10-Q 1 cvti20240331_10q.htm FORM 10-Q cvti20240331_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 March 31, 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: 0-24960

 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 NASDAQ Global Select Market

 

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 (May 1, 2024).

 

Class A Common Stock, $.01 par value: 10,764,360 shares

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

 

 

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

   

Page

Number

Item 1.

Financial Statements

 
     
 

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

3
     
 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)

4
     
 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (unaudited)

5
     
 

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2024 and 2023 (unaudited)

6
     
 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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

 

  

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

  

March 31, 2024

  

December 31, 2023

 
  

(unaudited)

    

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $2,952  $2,294 

Accounts receivable, net of allowance of $2,434 in 2024 and $2,449 in 2023

  143,975   142,504 

Drivers' advances and other receivables, net of allowance of $589 in 2024 and $591 in 2023

  6,020   4,367 

Inventory and supplies

  5,127   4,848 

Prepaid expenses

  13,562   17,880 

Assets held for sale

  7,950   6,782 

Income taxes receivable

  322   6,739 

Other short-term assets

  536   531 

Total current assets

  180,444   185,945 
         

Property and equipment, at cost

  690,996   692,532 

Less: accumulated depreciation and amortization

  (188,011)  (177,877)

Net property and equipment

  502,985   514,655 
         

Goodwill

  80,303   75,747 

Other intangibles, net

  97,242   99,615 

Other assets, net

  82,098   78,067 

Noncurrent assets of discontinued operations

  359   409 

Total assets

 $943,431  $954,438 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Checks outstanding in excess of bank balances

 $918  $- 

Accounts payable

  31,605   33,155 

Accrued expenses

  49,194   59,067 

Current maturities of long-term debt

  60,964   47,651 

Current portion of finance lease obligations

  922   781 

Current portion of operating lease obligations

  8,959   11,950 

Current portion of insurance and claims accrual

  20,841   17,687 

Total current liabilities

  173,403   170,291 
         

Long-term debt

  187,400   196,894 

Long-term portion of finance lease obligations

  5,802   5,296 

Long-term portion of operating lease obligations

  27,328   30,892 

Insurance and claims accrual

  17,902   15,746 

Deferred income taxes

  110,543   116,095 

Other long-term liabilities

  12,371   14,169 

Long-term liabilities of discontinued operations

  1,435   1,635 

Total liabilities

  536,184   551,018 

Stockholders' equity:

        

Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,125,786 shares issued and 10,764,360 outstanding as of March 31, 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

  156,695   155,846 

Treasury stock at cost; 5,361,426 and 5,404,269 shares as of March 31, 2024 and December 31, 2023, respectively

  (132,159)  (132,346)

Accumulated other comprehensive income

  1,076   816 

Retained earnings

  381,450   378,919 

Total stockholders' equity

  407,247   403,420 

Total liabilities and stockholders' equity

 $943,431  $954,438 

 

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

 

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE three months ended March 31, 2024 and 2023

(In thousands, except per share data)

 

  

Three Months Ended March 31,

 
  

(unaudited)

 
  

2024

  

2023

 

Revenues

        

Freight revenue

 $247,685  $233,422 

Fuel surcharge revenue

  31,078   33,429 

Total revenue

 $278,763  $266,851 
         

Operating expenses:

        

Salaries, wages, and related expenses

 $100,335  $99,159 

Fuel expense

  30,952   34,091 

Operations and maintenance

  13,596   17,109 

Revenue equipment rentals and purchased transportation

  66,751   63,016 

Operating taxes and licenses

  3,361   3,463 

Insurance and claims

  15,390   12,693 

Communications and utilities

  1,403   1,284 

General supplies and expenses

  20,830   13,620 

Depreciation and amortization

  21,108   14,575 

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

  702   (9,791)

Total operating expenses

  274,428   249,219 

Operating income

  4,335   17,632 

Interest expense, net

  3,338   769 

Income from equity method investment

  (3,676)  (5,943)

Income before income taxes

  4,673   22,806 

Income tax expense

  849   6,321 

Income from continuing operations, net of tax

  3,824   16,485 

Income from discontinued operations, net of tax

  150   150 

Net income

 $3,974  $16,635 
         

Basic income per share(1):

        

Income from continuing operations

 $0.29  $1.23 

Income from discontinued operations

  0.01   0.01 

Net income per share

 $0.30  $1.25 

Diluted income per share:

        

Income from continuing operations

 $0.28  $1.19 

Income from discontinued operations

  0.01   0.01 

Net income per share

 $0.29  $1.20 

Basic weighted average shares outstanding

  13,087   13,361 

Diluted weighted average shares outstanding

  13,800   13,877 

 

(1) Total may not sum due to rounding.

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

 

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands)

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
         

Net income

 $3,974  $16,635 
         

Other comprehensive income:

        
         

Unrealized gain (loss) on effective portion of cash flow hedges, net of tax of ($126) in 2024 and $114 in 2023, respectively

  359   (325)
         

Reclassification of cash flow hedge gains into statement of operations, net of tax of $35 in 2024 and $27 in 2023, respectively

  (99)  (78)
         

Total other comprehensive income

  260   (403)
         

Comprehensive income

 $4,234  $16,232 

 

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

 

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands)

 

  

For the Three Months Ended

 
                  

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)

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 

 

  

For the Three Months Ended

 
                  

Accumulated

         
          

Additional

      

Other

      

Total

 
  

Common Stock

  

Paid-In

  

Treasury

  

Comprehensive

  

Retained

  

Stockholders'

 
  

Class A

  

Class B

  

Capital

  

Stock

  

Loss

  

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 income

  -   -   -   -   (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 

 

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

 

 

 

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE three months ended March 31, 2024 and 2023

(Unaudited and in thousands)

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

Cash flows from operating activities:

        

Net income

 $3,974  $16,635 

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

        

Provision for losses on accounts receivable

  -   (3)

Reversal of gain on sales to equity method investee

  (3)  - 

Depreciation and amortization

  21,108   14,575 

Deferred income tax expense

  (5,259)  (1,185)

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

  (333)  (587)

Stock-based compensation expense

  947   1,558 

Income from equity method investment

  (3,676)  (5,943)

Gain on disposition of property and equipment

  702   (9,791)

Changes in operating assets and liabilities:

        

Receivables and advances

  3,812   2,863 

Prepaid expenses and other assets

  3,946   2,555 

Inventory and supplies

  (279)  208 

Insurance and claims accrual

  5,310   (324)

Accounts payable and accrued expenses

  (8,548)  (13,313)

Net cash flows provided by operating activities

  21,701   7,248 
         

Cash flows from investing activities:

        

Acquisition, net of cash acquired

  (4,556)  - 

Other investments

  (156)  (1,108)

Purchase of property and equipment

  (48,362)  (16,221)

Proceeds from disposition of property and equipment

  9,593   24,407 

Net cash flows (used) provided by investing activities

  (43,481)  7,078 
         

Cash flows from financing activities:

        

Change in checks outstanding in excess of bank balances

  918   - 

Cash dividend

  (1,443)  (1,466)

Proceeds from issuance of notes payable

  52,179   12,795 

Repayments of notes payable

  (10,540)  (4,902)

Repayments of finance lease obligations

  (162)  (3,357)

Proceeds under revolving credit facility

  14,550   10,665 

Repayments under revolving credit facility and draw note

  (26,130)  (10,665)

Payment of contingent consideration liability

  (7,023)  (9,187)

Proceeds from exercise of stock options

  428   - 

Payment of minimum tax withholdings on stock compensation

  (339)  (1,485)

Common stock repurchased

  -   (20,805)

Net cash flows provided (used) by financing activities

  22,438   (28,407)
         

Net change in cash and cash equivalents

  658   (14,081)
         

Cash and cash equivalents at beginning of period

  2,294   68,665 

Cash and cash equivalents at end of period

 $2,952  $54,584 

 

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

 

 

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 three months ended March 31, 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 0% to 35% of their 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. We annually 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. 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. This ASU will likely result in us including the additional required disclosures when adopted. 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.

 

 

Page 8

 
 

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 79,000 shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2024, and 288,000 shares issuable upon conversion of unvested restricted shares for the three months ended March 31, 2023. There were no unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for either of the three months ended March 31, 2024 and 2023. There were 634,000 shares issuable upon conversion of unvested employee stock options for the three months ended March 31, 2024 and 228,000 shares issuable upon conversion of unvested employee stock options for the three months ended March 31, 2023. There were no unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2024, and 51,000 unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three months ended March 31, 2023. 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

 
  

March 31,

 
  

2024

  

2023

 

Numerators:

        

Income from continuing operations

 $3,824  $16,485 

Income from discontinued operations

  150   150 

Net income

 $3,974  $16,635 

Denominator:

        

Denominator for basic income per share – weighted-average shares

  13,087   13,361 

Effect of dilutive securities:

        

Equivalent shares issuable upon conversion of unvested restricted shares

  79   288 

Equivalent shares issuable upon conversion of unvested employee stock options

  634   228 

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

  13,800   13,877 
         

Basic income per share(1):

        

Income from continuing operations

 $0.29  $1.23 

Income from discontinued operations

  0.01   0.01 

Net income per share

 $0.30  $1.25 

Diluted income per share:

        

Income from continuing operations

 $0.28  $1.19 

Income from discontinued operations

  0.01   0.01 

Net income per share

 $0.29  $1.20 
(1)Total may not sum due to rounding.

 

Page 9

 
 

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.

 

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)

            
  

March 31, 2024

  

December 31, 2023

  

Input Level

 

Interest rate swaps

  1,452   1,101   2 

Contingent consideration

  (19,896)  (21,802)  3 

 

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  March 31, 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. During the three months ended March 31, 2024 and 2023, we paid $10.0 million and $10.0 million, 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 by $8.1 million related to a change in the fair value for the LTST contingent consideration arrangement and $1.5 million related to the AAT contingent consideration arrangement for the three months ended March 31, 2024 and 2023, respectively. 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  March 31, 2024 
Contingent consideration  $(21,802)  $-   $(8,094)  $10,000   $(19,896)

 

Page 10

 
 

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 months ended March 31, 2024 and 2023:

 

(in thousands)

 

Three Months Ended March 31,

 
  

2024

  

2023

 

Reversal of contingent loss liability

 $(200) $(200)

Income before income taxes

  200   200 

Income tax expense

  50   50 

Income from discontinued operations, net of tax

 $150  $150 

 

Reversal of contingent liability for the three months ended March 31, 2024, 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  March 31, 2024 and December 31, 2023:

 

(in thousands)

 

March 31, 2024

  

December 31, 2023

 

Noncurrent deferred tax asset

 $359  $409 

Noncurrent assets from discontinued operations

  359   409 

Total assets from discontinued operations

 $359  $409 
         

Liabilities:

        

Long-term contingent loss liability

 $1,435  $1,635 

Long-term liabilities of discontinued operations

  1,435   1,635 

Total liabilities from discontinued operations

 $1,435  $1,635 

 

There were no operating cash outflows for the three months ended March 31, 2024 and 2023.

 

Page 11

 
 

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 months ended March 31, 2024 and 2023:

 

(in thousands)

                    

Three Months Ended March 31, 2024

 

Expedited

  

Dedicated

  

Managed Freight

  

Warehousing

  

Consolidated

 

Total revenue from external customers

 $105,471  $84,482  $62,917  $25,893  $278,763 

Intersegment revenue

  642   -   -   -   642 

Operating income (loss)

  4,784   (4,697)  2,269   1,979   4,335 

 

Three Months Ended March 31, 2023

 

Expedited

  

Dedicated

  

Managed Freight

  

Warehousing

  

Consolidated

 

Total revenue from external customers

 $100,896  $80,244  $60,874  $24,837  $266,851 

Intersegment revenue

  4,462   -   -   -   4,462 

Operating income

  9,276   7,147   1,218   (9)  17,632 

 

(in thousands)

 

For the Three Months Ended March 31,

 
  

2024

  

2023

 

Total external revenues for reportable segments

 $278,763  $266,851 

Intersegment revenues for reportable segments

  642   4,462 

Elimination of intersegment revenues

  (642)  (4,462)

Total consolidated revenues

 $278,763  $266,851 

 

Page 12

 
 

Note 6.

Income Taxes

 

Income tax expense in both 2024 and 2023 varies from the amount computed by applying the federal corporate income tax rates of 21% to income before income taxes, primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences the most significant of which is the effect of the per diem pay structure for drivers. Drivers who meet the requirements to receive per diem receive non-taxable per-diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and related expenses are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

 

Our liability recorded for uncertain tax positions as of  March 31, 2024 is unchanged since  December 31, 2023.

 

The net deferred tax liability of $110.2 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. The Company has determined that a valuation allowance was not necessary at March 31, 2024 for its deferred tax assets since it is more likely than not they will be realized from the future reversals of temporary differences. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

 

On March 11, 2021, President Biden signed the American Rescue Plan ("ARPA") into law. The law includes several provisions meant to stimulate the U.S. economy. Of relevance to the Company, ARPA extended the reach of IRC Section 162(m) to include compensation paid to the eight highest-paid individuals other than the chief executive officer and the chief financial officers (rather than the three highest), however, this change is not effective until 2027. There is no material impact to the financial statements at this time.

 

President Biden signed the Inflation Reduction Act (the "IRA") into law on  August 16, 2022. We do not anticipate the IRA will have a significant impact on income tax expense or on other taxes. One of the most impactful provisions of the IRA includes the establishment of a Corporate Alternative Minimum Tax ("CAMT"). However, this tax only applies to corporations with three-year average earnings in excess of $1.0 billion. We will continue to monitor the CAMT each year to determine if we will become an applicable corporation. Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 1% tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation. We do not believe this will have a material impact on our active buyback program, but will continue to monitor IRS guidance and regulations on how the buyback tax will be imposed and administered.

 

Page 13

 
 

Note 7.

Debt

 

Current and long-term debt and lease obligations consisted of the following as of  March 31, 2024 and December 31, 2023:

 

(in thousands)

 

March 31, 2024

  

December 31, 2023

 
  

Current

  

Long-Term

  

Current

  

Long-Term

 

Borrowings under Credit Facility

 $-  $-  $-  $11,579 

Borrowings under the Draw Note

  -   -   -   - 

Revenue equipment installment notes; weighted average interest rate of 5.2% at March 31, 2024, and 5.2% at December 31, 2023, due in monthly installments with final maturities at various dates ranging from October 2024 to March 2029, secured by related revenue equipment

  59,656   169,926   46,357   167,509 

Real estate notes; interest rate of 7.1% at March 31, 2024 and 7.1% at December 31, 2023 due in monthly installments with a fixed maturity at August 2035, secured by related real estate

  1,308   17,474   1,294   17,806 

Total debt

  60,964   187,400   47,651   196,894 

Principal portion of finance lease obligations, secured by related revenue equipment

  922   5,802   781   5,296 

Principal portion of operating lease obligations, secured by related real estate and revenue equipment

  8,959   27,328   11,950   30,892 

Total debt and lease obligations

 $70,845  $220,530  $60,382  $233,082 

 

We and substantially all of our subsidiaries are parties to the Third Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., as agent (the "Agent") and JPMorgan Chase Bank, N.A. (together with the Agent, the "Lenders"). The Credit Facility is a $110.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows us to request an increase in the revolving credit facility of up to $75.0 million subject to Lender acceptance of the additional funding commitment. The Credit Facility includes a letter of credit sub facility in an aggregate amount of $105.0 million and a swing line sub facility in an aggregate amount equal to the greater of $10.0 million or 10% of the Lenders' aggregate commitments under the Credit Facility from time-to-time. The Credit Facility matures in May 2027.

 

Borrowings under the Credit Facility are classified as either "base rate loans" or "SOFR loans." Base rate loans accrue interest at a base rate equal to the greater of the Agent’s prime rate, the federal funds rate plus 0.5%, or SOFR for a one month period as of such day, plus an applicable margin ranging from 0.25% to 0.75%; while SOFR loans accrued interest at SOFR, plus an applicable margin ranging from 1.25% to 1.75%. The applicable rates are adjusted quarterly based on average pricing availability. The unused line fee is the product of 0.25% times the average daily amount by which the Lenders' aggregate revolving commitments under the Credit Facility exceed the outstanding principal amount of revolver loans and the aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The obligations under the Credit Facility are guaranteed by us and secured by a pledge of substantially all of our assets, with the notable exclusion of any real estate, revenue equipment pledged under other financing agreements, including revenue equipment installment notes and finance leases, and revenue equipment that we do not designate as being included in the borrowing base.

 

Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $110.0 million, minus the sum of the stated amount of all outstanding letters of credit; or (B) the sum of (i) 87.5% of eligible accounts receivable, plus (ii) the least of (a) 85% of the appraised net orderly liquidation value of eligible revenue equipment, (b) 100% of the net book value of eligible revenue equipment, (c) 60.0% of the Lenders' aggregate revolving commitments under the Credit Facility, or (d) $65.0 million. 

 

We had no borrowings outstanding under the Credit Facility as of March 31, 2024, undrawn letters of credit outstanding of approximately $21.0 million, and available borrowing capacity of $89.0 million. As of March 31, 2024, there were no base rate and no SOFR loans. Based on availability as of March 31, 2024 and 2023, there was no fixed charge coverage requirement.

 

Page 14

 

The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders' commitments may be terminated. If an event of default occurs under the Credit Facility and the Lenders cause, or have the ability to cause, all of the outstanding debt obligations under the Credit Facility to become due and payable, this could result in a default under other debt instruments that contain acceleration or cross-default provisions. The Credit Facility contains certain restrictions and covenants relating to, among other things, debt, dividends, liens, acquisitions and dispositions outside of the ordinary course of business, and affiliate transactions. Failure to comply with the covenants and restrictions set forth in the Credit Facility could result in an event of default. 

 

Pricing for the revenue equipment installment notes is quoted by the respective financial affiliates of our primary revenue equipment suppliers and other lenders at the funding of each group of equipment acquired and include fixed annual rates for new equipment under retail installment contracts. The notes included in the funding are due in monthly installments with final maturities at various dates ranging from  October 2024 to March 2029. The notes contain certain requirements regarding payment, insuring of collateral, and other matters, but do not have any financial or other material covenants or events of default except certain notes totaling $35.9 million are cross-defaulted with the Credit Facility. Additional borrowings from the financial affiliates of our primary revenue equipment suppliers and other lenders are expected to be available to fund new tractors expected to be delivered in 2024, while any other property and equipment purchases, including trailers, are expected to be funded with a combination of available cash, notes, operating leases, finance leases, and/or from the Credit Facility.

 

In August 2015, we financed a portion of the purchase of our corporate headquarters, a maintenance facility, and certain surrounding property in Chattanooga, Tennessee by entering into a $28.0 million variable rate note with a third-party lender. The note contains certain restrictions and covenants that are usual and customary for a note of this nature. Failure to comply with the covenants and restrictions set forth in the note could result in an event of default. Concurrently with entering into the note, we entered into an interest rate swap to effectively fix the related interest rate to 4.2%. We expect to be in compliance with our debt covenants for the next 12 months. 

 

In connection with the settlement of a dispute related to the sale of TFS (the "TFS Settlement"), in September 2020, TBK Bank, SSB, as lender and agent for Triumph (“TBK Bank”), provided the Company with a $45 million line of credit (the “Draw Note”), the proceeds of which are to be used solely to satisfy our indemnification obligations under the TFS Settlement. We may borrow pursuant to the Draw Note until September 23, 2025.

 

Page 15

 
 

Note 8.

Lease Obligations

 

The finance leases in effect at  March 31, 2024 terminate from  June 2028 through  November 2033 and contain guarantees of the residual value of the related equipment by us.

 

 A summary of our lease obligations at March 31, 2024 and 2023 are as follows:

 

(dollars in thousands)

 

Three Months Ended

  

Three Months Ended

 
  

March 31, 2024

  

March 31, 2023

 

Finance lease cost:

        

Amortization of right-of-use assets

 $123  $256 

Interest on lease liabilities

  199   9 

Operating lease cost

  3,634   4,620 

Variable lease cost

  24   497 

Short-term lease cost

  1,060   1,610 

Total lease cost

 $5,040  $6,992 
         

Other information

        

Cash paid for amounts included in the measurement of lease liabilities:

        

Operating cash flows from finance leases

  199   9 

Operating cash flows from operating leases

  2,929   3,861 

Financing cash flows from finance leases

  162   3,358 

Right-of-use assets obtained in exchange for new finance lease liabilities

  810   - 

Right-of-use assets obtained in exchange for new operating lease liabilities

  -   146 

Weighted-average remaining lease term—finance leases (in years)

  3.4     

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

  4.9     

Weighted-average discount rate—finance leases

  13.4%    

Weighted-average discount rate—operating leases

  10.4%    

 

As of  March 31, 2024, and December 31, 2023, right-of-use assets of $34.5 million and $41.2 million for operating leases and $6.9 million and $6.4 million for finance leases, respectively, are included in net property and equipment in our condensed consolidated balance sheets. Operating lease right-of-use asset amortization is included in revenue equipment rentals and purchased transportation and general supplies and expenses, depending on the underlying asset, in the condensed consolidated statement of operations. Amortization of finance leased assets is included in depreciation and amortization expense in the condensed consolidated statement of operations.

 

Our future minimum lease payments as of March 31, 2024, are summarized as follows by lease category:

 

(in thousands)

 

Operating

  

Finance

 
2024 (1) $8,943  $1,768 

2025

  9,870   1,768 

2026

  8,399   1,768 

2027

  7,530   1,768 

2028

  3,604   1,306 

Thereafter

  7,211   1,441 

Total minimum lease payments

 $45,557  $9,819 

Less: amount representing interest

  (9,270)  (3,095)

Present value of minimum lease payments

 $36,287  $6,724 

Less: current portion

  (8,959)  (922)

Lease obligations, long-term

 $27,328  $5,802 

 

(1) Excludes the three months ended March 31, 2024.

 

Page 16

 
 

Note 9.

Stock-Based Compensation

 

Our Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (the "Incentive Plan") governs the issuance of equity awards and other incentive compensation to management and members of the Board of Directors (the "Board"). On May 17, 2023, the stockholders, upon recommendation of the Board, approved the Third Amendment (the “Third Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan"). The Third Amendment (i) increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 575,000 shares, (ii) re-set the term of the plan to expire on May 1, 2033, and (iii) made other miscellaneous, administrative and conforming changes as necessary. The Incentive Plan includes (i) a fungible share reserve feature, under which shares subject to stock options and stock appreciation rights will be counted as one share for every share granted and shares subject to all other awards will be counted as 1.80 shares for every share granted, (ii) a double-trigger vesting requirement upon a change in control, and (iii) a maximum award granted or payable to any one participant under the Incentive Plan for a calendar year of 500,000 shares of Class A common stock or $4,000,000, in the event the award is paid in cash.

 

The Incentive Plan permits annual awards of shares of our Class A common stock to executives, other key employees, consultants, non-employee directors, and eligible participants under various types of options, restricted stock, or other equity instruments. As of  March 31, 2024, there were 1,228,434 shares remaining of the 4,775,000 shares available for award under the Incentive Plan. No awards may be made under the Incentive Plan after May 1, 2033. To the extent available, we have issued treasury stock to satisfy all share-based incentive plans.

 

Included in salaries, wages, and related expenses within the condensed consolidated statements of operations is stock-based compensation expense of $0.8 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively. Included in general supplies and expenses within the condensed consolidated statements of operations is stock-based compensation expense for non-employee directors of $0.2 million and $0.1 million for each of the three months ended March 31, 2024 and 2023, respectively. Of the stock compensation expense recorded for the three months ended  March 31, 2024 and March 31, 2023, $0.1 million and $0.5 million relates to restricted shares, respectively, and $0.7 million and $1.0 million relates to unvested employee stock options, respectively.

 

The Incentive Plan allows participants to pay the federal and state minimum statutory tax withholding requirements related to awards that vest or allows participants to deliver to us shares of Class A common stock having a fair market value equal to the minimum amount of such required withholding taxes. To satisfy withholding requirements for shares that vested through March 31, 2024, certain participants elected to forfeit receipt of an aggregate of 6,879 shares of Class A common stock at a weighted average per share price of $49.27 based on the closing price of our Class A common stock on the dates the shares vested in 2024, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted $0.3 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements.

 

Note 10.

Commitments and Contingencies

 

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or property damage incurred in connection with the transportation of freight.

 

We had $21.0 million and $21.8 million of outstanding and undrawn letters of credit as of March 31, 2024 and December 31, 2023. The letters of credit are maintained primarily to support our insurance programs. Additionally, we had $45.0 million of availability on a line of credit from Triumph solely to fund any indemnification owed to Triumph in relation to the sale of TFS. As of  March 31, 2024 the remaining contingent liability was $1.4 million.

 

Note 11.

Equity Method Investment

 

We own a 49.0% interest in Transport Enterprise Leasing, LLC ("TEL"), a tractor and trailer equipment leasing company and used equipment reseller. There is no loss limitation on our 49.0% interest in TEL. We have not guaranteed any of TEL's debt and have no obligation to provide funding, services, or assets. There are no current put rights to purchase or sell with any owners. TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. There are no third-party liquidity arrangements, guarantees, and/or other commitments that may affect the fair value or risk of our interest in TEL.

 

During the quarter ended March 31, 2024, we sold revenue equipment to TEL in exchange for the assumption of the related notes payable of $26.2 million and $0.5 million of cash. No other transactions with TEL were material for the three months ended March 31, 2024 and 2023.

 

Page 17

 

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 2024 net income through March 31, 2024, or $3.7 million.

 

Our accounts receivable from TEL, accounts payable to TEL, and investment in TEL as of  March 31, 2024 and December 31, 2023 are as follows (in thousands):

 

Description:

Balance Sheet Line Item:

 

March 31, 2024

  

December 31, 2023

 

Accounts receivable from TEL

Driver advances and other receivables

 $79  $37 

Accounts payable to TEL

Accrued expenses

 $35  $460 

Investment in TEL

Other assets

 $70,005  $66,327 

Operating lease obligations

Current and long-term portion of operating lease obligations

 $74  $4,100 

 

Our accounts receivable from TEL related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

 

Page 18

 

 

Note 12.

Acquisition of Sims Transport Services, LLC

 

On August 18, 2023, we acquired 100% of the equity interests of Sims, a specialized brokerage company, headquartered in Maysville, GA. The acquisition date fair value of the consideration transferred was $9.8 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $12.0 million based on Sims' adjusted earnings before interest, taxes, depreciation, and amortization reported for the first through fourth calendar years following closing. The total purchase price, including any earnout achieved, is expected to range from $9.8 million to $20.0 million depending on the results achieved by Sims.

 

Sims' results have been included in the consolidated financial statements since the date of acquisition and are reported within our Managed Freight reportable segment.

 

The acquisition date fair value of the consideration transferred consisted of the following:

 

  

August 18, 2023

 

(in thousands)

    

Cash paid pursuant to Stock Purchase Agreement

 $8,573 

Cash acquired included in historical book value of Sims' assets and liabilities

  (526

)

Contingent consideration

  1,786 

Net purchase price

 $9,833 

 

The contingent consideration arrangement requires us to pay up to $12.0 million of additional consideration to Sim's former equity-holders based on Sims' results during the first four calendar years following closing. We estimated the fair value of the contingent consideration using a probability-weighted model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. Refer to Note 3, "Fair Value of Financial Instruments" for information regarding changes in the contingent consideration arrangement.

 

Goodwill related to the acquisition is not tax deductible. A deferred tax liability of $1.6 million was recorded arising from the intangible assets related to the acquisition.

 

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date.

 

  

August 18, 2023

 

Accounts receivable

 $735 
Other intangibles, net  6,090 

Total identifiable assets acquired

  6,825 
     

Accounts payable

  (457

)

Accrued expenses

  (4

)

Deferred tax liability  (1,614)

Total liabilities assumed

  (2,075

)

Net identifiable assets acquired

  4,750 

Goodwill

  5,083 

Net assets acquired

 $9,833 

 

The goodwill recognized is attributable primarily to expected cost synergies as a result of overhead support. Refer to Note 14, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

 

Page 19

 
 

Note 13.

Acquisition of Lew Thompson & Son Trucking, Inc.

 

On April 26, 2023, we acquired 100% of the outstanding stock of LTST and related entities, headquartered in Huntsville, AR. LTST is a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas and was acquired to expand the Dedicated reportable segment into this niche market. The acquisition date fair value of the consideration transferred was $114.5 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $30.0 million based on LTST's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first, second, and third calendar years following closing. The total purchase, including any earnout achieved, is expected to range from $114.5 million to $134.5 million depending on the results achieved by LTST.

 

LTST's results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Dedicated reportable segment.

 

The acquisition date fair value of the consideration transferred consisted of the following:

  

April 26, 2023

 

(in thousands)

    

Cash paid pursuant to Stock Purchase Agreement

 $105,282 

Cash acquired included in historical book value of LTST's assets and liabilities

  (839)

Contingent consideration

  10,016 

Net purchase price

 $114,459 

 

The contingent consideration arrangement requires us to pay up to $30.0 million of additional consideration to LTST's former shareholders based on LTST's results during the first three calendar years following closing. We estimated the fair value of the contingent consideration using a probability-weighted model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

 

Because of our 338(h)10 election, all goodwill related to the acquisition is deductible for tax purposes and there are no deferred income taxes arising from the acquisition.

 

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:

  

April 26, 2023

 

Accounts receivable

 $5,100 

Driver advances and other receivables

  98 

Inventory and supplies

  1,015 

Prepaid expenses

  561 

Net property and equipment

  42,277 

Other assets, net

  120 

Other intangibles, net

  52,870 

Total identifiable assets acquired

  102,041 
     

Accounts payable

  (565)

Accrued expenses

  (1,465)

Current portion of operating lease obligations

  (396)

Current portion of insurance and claims accrual

  (56)

Long-term portion of operating lease obligations

  (2,103)

Total liabilities assumed

  (4,585)

Net identifiable assets acquired

  97,456 

Goodwill

  17,003 

Net assets acquired

 $114,459 

 

During the quarter ended March 31, 2024 we recognized measurement period adjustments related to the Section 338(h)10 election which increased goodwill recognized for LTST by $4.6 million from $12.4 million as of December 31, 2023 to $17.0 million as of March 31, 2024. The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel and purchases of revenue equipment. Refer to Note 14, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

 

Note 14.

Goodwill and Other Assets

 

The Landair Holdings, Inc. ("Landair") trade name has a residual value of $0.5 million.

 

Amortization expense of $2.4 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

 

Page 20

 

A summary of other intangible assets as of  March 31, 2024 and  December 31, 2023 is as follows:

 

(in thousands)

 

March 31, 2024

 
  

Gross intangible assets

  

Accumulated amortization

  

Net intangible assets

  

Remaining life (months)

 

Trade name:

                

Dedicated

 $4,502  $(2,322) $2,180     

Managed Freight

  1,089   (897)  192     

Warehousing

  999   (885)  114     

Total trade name

  6,590   (4,104)  2,486   107 

Non-compete agreement:

                

Dedicated

  4,670   (1,070)  3,600     

Managed Freight

  380   (55)  325     

Total non-compete agreement

  5,050   (1,125)  3,925   37 

Customer relationships:

                

Dedicated

  60,172   (9,229)  50,943     

Managed Freight

  7,312   (1,279)  6,033     

Warehousing

  12,436   (5,959)  6,477     

Total customer relationships:

  79,920   (16,467)  63,453   156 

Credentialing:

                

Expedited

  32,000   (4,622)  27,378   154 

Total credentialing

  32,000   (4,622)  27,378     

Total other intangible assets

 $123,560  $(26,318) $97,242   149 

 

(in thousands)

 

December 31, 2023

 
  

Gross intangible assets

  

Accumulated amortization

  

Net intangible assets

  

Remaining life (months)

 

Trade name:

                

Dedicated

 $4,502  $(2,269) $2,233     

Managed Freight

  1,089   (891)  198     

Warehousing

  999   (885)  114     

Total trade name

  6,590   (4,045)  2,545   110 

Non-compete agreement:

                

Dedicated

  4,670   (778)  3,892     

Managed Freight

  380   (32)  348     

Total non-compete agreement

  5,050   (810)  4,240   40 

Customer relationships:

                

Dedicated

  60,172   (8,258)  51,914     

Managed Freight

  7,312   (1,043)  6,269     

Warehousing

  12,436   (5,700)  6,736     

Total customer relationships:

  79,920   (15,001)  64,919   159 

Credentialing:

                

Expedited

  32,000   (4,089)  27,911   157 

Total credentialing

  32,000   (4,089)  27,911     

Total other intangible assets

 $123,560  $(23,945) $99,615   151 

 

The expected amortization of these assets for the next five successive years is as follows:

 

  

(in thousands)

 

2024 (1)

  7,116 

2025

  9,488 

2026

  9,488 

2027

  8,678 

2028

  8,220