What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 371 added, 273 removed, 1249 unchanged (34% of the section changed)

4 unchanged sentences

(In thousands, except share data)

June 30, 2022

September 30, 2022

December 31, 2021

47 unchanged sentences

24,689  

Current maturities of long-term debt

33 unchanged sentences

40,000,000 shares authorized;

16,125,786 shares issued and 12,549,730 outstanding as of June 30, 2022;

16,125,786 shares issued and 11,578,886 outstanding as of September 30, 2022;

and 16,125,786 shares issued and 14,414,159 outstanding as of December 31, 2021

6 unchanged sentences

Treasury stock at cost;

3,576,056 and 1,711,627 shares as of June 30, 2022 and December 31, 2021, respectively

4,546,900 and 1,711,627 shares as of September 30, 2022 and December 31, 2021, respectively

( 92,823 )  

14 unchanged sentences

FOR THE 

three and six months ended June 30, 2022 and 2021

three and nine months ended September 30, 2022 and 2021

(In thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Freight revenue

38 unchanged sentences

35,752  

28,437  

Communications and utilities

2 unchanged sentences

28,416  

21,972  

Depreciation and amortization

29 unchanged sentences

15,563  

Income from continuing operations, net of tax

32,130  

15,863  

Income from continuing operations, net of tax

49,961  

16,442  

(Loss) income from discontinued operations, net of tax

96,654  

40,459  

Income from discontinued operations, net of tax

$ 50,486  

1 unchanged sentence

$ 97,179  

$ 42,999  

Basic income per share:

4 unchanged sentences

$ 2.40  

(Loss) income from discontinued operations

Income from discontinued operations

$ 3.50  

8 unchanged sentences

$ 2.37  

(Loss) income from discontinued operations

Income from discontinued operations

$ 3.39  

16 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE three and six months ended June 30, 2022 and 2021

FOR THE three and nine months ended September 30, 2022 and 2021

(Unaudited and in thousands )

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

$ 50,486  

3 unchanged sentences

Other comprehensive income:

Unrealized gain (loss) on effective portion of cash flow hedges, net of tax of ($ 198 ) and ($ 506 ) in 2022 and $ 157 and ($ 235 ) in 2021, respectively

( 407 )  

Reclassification of cash flow hedge losses (gains) into statement of operations, net of tax of ($ 25 ) and ($ 61 ) in 2022 and ($ 45 ) and $ 6 in 2021, respectively

Unrealized gain on effective portion of cash flow hedges, net of tax of ($262) and ($768) in 2022 and ($5) and ($239) in 2021, respectively

Reclassification of cash flow hedge losses into statement of operations, net of tax of ($3) and ($64) in 2022 and ($44) and ($37) in 2021, respectively

Reclassification of gains on sale of investments classified as available-for-sale

Total other comprehensive income (loss)

( 292 )  

Total other comprehensive income

Comprehensive income

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three and six months ended June 30, 2022 and 2021

FOR THE three and nine months ended September 30, 2022 and 2021

(Unaudited and in thousands)

For the Three and Six Months Ended June 30, 2022

For the Three and Nine Months Ended September 30, 2022

Comprehensive

Stockholders'

(Loss) Income

Balances at December 31, 2021

35 unchanged sentences

$ 356,031  

For the Three and Six Months Ended June 30, 2021

50,486  

Cash dividend ($ 0.08 per common share)

( 1,170 )  

Other comprehensive income

Share repurchase

( 27,521 )  

Stock-based employee compensation expense

Exercise of stock options

Issuance of restricted shares, net

( 70 )  

Balances at September 30, 2022

$ 152,575  

$ ( 92,823 )  

$ 1,113  

$ 319,063  

$ 380,113  

For the Three and Nine Months Ended September 30, 2021

Comprehensive

1 unchanged sentence

Balances at December 31, 2020

$ 143,438  

$ ( 17,067 )  

$ ( 2,251 )  

$ 166,325  

$ 290,642  

11,140  

Other comprehensive income

Share repurchase

( 8,118 )  

Stock-based employee compensation expense

Issuance of restricted shares, net

( 1,158 )  

Balances at March 31, 2021

$ 144,874  

$ ( 24,560 )  

$ ( 1,319 )  

$ 177,465  

$ 296,657  

15,417  

Other comprehensive loss

( 292 )  

Share repurchase

Stock-based employee compensation expense

( 249 )  

Stock-based employee compensation expense reversal

Issuance of restricted shares, net

( 806 )  

Balances at June 30, 2021

$ 146,420  

$ ( 24,351 )  

$ ( 1,611 )  

$ 192,882  

$ 313,537  

16,442  

Other comprehensive loss

Share repurchase

( 1,980 )  

Stock-based employee compensation expense

Issuance of restricted shares, net

( 221 )  

Balances at September 30, 2021

$ 148,056  

$ ( 24,218 )  

$ ( 1,483 )  

$ 207,344  

$ 329,895  

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE  six months ended June 30, 2022 and 2021

FOR THE  nine months ended September 30, 2022 and 2021

(Unaudited and in thousands)

Six Months Ended June 30,  

Nine Months Ended September 30,  

Cash flows from operating activities:

1 unchanged sentence

$ 42,999  

Adjustments to reconcile net income to net cash provided (used) by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for losses on accounts receivable

( 26 )  

(Reversal) deferral of gain on sales to equity method investee

4 unchanged sentences

Deferred income tax expense

12,911  

Income tax expense arising from restricted share vesting and stock options exercised

3 unchanged sentences

( 21,261 )  

Return on investment in equity method investee

Gain on disposition of property and equipment

1 unchanged sentence

Gain on reversal of contingent loss of discontinued operations

( 700 )  

Gain on investment in available-for-sale securities

7 unchanged sentences

( 5,518 )  

Accounts payable and accrued expenses

25,153  

Accounts payable and accrued expenses

24,831  

5 unchanged sentences

( 38,501 )  

Other investment

Other investments

( 25 )  

4 unchanged sentences

50,112  

43,812  

Net cash flows (used) provided by investing activities

17 unchanged sentences

( 74,528 )  

Proceeds from exercise of stock options

Payment of minimum tax withholdings on stock compensation

2 unchanged sentences

( 70,886 )  

Net cash flows provided (used) by financing activities

Net cash flows used by financing activities

( 20,402 )  

1 unchanged sentence

50,845  

13,781  

Cash and cash equivalents at beginning of period

20 unchanged sentences

Our operating results are subject to seasonal trends when measured on a quarterly basis;

therefore, operating results for the six months ended June 30, 2022  are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 .

therefore, operating results for the nine months ended September 30, 2022  are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 .

These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10 -K for the year ended December 31, 2021 .

11 unchanged sentences

During the second quarter of 2021 we repaid $ 31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance.

As of June 30, 2022, there were no outstanding borrowings under the Draw Note and a remaining contingent liability of $ 5.1 million.

During the third quarter of 2022 we received notification that Triumph was able to collect additional funds related to our fourth quarter 2020 accrual that resulted in a $ 0.7 million reversal of our accrual.

As of September 30, 2022 , there were no outstanding borrowings under the Draw Note and a remaining contingent liability of $ 4.4 million.

The payment of amounts with respect to the indemnification obligations could create volatility in our reported future financial results and could have an adverse effect on our cash flows, available liquidity, and total indebtedness.

12 unchanged sentences

Changes in the useful life or salvage value estimates, or fluctuations in market values that are 

not  reflected in our estimates, could have a material effect on our results of operations. 

During the three months ended September 30, 2022, we sold a California terminal resulting in a $ 38.5 million gain which is included in gain on disposition of property and equipment, net in the condensed consolidated statements of operations.

Recent Accounting Pronouncements

9 unchanged sentences

There were approximately 305,000  and 

252,000 shares issuable upon conversion of unvested restricted shares for the three and six months ended 

June 30, 2022 , respectively, and 

271,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2022 , respectively, and 

193,000 and 

194,000 shares issuable upon conversion of unvested restricted shares for the three and 

six months ended 

June 30, 2021 , respectively.

209,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2021 , respectively.

There were 

no unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for either of the 

three and six months ended June 30, 2022 and 2021 .

three and nine months ended September 30, 2022 and 2021 .

There were 

1 unchanged sentence

109,000  shares issuable upon conversion of unvested employee stock options for the 

three and six months ended 

June 30, 2022  and no shares issuable upon conversion of unvested employee stock options for the three and six months ended 

June 30, 2021 , respectively.

three and nine months ended September 30, 2022  and no shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2021 , respectively.

There were 

33,000  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2022  and no  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2021 , respectively. Income per share is the same for both Class A and Class B shares.

no  and 

15,000 unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2022  and no  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2021 , respectively. Income per share is the same for both Class A and Class B shares.

The following table sets forth, for the periods indicated, the calculation of net income per share included in the condensed consolidated statements of operations:

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Income from continuing operations

3 unchanged sentences

$ 40,459  

(Loss) income from discontinued operations

( 19 )  

Income from discontinued operations

$ 50,486  

22 unchanged sentences

$ 2.40  

(Loss) income from discontinued operations

Income from discontinued operations

$ 3.50  

8 unchanged sentences

$ 2.37  

(Loss) income from discontinued operations

Income from discontinued operations

$ 3.39  

12 unchanged sentences

The fair value of the contingent consideration arrangement is based on inputs that are not observable in the market and is estimated using a probability-weighted method.

A three -tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

The significant unobservable inputs used in the fair value of the contingent consideration liability include the financial projections over the earn-out period, the volatility of the underlying financial metrics, and estimated discount rates. A three -tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Observable inputs such as quoted prices in active markets;

3 unchanged sentences

(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

4 unchanged sentences

There were no available-for-sale securities recorded as of 

June 30, 2022 or December 31, 2021 .

September 30, 2022 or December 31, 2021 .

Our financial instruments consist primarily of cash and cash equivalents, certificates of deposit, accounts receivable, commodity contracts, accounts payable, debt, and interest rate swaps.

1 unchanged sentence

Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes. The fair value of our revenue equipment installment notes approximated the carrying value as of 

June 30, 2022 , as the weighted average interest rate on these notes approximates the market rate for similar debt.

Borrowings under our revolving Credit Facility (as defined herein) approximate fair value due to the variable interest rate on that facility. There were no fuel hedge derivatives outstanding as of June 30, 2022 .

September 30, 2022 , as the weighted average interest rate on these notes approximates the market rate for similar debt.

The fair value of all interest rate swap agreements that were in effect as of 

June 30, 2022 was an approximately $ 0.5 million asset.

The contingent consideration arrangement requires us to pay up to $ 20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years. 

September 30, 2022 was an approximately $ 1.5 million asset.

The contingent consideration arrangement requires us to pay up to $ 20.0 million of additional consideration to AAT Carriers, Inc.'s ("AAT's") former shareholders based on AAT's results during the first two post-acquisition years.

The fair value of the contingent consideration is adjusted at each reporting period based on changes to the expected cash flows and related assumptions.

During the three  months ended September 30, 2022, the fair value of the contingent consideration increased by $ 0.8 million to $ 17.0 million from $ 16.2 million at June 30, 2022. 

The adjustment to the fair value of the contingent consideration liability was recorded as a component of general supplies and expenses within the condensed consolidated statements of operations.

The contingent consideration liability is included in accrued expenses and other long-term liabilities in our condensed consolidated balance sheets. 

Discontinued Operations

3 unchanged sentences

We have reflected the former Factoring reportable segment as discontinued operations in the condensed consolidated statements of operations for all periods presented.

The following table summarizes the results of our discontinued operations for the three and six months ended June 30, 2022 and 2021 :

The following table summarizes the results of our discontinued operations for the three and nine months ended September 30, 2022 and 2021 :

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenue

Operating expenses

Operating income

( 25 )  

Operating loss

Reversal of contingent loss liability

Interest expense

Income before income taxes

( 700 )  

Income tax expense

Income from discontinued operations, net of tax

( 700 )  

Interest expense

Income (loss) before income taxes

Income tax expense (benefit)

Income (loss) from discontinued operations, net of tax

$ 2,540  

Reversal of contingent liability for the six months ended June 2021 

Reversal of contingent liability for the three and nine months ended September 30, 2022 and for the nine months ended September 2021 

relates to the reduced exposure of future indemnification by the Company to Triumph, as a result of the collection of covered receivables identified in the amended purchase agreement, as described in Note 1.

The following table summarizes the major classes of assets and liabilities included as discontinued operations as of 

June 30, 2022 and December 31, 2021 :

September 30, 2022 and December 31, 2021 :

(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

7 unchanged sentences

Long-term contingent loss liability

$ 4,400  

$ 5,100  

Long-term liabilities of discontinued operations

2 unchanged sentences

$ 5,100  

There were no net cash flows related to discontinued operations for the three and six months ended June 30, 2022 and 2021 .

There were no net cash flows related to discontinued operations for the three and nine months ended September 30, 2022 and 2021 .

Refer to Note 1, “Significant Accounting Policies”

17 unchanged sentences

We evaluate performance based on operating income of the respective business units.

The following table summarizes our total revenue by our four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three and six months ended June 30, 2022 and 2021 :

(in thousands)

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Managed Freight

9 unchanged sentences

19,416  

Six Months Ended June 30, 2022

59,059  

Nine Months Ended September 30, 2022

Managed Freight

10 unchanged sentences

28,062  

Three Months Ended June 30, 2021

109,779  

Three Months Ended September 30, 2021

Managed Freight

10 unchanged sentences

20,083  

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Managed Freight

12 unchanged sentences

(in thousands)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Total external revenues for reportable segments

21 unchanged sentences

Our liability recorded for uncertain tax positions as of 

June 30, 2022 has increased by less than $ 0.1 million since December 31, 2021 .

September 30, 2022 has increased by less than $ 0.1 million since December 31, 2021 .

The net deferred tax liability of $ 88.4 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid.

The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. The Company has determined that a valuation allowance was not necessary at June 30, 2022 for its deferred tax assets since it is more likely than not they will be realized from the future reversals of temporary differences. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. The Company has determined that a valuation allowance was not necessary at September 30, 2022 for its deferred tax assets since it is more likely than not they will be realized from the future reversals of temporary differences. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

March 27, 2020, 

7 unchanged sentences

Current and long-term debt and lease obligations consisted of the following as of 

June 30, 2022 and December 31, 2021 :

September 30, 2022 and December 31, 2021 :

(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

2 unchanged sentences

Revenue equipment installment notes;

weighted average interest rate of 3.7 % at June 30, 2022, and 1.2 % at December 31, 2021, due in monthly installments with final maturities at various dates ranging from September 2022 to May 2025, secured by related revenue equipment

weighted average interest rate of 4.2% at September 30, 2022, and 1.2% at December 31, 2021, due in monthly installments with final maturities at various dates ranging from November 2022 to March 2027, secured by related revenue equipment

14,573  

50,143  

Real estate notes;

interest rate of 2.8 % at June 30, 2022 and 1.8 % at December 31, 2021 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

interest rate of 4.3% at September 30, 2022 and 1.8% at December 31, 2021 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

19,415  

4 unchanged sentences

Principal portion of finance lease obligations, secured by related revenue equipment

Principal portion of operating lease obligations, secured by related revenue equipment

Principal portion of operating lease obligations, secured by related real estate and revenue equipment

15,133  

17 unchanged sentences

or (B) the sum of (i) 87.5 % of eligible accounts receivable, plus (ii) the least of (a) 85 % of the appraised net orderly liquidation value of eligible revenue equipment, (b) 100 % of the net book value of eligible revenue equipment, (c) 60.0 % of the Lenders' aggregate revolving commitments under the Credit Facility, or (d) $ 65.0 million. 

We had no  borrowings outstanding under the Credit Facility as of June 30, 2022 , undrawn letters of credit outstanding of approximately $ 24.3 million, and available borrowing capacity of $ 85.7 million.

As of June 30, 2022 , there were 

We had no  borrowings outstanding under the Credit Facility as of September 30, 2022 , undrawn letters of credit outstanding of approximately $ 23.9 million, and available borrowing capacity of $ 86.1 million.

As of September 30, 2022 , there were 

no base rate and 

no  SOFR loans.

Based on availability as of June 30, 2022 and 2021 , there was no fixed charge coverage requirement.

Based on availability as of September 30, 2022 and 2021 , there was no fixed charge coverage requirement.

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated. If an event of default occurs under the Credit Facility and the Lenders cause, or have the ability to cause, all of the outstanding debt obligations under the Credit Facility to become due and payable, this could result in a default under other debt instruments that contain acceleration or cross-default provisions.

3 unchanged sentences

The notes included in the funding are due in monthly installments with final maturities at various dates ranging from 

September 2022  

to May 2025 .

November 2022  

to March 2027 .

The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do not have any financial or other material covenants or events of default except certain notes totaling $ 13.9 million are cross-defaulted with the Credit Facility.

11 unchanged sentences

During the first quarter of 2021, we received an indemnification call from Triumph of $ 35.6 million related to the TFS Settlement, which was funded by drawing on the Draw Note.

During the second quarter of 2021 we repaid $ 31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance. As of June 30, 2022 , there were no outstanding borrowings under the Draw Note.

During the second quarter of 2021 we repaid $ 31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance. As of September 30, 2022 , there were no outstanding borrowings under the Draw Note.

Lease Obligations

The finance leases in effect at 

June 30, 2022 terminate from 

August 2022 through 

September 30, 2022 terminate from 

December 2022 through 

November 2033 and contain guarantees of the residual value of the related equipment by us.

 A summary of our lease obligations at June 30, 2022 and 2021  are as follows:

 A summary of our lease obligations at September 30, 2022 and 2021  are as follows:

(dollars in thousands)

1 unchanged sentence

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Finance lease cost:

23 unchanged sentences

20,206  

15,795  

Weighted-average remaining lease term—finance leases (in years)

2 unchanged sentences

Weighted-average discount rate—operating leases

June 30, 2022 , and December 31, 2021 , right-of-use assets of $ 43.3 million and $ 35.7 million for operating leases and $ 5.6 million and $ 23.2 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets.

September 30, 2022 , and December 31, 2021 , right-of-use assets of $ 41.9 million and $ 35.7 million for operating leases and $ 5.7 million and $ 23.2 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets.

Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset, in the condensed consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the condensed consolidated statement of operations.

Our future minimum lease payments as of June 30, 2022 , are summarized as follows by lease category:

Our future minimum lease payments as of September 30, 2022 , are summarized as follows by lease category:

(in thousands)

16 unchanged sentences

$ 28,340  

$ 2,231  

( 1 ) Excludes the six months ended June 30, 2022 .

( 1 ) Excludes the nine months ended September 30, 2022 .

Stock -Based Compensation

15 unchanged sentences

The Incentive Plan permits annual awards of shares of our Class A common stock to executives, other key employees, consultants, non-employee directors, and eligible participants under various types of options, restricted stock, or other equity instruments.

June 30, 2022 , there were 

September 30, 2022 , there were 

872,509  shares remaining of the 4,200,000 shares available for award under the Incentive Plan. 

2 unchanged sentences

Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is stock-based compensation expense of $ 1.2 million and $ 1.7 million for the  

three months ended June 30, 2022  and 

2021 , respectively, and expense of $ 3.4 million and $ 3.8 million for the six months ended June 30, 2022 and 2021 , respectively. Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.2 million and less than $ 0.1 million for the 

three months ended June 30, 2022 , respectively, and $ 0.3 million and less than $ 0.1 million for the 

six months ended June 30, 2022 and 2021 , respectively.

three months ended September 30, 2022  and 

2021 , respectively, and expense of $ 4.7 million and $ 5.4 million for the nine months ended September 30, 2022 and 2021 , respectively. Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.2 million and $ 0.1 million for the 

three months ended September 30, 2022 , respectively, and $ 0.5 million and $ 0.2 million for the 

nine months ended September 30, 2022 and 2021 , respectively.

Of the stock compensation expense recorded for the three months ended 

June 30, 2022  and June 30, 2021, 

$ 1.0 million and $ 1.6 million relates to restricted shares, respectively, and $ 0.7 million and $ 0.7 million relates to unvested employee stock options, respectively. Of the stock compensation expense recorded for the 

six months ended June 30, 2022 and 2021 , $ 2.1 million and $ 2.5 million, respectively, relates to restricted shares and $ 1.4 million and $ 1.2 million, respectively, relates to unvested employee stock options.

September 30, 2022  and September 30, 2021 , $ 0.9 million and $ 1.0 million relates to restricted shares, respectively, and $ 0.4 million and $ 0.7 million relates to unvested employee stock options, respectively. Of the stock compensation expense recorded for the 

nine months ended September 30, 2022 and 2021 , $ 2.9 million and $ 3.6 million, respectively, relates to restricted shares and $ 1.8 million and $ 1.8 million, respectively, relates to unvested employee stock options.

The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows participants to deliver to us shares of Class A common stock having a fair market value equal to the minimum amount of such required withholding taxes.

To satisfy withholding requirements for shares that vested through June 30, 2022 , certain participants elected to forfeit receipt of an aggregate of 

To satisfy withholding requirements for shares that vested through September 30, 2022 , certain participants elected to forfeit receipt of an aggregate of 

20,120  shares of Class A common stock at a weighted average per share price of $ 19.38  based on the closing price of our Class A common stock on the dates the shares vested in 2022 , in lieu of the federal and state minimum statutory tax withholding requirements.

7 unchanged sentences

The Court entered an Order preliminarily approving the Class Settlement on December 31, 2021.

Our accruals related to this claim as of June 30, 2022 were sufficient to cover this settlement.

The Court dismissed this lawsuit on June 20, 2022.

On February, 28 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’

On February 

28, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’

General Act for the same underlying wage and hour claims at issue in the putative class action case noted above.

10 unchanged sentences

This lawsuit was settled following mediation on August 20, 2021, for an immaterial amount pending court approval.

Our accruals related to this claim as of 

June 30, 2022 were sufficient to cover this settlement.

The Court dismissed this lawsuit on August 10, 2022.

On February 11, 2021, a lawsuit was filed against Covenant Transport on behalf of Wesley Maas (a California resident and former driver) who is seeking to have the lawsuit certified as a class action.

The lawsuit was filed in the Superior Court of San Bernardino County, California.

The Complaint alleges claims for failure to pay all lawful wages, failure to provide lawful meal and rest periods or compensation in lieu thereof, failure to timely pay wages, failure to comply with itemized wage statement provisions, failure to indemnify for expenditures, and violations of California Labor Code and unfair competition laws. Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes that the recent resolution and dismissal of a prior class action lawsuit alleging similar claims, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements, however, any future liability claims could impact this analysis. Covenant Transport intends to vigorously defend itself in this matter. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of June 30, 2022 .

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, discussed above, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements, however, any future liability claims could impact this analysis.

We had $ 24.3 million and $ 26.4 million of outstanding and undrawn letters of credit as of June 30, 2022  and December 31, 2021 .

We had $ 23.9 million and $ 26.4 million of outstanding and undrawn letters of credit as of September 30, 2022  and December 31, 2021 .

The letters of credit are maintained primarily to support our insurance programs. Additionally, we had $ 45.0 million of availability on a line of credit from Triumph solely to fund any indemnification owed to Triumph in relation to the sale of TFS.

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There are no third -party liquidity arrangements, guarantees, and/or other commitments that may affect the fair value or risk of our interest in TEL.

We sold tractors and trailers to TEL for $ 0.0 million and $ 1.0 million during the six months ended June 30, 2022 and 2021 , respectively, and we received $ 0.4 million and $ 0.4 million, respectively, for providing various maintenance services, certain back-office functions, building and lot rental, and for miscellaneous equipment for the same periods.

There was no  equipment purchased from TEL during the six months ended June 30, 2022 and 2021 .

We sold tractors and trailers to TEL for $ 0.0 million and $ 1.0 million during the nine months ended September 30, 2022 and 2021 , respectively, and we received $ 0.6 million and $ 0.7 million, respectively, for providing various maintenance services, certain back-office functions, building and lot rental, and for miscellaneous equipment for the same periods.

There was no  equipment purchased from TEL during the nine months ended September 30, 2022 and 2021 .

Additionally, we paid approximately $ 3.4 million and $ 0.2 million to TEL for leases of revenue equipment during each of the 

six months ended June 30, 2022 and 2021 , respectively.

We recognized a net reversal of previously deferred gains totaling less than $ 0.1 million for the six months ended June 30, 2022 and 2021 , representing 49 % of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a third -party. Deferred gains, totaling $ 0.2 million and $ 0.3 million at 

June 30, 2022  and 2021 , respectively, are being carried as a reduction in our investment in TEL. At 

June 30, 2022  and 

December 31, 2021 , we had accounts receivable from TEL of $ 0.1 million and $ 0.7 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf and operating lease obligations to TEL of $ 1.4 million and $ 0.0 million, respectively.

nine months ended September 30, 2022 and 2021 , respectively.

We recognized a net reversal of previously deferred gains totaling less than $ 0.1 million for the nine months ended September 30, 2022 and 2021 , representing 49 % of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a third -party. Deferred gains, totaling $ 0.2 million and $ 0.3 million at 

September 30, 2022  and 2021 , respectively, are being carried as a reduction in our investment in TEL. At 

September 30, 2022  and 

December 31, 2021 , we had accounts receivable from TEL of $ 0.1 million and $ 0.8 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf and operating lease obligations to TEL of $ 3.4 million and $ 0.0 million, respectively.

We have accounted for our investment in TEL using the equity method of accounting, and thus our financial results include our proportionate share of TEL's 

2022 net income through June 30, 2022 , or $ 13.9 million. We received 

no equity distributions from TEL during the six months ended June 30, 2022 .

2022 net income through September 30, 2022 , or $ 21.3 million.

We received a return on our investment in TEL of $ 7.4 million during the nine months ended September 30, 2022 .

Our accounts receivable from TEL and investment in TEL as of 

June 30, 2022  and December 31, 

September 30, 2022  and December 31, 

2021 are as follows (in thousands):

Balance Sheet Line Item:

June 30, 2022

September 30, 2022

December 31, 2021

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Operating lease obligations

Current portion of operating lease obligations

Current and long-term portion of operating lease obligations

Our accounts receivable from TEL related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

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(in thousands)

As of June 30,

As of September 30,

As of December 31,

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

$ 40,135  

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Acquisition of AAT Carriers, Inc.

On February 9, 2022, we acquired 100 % of the outstanding stock of AAT Carriers, Inc.

("AAT") headquartered in Chattanooga, TN. AAT specializes in highly regulated, time-sensitive loads for the U.S.

On February 9, 2022, we acquired 100 % of the outstanding stock of AAT headquartered in Chattanooga, TN. AAT specializes in highly regulated, time-sensitive loads for the U.S.

The acquisition date fair value of the consideration transferred was $ 54.8 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

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Cash paid pursuant to Stock Purchase Agreement

$ 39,170  

Cash acquired included in historical book value of AAT's assets and liabilities

Measurement period adjustments

Contingent consideration

16,210  

Net purchase price

$ 54,711  

The contingent consideration arrangement requires us to pay up to $ 20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years.

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Credentialing intangible asset

32,000  

Total identifiable assets acquired

40,888  

Accounts payable

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Net identifiable assets acquired

39,012  

15,699  

Net assets acquired

$ 54,711  

During the quarter ended June 30, 2022, we recognized measurement period adjustments which reduced goodwill recognized for AAT by $ 13.8 million from $ 29.5 million as of 

March 31, 2022 to $ 15.7 million as of June 30, 2022. 

There were no such changes during the quarter ended September 30, 2022. 

These adjustments primarily relate to the preliminary valuation of the AAT credentialing intangible asset partially offset by the preliminary estimated fair value of the contingent consideration.

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Refer to Note 13, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended June 30, 2022 

are as follows:

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended 

September 30, 2022 are as follows:

(in thousands)

Three months ended

Six months ended

June 30, 2022

Nine months ended

September 30, 2022

Total revenue

$ 8,421  

$ 12,587  

$ 2,866  

$ 4,853  

Goodwill and Other Assets

On February 9, 2022, 

we acquired 100 % of the outstanding stock of AAT, which specializes in highly regulated, time-sensitive loads for the U.S.

AAT's results have been included in the consolidated financial statements since the date of acquisition within our Expedited reportable segment. 

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("Landair") trade name has a residual value of $ 0.5 million.

Amortization expense of $ 2.1 million and $ 2.3 million for the six months ended June 30, 2022 and 2021 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

Amortization expense of $ 3.2 million and $ 3.5 million for the nine months ended September 30, 2022 and 2021 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

A summary of other intangible assets as of 

June 30, 2022 and 

September 30, 2022 and 

December 31, 2021 is as follows:

(in thousands)

June 30, 2022

September 30, 2022

Gross intangible assets

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29,737  

( 1 ) Excludes the six months ended June 30, 2022 .

( 1 ) Excludes the nine months ended September 30, 2022 .

The carrying amount of goodwill and other intangible assets for 2022 is subject to change upon the completion of the purchase accounting for the AAT acquisition.

The carrying amount of goodwill increased to $ 58.2 million at June 30, 2022 from $ 42.5 million at December 31, 2021 , as a result of the AAT acquisition.

The carrying amount of goodwill was $ 58.2 million at September 30, 2022  compared to $ 42.5 million at December 31, 2021 , as a result of the AAT acquisition.

A summary of the changes in carrying amount of goodwill is as follows:

(in thousands)

June 30, 2022

September 30, 2022

Managed Freight

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As of January 1, 2022, there was approximately $ 38.0 million remaining under such authorization.

On February 10, 2022, our Board of Directors adopted a 10b5 - 1 plan for the purchase of up $ 30.0 million in shares subject to defined trading parameters, under our then current stock repurchase program authorizing the purchase of up to $ 38.0 million of our Class A common stock.

On February 10, 2022, our Board of Directors adopted a 10b5 - 1 plan for the purchase of up to $ 30.0 million in shares subject to defined trading parameters.

Under such authorization, we repurchased 0.7 million shares of our Class common stock for $ 15.2 million during the second quarter of 2022,  completing the repurchase program in May 2022 with a total of 1.4 million shares of our Class A common stock repurchased for $ 30.0 million.

On May 18, 2022, our Board approved a new stock repurchase authorization of up to $ 75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available.

Under such authorization, we repurchased 0.6 million shares of our Class A common stock for $ 13.4 million during the three months ended June 30, 2022. 

Under such authorization, we repurchased 1.6 million shares of our Class A common stock for $ 40.9 million through September 30, 2022. 

On January 26, 2022, our Board declared a cash dividend of $ 0.0625 per share, which was paid on March 25, 2022, to stockholders of record on March 4, 2022. 

On May 18, 2022, our Board declared a cash dividend of $ 0.0625 per share, which was paid on June 24, 2022, to stockholders of record on June 3, 2022.

On August 17, 2022, our Board declared a cash dividend of $ 0.08  per share, which was paid on September 30, 2022, to stockholders of record on September 2, 2022.

Subsequent Events

We repurchased an additional 0.5 million shares of our Class A common stock for $ 12.2 million from July 1, 2022 through August 3, 2022.

We repurchased an additional 0.4 million shares of our Class A common stock for $ 13.8 million from October 1, 2022 through November 2, 2022.

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In this Form 10-Q, statements relating to future impact of  

accounting standards, future third-party transportation provider expenses, future tax rates, expenses, and deductions, expected freight demand, capacity, and volumes and trucking industry conditions, potential results of a default and testing of our fixed charge covenant under the Credit Facility or other debt agreements, expected sources, as well as adequacy, of working capital and liquidity (including our mix of debt, finance leases, and operating leases as means of financing revenue equipment), future inflation, future stock repurchases and dividends, if any, future earnings per share, expected capital expenditures, allocations, and requirements, future customer relationships, future interest expense, future driver market conditions, future use of independent contractors, expected cash flows, future investments in and growth of our segments and services, future margins of our segments, future market share, future rates and prices, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, expected net fuel costs, strategies for managing fuel costs, the effectiveness and impact of, and cash flows relating to, our fuel surcharge programs, future fluctuations in operations and maintenance expenses, expected effects and mix of our solo and team operations, future fleet size,  

accounting standards, future third-party transportation provider expenses, future tax rates, expenses, and deductions, expected freight demand, capacity, and volumes and trucking industry conditions, potential results of a default and testing of our fixed charge covenant under the Credit Facility or other debt agreements, expected sources, as well as adequacy, of working capital and liquidity (including our mix of debt, finance leases, and operating leases as means of financing revenue equipment), future inflation, future stock repurchases and dividends, if any, expected capital expenditures, allocations, and requirements, future customer relationships, future interest expense, future driver market conditions, future use of independent contractors, expected cash flows, future investments in and growth of our segments and services, future margins of our segments, future market share, future rates and prices, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, expected net fuel costs, strategies for managing fuel costs, the effectiveness and impact of, and cash flows relating to, our fuel surcharge programs, future fluctuations in operations and maintenance expenses, expected effects and mix of our solo and team operations, future fleet size,  

management, upgrades, and age, availability of tractors and trailers, the market value of used equipment, the anticipated impact of our investment in TEL, the future impact of our strategic plan and other strategic initiatives, anticipated levels of and fluctuations relating to insurance and claims expenses, including the erosion of available limits in our aggregate insurance policies, our disposition of the assets of TFS, including any future indemnification obligations related to the TFS Portfolio,  

the expected total purchase price of AAT, and the sale of our California based terminal, among others, are forward-looking statements.

and the contingent consideration related to our 

purchase of AAT, among others, are forward-looking statements.

Forward-looking statements may be identified by the use of terms or phrases such as "believe," "may," "could," "would," "will," "expects," "estimates," "projects," "anticipates," "plans," " outlook," "focus," "seek," "potential," "continue," "goal," "target," "objective," "intends," derivations thereof, and similar terms and phrases.

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Executive Overview

For the second quarter of 2022, we had diluted earnings per share of $1.56 and non-GAAP adjusted earnings per share of $1.63, which is the highest earnings for any quarter in the Company's history.

These results were achieved despite unprecedented cost inflation, unusually high insurance costs, minimal gain on sale of used equipment and a softening in the freight market.

In addition to record earnings for such quarter, we completed our $30.0 million stock repurchase plan that was initiated during the first quarter of 2022 and we repurchased approximately 1.3 million shares of outstanding Class A common stock under the $75.0 million stock repurchase plan initiated during the second quarter of 2022. We expect both cost inflation and softening of the freight market to continue in the second half of the year.

Our asset-based segments, Expedited and Dedicated, contributed approximately 63% of total freight revenue in the quarter and performed well in an environment constrained by equipment shortages and sharp inflationary costs.

Our Expedited segment grew revenue and improved adjusted margins compared to the second quarter last year.

The addition of AAT in the first quarter of 2022 and improved pricing were able to overcome reduced utilization and significant cost increases from driver pay, fuel, insurance, parts and maintenance.

Our Dedicated segment improved year-over-year by producing higher revenue and better adjusted margins, representing continued progress towards our targeted returns.

Our asset-light segments, Managed Freight and Warehousing, contributed approximately 37% of total freight revenue in the quarter and combined to generate favorable margins and returns. Managed Freight continued to exceed expectations as a result of strong execution and effective coordination with our Expedited and Dedicated segments.

Warehousing was able to grow revenue through new customer startups but had diminished margins primarily as a result of incurring temporary incremental costs around new business activities and continued constraints of a competitive labor market.

Additional items of note for the second quarter of 2022 include the following:

Total revenue of $317.4 million, an increase of 23.8% compared with the second quarter of 2021, and freight revenue (which excludes revenue from fuel surcharges) of $266.9 million, an increase of 15.0% compared with the second quarter of 2021;

Operating income of $26.9 million, compared with $18.3 million in the second quarter of 2021;

Net income of $24.5 million, or $1.56 per diluted share, compared with $15.4 million, or $0.91 per diluted share, in the second quarter of 2021.

38% of consolidated total revenue was in our Expedited reportable segment, as compared to 34% in the second quarter of 2021;

Our Managed Freight reportable segment’s total revenue increased to $80.3 million in the 2022 quarter from $71.6 million in the 2021 quarter and the segment had an operating income of $8.6 million in the 2022 quarter compared to $7.3 million in the 2021 quarter; 

Our equity investment in TEL provided $7.1 million of pre-tax earnings in the second quarter of 2022 compared to $3.4 million in the second quarter of 2021;

For the third quarter of 2022, we had diluted earnings per share of $3.39 and non-GAAP adjusted earnings per share of $1.52.

The primary difference between the GAAP and non-GAAP results is excluding a $38.5 million pre-tax gain on sale of a California terminal this quarter from adjusted results. The adjusted, non-GAAP, results were achieved despite unprecedented inflation cost headwinds and a softening freight market.

We expect both cost inflation and lower demand to continue for the remainder of this year and in to 2023.

Separately, we are pleased to report progress on our stock repurchase plan.

We purchased approximately 1.0 million shares in the third quarter and through November 2, 2022, have purchased a total of 3.4 million shares during 2022, demonstrating our strategic commitment towards creating value for our stockholders.

Our asset-based segments, Expedited and Dedicated, contributed approximately 68% of total revenue, 85% of operating income, 62% of total freight revenue, and 59% of adjusted operating income in the quarter.

Our Expedited segment grew revenue and operating ratio but adjusted operating ratio deteriorated compared to the third quarter last year.

Significant cost increases from driver pay, fuel, parts and maintenance overcame the benefits from the addition of AAT in the first quarter of 2022.

Our Dedicated segment produced higher revenue and better margins year over year but fell short of improving margins sequentially due to similar cost headwinds experienced by Expedited.

We are focused on improving the durability of contracts in these business units to lower volatility across economic and freight cycles.

Additionally, we continue to work diligently to improve margins in our Dedicated division through fleet reductions (reduction of 60 in the quarter), equipment upgrades, and asset allocation to more profitable accounts and or divisions.

Our asset-light segments, Managed Freight and Warehousing, contributed approximately 32% of total revenue, 15% of operating income, 38% of total freight revenue, and 41% of adjusted operating income in the quarter and combined to generate favorable margins and returns. Managed Freight continued to exceed our expectations through strong execution and effective coordination with our Expedited and Dedicated segments.

Warehousing was able to grow revenue through new customer startups but had diminished margins primarily as a result of incremental cost headwinds associated with new customer startups and investments in capacity for future growth in this segment.

Additional items of note for the third quarter of 2022 include the following:

Total revenue of $311.8 million, an increase of 13.6% compared with the third quarter of 2021, and freight revenue (which excludes revenue from fuel surcharges) of $266.6 million, an increase of 6.5% compared with the third quarter of 2021;

Operating income of $59.1 million, compared with $20.1 million in the third quarter of 2021;

Net income of $50.5 million, or $3.39 per diluted share, compared with $16.4 million, or $0.97 per diluted share, in the third quarter of 2021.

Net income from continuing operations of $50.0 million, or $3.36 per diluted share, compared to $16.4 million or $0.97 per diluted share, in the third quarter of 2022. Net income from discontinued operations of $0.5 million, or $0.04 per diluted share, compared to $0.0 million, or $0.00 per diluted share, in the third quarter of 2021;

38% of consolidated total revenue was in our Expedited reportable segment, as compared to 31% in the third quarter of 2021;

Our Managed Freight reportable segment’s total revenue decreased to $78.4 million in the 2022 quarter from $90.1 million in the 2021 quarter and the segment had an operating income of $8.6 million in the 2022 quarter compared to $9.3 million in the 2021 quarter; 

Our equity investment in TEL provided $7.4 million of pre-tax earnings in the third quarter of 2022 compared to $3.2 million in the third quarter of 2021;

We distributed a total of $1.2 million to stockholders through dividends;

Since December 31, 2021, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $32.5 million to $61.0 million, and with available borrowing capacity of $85.7 million under our Credit Facility at June 30, 2022, primarily due to the net cash payment related to the acquisition of AAT for $37.4 million and repurchasing $43.4 million of our outstanding Class A Common Stock under the stock repurchase program.

We do not expect to be required to test our fixed charge covenant in the foreseeable future;

Since December 31, 2021, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $3.8 million to $32.2 million, primarily due to the net cash payment related to the acquisition of AAT for $37.4 million and repurchasing $70.9 million of our outstanding Class A Common Stock under the stock repurchase program.

With available borrowing capacity of $86.1 million under our Credit Facility at September 30, 2022 we do not expect to be required to test our fixed charge covenant in the foreseeable future;

Leverage ratio (ending total indebtedness, comprised of debt and finance leases, net of cash, divided by the sum of operating income, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) was 0.23;

Stockholders' equity at June 30, 2022, was $356.0 million;

Tangible book value at June 30, 2022, was $247.6 million.

For the second half of 2022 we expect softening freight demand, greater driver availability, and continuing cost inflation. Absent a substantial, near-term deterioration in market forces, we expect a combination of higher revenue, improvement in our Dedicated reportable segment, contribution of AAT, continued focus on cost control, and our ongoing stock repurchase program to generate adjusted earnings per diluted share for the second half of 2022 in excess of the same period for 2021, bringing the year to a minimum of $5.00 per share.

Beyond 2022, with diligent execution and teamwork we believe the power of our operating model will speak for itself throughout economic and freight market cycles. We expect to grow our market share, continue to improve our operations, and be a stronger, more profitable, and more predictable business with the opportunity for significant and sustained value creation.

Based on our anticipated cash flow generation profile, we anticipate being able to continue our dividend program and evaluate a full range of capital allocation alternatives, including debt paydown, organic growth, acquisition and disposition opportunities, and continued stock repurchases.

Stockholders' equity at September 30, 2022, was $380.1 million;

Tangible book value at September 30, 2022, was $272.6 million.

For the remainder of 2022 we expect moderating freight demand, greater driver availability, and continuing cost inflation. Absent a substantial, near-term deterioration in market forces, we expect over a billion dollars of total revenue and freight revenue for the year and while we expect fourth quarter 2022 margin to worsen compared to third quarter 2022 because of the third quarter gain on sale of a California terminal, we expect adjusted margin in the fourth quarter of 2022 to be similar to that of the third quarter 2022.

As we look toward 2023, we anticipate a difficult freight environment coupled with cost inflation, which will pressure margins.

However, we believe our more resilient operating model, together with diligent execution and teamwork, will result in lower volatility throughout economic and freight market cycles. We will remain focused on growing our market share, continuing to improve our operations, and becoming a stronger, more profitable, and more predictable business with the opportunity for significant and sustained value creation.

Non-GAAP Reconciliation

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Operating Ratio

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

GAAP Operating Ratio:

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Amortization of intangibles

Gain on disposal of terminals, net

Contingent consideration liability adjustment

Adjusted operating expenses

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Revenue Equipment

At June 30, 2022, we operated 2,358 tractors and 5,436 trailers.

Of such tractors, 1,678 were owned, 562 were financed under operating leases, and 118 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,103 were owned, 244 were financed under finance type leases, and 89 were held under short-term operating leases. We finance a small portion of our trailer fleet and larger portion of our tractor fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers. At June 30, 2022, our fleet had an average tractor age of 2.4 years and an average trailer age of 5.7 years.

At September 30, 2022, we operated 2,280 tractors and 5,420 trailers.

Of such tractors, 1,604 were owned, 557 were financed under operating leases, and 119 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,090 were owned, 209 were financed under finance type leases, and 121 were held under short-term operating leases. We finance a small portion of our trailer fleet and larger portion of our tractor fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers. At September 30, 2022, our fleet had an average tractor age of 2.4 years and an average trailer age of 5.9 years.

Independent contractors provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile. We do not have the capital outlay of purchasing or leasing the tractor. The payments to independent contractors and the financing of equipment under operating leases are recorded in revenue equipment rentals and purchased transportation. Expenses associated with owned equipment, such as interest and depreciation, and expenses associated with employee drivers, including driver compensation, fuel, and other expenses, are not incurred with respect to independent contractors. Obtaining equipment from independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses, and as such, we evaluate our efficiency using net income margin, as well as operating ratio.

RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF three and six months ended June 30, 2022 TO three and six months ended June 30, 2021

COMPARISON OF three and nine months ended September 30, 2022 TO three and nine months ended September 30, 2021

The following tables set forth the percentage relationship of certain items to total revenue and freight revenue (total revenue less fuel surcharge revenue) for the periods indicated, where applicable (dollars in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Freight revenue

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Total revenue

The increase in total revenue primarily resulted from a $34.3 million, $14.9 million, $8.6 million, and $3.2 million increase in Expedited, Dedicated, Managed Freight, and Warehousing freight revenue, respectively, for the three months ended June 30, 2022 and a $54.6 million, $43.4 million, $28.4 million, and $5.4 million increase in Expedited, Managed Freight, Dedicated, and Warehousing freight revenue, respectively, for the six months ended June 30, 2022.

The increase in total revenue primarily resulted from a $18.7 million, $6.3 million, and $3.1 million, increase in Expedited, Warehousing, and Dedicated freight revenue and a $11.7 million decrease in Managed Freight revenue, respectively, for the three months ended September 30, 2022 and a $47.4 million, $31.7 million, $17.7 million, and $11.4 million increase in Expedited, Managed Freight, Dedicated, and Warehousing freight revenue, respectively, for the nine months ended September 30, 2022, in each case compared to the comparable 2021 periods.

See results of segment operations section for discussion of fluctuations.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Salaries, wages, and related expenses

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% of freight revenue

Salaries, wages, and related expenses for the three and six months ended 

June 30, 2022 , increased on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases since the first quarter of 2021 partially offset by reduced workers compensation costs compared to the 2021 periods.

 The decreases on a percentage basis are due to increased revenue over which to spread those costs.

Salaries, wages, and related expenses for the three and nine months ended September 30, 2022 , increased on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases since the same 2021 periods.

We believe salaries, wages, and related expenses will continue to increase going forward as a result of driver pay changes put in place in the tight freight market.

Additionally, we expect salaries, wages, and related expenses to continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. We have continued to put driver pay increases in place as necessary to address driver market pressure.

We expect salaries, wages, and related expenses may continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. While driver pay remains stable at the present time, we have historically put driver pay increases in place as necessary to address driver market pressure and will continue to do so in the future as necessary.

If freight market rates increase further, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

% of total revenue

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In periods of declining prices, the opposite is true.

Fuel prices as measured by the DOE wer e $2.23 per g allon, or 69%, higher for the quarter ended June 30, 2022 compared with the same quarter in 2021.

Fuel prices as measured by the DOE wer e $1.74 per g allon, or 52%, higher for the quarter ended September 30, 2022 compared with the same quarter in 2021.

To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors and other third parties which is included in purchased transportation) from our fuel expense. The result is referred to as net fuel expense. Our net fuel expense as a percentage of freight revenue is affected by the cost of diesel fuel net of fuel surcharge revenue, the percentage of miles driven by company tractors, our fuel economy, our percentage of deadhead miles, for which we do not receive material fuel surcharge revenues, and the net impact of fuel hedging gains and losses.

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Total fuel surcharge

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% of freight revenue

Net fuel expense for the three and six months ended June 30, 2022, decreased primarily due to higher fuel surcharge recovery, partially offset by higher fuel prices and fewer total miles.

There were no diesel fuel hedge gains or losses for the quarter ended June 30, 2022 or 2021 and $0.4 million of gains for the six months ended June 30, 2021 compared to none for the same 2022 period.

As of June 30, 2022, we had no remaining fuel hedging contracts.

Net fuel expense for the three and nine months ended September 30, 2022, decreased primarily due to higher fuel surcharge recovery, partially offset by higher fuel prices and fewer total miles.

There were no diesel fuel hedge gains or losses for the quarter ended September 30, 2022 or 2021 and $0.4 million of gains for the nine months ended September 30, 2021 compared to none for the same 2022 period.

As of September 30, 2022, we had no remaining fuel hedging contracts.

We expect to continue managing our idle time and tractor speeds, investing in more fuel-efficient tractors and auxiliary power units to improve our miles per gallon, locking in fuel hedges when deemed appropriate, partnering with customers to adjust fuel surcharge programs that are inadequate to recover a fair portion of fuel costs, and testing the latest technologies that reduce fuel consumption.

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Operations and maintenance

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% of freight revenue

The increases in operations and maintenance for the three and six months ended June 30, 2022 were primarily related to the increased maintenance costs as a result of an increase in the average age of equipment, as well as inflationary increases in the costs of parts and labor, as compared to the prior year periods as a result of the global supply chain disruptions. Additionally, as a result of the tight driver market, 

recruitment and onboarding of drivers  has increased when compared to the prior year periods. These increases are partially offset by having a smaller fleet in 2022.

Going forward, we believe this category will increase based on several factors, including the condition of the driver market and our ability to hire and retain drivers, our continued ability to maintain a relatively young fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, and the global disruption of the supply chain. For 2022, due to the relatively new age of our tractor fleet and remaining unexpired warranty coverage for most of our tractors, we do not expect the percentage of our equipment being operated outside of warranty coverage to increase in any material respect even if delays occur;

The increases in operations and maintenance for the three and nine months ended September 30, 2022 were primarily related to the increased maintenance costs as a result of an increase in the average age of equipment, inflationary increases in the costs of parts and labor, as well as increased overage, shortage, and damage expense, as compared to the prior year periods. These increases are partially offset by having a smaller fleet in 2022.

Going forward, we believe this category will increase based on several factors, including the condition of the driver market and our ability to hire and retain drivers, our continued ability to maintain a relatively young fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, and the global disruption of the supply chain, however, such increases may be offset by reductions in the age of our fleet due to our replacement plan between now and the end of 2023.

For 2022, due to the age of our tractor fleet and remaining unexpired warranty coverage for most of our tractors, we do not expect the percentage of our equipment being operated outside of warranty coverage to increase in any material respect even if delays occur;

however, operations and maintenance costs may increase regardless due to wage and parts inflation.

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Revenue equipment rentals and purchased transportation

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% of freight revenue

The increases in revenue equipment rentals and purchased transportation on a dollar basis for the three and six months ended June 30, 2022, were primarily the result of a more competitive market for sourcing third-party capacity and growth in the Managed Freight reportable segment, partially offset by a reduction in the percentage of the total miles run by independent contractors from 8.5% for the three months ended June 30, 2021 to 6.6% for the same 2022 period and from 8.7% for the six months ended June 30, 2021 to 6.7% for the same 2022 period.

We expect revenue equipment rentals to decrease going forward as we transition from tractors held under operating leases to owned equipment in 2022.

The decrease in revenue equipment rentals and purchased transportation on a dollar basis for the three months ended September 30, 2022 was primarily the result of a reduction in purchased transportation costs as a result of the softening freight market while for the nine months ended September 30, 2022, the increase on a dollars basis was primarily the result of a more competitive market for sourcing third-party capacity and growth in the Managed Freight reportable segment. Additionally, the percentage of the total miles run by independent contractors decreased from 7.8% for the three months ended September 30, 2021 to 6.4% for the same 2022 period and from 8.4% for the nine months ended September 30, 2021 to 6.6% for the same 2022 period.

We expect revenue equipment rentals to decrease going forward as we transition from tractors held under operating leases to a greater proportion of owned equipment in 2022 and 2023.

However, we expect purchased transportation to fluctuate as volumes in our Managed Freight reportable segment may be volatile.

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In addition, factors such as the cost to obtain third party transportation services and the amount of fuel surcharge revenue passed through to the third party carriers and independent contractors will affect this expense category.

If industry-wide trucking capacity continues to tighten in relation to freight demand, we may need to increase the amounts we pay to third-party transportation providers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of freight revenue absent an offsetting increase in revenue.

If industry-wide trucking capacity tightens in relation to freight demand, we may need to increase the amounts we pay to third-party transportation providers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of freight revenue absent an offsetting increase in revenue.

If we were to recruit more independent contractors, we would expect this line item to increase as a percentage of revenue.

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Operating taxes and licenses

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Insurance and claims

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Insurance and claims per mile cost increased to 19.2 cents per mile for the three months ended 

June 30, 2022  compared to 12.8 cents per mile for the same 2021 quarter and 16.1 cents per mile for the six months ended June 30, 2022 compared to 11.8 cents per mile for the same 

September 30, 2022  compared to 16.5 cents per mile for the same 2021 quarter and 17.7 cents per mile for the nine months ended September 30, 2022 compared to 13.6 cents per mile for the same 

These increases are primarily the result of unfavorable development of a small number of prior period claims, as well as claims experienced during the current quarter.

 On the safety side, our DOT accident rate was the lowest third quarter on record, 11% lower than third quarter of last year.

Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term.

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Communications and utilities

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General supplies and expenses

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% of freight revenue

For the periods presented, the change in general supplies and expenses are insignificant both as a percentage of total revenue and freight revenue.

The increases in general supplies and expenses for the three and nine months ended September 30, 2022 were primarily the result of the prior year reversal of legal expense related to favorable mediations, as well as new leased spaces for our Warehousing reportable segment, increased travel expenses, and the increase in the contingent consideration liability since the 2021 periods.

Depreciation and amortization

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Depreciation and amortization

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Depreciation and amortization consists primarily of depreciation of tractors, trailers, and other capital assets, as well as amortization of intangible assets.

Depreciation expense decreased $0.3 million and $0.3 million to $12.5 million and $25.3 million for the three and six months ended June 30, 2022, respectively, compared to $12.7 million and $25.7 million in the same 2021 periods as a result of reduced total tractor count offset by increased costs on new equipment. Amortization of intangible assets was $1.5 million and $1.2 million for the three and six months ended June 30, 2022, respectively, and $2.1 million and $2.3 million the same 2021 periods.

The decrease for the three and six months ended June 30, 2022 is due to the completion of the amortization of the Landair trade name to the $0.5 million residual value during the third quarter of 2021, partially offset by amortization of the intangible asset related to the AAT acquisition. 

We expect depreciation and amortization to increase going forward as the cost of new equipment increases and as we transition from revenue equipment held under operating leases to more owned revenue equipment, especially during the second half of 2022.

Depreciation expense increased $1.0 million and $0.7 million to $13.2 million and $38.6 million for the three and nine months ended September 30, 2022, respectively, compared to $12.2 million and $37.9 million in the same 2021 periods as a result of increased costs on new equipment partially offset by reduced total tractor count. Amortization of intangible assets was $1.1 million and $3.2 million for the three and nine months ended September 30, 2022, respectively, and $1.2 million and $3.5 million the same 2021 periods.

The decrease for the three and nine months ended September 30, 2022 is due to the completion of the amortization of the Landair trade name to the $0.5 million residual value during the third quarter of 2021, partially offset by amortization of the intangible asset related to the AAT acquisition. 

We expect depreciation and amortization to increase going forward due to the cost of new equipment increasing, our revenue equipment replacement plan between now and the end of 2023, and our transition from revenue equipment held under operating leases to a greater proportion of owned revenue equipment.

Additionally, changes in the used tractor market could cause us to adjust residual values, increase depreciation, hold assets longer than planned, or experience increased losses on sale.

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Gain on disposition of property and equipment, net

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% of freight revenue

The decreases in gain on disposition of property and equipment, net for the six months ended June 30, 2022 are primarily the result of a reduction in the sale of used equipment compared to the 2021 periods. 

The increases in gain on disposition of property and equipment, net for the three and nine months ended September 30, 2022 are primarily the result of the $38.5 million gain on sale of a California terminal in the third quarter of 2022. 

Interest expense, net

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Interest expense, net

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For the period presented, the change in interest expense, net is insignificant both as a percentage of total revenue and freight revenue.

This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, as well as our ability to continue to generate profitable results and reduce our leverage.

This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan between now and the end of 2023, increasing interest rates, and our ability to continue to generate profitable results and reduce our leverage.

Income from equity method investment

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Income from equity method investment

We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income or loss.

The increase in TEL's contributions to our results for the three and six months ended June 30, 2022 is the result of constricted used equipment capacity in the transportation market that increased income from both equipment sales and leasing.

The increase in TEL's contributions to our results for the three and nine months ended September 30, 2022 is the result of a combination of a rapidly growing business and gains on sale of used equipment that resulted from a constricted used equipment capacity in the transportation market that increased income from both equipment sales and leasing.

Due to TEL's business model, gains and losses on sale of equipment is a normal part of the business and can cause earnings to fluctuate from quarter to quarter and therefore our income from investment to similarly fluctuate.

We expect TEL to continue to meet or exceed expectations as it continues on its current growth trajectory.

Income tax  expense

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Income tax expense

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% of freight revenue

The changes in income tax expense were primarily related to the $12.2 million and $29.5 million increase in pre-tax income in the three and six months ended June 30, 2022, compared to the same 2021 periods, resulting from the increases in operating income and earnings on investment in TEL.

The changes in income tax expense were primarily related to the $42.9 million and $72.5 million increase in pre-tax income in the three and nine months ended September 30, 2022, compared to the same 2021 periods, resulting from the increases in operating income and earnings on investment in TEL.

The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences, such as executive compensation disallowance in 2021.

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We have four reportable segments, Expedited, Dedicated, Managed Freight, and Warehousing, each as described above.

COMPARISON O F three and six months ended June 30, 2022 TO three and six months ended June 30, 2021

COMPARISON O F three and nine months ended September 30, 2022 TO three and nine months ended September 30, 2021

The following table summarizes financial and operating data by reportable segment:

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Managed Freight

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Total operating income

The increase in Expedited revenue for the three months ended June 30, 2022 relates to an increase in average freight revenue per tractor per week of 17.7%, a $16.9 million increase in fuel surcharge revenue compared to the 2021 quarter, and a 40 (or 4.6%) average tractor increase.

The increase in average freight revenue per tractor per week for the quarter ended June 30, 2022 is the result of a 41.0 cents per mile (or 21.5%) increase in average rate per total mile partially offset by a 3.1% decrease in average miles per unit compared to the 2021 quarter.

Expedited team-driven tractors averaged 906 tractors in the second quarter of 2022, an increase of approximately 4.6% from the average of 866 tractors in the second quarter of 2021.

For the six months ended June 30, 2022, the change in Expedited revenue relates to a 120 (or 1.1%) average tractor increase as well as an increase in average freight revenue per tractor per week of 18.6% compared to the same 2021 period.

The increase in average freight revenue per tractor per week for the six months ended June 30, 2022 is the result of a 1.6% decrease in average miles per unit and a 39.0 cents per mile (or 20.4%) increase in average rate per total mile compared to the same 2021 period.

Expedited team-driven tractors averaged 886 for the six months ended June 30, 2022, an increase of approximately 1.7% from the average of 871 tractors for the same 2021 period.

The increase in Dedicated revenue for the three months ended June 30, 2022 relates to an increase in average freight revenue per tractor per week compared to the 2021 quarter as the result of a 51.0 cents per mile (or 24.5%) increase in average rate per total mile compared to the 2021 quarter, a $9.1 million increase in fuel surcharge revenue, and a 5.8% decrease in average miles per unit.

Average tractors decreased 120 tractors, or 7.6% as compared to the three months ended June 30, 2021.

For the six months ended June 30, 2022, the increase in Dedicated revenue relates to an increase in average freight revenue per tractor per week compared to the same 2021 period as the result of a 55.0 cents per mile (or 27.5%) increase in average rate per total mile, partially offset by a 3.4% decrease in average miles per unit as compared to the same 2021 period.

The increase in Expedited revenue for the three months ended September 30, 2022 relates to an increase in average freight revenue per tractor per week of 14.6%, a $13.8 million increase in fuel surcharge revenue compared to the 2021 quarter, and an 80 (or 9.6%) average tractor increase.

The increase in average freight revenue per tractor per week for the quarter ended September 30, 2022 is the result of a 29.0 cents per mile (or 14.4%) increase in average rate per total mile as well as a 0.5% increase in average miles per unit compared to the 2021 quarter.

Expedited team-driven tractors averaged 797 tractors in the third quarter of 2022, an increase of approximately 16.0% from the average of 687 tractors in the third quarter of 2021.

The increase in tractors was attributable to the acquisition of AAT in the first quarter of the year and the increased ability to recruit and onboard qualified drivers.

For the nine months ended September 30, 2022, the change in Expedited revenue relates to a 134 (or 3.9%) average tractor increase as well as an increase in average freight revenue per tractor per week of 17.2% compared to the same 2021 period.

The increase in average freight revenue per tractor per week for the nine months ended September 30, 2022 is the result of a 36.0 cents per mile (or 18.6%) increase in average rate per total mile partially offset by a 0.9% decrease in average miles per unit compared to the same 2021 period.

Expedited team-driven tractors averaged 773 for the nine months ended September 30, 2022, an increase of approximately 7.9% from the average of 717 tractors for the same 2021 period.

The increase in tractors was attributable to the acquisition of AAT in the first quarter of the year and the increased ability to recruit and onboard qualified drivers.

The increase in Dedicated revenue for the three months ended September 30, 2022 relates to an increase in average freight revenue per tractor per week compared to the 2021 quarter as the result of a 36.0 cents per mile (or 15.5%) increase in average rate per total mile compared to the 2021 quarter, a $6.9 million increase in fuel surcharge revenue partially offset by a 1.2% decrease in average miles per unit.

Average tractors decreased 134 tractors, or 8.7% as compared to the three months ended September 30, 2021, as a result of not renewing underperforming contracts.

For the nine months ended September 30, 2022, the increase in Dedicated revenue relates to an increase in average freight revenue per tractor per week compared to the same 2021 period as the result of a 49.0 cents per mile (or 23.2%) increase in average rate per total mile, partially offset by a 2.3% decrease in average miles per unit as compared to the same 2021 period.

Additionally, fuel surcharge revenue increased $20.7 million compared to the 2021 period.

These increases were partially offset by a 152 (or 9.6%) average tractor decrease as a result of not renewing underperforming contracts.

Managed Freight total revenue increased as primarily a result of handling overflow freight from both Expedited and Dedicated truckload operations, growth in revenue per load, and effective purchasing of capacity in the current market.

Managed Freight total revenue decreased primarily as a result of reduced volumes of overflow freight from both Expedited and Dedicated truckload operations.

With the softening freight market, we anticipate the revenue attributable to overflow freight to continue to decline.

Warehousing total revenue for the quarter and year-to-date periods increased as a result of period-over-period new customer business as well as rate increases with existing customers.

In addition to the changes in revenue described above for the three and six months ended June 30, 2022, the change in operating income for the three months ended June 30, 2022, resulted from a $29.9 million, $11.8 million, $7.3 million, and $3.5 million increase in Expedited, Dedicated, Managed Freight, and Warehousing operating expenses, respectively.

For the six months ended June 30, 2022, the change in operating income resulted from a $47.1 million, $36.2 million, $20.9 million, and $5.7 million increase in Expedited, Managed Freight, Dedicated, and Warehousing operating expenses, respectively.

The increase in Expedited and Dedicated operating expenses for the three and six months ended June 30, 2022, is primarily the result of driver and non-driver pay increases since the 2021 periods and increased maintenance costs as a result of an increase in the average age of equipment, as well as increases in the costs of parts and labor, as compared to the prior year periods as a result of the global supply chain disruptions.

Additionally, as a result of the tight driver market, 

recruitment and onboarding of drivers  has increased when compared to the prior year periods.

The increase in Managed Freight operating expenses is the result of increased revenue driving an increase in variable expenses, primarily purchased transportation as well as increases in non-driver pay since the 2021 periods. The increase in Warehousing, operating expenses is a result of non-incurring temporary incremental costs associated with new startup business, a constrained labor market, and non-driver pay increases since the 2021 periods.

In addition to the changes in revenue described above for the three and nine months ended September 30, 2022, the change in operating income for the three months ended September 30, 2022, resulted from an $11.0 million and a $10.1 million decrease in Managed Freight and Dedicated operating expenses, respectively, partially offset by a $12.9 million and a $6.6 million increase in Expedited and Warehousing operating expenses, respectively.

For the nine months ended September 30, 2022, the change in operating income resulted from a $60.0 million, $25.2 million, $12.3 million, and $10.8 million increase in Expedited, Managed Freight, Warehousing, and Dedicated operating expenses, respectively.

The increase in Expedited and Dedicated operating expenses for the three and nine months ended September 30, 2022, is primarily the result of driver and non-driver pay increases since the 2021 periods and increased maintenance costs as a result of an increase in the average age of equipment and increases in the costs of parts and labor.

Additionally, we've experienced increased overage, shortage, and damage expenses and insurance related expense increased when compared to the prior year periods.

The increased insurance expense is the result of unfavorable developments on a small number of prior period claims, as well as claims experience during the current periods.

The changes in Managed Freight operating expenses is the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation. Additionally, increases in non-driver pay since the 2021 periods have increased Managed Freight operating expenses. The increase in Warehousing, operating expenses is a result of non-incurring temporary incremental costs associated with new startup business and the costs of securing additional unoccupied leased space in key locations, consistent with our longer-term growth strategy.

We expect the startup and lease costs to decline in the fourth quarter of 2022, improving margins.

In our asset-light segments, we are prioritizing growth, focusing on talent acquisition and technology enhancements.

LIQUIDITY AND CAPITAL RESOURCES

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most critical transportation and logistics needs.

We had working capital (total current assets less total current liabilities) of $22.5 million and $45.8 million at June 30, 2022 and December 31, 2021, respectively.

We had working capital (total current assets less total current liabilities) of $52.5 million and $45.8 million at September 30, 2022 and December 31, 2021, respectively.

Our working capital on any particular day can vary significantly due to the timing of collections and cash disbursements.

Based on our expected financial condition, net capital expenditures, results of operations, related net cash flows, installment notes, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs, and we do not expect to experience material liquidity constraints in the foreseeable future.

With an average fleet age of 2.4 years at June 30, 2022, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options.

With an average fleet age of 2.4 years at September 30, 2022, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options.

If we were to grow our independent contractor fleet, our capital requirements would be reduced.

As of June 30, 2022 and December 31, 2021 we had $110.3 million and $74.3 million in debt and lease obligations, respectively, consisting of the following:

As of September 30, 2022 and December 31, 2021 we had $135.0 million and $74.3 million in debt and lease obligations, respectively, consisting of the following:

No outstanding borrowings under the Credit Facility;

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$20.6 million and $21.5 million in real estate notes, respectively;

No deferred loan costs (which reduce long-term debt) as of June 30, 2022 and December 31, 2021;

No deferred loan costs (which reduce long-term debt) as of September 30, 2022 and December 31, 2021;

$6.1 million and $10.8 million of the principal portion of financing lease obligations, respectively;

$43.5 million and $37.4 million of the operating lease obligations, respectively.

The increase in operating lease obligations was primarily due to additional facilities for new Warehousing customers partially offset by amortization of the operating lease liability and our transition from tractors held under operating leases to owned equipment in 2022.

As of June 30, 2022, we had $0.0 million borrowings outstanding, undrawn letters of credit outstanding of approximately $24.3 million, and available borrowing capacity of $85.7 million under the Credit Facility.

The increase in revenue equipment installment notes is primarily due to replacing our older equipment with new equipment as part of our trade cycle.

The increase in operating lease obligations was primarily due to additional facilities for new Warehousing customers as well as new operating leases for revenue equipment as part of our trade cycle, partially offset by amortization of the operating lease liability.

As of September 30, 2022, we had $0.0 million borrowings outstanding, undrawn letters of credit outstanding of approximately $23.9 million, and available borrowing capacity of $86.1 million under the Credit Facility.

Additionally, we had $45.0 million of remaining availability of a $45.0 million Draw Note from Triumph which is available solely to fund any indemnification owed to Triumph in relation to the TFS Settlement.

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Refer to Note 7, “Debt” of the accompanying condensed consolidated financial statements for further information about material debt agreements.

Our net capital expenditures for the six months ended June 30, 2022 totaled $63.0 million of expenditures, as compared to $19.8 million of proceeds for the prior year period.

In addition to the February 2022 acquisition of AAT, during the six months ended June 30, 2022, we took delivery of approximately 115 new tractors and no new trailers, while disposing of approximately 35 used tractors and 15 used trailers.

Our current fleet plan for fiscal 2022 includes the delivery of an additional 384 new company replacement tractors and no additional new trailer deliveries. Net gains on disposal of equipment and real estate in the six months ended June 30, 2022 were $0.6 million compared to $2.8 million in the same prior year period.

Our net capital expenditures for the nine months ended September 30, 2022 totaled $49.8 million of expenditures, as compared to $22.0 million of proceeds for the prior year period.

In addition to the February 2022 acquisition of AAT, during the nine months ended September 30, 2022, we took delivery of approximately 321 new tractors and no new trailers, while disposing of approximately 77 used tractors and 43 used trailers.

Our current fleet plan for fiscal 2022 includes the delivery of an additional 328 new company replacement tractors and no additional new trailer deliveries. Net gains on disposal of equipment and real estate in the nine months ended September 30, 2022 were $39.3 million compared to $3.7 million in the same prior year period primarily due to the $38.5 million gain on a California terminal during the 2022 period.

Global supply chain disruptions could impact the availability of tractors and trailers and lead to increased pricing.

We distributed a total of $2.0 million to stockholders in the first six months of 2022 through dividends.

Our baseline expectation for the remainder of 2022 fleet net capital expenditures is a range of $10.0 million to $20.0 million, assuming scheduled deliveries, strong but moderating sale prices for used equipment, and the sale of our California based terminal, which remains under negotiation.

We distributed a total of $3.2 million to stockholders in the first nine months of 2022 through dividends.

Our baseline expectation for the remainder of 2022 fleet net capital expenditures is a range of $10.0 million to $30.0 million, assuming scheduled deliveries and strong but moderating sale prices for used equipment.

These assumptions are subject to risk.

We believe we have sufficient liquidity to satisfy our cash needs, however we continue to evaluate and act, as necessary, to maintain sufficient liquidity to continue operating as designed.

Net cash flows provided by operating activities increased to $76.9 million for the six months ended June 30, 2022, compared to $34.1 million for the same 2021 period, primarily due to decreases in receivables and driver advances as a result of a decrease in our average receivable days outstanding and a $20.1 million increase in net income, partially offset by decreases to non-cash expenses compared to the prior year period. 

Net cash flows used by investing activities were $63.0 million for the six months ended June 30, 2022, compared to $19.8 million provided in the same 2021 period.

The change in net cash flows used by investing activities was primarily the result of the February 2022 acquisition of AAT.

The change is also due to the timing of our trade cycle whereby we took delivery of approximately 115 new company tractors and disposed of approximately 35 used tractors in the 2022 period compared to delivery and disposal of approximately 88 new company tractors and 249 used tractors, respectively in the same 2021 period.

Net cash flows used by financing activities were approximately $17.9 million for the six months ended June 30, 2022, compared to $57.3 million used in the same 2021 period.

The change in net cash flows used by financing activities was primarily a function of net proceeds relating to notes payable, the Draw Note, and our Credit Facility of $32.4 million in the 2022 period compared to net repayments of $45.4 million in the 2021 period.

This difference between net proceeds and repayments was partially offset by the repurchase of $43.4 million of shares of our Class A common stock during the 2022 period compared to $8.4 million during the same 2021 period, as well as the payment of approximately $2.0 million in dividends during the 2022 period.

Net cash flows provided by operating activities increased to $121.1 million for the nine months ended September 30, 2022, compared to $68.2 million for the same 2021 period, primarily due to a decrease in receivables and driver advances as a result of a decrease in our average receivable days outstanding and a $54.2 million increase in net income, including the $38.5 million gain on sale of a California terminal, partially offset by decreases to non-cash expenses compared to the prior year period. 

Net cash flows used by investing activities were $49.8 million for the nine months ended September 30, 2022, compared to $22.0 million provided in the same 2021 period.

The change in net cash flows used by investing activities was primarily the result of the February 2022 acquisition of AAT partially offset by the sale of a California terminal during the third quarter of 2022.

The change is also due to the timing of our trade cycle whereby we took delivery of approximately 321 new company tractors and disposed of approximately 77 used tractors in the 2022 period compared to delivery and disposal of no new company tractors or used tractors, in the same 2021 period.

Net cash flows used by financing activities were approximately $20.4 million for the nine months ended September 30, 2022, compared to $76.4 million used in the same 2021 period.

The change in net cash flows used by financing activities was primarily a function of the repurchase of $70.9 million of shares of our Class A common stock during the 2022 period compared to $10.3 million during the same 2021 period, as well as the payment of approximately $3.2 million in dividends during the 2022 period, and net proceeds relating to notes payable, the Draw Note, and our Credit Facility of $59.3 million in the 2022 period compared to net repayments of $60.7 million in the 2021 period.

On January 25, 2021, our Board approved the repurchase of up to $40.0 million of our outstanding Class A common stock.

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As of January 1, 2022, there was approximately $38.0 million remaining under such authorization.

On February 10, 2022, our Board of Directors adopted a 10b5-1 plan for the purchase of up $30.0 million in shares subject to defined trading parameters, under our then current stock repurchase program authorizing the purchase of up to $38.0 million of our Class A common stock.

On February 10, 2022, our Board of Directors adopted a 10b5-1 plan for the purchase of up to $30.0 million in shares subject to defined trading parameters, under our then current stock repurchase program.

Under such authorization, we repurchased 1.4 million shares of our Class A common stock for $30.0 million completing the program in May 2022.

On May 18, 2022 our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available.

Under such authorization, we repurchased 0.6 million shares of our Class A common stock for $13.4 million during the three months ended June 30, 2022.

We repurchased an additional 0.5 million shares of our Class A common stock through August 3, 2022, for a total of 2.5 million shares repurchased since February 2022.

Under such authorization, we repurchased 1.6 million shares of our Class A common stock for $40.9 million through September 30, 2022.

We repurchased an additional 0.4 million shares of our Class A common stock through November 2, 2022, for a total of 3.4 million shares repurchased since February 2022.

Our cash flows may fluctuate depending on capital expenditures, future stock repurchases, dividends, strategic investments or divestitures, any indemnification calls related to the TFS Settlement, and the extent of future income tax obligations and refunds.

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Accordingly, actual results could differ from those anticipated.

There have been no material changes to our most critical accounting policies and estimates during the three and six months ended June 30, 2022, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2021.

There have been no material changes to our most critical accounting policies and estimates during the three and nine months ended September 30, 2022, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements