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Item 1A. Risk Factors

2021-02-19 compared with 2020-02-19 · 104 added, 83 removed, 100 unchanged (65% of the section changed)

The following are important factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this 10-K.

The following are material factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this 10-K.

We may also refer to this disclosure to identify factors that may cause actual results to differ from those expressed in other forward-looking statements, including those made in oral presentations such as telephone conferences and webcasts open to the public.

Business environment and competition risk factors

Economic recessions could have a significant, adverse impact on our business.

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In addition, we have other expenses that are fixed for a period of time, and we may not be able to adequately adjust them in a period of rapid change in market demand.

Higher carrier prices may result in decreased net revenue margin.

Higher carrier prices may result in decreased adjusted gross profit margin.

Carriers can be expected to charge higher prices if market conditions warrant, or to cover higher operating expenses.

Our net revenues and income from operations may decrease if we are unable to increase our pricing to our customers.

Our adjusted gross profit and income from operations may decrease if we are unable to increase our pricing to our customers.

Increased demand for over the road transportation services and changes in regulations may reduce available capacity and increase motor carrier pricing.

In some instances where we have entered into contract freight rates with customers, in the event market conditions change and those contracted rates are below market rates, we may be required to provide transportation services at a net revenue loss.

Changing fuel costs and interruptions of fuel supplies may have an impact on our net revenue margins.

In our truckload transportation business, which is the largest source of our net revenues, fluctuating fuel prices may result in decreased net revenue margin.

Changing fuel costs and interruptions of fuel supplies may have an impact on our adjusted gross profit margins.

In our truckload transportation business, which is the largest source of our adjusted gross profits, fluctuating fuel prices may result in decreased adjusted gross profit margin.

While our different pricing arrangements with customers and contracted motor carriers make it very difficult to measure the precise impact, we believe that fuel costs essentially act as a pass-through cost to our truckload business.

In times of fluctuating fuel prices, our net revenue margin may also fluctuate.

In times of fluctuating fuel prices, our adjusted gross profit margin may also fluctuate.

Adjusted gross profit margin is a non-GAAP financial measure calculated as adjusted gross profit divided by total revenues.

For additional information, see Item 7 of Part II, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Our dependence on third parties to provide equipment and services may impact the delivery and quality of our transportation and logistics services.

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• unanticipated changes in freight markets.

We are subject to negative impacts of changes in political and governmental conditions.

Our operations are subject to the influences of significant political, governmental, and similar changes and our ability to respond to them, including:

• changes in political conditions and in governmental policies;

• changes in and compliance with international and domestic laws and regulations;

• wars, civil unrest, acts of terrorism, and other conflicts.

We may be subject to negative impacts of catastrophic events .

A disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, heightened security measures, actual or threatened terrorist attack, strike, civil unrest, pandemic, or other catastrophic event could cause delays in providing services or performing other critical functions.

A catastrophic event that results in the destruction or disruption of any of our critical business or information systems could harm our ability to conduct normal business operations and adversely impact our operating results.

In addition, the ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain businesses in the region.

These or any further political or governmental developments or health concerns in China or other countries in which we operate could adversely impact our operating results but at this point, the extent to which the coronavirus may impact our results is uncertain.

We face substantial industry competition.

Competition in the transportation services industry is intense and broad-based.

We compete against traditional and non-traditional logistics companies, including transportation providers that own equipment, third party freight brokers, technology matching services, internet freight brokers, carriers offering logistics services, and on-demand transportation service providers.

We also compete against carriers’ internal sales forces.

In addition, customers can bring in-house some of the services we provide to them.

We often buy and sell transportation services from and to many of our competitors.

Increased competition could reduce our market opportunity and create downward pressure on freight rates, and continued rate pressure may adversely affect our adjusted gross profit and income from operations.

Our sourcing business is dependent upon the supply and price of fresh produce.

The supply and price of fresh produce is affected by weather and growing conditions including but not limited to flood, drought, freeze, insects, disease, and other conditions over which we have no control.

Commodity prices can be affected by shortages or overproduction and are often highly volatile.

If we are unable to secure fresh produce to meet our commitments to our customers, our operating results could be materially and adversely affected, and our customers could switch to our competitors temporarily or permanently.

To assure access to certain commodities, we occasionally make monetary advances to growers to finance their operations.

Repayment of these advances is dependent upon the growers’ ability to grow and harvest marketable crops.

Our earnings may be affected by seasonal changes in the transportation industry.

Results of operations for our industry generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season.

Historically, income from operations and earnings are lower in the first quarter than in the other three quarters.

We believe this historical pattern has been the result of, or influenced by, numerous factors, including national holidays, weather patterns, consumer demand, economic conditions, and other similar and subtle forces.

Although seasonal changes in the transportation industry have not had a significant impact on our cash flow or results of operations, we expect this trend to continue and we cannot guarantee that it will not adversely impact us in the future.

We may be unable to identify or complete suitable acquisitions and investments.

We may acquire or make investments in complementary businesses, products, services, or technologies.

We cannot guarantee that we will be able to identify suitable acquisitions or investment candidates.

Even if we identify suitable candidates, we cannot guarantee that we will make acquisitions or investments on commercially acceptable terms, if at all.

The timing and number of acquisitions we pursue may also cause volatility in our financial results.

In addition, we may incur debt or be required to issue equity securities to pay for future acquisitions or investments.

The issuance of any equity securities could be dilutive to our stockholders.

Company risk factors

We rely on technology to operate our business.

We have internally developed the majority of our operating systems.

Our continued success is dependent on our systems continuing to operate and to meet the changing needs of our customers and users.

We rely on our technology staff and vendors to successfully implement changes to and maintain our operating systems in an efficient manner.

If we fail to maintain, protect, and enhance our operating systems, we may be at a competitive disadvantage and lose customers.

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As demonstrated by recent material and high-profile data security breaches, computer malware, viruses, computer hacking, and phishing attacks have become more prevalent, have occurred on our operating systems in the past, and may occur on our operating systems in the future.

Previous attacks on our operating systems have not had a material financial impact on our operations, but we cannot guarantee that future attacks will have little to no impact on our business.

Furthermore, given the interconnected nature of the supply chain and our significant presence in the industry, we believe that we may be an attractive target for such attacks.

We maintain a cyber liability insurance policy with coverage of $10 million to help protect us against losses that may result from a cyber-related security breach or similar event.

The policy has a retention of $1 million per incident.

Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, a significant impact on the performance, reliability, security, and availability of our operating systems and technical infrastructure to the satisfaction of our users may harm our reputation, impair our ability to retain existing customers or attract new customers, and expose us to legal claims and government action, each of which could have a material adverse impact on our financial condition, results of operations, and growth prospects.

Our international operations subject us to operational and financial risks.

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The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region.

As we continue to expand our business internationally, we expose the company to increased risk of loss from foreign currency fluctuations and exchange controls, as well as longer accounts receivable payment cycles.

As we continue to expand our business internationally, we expose the company to increased risk of loss from foreign currency fluctuations, as well as longer accounts receivable payment cycles.

Foreign currency fluctuations could result in currency exchange gains or losses or could affect the book value of our assets and liabilities.

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Continued success depends in large part on our ability to develop successful employees into managers.

We face substantial industry competition.

Competition in the transportation services industry is intense and broad-based.

We also compete against carriers’ internal sales forces.

In addition, customers can bring in-house some of the services we provide to them.

We often buy and sell transportation services from and to many of our competitors.

Increased competition could reduce our market opportunity and create downward pressure on freight rates, and continued rate pressure may adversely affect our net revenue and income from operations.

We rely on technology to operate our business.

We have internally developed the majority of our operating systems.

Our continued success is dependent on our systems continuing to operate and to meet the changing needs of our customers and users.

We rely on our technology staff and vendors to successfully implement changes to and maintain our operating systems in an efficient manner.

If we fail to maintain, protect, and enhance our operating systems, we may be at a competitive disadvantage and lose customers.

As demonstrated by recent material and high-profile data security breaches, computer malware, viruses, and computer hacking and phishing attacks have become more prevalent, have occurred on our operating systems in the past, and may occur on our operating systems in the future.

Previous attacks on our operating systems have not had a material financial impact on our operations, but we cannot guarantee that future attacks will have little to no impact on our business.

Furthermore, given the interconnected nature of the supply chain and our significant presence in the industry, we believe that we may be an attractive target for such attacks.

Our operations may be materially adversely affected by inconsistent management practices.

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Inconsistent management practices could materially and adversely affect our overall profitability and expose us to litigation.

Our earnings may be affected by seasonal changes in the transportation industry.

Results of operations for our industry generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season.

Historically, income from operations and earnings are lower in the first quarter than in the other three quarters.

We derive a significant portion of our total revenue and adjusted gross profit from our largest customers.

Our top 100 customers comprise approximately 28 percent of our consolidated total revenue and 20 percent of consolidated adjusted gross profit.

Our largest customer comprises approximately one percent of our consolidated total revenue.

The sudden loss of major customers could materially and adversely affect our operating results.

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We may have difficulties integrating acquired companies.

For acquisitions, success depends upon efficiently integrating the acquired business into our existing operations.

These risks could be heightened if we complete a large acquisition or multiple acquisitions within a short period of time.

We are required to integrate these businesses into our internal control environment, which may present challenges that are different than those presented by organic growth and that may be difficult to manage.

If we are unable to successfully integrate and grow these acquisitions and to realize contemplated revenue synergies and cost savings, our business, prospects, results of operations, financial position, and cash flows could be materially and adversely affected.

Our growth and profitability may not continue, which may result in a decrease in our stock price.

Our long-term growth objective is to grow earnings per share by 10 percent annually.

Long-term growth targets represent an over time perspective and do not necessarily represent an expected annual growth rate.

There can be no assurance that our long-term growth objective will be achieved or that we will be able to effectively adapt our management, administrative, and operational systems to respond to any future growth.

Future changes in and expansion of our business, or changes in economic or political conditions, could adversely affect our operating margins.

Slower or less profitable growth or losses could adversely affect our stock price.

Governmental, regulatory, and legal risk factors

We are subject to claims arising from our transportation operations.

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The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted motor carrier.

We contractually require all motor carriers we work with to carry at least $750,000 in automobile liability insurance.

We also require all contracted motor carriers to maintain workers compensation and other insurance coverage as required by law.

Most contracted motor carriers have insurance exceeding these minimum requirements, as well as cargo insurance in varying policy amounts.

Railroads, which are generally self-insured, provide limited common carrier cargo loss or damage liability protection, generally up to $250,000 per shipme nt.

Although these drivers are not our employees and all of these drivers are employees, owner-operators, or independent contractors working for motor carriers, from time to time, claims may be asserted against us for their actions, or for our actions in retaining them.

Claims against us may exceed the amount of our insurance coverage or may not be covered by insurance at all.

In addition, our automobile liability policy has a primary retention of $5 million per incident.

Cl aims against us may exceed the amount of our insurance coverage or may not be covered by insurance at all.

In addition, our automobile liability policy has a primary retention of $5 million per incident and also retention between $85 million and $90 million per incident.

A material increase in the frequency or severity of accidents, liability claims or workers’ compensation claims, or unfavorable resolutions of claims could materially and adversely affect our operating results.

In addition, significant increases in insurance costs or the inability to

purchase insurance as a result of these claims could reduce our profitability.

In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.

Our involvement in the transportation of certain goods, including but not limited to hazardous materials, could also increase our exposure in the event one of our contracted motor carriers is involved in an accident resulting in injuries or contamination.

Our sourcing business is dependent upon the supply and price of fresh produce.

The supply and price of fresh produce is affected by weather and growing conditions including but not limited to flood, drought, freeze, insects, disease and other conditions over which we have no control.

Commodity prices can be affected by shortages or overproduction and are often highly volatile.

To assure access to certain commodities, we occasionally make monetary advances to growers to finance their operations.

Repayment of these advances is dependent upon the growers’ ability to grow and harvest marketable crops.

In North America, as a property freight broker, we are not legally liable for loss or damage to our customers' cargo.

In our customer contracts, we may agree to assume cargo liability up to a stated maximum.

We typically do not assume cargo liability to our customers above minimum industry standards in our international freight forwarding, ocean transportation, or air freight businesses on international or domestic air shipments.

Although we are not legally liable for loss or damage to our customers' cargo, from time to time, claims may be asserted against us for cargo losses.

We maintain a broad cargo liability insurance policy to help protect us against catastrophic losses that may not be recovered from the responsible contracted carrier.

We also carry various liability insurance policies, including automobile and general liability, with a $155 million umbrella where we carry retentions between $2 million and $5 million and $85 million and $90 million per incident.

Buying and reselling fresh produce exposes us to possible product liability.

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If we have to recall produce, we may be required to bear the cost of repurchasing, transporting, and destroying any allegedly contaminated product, as well as associated consequential damages.

We carry product recall insurance coverage of $50 million.

We carry product recall and contamination insurance coverage of $30 million.

This policy has a retention of $3.5 million per incident.

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Our operations may be regulated and licensed by various federal, state, and local transportation agencies in the United States and similar governmental agencies in foreign countries in which we operate.

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We are subject to licensing and regulation as a property freight broker and are licensed by the DOT to arrange for the transportation of property by motor vehicle.

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Even without any new legislation or regulation, increased public concern regarding greenhouse gases emitted by transportation carriers could harm the reputations of companies operating in the transportation logistics industries and shift consumer demand toward more locally sourced products and away from our services.

We derive a significant portion of our total revenues and net revenues from our largest customers.

Our top 100 customers comprise approximately 32 percent of our consolidated total revenues and 24 percent of consolidated net revenues.

Our largest customer comprises approximately two percent of our consolidated total revenues.