COVENANT LOGISTICS GROUP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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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.



This report contains certain statements that may be considered forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and such statements are subject to the
safe harbor created by those sections and the Private Securities Litigation
Reform Act of 1995, as amended. All statements, other than statements of
historical or current fact, are statements that could be deemed forward-looking
statements, including without limitation: any projections of earnings, revenues,
or other financial items; any statement of plans, strategies, and objectives of
management for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic conditions or
performance; and any statements of belief and any statements of assumptions
underlying any of the foregoing. In this Form 10-Q, statements relating to
future impact of accounting standards, future third-party transportation
provider expenses, future tax rates, expenses, and deductions, expected freight
demand and volumes and trucking industry conditions, potential results of a
default and testing of our fixed charge covenant under the Credit Facility or
other debt agreements, expected sources, as well as adequacy, of working capital
and liquidity (including our mix of debt, finance leases, and operating leases
as means of financing revenue equipment), future stock repurchases, if any,
expected capital expenditures, allocations, and requirements, future customer
relationships, expected debt reduction, including future interest expense,
future driver market conditions, future use of independent contractors, expected
cash flows, expected operating income, future investments in and growth of our
segments and services, future market share, expected adjusted operating ratio,
future trucking capacity, future rates and prices, future utilization, future
depreciation and amortization, future salaries, wages, and related expenses,
including driver compensation and the impact of our cost saving measures,
expected net fuel costs, strategies for managing fuel costs, the effectiveness
and impact of, and cash flows relating to, our fuel surcharge programs, future
fluctuations in operations and maintenance expenses, expected effects and mix of
our solo and team operations, future fleet size, management, and upgrades,
availability of tractors and trailers, the market value of used equipment,
including equipment subject to operating or finance leases relative to our
payment obligations under such operating leases (including residual value
guarantees and the proceeds from the sale thereof), the anticipated impact of
our investment in TEL, the future impact of our restructuring activities,
strategic plan, and other strategic initiatives, anticipated levels of and
fluctuations relating to insurance, claims, and litigation expenses, including
the erosion of available limits in our aggregate insurance policies, our
disposition of the assets of TFS, including any future indemnification
obligations related to the TFS Portfolio, and the anticipated impact of the
COVID-19 outbreak or other similar outbreaks and related vaccination mandates,
among others, are forward-looking statements. Forward-looking statements may be
identified by the use of terms or phrases such as "believe," "may," "could,"
"would," "will," "expects," "estimates," "projects," "anticipates," "plans," "
outlook," "focus," "seek," "potential," "continue," "goal," "target,"
"objective," "intends," derivations thereof, and similar terms and phrases. Such
statements are based on currently available operating, financial, and
competitive information. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified, which
could cause future events and actual results to differ materially from those set
forth in, contemplated by, or underlying the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in the sections entitled "Item 1A. Risk Factors," set forth
in this Form 10-Q, our Form 10-Q for the quarter ended June 30, 2021, and our
Form 10-K for the year ended December 31, 2020, as amended. Readers should
review and consider the factors discussed in "Item 1A. Risk Factors," set
forth in this Form 10-Q, our Form 10-Q for the quarter ended June 30, 2021, and
our Form 10-K for the year ended December 31, 2020, as amended, along with
various disclosures in our press releases, stockholder reports, and other
filings with the Securities and Exchange Commission.



All such forward-looking statements speak only as of the date of this Form 10-Q.
You are cautioned not to place undue reliance on such forward-looking
statements. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in our expectations with regard thereto or any
change in the events, conditions, or circumstances on which any such statement
is based.



Executive Overview



For the third quarter of 2021, we were pleased to report earnings per share of
$0.97, which is the highest earnings for any quarter in the Company's history.
In the third quarter we experienced the continuation of an exceptionally strong
freight market resulting from growing economic activity, low inventories, and
supply chain disruptions, accompanied by constrained capacity due to an
intensifying national driver shortage. These conditions have continued into the
fourth quarter. Based on our current run-rate, we expect to generate over $1
billion in revenue and the highest annual earnings per share in our history
during 2021. Despite these achievements, we remain focused on further improving
our profitability, particularly in our Dedicated segment, which fell short of
our expectations for the quarter.



Although we are pleased with these results, we recognize the opportunity for
further improvement, particularly in our Dedicated segment. We are continuing to
work with our Dedicated customers on contract revisions and have given exit
notice to certain customers where our efforts have been unsuccessful.  We have a
robust pipeline of opportunities for our Dedicated service offering and will
continue to transition business to new customers in instances where we are
unable to come to terms with existing customers. We expect sequential
incremental improvement in our Dedicated service offering's operating margin in
the fourth quarter of 2021.  Our Warehousing service offering fell short of our
expectations from a profitability perspective as well.  Building rent on a newly
leased facility and increased labor costs resulting from the resurgence of the
COVID-19 pandemic in the third quarter were the primary drivers of the decline
in profitability.  Going forward, we expect to partially offset these costs with
new business and rate increases.





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Contents



As of June 30, 2020, our Factoring 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 TFS, a division of Covenant
Transport Solutions LLC, an indirect wholly owned subsidiary of the Company,
which included substantially all of the assets and operations of our Factoring
segment. Beginning with the period ended June 30, 2020, we have reflected the
former Factoring segment as discontinued operations in the condensed
consolidated statements of operations for all periods presented. Prior periods
have been adjusted to conform to the current presentation.



Other things to note for the third quarter of 2021 are as follows:

? Total turnover of $ 274.6 million, an increase of 30.2% compared to the third

quarter 2020, and freight revenues (which exclude fuel revenues

surcharges) of $ 250.3 million, an increase of 27.5% compared to the third

quarter of 2020, despite our reduced fleet of tractors;

? Operating result of $ 20.1 million, compared to $ 6.8 million In the third

quarter 2020;

? Net result of $ 16.4 million, Where $ 0.97 per diluted share, against $ 7.5

millions, or $ 0.43 per diluted share, in the third quarter of 2020. Net income

ongoing activities of $ 16.4 million, Where $ 0.97 per diluted share,

compared to $ 4.7 million Where $ 0.27 per diluted share, in the third quarter of

2020. Net income from discontinued operations of $ 0.0 million, Where $ 0.00 through

diluted share, compared to $ 2.8 million, Where $ 0.16 per diluted share, in the

    third quarter of 2020.

  ? 31% of consolidated total revenue was in our more volatile Expedited
    reportable segment, as compared to 37% in the second quarter of 2020;

? The total revenue of our segment to present Managed Freight increased to $ 90.1

million in the 2021 quarter of $ 47.6 million during the 2020 quarter and

segment achieved operating profit of $ 9.3 million in quarter 2021 compared

To $ 2.1 million in the 2020 quarter;

? Our stake in TEL fully recovered from the software equipment

market and supplied $ 3.2 million of profit before tax in the third quarter

from 2021 compared to $ 1.2 million in the third quarter of 2020;

? Since December 31, 2020, total debt, net of cash, reduced by

$ 39.1 million To $ 62.8 million, and with an available borrowing capacity of $ 80.5

million under our credit facility at September 30, 2021, we do not expect

be required to test our fixed charge commitment for the foreseeable future; and

? Equity and tangible book value at September 30, 2021, were

    $329.9 million and $266.3 million, respectively.




Outlook



For the balance of 2021, our short-term focus will be to continue to improve the
profitability of our Dedicated segment and continue working to solidify longer
term agreements with certain of our key Expedited and Brokerage customers. The
freight environment and our new business pipeline are both currently robust,
which we believe will support our commercial plan and offer growth
opportunities. Potential headwinds include inefficiencies from re-engineering or
replacing certain contracts, driver availability and cost, accident experience,
the cost and volatility of claims, general inflation, and supply and demand
factors for our customers and our industry.



Over time, we expect our Managed Freight segment's margin to gravitate toward
the mid-single digits and Dedicated's to gravitate toward the mid to high single
digits and ultimately double digits. Directionally the margin changes may offset
each other to some extent as the freight and driver markets return to more
balanced levels.



For the longer term, we expect to continue the execution of our strategic plan,
which consists of steadily and intentionally growing the percentage of our
business generated by Dedicated, Managed Freight, and Warehousing segments,
reducing unnecessary overhead, and improving our safety, service, and
productivity. This will be a gradual process of diversifying our customer base
with less seasonal and cyclical exposure, implementing more consistent
contracts, and investing in systems, technology, and people to support the
growth of these previously under-invested areas. In addition, we will continue
to evaluate organic and acquisition growth opportunities that deliver the
required returns. With diligence and accountability, we expect to grow our
market share and make consistent progress and be a stronger, more profitable,
and more predictable business with the opportunity for significant and sustained
value creation.



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Non-GAAP Reconciliation



In addition to operating ratio, we use "adjusted operating ratio" as a key
measure of profitability. Adjusted operating ratio is not a substitute for
operating ratio measured in accordance with GAAP. There are limitations to using
non-GAAP financial measures. Adjusted operating ratio means operating expenses,
net of fuel surcharge revenue, excluding amortization of intangibles, and
significant unusual items, divided by total revenue, less fuel surcharge
revenue. We believe the use of adjusted operating ratio allows us to more
effectively compare periods, while excluding the potentially volatile effect of
changes in fuel prices, amortization of intangibles, and significant unusual
items. Our Board and management focus on our adjusted operating ratio as an
indicator of our performance from period to period. We believe our presentation
of adjusted operating ratio is useful because it provides investors and
securities analysts the same information that we use internally to assess our
core operating performance. Although we believe that adjusted operating ratio
improves comparability in analyzing our period-to-period performance, it could
limit comparability to other companies in our industry, if those companies
define adjusted operating ratio differently. Because of these limitations,
adjusted operating ratio should not be considered a measure of income generated
by our business or discretionary cash available to us to invest in the growth of
our business. Management compensates for these limitations by primarily relying
on GAAP results and using non-GAAP financial measures on a supplemental basis.



Operating Ratio



                                   Three Months Ended September 30,                         Nine Months Ended September 30,

GAAP operating ratio: 2021 OR% 2020 OR%

        2021          OR %          2020          OR %
Total revenue             $ 274,561                   $ 210,830                   $ 751,775                   $ 613,333
Total operating
expenses                    254,478       92.7%         204,019       96.8%

702,850 93.5% 636,927 103.8% Operating income (loss) $ 20,083

                   $   6,811                   $  48,925                   $ (23,594 )

Adjusted Operating
Ratio:                      2021        Adj. OR %       2020        Adj. OR %       2021        Adj. OR %       2020        Adj. OR %
Total revenue             $ 274,561                   $ 191,689                   $ 751,775                   $ 402,502
Fuel surcharge revenue      (24,306 )                   (12,125 )                   (68,884 )                   (33,357 )
Freight revenue (total
revenue, excluding fuel
surcharge)                  250,255                     179,564                     682,891                     369,145

Total operating
expenses                    254,478                     204,019                     702,850                     636,927
Adjusted for:
Fuel surcharge revenue      (24,306 )                   (14,613 )                   (68,884 )                   (47,971 )
Amortization of
intangibles                  (1,152 )                    (1,152 )                    (3,456 )                    (3,945 )
Bad debt expense
associated with
customer bankruptcy and
high credit risk
customers                         -                           -                           -                      (2,617 )
Insurance policy
erosion                           -                      (4,447 )                         -                      (4,447 )
Strategic restructuring
adjusting items:
Gain on disposal of
terminals, net                    -                           -                           -                       5,712
Impairment of real
estate and related
tangible assets                   -                           -                           -                      (9,790 )
Impairment of revenue
equipment and related
charges                           -                           -                           -                     (17,604 )
Restructuring related
severance and other               -                      (1,000 )                         -                      (2,791 )
Abandonment of
information technology
infrastructure                    -                           -                           -                      (1,048 )
Contract exit costs and
other restructuring               -                           -                           -                        (695 )
Adjusted operating
expenses                    229,020       91.5%         182,807       93.2%         630,510       92.3%         551,731       97.6%
Adjusted operating
income (loss)             $  21,235                   $  13,410                   $  52,381                   $  13,631




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Revenue and Expenses



We focus on targeted markets throughout the United States where we believe our
service standards can provide a competitive advantage. We are a major carrier
for transportation companies such as parcel freight forwarders,
less-than-truckload carriers, and third-party logistics providers that require a
high level of service to support their businesses, as well as for traditional
truckload customers such as manufacturers, retailers, and food and beverage
shippers.



We have four segments to present, which include:

? Expedited: The Expedited segment mainly provides cargo services

customers with high standards of freight and service delivery, such as 1,000

miles in 22 hours, or delivery windows of 15 minutes. Expedited services in general

require driving teams of two people on equipment owned or rented by the

    Company.



? Dedicated: Dedicated segment provides customers with engaged truckload

capacity over contractual periods with a target of three to five years in

length. The equipment is owned or leased by the Company. Many of our

Dedicated contractual customers are car manufacturers or product shippers,

where the nature of the product we ship demands high standards of service.



  ? Managed Freight: The Managed Freight segment includes our brokerage and

transport management services (“TMS”). Brokerage services provide logistics

capacity by outsourcing freight transportation from customers to third parties.

    TMS provides comprehensive logistics services on a contractual basis to
    customers who prefer to outsource their logistics needs.



? Warehousing: the Warehousing segment provides day-to-day warehouse management

    services to customers who have chosen to outsource this function.




In our Expedited and Dedicated reportable segments, we primarily generate
revenue by transporting freight for our customers. Generally, we are paid a
predetermined rate per mile for our truckload services. We enhance our truckload
revenue by charging for tractor and trailer detention, loading and unloading
activities, and other specialized services, as well as through the collection of
fuel surcharges to mitigate the impact of increases in the cost of fuel. The
main factors that could affect our Expedited revenue are the revenue per mile we
receive from our customers, the percentage of miles for which we are
compensated, and the number of shipments and miles we generate. The main factors
that could affect our Dedicated revenue are the rates and utilization under the
contracts with our Dedicated customers. These factors relate, among other
things, to the general level of economic activity in the United States,
inventory levels, specific customer demand, the level of capacity in the
trucking industry, and driver availability.



The main expenses that impact the profitability of our Expedited and Dedicated
reportable segments are the variable costs of transporting freight for our
customers. These costs include fuel expenses, driver-related expenses, such as
wages, benefits, training, and recruitment, and purchased transportation
expenses, which primarily include compensating independent contractors. Expenses
that have both fixed and variable components include maintenance and tire
expense and our total cost of insurance and claims. These expenses generally
vary with the miles we travel, but also have a controllable component based on
safety, self-insured retention versus insurance premiums, fleet age, efficiency,
and other factors. Historically, our main fixed costs include rentals and
depreciation of long-term assets, such as revenue equipment and terminal
facilities, and the compensation of non-driver personnel.



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Within our Expedited and Dedicated reportable segments, we operate tractors
driven by a single driver and also tractors assigned to two-person driver teams.
Our single driver tractors generally operate in shorter lengths of haul,
generate fewer miles per tractor, and experience more non-revenue miles, but the
lower productive miles are expected to be offset by generally higher revenue per
loaded mile and the reduced employee expense of compensating only one driver. In
contrast, our two-person driver tractors generally operate in longer lengths of
haul, generate greater miles per tractor, and experience fewer non-revenue
miles, but we typically receive lower revenue per loaded mile and incur higher
employee expenses of compensating both drivers. We expect operating statistics
and expenses to shift with the mix of single and team operations.



Within our Managed Freight reportable segment, we derive revenue from
arranging transportation services, directly and through agents, who are paid a
commission for the freight they provide, for customers on both an ad-hoc and a
contractual basis. We provide these services directly and through relationships
with thousands of third-party carriers and integration with our Expedited
reportable segment. We also utilize technology and process management to provide
detailed visibility into a customer's movement of freight - inbound and outbound
- throughout the customer's network and can provide focused customer support
through multiyear contracts. The main factors that impact profitability in terms
of expenses are the variable costs of outsourcing the transportation freight for
our customers and managing fixed costs, including salaries, and selling,
general, and administrative expenses.



Within our Warehousing reportable segment, we empower customers to outsource
warehousing management, including moving containers and trailers in or around
freight yards. The main factors that impact profitability in terms of expenses
are fixed costs, including salaries, facility warehousing costs, and selling,
general, and administrative expenses.



In May 2011, we acquired a 49.0% interest in TEL. TEL is a tractor and trailer
equipment leasing company and used equipment reseller. We have accounted for our
investment in TEL using the equity method of accounting and thus our financial
results include our proportionate share of TEL's net income since May 2011.



Our main measures of profitability are operating ratio and adjusted operating
ratio. We define adjusted operating ratio as operating expenses, net of fuel
surcharge revenue, excluding amortization of intangibles, and significant
unusual items, divided by total revenue, less fuel surcharge revenue. See page
24 for the uses and limitations associated with adjusted operating ratio.



Revenue Equipment



At September 30, 2021, we operated 2,348 tractors and 5,346 trailers. Of such
tractors, 1,540 were owned, 670 were financed under operating leases, and 138
were provided by independent contractors, who provide and drive their own
tractors. Of such trailers, 4,628 were owned, 622 were financed under finance
type leases, and 96 were held under short-term operating leases. We finance a
small portion of our trailer fleet and larger portion of our tractor fleet with
operating leases, which generally run for a period of three to five years for
tractors and five to seven years for trailers. At September 30, 2021, our fleet
had an average tractor age of 2.0 years and an average trailer age of 4.9 years.



Independent contractors provide a tractor and a driver and are responsible for
all operating expenses in exchange for a fixed payment per mile. We do not have
the capital outlay of purchasing or leasing the tractor. The payments to
independent contractors and the financing of equipment under operating leases
are recorded in revenue equipment rentals and purchased transportation. Expenses
associated with owned equipment, such as interest and depreciation, and expenses
associated with employee drivers, including driver compensation, fuel, and other
expenses, are not incurred with respect to independent contractors. Obtaining
equipment from independent contractors and under operating leases effectively
shifts financing expenses from interest to "above the line" operating expenses,
and as such, we evaluate our efficiency using net income margin as well as
operating ratio.



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RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF THREE AND NINE MONTHS ENDED September 30, 2021 At three and nine months over September 30, 2020



The following tables set forth the percentage relationship of certain items to
total revenue and freight revenue (total revenue less fuel surcharge revenue)
for the periods indicated, where applicable (dollars in thousands):



Revenue



                           Three Months Ended           Nine Months Ended
                              September 30,               September 30,
                           2021          2020          2021          2020
Revenue:
Freight revenue          $ 250,255     $ 196,217     $ 682,891     $ 565,362
Fuel surcharge revenue      24,306        14,613        68,884        47,971
Total revenue            $ 274,561     $ 210,830     $ 751,775     $ 613,333




The increase in total revenue resulted from
a $42.5 million, $8.4 million, $1.9 million, and $1.2 million increase in
Managed Freight, Dedicated, Warehousing, and Expedited freight revenue,
respectively, for the three months ended September 30, 2021 and a
$100.4 million, $12.4 million, and $9.1 million increase in Managed Freight,
Dedicated, and Warehousing freight revenue, respectively, partially offset by a
$4.5 million decrease in Expedited freight revenue for the nine months ended
September 30, 2021.


See the Results of Segment Operations section for a discussion of fluctuations.

For comparison purposes in the discussion below, we are using total revenue and freight revenue (total revenue minus fuel supplement revenue) when discussing revenue percentage changes.

For each expense item discussed below, we have provided a table showing the relevant expenses first as a percentage of total revenue and then as a percentage of freight revenue.

Salaries, wages and related expenses


                                          Three Months Ended           Nine Months Ended
                                             September 30,               September 30,
                                           2021          2020         2021          2020
Salaries, wages, and related expenses   $   87,547     $ 78,812     $ 258,609     $ 235,964
% of total revenue                            31.9 %       37.4 %        34.4 %        38.5 %
% of freight revenue                          35.0 %       40.2 %        37.9 %        41.7 %




Salaries, wages, and related expenses for the three and nine months
ended September 30, 2021, increased on a dollars basis primarily as the result
of substantial cents per mile driver pay increases made effective throughout
2021, management incentive compensation attributable to favorable 2021 results,
and increases in contract labor that are primarily the result of the resurgence
of the COVID-19 pandemic. The decreases on a percentage basis are due to
increased revenue over which to spread those costs.



We believe salaries, wages, and related expenses will continue to increase as a
result of driver pay changes put in place in the tight freight market, partially
offset by fewer drivers as a result of our change in business model and our
smaller fleet. Additionally, we expect salaries, wages, and related expenses to
continue to increase period over period as the result of reinstatement of the
401(k) match, wage inflation, and, in certain periods, increased incentive
compensation due to improved performance. Driver compensation headwinds are
expected to continue for the foreseeable future as a result of the tight driver
market being experienced across our industry. Salaries, wages, and related
expenses will fluctuate to some extent based on the percentage of revenue
generated by independent contractors and our Managed Freight reportable segment,
for which payments are reflected in the purchased transportation line item.



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Fuel expense



                         Three Months Ended          Nine Months Ended
                            September 30,              September 30,
                          2021          2020         2021          2020
Fuel expense           $   26,174     $ 18,061     $  75,368     $ 59,264
% of total revenue            9.5 %        8.6 %        10.0 %        9.7 %
% of freight revenue         10.5 %        9.2 %        11.0 %       10.5 %




We receive a fuel surcharge on our loaded miles from most shippers; however,
this does not cover the entire cost of fuel for several reasons, including the
following: surcharges cover only loaded miles we operate; surcharges do not
cover miles driven out-of-route by our drivers; and surcharges typically do not
cover refrigeration unit fuel usage or fuel burned by tractors while idling.
Moreover, most of our business relating to shipments obtained from freight
brokers does not carry a fuel surcharge. Finally, fuel surcharges vary in the
percentage of reimbursement offered, and not all surcharges fully compensate for
fuel price increases even on loaded miles.



The rate of fuel price changes also can have an impact on results. Most fuel
surcharges are based on the average fuel price as published by the Department of
Energy ("DOE") for the week prior to the shipment, meaning we typically bill
customers in the current week based on the previous week's applicable index.
Therefore, in times of increasing fuel prices, we do not recover as much as we
are currently paying for fuel. In periods of declining prices, the opposite is
true. Fuel prices as measured by the DOE were $0.94 per gallon higher for the
quarter ended September 30, 2021 compared with the same quarter in 2020.



To measure the effectiveness of our fuel surcharge program, we subtract fuel
surcharge revenue (other than the fuel surcharge revenue we reimburse to
independent contractors and other third parties which is included in purchased
transportation) from our fuel expense. The result is referred to as net fuel
expense. Our net fuel expense as a percentage of freight revenue is affected by
the cost of diesel fuel net of fuel surcharge revenue, the percentage of miles
driven by company tractors, our fuel economy, our percentage of deadhead miles,
for which we do not receive material fuel surcharge revenues, and the net impact
of fuel hedging gains and losses.



The net fuel expenses are shown below:


                                            Three Months Ended             Nine Months Ended
                                              September 30,                  September 30,
                                           2021            2020           2021            2020
Total fuel surcharge                    $    24,306     $   14,613     $    68,884     $   47,971
Less: Fuel surcharge revenue
reimbursed to owner operators and
other third parties                           1,852          1,723           5,638          5,823
Company fuel surcharge revenue          $    22,454     $   12,890     $    63,246     $   42,148
Total fuel expense                      $    26,174     $   18,061     $    75,368     $   59,264
Less: Company fuel surcharge revenue         22,454         12,890          63,246         42,148
Net fuel expense                        $     3,720     $    5,171     $    12,122     $   17,116
% of freight revenue                            1.5 %          2.6 %           1.8 %          3.0 %




Net fuel expense for the three months ended September 30, 2021, decreased
primarily due to higher fuel surcharge recovery, partially offset by slightly
higher fuel prices. There were no diesel fuel hedge gains or losses for the
quarter compared to $0.1 million of losses for the same 2020 quarter. Also, as a
result of the change in our business mix our fleet was more fuel efficient due
to less idling and less temperature-controlled freight thus reducing
refrigerated trailer fuel expense. As of September 30, 2021, we had no remaining
fuel hedging contracts.



For the nine months ended September 30, 2021, net fuel expense
decreased primarily due to higher fuel surcharge recovery, partially offset by
slightly higher fuel prices. Additionally, there were $0.4 million of diesel
fuel hedge gains for the year-to-date period, compared to $0.4 million of losses
for the same 2020 period. Also, as a result of the change in our business mix
our fleet was more fuel efficient due to less idling and
less temperature-controlled freight thus reducing refrigerated trailer fuel
expense.



We expect to continue managing our idle time and tractor speeds, investing in
more fuel-efficient tractors to improve our miles per gallon, locking in fuel
hedges when deemed appropriate, and partnering with customers to adjust fuel
surcharge programs that are inadequate to recover a fair portion of fuel costs.
Going forward, our net fuel expense is expected to fluctuate as a percentage of
revenue based on factors such as diesel fuel prices, percentage recovered from
fuel surcharge programs, percentage of uncompensated miles, percentage of
revenue generated by team-driven tractors (which tend to generate higher miles
and lower revenue per mile, thus proportionately more fuel cost as a percentage
of revenue), percentage of revenue generated by refrigerated operations (which
uses diesel fuel for refrigeration but usually does not recover fuel surcharges
on refrigeration fuel), percentage of revenue generated from independent
contractors, and the success of fuel efficiency initiatives.



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Operations and maintenance


                               Three Months Ended          Nine Months Ended
                                  September 30,              September 30,
                                2021          2020         2021          2020
Operations and maintenance   $   14,933     $ 11,912     $  43,946     $ 36,956
% of total revenue                  5.4 %        5.7 %         5.8 %        6.0 %
% of freight revenue                6.0 %        6.1 %         6.4 %        6.5 %




The increases in operations and maintenance on a dollar basis for the three
months and nine months ended September 30, 2021 were primarily related to an
additional $1.7 million and $5.1 million in costs related to the recruitment and
onboarding of drivers, respectively, when compared to the prior year periods,
despite having a smaller fleet in 2021. This increase is attributable to the
extremely tight driver market and our focused effort to seat more of our
tractors. Additionally, maintenance costs, including parts and labor, have
increased as compared to the prior year periods as a result of the global supply
chain disruptions. This was partially offset by a reduction in tolls, cargo
damage, and other costs associated with temperature-controlled freight that was
exited in the second quarter of 2020 as a result of our business restructuring.



Going forward, we believe this category will increase based on several factors,
including the condition of the driver market and our ability to hire and retain
drivers, our continued ability to maintain a relatively young fleet, accident
severity and frequency, weather, the reliability of new and untested revenue
equipment models, and the global disruption of the supply chain.



Equipment rental income and purchased transportation


                                            Three Months Ended             Nine Months Ended
                                              September 30,                  September 30,
                                           2021            2020           2021           2020
Revenue equipment rentals and
purchased transportation                $    92,636     $   58,604     $  225,328     $  151,677
% of total revenue                             33.7 %         27.8 %         30.0 %         24.7 %
% of freight revenue                           37.0 %         29.9 %         33.0 %         26.8 %




The increases in revenue equipment rentals and purchased transportation for the
three and nine months ended September 30, 2021, were primarily the result of a
more competitive market for sourcing third-party capacity and growth in
the Managed Freight reportable segment, partially offset by a reduction in the
percentage of the total miles run by independent contractors from 11.1% for the
three months ended September 30, 2020 to 7.8% for the same 2021 period and from
11.4% for the nine months ended September 30, 2020 to 8.4% for the same
2021 period.



When compared year-over-year, we expect revenue equipment rentals to decrease
going forward as a result of the reduction of our tractor fleet. However, we
expect purchased transportation to increase as we seek to grow the Managed
Freight reportable segment. In addition, if fuel prices increase, it would
result in a further increase in what we pay third-party carriers and independent
contractors. However, this expense category will fluctuate with the number and
percentage of loads hauled by independent contractors, loads handled by Managed
Freight, and tractors, trailers, and other assets financed with operating
leases. In addition, factors such as the cost to obtain third-party
transportation services and the amount of fuel surcharge revenue passed through
to the third-party carriers and independent contractors will affect this expense
category. If industry-wide trucking capacity continues to tighten in relation to
freight demand, we may need to increase the amounts we pay to third-party
transportation providers and independent contractors, which could increase this
expense category on an absolute basis and as a percentage of freight revenue
absent an offsetting increase in revenue. If we were to recruit more independent
contractors, we would expect this line item to increase as a percentage of
revenue.



Operating taxes and licenses



                                 Three Months Ended          Nine Months Ended
                                    September 30,              September 30,
                                  2021          2020          2021         2020
Operating taxes and licenses   $    2,687      $ 2,979     $    8,232     $ 9,555
% of total revenue                    1.0 %        1.4 %          1.1 %       1.6 %
% of freight revenue                  1.1 %        1.5 %          1.2 %       1.7 %




The decreases in operating taxes and licenses as a percentage of revenue for the
three and nine months ended September 30, 2021 are primarily due to increased
revenue over which to spread those costs.



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Insurance and claims



                         Three Months Ended          Nine Months Ended
                            September 30,              September 30,
                          2021          2020         2021          2020
Insurance and claims   $   11,023     $ 13,317     $  28,437     $ 40,491
% of total revenue            4.0 %        6.3 %         3.8 %        6.6 %
% of freight revenue          4.4 %        6.8 %         4.2 %        7.2 %




Insurance and claims per mile cost decreased to 16.0 cents per mile for the
three months ended September 30, 2021 compared to 17.6 cents per mile for the
same 2020 quarter and 13.1 cents per mile for the nine months ended
September 30, 2021 compared to 17.4 cents per mile for the same 2020 period.
The decrease for the three months ended September 30, 2021 is primarily a result
of additional premiums in the third of quarter of 2020 as a result of the
erosion of our excess insurance coverage layer $9.0 million in excess of $1.0
million. The decrease for the nine months ended September 30, 2021 is
primarily a result of the occurrence and development of large claims in the 2020
period partially offset by the 2020 refund of $7.3 million of previously
expensed premiums from our commutation of the April 10, 2015 through March 31,
2018 policy for our primary auto liability insurance. Additionally, incident
rates during the 2021 periods have decreased as compared to the same 2020
periods.



The auto liability policy contains a feature whereby we are able to
retroactively obtain a partial refund of the premium in exchange for taking on
the liability for incidents that occurred during the period and releasing the
insurers. This is referred to as "commuting" the policy or "policy commutation."
In the second quarter of 2020, as well as in several past periods we have
commuted the policy, which has lowered our insurance and claims expense. We
intend to evaluate our ability to execute the policy release premium refund or
commutation option for the auto liability policy for the three years ended March
31, 2021, which could reduce insurance and claims expense by up to $14.0
million, less any future amounts paid on claims by the insurer. A decision with
respect to commutation of the policy has not yet been made. Management cannot
predict whether or not future claims or the development of existing claims will
justify a commutation of the policy period, and accordingly, no related amounts
were recorded at September 30, 2021.



Our auto liability (personal injury and property damage), cargo, and general
liability insurance programs include significant self-insured retention amounts.
We are also self-insured for physical damage to our equipment. Because of these
significant self-insured exposures, insurance and claims expense may fluctuate
significantly from period-to-period. Any increase in frequency or severity of
claims, or any increases to then-existing reserves, could adversely affect our
financial condition and results of operations. We periodically evaluate
strategies to efficiently reduce our insurance and claims expense. Our current
policy for the $7.0 million in excess of $3.0 million layer runs from January
28, 2021 to April 1, 2024. Due to the erosion of the $9.0 million in excess of
$1.0 million layer of our prior policy, any adverse developments in claims filed
between April 1, 2018 and March 31, 2021, could result in additional expense
accruals. Due to these developments, we may experience additional expense
accruals, increased insurance and claims expenses, and greater volatility in our
insurance and claims expenses, which could have a material adverse effect on our
business, financial condition, and results of operations.



The Company expects insurance and claims expense to continue to be volatile over
the long-term.  Recently, the trucking industry has experienced a decline in the
number of carriers and underwriters that write insurance policies or that are
willing to provide insurance for trucking companies.  These factors caused the
Company's insurance premiums to increase during the April 2020 renewal.



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Communications and utilities



                                 Three Months Ended          Nine Months Ended
                                    September 30,              September 30,
                                 2021           2020          2021         2020
Communications and utilities   $    947       $  1,306     $    3,325     $ 4,657
% of total revenue                  0.3 %          0.6 %          0.4 %       0.8 %
% of freight revenue                0.4 %          0.7 %          0.5 %       0.8 %



For the periods presented, changes in communications and utilities as a percentage of revenue for the three and nine months ended September 30, 2021 is mainly due to the increase in revenues over which to allocate these costs.


General supplies and expenses



                                  Three Months Ended          Nine Months Ended
                                     September 30,              September 30,
                                   2021          2020         2021          2020
General supplies and expenses   $    6,037      $ 7,673     $  21,972     $ 27,568
% of total revenue                     2.2 %        3.6 %         2.9 %        4.5 %
% of freight revenue                   2.4 %        3.9 %         3.2 %        4.9 %




The decrease in general supplies and expenses for the three and nine months
ended September 30, 2021 primarily relate to 2020 strategic planning and process
improvement investments that were part of our organizational restructuring.
Additional reserves put in place during the same 2020 period for potentially
uncollectible accounts receivable also contributed to the decrease for the nine
months ended September 30, 2021.


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Depreciation and amortization


                                  Three Months Ended          Nine Months Ended
                                     September 30,              September 30,
                                   2021          2020         2021          2020
Depreciation and amortization   $   13,365     $ 13,428     $  41,316     $ 51,274
% of total revenue                     4.9 %        6.4 %         5.5 %        8.4 %
% of freight revenue                   5.3 %        6.8 %         6.1 %        9.1 %



Depreciation mainly consists of depreciation of tractors, trailers and other fixed assets, as well as depreciation of intangible assets.



Depreciation expense decreased $0.1 million and $9.5 million to $12.2
million and $37.9 million for the three and nine months ended September 30,
2021, respectively, compared to $12.3 million and $47.3 million in the
same 2020 periods. The decreases in depreciation expense are due to the mix
change in the overall business that reduced total tractor count and increased
utilization, along with reductions in terminals and other capital
assets. Amortization of intangible assets was $1.2 million and $3.5 million for
the three and nine months ended September 30, 2021, respectively, and
$1.2 million and $3.9 million for the same 2020 periods. The decrease is a
result of the 2020 termination of the non-compete agreement with a former
Landair executive partially offset by the revised remaining useful life of the
Landair trade name to 15 months as of June 30, 2020, as a result of management
changes, a change in the branding of the organization, and the expected use of
the Landair trade name.


For the remainder of 2021, we expect the average size of our operational fleet to remain relatively stable at around 2,400 tractors.

Gain on disposal of goods and equipment, net


                                             Three Months Ended               Nine Months Ended
                                               September 30,                    September 30,
                                           2021              2020            2021            2020
Gain on disposition of property and
equipment, net                          $      (871 )     $   (2,073 )    $   (3,683 )    $   (7,048 )
% of total revenue                             (0.3 %)          (1.0 %)         (0.5 %)         (1.1 %)
% of freight revenue                           (0.3 %)          (1.1 %)         (0.5 %)         (1.2 %)




The decreases in gain on disposition of property and equipment, net for the
three months ended September 30, 2021 are primarily the result of timing of the
trade cycle of our equipment and the strategic reduction of our tractors that
began during the second quarter of 2020. The decreases for the nine months ended
September 30, 2021 are primarily the result of the $5.7 million gain on a
terminal in the second quarter of 2020, as part of the Company's restructuring
plan, partially offset by the timing of the trade cycle of our equipment and the
strategic reduction of our tractors that began during the second quarter of
2020.



Long-term depreciation of goods and equipment


                                             Three Months Ended                Nine Months Ended
                                                September 30,                    September 30,
                                           2021              2020            2021              2020
Impairment of long-lived property and
equipment                               $         -       $         -     $         -       $   26,569
% of total revenue                              0.0 %             0.0 %           0.0 %            4.3 %
% of freight revenue                            0.0 %             0.0 %           0.0 %            4.7 %




During the second quarter of 2020, as part of our efforts to restructure the
organization, we recognized impairment of $16.8 million on revenue
equipment, $7.3 million on a terminal, related leasehold improvements,
and equipment, $2.2 million on an office facility held under an operating lease,
and $0.2 million on a training and orientation facility. We've incurred no
restructuring charges in 2021.



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Interest expense, net



                          Three Months Ended          Nine Months Ended
                             September 30,              September 30,
                          2021           2020          2021         2020
Interest expense, net   $    724       $  1,935     $    2,175     $ 5,917
% of total revenue           0.3 %          0.9 %          0.3 %       1.0 %
% of freight revenue         0.3 %          1.0 %          0.3 %       1.0 %



Decreases in interest expense, net for the three and nine months ended
September 30, 2021 are mainly the result of the reduction in our total indebtedness since the same periods of 2020.



This line item will fluctuate based on our decision with respect to purchasing
revenue equipment with balance sheet debt versus operating leases as well as our
ability to continue to generate profitable results and reduce our leverage.



Investment income using the equity method


                                         Three Months Ended          Nine Months Ended
                                            September 30,              September 30,
                                          2021          2020          2021          2020

Investment income using the equity method $ 3,230 $ 1,176 $ 9,572 $ 971




We have accounted for our investment in TEL using the equity method of
accounting and thus our financial results include our proportionate share of
TEL's net income or loss. The increase in TEL's contributions to our results for
the three and nine months ended September 30, 2021 is the result of constricted
used equipment capacity in the transportation market. We expect the impact on
our earnings for the remaining quarter of 2021 to be consistent with the first
nine months of 2021.



Income tax expense (benefit)



                                 Three Months Ended          Nine Months Ended
                                    September 30,              September 30,
                                  2021          2020         2021          2020
Income tax expense (benefit)   $    6,147      $ 1,339     $  15,863     $ (7,000 )
% of total revenue                    2.2 %        0.6 %         2.1 %       (1.1 %)
% of freight revenue                  2.5 %        0.7 %         2.3 %       (1.2 %)



Changes in the tax expense (profit) are mainly related to the $ 16.5 million and $ 84.9 million increases in pre-tax income during the three and nine months ended September 30, 2021, respectively, compared to the same periods of 2020, resulting from the increase in operating profit and profit on investment in TEL.



The effective tax rate is different from the expected combined tax rate due
primarily to permanent differences related to our per diem pay structure for
drivers. Due to the partial nondeductible effect of the per diem payments, our
tax rate will fluctuate in future periods as income fluctuates. We are currently
estimating our 2021 effective income tax rate to be approximately 27.1%. The
actual rate for our year-to-date results differs from the forecasted rate due to
discrete items that are recorded directly to tax expense in the quarter
incurred. Examples of these discrete items recorded through September 30, 2021
include the impacts of vested stock awards and return to provision adjustments,
including adjustments to our state blended rates used to value deferred tax
assets and liabilities.



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RESULTS OF SEGMENT OPERATIONS


We have four reportable segments, Expedited, Dedicated, Managed Freight and Warehousing, each as described above.

COMPARISON OF THREE AND NINE MONTHS ENDED September 30, 2021 At three and nine months over September 30, 2020



The following table summarizes financial and operating data by reportable
segment:



(in thousands)               Three Months Ended           Nine Months Ended
                                September 30,               September 30,
                             2021          2020          2021          2020
Revenues:
Expedited                  $  85,289     $  78,410     $ 251,139     $ 244,347
Dedicated                     83,477        71,104       240,791       218,833
Managed Freight               90,072        47,595       213,104       112,695
Warehousing                   15,723        13,721        46,741        37,458
Total revenues             $ 274,561     $ 210,830     $ 751,775     $ 613,333

Operating Income (Loss):
Expedited                  $  11,064     $   2,521     $  27,479     $ (11,845 )
Dedicated                       (659 )         926        (2,629 )     (13,796 )
Managed Freight                9,251         2,079        21,510          (893 )
Warehousing                      427         1,285         2,565         2,940
Total operating income     $  20,083     $   6,811     $  48,925     $ (23,594 )




The increase in Expedited revenue for the three months ended September 30, 2021
relates to an increase in average freight revenue per tractor per week of
20.8% and a $5.7 million increase in fuel surcharge revenue compared to the 2020
quarter, partially offset by a 156 (or 15.8%) average tractor decrease. The
increase in average freight revenue per tractor per week for the quarter ended
September 30, 2021 is the result of a 6.2% increase in average miles per unit
and a 24.0 cents per mile (or 13.7%) increase in average rate per total
mile compared to the 2020 quarter. Expedited team-driven tractors averaged 832
tractors in the third quarter of 2021, a decrease of approximately 7.2% from the
average of 896 tractors in the third quarter of 2020.



For the nine months ended September 30, 2021, the change in Expedited revenue
relates to an increase in average freight revenue per tractor per week of
33.4% compared to the same 2020 period, partially offset by a 307 (or 26.3%)
average tractor decrease related to the exit of the solo-refrigerated business
in the second quarter of 2020. The increase in average freight revenue per
tractor per week for the nine months ended September 30, 2021 is the result of a
23.5% increase in average miles per unit and a 14.0 cents per mile (or 7.8%)
increase in average rate per total mile compared to the same 2020 period.
Expedited team-driven tractors averaged 857 tractors for the nine months ended
September 30, 2021, a decrease of approximately 1.8% from the average of 872
tractors for the same 2020 period.



The increase in Dedicated revenue relates to an increase in average freight
revenue per tractor per week compared to the 2020 quarter as the result of a
43.0 cents per mile (or 23.1%) increase in average rate per total mile compared
to the 2020 quarter, as well as a $4.0 million increase in fuel surcharge
revenue, partially offset by a 7.9% decrease in average miles per unit. Average
tractors remained comparable to the three months ended September 30, 2020 at
1,538 tractors.



For the nine months ended September 30, 2021, the increase in Dedicated revenue
relates to an increase in average freight revenue per tractor per week compared
to the same 2020 period as the result of a 25.0 cents per mile (or 13.4%)
increase in average rate per total mile, partially offset by a 5.0% decrease in
average miles per unit as compared to the same 2020 period. Additionally, fuel
surcharge revenue increased $9.5 million compared to the 2020 period. These
increases were partially offset by a 23 (or 1.4%) average tractor decrease as a
result of not renewing underperforming contracts.



Managed Freight total revenue increased as a result of a robust freight market
and executing various spot rate opportunities in the quarter and year-to-date
periods, as well as handling overflow freight from both Expedited and Dedicated
truckload operations.



Warehousing total revenue for the quarter and year-to-date periods increased as
a result of new customer business that began operations during the third quarter
of 2020.



In addition to the changes in revenue described above for the three and nine
months ended September 30, 2021, the change in operating income for the three
months ended September 30, 2021, resulted from a $35.3 million, $14.0 million,
and $2.9 million increase in Managed Freight, Dedicated, and Warehousing
operating expenses, respectively, partially offset by a $1.7 million decrease in
Expedited operating expenses. For the nine months ended September 30, 2021, the
change in operating income resulted from a $78.0 million, $10.8 million, and
$9.7 million increase in Managed Freight, Dedicated, and Warehousing operating
expenses, respectively, partially offset by a $32.5 million decrease in
Expedited operating expenses.



The decrease in Expedited operating expenses for the three months ended
September 30, 2021, is primarily the result of a 15.8% average operating fleet
reduction and 2020 restructuring costs, partially offset by higher variable
costs associated with driver pay increases. The decrease in Expedited operating
expenses for the nine months ended September 30, 2021, is primarily the result
of the restructuring costs incurred in 2020 related to downsizing our
solo-driver refrigerated, one-way irregular routes, and other less profitable
operations, as well as a decrease in insurance and claims expense and a 26.3%
reduction in average operating fleet. The increase in Dedicated operating
expenses for the three and nine months ended September 30, 2021 primarily
related to driver pay increases and increased driver recruiting costs, partially
offset by the aforementioned 2020 restructuring costs.



The increase in Managed Freight operating expenses is the result of increased
revenue driving an increase in variable expenses, primarily purchased
transportation. The increase for Warehousing was primarily driven by the new
customer business that began operations during the latter portion the third
quarter of 2020, as well as increased contract labor costs as a result of the
resurgence of the COVID-19 pandemic and escalating real estate costs for a newly
leased facility.



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LIQUIDITY AND CAPITAL RESOURCES



Our business requires significant capital investments over the short-term and
the long-term. Recently, we have financed our capital requirements with
borrowings under our Credit Facility, cash flows from operations, long-term
operating leases, finance leases, secured installment notes with finance
companies, and proceeds from the sale of our used revenue equipment. Going
forward, we expect revenue equipment acquisitions through purchases and
finance leases to increase as a percentage of our fleet as we decrease our use
of operating leases for revenue equipment. Further, we expect to increase our
capital allocation toward contract based operations to become the go-to partner
for our customers' most critical transportation and logistics needs. We had
working capital (total current assets less total current liabilities) of $31.5
million and $14.4 million at September 30, 2021 and December 31, 2020,
respectively. Our working capital on any particular day can vary significantly
due to the timing of collections and cash disbursements. Based on our expected
financial condition, net capital expenditures, results of operations, related
net cash flows, installment notes, and other sources of financing, we believe
our working capital and sources of liquidity will be adequate to meet our
current and projected needs, and we do not expect to experience material
liquidity constraints in the foreseeable future.



With an average fleet age of 2.0 years at September 30, 2021, we believe we have
flexibility to manage our fleet, and we plan to regularly evaluate our tractor
replacement cycle, new tractor purchase requirements, and purchase options. If
we were to grow our independent contractor fleet, our capital requirements would
be reduced.


From September 30, 2021 and December 31, 2020 we have had $ 85.0 million and $ 110.4 million in debt and lease obligations, respectively, composed of the following elements:


   ? No and $15.0 million outstanding borrowings under the Credit Facility,
     respectively;

   ? No outstanding borrowings under the Draw Note;

   ? $8.6 million and $17.8 million in revenue equipment installment notes,
     respectively;

   ? $21.8 million and $22.7 million in real estate notes, respectively;

? No deferred borrowing costs (which reduce long-term debt) from September 30,

2021 and $ 0.1 million from December 31, 2020;

? $ 13.3 million and $ 16.4 million the main part of the finance lease

     obligations, respectively; and

   ? $41.4 million and $38.5 million of the operating lease obligations,
     respectively.




The decrease in our revenue equipment installment notes and financing lease
obligations was primarily due to a strategic decision to reduce our debt and
lease obligations through the third quarter of 2021. The increase in operating
lease obligations was primarily due to the addition of a leased property related
to a specific customer, partially offset by amortization of the operating lease
liability.



As of September 30, 2021, we had no borrowings outstanding, undrawn letters of
credit outstanding of approximately $29.5 million, and available borrowing
capacity of $80.5 million under the Credit Facility. Additionally, we had
$45.0 million of remaining availability of a $45.0 million Draw Note from
Triumph which is available solely to fund any indemnification owed to Triumph in
relation to the TFS Settlement. Fluctuations in the outstanding balance and
related availability under our Credit Facility are driven primarily by cash
flows from operations and the timing and nature of property and equipment
additions that are not funded through notes payable, as well as the nature and
timing of collection of accounts receivable, payments of accrued expenses, and
receipt of proceeds from disposals of property and equipment. Refer to Note 7,
"Debt" of the accompanying condensed consolidated financial statements for
further information about material debt agreements.



Our net capital expenditures for the nine months ended September 30, 2021
totaled $19.4 million of proceeds, as compared to $22.9 million of proceeds for
the prior year period. In the nine months ended September 30, 2021, we took
delivery of approximately 193 new tractors and 27 new trailers, while disposing
of approximately 344 used tractors and 496 used trailers. Our current fleet plan
for fiscal 2021 includes the delivery of an additional 98 new company
replacement tractors and no additional new trailer deliveries. For the remainder
of 2021, we expect our average operational fleet size to remain relatively flat
at approximately 2,400 tractors. Net gains on disposal of equipment and real
estate in the nine months ended 2021 were $3.7 million compared to $7.0 million
in the same prior year period. Global supply chain disruptions could impact the
availability of tractors and trailers and lead to increased pricing.



We believe we have sufficient liquidity to satisfy our cash needs, however we
continue to evaluate and act, as necessary, to maintain sufficient liquidity to
ensure our ability to operate during these unprecedented times. The extent to
which COVID-19 and its variants could impact our operations, financial
condition, liquidity, results of operations, and cash flows is highly
uncertain and will depend on future developments. We will continue to evaluate
the nature and extent of the potential short-term and long-term impacts to our
business.



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Cash Flows



Net cash flows provided by operating activities increased to $68.2 million for
the nine months ended September 30, 2021, compared to $25.0 million for the
same 2020 period, primarily due to a $60.1 million increase in net income,
partially offset by decreases to non-cash expenses compared to the prior year
period.



Net cash flows provided by investing activities were $22.0 million for the nine
months ended September 30, 2021, compared to $131.0 million in the same 2020
period. The change in net cash flows provided by investing activities was
primarily the result of the 2020 disposal of substantially all of the
operations and assets of TFS, which included substantially all of the assets and
operations of our former Factoring reportable segment as well as the 2020
disposal of our Orlando and Hutchins properties. The change is also due to
the timing of our trade cycle whereby we took delivery of approximately 193 new
company tractors and disposed of approximately 344 used tractors in the
2021 period compared to delivery and disposal of approximately 86 and 391
tractors, respectively in the same 2020 period.



Net cash flows used by financing activities were approximately
$76.4 million for the nine months ended September 30, 2021, compared to
$185.8 million in the same 2020 period. The change in net cash flows used by
financing activities was primarily a function of net repayments of $63.9 million
in the 2021 period compared to $166.7 million in the 2020 period relating
to notes payable, the Draw Note, and our Credit Facility. Additionally, we
repurchased $10.3 million and $17.5 million shares of our Class A common stock
during the nine months ended September 30, 2021 and 2020, respectively.



On February 10, 2020, our Board approved the repurchase of up to $20.0 million
of our Class A common stock. The program was suspended on March 26, 2020 with
approximately $2.5 million remaining authorized.



On January 25, 2021, our Board approved the repurchase of up to $40.0 million of
our outstanding Class A common stock. Under such authorization, we repurchased
0.5 million shares of our Class A common stock for $8.4 million between January
2021 and April 2021. On August 5, 2021, our Board increased such authorization
to $40.0 million. On August 9, 2021 we commenced a modified Dutch tender offer
to purchase for cash shares of our Class A common stock for an aggregate
purchase price of not more than $40.0 million and at a price per share of not
less than $21.00 and not more than $23.00 per share. The tender offer expired on
September 3, 2021. Through the tender offer, we accepted for purchase 86,132
shares of our Class A common stock at a purchase price of $23.00 per share for
an aggregate purchase price of approximately $2.0 million, excluding fees and
expenses. The shares of Class A common stock purchased through the tender offer
were immediately retired. The excess purchase price over par value was
recorded as a reduction of retained earnings on the unaudited condensed
consolidated balance sheet as of September 30, 2021. Including the tender offer,
we repurchased 0.6 million and 1.4 million shares for $10.3 million and $17.5
million during the nine months ended September 30, 2021 and 2020, respectively.
We have the ability to repurchase up to $38.0 million of the Company's
outstanding Class A common stock under the current stock repurchase program as
circumstances warrant based on market conditions, cash flow requirements,
securities law limitations, and other factors.



Going forward, the disposition of our Factoring reportable segment is expected
to continue to improve our cash flows used by financing activities. However, on
an ongoing basis, our cash flows may fluctuate depending on capital
expenditures, future stock repurchases, strategic investments or divestitures,
any indemnification calls related to the TFS Settlement, and the extent of
future income tax obligations and refunds.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires us to make decisions based upon
estimates, assumptions, and factors we consider as relevant to the
circumstances. Such decisions include the selection of applicable accounting
principles and the use of judgment in their application, the results of which
impact reported amounts and disclosures. Changes in future economic conditions
or other business circumstances may affect the outcomes of our estimates and
assumptions. Accordingly, actual results could differ from those anticipated.
There have been no material changes to our most critical accounting policies and
estimates during the three and nine months ended September 30, 2021, compared to
those disclosed in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included in our 2020 Form 10-K, as
amended, other than those discussed above.

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