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What changed in COVENANT LOGISTICS GROUP, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COVENANT LOGISTICS GROUP, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+314 added−298 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in COVENANT LOGISTICS GROUP, INC.'s 2023 10-K

314 paragraphs added · 298 removed · 222 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

81 edited+41 added−34 removed160 unchanged
Biggest changeAdditionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply.
Biggest changeUnder the 2024 rule, workers’ relationship with a principal will be classified under six factors, including: (i) opportunity for profit and loss depending on managerial skill; (ii) investments by the worker and the principal; (iii) degree of permanence of the relationship; (iv) nature and degree of control; (v) extent to which worker in integral to the principal’s business; and (vi) skill and initiative, together with a provision for unspecified other factors, to determine if such worker should be classified as an independent contractor Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply.
Certain industry groups have challenged these rules in court, and while the FMCSA's final rule has been upheld, it remains unclear if industry or other groups will bring additional challenges against the FMCSA's final rule. Any future changes to hours-of-service rules could materially and adversely affect our operations and profitability.
Certain industry groups have challenged these hours-of-service rules in court, and while the FMCSA's final rule has been upheld, it remains unclear if industry or other groups will bring additional challenges against the FMCSA's final rule. Any future changes to hours-of-service rules could materially and adversely affect our operations and profitability.
It remains unclear whether the SHIP IT Act will ultimately become law, however, and what changes it may undergo prior finalization. 13 Table of Contents Given COVID-19’s considerable effect on our nation and industry, the FMCSA previously issued and/or extended various temporary responsive measures in response to COVID-19 pandemic.
It remains unclear whether the SHIP IT Act will ultimately become law, however, and what changes it may undergo prior to finalization. 13 Table of Contents Given COVID-19’s considerable effect on our nation and industry, the FMCSA previously issued and/or extended various temporary measures in response to the COVID-19 pandemic.
This program, known as the Safe Driver Apprenticeship Pilot Program, is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.
This program, known as the Safe Driver Apprenticeship Pilot Program ("SDAP"), is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.
We believe that the key to the improved safety results is a combination of continual training, consistent and proactive coaching, utilizing proven safety technologies, and consistent collaboration between all of our business units.
We believe that the key to the improved safety results is a combination of training, consistent and proactive coaching, utilizing proven safety technologies, and consistent collaboration between all of our business units.
Expedited services generally require two-person driver teams on equipment either owned or leased by the Company. ● Dedicated: In our Dedicated business, we operate approximately 1,400 tractors, substantially all of which are driven by a solo driver. The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length.
Expedited services generally require two-person driver teams on equipment either owned or leased by the Company. ● Dedicated: In our Dedicated business, we operate approximately 1,200 tractors, substantially all of which are driven by a solo driver. The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length.
At December 31, 2022, all of our tractors were equipped with ELDs, which electronically monitor tractor miles and facilitate enforcement of hours-of-service regulations. Over the past decade, the price of new tractors has risen dramatically and there has been significant volatility in the used equipment market. This has substantially increased our costs of operation.
At December 31, 2023, all of our tractors were equipped with ELDs, which electronically monitor tractor miles and facilitate enforcement of hours-of-service regulations. Over the past decade, the price of new tractors has risen dramatically and there has been significant volatility in the used equipment market. This has substantially increased our costs of operation.
Refer to Note 15, "Segment Information," of the accompanying consolidated financial statements for further information about our reportable segments' operating and financial results. Customers and Operations We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage.
Refer to Note 17, "Segment Information," of the accompanying consolidated financial statements for further information about our reportable segments' operating and financial results. Customers and Operations We focus on targeted markets throughout the United States where we believe our service standards can provide a competitive advantage.
Because the fixed price is determined based on market prices at the time we enter into the hedge, in times of increasing fuel prices the hedge contracts become more valuable, whereas in times of decreasing fuel prices the opposite is true. We had no fuel hedging contracts at December 31, 2022 or December 31, 2021.
Because the fixed price is determined based on market prices at the time we enter into the hedge, in times of increasing fuel prices the hedge contracts become more valuable, whereas in times of decreasing fuel prices the opposite is true. We had no fuel hedging contracts at December 31, 2023 or December 31, 2022.
CARB has also recently announced intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future. Whether these regulations will ultimately be adopted remains unclear. Federal and state lawmakers also have proposed a variety of other regulatory limits on carbon emissions and fuel consumption.
In the past, CARB has announced its intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future. Whether these regulations will ultimately be adopted remains unclear. Federal and state lawmakers also have proposed a variety of other regulatory limits on carbon emissions and fuel consumption.
Enforcement of these CARB regulations for model year 2011 equipment began in January 2010 and have been phased in over several years for older equipment. We currently purchase Smart Way certified equipment in our new tractor and trailer acquisitions.
Enforcement of these CARB regulations for model year 2011 equipment began in January 2010 and has been phased in over several years for older equipment. We currently purchase Smart Way certified equipment in our new tractor and trailer acquisitions.
Some of the significant successes resulting from our strategic planning efforts include the Landair Acquisition in 2018; consolidation of our back-office operations; enhancements to recruiting, retention, and business intelligence; upgraded information technology; focus on service and on time delivery; sale of TFS, and the acquisition of AAT in 2022.
Some of the significant successes resulting from our strategic planning efforts include the Landair Acquisition in 2018; consolidation of our back-office operations; enhancements to recruiting, retention, and business intelligence; upgraded information technology; focus on service and on time delivery; sale of TFS; the acquisition of AAT in 2022; and the acquisition of LTST and Sims in 2023.
However, any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.
Any similar future outbreak or vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruitment and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.
The DOT accident rate per million miles, as defined by the Federal Motor Carrier Safety Administration ("FMCSA"), decreased 6% year over year and was the lowest in the Company’s history.
The DOT accident rate per million miles, as defined by the Federal Motor Carrier Safety Administration ("FMCSA"), decreased 7% year over year and was the lowest in the Company’s history.
Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information. The Safe Driver Pilot Apprenticeship Program is limited to 3,000 driver-apprentices at any given time, with new driver-apprentices allowed into the program to replace those that leave or age out.
Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information. The SDAP is limited to 3,000 driver-apprentices at any given time, with new driver-apprentices allowed into the program to replace those that leave or age out.
The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2022 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.
The Company’s (or its subsidiaries', as applicable) new tractor purchases in 2023 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.
We are strategically focused on continuing to integrate into the supply chain of our customers and reducing our seasonal and cyclical volatility. Our 2018 acquisition of Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., and Landair Leasing, Inc. (collectively, "Landair") and our 2022 acquisition of AAT Carriers, Inc. ("AAT") are examples of that commitment.
We are strategically focused on continuing to integrate into the supply chain of our customers and reducing our seasonal and cyclical volatility. Our 2018 acquisition of Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., and Landair Leasing, Inc. (collectively, "Landair"), our 2022 acquisition of AAT Carriers, Inc.
The DOT uses two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.
The DO T uses two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.
Although to date these response measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures or the lapsing of temporary measures previously enacted, remain unclear and could have a negative impact on our operations. In November 2021 the U.S.
Although to date these response measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures or the lapsing of temporary measures previously enacted, remain unclear and could have a negative impact on our operations.
For high priority fleets who meet the applicable thresholds, compliance can be achieved by either (i) ensuring that all new vehicles added to the fleet be zero emission, and removing older vehicles once their statutory useful life is reached, or (ii) meeting certain fleet composition requirements (e.g., percentage of zero emission vehicles in the fleet) by certain dates, with the percentage of zero emission vehicles increasing over time, and resulting in 100% zero emission fleets by 2042 (or earlier for certain classes of vehicles).
For high priority fleets who meet the applicable thresholds, compliance can be achieved by either (a) ensuring that all new vehicles added to the fleet be zero emission, and commencing in 2025, removing older vehicles once their statutory useful life is reached, or (b) meeting certain fleet composition requirements (e.g., percentage of zero emission vehicles in the fleet) by certain dates, with the percentage of zero emission vehicles increasing over time, and resulting in 100% zero emission fleets by 2042 (or earlier for certain classes of vehicles).
In September 2022, the FMCSA issued an advance Notice of Proposed Rulemaking that would require fleets and owner-operators to equip their trucks with unique electronic identification systems designed to streamline roadside inspections and provide transparency and accountability in day-to-day trucking operations.
In September 2022, the FMCSA issued an advance notice of proposed rulemaking that would require fleets and independent contractors to equip their trucks with unique electronic identification systems designed to streamline roadside inspections and provide transparency and accountability in day-to-day trucking operations.
Among other changes, the proposal would allow brokers or freight forwarders to meet regulatory requirements to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.
Among other changes, the rule allows brokers or freight forwarders to meet regulatory requirements to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.
Currently, certain of our subsidiaries are exceeding the established intervention thresholds in one or more of the seven categories of CSA, in comparison to their peer groups; however, they all continue to maintain a satisfactory rating with the DOT.
Currently, certain of our subsidiaries are exceeding the established thresholds in one or more of the BASICs categories, in comparison to their peer groups; however, they all continue to maintain a satisfactory rating with the DOT.
The Company We operate a relatively new tractor fleet and employ sophisticated tractor technology that enhances our operational efficiencies and our drivers' safety. Our company-owned tractor fleet has an average age of approximately 2.1 years, compared to an average U.S. Class 8 tractor age of approximately 6.7 years in 2021.
The Company We operate a relatively new tractor fleet and employ sophisticated tractor technology that enhances our operational efficiencies and our drivers' safety. Our company-owned tractor fleet has an average age of approximately 1.6 years, compared to an average U.S. Class 8 tractor age of approximately 6.4 years in 2023.
Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA withdrew the Notice of Proposed Rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a new rulemaking related to a similar process may be initiated in the future.
Based on feedback and other concerns raised by industry stakeholders during the public comment period in March 2017, the FMCSA withdrew the notice of proposed rulemaking related to the new safety rating system. In its notice of withdrawal, the FMCSA noted that a similar process may be initiated in the future.
TEL is a tractor and trailer equipment leasing company and used equipment reseller. We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income since May 2011, or $25.2 million in 2022 and $14.8 million in 2021.
TEL is a tractor and trailer equipment leasing company and used equipment reseller. We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income since May 2011, or $21.4 million in 2023 and $25.2 million in 2022.
The CPDP will expand the types of eligible crashes, modify the Safety Measurement System to exclude crashes with not preventable determinations from the prioritization algorithm and note the not preventable determinations in the Pre-Employment Screening Program.
The CPDP will expand the types of eligible crashes, modify the SMS to exclude crashes with not preventable determinations from the prioritization algorithm and note the not preventable determinations in the Pre-Employment Screening Program.
We also order most of our equipment with uniform specifications to reduce our parts inventory and facilitate maintenance. At December 31, 2022, our tractor fleet had an average age of approximately 2.1 years, and our trailer fleet had an average age of approximately 6.2 years.
We also order most of our equipment with uniform specifications to reduce our parts inventory and facilitate maintenance. At December 31, 2023, our tractor fleet had an average age of approximately 1.6 years, and our trailer fleet had an average age of approximately 5.9 years.
Our average number of teams as a percentage of our seated fleet increased for 2022 as compared to 2021. Our average open tractors, including wrecked tractors, decreased to 6.7% for the year ended December 31, 2022, from approximately 7.3% for the year ended December 31, 2021.
Our average number of teams as a percentage of our seated fleet increased for 2023 as compared to 2022. Our average open tractors, including wrecked tractors, decreased to 4.8% for the year ended December 31, 2023, from approximately 6.7% for the year ended December 31, 2022.
Pursuant to a new rule finalized by the FMCSA, beginning in November 2024, states will be required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.
Beginning November 2024, states will be required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.
Currently, tractor and trailer manufacturers are still experiencing shortages of certain component parts and supplies, including semi-conductor chips, forcing many such manufacturers to curtail or suspend their production, which could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, and which could lead to, among other things, higher maintenance expense and driver retention.
Tractor and trailer manufacturers have recently experienced periodic shortages of certain component parts and supplies, including semi-conductor chips, forcing many such manufacturers to curtail or suspend their production, which could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, and which could lead to, among other things, higher maintenance expense and driver retention.
Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles. The final rule became effective in January 2017, with a compliance date in January 2020.
Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles. The final rule became effective in 2017, with an initial compliance date of January 2020 and certain compliance dates extended until January 2023.
The proposal also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund. Adoption of these changes could negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.
The rule also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund. Implementation and compliance with these changes may negatively impact our business by increasing our compliance obligations, operating costs, and related expenses.
The following table reflects the size of each of our reportable segments measured by 2022 total revenue, net of fuel surcharge revenue, which we refer to as "freight revenue": Distribution of Freight Revenue Among Service Offerings Expedited 33 % Dedicated 28 % Managed Freight 31 % Warehousing 8 % Total 100 % In our Expedited and Dedicated reportable segments, we generate revenue by transporting freight for our customers.
The following table reflects the size of each of our reportable segments measured by 2023 total revenue, net of fuel surcharge revenue, which we refer to as "freight revenue": Distribution of Freight Revenue Among Service Offerings Expedited 35 % Dedicated 28 % Managed Freight 27 % Warehousing 10 % Total 100 % In our Expedited and Dedicated reportable segments, we generate revenue by transporting freight for our customers.
The use of teams, however, increases the accumulation of miles on tractors and trailers, personnel costs as a percentage of revenue, and the number of drivers we must recruit. We are not a party to any collective bargaining agreement. At December 31, 2022, we employed approximately 3,007 drivers and approximately 1,600 non-driver personnel.
The use of teams, however, increases the accumulation of miles on tractors and trailers, personnel costs as a percentage of revenue, and the number of drivers we must recruit. We are not a party to any collective bargaining agreement. At December 31, 2023, we employed approximately 2,900 drivers and approximately 1,700 non-driver personnel.
We also have developed a robust 2023 enterprise safety tactical plan that will continue to drive sustainability across our enterprise. We believe the ongoing execution of our strategic plan has contributed to the substantial improvement in operating results and profitability we have generated over the past several years.
Additionally, we implemented an enterprise safety tactical plan that will continue to drive sustainability across our enterprise. We believe the ongoing execution of our strategic plan has contributed to the substantial improvement in operating results and profitability we have generated over the past several years.
CARB is also in the process of considering and finalizing what is known as the Advanced Clean Fleets (“ACF”) regulation, also aimed at transitioning to zero emission vehicles beginning in 2024. ACF is a purchase requirement for medium and heavy-duty fleets to adopt an increasing percentage of zero emission trucks, designed to complement the sell-side obligations of ACT.
In 2023, CARB finalized what is known as the Advanced Clean Fleets (“ACF”) regulation, also aimed at transitioning to zero emission vehicles, which became effective in January 2024. ACF is a purchase requirement for medium and heavy-duty fleets to adopt an increasing percentage of zero emission trucks, designed to complement the sell-side obligations of ACT.
Among other impacts, ACT could affect the cost and/or supply of traditional diesel tractors. It has also led to similar legislation in other states, with Oregon, Washington, New York, New Jersey, and Massachusetts already adopting ACT, and a number of other states either considering adoption of ACT or affirmatively conducting a preliminary rulemaking process to that effect.
Among other impacts, ACT could affect the cost and/or supply of traditional diesel tractors. It has also led to similar legislation in several states and a number of other states either considering adoption of ACT or affirmatively conducting a preliminary rulemaking process to that effect.
Other rules have been recently proposed or made final by the FMCSA, including: (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, known as Entry-Level Driver Training regulations (the "ELDT Regulations"), which was made final in December 2016, with a compliance date in February 2020.
Other rules have been proposed or made final by the FMCSA, including a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, known as Entry-Level Driver Training regulations (the "ELDT Regulations"), which was made final in December 2016, with a compliance date in February 2020.
A summary of these metrics for our Expedited reportable segment for 2022 and 2021 is as follows: 2022 2021 Average freight revenue per total mile $ 2.32 $ 1.97 Average miles per tractor 170,925 172,080 Average freight revenue per tractor per week $ 7,604 $ 6,498 A summary of the key performance metrics for our Dedicated reportable segment for 2022 and 2021 is as follows: 2022 2021 Average freight revenue per total mile $ 2.63 $ 2.19 Average miles per tractor 78,728 81,284 Average freight revenue per tractor per week $ 3,975 $ 3,417 Within our Managed Freight reportable segment, we derive revenue from providing Brokerage and TMS services, particularly arranging transportation services for customers directly and through relationships with thousands of third-party carriers and integration with our Expedited reportable segment.
A summary of these metrics for our Expedited reportable segment for 2023 and 2022 is as follows: 2023 2022 Average freight revenue per total mile $ 2.13 $ 2.32 Average miles per tractor 183,717 170,925 Average freight revenue per tractor per week $ 7,501 $ 7,604 A summary of the key performance metrics for our Dedicated reportable segment for 2023 and 2022 is as follows: 2023 2022 Average freight revenue per total mile $ 2.67 $ 2.63 Average miles per tractor 81,387 78,728 Average freight revenue per tractor per week $ 4,162 $ 3,975 Within our Managed Freight reportable segment, we derive revenue from providing Brokerage and TMS services, particularly arranging transportation services for customers directly and through relationships with thousands of third-party carriers and integration with our Expedited reportable segment.
Thus, even though the trailer provisions of the Phase 2 Standards were removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.
Thus, even though the trailer provisions of the Phase 2 Standards were removed, we still must ensure the majority of our fleet is compliant with the California Phase 2 standards, which may adversely affect our operating results and profitability.
The proposed ACF regulations, generally set to begin in January 2024, apply to three categories of fleet operators: (1) high priority fleets who meet certain thresholds of trucks or revenue (including fleets that operate 50 or more trucks, or generate $50 million or more in gross annual revenue), (2) drayage fleets, and (3) state and local government public fleets.
The ACF regulations apply to three categories of fleet operators: (i) high priority fleets who meet certain thresholds of trucks or revenue (including fleets that operate 50 or more trucks, or generate $50 million or more in gross annual revenue), (ii) drayage fleets, and (iii) state and local government public fleets.
It otherwise remains unclear how the IIJA will be implemented into and effect our industry in the long-term. The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations. In January 2023, the Safer Highways and Increased Performance for Interstate Trucking Act (the “SHIP IT Act”) was introduced into the U.S.
The IIJA may result in increased compliance and implementation-related expenses, which could have a negative impact on our operations. In January 2023, the Safer Highways and Increased Performance for Interstate Trucking Act (the “SHIP IT Act”) was introduced into the U.S. House of Representatives.
At December 31, 2022, we engaged 146 independent contractor drivers. 8 Table of Contents Revenue Equipment At December 31, 2022, we operated 2,138 tractors and 5,367 trailers. Of such tractors, 1,482 tractors were owned, 510 tractors were financed under operating leases, and 146 tractors were provided by independent contractors, who own and drive their own tractors.
At December 31, 2023, we engaged 130 independent contractor drivers. 8 Table of Contents Revenue Equipment At December 31, 2023, we operated 2,139 tractors and 5,880 trailers. Of such tractors, 1,961 tractors were owned, 48 tractors were financed under operating or finance leases, and 130 tractors were provided by independent contractors, who own and drive their own tractors.
In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.
It is expected that the rule may further impair the availability of an already weak driver pool. In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.
The Notice of Proposed Rulemaking considers regulatory modifications in five areas: (i) assets readily available, (ii) immediate suspension of broker/freight forwarder operating authority, (iii) surety or trust responsibilities, (iv) enforcement authority, and (v) entities eligible to serve as BMC-85 trustees.
The final rule, which became effective in January 2024, modified regulations in five areas: (i) assets readily available, (ii) immediate suspension of broker/freight forwarder operating authority, (iii) surety or trust responsibilities, (iv) enforcement authority, and (v) entities eligible to serve as BMC-85 trustees.
The most recent example being the Protecting the Rights to Organize ("PRO") Act, which was passed by the U.S. House of Representatives and received by the Senate in March 2021 and remains with the Senate's Committee on Health, Education, Labor, and Pensions.
The Protecting the Rights to Organize ("PRO") Act was passed by the U.S. House of Representatives and received by the Senate in March 2021, which was further sent to the Senate's Committee on Health, Education, Labor, and Pensions. In 2023, a substantially similar bill was introduced to the U.S.
House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H.
In May 2021, however, the Cullum Owings Large Truck Safe Operating Speed Act was reintroduced into the U.S. House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H.
Our leverage ratio increased slightly in 2022 as compared to the prior year, as we remain focused on investing capital when we can obtain acceptable returns while maintaining lower leverage than we have historically.
Our leverage ratio increased in 2023 as compared to the prior year, as we remain focused on investing capital when we can obtain acceptable returns while maintaining lower leverage than we have historically. During 2023 we completed our revenue equipment replacement plan to bring our trade cycle back to normalized levels.
The petition was generally disfavored by transportation industry participants, citing, among other things, the petition’s failure to address privacy and data security risks. It remains to be seen what rules, if any, may stem from this notice.
The petition was generally disfavored by transportation industry participants, citing, among other things, the petition’s failure to address privacy and data security risks. It remains to be seen what rules, if any, may stem from this notice. However, in February 2023, the FMCSA announced a new operational test for monitoring and enforcing driver and motor carrier safety compliance standards.
Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold. Generally, these scores do not have a direct impact on a carrier’s safety rating.
The data is organized into seven categories (such categories know as the "BASICs"). Carriers are grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are above a certain threshold.
However, in May 2020, the FMCSA approved an interim rule delaying implementation of the ELDT Regulations by two years, which extended the compliance date until February 2022. The ELDT Regulations may reduce the number of available drivers or increase recruitment and training costs with respect to new drivers.
However, in May 2020, the FMCSA approved an interim rule delaying implementation of the ELDT Regulations by two years, which extended the compliance date until February 2022.
There were no fuel hedging gains in 2022, compared to $0.4 million of gains in 2021. We actively manage our fuel costs by routing our drivers through fuel centers with which we have negotiated volume discounts and through jurisdictions with lower fuel taxes, where possible.
We actively manage our fuel costs by routing our drivers through fuel centers with which we have negotiated volume discounts and through jurisdictions with lower fuel taxes, where possible.
The Board believes an actively engaged Risk Committee is vital in recognizing and managing key risks facing the Company. Diesel fuel prices, interest rates, safety, driver retention, insurance and claims cost, and used equipment prices are all areas where we identified significant risk and volatility for our business.
Diesel fuel prices, interest rates, safety, driver retention, insurance and claims cost, and used equipment prices are all areas where we identified significant risk and volatility for our business.
Within our asset based transportation service offerings (Expedited and Dedicated), we operate tractors driven by a single driver and also tractors assigned to two-person driver teams.
Our top ten customers accounted for approximately 44% and 43% of our total revenue in 2023 and 2022, respectively. Within our asset based transportation service offerings (Expedited and Dedicated), we operate tractors driven by a single driver and also tractors assigned to two-person driver teams.
Fuel Availability and Cost The cost of fuel trended higher in 2022 as compared to 2021, as demonstrated by an increase in the Department of Energy ("DOE") national average for diesel to approximately $4.99 per gallon for 2022, compared to $3.29 per gallon for 2021.
Fuel Availability and Cost The cost of fuel trended lower in 2023 as compared to 2022, as demonstrated by a decrease in the Department of Energy ("DOE") national average for diesel to approximately $4.21 per gallon for 2023, compared to $4.99 per gallon for 2022. There were no fuel hedging gains in 2023 or 2022.
In its petition to the Supreme Court, the broker unsuccessfully argued that the Ninth Circuit’s decision improperly disallowed federal pre-emption, and would expose freight brokers to a patchwork of state regulations across the United States.
In its petition to the Supreme Court, the broker unsuccessfully argued that the Ninth Circuit’s decision improperly disallowed federal preemption and would expose freight brokers to a patchwork of state regulations across the United States. In April 2023, the Eleventh Circuit Court held that the Federal Aviation Administration Authorization Act (“FAAAA”) expressly preempted such personal liability claims against a broker.
The outcome of such proposal is still undetermined. Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S. Court of Appeals for the District of Columbia. In November 2021, a panel for the U.S.
The final rule was effective in December 2016, but has since faced challenges and delays. Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S. Court of Appeals for the District of Columbia. In November 2021, a panel for the U.S.
We evaluate risk areas with significant volatility, as well as the costs and benefits associated with mitigating the volatility. In 2022, the Board established a Risk Committee focused on identification, evaluation, and mitigation of operational, strategic, and environment risks, as well as monitoring and approving risk policies and associated practices for the Company.
In 2022, the Board established a Risk Committee focused on identification, evaluation, and mitigation of operational, strategic, and environment risks, as well as monitoring and approving risk policies and associated practices for the Company. The Board believes an actively engaged Risk Committee is vital in recognizing and managing key risks facing the Company.
Also, the expansion of our safety training program is expected to allow us to further increase new driver training, provide specific training, and sustain consistent messaging around the culture of safety.
Also, the expansion of our safety training program is expected to allow us to further increase new driver training, provide specific training, and sustain consistent messaging around the culture of safety. During 2023, we implemented several safety related technologies, including new telematics and a predictive analytics program, as well as the opening of our new dorm and training center.
Landair is a leading dedicated truckload carrier and supplier of transportation management, warehousing, and logistics inventory management systems. AAT specializes in highly regulated, time-sensitive loads for the U.S. government. As our fleet has grown over three and a half decades and our service platform matured, several important trends dramatically affected the truckload industry and our business.
AAT specializes in highly regulated, time-sensitive loads for the U.S. government. LTST specializes in poultry feed and live haul transportation. Sims is a specialized brokerage company. As our fleet has grown over almost four decades and our service platform matured, several important trends dramatically affected the truckload industry and our business.
In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements.
We will continue to promote improvement of these scores in all seven categories with ongoing reviews of all safety-related policies, programs, and procedures for their effectiveness. 10 Table of Contents In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements.
Finally, federal drug regulators have announced a proposal to add fentanyl to a drug testing panel that would detect the use of such drug among safety-sensitive federal employees, which would include truck drivers if adopted by the DOT. If the proposal is accepted, DHHS expects to add fentanyl to the testing panel as early as the first quarter of 2023.
We currently perform urine testing and will continue to monitor any developments in this area to ensure compliance. Finally, federal drug regulators have announced a proposal to add fentanyl to a drug testing panel that would detect the use of such drug among safety-sensitive federal employees, which would include truck drivers if adopted by the DOT.
Several of the Company’s subsidiaries currently hold FMCSA brokerage authority, so while the impact of this guidance remains to be seen, the Company does not currently anticipate an adverse impact on its operations.
Several of the Company’s subsidiaries currently hold FMCSA brokerage authority, so while the impact of this guidance remains to be seen, the Company does not currently anticipate an adverse impact on its operations. In a November 2023 final rule, the FMCSA implemented more oversight of truck brokers, freight forwarders, and the surety bond and trust companies that back them.
Recently, our industry has experienced decreased freight demand, volatile fuel costs, tight new and used equipment market, scarcity of qualified truck drivers, and regulations that limit productivity. As we look toward 2023, we anticipate a very difficult freight environment for at least the first half of the year, which could compress rates and margins when compared to 2022.
Recently, our industry has experienced decreased freight demand, volatile fuel costs, tight new and used equipment market, scarcity of qualified truck drivers, and regulations that limit productivity. As we look toward 2024, we do not see anything in the first half of the year that would indicate a near-term recovery of the freight market.
Public comment on the supplemental notice will remain open until March 2023, and it remains to be seen, what, if any, final rules will stem therefrom. Additionally, the FMCSA in conjunction with the National Highway Traffic Safety Administration ("NHTSA"), have announced their intention to propose a rule for performance standards and maintenance requirements for automatic emergency braking on heavy trucks.
Public comment on the supplemental notice closed in March 2023, and it remains to be seen, what, if any, final rules will stem therefrom. In June 2023, FMCSA and the National Highway Traffic Safety Administration ("NHTSA") issued a joint proposed rule that would require automated emergency braking on all new heavy-duty trucks.
The roughly $1.2 trillion bill contains an estimated $550 billion in new spending, which will impact transportation. In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations. Provisions in the law specific to trucking are discussed above.
In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations. Provisions in the law specific to trucking are discussed above. It otherwise remains unclear how the IIJA will be implemented into and affect our industry in the long term.
If the FMCSA determines the crash was not preventable, it will be listed on the Safety Measurement System but not included when calculating a carrier’s Crash Indicator Behavior Analysis and Safety Improvement Category measure in SMS. Additionally, any determinations of not preventable crashes will be noted on a driver’s Pre-Employment Screening Program report.
If the FMCSA determines the crash was not preventable, it will be listed on the SMS but not included when calculating a carrier’s BASICs measure for the crash indicator category in SMS.
Furthermore, in April 2022, the FMCSA issued a notice of intent to propose a rule during 2023 that will require certain commercial vehicles to be equipped with speed limiters. The effect of these rules, to the extent they become effective, could result in a decrease in driver availability, which could adversely affect our business or operations.
The effect of these rules, to the extent they become effective, could result in a decrease in driver availability, which could adversely affect our business or operations.
The EPA has indicated that the December 2022 rule is the first part of a multi part plan focusing on greenhouse gas emissions, which is commonly referred to as the “Cleaner Trucks Initiative,” or the “Clean Trucks Plan.” The EPA has indicated that it plans to release proposals for the remaining steps in the Clean Trucks Plan by the end of March 2023 and is targeting 2027 for these new standards to take effect.
The EPA has indicated that the December 2022 rule is the first part of a three-part plan focusing on greenhouse gas emissions, which is commonly referred to as the “Cleaner Trucks Initiative,” or the “Clean Trucks Plan.” In April 2023, the EPA released the second and third parts to the Clean Trucks Plan, including a proposed rule relating to GHG standards for heavy-duty vehicles known as “Phase 3” to the EPA’s GHG program.
As with ACT, adoption and implementation of ACF could materially and negatively impact our business by increasing our compliance obligations, operating costs, and related expenses. In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle.
In order to reduce exhaust emissions, lawmakers, including federal and some states and municipalities, have begun to restrict the locations and amount of time where diesel-powered tractors may idle.
Of such trailers, 5,038 trailers were owned, 121 trailers were financed under an operating lease or as short-term rentals, and 208 trailers were financed under finance leases. Furthermore, at December 31, 2022, approximately 84% of our trailers were dry vans, and the remaining trailers were refrigerated vans.
Of such trailers, 5,665 trailers were owned, 215 trailers were held under operating or finance leases. Furthermore, at December 31, 2023, approximately 86% of our trailers were dry vans, 11% of our trailers were refrigerated vans, and the remaining trailers were specialty trailers related to our poultry business.
As the FDA continues its efforts to modernize food safety, it is likely additional food safety regulations will take effect in the future. In July 2020, the FDA released its “New Era of Smarter Food Safety” blueprint, which creates a ten year roadmap to create a more digital, traceable and safer food system.
In July 2020, the FDA released its “New Era of Smarter Food Safety” blueprint, which creates a ten-year roadmap to create a more digital, traceable and safer food system. The Food Traceability Rule is one aspect of the blueprint and has a compliance date for all parties subject to its recordkeeping requirements of January 20, 2026.
In January 2016, the FMCSA published a Notice of Proposed Rulemaking outlining a revised safety rating measurement system which would replace the current methodology. Under the proposed rule, the current three safety ratings of "satisfactory," "conditional," and "unsatisfactory" would be replaced with a single safety rating of "unfit." Thus, a carrier with no rating would be deemed fit.
In January 2016, the FMCSA published a notice of proposed rulemaking outlining a revised safety rating measurement system which would replace the current methodology of whether carriers are fit to operate commercial motor vehicles.
Although it remains unclear whether such study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regards to safety and fitness. In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards.
In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards. The CSA program analyzes data from roadside inspections, moving violations, crash reports from the last two years, and investigation results.
The EPA has also previously indicated it is working on enacting additional, more stringent, greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024. Compliance with these regulations could increase the cost of new tractors and trailers, impair equipment productivity, and increase operating expenses.
A final rule with respect to these regulations is expected by the end of 2024. Compliance with these regulations could increase the cost of new tractors and trailers, impair equipment productivity, and increase operating expenses.
Therefore, it is unclear if, when and to what extent such changes to the CSA program will occur. However, any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.
Phase 1 of the CCFP is designed to study crashes of heavy-duty trucks and a report from Phase 1 of the CCFP is expected in 2029. Any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.
Such proposal is anticipated as early as March 2023, but it remains uncertain what exactly it may require and whether a final rule will ultimately be put into place. Our industry is also subject to a number of recently proposed rules which mandate the use of speed-limiting devices in certain commercial motor vehicles.
Our industry is also subject to a number of recently proposed rules which mandate the use of speed-limiting devices in certain commercial motor vehicles. In July 2017, the DOT announced that it would no longer pursue a speed limiter rule but left open the possibility that it could resume such a pursuit in the future.
Either solution could result in increased compliance and labor costs, driver turnover, decreased efficiency, and amplified legal exposure.
Either solution could result in increased compliance and labor costs, driver turnover, decreased efficiency, and amplified legal exposure. In a 2023 case involving the Fair Labor Standards Act, the First Circuit Court of Appeals affirmed a decision that would require additional payment to team drivers to be paid while in their sleeper berth.
During 2022, due to our improved results, we implemented a quarterly cash dividend program and during the third quarter increased from the original $0.0625 per share to $0.08 per share, subject to quarterly approval by our Board of Directors (the "Board"), and repurchased 3.4 million shares, resulting in a reduction of approximately 20% of the shares outstanding compared to a year ago. ● Risk Management—Assess and Mitigate.
In January 2022, our Board of Directors (the "Board") approved a quarterly cash dividend program of $0.0625 per share, which was increased to $0.08 per share in August 2022 and $0.11 per share in February 2023. ● Risk Management—Assess and Mitigate. We evaluate risk areas with significant volatility, as well as the costs and benefits associated with mitigating the volatility.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny future acquisitions we may consummate involve numerous risks, any of which could have a materially adverse effect on our business, financial condition, and results of operations, including: ● some of the acquired businesses may not achieve anticipated revenue, earnings, or cash flows; ● we may assume liabilities that were not disclosed to us or otherwise exceed our estimates; ● we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical, or financial problems; ● transaction costs and acquisition-related integration costs could adversely affect our results of operations in the period in which such charges are recorded; ● we may incur future impairment charges, write-offs, write-downs, or restructuring charges that could adversely impact our results of operations; ● acquisitions could disrupt our ongoing business, distract our management, and divert our resources; ● we may experience difficulties operating in markets in which we have had no or only limited direct experience; ● we could lose customers, employees, and drivers of any acquired company; and ● we may incur additional indebtedness The conflict between Russia and Ukraine, expansion of such conflict to other areas or countries or similar conflicts could adversely impact our business and financial results.
Biggest changeAny future acquisitions we may consummate involve numerous risks, any of which could have a materially adverse effect on our business, financial condition, and results of operations, including: ● some of the acquired businesses may not achieve anticipated revenue, earnings, or cash flows; ● we may assume liabilities that were not disclosed to us or otherwise exceed our estimates; ● we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical, or financial problems; ● the acquired business may increase our customer concentration; ● transaction costs and acquisition-related integration costs could adversely affect our results of operations in the period in which such charges are recorded; ● we may incur future impairment charges, write-offs, write-downs, or restructuring charges that could adversely impact our results of operations; ● acquisitions could disrupt our ongoing business, distract our management, and divert our resources; ● we may experience difficulties operating in markets in which we have had no or only limited direct experience; ● we may rely on management of the acquired businesses, especially in markets in which we have no or only limited direct experience, and turnover of such management may affect our ability to manage the acquired businesses efficiently and effectively; ● we could lose customers, employees, and drivers of any acquired company; and ● we may incur additional indebtedness The conflicts in Ukraine and the Middle East, expansion of such conflicts to other areas or countries or similar conflicts could adversely impact our business and financial results.
These factors include the following: ● we compete with many other truckload carriers of varying sizes and, to a lesser extent, with (i) less-than-truckload carriers, (ii) railroads, intermodal companies, and (iii) other transportation and logistics companies, many of which have access to more equipment and greater capital resources than we do; ● many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit our ability to maintain or increase freight rates or to maintain or expand our business or may require us to reduce our freight rates in order to maintain business and keep our equipment productive; 15 Table of Contents ● many of our customers, including several in our top ten, are other transportation companies or also operate their own private trucking fleets, and they may decide to transport more of their own freight; ● we may increase the size of our fleet during periods of high freight demand during which our competitors also increase their capacity, and we may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if we are required to dispose of assets at a loss to match reduced customer demand; ● a significant portion of our business is in the retail industry, which continues to undergo a shift away from the traditional brick and mortar model towards e-commerce, and this shift could impact the manner in which our customers source or utilize our services; ● many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved service providers or by engaging dedicated providers, and we may not be selected; ● the trend toward consolidation in the trucking industry may create large carriers with greater financial resources and other competitive advantages relating to their size, and we may have difficulty competing with these larger carriers; ● the market for qualified drivers is increasingly competitive, and our inability to attract and retain drivers could reduce our equipment utilization or cause us to increase compensation to our drivers and independent contractors we engage, both of which would adversely affect our profitability; ● competition from freight logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; ● the Covenant brand name is a valuable asset that is subject to the risk of adverse publicity (whether or not justified), which could result in the loss of value attributable to our brand and reduced demand for our services; and ● advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments.
These factors include the following: ● we compete with many other truckload carriers of varying sizes and, to a lesser extent, with (i) less-than-truckload carriers, (ii) railroads, intermodal companies, and (iii) other transportation and logistics companies, many of which have access to more equipment and greater capital resources than we do; ● many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit our ability to maintain or increase freight rates or to maintain or expand our business or may require us to reduce our freight rates in order to maintain business and keep our equipment productive; ● many of our customers, including several in our top ten, are other transportation companies or also operate their own private trucking fleets, and they may decide to transport more of their own freight; ● we may increase the size of our fleet during periods of high freight demand during which our competitors also increase their capacity, and we may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if we are required to dispose of assets at a loss to match reduced customer demand; ● a significant portion of our business is in the retail industry, which continues to undergo a shift away from the traditional brick and mortar model towards e-commerce, and this shift could impact the manner in which our customers source or utilize our services; ● many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved service providers or by engaging dedicated providers, and we may not be selected; ● the trend toward consolidation in the trucking industry may create large carriers with greater financial resources and other competitive advantages relating to their size, and we may have difficulty competing with these larger carriers; ● the market for qualified drivers is increasingly competitive, and our inability to attract and retain drivers could reduce our equipment utilization or cause us to increase compensation to our drivers and independent contractors we engage, both of which would adversely affect our profitability; ● competition from freight logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; ● the Covenant brand name is a valuable asset that is subject to the risk of adverse publicity (whether or not justified), which could result in the loss of value attributable to our brand and reduced demand for our services; and ● advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments.
If any of our critical information systems fail or become otherwise unavailable, whether as a result of a system upgrade project or otherwise, we would have to perform the functions manually, which could temporarily impact our ability to manage our fleet efficiently, to respond to customers' requests effectively, to maintain billing and other records reliably, and to bill for services and prepare financial statements accurately or in a timely manner.
If any of our critical information systems fail or become otherwise unavailable, whether as a result of a system upgrade project or otherwise, we would have to perform the functions manually, which could temporarily impact our ability to dispatch and manage our fleet efficiently, to respond to customers' requests effectively, to maintain billing and other records reliably, and to bill for services and prepare financial statements accurately or in a timely manner.
Prices have increased and may continue to increase, due, in part, to (i) government regulations applicable to newly manufactured tractors and diesel engines, (ii) higher commodity prices, and (iii) the pricing discretion of equipment manufacturers. In addition, we have recently equipped our tractors with safety, aerodynamic, and other options that increase the price of new equipment.
Prices have increased and may continue to increase, due, in part, to (i) government regulations applicable to newly manufactured tractors and diesel engines, (ii) higher commodity prices, and (iii) the pricing discretion of equipment manufacturers. In addition, we have equipped our tractors with safety, aerodynamic, and other options that increase the price of new equipment.
Any significant system failure, upgrade complication, security breach (including cyberattacks), or other system disruption could interrupt or delay our operations, damage our reputation, cause us to lose customers, or impact our ability to manage our operations and report our financial performance, any of which could have a materially adverse effect on our business.
Any significant system failure, upgrade complication, security breach (including cyberattacks), or other system disruption could interrupt or delay our operations, damage our reputation, cause us to lose customers, or impact our ability to dispatch and manage our operations and report our financial performance, any of which could have a materially adverse effect on our business.
We may not grow substantially in the future and we may not be successful in improving our profitability. We may not be able improve profitability in the future. Achieving profitability depends upon numerous factors, including our ability to effectively and successfully implement other strategic initiatives, increase our average revenue per tractor, improve driver retention, and control costs and inefficiencies.
We may not grow substantially in the future and we may not be successful in improving our profitability. We may not be able improve profitability in the future. Improving profitability depends upon numerous factors, including our ability to effectively and successfully implement other strategic initiatives, increase our average revenue per tractor, improve driver retention, and control costs and inefficiencies.
Some of the principal risks during such times, are as follows: ● we may experience a reduction in overall freight levels, which may impair our asset utilization; ● certain of our customers may face credit issues and could experience cash flow problems that may lead to payment delays, increased credit risk, bankruptcies, and other financial hardships that could result in even lower freight demand and may require us to increase our allowance for doubtful accounts; ● freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers' freight demand; ● customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates from among existing choices in an attempt to lower their costs, and we might be forced to lower our rates or lose freight; and ● we may be forced to accept more freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads.
Some of the principal risks during such times, are as follows: ● we may experience a reduction in overall freight levels, which may impair our asset utilization; ● certain of our customers may face credit issues and could experience cash flow problems that may lead to payment delays, increased credit risk, bankruptcies, and other financial hardships that could result in even lower freight demand and may require us to increase our allowance for credit losses; ● freight patterns may change as supply chains are redesigned, resulting in an imbalance between our capacity and our customers' freight demand; ● customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates from among existing choices in an attempt to lower their costs, and we might be forced to lower our rates or lose freight; and ● we may be forced to accept more freight from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue miles to obtain loads.
We may also suffer from natural disasters and weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.
We may suffer from natural disasters and weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.
Revenue also can be affected by bad weather, holidays and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims, and more equipment repairs.
Revenue also can be affected by bad weather, holidays and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase and fuel efficiency decline because of engine idling and harsh weather creating higher accident frequency, increased claims, and more equipment repairs.
Although we do not have any direct operations in Russia, Belarus, or Ukraine, we may be affected by the broader consequences of the Russia and Ukraine conflict or expansion of such conflict to other areas or countries or similar conflicts elsewhere, such as, increased inflation, supply chain issues, including access to parts for our revenue equipment, embargoes, geopolitical shift, access to diesel fuel, higher energy prices, potential retaliatory action by the Russian or other governments, including cyber-attacks, and the extent of the conflict’s effect on the global economy.
Although we do not have any direct operations in Russia, Belarus, Ukraine, or the Middle East, we may be affected by the broader consequences of the conflicts in Ukraine or the Middle East or expansion of such conflicts to other areas or countries or similar conflicts elsewhere, such as, increased inflation, supply chain issues, including access to parts for our revenue equipment, embargoes, geopolitical shift, access to diesel fuel, higher energy prices, potential retaliatory action by the Russian or other governments, including cyber-attacks, and the extent of the conflict’s effect on the global economy.
Unfavorable ESG ratings may lead to negative investor sentiment toward the Company, which could have a negative impact on our stock price. In 2021, we published our Corporate Social Responsibility Report. This report reflects some of our initiatives and is not a guarantee that we will be able to achieve them.
Unfavorable ESG ratings may lead to negative investor sentiment toward the Company, which could have a negative impact on our stock price. In 2022, we published our Corporate Social Responsibility Report. This report reflects some of our initiatives and is not a guarantee that we will be able to achieve them.
All outstanding shares of Class B common stock are owned by the Parkers and are convertible to Class A common stock on a share-for-share basis at the election of the Parkers or automatically upon transfer to someone outside of the Parker family. This voting structure gives the Parkers approximately 39% of the voting power of all of our outstanding stock.
All outstanding shares of Class B common stock are owned by the Parkers and are convertible to Class A common stock on a share-for-share basis at the election of the Parkers or automatically upon transfer to someone outside of the Parker family. This voting structure gives the Parkers approximately 41% of the voting power of all of our outstanding stock.
Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons, and future use of autonomous tractors could increase the price of new tractors and decrease the value of used, non-autonomous tractors.
Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons, and future use of autonomous tractors and alternative fuel could increase the price of new tractors and decrease the value of used, non-autonomous tractors.
Because our operations are dependent upon diesel fuel, significant diesel fuel cost increases, as well as widespread or long-term shortages, rationings, or supply disruptions of diesel fuel, would materially and adversely affect our business, financial condition, and results of operations. 17 Table of Contents Fuel also is subject to regional pricing differences and is often more expensive in certain areas where we operate.
Because our operations are dependent upon diesel fuel, significant diesel fuel cost increases, as well as widespread or long-term shortages, rationings, or supply disruptions of diesel fuel, would materially and adversely affect our business, financial condition, and results of operations. Fuel also is subject to regional pricing differences and is often more expensive in certain areas where we operate.
Insofar as any changes in the CSA Program increase the likelihood of us receiving unfavorable scores or mandate FMCSA to restore public access to scores, it could adversely affect our results of operation and profitability. 20 Table of Contents Receipt of an unfavorable DOT safety rating could have a materially adverse effect on our operations and profitability.
Insofar as any changes in the CSA Program increase the likelihood of us receiving unfavorable scores or mandate FMCSA to restore public access to scores, it could adversely affect our results of operation and profitability. Receipt of an unfavorable DOT safety rating could have a materially adverse effect on our operations and profitability.
Regulatory requirements, including those related to safety ratings, ELDs, hours-of-service changes, government imposed measures related to future outbreaks of COVID-19 or other similar outbreaks, and an improved economy could further reduce the number of eligible drivers or force us to increase driver compensation to attract and retain drivers.
Regulatory requirements, including those related to safety ratings, ELDs, hours-of-service changes, government imposed measures related to future outbreaks of COVID-19 or other contagious diseases, and an improved economy could further reduce the number of eligible drivers or force us to increase driver compensation to attract and retain drivers.
We depend on the proper functioning and availability of our management information and communication systems and other information technology assets (including the data contained therein) and a system failure or unavailability, including those caused by cybersecurity breaches, or an inability to effectively upgrade such systems and assets could cause a significant disruption to our business and have a materially adverse effect on our results of operations.
We depend on the proper functioning and availability of our management information and communication systems and other information technology assets (including the data contained therein) and a system failure or unavailability, including those caused by cybersecurity breaches internally or with third-parties, or an inability to effectively upgrade such systems and assets could cause a significant disruption to our business and have a materially adverse effect on our results of operations.
In May 2011, we acquired a 49% interest in TEL, a used equipment leasing company and reseller. We account for our investment in TEL using the equity method of accounting. TEL faces several risks similar to those we face and additional risks particular to its business and operations. TEL has significant ongoing capital requirements and carries significant debt.
We hold a 49% interest in TEL, a used equipment leasing company and reseller. We account for our investment in TEL using the equity method of accounting. TEL faces several risks similar to those we face and additional risks particular to its business and operations. TEL has significant ongoing capital requirements and carries significant debt.
We believe that some of the most significant of these factors include (i) recessionary economic cycles; (ii) changes in customers’ inventory levels and practices, including shrinking product/package sizes, and in the availability of funding for their working capital; (iii) changes in the way our customers choose to utilize our services; (iv) downturns in our customers’ business cycles, including declines in consumer spending, (v) excess trucking capacity in comparison with shipping demand, (vi) driver shortages and increases in driver’s compensation, (vii) industry compliance with ongoing regulatory requirements, (viii) the availability and price of new revenue equipment and/or declines in the resale value of used revenue equipment; (ix) the impact of the COVID-19 outbreak; (x) compliance with ongoing regulatory requirements; (xi) strikes, work stoppages or work slowdowns at our facilities, or at customer, port, border crossing or other shipping-related facilities; (xii) increases in interest rates, inflation, fuel taxes, insurance, tolls, and license and registration fees; and (xiii) rising costs of healthcare.
We believe that some of the most significant of these factors include (i) recessionary economic cycles; (ii) changes in customers’ inventory levels and practices, including shrinking product/package sizes, and in the availability of funding for their working capital; (iii) changes in the way our customers choose to utilize our services; (iv) downturns in our customers’ business cycles, including declines in consumer spending, (v) excess trucking capacity in comparison with shipping demand, (vi) driver shortages and increases in driver’s compensation, (vii) industry compliance with ongoing regulatory requirements, (viii) the availability and price of new revenue equipment and/or declines in the resale value of used revenue equipment; (ix) the impact of public health crises, epidemics, pandemics or similar events, such as COVID-19; (x) compliance with ongoing regulatory requirements; (xi) strikes, work stoppages or work slowdowns at our facilities, or at customer, port, border crossing or other shipping-related facilities, including related reductions in demand; (xii) increases in interest rates, inflation, fuel taxes, insurance, tolls, and license and registration fees; and (xiii) rising costs of healthcare.
Our Chairman of the Board and Chief Executive Officer, David Parker, and his wife, Jacqueline Parker, beneficially own or have sole voting and dispositive power over approximately 14% of our outstanding Class A common stock and 100% of our Class B common stock.
Our Chairman of the Board and Chief Executive Officer, David Parker, and his wife, Jacqueline Parker, beneficially own or have sole voting and dispositive power approximately 15% of our outstanding Class A common stock and 100% of our Class B common stock.
Some tractor and trailer manufacturers are still experiencing shortages of certain component parts and supplies, including semi-conductor chips, forcing such manufacturers to curtail or suspend their production, which could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on our business, financial condition, and results of operations, particularly our maintenance expense and driver retention.
Some tractor and trailer manufacturers have recently experienced periodic shortages of certain component parts and supplies, including semi-conductor chips, forcing such manufacturers to curtail or suspend their production, which could lead to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on our business, financial condition, and results of operations, particularly our maintenance expense and driver retention.
If any of the foregoing were to occur, the value of our investment in TEL could decrease, and our financial condition, results of operations, and cash flow could suffer as a result. 23 Table of Contents We could determine that our goodwill and other intangible assets are impaired, thus recognizing a related loss.
If any of the foregoing were to occur, the value of our investment in TEL could decrease, dividends could be reduced or eliminated, and our financial condition, results of operations, and cash flow could suffer as a result. 23 Table of Contents We could determine that our goodwill and other intangible assets are impaired, thus recognizing a related loss.
Furthermore, a decrease in vendor output may have a materially adverse effect on our ability to purchase a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet.
A decrease in vendor output may have a materially adverse effect on our ability to purchase or take possession of a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to maintain a late-model fleet.
We must continue to develop and retain a core group of managers and attract, develop, and retain sufficient additional managers if we are to continue to improve our profitability and have appropriate succession planning for key management personnel. 18 Table of Contents Seasonality and the impact of weather and other catastrophic events affect our operations and profitability.
We must continue to develop and retain a core group of managers and attract, develop, and retain sufficient additional managers if we are to continue to improve our profitability and have appropriate succession planning for key management personnel. Seasonality and the impact of weather and climate change and other catastrophic events affect our operations and profitability.
The magnitude of these risks cannot be predicted, including the extent to which the conflict may heighten other risks disclosed herein. Ultimately, these or other factors could materially and adversely affect our results of operations.
The magnitude of these risks cannot be predicted, including the extent to which the conflict may heighten other risks disclosed herein. Ultimately, these or other factors could materially and adversely affect our results of operations. COMPLIANCE RISKS Litigation may adversely affect our business, financial condition, and results of operations.
In addition, events outside our control, such as deterioration of U.S. transportation infrastructure and reduced investment in such infrastructure, further developments in the COVID-19 outbreak, strikes or other work stoppages at our facilities or at customer, port, border or other shipping locations, armed conflicts, including the conflict in Ukraine, terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to our equipment, driver dissatisfaction, reduced economic demand and freight volumes, reduced availability of credit, increased prices for fuel, or temporary closing of the shipping locations or U.S. borders.
In addition, events outside our control, such as deterioration of U.S. transportation infrastructure and reduced investment in such infrastructure, public health crises, epidemics, pandemics, or similar event, such as COVID-19, strikes or other work stoppages at our facilities or at customer, port, border or other shipping locations, armed conflicts, including the conflicts in Ukraine and the Middle East, terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to our equipment, driver dissatisfaction, reduced economic demand and freight volumes, reduced availability of credit, increased prices for fuel, or temporary closing of the shipping locations or U.S. borders.
Furthermore, capacity at driving schools may be limited by future outbreaks of COVID-19 or other similar outbreaks.
Furthermore, capacity at driving schools may be limited by future outbreaks of COVID-19 or other contagious diseases.
Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business.
Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business. 18 Table of Contents Regulatory changes related to climate change could increase our costs significantly.
Litigation may adversely affect our business, financial condition, and results of operations. Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors, government agencies, stockholders, and other parties through private actions, class actions, administrative proceedings, regulatory actions, and other processes.
Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors, government agencies, stockholders, and other parties through private actions, class actions, administrative proceedings, regulatory actions, and other processes.
Furthermore, we may experience additional expense to reinstate insurance policies due to liability claims. Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower.
Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower.
As of December 31, 2022, we had goodwill of $58.2 million and other intangible assets of $48.2 million. We evaluate our goodwill and other intangible assets for impairment. We could recognize impairments in the future, and we may never realize the full value of our intangible assets. If these events occur, our profitability and financial condition will suffer.
As of December 31, 2023, we had goodwill of $75.7 million and other intangible assets of $99.6 million. We evaluate our goodwill and other intangible assets for impairment. We could recognize impairments in the future, and we may never realize the full value of our intangible assets. If these events occur, our profitability and financial condition will suffer.
Significant future increases in the amount of collateral required by third-party insurance carriers and regulators would reduce our liquidity and could adversely affect our results of operations and capital resources. 19 Table of Contents We have experienced, and may experience additional, erosion of available limits in our aggregate insurance policies.
Significant future increases in the amount of collateral required by third-party insurance carriers and regulators would reduce our liquidity and could adversely affect our results of operations and capital resources. We have experienced, and may experience additional, erosion of available limits in our aggregate insurance policies. Furthermore, we may experience additional expense to reinstate insurance policies due to liability claims.
Not all claims are covered by our insurance, and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute.
The cost to defend litigation may also be significant. Not all claims are covered by our insurance, and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute.
If there is a deterioration of resale prices, it could have a material adverse effect on our business, financial condition, and results of operations. We have seen a softening of the used equipment market recently.
If there is a deterioration of resale prices, it could have a material adverse effect on our business, financial condition, and results of operations. During 2022 and 2023, we experienced a softened used equipment market.
Companies are facing increasing attention from stakeholders relating to ESG matters, including environmental stewardship, social responsibility, and diversity and inclusion. Organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
Organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders may be reduced, and holders of these securities may have rights, preferences, or privileges senior to those of our stockholders. Our indebtedness and finance and operating lease obligations could adversely affect our ability to respond to changes in our industry or business.
If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders may be reduced, and holders of these securities may have rights, preferences, or privileges senior to those of our stockholders.
Higher costs incurred by us, or by our suppliers who pass the costs onto us through higher supplies and materials pricing, or liabilities we may incur related to our failure to comply with existing or future regulations could adversely affect our results of operations.
Higher costs incurred by us, or by our suppliers who pass the costs onto us through higher supplies and materials pricing, or liabilities we may incur related to our failure to comply with existing or future regulations could adversely affect our results of operations. 17 Table of Contents If our independent contractor drivers are deemed by regulators or judicial process to be employees, our business, financial condition, and results of operations could be adversely affected.
Our initiatives include continuing to improve the durability of contracts in our Expedited and Dedicated reportable segments, growing our Warehousing reportable segment, including investments in capacity within the Warehousing reportable segment, delivering more consistent returns for our stockholders, improving profitability, and reducing costs and inefficiencies.
Our initiatives include continuing to improve the durability of contracts in our Expedited and Dedicated reportable segments, growing our Dedicated reportable segment, with new poultry related business, delivering more consistent returns for our stockholders, increasing operating income and margins in each of our segments, improving profitability, and reducing costs and inefficiencies.
Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. In 2022, certain regions of the United States experienced short-term shortages of diesel fuel.
Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain.
In addition, TEL's leasing customers are typically small trucking companies without substantial financial resources, and TEL is subject to risk of loss should those customers be unable to make their lease payments. In 2019, TEL had a significant customer that declared bankruptcy, which resulted in a reduction in TEL’s profitability into 2020.
In addition, TEL's leasing customers are typically small trucking companies without substantial financial resources, and TEL is subject to risk of loss should those customers be unable to make their lease payments or declare bankruptcy, which has happened in the past.
While we review and monitor the financial condition of our key customers on an ongoing basis to determine whether to provide services on credit, our customers' financial difficulties could nevertheless negatively impact our results of operations and financial condition, especially if these customers were to delay or default on payments to us.
While we review and monitor the financial condition of our key customers on an ongoing basis to determine whether to provide services on credit, our customers' financial difficulties could nevertheless negatively impact our results of operations and financial condition, especially if these customers were to delay or default on payments to us. 15 Table of Contents We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our ability to improve our profitability, limit growth opportunities, and could have a materially adverse effect on our results of operations.
Our operations and those of our technology and communications service providers are vulnerable to interruption by natural disasters, such as fires, storms, and floods, which may increase in frequency and severity due to climate change, as well as, power loss, telecommunications failure, cyberattacks, terrorist attacks, Internet failures, computer viruses, and other events beyond our control.
Furthermore, data privacy laws, which provide data privacy rights for consumers and operational requirements for companies, may result in increased liability and amplified compliance and monitoring costs, any of which could have a material adverse effect on our financial performance and business operations. 20 Table of Contents Our operations and those of our technology and communications service providers are vulnerable to interruption by natural disasters, such as fires, storms, and floods, which may increase in frequency and severity due to climate change, as well as, power loss, telecommunications failure, cyberattacks, terrorist attacks, Internet failures, computer viruses, and other events beyond our control.
While it is expected that we will continue to pay a quarterly dividend under the dividend program initiated in January 2022, there is no assurance that we will declare or pay any future dividends or as to the amount or timing of those dividends, if any. 24 Table of Contents If we fail to maintain effective internal control over financial reporting in the future, there could be an elevated possibility of a material misstatement, and such a misstatement could cause investors to lose confidence in our financial statements, which could have a material adverse effect on our stock price.
If we fail to maintain effective internal control over financial reporting in the future, there could be an elevated possibility of a material misstatement, and such a misstatement could cause investors to lose confidence in our financial statements, which could have a material adverse effect on our stock price.
Similarly, our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation. 21 Table of Contents FINANCIAL RISKS Our Third Amended and Restated Credit Agreement (our "Credit Facility") and other financing arrangements contain certain covenants, restrictions, and requirements, and we may be unable to comply with such covenants, restrictions, and requirements.
Similarly, our failure, or perceived failure, to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.
Further, the compensation we offer our drivers and independent contractor expenses are subject to market conditions, and we may find it necessary to increase driver and independent contractor compensation in future periods. 16 Table of Contents In addition, we and many other truckload carriers suffer from a high turnover rate of drivers and independent contractors, and our turnover rate is higher than the industry average and compared to our peers.
In addition, we and many other truckload carriers suffer from a high turnover rate of drivers and independent contractors, and our turnover rate is higher than the industry average and as compared to our peers.
If we fail to maintain effective internal controls in the future, including any future acquisitions, it could result in a material misstatement of our financial statements, which could cause investors to lose confidence in our financial statements or cause our stock price to decline. COVID-19 RISKS We could be negatively impacted by the COVID-19 outbreak or other similar outbreaks.
If we fail to maintain effective internal controls in the future, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, including with the implementation of our internal controls in acquired companies, it could result in a material misstatement of our financial statements, which could cause investors to lose confidence in our financial statements or cause our stock price to decline. 24 Table of Contents
Our agreements with the independent contractors we engage are governed by the federal leasing regulations, which impose specific requirements on us and the independent contractors. If more stringent federal leasing regulations are adopted, independent contractors could be deterred from becoming independent contractor drivers, which could materially adversely affect our goal of growing our current fleet levels of independent contractors.
Our agreements with the independent contractors we engage are governed by the federal leasing regulations, which impose specific requirements on us and the independent contractors.
Fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase commitments, surcharge collection, and hedging activities may increase our costs of operation, which could have a materially adverse effect on our profitability. Fuel is one of our largest operating expenses.
If more stringent federal leasing regulations are adopted, independent contractors could be deterred from becoming independent contractor drivers, which could materially adversely affect our goal of growing our current fleet levels of independent contractors. 19 Table of Contents Fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase commitments, surcharge collection, and hedging activities may increase our costs of operation, which could have a materially adverse effect on our profitability.
The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend litigation may also be significant.
We operate a business that hauls arms, ammunitions, and explosives that could increase our exposure if there were an accident involving this freight. 16 Table of Contents The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.
These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and increases of our insurance costs. Increasing attention on environmental, social and governance ( “ ESG ” ) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks.
Increasing attention on environmental, social and governance ( “ ESG ” ) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks. Companies are facing increasing attention from stakeholders relating to ESG matters, including environmental stewardship, social responsibility, and diversity and inclusion.
Weather and other seasonal events could adversely affect our operating results. COMPLIANCE RISKS We self-insure for a significant portion of our claims exposure, which could significantly increase the volatility of, and decrease the amount of, our earnings.
These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or damages and increases of our insurance costs. We self-insure for a significant portion of our claims exposure, which could significantly increase the volatility of, and decrease the amount of, our earnings.
A number of these lawsuits have resulted in the payment of substantial settlements or damages by the defendants. In 2022 we acquired a business that hauls arms, ammunitions, and explosives that could increase our exposure if there were an accident involving this freight.
A number of these lawsuits have resulted in the payment of substantial settlements or damages by the defendants.
Removed
We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our ability to improve our profitability, limit growth opportunities, and could have a materially adverse effect on our results of operations.
Added
To the extent regulatory changes continue related to climate change, we could incur significant costs to our operation, mainly centered around our revenue producing equipment and our warehousing operations. We are not able to accurately predict the materiality of any potential losses or costs.
Removed
Furthermore, data privacy laws, which provide data privacy rights for consumers and operational requirements for companies, may result in increased liability and amplified compliance and monitoring costs, any of which could have a material adverse effect on our financial performance and business operations.
Added
Concern over climate change, including the impact of global warming, has led to significant legislative and regulatory efforts to limit carbon and other greenhouse gas emissions.
Removed
If our independent contractor drivers are deemed by regulators or judicial process to be employees, our business, financial condition, and results of operations could be adversely affected.
Added
Emission-related regulatory actions have historically resulted in increased costs related to revenue equipment, diesel fuel, equipment maintenance, and environmental monitoring or reporting requirements, and future legislation, if any, could impose substantial costs that may adversely affect our results of operations.
Removed
Our operations, particularly in areas of increased COVID-19 infections could be disrupted. Furthermore, government vaccine, testing, and mask mandates could increase our turnover and make recruiting more difficult, particularly among our driver, warehouse, and maintenance personnel. See "Other Regulation" in Part I, Item 1 of this Annual Report, for additional details regarding COVID-19 vaccine, testing, and mask mandates.
Added
In addition, any such legislation may require changes in our operating practices, impair equipment productivity, or require additional reporting disclosures, and compliance with any such legislation may increase our risk of litigation or governmental investigations or proceedings.
Removed
Negative financial results, operational disruptions and a tightening of credit markets, caused by COVID-19, other similar outbreaks, or a recession, could have a material adverse effect on our liquidity, reduce credit options available to us, adversely impact the ability of our customers to pay for our services, make it more difficult to obtain amendments, extensions, and waivers, and adversely impact our ability to effectively meet our short- and long-term obligations.
Added
Further, the compensation we offer our drivers and independent contractor expenses are subject to market conditions, and we may find it necessary to increase driver and independent contractor compensation in future periods.
Removed
The outbreak of COVID-19 has significantly increased uncertainty in the economy. Risks related to a slowdown or recession are described in our risk factor titled “Our business is subject to economic, credit, business, and regulatory factors affecting the truckload industry that are largely beyond our control, any of which could have a materially adverse effect on our operating results”.
Added
Fuel is one of our largest operating expenses.
Removed
Short-term and long-term developments related to COVID-19 have been unpredictable and the extent to which further developments could impact our operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain.
Added
Such risks related to system failure, upgrade complication, security breach (including cyberattacks), or other system disruption may also impact our customers, vendors, third-party capacity providers, and other counterparties, which could result in declines and volatility in customer demand and unavailability of products and services from vendors and third-party capacity providers, any of which would have a material adverse effect on our business.
Removed
Such developments may include the duration of the outbreak, variants of the virus, the distribution and availability of vaccines, and treatments for the virus, the severity of the disease, and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak.
Added
In addition, the adoption of artificial intelligence (“AI”) and other emerging technologies may become significant to operating results in the future. While AI and other technologies may offer substantial benefits, they may also introduce additional risk. If we are unable to successfully implement and utilize such emerging technologies as effectively as competitors, our results of operation may be negatively affected.
Removed
We continue to diligently monitor the impact of COVID-19 on all aspects of our business, including the impact on our customers, teammates, suppliers and communities. 25 Table of Contents
Added
The effects of a widespread outbreak of an illness or disease, or any other public health crisis, as well as regulatory measures implemented in response to such events, could negatively impact the health and safety of our workforce and/or adversely impact our business, results of operations, financial condition, and cash flows.
Added
We face a wide variety of risks related to public health crises, epidemics, pandemics, or similar events, such as COVID-19.
Added
If a new health epidemic or outbreak were to occur, we could experience broad and varied impacts similar to the impact of COVID-19, including adverse impacts to our workforce, our operations, and financial results, such as increased costs, tightening of credit markets, market volatility and a weakened freight environment.
Added
If any of these were to occur, our operations, financial condition, liquidity, results of operations, and cash flows could be adversely impacted. 21 Table of Contents FINANCIAL RISKS Our Third Amended and Restated Credit Agreement (our "Credit Facility") and other financing arrangements contain certain covenants, restrictions, and requirements, and we may be unable to comply with such covenants, restrictions, and requirements.
Added
Volatility in equity markets could also impair our financial position in general terms and our ability to effectively capitalize on potential merger and acquisition opportunities. Our indebtedness and finance and operating lease obligations could adversely affect our ability to respond to changes in our industry or business.
Added
While it is expected that we will continue to pay a quarterly dividend under the dividend program initiated in January 2022, there is no assurance that we will declare or pay any future dividends or as to the amount or timing of those dividends, if any.
Added
Our internal controls over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, failure or interruption of information technology systems, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonably assurance with respect to the preparation and fair presentation of financial statements.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed2 unchanged
Biggest changeMARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common Stock Our Class A common stock is traded on the NASDAQ Global Select Market, under the symbol "CVLG." As of February 24, 2023, we had approximately 57 stockholders of record of our Class A common stock; however, we estimate our actual number of stockholders is much higher because a substantial number of our shares are held of record by brokers or dealers for their customers in street names.
Biggest changeMARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common Stock Our Class A common stock is traded on the NASDAQ Global Select Market, under the symbol "CVLG." As of February 26, 2024, we had approximately 60 stockholders of record of our Class A common stock; however, we estimate our actual number of stockholders is much higher because a substantial number of our shares are held of record by brokers or dealers for their customers in street names.
See "Equity Compensation Plan Information" under Item 12 in Part III of this Annual Report on Form 10-K for certain information concerning shares of our Class A common stock authorized for issuance under our equity compensation plans. 27 Table of Contents
See "Equity Compensation Plan Information" under Item 12 in Part III of this Annual Report on Form 10-K for certain information concerning shares of our Class A common stock authorized for issuance under our equity compensation plans. 26 Table of Contents
As of February 24, 2023, Mr. Parker, together with certain of his family members, owned all of the outstanding Class B common stock. Dividend Policy In January 2022, our Board approved a quarterly cash dividend program of $0.0625 per share, which was increased to $0.08 per share in August 2022 and $0.11 per share in February 2023.
As of February 26, 2024, Mr. Parker, together with certain of his family members, owned all of the outstanding Class B common stock. Dividend Policy In January 2022, our Board approved a quarterly cash dividend program of $0.0625 per share, which was increased to $0.08 per share in August 2022 and $0.11 per share in February 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

79 edited+35 added−33 removed52 unchanged
Biggest changeRevenue equipment rentals and purchased transportation Year ended December 31, (dollars in thousands) 2022 2021 Revenue equipment rentals and purchased transportation $ 325,624 $ 331,685 % of total revenue 26.8 % 31.7 % % of freight revenue 31.1 % 34.9 % The decrease in revenue equipment rentals and purchased transportation was primarily the result of a reduction in purchased transportation costs in our Managed Freight reportable segment as a result of the softening freight market, partially offset by a reduction in the percentage of the total miles run by independent contractors from 8.2% for 2021 to 6.6% for 2022 and the recognition of $7.5 million of expense related to the early lease abandonment and disposal charges for tractors pulled from operations during the fourth quarter of 2022, which have been the source of significant operational headwinds throughout the year due to poor fuel economy, unusually high maintenance costs, and elevated down time. 33 Table of Contents We expect revenue equipment rentals to decrease going forward as we largely transitioned from tractors held under operating leases to owned equipment during 2022.
Biggest changeRevenue equipment rentals and purchased transportation Year ended December 31, (dollars in thousands) 2023 2022 Revenue equipment rentals and purchased transportation $ 271,893 $ 325,624 % of total revenue 24.6 % 26.8 % % of freight revenue 28.0 % 31.1 % The decrease in revenue equipment rentals and purchased transportation was primarily the result of a reduction in purchased transportation costs in our Managed Freight reportable segment as a result of the softening freight market, the reduction in leased revenue equipment as the result of largely transitioning from tractors held under operating leases to owned tractors in 2022, and the recognition of $7.5 million of expense related to the early lease abandonment and disposal charges for tractors pulled from operations during the fourth quarter of 2022.
The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences, such as executive compensation disallowance in 2021. The nondeductible effect of the per diem payments was temporarily suspended for 2021 and 2022 in accordance with IRS guidance issued during the quarter ended December 31, 2021.
The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences, such as executive compensation disallowance in 2022. The nondeductible effect of the per diem payments was temporarily suspended for 2022 in accordance with IRS guidance issued during the quarter ended December 31, 2021.
Due to the erosion of the $9.0 million in excess of $1.0 million layer, any adverse developments in claims filed between April 1, 2018 and March 31, 2021, could result in additional expense accruals. We maintained our retention and limits set in place during the prior renewal cycle.
Due to the erosion of the $9.0 million in excess of $1.0 million layer, any adverse developments in claims filed between April 1, 2018 and March 31, 2021, could result in additional expense accruals. We have maintained our retention and limits set in place during the prior renewal cycle.
Intangible assets that are deemed to have finite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 3 to 15 years. Self-Insurance Accruals We record a liability for the estimated cost of the uninsured portion of pending claims and the estimated allocated loss adjustment expenses including legal and other direct costs associated with a claim.
Intangible assets that are deemed to have finite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 3 to 17 years. Self-Insurance Accruals We record a liability for the estimated cost of the uninsured portion of pending claims and the estimated allocated loss adjustment expenses including legal and other direct costs associated with a claim.
As a result of the most recent goodwill impairment analysis performed (October 1, 2022), no impairment was indicated. We test intangible assets with finite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations.
As a result of the most recent goodwill impairment analysis performed (October 1, 2023), no impairment was indicated. We test intangible assets with finite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations.
If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were estimated to be fully eroded based on claims expense accruals.
If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were fully eroded based on claims expense.
Excluding a de minimis number of trailers, all of our long-lived assets are, and have been for the last two fiscal years, located within the United States. 43 Table of Contents SEASONALITY Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.
Excluding a de minimis number of trailers, all of our long-lived assets are, and have been for the last two fiscal years, located within the United States. 42 Table of Contents SEASONALITY Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.
If freight market rates increase further, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers.
If freight market rates increase, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers.
The rate impact of these items will fluctuate in future periods as income fluctuates. 36 Table of Contents RESULTS OF SEGMENT OPERATIONS We have four reportable segments, Expedited, Dedicated, Managed Freight, and Warehousing each as described under "Reportable Segments and Service Offerings" in Part I, Item 1 of this Annual Report on Form 10-K.
The rate impact of these items will fluctuate in future periods as income fluctuates. 35 Table of Contents RESULTS OF SEGMENT OPERATIONS We have four reportable segments, Expedited, Dedicated, Managed Freight, and Warehousing each as described under "Reportable Segments and Service Offerings" in Part I, Item 1 of this Annual Report on Form 10-K.
The primary assumptions used in these various models include earnings multiples of acquisitions in a comparable industry, future cash flow estimates of each of the reporting units, weighted average cost of capital, working capital and capital expenditure requirements. We completed our annual goodwill impairment test, using the qualitative test, as of October 1, 2022, for each of our reporting units.
The primary assumptions used in these various models include earnings multiples of acquisitions in a comparable industry, future cash flow estimates of each of the reporting units, weighted average cost of capital, working capital and capital expenditure requirements. We completed our annual goodwill impairment test, using the qualitative test, as of October 1, 2023, for each of our reporting units.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this document can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this document can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
With an average tractor fleet age of 2.1 years, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options. If we were to grow our independent contractor fleet, our capital requirements would be reduced.
With an average tractor fleet age of 1.6 years, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options. If we were to grow our independent contractor fleet, our capital requirements would be reduced.
In our asset-light reportable segments, we are prioritizing growth, focusing on talent acquisition and technology enhancements. 37 Table of Contents Liquidity and Capital Resources Our business requires significant capital investments over the short-term and the long-term.
In our asset-light reportable segments, we are prioritizing long-term growth, focusing on talent acquisition, and technology enhancements. 36 Table of Contents Liquidity and Capital Resources Our business requires significant capital investments over the short-term and the long-term.
Self-insured liabilities represent management's best estimate of our ultimate obligations. 42 Table of Contents INFLATION, NEW EMISSIONS CONTROL REGULATIONS, AND FUEL COSTS Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations.
Self-insured liabilities represent management's best estimate of our ultimate obligations. 41 Table of Contents INFLATION, NEW EMISSIONS CONTROL REGULATIONS, AND FUEL COSTS Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations.
All of our revenue generated was generated within the U.S. in 2021 and 2022. We do not separately track domestic and foreign revenue from customers, and providing such information would not be meaningful.
All of our revenue generated was generated within the U.S. in 2022 and 2023. We do not separately track domestic and foreign revenue from customers, and providing such information would not be meaningful.
The cost of fuel has been volatile over the last several years, with costs increasing in 2019, 2021, and 2022 but decreasing in 2020. Health care prices have increased faster than general inflation, primarily due to the rapid increase in prescription drug costs and more people on our health plan.
The cost of fuel has been volatile over the last several years, with costs increasing in 2021 and 2022 but decreasing in 2023. Health care prices have increased faster than general inflation, primarily due to the rapid increase in prescription drug costs and more people on our health plan.
Based on our anticipated cash flow generation profile, we will be able to continue our cash dividend program and evaluate a full range of capital allocation alternatives, including maintaining a lower leveraged balance sheet, organic growth, acquisition and disposition opportunities, and stock repurchases.
Based on our anticipated cash flow generation profile, we expect to be able to continue our cash dividend program and evaluate a full range of capital allocation alternatives, including maintaining a lower leveraged balance sheet compared to 2020, organic growth, acquisition and disposition opportunities, and stock repurchases.
We generally depreciate new tractors over five years to salvage values that range from 10% to 35% of cost, depending on the reportable segment profile of the equipment. We generally depreciate new trailers over seven years for refrigerated trailers and ten years for dry van trailers to salvage values of approximately 28% and 29% of their cost, respectively.
We generally depreciate new tractors over five years to salvage values that range from 0% to 35% of cost, depending on the reportable segment profile of the equipment. We generally depreciate new trailers over seven years for refrigerated trailers and ten years for dry van trailers to salvage values of approximately 28% and 25% of their cost, respectively.
Due to TEL's business model, gains and losses on sale of equipment is a normal part of the business and can cause earnings to fluctuate from quarter to quarter and therefore our income from investment to similarly fluctuate. We expect TEL's results for 2023 to remain similar to those of 2022.
Due to TEL's business model, gains and losses on sale of equipment is a normal part of the business and can cause earnings to fluctuate from period to period and therefore our income from investment to similarly fluctuate. We expect TEL's results for 2024 to remain similar to those of 2023.
Further, we expect to increase our capital allocation toward our Dedicated, Managed Freight, and Warehousing reportable segments to become the go-to partner for our customers’ most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $66.5 million and $45.8 million at December 31, 2022 and 2021, respectively.
Further, we expect to increase our capital allocation toward our Dedicated, Managed Freight, and Warehousing reportable segments to become the go-to partner for our customers’ most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $15.7 million and $66.5 million at December 31, 2023 and 2022, respectively.
Income from equity method investment Year ended December 31, (in thousands) 2022 2021 Income from equity method investment $ 25,193 $ 14,782 We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income.
Income from equity method investment Year ended December 31, (in thousands) 2023 2022 Income from equity method investment $ 21,384 $ 25,193 We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income.
Refer to Note 8, “Debt” of the accompanying consolidated financial statements for further information about material debt agreements. Our net capital expenditures for the year ended December 31, 2022 totaled $47.5 million of expenditures as compared to $8.9 million of proceeds for the prior year.
Refer to Note 10, “Debt” of the accompanying consolidated financial statements for further information about material debt agreements. Our net capital expenditures for the year ended December 31, 2023 totaled $125.8 million of expenditures as compared to $47.5 million of expenditures for the prior year.
Net income from discontinued operations of $0.8 million, or $0.05 per diluted share, for 2022, compared to $2.5 million, or $0.15 per diluted share in 2021; ● With available borrowing capacity of $86.1 million under our Credit Facility as of December 31, 2022, we do not expect to be required to test our fixed charge covenant in the foreseeable future; 29 Table of Contents ● Our equity investment in TEL provided $25.2 million of pre-tax earnings in 2022, compared to $14.8 million for 2021; ● Since December 31, 2021, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $17.9 million to $46.4 million; ● Leverage ratio (average total indebtedness, net of cash, divided by the sum of operating income (loss, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) was 0.34 at December 31, 2022, compared to 0.24 at December 31, 2021; ● Stockholders' equity at December 31, 2022 was $377.1 million, compared to $349.7 million at December 31, 2021; and ● Tangible book value per end-of-quarter basic share at December 31, 2022 was $19.97, compared to $17.10 at December 31, 2021.
Net income from discontinued operations of $0.6 million, or $0.04 per diluted share, for 2023, compared to $0.8 million, or $0.05 per diluted share in 2022; ● With available borrowing capacity of $76.6 million under our Credit Facility as of December 31, 2023, we do not expect to be required to test our fixed charge covenant in the foreseeable future; 28 Table of Contents ● Our equity investment in TEL provided $21.4 million of pre-tax earnings in 2023, compared to $25.2 million for 2022; ● Since December 31, 2022, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $202.0 million to $248.3 million; ● Leverage ratio (average total indebtedness, net of cash, divided by the sum of operating income (loss, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) was 2.14 at December 31, 2023, compared to 0.34 at December 31, 2022; ● Stockholders' equity at December 31, 2023 was $403.4 million, compared to $377.1 million at December 31, 2022; and ● Tangible book value per end-of-quarter basic share at December 31, 2023 was $17.45, compared to $19.97 at December 31, 2022.
Depreciation and amortization Year ended December 31, (dollars in thousands) 2022 2021 Depreciation and amortization $ 57,512 $ 53,881 % of total revenue 4.7 % 5.2 % % of freight revenue 5.5 % 5.7 % Depreciation and amortization consists primarily of depreciation of tractors, trailers and other capital assets (including those under finance leases), as well as amortization of intangible assets.
Depreciation and amortization Year ended December 31, (dollars in thousands) 2023 2022 Depreciation and amortization $ 69,943 $ 57,512 % of total revenue 6.3 % 4.7 % % of freight revenue 7.2 % 5.5 % Depreciation and amortization consists primarily of depreciation of tractors, trailers and other capital assets (including those under finance leases), as well as amortization of intangible assets.
Operating taxes and licenses Year ended December 31, (dollars in thousands) 2022 2021 Operating taxes and licenses $ 11,931 $ 10,899 % of total revenue 1.0 % 1.0 % % of freight revenue 1.1 % 1.1 % For the period presented, the change in operating taxes and licenses is insignificant both as a percentage of total revenue and freight revenue.
Operating taxes and licenses Year ended December 31, (dollars in thousands) 2023 2022 Operating taxes and licenses $ 13,409 $ 11,931 % of total revenue 1.2 % 1.0 % % of freight revenue 1.4 % 1.1 % For the period presented, the change in operating taxes and licenses is insignificant both as a percentage of total revenue and freight revenue.
Historically, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment.
Historically, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment. Going forward, we expect revenue equipment acquisitions to primarily be through purchases and finance leases.
Communications and utilities Year ended December 31, (dollars in thousands) 2022 2021 Communications and utilities $ 5,385 $ 4,558 % of total revenue 0.4 % 0.4 % % of freight revenue 0.5 % 0.5 % For the period presented, the change in communications and utilities are insignificant both as a percentage of total revenue and freight revenue. 34 Table of Contents General supplies and expenses Year ended December 31, (dollars in thousands) 2022 2021 General supplies and expenses $ 37,762 $ 29,673 % of total revenue 3.1 % 2.8 % % of freight revenue 3.6 % 3.1 % The increase in general supplies and expenses was primarily the result of new leased spaces for our Warehousing reportable segment, increased travel expenses, and the increase in the contingent consideration liability since the 2021 period related to the acquisition of AAT.
Communications and utilities Year ended December 31, (dollars in thousands) 2023 2022 Communications and utilities $ 5,012 $ 5,385 % of total revenue 0.5 % 0.4 % % of freight revenue 0.5 % 0.5 % For the period presented, the change in communications and utilities are insignificant both as a percentage of total revenue and freight revenue. 33 Table of Contents General supplies and expenses Year ended December 31, (dollars in thousands) 2023 2022 General supplies and expenses $ 49,444 $ 37,762 % of total revenue 4.5 % 3.1 % % of freight revenue 5.1 % 3.6 % The increase in general supplies and expenses was primarily the result of an increase of $4.6 million for new leased spaces for our Warehousing reportable segment from 2022 to 2023 and the $3.0 million increase in the contingent consideration liability since the 2022 period related to the acquisition of AAT.
Under such authorization, we repurchased 1.4 million shares of our Class A common stock for $30.0 million completing the program in May 2022. On May 18, 2022 our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available.
On May 18, 2022, our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available. Under such authorization, we repurchased 2.0 million shares of our Class A common stock for $54.7 million during 2022.
Our cash flows may fluctuate depending on capital expenditures, future stock repurchases, dividends, strategic investments or divestitures, any indemnification calls related to the TFS settlement, and the extent of future income tax obligations and refunds. 39 Table of Contents Non-GAAP Financial Measures Operating Ratio Operating Ratio (“OR”) For 2022 and 2021: (dollars in thousands) For the twelve months ended December 31, 2022 GAAP Operating Ratio: Combined Expedited Dedicated Managed Freight Warehousing Total revenue $ 1,216,858 $ 452,713 $ 362,997 $ 320,985 $ 80,163 Total operating expenses 1,096,176 392,161 341,910 284,127 77,978 Operating income (loss) $ 120,682 $ 60,552 $ 21,087 $ 36,858 $ 2,185 Operating ratio 90.1 % 86.6 % 94.2 % 88.5 % 97.3 % (dollars in thousands) For the twelve months ended December 31, 2022 Adjusted Operating Ratio: Combined Expedited Dedicated Managed Freight Warehousing Total revenue $ 1,216,858 $ 452,713 $ 362,997 $ 320,985 $ 80,163 Fuel surcharge revenue (170,462 ) (97,353 ) (71,798 ) - (1,311 ) Freight revenue (total revenue, excluding fuel surcharge) 1,046,396 355,360 291,199 320,985 78,852 Total operating expenses 1,096,176 392,161 341,910 284,127 77,978 Adjusted for: Fuel surcharge revenue (170,462 ) (97,353 ) (71,798 ) - (1,311 ) Amortization of intangibles (1) (4,306 ) (1,956 ) (1,173 ) (141 ) (1,036 ) Gain on sale of terminals, net 38,542 21,223 17,319 - - Contingent consideration liability adjustment (813 ) (813 ) - - - Abandonment of revenue equipment (9,985 ) (3,829 ) (6,156 ) - - Adjusted operating expenses 949,152 309,433 280,102 283,986 75,631 Adjusted operating income $ 97,244 $ 45,927 $ 11,097 $ 36,999 $ 3,221 Adjusted operating ratio 90.7 % 87.1 % 96.2 % 88.5 % 95.9 % (1) "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets.
(dollars in thousands) For the twelve months ended December 31, 2022 GAAP Operating Ratio: Combined Expedited Dedicated Managed Freight Warehousing Total revenue $ 1,216,858 $ 452,713 $ 362,997 $ 320,985 $ 80,163 Total operating expenses 1,096,176 392,161 341,910 284,127 77,978 Operating income (loss) $ 120,682 $ 60,552 $ 21,087 $ 36,858 $ 2,185 Operating ratio 90.1 % 86.6 % 94.2 % 88.5 % 97.3 % 39 Table of Contents (dollars in thousands) For the twelve months ended December 31, 2022 Adjusted Operating Ratio: Combined Expedited Dedicated Managed Freight Warehousing Total revenue $ 1,216,858 $ 452,713 $ 362,997 $ 320,985 $ 80,163 Fuel surcharge revenue (170,462 ) (97,353 ) (71,798 ) - (1,311 ) Freight revenue (total revenue, excluding fuel surcharge) 1,046,396 355,360 291,199 320,985 78,852 Total operating expenses 1,096,176 392,161 341,910 284,127 77,978 Adjusted for: Fuel surcharge revenue (170,462 ) (97,353 ) (71,798 ) - (1,311 ) Amortization of intangibles (2) (4,306 ) (1,956 ) (1,173 ) (141 ) (1,036 ) Gain on disposal of terminals, net 38,542 21,223 17,319 - - Impairment of real estate and related tangible assets (813 ) (813 ) - - - Impairment of revenue equipment and related charges (9,985 ) (3,829 ) (6,156 ) - - Adjusted operating expenses 949,152 309,433 280,102 283,986 75,631 Adjusted operating income $ 97,244 $ 45,927 $ 11,097 $ 36,999 $ 3,221 Adjusted operating ratio 90.7 % 87.1 % 96.2 % 88.5 % 95.9 % (1) "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets.
As of December 31, 2022 and December 31, 2021 we had $179.6 million and $74.3 million in debt and lease obligations, respectively, consisting of the following: ● No outstanding borrowings under the Credit Facility, respectively; ● No outstanding borrowings under the Draw Note, respectively; ● $88.9 million and $4.5 million in revenue equipment installment notes, respectively; ● $20.3 million and $21.5 million in real estate notes, respectively; ● $5.8 million and $10.8 million of the principal portion of financing lease obligations, respectively, and; ● $64.6 million and $37.4 million of the operating lease obligations, respectively.
As of December 31, 2023 and December 31, 2022 we had $293.5 million and $179.6 million in debt and lease obligations, respectively, consisting of the following: ● $11.6 million and no outstanding borrowings under the Credit Facility, respectively; ● No outstanding borrowings under the Draw Note; ● $213.9 million and $88.9 million in revenue equipment installment notes, respectively; ● $19.1 million and $20.3 million in real estate notes, respectively; ● $6.1 million and $5.8 million of the principal portion of financing lease obligations, respectively, and; ● $42.8 million and $64.6 million of the operating lease obligations, respectively.
The increase in average freight revenue per tractor per week is the result of a 17.8%, or 35.1 cents per mile, increase in average rate per total mile partially offset by an approximately 0.7% decrease in average miles per tractor when compared to 2021.
The decrease in average freight revenue per tractor per week is the result of an 8.2%, or 19.1 cents per mile, decrease in average rate per total mile partially offset by an approximately 7.5% increase in average miles per tractor when compared to 2022.
Fuel prices as measured by the DOE averaged approximately $4.99 per gallon, or 51.7%, higher in 2022 than 2021. 32 Table of Contents To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors and other third parties, which is included in purchased transportation) from our fuel expense.
Fuel prices as measured by the DOE averaged approximately $0.78 per gallon, or 15.6%, lower in 2023 than 2022. 31 Table of Contents To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors and other third-parties, which is included in purchased transportation) from our fuel expense.
Net gains on disposal of equipment and real estate for 2022 were $40.3 million compared to $3.8 million in 2021 primarily due to the $38.5 million gain on a California terminal during 2022.
Net gains on disposal of equipment and real estate for December 31, 2023 were $12.6 million compared to $40.3 million in 2022 primarily due to the $38.5 million gain on a California terminal during 2022 and a $7.6 million gain on the sale of a Tennessee terminal during 2023.
Income tax expense Year ended December 31, (dollars in thousands) 2022 2021 Income tax expense $ 34,860 $ 20,962 % of total revenue 2.9 % 2.0 % % of freight revenue 3.3 % 2.2 % The increase in tax expense primarily relates to the increase in operating income and earnings on investment in TEL as described above.
Income tax expense Year ended December 31, (dollars in thousands) 2023 2022 Income tax expense $ 17,611 $ 34,860 % of total revenue 1.6 % 2.9 % % of freight revenue 1.8 % 3.3 % The decrease in tax expense primarily relates to the decrease in operating income and earnings on investment in TEL as described above.
In addition to the changes in revenue described above, the change was impacted by an $88.2 million, $17.8 million, and $16.0 million increase in Expedited, Warehousing, and Dedicated operating expenses, respectively, partially offset by a $4.6 million decrease in Managed Freight operating expenses.
In addition to the changes in revenue described above, the change was impacted by a $39.3 million and $34.6 million decrease in Dedicated and Managed Freight operating expenses, respectively, partially offset by a $19.7 million and $2.8 million increase in Warehousing and Expedited operating expenses, respectively.
We had commitments outstanding at December 31, 2022, to acquire revenue equipment totaling approximately $156.6 million in 2023 versus commitments at December 31, 2022 of approximately $73.8 million. These commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits. We distributed a total of $4.3 million to stockholders during 2022 through dividends.
We had commitments outstanding at December 31, 2023, to acquire revenue equipment totaling approximately $156.6 million in 2023 versus commitments at December 31, 2023 of approximately $156.6 million. These commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits.
Additionally, changes in the used tractor market could cause us to adjust residual values, increase depreciation, hold assets longer than planned, or experience increased losses on sale.
Additionally, changes in the used tractor market could cause us to adjust residual values, increase depreciation, hold assets longer than planned, or experience increased losses on sale. Successfully executing our 2024 growth plan could also increase depreciation and amortization going forward.
Insurance and claims Year ended December 31, (dollars in thousands) 2022 2021 Insurance and claims $ 50,547 $ 38,788 % of total revenue 4.2 % 3.7 % % of freight revenue 4.8 % 4.1 % Insurance and claims per mile cost increased to 19.2 cents per mile for 2022 from 14.2 cents per mile in 2021.
Insurance and claims Year ended December 31, (dollars in thousands) 2023 2022 Insurance and claims $ 50,099 $ 50,547 % of total revenue 4.5 % 4.2 % % of freight revenue 5.2 % 4.8 % Insurance and claims per mile cost decreased slightly to 19.1 cents per mile for 2023 from 19.2 cents per mile in 2022.
The table below reflects the total revenue trends in each of these reportable segments: Year ended December 31, (in thousands) 2022 2021 Revenues: Expedited $ 452,713 $ 337,063 Dedicated 362,997 324,541 Managed Freight 320,985 321,236 Warehousing 80,163 63,163 Total revenues $ 1,216,858 $ 1,046,003 Our consolidated financial results are summarized as follows: ● Total revenue was $1,216.9 million, compared with $1,046.0 million for 2021, and freight revenue (which excludes revenue from fuel surcharges) was $1,046.4 million, compared with $949.9 million for 2021; ● Operating income from continuing operations was $120.7 million, compared with operating income from continuing operations of $67.2 million for 2021; ● Net income was $108.7 million, or $7.00 per diluted share, compared with net income of $60.7 million, or $3.57 per diluted share, for 2021; Net income from continuing operations was $142.8 million, or $6.95 per diluted share, for 2022, compared to $79.2 million or $3.42 per diluted share in 2021.
The table below reflects the total revenue trends in each of these reportable segments: Year ended December 31, (in thousands) 2023 2022 Revenues: Expedited $ 423,820 $ 452,713 Dedicated 320,287 362,997 Managed Freight 258,903 320,985 Warehousing 100,563 80,163 Total revenues $ 1,103,573 $ 1,216,858 Our consolidated financial results are summarized as follows: ● Total revenue was $1,103.6 million, compared with $1,216.9 million for 2022, and freight revenue (which excludes revenue from fuel surcharges) was $970.5 million, compared with $1,046.4 million for 2022; ● Operating income from continuing operations was $58.8 million, compared with operating income from continuing operations of $120.7 million for 2022; ● Net income was $55.2 million, or $3.99 per diluted share, compared with net income of $108.7 million, or $7.00 per diluted share, for 2022; Net income from continuing operations was $54.6 million, or $3.95 per diluted share, for 2023, compared to $107.9 million or $6.95 per diluted share in 2022.
The decrease in net cash flows used in financing activities was primarily the result of net proceeds relating to notes payable, the Draw Note, and our Credit Facility of $77.7 million in 2022, compared to net repayments of $70.7 million in 2021, partially offset by the repurchase of $84.7 million of shares of our Class A common stock during 2022, compared to $10.3 million during 2021, as well as the payment of approximately $4.3 million in dividends during 2022.
The change in net cash flows from financing activities was primarily the result of net proceeds relating to notes payable and our Credit Facility of $129.7 million in 2023, compared to net proceeds of $77.7 million in 2022, the repurchase of $25.4 million of shares of our Class A common stock during 2023 compared to $84.7 million during 2022, as well as the payment of approximately $5.8 million in dividends during 2023 compared to $4.3 million during 2022.
We test goodwill for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. We may elect to perform an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill.
We may elect to perform an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill.
The $17.0 million increase in Warehousing revenue as a result of period-over-period new customer business as well as rate increases with existing customers. Total operating income was $120.7 million in 2022, compared to operating income of $67.2 million in 2021.
The $20.4 million increase in Warehousing total revenue is a result of period-over-period new customer business as well as rate increases with existing customers since the third quarter of 2023. Total operating income was $58.8 million in 2023, compared to operating income of $120.7 million in 2022.
We will continue to evaluate the nature and extent of the potential short-term and long-term impacts to our business. 38 Table of Contents Cash Flows Net cash flows provided by operating activities increased to $159.2 million in 2022, compared with $73.2 million in 2021, primarily due to a $108.7 million of net income, including the $38.5 million gain on sale of a California terminal, and a decrease in receivables and driver advances as a result of a decrease in our average receivable days outstanding.
We believe we have sufficient liquidity to satisfy our cash needs, and will continue to evaluate the nature and extent of the potential short-term and long-term impacts to our business. 37 Table of Contents Cash Flows Net cash flows provided by operating activities decreased to $84.8 million in 2023, compared with $159.2 million in 2022, primarily due to an increase in receivables and driver advances as a result of an increase in our average receivable days outstanding and a $53.5 million decrease of net income, which is partially the result of the $38.5 million gain on sale of a California terminal during 2022, and a $1.7 million indemnification payment during 2023.
The increase in average freight revenue per tractor per week is the result of a 20.1%, or 44.1 cents per mile increase in average rate per total mile, partially offset by 3.1% fewer miles per tractor.
The increase in average freight revenue per tractor per week is the result of a 1.3%, or 3.4 cents per mile, increase in average rate per total mile, as well as 3.4% more miles per tractor.
The following table sets forth total revenue and freight revenue (total revenue less fuel surcharge revenue) for the periods indicated: Revenue Year ended December 31, (in thousands) 2022 2021 Revenue: Freight revenue $ 1,046,396 $ 949,913 Fuel surcharge revenue 170,462 96,090 Total revenue $ 1,216,858 $ 1,046,003 The increase in total revenue resulted from a $66.0 million, $16.4 million, and $14.3 million increase in Expedited, Warehousing, and Dedicated freight revenue, respectively, partially offset by a $0.3 million decrease in freight revenue from our Managed Freight reportable segment.
The following table sets forth total revenue and freight revenue (total revenue less fuel surcharge revenue) for the periods indicated: Revenue Year ended December 31, (in thousands) 2023 2022 Revenue: Freight revenue $ 970,509 $ 1,046,396 Fuel surcharge revenue 133,064 170,462 Total revenue $ 1,103,573 $ 1,216,858 The decrease in total revenue resulted from a $62.1 million, $22.7 million, and $11.6 million decrease in Managed Freight, Dedicated, and Expedited freight revenue, respectively, partially offset by a $20.5 million increase in freight revenue from our Warehousing reportable segment.
The increase in Dedicated freight revenue relates to an increase in average freight revenue per tractor per week of 16.3%, partially offset by a 149 (or 9.6%) average tractor decrease, compared to 2021.
The decrease in Dedicated freight revenue relates to a 168 (or 12.0%) average tractor decrease partially offset by an increase in average freight revenue per tractor per week of 4.7%, compared to 2022.
As of December 31, 2022, we had no borrowings outstanding, undrawn letters of credit outstanding of approximately $23.9 million, and available borrowing capacity of $86.1 million under the Credit Facility.
As of December 31, 2023, we had $11.6 million of borrowings outstanding, undrawn letters of credit outstanding of approximately $21.8 million, and available borrowing capacity of $76.6 million under the Credit Facility.
Additionally, we had availability of a $45.0 million line of credit from Triumph Bank ("Triumph") which is available solely to fund any indemnification owed to Triumph in relation to the sale of TFS. See Note 1, "Summary of Significant Accounting Policies," of the accompanying consolidated financial statements for more information regarding our indemnification obligation to Triumph.
Additionally, we had availability of a $45.0 million line of credit from Triumph Bank ("Triumph") which is available solely to fund any indemnification owed to Triumph in relation to the sale of TFS.
Net fuel expense is shown below: Year ended December 31, (dollars in thousands) 2022 2021 Total fuel surcharge $ 170,462 $ 96,090 Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties 11,156 7,683 Company fuel surcharge revenue $ 159,306 $ 88,407 Total fuel expense $ 166,410 $ 103,641 Less: Company fuel surcharge revenue 159,306 88,407 Net fuel expense $ 7,104 $ 15,234 % of freight revenue 0.7 % 1.6 % Net fuel expense decreased $8.1 million, or 53.4%, for the year ended December 31, 2022, compared to 2021.
Net fuel expense is shown below: Year ended December 31, (dollars in thousands) 2023 2022 Total fuel surcharge $ 133,064 $ 170,462 Less: Fuel surcharge revenue reimbursed to independent contractors and other third-parties 9,752 11,156 Company fuel surcharge revenue $ 123,312 $ 159,306 Total fuel expense $ 133,291 $ 166,410 Less: Company fuel surcharge revenue 123,312 159,306 Net fuel expense $ 9,979 $ 7,104 % of freight revenue 1.0 % 0.7 % Net fuel expense increased $2.9 million, or 40.5%, for the year ended December 31, 2023, compared to 2022.
The increase in Expedited freight revenue relates to an increase in average freight revenue per tractor per week of 17.0% compared to 2021 as well as a 42 (or 5.0%) average tractor increase.
The decrease in Expedited freight revenue relates to a decrease in average freight revenue per tractor per week of 1.4% compared to 2022 as well as a 17 (or 1.9%) average tractor decrease.
Seated team driven tractors increased approximately 9.1% to an average of 776 teams in 2022 from 711 teams in 2021. Our Dedicated total revenue increased $38.5 million, as freight revenue increased $14.3 million and fuel surcharge revenue increased $24.1 million.
Seated team driven tractors increased approximately 5.0% to an average of 815 teams in 2023 from 776 teams in 2022. Our Dedicated total revenue decreased $42.7 million, as freight revenue decreased $22.7 million and fuel surcharge revenue decreased $20.0 million.
Going forward, we believe this category will fluctuate based on several factors, including the condition of the driver market and our ability to hire and retain drivers, our continued ability to maintain a relatively young fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, and the global disruption of the supply chain, however, such increases may be offset by reductions in the age of our fleet due to our replacement plan for 2023, as well as the removal of the abandoned leased tractors that were requiring unusually high maintenance costs.
Going forward, we believe this category will fluctuate based on several factors, including the condition of the driver market and our ability to hire and retain drivers, our continued ability to maintain a relatively young fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, and the global disruption of the supply chain.
However, this expense category will fluctuate with the number and percentage of loads hauled by independent contractors, loads handled by Managed Freight, and tractors, trailers, and other assets financed with operating leases.
In addition, if fuel prices increase, it would result in a further increase in what we pay third-party carriers and independent contractors. However, this expense category will fluctuate with the number and percentage of loads hauled by independent contractors, loads handled by Managed Freight, and tractors, trailers, and other assets financed with operating leases.
(Gain) loss on disposition of property and equipment, net Year ended December 31, (dollars in thousands) 2022 2021 Gain on disposition of property and equipment, net $ (40,322 ) $ (3,799 ) % of total revenue (3.3 %) (0.4 %) % of freight revenue (3.9 %) (0.4 %) The increase in gain on disposition of property and equipment, net are primarily the result of the $38.5 million gain on sale of a California terminal in the third quarter of 2022.
Gain on disposition of property and equipment, net Year ended December 31, (dollars in thousands) 2023 2022 Gain on disposition of property and equipment, net $ (12,585 ) $ (40,322 ) % of total revenue (1.1 %) (3.3 %) % of freight revenue (1.3 %) (3.9 %) The decrease in gain on disposition of property and equipment, net is primarily the result of the $38.5 million gain on sale of a California terminal in the third quarter of 2022 partially offset by an increase in the sale of used equipment compared to 2022 and the $7.6 million gain on sale of a Tennessee terminal in the first quarter of 2023.
Our four reportable segments are Expedited, Dedicated, Managed Freight, and Warehousing, each as described under “Reportable Segments and Service Offerings” in Part I, Item 1 of this Annual Report on Form 10-K. For 2022, we generated over $1.0 billion in freight revenue, the highest annual earnings per share in our history, and a 15.3% return on average invested capital.
Our four reportable segments are Expedited, Dedicated, Managed Freight, and Warehousing, each as described under “Reportable Segments and Service Offerings” in Part I, Item 1 of this Annual Report on Form 10-K.
Fuel expense Year ended December 31, (dollars in thousands) 2022 2021 Fuel expense $ 166,410 $ 103,641 % of total revenue 13.7 % 9.9 % % of freight revenue 15.9 % 10.9 % The changes in total fuel expense are primarily related to higher fuel prices in 2022 and poor fuel economy on abandoned leased tractors, partially offset by a 3.5% decrease in total miles.
Fuel expense Year ended December 31, (dollars in thousands) 2023 2022 Fuel expense $ 133,291 $ 166,410 % of total revenue 12.1 % 13.7 % % of freight revenue 13.7 % 15.9 % The decreases in total fuel expense are primarily related to lower fuel prices in 2023 and the poor fuel economy of leased tractors abandoned during 2022, as well as a 0.6% decrease in total miles.
The increase is primarily the result of unfavorable development of a small number of prior period claims, as well as claims experienced during 2022, partially offset by lower accident rates. Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term.
The decrease is primarily the result of a reduction in outside claims partially offset by an increase in insurance premiums compared to 2022. Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term.
For 2023 we expected reduced gains on disposition of property and equipment as compared to 2022 as a result of having no large real property sales planned, however, we expect this decrease to be partially offset by an increase in used tractor sales as we return to a more normalized equipment replacement cycle. 35 Table of Contents Interest expense, net Year ended December 31, (dollars in thousands) 2022 2021 Interest expense, net $ 3,083 $ 2,791 % of total revenue 0.3 % 0.3 % % of freight revenue 0.3 % 0.3 % For the period presented, the change in interest expense, net is insignificant both as a percentage of total revenue and freight revenue.
For 2024 we expect gains on disposition of property and equipment to be less than those of 2023 as a result of having no large real estate property sales planned and having executed our 2023 equipment replacement plan which has helped return us to a more normalized equipment replacement cycle. 34 Table of Contents Interest expense, net Year ended December 31, (dollars in thousands) 2023 2022 Interest expense, net $ 7,967 $ 3,083 % of total revenue 0.7 % 0.3 % % of freight revenue 0.8 % 0.3 % For the period presented, the increase in interest expense, net is primarily the result of an increase in revenue equipment installment notes as we implemented our 2023 revenue equipment replacement plan.
Under such authorization, we repurchased 2.0 million shares of our Class A common stock for $54.7 million during 2022. On January 30, 2023, the Board approved an amendment to the Company's stock repurchase program authorizing the purchase of up to an aggregate $55 million of our Class A common stock.
On January 30, 2023, the Board approved an amendment to the Company's stock repurchase program authorizing the purchase of up to an aggregate $55.0 million of our Class A common stock. The amendment added an incremental approximately $37.5 million to the approximately $17.5 million that was then-remaining under the program.
This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, the implementation of our revenue equipment replacement plan between now and the end of 2023, increasing interest rates, and our ability to continue to generate profitable results and maintain lower leverage than we have historically.
This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan, and changing interest rates.
The following table summarizes revenue and operating income data by reportable segment and service offering: Year ended December 31, (in thousands) 2022 2021 Revenues: Expedited $ 452,713 $ 337,063 Dedicated 362,997 324,541 Managed Freight 320,985 321,236 Warehousing 80,163 63,163 Total revenues $ 1,216,858 $ 1,046,003 Operating Income (Loss): Expedited $ 60,552 $ 33,064 Dedicated 21,087 (1,357 ) Managed Freight 36,858 32,461 Warehousing 2,185 2,994 Total operating income $ 120,682 $ 67,162 Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 Our Expedited total revenue increased $115.7 million, as freight revenue increased $66.0 million and fuel surcharge revenue increased $49.6 million.
The following table summarizes revenue and operating income data by reportable segment and service offering: Year ended December 31, (in thousands) 2023 2022 Revenues: Expedited $ 423,820 $ 452,713 Dedicated 320,287 362,997 Managed Freight 258,903 320,985 Warehousing 100,563 80,163 Total revenues $ 1,103,573 $ 1,216,858 Operating Income: Expedited $ 28,861 $ 60,552 Dedicated 17,712 21,087 Managed Freight 9,388 36,858 Warehousing 2,862 2,185 Total operating income $ 58,823 $ 120,682 Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 Our Expedited total revenue decreased $28.9 million, as freight revenue decreased $11.6 million and fuel surcharge revenue decreased $17.3 million.
Declines in the price of used revenue equipment or failure to reach agreement for the purchase of new tractors with the manufacturers issuing trade-back agreements could result in impairment of, or losses on the sale of, revenue equipment. 41 Table of Contents Goodwill and Other Intangible Assets We classify intangible assets into two categories: (i) goodwill and (ii) intangible assets with finite lives subject to amortization.
Declines in the price of used revenue equipment or failure to reach agreement for the purchase of new tractors with the manufacturers issuing trade-back agreements could result in impairment of, or losses on the sale of, revenue equipment. 40 Table of Contents Business Combination Estimates Acquisitions are accounted for using the purchase method.
Managed Freight total revenue decreased $0.3 million in 2022, compared to 2021 as a result of reduced volumes of overflow freight from both Expedited and Dedicated truckload operations. With the softening freight market, we anticipate the revenue attributable to overflow freight to continue to decline.
Managed Freight total revenue decreased $62.1 million in 2023, compared to 2022 as a result of reduced volumes of high-margin overflow freight from both Expedited and Dedicated truckload operations. Revenue in this reportable segment is expected to fluctuate with changes in the freight market and our percentage of contracted versus non-contracted freight.
Additionally, we expect salaries, wages, and related expenses to continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance.
We believe driver and non-driver, including shop technicians, pay and benefits will continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. Driver pay may also fluctuate based on the number of miles driven.
As a percentage of freight revenue, net fuel expense decreased 0.9% for the year ended December 31, 2022, compared to 2021. These decreases primarily resulted from increased fuel surcharge revenue and fewer total miles, partially offset by higher fuel costs.
As a percentage of freight revenue, net fuel expense increased 0.3% for the year ended December 31, 2023, compared to 2022, primarily due to decreased fuel surcharge recovery partially offset by lower fuel prices. There were no diesel fuel hedge gains or loss for the years ended December 31, 2023 or 2022.
For comparison purposes in the discussion below, we use total revenue and freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a percentage of revenue. 31 Table of Contents Salaries, wages, and related expenses Year ended December 31, (dollars in thousands) 2022 2021 Salaries, wages, and related expenses $ 402,276 $ 350,246 % of total revenue 33.1 % 33.5 % % of freight revenue 38.4 % 36.9 % The increase in salaries, wages, and related expenses on a dollars basis is primarily the result of driver and non-driver, including shop technicians, pay and benefits increases since 2021.
For each expense item discussed below, we have provided a table setting forth the relevant expense first as a percentage of total revenue, and then as a percentage of freight revenue. 30 Table of Contents Salaries, wages, and related expenses Year ended December 31, (dollars in thousands) 2023 2022 Salaries, wages, and related expenses $ 400,491 $ 402,276 % of total revenue 36.3 % 33.1 % % of freight revenue 41.3 % 38.4 % The decrease in salaries, wages, and related expenses on a dollars basis is primarily the result of averaging fewer drivers and tractors resulting in lower driver salaries, wages, and benefits, partially offset by driver and non-driver, including shop technicians, pay and benefits increases, as well as increased group health costs and executive retirement costs since 2022.
Operations and maintenance Year ended December 31, (dollars in thousands) 2022 2021 Operations and maintenance $ 79,051 $ 59,269 % of total revenue 6.5 % 5.7 % % of freight revenue 7.6 % 6.2 % The increase in operations and maintenance expense on a dollars basis was primarily related to the increased maintenance costs as a result of an increase in the average age of equipment, unusually high maintenance costs on abandoned leased tractors, inflationary increases in the costs of parts and labor, as well as increased overage, shortage, and damage expense, as compared to 2021.
Operations and maintenance Year ended December 31, (dollars in thousands) 2023 2022 Operations and maintenance $ 63,753 $ 79,051 % of total revenue 5.8 % 6.5 % % of freight revenue 6.6 % 7.6 % The decrease in operations and maintenance expense was primarily related to the reduced maintenance costs as a result of a decrease in the average age of equipment through the replacement of older tractors that experienced higher operating costs as well as having fewer new drivers and a smaller average fleet as compared to 2022.
The change is also due to the timing of our trade cycle whereby we took delivery of approximately 458 new company tractors and disposed of approximately 223 used tractors in 2022, compared to delivery of 247 new company tractors and disposal of 362 used company tractors in 2021.
The increase in net cash flows used by investing activities was primarily the result of timing of our trade cycle whereby we took delivery of approximately 1,242 new company tractors and disposed of approximately 1,235 used tractors in 2023, compared to delivery of 458 new company tractors and disposal of 223 used company tractors in 2022, the April 2023 acquisition of LTST, and the August 2023 acquisition of Sims.
The increase in our revenue equipment installment notes was primarily due to replacing our older revenue equipment with new equipment as part of our trade cycle.
The increase in our revenue equipment installment notes was primarily due to replacing our older revenue equipment with new equipment. The decrease in operating lease obligations was primarily due to largely having transitioned from tractors held under operating leases to owned tractors in 2022 as well as amortization of the operating lease liability.
Depreciation, increased $3.4 million in 2022 to $53.2 million compared to 2021, primarily as a result of increased costs on new equipment partially offset by reduced tractor count. Amortization of intangible assets increased $0.3 million in 2022, compared to 2021, to $4.3 million.
Depreciation increased $9.2 million in 2023 to $62.4 million compared to 2022, primarily as a result of increased costs on new equipment and a higher percentage of owned tractors as we transitioned a large portion of tractors from operating leases to owned during 2022. These increases were partially offset by reduced average total tractor count.
These increases were partially offset by the $38.5 million gain on sale of a California terminal in the third quarter of 2022. The decrease in Managed Freight operating expenses is the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation.
The decrease in Managed Freight operating expenses is the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation. The increase in Warehousing operating expenses is a result of additional leased space and equipment for new business and pay increases, partially offset by a reduction in outsourced labor since 2022.
These increases were partially offset by decreases to non-cash expenses compared to the prior year. Net cash flows used by investing activities were $86.2 million in 2022, compared with $10.3 million provided in 2021.
Net cash flows used by investing activities were $235.9 million in 2023, compared with $86.2 million used in 2022.
For the year ended December 31, 2022, our earnings resulting from our investment in TEL increased to $25.2 million.
For the year ended December 31, 2023, our earnings resulting from our investment in TEL decreased to $21.4 million. The decrease in 2023 as compared to 2022 is the result of a reduction of gain on sale of revenue equipment.
Our baseline expectation for 2023 fleet net capital expenditures is a range of $75 million to $85 million, assuming scheduled deliveries and strong but moderating sale prices for used equipment. These assumptions are subject to risk. For example, global supply chain disruptions could impact the availability of tractors and trailers and lead to increased pricing on new and used equipment.
For example, global supply chain disruptions similar to 2021 and 2022 could impact the availability of tractors and trailers and lead to increased pricing on new and used equipment.
Net cash flows used in financing activities were approximately $12.8 million in 2022, compared to $83.6 million in 2021.
The 2022 period includes the February 2022 acquisition of AAT as well as the sale of a California terminal. Net cash flows provided by financing activities were approximately $84.7 million in 2023, compared to $12.8 million used in 2022.
We will remain focused on growing our market share, continuing to improve our operations, and becoming a stronger, more profitable, and more predictable business with the opportunity for significant and sustained value creation. 30 Table of Contents RESULTS OF CONSOLIDATED OPERATIONS Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Despite these short-term headwinds, we believe our more resilient operating model, together with the steps we have taken to reduce costs and inefficiencies, have positioned us well for another successful year. 29 Table of Contents RESULTS OF CONSOLIDATED OPERATIONS Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The increase in Expedited and Dedicated operating expenses was primarily due to driver and non-driver pay increases since 2021, and increased maintenance costs as a result of an increase in the average age of equipment and increases in the costs of parts and labor.
The increase in Expedited operating expenses was primarily due to the Expedited portion of the gain sale of a California terminal during the third quarter of 2022 (which resulted in lower operating expenses during 2022), increases in depreciation expense as a result of our equipment trade cycle, driver and non-driver pay increases, and increases in the contingent consideration liability related to AAT since 2022.
We expect depreciation and amortization to increase going forward as the cost of new equipment increases, we implement our 2023 revenue equipment replacement plan, and we transition from revenue equipment held under operating leases to a greater proportion of owned revenue equipment.
Amortization of intangible assets increased $3.2 million in 2023 to $7.5 million compared to 2022, primarily due to the amortization of the intangible assets related to the LTST and Sims acquisitions. We expect depreciation and amortization to increase going forward as the cost of new equipment increases and we see the full year effect of our 2023 equipment replacement plan.
The amendment added an incremental approximately $37.5 million to the approximately $17.5 million that was then-remaining under the program. We repurchased an additional 0.3 million shares of our Class A common stock through February 24, 2023, for a total of 3.7 million shares repurchased since February 2022.
Between May 2022 and April 2023, we repurchased a total of 2.7 million shares of our Class A common stock. No additional shares have been repurchased since April 2023 (through February 26, 2024).
Removed
We also acquired AAT, repurchased 3.4 million shares, resulting in a reduction of approximately 20% of the shares outstanding compared to a year ago, and, for the first time in Company history, distributed four quarterly dividend payments, all while maintaining moderately low debt.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe amounts actually realized will depend on the fair values as of the date of settlement. 44 Table of Contents Our market risk is also affected by changes in interest rates. Historically, we have used a combination of fixed-rate and variable-rate obligations to manage our interest rate exposure. Fixed-rate obligations expose us to the risk that interest rates might fall.
Biggest changeHistorically, we have used a combination of fixed-rate and variable-rate obligations to manage our interest rate exposure. Fixed-rate obligations expose us to the risk that interest rates might fall. Variable-rate obligations expose us to the risk that interest rates might rise.
Because the critical terms of the swap and hedged item coincide, in accordance with the requirements of ASC 815, the change in the fair value of the derivative is expected to exactly offset changes in the expected cash flows due to fluctuations in the LIBOR rate over the term of the debt instrument, and therefore no ongoing assessment of effectiveness is required.
Because the critical terms of the swap and hedged item coincide, in accordance with the requirements of ASC 815, the change in the fair value of the derivative is expected to exactly offset changes in the expected cash flows due to fluctuations in the SOFR rate over the term of the debt instrument, and therefore no ongoing assessment of effectiveness is required.
At our December 31, 2022 level of borrowing on our non-hedged variable rate debt, a 1% increase in our applicable rate would have an immaterial impact to our consolidated results of operations. Our remaining debt is fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.
At our December 31, 2023 level of borrowing on our non-hedged variable rate debt, a 1% increase in our applicable rate would have an immaterial impact to our consolidated results of operations. Our remaining debt is fixed rate debt, and therefore changes in market interest rates do not directly impact our interest expense.
For the years ended December 31, 2022 and 2021, the fair value of the swap agreements, amounts reclassified from accumulated other comprehensive loss into our results of operations, and amounts expected to be reclassified from accumulated other comprehensive income into our results of operations during the next twelve months due to interest rate changes, are approximately $0.3 million.
For the years ended December 31, 2023 and 2022, the fair value of the swap agreements, amounts reclassified from accumulated other comprehensive loss into our results of operations, and amounts expected to be reclassified from accumulated other comprehensive income into our results of operations during the next twelve months due to interest rate changes, are approximately $0.4 million.
As of December 31, 2022, we have no remaining fuel hedge contracts in our consolidated balance sheet. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. A one dollar increase in the price of diesel per gallon would increase our net income by $0.3 million.
As of December 31, 2023, we have no remaining fuel hedge contracts in our consolidated balance sheet. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. A one dollar increase in the price of diesel per gallon would decrease our net income by less than $0.1 million.
This sensitivity analysis considers that we expect to purchase approximately 17.8 million gallons of diesel annually, with an assumed fuel surcharge recovery rate of 102.4% of the cost (which was our fuel surcharge recovery rate during the year ended December 31, 2022).
This sensitivity analysis considers that we expect to purchase approximately 12.6 million gallons of diesel annually, with an assumed fuel surcharge recovery rate of 99.8% of the cost (which was our fuel surcharge recovery rate during the year ended December 31, 2023).
Variable-rate obligations expose us to the risk that interest rates might rise. Of our total $179.6 million of debt including operating and finance leases, we had $20.3 million of variable rate debt outstanding at December 31, 2022, which consisted of a real-estate note which is hedged with the interest rate swap agreement noted above at 4.2%.
Of our total $293.5 million of debt including operating and finance leases, we had $30.7 million of variable rate debt outstanding at December 31, 2023, of which $19.1 million related to a real-estate note which is hedged with the interest rate swap agreement noted above at 4.2%.
Added
Cash settlements are presented in operating activities on the Consolidated Statements of Cash Flows. The amounts actually realized will depend on the fair values as of the date of settlement. 43 Table of Contents Our market risk is also affected by changes in interest rates.

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