Dive Brief:
- Covenant Logistics Group’s Lew Thompson & Son Trucking business earned another performance payment in Q4 — this time to the tune of $6.3 million, according to an earnings report.
- The award is part of up to $30 million Lew Thompson could receive over three years on top of its $100 million acquisition price. Covenant reported an $8.1 million payment in Q1 2024 following the 2023 acquisition.
- Covenant’s Q4 salaries, wages and related expenses increased by 13 cents per total mile — about 10% — year-over-year, driven primarily by “significant growth in our dedicated protein supply chain business,” President Paul Bunn said in the report.
Dive Insight:
Earnouts can help parties agree on the value of a company, where future results of an acquisition trigger payouts.
Enservco’s deal with Buckshot Trucking last year included a performance provision for up to $500,000. ArcBest used the mechanism when buying MoLo Solutions in 2021 for $235.8 million, with additional earnouts of up to $455 million from 2023 through 2025.
Covenant has invested in its Arkansas-based poultry subsidiary since the acquisition, with executives announcing plans last year to more than double its fleet to over 500 trucks based on contracts already signed.
The earnout awards and other expenses are part of its investment that growth, the truckload carrier said.
“As we grow our dedicated fleet in niche services, it requires hiring and retaining skilled drivers to operate specialized equipment on loads that typically have a shorter length of haul, resulting in higher costs on a per total mile basis,” Bunn said.
The Lew Thompson award, pay increases, higher operations and maintenance costs, increased insurance costs due to auto liability claims and increased depreciation from rising prices of newer equipment created a significant headwind for Covenant in the quarter, Bunn said.
Its truckload operating income nosedived to $2.4 million in Q4 from $10.6 million YoY. The truckload segment’s operating cost rose 18 cents, or 6.6%, on a per total mile basis, the carrier reported.