What changed in this filing

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Item 9A. Controls and Procedures

2024-02-28 compared with 2023-02-28 · 875 added, 756 removed, 872 unchanged (65% of the section changed)

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Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023.

During the third quarter of 2023, we identified a deficiency in our disclosure controls and procedures related to our review of the calculation of the significance of our acquisition of LTST.

We did not identify that an incorrect input was used within the significance determination.

As a result of this incorrect input, we did not identify the need to provide certain audited financial statements and related pro forma information for LTST on Form 8-K.

This did not impact our current financial reporting or the Company’s current or historical financial statements.

On April 27, 2023, we filed a Form 8-K disclosing our acquisition of LTST (the "Original Form 8-K").

On August 3, 2023, we filed an amendment to the Original Form 8-K, confirming that such financial statements, to the extent required, would be filed as an amendment to the Original Form 8-K as soon as they were available.

On November 15, 2023, we filed a second amendment to the Original Form 8-K to present required combined financial statements of Lew Thompson & Son and to present required unaudited pro forma consolidated financial statements in connection with our acquisition of Lew Thompson & Son.

We have implemented processes to properly identify the significance of acquisitions and believe that the controls deficiency was remediated as of December 31, 2023.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

We have confidence in our internal controls and procedures.

Nevertheless, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud.

An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met.

Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

As a result of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

Management's Annual Report on Internal Control Over Financial Reporting

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Management, including our Chief Executive Officer and Chief Financial Officer under the oversight of our Board, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023.

In making this assessment, our management used the criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013),”

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In making this assessment, our management used the criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on its assessment, management believes that, as of December 31, 2023, our internal control over financial reporting is effective based on those criteria.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with GAAP.

A company’s internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met.

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We acquired AAT on February 9, 2022, and management excluded from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2022, AAT’s internal control over financial reporting associated with total assets and total revenues representing approximately 7.2% and 2.7%, respectively, of the consolidated financial statements as of and for the year ended December 31, 2022.

We acquired LTST on April 26, 2023, and we acquired Sims on August 18, 2023, and management excluded from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2023, LTST’s and Sims' internal control over financial reporting associated with total assets representing approximately of 1.1% and 1.3%, respectively, and total revenues representing approximately 3.8% and 0.5%, respectively, of the consolidated financial statements as of and for the year ended December 31, 2023.

The Company's internal control over financial reporting as of December 31, 2023, has been audited by Grant Thornton, LLP, an independent registered public accounting firm as stated in its report which is included herein.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal year 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal year 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except for the remediation of the controls deficiency related to the significance of our acquisition of LTST as discussed above.

OTHER INFORMATION

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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this Item will be included in the Company's definitive proxy statement to be filed with the SEC within 120 days after December 31, 2022, in connection with the solicitation of proxies for the Company's 2023 Annual Meeting of Stockholders (the "2023 Proxy Statement"), and is incorporated herein by reference.

The information required by this Item will be included in the Company's definitive proxy statement to be filed with the SEC within 120 days after December 31, 2023, in connection with the solicitation of proxies for the Company's 2024 Annual Meeting of Stockholders (the "2024 Proxy Statement"), and is incorporated herein by reference.

EXECUTIVE COMPENSATION

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The weighted average stock price on the date of grant for outstanding restricted stock awards was $29.20, which is not reflected in column (b), because restricted stock awards do not have an exercise price.

The amount in column (b) represents the weighted average exercise price of the outstanding unvested stock options.

The amount in column (b) represents the weighted average exercise price of the outstanding unvested stock options.

The information required by this Item will be included in the 2024 Proxy Statement, and is incorporated herein by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be included in the 2023 Proxy Statement, and is incorporated herein by reference.

The information required by this Item will be included in the 2024 Proxy Statement, and is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

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Report of Independent Registered Public Accounting Firm - Opinion on Internal Control Over Financial Reporting 52

Report of Independent Registered Public Accounting Firm - Opinion on the Consolidated Financial Statements (PCAOB ID Number 430) 53

Consolidated Balance Sheets

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Third Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K, filed July 2, 2020)

Sixth Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed August 9, 2021)

Sixth Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed August 9, 2021)

Third Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K, filed July 2, 2020)

Sixth Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed August 9, 2021)

4.3 # Description of the Registrant's Securities

Sixth Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed August 9, 2021)

4.3 Description of the Registrant's Securities (Incorporated by reference to Exhibit 4.3 to the Company's Form 10-K, filed February 28, 2023)

Form of Indemnification Agreement for Executive Officers and Directors (Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed August 5, 2021)

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Form of Restricted Stock Special Award Notice under the 2006 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company's Form 10-Q, filed August 9, 2006)

Third Amended and Restated Credit Agreement, dated September 23, 2008, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., and Textron Financial Corporation (Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K, filed March 30, 2010)

Covenant Transportation Group, Inc.

Third Amended and Restated Credit Agreement, dated September 23, 2008, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., and Textron Financial Corporation (Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K, filed March 30, 2010)

Covenant Transportation Group, Inc.

Third Amended and Restated 2006 Omnibus Incentive Plan (Incorporated by reference to Appendix A to the Company's Schedule 14A, filed April 19, 2013)

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(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed November 9, 2010)

Fourth Amendment to Third Amended and Restated Credit Agreement, dated August 31, 2010, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., and JP Morgan Chase Bank, N.A.

Fourth Amendment to Third Amended and Restated Credit Agreement, dated August 31, 2010, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., and JP Morgan Chase Bank, N.A.

(Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed November 9, 2010)

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(Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K, filed January 31, 2013)

Ninth Amendment to Third Amended and Restated Credit Agreement and Related Security Documents, dated effective as of August 6, 2014, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., and JPMorgan Chase Bank, N.A.

Ninth Amendment to Third Amended and Restated Credit Agreement and Related Security Documents, dated effective as of August 6, 2014, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, Inc., Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Bank of America, N.A., and JPMorgan Chase Bank, N.A.

(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed November 13, 2014)

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(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed November 9, 2015)

Twelfth Amendment to Third Amended and Restated Credit Agreement, dated effective as of February 25, 2016, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Driven Analytic Solutions, LLC, Covenant Properties, LLC, Bank of America, N.A., and JPMorgan Chase Bank, N.A.

Twelfth Amendment to Third Amended and Restated Credit Agreement, dated effective as of February 25, 2016, among Covenant Transportation Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, Inc., Star Transportation, Inc., Driven Analytic Solutions, LLC, Covenant Properties, LLC, Bank of America, N.A., and JPMorgan Chase Bank, N.A.

(Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed May 10, 2016)

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(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, filed November 9, 2018)

Seventeenth Amendment to Third Amended and Restated Credit Agreement, dated as of September 23, 2020, among Covenant Logistics Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, LLC, Star Transportation, Inc., Covenant Logistics, Inc., Transport Management Services, LLC, Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., Landair Leasing, Inc., and Bank of America, N.A. (Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q, filed November 3, 2020)

10.22 Seventeenth Amendment to Third Amended and Restated Credit Agreement, dated as of September 23, 2020, among Covenant Logistics Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, LLC, Star Transportation, Inc., Covenant Logistics, Inc., Transport Management Services, LLC, Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., Landair Leasing, Inc., and Bank of America, N.A.

(Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q, filed November 3, 2020)

10.23 Eighteenth Amendment to Third Amended and Restated Credit Agreement, dated as of October 23, 2020, among Covenant Logistics Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, Inc., Covenant Transport Solutions, LLC, Star Transportation, Inc., Covenant Logistics, Inc., Transport Management Services, LLC, Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., Landair Leasing, Inc., and Bank of America, N.A.

(Incorporated by reference to Exhibit 10.23 to the Company’s Form 10-K, filed March 5, 2021)

10.24 * First Amendment to the Covenant Transportation Group, Inc.

Third Amended and Restated 2006 Omnibus Incentive Plan (Incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed with the SEC on April 8, 2019 in connection with the 2019 Annual Meeting of Stockholders)

* Second Amendment to the Company’s Third Amended and Restated 2006 Omnibus Incentive Plan (Incorporated by reference to Appendix A to the Company's Schedule 14A, filed June 8, 2020)

10.26 * Form of Restricted Stock Award Notice under the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed August 9, 2019)

10.27 * Form of Restricted Stock Award Notice under the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (Double Trigger Change in Control) (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed August 10, 2020)

10.28 * Form of Restricted Stock Award Notice under the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed August 5, 2021)

10.29 * Form of Option Award Notice under the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (Incorporated by reference to Exhibit 10.28 to the Company’s Form 10-K, filed March 5, 2021)

10.30 * Form of Executive Severance Agreement (Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q, filed November 3, 2020)

Account Management Agreement, Amendment to Purchase Agreement and Mutual Release, by and among Covenant Transport Solutions, LLC, Covenant Logistics Group, Inc., Triumph Bancorp, Inc., and Advance Business Capital LLC, dated as of September 23, 2020 (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed November 3, 2020)

10.30 * Form of Executive Severance Agreement (Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q, filed November 3, 2020)

10.31 Account Management Agreement, Amendment to Purchase Agreement and Mutual Release, by and among Covenant Transport Solutions, LLC, Covenant Logistics Group, Inc., Triumph Bancorp, Inc., and Advance Business Capital LLC, dated as of September 23, 2020 (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, filed November 3, 2020)

10.32 Draw Note in the face amount of $45.0 million by Covenant Logistics Group, Inc.

and Covenant Transport Solutions, LLC with TBK Bank, SSB as Lender and Agent, dated as of September 23, 2020 (Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q, filed November 3, 2020)

and Covenant Transport Solutions, LLC with TBK Bank, SSB as Lender and Agent, dated as of September 23, 2020 (Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q, filed November 3, 2020)

10.33 Nineteenth Amendment to Third Amended and Restated Credit Agreement, dated as of May 4, 2022, among Covenant Logistics Group, Inc., Covenant Transport, Inc., CTG Leasing Company, Covenant Asset Management, LLC, Southern Refrigerated Transport, LLC, Covenant Transport Solutions, LLC, Star Transportation, LLC, Covenant Logistics, Inc., Transport Management Services, LLC, Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., Landair Leasing, Inc., AAT Carriers, Inc., and Bank of America, N.A.

(Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed August 5, 2022)

10.34 * Covenant Logistics Group Supplemental Savings Plan, effective July 1, 2022 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed August 5, 2022)

(Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed August 5, 2022)

10.34 * Covenant Logistics Group Supplemental Savings Plan, effective July 1, 2022 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed August 5, 2022)

10.35 * Third Amendment to the Covenant Transportation Group, Inc.

Third Amended and Restated 2006 Omnibus Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the SEC on April 14, 2023 in connection with the 2023 Annual Meeting of Shareholders)

10.36 * Retirement Agreement, by and between Joey B.

Hogan and Transport Management Services, LLC, dated as of May 22, 2023 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed August 9, 2023)

10.37 * Amended and Restated Covenant Logistics Group Supplemental Savings Plan, dated as of May 17, 2023 (Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q, filed August 9, 2023)

10.38 ** Stock Purchase Agreement, dated April 26, 2023, by and among Landair Holdings, Inc., Covenant Logistics Group, Inc., Lew Thompson & Son Trucking, Inc.

and related entities, and the stockholders of Lew Thompson & Son Trucking, Inc.

and related entities (Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K/A, filed August 3, 2023)

10.39 * Amended and Restated Covenant Logistics Group Supplemental Savings Plan, dated as of August 15, 2023 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed November 9, 2023)

List of Subsidiaries

Consent of Independent Registered Public Accounting Firm –

Grant Thornton LLP

Consent of Independent Registered Public Accounting Firm – Grant Thornton LLP

23.2 # Consent of Independent Registered Public Accounting Firm – Coulter & Justus, P.C.

Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by David R.

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Grant, the Company's Chief Financial Officer

97 # Covenant Logistics Group, Inc.

Clawback Policy

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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Management contract or compensatory plan or arrangement.

** Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments to the exhibit have been omitted.

FORM 10-K SUMMARY

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COVENANT Logistics GROUP, INC.

Date: February 28, 2023

February 28, 2024

Executive Vice President and Chief Financial Officer in his capacity as such and as duly authorized on behalf of the issuer.

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February 28, 2024

Executive Vice President and Chief Financial Officer

(principal financial officer and principal accounting officer)

Executive Vice President and Chief Financial Officer

(principal financial officer)

February 28, 2024

Chief Accounting Officer

(principal accounting officer)

/s/ Bradley A.

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Rachel Parker-Hatchett

/s/ Robert E.

February 28, 2024

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Benjamin Carson Sr.

February 28, 2024

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Covenant Logistics Group, Inc.

(a Nevada holding company) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2023 expressed an unqualified opinion.

(a Nevada holding company) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2024 expressed an unqualified opinion.

We did not audit the financial statements of Transport Enterprise Leasing, LLC for the year ended December 31, 2023, the investment in which is accounted for by the equity method of accounting.

The investment in Transport Enterprise Leasing, LLC was $66.327 million as of December 31, 2023, and the equity in its net income was $21.202 million for the year then ended.

Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Transport Enterprise Leasing, LLC, is based solely on the report of the other auditors.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that is communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Auto Liability Self-Insurance Reserves

As described further in Note 1 to the consolidated financial statements, the Company has significant self-insured amounts related to its auto liability and has exposure to fluctuations in the number and severity of claims and to variations between estimated and actual ultimate payouts.

The Company records a liability for the uninsured portion of pending claims and claims related expenses including legal and other direct costs associated with the claim. Estimates require judgment concerning the nature and severity of the claim, historical trends, and other relevant information based on specific facts and circumstances for individual claims. We identified the estimation of the Company’s auto liability accrual subject to self-insured insurance retention amounts as a critical audit matter.

Incurred auto claim liabilities are determined by projecting the estimated ultimate loss related to a claim, less actual costs paid to date, based upon the nature and severity of the claim and historical trends.

The principal considerations for assessing auto liability claims as a critical audit matter are the high level of estimation uncertainty related to determining the severity of these types of claims, as well as the inherent subjectivity in management’s judgment in estimating the total costs to settle or dispose of these claims.

The Company records a liability for the uninsured portion of pending claims and claims related expenses including legal and other direct costs associated with the claim.

Estimates require judgment concerning the nature and severity of the claim, historical trends, and other relevant information based on specific facts and circumstances for individual claims.

We identified the estimation of the Company’s auto liability accrual subject to self-insured insurance retention amounts as a critical audit matter.

Our audit procedures related to this critical audit matter included the following, among others:

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We tested a sample of underlying claims through analysis of accident reports and insurance and legal records to validate information utilized by management in determining the accrual was complete and accurate.

We reconciled claims data to the actuarial software used to determine loss development factors and used in management’s estimation methodology.

We utilized a specialist in evaluating management’s calculated loss development factors to test that the factors provide a reasonable basis for determining estimated loss reserves.

We reconciled claims data to the actuarial software used to determine loss development factors and used in management’s estimation methodology.

We utilized a specialist in evaluating management’s calculated loss development factors to test that the factors provide a reasonable basis for determining estimated loss reserves.

We performed a retrospective review of prior year and current year reserves to validate those changes in estimated losses were appropriate and supported by current year claim development.

Customer Relationships Acquired with the LTST Acquisition

As described further in Note 7 to the consolidated financial statements, on April 26, 2023, the Company acquired Lew Thompson & Son Trucking, Inc.

and related entities (collectively “LTST”).

The total purchase price consideration was $109.9 million, which was allocated $52.9 million to separately identified intangible assets, including customer relationships of $46.1 million.

The determination of the fair value of the customer relationships requires management to make significant estimates and assumptions related to forecasts of future revenues and EBITDA growth rates as well as discount rates applied.

Changes in these assumptions could materially affect the determination of the fair value of the customer relationships.

We identified the fair value assigned to the customer relationships included on the opening balance sheet as a critical audit matter.

The principal considerations for our determination that the acquired customer relationships are a critical audit matter is that management utilized significant judgement when estimating the fair value assigned to the customer relationships.

In turn, auditing management’s judgements regarding the assigned fair value involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgements.

Our audit procedures related to this critical audit matter included the following, among others:

We tested the operating effectiveness of controls relating to the identification of the acquired customer relationships, including the determination of the fair value.

We tested management's process for determining the fair value of the acquired customer relationships.

This included evaluating the appropriateness of the valuation method and testing the completeness and accuracy of historical and forecasted revenue and EBITDA used by management.

We evaluated the reasonableness of management's significant assumptions, which included forecasted revenues and EBITDA.

We tested whether these forecasts were reasonable and consistent with historical performance and third-party market data.

We tested the reasonableness of the Company's discount rate applied to the present value of the estimated future cash flows model with the assistance of valuation specialists.

/s/ Grant Thornton LLP

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We have audited the internal control over financial reporting of Covenant Logistics Group, Inc.

(a Nevada holding company) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control —

Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements.

(a Nevada holding company) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated February 28, 2024 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

4 unchanged sentences

We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company's internal control over financial reporting does not include the internal control over financial reporting of AAT Carriers, Inc., a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 7.2% and 2.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

As indicated in Management's Report, AAT Carriers, Inc.

was acquired during 2022.

Management's assertion on the effectiveness of the Company's internal control over financial reporting of AAT Carriers, Inc.

Our audit of, and opinion on, the Company's internal control over financial reporting does not include the internal control over financial reporting of Sims Transport Services LLC and Lew Thompson & Son Trucking, Inc., wholly-owned subsidiaries, whose financial statements reflect total assets and revenues constituting 15 and 4 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

As indicated in Management's Report, Sims Transport Services LLC and Lew Thompson & Son Trucking, Inc.

were acquired during 2023.

Management's assertion on the effectiveness of the Company's internal control over financial reporting excluded internal control over financial reporting of Sims Transport Services LLC and Lew Thompson & Son Trucking, Inc.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Grant Thornton LLP

/s/ Grant Thornton LLP

Charlotte, North Carolina

February 28, 2024

COVENANT Logistics 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Transport Enterprise Leasing, LLC

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Transport Enterprise Leasing, LLC (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income and changes in members’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Transport Enterprise Leasing, LLC as of December 31, 2023 and 2022, and the consolidated results of its operations and cash flows for the years then ended in conformity with the accounting principles generally accepted in the United States of America (GAAP).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission (SEC) and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to those charged with governance and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Refer to Note 2 to the Consolidated Financial Statements

The Company recognized revenue from lease and rental agreements, which totaled $130,216,584 in 2023, based on the classification of the arrangement, as either an operating or sales-type lease.

Substantially all the Company’s revenue from lease and rental agreements was derived from rental payments received on operating leases, which were recognized on a straight-line basis over the term of the lease.

The Company recognized revenue from equipment sales, which totaled $11,131,928 in 2023, when performance obligations under the terms of a contract with the customer are satisfied.

Generally, this occurred when control of the equipment was transferred to the customer.

Revenue was measured as the amount of consideration the Company expected to be entitled to receive in exchange for transferring equipment.

The Company recognized shop revenue, which totaled $9,643,940 in 2023, when performance obligations under the terms of a contract with the customer were satisfied.

Generally, this occurred over time as work was completed on the equipment being serviced.

Revenue was measured as the amount of consideration the Company expected to be entitled to receive in exchange for its servicing of the equipment.

Due to the volume and different types of transactions related to the Company’s revenues, we evaluated the different types of revenue, individual revenue transactions, and assertions related to the Company’s revenue recognition.

Due to the volume of revenue transactions, the audit effort in evaluating the Company’s revenue recognition was extensive and required a high degree of auditor effort.

Our principal audit procedures related to the Company's revenue recognition included the following:

We evaluated the Company’s significant accounting policies related to revenue recognition for reasonableness.

We performed substantive tests of details using audit sampling to test whether revenue was recognized in conformity with GAAP and whether the revenue was recognized in the correct period.

For operating lease revenues, we selected a sample of lease agreements from 2023 and performed certain procedures to support revenue recognition, including the following procedures:

Obtained and reviewed signed lease agreements and related source documents to support the contractual terms of the lease agreements.

Tested the Company’s identification and treatment of lease terms.

Recalculated 2023 revenues recorded based on the terms of the signed lease agreements and related source documents.

Assessed the terms of the signed lease agreements and related source documents and evaluated the appropriateness of the Company’s application of its accounting policies, along with its use of estimates, in the determination of revenue recognition.

For equipment sales revenues, we selected a sample of revenues recorded during 2023 and performed certain procedures to support revenue recognition, including the following procedures:

Obtained and reviewed sales invoices and related source documents for each unit sold to support recorded revenue amounts.

Tested the Company’s identification and treatment of sales terms.

Assessed the terms of the sales invoices and related source documents and evaluated the appropriateness of the Company’s application of its accounting policies, along with its use of estimates, in the determination of revenue recognition.

Obtained and reviewed purchase invoices and related source documents for each unit sold to support cost of sales amounts.

For shop revenues, we selected a sample of revenues recorded during 2023 and performed certain procedures to support revenue recognition, including the following procedures:

Obtained and reviewed service agreements and related source documents for each unit serviced to support recorded revenue amounts.

Assessed the terms of the service agreements and related source documents and evaluated the appropriateness of the Company’s application of its accounting policies, along with its use of estimates, in the determination of revenue recognition.

We tested the mathematical accuracy of the Company’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements.

/s/ Coulter & Justus, P.C.

We have served as Transport Enterprise Leasing, LLC’s auditor since 2018.

Knoxville, Tennessee

February 16, 2024

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31 , 2022 and 2021

DECEMBER 31 , 2023 and 2022

(In thousands, except share data)

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Cash and cash equivalents

$ 68,665  

$ 8,412  

$ 2,294 $ 68,665

Accounts receivable, net of allowance of $ 2,449 in 2023 and $ 2,934 in 2022

119,770  

142,362  

142,504 119,770

Drivers' advances and other receivables, net of allowance of $ 591 in 2023 and $ 585 in 2022

1 unchanged sentence

Prepaid expenses

15,746  

12,536  

17,880 15,746

Assets held for sale

Income taxes receivable

10,177  

Other short-term assets

Total current assets

222,656  

188,527  

185,945 222,656

Property and equipment, at cost

619,686  

518,406  

692,532 619,686

accumulated depreciation and amortization

( 211,951 )  

( 177,877 ) ( 211,951 )

Net property and equipment

407,735  

346,483  

58,217  

42,518  

514,655 407,735

75,747 58,217

Other intangibles, net

48,169  

20,475  

58,843  

52,384  

99,615 48,169

78,067 58,843

Noncurrent assets from discontinued operations

$ 796,645  

$ 651,662  

$ 954,438 $ 796,645

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

33,896  

29,907  

33,155 33,896

Accrued expenses

50,984  

38,001  

Accrued purchased transportation

24,689  

59,067 58,763

Current maturities of long-term debt

18,897  

47,651 18,897

Current portion of finance lease obligations

Current portion of operating lease obligations

18,179  

15,811  

11,950 18,179

Current portion of insurance and claims accrual

21,060  

21,210  

Other short-term liabilities

17,687 21,060

Total current liabilities

156,121  

142,745  

170,291 156,121

Long-term debt

90,367  

20,347  

196,894 90,367

Long-term portion of finance lease obligations

Long-term portion of operating lease obligations

46,428  

21,554  

30,892 46,428

Insurance and claims accrual

15,859  

21,438  

15,746 15,859

Deferred income taxes

98,716  

84,661  

116,095 98,716

Other long-term liabilities

1 unchanged sentence

Total liabilities

419,517  

301,963  

551,018 419,517

Commitments and contingencies

9 unchanged sentences

Additional paid-in-capital

152,886  

149,406  

155,846 152,886

Treasury stock at cost;

5,404,269 and 4,918,216 shares as of December 31, 2023 and December 31, 2022, respectively

( 106,500 )  

Accumulated other comprehensive loss

( 132,346 ) ( 106,500 )

Accumulated other comprehensive income

Retained earnings

329,471  

225,076  

378,919 329,471

Total stockholders' equity

377,128  

349,699  

403,420 377,128

Total liabilities and stockholders' equity

$ 796,645  

$ 651,662  

$ 954,438 $ 796,645

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

COVENANT Logistics  

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,  2022 and 2021

YEARS ENDED DECEMBER 31, 2023, 2022, and 2021

(In thousands, except per share data)

Freight revenue

$ 970,509 $ 1,046,396 $ 949,913

Fuel surcharge revenue

133,064 170,462 96,090

Total revenue

$ 1,103,573 $ 1,216,858 $ 1,046,003

Operating expenses:

Salaries, wages, and related expenses

400,491 402,276 350,246

133,291 166,410 103,641

Operations and maintenance

63,753 79,051 59,269

Revenue equipment rentals and purchased transportation

271,893 325,624 331,685

Operating taxes and licenses

13,409 11,931 10,899

Insurance and claims

50,099 50,547 38,788

Communications and utilities

5,012 5,385 4,558

General supplies and expenses

49,444 37,762 29,673

Depreciation and amortization

69,943 57,512 53,881

Gain on disposition of property and equipment, net

( 12,585 ) ( 40,322 ) ( 3,799 )

Total operating expenses

1,044,750 1,096,176 978,841

Operating income

58,823 120,682 67,162

Interest expense, net

7,967 3,083 2,791

Income from equity method investment

( 21,384 ) ( 25,193 ) ( 14,782 )

Income from continuing operations

72,240 142,792 79,153

Income tax expense

17,611 34,860 20,962

Income from continuing operations

54,629 107,932 58,191

Income from discontinued operations, net of tax

600 750 2,540

$ 55,229 $ 108,682 $ 60,731

Basic income per share:

Income from continuing operations

$ 4.19 $ 7.19 $ 3.46

Income from discontinued operations

$ 0.05 $ 0.05 $ 0.15

Net income per basic share(1)

$ 4.23 $ 7.24 $ 3.61

Diluted income per share:

Income from continuing operations

$ 3.95 $ 6.95 $ 3.42

Income from discontinued operations

$ 0.04 $ 0.05 $ 0.15

Net income per diluted share

$ 3.99 $ 7.00 $ 3.57

Basic weighted average shares outstanding

13,048 15,006 16,803

Diluted weighted average shares outstanding

13,834 15,524 17,020

Total may not sum due to rounding.

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

COVENANT Logistics  

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

2 unchanged sentences

(In thousands)

$ 108,682  

$ 60,731  

Other comprehensive income:

4 unchanged sentences

Comprehensive income

$ 111,074  

$ 61,676  

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

COVENANT Logistics 

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

5 unchanged sentences

Balances at December 31, 2020

$ 173 $ 24 $ 143,438 $ ( 17,067 ) $ ( 2,251 ) $ 166,325 $ 290,642

- - - - - 60,731 60,731

Share repurchase

( 1 ) - - ( 8,367 ) - ( 1,980 ) ( 10,348 )

Other comprehensive loss

- - - - 945 - 945

Stock-based employee compensation expense

- - 9,059 - - - 9,059

Issuance of restricted shares, net

( 11 ) - ( 3,091 ) 1,772 - - ( 1,330 )

Balances at December 31, 2021

$ 161 $ 24 $ 149,406 $ ( 23,662 ) $ ( 1,306 ) $ 225,076 $ 349,699

- - - - - 108,682 108,682

Cash dividend

- - - - - ( 4,287 ) ( 4,287 )

Share repurchase

- - - ( 84,723 ) - - ( 84,723 )

Other comprehensive income

- - - - 2,392 - 2,392

Stock-based employee compensation expense

- - 6,587 - - - 6,587

Exercise of stock options

- - 50 334 - - 384

Issuance of restricted shares, net

- - ( 3,157 ) 1,551 - - ( 1,606 )

Balances at December 31, 2022

$ 161 $ 24 $ 152,886 $ ( 106,500 ) $ 1,086 $ 329,471 $ 377,128

- - - - - 55,229 55,229

Cash dividend

- - - - - ( 5,781 ) ( 5,781 )

Share repurchase

- - - ( 25,430 ) - - ( 25,430 )

Other comprehensive income

- - - - ( 270 ) - ( 270 )

Stock-based employee compensation expense

- - 7,100 - - - 7,100

Exercise of stock options

- - 42 194 - - 236

Issuance of restricted shares, net

- - ( 4,182 ) ( 610 ) - - ( 4,792 )

Balances at December 31, 2023

$ 161 $ 24 $ 155,846 $ ( 132,346 ) $ 816 $ 378,919 $ 403,420

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

COVENANT Logistics  

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

3 unchanged sentences

Cash flows from operating activities:

$ 55,229 $ 108,682 $ 60,731

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

Provision for losses on accounts receivable

(Reversal of) provision for losses on accounts receivable

( 258 ) 367 1,338

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

( 16 ) ( 39 ) 52

Depreciation and amortization

69,943 57,512 53,881

Deferred income tax benefit

18,701 13,968 18,413

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

( 2,226 ) ( 526 ) ( 334 )

Stock-based compensation expense

7,100 6,587 9,059

Equity in income of affiliate

( 21,384 ) ( 25,193 ) ( 14,782 )

Return on investment in affiliated company

9,800 14,700 4,900

Gain on disposition of property and equipment

( 12,585 ) ( 40,322 ) ( 3,799 )

Return on investment in available-for-sale securities

1 unchanged sentence

Receivables and advances

( 22,416 ) 39,465 ( 36,544 )

Prepaid expenses and other assets

( 3,997 ) ( 3,832 ) ( 710 )

Inventory and supplies

( 317 ) ( 193 ) ( 204 )

Insurance and claims accrual

( 3,542 ) ( 5,729 ) ( 31,653 )

Accounts payable and accrued expenses

( 9,191 ) ( 6,217 ) 12,933

Net cash flows provided by operating activities

84,841 159,230 73,218

Cash flows from investing activities:

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

Acquisitions, net of cash acquired

( 107,934 ) ( 38,501 ) -

Other investments

( 2,204 ) ( 241 ) ( 13 )

Redemption of available-for-sale securities

Acquisition of property and equipment

( 217,607 ) ( 100,468 ) ( 35,285 )

Proceeds from disposition of property and equipment

91,824 53,002 44,134

Net cash flows (used) provided by investing activities

( 235,921 ) ( 86,208 ) 10,344

Cash flows from financing activities:

Change in checks outstanding in excess of bank balances

- ( 216 ) ( 1,215 )

Cash dividend

( 5,781 ) ( 4,287 ) -

Proceeds from issuance of notes payable

154,093 95,151 -

Proceeds from exercise of stock options

Repayments of notes payable

( 30,390 ) ( 11,956 ) ( 14,397 )

Repayments of finance lease obligations

( 5,619 ) ( 5,516 ) ( 5,626 )

Proceeds under revolving credit facility

139,837 60,226 644,874

Repayments under revolving credit facility

( 128,258 ) ( 60,226 ) ( 695,513 )

Payment of minimum tax withholdings on stock compensation

( 4,792 ) ( 1,606 ) ( 1,332 )

Payment of contingent liability

( 9,187 ) - -

Common stock repurchased

Net cash flows used in financing activities

( 25,430 ) ( 84,723 ) ( 10,348 )

Net cash flows provided by (used in) financing activities

84,709 ( 12,769 ) ( 83,557 )

Net change in cash and cash equivalents

( 66,371 ) 60,253 5

Cash and cash equivalents at beginning of year

68,665 8,412 8,407

Cash and cash equivalents at end of year

$ 2,294 $ 68,665 $ 8,412

Supplemental disclosure of cash flow information:

1 unchanged sentence

Interest, net of capitalized interest

$ 5,319 $ 3,306 $ 2,762

$ 4,186 $ 16,653 $ 10,236

Non-cash transactions during the year for:

Equipment acquired under finance leases

Contingent consideration associated with acquisition

$ 5,938 $ 458 $ -

Equipment acquired under operating leases

$ 3,992 $ 48,515 $ 15,795

Contingent consideration associated with acquisitions

$ 11,802 $ 16,210 $ -

Other contingent liabilities

$ ( 800 ) $ ( 1,000 ) $ ( 3,412 )

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

COVENANT Logistics  

COVENANT Logistics GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31,  2022 and 2021

DECEMBER 31, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Covenant Logistics Group, Inc., a Nevada holding company, together with its wholly owned subsidiaries offers transportation and logistics services to customers throughout the continental United States. 

Covenant Logistics Group, Inc., a Nevada holding company, together with its wholly owned subsidiaries offers transportation and logistics services to customers throughout the continental United States.

Principles of Consolidation

The consolidated financial statements include the accounts of Covenant Logistics Group, Inc., a holding company incorporated in the state of Nevada in 1994, and its wholly owned subsidiaries:

The consolidated financial statements include the accounts of Covenant Logistics Group, Inc., a holding company incorporated in the state of Nevada in 1994, and its wholly owned subsidiaries:

Covenant Transport, Inc., a Tennessee corporation;

7 unchanged sentences

Heritage Insurance, Inc., a Tennessee corporation;

Landair Holdings, Inc., a Tennessee corporation (collectively "Landair"); Landair Transport, Inc., a Tennessee corporation;

Landair Holdings, Inc., a Tennessee corporation (collectively "Landair");

Landair Transport, Inc., a Tennessee corporation;

Landair Logistics, Inc., a Tennessee corporation;

Landair Leasing, Inc., a Tennessee corporation;

AAT Carriers, Inc., a Tennessee corporation ("AAT"), and Transport Management Services, LLC, a Tennessee limited liability company.

AAT Carriers, Inc., a Tennessee corporation ("AAT"), Lew Thompson & Son Trucking, Inc., an Arkansas corporation, Lew Thompson & Son Leasing, Inc., an Arkansas corporation, Lew Thompson & Son Dedicated Leasing Inc., an Arkansas corporation, Josh Thompson Trucking, Inc., an Arkansas corporation, Sims Transport Services LLC, a Georgia limited liability company, and Transport Management Services, LLC, a Tennessee limited liability company.

References in this report to "it," "we," "us," "our," the "Company," and similar expressions refer to Covenant Logistics Group, Inc.

1 unchanged sentence

All significant intercompany balances and transactions have been eliminated in consolidation.

four reportable segments, which include:

Non-dedicated truckload services ("Expedited"), which services customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15 -minute delivery windows. 

Dedicated contract truckload services (“Dedicated”), which consists of our truckload business that involves longer-term contracts that allocate a specified number of tractors and trailers to a specific customer, with fixed and variable compensation. 

Managed Freight services, which consists of our brokerage and transportation management services ("TMS") and provides logistics capacity by outsourcing the carriage of customers' freight to third parties, as well as, comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs.

Warehousing services (“Warehousing”), provides day-to-day warehouse management services to customers who have chosen to outsource this function.

four reportable segments are:

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

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

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

Equipment is either owned or leased by the Company.

Managed Freight:

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

Brokerage services provide logistics capacity by outsourcing the carriage of customers' freight to third -parties.

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

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

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

The following table summarizes our revenue by our four reportable segments, at the service offering level, as used by our chief operating decision maker in making decisions regarding allocation of resources, etc., for the years ended December 31, 2022  and 

The following table summarizes our revenue by our four reportable segments, at the service offering level, as used by our chief operating decision maker in making decisions regarding allocation of resources, etc., for the years ended December 31, 2023 , 2022 , and 2021 :

Year ended December 31,

(in thousands)

$ 452,713  

$ 337,063  

362,997  

324,541  

$ 423,820 $ 452,713 $ 337,063

320,287 362,997 324,541

Managed Freight

320,985  

321,236  

80,163  

63,163  

258,903 320,985 321,236

100,563 80,163 63,163

Total revenues

$ 1,216,858  

$ 1,046,003  

$ 1,103,573 $ 1,216,858 $ 1,046,003

Investment in Transport Enterprise Leasing, LLC

Transport Enterprise Leasing, LLC ("TEL") is a tractor and trailer equipment leasing company and used equipment reseller.

We evaluated our investment in TEL to determine whether it should be recorded on a consolidated basis. Our percentage of ownership interest ( 49 %), an evaluation of control, and whether a variable interest entity ("VIE") existed were all considered in our consolidation assessment.

We evaluated our investment in TEL to determine whether it should be recorded on a consolidated basis.

Our percentage of ownership interest ( 49 %), an evaluation of control, and whether a variable interest entity ("VIE") existed were all considered in our consolidation assessment.

Based on the analysis, the Company is not the primary beneficiary of TEL and TEL should not be consolidated.

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Risks and Uncertainties

We are continuing to monitor the progression of the COVID- 19 pandemic, further government response, including, vaccine, testing, and mask mandates, and development of treatments and vaccines and their potential effect on our short-term and long-term financial position, results of operations, cash flows and liquidity.

These events could have an impact in future periods on certain estimates used in the preparation of our financial results, including, but not limited to impairment of goodwill, other intangible assets and other long-lived assets, income tax provision and recoverability of certain receivables.

Local, state and national governments continue to emphasize the importance of transportation and have designated it as an essential service.

Adverse developments in the pandemic could the impact our operations and have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.

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

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

For the policy period that ran from April 1, 2018 

to March 31, 2021, the aggregate limits available in the coverage layer $ 9.0 million in excess of $ 1.0 million were estimated to be fully eroded based on claims expense accruals.

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

Due to the erosion of the $9.0 million in excess of $1.0 million layer, any adverse developments in claims filed between April 1, 2018 and March 

31, 2021, could result in additional expense accruals. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

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

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

To the extent losses on covered accounts are incurred, we will indemnify Triumph on a dollar for dollar basis for up to the first $ 30.0 million of losses, and on a 50 % basis for up to the next $30.0  million of losses, for total indemnification exposure of up to $ 45.0 million.

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

During the fourth quarter of 2020, the Company recorded $ 44.2 million of contingent liabilities, reflected as other long-term liabilities from discontinued operations in our consolidated balance sheet, because as of December 31, 2020 it was probable and estimable that such amount would be due to Triumph under the amended purchase agreement.

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

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

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

As of December 31, 2022, there were no outstanding borrowings under the Draw Note and a remaining contingent liability of $ 4.1 million.

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

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

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

Due to the erosion of the $9.0 million in excess of $1.0 million layer, any adverse developments in claims filed between April 1, 2018 and March 31, 2021, could result in additional expense accruals.

Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a material adverse effect on our business, financial condition, and results of operations.

Revenue Recognition

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Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.

Revenue generated by our Managed Freight reportable segment is recognized upon completion of the services provided.

Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a principal with substantial risks as primary obligor. Revenue for the Warehousing reportable segment is generally recognized as the service is performed, based upon a weekly rate.

There are no assets or liabilities recorded in conjunction with revenue recognized, other than accounts receivable and allowance for doubtful accounts.

We recognized in-process revenue of $ 1.4 million and $ 0.4 million for the years ended December 31, 2022 and 

2021, respectively.

We had accounts receivable, net of allowance for doubtful accounts, of $ 119.8 million and $ 142.4 million at December 31, 2022 and 2021, respectively.

Revenue generated by our Managed Freight reportable segment is recognized proportionally as the services are provided based on the percentage of completion method using the estimated time elapsed as of the period end.

Revenue is recorded on a gross basis, without deducting third -party purchased transportation costs, as we act as a principal with substantial risks as primary obligor.

Revenue for the Warehousing reportable segment is generally recognized as the service is performed, based upon a weekly rate.

There are no assets or liabilities recorded in conjunction with revenue recognized, other than accounts receivable and allowance for credit losses.

We recognized in-process revenue of $ 1.1 million, $ 1.4 million, and $ 0.4 million for the years ended December 31, 2023 , 2022 , and 2021 , respectively.

We had accounts receivable, net of allowance for credit losses, of $ 142.5 million and $ 119.8 million at December 31, 2023 and 2022 , respectively.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances.

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Additionally, we are also subject to concentrations of credit risk related to deposits in banks in excess of the Federal Deposit Insurance Corporation limits.

At December 31, 2023, we had $ 1.5 million in excess of the Federal Deposit Insurance Corporation insured limits.

Accounts Receivable and Concentration of Credit Risk

We extend credit to our customers in the normal course of business, which are generally due within 30 - 45 days of the services performed.

We extend credit to our customers in the normal course of business, which are generally due within 30 - 45 days of the services performed, however, we have extended terms of up to 120 days with a small number of larger customers.

We perform ongoing credit evaluations and generally do not require collateral.

Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts.

We evaluate the adequacy of our allowance for doubtful accounts quarterly.

Trade accounts receivable are recorded at their invoiced amounts, net of allowance for credit losses.

We evaluate the adequacy of our allowance for credit losses quarterly.

Accounts outstanding longer than contractual payment terms are considered past due and are reviewed individually for collectability.

We maintain reserves for potential credit losses based upon loss history and specific receivables aging analysis.

We maintain reserves for potential credit losses based upon loss history, specific receivables aging analysis, and other factors, including those related to current market conditions and events.

Receivable balances are written off when collection is deemed unlikely.

Accounts receivable are comprised of a diversified customer base that mitigates the level of concentration of credit risk.

During 2022  and 

2021 , our top ten customers generated 43 % and 

53 % of total revenue, respectively. 

No customers in 

2022  or 

2021  accounted for more than 10% of our consolidated revenue. The carrying amount reported in the consolidated balance sheet for accounts receivable approximates fair value based on the fact that the receivables collection averaged approximately 

40  days and 

44 days in 2022  and 2021 , respectively.

The following table provides a summary (in thousands) of the activity in the allowance for doubtful accounts for 2022  and 

During 2023 , 2022 , and 2021 , our top ten customers generated 44 %, 43 %, and 53 % of total revenue, respectively.

There was one customer in 2023 , and none in 2022 or 2021 that accounted for more than 10% of our consolidated revenue.

The carrying amount reported in the consolidated balance sheet for accounts receivable approximates fair value based on the fact that the receivables collection averaged approximately 49 days and 40 days in 2023 and 2022 , respectively.

The following table provides a summary (in thousands) of the activity in the allowance for credit losses for 2023 , 2022 , and 2021 :

Years ended December 31:

Beginning balance January 1,

Additional provisions to allowance

(Reversal of) additional provisions to allowance

Write-offs and other adjustments

Ending balance December 31,

$ 4,112  

$ ( 1,544 )  

$ 2,934  

$ 2,992  

$ 1,338  

$ ( 218 )  

$ 4,112  

$ 2,934 $ ( 258 ) $ ( 227 ) $ 2,449

$ 4,112 $ 367 $ ( 1,545 ) $ 2,934

$ 2,992 $ 1,338 $ ( 218 ) $ 4,112

Inventories and Supplies

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Depreciation of revenue equipment is our largest item of depreciation.

We generally depreciate new tractors over five years to salvage values that range from 10 % to 35 % of their cost.

We generally depreciate new tractors over five years to salvage values that range from 0 % to 35 % of their cost, depending on the reportable segment profile of the equipment.

We generally depreciate new trailers over seven years for refrigerated trailers and ten years for dry van trailers to salvage values of approximately 28 % and 25 % of their cost, respectively.

We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice.

Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations. 

We lease certain revenue equipment under finance and operating leases with terms of approximately 48 to 84 months.

Amortization of assets under finance and operating leases are included in depreciation and amortization expense and revenue and equipment rentals and purchased transportation, respectively.

Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates impairment may exist.

Expected future cash flows are used to analyze whether an impairment has occurred.

If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized.

We measure the impairment loss by comparing the fair value of the asset to its carrying value.

Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

There were no impairment events during the twelve months ended December 31, 2022 or 2021.

A portion of our tractors are protected by non-binding indicative trade-in values or binding trade-back agreements with the manufacturers.

Amortization of assets under finance and operating leases are included in depreciation and amortization expense and revenue and equipment rentals and purchased transportation, respectively.

A portion of our tractors are protected by binding trade-back agreements with the manufacturers.

The remainder of our tractors and substantially all of our owned trailers are subject to fluctuations in market prices for used revenue equipment.

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(i) intangible assets with finite lives subject to amortization and (ii) goodwill.

We test goodwill for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred.

We test goodwill for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred.

We test intangible assets with finite lives for impairment if conditions exist that indicate the carrying value may not be recoverable.

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If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized.

We measure the impairment loss by comparing the fair value of the asset less its disposal cost to its carrying value.

We measure the impairment loss by comparing the fair value of the asset less its disposal cost to its carrying value.

Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates impairment may exist.

Expected future cash flows are used to analyze whether an impairment has occurred.

If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized.

We measure the impairment loss by comparing the fair value of the asset to its carrying value.

Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

There were no impairment events during the twelve months ended December 31, 2023 , 2022 , and 2021 .

Accrued Expenses

Accrued expenses as of December 31, 2023, were $ 59.1 million of which $ 25.9 million related to accrued payroll and related items and $ 8.4 million related to accrued purchased transportation.

As of December 31, 2022, accrued expenses were $ 59.1 million of which $ 24.6 million related to accrued payroll and related items and $ 7.8 million related to accrued purchased transportation.

Insurance and Other Claims

The primary claims arising against us consist of auto liability (personal injury and property damage), workers' compensation, cargo, commercial liability, and employee medical expenses.

December 31, 2022 , our insurance program involves self-insurance with the following risk retention levels (before giving effect to any commutation of an auto liability policy):

auto liability - $ 7.0 million in excess of $ 3.0 million policy that runs from January 28, 2021 to April 1, 2024

At December 31, 2023 , our insurance program involves self-insurance with the following risk retention levels (before giving effect to any commutation of an auto liability policy):

auto liability - $ 7.0 million in excess of $ 3.0 million policy that runs from January 28, 2021 to April 1, 2024

workers' compensation - $ 1.5 million

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Upon settling claims and expenses associated with claims where we have third -party coverage, we are generally required to initially fund payment to the claimant and seek reimbursement from the insurer.

We had no receivables from insurers for claims and expenses we paid on behalf of insurers at December 31, 2022  and 2021 .

When such receivables exist, they are included in drivers' advances and other receivables on our consolidated balance sheet.

We had $ 0.8 million and $ 0.0 million receivables from insurers for claims and expenses we paid on behalf of insurers at December 31, 2023 and 2022 , respectively which are included in drivers' advances and other receivables on our consolidated balance sheet.

Additionally, we accrue claims above our self-insured retention and record a corresponding receivable for amounts we expect to collect from insurers upon settlement of such claims.

We have $ 0.7 million and $ 0.9 million as other short-term assets and a corresponding accrual in the short-term portion of insurance and claims accruals and $ 0.0 million and $ 7.3 million as other long-term assets and as a corresponding accrual in the long-term portion of insurance and claims accruals on our consolidated balance sheet for claims above our self-insured retention for which we believe it is reasonably assured that the insurers will provide their portion of such claims at December 31, 2022  and 2021 , respectively. We evaluate collectability of the receivables based on the credit worthiness and surplus of the insurers, along with our prior experience and contractual terms with each.

We have $ 0.0 million and $ 0.7 million as other short-term assets and a corresponding accrual in the short-term portion of insurance and claims accruals and $ 1.3 million and $ 0.0 million as other long-term assets and as a corresponding accrual in the long-term portion of insurance and claims accruals on our consolidated balance sheet for claims above our self-insured retention for which we believe it is reasonably assured that the insurers will provide their portion of such claims at December 31, 2023 and 2022 , respectively.

We evaluate collectability of the receivables based on the credit worthiness and surplus of the insurers, along with our prior experience and contractual terms with each.

If any claim occurrence were to exceed our aggregate coverage limits, we would have to accrue for the excess amount.

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If we commute a policy, we assume 100 % risk for covered claims in exchange for a policy refund.

Our prior auto liability policies have sometimes included a release premium refund or commutation option that we have sometimes exercised.

The most recent policy we commuted ran from October 1, 2014 through March 31, 2018, and resulted in a premium release of $ 7.3 million.

Management cannot predict whether or not future claims or the development of existing claims will justify a commutation of other policy periods, and accordingly, no related amounts were recorded at December 31, 2022.

Our prior auto liability policies have sometimes included a release premium refund or commutation option that we have sometimes exercised, although we do not have either of these options in our current policies.

We carry excess policy layers above the primary auto liability policy described above.

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Interest is capitalized based on the average interest rate on related debt.

Capitalized interest was $ 0.3 million in 

2022 and less than $ 0.1 million in 2021 .

Capitalized interest was $ 0.3 million, $ 0.3 million, and less than $ 0.1 million in 2023 , 2022 , and 2021 , respectively.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, available-for-sale securities, accounts payable, debt, and interest rate swaps.

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments. Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes.

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, available-for-sale securities, accounts payable, debt, and interest rate swaps.

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

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

The fair value of our revenue equipment installment notes approximated the carrying value at December 31, 2023 , as the weighted average interest rate on these notes approximates the market rate for similar debt.

Borrowings under our revolving Credit Facility approximate fair value due to the variable interest rate on the facility.

Additionally, certain investments intended to serve the purposes of capital preservation and to fund insurance losses are designated as available-for-sale and are valued based on quoted prices in active markets.

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

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otherwise, our incremental borrowing rate is used.

The incremental borrowing rate represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. Right-of-use assets also include prepaid lease expenses and initial direct costs of executing the leases, which are reduced by landlord incentives.

Right-of-use assets also include prepaid lease expenses and initial direct costs of executing the leases, which are reduced by landlord incentives.

Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised.

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

There were approximately 358,000  shares and 

217,000 shares issuable upon conversion of unvested restricted shares for the years ended 

December 31, 2022 and 

2021 , respectively.

There were no  unvested shares excluded from the calculation of diluted earnings per share as the effect of any assumed exercise of the related awards would not have been anti-dilutive for the years ended December 31, 2022 and 

There were approximately 161,000  shares and 

no shares issuable upon conversion of unvested employee stock options for the years ended 

December 31, 2022 and 

2021 , respectively.

There were 

104 and 124,000  unvested options excluded from the calculation of diluted earnings per share since the effect of any assumed exercise of the related awards would be anti-dilutive for the years ended December 31, 2022 and 

2021 , respectively.

The following table sets forth the calculation of net income per share included in the consolidated statements of operations for each of the two years ended December 31:

There were approximately 245,000 shares, 358,000 shares, and 217,000 shares issuable upon conversion of unvested restricted shares for the years ended December 31, 2023 , 2022 , and 2021 , respectively.

There were no unvested shares excluded from the calculation of diluted earnings per share as the effect of any assumed exercise of the related awards would not have been anti-dilutive for the years ended December 31, 2023 , 2022 , and 2021 .

There were approximately 541,000 shares, 161,000 shares, and no shares issuable upon conversion of unvested employee stock options for the years ended December 31, 2023 , 2022 , and 2021 , respectively.

There were no , 104 , and 124,000 unvested options excluded from the calculation of diluted earnings per share since the effect of any assumed exercise of the related awards would be anti-dilutive for the years ended December 31, 2023 , 2022 , and 2021 , respectively.

The following table sets forth the calculation of net income per share included in the consolidated statements of operations for each of the three years ended December 31:

(in thousands except per share data)

Income from continuing operations

$ 107,932  

$ 58,191  

$ 54,629 $ 107,932 $ 58,191

Income from discontinued operations, net of tax

$ 108,682  

$ 60,731  

Denominator for basic income per share –

weighted-average shares

15,006  

16,803  

600 750 2,540

$ 55,229 $ 108,682 $ 60,731

Denominator for basic income per share – weighted-average shares

13,048 15,006 16,803

Effect of dilutive securities:

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Denominator for diluted income per share adjusted weighted-average shares and assumed conversions

15,524  

17,020  

13,834 15,524 17,020

Basic income per share:

Income from continuing operations

$ 7.19  

$ 3.46  

$ 4.19 $ 7.19 $ 3.46

Income from discontinued operations

$ 0.05  

$ 0.15  

$ 7.24  

$ 3.61  

$ 0.05 $ 0.05 $ 0.15

Net income per basic share(1)

$ 4.23 $ 7.24 $ 3.61

Diluted income per share:

Income from continuing operations

$ 6.95  

$ 3.42  

$ 3.95 $ 6.95 $ 3.42

Income from discontinued operations

$ 0.05  

$ 0.15  

$ 7.00  

$ 3.57  

$ 0.04 $ 0.05 $ 0.15

Net income per diluted share

$ 3.99 $ 7.00 $ 3.57

( 1 ) Total may not sum due to rounding.

Stock-Based Employee Compensation

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Awards that are only subject to time vesting provisions are amortized using the straight-line method.

Reclassifications

An adjustment has been made to the consolidated statements of cash flows for the year ended December 31, 2021, to identify the non cash expense for the reduction of the contingent liability of $ 3.4 million.

This change in classification does not affect previously reported cash flows from operating activities in the Consolidated Statements of Cash 

Flows or our previously reported consolidated results of operations.

Recent Accounting Pronouncements

Accounting Standards not yet adopted

In June 2016, FASB issued ASU 2016 - 13,  

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

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

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

The adoption of this standard will have an immaterial impact on our consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023 - 07, Improvements to Reportable Segment Disclosures (Topic 280 ).

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is also permitted.

This ASU will likely result in us including the additional required disclosures when adopted.

We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.

In December 2023, the FASB issued ASU 2023 - 09, Improvements to Income Tax Disclosures.

This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures.

The amendments of this update are related to the rate reconciliation and income taxes paid, requiring ( 1 ) consistent categories and greater disaggregation of information in the rate reconciliation and ( 2 ) income taxes paid disaggregated by jurisdiction.

ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

Accounting Standards adopted

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

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

The adoption of this standard had an immaterial impact on our consolidated financial statements.

There are no other new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements.

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(Reversal of) loss contingency

( 1,000 )  

( 800 ) ( 1,000 ) ( 3,412 )

Operating income

800 1,000 3,387

Income before income taxes

800 1,000 3,387

Income tax expense

Net income from discontinued operations, net of tax

$ 2,540  

Operating income for the year ended December 31, 2022 and 2021,  relates to the gain on the reversal of our contingent loss liability in the amount of $ 1.0 million and $ 3.4 million, respectively.

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

$ 600 $ 750 $ 2,540

Operating income for the years ended December 31, 2023 , 2022 , and 2021 , relates to the gain on the reversal of our contingent loss liability in the amount of $ 0.8 million, $ 1.0 million, and $ 3.4 million, respectively.

Reversal of contingent loss liability relates to the reduced exposure of future indemnification by the Company to 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 December 31, 2023 and 2022 :

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Total assets from discontinued operations

$ 1,025  

$ 1,275  

$ 409 $ 1,025

Current liabilities:

3 unchanged sentences

Total liabilities from discontinued operations

$ 4,100  

$ 5,100  

There were no net cash flows related to discontinued operations for the years ended December 31, 2022 or 2021.

Refer to Note 1, "Significant Accounting Policies" of the accompanying consolidated financial statements for further information about the amended TFS purchase agreement.

$ 1,635 $ 4,100

There was $ 1.7 million of operating cash outflows related to the $ 1.7 million payment on the indemnification obligation to Triumph for the year ended December 31, 2023 and no net cash flows related to discontinued operations for the years ended December 31, 2022 or 2021.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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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 December 31, 2023 or 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.

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The fair value of available-for-sale securities is based upon quoted prices in active markets.

There were no available-for-sale securities recorded as of December 31, 2023 or December 31, 2022.

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

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

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

Observable inputs such as quoted prices in active markets;

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December 31, 2023

December 31, 2021  

December 31, 2022 Input Level

Interest rate swaps

Contingent consideration

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

December 31, 2022 or December 31, 2021.

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

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

December 31, 2022, as the weighted average interest rate on these notes approximates the market rate for similar debt.

Borrowings under our revolving Credit Facility (as defined herein) approximate fair value due to the variable interest rate on that facility. There were no fuel hedge derivatives outstanding as of December 31, 2022.

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

Contingent consideration arrangements require us to pay up to $ 20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years, 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 calendar years following closing, 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 calendar years following closing.

Refer to Note 7, "Acquisition of Lew Thompson & Son Trucking, Inc.", for additional information regarding the LTST acquisition and Note 6, "Acquisition of Sims Transport Services LLC", for additional information regarding the Sims acquisition.

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 year ended 

December 31, 2022, the fair value of the contingent consideration increased to $ 17.0 million from $ 0.0 million at December 31, 2021.

Of the $ 17.0 million increase, $ 16.2 million relates to the initial valuation of the contingent consideration arrangement and the remaining increase of $ 0.8 million is the result of the subsequent adjustment to fair market value. The adjustment to the fair value of the contingent consideration liability was recorded as a component of general supplies and expenses within the consolidated statements of operations.

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

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2022 :

During the year ended December 31, 2023, the fair value of the contingent consideration increased to $ 21.8 million from $ 17.0 million at December 31, 2022.

Of the $ 4.8 million increase, $ 10.0 million and $ 1.8 million relates to the initial valuation of the contingent consideration arrangements for LTST and Sims, respectively, and $ 3.0 million is the result of the subsequent adjustment to fair market value.

These increases were partially offset by $ 10.0 million paid 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 our consolidated statement of cash flows.

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

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

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2023 :

(in thousands)

1 unchanged sentence

Adjustments to fair market value

December 31, 2022

Payments December 31, 2023

Contingent consideration

 $ -  

 $ ( 16,210 )  

 $ ( 813 )  

 $ ( 17,023 )

$ ( 17,023 ) $ ( 11,802 ) $ ( 2,977 ) $ 10,000 $ ( 21,802 )

STOCK-BASED COMPENSATION

Our Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (the "Incentive Plan") governs the issuance of equity awards and other incentive compensation to management and members of the Board.

On July 1, 2020, the stockholders, upon recommendation of the Board, approved the Second Amendment (the “Second Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan").

The Second Amendment (i) increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 1,900,000 shares, (ii) added a fungible share reserve feature, under which shares subject to stock options and stock appreciation rights will be counted as one share for every share granted and shares subject to all other awards will be counted as 1.80 shares for every share granted, (iii) added a double-trigger vesting requirement upon a change in control, (iv) eliminated the Compensation Committee’s discretion to accelerate vesting, except in cases involving death or disability, (v) increased the maximum award granted or payable to any one participant under the Incentive Plan for a calendar year from 200,000 shares of Class A common stock or $ 2,000,000 , in the event the award is paid in cash, to 500,000 shares of Class A common stock or $ 4,000,000 , in the event the award is paid cash, (vi) re-set the date through which awards may be made under the Incentive Plan to June 1, 2030, and (vii) made other miscellaneous, administrative and conforming changes.

On May 17, 2023, the stockholders, upon recommendation of the Board, approved the Third Amendment (the “Third Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan").

The Third Amendment (i) increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 575,000 shares, (ii) re-set the term of the plan to expire on May 1, 2033, and (iii) made other miscellaneous, administrative and conforming changes as necessary.

The Incentive Plan includes (i) a fungible share reserve feature, under which shares subject to stock options and stock appreciation rights will be counted as one share for every share granted and shares subject to all other awards will be counted as 1.80 shares for every share granted, (ii) a double-trigger vesting requirement upon a change in control, and (iii) a maximum award granted or payable to any one participant under the Incentive Plan for a calendar year of 500,000 shares of Class A common stock or $ 4,000,000 , in the event the award is paid in cash.

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

At December 31, 2022 , 

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

No participant in the Incentive Plan may receive awards of any type of equity instruments in any calendar-year that relates to more than 500,000 shares of our Class A common stock or $ 4,000,000 .

At December 31, 2023 , 1,271,739 of the 4,775,000 shares noted above were available for award under the Incentive Plan.

No awards may be made under the Incentive Plan after May 1, 2033.

To the extent available, we have issued treasury stock to satisfy all share-based incentive plans.

Included in salaries, wages, and related expenses within the consolidated statements of operations is stock-based compensation expense of $ 6.0 million and $ 7.5 million, in 2022  and 

2021 , respectively.

Included in general supplies and expenses within the consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.6 million and $ 0.4 million in 

2022  and 

2021 , respectively. All the stock compensation expense recorded in 2022  and 

2021  relates to restricted shares granted, other than $ 2.2 million and $ 2.4 million in 2022  and 

2021 , respectively, which relates to stock options.

Associated with stock compensation expense was $ 0.4 million and $ 0.3 million of income tax benefit in 2022  and expense in 

2021 , respectively, related to the exercise of restricted share vesting.

We received $ 0.4  million and $ 0.0 million related to the exercise of stock options during 2022  and 

Associated with the exercise of stock options during 2022  and 

2021  was $ 0.1 million and $ 0.0 million of income tax benefit, respectively. Forfeitures are recognized as they're incurred.

Included in salaries, wages, and related expenses within the consolidated statements of operations is stock-based compensation expense of $ 6.5 million, $ 6.0 million, and $ 7.5 million in 2023 , 2022 , and 2021 , respectively.

Included in general supplies and expenses within the consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.6 million, $ 0.6 million, and $ 0.4 million in 2023 , 2022 , and 2021 , respectively.

All the stock compensation expense recorded in 2023 , 2022 , and 2021 relates to restricted shares granted, other than $ 3.9 million, $ 2.2 million, and $ 2.4 million in 2023 , 2022 , and 2021 , respectively, which relates to stock options.

Associated with stock compensation expense was $ 2.2 million and $ 0.4 million, of income tax benefit in 2023 , 2022 , respectively, and $ 0.3 million of income tax expense in 2021 , related to the exercise of restricted share vesting.

We received $ 0.2 million, $ 0.4 million, and $ 0.0 million related to the exercise of stock options during 2023 , 2022 , and 2021 .

Associated with the exercise of stock options during 2023 , 2022 , and 2021 was $ 0.1 million, $ 0.1 million, and $ 0.0 million of income tax benefit, respectively.

Forfeitures are recognized as they're incurred.

The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows the participant 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, certain participants elected to deliver to us 55,306  and 

60,752  Class A common stock shares, which were withheld at weighted average per share prices of $ 29.03  and $ 21.87 , respectively, based on the closing prices of our Class A common stock on the dates the shares vested in 2022  and 

2021 , respectively, in lieu of the federal and state minimum statutory tax withholding requirements.

We remitted $ 1.6 million and $ 0.5 million in 2022  and 

2021 , respectively, to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

To satisfy withholding requirements for shares that vested, certain participants elected to deliver to us $ 114,828 , $ 55,306 , and $ 60,752 Class A common stock shares, which were withheld at weighted average per share prices of $ 41.72 , $ 29.03 , and $ 21.87 , respectively, based on the closing prices of our Class A common stock on the dates the shares vested in 2023 , 2022 , and 2021 , respectively, in lieu of the federal and state minimum statutory tax withholding requirements.

We remitted $ 4.8 million, $ 1.6 million, and $ 0.5 million in 2023 , 2022 , and 2021 , respectively, to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

The payment of minimum tax withholdings on stock compensation are reflected within the issuances of restricted shares from treasury stock in the accompanying consolidated statement of stockholders' equity.

The following table summarizes our restricted share award activity for the fiscal years ended December 31, 2022  and 

The following table summarizes our restricted share award activity for the fiscal years ended December 31, 2023 , 2022 , and 2021 :

Number of stock awards (in thousands)

1 unchanged sentence

Unvested at December 31, 2020

$ 16.25  

$ 21.34  

( 218 )  

$ 16.57  

( 117 )  

$ 15.31  

( 218 ) $ 16.57

( 117 ) $ 15.31

Unvested at December 31, 2021

$ 18.12  

$ 22.08  

( 223 )  

$ 18.79  

$ 13.94  

( 223 ) $ 18.79

( 5 ) $ 13.94

Unvested at December 31, 2022

$ 19.12  

The unvested shares at 

December 31, 2022 will vest based on when and if the related vesting criteria are met for each award.

( 353 ) $ 18.47

Unvested at December 31, 2023

The unvested shares at December 31, 2023 will vest based on when and if the related vesting criteria are met for each award.

All awards require continued service to vest.

Unrecognized compensation expense for outstanding shares was $ 4.2 million as of 

December 31, 2022 , which is probable to be recognized over a weighted average period of approximately 

The fair value of restricted share awards that vested in 2022  and 

2021  was approximately $ 3.4 million and $ 4.9 million, respectively.

All restricted shares awarded to executives and other key employees pursuant to the Incentive Plan provide the holder with voting and other stockholder-type rights, but will not be issued until the relevant restrictions are satisfied.

The following table summarizes our stock option activity for the fiscal year ended December 31, 2022  and 2021 :

Unrecognized compensation expense for outstanding shares was $ 4.7 million as of December 31, 2023 , which is probable to be recognized over a weighted average period of approximately 2.1 years.

The fair value of restricted share awards that vested in 2023 , 2022 , and 2021 was approximately $ 6.3 million, $ 3.4 million, and $ 4.9 million respectively.

The following table summarizes our stock option activity for the fiscal year ended December 31, 2023 , 2022 , and 2021 :

Number of options (in thousands)

4 unchanged sentences

Outstanding at December 31, 2020

$ 15.77  

$ 7.26  

9.8 years  

721 $ 15.77 $ 7.26 9.8 years

Options granted

$ 21.24  

$ 9.85  

450 $ 21.24 $ 9.85

Options exercised

Options forfeited

( 60 )  

$ 15.77  

$ 7.26  

( 60 ) $ 15.77 $ 7.26

Outstanding at December 31, 2021

$ 17.99  

$ 8.31  

9.0 years  

$ 9,382  

1,111 $ 17.99 $ 8.31 9.0 years

Options granted

Options exercised

( 24 )  

$ 15.77  

$ 4.90  

( 24 ) $ 15.77 $ 4.90

Options forfeited

Outstanding at December 31, 2022

$ 18.04  

$ 8.39  

8.0 years  

$ 17,968  

1,087 $ 18.04 $ 8.39 8.0 years

Options granted

Options exercised

( 15 ) $ 15.77 $ 4.90

Options forfeited

Outstanding at December 31, 2023

1,072 $ 18.07 $ 8.43 7.0 years

Exercisable at December 31, 2023

$ 15.77  

$ 4.90  

7.9 years  

$ 2,649  

Unrecognized compensation cost for outstanding options was $ 4.5 million at 

December 31, 2022 .

238 $ 18.35 $ 5.52 7.1 years

Unrecognized compensation cost for outstanding options was $ 0.6 million at December 31, 2023 which is probable to be recognized over a weighted average period of approximately 0.2 years.

PROPERTY AND EQUIPMENT

A summary of property and equipment, at cost, as of December 31, 2022  and 2021 is as follows:

A summary of property and equipment, at cost, as of December 31, 2023 and 2022 is as follows:

(in thousands)

1 unchanged sentence

Revenue equipment

3 - 10  

$ 468,527  

$ 400,282  

2 - 20 $ 538,617 $ 468,527

Communications equipment

5 - 10  

$ 4,257  

5 - 10 5,847 4,470

Land and improvements

0 - 15  

11,719  

$ 16,341  

0 - 15 11,747 11,719

Buildings and leasehold improvements

7 - 40  

96,550  

$ 72,180  

7 - 40 104,358 96,550

Construction in-progress

16,077  

2 - 10  

22,343  

$ 24,480  

$ 619,686  

$ 518,406  

Depreciation expense was $ 53.2 million and $ 49.8 million in 2022  and 2021 , respectively.

This depreciation expense excludes net gains on the sale of property and equipment totaling $ 40.3 million and $ 3.8 million in 2022  and 2021 , respectively.

We lease certain revenue equipment under finance and operating leases with terms of approximately 48 to 84 months.

At December 31, 2022  and 2021 , property and equipment included finance and operating leases.

Our finance leases had capitalized costs of $ 12.7 million and $ 45.5 million and accumulated amortization of $ 7.4 million and $ 22.3 million at December 31, 2022  and 2021 , respectively. Amortization of these leased assets is included in depreciation and amortization expense in the consolidated statement of operations and totaled $ 2.3 million and $ 3.6 million during 2022 and 2021, respectively. See Note 9.

Leases  for additional information about our finance and operating leases.

- 2,968 16,077

2 - 10 28,995 22,343

$ 692,532 $ 619,686

Depreciation expense was $ 62.4 million, $ 53.2 million, and $ 49.8 million in 2023 , 2022 , and 2021 , respectively.

This depreciation expense excludes net gains on the sale of property and equipment totaling $ 12.6 million, $ 40.3 million, and $ 3.8 million in 2023 , 2022 , and 2021 , respectively.

We lease certain revenue equipment under finance and operating leases with terms of approximately 48 to 84 months.

At December 31, 2023 and 2022 , property and equipment included finance and operating leases.

Our finance leases had capitalized costs of $ 7.6 million and $ 12.7 million and accumulated amortization of $ 1.2 million and $ 7.4 million at December 31, 2023 and 2022 , respectively.

Amortization of these leased assets is included in depreciation and amortization expense in the consolidated statement of operations and totaled $ 0.7 million, $ 2.3 million, and $ 3.6 million during 2023 , 2022 , and 2021 , respectively.

See Note 11, "Leases" for additional information about our finance and operating leases.

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

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

Contingent consideration

Net purchase price

The contingent consideration arrangement requires us to pay a total of up to $ 12.0 million of additional consideration to Sim's former equity-holders based on Sim's 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.

Goodwill related to the acquisition is not tax deductible.

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.

(in thousands)

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

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

Refer to Note 9, "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 Sims included in the Company’s consolidated results of operations from the acquisition date to the period ended December 31, 2023 are as follows:

(in thousands)

December 31, 2023

Total revenue

ACQUISITION OF LEW THOMPSON & SON TRUCKING, INC.

On April 26, 2023, we acquired 100 % of the outstanding stock of LTST and related entities, headquartered in Huntsville, AR.

LTST is a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas and was acquired to expand the Dedicated reportable segment into this niche market.

The acquisition date fair value of the consideration transferred was $ 109.9 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 $ 30.0 million based on LTST's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first, second, and third calendar years following closing.

The total purchase, including any earnout achieved, is expected to range from $ 109.9 million to $ 129.9 million depending on the results achieved by LTST.

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

April 26, 2023

(in thousands)

Cash paid pursuant to Stock Purchase Agreement

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

Contingent consideration

Net purchase price

The contingent consideration arrangement requires us to pay a total of up to $ 30.0 million of additional consideration to LTST's former shareholders based on LTST's results during the first three 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.

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

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

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

(in thousands)

April 26, 2023

Accounts receivable

Driver advances and other receivables

Inventory and supplies

Prepaid expenses

Property and equipment

Other intangibles

Total identifiable assets acquired

Accounts payable

Accrued expenses

Current portion of operating lease obligations

Current portion of insurance and claims accrual

Long-term portion of operating lease obligations

Total liabilities assumed

Net identifiable assets acquired

Net assets acquired

Since acquisition we recognized measurement period adjustments which increased goodwill recognized for LTST by $ 1.7 million to $ 12.4 million as of December 31, 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 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 9, "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 period ended December 31, 2023 are as follows:

(in thousands)

December 31, 2023

Total revenue

The following unaudited pro forma consolidated results of operations assume that the acquisition of LTST occurred as of January 1, 2022:

(in thousands)

December 31, 2023

December 31, 2022

Total revenue

$ 1,124,492 $ 1,281,504

$ 57,592 $ 121,943

Basic net income per share

$ 4.41 $ 8.13

Diluted net income per share

$ 4.16 $ 7.86

The pro forma financial information for all periods presented above has been calculated after adjusting the results of LTST to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition occurred as of the beginning of the Company’s fiscal year 2022.

As noted above, the allocation is preliminary and changes to the value of the contingent consideration and finalization of our valuation could result in changes to the amount of amortization expense from acquired intangible assets included in the pro forma financial information presented above.

The Company's historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination and factually supportable.

The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2022.

ACQUISITION OF AAT CARRIERS, INC.

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

The acquisition date fair value of the consideration transferred was $ 54.7 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

On February 9, 2022, we acquired 100 % of the outstanding stock of AAT headquartered in Chattanooga, TN.

AAT specializes in highly regulated, time-sensitive loads for the U.S.

The acquisition date fair value of the consideration transferred was $ 54.7 million.

The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

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

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

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

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

2 unchanged sentences

Cash paid pursuant to Stock Purchase Agreement

$ 40,347  

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

Contingent consideration

16,210  

Net purchase price

$ 54,711  

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

1 unchanged sentence

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

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2022 :

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

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

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

(in thousands)

December 31, 2021

Adjustments to fair market value

December 31, 2022

Contingent consideration

 $ -  

 $ ( 16,210 )  

 $ ( 813 )  

 $ ( 17,023 )

Because of our 

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

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

February 9, 2022

4 unchanged sentences

Credentialing intangible asset

32,000  

Total identifiable assets acquired

40,888  

Accounts payable

4 unchanged sentences

Net identifiable assets acquired

39,012  

15,699  

Net assets acquired

$ 54,711  

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

Refer to Note 9, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended December 31, 2022 are as follows:

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended December 31, 2023 are as follows:

(in thousands)

December 31, 2023

December 31, 2022

Total revenue

$ 33,061  

$ 13,263  

$ 37,621 $ 33,061

$ 10,679 $ 13,263

GOODWILL AND OTHER ASSETS

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

The Landair trade name has a residual value of $ 0.5  million. 

Amortization expense of $ 4.3 million and $ 4.0 million for the years ended December 31, 2022  and 

2021 , respectively, was included in depreciation and amortization in the consolidated statements of operations.

A summary of other intangible assets, by reportable segment as of 

December 31, 2022  and 

2021  is as follows:

The Landair trade name has a residual value of $ 0.5 million.

Amortization expense of $ 7.5 million, $ 4.3 million, and $ 4.0 million for the years ended December 31, 2023 , 2022 , and 2021 , respectively, was included in depreciation and amortization in the consolidated statements of operations.

A summary of other intangible assets, by reportable segment as of December 31, 2023 and 2022 is as follows:

(in thousands)

4 unchanged sentences

Remaining Life (months)

$ 2,402  

$ ( 2,130 )  

$ 4,502 $ ( 2,269 ) $ 2,233

Managed Freight

( 885 )  

1,089 ( 891 ) 198

999 ( 885 ) 114

Total trade name

( 3,900 )  

6,590 ( 4,045 ) 2,545 110

Non-Compete agreement:

4,670 ( 778 ) 3,892

Managed Freight

380 ( 32 ) 348

Total non-compete agreement

5,050 ( 810 ) 4,240 40

Customer relationships:

14,072  

( 5,277 )  

60,172 ( 8,258 ) 51,914

Managed Freight

( 635 )  

12,436  

( 4,663 )  

7,312 ( 1,043 ) 6,269

12,436 ( 5,700 ) 6,736

Total customer relationships:

28,200  

( 10,575 )  

17,625  

79,920 ( 15,001 ) 64,919 159

Credentialing:

32,000  

( 1,956 )  

30,044  

32,000 ( 4,089 ) 27,911 157

Total credentialing

32,000  

( 1,956 )  

30,044  

32,000 ( 4,089 ) 27,911

Total other intangible assets

$ 64,600  

$ ( 16,431 )  

$ 48,169  

$ 123,560 $ ( 23,945 ) $ 99,615 151

(in thousands)

4 unchanged sentences

Remaining Life (months)

$ 2,402  

$ ( 2,130 )  

$ 2,402 $ ( 2,130 ) $ 272

Managed Freight

( 885 )  

999 ( 885 ) 114

Total trade name

( 3,900 )  

4,400 ( 3,900 ) 500 -

Customer relationships:

14,072  

( 4,104 )  

14,072 ( 5,277 ) 8,795

Managed Freight

( 494 )  

12,436  

( 3,627 )  

1,692 ( 635 ) 1,057

12,436 ( 4,663 ) 7,773

Total customer relationships

28,200  

( 8,225 )  

19,975  

28,200 ( 10,575 ) 17,625 90

Credentialing:

32,000 ( 1,956 ) 30,044

Total credentialing

32,000 ( 1,956 ) 30,044 169

Total other intangible assets

$ 32,600  

$ ( 12,125 )  

$ 20,475  

The above finite-lived intangible assets have a weighted average remaining life of 

138 months and 

102 months as of 

December 31, 2022  and 2021 , respectively.

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

$ 64,600 $ ( 16,431 ) $ 48,169 138

The above finite-lived intangible assets have a weighted average remaining life of 151 months and 138 months as of December 31, 2023 and 2022 , respectively.

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

(In thousands)

$ 4,483  

25,254  

The assignment of goodwill and intangible assets to our reportable segments was not complete as of December 31, 2023 .

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

The carrying amount of goodwill was $ 75.7 million at December 31, 2023 , compared to $ 58.2 million at December 31, 2022 , as a result of the LTST and Sims acquisitions.

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

(in thousands)

December 31, 2021

December 31, 2022

Gross/net goodwill

Acquired goodwill for AAT

Accumulated impairment loss

Gross/net goodwill

$ 15,699  

15,320  

Managed Freight

21,750  

Total goodwill

$ 42,518  

$ 15,699  

$ 58,217  

A summary of other assets as of December 31, 2022  and 2021 is as follows:

Balance at December 31, 2022

$ 15,699 $ 15,320 $ 5,448 $ 21,750

Acquired goodwill for LTST

Acquired goodwill for Sims

Post-acquisition goodwill adjustments

Balance at December 31, 2023

$ 15,699 $ 27,767 $ 10,531 $ 21,750

A summary of other assets as of December 31, 2023 and 2022 is as follows:

(in thousands)

Investment in TEL

$ 54,727  

$ 44,196  

$ 66,327 $ 54,727

Other long-term receivables

1 unchanged sentence

Total other assets, net

$ 58,843  

$ 52,384  

Other long-term receivables primarily represents amounts related to extended warranties on our revenue equipment on our consolidated balance sheet as of December 31, 2022, as well as amounts recorded as a receivable in other assets and as a corresponding accrual in the long-term portion of insurance and claims accruals on our consolidated balance sheet as of December 31, 2021, for claims above our self-insured retention for which we believe it is reasonably assured that the insurers will provide their portion of such claims.

The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of October 1, 2022. 

$ 78,067 $ 58,843

Other long-term receivables primarily represents amounts related to extended warranties on our revenue equipment on our consolidated balance sheet as of December 31, 2023 , and 2022, as well as amounts recorded as a receivable in other assets and as a corresponding accrual in the long-term portion of insurance and claims accruals on our consolidated balance sheet as of December 31, 2023, for claims above our self-insured retention for which we believe it is reasonably assured that the insurers will provide their portion of such claims.

The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of October 1, 2023 .

The first step of the goodwill impairment test is the Company's assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill.

1 unchanged sentence

If based on the qualitative assessments, the Company believes it more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, or periodically as deemed appropriate by management, the Company will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative approach.

If the estimation of fair value indicates that impairment potentially exists, the Company will then measure the amount of the impairment, if any. Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value. Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances.

If the estimation of fair value indicates that impairment potentially exists, the Company will then measure the amount of the impairment, if any.

Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value.

Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances.

As a result of the most recent goodwill impairment analysis performed ( October 1, 2023 ), the Company determined that it was not more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount.

3 unchanged sentences

No such events were identified as of December 31, 2023 .

Current and long-term debt and lease obligations consisted of the following at December 31, 2022  and 2021 :

Current and long-term debt and lease obligations consisted of the following at December 31, 2023 and 2022 :

(in thousands)

2 unchanged sentences

Borrowings under Credit Facility

$ - $ 11,579 $ - $ -

Borrowings under the Draw Note

Revenue equipment installment notes;

weighted average interest rate of 4.7 % at December 31, 2022, and 1.2 % December 31, 2021, due in monthly installments with final maturities at various dates ranging from May 2025 to June 2027, secured by related revenue equipment

17,656  

71,267  

weighted average interest rate of 5.2 % at December 31, 2023, and 4.7 % December 31, 2022, due in monthly installments with final maturities at various dates ranging from April 2028 to December 2028, secured by related revenue equipment

46,357 167,509 17,656 71,267

Real estate notes;

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

19,100  

20,345  

18,897  

90,367  

20,347  

1,294 17,806 1,241 19,100

47,651 196,894 18,897 90,367

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

781 5,296 5,326 432

Principal portion of operating lease obligations, secured by related equipment

18,179  

46,428  

15,811  

21,554  

11,950 30,892 18,179 46,428

Total debt and lease obligations

$ 42,402  

$ 137,227  

$ 28,381  

$ 45,870  

We and substantially all of our subsidiaries are parties to the Third Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A.

$ 60,382 $ 233,082 $ 42,402 $ 137,227

We and substantially all of our subsidiaries are parties to the Third Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A.

(together with the Agent, the "Lenders").

The Credit Facility is a $ 110.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows us to request an increase in the revolving credit facility of up to $ 75.0 million subject to Lender acceptance of the additional funding commitment.

The Credit Facility includes a letter of credit sub facility in an aggregate amount of $ 105.0 million and a swing line sub facility in an aggregate amount equal to the greater of $ 10.0 million or 10 % of the Lenders' aggregate commitments under the Credit Facility from time-to-time. The Credit Facility matures in May 2027.

Borrowings under the Credit Facility are classified as either "base rate loans" or "SOFR loans." Base rate loans accrue interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus 0.5 %, or SOFR for a one month period as of such day, plus an applicable margin ranging from 0.25 % to 0.75%;

The Credit Facility includes a letter of credit sub facility in an aggregate amount of $ 105.0 million and a swing line sub facility in an aggregate amount equal to the greater of $ 10.0 million or 10 % of the Lenders' aggregate commitments under the Credit Facility from time-to-time.

The Credit Facility matures in May 2027.

Borrowings under the Credit Facility are classified as either "base rate loans" or "SOFR loans." Base rate loans accrue interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus 0.5 %, or SOFR for a one month period as of such day, plus an applicable margin ranging from 0.25 % to 0.75%;

while SOFR loans accrued interest at SOFR, plus an applicable margin ranging from 1.25 % to 1.75 %.

The applicable rates are adjusted quarterly based on average pricing availability.

The unused line fee is the product of 0.25 % times the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of our assets, with the notable exclusion of any real estate, revenue equipment pledged under other financing agreements, including revenue equipment installment notes and finance leases, and revenue equipment that we do not designate as being included in the borrowing base.

The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of our assets, with the notable exclusion of any real estate, revenue equipment pledged under other financing agreements, including revenue equipment installment notes and finance leases, and revenue equipment that we do not designate as being included in the borrowing base.

Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $110.0 million, minus the sum of the stated amount of all outstanding letters of credit;

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 $ 0.0 million borrowings outstanding under the Credit Facility as of December 31, 2022 , undrawn letters of credit outstanding of approximately $ 23.9 million, and available borrowing capacity of $ 86.1 million. Based on availability as of December 31, 2022  and 2021 , there was no fixed charge coverage requirement.

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

We had $ 11.6 million borrowings outstanding under the Credit Facility as of December 31, 2023 , undrawn letters of credit outstanding of approximately $ 21.8 million, and available borrowing capacity of $ 76.6 million.

Based on availability as of December 31, 2023 and 2022 , there was no fixed charge coverage requirement.

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.

The Credit Facility contains certain restrictions and covenants relating to, among other things, debt, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions.

1 unchanged sentence

Pricing for the revenue equipment installment notes is quoted by the respective financial affiliates of our primary revenue equipment suppliers and other lenders at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts.

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

May 2025 to 

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 $ 83.4 million are cross-defaulted with the Credit Facility.

The notes included in the funding are due in monthly installments with final maturities at various dates ranging from April 2028 to December 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 $ 37.8 million are cross-defaulted with the Credit Facility.

Additional borrowings from the financial affiliates of our primary revenue equipment suppliers and other lenders are expected to be available to fund new tractors expected to be delivered in 2024, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of available cash, notes, operating leases, finance leases, and/or from the Credit Facility.

In August 2015, we financed a portion of the purchase of our corporate headquarters, a maintenance facility, and certain surrounding property in Chattanooga, Tennessee by entering into a $ 28.0 million variable rate note with a third -party lender.

Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to 4.2 %. The note contains certain restrictions and covenants that are usual and customary for a note of this nature.

Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to 4.2 %.

The note contains certain restrictions and covenants that are usual and customary for a note of this nature.

Failure to comply with the covenants and restrictions set forth in the note could result in an event of default.

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

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

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

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

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 December 31, 2022, there were no outstanding borrowings under the Draw Note.

As of December 31, 2022 , the scheduled principal payments of debt, excluding finance leases for which future payments are discussed in Note 9  are as follows:

As of December 31, 2023 , the scheduled principal payments of debt, excluding finance leases for which future payments are discussed in Note 11 are as follows:

(in thousands)

$ 13,915  

21,626  

23,117  

13,579  

Finance lease obligations are utilized to finance a portion of our revenue equipment and are entered into with certain finance companies who are not parties to our Credit Facility.

The leases in effect at December 31, 2022  terminate in 

January 2023 through 

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

The leases in effect at December 31, 2023 terminate in June 2028 through November 2033 and contain guarantees of the residual value of the related equipment by us.

As such, the residual guarantees are included in the related debt balance as a balloon payment at the end of the related term as well as included in the future minimum finance lease payments.

1 unchanged sentence

Our operating lease obligations do not typically include residual value guarantees or material restrictive covenants.

A summary of our lease obligations for the twelve months ended 

December 31, 2022  and 

2021  are as follows:

A summary of our lease obligations for the twelve months ended December 31, 2023 , 2022 , and 2021 are as follows:

(dollars in thousands)

1 unchanged sentence

Twelve Months Ended

December 31, 2023

December 31, 2022

December 31, 2021

Finance lease cost:

Amortization of right-of-use assets

$ 2,314  

$ 3,620  

$ 689 $ 2,314 $ 3,620

Interest on lease liabilities

Operating lease cost

20,538  

19,583  

18,296 20,538 19,583

Short-term lease cost

13,625  

7,514 13,625 4,419

Variable lease cost

Total lease cost

$ 37,086  

$ 28,348  

$ 28,033 $ 37,086 $ 28,348

Other information

1 unchanged sentence

Operating cash flows from finance leases

$ 510 $ 377 $ 637

Operating cash flows from operating leases

$ 17,114  

$ 17,188  

$ 13,965 $ 17,114 $ 17,188

Financing cash flows from finance leases

$ 5,516  

$ 5,626  

$ 5,619 $ 5,516 $ 5,626

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

$ 5,938 $ 458 $ -

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

$ 48,515  

$ 15,795  

Weighted-average remaining lease term—finance leases

Weighted-average remaining lease term—operating leases

Weighted-average discount rate—finance leases

Weighted-average discount rate—operating leases

During the year ended December 31, 2022, we recognized $ 7.5 million of expense related to the early abandonment and disposal charges related to revenue equipment held under operating leases as the equipment was a source of significant operational headwinds throughout the year due to poor fuel economy, unusually high maintenance costs, and elevated downtime.

December 31, 2022  and 2021,  right-of-use assets of $ 58.9 million and $ 35.7 million for operating leases, respectively, and $ 5.3 million and $ 23.2 million for finance leases, are included in net property and equipment in our consolidated balance sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation, communication and utilities, and general supplies and expenses, depending on the underlying asset, in the consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the consolidated statement of operations.

Our future minimum lease payments as of 

December 31, 2022 , summarized as follows by lease category:

$ 3,992 $ 48,515 $ 15,795

Weighted-average remaining lease term—finance leases

Weighted-average remaining lease term—operating leases

Weighted-average discount rate—finance leases

13.2 % 5.1 % 4.7 %

Weighted-average discount rate—operating leases

10.1 % 9.1 % 6.4 %

During the year ended December 31, 2022, we recognized $ 7.5 million of expense related to the early abandonment and disposal charges related to revenue equipment held under operating leases as the equipment was a source of significant operational headwinds throughout the year due to poor fuel economy, unusually high maintenance costs, and elevated downtime.

At December 31, 2023 and 2022 , right-of-use assets of $ 41.2 million and $ 58.9 million for operating leases, respectively, and $ 6.4 million and $ 5.3 million for finance leases, are included in net property and equipment in our consolidated balance sheets.

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

Amortization of finance leased assets is included in depreciation and amortization expense in the consolidated statement of operations.

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

(in thousands)

Operating  

Finance  

$ 22,653  

$ 5,138  

18,147  

11,719  

10,572  

Operating Finance

$ 15,285 $ 1,543

Total minimum lease payments

$ 79,254  

$ 6,210  

$ 53,187 $ 9,063

amount representing interest

( 14,647 )  

( 10,345 ) ( 2,986 )

Present value of minimum lease payments

$ 64,607  

$ 5,758  

$ 42,842 $ 6,077

current portion

( 18,179 )  

( 11,950 ) ( 781 )

Lease obligations, long-term

$ 46,428  

$ 30,892 $ 5,296

Certain leases contain cross-default provisions with other financing agreements and additional charges if the unit's mileage exceeds certain thresholds defined in the lease agreement.

Rental expense is summarized as follows for each of the two years ended December 31:

Rental expense is summarized as follows for each of the three years ended December 31:

(in thousands)

Revenue equipment rentals

$ 26,478  

$ 20,114  

Building and lot rentals

1 unchanged sentence

Total rental expense

$ 34,395  

$ 24,091  

Income tax expense for the years ended December 31, 2022 and 2021  is comprised of:

Income tax expense for the years ended December 31, 2023 , 2022 , and 2021 is comprised of:

(in thousands)

Federal, current

$ 16,123  

$ 9,875  

$ ( 1,132 ) $ 16,123 $ 9,875

Federal, deferred

12,774  

16,624 12,774 6,584

State, current

2,575 5,136 2,777

State, deferred

( 456 ) 827 1,726

Income tax expense

$ 34,860  

$ 20,962  

Income tax expense for the years ended December 31, 2022 and 2021  is summarized below:

$ 17,611 $ 34,860 $ 20,962

Income tax expense for the years ended December 31, 2023 , 2022 , and 2021 is summarized below:

(in thousands)

Computed "expected" income tax expense

$ 29,986  

$ 16,643  

$ 15,170 $ 29,986 $ 16,643

State income taxes, net of federal income tax effect

831(b) election

1,674 4,711 3,787

Per diem allowances

Tax contingency accruals

( 230 )  

( 287 ) ( 230 ) ( 295 )

Valuation allowance, net

( 379 )  

( 329 ) ( 379 ) ( 295 )

Excess tax benefits on share-based compensation

( 446 )  

( 1,811 ) ( 446 ) ( 259 )

Change in prior year estimates

( 145 )  

8 ( 145 ) ( 86 )

Executive compensation disallowance

( 414 )  

2,370 1,778 1,705

( 46 ) ( 415 ) 4

Income tax expense

$ 34,860  

$ 20,962  

The amount of income tax expense (benefit) allocated to discontinued operations for TFS is $ 0.2 million expense and $ 0.8 million benefit for the years ended December 31, 2022 and 

2021, respectively.

Income tax expense varies from the amount computed by applying the applicable federal corporate income tax rate of 21 % for 

2022  and 

2021 , to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences.

The IRS has issued guidance that allows meals and entertainment per diem to be 100% deductible for tax years 2021 and 2022.

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

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2022  and 2021 are as follows:

$ 17,611 $ 34,860 $ 20,962

The amount of income tax expense (benefit) allocated to discontinued operations for TFS is $ 0.2 million expense for the years ended December 31, 2023 and 2022 , respectively and $ 0.8 million benefit for the year ended December 31, 2021.

Income tax expense varies from the amount computed by applying the applicable federal corporate income tax rate of 21 % for 2023 , 2022 , and 2021 , to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which are the effects of the per diem pay structure for drivers, executive compensation disallowance, and excess tax benefits on share-based compensation.

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

This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes.

As a result, salaries, wages, and benefits are slightly lower and our effective income tax rate is higher than the statutory rate.

Generally, as pre-tax income increases, the impact of the driver per diem program on effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven, the impact of the per diem program on our effective tax rate is significant.

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

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2023 and 2022 are as follows:

(in thousands)

1 unchanged sentence

Insurance and claims

$ 9,320  

$ 9,453  

$ 7,958 $ 9,320

Net operating loss carryovers

Leased liability

16,292  

10,796 16,292

Finance lease obligation

Accrued bonus

Total deferred tax assets

39,122  

33,325  

49,947 39,122

Deferred tax liabilities:

Property and equipment

( 74,481 )  

( 96,208 ) ( 74,481 )

Investment in partnership

( 42,151 )  

( 50,613 ) ( 42,151 )

ROU Asset- leases

( 14,836 )  

( 2,396 )  

481(a) - finance leases

( 10,371 ) ( 14,836 )

( 4,088 ) ( 1,502 )

( 563 ) ( 894 )

Prepaid expenses

( 3,974 )  

( 4,199 ) ( 3,974 )

Total deferred tax liabilities

( 137,838 )  

( 166,042 ) ( 137,838 )

Net deferred tax liability

$ ( 98,716 )  

The net deferred tax liability of $ 98.8 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid.

The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance.

The Company has determined that, based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, a valuation allowance was not necessary at December 31, 2022 for our deferred tax assets since it is more likely than not they will be realized from 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.

As of December 31, 2022 , we had a $ 0.4 million liability recorded for unrecognized tax benefits, which includes interest and penalties of less than $ 0.1 million.

$ ( 116,095 ) $ ( 98,716 )

The net deferred tax liability of $ 116.1 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially offset by net operating loss carryovers and insurance claims that have been reserved but not paid.

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.

We determined that a valuation allowance was not necessary at December 31, 2023 for our deferred tax assets since it is more likely than not they will be realized from 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.

As of December 31, 2023 , we had a $ 0.1 million liability recorded for unrecognized tax benefits, which includes interest and penalties of less than $ 0.1 million.

We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense.

As of December 31, 2021 , we had a $ 0.6 million liability recorded for unrecognized tax benefits, which included interest and penalties of $ 0.1 million.

Interest and penalties recognized for uncertain tax positions provided for de minimus expense in 2022 and 2021.

As of December 31, 2022 , we had a $ 0.4 million liability recorded for unrecognized tax benefits, which included interest and penalties of less than $ 0.1 million.

Interest and penalties recognized for uncertain tax positions provided for de minimus expense in 2023 and 2022.

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended December 31, 2023 , 2022 , and 2021 :

Balance as of January 1,

$ 392 $ 596 $ 887

Decreases related to lapsing of statute of limitations

( 204 )  

( 287 ) ( 204 ) ( 291 )

Balance as of December 31,

If recognized, approximately $ 0.4 million and $ 0.6 million of unrecognized tax benefits would impact our effective tax rate as of both December 31, 2022  and 2021 , respectively.

$ 105 $ 392 $ 596

If recognized, approximately $ 0.1 million, $ 0.4 million, and $ 0.6 million of unrecognized tax benefits would impact our effective tax rate as of December 31, 2023 , 2022 , and 2021 , respectively.

Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

2019 through 2021 tax years remain subject to examination by the IRS for U.S.

federal tax purposes, our major taxing jurisdiction. In the normal course of business, we are also subject to audits by state and local tax authorities.

Our 2020 through 2022 tax years remain subject to examination by the IRS for U.S.

federal tax purposes, our major taxing jurisdiction.

In the normal course of business, we are also subject to audits by state and local tax authorities.

We do not anticipate total unrecognized tax benefits to materially change in the next twelve months.

Our federal net operating loss ("NOL") was fully consumed in 2021.

We have $ 1.0 million of federal tax credits available to offset future tax.

We generated a federal net operating loss of $ 50.0 million in 2023 which can be carried forward indefinitely.

We have $ 0.4 million of federal tax credits available to carry back and offset tax in 2022.

Our state net operating loss carryforwards and state tax credits of $ 80.6 million and $ 0.4 million, respectively, expire beginning in 2023 and 2029 based on jurisdiction.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law.

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

The Company considered the impacts of the legislation in the 2021 and 2020 financial statements.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the "ARPA") into law.

The new law includes several provisions meant to stimulate the U.S.

The new law includes several provisions meant to stimulate the U.S.

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

5 unchanged sentences

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

Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 1% tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation.

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

Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 1% tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation.

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

On May 11, 2023, the Tennessee Works Act was signed into law by Governor Lee.

The most impactful change for the Company was the phase-in of a single-sales factor apportionment formula for the logistics and leasing companies that file in Tennessee.

The motor carriers already apply a single-sales factor.

This resulted in the Company recording a $ 1.2 million benefit during 2023 related to revaluing our deferred tax balances for this change.

EQUITY METHOD INVESTMENT

3 unchanged sentences

There are no current put rights to purchase or sell with any owners.

TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent.

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

For the years ended December 31, 2022  and 

2021 , we sold tractors and trailers to TEL for $ 0.0 million and $ 0.3 million, respectively, and received $ 0.8 million and $ 0.9 million, respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment.

We did not purchase any equipment from TEL in 

2022  or 

Additionally, we paid $ 6.1 million and $ 0.8 million to TEL for leases of revenue equipment and maintenance in 2022  and 

2021 , respectively.

We recorded net reversal of gains of less than $ 0.1 million for the year ended 

December 31, 2022  and deferral of gains of approximately $ 0.1 million for the year ended 

December 31, 2021  representing 49 % of the gains on tractors and trailers sold to TEL less any gains previously deferred and recognized when the equipment was sold to a third party. Deferred gains totaling $ 0.2 million at December 31, 2022  and 2021 , respectively, are being carried as a reduction in our investment in TEL. 

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, which amounted to $ 25.2 million in 2022  and $ 14.8 million in 2021 .

We received an equity distribution from TEL for $ 14.7 million, and $ 4.9 million in 

2022  and 

2021 , which was distributed to each member based on its respective ownership percentage. 

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

December 31, 2022  and 2021 , are as follows:

For the years ended December 31, 2023 and 2022 , we sold no tractors and trailers to TEL while for 2021 we sold $ 0.3 million of tractors and trailers to TEL.

We received $ 0.9 million, $ 0.8 million, and $ 0.9 million respectively, for providing various maintenance services, certain back-office functions, and for miscellaneous equipment.

We purchased equipment from TEL for $ 4.1 million in 2023 and none in 2022 or 2021, respectively.

Additionally, we paid $ 6.8 million, $ 6.1 million, and $ 0.8 million to TEL for leases of revenue equipment and maintenance in 2023 , 2022 , and 2021, respectively.

We had operating lease liabilities with TEL of $ 4.1 million and $ 13.8 million at December 31, 2023 and 2022 , respectively, for revenue equipment leased from TEL.

We recorded net reversal of gains of less than $ 0.1 million for the years ended December 31, 2023 and 2022 and deferral of gains of approximately $ 0.1 million for the year ended December 31, 2021 , representing 49 % of the gains on tractors and trailers sold to TEL less any gains previously deferred and recognized when the equipment was sold to a third -party.

Deferred gains totaling $ 0.2 million at December 31, 2023 and 2022 , respectively, are being carried as a reduction in our investment in TEL.

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, which amounted to $ 21.4 million in 2023 , $ 25.2 million in 2022 , and $ 14.8 million in 2021.

We received an equity distribution from TEL for $ 9.8 million, and $ 14.7 million in 2023 and 2022 , which was distributed to each member based on its respective ownership percentage.

Our accounts receivable and payable from TEL and investment in TEL as of December 31, 2023 and 2022 , are as follows:

Balance Sheet Line Item:

4 unchanged sentences

Investment in TEL

$ 54,727  

$ 44,196  

$ 66,327 $ 54,727

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

Our accounts payable to TEL related to operating lease payments owed to TEL.

Our investment in TEL is comprised of $ 4.9 million cash investment and our equity in TEL's earnings since our investment, partially offset by dividends received since our investment for minimum tax withholdings as noted above.

Additionally, the abovementioned deferred gains on sales of equipment to TEL are carried as a reduction in our investment in TEL.

Our investment in TEL is comprised of $ 4.9 million cash investment and our equity in TEL's earnings since our investment, partially offset by dividends received since our investment for minimum tax withholdings as noted above.

Additionally, the abovementioned deferred gains on sales of equipment to TEL are carried as a reduction in our investment in TEL.

See TEL's summarized financial information below.

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Current Assets

$ 62,064  

$ 32,948  

$ 74,154 $ 62,064

Non-current Assets

418,660  

313,270  

518,870 418,661

Current Liabilities

83,326  

63,330  

119,620 83,326

Non-current Liabilities

294,222  

201,618  

$ 103,177  

$ 81,270  

347,121 294,222

$ 126,283 $ 103,177

(in thousands)

As of the years ended December 31,

$ 149,347  

$ 104,873  

$ 151,207 $ 149,347 $ 104,873

Cost of Sales

28,815  

14,768 28,815 8,876

Operating Expenses

60,861  

58,627  

79,596 60,861 58,627

Operating Income

59,671  

37,370  

$ 51,907  

$ 30,078  

56,843 59,671 37,370

$ 43,107 $ 51,907 $ 30,078

EMPLOYEE BENEFIT PLANS

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We may make discretionary contributions as determined by a committee of our Board.

We made contributions of $ 1.9 million in 2022  and 2021 , respectively, to the profit sharing and savings plan.

We made contributions of $ 2.2 million, $ 1.9 million, and $ 1.9 million in 2023 , 2022 , and 2021 , respectively, to the profit sharing and savings plan.

Nonqualified Deferred Compensation Plan

1 unchanged sentence

Under the terms of the SSP, participants may elect to defer compensation on a pre-tax basis within annual dollar limits we establish.

At December 31, 2022, there were 15 active participants in the SSP. We may make discretionary contributions as we so determine each year.

At December 31, 2023 and 2022 , there were 15 active participants in the SSP, respectively.

We may make discretionary contributions as we so determine each year.

Each participant is fully vested in all deferred compensation and earnings;

however these amounts are subject to general creditor claims until distributed to the participant. Under current federal tax law, we are not allowed a current income tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is made to a participant from the SSP.

The accumulated benefit obligation was $ 0.2 million as of December 31, 2022 and is included in other long-term liabilities in the consolidated balance sheets.

however these amounts are subject to general creditor claims until distributed to the participant.

Under current federal tax law, we are not allowed a current income tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is made to a participant from the SSP.

The accumulated benefit obligation was $ 2.4 million and $ 0.2 million as of December 31, 2023 and 2022 , respectively, and is included in accrued expenses and other long-term liabilities in the consolidated balance sheets.

We purchased life insurance policies with the intent to fund the future liability.

The aggregate market value of the life insurance policies was $ 0.2 million as of December 31, 2022, and was included in other non-current assets in the consolidated balance sheets.

The aggregate market value of the life insurance policies was $ 2.4 million and $ 0.2 million as of December 31, 2023 and 2022 , respectively, and was included in other non-current assets in the consolidated balance sheets.

The accumulated benefit obligation and aggregate market value of the life insurance policies were as follows (in thousands):

December 31, 2022

Accumulated benefit obligation

$ 2,360 $ 226

Aggregate market value

$ 2,424 $ 220

RELATED PARTY TRANSACTIONS

Other than those associated with TEL, there are no  material related party transactions.

Other than those associated with TEL, there are no material related party transactions.

See Note 13 for discussions of the related party transactions associated with TEL.

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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.

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

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

The Complaint alleges claims for failure to pay all lawful wages, failure to provide lawful meal and rest periods or compensation in lieu thereof, failure to timely pay wages, failure to comply with itemized wage statement provisions, failure to indemnify for expenditures, and violations of California Labor Code and unfair competition laws. Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes that the recent resolution and dismissal of a prior class action lawsuit alleging similar claims, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements, however, any future liability claims could impact this analysis. Covenant Transport intends to vigorously defend itself in this matter. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of December 31, 2022.

We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions.

Refer to Note 1, "Significant Accounting Policies" of the accompanying consolidated financial statements for information about our insurance program. 

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

Refer to Note 1 for information about our insurance program.

We had $ 21.8 million and $ 23.9 million of outstanding and undrawn letters of credit as of December 31, 2023 and 2022 , respectively.

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.

We had commitments outstanding at December 31, 2022 , to acquire revenue equipment totaling approximately $ 156.6 million versus commitments at December 31, 2021 of approximately $ 73.8 million.

As of December 31, 2023, the remaining contingent liability was $ 1.6 million.

We had commitments outstanding at December 31, 2023 , to acquire revenue equipment totaling approximately $ 121.9 million versus commitments at December 31, 2022 of approximately $ 156.6 million.

These commitments are cancelable upon stated notice periods, subject to certain adjustments in the underlying obligations and benefits.

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SEGMENT INFORMATION

Our four reportable segments are:

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

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

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

Equipment is either owned or leased by the Company.

Managed Freight:

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

Brokerage services provide logistics capacity by outsourcing the carriage of customers' freight to third parties.

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

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

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

Our four reportable segments are (i) Expedited, (ii) Dedicated, (iii) Managed Freight, and (iv) Warehousing.

Refer to Note 1, for a description of each of our reportable segments.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

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

The following table summarizes our reportable segment information for 2022  and 

The following table summarizes our reportable segment information as used by our chief operating decision maker in making decisions regarding allocation of resources, etc., for 2023 , 2022 , and 2021 :

(in thousands)

2 unchanged sentences

Total revenue from external customers

$ 452,713  

$ 362,997  

$ 320,985  

$ 80,163  

$ 1,216,858  

$ 423,820 $ 320,287 $ 258,903 $ 100,563 $ 1,103,573

Intersegment revenue

10,859 - - - 10,859

Operating income

60,552  

21,087  

36,858  

120,682  

28,861 17,712 9,388 2,862 58,823

Depreciation and amortization

30,101  

25,449  

57,512  

35,451 32,163 562 1,767 69,943

(in thousands)

2 unchanged sentences

Total revenue from external customers

$ 337,063  

$ 324,541  

$ 321,236  

$ 63,163  

$ 1,046,003  

$ 452,713 $ 362,997 $ 320,985 $ 80,163 $ 1,216,858

Intersegment revenue

5,505 - - - 5,505

Operating income (loss)

33,064  

( 1,357 )  

32,461  

67,162  

60,552 21,087 36,858 2,185 120,682

Depreciation and amortization

25,364  

25,960  

53,881  

30,101 25,449 247 1,715 57,512

(in thousands)

Year Ended December 31, 2021

Managed Freight

Total revenue from external customers

$ 337,063 $ 324,541 $ 321,236 $ 63,163 $ 1,046,003

Intersegment revenue

7,429 - - - 7,429

Operating income

33,064 ( 1,357 ) 32,461 2,994 67,162

Depreciation and amortization

25,364 25,960 595 1,962 53,881

(in thousands)

For the years ended December 31,

Total external revenues for reportable segments

$ 1,216,858  

$ 1,046,003  

$ 1,103,573 $ 1,216,858 $ 1,046,003

Intersegment revenues for reportable segments

10,859 5,505 7,429

Elimination of intersegment revenues

( 5,505 )  

( 10,859 ) ( 5,505 ) ( 7,429 )

Total consolidated revenues

$ 1,216,858  

$ 1,046,003  

$ 1,103,573 $ 1,216,858 $ 1,046,003

Balance sheet data by reportable segment is not maintained by the Company.

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

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

Under such authorization, we repurchased 0.5 million shares of our Class A common stock for $ 8.1 million during the three months ended March 31, 2021.

1 unchanged sentence

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

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

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

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

Under such authorization, we repurchased 2.0  million shares of our Class A common stock for $ 54.7  million through December 31, 2022. 

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

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

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

On November 16, 2022, our Board declared a cash dividend of $ 0.08  per share, which was paid on December 

30, 2022, to stockholders of record on December 2, 2022.

SUBSEQUENT EVENTS

On January 13, 2023, the Company sold a Tennessee based terminal property for approximately $ 12 million in cash net of transaction costs and expects to record a pretax gain on sale of property of approximately $ 8 million in the first quarter of 2023.

On February 15, 2023, our Board approved a quarterly cash dividend program of $ 0.11 per share, subject to quarterly approval by our Board.

Our Board has approved the dividend, which will be for stockholders of record as of March 3, 2023, and payable on March 31, 2023.

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

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

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

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

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

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

We repurchased an additional 0.3  million shares of our Class A common stock for $ 10.8 million from January 1, 2023 through February 24, 2023.

Between May 2022 and April 2023, we repurchased a total of 2.7 million shares of our Class A common stock.

No additional shares have been repurchased since April 2023 ( through February 26, 2024).

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

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

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

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.

On November 15, 2023, our Board declared a cash dividend of $ 0.11 per share which was paid on December 29, 2023, to stockholders of record on December 1, 2023.

SUBSEQUENT EVENTS

On February 13, 2024, our Board approved a quarterly cash dividend program of $ 0.11 per share, subject to quarterly approval by our Board.

Our Board has approved the dividend, which will be for stockholders of record as of March 1, 2024, and payable on March 29, 2024.

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-K

Item 9A. Controls and Procedures