COVENANT LOGISTICS GROUP, INC. 10-Q

ITEM 2. 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, including driver satisfaction, 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 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, utilization, upgrades, and age, availability and usage of tractors and trailers, the market value of used equipment, the anticipated impact of our investment in TEL, the future impact of our business model, service standards, strategic plan and other strategic initiatives, changes to and deviations from our business model, 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 and insurance and claims accruals, contingent consideration related to our prior acquisitions, and the future impact of our prior acquisitions, 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," "appears," "mission," "anticipates," "plans," " outlook," "focus," "seek," "potential," "continue," "goal," "target," "objective," "optimistic," "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 our Form 10-Q for the quarter ended June 30, 2025 and our Form 10-K for the year ended December 31, 2024. Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form 10-Q for the quarter ended June 30, 2025 and our Form 10-K for the year ended December 31, 2024, 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 Our third quarter earnings were $0.35 per diluted share, reflecting essentially flat year-over-year performance in our asset-light business units and lower performance in our Truckload business units, mainly attributable to higher costs and under-utilized equipment. We continued to invest in and grow within certain industries that our dedicated fleet services with new start-up contracts, which weighed on third quarter margins but are expected to improve over time. Meanwhile, we continue to evaluate contracts in the rest of our Truckload business for improvement or exit. Overall, we expect modest contraction in our combined Truckload fleet and growth in our asset light segments as we allocate capital toward better returning business units. This process may impact quarterly financial results as we grow and shrink certain segments, adjust staffing needs, and dispose of equipment in potentially volatile used equipment markets. Page 21 Table of Contents Additional items of note for the third quarter of 2025 include the following: ● Total revenue of $296.9 million, an increase of 3.1% compared with the third quarter of 2024, and freight revenue (which excludes revenue from fuel surcharges) of $268.8 million, an increase of 4.0% compared with the third quarter of 2024; ● Operating income of $7.9 million, compared with $16.2 million in the third quarter of 2024; ● Net income of $9.1 million, or $0.35 per diluted share, compared with $13.0 million, or $0.47 per diluted share, in the third quarter of 2024. Net income from continuing operations of $6.3 million, or $0.24 per diluted share, compared to $12.9 million or $0.46 per diluted share, in the third quarter of 2024. Net income from discontinued operations of $2.8 million, or $0.11 per diluted share, compared to $0.2 million, or $0.01 per diluted share, in the third quarter of 2024; ● Our equity investment in TEL provided $3.6 million of pre-tax earnings in the third quarter of 2025 compared to $4.0 million in the third quarter of 2024; ● We distributed a total of $1.8 million to stockholders through cash dividends; ● Since December 31, 2024, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $48.7 million to $268.3 million, primarily due to repurchasing approximately $36.2 million of common stock outstanding and acquisition related payments of $19.2 million. With available borrowing capacity of $90.1 million under our Credit Facility at September 30, 2025 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, 2025 was 2.14; ● Stockholders' equity at September 30, 2025, was $423.7 million; and ● Tangible book value at September 30, 2025, was $251.2 million. Outlook Our outlook is impacted by both short-term and long-term factors. The reasons include expected lower profits from our minority investment in TEL attributable to credit losses in their small-carrier customer base, the impact of the U.S. government shutdown on our Department of Defense business, an expected increase in claims accruals, and loss of a large Managed Freight customer rolling off faster than the ramp up of a brokerage opportunity. These negative factors are expected to more than outweigh our current expectation of a modest peak season boost to Expedited and Managed Freight. Over the intermediate to long term, capacity exits seem to be accelerating based on publicly announced bankruptcies of small carriers and our observation of TEL’s customer base, as well as increased enforcement of government policies. In addition, there are potential demand drivers from unwinding excess inventories from import pull-forwards, tax and monetary policies, and clarification of trade policy. We have internal plans and opportunities to continue to grow certain dedicated and warehouse business that has the potential to yield acceptable margins and hold or downsize our other Truckload capacity until returns improve. To the extent we downsize capacity, we may experience severance, equipment disposal, and other costs that create uneven results in a given quarter but are expected to lead to stronger and more sustained results over time. In sum, we expect improving market conditions and our internal plan to produce operating leverage and higher earnings and return on capital over time, although individual quarters may be volatile. With an experienced team, an attractive business mix, and a disciplined approach to capital allocation, we believe Covenant is well-positioned for the future. Page 22 Table of Contents 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: 2025 OR % 2024 OR % 2025 OR % 2024 OR % Total revenue $ 296,889 $ 287,885 $ 869,098 $ 854,145 Total operating expenses 288,963 97.3 % 271,650 94.4 % 841,982 96.9 % 817,998 95.8 % Operating income $ 7,926 $ 16,235 $ 27,116 $ 36,147 Adjusted Operating Ratio: 2025 Adj. OR % 2024 Adj. OR % 2025 Adj. OR % 2024 Adj. OR % Total revenue $ 296,889 $ 287,885 $ 869,098 $ 854,145 Fuel surcharge revenue (28,049 ) (29,286 ) (80,507 ) (91,349 ) Freight revenue (total revenue, excluding fuel surcharge) 268,840 258,599 788,591 762,796 Total operating income 7,926 16,235 27,116 36,147 Adjusted for: Amortization of intangibles 2,653 2,372 7,770 7,116 Contingent consideration liability adjustment 710 720 2,130 9,534 Transaction costs - - 149 - Employee separation costs 1,375 - 1,375 - Lease abandonment and customer exit costs 429 - 429 - Abandonment of long-lived software 1,884 - 1,884 - Adjusted operating income $ 14,977 94.4 % $ 19,327 92.5 % $ 40,853 94.8 % $ 52,797 93.1 % Page 23 Table of Contents 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. Additionally, we provide poultry feed and live haul transportation, as well as highly regulated, time sensitive loads for the U.S. government. We have four reportable segments, which include: ● Expedited: 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. ● Dedicated: 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. The Dedicated reportable segment also provides shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses for Dedicated customers. ● 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. ● Warehousing: The Warehousing reportable segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. The Warehousing reportable segment also provides shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses for Warehousing customers. 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. 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. Page 24 Table of Contents 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 Brokerage and TMS services, particularly, for arranging transportation services for customers, directly and through relationships with thousands of third-party carriers and integration with our Expedited reportable segment. Additionally, utilizing technology and process management we provide detailed visibility into a customer’s movement of freight – inbound and outbound – throughout the customer’s network and focused customer support through multiyear contracts. We provide Brokerage services directly and through agents, who are paid a commission for the freight they provide. 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 purchased transportation, facility warehousing costs, 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 managing 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 23 for the uses and limitations associated with adjusted operating ratio. Revenue Equipment At September 30, 2025, we operated 2,434 tractors and 6,851 trailers. Of such tractors, 2,317 were owned, 10 were financed under finance or operating leases, and 107 tractors were provided by independent contractors, who own and drive their own tractors. Of such trailers, 6,070 were owned and 781 were held under finance or operating leases. At September 30, 2025, our fleet had an average tractor age of 1.9 years and an average trailer age of 5.8 years. Due to an administrative error in the third quarter earnings release, the number of tractors at September 30, 2025, was reported as 1,487 tractors, instead of 2,434 tractors. The weighted average tractors for the period ended September 30, 2025 was correctly reported in the earnings release as 2,400 tractors. Independent contractors provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile, such that 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 company 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. Page 25 Table of Contents RESULTS OF CONSOLIDATED OPERATIONS COMPARISON OF three and nine months ended September 30, 2025 TO three and nine months ended September 30, 2024 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): Revenue Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Revenue: Freight revenue $ 268,840 $ 258,599 $ 788,591 $ 762,796 Fuel surcharge revenue 28,049 29,286 80,507 91,349 Total revenue $ 296,889 $ 287,885 $ 869,098 $ 854,145 The increase in total revenue for the three months ended September 30, 2025 compared to 2024 primarily resulted from an $8.9 million and $8.8 million increase in freight revenue for Dedicated and Managed Freight, respectively, partially offset by a $7.2 million and $0.4 million decrease in freight revenue for Expedited and Warehousing, respectively, as well as a $1.2 million decrease in fuel surcharge revenue. The increase in total revenue for the nine months ended September 30, 2025 compared to the 2024 period primarily resulted from a $26.7 million and $20.0 million increase in freight revenue for Dedicated and Managed Freight, respectively, partially offset by a $19.2 million and $1.7 million decrease in freight revenue for Expedited and Warehousing, respectively, as well as a $10.8 million decrease in fuel surcharge revenue. 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, September 30, 2025 2024 2025 2024 Salaries, wages, and related expenses $ 109,745 $ 110,815 $ 323,845 $ 317,523 % of total revenue 37.0 % 38.5 % 37.3 % 37.2 % % of freight revenue 40.8 % 42.9 % 41.1 % 41.6 % Salaries, wages, and related expenses decreased for the three months ended September 30, 2025 compared to the same 2024 period primarily as a result of decreased workers' compensation and group health expenses partially offset by an increase in the use of third party contractors. For the nine months ended September 30, 2025 compared to the same 2024 period this category increased due to pay increases since the prior period as well as averaging more drivers and tractors due to growth in our Dedicated reportable segment, resulting in higher driver salaries, wages, and benefits. As a percentage of freight revenue for the nine months ended September 30, 2025, salaries, wages, and related expenses decreased as the foregoing factors increasing these expenses were offset by a lower percentage of revenue from Expedited, where we have driver pay, and a higher percentage of revenue from Managed Freight, where we don't have driver pay. We believe driver and non-driver, including shop technicians, pay and benefits will continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. 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, 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. Page 26 Table of Contents Fuel expense Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Fuel expense $ 29,506 $ 28,545 $ 85,663 $ 88,590 % of total revenue 9.9 % 9.9 % 9.9 % 10.4 % % of freight revenue 11.0 % 11.0 % 10.9 % 11.6 % The increase in total fuel expense for the three months ended September 30, 2025 is primarily related to higher fuel prices partially offset by a 1.6% decrease in total miles compared to the 2024 period. The decrease in total fuel expense for the nine months ended September 30, 2025 is primarily related to a 3.6% decrease in total miles compared to the 2024 period, partially offset by higher fuel prices. 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 $0.19 per g allon, or 5.3%, higher for the quarter ended September 30, 2025 compared with the same quarter in 2024. 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, and our percentage of deadhead miles, for which we do not receive material fuel surcharge revenues. Net fuel expense is shown below: Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Total fuel surcharge $ 28,049 $ 29,286 $ 80,507 $ 91,349 Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties 1,877 2,225 5,261 7,426 Company fuel surcharge revenue $ 26,172 $ 27,061 $ 75,246 $ 83,923 Total fuel expense $ 29,506 $ 28,545 $ 85,663 $ 88,590 Less: Company fuel surcharge revenue 26,172 27,061 75,246 83,923 Net fuel expense $ 3,334 $ 1,484 $ 10,417 $ 4,667 % of freight revenue 1.2 % 0.6 % 1.3 % 0.6 % For the periods presented, net fuel expense increased as a percentage of freight revenue primarily due to lower fuel surcharge recovery. 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. Page 27 Table of Contents Operations and maintenance Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Operations and maintenance $ 19,352 $ 17,690 $ 52,168 $ 46,838 % of total revenue 6.5 % 6.1 % 6.0 % 5.5 % % of freight revenue 7.2 % 6.8 % 6.6 % 6.1 % The increases in operations and maintenance for the three and nine months ended September 30, 2025 were primarily the result of high demands on equipment as we grow our fleet into niche service areas, including more equipment damage than was experienced in the prior year periods. 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. Additionally, operations and maintenance costs may increase if we experience wage and parts inflation. Revenue equipment rentals and purchased transportation Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Revenue equipment rentals and purchased transportation $ 72,908 $ 64,434 $ 206,504 $ 193,940 % of total revenue 24.6 % 22.4 % 23.8 % 22.7 % % of freight revenue 27.1 % 24.9 % 26.2 % 25.4 % The increases in revenue equipment rentals and purchased transportation for the three and nine months ended September 30, 2025 were primarily the result of an increase in purchased transportation costs related to new business awarded to the Managed Freight reportable segment during the year. The increases for the nine months ended September 30, 2025 were partially offset by a first quarter $7.6 million decrease in purchased transportation costs due to the decline in the spot market that primarily affected the Managed Freight reportable segment. Additionally, total miles run by independent contractors decreased from 7.9% and 8.2% for the three and nine months ended September 30, 2025, respectively, to 7.7% and 7.2% for the same 2025 periods, respectively. 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, September 30, 2025 2024 2025 2024 Operating taxes and licenses $ 3,304 $ 3,227 $ 10,326 $ 8,871 % of total revenue 1.1 % 1.1 % 1.2 % 1.0 % % of freight revenue 1.2 % 1.2 % 1.3 % 1.2 % For the periods presented, the change in operating taxes and licenses was insignificant both as a percentage of total revenue and freight revenue. Page 28 Table of Contents Insurance and claims Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Insurance and claims $ 14,179 $ 12,241 $ 46,769 $ 44,779 % of total revenue 4.8 % 4.3 % 5.4 % 5.2 % % of freight revenue 5.3 % 4.7 % 5.9 % 5.9 % On a cents per mile basis, insurance and claims increased to 20.9 cents per mile and 23.2 cents per mile for the three and nine months ended September 30, 2025, respectively, compared to 17.4 cents per mile and 21.3 cents per mile the 2024 periods, respectively, primarily due to increased insurance and claims expense being spread over decreased miles compared to the same 2024 periods. Miles decreased primarily due to the combination of weather and avian influenza. 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 insurance coverage at various levels of our insurance tower and may incur additional premiums. 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. 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 we continue to maintain. 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. We expect insurance and claims expense to continue to be volatile over the long-term. Based on adverse claims development after September 30, 2025, through the date of this report, management anticipates the insurance and claims accrual rate experienced for each of the first three quarters of 2025 will be increased by an additional by $4.0 million to $9.0 million in the fourth quarter of 2025. To the extend damages awarded against us for any claims exceed our coverage limits, involve significant aggregate use of our self-insured retention amounts, or cause increases in our insurance premiums, our insurance and claims expense would be volatile and increase. Any resulting increases in such expenses could have a materially adverse effect on our business, results of operations, financial condition, or liquidity. For additional details regarding our claims accruals, see Note 9, "Commitments and Contingencies" of the accompanying condensed consolidated financial statements. Communications and utilities Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Communications and utilities $ 1,631 $ 1,330 $ 4,580 $ 4,005 % of total revenue 0.5 % 0.5 % 0.5 % 0.5 % % of freight revenue 0.6 % 0.5 % 0.6 % 0.5 % 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, September 30, 2025 2024 2025 2024 General supplies and expenses $ 15,872 $ 11,937 $ 44,124 $ 47,244 % of total revenue 5.3 % 4.1 % 5.1 % 5.5 % % of freight revenue 5.9 % 4.6 % 5.6 % 6.2 % For the three months ended September 30, 2025 general supplies and expenses increased as a result of the abandonment of certain systems that are no longer being used. For the nine months ended September 30, 2025 general supplies and expenses decreased as the result of the $2.1 million increase in the fair value of the contingent consideration recognized during the 2025 period compared to an increase of $9.0 million recognized during the 2024 period. Page 29 Table of Contents Depreciation and amortization Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Depreciation and amortization $ 22,953 $ 21,222 $ 67,869 $ 64,460 % of total revenue 7.7 % 7.4 % 7.8 % 7.5 % % of freight revenue 8.5 % 8.2 % 8.6 % 8.5 % Depreciation and amortization consists primarily of depreciation of tractors, trailers, and other capital assets, as well as amortization of intangible assets. Depreciation expense increased $1.4 million and $2.8 million to $20.3 million and $60.1 million for the three and nine months ended September 30, 2025 , respectively, compared to $18.8 million and $57.3 million in the same 2024 periods, respectively. Amortization of intangible assets was $2.7 million and $7.8 million for each of the three and nine months ended September 30, 2025 , respectively, compared to $2.4 million and $7.1 million for the same 2024 periods, respectively. The increase for the three and nine months ended September 30, 2025 is due to the amortization of the intangible asset related to the Asset Acquisition. We expect depreciation and amortization to remain relatively similar for the remainder of 2025, however, changes in the used tractor market have caused us to adjust residual values and increase depreciation, and further adjustments may be necessary in the future. These changes may also cause us to hold assets longer than planned, or experience increased losses on sale. Additionally, growth in our Expedited or Dedicated reportable segments could also increase depreciation and amortization going forward. Gain on disposition of property and equipment, net Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Loss on disposition of property and equipment, net $ (487 ) $ 209 $ 134 $ 1,748 % of total revenue (0.2 %) 0.1 % 0.0 % 0.2 % % of freight revenue (0.2 %) 0.1 % 0.0 % 0.2 % For the periods presented, the change in disposition of property and equipment, net for the three and nine months ended September 30, 2025 were insignificant both as a percentage of total revenue and freight revenue. Page 30 Table of Contents Interest expense, net Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Interest expense, net $ 3,468 $ 3,204 $ 8,795 $ 10,341 % of total revenue 1.2 % 1.1 % 1.0 % 1.2 % % of freight revenue 1.3 % 1.2 % 1.1 % 1.4 % For the periods presented, the change in interest expense were insignificant both as a percentage of total revenue and freight revenue. This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan, and changing interest rates. Income from equity method investment Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Income from equity method investment $ 3,578 $ 3,993 $ 11,622 $ 11,763 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 change in TEL's contribution to our results for the three and nine months ended September 30, 2025 was insignificant for the periods presented. For the remainder of 2025, we expect to see a decline in TEL's earnings sequentially as the result of customer bankruptcies that have accelerated over the past twelve months. Income tax expense Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Income tax expense $ 1,772 $ 4,141 $ 7,276 $ 8,817 % of total revenue 0.6 % 1.4 % 0.8 % 1.0 % % of freight revenue 0.7 % 1.6 % 0.9 % 1.2 % The change in income tax expense for the three and nine months ended September 30, 2025 was the result of a $9.0 million decrease and a $7.6 million increase in pre-tax income compared to the same 2024 periods. The changes in pre-tax income resulted from the aforementioned changes 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. The rate impact of items such as executive compensation disallowance and the deductibility of per diem payments will fluctuate in future periods as income fluctuates. Page 31 Table of Contents 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, 2025 TO three and nine months ended September 30, 2024 The following table summarizes revenue and segment operating income data by reportable segment: (in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Revenues: Expedited $ 94,632 $ 104,314 $ 286,625 $ 317,795 Dedicated 105,020 94,715 300,906 272,662 Managed Freight 72,220 63,385 206,620 186,668 Warehousing 24,964 25,471 74,894 77,020 Other 53 - 53 - Total revenues $ 296,889 $ 287,885 $ 869,098 $ 854,145 Segment Operating Income (1) : Expedited $ 5,079 $ 12,272 $ 18,135 $ 35,973 Dedicated 4,099 10,794 12,272 31,422 Managed Freight 2,960 2,946 10,962 9,483 Warehousing 2,498 2,751 6,258 8,536 (1) Segment operating income excludes indirect costs not directly attributable to any one reportable segment, amortization of intangible assets, and contingent consideration liability adjustments to match the information our CODM uses to evaluate the operating results of our reportable segments. The decrease in Expedited revenue for the three months ended September 30, 2025 relates to a decrease in average freight revenue per tractor per week of 5.0%, and a $2.5 million decrease in fuel surcharge revenue compared to the 2024 quarter. The decrease in average freight revenue per tractor per week for the quarter ended September 30, 2025 is the result of a 5.4% decrease in average miles per unit partially offset by a 1.0 cents per mile (or 0.5%) increase in average rate per total mile as compared to the 2024 quarter. Expedited team-driven tractors averaged 781 and 823 tractors in the third quarter of 2025 and 2024, respectively. For the nine months ended September 30, 2025, the decrease in Expedited revenue relates to a decrease in average freight revenue per tractor per week of 2.3%, and a $12.0 million decrease in fuel surcharge revenue compared to the same 2024 period. The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2025 is the result of a 4.2% decrease in average miles per unit partially offset by a 3.0 cents per mile (or 1.4%) increase in average rate per total mile compared to the same 2024 period. Expedited team-driven tractors averaged 794 and 801 for the nine months ended September 30, 2025 and 2024, respectively. The increase in Dedicated revenue for the three months ended September 30, 2025 relates to a 136, or 9.7% average tractor increase and an increase in average freight revenue per tractor per week of 1.0% compared to the 2024 quarter. The increase in average freight revenue per tractor per week was the result of a 20.0 cents per mile (or 7.0%) increase in average rate per total mile partially offset by a 5.7% decrease in average miles per unit compared to the 2024 quarter. For the nine months ended September 30, 2025, the increase in Dedicated revenue relates to a 170 (or 12.6%) average tractor increase partially offset by a decrease in average freight revenue per tractor per week of 0.8% compared to the same 2024 period. The decrease in average freight revenue per tractor per week for the nine months ended September 30, 2025 is the result of a 8.9% decrease in average miles per unit partially offset by a 24.0 cents per mile (or 8.5%) increase in average rate per total mile compared to the same 2024 period. For the three and nine months ended September 30, 2025, Managed Freight total revenue increased primarily as a result of new business awarded during the year but that will not continue into the fourth quarter as well as the team's effort to identify and execute on overflow capacity for our Expedited reportable segment. In July 2025, we experienced the departure of a key customer of Managed Freight, which we expect will significantly decrease revenue for Managed Freight during the fourth quarter of 2025, when compared to the third quarter of 2025. For the three and nine months ended September 30, 2025, Warehousing total revenue remained relatively even compared to the 2024 periods. The decrease in Expedited segment operating income for the three and nine months ended September 30, 2025 was primarily the result of the aforementioned decrease in revenue partially offset by a decrease in Expedited segment operating expenses. The decrease in Expedited segment operating expenses for the three and nine months ended September 30, 2025 was primarily the result of decreases in salaries, wages, and benefits for our professional drivers and fuel expense as compared to the same 2024 periods as a result of fewer average miles per unit and a decrease in the average number of Expedited team-driven tractors. Going forward, our focus in Expedited will be on improving margins through rate increases, exiting less profitable business, and adding more profitable business. The decrease in Dedicated segment operating income for the three and nine months ended September 30, 2025 was primarily the result of an increase in Dedicated segment operating expenses, partially offset by the aforementioned increase in revenue. The increase in Dedicated segment operating expenses for the three and nine months ended September 30, 2025 , was primarily the result of increased salaries, wages, and benefits for our professional drivers, operations and maintenance costs, purchase transportation, insurance costs, and depreciation expense as a result of growth and increased equipment costs, since the 2024 periods. Going forward, we remain focused on our strategy of growing our dedicated fleet, specifically in areas that provide value-added services for customers. We believe that if we are successful in providing best in class service and controlling our costs, growth and improved profitability will result. The increase in segment operating income for Managed Freight for the three and nine months ended September 30, 2025 was primarily the result of the aforementioned increases in Managed Freight Revenue partially offset by an increase in Managed Freight segment operating expenses. The increase in Managed Freight segment operating expenses for the three and nine months ended September 30, 2025 was primarily the result of the increases in revenue driving increases in variable expenses, primarily purchased transportation. Going forward, we seek to grow Managed Freight with profitable revenue from new customers from organic initiatives and an acquisition (including to replace the key customer we lost in July 2025), work closely with our asset-based segments to capitalize on overflow opportunities when available, and optimize costs to yield longer-term margin goals in the mid-single digits, which will generate an acceptable return on capital given the asset light nature of the business. The decrease in segment operating income for Warehousing for the three and nine months ended September 30, 2025 is the combination of facility related cost increases for which we have not yet negotiated rate increases with our customers and startup-related costs and inefficiencies related to new business. In the fourth quarter, we are anticipating growth in this segment from a large new facility start up with an existing customer scheduled to begin in November 2025. Going forward, we intend to improve upon the margin within this segment through a combination of rate increases and cost reductions. Page 32 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our business requires significant capital investments over the short-term and the long-term. Historically, 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 to primarily be through purchases and finance leases. 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 $2.1 million and $32.6 million at September 30, 2025 and December 31, 2024, 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 tractor fleet age of 1.9 years at September 30, 2025, 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, 2025 and December 31, 2024 we had $309.1 million and $296.9 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, which expired on September 23, 2025; ● $250.8 million and $233.5 million in revenue equipment installment notes, respectively; ● $16.8 million and $17.8 million in real estate notes, respectively; ● $3.4 million and $3.9 million of the principal portion of financing lease obligations, respectively; and ● $38.1 million and $41.7 million of the operating lease obligations, respectively. The increase in revenue equipment installment notes is primarily due to additional borrowings related to our trade cycle. As of September 30, 2025, we had no borrowings outstanding, undrawn letters of credit outstanding of approximately $19.9 million, and available borrowing capacity of $90.1 million under the Credit Facility. Additionally, the Draw Note from Triumph which was available solely to fund any indemnification owed to Triumph in relation to the TFS Settlement expired on September 23, 2025. 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, 2025 totaled $88.4 million of expenditures, as compared to $103.7 million of expenditures for the prior year period. During the nine months ended September 30, 2025, we took delivery of approximately 482 new tractors and 712 new trailers, while disposing of approximately 392 used tractors and 296 used trailers. Our current fleet plan for the remainder of 2025 includes the delivery of an additional 29 new company replacement tractors and 183 additional new trailers. Net losses on disposal of equipment and real estate in the nine months ended September 30, 2025 were $0.1 million compared to $1.8 million. For the balance of 2025, our baseline expectation for net capital expenditures is $15.0 million to $20.0 million. Our expected capital expenditures are subject to change based on growth opportunities in our Dedicated fleet and the potential impacts of tariffs during the year. Our equipment plan reflects our priorities of maintaining the average age of our fleet in a manner that allows us to optimize operational uptime and related operating costs and offer a fleet of equipment that our professional drivers are proud to operate. We expect the benefits of improved utilization, fuel economy and maintenance costs to produce acceptable returns despite increased prices of new equipment and potentially lower values of used equipment. We distributed a total of $5.4 million to stockholders in the first nine months of 2025 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. Page 33 Table of Contents Cash Flows Net cash flows provided by operating activities decreased to $88.1 million for the nine months ended September 30, 2025, compared to $100.9 million for the same 2024 period. Changes in operating assets and liabilities used $3.7 million and provided $6.2 million during the nine months ended September 30, 2025 and 2024, respectively. Additionally net income decreased to $25.5 million for the nine months ended September 30, 2025, compared to $29.2 million for the same 2024 period. Net cash flows used in investing activities were $89.2 million for the nine months ended September 30, 2025, compared to $104.2 million used in the same 2024 period. The decrease in net cash flows used in investing activities was primarily due the timing of our trade cycle whereby we took delivery of approximately 482 new tractors and 712 new trailers, while disposing of approximately 392 used tractors and 296 used trailers during the 2025 period compared to delivery of 691 new tractors and 757 new trailers, while disposing of approximately 791 used tractors and 319 used trailers in the same 2024 period as well as the $4.6 million payment related to the acquisition of LTST and our Section 338(h)(10) election during the 2024 period. These decreases were partially offset by the acquisition of a customer relationship during the 2025 period as part of the Asset Acquisition. Net cash flows used in financing activities were approximately $31.9 million for the nine months ended September 30, 2025, compared to $36.1 million provided in the same 2024 period. The increase in net cash flows used in financing activities was primarily a function of $36.6 million of net common stock repurchases (inclusive of excise tax) in the 2025 period, as well as net proceeds relating to our notes payable and our Credit Facility of $16.3 million in the 2025 period compared to net proceeds of $47.3 million in the 2024 period. Net cash flows provided by operating activities and used in financing activities in the 2025 period also included payment of $8.0 million and $4.5 million, respectively, of contingent consideration liabilities related to the acquisition of LTST. Net cash flows provided by operating activities and provided by financing activities in the 2024 period also included payment of $3.0 million and $7.0 million, respectively, of contingent consideration liabilities related to the acquisition of AAT. On April 23, 2025, the Board approved a stock repurchase program authorizing the purchase of up to $50 million of the Company's Class A common stock from time-to-time based upon market conditions and other factors. The stock may be repurchased on the open market, in privately negotiated transactions, or other legally permissible means, including pursuant to Rule 10b5-1 trading plans. The Company did not place a limit on the duration of the repurchase program. The stock repurchase program does not obligate the Company to repurchase any specific number of shares, and the Company may suspend or terminate the program at any time without prior notice. During the nine months ended September 30, 2025, we repurchased approximately 1.6 million shares of our class A common stock for $36.2 million (excluding excise tax). 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. Page 34 Table of Contents 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, 2025, 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, 2024. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risks have not changed materially from the market risks reported in our Form 10-K for the year ended December 31, 2024. Page 35 Table of Contents