you start playing with the dollars too much to kind of peel it back, cost freight they are soft or staying through the marketplace dynamics, it’s really hard to turn those tickets back on and so it’s part of our heritage we think we’re in a good spot, yes we’re in a freight slowdown, or recession whatever you want to call it that people use and so we’re making a decision to keep going because we figure long-term that we’re worth it, the expedited division including kind of overhead allocation is still operating for the first half, very acceptable even with that growth and we just feel long-term that’s what we’re going to do. So we do talk about it and especially in soft freight markets but we’re going o still keep rolling.

And then another thing Jason that we are already since beginning of that and beginning of many of these come-in in ’17 and you’re going to see more of it but the lesser how ’14 is going down not because our transcontinental freight is going away, it’s about as good as it’s ever been from that standpoint but there we still have to a point and we’re sensing it now, but 600 mile let the whole of the ground had the require teams, a solo driver and maybe down to 500 mile. If you have any debt here, is that our mind is 500 miles is going to become a magic number that is going to require a team, now that is as long as we get the great pricing and we can explain that to our drivers and make sure that we’re paying our drivers correctly then we are willing to do that but the market is going to dictate that and so we look at that and as we would look over the next couple of years, there is going to be a huge opportunity on the team side whether it is the short haul or what we consider short haul, short haul or long haul.

Okay, now so I completely understand I think where we’re going, even though it’s soft whereon because it’s never easy to grow them it is kind of -- I guess two more quick questions, one you mentioned here in the I guess on your market trying to gauge sort of the tie up business for the peak season, and what do you think with all what said of what that business is going to look like, what time do you guys tie up the most of that business?

You start -- the month of August you start getting a pretty clear understanding about the September 1st, I mean we’ve already mathed this -- most of our quote peak shippers and it was I’d say we’ve already -- in the last two to three weeks so not in the last 3 months in the last 2 to 3 weeks pretty current and we’re starting to get a feel for it and -- but I think that the total the pricing and the volume commitments of what they are exactly looking for. It will happen over the next four weeks and we’ll start fitting and getting a very better, much better idea of what this peak is going to hold.

Thank you. Our next question will come from Brad Delco.

I only have 3 questions.

Hi Brad.

Hi David, hi Richard, hi Joey how is it going?

Hi Brad, thank you.

David in response to that last answer and/or question I guess I appreciate understanding there is a sort of a wide variable that could occur on the earnings side which is why no specific comments on guidance for the back half of the year, but can you give us at least any color in terms of how these discussions are going in some of these teach errs and I think most of them expect the demand to be greater from kind of the e-commerce omni-channel sector but how it impacts you. Can you provide any color there?

Yes, I mean I am pretty encouraged. I am I think that again if I am owning $10 a month I wanted to pay to you the same amount and they all blow it in our face. So you never know until pricing is settled and those kind of things but I do believe that the market needs what we’ve got and I believe they want what we got, so I think that obstacle is not going to be a major obstacle. They will be able to come up and say hi we’re going to have enough work for to set aside the amount of equipment that we’re able to accomplish here in that peak season. So I think the desire of our shippers wanting our trucks is there. So it’s going to be a matter of in the environment we got, where you got flat rates and you got this and that and what was that due to the peak side and of course we won’t hex and I am they want to pay them well. So we’re going to have to determine now that they had a combination, they are wide -- we probably get to Z and to a number that makes both of us happy and I would say also though that even though we would vary all of us in the call and in this room we’re happy with last year’s peak and it is good but we have started, the customers again going into 2015 price goes down in August last year and followed all of the truckers all year for the last 12 months and we probably have and we probably one thing one amount of freights in their peak and some of our customers were down 20% over the projections and so those are moving targets I may have a one time we were wondering in August, the end of August when we kind of put it all down on paper and through our benefit is what we think it is. It was going to be a number that had us worries about our stake and we really did that I mean it was a hard number and then by the 1st of November it was like what’s happening, and as I said this is going to happen here it’s going to happen there why is it not happening and they missed their numbers by 15%-20% for various reasons but then we had 3 to 4 more accounts though that popped up, it’s a moving -- and there we recorded numbers and nobody is happy. And that is a dynamic, it is very dynamic.

It is a dynamic situation.

But here is what I do believe, I believe that I feel comfortable that our trucks are needed so that’s the first thing and then the second thing is going to be negotiating the pricing and paying that is where we’re not at we’re in the midst of that at the present time.

And too Brad just for a second, each year it is several things we know, you said David people want what we have and I think over the last 4 to 5 years we’ve shown that we can provide a good service and add value into the supply chain for that space. Number two, that space continues to grow much faster than the economy as a whole. So 4 and 5 times faster, so the volume is going to continue to grow. Number 3 the season is shrinking, so every year as David said in early November, every year the seasons get shorter and why is that is just consumers are driving that. So as more volume comes into that and then our comfort of being able to order on December 20th and still get it by Christmas is shrinking the season and so then forth is maybe kind of wondered around that which is every peak has a surprise, every peak has a surprise that we can’t see and it’s a surprise where one customer projected this and it was this or one projected this and it was this higher and lower and so every peak there is a different dynamic but here is the things we know, it will get shorter which is going to continue to put a lot of pressure on the supply chain as that shortens up, there is only so much capacity that can handle that and then when you get into the trailer requirements to be able to service that it becomes even a more difficult. So velocity last year the surprise I’ll just say it was hurry up and wait last year was a hurry up and wait. The amount of inefficiency on the supply chain was large, we got to pay for it, I think that we’ll get more efficient this year. So what does that mean I think I know what that means but that was the surprise last year, all of the hurry up and wait. So you’re trying to find the surprise at the same time the puzzle is putting together at the same time that you know the season gets shorter. So now we started calling that last year that it is the coming a peak to peak and that peak is getting steeper each season, so that presents some set of challenges as well as the service year round freight along with that at the same time. So it’s moving very dynamic as Richard said a very dynamic moving part of the year.

I guess that all makes sense, I appreciate that just it’s more encouraging to hear that there is just still a lot of opportunity and maybe some people have took the impression without providing guidance that whether or not we had a peak with sort of in jeopardy. So it sounds like that’s not the case.

No, it’s just that this year what it could be either way and I think Richard went back and he was getting question on that yesterday and it’s been several years since we’ve given well…

We haven’t given guidance on peak…

The last time we gave guidance on the second half of the year just because of how different it can be.

Okay. If I can sort of transition just more near-term, when I think of the puts and takes of what occurred in the second quarter with SRT, I know you guys don’t give specific guidance but to me it seems like generally speaking July has evolved to be a better freight month than April it is I guess maybe starting, it seems like we’re off to a better start in the third quarter versus second quarter but I do understand the dynamic of you have more of your contract pricing effective in 3Q which might be a little bit weaker than what we saw in 2Q. So sequentially could we expect improvement in earnings in 3Q versus 2Q assuming normal seasonality?

Yes, right now I think it would be fair to say because of one, you’re right I think July is better than April and we’re starting off better than we started off in Q2. Also think that we are finished basically by now finished with the on boarding of the two large new dedicated accounts and so we are kind of through the investment phase of repositioning equipment and those type of things that we had going on in the second quarter with those two large accounts being on-boarded and the utilization it seems to be improving from that standpoint. SRT there is a few of the things that we have already put in place, I think we can see a little better profitability in the third quarter than the second quarter from SRT. And so I think you put all those things in the hopper and I feel like we should do better in the third quarter than we did in the second quarter. So I do believe there is some sequential improvement.

Thank you. Our next question comes from John Larkin from Stifel.

So there we go, that’s what Archie used to tell he used to do so back in all the same way Stifel, but at least we are still in business.

That is right we are still here.

So anyways getting back to the focus on maybe deemphasizing the solo operation and the driving operation and adding more teams perhaps while the adding is good in anticipation of a stronger second half and outsized e-commerce growth going forward. As it stands right today, is there a big differential between the demand on the team side versus the solar side or is it soft in both places, have we seen as much rate pressure with the teams so that you saw on solo side and to the margins has the margins come at as much pressure basically is my question with the team as opposed to the solo side?

Yes think due to resets a little bit, it’s not just a solo drive in side it is the solo refrigerate side as well where we’re emphasizing so the solo trucks when we talk about those decreasing a larger portion of those are actually coming from the refrigerated side and from the dry side and so then we still expect some growth in the teams over this quarter and next quarter. And then from a pressure side, I think that the demand is a little better on the team side than it is on solo side if you include refrigerated. And then on the rate pressure, I think you can see from our numbers that we haven’t had quite the rate pressure on the team side than we’ve had on the solo side and actually again considering the refrigerated part of that. We do have those larger dedicated accounts as you add dedicated accounts the average rate per mile for those is a little lower in our overall average because the cost is lower. And you get really good utilization on those accounts, very low debt head, better large job turnover and I think that your cost are lower so you can still make a better or really good margin on those dedicated accounts with lower rates. And so overall when you add that into the mix, you can see some low overall rates for the consolidated company but overall, we had the same rate pressures on a lane by lane basis on the team side that we’ve seen on the solo side. So when we one of the I guess Brad’s comment earlier, you might see more of those rate decreases come into Q3, I think that’s probably more true for our peers and I’ll say other than maybe on the refrigerated side, where we’re taking on new accounts at lower rates but from a lane-by-lane basis we didn’t have as much of the rate decreases as the peers did so from Q2 to Q3, I don’t see as much rate degradation as we might see of our peers.

Got it, that’s really helpful. On the two new dedicated contracts I may have missed something along the way but could you describe those in as much detail as you could are those dry refurb team solo, short haul, long haul and to what extent were you successful in securing those accounts because you had the ability to flow incremental equipment in from your free running fleet, to sort of supplement during say the end of the quarter surge, or the end of the month surge that type of thing?

Yes, it is everything you just mentioned there John, one was a large under truck cop operation and what allowed us to successfully give that was really our ability to map out through our logistic side, and not on the solution side but just internally the headwinds we’ve made over the last year or so and our ability to be able to -- what’s the word I am looking for but the software. Optimize data because I mean it is truly just a dump of a lot of the information that we were able to optimize the fleet in what it should and should not be so that was number one, that was the compliance, we had a question and that was the equipments in the past how fast we were in being able to get back with answers was one of the major deciding factors of picking us and if that was one, number two and that’s a mixture of solo refrigerated and team refrigerated which a lot of companies may people have the availability.

The number two was the team, the team side because that fleet is a little bit over 100 trucks, it is right now half team and half solo and so it’s transport and SRT that is specializes in that but to be able to take and say yes, in the next 45 days or 60 days we can put 50-60 teams into an operation, there is not a whole lot of folks that are able to accomplish that on the refrigerated side of the business. And so that was very-very helpful and then the other one was a Star contract that they had on the solo dedicated.

So are some of the…

Automotive.

Improper was trucks coming out of SRT going to start to feed to demand for that dedicated contract also as well [Multiple Speakers]?

Yes, I mean we’d love for that to happen and that has and is our goal that have not happened because of the driver situation because the lot of the automotive that we’re doing as you know with right here in the South and so we can do it temporary of which we took the companies and threw in there say on a temporary basis but long-term as we got that lanes running, a lot of these are rigid heading out of south and having to come back into the south all A to B and so it’s not a ABCD back to A, it is truly a 90% of it is A to B, back to A and you got to have those drivers based in one side or the other so when we went down exactly what you just said there, there just was not the driver base that was based upon where these trucks needed to be at.

Yes, I think you could say that the capital was redeployed.

Yes.

And from that standpoint the trucks did, that came you could say some of the trucks that came out of SRT were put into Star, it just wasn’t as easy as taking the drivers across and doing that work because it is a different type of freight and it moves and they vary it is a much smaller geographical area where you’re going to have somebody that lives in that, is domiciled in that area.

Also I wanted to just talk a little about the percentage of your freight that’s either coming from your own in-house brokerage and/or external brokerages and how that might compare to the same period last year, whether that is increased stayed the same any thoughts there would be helpful?

It was up quite a bit in the first quarter, we made comments around chasing freight and just on broker freight alone it had gone up from around the 2% to 3% range up to 6% to 6.5% in the first quarter, that number was back down closer to around 4% in the second quarter and third quarter should be around that to maybe a little lower, a little better.

That’s encouraging. And then there has been a lot of chatter around Wall Street here the last couple of weeks about how July has been better and I think somebody mentioned that earlier during the questioning here. Normally July is quite weak falls apart, what do you think is driving that incremental tightness in supply and demand, is it more demand or are we beginning to see the impact of fleet scaling back the size of their fleets and some of the smaller fleets that are working in this highly depressed non-sustainable spot market, are they just hanging up their spikes and calling it a day?

Yes, it is, one thing we know, we start off by knowing that whether it’s 3 months, 6 months or 9 months that Class A truck orders keep getting to 40% year-over-year down that is going to take some equipment out of the marketplace if people are not adding because trucks just keeps getting older eventually 15 year old trucks are going to be in the dumpster and so just that chain gets rid of equipment. So that’s one, number two would be some of the smaller carriers in the last 2-3 months, we have seen exited some of those smaller carriers, I will say that I think Joey that it’s probably gotten kind of I haven’t heard as much in the last month on…

It slowed a little bit.

Yes it slowed a little bit after our initial bam of what we consider internally keep in mind our internally is our 3 non-core asset companies being solutions TFS and TAIL that gives us that indication of the small carriers and that’s quietened a little bit and I do believe I mean I do believe that we are close to supply and demand being almost at equilibrium out there today John. So I think that I have seen reports some people say that we’re still couple of percent more, too many trucks out there and maybe we are certain days we are, at certain days I mean as I look at some of our numbers, I mean our weekend price has gone up dramatically in the last 6 weeks. Now we may be followed by choose to being down and those kinds of things, I am just seeing some things happening that are very-very encouraging within our network.

And John let me make sure just for the folks on the phone, we do have an active leasing business and have had for 8 years now and so we have a large number of customers small to medium sized trucking companies as well as managing lease purchase programs for other competitors. So we get a view and then we are a factoring company that’s got 93-94 clients again small to medium size as well as our brokerage company. So we have a picture inside not just moving freight, but other needs of the small carrier might have and David is right, you can -- when freight kind of moved up a little bit late May, you felt that calm on that side a little bit. Now the thing that drew all that, that is still extremely aggressive, it’s providing a tremendous amount of heart burn is the insurance side for the small medium sized and even some larger carriers, that is a major-major-major issue that is putting tremendous amount of pressure out there in the marketplace and it’s the numbers that are getting thrown around with some of our clients and customers that they are getting from their insurance agents institutes. I can’t, they won’t be able to survive long-term with that. And so you feel the ELD pressure start to work its way in the quotes and the bids from the insurance companies and so that’s a major issue that is coming and people are downsizing fleets just to survive agreeing to certain terms just to survive, trying to just to get to peak and then try and get to peak then kind of do I have enough cash to pay for my permits in the winter okay, I made that hurdle, okay have I got enough cash to make it through ELDs and okay now I got to go to ELDs, it’s not going to get pushed out. So you see several things, regardless of all that the insurance markets it is a big renewal period we all know is in the fourth quarter. So at the same time peak is going up for renewals in January and things like that. So that’s a big-big-big deal that not all people are talking about but we’re seeing it out there in the marketplace with our customers.

That’s a great point, thanks for all that spectacular color. One last thought that’s somewhat similar to your insurance comment Joey and that relates to this whole ELD mandate which this news we could tell it looks like it’s going to hold for a complete limitation by what December 15th of ’17 assuming the Elida of lawsuit doesn’t hold any water. Are any shippers out there saying that nor the bid on my freight, I want to have an update on exactly where you stand with ELD implementation because I can’t really wait until December to find out whether you are going to park your trucks or make the leap to install the ELDs.

We are seeing that and our take has been is that each quarter until ’17, December ’17 it’s just going to get tighter and tighter and we’ve had a couple of customers. One a large customer, but we’ve had a couple of customers that said if you are not ELD compliant then we’re going to be working you out of our network and you’re not allowed to be part of B, and we’ve seen a couple of those so far this year but I am here to tell you the list is almost every one of our customers that are saying what -- how many do you have, what is your plan and it’s interesting because early on as some of them did it, to be honest with you had some carriers that were lying on the answers. And they may have had 10 trucks, they may be running 50 trucks and ten of them had ELDs and so their answer was yes. We got ELDs and the customers thought they had ELD until they find out that they’ve only got 10 of them and they’ve gone back in with how many trucks are you running in your fleet and how many of your trucks have ELD or are ELD compliant and so we’ve seen them comeback and asking the same question in a different way to make sure get there. So we are and that is happening as we speak on a regular basis of -- and including on our solution side that we’re involved in it and we’re finding out right now that it’s about less than 10% of our trucks that we are utilizing that are ELD compliant and so we’re starting that process ourself.

A couple of data points between the leasing business, the factoring business and then our solutions carriers. It is somewhere around 8% to 10% of customers, clients, carriers I don’t know which of those businesses you have they claim and I used that with quotes. They claim to be ELD compliant. And so last week, for example we added about 104 carriers into our solutions database last week the whole freight force well we have got [Multiple Speakers] it was 12% last week, they claimed that they are ELD complaint. And so it is still a very-very-very small number out there right now.

Thank you. Our next question comes from Jason Seidl, Cowen.

Well guys I thought I only had three, but I found out another one. You mentioned about the fuel hedging rolling over. Now I know fuel has come down a little bit in the last couple of weeks, but it’s up a lot since, let’s say the February lows. How should we think about the fuel hedging throughout the remainder of this year and for next year for the model?

Yes as the remainder of the year it is still going to have about the same impact that it has had in the first half. Well more like second quarter. Second quarter number fuel hedge loss was about 4.1 million. Based on the numbers where we were on July 20th. So about a week ago the expected fuel hedge loss for the third quarter was 4.0 million and for the fourth quarter would be 3.9. And then looking at next year, again it’s basically savings of between $7 million to $8.5 million of pre-tax fuel cost next year.

That’s considerable.

Yes. And a little bigger piece of that benefit would be first quarter, compared to first quarter of ’16. First quarter ’17 will be a little more of the benefit than the rest of the year.

Okay, fantastic. That’s great color. I appreciate it guys.

All right, thank you.

Thank you. [Operator Instructions]

Okay. I think we’re fairly done today and thank you everybody for listening in on the call and we’ll talk to you next quarter.