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Item 1. Financial Statements

2024-05-03 compared with 2023-11-09 · 357 added, 1329 removed, 427 unchanged (80% of the section changed)

FINANCIAL STATEMENTS

COVENANT LOGISTICS GROUP, INC.

COVENANT LOGISTICS GROUP, INC.

AND SUBSIDIARIES

1 unchanged sentence

(In thousands, except share data)

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

$ 7,388  

$ 68,665  

$ 2,952 $ 2,294

Accounts receivable, net of allowance of $ 2,434 in 2024 and $ 2,449 in 2023

154,187  

119,770  

143,975 142,504

Drivers' advances and other receivables, net of allowance of $ 589 in 2024 and $ 591 in 2023

1 unchanged sentence

Prepaid expenses

17,097  

15,746  

13,562 17,880

Assets held for sale

14,061  

Income taxes receivable

1 unchanged sentence

Total current assets

202,506  

222,656  

180,444 185,945

Property and equipment, at cost

613,086  

619,686  

690,996 692,532

accumulated depreciation and amortization

( 169,168 )  

( 188,011 ) ( 177,877 )

Net property and equipment

443,918  

407,735  

73,154  

58,217  

502,985 514,655

80,303 75,747

Other intangibles, net

101,987  

48,169  

97,242 99,615

Other assets, net

70,134  

58,843  

82,098 78,067

Noncurrent assets of discontinued operations

$ 892,158  

$ 796,645  

$ 943,431 $ 954,438

LIABILITIES AND STOCKHOLDERS' EQUITY

2 unchanged sentences

Accounts payable

34,199  

33,896  

31,605 33,155

Accrued expenses

67,797  

58,763  

49,194 59,067

Current maturities of long-term debt

30,932  

18,897  

60,964 47,651

Current portion of finance lease obligations

Current portion of operating lease obligations

14,596  

18,179  

Current portion of insurance and claims accrual

22,296  

21,060  

20,841 17,687

Total current liabilities

171,349  

156,121  

173,403 170,291

Long-term debt

153,641  

90,367  

187,400 196,894

Long-term portion of finance lease obligations

Long-term portion of operating lease obligations

35,492  

46,428  

27,328 30,892

Insurance and claims accrual

13,034  

15,859  

17,902 15,746

Deferred income taxes

103,202  

98,716  

110,543 116,095

Other long-term liabilities

14,076  

12,371 14,169

Long-term liabilities of discontinued operations

Total liabilities

498,135  

419,517  

536,184 551,018

Stockholders' equity:

Class A common stock, $ .01 par value;

Class A common stock, $.

01 par value;

40,000,000 shares authorized;

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

16,125,786 shares issued and 10,764,360 outstanding as of March 31, 2024;

and 16,125,786 shares issued and 10,721,517 outstanding as of December 31, 2023

Class B common stock, $ .01 par value;

Class B common stock, $.

01 par value;

5,000,000 shares authorized;

1 unchanged sentence

Additional paid-in-capital

156,232  

152,886  

156,695 155,846

Treasury stock at cost;

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

( 131,402 )  

5,361,426 and 5,404,269 shares as of March 31, 2024 and December 31, 2023, respectively

( 132,159 ) ( 132,346 )

Accumulated other comprehensive income

Retained earnings

367,561  

329,471  

381,450 378,919

Total stockholders' equity

394,023  

377,128  

407,247 403,420

Total liabilities and stockholders' equity

$ 892,158  

$ 796,645  

$ 943,431 $ 954,438

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

COVENANT LOGISTICS GROUP, INC.

COVENANT LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE 

three and nine months ended September 30, 2023 and 2022

FOR THE three months ended March 31, 2024 and 2023

(In thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Freight revenue

$ 253,377  

$ 266,599  

$ 730,503  

$ 791,069  

$ 247,685 $ 233,422

Fuel surcharge revenue

35,344  

45,240  

99,085  

129,732  

31,078 33,429

Total revenue

$ 288,721  

$ 311,839  

$ 829,588  

$ 920,801  

$ 278,763 $ 266,851

Operating expenses:

Salaries, wages, and related expenses

$ 102,314  

$ 104,537  

$ 302,753  

$ 300,980  

35,173  

42,471  

100,692  

126,457  

$ 100,335 $ 99,159

30,952 34,091

Operations and maintenance

16,984  

22,468  

50,328  

60,248  

13,596 17,109

Revenue equipment rentals and purchased transportation

72,046  

78,943  

203,045  

244,281  

66,751 63,016

Operating taxes and licenses

10,161  

Insurance and claims

13,074  

12,947  

36,810  

35,752  

15,390 12,693

Communications and utilities

General supplies and expenses

11,774  

11,201  

38,169  

28,416  

20,830 13,620

Depreciation and amortization

18,182  

14,357  

51,701  

41,734  

Gain on disposition of property and equipment, net

( 602 )  

( 38,721 )  

( 12,380 )  

21,108 14,575

Loss (gain) on disposition of property and equipment, net

702 ( 9,791 )

Total operating expenses

273,580  

252,780  

785,032  

811,022  

274,428 249,219

Operating income

15,141  

59,059  

44,556  

109,779  

Interest expense, net

Income from equity method investment

( 5,335 )  

( 7,400 )  

( 16,659 )  

( 3,676 ) ( 5,943 )

Income before income taxes

17,839  

65,524  

55,685  

128,784  

Income tax expense

15,563  

13,701  

32,130  

Income from continuing operations, net of tax

13,356  

49,961  

41,984  

96,654  

Income from discontinued operations, net of tax

$ 13,506  

$ 50,486  

$ 42,434  

$ 97,179  

$ 3,974 $ 16,635

Basic income per share (1) :

Income from continuing operations

$ 1.03  

$ 3.47  

$ 3.21  

$ 6.24  

$ 0.29 $ 1.23

Income from discontinued operations

Net income per share

$ 1.04  

$ 3.50  

$ 3.24  

$ 6.27  

$ 0.30 $ 1.25

Diluted income per share:

Income from continuing operations

$ 0.98  

$ 3.36  

$ 3.06  

$ 6.09  

$ 0.28 $ 1.19

Income from discontinued operations

Net income per share

$ 0.99  

$ 3.39  

$ 3.09  

$ 6.12  

$ 0.29 $ 1.20

Basic weighted average shares outstanding

12,947  

14,405  

13,082  

15,495  

13,087 13,361

Diluted weighted average shares outstanding

13,679  

14,892  

13,739  

15,875  

13,800 13,877

Total may not sum due to rounding.

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

COVENANT LOGISTICS GROUP, INC.

COVENANT LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands )

Three Months Ended September 30,

Nine Months Ended September 30,

$ 13,506  

$ 50,486  

$ 42,434  

$ 97,179  

Three Months Ended March 31,

$ 3,974 $ 16,635

Other comprehensive income:

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

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

( 100 )  

( 271 )  

Unrealized gain (loss) on effective portion of cash flow hedges, net of tax of ($ 126 ) in 2024 and $ 114 in 2023, respectively

Reclassification of cash flow hedge gains into statement of operations, net of tax of $ 35 in 2024 and $ 27 in 2023, respectively

Total other comprehensive income

Comprehensive income

$ 13,911  

$ 51,246  

$ 42,795  

$ 99,598  

$ 4,234 $ 16,232

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

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands)

For the Three and Nine Months Ended September 30, 2023

For the Three Months Ended

Comprehensive

1 unchanged sentence

Balances at December 31, 2023

$ 152,886  

$ ( 106,500 )  

$ 1,086  

$ 329,471  

$ 377,128  

16,635  

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

- - - - - 3,974 3,974

Cash dividend ($ 0.11 per common share)

( 1,466 )  

Share repurchase

( 20,805 )  

- - - - - ( 1,443 ) ( 1,443 )

Other comprehensive income

( 403 )  

- - - - 260 - 260

Stock-based employee compensation expense

- - 947 - - - 947

Exercise of stock options

- - 150 278 - - 428

Issuance of restricted shares, net

( 1,523 )  

- - ( 248 ) ( 91 ) - - ( 339 )

Balances at March 31, 2024

$ 152,921  

$ ( 127,267 )  

$ 344,640  

$ 371,162  

12,293  

Cash dividend ($ 0.11 per common share)

( 1,442 )  

Share repurchase

( 4,683 )  

Other comprehensive income

Stock-based employee compensation expense

Exercise of stock options

Issuance of restricted shares, net

( 389 )  

Balances at June 30, 2023

$ 154,348  

$ ( 131,402 )  

$ 1,042  

$ 355,491  

$ 379,664  

13,506  

Cash dividend ($ 0.11 per common share)

( 1,436 )  

Other comprehensive income

Stock-based employee compensation expense

Balances at September 30, 2023

$ 156,232  

$ ( 131,402 )  

$ 1,447  

$ 367,561  

$ 394,023  

For the Three and Nine Months Ended September 30, 2022

$ 161 $ 24 $ 156,695 $ ( 132,159 ) $ 1,076 $ 381,450 $ 407,247

For the Three Months Ended

Comprehensive

1 unchanged sentence

Balances at December 31, 2022

$ 149,406  

$ ( 23,662 )  

$ ( 1,306 )  

$ 225,076  

$ 349,699  

22,167  

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

- - - - - 16,635 16,635

Cash dividend ($ 0.11 per common share)

( 1,047 )  

- - - - - ( 1,466 ) ( 1,466 )

Other comprehensive income

- - - - ( 403 ) - ( 403 )

Share repurchase

( 14,800 )  

- - - ( 20,805 ) - - ( 20,805 )

Stock-based employee compensation expense

- - 1,558 - - - 1,558

Issuance of restricted shares, net

( 863 )  

- - ( 1,523 ) 38 - - ( 1,485 )

Balances at March 31, 2023

$ 150,436  

$ ( 37,635 )  

$ ( 300 )  

$ 246,196  

$ 358,882  

24,526  

Cash dividend ($ 0.0625 per common share)

( 975 )  

Other comprehensive loss

Share repurchase

( 28,565 )  

Stock-based employee compensation expense reversal

Issuance of restricted shares, net

( 1,053 )  

Balances at June 30, 2022

$ 151,238  

$ ( 65,492 )  

$ 269,747  

$ 356,031  

50,486  

Cash dividend ($ 0.08 per common share)

( 1,170 )  

Other comprehensive loss

Share repurchase

( 27,521 )  

Stock-based employee compensation expense

Exercise of stock options

Issuance of restricted shares, net

( 70 )  

Balances at September 30, 2022

$ 152,575  

$ ( 92,823 )  

$ 1,113  

$ 319,063  

$ 380,113  

$ 161 $ 24 $ 152,921 $ ( 127,267 ) $ 683 $ 344,640 $ 371,162

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE  nine months ended September 30, 2023 and 2022

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

$ 42,434  

$ 97,179  

$ 3,974 $ 16,635

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

2 unchanged sentences

Depreciation and amortization

51,701  

41,734  

21,108 14,575

Deferred income tax expense

( 5,259 ) ( 1,185 )

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

( 816 )  

( 333 ) ( 587 )

Stock-based compensation expense

Income from equity method investment

( 16,659 )  

Return on investment from equity method investee

( 3,676 ) ( 5,943 )

Gain on disposition of property and equipment

( 12,580 )  

Gain on reversal of contingent loss of discontinued operations

702 ( 9,791 )

Changes in operating assets and liabilities:

Receivables and advances

( 24,563 )  

31,104  

Prepaid expenses and other assets

( 2,511 )  

Inventory and supplies

( 332 )  

Insurance and claims accrual

( 1,645 )  

5,310 ( 324 )

Accounts payable and accrued expenses

( 1,209 )  

( 8,548 ) ( 13,313 )

Net cash flows provided by operating activities

52,973  

121,069  

Cash flows from investing activities:

Acquisition, net of cash acquired

( 107,922 )  

Other investments

( 1,580 )  

( 156 ) ( 1,108 )

Purchase of property and equipment

( 112,047 )  

( 48,362 ) ( 16,221 )

Proceeds from disposition of property and equipment

76,954  

50,112  

Net cash flows used by investing activities

( 144,595 )  

Net cash flows (used) provided by investing activities

( 43,481 ) 7,078

Cash flows from financing activities:

1 unchanged sentence

Cash dividend

( 4,344 )  

( 1,443 ) ( 1,466 )

Proceeds from issuance of notes payable

98,451  

65,253  

52,179 12,795

Repayments of notes payable

( 23,142 )  

( 10,540 ) ( 4,902 )

Repayments of finance lease obligations

( 5,432 )  

( 162 ) ( 3,357 )

Proceeds under revolving credit facility

123,463  

74,528  

14,550 10,665

Repayments under revolving credit facility and draw note

( 123,463 )  

( 26,130 ) ( 10,665 )

Payment of contingent consideration liability

( 9,187 )  

( 7,023 ) ( 9,187 )

Proceeds from exercise of stock options

Payment of minimum tax withholdings on stock compensation

( 1,520 )  

( 339 ) ( 1,485 )

Common stock repurchased

( 25,488 )  

Net cash flows provided (used) by financing activities

30,345  

22,438 ( 28,407 )

Net change in cash and cash equivalents

( 61,277 )  

50,845  

658 ( 14,081 )

Cash and cash equivalents at beginning of period

68,665  

Cash and cash equivalents at end of period

$ 7,388  

$ 59,257  

$ 2,952 $ 54,584

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

8 unchanged sentences

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10 -Q and Article 10 of Regulation S- X promulgated under the Securities Act of 1933.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10 -Q and Article 10 of Regulation S- X promulgated under the Securities Act of 1933.

In preparing finan cial statem ents, it is necessary for management to make assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes.

5 unchanged sentences

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

therefore, operating results for the nine months ended September 30, 2023  are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 .

therefore, operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 .

These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10 -K for the year ended December 31, 2023 .

4 unchanged sentences

Depreciation of revenue equipment is our largest item of depreciation.

We generally depreciate new tractors over 

five  years to salvage values ranging from 10 % to 

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

We generally depreciate new trailers over 

seven  years for refrigerated trailers and 

ten  years for dry van trailers to salvage values of approximately 

28 % and 

29 % of their cost, respectively.

We generally depreciate new tractors over five years to salvage values ranging 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.

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

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

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

Recent Accounting Pronouncements

Accounting Standards not yet adopted

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.

Income Per Share

Basic income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period.

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 254,000  and 

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

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

There were 

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

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

478,000  and 

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

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

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

There were no and 

32,000  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2023 , respectively, and no  unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2022 . Income per share is the same for both Class A and Class B shares.

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

Basic income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period.

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 79,000 shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2024 , and 288,000 shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2023 .

There were no unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for either of the three months ended March 31, 2024 and 2023.

There were 634,000 shares issuable upon conversion of unvested employee stock options for the three months ended March 31, 2024 and 228,000 shares issuable upon conversion of unvested employee stock options for the three months ended March 31, 2023 .

There were no unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2024 , and 51,000 unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2023 .

Income per share is the same for both Class A and Class B shares.

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

(in thousands except per share data)

Three Months Ended

Nine Months Ended

September 30,

Income from continuing operations

$ 13,356  

$ 49,961  

$ 41,984  

$ 96,654  

$ 3,824 $ 16,485

Income from discontinued operations

$ 13,506  

$ 50,486  

$ 42,434  

$ 97,179  

Denominator for basic income per share –

weighted-average shares

12,947  

14,405  

13,082  

15,495  

$ 3,974 $ 16,635

Denominator for basic income per share – weighted-average shares

13,087 13,361

Effect of dilutive securities:

2 unchanged sentences

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

13,679  

14,892  

13,740  

15,875  

13,800 13,877

Basic income per share (1) :

Income from continuing operations

$ 1.03  

$ 3.47  

$ 3.21  

$ 6.24  

$ 0.29 $ 1.23

Income from discontinued operations

Net income per share

$ 1.04  

$ 3.50  

$ 3.24  

$ 6.27  

$ 0.30 $ 1.25

Diluted income per share:

Income from continuing operations

$ 0.98  

$ 3.36  

$ 3.06  

$ 6.09  

$ 0.28 $ 1.19

Income from discontinued operations

Net income per share

$ 0.99  

$ 3.39  

$ 3.09  

$ 6.12  

$ 0.29 $ 1.20

( 1 ) Total may not sum due to rounding.

2 unchanged sentences

Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

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 September 30, 2023 , or December 31, 2022.

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

2 unchanged sentences

The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.

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

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.

6 unchanged sentences

(in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

Interest rate swaps

1,452 1,101 2

Contingent consideration

( 21,309 )  

( 17,023 )  

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

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

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

( 19,896 ) ( 21,802 ) 3

The fair value of our revenue equipment installment notes approximated the carrying value as of March 31, 2024 , 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.

Contingent consideration arrangements require us to pay up to $ 20.0 million of additional consideration to AAT Carriers, Inc.'s ("AAT's") former shareholders based on AAT's results during the first two post-acquisition years, up to $ 30.0 million of additional consideration to Lew Thompson & Son Trucking, Inc.'s ("LTST's") former shareholders based on LTST's results during the first three post-acquisition years, and up to $ 12.0 million of additional consideration to Sims Transport Services, LLC's ("Sims") former shareholders based on Sims' results during the first four post-acquisition years.

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

We acquired AAT in February 2022, 

LTST in April 2023, and Sims in August 2023.

Contingent consideration arrangements require us to pay up to $ 20.0 million of additional consideration to AAT Carriers, Inc.'s ("AAT's") former shareholders based on AAT's results during the first two post-acquisition years, of which the final installment was made during 2024, 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 13, "Acquisition of Lew Thompson & Son Trucking, Inc.", for additional information regarding the LTST acquisition and Note 12, "Acquisition of Sims Transport Services, LLC", for additional information regarding the Sims acquisition.

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

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

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

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

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

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

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

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

During the three months ended March 31, 2024 and 2023, we paid $ 10.0 million and $ 10.0 million, respectively, based on AAT's results for the first and second post-acquisition years.

Of the $ 10.0 million paid for the contingent consideration liability during 2024, $ 7.0 million was classified as financing cash flows and $ 3.0 million was classified as operating cash flows within the condensed consolidated statements of cash flows.

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

The fair value of the contingent consideration increased by $ 8.1 million related to a change in the fair value for the LTST contingent consideration arrangement and $ 1.5 million related to the AAT contingent consideration arrangement for the three months ended March 31, 2024 and 2023 , respectively.

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

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

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2024:

December 31, 2022  

Additions  

Adjustments to fair market value  

Payments  

September 30, 2023  

Contingent consideration  

 $ ( 17,023 )  

 $ ( 11,802 )  

 $ ( 2,484 )  

 $ 10,000  

 $ ( 21,309 )

December 31, 2023 Additions Adjustments to fair market value Payments March 31, 2024

Contingent consideration $ ( 21,802 ) $ - $ ( 8,094 ) $ 10,000 $ ( 19,896 )

Discontinued Operations

As of June 30, 2020, our former Factoring reportable segment was classified as discontinued operations as it:

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

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

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

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

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

The sale consisted primarily of $ 103.3 million of net accounts receivable, which included $ 108.7 million of gross accounts receivable, less advances and rebates of $ 5.4 million.

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

The following table summarizes the results of our discontinued operations for the three months ended March 31, 2024 and 2023 :

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Reversal of contingent loss liability

$ ( 200 )  

$ ( 600 )  

$ ( 200 ) $ ( 200 )

Income before income taxes

1 unchanged sentence

Income from discontinued operations, net of tax

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

Reversal of contingent liability for the three months ended March 31, 2024, relates to the reduced exposure of future indemnification by the Company to the purchaser of TFS, Triumph Bancorp, Inc.

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

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

September 30, 2023 and December 31, 2022 :

The following table summarizes the major classes of assets and liabilities included as discontinued operations as of March 31, 2024 and December 31, 2023 :

(in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

Noncurrent deferred tax asset

$ 1,025  

Noncurrent assets from discontinued operations

Total assets from discontinued operations

$ 1,025  

Long-term contingent loss liability

$ 1,835  

$ 4,100  

$ 1,435 $ 1,635

Long-term liabilities of discontinued operations

Total liabilities from discontinued operations

$ 1,835  

$ 4,100  

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

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

$ 1,435 $ 1,635

There were no operating cash outflows for the three months ended March 31, 2024 and 2023 .

Segment Information

2 unchanged sentences

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.

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.

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

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

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

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Form 10 -K for the year ended December 31, 2023 .

Substantially all intersegment sales prices are market based.

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

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

The following table summarizes our total revenue by our four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three months ended March 31, 2024 and 2023 :

(in thousands)

Three Months Ended September 30, 2023

Managed Freight

Total revenue from external customers

$ 113,419  

$ 80,242  

$ 69,713  

$ 25,347  

$ 288,721  

Intersegment revenue

Operating income

15,141  

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Managed Freight

Total revenue from external customers

$ 318,388  

$ 241,680  

$ 193,868  

$ 75,652  

$ 829,588  

$ 105,471 $ 84,482 $ 62,917 $ 25,893 $ 278,763

Intersegment revenue

Operating income

22,613  

13,366  

44,556  

Three Months Ended September 30, 2022

642 - - - 642

Operating income (loss)

4,784 ( 4,697 ) 2,269 1,979 4,335

Three Months Ended March 31, 2023

Managed Freight

Total revenue from external customers

$ 117,793  

$ 93,423  

$ 78,382  

$ 22,241  

$ 311,839  

$ 100,896 $ 80,244 $ 60,874 $ 24,837 $ 266,851

Intersegment revenue

4,462 - - - 4,462

Operating income

30,660  

19,416  

59,059  

Nine Months Ended September 30, 2022

Managed Freight

Total revenue from external customers

$ 338,234  

$ 279,136  

$ 244,814  

$ 58,617  

$ 920,801  

Intersegment revenue

Operating income (loss)

54,602  

24,937  

28,062  

109,779  

9,276 7,147 1,218 ( 9 ) 17,632

(in thousands)

For the Three Months Ended September 30,  

For the Nine Months Ended September 30,  

For the Three Months Ended March 31,

Total external revenues for reportable segments

$ 288,721  

$ 311,839  

$ 829,588  

$ 920,801  

$ 278,763 $ 266,851

Intersegment revenues for reportable segments

Elimination of intersegment revenues

( 1,556 )  

( 1,580 )  

( 9,933 )  

( 642 ) ( 4,462 )

Total consolidated revenues

$ 288,721  

$ 311,839  

$ 829,588  

$ 920,801  

Income tax expense in both 

2023 and 

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

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

$ 278,763 $ 266,851

Income tax expense in both 2024 and 2023 varies from the amount computed by applying the federal corporate income tax rates of 21 % to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences the most significant of which is the effect of the per diem pay structure for drivers.

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

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

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

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

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

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

Our liability recorded for uncertain tax positions as of 

September 30, 2023 is unchanged since 

December 31, 2022 .

Our liability recorded for uncertain tax positions as of March 31, 2024 is unchanged since December 31, 2023 .

The net deferred tax liability of $ 110.2 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid.

The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. The Company has determined that a valuation allowance was not necessary at September 30, 2023 for its deferred tax assets since it is more likely than not they will be realized from the future reversals of temporary differences. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

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

If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.

On a periodic basis, we assess the need for adjustment of the valuation allowance.

The Company has determined that a valuation allowance was not necessary at March 31, 2024 for its deferred tax assets since it is more likely than not they will be realized from the future reversals of temporary differences.

If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

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

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

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

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

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

August 16, 2022. 

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

President Biden signed the Inflation Reduction Act (the "IRA") into law on August 16, 2022.

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

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

However, this tax only applies to corporations with 

three -year average earnings in excess of 

$1.0  billion.

However, this tax only applies to corporations with three -year average earnings in excess of $1.0 billion.

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

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

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

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

On May 11, 2023, the Tennessee Works Tax 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 $ 1.3 million benefit year to date through September 30, 2023.

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

September 30, 2023 and December 31, 2022 :

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.

Current and long-term debt and lease obligations consisted of the following as of March 31, 2024 and December 31, 2023 :

(in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

Borrowings under Credit Facility

$ - $ - $ - $ 11,579

Borrowings under the Draw Note

Revenue equipment installment notes;

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

29,652  

135,506  

17,656  

71,267  

weighted average interest rate of 5.2 % at March 31, 2024, and 5.2% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from October 2024 to March 2029, secured by related revenue equipment

59,656 169,926 46,357 167,509

Real estate notes;

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

18,135  

19,100  

30,932  

153,641  

18,897  

90,367  

interest rate of 7.1% at March 31, 2024 and 7.1 % at December 31, 2023 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

1,308 17,474 1,294 17,806

60,964 187,400 47,651 196,894

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

922 5,802 781 5,296

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

14,596  

35,492  

18,179  

46,428  

8,959 27,328 11,950 30,892

Total debt and lease obligations

$ 46,286  

$ 194,639  

$ 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.

$ 70,845 $ 220,530 $ 60,382 $ 233,082

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

As of September 30, 2023 , there were 

no  base rate and 

no  SOFR loans.

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

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

We had no borrowings outstanding under the Credit Facility as of March 31, 2024 , undrawn letters of credit outstanding of approximately $ 21.0 million, and available borrowing capacity of $ 89.0 million.

As of March 31, 2024 , there were no base rate and no SOFR loans.

Based on availability as of March 31, 2024 and 2023 , 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.

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

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 

April 2028  

to September 2028 .

The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do not have any financial or other material covenants or events of default except certain notes totaling $ 27.9 million are cross-defaulted with the Credit Facility.

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 2023 , 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.

The notes included in the funding are due in monthly installments with final maturities at various dates ranging from October 2024 to March 2029 .

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 $ 35.9 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.

2 unchanged sentences

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

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

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

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.

Lease Obligations

The finance leases in effect at 

September 30, 2023 terminate from 

June 2028 through 

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

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

The finance leases in effect at March 31, 2024 terminate from June 2028 through November 2033 and contain guarantees of the residual value of the related equipment by us.

A summary of our lease obligations at March 31, 2024 and 2023 are as follows:

(dollars in thousands)

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Finance lease cost:

Amortization of right-of-use assets

$ 1,848  

Interest on lease liabilities

Operating lease cost

13,901  

20,593  

Variable lease cost

Short-term lease cost

Total lease cost

$ 4,978  

$ 8,605  

$ 15,745  

$ 22,903  

$ 5,040 $ 6,992

Other information

2 unchanged sentences

Operating cash flows from operating leases

10,614  

12,830  

Financing cash flows from finance leases

1 unchanged sentence

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

20,206  

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

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

Weighted-average discount rate—finance leases

13.2 %  

Weighted-average discount rate—operating leases

September 30, 2023 , and December 31, 2022 , right-of-use assets of $ 48.5 million and $ 58.9 million for operating leases and $ 6.5 million and $ 5.3 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets.

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

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

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

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

Weighted-average discount rate—finance leases

Weighted-average discount rate—operating leases

As of March 31, 2024 , and December 31, 2023 , right-of-use assets of $ 34.5 million and $ 41.2 million for operating leases and $ 6.9 million and $ 6.4 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets.

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

Our future minimum lease payments as of March 31, 2024 , are summarized as follows by lease category:

(in thousands)

2023 (1)  

$ 4,583  

$ 1,543  

18,388  

11,999  

10,815  

2024 (1) $ 8,943 $ 1,768

Total minimum lease payments

$ 61,714  

$ 9,449  

$ 45,557 $ 9,819

amount representing interest

( 11,626 )  

( 9,270 ) ( 3,095 )

Present value of minimum lease payments

$ 50,088  

$ 6,264  

$ 36,287 $ 6,724

current portion

( 14,596 )  

( 8,959 ) ( 922 )

Lease obligations, long-term

$ 35,492  

$ 5,506  

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

$ 27,328 $ 5,802

( 1 ) Excludes the three months ended March 31, 2024 .

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 of Directors (the "Board").

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.

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 of Directors (the "Board").

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, consultants, non-employee directors, and eligible participants under various types of options, restricted stock, or other equity instruments.

September 30, 2023 , there were 

1,271,739  shares remaining of the 4,775,000 shares available for award under the Incentive Plan. 

As of March 31, 2024 , there were 1,228,434 shares remaining of the 4,775,000 shares 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 condensed consolidated statements of operations is stock-based compensation expense of $ 1.7 million and $ 1.2 million for the  

three months ended September 30, 2023  and 

2022 , respectively, and expense of $ 4.7 million and $ 4.6 million for the nine months ended September 30, 2023 , respectively. Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.2 million for each of the 

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

Of the stock compensation expense recorded for the three months ended 

September 30, 2023  and September 30, 2022 , $ 0.7 million and $ 0.9 million relates to restricted shares, respectively, and $ 1.0 million and $ 0.4 million relates to unvested employee stock options, respectively. Of the stock compensation expense recorded for the nine months ended September 30, 2023  and September 30, 2022 , $ 1.8 million and $ 2.9 million relates to restricted shares, respectively, and $ 2.9 million and $ 1.8 million relates to unvested employee stock options, respectively.

Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is stock-based compensation expense of $ 0.8 million and $ 1.5 million for the three months ended March 31, 2024 and 2023 , respectively.

Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $ 0.2 million and $ 0.1 million for each of the three months ended March 31, 2024 and 2023 , respectively.

Of the stock compensation expense recorded for the three months ended March 31, 2024 and March 31, 2023 , $ 0.1 million and $ 0.5 million relates to restricted shares, respectively, and $ 0.7 million and $ 1.0 million relates to unvested employee stock options, respectively.

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

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

43,771  shares of Class A common stock at a weighted average per share price of $ 34.72  based on the closing price of our Class A common stock on the dates the shares vested in 2023 , in lieu of the federal and state minimum statutory tax withholding requirements.

We remitted $ 1.5 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

To satisfy withholding requirements for shares that vested through March 31, 2024 , certain participants elected to forfeit receipt of an aggregate of 6,879 shares of Class A common stock at a weighted average per share price of $ 49.27 based on the closing price of our Class A common stock on the dates the shares vested in 2024 , in lieu of the federal and state minimum statutory tax withholding requirements.

We remitted $ 0.3 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

Commitments and Contingencies

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

We had $ 21.8 million and $ 23.9 million of outstanding and undrawn letters of credit as of September 30, 2023  and December 31, 2022 .

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

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

We had $ 21.0 million and $ 21.8 million of outstanding and undrawn letters of credit as of March 31, 2024 and December 31, 2023 .

The letters of credit are maintained primarily to support our insurance programs.

Additionally, we had $ 45.0 million of availability on a line of credit from Triumph solely to fund any indemnification owed to Triumph in relation to the sale of TFS.

As of March 31, 2024 the remaining contingent liability was $ 1.4 million.

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.

Transactions with TEL were not material for the 

three or nine months ended September 30, 2023 and 2022.

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

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

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

September 30, 2023  and December 31, 

2022 are as follows (in thousands):

During the quarter ended March 31, 2024, we sold revenue equipment to TEL in exchange for the assumption of the related notes payable of $ 26.2 million and $ 0.5 million of cash.

No other transactions with TEL were material for the three months ended March 31, 2024 and 2023 .

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 2024 net income through March 31, 2024 , or $ 3.7 million.

Our accounts receivable from TEL, accounts payable to TEL, and investment in TEL as of March 31, 2024 and December 31, 2023 are as follows (in thousands):

Balance Sheet Line Item:

September 30, 2023

March 31, 2024

December 31, 2023

4 unchanged sentences

Investment in TEL

$ 61,586  

$ 54,727  

$ 70,005 $ 66,327

Operating lease obligations

Current and long-term portion of operating lease obligations

$ 9,678  

$ 13,825  

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

See TEL's summarized financial information below:

(in thousands)

As of September 30,

As of December 31,

$ 614,865  

$ 480,724  

Total Liabilities

498,659  

377,548  

$ 116,206  

$ 103,177  

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

$ 36,780  

$ 40,135  

$ 114,050  

$ 106,231  

Cost of Sales

12,672  

19,355  

Operating Expenses

17,517  

14,047  

46,485  

38,074  

Operating Income

16,920  

16,851  

54,893  

48,802  

$ 10,710  

$ 14,901  

$ 43,287  

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.

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.

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:

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

August 18, 2023

1 unchanged sentence

Cash paid pursuant to Stock Purchase Agreement

$ 8,561  

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

1 unchanged sentence

Net purchase price

$ 9,821  

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

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

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

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

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

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

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

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 fair values of the assets acquired and liabilities assumed at the acquisition date.

August 18, 2023

Accounts receivable

Other intangibles, net  

Other intangibles, net 6,090

Total identifiable assets acquired

1 unchanged sentence

Accrued expenses

Deferred tax liability  

Deferred tax liability ( 1,614 )

Total liabilities assumed

1 unchanged sentence

Net assets acquired

$ 9,821  

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

2 unchanged sentences

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.

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 $ 114.5 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.

The total purchase, including any earnout achieved, is expected to range from $ 114.5 million to $ 134.5 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:

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

April 26, 2023

1 unchanged sentence

Cash paid pursuant to Stock Purchase Agreement

$ 100,726  

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

Contingent consideration

10,016  

Net purchase price

$ 109,903  

The contingent consideration arrangement requires us to pay 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.

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

We expect to make a 338 (h) 10 election, which would result in all goodwill related to the acquisition being deductible for tax purposes and no deferred income taxes arising from the acquisition.

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

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:

April 26, 2023

Accounts receivable

$ 5,135  

Driver advances and other receivables

2 unchanged sentences

Net property and equipment

44,499  

Other assets, net

Other intangibles, net

52,870  

Total identifiable assets acquired

104,621  

Accounts payable

5 unchanged sentences

Net identifiable assets acquired

100,036  

Net assets acquired

$ 109,903  

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

Goodwill and other intangible assets 

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

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

Refer to Note 15, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

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

are as follows:

(in thousands)

Three months ended

Nine months ended

September 30, 2023

Total revenue

$ 15,020  

$ 25,829  

$ 1,542  

$ 3,420  

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

(in thousands)  

Three months ended  

Nine months ended  

September 30,  

Total revenue  

$ 303,741  

$ 328,001  

$ 878,626  

$ 969,286  

Net income  

$ 14,687  

$ 53,613  

Basic net income per share  

$ 1.13  

$ 3.72  

$ 3.80  

$ 6.88  

Diluted net income per share  

$ 1.07  

$ 3.60  

$ 3.62  

$ 6.71  

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 condensed 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.

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:

February 9, 2022

(in thousands)

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.

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.

Because of our 

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

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

February 9, 2022

Accounts receivable

Prepaid expenses

Other short-term assets

Net property and equipment

Credentialing intangible asset

32,000  

Total identifiable assets acquired

40,888  

Accounts payable

Accrued expenses

Finance lease obligations

Other long-term liabilities

Total liabilities assumed

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 and purchases of revenue equipment.

During the quarter ended March 31, 2024 we recognized measurement period adjustments related to the Section 338 (h) 10 election which increased goodwill recognized for LTST by $ 4.6 million from $ 12.4 million as of December 31, 2023 to $ 17.0 million as of March 31, 2024.

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

Refer to Note 14, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

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

(in thousands)  

Three months ended  

Nine months ended  

September 30,  

Total revenue  

$ 9,989  

$ 10,354  

$ 30,287  

$ 22,941  

Net income  

$ 3,110  

$ 4,297  

$ 9,354  

$ 9,151  

Goodwill and Other Assets

1 unchanged sentence

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

Amortization expense of $ 5.1 million and $ 3.2 million for the nine months ended September 30, 2023 and 2022 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

A summary of other intangible assets as of 

September 30, 2023 and 

December 31, 2022 is as follows:

Amortization expense of $ 2.4 million and $ 1.1 million for the three months ended March 31, 2024 and 2023 , respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

A summary of other intangible assets as of March 31, 2024 and December 31, 2023 is as follows:

(in thousands)

September 30, 2023

March 31, 2024

Gross intangible assets

2 unchanged sentences

Remaining life (months)

$ 4,502  

$ ( 2,216 )  

$ 2,286  

$ 4,502 $ ( 2,322 ) $ 2,180

Managed Freight

( 887 )  

( 885 )  

1,089 ( 897 ) 192

999 ( 885 ) 114

Total trade name

( 3,988 )  

6,590 ( 4,104 ) 2,486 107

Non-compete agreement:

( 486 )  

4,670 ( 1,070 ) 3,600

Managed Freight

380 ( 55 ) 325

Total non-compete agreement

( 494 )  

5,050 ( 1,125 ) 3,925 37

Customer relationships:

60,172  

( 7,287 )  

52,885  

60,172 ( 9,229 ) 50,943

Managed Freight

( 807 )  

12,436  

( 5,441 )  

7,312 ( 1,279 ) 6,033

12,436 ( 5,959 ) 6,477

Total customer relationships:

79,920  

( 13,535 )  

66,385  

79,920 ( 16,467 ) 63,453 156

Credentialing:

32,000  

( 3,556 )  

28,444  

32,000 ( 4,622 ) 27,378 154

Total credentialing

32,000  

( 3,556 )  

28,444  

32,000 ( 4,622 ) 27,378

Total other intangible assets

$ 123,560  

$ ( 21,573 )  

$ 101,987  

$ 123,560 $ ( 26,318 ) $ 97,242 149

(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

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

(in thousands)

61,972  

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

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

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

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

( 1 ) Excludes the three months ended March 31, 2024 .

The carrying amount of goodwill and other intangible assets for 2024 is subject to change upon the completion of the purchase accounting for the Sims acquisition.

The carrying amount of goodwill increased to $ 80.3 million at March 31, 2024 from $ 75.7 million at December 31, 2023 .

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

(in thousands)

September 30, 2023

March 31, 2024

Managed Freight

Balance at December 31, 2023

$ 15,699  

$ 15,320  

$ 5,448  

$ 21,750  

Acquired goodwill for LTST

10,729  

Acquired goodwill for Sims

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

Post-acquisition goodwill adjustments

( 863 )  

$ 15,699  

$ 25,186  

$ 10,519  

$ 21,750  

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

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.

On August 5, 2021, our Board increased such authorization to $ 40.0 million.

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

On February 10, 2022, our Board of Directors adopted a 10b5 - 1 plan for the purchase of up 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.

$ 15,699 $ 32,323 $ 10,531 $ 21,750

On May 18, 2022, our Board approved a 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.

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

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

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

Between May 2022 and April 2023, we repurchased a total of 2.7 million shares of our Class A common stock.

The program expired January 31, 2024.

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 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The condensed consolidated financial statements include the accounts of Covenant Logistics Group, Inc., a Nevada holding company, and its wholly owned subsidiaries.

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

and its wholly owned subsidiaries.

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

This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended.

All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation:

any projections of earnings, revenues, or other financial items;

any statement of plans, strategies, and objectives of management for future operations;

any statements concerning proposed new services or developments;

any statements regarding future economic conditions or performance;

and any statements of belief and any statements of assumptions underlying any of the foregoing.

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

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

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

the contingent consideration related to our 

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

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

Such statements are based on currently available operating, financial, and competitive information.

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

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

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

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

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

Risk Factors," set forth  

in this Form 10-Q, the Form 10-Q for the quarter ended March 31, 2023, and our Form 10-K for the year ended December 31, 2022, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

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

You are cautioned not to place undue reliance on such forward-looking statements.

We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

Executive Overview

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

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

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

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

Our asset-light reportable segments contributed approximately 33% of total revenue, 31% of operating income, 37% of total freight revenue, and 28% of adjusted operating income in the quarter.

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

Warehousing was able to grow revenue through new customer startups and improve margins with contractual pricing increases put into place during the quarter.

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

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

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

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

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

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

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

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

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

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

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

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

Leverage ratio (ending total indebtedness, comprised of debt and finance leases, net of cash, divided by the sum of operating income, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) as of September 30, 2023 was 1.68;

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

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

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

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

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

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

Non-GAAP Reconciliation

In addition to operating ratio, we use "adjusted operating ratio" as a key measure of profitability.

Adjusted operating ratio is not a substitute for operating ratio measured in accordance with GAAP.

There are limitations to using non-GAAP financial measures.

Adjusted operating ratio means operating expenses, net of fuel surcharge revenue, excluding amortization of intangibles, and significant unusual items, divided by total revenue, less fuel surcharge revenue.

We believe the use of adjusted operating ratio allows us to more effectively compare periods, while excluding the potentially volatile effect of changes in fuel prices, amortization of intangibles, and significant unusual items.

Our Board and management focus on our adjusted operating ratio as an indicator of our performance from period to period.

We believe our presentation of adjusted operating ratio is useful because it provides investors and securities analysts the same information that we use internally to assess our core operating performance.

Although we believe that adjusted operating ratio improves comparability in analyzing our period-to-period performance, it could limit comparability to other companies in our industry, if those companies define adjusted operating ratio differently.

Because of these limitations, adjusted operating ratio should not be considered a measure of income generated by our business or discretionary cash available to us to invest in the growth of our business.

Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.

Operating Ratio

Three Months Ended September 30,

Nine Months Ended September 30,

GAAP Operating Ratio:

Total revenue

Total operating expenses

Operating income

Adjusted Operating Ratio:

Total revenue

Fuel surcharge revenue

Freight revenue (total revenue, excluding fuel surcharge)

Total operating expenses

Adjusted for:

Fuel surcharge revenue

Amortization of intangibles

Gain on disposal of terminals, net

Contingent consideration liability adjustment

Transaction and executive retirement

Adjusted operating expenses

Adjusted operating income

Revenue and Expenses

We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage.

We are a major carrier for transportation companies such as parcel freight forwarders, less-than-truckload carriers, and third-party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as manufacturers, retailers, and food and beverage shippers. 

We have four reportable segments, which include:

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.

In our Expedited and Dedicated reportable segments, we primarily generate revenue by transporting freight for our customers.

Generally, we are paid a predetermined rate per mile for our truckload services.

We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities, and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel.

AAT’s results are reported within our Expedited reportable segment and LTST's results are reported within our Dedicated reportable segment.

The main factors that could affect our Expedited and Dedicated revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, and the number of shipments and miles we generate.

These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability.

The main expenses that impact the profitability of our Expedited and Dedicated reportable segments are the variable costs of transporting freight for our customers.

These costs include fuel expenses, driver-related expenses, such as wages, benefits, training, and recruitment, and purchased transportation expenses, which primarily include compensating independent contractors.

Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims.

These expenses generally vary with the miles we travel, but also have a controllable component based on safety, self-insured retention versus insurance premiums, fleet age, efficiency, and other factors.

Historically, our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities, and the compensation of non-driver personnel.

Within our Expedited and Dedicated reportable segments, we operate tractors driven by a single driver and also tractors assigned to two-person driver teams.

Our single driver tractors generally operate in shorter lengths of haul, generate fewer miles per tractor, and experience more non-revenue miles, but the lower productive miles are expected to be offset by generally higher revenue per loaded mile and the reduced employee expense of compensating only one driver.

In contrast, our two-person driver tractors generally operate in longer lengths of haul, generate greater miles per tractor, and experience fewer non-revenue miles, but we typically receive lower revenue per loaded mile and incur higher employee expenses of compensating both drivers.

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

Within our Managed Freight reportable segment, we derive revenue from arranging transportation services, directly and through agents, who are paid a commission for the freight they provide, for customers on both an ad-hoc and a contractual basis.

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

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

inbound and outbound –

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

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

The main factors that impact profitability in terms of expenses are fixed costs, including salaries, facility warehousing costs, and selling, general, and administrative expenses. 

In May 2011, we acquired a 49.0% interest in TEL.

TEL is a tractor and trailer equipment leasing company and used equipment reseller.

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 since May 2011.

Our main measures of profitability are operating ratio and adjusted operating ratio.

We define adjusted operating ratio as operating expenses, net of fuel surcharge revenue, excluding amortization of intangibles, and significant unusual items, divided by total revenue, less fuel surcharge revenue.

See page 27  for the uses and limitations associated with adjusted operating ratio.

Revenue Equipment

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

Of such tractors, 1,801 were owned, 222 were financed under operating leases, and 126 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,634 were owned, and 237 were held under short-term operating leases. We finance a small portion of our trailer fleet and larger portion of our tractor fleet with operating leases, which generally run for a period of three to five years for tractors and five to seven years for trailers. At September 30, 2023, our fleet had an average tractor age of 1.9 years and an average trailer age of 5.9 years.

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

RESULTS OF CONSOLIDATED OPERATIONS

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

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

Three Months Ended

Nine Months Ended

September 30,

Freight revenue

Fuel surcharge revenue

Total revenue

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

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

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

For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue.

Salaries, wages, and related expenses

Three Months Ended

Nine Months Ended

September 30,

Salaries, wages, and related expenses

% of total revenue

% of freight revenue

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

2022 periods.

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

Driver pay may also fluctuate based on the number of miles driven. While driver pay remains stable at the present time, we have historically put driver pay increases in place as necessary to address driver market pressure and will continue to do so in the future as necessary.

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

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

Three Months Ended

Nine Months Ended

September 30,

% of total revenue

% of freight revenue

We receive a fuel surcharge on our loaded miles from most shippers;

however, this does not cover the entire cost of fuel for several reasons, including the following:

surcharges cover only loaded miles we operate;

surcharges do not cover miles driven out-of-route by our drivers;

and surcharges typically do not cover refrigeration unit fuel usage or fuel burned by tractors while idling.

Moreover, most of our business relating to shipments obtained from freight brokers does not carry a fuel surcharge.

Finally, fuel surcharges vary in the percentage of reimbursement offered, and not all surcharges fully compensate for fuel price increases even on loaded miles.

The rate of fuel price changes also can have an impact on results.

Most fuel surcharges are based on the average fuel price as published by the Department of Energy ("DOE") for the week prior to the shipment, meaning we typically bill customers in the current week based on the previous week's applicable index.

Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel.

In periods of declining prices, the opposite is true.

Fuel prices as measured by the DOE wer e $0.80 per g allon, or 15.8%, lower for the quarter ended September 30, 2023 compared with the same quarter in 2022.

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

Net fuel expense is shown below:

Three Months Ended

Nine Months Ended

September 30,

Total fuel surcharge

Fuel surcharge revenue reimbursed to owner operators and other third parties

Company fuel surcharge revenue

Total fuel expense

Company fuel surcharge revenue

Net fuel expense

% of freight revenue

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

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

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

Going forward, our net fuel expense is expected to fluctuate as a percentage of revenue based on factors such as diesel fuel prices, percentage recovered from fuel surcharge programs, percentage of uncompensated miles, percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue), percentage of revenue generated from independent contractors, and the success of fuel efficiency initiatives.

Operations and maintenance

Three Months Ended

Nine Months Ended

September 30,

Operations and maintenance

% of total revenue

% of freight revenue

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

Additionally, for the nine months ended September 30, 2023, there were fewer new drivers and a smaller average fleet as compared to the prior year period.

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

For 2023, due to the age of our tractor fleet and remaining unexpired warranty coverage for most of our tractors, we do not expect the percentage of our equipment being operated outside of warranty coverage to increase in any material respect even if delays occur;

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

Revenue equipment rentals and purchased transportation

Three Months Ended

Nine Months Ended

September 30,

Revenue equipment rentals and purchased transportation

% of total revenue

% of freight revenue

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

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

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

In addition, if fuel prices increase, it would result in a further increase in what we pay third party carriers and independent contractors.

However, this expense category will fluctuate with the number and percentage of loads hauled by independent contractors, loads handled by Managed Freight, and tractors, trailers, and other assets financed with operating leases.

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

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

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

Operating taxes and licenses  

Three Months Ended

Nine Months Ended

September 30,

Operating taxes and licenses

% of total revenue

% of freight revenue

For the periods presented, the change in operating taxes and licenses were insignificant both as a percentage of total revenue and freight revenue.

Insurance and claims

Three Months Ended

Nine Months Ended

September 30,

Insurance and claims

% of total revenue

% of freight revenue

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

September 30, 2023  and 

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

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

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

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 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.

We have maintained our retention and limits set in place during the prior renewal cycle. 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. 

We expect insurance and claims expense to continue to be volatile over the long-term.

Recently the trucking industry has experienced a decline in the number of carriers and underwriters that write insurance policies or that are willing to provide insurance for trucking companies. 

Communications and utilities

Three Months Ended

Nine Months Ended

September 30,

Communications and utilities

% of total revenue

% of freight revenue

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

General supplies and expenses

Three Months Ended

Nine Months Ended

September 30,

General supplies and expenses

% of total revenue

% of freight revenue

The increases in general supplies and expenses for the 

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

Depreciation and amortization

Three Months Ended

Nine Months Ended

September 30,

Depreciation and amortization

% of total revenue

% of freight revenue

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

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

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

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

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

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

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

Gain on disposition of property and equipment, net

Three Months Ended

Nine Months Ended

September 30,

Gain on disposition of property and equipment, net

% of total revenue

% of freight revenue

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

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

Interest expense, net

Three Months Ended

Nine Months Ended

September 30,

Interest expense, net

% of total revenue

% of freight revenue

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

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

Additionally, this line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan, and changing interest rates.

Income from equity method investment

Three Months Ended

Nine Months Ended

September 30,

Income from equity method investment

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

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

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

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

Income tax  expense

Three Months Ended

Nine Months Ended

September 30,

Income tax expense

% of total revenue

% of freight revenue

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

The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences, such as executive compensation disallowance in 2022.

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

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

RESULTS OF SEGMENT OPERATIONS

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

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

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

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Managed Freight

Total revenues

Operating Income:

Managed Freight

Total operating income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The decreases in Expedited operating income for the 

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

The increases in Expedited operating expenses for the 

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

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

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

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

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

The decreases in operating income for Managed Freight for the 

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

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

small number of prior period claims .

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

Our business requires significant capital investments over the short-term and the long-term.

Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment.

Going forward, we expect revenue equipment acquisitions through purchases and finance leases to increase as a percentage of our fleet as we decrease our use of operating leases for revenue equipment.

Further, we expect to increase our capital allocation toward our Dedicated, Managed Freight, and Warehousing reportable segments to become the go-to partner for our customers’

most critical transportation and logistics needs.

We had working capital (total current assets less total current liabilities) of $31.2 million and $66.5 million at September 30, 2023 and December 31, 2022, respectively.

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

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

With an average fleet age of 1.9 years at September 30, 2023, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options.

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

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

No outstanding borrowings under the Credit Facility;

No outstanding borrowings under the Draw Note;

$165.2 million and $88.9 million in revenue equipment installment notes, respectively;

$19.4 million and $20.3 million in real estate notes, respectively;

$6.3 million and $5.8 million of the principal portion of financing lease obligations, respectively;

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

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

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

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

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

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

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

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

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

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

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

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

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

We distributed a total of $4.3 million to stockholders in the first nine months of 2023 through dividends.

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

Net cash flows provided by operating activities decreased to $53.0 million for the nine months ended September 30, 2023, compared to $121.1 million for the same 2022 period, primarily due to an increase in receivables and driver advances as a result of an increase in our average receivable days outstanding, a $54.8 million decrease in net income, and a $1.7 million indemnification payment compared to the prior year period. 

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

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

The 2022 period includes the February 2022 acquisition of AAT.

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

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

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

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.

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES  

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.

requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances.

Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures.

Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions.

Accordingly, actual results could differ from those anticipated.

There have been no material changes to our most critical accounting policies and estimates during the three and nine months ended September 30, 2023, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2022.

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.

On February 13, 2024, our Board declared a cash dividend of $ 0.11 per share which was paid on March 29, 2024, to stockholders of record on March 1, 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-Q

Item 1. Financial Statements