What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2025-02-18 compared with 2024-02-28 · 162 added, 254 removed, 308 unchanged (57% of the section changed)

Heartland Express, Inc.

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

is a holding company incorporated in Nevada, which directly or indirectly owns all of the stock of the following 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, LLC and Franklin Logistics, LLC ("Smith Transport"), and CFI entities, Transportation Resources, Inc.

("Heartland Express"), and Midwest Holding Group, LLC and Millis Transfer, LLC ("Millis Transfer"), and Smith Transport, LLC ("Smith Transport"), and CFI entities, Transportation Resources, Inc.

and Contract Freighters, Inc.

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

Effective December 31, 2024, Franklin Logistics, LLC was merged into Smith Transport, LLC.

Effective December 31, 2023, Smith Trucking, Inc.

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Further, effective December 31, 2023 Smith Transport, Inc.

Franklin Logistics, Inc.

were converted to Smith Transport, LLC and Franklin Logistics, LLC, respectively.

and Franklin Logistics, Inc.

were converted to Smith Transport, LLC and

Franklin Logistics, LLC, respectively.

On May 31, 2022, Heartland Express, Inc.

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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 and 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.

Prior to 2022 we, together with our subsidiaries, historically were a short-to-medium haul truckload carrier where 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 is approximately 400 miles.

and now including cross border freight to and from Mexico.

Our logistics revenue within Mexico represents 3.0% of consolidated operating revenue.

Our consolidated average length of haul is under 400 miles.

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

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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.

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

In addition to consolidated data on a combined basis that has been historically used, our CODM also makes use of available disaggregated operating segment data as well.

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.

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Gerdin in 1978 and became publicly traded in November 1986.

Over the thirty-seven years from 1986 to 2023, we have grown our revenues to $1.2 billion from $21.6 million.

For the five year period 2019 through 2023 we had the second highest net income, $371.4 million ($429.3 million in 2018 through 2022), and highest revenue, $4.0 billion, of any previous five year period.

Over the thirty-eight years from 1986 to 2024, we have grown our revenues to $1.0 billion from $21.6 million.

For the five year period 2020 through 2024 we had the highest revenue, $4.5 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.

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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.

Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given an ongoing shortage of qualified drivers in the industry that meet our hiring standards.

We have completed two recent strategic acquisitions to assist with the industry challenges, although we have been further challenged by the weak freight environment and the resulting shortage of profitable freight within the last two years.

The profitable freight shortage we anticipate to be a near term challenge whereas we expect the shortage of qualified drivers to be ongoing.

In response, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver and equipment 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 since 2013, 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, and 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 business that fails to meet our operating profile.

We have historically been a debt

free organization although with the acquisition of CFI we now have a significant amount of debt.

We have also significantly lowered our debt balance from 2022 to 2023.

and 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 to mid 80s operating ratio upon full integration, application of our cost structure, and freight optimization, including exiting certain business that fails to meet our operating profile.

We have historically been a debt free organization although with the acquisition of CFI we now have debt, although we significantly lowered our debt balance during 2024.

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 operating motto is "Service For Success".

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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with immaterial revenue derived from Mexico and Canada.

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

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

and one in Mexico following the CFI acquisition, in addition to our terminal and corporate headquarters in North Liberty, Iowa.

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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.

In addition to consolidated data on a combined basis that has been historically used, our CODM also makes use of available disaggregated operating segment data as well.

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

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

Customers, Marketing, Safety and Diversity

Customers, Marketing, and Safety

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.

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

This past year we once again were recognized for customer service by several of our customers as a testament to our service standards.

This past year our operating companies once again were recognized for customer service by several of our customers as a testament to our service standards.

These awards include:

• Home Depot Truckload Carrier of the Year (Medium Fleet)

• Home Depot Truckload Carrier of the Year (Small Fleet)

• NFI US East Carrier of the Year

• DHL Truckload Carrier of the Year

• Uber Freight Award National Truckload Carrier of the Year

• WEX Circle of Excellence

• Henkel Consumer Brands Logistics Award - Asset Excellence

• FedEx Express National Carrier of the Year (13 years in a row)

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

• Lowe’s One-Way Outbound Carrier of the Year

• United Sugar Producers & Refiners Carrier of the Year

• Mark Anthony Carrier of the Year

• PepsiCo Transportation WHD West Division Carrier of the Year

• PepsiCo Transportation WHD Central Region Carrier of the Year - Foods

• DHL/Tempur Pedic Carrier of the Year

• Uber Freight Carrier of the Year

• Henkel Carrier Base Logistics Award – Asset Excellence

• Shaw Floors Outbound "Class B" Carrier of the Year

Smucker Transportation Award Best On Time National Asset Carrier

During 2024, we were also recognized with the following environmental, operational, safety, and community service awards:

• Smartway – High Performer Award

• Logistics Management Quest for Quality Award (our 19th award in 21 years)

• CFI Driver Zach Yeakley TCA’s Highway Angel of the Year

• CFI Driver Endrea Davisson – Women in Trucking Association – 2023 Top Women to Watch in Transportation

• Wreaths Across America Honor Fleet (our 9th year)

• Pepsi Co “Rolling Remembrance” Participant

• SmartWay - High Performer TL/Dry Van Truck Carrier "All Metrics" Category

• TCA Fleet Safety Award 2023 - 2nd Place (Division VI, 100+ Million Miles)

• Missouri Trucking Association - Safety Award (Over the Road, 15+ Million Miles)

• Newsweek's 2024 Most Trustworthy Companies

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.

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Our 25, 10, and 5 largest customers accounted for approximately 60%, 40%, and 26% of our operating revenues, respectively, in 2024.

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

During 2023, our 25, 10, and 5 largest customers were approximately 56%, 36%, and 22%, of our operating revenues respectively.

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 2023 or 2022, while one customer accounted for 10% of our operating revenues in 2021.

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 2024, 2023, or 2022.

Environmental and Sustainability

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This document portrays our commitment to the environment and sustainability through our long track record of successful business practices.

Through equipment designs, equipment replacement strategies, idle reduction techniques, solar energy and battery usage, and practices at each of our terminals, we are focused on reducing waste and conserving energy.

Through equipment designs, equipment replacement strategies, idle reduction techniques, and battery usage, and practices at each of our terminals, we are focused on reducing waste and conserving energy.

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

Our efforts have been recognized by the U.S.

EPA SmartWay Excellence Award in seven of the last nine years of award consideration.

EPA SmartWay Excellence Award in seven of the last ten years of award consideration.

Furthermore, we have been recognized as a SmartWay High Performer seven times.

We have adopted a "Human Rights Mission".

This document portrays our commitment to human rights through diversity and inclusion, workplace safety and health, and prohibitions on forced labor and human trafficking.

This document portrays our commitment to human rights through anti-discrimination and anti-harassment policies, reinforcing advancement through qualifications, performance, skills, and experience, workplace safety and health, and prohibitions on forced labor and human trafficking.

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

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

The Company has historically partnered with "Truckers Against Trafficking" (TAT).

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

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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.

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.

Demand during the fourth quarter may be muted during soft freight environments, like we experienced in the last two years.

Demand for our services may be muted during soft freight environments, like we experienced in the last two years.

Demand for our freight services has been soft for the last two years as there has been a general imbalance of freight movements that have lagged available truck capacity.

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.

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We rely on our workforce in achieving our business objectives.

During the year ended December 31, 2023, we employed an average of approximately 6,320 people compared to approximately 4,710 people during the year ended December 31, 2022.

As of the end of February 2024 we employed approximately 6,040 employees.

The increase in average employees during the year ended December 31, 2023 was predominantly due to the acquisitions of Smith Transport and CFI in May and August 2022, 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.

During the year ended December 31, 2024, we had an average of approximately 5,700 drivers and non-driving personnel compared to approximately 6,320 during the year ended December 31, 2023.

As of the end of January 2025 there were approximately 5,220 drivers and non-driving personnel.

The decrease in average of the drivers and non-driving personnel during the year ended December 31, 2024 was predominantly due to deteriorating freight demand and lower equipment utilization and cost management following the acquisitions of Smith Transport and CFI in May and August 2022, respectively.

In addition to company drivers, 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, 2024 and 2023, independent contractors accounted for approximately 3.8% and 5.0% 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.

Independent contractors and third party carriers 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 2023 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 into 2023, as a result of the declining 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 a decreasing amount of qualified CDL drivers in our industry continues.

However, driver availability began to change late in 2022 and into 2023, as a result of the declining freight and economic environments.

This trend continued throughout 2024.

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 a decreasing amount of overall 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.

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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.

As a result of the freight environment during 2023, we paid more through these programs, resulting in an increase of driver pay per mile and as a percentage of revenue.

This has allowed us to maintain driver turnover rates lower than the industry average.

As a result of the freight environment during 2023 and 2024, we paid more through these programs, resulting in an increase of driver pay per mile and as a percentage of revenue.

Drive pay, home time, and other amenities has allowed us to maintain driver turnover rates lower than the industry average.

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

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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.

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.

Further, CFI has a training program for individuals who have obtained their CDL, but have less driving experience, 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.

We believe that we have good relationships with our employees.

Driver Compensation

Driver Compensation and Amenities

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.

We believe that our driver compensation package, compared to others in our industry, is consistently among the best in the industry.

We believe that our driver compensation packages, compared to others in our industry, 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 also invest a significant amount of capital in our terminal facilities as we strive to offer our driver employees up to date and convenient amenities throughout our terminal network across the country while they are away from home.

Over the last three years we have invested $106.5 million in terminal properties while also divesting of four of our properties for a combined $98.8 million gain.

We also invest a significant amount of capital in our terminal facilities as we strive to offer our driver employees up to date and convenient amenities and safe and secure parking throughout our terminal network across the country while they are away from home.

Over the last three years we have invested $90.9 million in terminal properties, in addition to $77.9 million in terminal properties acquired with CFI and Smith Transport acquisitions, while also divesting of properties for a combined $100.2 million gain.

Revenue Equipment

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

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

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

Furthermore, we have been recognized as a SmartWay High Performer seven times.

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

At December 31, 2023, all of our operating tractor fleet was equipped with event recorders and accident avoidance technology.

At December 31, 2024, all of our over-the-road 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 electronic log device regulations.

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This technology allows for efficient real-time communication with our drivers regarding freight and safety (e.g.

weather shutdowns), as well as fueling decisions, and provides the ability to manage the needs of our customers based on real-time information on load status.

Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency.

weather shutdowns), as well as fueling decisions, and provides the ability to manage the needs of our customers based on real-time information on load status as well as vehicle maintenance items.

Our mobile communication systems allows us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency.

As of December 31, 2024 the average age of our tractor fleet was 2.5 years compared to 2.2 years at December 31, 2023.

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The average age of our trailer fleet was 7.4 years at December 31, 2024 compared to 6.4 years at December 31, 2023.

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 in comparison to our average age before those acquisitions.

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 portion of independent contractors has increased as a result of the CFI acquisition.

Independent contractors are responsible for the maintenance of their equipment.

The used equipment market during 2023 and 2024 was not conducive to selling trailer equipment and replacing to lower the average age of trailers.

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.

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at which we have negotiated price discounts.

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

In addition, bulk fuel sites are maintained at twenty-once 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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For the years ended December 31, 2024 and 2023, fuel surcharge revenues were $133.9 million and $173.8 million, respectively.

Department of Energy (“DOE”) average price of fuel decreased 15.5% in 2023 compared to 2022, which had a corresponding positive impact on our net fuel cost, before the impacts of improved fleet efficiency, for the year ended December 31, 2023 compared to 2022.

Department of Energy (“DOE”) average price of fuel decreased 10.8% in 2024 compared to 2023, which decreased our net fuel cost, before the impacts of fleet efficiency, for the year ended December 31, 2024 compared to 2023.

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.

Even though average fuel prices declined in 2023 compared to 2022, empty route miles were significantly higher in 2023 due to soft freight demand.

Even though average fuel prices declined in 2024 compared to 2023, empty route miles were significantly higher in 2024 due to soft freight demand which had an offsetting effect of increasing our net fuel cost.

Competition and Industry

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We operate in a cyclical industry.

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 and continued to degrade throughout all of 2023.

We expect freight demand to remain challenged at lower demand levels in at least the first half of 2024 based upon the freight demand experienced in January and February of 2024.

We expect the strategic changes that we have implemented during 2023 will improve our operational readiness ahead of future expected freight demand growth, which could happen as soon as mid to late 2024.

However, continued supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, the political landscape, foreign wars, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2024.

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.

In early 2022, freight demand was initially strong, but demand began to soften in the back half of 2022 and continued to degrade throughout all of 2023 and continued to be weak during 2024.

We expect freight demand to remain challenged in at least the first half of 2025 based upon the freight demand experienced in January and February of 2025 however the freight environment is modestly better than what was experienced throughout much of 2024.

We expect the strategic and operational changes that we have implemented during 2024 will improve our operational readiness ahead of future expected freight demand growth.

However, general consumer product output and inventory volatility, consumer demand, the political landscape, potential tariffs, foreign wars, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2025.

The trucking industry also faces a shortage of qualified drivers, as discussed above under the heading “Drivers, Independent Contractors, and Other Employees.”

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We self-insure a portion of the exposure related to all of the aforementioned risks.

Insurance coverage, including self-insurance retention levels, is evaluated on an annual basis.

coverage, including self-insurance retention levels, is evaluated on an annual basis.

We actively participate in the settlement of each claim incurred.

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Under the April 2023 renewal, our auto liability retention limit across all operating entities was increased to $3.0 million for any individual claim based on the insured party, accident date, and circumstances of the loss event subject to a $3.5 million corridor for any one accident or combination of accidents that exceed $3.0 million.

Prior to the April 2023 renewal, Heartland Express, Millis Transfer, and CFI had a retention limit of $2.0 million and Smith Transport had a retention limit of $0.5 million.

In addition to the $2.0 million base retention limit, Heartland Express, Millis Transfer, and CFI were subject to a $1.0 million corridor for any one accident or combination of accidents that exceeded $2.0 million.

For the April 2023 renewal, liabilities in excess of the $3.0 million deductible and $3.5 million corridor are covered by insurance up to $80.0 million.

In April 2024, an additional corridor was added, where we retain liability of $5.0 million for any one accident or combination of accidents that exceed $10.0 million.

Liabilities in excess of the $3.0 million deductible, the $3.5 million corridor, and the $5.0 million corridor are covered by insurance up to $80.0 million.

We retain any liability in excess of $80.0 million.

Prior to the April 2023 renewal, our excess limit was $60.0 million, including retention of 50% of exposure from $5.0 million to $10.0 million.

Furthermore, under the April 2023 renewal, our premiums are subject to upward or downward adjustments based on claims experience in the $3.0 million to $10.0 million policy during the three year program.

The elevated retention limit and the premium adjustment feature could lead to increased volatility in our insurance and claims expense, depending on the frequency and magnitude of claims.

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Any future changes to HOS rules could materially and adversely affect our operations and profitability.

Future rulemaking relating to electronic logging devices (“ELD”) may occur and any final rules could affect our ELD technology, compliance, usage, and compliance efforts.

There are two methods of evaluating the safety and fitness of carriers.

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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.

In January 2016, the

FMCSA published a notice of proposed rulemaking outlining a revised safety rating measurement system which would replace the current methodology of whether carriers are fit to operate commercial motor vehicles (“CMV”).

Based on feedback and other concerns raised by industry stakeholders during the public comment period in March 2017, the FMCSA withdrew the notice of proposed rulemaking related to the new safety rating system.

In its notice of withdrawal, the FMCSA noted that a similar process may be initiated in the future.

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

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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.

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

However, pursuant to the Fixing America's Surface Transportation Act (the "FAST Act"), which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.

However, pursuant to the Fixing America's Surface Transportation Act (the "FAST Act"), the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.

During this period of review by the FMCSA, we will continue to have access to our own scores and will still be subject to intervention by the FMCSA when such scores are above the intervention thresholds.

We will continue to monitor our CSA scores and compliance through results from roadside inspections and other data available to detect positive or negative trends in compliance issues on an ongoing basis.

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

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

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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In February 2023, the FMCSA published a notice of proposed changes to its Safety Measurement System (“SMS”) methodology, including the BASIC categories.

In August 2023, the FMCSA announced in an advanced notice of proposed rulemaking and request for comments that it was interested in developing a new methodology to determine whether a carrier is fit to operate CMVs.

Additionally, the U.S.

Government Accountability Office made a suggestion in 2023 to the FMCSA to make complaint data public.

Currently, it is uncertain what changes, if any, the FMCA will make to the CSA rating system or the SMS methodology;

however, any change which would result in the Company or its subsidiaries receiving less favorable scores, or an increased visibility of less favorable scores or of complaints against the Company may have an adverse effect on our operations and financial position.

In November 2024, the FMCSA published a notice announcing a revised SMS methodology implementing certain changes proposed in the February 2023 notice, including, among other changes, (i) rebranding BASICs as “Compliance Categories” and revising certain categories, (ii) consolidating existing road violations into simplified and distinct violation groups and simplifying the scale used to measure the severity of violations, (iii) adjusting intervention thresholds, and (iv) revising the SMS methodology to focus more heavily on recent violations.

Whether this revised SMS methodology will take effect is uncertain;

however, any change which results in the Company or its subsidiaries receiving less favorable scores, or an increased visibility of less favorable scores or of complaints against the Company may have an adverse effect on our operations and financial position.

Moreover, in September 2023, the FMCSA announced a proposal that would allow carriers to undergo an appeal process for requests of data review, which are in relation to such requests through the agency’s DataQs system.

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Any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.

In May 2020 the FMCSA announced that effective immediately it is making permanent a pilot program that will not count a crash in which a motor carrier was not at fault when calculating the carrier’s safety measurement profile, called the Crash Preventability Demonstration Program (“CPDP”).

The CPDP expands the types of eligible crashes, modify the SMS to exclude crashes with not preventable determinations from the prioritization algorithm, and note the not preventable determinations in the Pre-Employment Screening Program.

Under the program, carriers with eligible crashes that occurred on or after August 2019, may submit a Request for Data Review with the required police accident report and other supporting documents, photos or videos through the FMCSA’s DataQs website.

In 2020 the FMCSA announced that it would permanently implement the Crash Preventability Demonstration Program (“CPDP”), which does not count crashes when motor carriers are not at fault while calculating a carrier’s safety measurement profile.

The CPDP expands the types of eligible crashes, modifies the SMS to exclude crashes with not preventable determinations from the prioritization algorithm, and notes the not preventable determinations in the Pre-Employment Screening Program.

Under the program, carriers may submit a Request for Data Review with the required police accident report and other supporting documents, photos or videos through the FMCSA’s DataQs website.

If the FMCSA determines the crash was not preventable, it will be listed on the SMS but not included when calculating a carrier’s BASICs measure for the crash indicator category in SMS.

In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug

and alcohol testing requirements.

There is a national clearinghouse for drug and alcohol testing results that requires motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements.

Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating CMVs.

The final rule became effective in 2017, with an initial compliance date of January 2020 and certain compliance dates extended until January 2023.

Currently, the Company is required to (i) report drug and alcohol violations to the clearinghouse based upon DOT requirements;

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and (iii) query the clearinghouse for each currently employed driver annually.

Beginning 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 November 2024, a new rule referred to by the FMCSA as “Clearinghouse II,” a program that relates to drivers with drug and alcohol violations, took effect.

Under Clearinghouse II, a driver with a drug or alcohol violation resulting in a “Prohibited” status in the Clearinghouse may not operate a CMV and must complete the FMCSA’s return-to-duty education, treatment, and testing prior to regaining CMV driving privileges.

With Clearinghouse II now in effect, 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.

It is expected that the effects from the rule may further impair the pool of available drivers.

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.

In 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 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.

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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.

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.

In May 2023, a final rule was published amending DOT’s drug testing program to include oral fluid testing, and became effective June 2023;

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 to the Clearinghouse.

This request was denied by the FMCSA, however, noting they cannot act until the DHHS finalizes these guidelines, which have been delayed by the DHHS until May 2025.

Additionally, in 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.

In 2023, a final rule that amended DOT’s drug testing program to include oral fluid testing became effective;

however, implementation cannot take effect until DHHS approves at least two laboratories to conduct oral fluid testing.

Currently, DHHS has not approved any laboratories.

Any final rule may reduce the number of available drivers.

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

Any changes to drug testing programs may reduce the number of available drivers.

We currently perform urine testing.

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 at some point in 2024.

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

Now that the ELDT Regulations are in effect, training schools and other programs (including ours) are required to implement the prescribed curriculum and register with the FMCSA's Training Provider Registry to certify that their program meets the classroom and driving standards.

Currently, fentanyl testing is expected to be added to the urine panel beginning as soon as July 2025.

Training schools and other programs (including ours) are required to implement the prescribed curriculum and register with the FMCSA's Training Provider Registry to certify that their program meets the classroom and driving standards.

We are also required to comply with this rule in the course of operating our driving schools.

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Additionally, in April 2023, NHTSA issued an advance notice of proposed rulemaking that would require side underride guards to be installed on all new heavy-duty trucks.

It remains to be seen what, if any, final rules will stem from such proposals.

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

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.

In May 2021, however, the Cullum Owings Large Truck Safe Operating Speed Act was reintroduced into the U.S.

House of Representatives and would require CMVs 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;

While a final rule with respect to automatic braking is expected to be issued in 2025, it remains to be seen what, if any, final rules will stem from such proposals.

Our industry is also subject to a number of proposed rules which mandate the use of speed-limiting devices in certain CMVs, including requiring CMVs 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.

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;

however, no final rule was proposed.

It is now expected that the DOT will issue a rule regarding speed-limiting devices in 2024.

It is now expected that the DOT will issue a rule regarding speed-limiting devices in May 2025.

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.

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 begin to help the industry’s ongoing driver shortage.

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

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

This program, known as the Safe Driver Apprenticeship Pilot Program (“SDAP”), 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.

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The SDAP 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.

In May 2023, the DRIVE Safe Integrity Act of 2023 was introduced, which supports participation in the SDAP and would permit 18- to 20-year-olds to operate across state lines if data from the SDAP does not indicate such drivers are less safe than current CMV drivers.

If not renewed, the SDAP is currently set to conclude in November 2025.

In May 2023, the DRIVE Safe Integrity Act of 2023 was introduced, which supports participation in the SDAP and would permit 18- to 20-year-olds to

operate across state lines if data from the SDAP does not indicate such drivers are less safe than current CMV drivers.

Whether this legislation will ultimately become law is uncertain.

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

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.” Final guidance was later issued by the FMCSA in June 2023, setting forth that the distinction between the two largely hinges upon control and 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 November 2023 final rule, the FMCSA implemented more oversight of truck brokers, freight forwarders, and the surety bond and trust companies that back them.

The final rule, which became effective in January 2024, modified regulations 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 rule allows 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 rule 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.

Implementation and compliance with these changes may negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.

Recently, federal courts have reached different decisions on the issue of whether preemption applies to broker liability.

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 preemption and would expose freight brokers to a patchwork of state regulations across the United States.

In April 2023, the Eleventh Circuit Court held that the Federal Aviation Administration Authorization Act (“FAAAA”) expressly preempted such personal liability claims against a broker.

Additionally, in July 2023, the Seventh Circuit Court of Appeals affirmed the holding of a lower court that the FAAAA’s preemption provision applied and that a certain safety exception within the FAAAA did not save the plaintiff’s claim from preemption.

In January 2024, the U.S.

Supreme Court declined to review the case from the Seventh Circuit Court of Appeals.

It is uncertain how long the current circuit split will continue and whether the U.S.

Supreme Court will decide to review similar cases in the future.

If additional circuit courts, or the U.S.

Supreme Court, adopt the Ninth Circuit view, freight brokers’ ability to rely on federal agency standards in selecting motor carriers would be called into question.

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 independent contractors 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.

In 2022, the FMCSA issued an advance notice of proposed rulemaking that would require fleets and independent contractors 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.

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However, in February 2023, the FMCSA announced a new operational test for monitoring and enforcing driver and motor carrier safety compliance standards.

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

In March 2024, the FMCSA began proof-of-concept testing to determine whether the technology required for electronic identification systems is sufficient and information and data being provided is secure, reliable, and useful for the FMCSA.

In 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.

More recently, the DOT has provided funding to increase parking in certain heavily congested areas of Nevada, Ohio, and Wisconsin, and Congressional leaders have included a provision in the House funding bill introduced in June 2024 to allocate $200 million for truck parking projects.

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

In 2018, the FMCSA granted a petition filed by the American Trucking Associations 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 upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying CMVs.

In 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 CMVs.

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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If enacted, this could have a material adverse effect on our business, financial condition, and results of operations.

Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractor drivers in the trucking industry are employees rather than independent contractors, for a variety of purposes, including income tax withholding, workers' compensation, wage and hour compensation, unemployment, and other issues.

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 Protecting the Rights to Organize ("PRO") Act was passed by the U.S.

House of Representatives and received by the Senate in March 2021, which was further sent to the Senate's Committee on Health, Education, Labor, and Pensions.

In 2023, a substantially similar bill was introduced to the U.S.

House of Representatives and referred to the House Committee on Education and Workforce.

These bills propose to apply the "ABC Test" for classifying workers under Federal Fair Labor Standards Act claims.

In January 2024, the Department of Labor published a final rule regarding independent contractor classification, which is set to take effect on March 11, 2024.

The final rule rescinded the Independent Contractor Status Under the Fair Labor Standards Act.

Under the 2024 rule, workers’ relationship with a principal will be classified under six factors, including:

(i) opportunity for profit and loss depending on managerial skill;

(ii) investments by the worker and the principal;

(iii) degree of permanence of the relationship;

(iv) nature and degree of control;

(v) extent to which worker in integral to the principal’s business;

and (vi) skill and initiative, together with a provision for unspecified other factors, to determine if such worker should be classified as an independent contractor.

Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply.

Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractor drivers as employees would help states with these initiatives.

Recently, courts in certain states have issued decisions that could result in a greater likelihood that independent contractors would be judicially classified as employees in such states.

In September 2019, California enacted A.B.

5 (“AB5”), a new law that changed the landscape of the state’s treatment of employees and independent contractors.

AB5 provides that the three-pronged “ABC Test” must be used to determine worker classification in wage-order claims.

Under the ABC Test, a worker is presumed to be an employee, and the burden to demonstrate their independent contractor status is on the hiring company through satisfying all three of the following criteria:

• the worker is free from control and direction in the performance of services;

• the worker is performing work outside the usual course of business of the hiring company;

• the worker is customarily engaged in an independently established trade, occupation, or business.

How AB5 will be enforced is still to be determined.

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”) went 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 Supreme Court to review the decision.

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

solicitor general weigh in on the case.

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.

Litigation surrounding the matter continues, and the Ninth Circuit is currently scheduled to hear arguments on a case concerning AB5 in March 2024;

however, it remains unclear whether such challenges will be successful 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.

Our classification of independent contractors has been the subject of audits by such authorities from time to time.

While we have been successful in continuing to classify our independent contractor drivers as independent contractors and not employees, we may be unsuccessful in defending that position in the future.

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.

Independent contractors currently represent a small portion of our fleet.

Environmental Regulations

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Additionally, increasing efforts to control emissions of greenhouse gases may have an adverse effect on us.

We aim to maintain a young fleet age of tractors to ensure we are utilizing technological advancements deployed by manufacturers to reduce emissions.

We aim to maintain a young fleet age of tractors to ensure we are utilizing technological advancements deployed by

manufacturers to reduce emissions.

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 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.

addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the "Phase 2 Standards").

In October 2016, the EPA and NHTSA published the final rule mandating that the Phase 2 Standards will apply to trailers beginning with model year 2018 and tractors beginning with model year 2021.

The Phase 2 Standards require nine percent and 25 percent reductions in emissions and fuel consumption for trailers and tractors, respectively, by 2027.

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

Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S.

Court of Appeals for the District of Columbia.

In November 2021, a panel for the U.S.

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.

The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2023 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.

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 three-part plan focusing on greenhouse gas emissions, which is commonly referred to as the “Cleaner Trucks Initiative,” or the “Clean Trucks Plan.” In April 2023, the EPA released the second and third parts to the Clean Trucks Plan, including a proposed rule relating to greenhouse gas (“GHG”) standards for heavy-duty vehicles known as “Phase 3” to the EPA’s GHG program.

A final rule with respect to these regulations is expected by the end of 2024.

The NHTSA and the EPA have fuel economy and greenhouse gas standards for medium-and heavy-duty vehicles, including the tractors we use.

In 2016, the NHTSA and the EPA published the final rule mandating that fuel economy and greenhouse gas standards apply to trailers beginning with model year 2018 and tractors beginning with model year 2021;

however, in 2021, a panel for the U.S.

Court of Appeals for the District of Columbia ruled in favor of an association challenging the standards and vacated all portions of the standards that applied to trailers.

Consequently, the standards require 25 percent reductions in emissions and fuel consumption for tractors.

The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2024 complied with the emission and fuel consumption reductions required by the standards.

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

In 2022, the EPA adopted a final rule regarding 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 2022 levels by 2045.

The EPA has indicated that the 2022 rule is the first part of a three-part plan focusing on greenhouse gas emissions, which is commonly referred to as the “Cleaner Trucks Initiative,” or the “Clean Trucks Plan.” In 2023, the EPA released the second and third parts to the Clean Trucks Plan, including a proposed rule relating to greenhouse gas (“GHG”) standards for heavy-duty vehicles known as “Phase 3” to the EPA’s GHG program.

A final rule with respect to these regulations was issued in March 2024 and establishes new GHG emission standards for heavy-duty motor vehicles which are phased-in starting with model year 2027 and increasing in stringency annually through model year 2032.

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

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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.

In addition, in February 2017 CARB proposed California Phase 2 standards that would generally align with the federal Phase 2 Standards, with some minor additional requirements, and as proposed would stay in place even if the federal Phase 2 Standards are affected.

In February 2019, the California Phase 2 standards became final.

Thus, even though the trailer provisions of the Phase 2 Standards were removed, we must still ensure the majority of our fleet is compliant with the California Phase 2 standards, which may adversely affect our operating results and profitability.

CARB has also recently announced its intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future.

In 2019, the California standards that generally align with the federal standards (with some minor additional requirements) became final.

Thus, even though the trailer provisions of the federal standards were removed, we must still ensure the majority of our fleet is compliant with the California standards, which may adversely affect our operating results and profitability.

CARB has also announced its intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future.

Whether these regulations will ultimately be adopted remains unclear.

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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.

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.

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

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

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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 ACF regulations apply to three categories of fleet operators:

(i) 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), (ii) drayage fleets, and (iii) state and local government public fleets.

For high priority fleets who meet the applicable thresholds, compliance

can be achieved by either (a) ensuring that all new vehicles added to the fleet be zero emission, and commencing in 2025, removing older vehicles once their statutory useful life is reached, or (b) 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.

The periodic testing portion of California’s Clean Truck Check (as a part of CARB’s Clean Truck program), known as Phase 3 of the Clean Truck Check, is set to begin in July 2024.

Once Phase 3 commences, heavy duty vehicles will be subject to periodic emissions testing.

Additionally, in October 2023, the California State Senate and State Assembly approved two bills, Senate Bill 253 (“SB 253”) and Senate Bill 261 (“SB 261”), that could require thousands of companies doing business in California to disclose greenhouse gas emissions and climate-related financial risks, with reporting beginning in 2026.

If signed into law, SB 253 would require CARB to adopt regulations before January 2025 requiring public and private companies that exceed $1 billion in annual revenue and that do business in California to begin publicly disclosing their GHG emissions, and SB 261 would require companies doing business in California and earning revenue exceeding $500 million to report on their climate-related financial risks and measures taken to mitigate such risks on or before January 2026.

However, in January 2025, given legal challenges to the ACF and a lack of public support for environmental regulation, CARB withdrew its request for the EPA to provide a waiver of certain federal regulations necessary for CARB to impose the environmental restrictions and mandates in the ACF that are more stringent than federal law, which effectively tabled the ACF.

If CARB seeks to adopt and implement the ACF in the future, it could materially and negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.

The periodic testing portion of California’s Clean Truck Check (as a part of CARB’s Clean Truck program), known as Phase 3 of the Clean Truck Check, began in 2024.

Under Phase 3, heavy duty vehicles are subject to periodic emissions testing and annual compliance fees, increasing our operating costs and related expenses.

Additionally, in October 2023, California enacted two bills into law, Senate Bill 253 (“SB 253”) and Senate Bill 261 (“SB 261”), which require certain companies doing business in California to disclose greenhouse gas emissions and climate-related financial risks, with reporting beginning in 2026.

SB 253 requires companies that exceed $1 billion in annual revenue and that do business in California to publicly disclose their GHG emissions, while SB 261 requires companies doing business in California and earning annual revenue exceeding $500 million to report on their climate-related financial risks and measures taken to mitigate such risks on or before January 2026.

Senate Bill 219 (“SB 219”), which was enacted in September 2024, delays the final regulations for SB 253 until July 2025 and permits subsidiaries to file SB 253 reports on a consolidated basis with their parent companies, which previously was only permitted under SB 261.

These laws are currently facing litigation, which could result in delays or modifications to the laws.

Implementation of these additional reporting requirements would result in increased compliance costs and resource utilization.

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

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We will continue monitoring our compliance with federal and state GHG and other material environmental regulations.

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").

The Food Safety Modernization Act of 2011 (the "FSMA") requires us to use sanitary transportation practices to ensure the safety of the food we transport.

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.

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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.

In 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.

The Food Traceability Rule is one aspect of the blueprint and has a compliance date for all parties subject to its recordkeeping requirements of January 20, 2026.

In the event the Company becomes subject to any such recordkeeping requirements, compliance costs may increase.

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.

This blueprint builds on the work done under the FSMA, generally requiring persons who manufacture, process, pack, or hold foods on the FDA’s “Food Traceability List” to maintain detailed records of key data elements for critical tracking events in a manner that can be provided to the FDA within 24 hours of request.

It is still unclear what impact of the Food Traceability Rule will have on the Company and others in the industry, but further regulation in this area could negatively affect our business by increasing our compliance obligations and related expenses going forward.

Executive and Legislative Climate

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.

Recently, the Trump administration issued a memorandum which directed federal departments and agencies to freeze regulatory actions.

In particular, the memorandum prohibited new rules from being proposed or issued until such are reviewed and approved by heads of departments or agencies appointed under the Trump administration.

Rules previously sent to the Federal Register but not already published are also to be withdrawn to permit additional review and permission to proceed.

Additionally, existing rules could be delayed for up to 60 days to allow for additional review, including the assessment their impacts and allow for public comments.

The Inflation Reduction Act of 2022 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.

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

In February 2023, the Secretary of Transportation announced the creation of the Truck Leasing Task Force (“TLTF”).

The TLTF is a committee tasked with evaluating lease agreements in the industry and their effects on industry participants, including independent contractor drivers.

Any future laws or regulations stemming from the TLTF could disrupt the Company’s leasing practices and cause materially adverse effects on our operations and financial position.

The IIJA was signed into law by President Biden in November 2021.

The roughly $1.2 trillion bill contains an estimated $550 billion in new spending, which will impact transportation.

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

Provisions in the law specific to trucking are discussed above.

It otherwise remains unclear how the IIJA will be implemented into and affect 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.

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

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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 measures in response to the 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 HOS 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.

Any similar future outbreak or 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 recruitment 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.

A similar bill, the Truck Parking Safety Improvement Act, was introduced into the Senate in March 2023 and if enacted as proposed, would dedicate $755 million in funding over the next three years to expand access to truck parking and rest areas for commercial drivers.

It remains unclear whether such acts will ultimately become law, however, and what changes they may undergo prior to finalization.

For further discussion regarding laws and regulations, refer to the "Risk Factors" section under Item 1A of Part I of this Annual Report.

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What changed 10-K

Item 1. Business