Richard Cribbs - SVP and CFO David Parker - Chairman, President and CEO Joey Hogan - President and COO.

Jason Seidl - Cowen and Company Scott Group - Wolfe Research Brad Delco - Stephens Inc. Barry Haimes - Sage Asset Management.

Excuse me everyone, we now have all of our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the 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.

I would now like to turn today's conference over to Richard Cribbs. Sir, you may begin..

All right. Thank you, Samantha. Good morning. Welcome to our first quarter conference call. Joining me on the call this morning are David Parker and Joey Hogan. As a reminder, 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 limitation, 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. A copy of our prepared comments and additional financial information is available on our web site at ctgcompanies.com under the 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 based divisions revenue, excluding fuel, decreased 3.1% to $127 million, due primarily to a 2.4% decrease in average tractors.

Versus the year ago period, average freight revenue per total mile was up 0.5% per mile or 0.3% and our miles per truck per week were up 0.6%. Freight revenue per tractor at our Covenant Transport subsidiary, experienced an increase of 2.4% versus the prior year quarter.

Our Star Transportation subsidiary experienced an increase of 0.4%, while our refrigerated subsidiary, SRT, experienced a decrease of 5%. The asset based division's operating cost per mile, net of surcharge revenue, were up approximately $0.069 per mile compared to the year ago period.

This was mainly attributable to higher employee wages, capital costs, ops and maintenance expense, casualty insurance expense and other fixed costs. These increases were partially offset by lower net fuel costs.

We recognize the loss on this total equipment of approximately $500,000 in the first quarter of 2017 versus a loss of approximately $300,000 in the first quarter of 2016. The asset based operating ratio was 100.2% in the first quarter of 2017 compared with a 95.7% in the first quarter of 2016.

Our Solutions Logistic subsidiary decreased revenue by 3.4% versus the year ago quarter. Combined purchase transportation and other operating expenses increased as a percentage of revenue, resulting in operating ratio deterioration to 89% from 86.6% in the year ago quarter.

The result being a decrease of operating income contribution to $1.4 million in the current year quarter from $1.8 million in the prior year quarter. A minority investment in transport enterprise leasing contributed $1 million to pre-tax earnings or $0.03 per share.

The average age of our tractor fleet continues to be young at two years, as of the end of the quarter, although up from 1.7 years a year ago. As we are extending the trade cycle of our tractors, we expect the average age of our tractor fleet to increase over the next two or three quarters.

Since December 31 of 2016, total indebtedness net of cash and including the present value of off balance sheet lease obligations has decreased by approximately $11.6 million to $215.2 million.

The main positives in the first quarter were, one, our tangible book value per basic share increased 13.4% to $12.91 from $11.38 a year ago, to deleveraging with $11.6 million decrease in our total net indebtedness and three, a 12.5% year-over-year increase in the average tractor fleet at our Star Transportation subsidiary.

The main negatives in the quarter were, one, increased operating costs on a per mile basis, including the unfavorable employee wages, capital maintenance and casualty insurance costs, that were partially offset by the lower net fuel costs, and two, SRT operating loss for the fifth consecutive quarter.

Our fleet experienced an increase to 2,570 trucks by the end of March, a 35 truck increase from our reported fleet size of 2,535 trucks at the end of December. Our fleet of team driven trucks averaged to 1,003 teams in the first quarter of 2017, a 2.8% decrease from 1,032 average teams in the fourth quarter of 2016.

Our first quarter freight varied from month-to-month. January started off strong but weakened at the end of the month, resulting in a year-over-year January miles per truck being up 0.7%. February was weak for most of the month, resulting in year-over-year February miles per truck being down 4.7% on one less calendar day.

And March ticked back up, meeting seasonal expectations, with our year-over-year March miles per truck finishing at 2.2%. For the remainder of 2017, our outlook is mixed.

We expect the second quarter of 2017 to remain challenged by negative comparisons in freight revenue per tractor, accelerated depreciation and higher maintenance expense and professional driver wages.

These factors will be countered to some extent by year-over-year net fuel expense saving in all remaining quarters, and a flattening of the negative year-over-year impact of depreciation in the second half of 2017.

At SRT, we are seeing progress and have confidence in our planning team, and we expect additional progress in the three remaining quarters of 2017 versus 2016.

To the extent, mandatory ELD implementation and lower truck numbers in our industry, decreased effective capacity and economic growth as far as volumes, we expect the supply-demand environment to improve later in 2017 and into 2018.

However, the timing and magnitude of these changes are difficult to predict, and may be different in each of our markets. We are hopeful that these items will deliver earnings improvement for the second half of 2017 as compared to the second half of 2016.

We expect operating cash flow in excess of net capital expenditures and we continue to pay down debt in 2017. Thanks for your time. We will now open up the call for any questions..

Thank you. At this time, we will open the floor for questions. [Operator Instructions]. Our first question will come from Jason Seidl with Cowen..

Thank you, operator. Good morning guys. Wanted to focus a little bit on the recent merger and how that might impact carriers like yourself? You know, because one of the reasons Knight gave was, they wanted to have the ability to go after that online marketplace a little bit better, due to supply chain shortening.

Does that provide more competition to you, or is that just going to be something completely separate from the team driver market that you guys are already, you know, one of the dominant players in?.

Jason, I look at that as -- I think, predominantly, probably 90% of both of our operations, theirs and ours is apples and oranges, and they are definitely the -- to me, Knight just became a larger -- much larger, with Swift acquisition on the regional market of what they were already doing and you know, we don't really play in that market that much.

So I don't think so.

I think that as ELDs come into existence, 12 months from now, I think there is going to be a lot of 550 mile length of hauls, 600 mile length of hauls that we don't play a whole lot in today, that if the customer wants a next day delivery, it's going to have to go by a team; because a solo driver is not going to be able to go the vast majority of them, on the 550 miles if they got any dead hit [ph], have whatsoever to origin.

And so we see the market size requiring team drivers more than it is today, 12 months from now. But overall, I think it was a great acquisition and I think that they will do a great job together, and all that wonderful words that we all want to say. Yeah, so that's really what it is to us..

Have any of your customers come to you now with the concern now that some of their existing lanes are like that, that 500 to 550 miles that are being done by a solo driver now, but in the future, they might need help from companies like yourself?.

You know only -- that's a good question Jason. You know, what we see in a -- from a bid standpoint or in their rate negotiations or just knowing what our customers have and our freight is that, we are able to see it, we don't participate a lot in it, because we don't really want a lot of it.

And so, unless it's just repositioning trucks or [indiscernible] marker to get into a market that where we need our -- the teams. And so we see it. There is a lot of it, and the customers right now, I think similar to us are just kind of sitting back saying, what's going to happen in 12 months from now.

They are really not going to be able to get off of this thing. They are really going to dictate me doing something. So I think it's kind of a wait and see attitude in that marketplace. But as we all know, there is a lot of that freight..

Okay. Last question on SRT; obviously progress, probably slower than you guys would like.

Could you talk a little bit what we should expect for the remainder of the year? Is it going to be sequential progress, but just slow, and then hopefully wait till the ELDs really tighten up that reefer marketplace in 2018? Is that how we should look at it?.

Yeah, and I will let Joe and Richard both add a little bit. But I couldn't be more excited on what I am seeing on the SRT. I mean, the management team is doing a great job at SRT. I am very pleased. I mean, the -- just the bigger they got, and the energy that's laid [ph] throughout that company, and all the companies are working so well together.

I am very excited with where they are at, and the example that I have given them is that, they have pushed and pushed that ball up that hill, and that ball is almost to the crest of that hill. And we believe that, as we have said, we believe second quarter is a great time. I was very pleased with the SRTs in the month of March.

It really showed a lot of the hard effort that they have been putting into it, and gave them a glimpse of what had hampered them. And so I do believe that we are right on, where we believe it is and that is that second quarter, they will be profitable, and then it will continue to get better into third and into first quarter.

And so I think they are really where we thought they would be at, and we are very excited with the turnaround at SRT.

Joey, Richard?.

I think Jason, there is a couple of things -- several things that we can point to that [indiscernible]. That's kind of what happens at a turnaround. The service is really strong. I am not saying the services there are awful, but it had some room for improvement and it has done quite well.

The bleed of customers that we were kind of feeling first half of last year is gone, of which the freight market was a little stronger. Obviously, the improvement would be seen much quicker..

We all do, right..

Obviously. But the service is really-really strong. The accidents that are going on there have continued to drop. They are doing really strong there. The driver market has been very receptive to the new management team, it's turnover continues to drop.

The network density has been defined, or redefined I would call it, and it's starting to move in the current direction, so we are excited about that. So I think there are several things in the basic block and attack. Again, it needed some major movement, and that is what's happening. At the end of the day, need some freight.

And so, I think as that comes on with either new customers or customers that used us [ph] in the past, are willing to give us another shot, or as obviously when and if the market tightens, I think it's going to help them dramatically. So it's going to be, what you said, slow sequential improvement.

David has already said, have a goal of breakeven in the second quarter, that will be pretty meaningful. We -- that's not slow, that's a big move from first to second quarter. And so I think, that's what you are going to see throughout this year, and we are ready to go. And so -- we will see it throughout this year..

Well gentlemen, listen, I really appreciate the time and thoughts today. Thank you..

Thank you..

Thank you. Our next question will come from Scott Group with Wolfe Research..

Hey thanks. Good morning guys..

Good morning Scott..

Can you give a little color commentary on what you are seeing in April? Werner talked about kind of things get better on a year-over-year basis.

What are you guys seeing?.

Scott, as I look at a couple of things; number one, very happy with the month of March, at all three companies' assets. Very happy with the month of March.

And was happy with the first week of April, and then we got to Easter week, and it was a typical Easter week, and we are in Good Friday's kind of 75% of what it ought to be, but that's a number that has always been there. But you had a little slowdown, Easter week. And we did not see it pick back up.

I mean, it got better, we didn't have the Good Friday, but the following week, this week has been very similar to a little more negative to what I would like to have seen the week. I hope that it's just a hangover from Easter. That is on the dry side.

On the reefer side, I think there has definitely been a pickup, and I am encouraged by what I am seeing on the refrigerated side of the business. I think freight is getting pretty decent out there from the refrigerated side. But we are two weeks into April coming off of March, and I was very pleased with -- I don't know, from our standpoint.

I don't know if there is a little pause that's happening here last week Good Friday and then this week or not..

And Richard, what does that mean for your expectation for miles per truck in the second quarter?.

I think that we are probably close to on-par to what we would expect. The bigger, more important months really are June and May for the quarter.

Kind of looking at, we had probably forecasted miles to be up a bit in April this year, because April really wasn't that great last year, but now we are probably looking more flattish, maybe still slightly up. But not to the level we had expected. But my guess is we can probably make that up in May and June..

Okay. Helpful.

Can you talk about what you are seeing from a bid season perspective and what pricing increases you guys are realizing?.

Yeah, I think Scott, the big season is going, I would say about as we expected.

In a bid, there is two things to keep in mind, not only the rates on the same lane, what does that do, but also, yield a difference; meaning, you may trade off-lanes or the customer may ask you to trade off-lanes, and so the net result is, what is your overall book of business do at that -- with that customer versus where you were prior to the [indiscernible].

Our expedited side is running around two percent-ish is what I would say. Our reefer side, a little bit less than that. But both of them are up and we are -- the customers are being very aggressive in the marketplace, there is no question.

But those that were able to work through are probably a little behind, as a little -- I am not going to be too aggressive, I mean it's a little delay tactic if you will, going on. But we are able to get some increases, but it's really buried and our overall yield is moving.

And so, I am encouraged by that, this is a big quarter, second quarter is a big-big, big-big quarter. And so we will be basically through most of it. July, most of all, all of our big accounts will be done by July. One of our larger, top 10 accounts is done, it's a two year contract. So that's done, and we know what it was last year, and that was 1.5%.

So we have that in there. So we feel pretty good. Of most the surveys that I answer, I still say 1% to 2% for the year, and I think that's about where we will end up..

Okay. And just to follow-up on that, your point about mix I think is an interesting. I am guessing, when the market is tight, you can kind of force your mix to go -- push your mix higher.

Is this a market, where kind of the customers are pushing your mix down, or do you think you can kind of keep mix stable and realize pricing of one to two, in line with the one to two you are getting on bids? Does that make sense?.

Yeah. I think when the market is down, you are working -- there is two things going on. Obviously, when the market is good, you have the opportunity to raise rates where you need it, as well as move your network a little bit quicker into areas that you need.

When the market is down, you are still trying to move your rates, but we take a little bit more -- you have to be a lot more circumspect on the lanes that you need to-date, because your network is not as stable, is not as robust. So you are willing to be a little bit more aggressive with freight you are not hauling today, if it feels a network need.

And so, that can impact yield a little bit negatively, but on the other hand is, it is moving trucks into areas that you need to move a man, and that, as the markets move, you move with that market.

But any way, I fail [ph] to say, our analyst team and our sales team did a really good job on an ongoing basis of managing to our network needs, good markets or bad markets. It's just in bad markets, you tend to be a little bit more aggressive, which is obvious..

Okay, great. And then --.

One of the other areas, Scott, I'd mention real quick is, as we have a strong strategic initiative on growing our Southbound freighter, our Mexico business. And that's providing some new opportunities for us from a freight standpoint and a yield standpoint, it's early. I think we are open for business. The shipping community is understanding that.

We are providing an outstanding service into that marketplace. I think we have some unique things, that maybe isn't as credible in that marketplace down there, when you are able to offer expedited capacity, and in Mexico, it is not prevalent down there. And so, we are able to offer that, and we are really pleased with what we are seeing there.

The team that's managing that, is doing a really good job, and that is a nice growth opportunity this year. It's still going to be small, but we are really excited about when we see that too..

Okay, great. And then last one for David, maybe just, as we think about Amazon as a customer and their supply chain needs are evolving. Maybe just talk about, how their supply chain is evolving and anything they are doing differently in the market this year versus a year ago, with their brokerage platform.

Does that mean you are growing with them, not growing with them, what it means for you? A long question, but however you want to approach the Amazon question..

Everything you said there is all correct. I mean that -- Amazon, there is two or three things. Number one, they continue to grow in our company very dramatically. And the way that I think that I look at Amazon, is that it's very similar to the 1980s of Walmart.

And that is, Walmart was in a tremendous that we all did business with, and the next day you know, Walmart started adding trucks and Amazon is adding trucks. They have not told me, but it has been a few months since I heard about, they run about 400 trucks or so on their owner-operator program that they have got. So it's somewhere around that number.

And Walmart starts adding trucks, and next day you know, Walmart is at 6,000 trucks and they need every one of us. And I think Amazon is going to be in the same position. Kind of what we are seeing there, as they have added some of the trucks, you lose the lane here and you lose a lane there.

But it's hard to tail, because their network is in such a continuous change mode. I mean, they open up fulfillment centers and lanes get changed, and this lane becomes that lane, it goes to that fulfillment center, you like it, but you don't like the other one. It's a continuous motion of change.

And we have seen a lot of that in February-March kind of timeframe, in early April, the last couple of months that there has been a lot of change in their network.

And I would say, net effect, it has been a negative to us, but we have recently had meetings with Amazon, and they still need what we have got, and they still value the relationship tremendously, and we got to get the business back up to where it's at -- to where it was at, six months ago or five months ago.

But yeah, it has been a little negative from the standpoint of the fleet that they are bringing on. So I [indiscernible] there is some growth that is going on there, and will fit the network.

They do believe that their 500, 600, 700 mile length of haul loads are going to continue to explode on them in the foreseeable future, and that there is concerns on the ELD mandates and what solos can do. And so, that's my take. And so it's a work in progress, and it has been from the two years we have done business with Amazon..

Okay. Thank you guys very much..

Okay. Thanks Scott..

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

Good morning gentlemen.

How are you?.

Hi Brad. Good.

The better question is, how are you?.

[indiscernible] surprised still, Richard. I mean, not Richard, David. Sorry. Question -- most of mine have been asked, but I was hoping, Richard, may be you could sort of quantify. I think David gave us good context that the goal is for SRT to turn to profitability in the second quarter.

But as we think about what those year-over-year comps look like, second, third, fourth quarter for SRT, is there any way you could put into context how much of an earnings drag that segment was to the overall business, so we know what to kind of compare it to, going forward?.

Well, I will try. We went into the year saying that, we expected to see between $5 million and $10 million of EBIT improvement at SRT. You could read into our first quarter release that we actually were behind a little bit, and the first quarter of this year versus first quarter of 2016.

And so we still have more than $5 million to make up on -- at a minimum. And I guess I am on record saying that, $10 million is the stretch goal. And so, whether we expect that or not, I think that's a little strong goal that we could hit, but not as probable as definitely hitting the $5 million number.

And if you are going to spread that out over the quarters, I'd say the second quarter has a -- the second and third quarter has probably closer to half of that, and then the fourth quarter has the remainder of that. So a lot more in the fourth quarter than in the second and third.

Is that helpful?.

So if I am reading that correctly, your easiest comp for SRT will be fourth quarter of 2017?.

That's correct. It should be. Based on where they are trending and all the work that has gone in there, and where we have the equipment and as the sales team continue to progress and what we expect from the economy and capacity. So, yes..

Okay, great. Thanks Richard. And then David, maybe this is sort of a tag-on to Scott's question about your relationship with e-commerce or peak season customers.

But if I remember several years ago, there were arrangements where their capacity allocation during peak would be dependent upon how supportive they are of your business during the out-of-peak season, knowing that it takes time and it's difficult to maintain or to hold on to teens.

Is that no longer the case, and could there be ramifications for how you allocate capacity, if that's not the case today? Maybe I am reading too much in your comments on Scott's question, but it sounds like Amazon is not giving you as much freight right now, and I don't know if there is necessarily going to be any repercussions for that decision?.

Yeah. You are reading more into it than what that is. First of all, keep in mind, there is -- besides all of our regular customers, whether it's retail or what the product is that, also go up in the peak season. There is four separate, four customers that you know could take every bit of our peak that we have got available out there.

And so we try to do a good job of making sure that, we keep all four of those, as well as our other regular customers year around, happy. And so those four customers again could take all of the capacity that we have got.

And I would say that, those customers have been good to us, and we have already got some peak season that's already been tied up for this coming peak, it has already been negotiated and expectations of what it's going to be has already been there, as well as they have helped us tremendously in the first quarter.

I am very pleased, overall, with what our customers have done for us in the first quarter. So no, don't take -- we are very-very pleased with what's happening with our peak customers. It's just that, as Scott asked earlier it's just that Amazon has got fulfillment centers and lanes changing here and company trucks coming here that affects it.

But I think their growth is much greater than that. So you kind of go back a step, and then you are going to go up two steps. So you go back a steps, and you are going to go up two steps as they are growing rapidly. But I am very pleased with our peak customers, and they have helped us very nicely in the first quarter..

Great. And then maybe if I can attack on something I thought I picked up in that response.

Did you say, amongst your, call it four large peak season customers that you already had some pricing or contracts locked up for this peak season? Can you give us context around what that might look like?.

No. I don't want to give. We are -- yes, we have already got some -- I would say that half of our peak season is already done with, one what is expected and what's already sold up. So here it is April, that's probably the fastest [indiscernible].

I mean, it's probably the fastest, Joey, the fastest we have ever been at this time to say, kind of half our peak season is already figured out. So, I don't know if that helps or not, but I am very-very pleased, that it's actually again ahead of the curve..

Yeah, when would -- normally, it would typically be July-August, right?.

Yes, that's right. And then, it doesn't get firmed up until September and you know, those kind of timeframes. And then really gets firmed up in October -- so it is a process..

Okay. All right. Well that's it for me guys. Thanks for the time..

Thank you, Brett..

Thank you. [Operator Instructions]. Our next question will come from Barry Haimes with Sage Asset Management..

Hi guys. Good morning..

Hey Barry..

Two questions; first one, I know sometimes in your leasing business and some of the [indiscernible] light businesses, you get a window on to what some of the small, medium sized truckers are doing, vis-à-vis ELDs and I am wondering if there is anything you are observing or anything anecdotal you might be willing to share in terms of -- what those guys are doing? Are they mostly installing and not installing and waiting till December? So just anything you could share in that? And then I have got one follow-up after that..

Yes Barry. This is Joey. I think our -- what we call, non-asset or asset like businesses, there is three of them; our brokerage, [indiscernible] operation, our leasing business, and our factoring business. It's moving on the ELD compliance, but its moving slow. It's moving, but it's moving slow.

And so I think there is -- you have the percentage of working on it growing, but the actual installation is moving slow and the actual usage is moving slow. So it tells you there, we are working on it, we are thinking about it. But I think at the end of the day, they are going to wait as long as they can.

Because -- and the reason is pretty obvious, it's pretty meaningful. It's a meaningful impact. The time when freight is fair, let's say across everybody's network is fair, I wouldn't [ph] want to add more potential burden on to my financial situation before I have to. So they are going to push this off as long as they can.

It's interesting, on the leasing side, our leasing business is still doing, I would say well. We had a pretty good first quarter. You can see our earning's up and our leasing and investment nicely. We worked our tails off for the last four or five quarters, let's call it right-sizing inventory and/or what's out of the marketplace.

Our trailer business is exploding, which makes sense with what's going on in the marketplace or adding additional investments in that. But the ELD specific, and I am sorry Barry, I am getting off your initial question. It's moving, but it's moving slow..

Got it. No I appreciate it. And then, my other question was, David, I think you mentioned that one of your large customers, you did a two year deal with, and you know, I am sure, you won't want to get into specific numbers.

But I wondered if you could just characterize, what sort of rate increase you are getting in year two, relative to the rate increase you are getting in year one? Are they similar? Are you getting a bigger one in year two because of the ELD issue. So I am just kind of curious, how that might look? Thanks..

As we said, the one that Joey mentioned there, the large customers, it's 1.5% effective sometime in May, is where it is at --.

For year two..

Year one was similar to that. But honestly, last year, because freight was very similar to what it is now, and the trucking of the market, kind of was in that 1% to 2% last year, and we think it's going to be in that 1% to 2% this year, kind of number, so did the 1.5% is what we got out of there Barry..

Okay. So I guess I misunderstood.

So it's going into year two of the year two contract in May?.

Yes..

Got it..

And then we will bid it next year again. Go through another bid process..

Appreciate the color. Thanks so much guys..

Thank you, Barry..

Thank you. [Operator Instructions]..

Samantha, thank you. I think we will wrap up the call. Thank you everyone for listening in, and we will talk to you next quarter..

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect..