What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-05 compared with 2022-11-04 · 275 added, 741 removed, 879 unchanged (54% of the section changed)

4 unchanged sentences

(In thousands, except share data)

September 30, 2022

March 31, 2023

December 31, 2022

13 unchanged sentences

Income taxes receivable

10,177  

Other short-term assets

29 unchanged sentences

58,763  

Accrued purchased transportation

24,689  

Current maturities of long-term debt

21,369  

18,897  

Current portion of finance lease obligations

5 unchanged sentences

21,060  

Other short-term liabilities

Total current liabilities

23 unchanged sentences

40,000,000 shares authorized;

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

16,125,786 shares issued and 10,681,770 outstanding as of March 31, 2023;

and 16,125,786 shares issued and 11,207,570 outstanding as of December 31, 2022

6 unchanged sentences

Treasury stock at cost;

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

5,444,016 and 4,918,216 shares as of March 31, 2023 and December 31, 2022, respectively

( 127,267 )  

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Retained earnings

12 unchanged sentences

FOR THE 

three and nine months ended September 30, 2022 and 2021

three months ended March 31, 2023 and 2022

(In thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Freight revenue

$ 266,599  

$ 250,255  

$ 791,069  

$ 682,891  

Fuel surcharge revenue

45,240  

24,306  

129,732  

68,884  

Total revenue

$ 311,839  

$ 274,561  

$ 920,801  

$ 751,775  

Operating expenses:

Salaries, wages, and related expenses

$ 104,537  

$ 87,547  

$ 300,980  

$ 258,609  

42,471  

26,174  

126,457  

75,368  

Operations and maintenance

22,468  

14,933  

60,248  

43,946  

Revenue equipment rentals and purchased transportation

78,943  

92,636  

244,281  

225,328  

Operating taxes and licenses

Insurance and claims

12,947  

11,023  

35,752  

28,437  

Communications and utilities

General supplies and expenses

11,201  

28,416  

21,972  

Depreciation and amortization

14,357  

13,365  

41,734  

41,316  

Gain on disposition of property and equipment, net

( 38,721 )  

( 871 )  

( 39,287 )  

Total operating expenses

252,780  

254,478  

811,022  

702,850  

Operating income

59,059  

20,083  

109,779  

48,925  

Interest expense, net

Income from equity method investment

( 7,400 )  

( 3,230 )  

( 21,261 )  

Income before income taxes

65,524  

22,589  

128,784  

56,322  

Income tax expense

15,563  

32,130  

15,863  

Income from continuing operations, net of tax

49,961  

16,442  

96,654  

40,459  

Income from discontinued operations, net of tax

$ 50,486  

$ 16,442  

$ 97,179  

$ 42,999  

Basic income per share:

Income from continuing operations

$ 3.47  

$ 0.98  

$ 6.24  

$ 2.40  

Income from discontinued operations

$ 3.50  

$ 0.98  

$ 6.27  

$ 2.55  

Net income (1)

Diluted income per share:

Income from continuing operations

$ 3.36  

$ 0.97  

$ 6.09  

$ 2.37  

Income from discontinued operations

$ 3.39  

$ 0.97  

$ 6.12  

$ 2.52  

Basic weighted average shares outstanding

14,405  

16,782  

15,495  

16,832  

Diluted weighted average shares outstanding

14,892  

16,975  

15,875  

17,041  

Total may not sum due to rounding.

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

FOR THE three months ended March 31, 2023 and 2022

(Unaudited and in thousands )

Three Months Ended September 30,

Nine Months Ended September 30,

$ 50,486  

$ 16,442  

Three Months Ended March 31,

$ 16,635  

1 unchanged sentence

Other comprehensive income:

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

Comprehensive income

Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $ 114 in 2023 and ($ 308 ) in 2022, respectively

( 325 )  

Reclassification of cash flow hedge (gains) losses into statement of operations, net of tax of $ 27 in 2023 and ($ 36 ) in 2022, respectively

( 78 )  

Total other comprehensive (loss) income

( 403 )  

Comprehensive income

$ 16,232  

$ 23,173  

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

FOR THE three months ended March 31, 2023 and 2022

(Unaudited and in thousands)

For the Three and Nine Months Ended September 30, 2022

For the Three Months Ended

Comprehensive

Stockholders'

(Loss) Income

Balances at December 31, 2022

9 unchanged sentences

Other comprehensive income

Share repurchase

( 403 )  

Stock-based employee compensation expense

Issuance of restricted shares, net

( 863 )  

Balances at March 31, 2022

$ 150,436  

$ ( 37,635 )  

$ ( 300 )  

$ 246,196  

$ 358,882  

24,526  

Cash dividend ($ 0.0625 per common share)

( 975 )  

Other comprehensive income

Share repurchase

3 unchanged sentences

( 1,523 )  

Balances at June 30, 2022

$ 151,238  

$ ( 65,492 )  

$ 269,747  

$ 356,031  

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  

Balances at March 31, 2023

$ 152,921  

2 unchanged sentences

$ 371,162  

For the Three and Nine Months Ended September 30, 2021

For the Three Months Ended

Comprehensive

8 unchanged sentences

22,167  

Cash dividend ($ 0.0625 per common share)

( 1,047 )  

Other comprehensive income

10 unchanged sentences

$ 358,882  

15,417  

Other comprehensive loss

( 292 )  

Share repurchase

( 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  nine months ended September 30, 2022 and 2021

FOR THE  three months ended March 31, 2023 and 2022

(Unaudited and in thousands)

Nine Months Ended September 30,  

Three Months Ended March 31,

Cash flows from operating activities:

$ 97,179  

$ 42,999  

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

1 unchanged sentence

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

( 30 )  

Depreciation and amortization

41,734  

41,316  

Deferred income tax expense

12,911  

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

( 69 )  

Stock-based compensation expense

Income from equity method investment

( 21,261 )  

Return on investment in equity method investee

Gain on disposition of property and equipment

( 39,287 )  

Gain on reversal of contingent loss of discontinued operations

( 700 )  

Gain on investment in available-for-sale securities

Changes in operating assets and liabilities:

Receivables and advances

31,104  

Prepaid expenses and other assets

Inventory and supplies

( 399 )  

Insurance and claims accrual

( 5,518 )  

25,153  

Accounts payable and accrued expenses

24,831  

Net cash flows provided by operating activities

121,069  

68,238  

Cash flows from investing activities:

Acquisition of AAT Carriers, Inc., net of cash acquired

( 38,501 )  

Other investments

( 25 )  

Purchase of available-for-sale securities

Purchase of property and equipment

( 61,408 )  

Proceeds from disposition of property and equipment

50,112  

43,812  

Net cash flows (used) provided by investing activities

( 49,822 )  

21,965  

Net cash flows provided (used) by investing activities

Cash flows from financing activities:

Change in checks outstanding in excess of bank balances

( 216 )  

Cash dividend

( 3,192 )  

Proceeds from issuance of notes payable

65,253  

Repayments of notes payable

( 5,964 )  

Repayments of finance lease obligations

( 5,150 )  

Proceeds under revolving credit facility

74,528  

535,199  

Repayments under revolving credit facility and draw note

( 74,528 )  

Proceeds from exercise of stock options

Payment of contingent consideration liability

Payment of minimum tax withholdings on stock compensation

( 390 )  

Common stock repurchased

( 70,886 )  

Net cash flows used by financing activities

( 20,402 )  

Net cash flows (used) provided by financing activities

Net change in cash and cash equivalents

50,845  

13,781  

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$ 59,257  

$ 22,188  

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

16 unchanged sentences

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

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 .

therefore, operating results for the three months ended March 31, 2023  are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 .

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, 2022 .

Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Risks and Uncertainties

On July 8, 2020, we sold a portfolio of accounts receivable, contract rights, and associated assets consisting of approximately $ 103.3 million in net funds employed (the “Portfolio”) previously held by Transport Financial Services ("TFS"), a division of Covenant Transport Solutions, LLC, an indirect wholly owned subsidiary of the Company, to a subsidiary of Triumph Bancorp, Inc.

("Triumph") for approximately $ 122.3 million, consisting of $ 108.4 million in cash and $ 13.9 million in Triumph stock, plus an earn-out opportunity of up to $ 9.9 million.

After the transaction closed, the Company and Triumph became involved in a dispute over the nature of approximately $ 66.0 million of the assets included in the Portfolio. The dispute was resolved on September 23, 2020 with an amendment of the purchase agreement and related funding arrangements that reduced the purchase price of the Portfolio to approximately $ 108.4 million, representing the cash amount received by us at closing.

Additionally, the earnout opportunity was terminated and we were required to sell, and subsequently sold, the Triumph stock we received at closing for $ 28.1 million and remitted the proceeds to Triumph upon settlement.

The amended purchase agreement resulted in a gain on the sale of the Portfolio of $ 3.7 million, net of related expenses.

The amended purchase agreement specifically identified approximately $ 62.0 million of accounts within the Portfolio, which related to advances on services that had not yet been performed, were placed in a loss sharing pool to be repaid with proceeds other than those generated from ordinary working capital factoring.

To the extent losses on covered accounts are incurred, we will indemnify Triumph on a dollar for dollar basis for up to the first $ 30.0 million of losses, and on a 50 % basis for up to the next $ 30.0  million of losses, for total indemnification exposure of up to $ 45.0 million (the “TFS Settlement”). During the fourth quarter of 2020, we recorded $ 44.2 million of contingent liabilities, reflected as other long-term liabilities from discontinued operations in our consolidated balance sheet, because as of December 31, 2020 it was probable and estimable that such amount would be due to Triumph under the TFS Settlement.

During the first quarter of 2021, we received an indemnification call from Triumph of $ 35.6 million related to the TFS Settlement, all of which was reserved during the fourth quarter of 2020.

Additionally, Triumph was able to collect some funds related to our fourth quarter 2020 accrual that allowed us the opportunity to reverse $ 3.4 million of our accrual during the first quarter of 2021.

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.

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.

Property and Equipment

3 unchanged sentences

We generally depreciate new tractors over 

five  years to salvage values of approximately 35 % of their cost, depending on the operating segment profile of the equipment.

five  years to salvage values ranging from 10 % to 

35 % of their cost, depending on the reportable segment profile of the equipment.

We generally depreciate new trailers over 

6 unchanged sentences

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

Accounting Standards not yet adopted

In June 2016, FASB issued ASU 2016 - 13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables.

Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument.

This update will be effective for our annual reporting period beginning January 1, 2023, including interim periods within that reporting period.

Early adoption is permitted.

We are currently evaluating the impacts the adoption of this standard, but do not expect it to have a material impact on the consolidated financial statements.

During the three months ended March 31, 2023, we sold a Tennessee terminal resulting in a $ 7.6 million gain which is included in gain on disposition of property and equipment, net in the condensed consolidated statements of operations.

Income Per Share

1 unchanged sentence

Diluted income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings.

There were approximately 305,000  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 

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

There were approximately 288,000  shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2023 , and 

167,000 shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2022 .

There were 

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

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

three months ended March 31, 2023 and 2022 .

There were 

182,000  and 

228,000  shares issuable upon conversion of unvested employee stock options for the 

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.

three months ended March 31, 2023  and no shares issuable upon conversion of unvested employee stock options for the three months ended March 31, 2022 .

There were 

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.

51,000  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2023  and no  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2022 . 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

Nine Months Ended

September 30,

Income from continuing operations

1 unchanged sentence

$ 22,167  

$ 96,654  

$ 40,459  

Income from discontinued operations

1 unchanged sentence

$ 22,167  

$ 97,179  

$ 42,999  

Denominator for basic income per share –

2 unchanged sentences

16,602  

15,495  

16,832  

Effect of dilutive securities:

4 unchanged sentences

16,769  

15,875  

17,041  

Basic income per share:

2 unchanged sentences

$ 1.34  

$ 6.24  

$ 2.40  

Income from discontinued operations

$ 3.50  

$ 0.98  

Net income(1)

$ 1.25  

4 unchanged sentences

$ 1.32  

$ 6.09  

$ 2.37  

Income from discontinued operations

1 unchanged sentence

$ 1.32  

$ 6.12  

$ 2.52  

( 1 ) Total may not sum due to rounding.

Fair Value of Financial Instruments

2 unchanged sentences

The fair value of the commodity contracts, including our former fuel hedges, is determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk.

There were no fuel hedge derivatives outstanding as of March 31, 2023, or December 31, 2022.

The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts.

4 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.

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:

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)

September 30, 2022

March 31, 2023

December 31, 2022

Interest rate swaps

( 1,808 )  

Contingent consideration

( 8,523 )  

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

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.

( 17,023 )  

Our financial instruments not recorded at fair value in the accompanying financial statements consist primarily of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and debt.

The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments. 

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 

September 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 September 30, 2022 .

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

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

March 31, 2023 , 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.

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.

We acquired AAT in February 2022.

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. 

During the three  months ended March 31, 2023, we paid $ 10.0 million based on the results of the first post-acquisition year and the fair value of the remaining contingent consideration increased by $ 1.5 million.

Of the $10.0 million paid for the contingent consideration liability, $ 9.2 million was classified as financing cash flows and $0.2 million was classified as operating cash flows within the condensed consolidated statement of cash flows.

The fair value of the contingent liability was $ 8.5 million at March 31, 2023 and $ 17.0 million at December 31, 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. 

The contingent consideration liability is included in accrued expenses in our condensed consolidated balance sheets. 

Discontinued Operations

1 unchanged sentence

(i) was a component of the entity, (ii) met the criteria as held for sale, and (iii) had a material effect on the Company's operations and financial results.

On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of TFS, which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $ 103.3 million of net accounts receivable, which included $ 108.7 million of gross accounts receivable, less advances and rebates of $ 5.4 million. 

On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of Transport Financial Services ("TFS"), which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $ 103.3 million of net accounts receivable, which included $ 108.7 million of gross accounts receivable, less advances and rebates of $ 5.4 million. 

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 nine months ended September 30, 2022 and 2021 :

The following table summarizes the results of our discontinued operations for the three months ended March 31, 2023 and 2022 :

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenue

Operating expenses

Operating loss

Three Months Ended March 31,

Reversal of contingent loss liability

$ ( 200 )  

( 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 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.

Income before income taxes

Income tax expense

Income from discontinued operations, net of tax

Reversal of contingent liability for the three  months ended March 31, 2023 relates to the reduced exposure of future indemnification by the Company to the purchaser of TFS, Triumph Bancorp, Inc.

("Triumph"), as a result of the collection of covered receivables identified in the amended purchase agreement.

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

September 30, 2022 and December 31, 2021 :

March 31, 2023 and December 31, 2022 :

(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

1 unchanged sentence

$ 1,025  

$ 1,275  

Noncurrent assets from discontinued operations

1 unchanged sentence

$ 1,025  

$ 1,275  

Long-term contingent loss liability

5 unchanged sentences

$ 4,100  

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”

of the accompanying condensed consolidated financial statements for further information about the amended TFS purchase agreement. 

There were no net cash flows related to discontinued operations for the three months ended March 31, 2023 and 2022 .

Segment Information

We have four reportable segments:

The Expedited segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15 -minute delivery windows.

The Expedited reportable segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15 -minute delivery windows.

Expedited services generally require two -person driver teams on equipment either owned or leased by the Company.

The Dedicated segment provides customers with committed truckload capacity over contracted periods with the goal of 

The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of 

three  to 

2 unchanged sentences

Managed Freight:

The Managed Freight segment includes our brokerage and transport management services (“TMS”).

The Managed Freight reportable segment includes our brokerage and transport management services (“TMS”).

Brokerage services provide logistics capacity by outsourcing the carriage of customers’

1 unchanged sentence

TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs.

The Warehousing segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. We also provide shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses.

The Warehousing reportable segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. We also provide shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Form 10 -K for the year ended December 31, 2022 .

1 unchanged sentence

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 nine months ended September 30, 2022 and 2021 :

(in thousands)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Managed Freight

8 unchanged sentences

17,632  

19,416  

59,059  

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2022

Managed Freight

9 unchanged sentences

23,847  

28,062  

109,779  

Three Months Ended September 30, 2021

Managed Freight

Total revenue from external customers

$ 85,289  

$ 83,477  

$ 90,072  

$ 15,723  

$ 274,561  

Intersegment revenue

Operating income (loss)

11,064  

( 659 )  

20,083  

Nine Months Ended September 30, 2021

Managed Freight

Total revenue from external customers

$ 251,139  

$ 240,791  

$ 213,104  

$ 46,741  

$ 751,775  

Intersegment revenue

Operating income (loss)

27,479  

( 2,629 )  

21,510  

48,925  

(in thousands)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Total external revenues for reportable segments

1 unchanged sentence

$ 291,585  

$ 920,801  

$ 751,775  

Intersegment revenues for reportable segments

1 unchanged sentence

( 4,462 )  

( 2,494 )  

( 3,476 )  

Total consolidated revenues

1 unchanged sentence

$ 291,585  

$ 920,801  

$ 751,775  

Income tax expense in both 

1 unchanged sentence

2022 varies from the amount computed by applying the federal corporate income tax rates of 

21 % to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences. The IRS has issued guidance that allows meals and incidental expense per diem to be 100% deductible for tax years 2021 and 2022.

Accordingly, there is no adjustment in 2021 or 2022 as our per diem plan qualifies for this treatment.

In years with partially nondeductible per diem, the per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and related expenses are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant.

21 % to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences the most significant of which is the effect of the per diem pay structure for drivers.

Drivers who meet the requirements to receive per diem receive non-taxable per-diem pay in lieu of a portion of their taxable wages.

This  per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and related expenses are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant.

Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

Our liability recorded for uncertain tax positions as of 

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

March 31, 2023 is unchanged since 

December 31, 2022 .

The net deferred tax liability of $ 95.8 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 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, 

the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law.

The CARES Act, among other things, includes provisions for refundable payroll tax credits, deferral for employer-side social-security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

As of September 30, 2021, the Company recorded a benefit of $ 0.6 million against labor expense for refundable payroll tax credits.

The Company will continue to monitor the benefits of the Cares Act going forward.

On March 11, 2021, President Biden signed the American Rescue Plan ("ARPA") into law. Of relevance to the Company, the ARPA extended the reach of Internal Revenue Code Section 162 (m) to include compensation paid to the eight highest-paid individuals (rather than three highest);

however, this change is not effective until 2027.

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 March 31, 2023 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.

On March 11, 2021, President Biden signed the American Rescue Plan ("ARPA") into law. The law includes several provisions meant to stimulate the U.S.

Of relevance to the Company, ARPA extended the reach of IRC Section 162 (m) to include compensation paid to the eight highest-paid individuals other than the chief executive officer and the chief financial officers (rather than the three highest), however, this change is not effective until 2027.

There is no material impact to the financial statements at this time.

President Biden signed the Inflation Reduction Act (the "IRA") into law on 

August 16, 2022. 

not  anticipate the IRA will have a significant impact on income tax expense or on other taxes.

One of the most impactful provisions of the IRA includes the establishment of a Corporate Alternative Minimum Tax ("CAMT").

However, this tax only applies to corporations with 

three -year average earnings in excess of 

$1.0  billion.

We will continue to monitor the CAMT each year to determine if we will become an applicable corporation.

Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 

1%  tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation.

not  believe this will have a material impact on our active buyback program, but will continue to monitor IRS guidance and regulations on how the buyback tax will be imposed and administered.

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

September 30, 2022 and December 31, 2021 :

March 31, 2023 and December 31, 2022 :

(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

2 unchanged sentences

Revenue equipment installment notes;

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

weighted average interest rate of 4.9 % at March 31, 2023, and 4.7 % at December 31, 2022, due in monthly installments with final maturities at various dates ranging from May 2025 to August 2027, secured by related revenue equipment

20,115  

77,006  

17,656  

71,267  

Real estate notes;

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

interest rate of 6.4 % at March 31, 2023 and 5.8 % at December 31, 2022 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

18,782  

3 unchanged sentences

18,897  

90,367  

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

19 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 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 

We had no  borrowings outstanding under the Credit Facility as of March 31, 2023 , undrawn letters of credit outstanding of approximately $ 23.9 million, and available borrowing capacity of $ 86.1 million.

As of March 31, 2023 , there were 

no base rate and 

no  SOFR loans.

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

Based on availability as of March 31, 2023 and 2022 , 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 

November 2022  

to March 2027 .

May 2025  

to August 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 $ 10.4 million are cross-defaulted with the Credit Facility.

5 unchanged sentences

We expect to be in compliance with our debt covenants for the next 12 months. 

In connection with the TFS Settlement, in September 2020, TBK Bank, SSB, as lender and agent for Triumph (“TBK Bank”), provided the Company with a $ 45 million line of credit (the “Draw Note”), the proceeds of which are to be used solely to satisfy our indemnification obligations under the TFS Settlement.

In connection with the settlement of a dispute related to the sale of TFS (the "TFS Settlement"), in September 2020, TBK Bank, SSB, as lender and agent for Triumph (“TBK Bank”), provided the Company with a $ 45 million line of credit (the “Draw Note”), the proceeds of which are to be used solely to satisfy our indemnification obligations under the TFS Settlement.

We may borrow pursuant to the Draw Note until September 23, 2025.

3 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 September 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 March 31, 2023 , there were no outstanding borrowings under the Draw Note.

Lease Obligations

The finance leases in effect at 

September 30, 2022 terminate from 

December 2022 through 

March 31, 2023 terminate from 

August 2023 through 

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

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

 A summary of our lease obligations at March 31, 2023 and 2022  are as follows:

(dollars in thousands)

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Finance lease cost:

Amortization of right-of-use assets

$ 1,848  

$ 2,806  

Interest on lease liabilities

Operating lease cost

20,593  

18,044  

Variable lease cost

2 unchanged sentences

$ 6,271  

$ 22,903  

$ 21,442  

Other information

2 unchanged sentences

Operating cash flows from operating leases

20,741  

18,143  

Financing cash flows from finance leases

1 unchanged sentence

Right-of-use assets obtained in exchange for new operating lease liabilities

13,265  

20,206  

15,795  

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

2 unchanged sentences

Weighted-average discount rate—operating leases

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.

March 31, 2023 , and December 31, 2022 , right-of-use assets of $ 51.8 million and $ 58.9 million for operating leases and $ 1.9 million and $ 5.3 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 September 30, 2022 , are summarized as follows by lease category:

Our future minimum lease payments as of March 31, 2023 , are summarized as follows by lease category:

(in thousands)

4 unchanged sentences

10,854  

10,572  

Total minimum lease payments

10 unchanged sentences

$ 39,844  

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

( 1 ) Excludes the three months ended March 31, 2023 .

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.

September 30, 2022 , there were 

March 31, 2023 , 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 $ 1.5 million and $ 1.7 million for the  

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.

three months ended March 31, 2023  and 

2022 , respectively. Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.1 million and $ 0.1 million for the 

three months ended March 31, 2023  and 2022, respectively.

Of the stock compensation expense recorded for the three months ended 

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.

March 31, 2023  and March 31, 2022 , $ 0.5 million and $ 1.0 million relates to restricted shares, respectively, and $ 1.0 million and $ 0.7 million relates to unvested employee stock options, respectively.

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 September 30, 2022 , certain participants elected to forfeit receipt of an aggregate of 

To satisfy withholding requirements for shares that vested through March 31, 2023 , certain participants elected to forfeit receipt of an aggregate of 

42,857  shares of Class A common stock at a weighted average per share price of $ 34.64  based on the closing price of our Class A common stock on the dates the shares vested in 2023 , in lieu of the federal and state minimum statutory tax withholding requirements.

2 unchanged sentences

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or property damage incurred in connection with the transportation of freight.

Our subsidiary Covenant Transport, Inc.

(“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County, California. The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The complaint asserts that the time period covered by the lawsuit is from October 31, 2014 to the present and alleges claims for failure to properly pay drivers for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code. Since the original filing date, the case has been removed from the Los Angeles Superior Court to the U.S.

District Court in the Central District of California and subsequently the case was transferred to the U.S.

District Court in the Eastern District of Tennessee where the case is now pending. This lawsuit was settled at mediation on April 29, 2021, for an immaterial amount, pending court approval.

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

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’

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

On August 1, 2019, the Los Angeles Superior Court entered an order staying the action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee.

The claims set forth in this lawsuit are included in the settlement referenced above.

The Court dismissed this lawsuit on June 20, 2022.

On August 2, 2018, Curtis Markson, et al.

(collectively, “Markson”), filed a putative class action case in United States District Court, Central District of California generically claiming that five ( 5 ) specified trucking companies (including our subsidiary Southern Refrigerated Transport, Inc.) entered into a "no poaching conspiracy" in which they agreed not to solicit or hire employees in California who were "under contract" with a fellow defendant.

The allegations center around new drivers in California who received their commercial driver's license through driving schools associated with, or paid for by, one of the named defendants, in exchange for agreeing to drive for that defendant carrier for a specified amount of time (typically 8 - 10 months).

Over the ensuing 18 –

24 months, the Plaintiffs added more trucking companies as co-defendants in the lawsuit, including our subsidiary, Covenant Transport, Inc., on April 23, 2020. 

The lawsuit claims that the named co-defendants sent letters to one another, providing notice of "under contract" status, if these new California drivers were hired by another defendant carrier prior to the driver completing their contractual obligations.

Plaintiffs contend that these notifications evidence a collusive agreement by the named defendants to restrain competition among trucking companies in California and suppress wages.

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

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.

On February 11, 2021, a lawsuit was filed against Covenant Transport on behalf of Wesley Maas (a California resident and former driver) who was 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 September 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 $ 23.9 million and $ 26.4 million of outstanding and undrawn letters of credit as of September 30, 2022  and December 31, 2021 .

On April 3, 2023, the Parties entered into a stipulated dismissal of the class claims asserted in the action, therefore only the individual claims of Mr.

Covenant Transport intends to vigorously defend itself in this matter.

We had $ 23.9 million and $ 23.9 million of outstanding and undrawn letters of credit as of March 31, 2023  and December 31, 2022 .

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.

6 unchanged sentences

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 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 

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.

Transactions with TEL were not material for the 

three months ended March 31, 2023 and 2022.

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 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 

September 30, 2022  and December 31, 

2023 net income through March 31, 2023 , or $ 5.9 million.

Our accounts receivable from TEL, accounts payable to TEL, and investment in TEL as of 

March 31, 2023  and December 31, 

2022 are as follows (in thousands):

Balance Sheet Line Item:

September 30, 2022

March 31, 2023

December 31, 2022

1 unchanged sentence

Driver advances and other receivables

Accounts payable to TEL

Accrued expenses

Investment in TEL

3 unchanged sentences

Current and long-term portion of operating lease obligations

$ 12,494  

$ 13,825  

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.

1 unchanged sentence

(in thousands)

As of September 30,

As of March 31,

As of December 31,

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

$ 40,145  

$ 32,336  

$ 106,231  

$ 76,063  

Cost of Sales

19,355  

Operating Expenses

1 unchanged sentence

12,345  

38,074  

45,156  

Operating Income

3 unchanged sentences

$ 13,658  

$ 6,572  

$ 43,287  

$ 19,191  

Acquisition of AAT Carriers, Inc.

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.

The Stock Purchase Agreement includes an earnout component of up to an aggregate of $ 20.0 million based on AAT's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first and second years following closing.

The total purchase price, including any earnout achieved, is expected to range from $ 38.5 million to $ 57.0 million depending on the results achieved by AAT.

AAT’s results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Expedited reportable operating segment.

The acquisition date fair value of the consideration transferred consisted of the following:

February 9, 2022

(in thousands)

Cash paid pursuant to Stock Purchase Agreement

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

Contingent consideration

Net purchase price

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.

We estimated the fair value of the contingent consideration using a probability-weighted model.

This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

The allocation of the preliminary purchase price is subject to change based on finalization of the valuation of long-lived and intangible assets and contingent consideration, as well as our ongoing evaluation of AAT’s accounting principles for consistency with ours.

Because of our 

338 (h) 10 election, all goodwill related to the acquisition is deductible for tax purposes, and there are no deferred income taxes arising from the acquisition.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.

February 9, 2022

Accounts receivable

Prepaid expenses

Other short-term assets

Net property and equipment

Credentialing intangible asset

Total identifiable assets acquired

Accounts payable

Accrued expenses

Finance lease obligations

Other long-term liabilities

Total liabilities assumed

Net identifiable assets acquired

Net assets acquired

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.

Goodwill and other intangible assets 

may change upon the finalization of the valuation of the contingent consideration liability and intangible asset as part of the purchase accounting for the AAT acquisition.

The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment, and may change as a result of our ongoing evaluation of AAT’s accounting principles for consistency with ours.

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 

September 30, 2022 are as follows:

(in thousands)

Three months ended

Nine months ended

September 30, 2022

Total revenue

Goodwill and Other Assets

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

AAT's results have been included in the consolidated financial statements since the date of acquisition, February 2022, within our Expedited reportable segment. 

The Landair Holdings, Inc.

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

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.

Amortization expense of $ 1.1 million and $ 0.6 million for the three months ended March 31, 2023 and 2022 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

A summary of other intangible assets as of 

September 30, 2022 and 

March 31, 2023 and 

December 31, 2022 is as follows:

(in thousands)

September 30, 2022

March 31, 2023

Gross intangible assets

2 unchanged sentences

Remaining life (months)

$ 2,402  

$ ( 2,130 )  

Managed Freight

( 885 )  

Total trade name

( 3,900 )  

Customer relationships:

14,072  

( 4,984 )  

Managed Freight

( 600 )  

12,436  

( 4,404 )  

Total customer relationships:

28,200  

( 9,988 )  

18,212  

Credentialing:

32,000  

( 1,422 )  

30,578  

Total credentialing

32,000  

( 1,422 )  

30,578  

Total other intangible assets

$ 64,600  

$ ( 15,310 )  

$ 49,290  

(in thousands)

4 unchanged sentences

Remaining life (months)

$ 2,402  

$ ( 2,130 )  

Managed Freight

( 885 )  

Total trade name

( 3,900 )  

Customer relationships:

14,072  

( 4,104 )  

Managed Freight

( 494 )  

12,436  

( 3,627 )  

Total customer relationships:

28,200  

( 8,225 )  

19,975  

Credentialing:

Total credentialing

Total other intangible assets

$ 32,600  

$ ( 12,125 )  

$ 20,475  

The expected amortization of these assets for the next five successive years is as follows:

(in thousands)

29,737  

( 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 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)

September 30, 2022

Managed Freight

Balance at December 31, 2021

$ 15,320  

$ 5,448  

$ 21,750  

Acquired goodwill for AAT

15,699  

$ 15,699  

$ 15,320  

$ 5,448  

$ 21,750  

( 1 ) Excludes the three months ended March 31, 2023 .

There were no changes to the carrying amount of goodwill since 

December 31, 2022 .

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

3 unchanged sentences

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.

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

Under such authorization, we repurchased 2.0 million shares of our Class A common stock for $ 54.7 million during 2022.

On January 30, 2023, the Board approved an amendment to the Company's stock repurchase program authorizing the purchase of up to an aggregate $ 55.0 million of our Class A common stock.

The amendment added an incremental approximately $ 37.5 million to the approximately $ 17.5 million that was then-remaining under the program.

We repurchased an additional 0.1 million shares of our Class A common stock through May 3, 2023 , for a total of 2.7 million shares repurchased since May 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. 

1 unchanged sentence

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.

On November 16, 2022, our Board declared a cash dividend of $ 0.08 per share, which was paid on December 30, 2022, to stockholders of record on December 2, 2022.

On February 15, 2023, our Board declared a cash dividend of $ 0.11  per share, which was paid on March 31, 2023, to stockholders of record on March 3, 2023.

Subsequent Events

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.

We repurchased an additional 0.1 million shares of our Class A common stock for $ 4.5  million from April 1, 2023 through May 3, 2023.

On April 26, 2023, the Company completed the acquisition of Lew Thompson & Son Trucking, Inc.

and related entities (“Lew Thompson & Son”), of Huntsville, Arkansas.

Lew Thompson & Son specializes in poultry related feed and live haul freight and will be consolidated within the Company’s Dedicated truckload results. 

Under the terms of the agreement, the Company purchased 100 % of the outstanding stock of Lew Thompson & Son in exchange for a closing enterprise value of approximately $ 100 million plus an earnout of up to $ 30 million depending on the results achieved by the business over the three following calendar years.

The closing price was funded by cash on hand of approximately $ 45 million and approximately $ 55 million of borrowings from the Credit Facility.  

The transaction includes the option for the Company to elect a Code Section 338 (h)( 10 ) election subject to a purchase price adjustment.

12 unchanged sentences

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, 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 reportable segments and services, future margins of our reportable 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,  

and the contingent consideration related to our 

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

the contingent consideration related to our 

purchase of AAT, and the future impact of our acquisition of Lew Thompson & Son, 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.

1 unchanged sentence

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A.

Risk Factors," set forth in our Form 10-K for the year ended December 31, 2021.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Item 1A.

Risk Factors," set forth in this Form 10-Q and our Form 10-K for the year ended December 31, 2022.

Readers should review and consider the factors discussed in "Item 1A.

Risk Factors," set forth  

in our Form 10-K for the year ended December 31, 2021, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

in this Form 10-Q and our Form 10-K for the year ended December 31, 2022, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

All such forward-looking statements speak only as of the date of this Form 10-Q.

2 unchanged sentences

Executive Overview

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;

Given the softness in the freight environment, we are pleased with our first quarter earnings of $1.20 per diluted share and how our team responded in a market that quickly transitioned.

Compared to a year ago, consolidated freight revenue was down 9%.

This decline was expected and related primarily to less overflow freight handled by our Managed Freight segment due to lower overall demand.

The Dedicated segment also experienced reductions in freight revenue, primarily as a result of our efforts to carve out underperforming contractual business. Our asset-light reportable segments, Managed Freight and Warehousing, experienced significant deterioration in margin compared to the prior year quarter as a result of reductions in brokerage volumes and rates associated with overflow freight from our asset-based segments and cost headwinds, respectively.

Our asset-based reportable segments, Expedited and Dedicated, contributed approximately 68% of total revenue, 93% of operating income, 63% of total freight revenue, and 88% of adjusted operating income in the quarter.

Our Expedited reportable segment grew revenue modestly, but experienced diminished margins compared to the first quarter last year.

Our Dedicated reportable segment experienced reduced revenue with approximately 14% fewer tractors and improved margins year over year. 

Our asset-light reportable segments contributed approximately 32% of total revenue, 7% of operating income, 37% of total freight revenue, and 12% of adjusted operating income in the quarter. 

Compared to a year ago, Managed Freight experienced significant reductions in both revenue and profitability with little to no project related freight in the current quarter. 

Warehousing was able to grow revenue through new customer startups but had diminished margins primarily due to incremental cost headwinds associated with investments in capacity for future growth in this reportable segment as well as inflationary cost headwinds with existing customers.

We are working to increase the operating income and related margins in each of these reportable segments through focused sales efforts within managed freight and proposed customer rate increases with existing customers within Warehousing.

On April 26, 2023, we acquired Lew Thompson & Son a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas. 

We believe the acquisition is another strong step toward building a more diversified and resilient operating model.

Additional items of note for the first quarter of 2023 include the following:

Total revenue of $266.9 million, a decrease of 8.5% compared with the first quarter of 2022, and freight revenue (which excludes revenue from fuel surcharges) of $233.4 million, a decrease of 9.4% compared with the first quarter of 2022;

Operating income of $17.6 million, compared with $23.9 million in the first quarter of 2022;

Net income of $16.6 million, or $1.20 per diluted share, compared with $22.2 million, or $1.32 per diluted share, in the first quarter of 2022.

Net income from continuing operations of $16.5 million, or $1.19 per diluted share, compared to $22.2 million or $1.32 per diluted share, in the first quarter of 2022. Net income from discontinued operations of $0.2 million, or $0.01 per diluted share, compared to $0.0 million, or $0.00 per diluted share, in the first quarter of 2022;

38% of consolidated total revenue was in our Expedited reportable segment, as compared to 34% in the first quarter of 2022;

Our Managed Freight reportable segment’s total revenue decreased to $60.9 million in the 2023 quarter from $86.2 million in the 2022 quarter and the reportable segment had an operating income of $1.2 million in the 2023 quarter compared to $10.8 million in the 2022 quarter; 

Our equity investment in TEL provided $5.9 million of pre-tax earnings in the first quarter of 2023 compared to $6.8 million in the first quarter of 2022;

We distributed a total of $1.5 million to stockholders through dividends;

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;

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.

Since December 31, 2022, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $3.8 million to $32.2 million, primarily due to repurchasing $20.8 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 March 31, 2023 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) as of March 31, 2023 was  0.40 (following our acquisition of Lew Thompson & Son, as of April 27, 2023, our pro-forma leverage ratio was approximately 1.2);

Stockholders' equity at March 31, 2023, was $371.2 million;

Tangible book value at March 31, 2023, was $265.9 million.

While we are pleased with our first quarter’s results, we also see opportunities to improve upon them and are working diligently to do so.

In this environment, we are intensely focused on cost savings to improve our operating cost profile.

However, our primary focus remains on the long term, by continuing to invest in areas that provide opportunities for us to make forward progress on our strategic plan, our investments in new revenue generating equipment, people and technology are examples of this.

For the remainder of the year, we expect market headwinds from a softer market as well as continued inflationary pressures.

However, based on company specific factors we expect less earnings volatility than in prior periods of economic weakness.

We have worked hard to strategically shift our customer base to less cyclical industries through our full-service logistics focus.

Even with a weak freight market, we expect our cash generation, moderate leverage, and available liquidity to continue to provide a full range of capital allocation opportunities to benefit our stockholders.

Non-GAAP Reconciliation

10 unchanged sentences

Operating Ratio

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

GAAP Operating Ratio:

18 unchanged sentences

We have four reportable segments, which include:

The Expedited segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows.

The Expedited reportable segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows.

Expedited services generally require two-person driver teams on equipment either owned or leased by the Company.

The Dedicated segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length.

The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length.

Equipment is either owned or leased by the Company.

Managed Freight:

The Managed Freight segment includes our brokerage and transport management services (“TMS”).

The Managed Freight reportable segment includes our brokerage and transport management services (“TMS”).

Brokerage services provide logistics capacity by outsourcing the carriage of customers’

1 unchanged sentence

TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs.

The Warehousing segment provides day-to-day warehouse management services to customers who have chosen to outsource this function.

The Warehousing reportable segment provides day-to-day warehouse management services to customers who have chosen to outsource this function.

We also provide shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses.

27 unchanged sentences

Revenue Equipment

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.

At March 31, 2023, we operated 2,040 tractors and 5,237 trailers.

Of such tractors, 1,723 were owned, 203 were financed under operating leases, and 114 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,059 were owned, 57 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 March 31, 2023, our fleet had an average tractor age of 2.2 years and an average trailer age of 6.4 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 nine months ended September 30, 2022 TO three and nine months ended September 30, 2021

COMPARISON OF three months ended March 31, 2023 TO three months ended March 31, 2022

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

Nine Months Ended

September 30,

Freight revenue

1 unchanged sentence

Total revenue

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.

The decrease in total revenue primarily resulted from a $25.3 million and $7.0 million decrease in Managed Freight and Dedicated freight revenue, respectively, partially offset by a $1.0 million and  $7.1 million increase in Expedited and Warehousing freight revenue, respectively, for the three months ended March 31, 2023 compared to the 2022 period.

See results of reportable segment operations section for discussion of fluctuations.

For comparison purposes in the discussion below, we use total revenue and freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a percentage of revenue. 

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Salaries, wages, and related expenses

1 unchanged sentence

% of freight revenue

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.

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.

Salaries, wages, and related expenses for the three months ended March 31, 2023, increased on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases, partially offset by reduced miles  since the same 

2022 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 and driver markets.

Driver pay may also fluctuate based on the number of miles driven. 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.

Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight segment, for which payments are reflected in the purchased transportation line item.

Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight reportable segment, for which payments are reflected in the purchased transportation line item.

Three Months Ended

Nine Months Ended

September 30,

% of total revenue

11 unchanged sentences

In periods of declining prices, the opposite is true.

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.

Fuel prices as measured by the DOE wer e $0.05 per g allon, or 1.1%, higher for the quarter ended March 31, 2023 compared with the same quarter in 2022.

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.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Total fuel surcharge

5 unchanged sentences

% of freight revenue

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.

For the period presented, the change in net fuel expense is insignificant as a percentage of freight revenue.

There were no diesel fuel hedge gains or losses for the quarter ended March 31, 2023 or 2022. As of March 31, 2023, 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.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Operations and maintenance

1 unchanged sentence

% of freight revenue

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.

The decrease in operations and maintenance on a dollar basis for the three months ended March 31, 2023  was primarily related to having fewer new drivers and a smaller average fleet in 2023, partially offset by increased maintenance costs as a result of an increase in the average age of equipment, and inflationary increases in the costs of parts and labor, as compared to the prior year period.

Going forward, we believe this category will fluctuate 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 2023, 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;

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Revenue equipment rentals and purchased transportation

1 unchanged sentence

% of freight revenue

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.

The decrease in revenue equipment rentals and purchased transportation for the three months ended March 31, 2023 was primarily the result of a reduction in purchased transportation costs as a result of the softening freight market. Additionally, the percentage of the total miles run by independent contractors increased from 6.7% for the three months ended March 31, 2022 to 6.9% for the same 2023 period partially offsetting this decrease.

We expect revenue equipment rentals to decrease compared to 2022 as we largely transitioned from tractors held under operating leases to owned tractors in 2022.

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

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Operating taxes and licenses

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Insurance and claims

2 unchanged sentences

Insurance and claims per mile cost increased to 20.5 cents per mile for the three months ended 

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.

March 31, 2023  compared to 14.1 cents per mile for the same 2022  quarter .

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

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

If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower.

For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were estimated to be fully eroded based on claims expense accruals.

For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were fully eroded based on claims expense accruals.

We replaced our $9.0 million in excess of $1.0 million layer with a new $7.0 million in excess of $3.0 million policy that runs from January 28, 2021 to April 1, 2024.

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Communications and utilities

1 unchanged sentence

% of freight revenue

For the periods presented, the change in communications and utilities are insignificant both as a percentage of total revenue and freight revenue.

For the period presented, the change in communications and utilities are insignificant both as a percentage of total revenue and freight revenue.

General supplies and expenses

Three Months Ended

Nine Months Ended

September 30,

General supplies and expenses

1 unchanged sentence

% of 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.

The increases in general supplies and expenses for the 

three months ended March 31, 2023 were primarily the result of the new leased spaces for our Warehousing reportable segment and the increase in the contingent consideration liability since the 2022 period.

Depreciation and amortization

Three Months Ended

Nine Months Ended

September 30,

Depreciation and amortization

2 unchanged sentences

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

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.

Depreciation expense increased $0.6 million to $13.5 million for the three months ended March 31, 2023 , compared to $12.9 million in the same 2022 period 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 $0.6 million for the three months ended March 31, 2023  and 2022, respectively.

The increase for the three months ended March 31, 2023  is due to the amortization of the intangible asset related to the AAT acquisition. 

We expect depreciation and amortization to increase compared to 2022 as the cost of new equipment increases and we implement our 2023 revenue equipment replacement plan, and we largely transitioned from tractors held under operating leases to tractors owned in 2022.

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.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Gain on disposition of property and equipment, net

1 unchanged sentence

% of freight revenue

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. 

The increases in gain on disposition of property and equipment, net for the three months ended March 31, 2023 are primarily the result of the $7.6 million gain on sale of a Tennessee terminal in the first quarter of 2023 and an increase in the sale of used equipment compared to the 2022 period. 

Interest expense, net

Three Months Ended

Nine Months Ended

September 30,

Interest expense, net

2 unchanged sentences

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, 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.

Going forward, we expect interest expense, net to increase due to the approximately $55 million of borrowings under our Credit Facility related to our April 26, 2023 acquisition of Lew Thompson & Son.

Additionally, 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, and changing interest rates.

Income from equity method investment

Three Months Ended

Nine Months Ended

September 30,

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 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.

The decrease in TEL's contributions to our results for the three months ended March 31, 2023 is primarily the result of a reduction on gain on sale of revenue equipment compared to the 2022 quarter.

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.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Income tax expense

1 unchanged sentence

% of freight revenue

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 decrease in income tax expense was primarily related to the $7.3 million decrease in pre-tax income in the three months ended March 31, 2023, compared to the same 2022 period, resulting from the aforementioned decreases 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 2022.

The nondeductible effect of the per diem payments is temporarily suspended for 2021 and 2022 in accordance with IRS guidance issued during the quarter ended December 31, 2021.

The nondeductible effect of the per diem payments was temporarily suspended for 2022 in accordance with IRS guidance issued during the quarter ended December 31, 2021.

The rate impact of these items will fluctuate in future periods as income fluctuates.

1 unchanged sentence

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

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

COMPARISON O F three months ended March 31, 2023 TO three months ended March 31, 2022

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

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Managed Freight

3 unchanged sentences

Total operating income

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.

The increase in Expedited revenue for the three months ended March 31, 2023 relates to an increase in average freight revenue per tractor per week of 2.7%, a $1.1 million increase in fuel surcharge revenue compared to the 2022 quarter, and a 12 (or 1.4%) average tractor increase.

The increase in average freight revenue per tractor per week for the quarter ended March 31, 2023 is the result of a 4.0% increase in average miles per unit partially offset by a 3.0 cents per mile (or 1.3%) decrease in average rate per total mile compared to the 2022 quarter.

Expedited team-driven tractors averaged 746 tractors in the first quarter of 2023, an increase of approximately 1.9% from the average of 732 tractors in the first quarter of 2022.

The decrease in Dedicated revenue for the three months ended March 31, 2023 relates to a $1.7 million decrease in fuel surcharge revenue and a 0.6% decrease in average miles per unit, partially offset by an increase in average freight revenue per tractor per week compared to the 2022 quarter as the result of a 13.1 cents per mile (or 5.6%) increase in average rate per total mile compared to the 2022 quarter.

Average tractors decreased 194 tractors, or 13.5% as compared to the three months ended March 31, 2022, as a result of exiting underperforming contracts.

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 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.

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

Warehousing total revenue for the quarter increased as a result of period-over-period new customer business.

The decrease operating income for the three months ended March 31, 2023, was the result of the decrease in total revenue described above for the three months ended March 31, 2023 , partially offset by a $15.7 million and a $13.2 million decrease in Managed Freight and Dedicated and operating expenses, respectively, partially offset by a $2.2 million and $8.2 million increase in Expedited and Warehousing operating expenses, respectively.

The increase in Expedited operating expenses for the 

three months ended March 31, 2023 is primarily the result of driver and non-driver pay increases and the increase in the contingent consideration liability since the 2022 period as well as claims experience during the current period.

The decrease in Dedicated operating expenses for the 

three months ended March 31, 2023 is primarily the result of averaging fewer drivers and tractors, resulting in lower driver salaries, wages, and benefits, as well as reduced use of third-party purchased transportation as compared to the 2022 period.

Additionally, Expedited and Dedicated operating expenses were reduced as a result of the sale of a Tennessee terminal.

The change in Managed Freight operating expenses is the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation, partially offset by a 

small number of prior period claims . The increase in Warehousing operating expenses is a result of leased space for new business and pay increases, partially offset by a reduction in outsourced labor since the 2022 period.

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

LIQUIDITY AND CAPITAL RESOURCES

4 unchanged sentences

most critical transportation and logistics needs.

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.

We had working capital (total current assets less total current liabilities) of $65.9 million and $66.5 million at March 31, 2023 and December 31, 2022, 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 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.

With an average fleet age of 2.2 years at March 31, 2023, 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 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:

As of March 31, 2023 and December 31, 2022 we had $172.8 million and $179.6 million in debt and lease obligations, respectively, consisting of the following:

No outstanding borrowings under the Credit Facility;

2 unchanged sentences

$20.0 million and $20.3 million in real estate notes, respectively;

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

$2.4 million and $5.8 million of the principal portion of financing lease obligations, respectively;

1 unchanged sentence

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.

The decrease in the finance lease and operating lease obligations was primarily due to amortization of the lease liability.

As of March 31, 2023, 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.

Fluctuations in the outstanding balance and related availability under our Credit Facility are driven primarily by cash flows from operations and the timing and nature of property and equipment additions that are not funded through notes payable, as well as the nature and timing of collection of accounts receivable, payments of accrued expenses, and receipt of proceeds from disposals of property and equipment.

On April 26, 2023, we borrowed approximately $55 million under our Credit Facility related to acquisition of Lew Thompson & Son.

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 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.

Our net capital expenditures for the three months ended March 31, 2023 totaled $8.2 million of proceeds, as compared to $8.0 million of expenditures for the prior year period.

During the three months ended March 31, 2023, we took delivery of approximately 150 new tractors and 64 new trailers, while disposing of approximately 162 used tractors and 123 used trailers.

Our current fleet plan for fiscal 2023 includes the delivery of an additional 763 new company replacement tractors and 536 additional new trailer deliveries. Net gains on disposal of equipment and real estate in the three months ended March 31, 2023 were $9.8 million compared to $0.2 million in the same prior year period primarily due to the $7.6 million gain on a Tennessee terminal during the 2023 period.

For the balance of 2023, our baseline expectation for net capital expenditures is $60 million to $70 million.

Our capital investment plan reflects our priorities of improving operational uptime, lowering operating costs, and maintaining a driver-friendly fleet.

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

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.

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.

We distributed a total of $1.5 million to stockholders in the first three months of 2023 through dividends.

We believe we have sufficient liquidity to satisfy our cash needs, and we will continue to evaluate the nature and extent of potential short-term and long-term impacts to our business.

Net cash flows provided by operating activities decreased to $7.3 million for the three months ended March 31, 2023, compared to $39.4 million for the same 2022 period, primarily due to an increase in receivables and driver advances as a result of an increase in our average receivable days outstanding and a $5.5 million decrease in net income, as well as decreases to non-cash expenses compared to the prior year period. 

Net cash flows provided by investing activities were $7.1 million for the three months ended March 31, 2023, compared to $45.0 million used in the same 2022 period.

The change in net cash flows provided by investing activities was primarily due to the timing of our trade cycle whereby we took delivery of approximately 150 new tractors and 64 new trailers, while disposing of approximately 162 used tractors and 123 used trailers during the 2023 period compared to delivery of 31 new tractors and no new trailers, while disposing of approximately 94 used tractors and 10 used trailers in the same 2022 period.

The 2022 period includes the February 2022 acquisition of AAT.

Net cash flows used by financing activities were approximately $28.4 million for the three months ended March 31, 2023, compared to $4.3 million provided in the same 2022 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 $4.5 million in the 2023 period compared to net proceeds of $20.4 million in the 2022 period, the repurchase of $20.8 million of shares of our Class A common stock during the 2023 period compared to $14.8 million during the same 2022 period, as well as the payment of approximately $1.5 million in dividends during the 2023 period compared to $1.0 million during the same 2022 period.

Net cash flows provided by operating activities and used by financing activities in the 2023 period also included payment of $0.8 million and $9.2 million, respectively, of contingent consideration liabilities related to the acquisition of AAT.

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

5 unchanged sentences

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 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.

Under such authorization, we repurchased 2.0 million shares of our Class A common stock for $54.7 million during 2022.

On January 30, 2023, the Board approved an amendment to the Company's stock repurchase program authorizing the purchase of up to an aggregate $55.0 million of our Class A common stock.

The amendment added an incremental approximately $37.5 million to the approximately $17.5 million that was then-remaining under the program.

We repurchased an additional 0.1 million shares of our Class A common stock through May 3, 2023, for a total of 2.7 million shares repurchased since May 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.

5 unchanged sentences

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 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.

There have been no material changes to our most critical accounting policies and estimates during the three months ended March 31, 2023, 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, 2022.

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