What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-07 · 105 added, 181 removed, 253 unchanged (53% of the section changed)

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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.

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 defaults and 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, claims and litigation, 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," "improve," "remain," derivations thereof, and similar terms and phrases.

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

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

Risk Factors," set forth in our Form 10-Q for the quarter ended June 30, 2025 and our Form 10-K for the year ended December 31, 2024.

Risk Factors," set forth in our Form 10-K for the year ended December 31, 2025.

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.

Risk Factors," set forth in our Form 10-K for the year ended December 31, 2025, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

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

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Executive Overview

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.

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;

Our first quarter earnings were $0.17 per diluted share, falling short of our expectations, largely as a result of severe weather shutdowns and fuel cost headwinds in January and February.

However, freight volumes and rates improved in March, and we are encouraged by our positive operating performance and the momentum we are carrying into the second quarter, such as an expanding pipeline of new customers seeking committed capacity, rate increases with select existing customers, and the traditional seasonal improvement in freight volumes.

Additional items of note for the first quarter of 2026 include the following:

Total revenue of $307.2 million, an increase of 14.0% compared with the first quarter of 2025, and freight revenue (which excludes revenue from fuel surcharges) of $281.9 million, an increase of 15.9% compared with the first quarter of 2025;

Operating income of $6.3 million, compared with $7.6 million in the first quarter of 2025;

Net income of $4.4 million, or $0.17 per diluted share, compared with $6.6 million, or $0.24 per diluted share, in the first quarter of 2025;

Our equity investment in TEL provided $3.7 million of pre-tax earnings in the first quarter of 2026 compared to $3.8 million in the first quarter of 2025;

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;

Tangible book value at September 30, 2025, was $251.2 million.

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.

Since December 31, 2025, total indebtedness, comprised of total debt and finance leases, net of cash, decreased by $51.0 million to $245.3 million, primarily due to selling a large amount of unproductive used equipment and buying very little new equipment.

With available borrowing capacity of $57.5 million under our Credit Facility at March 31, 2026 we do not expect to be required to test our fixed charge covenant in the foreseeable future;

Stockholders' equity at March 31, 2026, was $407.6 million;

Tangible book value at March 31, 2026, was $224.6 million.

Solid economic demand and shrinking industry-wide driver capacity are creating a favorable environment for building project pipelines and improving yield and revenue per tractor.

With most of our revenue under contracts ranging from one to three years in duration, we expect to see gradual improvement beginning with the second quarter of 2026 and extending for several quarters to come.

As contracts become available, we intend to be nimble in allocating our equipment and people toward the relationships that produce long-term value through adequate margin and returns.

Our momentum continues to build this year, and our team who are running the business have palpable energy and enthusiasm.

Our plan for the remainder of 2026 is to improve yields and reallocate assets to operations that improve our margins and returns.

Based on a rapidly growing pipeline of customer demand, we expect to make significant progress assuming the current market momentum continues.

Non-GAAP Reconciliation

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Operating Ratio

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

GAAP Operating Ratio:

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Transaction costs

Employee separation costs

Lease abandonment and customer exit costs

Abandonment of long-lived software

Adjusted operating income

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

Within our Managed Freight reportable segment, we derive revenue from 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.

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 third-party providers 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.

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

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

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Revenue Equipment

At September 30, 2025, we operated 2,434 tractors and 6,851 trailers.

At March 31, 2026, we operated 2,234 tractors and 7,265 trailers.

Of such tractors, 2,140 were owned, 14 were financed under finance or operating leases, and 80 tractors were provided by independent contractors, who own and drive their own tractors.

Of such trailers, 6,406 were owned and 859 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.

At March 31, 2026, our fleet had an average tractor age of 2.2 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, such that we do not have the capital outlay of purchasing or leasing the tractor.

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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.

Obtaining equipment from independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses.

RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF three and nine months ended September 30, 2025 TO three and nine months ended September 30, 2024

COMPARISON OF three months ended March 31, 2026 TO three months ended March 31, 2025

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

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Total revenue

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.

The increase in total revenue for the three months ended March 31, 2026 compared to 2025 primarily resulted from a $33.9 million, $9.0 million, and $3.5 million increase in freight revenue for Managed Freight, Dedicated, and Warehousing, respectively, partially offset by an $8.3 million decrease in freight revenue for Expedited, as well as a $0.9 million decrease in fuel surcharge revenue.

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

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Three Months Ended

Nine Months Ended

September 30,

Salaries, wages, and related expenses

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% of freight revenue

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.

Salaries, wages, and related expenses increased on a dollars basis for the three months ended March 31, 2026 compared to the same 2025 period primarily as a result of growth in our Dedicated and Warehousing reportable segments, pay increases since the prior period, and group health expenses.

As a percentage of freight revenue for the three months ended March 31, 2026, 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 incur driver pay for team-driven tractors, and a higher percentage of revenue from Managed Freight, where we don't incur 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.

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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.

Three Months Ended

Nine Months Ended

September 30,

% of total revenue

% of freight revenue

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.

Total fuel expense the three months ended March 31, 2026 remained relatively even on a dollars basis primarily due to an 8.0% decrease in total miles offset by higher fuel prices compared to the 2025 period.

As a percentage of freight revenue for the three months ended March 31, 2026, total fuel expense decreased as the foregoing factors were offset by a lower percentage of revenue from Expedited, where we incur fuel expense, and a higher percentage of revenue from Managed Freight, where we don't incur fuel expense.

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

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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.

Fuel prices as measured by the DOE wer e $1.34 per g allon, or 37.3%, higher for the quarter ended March 31, 2026 compared with the same quarter in 2025.

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.

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Three Months Ended

Nine Months Ended

September 30,

Total fuel surcharge

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% of freight revenue

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.

For the periods presented, net fuel expense remained relatively even as a percentage of freight revenue.

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, 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.

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Three Months Ended

Nine Months Ended

September 30,

Operations and maintenance

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% of freight revenue

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.

The increase in operations and maintenance for the three months ended March 31, 2026 was primarily the result of the increased average age of tractors, high demands on equipment as we grow our fleet in niche service areas, and increased recruiting costs.

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, the average age of our tractor fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, our mix of specialty and commoditized freight, and any disruption of the supply chain.

Additionally, operations and maintenance costs may increase if we experience wage and parts inflation.

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Three Months Ended

Nine Months Ended

September 30,

Revenue equipment rentals and purchased transportation

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% of freight revenue

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.

The increases in revenue equipment rentals and purchased transportation for the three months ended March 31, 2026 were primarily the result of the 2025 Star Acquisition within the Managed Freight reportable segment.

Additionally, total miles run by independent contractors decreased from 7.0% for the three months ended March 31, 2025, to 6.7% for the same 2026 period, 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.

In addition, if fuel prices increase, it would result in a further increase in what we pay third-party providers 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.

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 providers 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.

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Three Months Ended

Nine Months Ended

September 30,

Operating taxes and licenses

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Three Months Ended

Nine Months Ended

September 30,

Insurance and claims

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% of freight revenue

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.

On a cents per mile basis, insurance and claims decreased to 21.4 cents per mile for the three months ended March 31, 2026 compared to 23.8 cents per mile for the 2025 period primarily due to reduced insurance and claims expense partially offset by decreased miles compared to the same 2025 period.

Miles decreased primarily due to weather during the 2026 period.

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

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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.

As of March 31, 2026, there were no outstanding claims in this layer.

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 materially adverse effect on our business, results of operations, financial condition, or liquidity.

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.

To the extent 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.

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Three Months Ended

Nine Months Ended

September 30,

Communications and utilities

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Three Months Ended

Nine Months Ended

September 30,

General supplies and expenses

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% of freight revenue

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.

For the three months ended March 31, 2026 , general supplies and expenses increased on a dollars basis as a result of increased technology costs partially offset by the $0.3 million increase in the fair value of the contingent consideration recognized during the 2026 period compared to an increase of $0.7 million recognized during the 2025 period.

Depreciation and amortization

Three Months Ended

Nine Months Ended

September 30,

Depreciation and amortization

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

Depreciation expense increased $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.

Depreciation expense increased $1.6 million to $21.0 million for the three months ended March 31, 2026 compared to $19.4 million in the same 2025 period.

Amortization of intangible assets was $3.0 million for the three months ended March 31, 2026 compared to $2.4 million for the same 2025 period.

The increase for the three months ended March 31, 2026 is due to the amortization of the intangible asset related to the Star Acquisition.

We expect depreciation and amortization to increase going forward as the cost of new equipment increases.

Additionally, 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

If we were to grow our Expedited or Dedicated reportable segments we may face additional increases in depreciation and amortization.

Loss on disposition of property and equipment, net

Three Months Ended

Nine Months Ended

September 30,

Loss on disposition of property and equipment, net

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% of freight revenue

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.

For the period presented, the change in loss on disposition of property and equipment, net was insignificant both as a percentage of total revenue and freight revenue.

Interest expense, net

Three Months Ended

Nine Months Ended

September 30,

Interest expense, net

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% of freight revenue

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

For the period presented, the change in interest expense, net was 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.

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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 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.

The change in TEL's contribution to our results for the three months ended March 31, 2026 was insignificant for the periods presented.

For the remainder of 2026, we expect TEL's earnings to remain relatively similar to those of the current period.

However, 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.

Income tax expense

Three Months Ended

Nine Months Ended

September 30,

Income tax expense

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% of freight revenue

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 decrease in income tax expense for the three months ended March 31, 2026 was the result of a $2.5 million decrease in pre-tax income compared to the same 2025 period.

The changes in pre-tax income resulted from the aforementioned changes in operating income.

The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences.

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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

COMPARISON O F three months ended March 31, 2026 TO three months ended March 31, 2025

The following table summarizes revenue and segment operating income data by reportable segment:

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Three Months Ended

Nine Months Ended

September 30,

Managed Freight

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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 decrease in Expedited revenue for the three months ended March 31, 2026 relates to a 10.4% decrease in average total tractors compared to the 2025 quarter and a $1.7 million decrease in fuel surcharge revenue.

Average freight revenue per tractor per week was comparable to the 2025 quarter as a result of a 3.4% decrease in average miles per unit largely offset by a 7.0 cents per mile (or 3.3%) increase in average rate per total mile as compared to the 2025 quarter.

Expedited team-driven tractors averaged 709 and 796 tractors in the first quarter of 2026 and 2025, respectively.

The increase in Dedicated revenue for the three months ended March 31, 2026 relates to a 31, or 2.1%, average tractor increase and an increase in average freight revenue per tractor per week of 8.7% compared to the 2025 quarter.

The increase in average freight revenue per tractor per week was the result of a 35.0 cents per mile (or 11.3%) increase in average rate per total mile partially offset by a 2.3% decrease in average miles per unit compared to the 2025 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.

For the three months ended March 31, 2026, Managed Freight total revenue increased primarily as a result of the fourth quarter 2025 Star Acquisition.

For the three months ended March 31, 2026, Warehousing total revenue increased $3.5 million compared to the 2025 period primarily due to onboarding a significant customer in the fourth quarter of 2025.

The decrease in Expedited segment operating income for the three months ended March 31, 2026 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 months ended March 31, 2026 was primarily the result of decreases in salaries, wages, and benefits for our professional drivers, operations and maintenance, and purchased transportation as compared to the same 2025 period 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.

The increase in Dedicated segment operating income for the three months ended March 31, 2026 was primarily the result of aforementioned increase in revenue, partially offset by an increase in Dedicated segment operating expenses.

The increase in Dedicated segment operating expenses for the three months ended March 31, 2026 , was primarily the result of increased salaries, wages, and benefits for our professional drivers, fuel expenses, and operations and maintenance costs since the 2025 period as a result of productivity from our agricultural protein related fleet which was negatively impacted by avian influenza during the prior year period.

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.

The increase in segment operating income for Managed Freight for the three months ended March 31, 2026 was primarily the result of the aforementioned increase 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 months ended March 31, 2026 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 the Star Acquisition, working closely with our asset-based segments to capitalize on overflow opportunities when available, and optimizing costs to yield longer-term margin goals in the mid-single digits, which would 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 months ended March 31, 2026 is primarily due to startup-related costs and inefficiencies for a significant customer onboarded during the fourth quarter of 2025 that more than offset the aforementioned increase in revenue.

Going forward, as activities within this startup normalize, our goal is to have operating income margins in the high-single digit range.

LIQUIDITY AND CAPITAL RESOURCES

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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.

We had working capital (total current assets less total current liabilities) of $9.0 million and $22.8 million at March 31, 2026 and December 31, 2025, 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.

With an average tractor fleet age of 2.2 years at March 31, 2026, 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;

As of March 31, 2026 and December 31, 2025 we had $291.8 million and $338.7 million in debt and lease obligations, respectively, consisting of the following:

$29.0 million and $30.0 million outstanding borrowings under the Credit Facility;

$208.4 million and $251.7 million in revenue equipment installment notes, respectively;

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$35.3 million and $37.5 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.

The decrease in revenue equipment installment notes is primarily due to selling a large amount of unproductive used revenue equipment and buying very little new equipment.

As of March 31, 2026, we had $29.0 million borrowings outstanding, undrawn letters of credit outstanding of approximately $19.9 million, and available borrowing capacity of $57.5 million under the Credit Facility.

Fluctuations in the outstanding balance and related availability under our Credit Facility are driven primarily by cash flows from operations and the nature and timing 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 three months ended March 31, 2026 totaled $24.2 million of proceeds, as compared to $23.9 million of expenditures for the three months ended March 31, 2025.

During the three months ended March 31, 2026, we took delivery of approximately 53 new tractors and 15 new trailers, while disposing of approximately 422 used tractors and 29 used trailers.

Net losses on disposal of equipment and real estate in the three months ended March 31, 2026 and 2025 were $0.3 million, respectively.

Our current fleet plan for the remainder of 2026 ranges from $40.0 million to $50.0 million, which is a significant reduction compared to 2025.

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.

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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.

Given the mix change between our high mileage Expedited fleet and lower mileage Dedicated fleets, going forward, we anticipate the average age of our equipment to range from 25 to 28 months.

We distributed a total of $1.8 million to stockholders in the first three months of 2026 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 $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.

Net cash flows provided by operating activities increased to $29.0 million for the three months ended March 31, 2026, compared to $24.8 million for the same 2025 period.

Changes in operating assets and liabilities provided $2.1 million and $1.7 million during the three months ended March 31, 2026 and 2025, respectively, while non-cash expenses such as deferred income tax expense and depreciation and amortization increased during the 2026 period.

These increases were partially offset by a decrease in net income to $4.4 million for the three months ended March 31, 2026, compared to $6.6 million for the same 2025 period.

Net cash flows provided by investing activities were $24.2 million for the three months ended March 31, 2026, compared to $24.1 million used in the same 2025 period.

The increase in net cash flows provided by investing activities was primarily due to disposing of a large amount of unproductive used revenue equipment and buying very little new equipment, whereby we took delivery of approximately 53 new tractors and 15 new trailers, while disposing of approximately 422 used tractors and 29 used trailers during the 2026 period compared to delivery of 163 new tractors and 201 new trailers, while disposing of approximately 100 used tractors and 76 used trailers in the same 2025 period.

Net cash flows used by financing activities were $46.9 million for the three months ended March 31, 2026, compared to $25.1 million provided in the same 2025 period.

The increase in net cash flows used in financing activities was primarily a function of net repayments relating to our notes payable and our Credit Facility of $44.5 million in the 2026 period compared to net repayments of $18.4 million in the 2025 period.

Net cash flows provided by operating activities also included payment of $8.0 million for the 2025 period related to the acquisition of LTST and net cash flows used by financing activities in the 2026 and 2025 periods also included payment of contingent consideration liabilities $0.3 million related to the Asset Acquisition and $4.5 million related to the acquisition of LTST.

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.

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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.

There were no shares repurchased during three months ended March 31, 2026 or 2025.

During the year ended December 31 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, and the extent of future income tax obligations and refunds.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Accordingly, actual results could differ from those anticipated.

There have been no material changes to our most critical accounting policies and estimates during the three and 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.

There have been no material changes to our most critical accounting policies and estimates during the three months ended March 31, 2026, 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, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis