What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 486 added, 247 removed, 1270 unchanged (37% of the section changed)

4 unchanged sentences

(In thousands, except share data)

June 30, 2023

September 30, 2023

December 31, 2022

40 unchanged sentences

Checks outstanding in excess of bank balances

$ 2,096  

Accounts payable

36 unchanged sentences

419,517  

Commitments and contingent liabilities

Stockholders' equity:

1 unchanged sentence

40,000,000 shares authorized;

16,125,786 shares issued and 10,596,735 outstanding as of June 30, 2023;

16,125,786 shares issued and 10,596,735 outstanding as of September 30, 2023;

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

6 unchanged sentences

Treasury stock at cost;

5,529,051 and 4,918,216 shares as of June 30, 2023 and December 31, 2022, respectively

5,529,051 and 4,918,216 shares as of September 30, 2023 and December 31, 2022, respectively

( 131,402 )  

14 unchanged sentences

FOR THE 

three and six months ended June 30, 2023 and 2022

three and nine months ended September 30, 2023 and 2022

(In thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Freight revenue

$ 253,377  

$ 266,599  

$ 730,503  

$ 791,069  

Fuel surcharge revenue

35,344  

45,240  

99,085  

129,732  

Total revenue

$ 288,721  

$ 311,839  

$ 829,588  

$ 920,801  

Operating expenses:

Salaries, wages, and related expenses

$ 102,314  

$ 104,537  

$ 302,753  

$ 300,980  

35,173  

42,471  

100,692  

126,457  

Operations and maintenance

16,984  

22,468  

50,328  

60,248  

Revenue equipment rentals and purchased transportation

72,046  

78,943  

203,045  

244,281  

Operating taxes and licenses

10,161  

Insurance and claims

13,074  

12,947  

36,810  

35,752  

Communications and utilities

General supplies and expenses

11,774  

11,201  

38,169  

28,416  

Depreciation and amortization

18,182  

14,357  

51,701  

41,734  

Gain on disposition of property and equipment, net

( 602 )  

( 38,721 )  

( 12,380 )  

Total operating expenses

273,580  

252,780  

785,032  

811,022  

Operating income

15,141  

59,059  

44,556  

109,779  

Interest expense, net

Income from equity method investment

( 5,335 )  

( 7,400 )  

( 16,659 )  

Income before income taxes

17,839  

65,524  

55,685  

128,784  

Income tax expense

15,563  

13,701  

32,130  

Income from continuing operations, net of tax

13,356  

49,961  

41,984  

96,654  

Income from discontinued operations, net of tax

$ 13,506  

$ 50,486  

$ 42,434  

$ 97,179  

Basic income per share:

Income from continuing operations

$ 1.03  

$ 3.47  

$ 3.21  

$ 6.24  

Income from discontinued operations

Net income per share

$ 1.04  

$ 3.50  

$ 3.24  

$ 6.27  

Diluted income per share:

Income from continuing operations

$ 0.98  

$ 3.36  

$ 3.06  

$ 6.09  

Income from discontinued operations

Net income per share

$ 0.99  

$ 3.39  

$ 3.09  

$ 6.12  

Basic weighted average shares outstanding

12,947  

14,405  

13,082  

15,495  

Diluted weighted average shares outstanding

13,679  

14,892  

13,739  

15,875  

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 six months ended June 30, 2023 and 2022

FOR THE three and nine months ended September 30, 2023 and 2022

(Unaudited and in thousands )

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

$ 13,506  

4 unchanged sentences

Unrealized gain on effective portion of cash flow hedges, net of tax of ($ 177 ) and ($ 221 ) in 2023 and ($ 262 ) and ($ 768 ) in 2022, respectively

Reclassification of cash flow hedge losses (gains) into statement of operations, net of tax of $ 33 and $ 60 in 2023 and ($ 25 ) and ($ 61 ) in 2022, respectively

( 93 )  

Reclassification of cash flow hedge (gains) losses into statement of operations, net of tax of $ 35 and $ 95 in 2023 and ($ 3 ) and ($ 64 ) in 2022, respectively

( 100 )  

Total other comprehensive income (loss)

( 271 )  

Total other comprehensive income

Comprehensive income

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three and six months ended June 30, 2023 and 2022

FOR THE three and nine months ended September 30, 2023 and 2022

(Unaudited and in thousands)

For the Three and Six Months Ended June 30, 2023

For the Three and Nine Months Ended September 30, 2023

Comprehensive

15 unchanged sentences

Stock-based employee compensation expense

Exercise of stock options

Issuance of restricted shares, net

22 unchanged sentences

$ 379,664  

For the Three and Six Months Ended June 30, 2022

13,506  

Cash dividend ($ 0.11 per common share)

( 1,436 )  

Other comprehensive income

Stock-based employee compensation expense

Balances at September 30, 2023

$ 156,232  

$ ( 131,402 )  

$ 1,447  

$ 367,561  

$ 394,023  

For the Three and Nine Months Ended September 30, 2022

Comprehensive

29 unchanged sentences

( 28,565 )  

Stock-based employee compensation expense

Stock-based employee compensation expense reversal

Issuance of restricted shares, net

5 unchanged sentences

$ 356,031  

50,486  

Cash dividend ($ 0.08 per common share)

( 1,170 )  

Other comprehensive loss

Share repurchase

( 27,521 )  

Stock-based employee compensation expense

Exercise of stock options

Issuance of restricted shares, net

( 70 )  

Balances at September 30, 2022

$ 152,575  

$ ( 92,823 )  

$ 1,113  

$ 319,063  

$ 380,113  

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE  six months ended June 30, 2023 and 2022

FOR THE  nine months ended September 30, 2023 and 2022

(Unaudited and in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

$ 42,434  

$ 97,179  

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

2 unchanged sentences

Depreciation and amortization

51,701  

41,734  

Deferred income tax expense

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

( 816 )  

Stock-based compensation expense

Income from equity method investment

( 16,659 )  

Return on investment from equity method investee

Gain on disposition of property and equipment

( 12,580 )  

Gain on reversal of contingent loss of discontinued operations

Changes in operating assets and liabilities:

Receivables and advances

( 24,563 )  

31,104  

Prepaid expenses and other assets

( 2,511 )  

Inventory and supplies

( 332 )  

Insurance and claims accrual

( 1,645 )  

Accounts payable and accrued expenses

( 1,209 )  

Net cash flows provided by operating activities

52,973  

121,069  

Cash flows from investing activities:

Acquisition, net of cash acquired

( 107,922 )  

Other investments

( 1,580 )  

Purchase of property and equipment

( 112,047 )  

Proceeds from disposition of property and equipment

76,954  

50,112  

Net cash flows used by investing activities

( 144,595 )  

Cash flows from financing activities:

1 unchanged sentence

Cash dividend

( 4,344 )  

Proceeds from issuance of notes payable

98,451  

65,253  

Repayments of notes payable

( 23,142 )  

Repayments of finance lease obligations

( 5,432 )  

Proceeds under revolving credit facility

123,463  

74,528  

Repayments under revolving credit facility and draw note

( 123,463 )  

Payment of contingent consideration liability

( 9,187 )  

Proceeds from exercise of stock options

Payment of minimum tax withholdings on stock compensation

( 1,520 )  

Common stock repurchased

( 25,488 )  

Net cash flows provided (used) by financing activities

30,345  

Net change in cash and cash equivalents

( 61,277 )  

50,845  

Cash and cash equivalents at beginning of period

68,665  

Cash and cash equivalents at end of period

$ 7,388  

$ 59,257  

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 six months ended June 30, 2023  are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 .

therefore, operating results for the nine months ended September 30, 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 .

20 unchanged sentences

There were approximately 254,000  and 

251,000 shares issuable upon conversion of unvested restricted shares for the three and six months ended June 30, 2023 , and 

237,000  and 252,000  shares issuable upon conversion of unvested restricted shares for the three and six months ended June 30, 2022 .

247,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2023 , and 

305,000  and 271,000  shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2022 .

There were 

no and less than 

1,000  unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2023 . There were 

no  unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2022 . There were 

no  unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2023 . There were 

no  unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2022 . There were 

478,000  and 

411,000  shares issuable upon conversion of unvested employee stock options for the 

three and six months ended June 30, 2023  and 10,000  and 

11,000 shares issuable upon conversion of unvested employee stock options for the three and six months ended June 30, 2022 .

There were 

35,000  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2023  and 33,000  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and six months ended June 30, 2022 . Income per share is the same for both Class A and Class B shares.

three and nine months ended September 30, 2023  and 182,000  and 

109,000 shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2022 .

There were no and 

32,000  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, 2023 , respectively, 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, 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

Six Months Ended

Nine Months Ended

September 30,

Income from continuing operations

51 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 June 30, 2023 , or December 31, 2022.

There were no fuel hedge derivatives outstanding as of September 30, 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.

11 unchanged sentences

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

5 unchanged sentences

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

June 30, 2023 , as the weighted average interest rate on these notes approximates the market rate for similar debt.

September 30, 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.

Refer to Note 12, "Acquisition of Lew Thompson & Son Trucking, Inc.", for additional information regarding the LTST acquisition.

We acquired AAT in February 2022 and LTST in April 2023.

Contingent consideration arrangements require 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, up to $ 30.0 million of additional consideration to Lew Thompson & Son Trucking, Inc.'s ("LTST's") former shareholders based on LTST's results during the first three post-acquisition years, and up to $ 12.0 million of additional consideration to Sims Transport Services, LLC's ("Sims") former shareholders based on Sims' results during the first four post-acquisition years.

Refer to Note 13, "Acquisition of Lew Thompson & Son Trucking, Inc.", for additional information regarding the LTST acquisition and Note 12, "Acquisition of Sims Transport Services, LLC", for additional information regarding the Sims acquisition.

We acquired AAT in February 2022, 

LTST in April 2023, and Sims in August 2023.

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 and six months ended June 30, 2023, we paid none and $ 10.0 million, respectively, based on AAT's results for the first post-acquisition year.

The fair value of the contingent consideration increased by $ 10.5 million and $ 1.5 million, for the three and six months ended June 30, 2023, respectively.

Of the $ 10.5 million increase, $ 10.0 million was related to the initial recognition of the LTST additional consideration arrangement and $ 0.5 million was due to a change in the fair value for the AAT contingent consideration arrangement. Of the $ 10.0 million paid for the contingent consideration liability during 2023, $ 9.2 million was classified as financing cash flows and $ 0.8 million was classified as operating cash flows within the condensed consolidated statement of cash flows.

During the three and nine months ended September 30, 2023, we paid none and $ 10.0 million, respectively, based on AAT's results for the first post-acquisition year.

Of the $ 10.0 million paid for the contingent consideration liability during 2023, $ 9.2 million was classified as financing cash flows and $ 0.8 million was classified as operating cash flows within the condensed consolidated statement of cash flows.

The fair value of the contingent consideration increased by $ 2.3 million and $ 14.3 million for the three and nine months ended September 30, 2023, respectively.

Of the $ 2.3 million increase, $ 1.8 million was related to the initial recognition of the Sims additional consideration arrangement and $ 0.5  million was due to a change in the fair value for the AAT contingent consideration arrangement.

Of the $ 14.3 million increase, $ 10.0 million related to the initial recognition of the LTST contingent consideration arrangement, $ 2.5 million was due to a change in the fair value for the AAT contingent consideration arrangement, and $ 1.8 million was related to the initial recognition of the Sims additional consideration arrangement.

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.

5 unchanged sentences

Payments  

June 30, 2023  

September 30, 2023  

Contingent consideration  

9 unchanged sentences

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

The following table summarizes the results of our discontinued operations for the three and six months ended June 30, 2023 and 2022 :

The following table summarizes the results of our discontinued operations for the three and nine months ended September 30, 2023 and 2022 :

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Reversal of contingent loss liability

4 unchanged sentences

Income from discontinued operations, net of tax

Reversal of contingent liability for the three and six  months ended June 30, 2023 relates to the reduced exposure of future indemnification by the Company to the purchaser of TFS, Triumph Bancorp, Inc.

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

June 30, 2023 and December 31, 2022 :

September 30, 2023 and December 31, 2022 :

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

11 unchanged sentences

$ 4,100  

There were no net cash flows related to discontinued operations for the three and six months ended June 30, 2023 and 2022 .

There were $ 1.7 million of operating cash outflows for the nine months ended September 30, 2023, related to the $ 1.7 million payment on the indemnification obligation to Triumph and 

no net cash flows related to discontinued operations for the nine months ended September 30, 2022.

Segment Information

15 unchanged sentences

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

The following table summarizes our total revenue by our four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three and six months ended June 30, 2023 and 2022 :

(in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Managed Freight

8 unchanged sentences

15,141  

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Managed Freight

10 unchanged sentences

44,556  

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Managed Freight

9 unchanged sentences

19,416  

Six Months Ended June 30, 2022

59,059  

Nine Months Ended September 30, 2022

Managed Freight

10 unchanged sentences

28,062  

109,779  

(in thousands)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,  

For the Nine Months Ended September 30,  

Total external revenues for reportable segments

21 unchanged sentences

Our liability recorded for uncertain tax positions as of 

June 30, 2023 is unchanged since 

September 30, 2023 is unchanged since 

December 31, 2022 .

The net deferred tax liability of $ 102.7 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid.

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

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, 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.

15 unchanged sentences

The motor carriers already apply a single-sales factor.

This resulted in the Company recording a $ 1.0 million benefit during the quarter ended June 30, 2023.

This resulted in the Company recording a $ 1.3 million benefit year to date through September 30, 2023.

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

June 30, 2023 and December 31, 2022 :

September 30, 2023 and December 31, 2022 :

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

Borrowings under Credit Facility

$ 40,157  

Borrowings under the Draw Note

Revenue equipment installment notes;

weighted average interest rate of 4.9 % at June 30, 2023, and 4.7 % at December 31, 2022, due in monthly installments with final maturities at various dates ranging from October 2024 to June 2028, secured by related revenue equipment

weighted average interest rate of 5.0 % at September 30, 2023, and 4.7 % at December 31, 2022, due in monthly installments with final maturities at various dates ranging from April 2028 to September 2028, secured by related revenue equipment

29,652  

3 unchanged sentences

Real estate notes;

interest rate of 6.9 % at June 30, 2023 and 5.8 % at December 31, 2022 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

interest rate of 7.1 % at September 30, 2023 and 5.8 % at December 31, 2022 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

18,135  

25 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 $ 40.2 million borrowings outstanding under the Credit Facility as of June 30, 2023 , undrawn letters of credit outstanding of approximately $ 21.6 million, and available borrowing capacity of $ 48.2 million.

As of June 30, 2023 , there were $ 40.0 million of base rate and $ 0.2 million of SOFR loans.

Based on availability as of June 30, 2023 and 2022 , there was no fixed charge coverage requirement.

We had no  borrowings outstanding under the Credit Facility as of September 30, 2023 , undrawn letters of credit outstanding of approximately $ 21.8 million, and available borrowing capacity of $ 88.2 million.

As of September 30, 2023 , there were 

no  base rate and 

no  SOFR loans.

Based on availability as of September 30, 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 

October 2024  

to June 2028 .

April 2028  

to September 2028 .

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 $ 27.9 million are cross-defaulted with the Credit Facility.

7 unchanged sentences

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

Any amount outstanding under the Draw Note will accrue interest at a per annum rate equal to one and one -half ( 1.5 ) percentage points over LIBOR, provided, however, that LIBOR shall be deemed to be at least 0.25 %. Accrued interest is due monthly and the outstanding principal balance is due on September 23, 2026.

To secure our obligations under the TFS Settlement and the Draw Note, we pledged certain unencumbered revenue equipment with an estimated net orderly liquidation value of $ 60 million.

The Draw Note includes usual and customary events of default for a facility of this nature and provides that, upon occurrence and continuation of an event of default, payment of all amounts payable under the Draw Note may be accelerated.

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

During the second quarter of 2021 we repaid $ 31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance. As of June 30, 2023, there were no outstanding borrowings under the Draw Note.

Lease Obligations

The finance leases in effect at 

June 30, 2023 terminate from 

August 2023 through 

September 30, 2023 terminate from 

June 2028 through 

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

 A summary of our lease obligations at June 30, 2023 and 2022  are as follows:

 A summary of our lease obligations at September 30, 2023 and 2022  are as follows:

(dollars in thousands)

1 unchanged sentence

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Finance lease cost:

4 unchanged sentences

13,901  

20,593  

Variable lease cost

9 unchanged sentences

10,614  

12,830  

Financing cash flows from finance leases

2 unchanged sentences

20,206  

17,052  

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

3 unchanged sentences

Weighted-average discount rate—operating leases

June 30, 2023 , and December 31, 2022 , right-of-use assets of $ 52.0 million and $ 58.9 million for operating leases and $ 4.8 million and $ 5.3 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets.

September 30, 2023 , and December 31, 2022 , right-of-use assets of $ 48.5 million and $ 58.9 million for operating leases and $ 6.5 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 and general supplies and expenses, depending on the underlying asset, in the condensed consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the condensed consolidated statement of operations.

Our future minimum lease payments as of June 30, 2023 , are summarized as follows by lease category:

Our future minimum lease payments as of September 30, 2023 , are summarized as follows by lease category:

(in thousands)

18 unchanged sentences

$ 5,506  

( 1 ) Excludes the six months ended June 30, 2023 .

( 1 ) Excludes the nine months ended September 30, 2023 .

Stock -Based Compensation

11 unchanged sentences

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

June 30, 2023 , there were 

September 30, 2023 , there were 

1,271,739  shares remaining of the 4,775,000 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 $ 1.7 million and $ 1.2 million for the  

three months ended June 30, 2023  and 

2022 , respectively and expense of $ 3.0 million and $ 3.4 million for the six months ended June 30, 2023 , 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 $ 0.2 million for the 

three months ended June 30, 2023  and 2022, respectively, and $ 0.3 million and $ 0.3 million for the six months ended June 30, 2023 and 2022.

three months ended September 30, 2023  and 

2022 , respectively, and expense of $ 4.7 million and $ 4.6 million for the nine months ended September 30, 2023 , 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 for each of the 

three months ended September 30, 2023  and 2022, respectively, and $ 0.5 million for each of the nine months ended September 30, 2023 and 2022.

Of the stock compensation expense recorded for the three months ended 

June 30, 2023  and June 30, 2022 , $ 0.6 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. Of the stock compensation expense recorded for the six months ended June 30, 2023  and June 30, 2022 , $ 1.1 million and $ 2.1 million relates to restricted shares, respectively, and $ 1.9 million and $ 1.4 million relates to unvested employee stock options, respectively.

September 30, 2023  and September 30, 2022 , $ 0.7 million and $ 0.9 million relates to restricted shares, respectively, and $ 1.0 million and $ 0.4 million relates to unvested employee stock options, respectively. Of the stock compensation expense recorded for the nine months ended September 30, 2023  and September 30, 2022 , $ 1.8 million and $ 2.9 million relates to restricted shares, respectively, and $ 2.9 million and $ 1.8 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 June 30, 2023 , certain participants elected to forfeit receipt of an aggregate of 

To satisfy withholding requirements for shares that vested through September 30, 2023 , certain participants elected to forfeit receipt of an aggregate of 

43,771  shares of Class A common stock at a weighted average per share price of $ 34.72  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.

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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.

We had $ 21.6 million and $ 23.9 million of outstanding and undrawn letters of credit as of June 30, 2023  and December 31, 2022 .

We had $ 21.8 million and $ 23.9 million of outstanding and undrawn letters of credit as of September 30, 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.

As of September 30, 2023 the remaining contingent liability was $ 1.8 million.

Equity Method Investment

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Transactions with TEL were not material for the 

three or six months ended June 30, 2023 and 2022.

three or nine months ended September 30, 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 

2023 net income through June 30, 2023 , or $ 11.3 million.

2023 net income through September 30, 2023 , or $ 16.7 million.

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

June 30, 2023  and December 31, 

September 30, 2023  and December 31, 

2022 are as follows (in thousands):

Balance Sheet Line Item:

June 30, 2023

September 30, 2023

December 31, 2022

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(in thousands)

As of June 30,

As of September 30,

As of December 31,

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

$ 36,780  

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$ 43,287  

Acquisition of Sims Transport Services, LLC

On August 18, 2023, we acquired 100 % of the equity interests of Sims, a specialized brokerage company, headquartered in Maysville, GA. The acquisition date fair value of the consideration transferred was $ 9.8  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 $ 12.0  million based on Sims' adjusted earnings before interest, taxes, depreciation, and amortization reported for the first through fourth calendar years following closing.

The total purchase price, including any earnout achieved, is expected to range from $ 9.8 million to $ 20.0 million depending on the results achieved by Sims.

Sims' results have been included in the consolidated financial statements since the date of acquisition and are reported within our Managed Freight reportable segment.

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

August 18, 2023

(in thousands)

Cash paid pursuant to Stock Purchase Agreement

$ 8,561  

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

Contingent consideration

Net purchase price

$ 9,821  

The contingent consideration arrangement requires us to pay up to $ 12.0 million of additional consideration to Sim's former equity-holders based on Sims' results during the first four calendar years following closing.

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.

Refer to Note 3,  "Fair Value of Financial Instruments" for information regarding changes in the contingent consideration arrangement.

A deferred tax liability of $ 1.6 million was recorded arising from the intangible assets related to the acquisition.

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

August 18, 2023

Accounts receivable

Other intangibles, net  

Total identifiable assets acquired

Accounts payable

Accrued expenses

Deferred tax liability  

Total liabilities assumed

Net identifiable assets acquired

Net assets acquired

$ 9,821  

The goodwill recognized is attributable primarily to expected cost synergies as a result of overhead support.

Refer to Note 15, "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.

Acquisition of Lew Thompson & Son Trucking, Inc.

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LTST's results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Dedicated reportable segment.

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

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

April 26, 2023

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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 LTST’s accounting principles for consistency with ours.

A determination on whether to make a 

338 (h) 10 election has not yet been made.

We expect to make a 338 (h) 10 election, which would result in all goodwill related to the acquisition being deductible for tax purposes and 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:

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100,036  

10,729  

Net assets acquired

$ 109,903  

During the quarter ended September 30, 2023, we recognized measurement period adjustments which reduced goodwill recognized for LTST by $ 0.8 million from $ 10.7 million as of June 30, 2023 to $ 9.9 million as of September 30, 2023.

Goodwill and other intangible assets 

may change upon the finalization of the valuation of the contingent consideration liability and intangible assets as part of the purchase accounting for the LTST 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 LTST’s accounting principles for consistency with ours.

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

Refer to Note 15, "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 LTST included in the Company’s consolidated results of operations from the acquisition date to the periods ended June 30, 2023 

The amounts of revenue and earnings of LTST included in the Company’s consolidated results of operations from the acquisition date to the periods ended September 30, 2023 

are as follows:

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Three months ended

Six months ended

June 30, 2023

Nine months ended

September 30, 2023

Total revenue

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$ 3,420  

The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2023 and 2022 assume that the acquisition of LTST occurred as of January 1, 2022:

The following unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 assume that the acquisition of LTST occurred as of January 1, 2022:

(in thousands)  

Three months ended  

Six months ended  

June 30,  

Nine months ended  

September 30,  

Total revenue  

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$ 53,613  

$ 31,659  

$ 50,500  

Basic net income per share  

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$ 54,711  

The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment.

The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel and purchases of revenue equipment.

Refer to Note 15, "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 periods ended June 30, 2023 and 2022  are as follows:

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the periods ended September 30, 2023 and 2022  are as follows:

(in thousands)  

Three months ended  

Six months ended  

June 30,  

Nine months ended  

September 30,  

Total revenue  

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

Amortization expense of $ 2.9 million and $ 2.1 million for the six months ended June 30, 2023 and 2022 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

Amortization expense of $ 5.1 million and $ 3.2 million for the nine months ended September 30, 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 

June 30, 2023 and 

September 30, 2023 and 

December 31, 2022 is as follows:

(in thousands)

June 30, 2023

September 30, 2023

Gross intangible assets

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( 486 )  

Managed Freight

Total non-compete agreement

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61,972  

( 1 ) Excludes the six months ended June 30, 2023 .

The carrying amount of goodwill and other intangible assets for 2023 is subject to change upon the completion of the purchase accounting for the LTST acquisition.

The carrying amount of goodwill increased to $ 68.9 million at June 30, 2023 from $ 58.2 million at December 31, 2022 .

( 1 ) Excludes the nine months ended September 30, 2023 .

The carrying amount of goodwill and other intangible assets for 2023 is subject to change upon the completion of the purchase accounting for the LTST and Sims acquisitions.

The carrying amount of goodwill increased to $ 73.2 million at September 

30, 2023 from $ 58.2 million at December 31, 2022 .

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

(in thousands)

June 30, 2023

September 30, 2023

Managed Freight

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10,729  

Acquired goodwill for Sims

Post-acquisition goodwill adjustments

( 863 )  

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$ 10,519  

$ 21,750  

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

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Since May 2022, we have repurchased a total of 2.7 million shares of our Class A common stock.

There were no additional repurchases made through August 7, 2023 . 

There were no additional repurchases made during the third quarter of 2023 or through November 8, 2023. 

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

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

On 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.

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

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

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.

On May 17, 2023, our Board declared a cash dividend of $ 0.11 per share which was paid on June 30, 2023, to stockholders of record on June 2, 2023. 

On August 16, 2023, our Board declared a cash dividend of $ 0.11 per share which was paid on September 29, 2023, to stockholders of record on September 1, 2023.

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the contingent consideration related to our 

purchase of AAT and LTST, and the future impact of our acquisition of Lew Thompson & Son, among others, are forward-looking statements.

purchase of AAT, LTST and Sims, and the future impact of our acquisition of LTST and Sims, among others, are forward-looking statements.

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

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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 the Form 10-Q for the quarter ended March 31, 2023 and our Form 10-K for the year ended December 31, 2022.

Risk Factors," set forth in this Form 10-Q, the Form 10-Q 

for the quarter ended March 31, 2023, 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 the Form 10-Q for the quarter ended March 31, 2023 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.

in this Form 10-Q, the Form 10-Q for the quarter ended March 31, 2023, 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.

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Executive Overview

The freight market, consisting of a combination of freight rates and volumes, remained challenging throughout the second quarter.

While the 2023 results of $0.91 per diluted share fall short of our 2022 results, we are pleased with both our results and the resiliency of our model in what we believe to be the trough of the freight cycle.

Additionally, on April 26, 2023, we acquired Lew Thompson & Son Trucking, Inc.

and related entities ("LTST").

LTST is 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.

While the freight market, consisting of a combination of freight rates and volumes, remained challenging throughout the third quarter we achieved $0.99 per diluted share for the third quarter and are pleased with both our results and the resiliency of our model despite these market headwinds.

Our asset-based reportable segments, Expedited and Dedicated, contributed approximately 67% of total revenue, 69% of operating income, 63% of total freight revenue, and 72% of adjusted operating income in the quarter.

Freight revenue for our Expedited reportable segment declined compared to the second quarter of last year as we intentionally reduced the fleet size in response to reduced volumes of available freight with expedited service requirements.

Our Dedicated reportable segment also experienced reduced revenue with approximately 14.8% fewer tractors year over year as we continue to exit underperforming business, partially offset by the addition of approximately 144 weighted average tractors as a result of the acquisition of LTST.

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 as a result of reduced volumes of high-margin overflow freight from both the Expedited and Dedicated reportable segments compared to the second quarter of 2022. Warehousing was able to grow revenue through new customer startups while margins remained relatively even compared to the second quarter of 2022.

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.

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

Total revenue of $274.0 million, a decrease of 13.7% compared with the second quarter of 2022, and freight revenue (which excludes revenue from fuel surcharges) of $243.7 million, a decrease of 8.7% compared with the second quarter of 2022;

Operating income of $11.8 million, compared with $26.9 million in the second quarter of 2022;

Net income of $12.3 million, or $0.91 per diluted share, compared with $24.5 million, or $1.56 per diluted share, in the second quarter of 2022.

Net income from continuing operations of $12.1 million, or $0.90 per diluted share, compared to $24.5 million or $1.56 per diluted share, in the second 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 second quarter of 2022;

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

Our Expedited reportable segment experienced comparable freight revenue with approximately 2% fewer tractors, but experienced diminished margins compared to the third quarter last year.

Our Dedicated reportable segment experienced reduced freight revenue with approximately 12% fewer tractors and improved margins year over year.

Our asset-light reportable segments contributed approximately 33% of total revenue, 31% of operating income, 37% of total freight revenue, and 28% 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 and improve margins with contractual pricing increases put into place during the quarter.

We are continuing to work to increase the operating income and related margins in each of these reportable segments through focused sales efforts within Managed Freight and additional proposed customer rate increases with existing customers within Warehousing.

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

Total revenue of $288.7 million, a decrease of 7.4% compared with the third quarter of 2022, and freight revenue (which excludes revenue from fuel surcharges) of $253.4 million, a decrease of 5.0% compared with the third quarter of 2022;

Operating income of $15.1 million, compared with $59.1 million in the third quarter of 2022;

Net income of $13.5 million, or $0.99 per diluted share, compared with $50.5 million, or $3.39 per diluted share, in the third quarter of 2022.

Net income from continuing operations of $13.4 million, or $0.98 per diluted share, compared to $50.0 million or $3.36 per diluted share, in the third quarter of 2022. Net income from discontinued operations of $0.2 million, or $0.01 per diluted share, compared to $0.5 million, or $0.04 per diluted share, in the third quarter of 2022;

39% of consolidated total revenue was in our Expedited reportable segment, as compared to 38% in the third quarter of 2022;

Our Managed Freight reportable segment’s total revenue decreased to $69.7 million in the 2023 quarter from $78.4 million in the 2022 quarter and the reportable segment had an operating income of $3.7 million in the 2023 quarter compared to $8.6 million in the 2022 quarter; 

Our equity investment in TEL provided $5.4 million of pre-tax earnings in the second quarter of 2023 compared to $7.1 million in the second quarter of 2022;

Our equity investment in TEL provided $5.3 million of pre-tax earnings in the third quarter of 2023 compared to $7.4 million in the third quarter of 2022;

We distributed a total of $1.4 million to stockholders through dividends;

Since December 31, 2022, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $137.1 million to $183.5 million, primarily due to the approximately $99.9 million net cash paid in the acquisition of LTST, acquisition of new revenue equipment, and repurchasing $25.3 million of our outstanding Class A Common Stock under the stock repurchase program.

With available borrowing capacity of $48.2 million under our Credit Facility at June 30, 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 June 30, 2023 was 1.68;

Stockholders' equity at June 30, 2023, was $379.7 million;

Tangible book value at June 30, 2023, was $212.6 million.

We are optimistic about the future but remain cautious about the pace of recovery in the freight market.

Our team is intensely focused on capital allocation and cost control across our entire enterprise.

We believe our more resilient operating model, together with the steps we are taking to reduce costs and inefficiencies, will continue to mitigate a portion of our historical volatility throughout economic and freight market cycles.

Overall, I am pleased with our current position, which features a moderately-leveraged balance sheet, ample liquidity and a reduction of approximately 14% of the diluted weighted average shares outstanding compared to a year ago.

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.

With available borrowing capacity of $88.2 million under our Credit Facility at September 30, 2023 we do not expect to be required to test our fixed charge covenant in the foreseeable future;

Stockholders' equity at September 30, 2023, was $394.0 million;

Tangible book value at September 30, 2023, was $218.9 million.

The Company’s steady performance in a weak freight market has been encouraging and reflects progress on our strategic plan. Over the past two years, we reallocated a significant amount of fixed assets away from underperforming and highly cyclical legacy operations toward acquiring three high-performing, more steady businesses. The result has been better margins, more stable earnings, and higher return on capital than prior freight market downturns. 

While we are pleased with our model as it stands today, we are also optimistic about our ability to continue making incremental progress to improving it through our capital allocation program.

For the fourth quarter, we expect our revenue and earnings to experience a modest decline sequentially due to a cyber-attack on a major customer in our Expedited division and the impact of the United Auto Workers strike in our Dedicated division, which has temporarily depressed load volumes and revenue per truck. 

Entering 2024, we believe our more resilient operating model, together with the steps we are taking to reduce costs and inefficiencies, will continue to position Covenant to generate attractive returns and mitigate volatility across economic and freight market cycles.

Non-GAAP Reconciliation

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Operating Ratio

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

GAAP Operating Ratio:

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We expect operating statistics and expenses to shift with the mix of single and team operations.

Within our Managed Freight reportable segment, we derive revenue from arranging transportation services, directly and through agents, who are paid a commission for the freight they provide, for customers on both an ad-hoc and a contractual basis. We provide these services directly and through relationships with thousands of third-party carriers and integration with our Expedited reportable segment.

Sims' results are reported within our Managed Freight reportable segment. We provide these services directly and through relationships with thousands of third-party carriers and integration with our Expedited reportable segment.

We also utilize technology and process management to provide detailed visibility into a customer’s movement of freight –

inbound and outbound –

throughout the customer’s network and can provide focused customer support through multiyear contracts. The main factors that impact profitability in terms of expenses are the variable costs of outsourcing the transportation freight for our customers and managing fixed costs, including salaries, and selling, general, and administrative expenses. 

Within our Warehousing reportable segment, we empower customers to outsource warehousing management, including moving containers and trailers in or around freight yards.

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Revenue Equipment

At June 30, 2023, we operated 2,132 tractors and 5,855 trailers.

Of such tractors, 1,795 were owned, 223 were financed under operating leases, and 114 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,577 were owned, 57 were financed under finance type leases, and 221 were held under short-term operating leases. We finance a small portion of our trailer fleet and larger portion of our tractor fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers. At June 30, 2023, our fleet had an average tractor age of 2.2 years and an average trailer age of 6.0 years.

At September 30, 2023, we operated 2,149 tractors and 5,871 trailers.

Of such tractors, 1,801 were owned, 222 were financed under operating leases, and 126 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,634 were owned, and 237 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, 2023, our fleet had an average tractor age of 1.9 years and an average trailer age of 5.9 years.

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

RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF three and six months ended June 30, 2023 TO three and six months ended June 30, 2022

COMPARISON OF three and nine months ended September 30, 2023 TO three and nine months ended September 30, 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

Six Months Ended

Nine Months Ended

September 30,

Freight revenue

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Total revenue

The decrease in total revenue primarily resulted from a $17.0 million, $6.8 million, and $6.2 million decrease in Managed Freight, Expedited, and Dedicated freight revenue, respectively, partially offset by a $6.8 million increase in Warehousing freight revenue, for the three months ended June 30, 2023 and a $42.3 million, $13.2 million, and $5.7 million decrease in Managed Freight, Dedicated, and Expedited freight revenue, respectively, partially offset by a $13.9 million increase in Warehousing freight revenue for the six months ended June 30, 2023.

The decrease in total revenue primarily resulted from an $8.7 million and $7.8 million decrease in Managed Freight and Dedicated freight revenue, respectively, partially offset by a $3.2 million and $0.1 million increase in Warehousing and Expedited freight revenue, for the three months ended September 30, 2023 and a $50.9 million, $21.1 million, and $5.7 million decrease in Managed Freight, Dedicated, and Expedited freight revenue, respectively, partially offset by a $17.2 million increase in Warehousing freight revenue for the nine months ended September 30, 2023.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Salaries, wages, and related expenses

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% of freight revenue

Salaries, wages, and related expenses for the three and six months ended June 30, 2023, increased on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases, as well as executive retirement costs, partially offset by reduced miles  since the same 

Salaries, wages, and related expenses for the three months ended September 30, 2023 decreased, on a dollars basis primarily as a result of averaging fewer drivers and tractors, resulting in lower driver salaries, wages, and benefits,  partially offset by increases to workers compensation expenses. For the nine months ended September 30, 2023, the increase on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases, as well as executive retirement costs and increased group health costs, partially offset by reduced miles  since the same 

2022 periods.

We believe salaries, wages, and related expenses will continue to increase on a year-over-year basis for the remainder of 2023 as a result of driver pay changes put in place when the driver market was tight.

We believe salaries, wages, and related expenses will be approximately even for the full 2023 year compared to the full 2022 year as a result of driver and non-driver pay increases since the 2022 year being offset by reduced miles and reduced incentive pay since the 2022 year.

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

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% of total revenue

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In periods of declining prices, the opposite is true.

Fuel prices as measured by the DOE wer e $1.60 per g allon, or 29.0%, lower for the quarter ended June 30, 2023 compared with the same quarter in 2022.

Fuel prices as measured by the DOE wer e $0.80 per g allon, or 15.8%, lower for the quarter ended September 30, 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.

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Total fuel surcharge

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For the periods presented, net fuel expense increased as a percentage of freight revenue primarily due to lower fuel surcharge recovery partially offset by lower fuel prices.

There were no diesel fuel hedge gains or losses for the quarter ended June 30, 2023 or 2022. As of June 30, 2023, we had no remaining fuel hedging contracts.

There were no diesel fuel hedge gains or losses for the quarter ended September 30, 2023 or 2022. As of September 30, 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.

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Operations and maintenance

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% of freight revenue

The decreases in operations and maintenance for the three and six months ended June 30, 2023  were primarily related to having fewer new drivers, a smaller average fleet in 2023, and reduced maintenance costs as a result of a decrease in the average age of equipment as compared to the prior year periods.

The decreases in operations and maintenance for the three and nine months ended September 30, 2023  were primarily related to reduced maintenance costs as a result of a decrease in the average age of equipment through the replacement of older tractors that experienced higher operating costs.

Additionally, for the nine months ended September 30, 2023, there were fewer new drivers and a smaller average fleet 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.

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Revenue equipment rentals and purchased transportation

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% of freight revenue

The decreases in revenue equipment rentals and purchased transportation for the three and six months ended June 30, 2023 were primarily the result of a reduction in purchased transportation costs as a result of the softening freight market, as well as a reduction in leased revenue equipment compared to the prior periods as the result of largely transitioning from tractors held under operating leases to owned tractors in 2022. Additionally, the percentage of the total miles run by independent contractors increased from 6.6% for the three months ended June 30, 2022 to 7.4% for the same 2023 period and from 6.7% for the six months ended June 30, 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.

The decreases in revenue equipment rentals and purchased transportation for the three and nine months ended September 30, 2023 were primarily the result of a reduction in purchased transportation costs as a result of the softening freight market, as well as a reduction in leased revenue equipment compared to the prior periods as the result of largely transitioning from tractors held under operating leases to owned tractors in 2022. These decreases were partially offset as the percentage of the total miles run by independent contractors increased from 6.4% for the three months ended September 30, 2022 to 7.9% for the same 2023 period and from 6.6% for the nine-months ended September 30, 2022 to 7.4% for the same 2023 period partially offsetting this decrease.

We expect revenue equipment rentals to remain decreased 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.

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Operating taxes and licenses

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Insurance and claims

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% of freight revenue

Insurance and claims per mile cost decreased to 16.5 cents per mile for the three months ended 

June 30, 2023  compared to 19.8 cents per mile for the same 2022  quarter and increased to 18.4 cents per mile for the six months ended June 30, 2023 compared to 16.1 cents per mile for the same 2022 period .

The decrease for the quarter is the result of improved claims experience compared to the same 2022 quarter while the increase for the six months ended June 30, 2023 are primarily the result of a small number of prior period claims, as well as claims experienced during the first quarter of 2023.

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

September 30, 2023  and 

2022  and increased to 18.7 cents per mile for the nine months ended September 30, 2023 compared to 17.7 cents per mile for the same 2022 period.

The increase for the nine months ended September 30, 2023 is the result of increased insurance premiums compared to the same 2022 period.

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

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Communications and utilities

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General supplies and expenses

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The increases in general supplies and expenses for the 

three and six months ended June 30, 2023 were primarily the result of acquisition costs, new leased spaces for our Warehousing reportable segment, and the increase in the contingent consideration liability since the 2022 periods.

three and nine months ended September 30, 2023 were primarily the result of acquisition costs, new leased spaces for our Warehousing reportable segment, and the increase in the contingent consideration liability since the 2022 periods.

Depreciation and amortization

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Depreciation and amortization

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

Depreciation expense increased $4.7 million and $5.3 million to $17.1 million and $30.6 million for the three and six months ended June 30, 2023 , respectively, compared to $12.5 million and $25.3 million in the same 2022 periods as a result of increased costs on new equipment partially offset by reduced total tractor count. Amortization of intangible assets was $1.8 million and $2.9 million for 

three and six months ended June 30, 2023 , respectively, compared to $1.5 million and $2.1 million for the same 2022 periods.

The increase for the three and six months ended June 30, 2023  is due to the amortization of the intangible asset related to the AAT and LTST acquisitions. 

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, we largely transitioned from tractors held under operating leases to tractors owned in 2022, and as a result of the year-over-year impact of the LTST acquisition.

Depreciation expense increased $2.7 million and $8.0 million to $16.0 million and $46.6 million for the three and nine months ended September 30, 2023 , respectively, compared to $13.2 million and $38.6 million in the same 2022 periods as a result of increased costs on new equipment and a higher percentage of owned tractors as we transitioned a large portion of tractors from operating leases to owned during 2022. 

These increases were partially offset by reduced total tractor count. Amortization of intangible assets was $2.2 million and $5.1 million for 

three and nine months ended September 30, 2023 , respectively, compared to $1.1 million and $3.2 million for the same 2022 periods.

The increase for the three and nine months ended September 30, 2023  is due to the amortization of the intangible assets related to the AAT, LTST, and Sims acquisitions. 

We expect depreciation and amortization to remain increased compared to 2022 due to the transition of a large portion of tractors from operating leases to owned during 2022, as well as the increased cost of new equipment, implementation of our 2023 revenue equipment replacement plan, and the year-over-year impact of the LTST acquisition.

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

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Gain on disposition of property and equipment, net

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% of freight revenue

The increases in gain on disposition of property and equipment, net for the three and six months ended June 30, 2023 are primarily the result of an increase in the sale of used equipment compared to the 2022 period and, for the six months ended June 30, 2023, the $7.6 million gain on sale of a Tennessee terminal in the first quarter of 2023.

The decreases in gain on disposition of property and equipment, net for the three and nine months ended September 30, 2023 are primarily the result of the $38.5 million gain on sale of a California terminal in the third quarter of 2022 partially offset by an increase in the sale of used equipment compared to the 2022 period and, for the nine-months ended September 30, 2023, the $7.6 million gain on sale of a Tennessee terminal in the first quarter of 2023.

While we expect sales of used equipment to continue to be elevated through the remainder of 2023, we expect sequential reductions in the gain on disposition of equipment due to the soft used equipment market.

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Interest expense, net

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% of freight revenue

For the periods presented, the changes in interest expense, net were insignificant both as a percentage of total revenue and freight revenue.

Going forward, we expect interest expense, net to increase due to an increase in borrowings under our Credit Facility related to our April 26, 2023 acquisition of LTST.

For the periods presented, the increases in interest expense were primarily the result of an increase in revenue equipment installment notes as we implement our 2023 revenue equipment replacement plan.

Going forward, we expect interest expense, net to increase due to an increase in revenue equipment installment notes as we implement our 2023 revenue equipment replacement plan.

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.

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Income from equity method investment

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

The decreases in TEL's contributions to our results for the three and six months ended June 30, 2023 were primarily the result of a reduction on gain on sale of revenue equipment compared to the 2022 periods.

The decreases in TEL's contributions to our results for the three and nine months ended September 30, 2023 were primarily the result of a reduction on gain on sale of revenue equipment compared to the 2022 periods.

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 period to period and therefore our income from investment to similarly fluctuate.

We expect TEL's net income to decrease sequentially for the remainder of 2023 due to the soft used equipment market.

We expect TEL's net income to remain lower than 2022 due to the soft used equipment market.

Income tax  expense

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Income tax expense

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% of freight revenue

The decreases in income tax expense were primarily related to the $18.1 million and $25.4 million decrease in pre-tax income in the three and six months ended June 30, 2023, respectively, compared to the same 2022 periods, resulting from the aforementioned decreases in operating income and earnings on investment in TEL.

The decreases in income tax expense were primarily related to the $47.7 million and $73.1 million decrease in pre-tax income in the three and nine months ended September 30, 2023, respectively, compared to the same 2022 periods 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.

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

COMPARISON O F three and six months ended June 30, 2023 TO three and six months ended June 30, 2022

COMPARISON O F three and nine months ended September 30, 2023 TO three and nine months ended September 30, 2022

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

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Managed Freight

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Total operating income

The decrease in Expedited revenue for the three months ended June 30, 2023 relates to a decrease in average freight revenue per tractor per week of 1.7%, a $10.8 million decrease in fuel surcharge revenue compared to the 2022 quarter, and a 51 (or 5.7%) average tractor decrease.

The decrease in average freight revenue per tractor per week for the quarter ended June 30, 2023 is the result of a 24.0 cents per mile (or 10.3%) decrease in average rate per total mile, partially offset by a 9.5% increase in average miles per unit compared to the 2022 quarter.

Expedited team-driven tractors averaged 789 tractors in the second quarter of 2023 and 2022.

For the six months ended June 30, 2023, the decrease in Expedited revenue relates to a 33 (or 3.7%) average tractor decrease partially offset by an increase in average freight revenue tractor per week of 0.4% compared to the same 2022 period.

The increase in average freight revenue per tractor per week for the six months ended June 30, 2023 is the result of a 6.9% increase in average miles per unit and a 14.0 cents per mile (or 6.1%) increase in average rate per total mile compared to the same 2022 period.

Expedited team-driven tractors averaged 786 for the six months ended June 30, 2023, and 2022.

The decrease in Dedicated revenue for the three months ended June 30, 2023 relates to a $9.3 million decrease in fuel surcharge revenue and a 217, or 14.8% average tractor decrease, partially offset by a 4.7% increase 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 7.4 cents per mile (or 2.7%) increase in average rate per total mile compared to the 2022 quarter.

Average tractors decreased 217 tractors, or 14.8% as compared to the three months ended June 30, 2022, as a result of exiting underperforming contracts.

For the six months ended June 30, 2023, the decrease in Dedicated revenue relates to a 205 (or 14.1%) average tractor decrease partially offset by an increase in average freight revenue tractor per week of 6.1% compared to the same 2022 period.

The increase in average freight revenue per tractor per week for the six months ended June 30, 2023 is the result of a 2.0% increase in average miles per unit and a 10.0 cents per mile (or 3.9%) increase in average rate per total mile compared to the same 2022 period.

For the three and six months ended June 30, 2023, Managed Freight total revenue decreased primarily as a result of reduced volumes of overflow freight from both Expedited and Dedicated truckload operations.

The decrease in Expedited revenue for the three months ended September 30, 2023 relates to a $4.4 million decrease in fuel surcharge revenue and a 22 (or 2.4%) average tractor decrease, partially offset by an increase in average freight revenue per tractor per week of 2.5%, compared to the 2022 quarter.

The reduction in tractors was an intentional effort by management to adjust the fleet size down in response to the reduced volumes of available freight with expedited service requirements.

The increase in average freight revenue per tractor per week for the quarter ended September 30, 2023 is the result of an 11.7% increase in average miles per unit partially offset by a 19.0 cents per mile (or 8.2%) decrease in average rate per total mile compared to the 2022 quarter.

Expedited team-driven tractors averaged 831 and 825 tractors in the third quarter of 2023 and 2022, respectively.

For the nine months ended September 30, 2023, the decrease in Expedited revenue relates to a $14.2 million decrease in fuel surcharge revenue and a 29 (or 3.2%) average tractor decrease partially offset by an increase in average freight revenue tractor per week of 1.1% compared to the same 2022 period.

The increase in average freight revenue per tractor per week for the nine months ended September 30, 2023 is the result of a 8.5% increase in average miles per unit partially offset by a 16.0 cents per mile (or 6.8%) decrease in average rate per total mile compared to the same 2022 period.

Expedited team-driven tractors averaged 801 and 797 for the nine months ended September 30, 2023, and 2022, respectively.

The decrease in Dedicated revenue for the three months ended September 30, 2023 relates to a $5.3 million decrease in fuel surcharge revenue and a 170, or 12.1% average tractor decrease as a result of exiting business and tractor reductions negotiated with current customers, partially offset by the addition of approximately 220 weighted average tractors as a result of the LTST acquisition.

These decreases in fuel surcharge revenue and average tractor count were partially offset by a 1.6% increase in average miles per unit and an increase in average freight revenue per tractor per week of 1.8% compared to the 2022 quarter as the result of a 0.6 cents per mile (or 0.2%) increase in average rate per total mile compared to the 2022 quarter.

For the nine months ended September 30, 2023, the decrease in Dedicated revenue relates to a $16.4 million decrease in fuel surcharge revenue and a 193 (or 13.5%) average tractor decrease partially offset by an increase in average freight revenue per tractor per week of 4.7% compared to the same 2022 period.

The increase in average freight revenue per tractor per week for the nine months ended September 30, 2023 is the result of a 1.8% increase in average miles per unit and a 7.0 cents per mile (or 2.8%) increase in average rate per total mile compared to the same 2022 period.

For the three and nine months ended September 30, 2023, Managed Freight total revenue decreased primarily as a result of reduced volumes of high-margin overflow freight from both Expedited and Dedicated truckload operations.

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

For the three and six months ended June 30, 2023, Warehousing total revenue increased as a result of period-over-period new customer business.

The decrease in operating income for the three months ended June 30, 2023, was the result of the decrease in total revenue described above and a $6.8 million increase in Warehousing operating expenses, partially offset by a $15.9 million, $10.3 million, and $8.8 million decrease in Dedicated and Managed Freight and Expedited operating expenses, respectively.

For the six months ended June 30, 2023, the decrease in operating income was the result of the decrease in total revenue described above and a $15.0 million increase in Warehousing operating expenses, partially offset by a $29.1 million, $26.0 million, and $6.6 million decrease in Dedicated, Managed Freight, and Expedited operating expenses, respectively.

For the three and nine months ended September 30, 2023, Warehousing total revenue increased as a result of period-over-period new customer business as well as customer rate increases that went into effect during the third quarter of 2023.

The decrease in operating income for the three months ended September 30, 2023, was the result of the decrease in total revenue described above and an $18.8 million, $3.3 million, and $2.6 million increase in Expedited, Dedicated, and Warehousing, operating expenses partially offset by a $3.8 million decrease in Managed Freight operating expenses, respectively.

For the nine months ended September 30, 2023, the decrease in operating income was the result of the decrease in total revenue described above and a $17.5 million and $11.4 million increase in Warehousing and Expedited operating expenses, respectively, partially offset by a $29.8 million and $25.9 million decrease in Managed Freight and Dedicated operating expenses, respectively.

The decreases in Expedited operating income for the 

three and six months ended June 30, 2023  were primarily the result of the aforementioned decreases in revenue partially offset by decreases in Expedited operating expenses.

The decreases in Expedited operating expenses for the 

three and six months ended June 30, 2023  were primarily the result of decreased fuel costs, improved gain on sale of equipment, and decreased maintenance and parts costs partially offset by increases in depreciation expense as a result of our equipment trade cycle and increases in the contingent consideration liability since the 2022 periods.

Additionally for the six months ended June 30, 2023, the decrease in Expedited operating expenses is partially offset by an increase in driver and non-driver pay compared to the same 2022 period.

The increases in Dedicated operating income for the 

three and six months ended June 30, 2023 were primarily the result of a decrease in Dedicated operating expenses partially offset by the aforementioned decrease in revenue.

The decreases in Dedicated operating expenses for the 

three and six months ended June 30, 2023 is primarily the result of averaging fewer drivers and tractors, resulting in lower driver salaries, wages, and benefits, reduced use of third-party purchased transportation, and improved gain on sale of equipment as compared to the 2022 period.

These decreases were partially offset by acquisition costs and increased depreciation expense as a result of our equipment trade cycle.

Additionally, for the six months ended June 30, 2023, Expedited and Dedicated operating expenses were reduced as a result of the sale of a Tennessee terminal.

three and nine months ended September 30, 2023  were primarily the result of the aforementioned decreases in revenue as well as increases in Expedited operating expenses.

The increases in Expedited operating expenses for the 

three and nine months ended September 30, 2023  were primarily the result of the Expedited portion of the sale of a California terminal during the third quarter of 2022, as well as increases in depreciation expense as a result of our equipment trade cycle, driver and non-driver pay, and the contingent consideration liability since the 2022 periods.

These increases to operating expense were partially offset by decreased fuel costs and decreased maintenance and parts costs. The decreases in Dedicated operating income for the 

three and nine months ended September 30, 2023 were primarily the result of the aforementioned decreases in revenue as well as increases in Dedicated operating expenses.

The increases in Dedicated operating expenses for the three months ended September 30, 2023, were primarily the result of the Dedicated portion of the sale of a California terminal during the third quarter of 2022 and increased depreciation expense as a result of our equipment trade cycle, partially offset by averaging fewer drivers and tractors, resulting in lower driver salaries, wages, and benefits, reduced use of third-party purchased transportation, decreased fuel costs, and decreased maintenance and parts costs.

The decreases in Dedicated operating expenses for the nine months ended September 30, 2023 were primarily the result of averaging fewer drivers and tractors, resulting in lower driver salaries, wages, and benefits, reduced use of third-party purchased transportation, decreased fuel costs, and decreased maintenance and parts costs Additionally, for the nine months ended September 30, 2023, Expedited and Dedicated operating expenses were reduced as a result of the sale of a Tennessee terminal.

The decreases in operating income for Managed Freight for the 

three and six months ended June 30, 2023  were primarily the result of the aforementioned decreases in revenue partially offset by decreases in Managed Freight operating expenses. The decreases in Managed Freight operating expenses were primarily the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation.

Additionally, the decrease in operating expenses for the six months ended June 30, 2023 was partially offset by a 

small number of prior period claims . The increases in Warehousing operating expenses for the three and six months ended June 30, 2023, were a result of leased space for new business and pay increases, partially offset by a reduction in outsourced labor since the 2022 periods.

three and nine months ended September 30, 2023  were primarily the result of the aforementioned decreases in revenue partially offset by decreases in Managed Freight operating expenses. The decreases in Managed Freight operating expenses were primarily the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation.

Additionally, the decrease in operating expenses for the nine months ended September 30, 2023 was partially offset by a 

small number of prior period claims .

The changes in operating income for Warehousing for the three and nine months ended September 30, 2023 were primarily the result of the aforementioned increases in revenue offset by increases in Warehousing operating expenses.

The increases in Warehousing operating expenses for the three and nine months ended September 30, 2023, were a result of leased space and equipment for new business and pay increases, partially offset by a reduction in outsourced labor since the 2022 periods.

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

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most critical transportation and logistics needs.

We had working capital (total current assets less total current liabilities) of $44.9 million and $66.5 million at June 30, 2023 and December 31, 2022, respectively.

We had working capital (total current assets less total current liabilities) of $31.2 million and $66.5 million at September 30, 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 2.2 years at June 30, 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.

With an average fleet age of 1.9 years at September 30, 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 June 30, 2023 and December 31, 2022 we had $248.6 million and $179.6 million in debt and lease obligations, respectively, consisting of the following:

$40.1 million and no outstanding borrowings under the Credit Facility;

As of September 30, 2023 and December 31, 2022 we had $240.9 million and $179.6 million in debt and lease obligations, respectively, consisting of the following:

No outstanding borrowings under the Credit Facility;

No outstanding borrowings under the Draw Note;

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$50.1 million and $64.6 million of the operating lease obligations, respectively.

The increase in borrowings under the Credit Facility is due to the acquisition of LTST and repurchasing $25.3 million of our outstanding Class A Common Stock under the stock repurchase program.

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

As of June 30, 2023, we had $40.2 million borrowings outstanding, undrawn letters of credit outstanding of approximately $21.6 million, and available borrowing capacity of $48.2 million under the Credit Facility.

During the third quarter of 2023, we repaid $40.1 million in borrowings under the Credit Facility that we had incurred during 2023 to help fund the acquisition of LTST and repurchases of our Class A Common Stock under the stock repurchase program.

As of September 30, 2023, we had no borrowings outstanding, undrawn letters of credit outstanding of approximately $21.8 million, and available borrowing capacity of $88.2 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. 

Our net capital expenditures for the six months ended June 30, 2023 totaled $111.9 million of expenditures, as compared to $63.0 million of expenditures for the prior year period.

During the six months ended June 30, 2023, we took delivery of approximately 234 new tractors and 262 new trailers, while disposing of approximately 321 used tractors and 175 used trailers.

Our current fleet plan for fiscal 2023 includes the delivery of an additional 454 new company replacement tractors and 357 additional new trailer deliveries. Net gains on disposal of equipment and real estate in the six months ended June 30, 2023 were $11.8 million compared to $0.6 million in the same prior year period primarily due to the $7.6 million gain on a Tennessee terminal during the 2023 period and the aforementioned disposal of revenue equipment as part of our trade cycle.

Our net capital expenditures for the nine months ended September 30, 2023 totaled $143.0 million of expenditures, as compared to $49.8 million of expenditures for the prior year period.

During the nine months ended September 30, 2023, we took delivery of approximately 607 new tractors and 367 new trailers, while disposing of approximately 926 used tractors and 518 used trailers.

Our current fleet plan for fiscal 2023 includes the delivery of an additional 295 new company replacement tractors and 357 additional new trailer deliveries. Net gains on disposal of equipment and real estate in the nine months ended September 30, 2023 were $12.4 million compared to $39.3 million in the same prior year period primarily due to the $7.6 million gain on a Tennessee terminal during the 2023 period and the aforementioned disposal of revenue equipment as part of our trade cycle.

For the balance of 2023, our baseline expectation for net capital expenditures is $35 million to $40 million.

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

We distributed a total of $2.9 million to stockholders in the first six months of 2023 through dividends.

We distributed a total of $4.3 million to stockholders in the first nine 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 $12.4 million for the six months ended June 30, 2023, compared to $76.9 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 $17.8 million decrease in net income, as well as decreases to non-cash expenses compared to the prior year period. 

Net cash flows used by investing activities were $113.3 million for the six months ended June 30, 2023, compared to $63.0 million used in the same 2022 period.

The change in net cash flows used by investing activities was primarily due to the April 2023 acquisition of LTST and the timing of our trade cycle whereby we took delivery of approximately 234 new tractors and 262 new trailers, while disposing of approximately 321 used tractors and 175 used trailers during the 2023 period compared to delivery of 115 new tractors and no new trailers, while disposing of approximately 35 used tractors and no used trailers in the same 2022 period.

Net cash flows provided by operating activities decreased to $53.0 million for the nine months ended September 30, 2023, compared to $121.1 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, a $54.8 million decrease in net income, and a $1.7 million indemnification payment compared to the prior year period. 

Net cash flows used by investing activities were $144.6 million for the nine months ended September 30, 2023, compared to $49.8 million used in the same 2022 period.

The change in net cash flows used by investing activities was primarily due to the April 2023 acquisition of LTST, the August 2023 acquisition of Sims, and the timing of our trade cycle whereby we took delivery of approximately 607 new tractors and 367 new trailers, while disposing of approximately 926 used tractors and 518 used trailers during the 2023 period compared to delivery of 321 new tractors and no new trailers, while disposing of approximately 77 used tractors and no used trailers in the same 2022 period.

The 2022 period includes the February 2022 acquisition of AAT.

Net cash flows provided by financing activities were approximately $40.1 million for the six months ended June 30, 2023, compared to $17.9 million used in the same 2022 period.

The change in net cash flows provided by financing activities was primarily a function of net proceeds relating to notes payable, and our Credit Facility of $76.9 million in the 2023 period compared to net proceeds of $32.4 million in the 2022 period, the repurchase of $25.4 million of shares of our Class A common stock during the 2023 period compared to $43.3 million during the same 2022 period, as well as the payment of approximately $2.9 million in dividends during the 2023 period compared to $2.0 million during the same 2022 period.

Net cash flows provided by financing activities were approximately $30.4 million for the nine months ended September 30, 2023, compared to $20.4 million used in the same 2022 period.

The change in net cash flows provided by financing activities was primarily a function of net proceeds relating to notes payable of $76.9 million in the 2023 period compared to net proceeds of $32.4 million in the 2022 period, the repurchase of $25.4 million of shares of our Class A common stock during the 2023 period compared to $70.8 million during the same 2022 period, as well as the payment of approximately $4.3 million in dividends during the 2023 period compared to $3.1 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.

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Since May 2022, we have repurchased a total of 2.7 million shares of our Class A common stock.

No additional shares were repurchased through August 7, 2023.

No additional shares were repurchased during the third quarter of 2023 or through November 8, 2023.

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

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Accordingly, actual results could differ from those anticipated.

There have been no material changes to our most critical accounting policies and estimates during the three and six months ended June 30, 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.

There have been no material changes to our most critical accounting policies and estimates during the three and nine months ended September 30, 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