10-Q 1 cvti20240930_10q.htm FORM 10-Q cvti20240930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

or

 

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                        to

 

Commission File Number: 001-42192

 logonew.jpg 

COVENANT LOGISTICS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

88-0320154

(State or other jurisdiction of incorporation

(I.R.S. Employer Identification No.)

or organization)

 
  

400 Birmingham Hwy.

 

Chattanooga, TN

37419

(Address of principal executive offices)

(Zip Code)

 

423-821-1212

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
$0.01 Par Value Class A common stockCVLGThe New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒

No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒

No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐

  

Accelerated filer ☒

Non-accelerated filer   ☐

Smaller reporting company ☐

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐

No ☒


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (October 30, 2024).

 

Class A Common Stock, $.01 par value: 10,829,667 shares

Class B Common Stock, $.01 par value: 2,350,000 shares

 

Page 1
Table of Contents

 

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION
   

Page

Number

Item 1.

Financial Statements

  
     
 

Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (unaudited)

 3
     
 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023 (unaudited)

 4
     
 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (unaudited)

 5
     
 

Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2024 and 2023 (unaudited)

 6
     
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)

 7
     
 

Notes to Condensed Consolidated Financial Statements (unaudited)

 8
     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 23
     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 37
     

Item 4.

Controls and Procedures

 38
 

PART II

OTHER INFORMATION
   

Page

Number
     

Item 1.

Legal Proceedings

 39
     

Item 1A.

Risk Factors

 40
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 41
     

Item 3.

Defaults Upon Senior Securities

 41
     

Item 4.

Mine Safety Disclosures

 41
     

Item 5.

Other Information

 41
     

Item 6.

Exhibits

 42

 

Page 2
Table of Contents

  

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

  

September 30, 2024

  

December 31, 2023

 
  

(unaudited)

    

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $35,197  $2,294 

Accounts receivable, net of allowance of $2,357 in 2024 and $2,449 in 2023

  135,080   142,504 

Drivers' advances and other receivables, net of allowance of $586 in 2024 and $591 in 2023

  4,430   4,367 

Inventory and supplies

  6,109   4,848 

Prepaid expenses

  21,054   17,880 

Assets held for sale

  4,914   6,782 

Income taxes receivable

  7,533   6,739 

Other short-term assets

  430   531 

Total current assets

  214,747   185,945 
         

Property and equipment, at cost

  735,810   692,532 

Less: accumulated depreciation and amortization

  (198,619)  (177,877)

Net property and equipment

  537,191   514,655 
         

Goodwill

  78,941   75,747 

Other intangibles, net

  92,498   99,615 

Other assets, net

  86,009   78,067 

Noncurrent assets of discontinued operations

  259   409 

Total assets

 $1,009,645  $954,438 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $31,644  $33,155 

Accrued expenses

  55,722   59,067 

Current maturities of long-term debt

  73,101   47,651 

Current portion of finance lease obligations

  985   781 

Current portion of operating lease obligations

  10,980   11,950 

Current portion of insurance and claims accrual

  22,214   17,687 

Total current liabilities

  194,646   170,291 
         

Long-term debt

  192,461   196,894 

Long-term portion of finance lease obligations

  5,353   5,296 

Long-term portion of operating lease obligations

  33,608   30,892 

Insurance and claims accrual

  19,461   15,746 

Deferred income taxes

  119,016   116,095 

Other long-term liabilities

  12,513   14,169 

Long-term liabilities of discontinued operations

  1,035   1,635 

Total liabilities

  578,093   551,018 

Stockholders' equity:

        

Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,125,786 shares issued and 10,829,667 outstanding as of September 30, 2024; and 16,125,786 shares issued and 10,721,517 outstanding as of December 31, 2023

  161   161 

Class B common stock, $.01 par value; 5,000,000 shares authorized; 2,350,000 shares issued and outstanding

  24   24 

Additional paid-in-capital

  158,481   155,846 

Treasury stock at cost; 5,296,119 and 5,404,269 shares as of September 30, 2024 and December 31, 2023, respectively

  (131,472)  (132,346)

Accumulated other comprehensive income

  579   816 

Retained earnings

  403,779   378,919 

Total stockholders' equity

  431,552   403,420 

Total liabilities and stockholders' equity

 $1,009,645  $954,438 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 3
Table of Contents

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE three and nine months ended September 30, 2024 and 2023

(In thousands, except per share data)

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  
   

(unaudited)

    

(unaudited)

  
   

2024

    

2023

    

2024

    

2023

  

Revenues

                                

Freight revenue

   $ 258,599     $ 253,377     $ 762,796     $ 730,503  

Fuel surcharge revenue

     29,286       35,344       91,349       99,085  

Total revenue

   $ 287,885     $ 288,721     $ 854,145     $ 829,588  
                                 

Operating expenses:

                                

Salaries, wages, and related expenses

   $ 110,815     $ 102,314     $ 317,523     $ 302,753  

Fuel expense

     28,545       35,173       88,590       100,692  

Operations and maintenance

     17,690       16,984       46,838       50,328  

Revenue equipment rentals and purchased transportation

     64,434       72,046       193,940       203,045  

Operating taxes and licenses

     3,227       3,381       8,871       10,161  

Insurance and claims

     12,241       13,074       44,779       36,810  

Communications and utilities

     1,330       1,254       4,005       3,753  

General supplies and expenses

     11,937       11,774       47,244       38,169  

Depreciation and amortization

     21,222       18,182       64,460       51,701  

Loss (gain) on disposition of property and equipment, net

     209       (602 )     1,748       (12,380 )

Total operating expenses

     271,650       273,580       817,998       785,032  

Operating income

     16,235       15,141       36,147       44,556  

Interest expense, net

     3,204       2,637       10,341       5,530  

Income from equity method investment

     (3,993 )     (5,335 )     (11,763 )     (16,659 )

Income before income taxes

     17,024       17,839       37,569       55,685  

Income tax expense

     4,141       4,483       8,817       13,701  

Income from continuing operations, net of tax

     12,883       13,356       28,752       41,984  

Income from discontinued operations, net of tax

     150       150       450       450  

Net income

   $ 13,033     $ 13,506     $ 29,202     $ 42,434  
                                 

Basic income per share: (1)

                                

Income from continuing operations

   $ 0.98     $ 1.03     $ 2.19     $ 3.21  

Income from discontinued operations

     0.01       0.01       0.03       0.03  

Net income per share

   $ 0.99     $ 1.04     $ 2.22     $ 3.24  

Diluted income per share: (1)

                                

Income from continuing operations

   $ 0.93     $ 0.98     $ 2.08     $ 3.06  

Income from discontinued operations

     0.01       0.01       0.03       0.03  

Net income per share

   $ 0.94     $ 0.99     $ 2.11     $ 3.09  

Basic weighted average shares outstanding

     13,177       12,947       13,137       13,082  

Diluted weighted average shares outstanding

     13,901       13,679       13,827       13,739  

 

(1) Total may not sum due to rounding.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 4
Table of Contents

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE three and nine months ended September 30, 2024 and 2023

(Unaudited and in thousands)

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Net income

 $13,033  $13,506  $29,202  $42,434 
                 

Other comprehensive income:

                
                 

Unrealized (loss) gain on effective portion of cash flow hedges, net of tax of $152 and ($20) in 2024 and ($177) and ($221) in 2023, respectively

  (435)  505   57   632 

Reclassification of cash flow hedge gains into statement of operations, net of tax of $34 and $103 in 2024 and $35 and $95 in 2023, respectively

  (96)  (100)  (294)  (271)

Total other comprehensive (loss) income

  (531)  405   (237)  361 
                 

Comprehensive income

 $12,502  $13,911  $28,965  $42,795 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 5
Table of Contents

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three and nine months ended September 30, 2024 and 2023

(Unaudited and in thousands)

 

  

For the Three and Nine Months Ended September 30, 2024

 
                  

Accumulated

         
          

Additional

      

Other

      

Total

 
  

Common Stock

  

Paid-In

  

Treasury

  

Comprehensive

  

Retained

  

Stockholders'

 
  

Class A

  

Class B

  

Capital

  

Stock

  

Income

  

Earnings

  

Equity

 

Balances at December 31, 2023

 $161  $24  $155,846  $(132,346) $816  $378,919  $403,420 

Net income

  -   -   -   -   -   3,974   3,974 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,443)  (1,443)

Share repurchase

  -   -   -   -   -   -   - 

Other comprehensive income

  -   -   -   -   260   -   260 

Stock-based employee compensation expense

  -   -   947   -   -   -   947 

Exercise of stock options

  -   -   150   278   -   -   428 

Issuance of restricted shares, net

  -   -   (248)  (91)  -   -   (339)

Balances at March 31, 2024

 $161  $24  $156,695  $(132,159) $1,076  $381,450  $407,247 

Net income

  -   -   -   -   -   12,194   12,194 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,448)  (1,448)

Other comprehensive income

  -   -   -   -   34   -   34 

Stock-based employee compensation expense

  -   -   765   -   -   -   765 

Exercise of stock options

  -   -   195   386   -   -   581 

Issuance of restricted shares, net

  -   -   (207)  207   -   -   - 

Balances at June 30, 2024

 $161  $24  $157,448  $(131,566) $1,110  $392,196  $419,373 

Net income

  -   -   -   -   -   13,033   13,033 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,450)  (1,450)

Other comprehensive income

  -   -   -   -   (531)  -   (531)

Stock-based employee compensation expense

  -   -   988   -   -   -   988 

Exercise of stock options

  -   -   45   94   -   -   139 

Balances at September 30, 2024

 $161  $24  $158,481  $(131,472) $579  $403,779  $431,552 

 

  

For the Three and Nine Months Ended September 30, 2023

 
                  

Accumulated

         
          

Additional

      

Other

      

Total

 
  

Common Stock

  

Paid-In

  

Treasury

  

Comprehensive

  

Retained

  

Stockholders'

 
  

Class A

  

Class B

  

Capital

  

Stock

  

Income

  

Earnings

  

Equity

 

Balances at December 31, 2022

 $161  $24  $152,886  $(106,500) $1,086  $329,471  $377,128 

Net income

  -   -   -   -   -   16,635   16,635 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,466)  (1,466)

Other comprehensive loss

  -   -   -   -   (403)  -   (403)

Share repurchase

  -   -   -   (20,805)  -   -   (20,805)

Stock-based employee compensation expense

  -   -   1,558   -   -   -   1,558 

Issuance of restricted shares, net

  -   -   (1,523)  38   -   -   (1,485)

Balances at March 31, 2023

 $161  $24  $152,921  $(127,267) $683  $344,640  $371,162 

Net income

  -   -   -   -   -   12,293   12,293 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,442)  (1,442)

Other comprehensive income

  -   -   -   -   359   -   359 

Share repurchase

  -   -   -   (4,683)  -   -   (4,683)

Stock-based employee compensation expense reversal

  -   -   1,774   -   -   -   1,774 

Exercise of stock options

  -   -   42   194   -   -   236 

Issuance of restricted shares, net

  -   -   (389)  354   -   -   (35)

Balances at June 30, 2023

 $161  $24  $154,348  $(131,402) $1,042  $355,491  $379,664 

Net income

  -   -   -   -   -   13,506   13,506 

Cash dividend ($0.11 per common share)

  -   -   -   -   -   (1,436)  (1,436)

Other comprehensive loss

  -   -   -   -   405   -   405 

Stock-based employee compensation expense

  -   -   1,884   -   -   -   1,884 

Balances at September 30, 2023

 $161  $24  $156,232  $(131,402) $1,447  $367,561  $394,023 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE nine months ended September 30, 2024 and 2023

(Unaudited and in thousands)

 

   

Nine Months Ended September 30,

  
   

2024

    

2023

  

Cash flows from operating activities:

                

Net income

   $ 29,202     $ 42,434  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Provision for losses on accounts receivable

     (46 )     10  

Reversal of gain on sales to equity method investee

     (28 )     (1 )

Depreciation and amortization

     64,460       51,701  

Deferred income tax expense

     5,426       4,128  

Income tax expense arising from restricted share vesting and stock options exercised

     (658 )     (816 )

Stock-based compensation expense

     2,700       5,216  

Income from equity method investment

     (11,763 )     (16,659 )

Return on investment from equity method investee

     3,675       9,800  

Loss (gain) on disposition of property and equipment

     1,748       (12,580 )

Changes in operating assets and liabilities:

                

Receivables and advances

     7,704       (24,563 )

Prepaid expenses and other assets

     (4,080 )     (2,511 )

Inventory and supplies

     (1,261 )     (332 )

Insurance and claims accrual

     8,242       (1,645 )

Accounts payable and accrued expenses

     (4,360 )     (1,209 )

Net cash flows provided by operating activities

     100,961       52,973  
                 

Cash flows used by investing activities:

                

Acquisition, net of cash acquired

     (4,556 )     (107,922 )

Other investments

     (488 )     (1,580 )

Purchase of property and equipment

     (131,494 )     (112,047 )

Proceeds from disposition of property and equipment

     32,332       76,954  

Net cash flows used by investing activities

     (104,206 )     (144,595 )
                 

Cash flows from financing activities:

                

Change in checks outstanding in excess of bank balances

     -       771  

Cash dividend

     (4,341 )     (4,344 )

Proceeds from issuance of notes payable

     104,785       98,451  

Repayments of notes payable

     (45,949 )     (23,142 )

Repayments of finance lease obligations

     (553 )     (5,432 )

Proceeds under revolving credit facility

     57,247       123,463  

Repayments under revolving credit facility and draw note

     (68,826 )     (123,463 )

Payment of contingent consideration liability

     (7,023 )     (9,187 )

Proceeds from exercise of stock options

     1,147       236  

Payment of minimum tax withholdings on stock compensation

     (339 )     (1,520 )

Common stock repurchased

     -       (25,488 )

Net cash flows provided by financing activities

     36,148       30,345  
                 

Net change in cash and cash equivalents

     32,903       (61,277 )
                 

Cash and cash equivalents at beginning of period

     2,294       68,665  

Cash and cash equivalents at end of period

   $ 35,197     $ 7,388  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.

Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of Covenant Logistics Group, Inc., a Nevada holding company, and its wholly owned subsidiaries. References in this report to "we," "us," "our," the "Company," and similar expressions refer to Covenant Logistics Group, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933. In preparing financial statements, it is necessary for management to make assumptions and estimates affecting the amounts reported in the condensed consolidated financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature.

 

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2023, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore, operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2023. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets. Depreciation of revenue equipment is our largest item of depreciation. We generally depreciate new tractors over five years to salvage values ranging from approximately 0% to 35% of their cost, depending on the utilization 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. We annually, or whenever events or changes in circumstances indicate that a review is warranted, review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets, based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. We performed a review of our estimates for certain subsets of revenue equipment during the quarter ended June 30, 2024 and, due to a weak used revenue equipment market, we increased the rate of depreciation on these units in the period. This change resulted in an additional $1.2 million and $3.8 million of depreciation expense during the three and nine months ended September 30, 2024, respectively. Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations. During the three months ended March 31, 2023, we sold a Tennessee terminal resulting in a $7.6 million gain which is included in gain on disposition of property and equipment, net in the condensed consolidated statements of operations.

 

Recent Accounting Pronouncements

 

Accounting Standards not yet adopted

 

In  November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after  December 15, 2023, and interim periods within fiscal years beginning after  December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending  December 31, 2024.

 

In  December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures. The amendments of this update are related to the rate reconciliation and income taxes paid, requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after  December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

 

 

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Note 2.

Income Per Share

 

Basic income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. There were approximately 75,000 and 71,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2024, respectively, and 254,000 and 247,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2023, respectively. There were no unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for either of the three and nine months ended September 30, 2024 and 2023. There were approximately 649,000 and 619,000 shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2024, respectively, and 478,000 and 411,000 shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2023, respectively. There were no unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2024, respectively, and no and 32,000 unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2023, respectively. Income per share is the same for both Class A and Class B shares.

 

The following table sets forth, for the periods indicated, the calculation of net income per share included in the condensed consolidated statements of operations:

 

(in thousands except per share data)

 

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Numerators:

                

Income from continuing operations

 $12,883  $13,356  $28,752  $41,984 

Income from discontinued operations

  150   150   450   450 

Net income

 $13,033  $13,506  $29,202  $42,434 

Denominator:

                

Denominator for basic income per share – weighted-average shares

  13,177   12,947   13,137   13,082 

Effect of dilutive securities:

                

Equivalent shares issuable upon conversion of unvested restricted shares

  75   254   71   247 

Equivalent shares issuable upon conversion of unvested employee stock options

  649   478   619   411 

Denominator for diluted income per share adjusted weighted-average shares and assumed conversions

  13,901   13,679   13,827   13,740 
                 

Basic income per share(1):

                

Income from continuing operations

 $0.98  $1.03  $2.19  $3.21 

Income from discontinued operations

  0.01   0.01   0.03   0.03 

Net income per share

 $0.99  $1.04  $2.22  $3.24 

Diluted income per share: (1)

                

Income from continuing operations

 $0.93  $0.98  $2.08  $3.06 

Income from discontinued operations

  0.01   0.01   0.03   0.03 

Net income per share

 $0.94  $0.99  $2.11  $3.09 
(1)Total may not sum due to rounding.

 

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Note 3.

Fair Value of Financial Instruments

 

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

 

The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.

 

The fair value of the contingent consideration arrangement is based on inputs that are not observable in the market and is estimated using a probability-weighted method. The significant unobservable inputs used in the fair value of the contingent consideration liability include the financial projections over the earn-out period, the volatility of the underlying financial metrics, and estimated discount rates.

 

The fair value of the life insurance policies was determined by the underwriting insurance company’s valuation models and represents the guaranteed value we would receive upon surrender of these policies as of the reporting date.

 

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

 

●

Level 1. Observable inputs such as quoted prices in active markets;

●

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

●

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Financial Instruments Measured at Fair Value on a Recurring Basis

 

(in thousands)

            
  

September 30, 2024

  

December 31, 2023

  

Input Level

 

Interest rate swaps

  782   1,101   2 

Contingent consideration

  (20,836)  (21,802)  3 

Cash surrender value life insurance policies

  3,262   2,424   2 

 

The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments. 

 

Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes. The fair value of our revenue equipment installment notes approximated the carrying value as of  September 30, 2024, as the weighted average interest rate on these notes approximates the market rate for similar debt. Borrowings under our revolving Credit Facility (as defined herein) approximate fair value due to the variable interest rate on that facility.

 

Contingent consideration arrangements require us to pay up to $20.0 million of additional consideration to AAT Carriers, Inc.'s ("AAT's") former shareholders based on AAT's results during the first two post-acquisition years, of which the final installment was made during 2024, up to $30.0 million of additional consideration to Lew Thompson & Son Trucking, Inc.'s ("LTST's") former shareholders based on LTST's results during the first three calendar years following closing, and up to $12.0 million of additional consideration to Sims Transport Services, LLC's ("Sims") former shareholders based on Sims' results during the first four calendar years following closing. Refer to Note 13, "Acquisition of Lew Thompson & Son Trucking, Inc.", for additional information regarding the LTST acquisition and Note 12, "Acquisition of Sims Transport Services, LLC", for additional information regarding the Sims acquisition.

 

The fair value of the contingent consideration is adjusted at each reporting period based on changes to the expected cash flows and related assumptions. There were no contingent consideration payments made during the three months ended September 30, 2024 or 2023, and $10.0 million and $10.0 million paid during the nine months ended September 30, 2024 and 2023, respectively, based on AAT's results for the first and second post-acquisition years. Of the $10.0 million paid for the contingent consideration liability during 2024, $7.0 million was classified as financing cash flows and $3.0 million was classified as operating cash flows within the condensed consolidated statements of cash flows. Of the $10.0 million paid for the contingent consideration liability during 2023, $9.2 million was classified as financing cash flows and $0.8 million was classified as operating cash flows within the condensed consolidated statements of cash flows. The fair value of the contingent consideration increased $0.2 million and increased $9.0 million during the three and nine months ended September 30, 2024, respectively, and increased by $2.3 million and $14.3 million during the three and nine months ended September 30, 2023, respectively. Of the 2024 increases, increases of $0.7 million and $9.5 million related to a change in the fair value for the LTST contingent consideration arrangement for the three and nine months ended September 30, 2024 partially offset by decreases of $0.5 million and $0.5 million related to a change in the fair value for the Sims contingent consideration arrangement. Of the 2023 increases, $1.8 million was related to the initial recognition of the Sims contingent consideration arrangement and $0.5 million was due to a change in the fair value for the AAT contingent consideration arrangement for the three month period and $10.0 million was related to the initial recognition of the LTST contingent consideration arrangement, $2.5 million was due to a change in the fair value for the AAT contingent consideration arrangement, and $1.8 million was related to the initial recognition of the Sims contingent consideration arrangement for the nine-month period. The adjustment to the fair value of the contingent consideration liability was recorded as a component of general supplies and expenses within the condensed consolidated statements of operations. The contingent consideration liability is included in accounts payable and other long-term liabilities in our condensed consolidated balance sheets. 

 

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2024:

 

  December 31, 2023  Additions  Adjustments to fair market value  Payments  September 30, 2024 
Contingent consideration  $(21,802)  $-   $(9,034)  $10,000   $(20,836)

 

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Note 4.

Discontinued Operations

 

As of June 30, 2020, our former Factoring reportable segment was classified as discontinued operations as it: (i) was a component of the entity, (ii) met the criteria as held for sale, and (iii) had a material effect on the Company's operations and financial results. On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of Transport Financial Services ("TFS"), which included substantially all of the assets and operations of our Factoring reportable segment. The sale consisted primarily of $103.3 million of net accounts receivable, which included $108.7 million of gross accounts receivable, less advances and rebates of $5.4 million. 

 

We have reflected the former Factoring reportable segment as discontinued operations in the condensed consolidated statements of operations for all periods presented.

 

The following table summarizes the results of our discontinued operations for the three and nine months ended September 30, 2024 and 2023:

 

(in thousands)

 

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Reversal of contingent loss liability

 $(200) $(200) $(600) $(600)

Income before income taxes

  200   200   600   600 

Income tax expense

  50   50   150   150 

Income from discontinued operations, net of tax

 $150  $150  $450  $450 

 

Reversal of contingent loss liability for the three and nine months ended September 30, 2024 and 2023 relates to the reduced exposure of future indemnification by the Company to the purchaser of TFS, Triumph Bancorp, Inc. ("Triumph"), as a result of the collection of covered receivables identified in the amended purchase agreement.

 

The following table summarizes the major classes of assets and liabilities included as discontinued operations as of  September 30, 2024 and December 31, 2023:

 

(in thousands)

 

September 30, 2024

  

December 31, 2023

 

Noncurrent deferred tax asset

 $259  $409 

Noncurrent assets from discontinued operations

  259   409 

Total assets from discontinued operations

 $259  $409 
         

Liabilities:

        

Long-term contingent loss liability

 $1,035  $1,635 

Long-term liabilities of discontinued operations

  1,035   1,635 

Total liabilities from discontinued operations

 $1,035  $1,635 

 

There were no operating cash outflows for the three and nine months ended September 30, 2024 and 2023.

 

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Note 5.

Segment Information

 

We have four reportable segments:

 

●

Expedited: The Expedited reportable segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows. Expedited services generally require two-person driver teams on equipment either owned or leased by the Company.

 

●

Dedicated: The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length. Equipment is either owned or leased by the Company.

 

●

Managed Freight: The Managed Freight reportable segment includes our brokerage and transport management services (“TMS”). Brokerage services provide logistics capacity by outsourcing the carriage of customers’ freight to third parties. TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs.

 

●

Warehousing: The Warehousing reportable segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. We also provide shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses.

 

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Form 10-K for the year ended December 31, 2023. Substantially all intersegment sales prices are market based. We evaluate performance based on operating income of the respective business units.

 

The following table summarizes our total revenue by our four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three and nine months ended September 30, 2024 and 2023: