What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-28 · 120 added, 145 removed, 270 unchanged (50% of the section changed)

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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 and 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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Our 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.

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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We believe our geographic reach and terminal locations assist us with driver recruiting and retention, efficient fleet maintenance, and consistent customer engagement.

Our long-term objectives, which have not generally changed since we were founded in 1978, are to achieve significant growth, to operate with a low-80s operating ratio (operating expenses as a percentage of operating revenue), and to maintain a debt-free balance sheet.

We maintain a disciplined approach to cost controls.

We do this by scrutinizing all expenditures, prioritizing expenses that improve our drivers' experience or our customer service, minimizing non-driving personnel through proven technology when the cost of doing so is justified, and operating late-model tractors and trailers with sound warranty coverage and enhanced fuel efficiency.

The challenging freight environment during 2023, combined with acquisitions of Smith Transport and CFI in 2022, have pressured our financial results to a level below our historical results and management expectations, and also resulted in the incurrence of debt.

However, the acquisitions have also allowed us to deliver $1.2 billion of operating revenues, an all-time record for our organization.

We believe this enhanced scale provides a better strategic position given the cyclical nature of the industry we operate in.

This enhanced scale has allowed us to increase capacity, enhance our customer offerings, and further diversify our customer base.

We anticipate getting back to debt free and low 80's operating ratio for our consolidated operations over the next two to three years as we integrate the operations of these two entities and the freight market improves.

The challenging freight environment during 2024 and 2023, combined with acquisitions of Smith Transport and CFI in 2022, have pressured our financial results to a level below our historical results and management expectations, and also resulted in the incurrence of debt.

However, the acquisitions have also allowed us to deliver $1.0 billion and $1.2 billion of operating revenues during 2024 and 2023, a significant increase from $607.0 million in 2021.

Our consolidated operating results for the fourth quarter of 2024 reflected both sequential and year-over year operating improvement due to a combination of continued progress with acquisition integration, enterprise-wide cost controls, and a modestly better freight environment.

While it is early in the quarter and extreme winter weather conditions so far in 2025 make comparison difficult, we are seeing a positive shift in customer rate and volume negotiations that we expect to strengthen as the year unfolds.

Our financial goals continue to be (i) generate an operating ratio in the low to mid 80s, (ii) grow revenue profitably, organically and through acquisitions, and (iii) carry a debt-free balance sheet.

Throughout our history, these principles have allowed us to generate significant cash flows and be opportunistic with acquiring and disposing of equipment and facilities, making acquisitions, and returning capital to stockholders.

In 2022, we incurred substantial debt to acquire CFI and Smith Transport and have been integrating and improving those businesses in the teeth of a deep and lengthy freight market downturn.

Our operating ratio remains significantly above our historical financial performance and our financial and operational targets.

We are making progress and have significant additional room for improvement through self-help and market uplift when it occurs.

We expect to continue our focus on cost improvements, operating system integrations, and asset utilization strategies ahead of an expected favorable increase in overall freight demand.

In addition to margin progress, we are making strides toward our goal to be debt free.

Even in this challenging and prolonged negative operating environment, we continued to generate positive operating cash flows.

Since making the acquisitions of CFI and Smith Transport in 2022, we have repaid almost $300 million of debt and capitalized leases while maintaining a relatively young fleet.

From a capital allocation standpoint, we believe we are nearing the place where all alternatives will be equally available once again.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

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Recent Developments

In 2023, we generated operating revenues of $1.2 billion, including fuel surcharges, net income of $14.8 million, and basic net income per share of $0.19 on basic weighted average outstanding shares of 79.0 million.

This compared to operating revenues of $968.0 million, including fuel surcharges, net income of $133.6 million, and basic net income per share of $1.69 on basic weighted average outstanding shares of 78.9 million in 2022.

We posted an 96.5% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2023, compared to 80.5% for the same period of 2022, and an 1.2% net margin (which represents net income as a percentage of operating revenues) for 2023, compared to 13.8% in the same period of 2022.

We posted an 95.4% non-GAAP adjusted operating ratio (1) (operating expenses as a percentage of operating revenues, net of fuel surcharge) for the year ended December 31, 2023 compared to 84.8% for the same period of 2022.

In 2024, we generated operating revenues of $1.0 billion, including fuel surcharges, net loss of $29.7 million, and basic loss per share of $0.38 on basic weighted average outstanding shares of 78.7 million.

This compared to operating revenues of $1.2 billion, including fuel surcharges, net income of $14.8 million, and basic net income per share of $0.19 on basic weighted average outstanding shares of 79.0 million in 2023.

We posted an 101.9% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2024, compared to 96.5% for the same period of 2023, and a 2.8% net loss as a percentage of operating revenues for 2024, compared to 1.2% net income as a percentage of operating revenues in the same period of 2023.

We posted an 101.7% non-GAAP adjusted operating ratio (1) for the year ended December 31, 2024 compared to 95.4% for the same period of 2023.

See the “GAAP to Non-GAAP Reconciliation Schedule” below for a reconciliation of our non-GAAP adjusted operating ratio.

We had total assets of $1.3 billion and total stockholders' equity of $822.6 million at December 31, 2024.

We achieved a return on assets of 0.9% and a return on equity of 1.7% over the year ended December 31, 2023, compared to 9.8% and 16.4% respectively, for 2022.

On May 31, 2022 we completed our fourth acquisition within nine years.

We acquired all the outstanding equity of Smith Transport.

The Smith Transport acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after May 31, 2022.

Therefore, our financial results for 2022 only include Smith Transport activity from June 1, 2022 to December 31, 2022.

On August 31, 2022 we completed our fifth acquisition within nine years.

We acquired all the outstanding equity of CFI.

The CFI acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after August 31, 2022.

Therefore, our financial results for 2022 only include CFI activity from September 1, 2022 to December 31, 2022.

We had a loss on assets of 2.1% and a loss on equity of 3.6% over the year ended December 31, 2024, compared to a return on assets of 0.9% and a return on equity of 1.7% respectively, for 2023.

GAAP to Non-GAAP Reconciliation Schedule:

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Amortization of intangibles 5,017 5,164

Acquisition-related costs — 2,254

Gain on sale of a terminal property — (73,175)

Adjusted operating expenses 928,870 986,092

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(a) Operating revenue excluding fuel surcharge revenue, as reported in this annual report is based upon operating revenue minus fuel surcharge revenue.

Adjusted operating income as reported in this annual report is based upon operating revenue excluding fuel surcharge revenue, less operating expenses, net of fuel surcharge revenue, non-cash amortization expense related to intangible assets, acquisition-related legal and professional fees, and the gain on sale of a terminal property.

Adjusted operating ratio as reported in this annual report is based upon operating expenses, net of fuel surcharge revenue, amortization of intangibles, acquisition-related costs, and the gain on sale of terminal property, as a percentage of operating revenue excluding fuel surcharge revenue.

We believe that operating revenue excluding fuel surcharge revenue, adjusted operating income, and adjusted operating ratio are more representative of our underlying operations by excluding the volatility of fuel prices, which we cannot control, and removes items resulting from acquisitions or one-time transactions that do not reflect our core operating performance.

Adjusted operating income as reported in this annual report is based upon operating revenue excluding fuel surcharge revenue, less operating expenses, net of fuel surcharge revenue, and non-cash amortization expense related to intangible assets.

Adjusted operating ratio as reported in this annual report is based upon operating expenses, net of fuel surcharge revenue, and amortization of intangibles, as a percentage of operating revenue excluding fuel surcharge revenue.

We believe that operating revenue excluding fuel surcharge revenue, adjusted operating income, and adjusted operating ratio are more representative of our underlying operations by excluding the volatility of fuel prices, which we cannot control, and removes items resulting from acquisitions that do not reflect our core operating performance.

Operating revenue excluding fuel surcharge revenue, adjusted operating income, and adjusted operating ratio are not substitutes for operating revenue, operating income, or operating ratio measured in accordance with GAAP.

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Our cash flow provided by operating activities for the twelve months ended December 31, 2024 was $144.3 million or 13.8% of operating revenues, compared to $165.3 million or 13.7% of operating revenues in 2023.

During 2023, we used $67.9 million in net investing cash flows, which was primarily the result of $71.3 million of net cash used for the purchase of property and equipment.

During 2024, we used $46.5 million in net investing cash flows, which was the result of net cash used for the purchase of property and equipment.

We used $109.5 million to purchase property and equipment and received $63.0 million from the sales of property and equipment.

We had net cash of $120.7 million used by financing activities during 2023, including $114.1 million of repayments of finance leases and debt and $6.3 million used to pay dividends to our shareholders.

We had net cash of $112.7 million used by financing activities during 2024, including $100.3 million of repayments of finance leases and debt, $7.3 million used to repurchase common stock, and $4.7 million used to pay dividends to our shareholders.

As a result, our cash, cash equivalents, and restricted cash decreased by $14.9 million during the year ended December 31, 2024 to $26.3 million.

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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 was 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 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 degrading freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers.

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

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.

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

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

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

As discussed under "Drivers, Independent Contractors, and Other Employees " in Part I, Item 1 of this Annual Report, the Company's driver training program provides an additional source of future potential professional drivers.

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

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

Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage

benchmarks, which are critical to our operational and financial performance.

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

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

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.

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.

This 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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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, 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.

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 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 a significant amount of 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.

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However, we expect to focus primarily on paying down the debt resulting from our 2022 acquisitions in 2025.

For the periods ended December 31, 2023, our operating cash flows as a percentage of operating revenues five-year average was 20.1%, our three-year average was 17.4%, and most recently for 2023 was 13.7%.

For the periods ended December 31, 2024, our operating

cash flows as a percentage of operating revenues five-year average was 18.0%, our three-year average was 15.6%, and most recently for 2024 was 13.8%.

Tractor Strategy and Depreciation

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Our tractor strategy is important to our goals and differs from the practices of many of our peers.

We strive to operate a relatively new fleet to keep operating costs low, better driver comfort, and enhance dependability.

We strive to operate a relatively new fleet to keep operating costs low, improve driver comfort, and enhance dependability.

We seek the flexibility to buy and sell tractors (and trailers) opportunistically to capitalize on new and used equipment markets, size our fleet to the volume of attractive freight, and manage cash tax expense.

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During 2025, we expect the age of both our tractor and trailer fleets to increase from the average age at December 31, 2024, based on estimated net capital expenditures in 2025.

After salaries, wages, and benefits, fuel expense was our next highest operating cost in 2023.

After Salaries, wages, and benefits and Deprecation and amortization, Fuel expense was our next highest operating cost in 2024.

Containment of fuel cost continues to be one of management's top priorities.

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

The trend of fuel prices below the $5.00 per gallon threshold has continued through 2023 and into 2024.

The trend of fuel prices below the $5.00 per gallon threshold has continued through 2023, 2024 and to date in 2025.

Through February 10, 2025, the last time the weekly DOE average was above the $4.00 threshold was the data published April 15, 2024.

The average DOE price for 2024 was $3.76 compared to $4.21 in 2023 and $4.99 in 2022.

We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles.

Therefore, our operating income is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment.

We expect to continue to manage and implement fuel initiative strategies that we believe will effectively manage fuel costs.

We expect to continue to manage and implement fuel strategies that we believe will effectively manage fuel costs.

These initiatives include strategic fueling of our trucks, whether it be terminal fuel or over-the-road fuel, reducing tractor idle time, controlling out-of-route miles, controlling empty miles, utilizing on-board power units to minimize idling, educating drivers to save energy, trailer skirting, and increasing fuel economy through the purchase of newer, more fuel-efficient tractors.

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Year Ended December 31, 2024 Compared with the Year Ended December 31, 2023

The Company acquired CFI on August 31, 2022 and Smith Transport on May 31, 2022, therefore the operating results of the Company for the year ended December 31, 2022 includes the operating results of CFI and Smith Transport for four months and seven months after acquisition, respectively.

The acquisitions impacted the change in operating revenues, salaries, wages and benefits, rent and purchased transportation, fuel expense, operations and maintenance, insurance and claims, depreciation and amortization, other operating expenses, and interest expense in 2022 compared to 2023 as further explained below.

Operating revenue increased $239.5 million (24.7%), to $1,207.5 million for the year ended December 31, 2023 from $968.0 million for the year ended December 31, 2022.

The increase in revenue was driven by an increase in trucking and other

revenues of $234.8 million and an increase in fuel surcharge revenue of $4.6 million.

The increase in trucking and other revenues was primarily from the acquisitions of Smith Transport and CFI.

The increased fuel surcharge revenue was the result of increased miles driven as a result of the acquisitions, partially offset by lower average DOE diesel fuel prices in 2023.

Operating revenue decreased $160.0 million (13.2%), to $1.0 billion for the year ended December 31, 2024 from $1.2 billion for the year ended December 31, 2023.

The decrease in revenue was driven by a decrease in trucking and other revenues of $120.0 million and a decrease in fuel surcharge revenue of $40.0 million.

The decrease in trucking and other revenues was the result of a weak freight environment leading to a decline in total miles and lower freight rates.

The decreased fuel surcharge revenue was the result of decreased miles driven, along with a decrease in average DOE diesel fuel prices of 10.8% during 2024 compared to 2023, as reported by the DOE.

Operating revenues (the total of trucking and fuel surcharge revenue) are primarily earned based on loaded miles driven in providing truckload services.

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The number of tractors is directly affected by the number of available drivers providing capacity to us.

The increase in total miles was a result of the additional capacity acquired.

The freight rates, earned on miles driven, were generally soft due to weak market conditions and demand for freight services in 2023 compared to early 2022 and 2021.

For 2024, we expect freight demand to remain challenged at lower demand levels during the first half of 2024 or longer based-upon the freight demand experienced in January and February of 2024.

Freight demand growth could happen as soon as mid to late 2024.

Our operating revenues are reviewed regularly by our CODM on a combined basis across the U.S.

due to the similar nature of our services offerings and related similar base pricing structure.

The operating revenues increase was the net result of an increase in loaded miles as a result of more drivers following our 2022 acquisitions offset with a decrease in the average rate per loaded mile.

Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles.

Fuel surcharge revenues increased $4.6 million primarily as a result of an increase of miles driven following our 2022 acquisitions, offset by a decrease in average DOE diesel fuel prices of 15.5% during 2023 compared to 2022, as reported by the DOE .

Rent and purchased transportation increased $58.4 million, to $112.7 million for the year ended December 31, 2023 from $54.3 million for the same period of 2022.

The significant increase resulted from the acquisition of CFI which included more purchased transportation utilized throughout their operations, including independent contractors and other third party brokerage relationships.

Further contributing to the rent and purchased transportation increase is the lease expense from the equipment leases that came with the acquisition of Smith Transport along with terminal leases entered into after selling certain properties.

Salaries, wages, and benefits increased $128.5 million (37.1%), to $474.8 million for the year ended December 31, 2023 from $346.3 million in the 2022 period.

Salaries, wages, and benefits increased primarily due to the increase in the number of drivers and support staff following our 2022 acquisitions.

In response to hiring and retention challenges in our industry we continue to get more creative in providing better pay, driving opportunities, benefits, equipment, and facilities for our drivers.

Our pay protection programs 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.

These programs have helped with driver retention and we believe the increased driver pay is an investment in the future.

Fuel increased $17.6 million (9.1%), to $212.2 million for the year ended December 31, 2023 from $194.6 million for the same period of 2022.

The increase in fuel was primarily due to more miles driven following our 2022 acquisitions, partially offset by lower average diesel price per gallon (15.5%) as reported by the DOE.

The freight rates, earned on miles driven, were generally soft due to weak market conditions and demand for freight services during 2023, particularly during the second half of 2023 and throughout 2024.

Our operating revenues are reviewed regularly by our CODM on a combined basis across our operations, due to the similar nature of our services offerings and related similar base pricing structure.

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 an additional resource of performance review.

Rent and purchased transportation decreased $32.6 million, to $80.1 million for the year ended December 31, 2024 from $112.7 million for the same period of 2023.

The significant decrease resulted from reduced purchased transportation and lower contractor miles associated with the CFI business integration, along with a reduction of leased equipment.

This decrease was partially offset by an increase in property leases due to terminals sold in late 2023 that are now under short term leases.

Salaries, wages, and benefits decreased $47.1 million (9.9%), to $427.7 million for the year ended December 31, 2024 from $474.8 million in the 2023 period.

Salaries, wages, and benefits decreased primarily due to the reduction of driver payroll as a result of lower company miles, along with a reduction of office and shop employees.

Offsetting this decrease was an increase in driver pay for non-productive time associated with weather shut downs, layovers, and other factors associated with a slower freight environment.

As a result, salaries, wages, and benefits as a percentage of operating revenues was higher in 2024

compared to 2023.

We have continued to get more creative in providing better pay, driving opportunities, benefits, equipment, and facilities for our drivers.

We expect the qualified driver shortage within the trucking industry to continue to be a challenge in the foreseeable future.

However, driver availability improved in 2023 and 2024, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers.

Fuel decreased $35.0 million (16.5%), to $177.2 million for the year ended December 31, 2024 from $212.2 million for the same period of 2023.

The decrease in fuel was primarily due lower average diesel price per gallon (10.8%) as reported by the DOE along with less miles driven.

The average DOE diesel fuel prices per gallon for 2024 and 2023 were $3.76 and $4.21, respectively.

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

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

The trend of fuel prices below the $5.00 per gallon threshold has continued through December 31, 2023.

The average DOE diesel fuel price into February 2024 is down 7.5% compared to the 2023 DOE average price.

We cannot currently predict whether the trend of declining fuel prices from the historic highs experienced during 2022 will continue.

Depreciation and amortization increased $66.0 million (49.6%), to $199.0 million during the year ended December 31, 2023 from $133.0 million in the same period of 2022.

The increase in depreciation and amortization is primarily due to an increase in quantity of depreciated equipment from the Smith Transport and CFI acquisitions.

Through February 10, 2025, the last time the weekly DOE average was above the $4.00 threshold was the data published April 15, 2024.

We cannot currently predict whether the trend of reduced fuel prices will continue.

Depreciation and amortization decreased $17.5 million (8.8%), to $181.5 million during the year ended December 31, 2024 from $199.0 million in the same period of 2023.

The decrease in depreciation and amortization is primarily due to ongoing fleet replacement strategies.

We expect depreciation expense in 2025 to be approximately $160 million to $165 million.

Operating and maintenance expense increased $7.4 million (11.7%), to $70.8 million during the year ended December 31, 2024, from $63.4 million in the same period of 2023.

Operating and maintenance costs increase is mainly attributable to an increase in miles driven and increased costs of our expanded fleet of revenue equipment following our 2022 acquisitions, including the operation of slightly older equipment.

Equipment selling activity further contributed to the increase as maintenance items are regularly identified during associated inspections.

There was an 122.2% increase in volume of trailers sold during 2023 as compared to 2022, and a 73.9% increase in the quantity of tractors sold.

The increase in sold equipment was primarily due to the increased fleet size as a result of our 2022 acquisitions.

At December 31, 2023, the Company’s tractor fleet had an average age of 2.2 years and the Company's trailer fleet had an average age of 6.4 years.

The average age of our

tractor and trailer fleets was increased by the inclusion of the Smith Transport and CFI equipment obtained through our 2022 acquisitions.

Operating taxes and licenses expense increased $5.4 million (33.1%), to $21.8 million during the year ended December 31, 2023 from $16.4 million in 2022, due to an increase in number of revenue equipment units (tractors and trailers) licensed in 2023 as compared to 2022.

The increase in number of revenue units licensed is the result of our 2022 acquisitions.

Operating and maintenance costs increase is mainly attributable to higher tractor maintenance costs due to the average age of our tractor fleet, which was up to 2.7 years at September 30, 2024.

At December 31, 2024, the Company’s tractor fleet had an average age of 2.5 years compared to 2.2 years at December 31, 2023.

The average age of our trailer fleet was 7.4 years at December 31, 2024 compared to 6.4 years at December 31, 2023, however the trailer fleet average age is less impactful to maintenance costs than the tractor fleet average age.

The operating and maintenance expense during 2025 will be impacted by the volume of fleet modernization as newer equipment operating under warranty results in less realized maintenance costs.

Operating taxes and licenses expense decreased $1.4 million (6.4%), to $20.4 million during the year ended December 31, 2024 from $21.8 million in 2023, due to a decrease in number of revenue equipment units (tractors and trailers) licensed in 2024 as compared to 2023.

We decreased the number of revenue equipment units due to the soft freight environment.

Insurance and claims expense increased $5.6 million (12.3%), to $50.9 million during the year ended December 31, 2024 from $45.3 million in 2023.

There was an increase in volume of claims associated with the increase in risk exposure resulting from more miles driven, along with an increase in insurance premiums in 2023 compared to 2022 as a result of the 2022 acquisitions.

The overall cost to insure revenue equipment, on a per unit basis, has increased in recent years due to a lack of insurance capacity across the transportation industry, mainly as a result of the current legal environment.

The increase is due to unfavorable claim severity and frequency along with insurance cost.

The overall cost to insure our operations has increased in recent years due to a lack of insurance capacity across the transportation industry, mainly as a result of the current legal environment.

Certain insurance carriers that provide excess insurance coverage currently and for past claim years have encountered financial issues.

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In our April 2023 renewal we increased retained claim exposure in response to the premium increase trend, but also were able to increase our aggregate excess coverage.

Our premiums are subject to upward or downward adjustments based on claims experience with the opportunity for net savings if we have positive claims experience.

As a result, our insurance and claims expense could likely increase with unfavorable claims experience.

Other operating expenses increased $15.0 million (29.1%), to $66.4 million, during the year ended December 31, 2023 from $51.4 million in 2022, due mainly to increased variable costs associated with the increase of revenue equipment units in our fleet and miles driven as a result of our 2022 acquisitions.

In our 2024 renewal we added an additional corridor feature which has the effect of increasing retained exposure.

Our premiums are subject to upward or downward adjustments based on claims experience with the opportunity for net savings if we have positive claims experience in one of our excess layers.

As a result, our insurance and claims expense could likely increase with unfavorable claims experience and will be volatile in future periods.

Other operating expenses decreased $9.2 million (13.9%), to $57.2 million, during the year ended December 31, 2024 from $66.4 million in 2023, due mainly to a reduction of costs stemming from a reduction in freight volume as a result of weak freight demand in combination with expense reduction initiatives.

Gains on the disposal of property and equipment decreased $33.6 million (81.7%), to $7.5 million during the year ended December 31, 2024, from $41.1 million in the same period of 2023.

The decrease was primarily due to a $47.5 million decrease from the sale of a terminal facilities, $6.6 million decrease in gains on sales of trailer equipment and a $1.6 million decrease in gains on sales of tractor equipment.

The decrease was primarily due to a $23.9 million decrease from the sale of terminal facilities, $4.2 million decrease in gains on sales of trailer equipment and a $5.5 million decrease in gains on sales of tractor equipment.

The decrease in gains on trailer sales was primarily due to a 18.9% decrease in the gains per unit sold in 2024 as compared to 2023.

Gains on tractor equipment sales decreased as a result of a 53.9% decrease in gains per tractor sold.

We currently expect lower capital investment and sale transactions for equipment in 2024 as a result of the current depressed used equipment market as compared to the cost of new tractors and trailers.

Based on currently agreed upon equipment deals we expect equipment transaction gains to be insignificant during 2024.

Interest expense increased $15.6 million (182.7%), to $24.2 million during the year December 31, 2023 from $8.6 million in 2022.

Based on currently agreed upon equipment deals we expect equipment transaction gains to be between $5.0 million to $10.0 million during 2025.

Interest expense decreased $6.6 million (27.3%), to $17.6 million during the year December 31, 2024 from $24.2 million in 2023.

The interest expense is made up of $16.5 million from the Credit Facilities coinciding with the acquisition of CFI while the remaining $1.1 million is the result of debt and financing leases assumed through the Smith Transport acquisition.

Based on debt repayments made during 2024, along with projected debt paydowns in 2025, we expect interest expense to decrease in 2025.

Our effective tax rate was 25.6% and 26.2% for the twelve months ended December 31, 2023 and 2022, respectively.

The decrease in the effective tax rate is primarily the result of favorable return to provision adjustments more than offsetting the unfavorable increase in permanent differences applicable in 2023 that were not in 2022.

Our effective tax rate was 19.0% and 25.6% for the years ended December 31, 2024 and 2023, respectively.

The decrease in the effective tax rate is primarily the result of permanent differences and items not correlated to income reducing the rate for 2024 calculated on a loss before tax.

Inflation and Fuel Cost

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Significant price increases in original equipment manufacturer revenue equipment has impacted the cost for us to acquire new equipment.

While there was a corresponding inflationary impact to prices offered on the sale of our used equipment during prior years, the market for used equipment softened significantly during 2023.

While there was a corresponding inflationary impact to prices offered on the sale of our used equipment during prior years, the market for used equipment softened significantly during 2023 and was weak throughout 2024.

Inflation has also impacted the cost of parts for equipment repairs and maintenance, inclusive of tires.

The cost of parts and equipment have the potential for further increases due to proposed tariffs.

The continued qualified driver shortage experienced by the trucking industry has had the effect of increasing compensation paid to drivers.

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We have the ability to limit new equipment purchases given our average age of revenue equipment, particularly our tractor fleet, is in the top tier of our industry.

We do not believe that extending our trade cycle in 2024 will significantly increase operations and maintenance expense compared to the rest of the industry.

We historically have limited the

effects of inflation through increases in freight rates and certain cost control efforts.

We historically have limited the effects of inflation through increases in freight rates and certain cost control efforts.

Over the long term, general economic growth and industry supply and demand conditions have allowed rate increases, although the rate increases received have significantly lagged the increases in tractor prices and related depreciation expense.

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We impose fuel surcharges on substantially all accounts.

Although we historically have been able to pass through most long-term increases in fuel prices and operating taxes to customers in the form of surcharges and higher rates, these arrangements generally do not fully protect us from short-term fuel price increases or continued rising price environments like we experienced throughout 2021 and 2022.

Although we historically have been able to pass through most long-term increases in fuel prices and operating taxes to customers in the form of surcharges for fuel and higher rates for operating taxes, these arrangements generally do not fully protect us from short-term fuel price increases or continued rising price environments.

These arrangements also may prevent us from receiving the full benefit of any fuel price decreases.

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The Credit Facilities replaced the previous credit arrangements in place for the Company which consisted of a November 2013 Credit Agreement with Wells Fargo, along with an asset-based credit facility with Citizens Bank of Pennsylvania that was assumed as part of the acquisition of Smith Transport on May 31, 2022.

The full amount of the Term Facility was made in a single draw on August 31, 2022 and amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed.

The full amount of the Term Facility was made in a single draw on the CFI Closing Date and amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed.

The Term Facility amortizes in quarterly installments which began in September 2023, at 5% per annum through June 2025 and 10% per annum from September 2025 through June 2027, with the balance due on the date that is five years from the CFI Closing Date.

Based on debt repayments made through December 31, 2023, required minimum payments have been covered through March 31, 2027.

Based on debt repayments made through December 31, 2024, required minimum payments have been covered until the term loan maturity on August 31, 2027.

The Revolving Facility consists of a five-year revolving credit facility with aggregate commitments in an amount equal to $100.0 million, of which up to $50.0 million is available for the issuance of letters of credit, and including a swingline facility in an amount equal to $20.0 million.

The Revolver will mature and the commitments thereunder will terminate on the date that is five years after the CFI Closing Date.

The Revolving Facility will mature and the commitments thereunder will terminate on the date that is five years after the CFI Closing Date.

Amounts repaid under the Revolving Facility may be reborrowed.

The Credit Facilities include an uncommitted accordion feature pursuant to which the Company may request up to $275.0 million in incremental revolving or term loans, subject to lender approvals.

The indebtedness, obligations, and liabilities under the Credit Facilities are unconditionally guaranteed, jointly and severally, on an unsecured basis by the Company, Borrower, and certain other subsidiaries of the Company.

The Borrower may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case Secured Overnight Financing Rate (“SOFR”) rate loans.

Facilities include an uncommitted accordion feature pursuant to which the Company may request up to $275.0 million in incremental revolving or term loans, subject to lender approvals.

The indebtedness, obligations, and liabilities under the Credit Facilities are unconditionally guaranteed, jointly and severally, on an unsecured basis by the Company and certain other subsidiaries of the Company.

We may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case Secured Overnight Financing Rate (“SOFR”) rate loans.

The Credit Facilities contain usual and customary events of default and negative covenants for a facility of this nature including, among other things, restrictions on the Company’s ability to incur certain additional indebtedness or issue guarantees, to create liens on the Company’s assets, to make distributions on or redeem equity interests (subject to certain exceptions, including that (a) the Company may pay regularly scheduled dividends on the Company’s common stock not to exceed $10.0 million during any fiscal year and (b) the Company may make any other distributions so long as it maintains a net leverage ratio not greater than 2.50 to 1.00), to make investments and to engage in mergers, consolidations, or acquisitions.

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We were in compliance with the respective financial covenants at December 31, 2024 and have been in compliance since the inception of the Credit Facilities.

Outstanding borrowings under the Credit Facilities will accrue interest, at the option of the Borrower, at a per annum rate of (i) for an “ABR Loan”, the alternate base rate (defined as the interest rate per annum equal to the highest of (a) the variable rate of

interest announced by the administrative agent as its “prime rate”, (b) 0.50% above the Federal Funds Rate, (c) the Term SOFR for an interest period of one-month plus 1.1%, or (d) 1.00%) plus the applicable margin or (ii) for a “SOFR Loan”, the Term SOFR Rate for an interest period of one, three or six-months as selected by Company plus the applicable margin.

Outstanding borrowings under the Credit Facilities will accrue interest, at our option, at a per annum rate of (i) for an “ABR Loan”, the alternate base rate (defined as the interest rate per annum equal to the highest of (a) the variable rate of interest announced by the administrative agent as its “prime rate”, (b) 0.50% above the Federal Funds Rate, (c) the Term SOFR for an interest period of one-month plus 1.1%, or (d) 1.00%) plus the applicable margin or (ii) for a “SOFR Loan”, the Term SOFR Rate for an interest period of one, three or six-months as selected by Company plus the applicable margin.

The applicable margin for ABR Loans ranges from 0.250% to 0.875% and the applicable margin for SOFR Loans ranges from 1.250% to 1.875%, depending on the Company’s net leverage ratio.

We had $275.0 million outstanding on the Term Facility and no outstanding under the Revolving Facility at December 31, 2023.

As of February 26, 2024 the outstanding balance on the Term Facility was $265.0 million.

We had $184.0 million outstanding on the Term Facility and no outstanding borrowings under the Revolving Facility at December 31, 2024.

Outstanding letters of credit associated with the Revolving Facility at December 31, 2024 were $11.7 million.

As of December 31, 2023, the Revolving Facility available for future borrowing was $88.0 million.

As of December 31, 2024 the weighted average interest rate on outstanding borrowings under the Credit Facilities was 6.0%.

The May 31, 2022 acquisition of Smith Transport included the assumption of $46.8 million of debt and financing lease obligations associated with the fleet of revenue equipment of which $16.9 million was outstanding at December 31, 2024, (the "Smith Debt").

The Smith Debt has $7.7 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from March 2024 to January 2029, secured by related revenue equipment.

The remaining Smith Debt of $18.5 million are finance lease obligations with a weighted average interest rate of 3.9% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from October 2024 to April 2026 with the weighted average remaining lease term of 1.7 years.

The Smith Debt has $5.9 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at December 31, 2024, due in monthly installments with final maturities at various dates ranging from February 2027 to January 2029, secured by related revenue equipment.

The remaining Smith Debt of $11.0 million are finance lease obligations with a weighted average interest rate of 4.0% at December 31, 2024, due in monthly installments with final maturities at various dates ranging from August 2025 to April 2026 with the weighted average remaining lease term of 1.0 year.

At December 31, 2024, we had $12.8 million in cash and cash equivalents, $189.7 million in outstanding debt, $11.0 million in finance lease liabilities, $7.9 million in operating lease obligations, and $88.3 million available borrowing capacity on the Revolving Facility.

We intend to diligently pay down the debt we incurred and assumed to complete our most recent acquisitions, while maintaining our regular quarterly dividends and funding our ongoing capital expenditure needs.

While we are paying down the debt, we do not currently expect to declare special dividends, repurchase shares of our common stock, or make significant acquisitions, however we will remain flexible to ensure the best deployment of our capital.

While we are paying down the debt, we do not currently expect to declare special dividends, repurchase a significant volume of shares of our common stock, or make significant acquisitions, however we will remain flexible to ensure the best deployment of our capital.

Operating cash flow for 2024 was $144.3 million compared to $165.3 million for 2023.

This $29.4 million decrease was primarily due to a $16.5 million decrease in net income net of non-working capital adjustment items, along with $12.9 million less cash used in working capital items.

This $21.0 million decrease was primarily due to a $41.2 million decrease in net income net of non-working capital adjustment items, offset by $20.2 million more cash provided by working capital items.

Cash flow from operating activities was 13.8% of operating revenues for the year ended December 31, 2024, compared to 13.7% for the same period of 2023.

Cash flows used in investing activities were $46.5 million during 2024, representing a decrease in cash used of $21.4 million compared to cash flows used in investing activities of $67.9 million during 2023.

The decrease in cash used in investing activities was mainly the result of net cash of $675.9 million used in 2022 for the acquisitions of Smith Transport and CFI, partially offset by $83.5 million more net cash used by property and equipment in 2023, compared to net proceeds for property and equipment in 2022.

The net cash provided by property and equipment in 2022 was the result of the significant proceeds received from the sale of a terminal property.

We currently anticipate less net capital expenditures for revenue equipment in 2024 compared to 2023.

Cash flows used in financing activities increased $479.9 million in 2023 compared to 2022.

The $120.7 million used in financing activities during 2023 included $114.1 million of repayments of finance leases and debt and $6.3 million used to pay dividends to our shareholders.

In 2022, $359.3 million was provided by financing activities including $447.3 million proceeds from issuance of long-term debt for the purchase of CFI, offset by $81.5 million used for repayments of finance leases and debt along with $6.3 million to pay dividends.

The decrease in cash used in investing activities was mainly the result of $24.7 million less net cash used for property and equipment in 2024.

We currently anticipate net capital expenditures for revenue equipment and terminal properties in 2025 to be between $55.0 million to $65.0 million.

Cash flows used in financing activities decreased $8.0 million in 2024 compared to 2023.

The $112.7 million used in financing activities during 2024 included $100.3 million of repayments of finance leases and debt, $7.3 million repurchases of common stock, and $4.7 million used to pay dividends to our shareholders.

In 2023, $120.7 million was used in financing activities included $114.1 million used for repayments of finance leases and debt along with $6.3 million to pay dividends.

We have a stock repurchase program with 6.0 million shares remaining authorized for repurchase as of December 31, 2024 and the program has no expiration date.

There were no shares repurchased in the open market during the years ended December 31, 2023 and 2022.

While we are paying down the debt, we do not currently expect to repurchase shares of our common stock, however we will remain flexible to ensure the best deployment of our capital.

There were 0.6 million shares repurchased in the open market during the year ended December 31, 2024 while there were no shares repurchased during 2023.

While we are paying down the debt, we do not currently expect to repurchase a significant volume of shares of our common stock, however we will remain flexible to ensure the best deployment of our capital.

Any future repurchases will depend on market conditions, cash flow requirements, securities law limitations, and other factors.

The share repurchase authorization is discretionary and has no expiration date.

We had net payments of $30.1 million and $44.0 million for income taxes, net of refunds, in the twelve months ended December 31, 2023 and 2022, respectively.

Tax payments year over year decreased for the twelve months ended December 31,

2023 due to a decrease in estimated tax liability primarily due to irregular tax gains realized in 2022 and the reduction in book taxable income in 2023.

We had net payments of $15.6 million and $30.1 million for income taxes, net of refunds, for the years ended December 31, 2024 and 2023.

The reduction in taxes paid during the year ended December 31, 2024 is due to prior year overpayment credit forwards and reduced current year taxable income.

Management believes we have adequate liquidity to meet our current and projected needs in the foreseeable future.

Management believes we will continue to have significant capital requirements over the long-term, which we expect to fund with current available cash, cash flows provided by operating activities, proceeds from the sale of used equipment and to a lesser extent, available capacity on the Credit Facilities.

Management believes we will continue to have significant capital requirements over the long-term, which we may fund with current available cash, cash flows provided by operating activities, proceeds from the sale of used equipment or stock offerings, and to a lesser extent, available capacity on the Credit Facilities.

Contractual Obligations and Commercial Commitments

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Contractual Obligations Total Less than 1 year 1–3 years 3–5 years More than 5 years

Purchase obligation (1) $ 6.9 $ 6.9 $ — $ — $ —

Purchase obligations (1) $ 60.3 $ 60.3 $ — $ — $ —

Obligations for unrecognized tax benefits (2) 6.2 — — — 6.2

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We do not have any outstanding litigation related to income tax matters.

At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits is approximately no change to an increase of $1.0 million during the next twelve months, due to the net combination of estimated additions and expiration of certain statute of limitations.

At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits is approximately no change to an increase of $1.0 million during the next twelve months, due to the net combination of expiration of certain statute of limitations and estimated additions.

The federal statute of limitations remains open for the years 2021 and forward.

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Management believes that the ultimate resolution of these claims will not significantly affect the long-term financial condition of the Company or its ability to fund its continuing operations.

A change in estimate could impact salaries, wages and benefits (workers compensation) or insurance and claims (auto liability) in the consolidated statements of

comprehensive income and insurance accruals in the consolidated balance sheets.

A change in estimate could impact salaries, wages and benefits (workers compensation) or insurance and claims (auto liability) in the consolidated statements of comprehensive income and insurance accruals in the consolidated balance sheets.

We have not had any material changes to our estimate methodology in the past three years.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis