What changed in this filing

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Item 1A. Risk Factors

2022-03-01 compared with 2021-03-01 · 71 added, 70 removed, 251 unchanged (36% of the section changed)

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We may have difficulty effectively managing our growth, which could adversely affect our business, results of operations and financial condition.

Our growth strategy includes increasing freight volume from existing customers, expanding our service offerings and pursing strategic transactions.

Our growth strategy includes increasing freight volume from new and existing customers, expanding our service offerings and pursing strategic transactions.

Our growth plans will place significant demands on our management and operating personnel.

Our ability to manage our future growth effectively will require us to, among other things, regularly enhance our operating and management information systems, evaluate and change our service offerings and continue to attract, retain, train, motivate and

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manage key employees, including through training and development programs.

If we are unable to manage our growth effectively, our business, results of operations and financial condition may be adversely affected.

We have grown and may grow, in part, through acquisitions, which involve various risks, and we may not be able to identify or acquire companies consistent with our growth strategy or successfully integrate acquired businesses into our operations.

We have grown through acquisitions, and we intend to pursue opportunities to expand our business by acquiring other companies in the future.

Acquisitions involve risks, including those relating to:

• identification of appropriate acquisition candidates;

• negotiation of acquisitions on favorable terms and valuations;

• integration of acquired businesses and personnel;

• integration of information technology systems;

• implementation of proper business and accounting controls;

• ability to obtain financing, at favorable terms or at all;

• diversion of management attention;

• retention of employees and customers;

• non-employee driver attrition;

• unexpected liabilities;

• detrimental issues not discovered during due diligence.

Acquisitions also may affect our short-term cash flow and net income as we expend funds, potentially increase indebtedness and incur additional expenses.

If we are not able to identify or acquire companies consistent with our growth strategy, or if we fail to successfully integrate any acquired companies into our operations, we may not achieve anticipated increases in revenue, cost savings and economies of scale, our operating results may actually decline and acquired goodwill and intangibles may become impaired.

If we fail to successfully integrate, develop, and motivate new employees, it could harm our culture.

Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel, maintain our performance, or

execute on our growth strategy.

To manage our current and anticipated future growth effectively, we must also continue to maintain, and may need to enhance, our operating and management information systems and information technology infrastructure, which will place additional demands on our resources and operations.

Failure to manage our growth effectively could lead us to over-invest or under-invest in technology and operations;

result in weaknesses in our infrastructure, systems, or controls;

give rise to operational mistakes, losses, or loss of productivity or business opportunities;

reduce customer satisfaction;

limit our ability to respond to competitive pressures;

and result in loss of employees and reduced productivity of remaining employees.

If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue could decline or may grow more slowly than expected, and we may be unable to implement our growth strategy.

If we have difficulty attracting and retaining Leased Capacity Providers, other third-party transportation capacity providers, or freight handlers, our profitability and results of operations could be adversely affected.

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As a result, our profitability and results of operations could be adversely affected.

Our inability to complete acquisitions on acceptable terms could negatively impact our growth rate and financial performance.

We have grown through acquisitions, and we intend to pursue opportunities to expand our business by acquiring other companies in the future.

Our ability to grow revenues, earnings and cash flow depends in part upon our ability to identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies and business performance.

Appropriate targets for acquisition are difficult to identify and complete for a variety of reasons, including but not limited to, limited due diligence, high valuations, business and intellectual property evaluations, other interested parties, negotiations of the definitive documentation, satisfaction of closing conditions, the need to obtain antitrust or other regulatory approvals on acceptable terms, and availability of funding.

The inability to close appropriate acquisitions on acceptable terms could adversely impact our growth rate, revenue, and financial performance.

The Company may encounter difficulties with acquisitions.

Acquisitions involve risks.

Although the Company conducts due diligence reviews of potential acquisition candidates, it may not be able to identify all material liabilities or risks related to potential acquisition candidates.

There can be no assurance that the Company will be able to locate and acquire any business, retain key personnel and customers of an acquired business or integrate any acquired business successfully.

Additionally, there can be no assurance that financing for any acquisition, if necessary, will be available on acceptable terms, if at all, or that the Company will be able to accomplish its strategic objectives in connection with any acquisition.

Future acquisitions may be difficult to integrate into our existing operations, may disrupt our business, dilute shareholder value, divert management’s attention, or negatively affect our operating results.

We have acquired multiple businesses since our inception, including four in fiscal 2021.

Future acquisitions could involve substantial investment of funds or financings by issuance of debt or equity securities and could result in one-time charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the issuance or assumption of debt.

Any such acquisition may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes.

Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so based upon less than optimal capital structure.

Our inability to take advantage of growth opportunities for our business or to address risks associated with acquisitions or investments in businesses may negatively affect our operating results.

Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings which, in turn, may have an adverse material effect on the price of our common stock.

A determination by regulators that our Leased Capacity Providers are employees rather than independent contractors could expose us to various liabilities and additional ongoing expenses, and related litigation can subject us to substantial costs, which could have a material adverse effect on our results of operations and our financial condition.

At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that independent contractor transportation capacity providers like our Leased Capacity Providers are “employees,” rather than “independent contractors.” Additionally, we are aware of certain judicial decisions and recently enacted state laws that could bring about major reforms in the classification of workers, including the California legislature’s passage of California Assembly Bill 5

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(“California AB 5”).

California AB 5 purports to codify a new test for determining worker classification that is broadly viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships.

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The legal and other costs associated with any of these matters can be substantial and could have a material adverse effect on our results of operations and our financial condition.

Our results of operations will be materially and adversely affected if our new service offerings do not gain market acceptance or result in the loss of our current customer base.

One element of our growth strategy is to expand our service offerings to customers.

As a result, we have added additional services in the past few years.

We may not succeed in making our customers sufficiently aware of existing and future services or in creating customer acceptance of these services at the prices we would want to charge.

In addition, we may be required to devote substantial resources to educate our customers, with no assurance that a sufficient number of customers will use our services for commercial success to be achieved.

We may not identify trends correctly, or may not be able to bring new services to market as quickly, effectively or price-competitively as our competitors.

In addition, new services may alienate existing customers or cause us to lose business to our competitors.

If any of the foregoing occurs, it could have a material adverse effect on our results of operations.

For example, we have in recent years expanded our “final mile” service offering through the acquisition of the assets of FSA and Linn Star Holdings, Inc., Linn Star Transfer, Inc.

and Linn Star Logistics, LLC (collectively, “Linn Star”).

This is a difficult to serve market and we face competition in this market from competitors that have operated in this market for several years, which may hinder our ability to compete and gain market share.

Because a portion of our network costs are fixed, any factors that result in a decrease in the volume or revenue per pound of freight shipped through our networks will adversely affect our results of operations.

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For the calendar year ended December 31, 2021, our top ten customers, based on revenue, accounted for approximately 35% of our revenue.

One of our Expedited Freight customers accounted for more than 10% of revenues in that segment and more than 10% of consolidated revenues.

No customer accounted for more than 10% of consolidated revenues.

These customers can impact our revenues and profitability based on factors such as:

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These customers could choose to divert all or a portion of their business with us to one of our competitors, demand pricing concessions for our services, require us to provide enhanced services that increase our costs, or develop their own shipping and distribution capabilities.

Our Expedited Freight

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and Intermodal segments typically do not have long-term contracts with their customers.

Our Expedited Freight and Intermodal segments typically do not have long-term contracts with their customers.

A reduction in, or termination of, our services by one or more of our major customers could have a material adverse effect on our business and operating results.

In addition, any increased direct sales efforts to direct shippers and beneficial cargo owners, as well as the potential acquisition of other businesses that may compete more directly with our customers, could adversely affect our expenses, pricing, third-party relationships and revenues, particularly if it affects any of these key customers.

We are dependent on our senior management team and other key employees, and the loss of any such personnel could materially and adversely affect our business, operating results and financial condition.

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Disasters, including severe weather and public health issues, such as pandemics, occurring in the United States or abroad, could result in the temporary lack of an adequate work force and the temporary disruption in the transport of goods to or from overseas which could prevent, delay or reduce freight volumes and could have an adverse impact on consumer spending and confidence levels, all of which could result in decreased revenues.

Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.

We have recently experienced labor shortages at some of our locations.

A number of factors may adversely affect the labor force available to us, including high employment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices, immigration, and federal vaccine mandates.

A labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our business or otherwise operate at full capacity.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows.

Changes to our compensation and benefits could adversely affect our ability to attract and retain qualified employees.

The compensation we offer our employees is subject to market conditions that may require increases in employee compensation, which becomes more likely as economic conditions improve.

If we are unable to attract and retain a sufficient number of qualified employees, we could be required to increase our compensation and benefits packages, or reduce our operations and face difficulty meeting customer demands, any of which could adversely affect our financial condition, results of operations, liquidity and cash flows.

We could be required to record a material non-cash charge to income if our recorded intangible assets or goodwill are determined to be impaired.

We have $145.0 million of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31, 2020.

We have $154,717 of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31, 2021.

Our definite-lived intangible assets primarily represent the value of customer relationships and non-compete agreements that were recorded in conjunction with our various acquisitions.

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If such measurement indicates impairment, we would be required to record a non-cash impairment charge to our consolidated statement of comprehensive income in the amount that the carrying value of these assets exceeds the estimated fair value of the assets.

We also have recorded goodwill of $245.0 million on our consolidated balance sheet at December 31, 2020.

We also have recorded goodwill of $266,752 on our consolidated balance sheet at December 31, 2021.

Goodwill is assessed for impairment annually (or more frequently if circumstances indicate possible impairment) for each of our reporting units.

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If we determine that our fair value of goodwill is less than the related book value, we could be required to record a non-cash impairment charge to our consolidated statement of comprehensive income, which could have a material adverse effect on our earnings.

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We operate in highly competitive and fragmented segments of our industry, and our business will suffer if we are unable to adequately address downward pricing pressures and other factors that may adversely affect our results of operations, growth prospects and profitability.

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Many of our competitors periodically reduce their rates to gain business, especially during times of economic decline.

In the past several years, several of our competitors have reduced their rates to unusually low levels that we believe are unsustainable in the long-term, but that may materially adversely affect our business in the short-term.

In an effort to reduce costs, we have seen our customers solicit bids from multiple transportation providers and decide to develop or expand internal capabilities for some of the services that we provide.

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As a result, transportation and supply chain companies such as ours experienced slowdowns and reduced demand for our services.

Although our business and operations have returned to pre-COVID levels, the situation surrounding COVID-19 remains fluid and may be further impacted by the policies of President Biden’s administration and the availability and success of a vaccine.

The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition in 2021 will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers and suppliers and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and

operating conditions can resume.

Although our business and operations have returned to pre-COVID levels, the situation surrounding COVID-19 and its variants remains fluid and may be further impacted by the policies of President Biden’s administration, the availability and success of the vaccines and vaccination rates and longer-term economic and market impacts including labor shortages and inflation.

The extent to which outbreaks of COVID-19 and its variants impacts our business, results of operations and financial condition during the balance of 2022 will depend on future developments, which are highly uncertain and cannot be predicted by, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, including the new variants, the effects of the outbreak on our customers and suppliers and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume.

We periodically evaluate factors including, but not limited to, macroeconomic conditions, changes in our industry and the markets in which we operate and our market capitalization, as well as our reporting units’ expected future financial performance for purposes of evaluating asset impairments, including goodwill.

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We are subject to risks associated with the availability and price of fuel.

Fuel prices have fluctuated dramatically over

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recent years.

Fuel prices have fluctuated dramatically over recent years.

Future fluctuations in the availability and price of fuel could adversely affect our results of operations.

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Fuel shortages, changes in fuel prices and the potential volatility in fuel surcharge revenue may adversely impact our results of operations and overall profitability.

Our increased direct sales efforts to direct shippers and beneficial cargo owners could be viewed as a competitive threat by our current domestic forwarder customers.

We are increasing our sales to direct shippers and beneficial cargo owners, which are the primary customers of freight forwarders, 3PLs and other transportation intermediaries.

These companies are significant customers of our business in the United States.

Our activities related to our increased direct sales efforts to direct shippers and beneficial cargo owners, as well as the potential acquisition of other businesses that compete with our customers, may result in the disruption of our business, which could harm relationships with our current customers, employees or suppliers, and could adversely affect our expenses, pricing, third‑party relationships and revenues.

Further, a loss of a significant customer could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Risks Relating to Information Technology and Systems

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We rely heavily on our information technology systems to efficiently run our business, and they are a key component of our growth strategy and competitive advantage.

We, our customers and third parties increasingly store and transmit data by means of connected information technology systems.

We, our customers and third parties increasingly store and transmit data by

means of connected information technology systems.

We expect our customers to continue to demand more sophisticated, fully integrated information systems from their transportation providers.

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On December 15, 2020, we detected a Ransomware Incident impacting our operational and information technology systems, which caused service delays for our customers.

We have incurred unexpected costs and impacts from the Ransomware Incident, and may in the future, incur costs in connection with this Ransomware Incident and any future cybersecurity incidents, including infrastructure investments, remediation efforts and legal claims resulting from the above.

We incurred unexpected costs and impacts from the Ransomware Incident, and may in the future, incur costs in connection with this Ransomware Incident and any future cybersecurity incidents, including infrastructure investments, remediation efforts and legal claims resulting from the above.

For more information regarding this Ransomware Incident, see Item 1, Business and Item 7 , Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

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Our operations depend on effective and secure information technology systems.

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Likewise, data privacy breaches by employees and others who access our systems may pose a risk that sensitive customer or vendor data may be exposed to unauthorized persons or to the public, adversely impacting our customer service, employee relationships and our reputation.

Furthermore, any failure to comply with data privacy, security or other laws and regulations, such as the California Consumer Privacy Act, which took effect in January 2020, could result in claims, legal or regulatory proceedings, inquires or investigations.

Furthermore, any failure to

comply with data privacy, security or other laws and regulations, such as the California Consumer Privacy Act, which took effect in January 2020, could result in claims, legal or regulatory proceedings, inquires or investigations.

While we continue to make efforts to evaluate and improve our systems and particularly the effectiveness of our security program, procedures and systems, it is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time, and there can be no assurance that the actions and controls that we implement, or which we cause third-party service providers to implement, will be sufficient to protect our systems, information or other property.

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For vehicle liability, we retain a portion of the risk.

Below is a summary of our risk retention on vehicle liability insurance coverage maintained by us through $10.0 million (in millions):

Below is a summary of our risk retention on vehicle liability insurance coverage maintained by us through $10,000 (in thousands):

Risk Retention Frequency Layer Policy Term

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Truckload business $ 2,000 Occurrence/Accident² $0 to $2,000 10/1/2021 to 10/1/2022

LTL and Truckload businesses $ 6.00 Policy Term Aggregate³ $3.0 to $5.0 10/1/2020 to 10/1/2021

LTL and Truckload businesses $ 5.00 Policy Term Aggregate³ $5.0 to $10.0 10/1/2020 to 10/1/2021

LTL business $ 6,000 Policy Term Aggregate³ $3,000 to $5,000 10/1/2021 to 10/1/2022

LTL, Truckload and Intermodal businesses $ 2,500 Policy Term Aggregate³ $5,000 to $10,000 10/1/2021 to 10/1/2022

Intermodal $ 1,000 Occurrence/Accident² $0 to $1,000 10/1/2021 to 10/1/2022

¹ Excluding the Final Mile business, which is primarily a brokered service.

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² For each and every accident, we are responsible for damages and defense up to these amounts, regardless of the number of claims associated with any accident.

³ During the Policy Term, we are responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Risk Retention before insurance will respond.

Also, from time to time, when brokering freight, we may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and we maintain third-party liability insurance coverage with a $0.1 million deductible per occurrence for most of our brokered services.

Additionally, we maintain workers’ compensation insurance with a self-insured retention of $0.5 million per occurrence.

Also, from time to time, when brokering freight, we may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and we maintain third-party liability insurance coverage with a $100 deductible per occurrence for most of our brokered services.

Additionally, we maintain workers’ compensation insurance with a self-insured retention of $500 per occurrence.

We cannot guarantee that our self-insurance retention levels will not increase and/or that we may have to agree to more unfavorable policy terms as a result of market conditions, poor claims experience or other factors.

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This, along with legal expenses, incurred but not reported claims, and other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates.

Our failure to comply with various applicable federal and state employment and labor laws and regulations could have a material, adverse impact on our business, financial condition and results of operations.

Various federal and state employment and labor laws and regulations govern our relationships with our employees.

These laws and regulations relate to matters such as employment discrimination, wage and hour laws, requirements to provide meal and rest periods or other benefits, family leave mandates, employee and independent contractor classification rules, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’ compensation rules, healthcare laws, scheduling notification requirements and anti-discrimination and anti-harassment laws.

While the scope of these laws and regulations are subject to change in all jurisdictions, California routinely makes changes to the scope of such laws and regulations, many of which may be strictly enforced, and some of which have been in the past, and may be in the future, implemented on a retrospective basis (meaning we may not have an opportunity to change our employment practices in advance to avoid non-compliance).

Complying with these laws and regulations, including ongoing changes thereto, subjects us to substantial expense and non-compliance could expose us to significant liabilities.

In particular, we have been subject to employment litigation with respect to classification and wage and hour issues in the past and have wage and hour litigation currently pending.

While we have not incurred material losses with respect to this litigation in the past, we may be subject to material claims in the future.

We operate in a regulated industry, and increased costs of compliance with, or liability for violation of, existing or future regulations and enforcement could have a material adverse effect on our business.

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Carriers’ safety and fitness ratings under CSA include the on-road safety performance of the carriers’ drivers.

The FMCSA has also implemented changes to the HOS regulations which govern the work hours of commercial drivers and adopted a rule that requires commercial drivers who use paper log books to maintain

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hours-of-service records with electronic logging devices (“ELDs”) and will require commercial drivers who use automatic on-board recording devices (“AOBRDs”) to record HOS to use ELDs by December 2019.

The FMCSA has also implemented changes to the HOS regulations which govern the work hours of commercial drivers and adopted a rule that requires commercial drivers who use paper log books to maintain hours-of-service records with electronic logging devices (“ELDs”) and required commercial drivers who use automatic on-board recording devices (“AOBRDs”) to record HOS to use ELDs by December 2019.

As of December 2019, our fleets were updated to meet the ELD requirements.

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If additional or more stringent standards are adopted, such may result in a reduction of the pool of qualified drivers available to us and to other motor carriers in our industry.

If we experience safety and fitness violations, our safety and fitness scores could be adversely impacted, and our fleets could be ranked poorly as compared to our peers.

If we experience safety and fitness violations, our safety and fitness scores could be adversely impacted, and our fleets could be ranked poorly as

compared to our peers.

A reduction in our safety and fitness scores or those of our contracted drivers could also reduce our competitiveness in relation to other companies that have higher scores.

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In addition, a shortage of qualified drivers could increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations.

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If our employees were to unionize, our operating costs would likely increase.

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Our charter and bylaws and provisions of Tennessee law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our Common Stock and also could limit the price that investors are willing to pay in the future for shares of our Common Stock.

Our financing costs may be adversely affected by changes in LIBOR.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates London Interbank Offered Rate (“LIBOR”), announced its intention to phase out LIBOR by the end of 2021.

We use LIBOR as a reference rate in our revolving credit facility to calculate interest due to our lender.

It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

To address the transition away from LIBOR, we have amended our revolving credit facility to include provisions to address establishing a replacement benchmark rate.

There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases or volatility in risk-free benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our business, result of operations and financial condition.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors