What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-10-28 · 155 added, 355 removed, 462 unchanged (52% of the section changed)

4 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

46 unchanged sentences

34,233  

Income taxes payable

Current maturities of long-term debt

19 unchanged sentences

22,300,971 and 22,293,687 shares issued;

22,187,063 and 22,348,022 shares outstanding at September 30, 2022 and December 31, 2021, respectively

22,050,556 and 22,166,450 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

2 unchanged sentences

Treasury stock, at cost;

93,124 and 12,226,785 shares at September 30, 2022 and December 31, 2021, respectively

250,415 and 127,237 shares at March 31, 2023 and December 31, 2022, respectively

( 7,516 )  

9 unchanged sentences

See notes to condensed consolidated financial statements.

All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.

TRANSPORTATION SERVICES, INC.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

OPERATING REVENUES:

7 unchanged sentences

Insurance and claims

Gain on disposition of equipment

Gain on sale or disposition of equipment

Total operating expenses and costs

OPERATING INCOME

NON-OPERATING (EXPENSE) INCOME

NON-OPERATING INCOME

INTEREST EXPENSE

INCOME BEFORE INCOME TAXES

FEDERAL AND STATE INCOME TAX EXPENSE:

FEDERAL AND STATE INCOME TAX EXPENSE (BENEFIT):

Total federal and state income tax expense

2 unchanged sentences

See notes to condensed consolidated financial statements.

All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.

TRANSPORTATION SERVICES, INC.

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

OPERATING ACTIVITIES:

3 unchanged sentences

Provision for deferred income taxes

Recognized loss / (gain) on marketable equity securities

Loss/(Gain) on marketable equity securities

Gain on sale or disposition of equipment

8 unchanged sentences

Purchases of property and equipment

Acquisition of business, net of cash acquired

Proceeds from disposition of equipment

Sales of marketable equity securities

Purchases of marketable equity securities, net of return of capital

Net cash (used in) provided by investing activities

Net cash provided by / (used in) investing activities

FINANCING ACTIVITIES:

6 unchanged sentences

Repurchases of common stock

Net cash used in financing activities

Net cash (used in) / provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

14 unchanged sentences

Treasury stock repurchases

Retirement of Treasury Shares

Stock based compensation

Balance at March 31, 2022

Exercise of stock awards-shares issued including tax benefits

Stock based compensation

Balance at June 30, 2022

Restricted stock issued

Restricted stock net settlement

Stock based compensation

Treasury stock repurchases

Balance at September 30, 2022

Balance at March 31, 2023

Shares / Amount

2 unchanged sentences

Treasury stock repurchases

Retirement of Treasury Shares

Stock based compensation

Balance at March 31, 2022

Exercise of stock awards-shares issued including tax benefits

Stock based compensation

Balance at June 30, 2021

Treasury stock repurchases

Stock based compensation

Balance at September 30, 2021

See notes to condensed consolidated financial statements.

All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.

Common stock par value and additional paid-in capital dollar values are not retroactively adjusted for the stock split effective March 29, 2022.

All prior period share and per share data has been retroactively adjusted to reflect the stock split that occurred on March 29, 2022.

TRANSPORTATION SERVICES, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (unaudited)

September 30, 2022

March 31, 2023

BASIS OF PRESENTATION

9 unchanged sentences

and its consolidated subsidiaries.

The consolidated financial results for the three and nine months ended 

September 30, 2022, include the results of our newly formed subsidiaries, Met Express, Inc.

The consolidated financial results for the three months ended 

March 31, 2023, include the results of our recently formed subsidiaries, Met Express, Inc.

and Costar Equipment, Inc., from June 14, 2022, the date of the acquisition of substantially all of the assets and certain liabilities of Metropolitan Trucking, Inc.

and its related entities, through 

September 30, 2022.

March 31, 2023.

All material intercompany items and transactions have been eliminated in consolidation.

3 unchanged sentences

The consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Operating results for the three and nine -month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three -month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10 -K for the year ended December 31, 2022.

On July 13, 2021 and March 8, 2022, our Board of Directors declared 2 -for- 1 forward stock splits of the shares of our common stock, each of which was effected in the form of a 100% stock dividend.

The stock splits entitled each shareholder of record at the close of business on July 30, 2021 and March 18, 2022, respectively, to receive one additional share of common stock for each share of common stock owned as of that date.

The stock splits were paid on August 16, 2021 and March 29, 2022, respectively.

Upon the completion of the August 2021 stock split, our outstanding shares increased from approximately 5.7 million shares to approximately 11.4 million shares.

On March 8, 2022, our Board of Directors declared a 2 -for- 1 forward stock split of the shares of our common stock, which was effected in the form of a 100% stock dividend.

The stock split entitled each shareholder of record at the close of business on March 18, 2022, to receive one additional share of common stock for each share of common stock owned as of that date.

The stock split was paid on March 29, 2022.

Upon the completion of the March 2022 stock split, our outstanding shares increased from approximately 11.1 million shares to approximately 22.2 million shares.

All share and per share amounts in this quarterly report on Form 10 -Q give effect to these stock splits and have been adjusted retrospectively, where applicable, for all periods presented.

NOTE B:  

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2020 ,  the FASB issued Accounting Standards Update 

2020 - 04 ,  (“ASU 

2020 - 04”

), Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

2020 - 04  was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting.

2020 - 04  is effective as of 

March 12, 2020, 

through 

December 31, 2022 .

 The Company has evaluated the provisions of this standard and determined that it is applicable to our line of credit and investment margin account.

The London Interbank Offered Rate (“LIBOR”) was the basis for interest charges on outstanding borrowings for our line of credit.

During the year 2021, the index for interest charges on the Company’s investment margin accounts was transitioned to the Secured Overnight Financing Rate (“SOFR”).

The new index rate did not vary materially from LIBOR at the time of transition.

During the third quarter of 2022, the index for interest charges on the Company’s line of credit was transitioned to the Secured Overnight Financing Rate (“SOFR”).

The discontinuation of LIBOR did not materially alter any provisions of either of these debt instruments.

The adoption of the new guidance did not have a material impact on the Company’s financial condition, results of operations, or cash flows.

The Company considered the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that have not already been adopted which require significant consideration for disclosure as of March 31, 2023.

Additionally, the Company did not adopt any new ASUs during the quarter ended March 31, 2023.

NOTE C:  

REVENUE RECOGNITION

The Company has a single performance obligation, to transport our customer’s freight from a specified origin to a specified destination.

The Company has a single performance obligation, which is to transport our customer’s freight from a specified origin to a specified destination.

The Company has the discretion to choose to self-transport or to arrange for alternate transportation to fulfill the performance obligation.

28 unchanged sentences

The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note J.

The following table sets forth market value, cost, and unrealized gains on equity securities as of September 30, 2022 and December 31, 2021.

September 30, 2022

The following table sets forth market value, cost, and unrealized gains on equity securities as of March 31, 2023 and December 31, 2022.

March 31, 2023

December 31, 2022

1 unchanged sentence

Fair market value

$ 36,002  

$ 39,424  

30,092  

29,385  

Unrealized gain

$ 5,910  

$ 10,039  

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of September 30, 2022 and December 31, 2021.

September 30, 2022

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of March 31, 2023 and December 31, 2022.

March 31, 2023

December 31, 2022

1 unchanged sentence

Gross unrealized gains

$ 9,278  

$ 12,458  

Gross unrealized losses

Net unrealized gain

$ 5,910  

$ 10,039  

The following table shows the Company’s net realized gains during the three and nine months ending on September 30, 2022 and 2021, respectively, on certain marketable equity securities.

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Sales proceeds

$ 1,496  

Cost of securities sold

Realized gain

For the quarter ended September 30, 2022, the Company recognized dividends received of approximately $ 428,000 in non-operating income in its condensed consolidated statements of operations.

For the quarter ended September 30, 2021, the Company recognized dividends received of approximately $ 335,000 in non-operating income in its condensed consolidated statements of operations.

For the nine months ended September 30, 2022, the Company recognized dividends received of approximately $ 1,095,000 in non-operating income in its condensed consolidated statements of operations.

For the nine months ended September 30, 2021, the Company recognized dividends received of approximately $ 995,000 in non-operating income in its condensed consolidated statements of operations.

The Company did not sell any marketable equity securities and had no realized gains or losses during the quarter ending on March 31, 2023 or 2022, respectively.

For the quarter ended March 31, 2023, the Company recognized dividends received of approximately $ 377,000 in non-operating income in its condensed consolidated statements of operations.

For the quarter ended March 31, 2022, the Company recognized dividends received of approximately $ 309,000 in non-operating income in its condensed consolidated statements of operations.

The Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings.

As of September 30, 2022, and December 31, 2021, the Company had outstanding borrowings of approximately $ 1,035,000 and $ 1,214,000 , respectively, under its margin account.

As of March 31, 2023, and December 31, 2022, the Company had outstanding borrowings of approximately $ 549,000 and $ 914,000 , respectively, under its margin account.

Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in accrued expenses and other liabilities on our condensed consolidated balance sheets.

Our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $ 2,387,000 during the third quarter of 2022, and a net unrealized pre-tax loss in market value of approximately $ 456,000 during the third quarter of 2021, which were reported as non-operating income in its condensed consolidated statements of operations for the respective periods.

Our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $ 288,000 during the first quarter of 2023, and a net unrealized pre-tax gain in market value of approximately $ 1,397,000 during the first quarter of 2022, which were reported as non-operating income in its condensed consolidated statements of operations for the respective periods.

NOTE E:  

STOCK-BASED COMPENSATION

3 unchanged sentences

The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.

During February 2022, the Company granted 29,120 shares of common stock to certain key employees.

These stock awards had grant date fair values of $ 38.80 per share, based on the closing price of the Company’s stock on the date of grant, and vest in 25 % increments over four years, beginning one year from the anniversary date of the grant.

During May 2022, the Company granted 1,855 shares of common stock to non-employee directors.

These stock awards had a grant date fair value of $ 29.60 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

During June 2022, the Company granted 3,500 shares of common stock to a key employee.

During February 2023, the Company granted 28,313 shares of common stock to key employees.

This stock award had a grant date fair value of $ 28.30 per share, based on the closing price of the Company’s stock on the date of grant, and vests in 25 % increments over four years, beginning one year from the anniversary date of the grant.

The total grant date fair value of stock vested during the first nine months of 2022 was approximately $ 269,000 .

The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2022, was approximately $ 528,000 and includes approximately $ 55,000 recognized as a result of the grant of shares to certain non-employee directors.

The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.01 during the first nine months of 2022.

As of September 30, 2022, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 2,601,000 , which is being amortized on a straight-line basis over the remaining vesting period.

The total grant date fair value of stock vested during the first three months of 2023 was approximately $ 206,000 .

The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first three months of 2023, was approximately $ 208,000 and includes approximately $ 0 recognized as a result of the grant of shares to certain non-employee directors.

The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.01 during the first three months of 2023.

As of March 31, 2023, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 2,999,000 , which is being amortized on a straight-line basis over the remaining vesting period.

As a result, the Company expects to recognize approximately $ 603,000 in additional compensation expense related to unvested stock awards during the remainder of 2023 and to recognize approximately $ 841,000 , $ 870,000 , $ 543,000 , and $ 142,000 in additional compensation expense related to unvested stock awards during the years 2024, 2025, 2026, and 2027, respectively.

The total grant date fair value of stock vested during the first nine months of 2021 was approximately $ 80,000 .

The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2021, was approximately $ 347,000 and includes approximately $ 80,000 recognized as a result of the grant of 326 shares to each non-employee director.

The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.02 during the first nine months of 2021.

As of September 30, 2021, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 1,941,000 , which was being amortized on a straight-line basis over the remaining vesting period.

A summary of the status of the Company’s non-vested restricted stock as of September 30, 2022, and changes during the nine months ended September 30, 2022, is as follows:

There were 

no  stock awards that vested during the 

three  months of 

 The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the 

three  months of 

2022,  was approximately $ 137,000 .

The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.01  during the 

three  months of 

 As of 

March 31, 2022, 

the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 2,840,000 , which was being amortized on a straight-line basis over the remaining vesting period.

A summary of the status of the Company’s non-vested restricted stock as of March 31, 2023, and changes during the three months ended March 31, 2023, is as follows:

Restricted Stock

2 unchanged sentences

Non-vested at January 1, 2023

239,212  

$ 9.25  

34,475  

Canceled/forfeited/expired

( 24,355 )  

Non-vested at September 30, 2022

249,332  

$ 12.93  

Non-vested at March 31, 2023

NOTE F:  

SEGMENT INFORMATION

1 unchanged sentence

The Company has determined that it has a total of two operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services;

however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the two operating segments can be aggregated into a single reporting segment, Motor Carrier Operations.

however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the two operating segments have similar economic characteristics and can be aggregated into a single reportable segment, Motor Carrier Operations.

Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Three Months Ended March 31,

(in thousands, except percentage data)

Truckload Services revenue

$ 144,982  

$ 110,436  

$ 404,658  

$ 298,835  

Brokerage and Logistics Services revenue

71,493  

55,895  

210,645  

147,812  

Total revenues

$ 216,475  

$ 166,331  

$ 615,303  

$ 446,647  

These segment results include of the results of the truckload services and brokerage operations acquired from Metropolitan Trucking, Inc., and related subsidiaries in the business combination discussed in Note P to the condensed consolidated financial statements.

NOTE G:  

TREASURY STOCK

The Company’s stock repurchase program has been extended and expanded several times, most recently in November 2021, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization.

As of September 30, 2022, there remain 365,266 shares of common stock authorized for repurchase under this plan.

During the first quarter of 2022, prior to the March 2022 stock split, we retired 12,268,395 shares of our treasury stock.

Upon retirement of the treasury shares, we allocated the excess of the repurchase price over the par value of shares acquired to both retained earnings and paid-in capital.

The portion allocated to paid-in capital was determined by applying the average paid-in capital per share, and the remaining portion was recorded to retained earnings.

There was no effect on the Company’s overall equity position due to the retirement of treasury shares.

As of March 31, 2023, there remain 207,975 shares of common stock authorized for repurchase under this plan.

The Company accounts for treasury stock using the cost method.

As of September 30, 2022, 93,124 shares were held in the treasury at an aggregate cost of approximately $ 2,877,000 .

As of March 31, 2023, 250,415 shares were held in the treasury at an aggregate cost of approximately $ 7,516,000 .

NOTE H:  

EARNINGS PER SHARE

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

$ 24,566  

$ 21,359  

$ 72,690  

$ 48,625  

Basic weighted average common shares outstanding

22,263  

22,724  

22,276  

22,842  

Dilutive effect of common stock equivalents

Diluted weighted average common shares outstanding

22,440  

22,860  

22,468  

22,962  

Basic earnings per share

$ 1.10  

$ 0.94  

$ 3.26  

$ 2.13  

Diluted earnings per share

$ 1.09  

$ 0.93  

$ 3.24  

$ 2.12  

NOTE I:  

The Company and its subsidiaries are subject to U.S.

3 unchanged sentences

If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance.

As of September 30, 2022, management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was not necessary.

As of March 31, 2023, management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was not necessary.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position.

As of September 30, 2022, an adjustment to the Company’s condensed consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.

As of March 31, 2023, an adjustment to the Company’s condensed consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.

The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense.

During the nine months ended September 30, 2022 and 2021, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.

The Company’s effective income tax rates were 23.6 % and 26.3 % for the nine months ended September 30, 2022 and 2021, respectively.

Our effective tax rate for the nine months ended September 30, 2022 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the tax benefits related to stock compensation.

During the three months ended March 31, 2023 and 2022, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.

The Company’s effective income tax rates were 25.7 % and 24.3 % for the three months ended March 31, 2023 and 2022, respectively.

Our effective tax rate for the three months ended March 31, 2023 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the tax benefits related to stock compensation.

NOTE J:  

FAIR VALUE OF FINANCIAL INSTRUMENTS

10 unchanged sentences

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

At September 30, 2022, the following items are measured at fair value on a recurring basis:

At March 31, 2023, the following items are measured at fair value on a recurring basis:

(in thousands)

Marketable equity securities

$ 36,002  

The Company’s investments in marketable securities are recorded at fair value based on quoted market prices.

2 unchanged sentences

For long-term debt other than the lines of credit, the fair values are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

The carrying value and estimated fair value of this other long-term debt at September 30, 2022 was as follows:

The carrying value and estimated fair value of this other long-term debt at March 31, 2023 was as follows:

(in thousands)

Long-term debt

$ 257,343  

$ 246,003  

The Company has not elected the fair value option for any of its financial instruments.

NOTES PAYABLE

During the first nine months of 2022, the Company’s subsidiaries entered into installment obligations totaling approximately $ 76.8 million, including $ 35.5 million for the financing of real estate and $ 41.3 million for the purpose of purchasing revenue equipment and other assets.

These obligations are payable in monthly installments and are recorded in long term debt and current maturities on the condensed consolidated balance sheets.

The terms of these obligations vary from 60 months for trucks to 120 months for real estate.

In addition, during June 2022 the Company’s subsidiaries assumed approximately $ 12.3 million of installment obligations as part of a business acquisition.

The terms of these obligations varied from 1 month to 36 months for trucks acquired and from 24 months to 34 months for trailers acquired.

During the first three months of 2023, the Company’s subsidiaries did not enter into any new installment obligations.

We are involved in certain claims and pending litigation arising from the ordinary conduct of business.

We also provide accruals for claims within our self-insured retention amounts.

On September 1, 2019, we elected to become self-insured for certain layers of auto liability claims in excess of $ 1.0 million for which we previously maintained auto liability insurance coverage.

On September 1, 2020, we elected to become self-insured for certain layers of auto liability claims in excess of $ 2.0 million.

We currently specifically reserve for claims that are expected to exceed $ 2.0 million when fully developed, based on the facts and circumstances of those claims.

However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

We are a defendant in a lawsuit which was filed on August 6, 2021, in the United States District Court for the Western District of Arkansas.

The plaintiff is a former driver and is seeking class certification.

The complaint alleges failure to pay minimum wage under the Fair Labor Standards Act and the Arkansas Minimum Wage Act, violations of the Electronic Funds Transfer Act (EFTA), violations of the Arkansas Wage Payment Law (discharge pay and unlawful, usurious advance fees), violations of the Arkansas Common Law, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). 

Should this lawsuit be certified as a class action, to include similarly situated drivers as the plaintiff, the class will seek actual and liquated damages to include court costs and legal fees associated with the lawsuit.

The class, if certified, will include any company driver employed from January 1, 2020 through the present and ongoing.

A settlement agreement has been reached and is pending court approval.

We are currently self-insured for certain layers of auto liability claims in excess of $ 2.0 million.

Therefore, we specifically reserve for claims that are expected to exceed $ 2.0 million when fully developed, based on the facts and circumstances of those claims.

If we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

We were named a defendant in a putative class action lawsuit filed on August 6, 2021, in the United States District Court for the Western District of Arkansas.

The complaint alleged failure to pay over-the-road drivers minimum wage under the Fair Labor Standards Act and the Arkansas Minimum Wage Act, violations of the Electronic Funds Transfer Act (EFTA), violations of the Arkansas Wage Payment Law (discharge pay and unlawful, usurious advance fees), violations of the Arkansas Common Law, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). 

We denied liability on all claims. 

On August 5, 2022, the parties filed a Joint Motion for Preliminary Approval of a Collective and Class Action Settlement. 

On October 7, 2022, the parties submitted to the court an executed Settlement Agreement and Release, to resolve and release all claims asserted in the litigation from January 1, 2020, through July 31, 2022, for $ 4,750,000 . We did not admit liability for any claim. The District Court granted preliminary approval of the settlement on November 14, 2022. 

Notice of the settlement has been sent to class and collective action members. A final fairness hearing on the settlement is scheduled to be held by the District Court on April 5, 2023.

Management has determined that any losses under this claim will not be covered by existing insurance policies.

This settlement has been fully reserved as of September 30, 2022.

NOTE M:  

The Company currently leases shop, office and parking spaces in various locations in the United States and Mexico.

10 unchanged sentences

The Company is party to operating leases which include initial terms ranging from three to five years and which do not include an option for early cancellation.

In accordance with the provisions of ASC Topic 842, these leases resulted in the recognition of right-of-use assets and corresponding operating lease liabilities, respectively, valued at $ 0.5 million as of September 30, 2022.

These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate as of the respective dates of lease inception, as the rate implicit in each lease is not readily determinable.

The right-of-use assets are recorded in other assets, and the lease liability is recorded in accrued expenses and other liabilities and in other long-term liabilities on our condensed consolidated balance sheet.

Lease expense is recorded on a straight-line basis over the lease term and is recorded in rent and purchased transportation in our condensed consolidated statements of operations.

While these lease agreements may contain provisions to extend after the initial term for an additional five years, the Company is not reasonably certain these extension options will be exercised.

Therefore, potential lease payments that might occur under this extension period are not included in amounts recorded in our condensed consolidated balance sheets as of September 30, 2022.

Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at September 30, 2022, are:

Therefore, potential lease payments that might occur under this extension period are not included in amounts recorded in our condensed consolidated balance sheets as of March 31, 2023.

Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at March 31, 2023, are:

Maturity of Lease Liabilities

11 unchanged sentences

Other Information

Weighted-average remaining lease term for operating leases (years)

Weighted-average remaining lease term for operating leases (in years)

Weighted-average discount rate for operating leases

No new right-of-use assets were recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three and nine months ended September 30, 2022.

Cash paid for amounts included in the present value of operating lease liabilities was $ 0.1 million during the three months ended September 30, 2022 and is included in operating cash flows, within the condensed consolidated statement of cash flows.

Cash paid for amounts included in the present value of operating lease liabilities was $ 0.4 million during the nine months ended September 30, 2022 and is included in operating cash flows, within the condensed consolidated statement of cash flows.

No new right-of-use assets were recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three months ended March 31, 2023.

Cash paid for amounts included in the present value of operating lease liabilities was $ 0.1 million during the three months ended March 31, 2023, and is included in operating cash flows within the condensed consolidated statement of cash flows.

Operating Lease Costs

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

$ 2,167  

$ 2,073  

Lease Revenue

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Leased truck revenue (recorded in revenue, before fuel surcharge)

$ 2,228  

$ 2,039  

$ 6,519  

$ 5,444  

Leased building space revenue (recorded in non-operating income)

Leased facility space revenue (recorded in non-operating income)

Total lease revenue

$ 2,327  

$ 2,208  

$ 6,945  

$ 5,950  

The Company leases trucks to owner-operators under operating leases, which generally have a term of up to five years and include options to purchase the truck at the end of the lease.

In the event that an independent contractor defaults on their lease, the Company generally leases the truck to another independent contractor.

As of September 30, 2022, the gross carrying value of trucks underlying these leases was $ 55.2 million and accumulated depreciation was $ 35.0 million.

As of March 31, 2023, the gross carrying value of trucks underlying these leases was $ 56.7 million and accumulated depreciation was $ 32.2 million.

Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value.

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In other cases, where salvage values are not guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal.

During the quarter ended September 30, 2022, the Company incurred $ 1.6 million of depreciation expense for these assets.

During the quarter ended March 31, 2023, the Company incurred $ 1.6 million of depreciation expense for these assets.

The Company leases dock space to a related party at our Laredo, Texas, terminal.

The dock space is depreciated in conjunction with the structures and improvements for the entire Laredo terminal on a straight-line basis over the estimated useful life of the assets.

The dock space is depreciated in conjunction with the structures and improvements for the entire Laredo terminal on a straight-line basis over the estimated useful life of the assets.

Lease income is recorded as a component of non-operating income in our condensed consolidated statements of operations.

Lease Receivables

Future minimum operating lease payments receivable at September 30, 2022:

Future minimum operating lease payments receivable at March 31, 2023:

(in thousands)

2023 (remaining)

$ 2,085  

2027 and thereafter

Total future minimum lease payments receivable

$ 11,858  

EFFECT OF COVID- 19 PANDEMIC

The rapid spread of COVID- 19 resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns.

These measures and the public health concerns resulting from the outbreak severely disrupted economic and commercial activity.

The resulting impact on domestic and global supply chains caused slowdowns and reduced freight demand for transportation companies such as ours.

Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues were significantly affected by the closure of North American automotive manufacturing facilities beginning in late March of 2020.

Our automotive customers resumed operations during the second quarter of 2020 and have not been materially disrupted during 2021 or the first nine months of 2022.

Any future delays or interruptions of automotive production and other consumer activity affecting our customers that could result from any future wave of the virus or other similar outbreaks could further adversely affect our business.

In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public, or any state of federal vaccination mandates, may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID- 19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.

NOTE N:  

NONCASH INVESTING AND FINANCING ACTIVITIES

The Company financed approximately $ 16.9 million in equipment purchases during the first nine months of 2022 utilizing noncash financing.

The Company did not finance any equipment purchases during the first three months of 2023 utilizing noncash financing.

NOTE O:  

ACQUISITION OF METROPOLITAN TRUCKING

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and Costar Equipment, Inc.

(collectively, the “Buyer”), entered into an Asset Purchase Agreement with Metropolitan Trucking, Inc., and related subsidiaries.

(collectively, the “Buyer”), entered into an Asset Purchase Agreement with Metropolitan Trucking, Inc.

and related subsidiaries.

Metropolitan Trucking, Inc.

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The Asset Purchase Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions.

The results of the acquired business have been included in the consolidated financial statements since the date of acquisition and represented 14.1 % of consolidated total assets as of September 30, 2022 and represented 9.4 % and 4.1 % of operating revenue for the three and nine months ended September 30, 2022, respectively.

Acquisition related expenses of $ 0.4 million are included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.

The results of the acquired business have been included in the condensed consolidated financial statements since the date of acquisition and represented 13.7 % of consolidated total assets as of March 31, 2023, and represented 9.5 % of revenues excluding fuel surcharge for the quarter ended March 31, 2023.

The allocation of the purchase price is detailed in the tables below.

The final purchase price allocation remains subject to other purchase accounting adjustments which may be identified, such as the final valuation of intangible assets and working capital adjustments, and therefore may differ materially from that reflected below.

The assets and liabilities associated with the acquisition were recorded at their fair values as of the acquisition date and the amounts are as follows:

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Trade and other accounts receivable

$ 10,821  

Other current assets

Property and equipment

68,722  

79,859  

Accounts payable

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Total cash paid

$ 64,317  

Management ’

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recessionary economic cycles and downturns in customers' business cycles;

ongoing and potential future economic, business and operational disruptions and uncertainties due to the COVID-19 pandemic, including from any future spikes or outbreaks of the virus, or other public health crises, as well as from the implementation of government actions taken in response to the pandemic;

increases or rapid fluctuations in fuel prices, inflation, interest rates, fuel taxes, tolls, and license and registration fees;

potential economic, business or operational disruptions or uncertainties that may result from any future outbreaks of the COVID-19 pandemic or other public health crises;

the resale value of the Company's used equipment and the price of new equipment;

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increases in insurance premiums and deductible amounts relating to accident, cargo, workers' compensation, health, and other claims;

unanticipated increases in the number or amount of claims for which the Company is self-insured;

increases in the number or amount of claims for which the Company is self-insured;

inability of the Company to continue to secure acceptable financing arrangements;

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In light of these risks and uncertainties, the forward-looking events and circumstances discussed above and in company filings might not transpire.

CRITICAL ACCOUNTING POLICIES

Except as noted below, there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management ’

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management ’

s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2022.

Business Combinations.

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition.

The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.

Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship.

This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

BUSINESS OVERVIEW

The Company is a holding company that owns subsidiaries engaged in providing truckload dry van carrier services transporting general commodities throughout the continental United States, as well as in the Canadian provinces of Ontario and Quebec.

The Company’s consolidated operating subsidiaries also provide transportation services in Mexico through its gateways in Laredo and El Paso, Texas under agreements with Mexican carriers.

Unless the context otherwise requires, this report presents information regarding the Company and its subsidiaries on a consolidated basis.

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These aspects of our business are carefully managed, and efforts are continuously underway to achieve favorable results.

Truckload services revenues, excluding fuel surcharges, represented 67.0% and 66.4% of total revenues, excluding fuel surcharges, for the three months ended September 30, 2022 and 2021, respectively.

Truckload services revenues, excluding fuel surcharges, represented 65.8% and 66.9% of total revenues, excluding fuel surcharges, for the nine months ended September 30, 2022 and 2021, respectively.

Truckload services revenues, excluding fuel surcharges, represented 64.7% and 63.7% of total revenues, excluding fuel surcharges, for the quarters ended March 31, 2023, and 2022, respectively.

The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.

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In discussing our results of operations, we use revenue, before fuel surcharge (and fuel expense, net of fuel surcharge), because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more consistent basis for comparing our results of operations from period to period.

During the three months ended September 30, 2022 and 2021, approximately $36.2 million and $16.8 million, respectively, of the Company’s total revenue was generated from fuel surcharges.

During the nine months ended September 30, 2022 and 2021, approximately $93.9 million and $46.6 million, respectively, of the Company’s total revenue was generated from fuel surcharges.

During the three months ended March 31, 2023 and 2022, approximately $28.3 million and $23.4 million, respectively, of the Company’s total revenue was generated from fuel surcharges.

We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes.

We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.

On July 13, 2021 and March 8, 2022, our Board of Directors declared 2-for-1 forward stock splits of the shares of our common stock, each of which was effected in the form of a 100% stock dividend.

The stock splits were paid on August 16, 2021 and March 29, 2022, respectively.

Upon the completion of the August 2021 stock split, our outstanding shares increased from approximately 5.7 million shares to approximately 11.4 million shares.

Upon the completion of the March 2022 stock split, our outstanding shares increased from approximately 11.1 million shares to approximately 22.2 million shares.

All share and per share amounts in this quarterly report on Form 10-Q give effect to these stock splits and have been adjusted retrospectively, where applicable, for all periods presented.

See Note A to the condensed consolidated financial statements for additional information on the stock split.

On June 14, 2022, newly formed subsidiaries of the Company completed the acquisition of substantially all the assets and certain liabilities of Metropolitan Trucking, Inc.

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The Company is currently operating these assets through its newly formed subsidiary, Met Express, Inc.

See Note P to the condensed consolidated financial statements for more information regarding this acquisition.

IMPACT OF COVID-19

The Company’s primary concern during the COVID-19 pandemic has been to do its part to protect its employees, customers, vendors and the general public from the spread of COVID-19 while continuing to serve the vital role of supplying essential goods to the nation.

For essential functions, including our driving professionals, we have distributed cleaning and protective supplies to various terminals so that they are available to those that need them, increased cleaning frequency and coverage, and provided employees direction on precautionary measures, such as sanitizing truck interiors, personal hygiene, and social distancing.

We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.

While we and most of our customers have returned to normal operations and economic activity continued to increase during the periods presented, we continue to monitor ongoing developments with the COVID-19 pandemic.

Any future waves or outbreaks of alternative strains of the virus could adversely impact our future operations and financial results.

The ultimate extent of the pandemic’s impact on the Company’s financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its continued severity, further government regulations imposed in response to the pandemic and the pandemic’s continued effect on the economy and transportation demand.

The Company believes we will be able to continue to finance our near-term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources.

See Note O to the condensed consolidated financial statements for more information regarding this acquisition.

RESULTS OF OPERATIONS –

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Three Months Ended

Nine Months Ended

September 30,

(percentages)

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Operating income

Non-operating (expense) income

Non-operating income

Interest expense

Income before income taxes

THREE MONTHS ENDED SEPTEMBER 30, 2022 VS.

THREE MONTHS ENDED SEPTEMBER 30, 2021

During the third quarter of 2022, truckload services revenue, before fuel surcharges, increased 31.3% to $145.0 million as compared to $110.4 million during the third quarter of 2021.

The increase in revenue was primarily the result of increases in the total number of miles driven during the third quarter of 2022 compared to the third quarter of 2021.

The average number of trucks in our fleet during the third quarter of 2022 increased compared to the third quarter of 2021 due to the acquisition of the assets of Metropolitan Trucking, Inc.

and to organic fleet growth.

Salaries, wages and benefits increased from 29.2% of revenues, before fuel surcharges, in the third quarter of 2021 to 32.8% of revenues, before fuel surcharges, during the third quarter of 2022.

This percentage-based increase is primarily a result of an increase in average driver pay, an increase in the percentage of total miles driven by company drivers in lieu of owner-operators and the organic growth of our driver fleet during the third quarter of 2022, coupled with the addition of employees due to the acquisition of Metropolitan Trucking, Inc.

during the second quarter of 2022.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 77.9% for the third quarter of 2021 to 82.6% for the third quarter of 2022.

Non-operating income (expense) decreased from income of 0.1% of revenues, before fuel surcharges, during the third quarter of 2021 to expense of 0.9% of revenues, before fuel surcharges, during the third quarter of 2022.

This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities.

The Company recorded a $2.4 million decrease in the market value of our marketable equity securities in non-operating income (expense) during the third quarter of 2022, compared to a $0.5 million decrease in the market value of our marketable equity securities during the third quarter of 2021.

NINE MONTHS ENDED SEPTEMBER 30, 2022 VS.

NINE MONTHS ENDED SEPTEMBER 30, 2021

For the nine months ended September 30, 2022, truckload services revenue, before fuel surcharges, increased 35.4% to $404.7 million as compared to $298.8 million for the nine months ended September 30, 2021.

The increase in revenue was primarily the result of an increase in the average rate per mile charged to our customers during the first nine months of 2022 compared to first nine months of 2021.

Also contributing to the increase was an increase in total miles driven for the first nine months of 2022 compared to the first nine months of 2021.

Salaries, wages and benefits decreased from 31.9% of revenues, before fuel surcharges, in the first nine months of 2021 to 30.5% of revenues, before fuel surcharges, during the first nine months of 2022.

The percentage-based decrease is primarily a result of the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, and operations wages with an increase in revenues for the periods compared.

Operating supplies and expenses decreased from 9.2% of revenues, before fuel surcharges, during the first nine months of 2021 to 7.1% of revenues, before fuel surcharges, during the first nine months of 2022.

The percentage-based decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which decreased as a result of increased fuel surcharge collections from customers.

Fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that, during periods of rising fuel prices, fuel surcharge collections increase, while fuel surcharge collections decrease during periods of falling fuel prices.

Fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category.

These categorizations have the effect of reducing our net operating supplies and expenses while increasing the rent and purchased transportation category, as discussed below.

Rent and purchased transportation increased from 23.4% of revenues, before fuel surcharges, during the first nine months of 2021 to 25.7% of revenues, before fuel surcharges, during the first nine months of 2022.

The increase was primarily due an increase in the rates charged by third-party carriers during the first nine months of 2022 compared to the first nine months of 2021.

Also contributing to the increase were an increase in the average number of owner-operators under contract from 374 during the first nine months of 2021 to 391 during the first nine months of 2022, as well as an increase in the average rate per mile, including fuel surcharges, paid to owner-operators during the respective periods.

Depreciation decreased from 13.7% of revenues, before fuel surcharges, during the first nine months of 2021 to 11.2% of revenues, before fuel surcharges, during the first nine months of 2022.

This decrease is primarily a result of the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense.

Due to the fixed-cost nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation, decreases depreciation expense as a percentage of operating revenues.

Insurance and claims expense increased from 3.3% of revenues, before fuel surcharges, during the first nine months of 2021 to 4.8% of revenues before fuel surcharges, during the first nine months of 2022.

This increase resulted from an increase in litigation reserves due to a preliminary settlement agreement regarding the minimum wage lawsuit discussed in Note L to our condensed consolidated financial statements and to increases in loss reserves.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 83.6% for the first nine months of 2021 to 81.3% for the first nine months of 2022.

(Loss) / Income before income taxes

THREE MONTHS ENDED MARCH 31, 2023 VS.

THREE MONTHS ENDED MARCH 31, 2022

During the first quarter of 2023, truckload services revenue, before fuel surcharges, was relatively flat at $125.2 million as compared to $125.0 million during the first quarter of 2022.

The increase in revenue was primarily the result of an increase in the total number of trucks operated during the first quarter of 2023 compared to the first quarter of 2022.

This increase was largely offset by a decrease in the average rate per mile charged to our customers for the first quarter of 2023 compared to the first quarter of 2022.

Salaries, wages and benefits increased from 28.8% of revenues, before fuel surcharges, in the first quarter of 2022 to 36.2% of revenues, before fuel surcharges, during the first quarter of 2023.

This percentage-based increase is primarily a result of the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, and operations wages with a decrease in revenue per mile for the periods compared, coupled with an increase in the number of employees during the first quarter of 2023 compared to the first quarter of 2022.

Operating supplies and expenses increased from 6.5% of revenues, before fuel surcharges, during the first quarter of 2022 to 10.0% of revenues, before fuel surcharges, during the first quarter of 2023.

The increase relates primarily to a decrease in the average rate per mile charged to customers, coupled with an increase in miles driven.

Insurance and claims increased from 5.5% of revenues, before fuel surcharges, during the first quarter 2022 to 12.3% of revenues, before fuel surcharges, during the first quarter 2023.

This increase relates primarily to an increase in accident reserves recognized in the first quarter of 2023, as compared to the first quarter of 2022.

During the quarter ended March 31, 2023, the Company recorded a $10.0 million liability for claims expected to settle in excess of insurance limits specific to an accident in February 2022.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 81.4% for the first quarter of 2022 to 99.3% for the first quarter of 2023.

RESULTS OF OPERATIONS –

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Three Months Ended

Nine Months Ended

September 30,

(percentages)

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Operating income

Non-operating (expense) income

Non-operating income

Interest expense

Income before income taxes

THREE MONTHS ENDED SEPTEMBER 30, 2022 VS.

THREE MONTHS ENDED SEPTEMBER 30, 2021

During the third quarter of 2022, logistics and brokerage services revenue, before fuel surcharges, increased 27.9% to $71.5 million as compared to $55.9 million during the third quarter of 2021.

The increase relates to an increase in the number of loads serviced and to an increase in the average rates charged to customers during the third quarter of 2022 as compared to the third quarter of 2021.

Rents and purchased transportation decreased from 83.0% of revenues, before fuel surcharges, during the third quarter of 2021 to 80.4% of revenues, before fuel surcharges, during the third quarter of 2022.

The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 88.6% for the third quarter of 2021 to 85.7% for the third quarter of 2022.

NINE MONTHS ENDED SEPTEMBER 30, 2022 VS.

NINE MONTHS ENDED SEPTEMBER 30, 2021

During the first nine months of 2022, logistics and brokerage services revenue, before fuel surcharges, increased 42.5% to $210.6 million as compared to $147.8 million during the first nine months of 2021.

The increase relates to an increase in the number of loads serviced and in the average rates charged to customers during the first nine months of 2022 as compared to the first nine months of 2021.

Rents and purchased transportation decreased from 83.5% of revenues, before fuel surcharges, during the first nine months of 2021 to 81.5% of revenues, before fuel surcharges, during the first nine months of 2022.

The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 88.9% for the first nine months of 2021 to 86.9% for the first nine months of 2022.

THREE MONTHS ENDED MARCH 31, 2023 VS.

THREE MONTHS ENDED MARCH 31, 2022

During the first quarter of 2023, logistics and brokerage services revenue, before fuel surcharges, decreased 4.0% to $68.3 million as compared to $71.1 million during the first quarter of 2022.

The decrease relates to a decrease in the average rates charged to customers during the first quarter of 2023 as compared to the first quarter of 2022.

Rents and purchased transportation increased from 82.2% of revenues, before fuel surcharges, during the first quarter of 2022 to 82.4% of revenues, before fuel surcharges, during the first quarter of 2023.

The increase resulted from paying third-party carriers a larger percentage of customer revenue.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 88.6% for the first quarter of 2022 to 88.8% for the first quarter of 2023.

RESULTS OF OPERATIONS –

COMBINED SERVICES

THREE MONTHS ENDED SEPTEMBER 30, 2022 VS.

THREE MONTHS ENDED SEPTEMBER 30, 2021

Net income for all divisions was approximately $24.6 million, or 11.3% of revenues, before fuel surcharges for the third quarter of 2022 as compared to net income of $21.4 million, or 12.8% of revenues, before fuel surcharges for the third quarter of 2021.

The increase in net income resulted in diluted earnings per share of $1.09 for the third quarter of 2022 as compared to diluted earnings per share of $0.93 for the third quarter of 2021.

NINE MONTHS ENDED SEPTEMBER 30, 2022 VS.

NINE MONTHS ENDED SEPTEMBER 30, 2021

Net income for all divisions was approximately $72.7 million, or 11.8% of revenues, before fuel surcharges for the first nine months of 2022 as compared to net income of $48.6 million, or 10.9% of revenues, before fuel surcharges for the first nine months of 2021.

The increase in net income resulted in a diluted earnings per share of $3.24 for the first nine months of 2022 as compared to diluted earnings per share of $2.12 for the first nine months of 2021.

THREE MONTHS ENDED MARCH 31, 2023 VS.

THREE MONTHS ENDED MARCH 31, 2022

Net income for all divisions was approximately $5.2 million, or 2.7% of revenues, before fuel surcharges, for the first quarter of 2023 as compared to net income of $23.9 million, or 12.2% of revenues, before fuel surcharges, for the first quarter of 2022.

The decrease in net income resulted in diluted earnings per share of $0.23 for the first quarter of 2023 as compared to diluted earnings per share of $1.06 for the first quarter of 2022.

LIQUIDITY AND CAPITAL RESOURCES

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Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, and borrowings under our credit facilities, installment notes, and investment margin account.

During the first nine months of 2022, we generated $120.1 million in cash from operating activities.

Investing activities used $95.6 million in cash in the first nine months of 2022.

Financing activities generated $0.2 million in cash in the first nine months of 2022.

During the first three months of 2023, we generated $34.2 million in cash from operating activities.

Investing activities generated $1.1 million in cash in the first three months of 2023.

Financing activities used $16.9 million in cash in the first three months of 2023.

Our primary use of funds is for the purchase of revenue equipment.

We typically use installment notes, our existing line of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations to finance capital expenditures and repay long-term debt.

During the first nine months of 2022, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $107.3 million, including the purchase of assets associated with the Metropolitan business acquisition.

During the first three months of 2023, we utilized cash on hand and our line of credit to finance purchases of revenue equipment and other assets of approximately $6.1 million.

We commonly finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 84 months.

During the first nine months of 2022, the Company’s subsidiary, P.A.M.

Transport, Inc., entered into installment obligations totaling approximately $76.8 million, including $35.5 million for the financing of real estate and $41.3 million for the purpose of purchasing revenue equipment and other assets.

These obligations are payable in monthly installments.

During the first three months of 2023, the Company’s subsidiary, P.A.M.

Transport, Inc., did not enter into any new installment obligations.

During the remainder of 2023, we expect to purchase approximately 340 new trucks and 1,000 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $80.3 million.

We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.

During the first nine months of 2022, we maintained a revolving line of credit.

Amounts outstanding under the line bear interest at Term SOFR plus 1.35% (4.33% at September 30, 2022), are secured by our trade accounts receivable and mature on July 1, 2024.

During the first three months of 2023, we maintained a revolving line of credit.

Amounts outstanding under the line bear interest at Term SOFR plus 1.35% (6.22% at March 31, 2023), are secured by our trade accounts receivable and mature on July 1, 2024.

An “unused fee”

of 0.25% is charged if average borrowings are less than $18.0 million.

At September 30, 2022 outstanding advances on the line of credit were approximately $0.4 million, consisting of letters of credit, with availability to borrow $59.6 million.

Trade accounts receivable increased from $121.9 million at December 31, 2021 to $155.2 million at September 30, 2022.

The increase resulted from an increase in freight revenues, which flow through accounts receivable, during the third quarter of 2022 as compared to the fourth quarter of 2021.

Prepaid expenses and deposits increased from $11.0 million at December 31, 2021 to $12.0 million at September 30, 2022.

The decrease relates to the prepayment of policy renewals during the third quarter of 2022, offset by the normal amortization of items prepaid as of December 31, 2021.

Revenue equipment increased from $520.8 million at December 31, 2021 to $625.6 million at September 30, 2022.

The increase is primarily due to the acquisition of trucks and trailers as part of the acquisition of Metropolitan Trucking during the second quarter of 2022.

Marketable equity securities decreased from $39.4 million at December 31, 2021 to $36.0 million at September 30, 2022.

The $3.4 million decrease was due to a decrease in the market value of held marketable equity securities of $4.3 million and the purchase of marketable equity securities with a combined purchase cost of approximately $0.9 million during the first nine months of 2022.

Accounts payable increased from $43.4 million at December 31, 2021 to $54.7 million at September 30, 2022.

This increase was primarily attributable to an increase in the amount due to third-party carriers as of September 30, 2022.

Accrued expenses and other liabilities increased from $14.1 million at December 31, 2021 to $24.8 million at September 30, 2022.

The increase is primarily due to accruals of legal reserves during the first nine months of 2022.

At March 31, 2023 outstanding advances on the line of credit were approximately $0.4 million, consisting of letters of credit, with availability to borrow $59.6 million.

Trade accounts receivable decreased from $134.7 million at December 31, 2022 to $131.4 million at March 31, 2023.

The decrease resulted from a decrease in freight revenues, which flow through accounts receivable, during the first quarter of 2023 as compared to the fourth quarter of 2022.

Prepaid expenses and deposits decreased from $15.7 million at December 31, 2022 to $14.1 million at March 31, 2023.

The decrease relates to the normal amortization of items prepaid as of December 31, 2022.

Revenue equipment decreased from $637.5 million at December 31, 2022 to $621.2 million at March 31, 2023.

The decrease is primarily due to the disposition of aging trucks and trailers during the first quarter of 2023.

Accounts payable decreased from $48.9 million at December 31, 2022 to $46.2 million at March 31, 2023.

This decrease was primarily attributable to a decrease in the amount due to third-party carriers as of March 31, 2023.

Accrued expenses and other liabilities increased from $34.2 million at December 31, 2022 to $43.3 million at March 31, 2023.

The increase is primarily due to accruals of claims reserves during the first three months of 2023.

Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time.

Long-term debt and current maturities of long-term debt, on an aggregate basis, increased from $222.3 million at December 31, 2021 to $257.3 million at September 30, 2022.

The increase was primarily related to the financing of certain real estate holdings to generate $35.5 million in available cash during the first three months of 2022 and to the assumption of $12.6 million of installment debt associated with the acquisition of Metropolitan Trucking during the second quarter of 2022.

Long-term debt and current maturities of long-term debt, on an aggregate basis, decreased from $264.3 million at December 31, 2022 to $251.3 million at March 31, 2023.

The decrease was primarily related to not financing the acquisition of additional revenue equipment during the first quarter of 2023.

NEW ACCOUNTING PRONOUNCEMENTS

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What changed 10-Q

Item 1. Financial Statements