コベナント・ロジスティクス (CVLG) 2026年第3四半期決算説明会：マネジド・フレイトが成長を牽引

重要なポイント

• 連結貨物輸送収入は前年同期比17.2%増の3億1,510万ドルとなりました。これは主に2025年第4四半期に買収したブローカレッジ資産の貢献によるもので、車両台数削減に伴うトラックロード部門全体の貨物輸送収入の3.4%減少により一部相殺されました。
• 調整後営業利益は5.7%増の1,580万ドルとなり、マネージド・フレイト部門およびTELへのマイノリティ出資による税引前利益の増加に支えられ、調整後純利益は14.6%増加しました。
• マネージド・フレイトの収入は68.4%増加し、調整後営業利益は133.3%増加しました。これは買収したブローカレッジ事業、顧客向け運賃の値上げ、追加の超過貨物、サードパーティの輸配送能力の確保状況改善が牽引しました。
• トラックロード部門の収益性は引き続き圧迫されました。エクスペダイテッドの調整後営業費用率は94.1%、デディケーテッドは96.1%となり、立ち上げコスト、ドライバー人件費の上昇、車両関連費用、農業関連輸送量の減少が影響しました。
• 経営陣は、トラックロード部門全体の利益率改善により、2026年第4四半期の調整後希薄化後EPSが前期比で緩やかに増加すると予想しています。ただし、TELからの貢献減少により一部相殺される見込みです。
• カバナントはエクスペダイテッド部門を複数年の輸配送能力コミット型契約へ移行させています。電話会議時点でエクスペダイテッドのトラックの約60%が専用契約下で稼働しており、経営陣は年内に約75%を目指しています。

主要財務データ

事業およびオペレーション 実績

エクスペダイテッド

エクスペダイテッドの調整後営業費用率は94.1%を記録し、前年同期比で50ベーシスポイント悪化（上昇）しました。過去12ヶ月間で保有車両台数は21.4%減少しましたが、トラクター1台当たりの貨物輸送収入は12%増加しました。

収益性は、輸配送能力コミット型契約に向けたドライバーの採用、研修・オンボーディング、車両配置に係るコストの影響を受けました。経営陣は、エクスペダイテッドの専用契約へのシフトが5月と6月に加速し、事業ユニットの多くで立ち上げに伴う不効率が発生したと説明しました。

新規契約は通常少なくとも2年で、多くは4年に及びます。トラックが稼働可能である場合における最低収入保証が含まれており、従来の片道長距離輸送契約よりも保護が手厚くなっています。待ち時間やセキュリティ要件のため、一部の業務では現在稼働率が約25%低くなっていますが、顧客ネットワークが成熟するにつれて走行マイルが追加され、業績の上振れ要因となる可能性があります。

経営陣は、一部の成熟した契約では調整後営業費用率85%以下での運用が可能であると述べる一方で、ポートフォリオには一部の低収益な長距離輸送業務が残るため、エクスペダイテッド部門全体がその水準に達する可能性は低いと注意を促しました。

デディケーテッド

デディケーテッドの調整後営業費用率は96.1%となり、前年同期比で140ベーシスポイント悪化して経営陣の予想を下回りました。トラクター1台当たりの貨物輸送収入は6.2%増加したものの、減価償却費、整備費、ドライバー人件費の増加によってその改善効果は相殺されました。

また、記録的な猛暑により農業関連フリートの輸送量が減少し、固定費の吸収が制約されました。同社は契約更新時に既存顧客の採算性を見直しており、収益要件を満たさない事業については縮小する可能性があります。

マネージド・フレイト

マネージド・フレイトは当四半期の主な収益牽引役となりました。主に2025年第4四半期に買収したブローカレッジ資産の影響で収入は68.4%増加し、調整後営業利益は約133.3%増加しました。

顧客向け運賃の値上げ、エクスペダイテッドからの超過貨物の増加、サードパーティの輸配送能力の確保改善も追い風となりました。経営陣は、スポット運賃が第2四半期の水準から軟化したことで第3四半期のブローカレッジ利益率が改善したものの、ブローカレッジの収益性は変動しやすいと注意を促しました。

ウェアハウスおよびTEL

ウェアハウスの収入は経営陣の予想通りでしたが、新規顧客への対応において人件費の不効率が継続したため、利益率は前四半期比で改善しませんでした。同社は長期的に1桁台後半の調整後営業利益率を目指し続けています。

TELは税引前純利益として570万ドルを寄与し、前年同期の360万ドルから増加して経営陣の予想を上回りました。

業績予想（ガイダンス）

経営陣は、2026年第4四半期の調整後希薄化後EPSが前期比で緩やかに改善すると見込んでいます。この改善見通しはトラックロード部門全体の利益率向上に基づくものであり、TELからの貢献減少により一部相殺される予定です。

TELの第4四半期税引前純利益は、中古機器取引量の季節的な伸び悩みと予想される貸倒調整を反映し、370万ドルから400万ドルの間になると予想されています。

エクスペダイテッドについて、経営陣は専用契約の立ち上げが定着し初期コストが正常化し始めることで、第4四半期に前期比での収益性改善を見込んでいます。長期目標は、貨物サイクルを通じて平均で2桁の調整後営業利益率を維持することです。

マネージド・フレイトは、5%前後の利益率を維持しながらオーガニックな収入成長を追求する見通しです。デディケーテッドの長期目標は、調整後営業利益率を2桁に回復させることです。

2027年の契約価格改定について、経営陣は、トラック、トレーラー、ドライバー、保険などの費用増加が引き続き収益を圧迫するため、再び2桁の運賃値上げを見込んでいると述べました。

同社は、今後数四半期にわたり営業キャッシュフローが強化され、負債削減に寄与すると見込んでいます。経営陣はレバレッジ比率1倍〜2倍を適正範囲と説明しつつ、魅力的な買収案やその他の資本配分機会への柔軟性を維持しています。

リスクおよび注視事項

• ドライバーの採用は引き続き困難であり、特に特殊貨物や高セキュリティ貨物を扱う適格なチームドライバーの不足が顕著です。
• デディケーテッドの契約自動改定条項は、ドライバー人件費、車両機器、保険コストの上昇を完全にはカバーできていません。経営陣は個別顧客ごとに価格設定の見直しを進めています。
• 第3四半期の農業関連輸送量は記録的な猛暑の影響を受け、デディケーテッド部門の一部で固定費の吸収率が低下しました。
• ブローカレッジの利益率は、スポット運賃やサードパーティの輸送能力コストによって変動します。経営陣は第3四半期の収益性が同じ水準で無制限に継続するとは考えていません。
• 電話会議で議論されたモンゴメリーでの出来事を背景に、ブローカレッジ市場では保険や事故賠償リスクへの監視が強まっています。
• 経営陣は、電子運行記録装置（ELD）やドライバー資格に関する規制執行が引き続き厳格に行われ、業界全体の輸配送能力が抑制された状態が維持される可能性があると見込んでいます。

アナリスト質疑応答の要点

アナリストはエクスペダイテッドの輸配送能力コミット型移行の採算性に大きな関心を寄せました。経営陣によると、専用チーム運用は年初来で約250台増加した一方、片道長距離輸送チームは約300台減少しました。新規の専用需要と既存顧客の要件とのバランスをとるなか、全体のチーム数は概ね横ばいで推移すると予想されています。

経営陣は、現在の利益率構造には多額の立ち上げコストが含まれていることを強調しました。これには専門ドライバーの採用、車両・トレーラーの配置転換、待ち時間が伸びるドライバー向けの報酬体系整備などが含まれます。同社は契約が成熟するにつれて効率性と最低収益の確保が改善すると見込んでいます。

デディケーテッドの価格設定について、経営陣は顧客への運賃改定に先立ってコスト上昇が発生したと述べました。カバナントは短期的な圧力によって長期的な顧客関係を損なう意図はないものの、最終的には構造的な営業コストの上昇を収入に反映させる必要があるとしています。

資本配分について、経営陣は基本戦略（プレイブック）が引き続き安全確保、実行力、特殊輸送・専用輸送トラック事業、マネージド・フレイトの成長、倉庫事業のオーガニックな拡大に重点を置いていると述べました。M&Aや自社株買いは、見込まれるリターンが資金投入に見合う場合の選択肢として残されています。

業績発表電話会議 文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, everyone, and welcome to the Covenant Logistics Group Third Quarter Earnings Release and Investor Conference Call. [Operator Instructions]

Now I'll turn the call over to your host, Trip Grant. Please go ahead.

James Grant

Good morning, everyone, and welcome to the Covenant Logistics Group Third Quarter 2026 Conference Call. Joining me today are CEO, David Parker, President, Paul Bunn and COO, Dustin Koehl.

Before we begin, please note this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings and most recent risk factors. We undertake no obligation to publicly update or revise any forward-looking statements. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors.

Now shifting to the results of the third quarter. During the quarter, we capitalized on the strong freight market to advance our strategic priority, improving the long-term durability, consistency and quality of our business model. Key accomplishments included expedited transitioned expiring one-way over-the-road contracts to multiple-year committed capacity business with new and existing customers. Dedicated, expanded our pipeline of multiyear dedicated truckload business exited historically unprofitable or marginally profitable business and executed start-ups with new customers.

Managed Freight grew top line revenue and margin and improve the operating efficiency of overflow capacity within division. The continued refinement of our business model and allocation of assets where they are most productive are critical to our long-term success and aligned with our strategic plan. While we expect this process to be ongoing, the percentage of our fleet we reassigned during the quarter was more significant than normal. As a result, our truckload operating margin was negatively impacted, while our managed freight margin more than made up the difference.

We are confident in our strategy, the market is supportive of aligning more assets with committed customers, and we believe our structural revenue improvements will overcome transition and efficiencies and general operating cost inflation in the near term. With sustained tightness of industry driver capacity and strong execution, we believe we can significantly expand our operating margins through steady gains rather than a sharp increase.

With that background, I will move on to the quarter's statistical review. Consolidated freight revenue increased by 17.2% or approximately $46.2 million to $315.1 million, primarily as a result of the brokerage assets acquired in the fourth quarter of 2025. That are now being operated as Store logistics solutions within our Managed Freight segment. Partially offset by approximately 3.4% less freight revenue from our combined truckload operations as a result of fleet reductions. Freight revenue per total mile improved by approximately 19.8% and freight revenue per average tractor per week improved 6.1%, compared to the prior year quarter in our combined truckload operations.

Given the year-over-year shift in operations to lower mileage committed contracts, year-over-year revenue statistic comparisons can be difficult to compare. Consolidated adjusted operating income improved by 5.7% to $15.8 million. The largest contributor was the growth of both revenue and margin on our Managed Freight division. Adjusted net income improved by 14.6% as a result of the growth in adjusted operating income and higher pretax earnings from our minority investment in TEL partially offset by higher interest expense.

Our net indebtedness as of September 30 decreased by approximately $12.4 million to $283.9 million compared to December 31, 2025, and yielding an adjusted leverage ratio of approximately 2.1x and debt-to-capital ratio of 40.2%. The average age of our tractors at September 30 was 26 months up from 23 months compared to a year ago. This growth is in line with our life cycle management plan for our assets based fleet and consistent with year-over-year reductions to our high mileage expedited fleet.

On an adjusted basis, return on average invested capital was 5.2% for the trailing four quarters versus 6.9% for the same period in the prior year. Now providing a little more color on the performance of the individual business segments. The Expedited segment reported an adjusted operating ratio of 94.1%, approximately 50 basis points above the prior year quarter. Over the past 12 months, this segment has undertaken a considerable amount of transition. While the fleet was reduced 21.4%, freight revenue per average tractor has improved by 12%. Driver compensation and related costs spiked in the quarter for our expedited segment.

The cost to recruit, onboard and see new drivers for our growing committed capacity business has not come without cost. As we work to convert this segment to serving more freight under multiyear agreements, we are confident that profitability will improve to a level that meets our expectations. Going forward, we have line of sight to sequential improvement in this segment's profitability during the fourth quarter of the year.

Over time, our goal is to average a double-digit adjusted operating margin across the freight cycle to generate an acceptable return on capital. Dedicated's adjusted operating ratio of 96.1% was 140 basis points above the prior year quarter and fell short of our expectations. During the quarter, we experienced growth in instructors escalating driver pay cost and escalating equipment-related costs. In addition, several of our operations within our agricultural-based fleets experienced significant volume headwinds as a result of the severe heat in the quarter, diminishing our ability to absorb certain of our fixed costs.

Freight revenue per average tractor for the period improved 6.2%. Cost headwinds in the quarter included depreciation, maintenance and driver compensation-related costs, offset improved freight revenue in this segment. Going forward, our goal is to steadily restore adjusted operating margin to double digits, grow the fleet serving high service niches, improve profitability with certain legacy customers as contracts renew, and if applicable, reduce any part of the fleet that is not adequately returning capital in line with our expectations.

Managed rate grew freight revenue 68.4% compared to the prior year. primarily as a result of the brokerage assets acquired in the fourth quarter of 2025, but also as a result of the team's effort to improve balance and efficiency and overflow asset-based freight. In addition, due to the combination of rate increases received from customers during the year, increased overflow volumes from expedited and improved availability of third-party capacity. We were successful in growing our adjusted operating income by approximately 133.3% compared to the prior year. As we look ahead, our goal is to continue to grow top line revenue organically within this segment, and maintain mid-single-digit margins.

The Warehouse segment performed in line with our revenue expectations but disappointed us by failing to improve margins sequentially as a result of a continuation of labor and efficiencies with a new customer. Looking ahead, we remain committed to continued organic growth within this segment and are focused on enhancing our adjusted operating margin with a target of reaching high single digits.

Our minority investment in TIL exceeded our expectations for the quarter by contributing pretax net income of $5.7 million for the quarter compared to $3.6 million in the prior year period. While pleased with these improved results, we anticipate that TEL's fourth quarter's pretax net income will fall within a range of $3.7 million to $4 million. As a result of seasonally soft used equipment volumes and a bad debt adjustment expected in the near term.

Regarding our outlook for the future. Our third quarter adjusted earnings per diluted share increased both sequentially and year-over-year for the first time since 2022. Through strong coordination and capitalizing on available freight and capacity Managed Freight offset transition and inflationary costs in truckload, while TEL exceeded expectations. The good news is we believe there is significant runway to improve truckload margin from here.

Starting with the fourth quarter, we expect modest sequential improvement to our adjusted earnings per diluted share through improvement in our combined truckload margins, partially offset by a reduced contribution from Tal. In the meantime, we continue to exit unprofitable freight and expand mutually beneficial multiyear customer relationships with well-planned and executed start-ups with exceptional service.

With this approach, we are confident in our ability to continue to improve our margins and the durability of our business model over the longer term. Thank you for your time, and we will now open the call for any questions.

Operator

[Operator Instructions] First question today comes from Basket Majors of Stephens Inc.

質疑応答

Bascome Majors

Can we talk more about the growth businesses you're seeing in expedite. What are the structure of these contracts in duration how do they protect you on, say, empty miles or fuel or some other downside risk? And what economic levers are in those agreements that had to come true to give you the most upside?

David Parker

This is David. Thank you. There's no doubt that the expedited side, we went into this year with about what, 25% of our trucks running in the dedicated from an expedited standpoint. And our goal this year will probably be up around 75% or 80% as the year comes to a close. And it's a mixture of everything. I mean there is anywhere from regular customers that you wouldn't think are wanting long-term contracts and expedited, but they are because of inventory levels to high security loans. And we were talking this morning internally, a lot has changed in the expedited side of our business in the last couple of years as the market has changed.

I mean when I first started covering it, it was this high service levels with high utilization. Our #1 lane was running from the south to the West Coast, and back and running 5,000 and 6,000 miles on a truck. And that has been transformed in the last couple of years to the customers only are looking at service is never leaving but a security. And because as we've seen the computer age and systems and data centers and -- but high-value loads from -- anyway, you know what I'm saying.

The technology loads has just been exploding. And it's not just the data centers, but it's across the board there. And we have really grown into that as well as what our customers are acquiring us of. And these are long-term contracts multiyear contracts. I'd say the least is two years and upward, but there's a lot of 4-year contracts that are there as well. They all got minimums. As long as our truck is available, we're going to be able to get minimums. And utilization is not high because they're paying again for security.

To give an example, we will pick up freight at airports waiting on airplanes to get there. So our truck is sitting, waiting and then we go to destination. And so there's a lot of dwell time that is there, and we're literally having to back to back into what these drivers are paying getting paid. Because utilization is running a lot lower, probably 25% lower on utilization because of dwell time and because of security. In some of you have, there is no doubt in my mind that we have the best security department of any truck in the United States. We've had it for 25 years

I had a load of fill in more stolen in the year 2000, it costs me $1.6 million, and I thought I'd better do something and we started security department that is morphed into what it is today, which is the best. We have now -- and thank God for this, we have gone, we're approaching 600,000 loads without a sale. I don't care to say that because my whole goal in life is for the robber to go pick on somebody else and not pick on me. because of the systems that we've got in place. And hopefully, that continues.

But that itself brings a lot of high security type opportunities to us. And this year has rarely -- and once exploded it in a good way is because gotten going to tell you, what has been hit the hardest because of the driver situation, what FMCSA has done and where they are continuing to go has been the team aspect. There's not no teams. And it's very difficult to get the teams. And they're seeker sauces to why we have as many teams as we guide and one of us is because we've been doing it for 40 years. it'd be very difficult to start a company today and say, "I'm going to get in the team business.

It's hard. It's tough, it's difficult, but we've got the infrastructure to be able to do that -- but that as well as -- and FMCSA is only a first base on this. We all know this. Everybody on this phone knows this. The biggest cheating out there is the ELDs, by far that we have learned in the last year. I would tell you that 30% or 40% of the trucks running up and down the road today are cheating on ELDs. Those trucks used to run as solos because they never run hours, and because they always cheat it. And so they would compete against us if they didn't have a team with a solo driver.

So that also has played into our availability of our team side. And but there's a lot -- this year, as we've grown that, let's say, from 25%, we end at 75%. There's a lot of cost -- there's a lot of cost which somebody said they want 10 trucks, 20 trucks, 50 trucks just thinking about it, getting it ready, getting trailers in place, getting the drivers, recruiting the drivers because they got to be at certain origins in certain destinations. By getting the trailers at origin and destination, there is a lot of money. And that's what you're seeing in there. And once we get to say, 75%, I'd say right now, we're at 60%.

Probably 60% today, and we'll get the fourth quarter up to 75% in then you'll start seeing that smooth out from the extra cost there. But anyway, the long-term minimum contracts. It's what we've got, and they cannot get out of them. If service gets pinnacle, they can get out of it, documented of which we have, I think, 90 days to correct the service. To give you an idea, it's a period of time to correct the service, and if we don't, then they can get out of it and to be honest with you, if we can't get the service, we ought to be fired.

So that's really the only out that is there over the next few years. So it's better than I got in my OTR. What I got, I got a contract and they said, we'll give you 20 loads a week, and I may get it and I may not. So it's much more tighter than that.

I hope that helps you.

Bascome Majors

No, that's helpful. And David, with that comments on dwell and lower utilization, all this downside protection, do those -- are these deals once you get them up and running in the network kind of stable -- are they going to run at full profitability quickly and not have a lot of variability? Or is there some upside to volume as well in the way these deals are structured?

David Parker

Yes. Some of them have got upside, for instance, if you got some that a customer, a shipper, not just somebody you're thinking about, but from a high security but -- again, we've got regular shippers, but some of them that may be running 3,000 miles a week, Keep in mind, I'm used to running 4,000 and 5, 000 and 6,000 miles a week and some of them are running 3,000 miles a week. And as they get their system up and running better and tighter then they'll take that up to 4,000 miles a week. And so there is going to be some increased utilization.

What you're seeing today is the low side utilization on these and there'll be opportunities there. So therefore, when they run extra miles, we'll get paid extra money but we got the minimums predominantly it's what you are seeing today. But I'm going to tell you also that you're only seeing probably Paul 40% or 50% of the minimum as we see

M. Bunn

Think of it like this, is Bascome. It's a big dedicated start-up right now because this really didn't pick up a lot of legs until May, June.

And so we've been in a major team, dedicated start-up, May, June through Thanksgiving. And as David said, there's a lot of inefficiencies in dedicated start-ups. You can study any of the solo dedicated guys on an account-by-account level, and we're just experiencing that with kind of the whole business unit right now. So is upside in the margin, both on how these contracts are structured and as we work with our customers to get these started up and optimize how they're running.

James Grant

Yes. There's definitely Beto just adding on to what they have said, some learning curves -- just -- I think there's a lot of operational efficiencies to be had to capture more minimums. I think there's been some learning curves on what the drivers like and what the drivers don't like. David mentioned additional dwell time, and we know drivers like to drive. And so we're having to create different pay packages for that dwell so that the driver is still getting compensated for having to sit there.

And so this is a very -- this is really -- it's complicated stuff that we're working through. And the good news is in tandem with our customers hand-in-hand, our drivers and our operators, and I think it's coming together. And I think the fourth quarter will be a transition point, I think, for expedited and we'll continue to see improvement after that.

Bascome Majors

Just last one to maybe put a period on this thing because it does sound like a very exciting opportunity, especially as we get into next year. Do you have any of these new deals that you think are representative where you can share the kind of mature margin this business operates at compared to what it's replacing and expedited?

David Parker

Yes. I'll tell you, these are going is dedicated. It's going to operate in that. And to me, I mean, internally, I don't care to tell you because I'll tell my customers, it's going to be at 85% or better kind of ORs or you don't need to be on the team side. I mean it's 1 or the other. You can't pay for what I'm paying for trucks and trailers and all this stuff on the cost standpoint. So yes, it's going to operate in those kind of numbers.

Bascome Majors

And that 85% or better, are you talking about this can take the entire segment to that level? Are you at this point of the segment should not .

M. Bunn

Probably not the whole segment of that, but there'll be portfolio pieces of business that operate there. Remember, you're still going to have some OTR business that probably won't operate that good. And so the blend of the totals probably won't be that low. But either way you look at it, it will be better than it's running today.

Operator

From TD Cowen, we have Jason Seidl.

Elliot Alper

This is Elliot Alper on for Jason Seidl. Can you talk about some of the dedicated contracts you signed earlier this year? And if you guys honor those contracts or going back to customers to renegotiate, we've heard some carriers talk about that through earnings, given how significantly the cost picture has changed through the year? And then maybe looking forward on that same vein, I guess, like I assume the big step back in refracturing the quarter was due to that poultry headwind you talked about. I just want to make sure that's all that was, and that should kind of rebound back in the fourth quarter?

M. Bunn

I mean, Ali, you're on top of it. I mean dedicated, as we know, most especially solo dedicated has got very similar annual escalators. And we did sign on some new business earlier in the year. And just like a lot of our peers have reported, the costs have gone up more than the escalators and a good bit more than annual escalators. And so I would say we are working customer by customer through that. And that's going to take -- we went through this in the COVID deal back in '21. And folks can go study us and our peer group and look at what dedicated -- a lot of the dedicated performance, most of it was better in '22 and '23 than it was in '21 when things got really tight because it took a little.

The cost came first and the rates came second. And I think that's what you're going to see in this. The costs have come first. And now we've just got to work customer by customer to get the rights to justify the cost increases. And the customers are asking the questions -- are these costs permanently increased or temporary. And I think what we're all believing today is truck prices, David, I don't think our truck prices, insurance prices are drivers going down.

David Parker

No.

M. Bunn

Well, he is answer to question. So it's you're not going to upset long-term dedicated deals and long-term customer agreements over three or six months. But over the long term, you've got to get revenues got to be more on the cost. So we're working on it.

Elliot Alper

Okay. Great. And then you had really nice growth in the managed freight business. Can you talk about maybe what's driving that strength? Do you expect that to continue going forward? And then I think in the release, you talked about the insurance and claims becoming a bigger risk. I assume that's related to Montgomery. Can you talk about the insurance front? We've seen a few companies through earnings this quarter take charges specifically to Montgomery. So just curious thoughts around managed freight growth and the cost side going forward?

M. Bunn

Here's what I'd say, a couple of things. Sequential growth, every broker in the world got killed in Q2. And so the sequential growth is just a function of going from really bad to pretty good out there. The year-over-year growth, it has to do -- we did a tuck-in acquisition in the fourth quarter of last year. And those guys that really came on in the third quarter. And what I'd say is brokerage margins were really good for the third quarter.

We don't expect them to stay that good forever. I mean these things bounce around. It's always been a little volatile. And so it may not be as good as it was in Q3, but it isn't going to be as bad as it was in Q2. take a blended average of those. That's not what these brokerages will probably run long term. You're right. The related to Montgomery, it is a riskier world out there. we've always done a lot of things from a compliance standpoint. We continue to double down on those and refine what we're doing. But we'll just kind of keep going down that same pie.

James Grant

Yes. We hit on it a little bit, and I look at it as a kind of a three-legged stool. It's rates captured in the first half of the year with all the tightness for the last previous three quarters, you've got basically carrier capacity loosening up in the quarter that kind of helped us procure capacity a little bit of a cheaper rate. And then you've got kind of just your -- quite honestly, your overflow stuff that's come over with projects and different asset-based overflow freight that's come up that's helped grow this segment from a top line perspective in addition to the acquisition that Paul mentioned.

David Parker

And I'll tell you another way to look at it is that you should think about it is that second quarter as it relates to the managed freight the brokerage side, second quarter, we saw an explosion in market rates, not contract with spot rates exploded as we all know. And it came on at about a 3-month period of time. And that's the reason why it's hard to make a margin because the spot rates were going so much higher than you could go to the customer and get your rates changed.

And One of the things I think we ended in June, and I think on our second quarter call, I said that the freight environment in the second quarter was basically two loads for every truck. So I mean it was unbelievable, good. Now what happened in the third quarter?

I would tell you that freight is 1.3 loads for every truck, it's still good. We're loading all our trucks, and we're getting broker freight and the customer is still needing service and is needing capacity. It's not too low, just 1.3 loads for every truck. But then there's been 5%, 6%, 7%, 8% of freight has gone to intermodal. And you have seen the spot rates that came down a little bit.

Since the second quarter, which is healthy because the freight is now moving there's freight that's not sitting at docs for days and days and days and the freight is being able to move and there's still a lack of capacity, but because the spot rates have come down because of the lack of the freight going to intermodal, it's allowed the brokers to start making a margin again. And so that in the third quarter. So that's the way I see it.

James Grant

And Elliot, to your last question on Insurance, it's definitely something we're keeping an eye on. There's no doubt in this post Montgomery era, the risk. There's just a lot of eyes on risk and insurance. And when we go through our renewal process, I'm sure we'll learn a little bit more, but I saw a couple of notifications earlier this week where people got hit in this segment with some development of some past period claims and it kind of deteriorated margins pretty materially.

So we've been living with that on the truckload side for a while, and now it seems to be creeping over. And everybody, it's an industry thing, not just us and into the brokerage world, and we're just kind of keeping an eye on it and trying to control what we can control and do the best that we can.

Operator

Next, we have Jeff Kauffman of Citizens Bank.

Jeffrey Kauffman

Congratulations, everybody. So I wanted to go back to one of the answers that you gave Bascome and just make sure that I understand what you were talking about when you were saying we're at 60%, we're going to be at 75%. Are you talking about the percent of expedited trucks on long-term contracts?

David Parker

Yes.

M. Bunn

Jeff, that will be a percent of expedited trucks that are under dedicated arrangements.

Jeffrey Kauffman

Okay. And then how many trucks have been displaced over the course of this adoption of strategy and how many of those trucks will still be not yet placed in the right area as of the end of this year?

M. Bunn

I think we're still trying to figure out that mix. I mean we've probably grown, the dedicated fleet has probably grown Duston, 250 has grown 250 -- the dedicated teams has grown 250 and OTR teams has probably shrunk 300. And so that's kind of what's happened since the beginning. And you can see our team counts down from where we started the year. So I would say you've grown dedicated 250 shrunk kind of the OTR one-way teams 300 is what's happened year-to-date. To David's point, probably there's some growth -- there's still growth in the dedicated theas. And I think we're trying to -- we're going to kind of figure out what OTR.

So team count will be flattish, probably, Jeff. You can probably see growth in some dedicated teams and either flat to reduction in the OTR teams as we try to -- we got to make sure we're servicing the OTR accounts because there is some overlap between the OTR accounts and the dedicated accounts. And so you also got to think of it as -- you got to take care of what the customers' needs are. And so you can't just have the ones we would probably prefer, you got to have a mix of the two. And so we're having to work through that on a customer-by-customer basis. Plus, as you know, we're going into peak. So a lot of people need capacity in.

James Grant

The other thing I'd say, Jeff, is why it's hard to answer that question is I feel like that the demand out there is, it's there, it's strong. The big question is just how much we can execute and how well we can execute. Anything we take on, we want to make sure we can execute it at a high level. And we talked about a little bit earlier on the call, the ability to not just any driver but get qualified team drivers to run this type of freight in the specialized environment is really, really difficult at a time like this.

And so that can take some time, then bring them in and get them up to speed and then get them on the road and get them available. It is a little bit of a process. So it's really -- and that's what we're focused on. It's not as simple as just going out and getting rate increases. This is kind of some transformative stuff we're doing.

Jeffrey Kauffman

And then just one follow-up for David. David, I'm going to hit a topic that's near and dear to your heart. We've spent so much time talking about the impact on the driver supply from some of the administration's policies to improve driver quality and what have you.

Can we talk a little bit about what's still out there to happen? And I'm thinking more about ELDs. And as you mentioned earlier, some of the cheating that goes on in that space. What is happening with the administration right now in terms of kind of going after this problem with the ELDs where fleets are running two of them, one legal one illegal or not tracking. How do -- is the administration going to take the lead in trying to get that under control? And does that keep the market tighter a little longer than a lot of us are thinking.

David Parker

Yes. The answer is yes, and yes to both of those. -- there's no doubt speaking with the FMCSA yesterday. And they are still -- it hasn't changed. Their attitude has not changed in the 12 months that they've been attacking these issues. And I think the next thing you're going to be seeing is that they will be appointing a third-party certification, a third-party certification of the ELD companies. And they're continuing to wash through them.

Probably going slower than what I would like to see happen, but they also -- we've got companies that -- these are companies that they're trying to make sure that they do the right thing for companies. And so I can understand that as well. But it's going to be a process that they've started. They're continuing to start. There was a big article got a new magazine or somebody sent an article to me yesterday about we're a driver up in Illinois said here. Let me show you how I want to change my hours and had the police and FMCSA was there.

M. Bunn

And in her watching why did it.

David Parker

Standing there watching why you did it. Let me show you what happens. And that was very interesting and FMCSA was there when that happened. They are on this. Where do I think is that? I think that 3% of capacity has been taken out, probably a little bit more of drivers guys, as I think about -- as I think about the team side and particularly on the Indian side, because California to West Coast is where there is a lot of teams, California, Chicago, there was a lot of teams, Eastern European and India.

They are having a difficult time. And so there's a lot of capacity that's been taken out 3% trucks, 4% drivers, the rest of are open trucks, including ours, looking for drivers. And so that's created. I think that there's another 3% to 4% that will be coming out. They'll be 3% come out just when they get ELDs legalized, but they're starting. I was just out done by Christmas. But maybe it's all done by next Christmas, but they are committed. The thing I'm looking at without a shadow of doubt, FMCSA is committed to have safe drivers on the road period. And so it's going to continue to happen.

Operator

Our next question comes from Dan Moore of Baird.

Dan Moore

Gentlemen, bringing up the rear here. A lot of questions have been asked. A lot of questions have been answered. I wanted to just take a moment and maybe frame out from the quarterly? And what are you doing now sort of questions and really talk about strategy long term, where the business is going to be in one to two years. As expedited really begins to find some traction as truck rates, which are way too low to generate appropriate returns for you and your peers, especially your peers as they march higher in '27, presuming that occurs, free cash flow is going to accelerate. Talk to us a little bit about '27, '28, how you're thinking about the next couple of moves on the board. Sort of thing.

M. Bunn

Hi Dan, it's Paul. I would say probably a lot more of the same of what you have seen since kind of since '21. I don't think the playbook has changed. I mean number one, we're going to be focused on safety and execution and not chasing stuff dedicated and specialized in the team environment, specialized and dedicated in the solo environment, leaning into managed freight growing warehousing organically, tail is going to grow. And so we're going to focus on safety and execution and then look at capital allocation alternatives based on what's out in the market.

And not try to chase commoditized stuff only go after stuff where we can get a return. And at times probably look at M&A and at times focus on ourselves and at times looking at deploying capital like we've done before share repurchases. And so I would think it's just going to be more of the same what you've seen since the early 2021 kind of time frame. I think.

James Grant

I would echo Paul, I think what we have been doing for the last 5, 6 years is really, really working for us. I think coming out of a 4-year down cycle and moving into a stronger freight cycle, the types of opportunities that we have in front of us today are plentiful and also complex to execute the team is entirely focused on executing on those opportunities and have done a great job. And a lot of those opportunities are in the truckload space, which ironically went backwards from a margin perspective sequentially in the quarter. But regardless, I think what we're doing there is, I said it before, it's transformational and lot of organic and in-house opportunities to execute on.

And when the time is right or if the right acquisition or the right company comes our way, we have the flexibility to do it and a track record to acquire a company and do it well. But there's a lot of focus internally on the execution that is going to take and on the opportunities that we have in front of us over the next 12 to 18 months, however long this cycle last.

Dan Moore

And last question, capital structure. How are you thinking about debt -- do you expect to ramp that higher, take that lower? Are you going to be patient?

James Grant

I think right now at 2x yes, where we are at 2x, I expect to improve over the next few quarters. We haven't finalized our capital plan for next year yet, but I expect to see the benefits of improved operational cash flow come through in the first quarter. We may see it a little bit in the fourth quarter, it wasn't as good as what I had hoped in the third, but sometimes it can be a little clunky.

But I think that we will naturally just keep our maintenance in place and with our maintenance CapEx in place, we'll have the opportunity to burn down some of that debt and we're comfortable. We don't have a target in mind, but we're comfortable between 1x and 2x. You're probably not going to see us go debt free, but you probably won't see us go to 2.5x or 3x either. And so I think over the next few quarters, that's probably where we're leaning.

Not to say that that's the absolute answer if the perfect opportunity came along, we would probably pull the trigger on it. But right now, based on what we know today, that's where we're leaning.

Operator

[Operator Instructions] And we'll hear from Cole Cosens of Wolfe Research.

Unknown Analyst

Sorry, I'm hopping on late, so apologies if you guys already hit on this, but can you guys give an update on D.C. and the regulatory environment? And maybe like what's the next shoe to drop, whether it's ELD enforcement to Laila ELD enforcement? And is there any signs that the administration is less focused here because of inflation?

David Parker

We don't see that. We have been working with closely with FMCSA, and we think they're doing a great job, and we think that their commitment is just as strong today as it was 12 months ago when you and I and everybody else started learning about what FMCSA was going after. And we continue to see them do testing at schools. We continue to see them shut down schools. We continue to see them making sure that they agreed with the grading process that schools have.

So I think there's pressure there. We see that they are at first base on the ELD requirements. They're very well aware of it. I was telling somebody else just a little while ago with the analysts that I believe about 30% of the drivers running with ELDs, 30% of the trucks running up and down the road today, their ELDs are cheating. I think it's a gigantic number. And I think that FMCSA is absolutely committed to bring that down to zero.

And I think that you'll see them go to a third-party administrator, third-party certification, and that will be the start of what they're going to be doing. But I think the FMCSA is very committed and very much so going to -- their whole desires, they told me, I don't care how much money a trucking company makes. I don't care how much money a shipper makes. The only thing I care about is that when the motoring public goes up and down the interstate and they passed the truck that they got confidence that there's a safe driver in it. That's their only goal in life. And so no, I don't see anything of them backing up at all. And I just -- I continue to do what they're doing.

Unknown Analyst

Okay. That's helpful. And maybe last question on 2027. Can you guys just give early expectations across truckload for what you expect contract rate increases to be -- I'm sure you've already had some early conversations with shippers?

David Parker

Yes. I would just say this that the way we answer a couple of questions ago was that all of us and our peers we're going to continue to raise rates. We have to because of the cost. And the costs are, they may get a little bit better in -- but there's still numbers that four or five years ago, all of it to say, "Boy, that's high. And they're continuing to increase, whether it's trucks, whether it's driver pay trucks trailers, insurance, and we all are going to have to continue to go to our customers and get more money.

I mean we sit and look at double-digit rate increases this year. And most of our ORs have improved by 1 or 1.5 to 2 points. I mean that's not enough. You can't increase rates 15% and get 2 points better in margin. That's not the answer. And so I think that you're going to continue to see all of us go back to the customer and say, we got to have more. And so I think '27 will continue down the same path.

Unknown Analyst

So another year of like double-digit increases is kind of a were.

David Parker

That's my expectations. I hope that it does, but that's my expectations. Yes. .

Operator

No further questions at this time. Trip, back over to you for any additional or closing comments.

James Grant

Yes. We'd like to thank everybody for joining our call today and your interest in Covenant Logistics, and we look forward to talking to you in January at our Q4 earnings call. Thank you very much. .

Operator

That concludes our meeting today. You may now disconnect.