What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-01 compared with 2022-02-25 · 278 added, 176 removed, 268 unchanged (63% of the section changed)

Heartland Express, Inc.

is a holding company incorporated in Nevada, which owns directly or through subsidiaries, all of the stock of Heartland Express, Inc.

of Iowa, Heartland Express Services, Inc., Heartland Express Maintenance Services, Inc., Midwest Holding Group, LLC and Millis Transfer, LLC.

is a holding company incorporated in Nevada, which directly or indirectly owns all of the stock of the following active legal entities:

Heartland Express, Inc.

of Iowa, Heartland Express Services, Inc., Heartland Express Maintenance Services, Inc.

("Heartland Express"), and Midwest Holding Group, LLC and Millis Transfer, LLC ("Millis Transfer"), and Smith Transport, Inc., Smith Trucking, Inc., and Franklin Logistics, Inc.

("Smith Transport"), and Transportation Resources, Inc.

and Contract Freighters, Inc.

(collectively with certain Mexican entities, "CFI").

On May 31, 2022, Heartland Express, Inc.

of Iowa acquired Smith Transport, a truckload carrier headquartered in Roaring Spring, Pennsylvania.

On August 31, 2022, Heartland Express, Inc.

of Iowa acquired Midwest Holding Group, Inc.

and Millis Real Estate Leasing, LLC (together, "Millis Transfer"), a truckload carrier headquartered in Black River Falls, Wisconsin.

Effective December 31, 2019, Millis Transfer, Inc.

and Midwest Holding Group, Inc.

were converted to Millis Transfer, LLC and Midwest Holding Group, LLC, respectively.

Further, effective December 31, 2019, Millis Real Estate Leasing, LLC, Rivera Real Estate, LLC, and Great River Leasing, LLC were merged into Millis Transfer, LLC.

We, together with our subsidiaries, are a short-to-medium haul truckload carrier (predominately 500 miles or less per load).

We operate our consolidated operations under the brand names of Heartland Express and Millis Transfer.

We primarily provide

nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to California.

Approximately 99.9% of our operating revenue is derived from shipments within the United States ("U.S.") with the remainder being Canada.

We do not have any operations in Mexico.

We focus on providing high quality service to targeted customers with a high density of freight in our regional operating areas.

We also offer limited temperature-controlled truckload services, which are not significant to our operations and have been reduced to serving select dedicated customers specifically in the western part of the U.S.

Further, we do not operate a non-asset-based freight brokerage business.

We generally earn revenue based on the number of miles per load delivered and the revenue per mile paid.

We believe the keys to success are maintaining high levels of customer service and safety, which are generally predicated on the availability of experienced drivers and late-model equipment.

of Iowa acquired CFI's non-dedicated U.S.

dry van and temperature-controlled truckload business located in Joplin, Missouri, and certain Mexican entities (collectively, "CFI

Logistica") operations located in Mexico.

We, together with our subsidiaries, are a short, medium, and long-haul truckload carrier and transportation services provider.

We primarily provide nationwide asset-based dry van truckload service for major shippers across the United States, along with cross-border freight and other transportation services offered through third party partnerships in Mexico.

We, together with our subsidiaries, historically have been a short-to-medium haul truckload carrier with approximately 99.9% of our operating revenue was derived from shipments within the United States with the remainder being Canada and no operations in Mexico.

With the acquisition of CFI on August 31, 2022, we significantly expanded our scale and our transportation services.

We continue to provide nationwide asset-based dry van truckload service for major shippers from across the U.S.

and now including cross border freight to and from Mexico and our consolidated average length of haul has increased to approximately 500 miles.

We continue to focus on providing high quality service to targeted customers with a high density of freight in our regional operating areas.

We also offer truckload temperature-controlled transportation services and Mexico logistics services, which are not significant to our consolidated operations.

Through the acquisition of CFI, we now provide transportation logistics services across Mexico for our customers and provide cross-border freight services for customer loads moving from the United States into Mexico and loads originating from Mexico into the United States.

We utilize third party service providers for all miles run in Mexico and to move freight across the US-Mexico border while leveraging terminal locations in the US and Mexico near the border to facilitate these moves.

We generally earn revenue based on the number of miles per load delivered and the revenue per mile or per load paid.

We operate our consolidated operations under the brand names of Heartland Express, Millis Transfer, Smith Transport, and CFI.

We manage our business based on overall corporate operating goals and objectives that are the same for all of our brands.

Our Chief Operating Decision Maker (“CODM”), our CEO, evaluates the operational efficiencies of our transportation services, operating performance and asset allocation on a combined basis based on consolidated operating goals and objectives.

We believe the keys to success are maintaining high levels of customer service and safety, which are predicated on the availability of experienced drivers and late-model equipment.

We believe that our service standards, safety record, and equipment accessibility have made us a core carrier to many of our major customers, as well as allowed us to build solid, long-term relationships with customers and brand ourselves as an industry leader for on-time service.

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Gerdin in 1978 and became publicly traded in November 1986.

Over the thirty-five years from 1986 to 2021, we have grown our revenues to $607.3 million from $21.6 million and our net income has increased to $79.3 million from $3.0 million.

For the five year period 2017 through 2021 we had the highest net income, $370.9 million, of any previous five year period.

Over the thirty-six years from 1986 to 2022, we have grown our revenues to $968.0 million from $21.6 million and our net income has increased to $133.6 million from $3.0 million.

For the five year period 2018 through 2022 we had the highest net income, $429.3 million, and highest revenue, $3.4 billion, of any previous five year period.

Much of our growth has been attributable to expanding service for existing customers, acquiring new customers, and continued expansion of our operating regions through new and existing customers as well as strategic acquisitions.

More information regarding our total assets, revenues and profits for the past three years can be found in our “Consolidated Statements of Comprehensive Income” that is included in this report.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last eight years, Millis Transfer, occurring on August 26, 2019.

These eight acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, pursue new customer relationships in new markets, as well as expand business relationships with current customers in new markets.

We are highly selective about acquisitions, with our main criteria being (i) safe operations, (ii) high quality professional truck drivers, (iii) fleet profile that is compatible with our philosophy or can be replaced economically, and (iv) freight profile that will allow a path to a low-80s operating ratio upon full integration, application of our cost structure, and freight optimization, including exiting certain loads that fail to meet our operating profile.

We expect to continue to evaluate acquisition candidates presented to us.

More information regarding our total assets, revenues and profits for the past three years can be found in our “Consolidated Balance Sheets” and “Consolidated Statements of Comprehensive Income” that are included in this report.

We continue to focus on providing quality service to targeted customers with a high density of freight in our regional operating areas.

Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets.

We have completed two recent strategic acquisitions to combat these industry challenges.

In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings across Heartland Express, Millis Transfer, Smith Transport, and CFI.

In addition to past organic growth through the development of our regional operating areas, we have completed ten acquisitions since 1986 with the most recent and our fifth acquisition within the last nine years, CFI, occurring on August 31, 2022 following the acquisition of Smith Transport on May 31, 2022.

These ten acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, expand service offerings to address longer length of haul needs from customers, pursue new customer relationships in new markets, as well as expand business relationships with current customers in new markets.

We have historically been a debt free organization, with the acquisition of CFI we now have a significant amount of debt.

We expect to continue to evaluate

acquisition candidates presented to us, however, we do not expect to make any significant acquisitions while we are paying down debt.

We believe future growth depends upon several factors including the level of economic growth and the related customer demand, the available capacity in the trucking industry, our ability to identify and consummate future acquisitions, our ability to integrate operations of acquired companies to realize efficiencies, and our ability to attract and retain experienced drivers that meet our hiring standards.

Our Chief Operating Decision Maker (“CODM”), Michael Gerdin, our President and Chief Executive Officer, oversees and manages all of our transportation services, on a combined basis, including previously acquired entities.

Our operations department focuses on the successful execution of customer expectations and providing consistent opportunities for our drivers, in conjunction with maximizing equipment utilization.

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Additionally, they maximize the capacity that is available to meet the service needs of our customers.

Their responsibilities include meeting the needs of the

drivers within the standards that have been set by the organization and communicating the requirements of the customers to the drivers on each order to ensure successful execution.

Their responsibilities include meeting the needs of the drivers within the standards that have been set by the organization and communicating the requirements of the customers to the drivers on each order to ensure successful execution.

Serving the short-to-medium haul market permits us to use primarily single rather than team drivers and dispatch most loads directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes.

Approximately 75% of our loads are less than 500 miles in length of haul.

During 2022, approximately 70% of our loads were less than 500 miles in length of haul.

Substantially all of our revenue is, and for the last three fiscal years has been, generated from within the U.S.

with immaterial revenue derived from Canada.

We do not have, nor have we during the last three fiscal years had, any long-lived assets permanently located outside the U.S.

We operate twenty-four terminal facilities throughout the contiguous U.S.

in addition to our terminal and corporate headquarters in North Liberty, Iowa.

with immaterial revenue derived from Mexico and Canada.

We operate thirty-three terminal facilities throughout the contiguous U.S.

and one in Mexico, without driver fueling and maintenance facilities, following the CFI acquisition, in addition to our terminal and corporate headquarters in North Liberty, Iowa.

These terminal locations are strategically located to concentrate on regional freight movements generally within a 500-mile radius of the terminals.

This allows us to meet the needs of our customers in those regions while allowing our drivers to primarily stay within an operating region which provides them with more “home time.” This also allows us to service and maintain revenue equipment at our facilities on a frequent basis.

This allows us to meet the needs of our customers in those regions while allowing our drivers to primarily stay within an operating region which provides them with more “home time.” This also allows us opportunities to service and maintain revenue equipment across all subsidiaries, at our facilities on a frequent basis.

Personnel at the individual terminal locations manage these operations based on the overall corporate operating and maintenance goals and objectives.

Our CODM evaluates the operational efficiencies of the Company's transportation services and operating performance of terminals on a combined basis based on consolidated operating ratio and reports detailing all of the Company’s load movements, rate per mile, and non-revenue miles.

Both Heartland Express and Millis Transfer operate centralized computer networks and regular communication to achieve enterprise-wide load coordination.

Our reporting units operate centralized computer networks within their respective operations and regular communication to achieve enterprise-wide load coordination.

We are actively working to better integrate computer networks across reporting units.

We emphasize customer satisfaction through on-time performance, dependable late-model equipment, and consistent equipment availability to meet the volume requirements of our customers.

We also maintain a trailer to tractor ratio that allows us to position trailers at customer locations for convenient loading and unloading.

Most of the freight we transport is non-perishable and predominantly does not require driver handling.

The freight we transport is predominately non-perishable and does not require driver handling.

These factors help minimize waiting time, which increases tractor utilization and promotes driver retention.

Customers, Marketing, Safety and Diversity

We seek to transport freight that will complement traffic in our existing service areas and remain consistent with our focus on short-to-medium haul and regional distribution markets.

We seek to transport freight that will complement traffic in our existing service areas and remain consistent with our focus on short-to-medium haul, regional distribution markets, and cross-border freight to and from Mexico.

Management believes that building lane density in our primary traffic lanes will minimize empty miles and enhance driver “home time.”

We target customers with multiple, time-sensitive shipments, including those utilizing “just-in-time” manufacturing and inventory management.

In seeking these customers, we have positioned our business as a provider of premium service at compensatory rates, rather than competing solely on the basis of price.

In seeking these customers, we have positioned our business as a provider of premium service at

compensatory rates, rather than competing solely on the basis of price.

We believe our reputation for quality service, reliable equipment, and equipment availability makes us a core carrier for many of our customers.

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These awards include:

• FedEx Express - 2021 National Carrier of the Year (11 years in a row)

• FedEx Express Core Carrier of the Year (12 years in a row)

• FedEx Express Platinum Service Level Award (99.98% On-Time Delivery)

• Transplace - 2020 Carrier of the Year

• Tosca - 2020 Carrier of the Year

• Unilever - Carrier Award (Asset Division)

During 2021, we were also recognized with the following safety, operational, community service, and environmental awards:

• US EPA SmartWay Excellence Award (7 of the last 9 years)

• Home Depot Carrier of the Year (CFI)

• United Sugars Carrier of the Year

• Schneider Logistics Carrier of the Year

• Transplace National Truckload Carrier of the Year

• DHL Truckload Carrier of the Year

During 2022, we were also recognized with the following environmental, operational, safety, and community service awards:

• Newsweek's "America's Most Trustworthy Companies" (#18-Transport, Logistics, and Packaging)

• Top Company for Women to Work for in Transportation (CFI)

• Logistics Management Quest for Quality Award (18 out of the last 20 years)

• Commercial Carrier Journal Top 250 Award

• Wreaths Across America Honor Fleet

Our primary customers include retailers and manufacturers.

These awards are hard-earned and are a direct reflection upon our outstanding group of employees and our focus on excellence in all areas of our business.

Our primary customers include retailers, manufacturers and parcel carriers.

Our 25, 10, and 5 largest customers accounted for approximately 61%, 41%, and 27% of our operating revenues, respectively, in 2022.

Further diversification of customers was the result of the Smith Transport and CFI acquisitions in 2022.

During 2021, our 25, 10, and 5 largest customers were approximately 75%, 52%, and 36%, of our operating revenues respectively.

Our broad capacity network and customer base has allowed us to remain appropriately diversified as only one customer accounted for more than 10% of our operating revenues in 2021 at 10.0%.

No customer accounted for more than 10% of our operating revenues in 2020 while one customer accounted for more than 10% of our 2019 operating revenues at 10.9%.

Our broad capacity network and customer base has allowed us to remain appropriately diversified as no customer accounted for more than 10% of our operating revenues in 2022.

One customer accounted for more than 10% of our operating revenues in 2021 at 10.0%, while no customer accounted for more than 10% of our 2020 operating revenues.

Environmental and Sustainability

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Heartland's sustainability efforts are endorsed and overseen by senior management throughout the Company.

Our efforts have been recognized by the US EPA SmartWay Excellence Award in 7 of the last 9 years.

Our efforts have been recognized by the US EPA SmartWay Excellence Award in seven of the last nine years of award consideration.

We have adopted a "Human Rights Mission".

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Heartland's human rights efforts are endorsed and overseen by senior management throughout the Company.

In the trucking industry, revenue typically follows a seasonal pattern for various commodities and customer businesses.

Peak freight demand has historically occurred in the months of September, October and November.

After the December holiday season and during the remaining winter months, freight volumes are typically lower as many customers reduce shipment levels.

Although this is the general pattern of revenues, demand for freight services dropped significantly in the first part of the second quarter of 2020 and then began to increase.

We have now been in a positive freight environment for approximately two years.

Operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs attributed to adverse winter driving conditions.

Revenue can also be impacted by weather, holidays and the number of business days that occur during a given period, as revenue is directly related to the available working days of shippers.

Weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, could increase in frequency and severity due to climate change.

The Company is a sponsor of the organization, “Truckers Against Trafficking” (TAT).

TAT exists to educate, equip, empower and mobilize members of the trucking, bus and energy industries to combat human trafficking.

We operate in a cyclical industry, within any given year there is also seasonality to typical freight patterns.

Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.

Revenue can also be affected by bad weather, holidays, and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers.

At the same time, operating expenses increase and fuel efficiency declines because of engine idling in extreme weather conditions, while harsh weather creates higher accident frequency, increased claims, and more equipment repairs.

In addition, many of our customers, particularly those in the retail industry where we have a large presence, demand additional capacity during the fourth quarter, which limits our ability to take advantage of more attractive market rates that generally exist during such periods.

Recently, the duration of this increased period of demand in the fourth quarter has shortened, with certain customers requiring the same

volume of shipments over a more condensed timeframe, resulting in increased stress and demand on our network, people, and systems.

If this trend continues, it could make satisfying our customers and maintaining the quality of our service during the fourth quarter increasingly difficult.

We may also suffer from natural disasters and weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.

These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy our assets, or adversely affect the business or financial condition of our customers.

Drivers, Independent Contractors, and Other Employees

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During the year ended December 31, 2022, we employed an average of approximately 4,710 people compared to approximately 3,180 people during the year ended December 31, 2021.

The decrease in employees as of December 31, 2021 was predominantly due to a decline in drivers due to the challenging qualified driver recruiting and retention environment.

In addition, the ongoing right-sizing of support staff following the decrease in overall fleet size further contributed to the reduction.

As of the end of February 2023 we employed approximately 6,500 employees.

The increase in employees as of December 31, 2022 was predominantly due to the acquisitions of Smith Transport and CFI in May and August, respectively.

We also contracted with independent contractors to provide and operate tractors which provides us additional revenue equipment capacity, although not material to our operations.

Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and highway use taxes.

For the years ended December 31, 2021 and 2020, independent contractors accounted for approximately 0.7% of our total miles.

Historically our strategy for both employee drivers and independent contractors is to (i) hire and engage safe and experienced drivers (the majority of drivers we hire and engage must have at least six months of qualifying over-the-road experience);

(ii) promote retention with an industry-competitive compensation package, positive working conditions, driver amenities at terminal locations, and freight that requires little or no handling;

and (iii) minimize safety problems through careful screening, mandatory drug testing, continuous training, the ease of use of electronic logging devices ("ELDs") platform, and financial rewards for accident-free driving.

We also seek to minimize turnover of our employee drivers by providing quality pay for their time with additional pay for safety, modern equipment, and by regularly scheduling "home time." Our drivers are generally compensated on the basis of miles driven including empty miles, with the added benefit of compensation for circumstances outside of their control, such as inclement weather and equipment breakdowns.

This provides an incentive for us to minimize empty miles and at the same time does not penalize drivers for inefficiencies of operations that are beyond their control.

In addition to hiring experienced drivers, the acquisition of Millis Transfer in 2019, included a commercial driver's license ("CDL") training school.

They have operated Millis Training Institute since 1989.

For the years ended December 31, 2022 and 2021, independent contractors accounted for approximately 2.7% and 0.7% of our total miles, respectively.

The increase in independent contractor miles is due to the CFI acquisition.

We also utilize third party carriers to facilitate our Mexico logistics operations, following the CFI acquisition.

These expenses are presented as rent and purchased transportation costs.

The trucking industry has been faced with a qualified driver shortage.

During 2021, increased freight demand, combined with the COVID-19 pandemic, intensified an already challenging qualified driver market.

Competition for qualified drivers continued to be challenging in 2022 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.

However, driver availability began to change late in 2022 and to date in 2023, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.

Although there has been some increased movement of drivers between companies in our industry, the issue of decreasing amount of qualified CDL drivers in our industry continues.

We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.

We hire the majority of our drivers with at least six months of over-the-road experience and safe driving records.

As discussed below, the Company's driver training program provides an additional source of future potential professional drivers.

In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide.

We have increased wages and enhanced the compensation for our drivers multiple times in the last three years.

Further, we have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers.

Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Certain driver pay packages include minimum pay protection provisions, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time associated with circumstances outside of their control, such as inclement weather, equipment breakdowns, and customer issues.

We believe that our driver compensation and benefits package is consistently among the best in the industry.

We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.

In response to the driver shortage in our industry, the Company continues to evaluate and pursue the expansion of driver training schools.

Millis Transfer has operated a driver training school program, Millis Training Institute, since 1989.

Millis Training Institute is a driver training program dedicated to identifying, training, and developing capable individuals into obtaining their commercial driving license and becoming professional truck drivers.

We operate in a cyclical industry and competition for drivers, which has historically been intense, escalates during periods of increased freight demand.

Competition for professional drivers that meet our qualification standards is challenging due to the current trend of decreasing numbers of qualified drivers in our industry.

This driver training program currently provides a source of qualified professional drivers for Millis Transfer and Heartland Express as we expanded the current training program in 2021.

This driver training program currently provides a source of qualified professional drivers for our Company.

The driver training program offers an additional opportunity to hire professional drivers other than the traditional approach of hiring only experienced over-the-road drivers.

During 2022, we rolled out the first Heartland Training Institute location in Phoenix, Arizona, modeled after the successful program in place at Millis Transfer.

We will continue to evaluate this training program for future expansion.

Further, CFI has partnered with training facilities as a source of driver trainees, but does not operate a driver training school program.

We are not a party to a collective bargaining agreement.

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Our comprehensive driver compensation program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our driver pay package generally includes weekly base pay minimums for mileage based drivers, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

Our driver pay package generally includes weekly base pay minimums for mileage based drivers, future pay increases based on years of continued service with us, increased rates for

accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

In addition to the scheduled pay increases based on years of continued service, we have increased the base pay package and enhanced the compensation for our drivers multiple times during the last three years.

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The modern fleet appeals to new drivers and aids in the retention of current drivers.

Deploying this core strategy, along with idle management technology, also allows us to reduce our carbon footprint.

Deploying this core strategy, along with idle management and driver comfort technology, also allows us to reduce our carbon footprint.

This is evidenced by us being awarded the U.S.

Environmental Protection Agency SmartWay Excellence Award seven times in the last nine years.

Environmental Protection Agency SmartWay Excellence Award in seven of the last nine years of award consideration.

We have historically owned our tractors and trailers and do not lease revenue equipment, other than when we have acquired companies that have utilized leases.

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Revenue equipment acquired through acquisitions is generally revalued to current market values as of the acquisition date.

These acquired assets are depreciated on a straight-line basis aligned with the remaining period of expected use.

Assets obtained more than a year prior to the acquisition by the acquired company are depreciated on a straight-line basis aligned with the remaining period of expected use, whereas those obtained less than a year prior are depreciated consistent with newly purchased assets.

As acquired equipment is replaced, our fleet returns to our base methods of declining balance depreciation for tractors and straight-line depreciation for trailers.

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However, it can contribute to volatility in gain on sale of equipment and quarterly earnings per share.

At December 31, 2021, the majority of our operating tractor fleet was equipped with idle management controls.

At December 31, 2022, all of our operating tractor fleet was equipped with event recorders and accident avoidance technology.

All over-the-road tractors are equipped with mobile communication systems that comply with the latest ELD regulations.

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The average age of our trailer fleet was 6.3 years at December 31, 2022 compared to 3.4 years at December 31, 2021.

During 2022, we expect the age of both our tractor and trailer fleets to increase compared to 2021, based on estimated net capital expenditures in 2022 due to our expectation of a shortage of reasonably priced new revenue equipment availability.

We obtain a small portion of our tractor capacity through the use of independent contractors who own their own tractor equipment, although our use of independent contractors is not material to our overall operations.

The average age of our tractor and trailer fleets was impacted by the inclusion of the Smith Transport and CFI equipment obtained through our 2022 acquisitions.

Independent contractors are responsible for the maintenance of their equipment.

The "Regulation" section in this Item 1 of Part I of this Annual Report discusses in detail several regulations that have impacted and could continue to affect our cost and use of revenue equipment.

We purchase diesel fuel ("fuel") over-the-road through a network of fuel stops throughout the U.S.

We mainly purchase diesel fuel ("fuel") over-the-road through a network of fuel stops throughout the U.S.

at which we have negotiated price discounts.

In addition, bulk fuel sites are maintained at the majority of our twenty-five terminal locations.

In addition, bulk fuel sites are maintained at twenty-five of our terminal locations.

We strategically manage fuel purchase decisions based on pricing of over-the-road fuel prices, bulk fuel prices, and the routing of equipment.

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We also have insurance policies in place for the operation of our tanks located at terminal locations.

Increases in fuel prices can have an adverse effect on the results of operations.

Increases in fuel prices can have a significant adverse effect on the results of operations given the amount of fuel we consume.

We have fuel surcharge agreements with most customers that enable us to pass through most long-term price increases.

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Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and idling time will directly impact our operating results.

The increase in the DOE diesel fuel prices seen in 2021 was due to steadily rising fuel costs throughout the year compared to 2020 when fuel prices were at comparatively lower rates from the second quarter through the end of the year.

This trend of fuel price increases has continued through February 2022.

The latest DOE diesel fuel price in February 2022 is up 12.2% compared to the end of 2021, is up 23.4% compared to the 2021 yearly average, and is up 42.4% to the February 2021 average.

During March 2022 DOE average fuel prices increased to over $5.00 per gallon.

The DOE average fuel cost remained above this elevated threshold for the period from March through December 31, 2022, although the DOE weekly average for the last four weeks of December fell below $5.00 per gallon.

The average DOE price was $4.99 for 2022, which is the highest annual average on record since tracking began in 1994.

The trend of fuel prices below the $5.00 per gallon threshold has continued through the first eight weeks of 2023.

While this is an improvement compared to the majority of 2022, the latest DOE diesel fuel price in February 2023 is up 6.0% compared to the same week of 2022.

Competition and Industry

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We operate in a cyclical industry.

Throughout 2019, the general demand for freight services was at a level much lower than what has been experienced since.

During 2020, the demand for freight services was volatile.

Freight volumes in early 2020 were comparative to seasonal volumes of the first quarter of 2019.

Then in March 2020 the demand for freight services dramatically increased as concerns over the COVID-19 pandemic escalated.

In response to the outbreak of COVID-19, there was a short term drop in the demand for freight services in early second quarter of 2020, due to many businesses temporarily shutting down or scaling back operations with much of the working population of the United States working from home.

By the end of the second quarter of 2020, demand for freight services began to improve as most businesses implemented their respective responses and protections against the pandemic which continued to build throughout the back half of 2020 and into 2021.

Freight demand generally increased further throughout 2021.

This led to an overall favorable pricing environment as freight rates increased throughout the second half of 2020 and continued to be strong throughout 2021.

In early 2022, freight demand was initially strong, following an extended period of freight demand at peak levels that began in mid 2020 and continued throughout 2021 and into 2022.

Freight demand began to soften in the back half of 2022.

While the current levels are down compared against those unprecedented levels experienced during 2021, overall we continue to have more opportunities to haul freight than we are able to cover with our existing fleet and available drivers.

We expect freight demand to remain challenged at lower demand levels in at least the first half of 2023 based upon the freight demand experienced in January and February of 2023 and expected normal seasonal trends.

However, continued supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2023.

We continue to focus on providing quality service to targeted customers with a high density of freight in our regional operating areas.

Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets.

We have completed two recent strategic acquisitions to combat these industry challenges.

In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings at Heartland Express, Millis Transfer, Smith Transport, and CFI.

The trucking industry has been faced with a qualified driver shortage.

The pandemic events of 2020-2021 intensified an already challenging qualified driver market.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during the second half of 2020 and continued throughout 2021.

Competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

During 2021, increased freight demand, combined with lingering effects of the COVID-19 pandemic, intensified an already challenging qualified driver market.

Competition for qualified drivers continued to be challenging in the first half of 2022 as freight demand remained strong.

Although we expect driver availability and hiring to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry.

We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.

We hire the majority of our drivers with at least six months of over-the-road experience and safe driving records.

As previously discussed, our driver training program will provide an additional source of future potential professional drivers.

Our comprehensive driver compensation

and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our driver pay package includes future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time associated with circumstances outside of their control, such as inclement weather and equipment breakdowns.

We hire the majority of our drivers with at least three to six months of over-the-road experience and safe driving records.

The Company's driver training program provides an additional source of future potential professional drivers.

increased wages and enhanced the compensation for our drivers multiple times in the last three years.

Further, we have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers.

Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

We believe that our driver compensation and benefits package is consistently among the best in the industry.

We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance.

We expect freight demand to remain strong throughout 2022 based-upon the freight demand experienced in January and February of 2022 and expected normal seasonal trends.

Other contributing factors include the shortage of qualified drivers and availability of new revenue equipment.

Safety and Risk Management

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We actively participate in the settlement of each claim incurred.

We act as a self-insurer for auto liability involving property damage, personal injury, or cargo based on defined insurance retention of $1.0 million under our Millis policy or $2.0 million under our Heartland policy for any individual claim based on the insured party, accident date, and circumstances of the loss event.

Within the Heartland policy, there is an additional one-time $1.0 million aggregate self-insurance corridor for auto liability claims between $2.0 million and $3.0 million.

For both Heartland and Millis claims, liabilities in excess of these deductibles are covered by insurance up to $60.0 million, including retention of 50% of exposure from $5.0 million to $10.0 million.

We act as a self-insurer for auto liability, defined as including property damage, personal injury, or cargo.

For Heartland Express, Millis Transfer and CFI insurance coverage has retention of $2.0 million for any individual claim based on the insured party, accident date, and circumstances of the loss event.

There is an additional $1.0 million aggregate self-insurance corridor for claims between $2.0 million and $3.0 million.

Liabilities in excess of these deductibles are covered by insurance up to $60.0 million including retention of 50% of exposure from $5.0 million to $10.0 million.

We retain any liability in excess of $60.0 million.

We act as a self-insurer for workers' compensation liability claims based on defined insurance retention of $1.0 million.

Smith Transport has the same insurance coverage except with a lower retention of $0.5 million for any individual claim.

We act as a self-insurer for workers’ compensation based on defined insurance retention of $1.0 million.

We act as a self-insurer for property damage to our tractors and trailers.

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We are a common and contract motor carrier regulated by the DOT and various state and local agencies.

We operate under DOT authorities respective to our four individual operating brands.

The DOT generally governs matters such as safety requirements, registration to engage in motor carrier operations, insurance requirements, and periodic financial reporting.

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In June 2020, the FMCSA adopted a final rule substantially as proposed, which became effective in September 2020.

Certain industry groups have challenged these rules in court, and it remains unclear what, if anything, will come from such challenges.

Certain industry groups have challenged these rules in court, and while the FMCSA's final rule has been upheld, it remains unclear if industry or other groups will bring additional challenges against the FMCSA's final rule.

Since that time, we have seen a slight increase in the productivity of our drivers.

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The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.

We currently have a satisfactory DOT safety rating under this method, which is the highest available rating under the current safety rating scale.

We currently have a

satisfactory DOT safety rating under this method, for each of our respective DOT authorities, which is the highest available rating under the current safety rating scale.

If we received a conditional or unsatisfactory DOT safety rating, it could adversely affect our business, as some of our existing customer contracts require a satisfactory DOT safety rating.

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Therefore, it is uncertain if, when, or under what form any such rule could be implemented.

The FMCSA has also indicated that it is in the early phases of a new study on the causation of crashes.

Although it remains unclear whether such a study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regards to safety and fitness.

Additionally, the FMCSA is conducting a study on the causation of large-truck crashes, which is expected to gather data through 2024.

Although it remains unclear whether such study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regards to safety and fitness.

In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards.

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Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold.

Currently, these scores do not have a direct impact on a carrier’s safety rating.

However, the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers, (ii) cause our customers to direct their business away from us and to carriers with higher fleet rankings (iii), subject us to an increase in compliance reviews and roadside inspections, or (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.

Generally, these scores do not have a direct impact on a carrier’s safety rating.

However, the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers, (ii) cause our customers to direct their business away from us and to carriers with higher fleet rankings, (iii) subject us to an increase in compliance reviews and roadside inspections, (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores or (v) increase our insurance costs, any of which could adversely affect our results of operations and profitability.

Under CSA, these scores were initially made available to the public in five of the seven categories.

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A study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate, and reliable.

In late June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response to the study.

In June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response to the study.

Such changes include the testing and possible adoption of a revised risk modeling theory, potential collection and dissemination of additional carrier data and revised measures for intervention thresholds.

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If the FMCSA determines the crash was not preventable, it will be listed on the Safety Measurement System but not included when calculating a carrier’s Crash Indicator Behavior Analysis and Safety Improvement Category measure in SMS.

Additionally, the not preventable determinations will be noted on a driver’s Pre-Employment Screening Program report.

Additionally, any determinations of not preventable crashes will be noted on a driver’s Pre-Employment Screening Program report.

The FMCSA published a final rule in December 2015 that required the use of ELDs or automatic onboard recording devices (“AOBRs”) by nearly all carriers by December 2017 (the "2015 ELD Rule").

The use of AOBRs was permitted until December

2019, at which time the use of ELDs was required.

We were compliant with both aspects of the 2015 ELD Rule within the requisite deadlines.

The use of AOBRs was permitted until December 2019, at which time the use of ELDs was required.

We were compliant with both aspects of the 2015 ELD Rule within the

requisite deadlines.

We believe that more effective HOS enforcement under the 2015 ELD Rule may improve our competitive position by causing all carriers to adhere more closely to HOS requirements and may further reduce industry capacity.

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The December 2016 commercial driver’s license rule required states to request information from the Clearinghouse about individuals prior to issuing, renewing, upgrading, or transferring to a CDL.

This new action will allow states’ compliance with the requirement, which was set to begin January 2020, to be delayed until January 2023.

That being said, the FMCSA has indicated that it will allow states the option to voluntarily query Clearinghouse information beginning January 2020.

The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule.

However, upon implementation, the rule may reduce the number of available drivers in an already constrained driver market.

Pursuant to a new rule finalized by the FMCSA, effective November 2021, states are required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver’s license and must revoke a driver’s commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.

This new action allowed states’ compliance with the requirement, which was set to begin January 2020, to be delayed until January 2023.

That being said, the FMCSA indicated it would allow states the option to voluntarily query Clearinghouse information beginning January 2020.

The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule, however.

Upon implementation, the rule may reduce the number of available drivers in an already constrained driver market.

Pursuant to a new rule finalized by the FMCSA, beginning in November 2024, states will be required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.

In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.

However, the proposal also requires a second sample using either urine or an oral swab test if a hair test is positive, if a donor is unable to provide a sufficient amount of hair for faith-based or medical reasons, or due to an insufficient amount or length of hair.

However, the proposal also requires a second sample using either urine or an oral fluid test if a hair test is positive, if a donor is unable to provide a sufficient amount of hair for faith-based or medical reasons, or due to an insufficient amount or length of hair.

The proposal specifically requires that the second test be done simultaneously at the collection event or when directed by the medical review officer after review and verification of laboratory-reported results for the hair specimen.

DHHS indicated the two-test approach is intended to protect federal workers from issues that have been identified as limitations of hair testing, and related legal deficiencies identified in two prior court cases.

The American Trucking Associations (“ATA”) has voiced concerns with the new guidelines, characterizing them as “weak” and “misguided,” and specially taking issue with the second sample requirement, which the ATA feels diminishes the value of hair testing.

It is unclear if, and when, a final rule may be put in place.

In 2022, an industry group known as the Trucking Alliance sought an exemption from the FMCSA that would allow positive hair specimen tests to be uploaded into the FMCSA Drug and Alcohol Clearinghouse.

This request was denied by the FMCSA, however, noting they cannot act until the DHHS finalizes these guidelines.

Additionally, in February 2022 the DOT issued a Notice of Proposed Rulemaking that would include oral fluid testing as an alternative to urine testing for purposes of the DOT’s drug testing program, with a goal of improving the integrity and effectiveness of the drug testing program, along with potential cost savings to regulated parties.

Public comment on the proposed rule closed in April 2022, with industry participants generally being in favor.

It is unclear if, and when, a final rule may be put in place, however.

Any final rule may reduce the number of available drivers.

Other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking certain endorsements, including a hazardous materials endorsement, which was made final in December 2016, with an initial compliance date in February 2020.

However, in May 2020, the FMCSA approved an interim rule delaying implementation of the final rule by two years which extended the compliance date to February 2022.

These recently effective entry level driver training regulations, among other things, unify driver training curriculum nationwide by mandating certain theory and behind-the-wheel training standards prior to taking the skills test, and require commercial driving schools and other training programs (including ours) to implement such curriculum and register with the FMCSA’s Training Provider Registry, certifying that their curriculum meets the new standards.

We currently perform urine testing but are testing and monitoring the use of hair specimen testing at one of our subsidiaries.

Finally, federal drug regulators have announced a proposal to add fentanyl to a drug testing panel that would detect the use of such drug among safety-sensitive federal employees, which would include truck drivers if adopted by the DOT.

If the proposal is accepted, DHHS expects to add fentanyl to the testing panel as early as the first quarter of 2023.

Other rules have been recently proposed or made final by the FMCSA, including:

(i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking certain endorsements, including a hazardous materials endorsement, known as the Entry-Level Driver Training regulations (the "ELDT Regulations"), which was made final in December 2016, with an initial compliance date in February 2020.

However, in May 2020, the FMCSA approved an interim rule delaying implementation of the ELDT Regulations by two years, which extended the compliance date until February 2022.

The ELDT Regulations, among other things, unify driver training curriculum nationwide by mandating certain theory and behind-the-wheel training standards prior to taking the skills test, and require commercial driving schools and other training programs (including ours) to implement such curriculum and register with the FMCSA’s Training Provider Registry, certifying that their curriculum meets the new standards.

The rules generally do not apply retroactively, however, so current holders of commercial driver’s licenses will largely be unaffected.

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They may also result in an increase in the time and expense required to operate or expand our driver training schools and programs, which could adversely affect our results and profitability.

In February 2023, the FMCSA issued a supplemental Notice of Proposed Rulemaking requesting additional information on automated driving systems (“ADS”) and seeking comment on regulatory approaches that would enable it to obtain relevant safety information and the current and anticipated size of the population of carriers operating ADS-equipped commercial motor vehicles.

Public comment on the supplemental notice will remain open until March 2023, and it remains to be seen, what, if any, final rules will stem therefrom.

Additionally, the FMCSA in conjunction with the National Highway Traffic Safety

Administration ("NHTSA"), have announced their intention to propose a rule for performance standards and maintenance requirements for automatic emergency braking on heavy trucks.

Such proposal is anticipated as early as March 2023, but it remains uncertain what exactly it may require, and whether a final rule will ultimately be put into place.

Our industry is also subject to a number of recently proposed rules which mandate the use of speed-limiting devices in certain commercial motor vehicles.

In July 2017, the DOT announced that it would no longer pursue a speed limiter rule but left open the possibility that it could resume such a pursuit in the future.

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House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H.

Furthermore, in April 2022, the FMCSA issued a notice of intent to propose a rule during 2023 that will require certain commercial vehicles to be equipped with speed limiters.

The effect of these rules, to the extent they become effective, could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.

The Infrastructure Investment and Jobs Act (“IIJA”), signed into law by President Biden in November 2021, created an apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

Among other things, the Infrastructure Investment and Jobs Act (“IIJA”), signed into law by President Biden in November 2021, created an apprenticeship program for drivers aged 18 to 20 years old to eventually qualify to drive commercial trucks in interstate commerce.

The provision drew certain mechanics from the bills introduced in Congress in 2019 related to lowering the age requirements for interstate commercial driving.

The FMCSA announced the establishment of this apprenticeship program in January 2022 in an effort to help the industry’s ongoing driver shortage.

The program is open to 18 to 20-year-old drivers who already hold intrastate commercial driver’s licenses and sets a strict training regimen for participating drivers and carriers to comply with.

The FMCSA announced the establishment of this apprenticeship program in January 2022 in an effort to begin to help the industry’s ongoing driver shortage.

This program, known as the Safe Driver Apprenticeship Pilot Program, is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.

Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information.

The Safe Driver Pilot Apprenticeship Program is limited to 3,000 driver-apprentices at any given time, with new driver-apprentices allowed into the program to replace those that leave or age out.

It remains unclear whether any regulatory changes will stem from the apprenticeship program.

In December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The IIJA also required that the FMCSA clarify the differences between brokers, bona fide agents, and dispatch services, and to further specify its interpretation of the definitions of “broker” and “bona fide agents.” As such, and in an attempt to rein in companies engaging in brokerage services without proper FMCSA authority, the FMCSA issued interim guidelines in November 2022, which, among other things, (i) contained a multitude of factors relevant to determining whether a dispatch service actually requires brokerage authority, (ii) clarified that operating as an unauthorized broker carries civil penalties of up to $10,000 per violation, and (iii) clarified that the handling of funds in shipper-motor carrier transactions is an important consideration (pointing towards a broker designation) in the determination of whether someone is a broker or simply an agent.

The FMCSA also clarified, however, that any determination will be highly fact specific and will entail determining whether the person or company is engaged in the allocation of traffic between motor carriers.

Several of the Company’s subsidiaries currently hold FMCSA brokerage authority, so while the impact of this guidance remains to be seen, the Company does not currently anticipate an adverse impact on its operations.

Additionally, in a January 2023 Notice of Proposed Rulemaking, the FMCSA proposed more oversight of truck brokers, freight forwarders, and the surety bond and trust companies that back them.

The Notice of Proposed Rulemaking considers regulatory modifications in five areas:

(i) assets readily available, (ii) immediate suspension of broker/freight forwarder operating authority, (iii) surety or trust responsibilities, (iv) enforcement authority, and (v) entities eligible to serve as BMC-85 trustees.

Among other changes, the proposal would allow brokers or freight forwarders to meet regulatory requirements to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.

The proposal also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund.

Adoption of these changes could negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.

In June 2022, the United States Supreme Court (the “Supreme Court”) declined to review a Ninth Circuit Court of Appeals decision involving a personal injury suit alleging that a freight broker had liability for an accident because it breached its duty to select a competent contractor to transport the load in question.

In its petition to the Supreme Court, the broker unsuccessfully argued that the Ninth Circuit’s decision improperly disallowed federal pre-emption, and would expose freight brokers to a patchwork of state regulations across the United States.

This development potentially calls into question freight brokers’ ability to rely on federal agency standards in selecting motor carriers, given the carrier involved in the accident was allegedly in good standing with the FMCSA when it was chosen to transport the load.

It could also lead to primary (as opposed to contingent) liability being imposed upon freight brokers, and increased insurance premiums for brokerage operations generally.

Although we are committed to selecting safe and secure motor carriers in carrying out our brokerage activities, if we are found to be negligent in the motor carrier selection process it could lead to significant liabilities in the event of an accident, which could have a materially adverse effect on our business and operating results.

In September 2022, the FMCSA issued an advance Notice of Proposed Rulemaking that would require fleets and owner-operators to equip their trucks with unique electronic identification systems designed to streamline roadside inspections and provide transparency and accountability in day-to-day trucking operations.

The petition was generally disfavored by transportation industry participants, citing, among other things, the petition’s failure to address privacy and data security risks.

It remains to be seen what rules, if any, may stem from this notice.

In November 2022 Senate lawmakers introduced legislation that would set aside grant funds over four years to expand truck parking across the United States.

Such legislation would allow for the creation of new parking areas, the expansion of existing facilities, and the approval of commercial parking at existing weigh stations, rest areas, and park-and-ride facilities.

It would also allow for truck parking expansion at commercial truck stops and travel plazas.

Industry groups are generally in favor of the bill, as a lack of available parking has negatively impacted the industry as a whole, including the Company and its subsidiaries.

In December 2018, the FMCSA granted a petition filed by the American Trucking Association and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision.

In January 2021, the Ninth Circuit Court of Appeals has since upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles.

In January 2021, the Ninth Circuit Court of Appeals upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles.

Other current and future state and local laws, including laws related to employee meal breaks and rest periods, may also vary significantly from federal law.

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Both of these issues are adversely impacting the Company and the industry as a whole, with respect to the practical application of the laws, thereby resulting in additional cost.

As a result, we, along with other companies in the industry, could become subject to an uneven patchwork of laws throughout the U.S.

Federal legislation has been proposed in the past to preempt certain state and local laws;

As a result, we, along with other companies in the industry, could become subject to an uneven patchwork of laws throughout the United States.

In the past, certain legislators have proposed federal legislation to preempt certain state and local laws;

however, passage of such legislation is uncertain.

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Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractor drivers and to heighten the penalties of companies who misclassify their employees and are found to have violated employees' overtime and/or wage requirements.

The most recent example being the Protecting the Rights to Organize (“PRO”) Act, which was passed by the House of Representatives and received by the Senate in March 2021 and remains with the Senate’s Committee on Health, Education, Labor, and Pensions.

The most recent example being the Protecting the Rights to Organize ("PRO") Act, which was passed by the U.S.

House of Representatives and received by the Senate in March 2021 and remains with the Senate's Committee on Health, Education, Labor, and Pensions.

The PRO Act proposes to apply the "ABC Test" for classifying workers under Federal Fair Labor Standards Act claims.

Additionally, in October 2022, the Department of Labor proposed a new rule regarding independent contractor classification, which if adopted, would evaluate an employer's relationship with workers under six categories to determine whether such worker should be classified as an independent contractor based on a totality of the circumstances and the economic realities of such relationship.

It is unknown whether any of the proposed legislation will become law or whether any industry-based exemptions from any resulting law will be granted.

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In January 2021, however, the California Supreme Court ruled that the ABC Test could apply retroactively to all cases not yet final as of the date the original decision was rendered, April 2018.

While AB5 was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to invalidate AB5.

The Ninth Circuit Court of Appeals rejected the reasoning behind the injunction in April 2021, ruling that AB5 is not pre-empted by federal law, but granted a stay of the AB5 mandate in June 2021 (preventing its application and temporarily continuing the injunction) while the CTA petitioned the U.S.

Supreme Court (the “Supreme Court”) to review the decision.

While AB5 was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) went forward with its suit seeking to invalidate AB5.

In November 2021, the Supreme Court requested that the U.S.

solicitor general weigh in on the case.

The injunction will remain in place until the Supreme Court makes a decision on whether to proceed in hearing the case.

While the stay of the AB5 mandate provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law.

The injunction remained in place until the Supreme Court declined to hear the matter.

As a result, the injunction was lifted and retroactively placed AB5 into law as of January 2020.

While the stay of the AB5 mandate provided temporary relief to the enforcement of AB5, the CTA and other industry groups are continuing to bring challenges against AB5 and it remains unclear whether the CTA or other industry groups will ultimately be successful in receiving future injunctions or in invalidating the law.

It is also possible AB5 will spur similar legislation in states other than California, which could adversely affect our results of operations and profitability.

Further, class actions and other lawsuits have been filed against certain members of our industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers' compensation and health care coverage.

In addition, companies that utilize lease-purchase independent contractor programs have been more susceptible to reclassification lawsuits and several recent decisions have been made in favor of those seeking to classify as employees certain independent contractors that participated in lease-purchase programs.

Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status.

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If our independent contractor drivers are determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.

Our use of independent contractors is not significant to our total operations.

Independent contractors currently represent a small portion of our fleet.

Environmental Regulations

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Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances we transport, if soil or groundwater contamination is found at our facilities or results from our operations, or if we are found to be in violation of applicable laws or regulations, we could be subject to cleanup costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

In August 2011, the National Highway Traffic Safety Administration ("NHTSA") and the EPA adopted final rules that established the first-ever fuel economy and greenhouse gas standards for medium and heavy-duty vehicles, including the tractors we employ (the “Phase 1 Standards”).

In August 2011, the NHTSA and the EPA adopted final rules that established the first-ever fuel economy and greenhouse gas standards for medium-and heavy-duty vehicles, including the tractors we employ (the "Phase 1 Standards").

The Phase 1 Standards apply to tractor model years 2014 to 2018 and require the achievement of an approximate 20 percent reduction in fuel consumption by the 2018 model year, which equates to approximately four gallons of fuel for every 100 miles traveled.

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The final rule was effective in December 2016, but has since faced challenges and delays.

In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment).

In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and

pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment).

The outcome of such proposal is still undetermined.

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Court of Appeals for the District of Columbia ruled in favor of the association challenging the standards and vacated all portions of the Phase 2 Standards that applied to trailers, and consequently, the Phase 2 Standards will only require reductions in emissions and fuel consumption for tractors.

Even though the trailer provisions of the Phase 2 standards have been removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards.

The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2022 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.

Even though the trailer provisions of the Phase 2 standards have been removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards (described in further detail below).

In January 2020, the EPA announced it is seeking input on reducing emissions of nitrogen oxides and other pollutants from heavy-duty trucks.

The EPA anticipates taking final action on the new plan, commonly referred to as the “Cleaner Trucks Initiative,” as soon as 2022.

The EPA is targeting 2027 for these new standards to take effect and is also working on enacting more stringent greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024.

In March 2022, the EPA issued a proposed rule that included nitrogen oxide emission standards which are more stringent than the Phase 2 Standards for certain heavy-duty motor vehicles.

In December 2022, the EPA adopted a final rule that reflected a compromise of the options previously proposed, with new emissions standards of nitrogen oxides for heavy-duty motor vehicles beginning with model year 2027 being more than 80% stronger than current emission standards, with the intent to reduce heavy-duty emissions by almost 50% from today’s levels by 2045.

The EPA has indicated that the December 2022 rule is the first part of a multi part plan focusing on greenhouse gas emissions, which is commonly referred to as the “Cleaner Trucks Initiative,” or the “Clean Trucks Plan.” The EPA has indicated that it plans to release proposals for the remaining steps in the Clean Trucks Plan by the end of March 2023 and is targeting 2027 for these new standards to take effect.

The EPA has also previously indicated it is working on enacting additional, more stringent, greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024.

Compliance with these regulations could increase the cost of new tractors and trailers, impair equipment productivity, and increase operating expenses.

These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could increase our costs or otherwise adversely affect our business or operations.

The California Air Resources Board ("CARB") also adopted emission control regulations that will be applicable to all heavy-duty tractors that pull 53-foot or longer box-type trailers within the State of California.

The tractors and trailers subject to these

CARB regulations must be either EPA SmartWay certified or equipped with low-rolling resistance tires and retrofitted with SmartWay-approved aerodynamic technologies.

The tractors and trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling, resistance tires and retrofitted with SmartWay-approved aerodynamic technologies.

Enforcement of these CARB regulations for model year 2011 equipment began in January 2010 and have been phased in over several years for older equipment.

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Whether these regulations will ultimately be adopted remains unclear.

Federal and state lawmakers also are considering a variety of other climate-change proposals.

Federal and state lawmakers also have proposed a variety of other climate-change proposals, including those that contemplate regulatory limits on carbon emissions and fuel consumption.

Compliance with such regulations could increase the cost of new tractors and trailers, impair equipment productivity, and increase operating expenses.

In June 2020, CARB also passed the Advanced Clean Trucks (“ACT”) regulation, which became effective in March 2021 and generally requires original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024.

In June 2020 CARB also passed the Advanced Clean Trucks (“ACT”) regulation, which became effective in March 2021 and generally requires original equipment manufacturers to begin shifting towards greater production and sales of zero-emission heavy duty tractors starting in 2024.

Under ACT, by 2045, every new tractor sold in California will need to be zero-emission.

While ACT does not apply to those simply operating tractors in California, it could affect the cost and/or supply of traditional diesel tractors and may lead to similar legislation in other states or at the federal level.

The most aggressive ACT standards apply to Class 4-8 trucks, which range from 14,000-33,000 pounds, by requiring that 9% of such trucks be zero emission beginning in 2024 and increasing to 75% by 2035.

Similar (albeit lower) increasing zero emission requirements apply to Class 2b-3 trucks, and Class 7-8 trucks between 2024 and 2035.

Among other impacts, ACT could affect the cost and/or supply of traditional diesel tractors.

It has also led to similar legislation in other states, with Oregon, Washington, New York, New Jersey, and Massachusetts already adopting ACT, and a number of other states either considering adoption of ACT or affirmatively conducting a preliminary rulemaking process to that effect.

CARB is also in the process of considering and finalizing what is known as the Advanced Clean Fleets (“ACF”) regulation, also aimed at transitioning to zero emission vehicles beginning in 2024.

ACF is a purchase requirement for medium and heavy-duty fleets to adopt an increasing percentage of zero emission trucks, designed to complement the sell-side obligations of ACT.

The proposed ACF regulations, generally set to begin in January 2024, apply to three categories of fleet operators:

(1) high priority fleets who meet certain thresholds of trucks or revenue (including fleets that operate 50 or more trucks, or generate $50 million or more in gross annual revenue), (2) drayage fleets, and (3) state and local government public fleets.

For high priority fleets who meet the applicable thresholds, compliance can be achieved by either (i) ensuring that all new vehicles added to the fleet be zero emission, and removing older vehicles once their statutory useful life is reached, or (ii) meeting certain fleet composition requirements (e.g., percentage of zero

emission vehicles in the fleet) by certain dates, with the percentage of zero emission vehicles increasing over time, and resulting in 100% zero emission fleets by 2042 (or earlier for certain classes of vehicles).

As with ACT, adoption and implementation of ACF could materially and negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.

In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle.

These restrictions could force us to purchase on-board power units that do not require the engine to idle or to alter our drivers' behavior, which could result in a decrease in productivity or increase in driver turnover.

In April 2016, the Food and Drug Administration (“FDA”) published a final rule establishing requirements for shippers, loaders, carriers by motor vehicle and rail vehicle, and receivers engaged in the transportation of food, to use sanitary transportation practices to ensure the safety of the food they transport as part of the Food Safety Modernization Act of 2011 (the "FSMA").

This rule sets forth requirements related to (i) the design and maintenance of equipment used to transport food, (ii) the measures taken during food transportation to ensure food safety, (iii) the training of carrier personnel in sanitary food transportation practices, and (iv) maintenance and retention of records of written procedures, agreements, and training related to the foregoing items.

These requirements took effect for larger carriers in April 2017 and are applicable when performing as a carrier or as a broker.

We believe we are in compliance with these requirements.

However, if we are found to be in violation of applicable laws or regulations related to the FSMA or if we transport food or goods that are contaminated or are found to cause illness and/or death, we could be subject to substantial fines, lawsuits, penalties and/or criminal and civil liability, any of which could have a material adverse effect on our business, financial condition, and results of operations.

As the FDA continues its efforts to modernize food safety, it is likely additional food safety regulations will take effect in the future.

In July 2020, the FDA released its “New Era of Smarter Food Safety” blueprint, which creates a ten year roadmap to create a more digital, traceable and safer food system.

This blueprint builds on the work done under the FSMA, and while it is still unclear what, if any, changes to the current governing framework may ultimately take effect, further regulation in this area could negatively affect our business by increasing our compliance obligations and related expenses going forward.

Executive and Legislative Climate

It is still to be determined how President Biden’s leadership will impact our industry.

That being said, President Biden has indicated his intent to make a green infrastructure package a top priority for his administration.

Any measure in furtherance thereof could draw from the Build Back Better Act (the “BBB”), which passed the U.S.

House of Representatives, but is facing resistance in the U.S.

As currently proposed, the BBB would impact transportation by allocating funds to address various industry related issues such as port congestion and traffic safety enforcement.

The bill also promotes a myriad of low-emission programs, transit services and clean energy projects, as well as funding for climate change research.

It is unclear whether these legislative initiatives will be signed into law and what changes they may undergo.

However, adoption and implementation could negatively impact our business by increasing our compliance obligations and related expenses.

President Biden has also indicated an intention to make substantial changes to the current U.S.

tax laws during his administration, including changes to the way capital gains are treated.

Any changes to U.S.

In August 2022, the Inflation Reduction Act of 2022 was signed into law by President Biden.

Amongst other considerations, the Inflation Reduction Act contains provisions relating to energy, climate change, and tax reform.

In particular, the Inflation Reduction Act shifts timing for certain tax payments, imposes an excise tax on certain corporate stock buybacks, and creates a 15% corporate alternative minimum tax, which is generally applicable to corporations that reported over $1 billion in profits in each of the three proceeding tax years.

Tax changes in the Inflation Reduction Act, together with changes to any other U.S.

tax laws may have an adverse impact on our business and profitability.

It is unclear what other legislative initiatives will be signed into law and what changes they may undergo.

However, adoption and implementation could negatively impact our business by increasing our compliance obligations and related expenses.

The United States Mexico Canada Agreement (“USMCA”) was entered into effect in July 2020.

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In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations.

Among provisions in the law specific to trucking is the aforementioned apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

It remains unclear how the IIJA will be implemented into and effect our industry.

Provisions in the law specific to trucking are discussed above.

It otherwise remains unclear how the IIJA will be implemented into and effect our industry in the long-term.

The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations.

Given COVID-19’s considerable effect on our industry, the FMCSA issued and/or extended various temporary responsive measures throughout the year.

Although, to date, these measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures remain unclear and could have a negative impact on our operations.

In January 2023, the Safer Highways and Increased Performance for Interstate Trucking Act (the “SHIP IT Act”) was introduced into the U.S.

House of Representatives.

As proposed, the SHIP IT Act would allow states to issue special permits for overweight vehicles and loads during emergencies, allow drivers to apply for Workforce Innovation and Opportunity Act grants, attempt to recruit truck drivers to the industry through targeted and temporary tax credits, streamline the CDL process in certain respects, and expand access to truck parking and rest areas for commercial drivers.

It remains unclear whether the SHIP IT Act will ultimately become law, however, and what changes it may undergo prior finalization.

Given COVID-19’s considerable effect on our nation and industry, the FMCSA previously issued and/or extended various temporary responsive measures in response to COVID-19 pandemic.

However, as additional tools, protective equipment, policies, practices, and medicines have been developed in response to COVID-19, in October 2022, the FMCSA ended the hours of service waiver previously issued with respect to certain types of shipments, such as, livestock, medical supplies, vaccines, groceries, and diesel fuel.

Although to date these response measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures or the lapsing of temporary measures previously enacted, remain unclear and could have a negative impact on our operations.

In November 2021 the U.S.

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The Emergency Rule has been blocked by the Supreme Court.

Effective January 2022, the U.S.

is prohibiting unvaccinated foreigners from crossing the U.S.-Mexico border and U.S.-Canada border.

The Company does not have any Mexican or Canadian domiciled drivers that will be impacted by this requirement.

Furthermore, effective January 2022, Canada is prohibiting unvaccinated foreigners, including U.S.

citizens, from crossing their border.

The Company has a minimal volume of freight into Canada, therefore border restrictions will not significantly impact our operations.

These border requirements, as well as any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.

Any vaccination, testing or mask mandates that are interpreted as applying to drivers would significantly reduce the pool of drivers available to us and our industry, which would further impact the extreme shortage of available drivers.

This Emergency Rule was subsequently withdrawn by OSHA in January 2022.

However, any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.

Any future vaccination, testing or mask mandates that apply to drivers would significantly reduce the pool of drivers available to us and our industry, which could further impact the ongoing extreme shortage of available drivers.

Accordingly, any vaccination, testing or mask mandates, if allowed to go into effect, could have a material adverse effect on our business, financial condition, and results of operations.

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Item 1. Business