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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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

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 class | Trading Symbol(s) | Name of each exchange on which registered
$0.01 Par Value Class A common stock | CVLG | The 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 (November 2, 2022).

Class A Common Stock, $.01 par value: 11,144,290 shares

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

Page 1

Table of Contents

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
|  | Page Number
Item 1. | Financial Statements |
| Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) | 3
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited) | 4
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited) | 5
| Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited) | 6
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (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 | 38
Item 4. | Controls and Procedures | 39
PART II OTHER INFORMATION
|  | Page Number
Item 1. | Legal Proceedings | 40
Item 1A. | Risk Factors | 41
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42
Item 3. | Defaults Upon Senior Securities | 42
Item 4. | Mine Safety Disclosures | 42
Item 5. | Other Information | 42
Item 6. | Exhibits | 43

Page 2

Table of Contents

PART I | FINANCIAL INFORMATION

ITEM 1. | FINANCIAL STATEMENTS

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

|  | September 30, 2022 |  |  | December 31, 2021 |
|  | (unaudited) |  |  |  |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 59,257 |  |  | $ | 8,412 |
Accounts receivable, net of allowance of $3,690 in 2022 and $4,112 in 2021 |  |  | 132,664 |  |  |  | 142,362 |
Drivers' advances and other receivables, net of allowance of $570 in 2022 and $542 in 2021 |  |  | 4,617 |  |  |  | 8,792 |
Inventory and supplies |  |  | 3,722 |  |  |  | 3,323 |
Prepaid expenses |  |  | 11,452 |  |  |  | 12,536 |
Assets held for sale |  |  | 1,433 |  |  |  | 2,925 |
Income taxes receivable |  |  | - |  |  |  | 10,177 |
Other short-term assets |  |  | 132 |  |  |  | - |
Total current assets |  |  | 213,277 |  |  |  | 188,527 |
Property and equipment, at cost |  |  | 575,837 |  |  |  | 518,406 |
Less: accumulated depreciation and amortization |  |  | (202,892 | ) |  |  | (171,923 | )
Net property and equipment |  |  | 372,945 |  |  |  | 346,483 |
Goodwill |  |  | 58,217 |  |  |  | 42,518 |
Other intangibles, net |  |  | 49,290 |  |  |  | 20,475 |
Other assets, net |  |  | 61,887 |  |  |  | 52,384 |
Noncurrent assets of discontinued operations |  |  | 1,100 |  |  |  | 1,275 |
Total assets |  | $ | 756,716 |  |  | $ | 651,662 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 33,411 |  |  | $ | 29,907 |
Accrued expenses |  |  | 60,073 |  |  |  | 38,001 |
Accrued purchased transportation |  |  | 9,384 |  |  |  | 24,689 |
Current maturities of long-term debt |  |  | 15,800 |  |  |  | 5,722 |
Current portion of finance lease obligations |  |  | 5,233 |  |  |  | 6,848 |
Current portion of operating lease obligations |  |  | 15,133 |  |  |  | 15,811 |
Current portion of insurance and claims accrual |  |  | 21,734 |  |  |  | 21,210 |
Other short-term liabilities |  |  | - |  |  |  | 557 |
Total current liabilities |  |  | 160,768 |  |  |  | 142,745 |
Long-term debt |  |  | 69,558 |  |  |  | 20,347 |
Long-term portion of finance lease obligations |  |  | 892 |  |  |  | 3,969 |
Long-term portion of operating lease obligations |  |  | 28,340 |  |  |  | 21,554 |
Insurance and claims accrual |  |  | 15,396 |  |  |  | 21,438 |
Deferred income taxes |  |  | 89,536 |  |  |  | 84,661 |
Other long-term liabilities |  |  | 7,713 |  |  |  | 2,149 |
Long-term liabilities of discontinued operations |  |  | 4,400 |  |  |  | 5,100 |
Total liabilities |  |  | 376,603 |  |  |  | 301,963 |
Commitments and contingent liabilities |  |  | - |  |  |  | - |
Stockholders' equity: |  |  |  |  |  |  |  |
Class A common stock, $.01 par value; 40,000,000 shares authorized; 16,125,786 shares issued and 11,578,886 outstanding as of September 30, 2022; and 16,125,786 shares issued and 14,414,159 outstanding as of December 31, 2021 |  |  | 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 |  |  | 152,575 |  |  |  | 149,406 |
Treasury stock at cost; 4,546,900 and 1,711,627 shares as of September 30, 2022 and December 31, 2021, respectively |  |  | (92,823 | ) |  |  | (23,662 | )
Accumulated other comprehensive income (loss) |  |  | 1,113 |  |  |  | (1,306 | )
Retained earnings |  |  | 319,063 |  |  |  | 225,076 |
Total stockholders' equity |  |  | 380,113 |  |  |  | 349,699 |
Total liabilities and stockholders' equity |  | $ | 756,716 |  |  | $ | 651,662 |

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

Page 3

Table of Contents

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE three and nine months ended September 30, 2022 and 2021

(In thousands, except per share data)

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | (unaudited) |  |  | (unaudited) |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Freight revenue |  | $ | 266,599 |  |  | $ | 250,255 |  |  | $ | 791,069 |  |  | $ | 682,891 |
Fuel surcharge revenue |  |  | 45,240 |  |  |  | 24,306 |  |  |  | 129,732 |  |  |  | 68,884 |
Total revenue |  | $ | 311,839 |  |  | $ | 274,561 |  |  | $ | 920,801 |  |  | $ | 751,775 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries, wages, and related expenses |  | $ | 104,537 |  |  | $ | 87,547 |  |  | $ | 300,980 |  |  | $ | 258,609 |
Fuel expense |  |  | 42,471 |  |  |  | 26,174 |  |  |  | 126,457 |  |  |  | 75,368 |
Operations and maintenance |  |  | 22,468 |  |  |  | 14,933 |  |  |  | 60,248 |  |  |  | 43,946 |
Revenue equipment rentals and purchased transportation |  |  | 78,943 |  |  |  | 92,636 |  |  |  | 244,281 |  |  |  | 225,328 |
Operating taxes and licenses |  |  | 3,238 |  |  |  | 2,687 |  |  |  | 8,718 |  |  |  | 8,232 |
Insurance and claims |  |  | 12,947 |  |  |  | 11,023 |  |  |  | 35,752 |  |  |  | 28,437 |
Communications and utilities |  |  | 1,339 |  |  |  | 947 |  |  |  | 3,723 |  |  |  | 3,325 |
General supplies and expenses |  |  | 11,201 |  |  |  | 6,037 |  |  |  | 28,416 |  |  |  | 21,972 |
Depreciation and amortization |  |  | 14,357 |  |  |  | 13,365 |  |  |  | 41,734 |  |  |  | 41,316 |
Gain on disposition of property and equipment, net |  |  | (38,721 | ) |  |  | (871 | ) |  |  | (39,287 | ) |  |  | (3,683 | )
Total operating expenses |  |  | 252,780 |  |  |  | 254,478 |  |  |  | 811,022 |  |  |  | 702,850 |
Operating income |  |  | 59,059 |  |  |  | 20,083 |  |  |  | 109,779 |  |  |  | 48,925 |
Interest expense, net |  |  | 935 |  |  |  | 724 |  |  |  | 2,256 |  |  |  | 2,175 |
Income from equity method investment |  |  | (7,400 | ) |  |  | (3,230 | ) |  |  | (21,261 | ) |  |  | (9,572 | )
Income before income taxes |  |  | 65,524 |  |  |  | 22,589 |  |  |  | 128,784 |  |  |  | 56,322 |
Income tax expense |  |  | 15,563 |  |  |  | 6,147 |  |  |  | 32,130 |  |  |  | 15,863 |
Income from continuing operations, net of tax |  |  | 49,961 |  |  |  | 16,442 |  |  |  | 96,654 |  |  |  | 40,459 |
Income from discontinued operations, net of tax |  |  | 525 |  |  |  | - |  |  |  | 525 |  |  |  | 2,540 |
Net income |  | $ | 50,486 |  |  | $ | 16,442 |  |  | $ | 97,179 |  |  | $ | 42,999 |
Basic income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 3.47 |  |  | $ | 0.98 |  |  | $ | 6.24 |  |  | $ | 2.40 |
Income from discontinued operations |  |  | 0.04 |  |  |  | - |  |  |  | 0.03 |  |  |  | 0.15 |
Net income |  | $ | 3.50 |  |  | $ | 0.98 |  |  | $ | 6.27 |  |  | $ | 2.55 |
Diluted income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 3.36 |  |  | $ | 0.97 |  |  | $ | 6.09 |  |  | $ | 2.37 |
Income from discontinued operations |  |  | 0.04 |  |  |  | - |  |  |  | 0.03 |  |  |  | 0.15 |
Net income |  | $ | 3.39 |  |  | $ | 0.97 |  |  | $ | 6.12 |  |  | $ | 2.52 |
Basic weighted average shares outstanding |  |  | 14,405 |  |  |  | 16,782 |  |  |  | 15,495 |  |  |  | 16,832 |
Diluted weighted average shares outstanding |  |  | 14,892 |  |  |  | 16,975 |  |  |  | 15,875 |  |  |  | 17,041 |

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

Page 4

Table of Contents

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE three and nine months ended September 30, 2022 and 2021

(Unaudited and in thousands)

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net income |  | $ | 50,486 |  |  | $ | 16,442 |  |  | $ | 97,179 |  |  | $ | 42,999 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain on effective portion of cash flow hedges, net of tax of ($262) and ($768) in 2022 and ($5)and ($239) in 2021, respectively |  |  | 751 |  |  |  | 14 |  |  |  | 2,231 |  |  |  | 752 |
Reclassification of cash flow hedge losses into statement of operations, net of tax of ($3) and ($64) in 2022 and ($44) and ($37) in 2021, respectively |  |  | 9 |  |  |  | 114 |  |  |  | 188 |  |  |  | 79 |
Reclassification of gains on sale of investments classified as available-for-sale |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (63 | )
Total other comprehensive income |  |  | 760 |  |  |  | 128 |  |  |  | 2,419 |  |  |  | 768 |
Comprehensive income |  | $ | 51,246 |  |  | $ | 16,570 |  |  | $ | 99,598 |  |  | $ | 43,767 |

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

Page 5

Table of Contents

COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three and nine months ended September 30, 2022 and 2021

(Unaudited and in thousands)

|  | For the Three and Nine Months Ended September 30, 2022 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-In |  |  | Treasury |  |  | Comprehensive |  |  | Retained |  |  | Stockholders' |
|  | Class A |  |  | Class B |  |  | Capital |  |  | Stock |  |  | (Loss) Income |  |  | Earnings |  |  | Equity |
Balances at December 31, 2021 |  | $ | 161 |  |  | $ | 24 |  |  | $ | 149,406 |  |  | $ | (23,662 | ) |  | $ | (1,306 | ) |  | $ | 225,076 |  |  | $ | 349,699 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 22,167 |  |  |  | 22,167 |
Cash dividend ($0.0625 per common share) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,047 | ) |  |  | (1,047 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,006 |  |  |  | - |  |  |  | 1,006 |
Share repurchase |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (14,800 | ) |  |  | - |  |  |  | - |  |  |  | (14,800 | )
Stock-based employee compensation expense |  |  | - |  |  |  | - |  |  |  | 1,893 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,893 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (863 | ) |  |  | 827 |  |  |  | - |  |  |  | - |  |  |  | (36 | )
Balances at March 31, 2022 |  | $ | 161 |  |  | $ | 24 |  |  | $ | 150,436 |  |  | $ | (37,635 | ) |  | $ | (300 | ) |  | $ | 246,196 |  |  | $ | 358,882 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 24,526 |  |  |  | 24,526 |
Cash dividend ($0.0625 per common share) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (975 | ) |  |  | (975 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 653 |  |  |  | - |  |  |  | 653 |
Share repurchase |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (28,565 | ) |  |  | - |  |  |  | - |  |  |  | (28,565 | )
Stock-based employee compensation expense |  |  | - |  |  |  | - |  |  |  | 1,855 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,855 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (1,053 | ) |  |  | 708 |  |  |  | - |  |  |  | - |  |  |  | (345 | )
Balances at June 30, 2022 |  | $ | 161 |  |  | $ | 24 |  |  | $ | 151,238 |  |  | $ | (65,492 | ) |  | $ | 353 |  |  | $ | 269,747 |  |  | $ | 356,031 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 50,486 |  |  |  | 50,486 |
Cash dividend ($0.08 per common share) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,170 | ) |  |  | (1,170 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 760 |  |  |  | - |  |  |  | 760 |
Share repurchase |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (27,521 | ) |  |  | - |  |  |  | - |  |  |  | (27,521 | )
Stock-based employee compensation expense |  |  | - |  |  |  | - |  |  |  | 1,394 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,394 |
Exercise of stock options |  |  | - |  |  |  | - |  |  |  | 13 |  |  |  | 130 |  |  |  | - |  |  |  | - |  |  |  | 143 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (70 | ) |  |  | 60 |  |  |  | - |  |  |  | - |  |  |  | (10 | )
Balances at September 30, 2022 |  | $ | 161 |  |  | $ | 24 |  |  | $ | 152,575 |  |  | $ | (92,823 | ) |  | $ | 1,113 |  |  | $ | 319,063 |  |  | $ | 380,113 |

|  | For the Three and Nine Months Ended September 30, 2021 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 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, 2020 |  | $ | 173 |  |  | $ | 24 |  |  | $ | 143,438 |  |  | $ | (17,067 | ) |  | $ | (2,251 | ) |  | $ | 166,325 |  |  | $ | 290,642 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,140 |  |  |  | 11,140 |
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 932 |  |  |  | - |  |  |  | 932 |
Share repurchase |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8,118 | ) |  |  | - |  |  |  | - |  |  |  | (8,118 | )
Stock-based employee compensation expense |  |  | - |  |  |  | - |  |  |  | 2,594 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,594 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (1,158 | ) |  |  | 625 |  |  |  | - |  |  |  | - |  |  |  | (533 | )
Balances at March 31, 2021 |  | $ | 173 |  |  | $ | 24 |  |  | $ | 144,874 |  |  | $ | (24,560 | ) |  | $ | (1,319 | ) |  | $ | 177,465 |  |  | $ | 296,657 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 15,417 |  |  |  | 15,417 |
Other comprehensive loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (292 | ) |  |  | - |  |  |  | (292 | )
Share repurchase |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (249 | ) |  |  | - |  |  |  | - |  |  |  | (249 | )
Stock-based employee compensation expense reversal |  |  | - |  |  |  | - |  |  |  | 2,352 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,352 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (806 | ) |  |  | 458 |  |  |  | - |  |  |  | - |  |  |  | (348 | )
Balances at June 30, 2021 |  | $ | 173 |  |  | $ | 24 |  |  | $ | 146,420 |  |  | $ | (24,351 | ) |  | $ | (1,611 | ) |  | $ | 192,882 |  |  | $ | 313,537 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 16,442 |  |  |  | 16,442 |
Other comprehensive loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 128 |  |  |  | - |  |  |  | 128 |
Share repurchase |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,980 | ) |  |  | (1,981 | )
Stock-based employee compensation expense |  |  | - |  |  |  | - |  |  |  | 1,857 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,857 |
Issuance of restricted shares, net |  |  | - |  |  |  | - |  |  |  | (221 | ) |  |  | 133 |  |  |  | - |  |  |  | - |  |  |  | (88 | )
Balances at September 30, 2021 |  | $ | 172 |  |  | $ | 24 |  |  | $ | 148,056 |  |  | $ | (24,218 | ) |  | $ | (1,483 | ) |  | $ | 207,344 |  |  | $ | 329,895 |

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

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COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE nine months ended September 30, 2022 and 2021

(Unaudited and in thousands)

|  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net income |  | $ | 97,179 |  |  | $ | 42,999 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Provision for losses on accounts receivable |  |  | 21 |  |  |  | 1,045 |
(Reversal) deferral of gain on sales to equity method investee |  |  | (30 | ) |  |  | 53 |
Depreciation and amortization |  |  | 41,734 |  |  |  | 41,316 |
Deferred income tax expense |  |  | 4,246 |  |  |  | 12,911 |
Income tax expense arising from restricted share vesting and stock options exercised |  |  | (69 | ) |  |  | (216 | )
Stock-based compensation expense |  |  | 5,142 |  |  |  | 6,803 |
Income from equity method investment |  |  | (21,261 | ) |  |  | (9,572 | )
Return on investment in equity method investee |  |  | 7,350 |  |  |  | 1,960 |
Gain on disposition of property and equipment |  |  | (39,287 | ) |  |  | (3,683 | )
Gain on reversal of contingent loss of discontinued operations |  |  | (700 | ) |  |  | (3,412 | )
Gain on investment in available-for-sale securities |  |  | - |  |  |  | (63 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Receivables and advances |  |  | 31,104 |  |  |  | (72,848 | )
Prepaid expenses and other assets |  |  | 712 |  |  |  | 1,501 |
Inventory and supplies |  |  | (399 | ) |  |  | (540 | )
Insurance and claims accrual |  |  | (5,518 | ) |  |  | 25,153 |
Accounts payable and accrued expenses |  |  | 845 |  |  |  | 24,831 |
Net cash flows provided by operating activities |  |  | 121,069 |  |  |  | 68,238 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Acquisition of AAT Carriers, Inc., net of cash acquired |  |  | (38,501 | ) |  |  | - |
Other investments |  |  | (25 | ) |  |  | (13 | )
Purchase of available-for-sale securities |  |  | - |  |  |  | (33 | )
Purchase of property and equipment |  |  | (61,408 | ) |  |  | (21,801 | )
Proceeds from disposition of property and equipment |  |  | 50,112 |  |  |  | 43,812 |
Net cash flows (used) provided by investing activities |  |  | (49,822 | ) |  |  | 21,965 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Change in checks outstanding in excess of bank balances |  |  | (216 | ) |  |  | (1,215 | )
Cash dividend |  |  | (3,192 | ) |  |  | - |
Proceeds from issuance of notes payable |  |  | 65,253 |  |  |  | - |
Repayments of notes payable |  |  | (5,964 | ) |  |  | (10,058 | )
Repayments of finance lease obligations |  |  | (5,150 | ) |  |  | (3,193 | )
Proceeds under revolving credit facility |  |  | 74,528 |  |  |  | 535,199 |
Repayments under revolving credit facility and draw note |  |  | (74,528 | ) |  |  | (585,838 | )
Proceeds from exercise of stock options |  |  | 143 |  |  |  | - |
Payment of minimum tax withholdings on stock compensation |  |  | (390 | ) |  |  | (969 | )
Common stock repurchased |  |  | (70,886 | ) |  |  | (10,348 | )
Net cash flows used by financing activities |  |  | (20,402 | ) |  |  | (76,422 | )
Net change in cash and cash equivalents |  |  | 50,845 |  |  |  | 13,781 |
Cash and cash equivalents at beginning of period |  |  | 8,412 |  |  |  | 8,407 |
Cash and cash equivalents at end of period |  | $ | 59,257 |  |  | $ | 22,188 |

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

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COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. | Significant Accounting Policies

Basis of Presentation

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

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

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2021, condensed consolidated balance sheet was derived from our audited balance sheet as of that date. Our operating results are subject to seasonal trends when measured on a quarterly basis; therefore, operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Risks and Uncertainties

On July 8, 2020, we sold a portfolio of accounts receivable, contract rights, and associated assets consisting of approximately $103.3 million in net funds employed (the “Portfolio”) previously held by Transport Financial Services ("TFS"), a division of Covenant Transport Solutions, LLC, an indirect wholly owned subsidiary of the Company, to a subsidiary of Triumph Bancorp, Inc. ("Triumph") for approximately $122.3 million, consisting of $108.4 million in cash and $13.9 million in Triumph stock, plus an earn-out opportunity of up to $9.9 million. After the transaction closed, the Company and Triumph became involved in a dispute over the nature of approximately $66.0 million of the assets included in the Portfolio. The dispute was resolved on September 23, 2020 with an amendment of the purchase agreement and related funding arrangements that reduced the purchase price of the Portfolio to approximately $108.4 million, representing the cash amount received by us at closing. Additionally, the earnout opportunity was terminated and we were required to sell, and subsequently sold, the Triumph stock we received at closing for $28.1 million and remitted the proceeds to Triumph upon settlement. The amended purchase agreement resulted in a gain on the sale of the Portfolio of $3.7 million, net of related expenses.

The amended purchase agreement specifically identified approximately $62.0 million of accounts within the Portfolio, which related to advances on services that had not yet been performed, were placed in a loss sharing pool to be repaid with proceeds other than those generated from ordinary working capital factoring. To the extent losses on covered accounts are incurred, we will indemnify Triumph on a dollar for dollar basis for up to the first $30.0 million of losses, and on a 50% basis for up to the next $30.0 million of losses, for total indemnification exposure of up to $45.0 million (the “TFS Settlement”). During the fourth quarter of 2020, we recorded $44.2 million of contingent liabilities, reflected as other long-term liabilities from discontinued operations in our consolidated balance sheet, because as of December 31, 2020 it was probable and estimable that such amount would be due to Triumph under the TFS Settlement. During the first quarter of 2021, we received an indemnification call from Triumph of $35.6 million related to the TFS Settlement, all of which was reserved during the fourth quarter of 2020. Additionally, Triumph was able to collect some funds related to our fourth quarter 2020 accrual that allowed us the opportunity to reverse $3.4 million of our accrual during the first quarter of 2021. During the second quarter of 2021 we repaid $31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance. During the third quarter of 2022 we received notification that Triumph was able to collect additional funds related to our fourth quarter 2020 accrual that resulted in a $0.7 million reversal of our accrual. As of September 30, 2022, there were no outstanding borrowings under the Draw Note and a remaining contingent liability of $4.4 million. The payment of amounts with respect to the indemnification obligations could create volatility in our reported future financial results and could have an adverse effect on our cash flows, available liquidity, and total indebtedness.

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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 of approximately 35% of their cost, depending on the operating 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 21% 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 September 30, 2022, we sold a California terminal resulting in a $38.5 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 June 2016, FASB issued ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for our annual reporting period beginning January 1, 2023, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impacts the adoption of this standard, but do not expect it to have a material impact on the consolidated financial statements.

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Note 2. | Income Per Share

Basic income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. There were approximately 305,000 and 271,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2022, respectively, and 193,000 and 209,000 shares issuable upon conversion of unvested restricted shares for the three and nine months ended September 30, 2021, respectively. There were no unvested shares excluded from the calculation of diluted earnings per share as anti-dilutive for either of the three and nine months ended September 30, 2022 and 2021. There were 182,000 and 109,000 shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2022 and no shares issuable upon conversion of unvested employee stock options for the three and nine months ended September 30, 2021, respectively. There were no and 15,000 unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2022 and no unvested employee stock options excluded from the calculation of diluted earnings per share as anti-dilutive for the three and nine months ended September 30, 2021, respectively. Income per share is the same for both Class A and Class B shares.

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

(in thousands except per share data) |  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Numerators: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 49,961 |  |  | $ | 16,442 |  |  | $ | 96,654 |  |  | $ | 40,459 |
Income from discontinued operations |  |  | 525 |  |  |  | - |  |  |  | 525 |  |  |  | 2,540 |
Net income |  | $ | 50,486 |  |  | $ | 16,442 |  |  | $ | 97,179 |  |  | $ | 42,999 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Denominator for basic income per share – weighted-average shares |  |  | 14,405 |  |  |  | 16,782 |  |  |  | 15,495 |  |  |  | 16,832 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equivalent shares issuable upon conversion of unvested restricted shares |  |  | 305 |  |  |  | 193 |  |  |  | 271 |  |  |  | 209 |
Equivalent shares issuable upon conversion of unvested employee stock options |  |  | 182 |  |  |  | - |  |  |  | 109 |  |  |  | - |
Denominator for diluted income per share adjusted weighted-average shares and assumed conversions |  |  | 14,892 |  |  |  | 16,975 |  |  |  | 15,875 |  |  |  | 17,041 |
Basic income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 3.47 |  |  | $ | 0.98 |  |  | $ | 6.24 |  |  | $ | 2.40 |
Income from discontinued operations |  |  | 0.04 |  |  |  | - |  |  |  | 0.03 |  |  |  | 0.15 |
Net income |  | $ | 3.50 |  |  | $ | 0.98 |  |  | $ | 6.27 |  |  | $ | 2.55 |
Diluted income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 3.36 |  |  | $ | 0.97 |  |  | $ | 6.09 |  |  | $ | 2.37 |
Income from discontinued operations |  |  | 0.04 |  |  |  | - |  |  |  | 0.03 |  |  |  | 0.15 |
Net income |  | $ | 3.39 |  |  | $ | 0.97 |  |  | $ | 6.12 |  |  | $ | 2.52 |

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Note 3. | Fair Value of Financial Instruments

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. The fair value of the commodity contracts, including our former fuel hedges, is determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk. 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 available-for-sale securities is based upon quoted prices in active markets. 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) |  |  |  |  |  |  |  |  |  |  |  |
|  | September 30, 2022 |  |  | December 31, 2021 |  |  | Input Level |
Interest rate swaps |  |  | 1,502 |  |  |  | (1,808 | ) |  |  | 1 |
Contingent consideration |  |  | (17,023 | ) |  |  | - |  |  |  | 3 |

There were no available-for-sale securities recorded as of September 30, 2022 or December 31, 2021. Our financial instruments consist primarily of cash and cash equivalents, certificates of deposit, accounts receivable, commodity contracts, accounts payable, debt, and interest rate swaps. The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments.

Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes. The fair value of our revenue equipment installment notes approximated the carrying value as of September 30, 2022, 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. There were no fuel hedge derivatives outstanding as of September 30, 2022. The fair value of all interest rate swap agreements that were in effect as of September 30, 2022 was an approximately $1.5 million asset.

The contingent consideration arrangement requires 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. 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 September 30, 2022, the fair value of the contingent consideration increased by $0.8 million to $17.0 million from $16.2 million at June 30, 2022. 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 accrued expenses and other long-term liabilities in our condensed consolidated balance sheets.

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Note 4. | Discontinued Operations

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

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

The following table summarizes the results of our discontinued operations for the three and nine months ended September 30, 2022 and 2021:

(in thousands) |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total revenue |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Operating expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 25 |
Operating loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (25 | )
Reversal of contingent loss liability |  |  | (700 | ) |  |  | - |  |  |  | (700 | ) |  |  | (3,412 | )
Interest expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Income (loss) before income taxes |  |  | 700 |  |  |  | - |  |  |  | 700 |  |  |  | 3,387 |
Income tax expense (benefit) |  |  | 175 |  |  |  | - |  |  |  | 175 |  |  |  | 847 |
Income (loss) from discontinued operations, net of tax |  | $ | 525 |  |  | $ | - |  |  | $ | 525 |  |  | $ | 2,540 |

Reversal of contingent liability for the three and nine months ended September 30, 2022 and for the nine months ended September 2021 relates to the reduced exposure of future indemnification by the Company to Triumph, as a result of the collection of covered receivables identified in the amended purchase agreement, as described in Note 1.

The following table summarizes the major classes of assets and liabilities included as discontinued operations as of September 30, 2022 and December 31, 2021:

(in thousands) |  | September 30, 2022 |  |  | December 31, 2021 |
Noncurrent deferred tax asset |  | $ | 1,100 |  |  | $ | 1,275 |
Noncurrent assets from discontinued operations |  |  | 1,100 |  |  |  | 1,275 |
Total assets from discontinued operations |  | $ | 1,100 |  |  | $ | 1,275 |
Liabilities: |  |  |  |  |  |  |  |
Long-term contingent loss liability |  | $ | 4,400 |  |  | $ | 5,100 |
Long-term liabilities of discontinued operations |  |  | 4,400 |  |  |  | 5,100 |
Total liabilities from discontinued operations |  | $ | 4,400 |  |  | $ | 5,100 |

There were no net cash flows related to discontinued operations for the three and nine months ended September 30, 2022 and 2021.

Refer to Note 1, “Significant Accounting Policies” of the accompanying condensed consolidated financial statements for further information about the amended TFS purchase agreement.

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Note 5. | Segment Information

We have four reportable segments:

● | Expedited: The Expedited 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 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 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 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, 2021. Substantially all intersegment sales prices are market based. We evaluate performance based on operating income of the respective business units.

The following table summarizes our total revenue by our four reportable segments, as used by our chief operating decision maker in making decisions regarding allocation of resources etc., for the three and nine months ended September 30, 2022 and 2021:

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Three Months Ended September 30, 2022 |  | Expedited |  |  | Dedicated |  |  | Managed Freight |  |  | Warehousing |  |  | Consolidated |
Total revenue from external customers |  | $ | 117,793 |  |  | $ | 93,423 |  |  | $ | 78,382 |  |  | $ | 22,241 |  |  | $ | 311,839 |
Intersegment revenue |  |  | 1,580 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,580 |
Operating income |  |  | 30,660 |  |  |  | 19,416 |  |  |  | 8,605 |  |  |  | 378 |  |  |  | 59,059 |

Nine Months Ended September 30, 2022 |  | Expedited |  |  | Dedicated |  |  | Managed Freight |  |  | Warehousing |  |  | Consolidated |
Total revenue from external customers |  | $ | 338,234 |  |  | $ | 279,136 |  |  | $ | 244,814 |  |  | $ | 58,617 |  |  | $ | 920,801 |
Intersegment revenue |  |  | 3,476 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,476 |
Operating income |  |  | 54,602 |  |  |  | 24,937 |  |  |  | 28,062 |  |  |  | 2,178 |  |  |  | 109,779 |

Three Months Ended September 30, 2021 |  | Expedited |  |  | Dedicated |  |  | Managed Freight |  |  | Warehousing |  |  | Consolidated |
Total revenue from external customers |  | $ | 85,289 |  |  | $ | 83,477 |  |  | $ | 90,072 |  |  | $ | 15,723 |  |  | $ | 274,561 |
Intersegment revenue |  |  | 2,494 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,494 |
Operating income (loss) |  |  | 11,064 |  |  |  | (659 | ) |  |  | 9,251 |  |  |  | 427 |  |  |  | 20,083 |

Nine Months Ended September 30, 2021 |  | Expedited |  |  | Dedicated |  |  | Managed Freight |  |  | Warehousing |  |  | Consolidated |
Total revenue from external customers |  | $ | 251,139 |  |  | $ | 240,791 |  |  | $ | 213,104 |  |  | $ | 46,741 |  |  | $ | 751,775 |
Intersegment revenue |  |  | 4,674 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,674 |
Operating income (loss) |  |  | 27,479 |  |  |  | (2,629 | ) |  |  | 21,510 |  |  |  | 2,565 |  |  |  | 48,925 |

(in thousands) |  | For the Three Months Ended September 30, |  |  | For the Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total external revenues for reportable segments |  | $ | 311,839 |  |  | $ | 274,561 |  |  | $ | 920,801 |  |  | $ | 751,775 |
Intersegment revenues for reportable segments |  |  | 1,580 |  |  |  | 2,494 |  |  |  | 3,476 |  |  |  | 4,674 |
Elimination of intersegment revenues |  |  | (1,580 | ) |  |  | (2,494 | ) |  |  | (3,476 | ) |  |  | (4,674 | )
Total consolidated revenues |  | $ | 311,839 |  |  | $ | 274,561 |  |  | $ | 920,801 |  |  | $ | 751,775 |

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Note 6. | Income Taxes

Income tax expense in both 2022 and 2021 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 IRS has issued guidance that allows meals and incidental expense per diem to be 100% deductible for tax years 2021 and 2022. Accordingly, there is no adjustment in 2021 or 2022 as our per diem plan qualifies for this treatment. In years with partially nondeductible per diem, the 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. Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages.

Our liability recorded for uncertain tax positions as of September 30, 2022 has increased by less than $0.1 million since December 31, 2021.

The net deferred tax liability of $88.4 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 September 30, 2022 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 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act, among other things, includes provisions for refundable payroll tax credits, deferral for employer-side social-security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. As of September 30, 2021, the Company recorded a benefit of $0.6 million against labor expense for refundable payroll tax credits. The Company will continue to monitor the benefits of the Cares Act going forward.

On March 11, 2021, President Biden signed the American Rescue Plan ("ARPA") into law. Of relevance to the Company, the ARPA extended the reach of Internal Revenue Code Section 162(m) to include compensation paid to the eight highest-paid individuals (rather than three highest); however, this change is not effective until 2027. There is no material impact to the financial statements at this time.

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Note 7. | Debt

Current and long-term debt and lease obligations consisted of the following as of September 30, 2022 and December 31, 2021:

(in thousands) |  | September 30, 2022 |  |  | December 31, 2021 |
|  | Current |  |  | Long-Term |  |  | Current |  |  | Long-Term |
Borrowings under Credit Facility |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Borrowings under the Draw Note |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Revenue equipment installment notes; weighted average interest rate of 4.2% at September 30, 2022, and 1.2% at December 31, 2021, due in monthly installments with final maturities at various dates ranging from November 2022 to March 2027, secured by related revenue equipment |  |  | 14,573 |  |  |  | 50,143 |  |  |  | 4,537 |  |  |  | 2 |
Real estate notes; interest rate of 4.3% at September 30, 2022 and 1.8% at December 31, 2021 due in monthly installments with a fixed maturity at August 2035, secured by related real estate |  |  | 1,227 |  |  |  | 19,415 |  |  |  | 1,185 |  |  |  | 20,345 |
Total debt |  |  | 15,800 |  |  |  | 69,558 |  |  |  | 5,722 |  |  |  | 20,347 |
Principal portion of finance lease obligations, secured by related revenue equipment |  |  | 5,233 |  |  |  | 892 |  |  |  | 6,848 |  |  |  | 3,969 |
Principal portion of operating lease obligations, secured by related real estate and revenue equipment |  |  | 15,133 |  |  |  | 28,340 |  |  |  | 15,811 |  |  |  | 21,554 |
Total debt and lease obligations |  | $ | 36,166 |  |  | $ | 98,790 |  |  | $ | 28,381 |  |  | $ | 45,870 |

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 September 30, 2022, undrawn letters of credit outstanding of approximately $23.9 million, and available borrowing capacity of $86.1 million. As of September 30, 2022, there were no base rate and no SOFR loans. Based on availability as of September 30, 2022 and 2021, there was no fixed charge coverage requirement.

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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 November 2022 to March 2027. 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 $13.9 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 2022, 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 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. Any amount outstanding under the Draw Note will accrue interest at a per annum rate equal to one and one-half (1.5) percentage points over LIBOR, provided, however, that LIBOR shall be deemed to be at least 0.25%. Accrued interest is due monthly and the outstanding principal balance is due on September 23, 2026. To secure our obligations under the TFS Settlement and the Draw Note, we pledged certain unencumbered revenue equipment with an estimated net orderly liquidation value of $60 million. The Draw Note includes usual and customary events of default for a facility of this nature and provides that, upon occurrence and continuation of an event of default, payment of all amounts payable under the Draw Note may be accelerated. During the first quarter of 2021, we received an indemnification call from Triumph of $35.6 million related to the TFS Settlement, which was funded by drawing on the Draw Note. During the second quarter of 2021 we repaid $31.0 million of the borrowings under the Draw Note and during the third quarter of 2021 we repaid the remaining balance. As of September 30, 2022, there were no outstanding borrowings under the Draw Note.

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Note 8. | Lease Obligations

The finance leases in effect at September 30, 2022 terminate from December 2022 through November 2033 and contain guarantees of the residual value of the related equipment by us.

A summary of our lease obligations at September 30, 2022 and 2021 are as follows:

(dollars in thousands) |  | Three Months Ended |  |  | Three Months Ended |  |  | Nine Months Ended |  |  | Nine Months Ended |
|  | September 30, 2022 |  |  | September 30, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |
Finance lease cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of right-of-use assets |  | $ | 528 |  |  | $ | 885 |  |  | $ | 1,848 |  |  | $ | 2,806 |
Interest on lease liabilities |  |  | 92 |  |  |  | 159 |  |  |  | 314 |  |  |  | 493 |
Operating lease cost |  |  | 7,946 |  |  |  | 6,280 |  |  |  | 20,593 |  |  |  | 18,044 |
Variable lease cost |  |  | 39 |  |  |  | 8 |  |  |  | 148 |  |  |  | 99 |
Total lease cost |  | $ | 8,605 |  |  | $ | 7,332 |  |  | $ | 22,903 |  |  | $ | 21,442 |
Other information |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating cash flows from finance leases |  |  | 92 |  |  |  | 159 |  |  |  | 314 |  |  |  | 493 |
Operating cash flows from operating leases |  |  | 7,985 |  |  |  | 6,288 |  |  |  | 20,741 |  |  |  | 18,143 |
Financing cash flows from finance leases |  |  | 528 |  |  |  | 885 |  |  |  | 1,848 |  |  |  | 2,806 |
Right-of-use assets obtained in exchange for new finance lease liabilities |  |  | - |  |  |  | - |  |  |  | 458 |  |  |  | - |
Right-of-use assets obtained in exchange for new operating lease liabilities |  |  | 3,154 |  |  |  | 13,265 |  |  |  | 20,206 |  |  |  | 15,795 |
Weighted-average remaining lease term—finance leases (in years) |  |  | 1.3 |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average remaining lease term—operating leases (in years) |  |  | 4.9 |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average discount rate—finance leases |  |  | 5.8 | % |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average discount rate—operating leases |  |  | 9.5 | % |  |  |  |  |  |  |  |  |  |  |  |

As of September 30, 2022, and December 31, 2021, right-of-use assets of $41.9 million and $35.7 million for operating leases and $5.7 million and $23.2 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, communication and utilities, 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 September 30, 2022, are summarized as follows by lease category:

(in thousands) |  | Operating |  |  | Finance |
2022 (1) |  | $ | 4,881 |  |  | $ | 5,497 |
2023 |  |  | 15,685 |  |  |  | 137 |
2024 |  |  | 9,263 |  |  |  | 108 |
2025 |  |  | 5,951 |  |  |  | 108 |
2026 |  |  | 4,356 |  |  |  | 108 |
Thereafter |  |  | 14,347 |  |  |  | 666 |
Total minimum lease payments |  | $ | 54,483 |  |  | $ | 6,624 |
Less: amount representing interest |  |  | (11,010 | ) |  |  | (499 | )
Present value of minimum lease payments |  | $ | 43,473 |  |  | $ | 6,125 |
Less: current portion |  |  | (15,133 | ) |  |  | (5,233 | )
Lease obligations, long-term |  | $ | 28,340 |  |  | $ | 892 |

(1) Excludes the nine months ended September 30, 2022.

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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 July 1, 2020, the stockholders, upon recommendation of the Board, approved the Second Amendment (the “Second Amendment”) to our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan"). The Second Amendment (i) increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 1,900,000 shares, (ii) added 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, (iii) added a double-trigger vesting requirement upon a change in control, (iv) eliminated the Compensation Committee’s discretion to accelerate vesting, except in cases involving death or disability, (v) increased the maximum award granted or payable to any one participant under the Incentive Plan for a calendar year from 200,000 shares of Class A common stock or $2,000,000, in the event the award is paid in cash, to 500,000 shares of Class A common stock or $4,000,000, in the event the award is paid in cash, (vi) re-set the date through which awards may be made under the Incentive Plan to June 1, 2030, and (vii) made other miscellaneous, administrative and conforming changes.

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 September 30, 2022, there were 872,509 shares remaining of the 4,200,000 shares available for award under the Incentive Plan. No awards may be made under the Incentive Plan after June 1, 2030. 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 $1.2 million and $1.7 million for the three months ended September 30, 2022 and 2021, respectively, and expense of $4.7 million and $5.4 million for the nine months ended September 30, 2022 and 2021, 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 the three months ended September 30, 2022, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. Of the stock compensation expense recorded for the three months ended September 30, 2022 and September 30, 2021, $0.9 million and $1.0 million relates to restricted shares, respectively, and $0.4 million and $0.7 million relates to unvested employee stock options, respectively. Of the stock compensation expense recorded for the nine months ended September 30, 2022 and 2021, $2.9 million and $3.6 million, respectively, relates to restricted shares and $1.8 million and $1.8 million, respectively, relates to unvested employee stock options.

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 September 30, 2022, certain participants elected to forfeit receipt of an aggregate of 20,120 shares of Class A common stock at a weighted average per share price of $19.38 based on the closing price of our Class A common stock on the dates the shares vested in 2022, in lieu of the federal and state minimum statutory tax withholding requirements. We remitted $0.4 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.

Our subsidiary Covenant Transport, Inc. (“Covenant Transport”) is a defendant in a lawsuit filed on November 9, 2018, in the Superior Court of Los Angeles County, California. The lawsuit was filed on behalf of Richard Tabizon (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The complaint asserts that the time period covered by the lawsuit is from October 31, 2014 to the present and alleges claims for failure to properly pay drivers for rest breaks, failure to provide accurate itemized wage statements and/or reimbursement of business related expenses, unlawful deduction of wages, failure to pay proper minimum wage and overtime wages, failure to provide all wages due at termination, and other related wage and hour claims under the California Labor Code. Since the original filing date, the case has been removed from the Los Angeles Superior Court to the U.S. District Court in the Central District of California and subsequently the case was transferred to the U.S. District Court in the Eastern District of Tennessee where the case is now pending. This lawsuit was settled at mediation on April 29, 2021, for an immaterial amount, pending court approval. The Court entered an Order preliminarily approving the Class Settlement on December 31, 2021. The Court dismissed this lawsuit on June 20, 2022.

On February 28, 2019, Covenant Transport was named in a separate (but related) lawsuit filed in the Superior Court of Los Angeles County, California requesting civil penalties under the California Private Attorneys’ General Act for the same underlying wage and hour claims at issue in the putative class action case noted above. On August 1, 2019, the Los Angeles Superior Court entered an order staying the action pending completion of the earlier-filed action that is pending in the United States District Court for the Eastern District of Tennessee. The claims set forth in this lawsuit are included in the settlement referenced above. The Court dismissed this lawsuit on June 20, 2022.

On August 2, 2018, Curtis Markson, et al. (collectively, “Markson”), filed a putative class action case in United States District Court, Central District of California generically claiming that five (5) specified trucking companies (including our subsidiary Southern Refrigerated Transport, Inc.) entered into a "no poaching conspiracy" in which they agreed not to solicit or hire employees in California who were "under contract" with a fellow defendant. The allegations center around new drivers in California who received their commercial driver's license through driving schools associated with, or paid for by, one of the named defendants, in exchange for agreeing to drive for that defendant carrier for a specified amount of time (typically 8-10 months). Over the ensuing 18 – 24 months, the Plaintiffs added more trucking companies as co-defendants in the lawsuit, including our subsidiary, Covenant Transport, Inc., on April 23, 2020. The lawsuit claims that the named co-defendants sent letters to one another, providing notice of "under contract" status, if these new California drivers were hired by another defendant carrier prior to the driver completing their contractual obligations. Plaintiffs contend that these notifications evidence a collusive agreement by the named defendants to restrain competition among trucking companies in California and suppress wages. This lawsuit was settled following mediation on August 20, 2021, for an immaterial amount pending court approval. The Court dismissed this lawsuit on August 10, 2022.

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On February 11, 2021, a lawsuit was filed against Covenant Transport on behalf of Wesley Maas (a California resident and former driver) who is seeking to have the lawsuit certified as a class action. The lawsuit was filed in the Superior Court of San Bernardino County, California. The Complaint alleges claims for failure to pay all lawful wages, failure to provide lawful meal and rest periods or compensation in lieu thereof, failure to timely pay wages, failure to comply with itemized wage statement provisions, failure to indemnify for expenditures, and violations of California Labor Code and unfair competition laws. Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes that the recent resolution and dismissal of a prior class action lawsuit alleging similar claims, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements, however, any future liability claims could impact this analysis. Covenant Transport intends to vigorously defend itself in this matter. We do not currently have enough information to make a reasonable estimate as to the likelihood, or amount of a loss, or a range of reasonably possible losses as a result of this claim, as such there have been no related accruals recorded as of September 30, 2022.

Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, discussed above, taking into account existing reserves, is not likely to have a materially adverse effect on our condensed consolidated financial statements, however, any future liability claims could impact this analysis.

We had $23.9 million and $26.4 million of outstanding and undrawn letters of credit as of September 30, 2022 and December 31, 2021. 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.

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.

We sold tractors and trailers to TEL for $0.0 million and $1.0 million during the nine months ended September 30, 2022 and 2021, respectively, and we received $0.6 million and $0.7 million, respectively, for providing various maintenance services, certain back-office functions, building and lot rental, and for miscellaneous equipment for the same periods. There was no equipment purchased from TEL during the nine months ended September 30, 2022 and 2021. Additionally, we paid approximately $3.4 million and $0.2 million to TEL for leases of revenue equipment during each of the nine months ended September 30, 2022 and 2021, respectively. We recognized a net reversal of previously deferred gains totaling less than $0.1 million for the nine months ended September 30, 2022 and 2021, representing 49% of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a third-party. Deferred gains, totaling $0.2 million and $0.3 million at September 30, 2022 and 2021, respectively, are being carried as a reduction in our investment in TEL. At September 30, 2022 and December 31, 2021, we had accounts receivable from TEL of $0.1 million and $0.8 million, respectively, related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf and operating lease obligations to TEL of $3.4 million and $0.0 million, respectively.

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 2022 net income through September 30, 2022, or $21.3 million. We received a return on our investment in TEL of $7.4 million during the nine months ended September 30, 2022.

Our accounts receivable from TEL and investment in TEL as of September 30, 2022 and December 31, 2021 are as follows (in thousands):

Description: | Balance Sheet Line Item: |  | September 30, 2022 |  |  | December 31, 2021 |
Accounts receivable from TEL | Driver advances and other receivables |  | $ | 113 |  |  | $ | 802 |
Investment in TEL | Other assets |  |  | 58,138 |  |  |  | 44,196 |
Operating lease obligations | Current and long-term portion of operating lease obligations |  |  | 3,425 |  |  |  | - |

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.

See TEL's summarized financial information below:

(in thousands) |  | As of September 30, |  |  | As of December 31, |
|  | 2022 |  |  | 2021 |
Total Assets |  | $ | 433,115 |  |  | $ | 346,218 |
Total Liabilities |  |  | 323,558 |  |  |  | 264,948 |
Total Equity |  | $ | 109,557 |  |  | $ | 81,270 |

(in thousands) |  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue |  | $ | 40,135 |  |  | $ | 27,626 |  |  | $ | 106,231 |  |  | $ | 76,063 |
Cost of Sales |  |  | 9,237 |  |  |  | 3,030 |  |  |  | 19,355 |  |  |  | 6,263 |
Operating Expenses |  |  | 14,047 |  |  |  | 16,214 |  |  |  | 38,074 |  |  |  | 45,156 |
Operating Income |  |  | 16,851 |  |  |  | 8,382 |  |  |  | 48,802 |  |  |  | 24,644 |
Net Income |  | $ | 14,901 |  |  | $ | 6,572 |  |  | $ | 43,287 |  |  | $ | 19,191 |

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Note 12. | Acquisition of AAT Carriers, Inc.

On February 9, 2022, we acquired 100% of the outstanding stock of AAT headquartered in Chattanooga, TN. AAT specializes in highly regulated, time-sensitive loads for the U.S. government. The acquisition date fair value of the consideration transferred was $54.8 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 $20.0 million based on AAT's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first and second years following closing. The total purchase price, including any earnout achieved, is expected to range from $38.5 million to $57.0 million depending on the results achieved by AAT.

AAT’s results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Expedited reportable operating segment.

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

|  | February 9, 2022 |
(in thousands) |  |  |  |
Cash paid pursuant to Stock Purchase Agreement |  | $ | 40,347 |
Cash acquired included in historical book value of AAT's assets and liabilities |  |  | (1,846 | )
Contingent consideration |  |  | 16,210 |
Net purchase price |  | $ | 54,711 |

The contingent consideration arrangement requires us to pay up to $20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years. 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. The allocation of the preliminary purchase price is subject to change based on finalization of the valuation of long-lived and intangible assets and contingent consideration, as well as our ongoing evaluation of AAT’s accounting principles for consistency with ours.

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 preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.

|  | February 9, 2022 |
Accounts receivable |  | $ | 842 |
Prepaid expenses |  |  | 33 |
Other short-term assets |  |  | 19 |
Net property and equipment |  |  | 7,994 |
Credentialing intangible asset |  |  | 32,000 |
Total identifiable assets acquired |  |  | 40,888 |
Accounts payable |  |  | (19 | )
Accrued expenses |  |  | (1,396 | )
Finance lease obligations |  |  | (458 | )
Other long-term liabilities |  |  | (3 | )
Total liabilities assumed |  |  | (1,876 | )
Net identifiable assets acquired |  |  | 39,012 |
Goodwill |  |  | 15,699 |
Net assets acquired |  | $ | 54,711 |

During the quarter ended June 30, 2022, we recognized measurement period adjustments which reduced goodwill recognized for AAT by $13.8 million from $29.5 million as of March 31, 2022 to $15.7 million as of June 30, 2022. There were no such changes during the quarter ended September 30, 2022. These adjustments primarily relate to the preliminary valuation of the AAT credentialing intangible asset partially offset by the preliminary estimated fair value of the contingent consideration. Goodwill and other intangible assets may change upon the finalization of the valuation of the contingent consideration liability and intangible asset as part of the purchase accounting for the AAT acquisition. The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment, and may change as a result of our ongoing evaluation of AAT’s accounting principles for consistency with ours. Refer to Note 13, "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.

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended September 30, 2022 are as follows:

(in thousands) |  | Three months ended |  |  | Nine months ended |
|  | September 30, 2022 |  |  | September 30, 2022 |
Total revenue |  | $ | 10,354 |  |  | $ | 22,941 |
Net income |  | $ | 4,297 |  |  | $ | 9,151 |

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Note 13. | Goodwill and Other Assets

AAT's results have been included in the consolidated financial statements since the date of acquisition within our Expedited reportable segment.

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

Amortization expense of $3.2 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively, was included in depreciation and amortization in the condensed consolidated statements of operations.

A summary of other intangible assets as of September 30, 2022 and December 31, 2021 is as follows:

(in thousands) |  | September 30, 2022 |
|  | Gross intangible assets |  |  | Accumulated amortization |  |  | Net intangible assets |  |  | Remaining life (months) |
Trade name: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dedicated |  | $ | 2,402 |  |  | $ | (2,130 | ) |  | $ | 272 |  |  |  |  |
Managed Freight |  |  | 999 |  |  |  | (885 | ) |  |  | 114 |  |  |  |  |
Warehousing |  |  | 999 |  |  |  | (885 | ) |  |  | 114 |  |  |  |  |
Total trade name |  |  | 4,400 |  |  |  | (3,900 | ) |  |  | 500 |  |  |  | - |
Customer relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dedicated |  |  | 14,072 |  |  |  | (4,984 | ) |  |  | 9,088 |  |  |  |  |
Managed Freight |  |  | 1,692 |  |  |  | (600 | ) |  |  | 1,092 |  |  |  |  |
Warehousing |  |  | 12,436 |  |  |  | (4,404 | ) |  |  | 8,032 |  |  |  |  |
Total customer relationships: |  |  | 28,200 |  |  |  | (9,988 | ) |  |  | 18,212 |  |  |  | 93 |
Credentialing: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expedited |  |  | 32,000 |  |  |  | (1,422 | ) |  |  | 30,578 |  |  |  | 172 |
Total credentialing |  |  | 32,000 |  |  |  | (1,422 | ) |  |  | 30,578 |  |  |  |  |
Total other intangible assets |  | $ | 64,600 |  |  | $ | (15,310 | ) |  | $ | 49,290 |  |  |  | 141 |

(in thousands) |  | December 31, 2021 |
|  | Gross intangible assets |  |  | Accumulated amortization |  |  | Net intangible assets |  |  | Remaining life (months) |
Trade name: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dedicated |  | $ | 2,402 |  |  | $ | (2,130 | ) |  | $ | 272 |  |  |  |  |
Managed Freight |  |  | 999 |  |  |  | (885 | ) |  |  | 114 |  |  |  |  |
Warehousing |  |  | 999 |  |  |  | (885 | ) |  |  | 114 |  |  |  |  |
Total trade name |  |  | 4,400 |  |  |  | (3,900 | ) |  |  | 500 |  |  |  | - |
Customer relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dedicated |  |  | 14,072 |  |  |  | (4,104 | ) |  |  | 9,968 |  |  |  |  |
Managed Freight |  |  | 1,692 |  |  |  | (494 | ) |  |  | 1,198 |  |  |  |  |
Warehousing |  |  | 12,436 |  |  |  | (3,627 | ) |  |  | 8,809 |  |  |  |  |
Total customer relationships: |  |  | 28,200 |  |  |  | (8,225 | ) |  |  | 19,975 |  |  |  | 102 |
Total other intangible assets |  | $ | 32,600 |  |  | $ | (12,125 | ) |  | $ | 20,475 |  |  |  |  |

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

|  | (in thousands) |
2022 (1) |  |  | 1,121 |
2023 |  |  | 4,483 |
2024 |  |  | 4,483 |
2025 |  |  | 4,483 |
2026 |  |  | 4,483 |
Thereafter |  |  | 29,737 |

(1) Excludes the nine months ended September 30, 2022.

The carrying amount of goodwill and other intangible assets for 2022 is subject to change upon the completion of the purchase accounting for the AAT acquisition. The carrying amount of goodwill was $58.2 million at September 30, 2022 compared to $42.5 million at December 31, 2021, as a result of the AAT acquisition. A summary of the changes in carrying amount of goodwill is as follows:

(in thousands) |  | September 30, 2022 |
|  | Expedited |  |  | Dedicated |  |  | Managed Freight |  |  | Warehousing |
Balance at December 31, 2021 |  | $ | - |  |  | $ | 15,320 |  |  | $ | 5,448 |  |  | $ | 21,750 |
Acquired goodwill for AAT |  |  | 15,699 |  |  |  | - |  |  |  | - |  |  |  | - |
Goodwill |  | $ | 15,699 |  |  | $ | 15,320 |  |  | $ | 5,448 |  |  | $ | 21,750 |

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Note 14. | Equity

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 $8.1 million during the three months ended March 31, 2021. On August 5, 2021, our Board increased such authorization to $40.0 million. As of January 1, 2022, there was approximately $38.0 million remaining under such authorization. On February 10, 2022, our Board of Directors adopted a 10b5-1 plan for the purchase of up to $30.0 million in shares subject to defined trading parameters. Under such authorization, we repurchased 0.7 million shares of our Class common stock for $15.2 million during the second quarter of 2022, completing the repurchase program in May 2022 with a total of 1.4 million shares of our Class A common stock repurchased for $30.0 million. On May 18, 2022, our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available. Under such authorization, we repurchased 1.6 million shares of our Class A common stock for $40.9 million through September 30, 2022.

On January 26, 2022, our Board declared a cash dividend of $0.0625 per share, which was paid on March 25, 2022, to stockholders of record on March 4, 2022. On May 18, 2022, our Board declared a cash dividend of $0.0625 per share, which was paid on June 24, 2022, to stockholders of record on June 3, 2022. On August 17, 2022, our Board declared a cash dividend of $0.08 per share, which was paid on September 30, 2022, to stockholders of record on September 2, 2022.

Note 15. | Subsequent Events

We repurchased an additional 0.4 million shares of our Class A common stock for $13.8 million from October 1, 2022 through November 2, 2022.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, capacity, 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 inflation, future stock repurchases and dividends, if any, expected capital expenditures, allocations, and requirements, future customer relationships, future interest expense, future driver market conditions, future use of independent contractors, expected cash flows, future investments in and growth of our segments and services, future margins of our segments, future market share, future rates and prices, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, 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, upgrades, and age, availability of tractors and trailers, the market value of used equipment, the anticipated impact of our investment in TEL, the future impact of our strategic plan and other strategic initiatives, anticipated levels of and fluctuations relating to insurance and claims 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 contingent consideration related to our purchase of AAT, 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 section entitled "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2021. Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2021, 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 2022, we had diluted earnings per share of $3.39 and non-GAAP adjusted earnings per share of $1.52. The primary difference between the GAAP and non-GAAP results is excluding a $38.5 million pre-tax gain on sale of a California terminal this quarter from adjusted results. The adjusted, non-GAAP, results were achieved despite unprecedented inflation cost headwinds and a softening freight market. We expect both cost inflation and lower demand to continue for the remainder of this year and in to 2023. Separately, we are pleased to report progress on our stock repurchase plan. We purchased approximately 1.0 million shares in the third quarter and through November 2, 2022, have purchased a total of 3.4 million shares during 2022, demonstrating our strategic commitment towards creating value for our stockholders.

Our asset-based segments, Expedited and Dedicated, contributed approximately 68% of total revenue, 85% of operating income, 62% of total freight revenue, and 59% of adjusted operating income in the quarter. Our Expedited segment grew revenue and operating ratio but adjusted operating ratio deteriorated compared to the third quarter last year. Significant cost increases from driver pay, fuel, parts and maintenance overcame the benefits from the addition of AAT in the first quarter of 2022. Our Dedicated segment produced higher revenue and better margins year over year but fell short of improving margins sequentially due to similar cost headwinds experienced by Expedited. We are focused on improving the durability of contracts in these business units to lower volatility across economic and freight cycles. Additionally, we continue to work diligently to improve margins in our Dedicated division through fleet reductions (reduction of 60 in the quarter), equipment upgrades, and asset allocation to more profitable accounts and or divisions.

Our asset-light segments, Managed Freight and Warehousing, contributed approximately 32% of total revenue, 15% of operating income, 38% of total freight revenue, and 41% of adjusted operating income in the quarter and combined to generate favorable margins and returns. Managed Freight continued to exceed our expectations through strong execution and effective coordination with our Expedited and Dedicated segments. Warehousing was able to grow revenue through new customer startups but had diminished margins primarily as a result of incremental cost headwinds associated with new customer startups and investments in capacity for future growth in this segment.

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Additional items of note for the third quarter of 2022 include the following:

| ● | Total revenue of $311.8 million, an increase of 13.6% compared with the third quarter of 2021, and freight revenue (which excludes revenue from fuel surcharges) of $266.6 million, an increase of 6.5% compared with the third quarter of 2021;
| ● | Operating income of $59.1 million, compared with $20.1 million in the third quarter of 2021;
| ● | Net income of $50.5 million, or $3.39 per diluted share, compared with $16.4 million, or $0.97 per diluted share, in the third quarter of 2021. Net income from continuing operations of $50.0 million, or $3.36 per diluted share, compared to $16.4 million or $0.97 per diluted share, in the third quarter of 2022. Net income from discontinued operations of $0.5 million, or $0.04 per diluted share, compared to $0.0 million, or $0.00 per diluted share, in the third quarter of 2021;
| ● | 38% of consolidated total revenue was in our Expedited reportable segment, as compared to 31% in the third quarter of 2021;
| ● | Our Managed Freight reportable segment’s total revenue decreased to $78.4 million in the 2022 quarter from $90.1 million in the 2021 quarter and the segment had an operating income of $8.6 million in the 2022 quarter compared to $9.3 million in the 2021 quarter;
| ● | Our equity investment in TEL provided $7.4 million of pre-tax earnings in the third quarter of 2022 compared to $3.2 million in the third quarter of 2021;
| ● | We distributed a total of $1.2 million to stockholders through dividends;
| ● | Since December 31, 2021, total indebtedness, comprised of total debt and finance leases, net of cash, increased by $3.8 million to $32.2 million, primarily due to the net cash payment related to the acquisition of AAT for $37.4 million and repurchasing $70.9 million of our outstanding Class A Common Stock under the stock repurchase program. With available borrowing capacity of $86.1 million under our Credit Facility at September 30, 2022 we do not expect to be required to test our fixed charge covenant in the foreseeable future;
| ● | Leverage ratio (ending total indebtedness, comprised of debt and finance leases, net of cash, divided by the sum of operating income, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) was 0.23;
| ● | Stockholders' equity at September 30, 2022, was $380.1 million; and
| ● | Tangible book value at September 30, 2022, was $272.6 million.

Outlook

For the remainder of 2022 we expect moderating freight demand, greater driver availability, and continuing cost inflation. Absent a substantial, near-term deterioration in market forces, we expect over a billion dollars of total revenue and freight revenue for the year and while we expect fourth quarter 2022 margin to worsen compared to third quarter 2022 because of the third quarter gain on sale of a California terminal, we expect adjusted margin in the fourth quarter of 2022 to be similar to that of the third quarter 2022.

As we look toward 2023, we anticipate a difficult freight environment coupled with cost inflation, which will pressure margins. However, we believe our more resilient operating model, together with diligent execution and teamwork, will result in lower volatility throughout economic and freight market cycles. We will remain focused on growing our market share, continuing to improve our operations, and becoming a stronger, more profitable, and more predictable business with the opportunity for significant and sustained value creation.

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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: |  | 2022 |  |  | OR % |  |  | 2021 |  |  | OR % |  |  | 2022 |  |  | OR % |  |  | 2021 |  |  | OR % |
Total revenue |  | $ | 311,839 |  |  |  |  |  |  | $ | 274,561 |  |  |  |  |  |  | $ | 920,801 |  |  |  |  |  |  | $ | 751,775 |  |  |  |  |
Total operating expenses |  |  | 252,780 |  |  |  | 81.1 | % |  |  | 254,478 |  |  |  | 92.7 | % |  |  | 811,022 |  |  |  | 88.1 | % |  |  | 702,850 |  |  |  | 93.5 | %
Operating income |  | $ | 59,059 |  |  |  |  |  |  | $ | 20,083 |  |  |  |  |  |  | $ | 109,779 |  |  |  |  |  |  | $ | 48,925 |  |  |  |  |
Adjusted Operating Ratio: |  | 2022 |  |  | Adj. OR % |  |  | 2021 |  |  | Adj. OR % |  |  | 2022 |  |  | Adj. OR % |  |  | 2021 |  |  | Adj. OR % |
Total revenue |  | $ | 311,839 |  |  |  |  |  |  | $ | 274,561 |  |  |  |  |  |  | $ | 920,801 |  |  |  |  |  |  | $ | 751,775 |  |  |  |  |
Fuel surcharge revenue |  |  | (45,240 | ) |  |  |  |  |  |  | (24,306 | ) |  |  |  |  |  |  | (129,732 | ) |  |  |  |  |  |  | (68,884 | ) |  |  |  |
Freight revenue (total revenue, excluding fuel surcharge) |  |  | 266,599 |  |  |  |  |  |  |  | 250,255 |  |  |  |  |  |  |  | 791,069 |  |  |  |  |  |  |  | 682,891 |  |  |  |  |
Total operating expenses |  |  | 252,780 |  |  |  |  |  |  |  | 254,478 |  |  |  |  |  |  |  | 811,022 |  |  |  |  |  |  |  | 702,850 |  |  |  |  |
Adjusted for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fuel surcharge revenue |  |  | (45,240 | ) |  |  |  |  |  |  | (24,306 | ) |  |  |  |  |  |  | (129,732 | ) |  |  |  |  |  |  | (68,884 | ) |  |  |  |
Amortization of intangibles |  |  | (1,121 | ) |  |  |  |  |  |  | (1,152 | ) |  |  |  |  |  |  | (3,185 | ) |  |  |  |  |  |  | (3,456 | ) |  |  |  |
Gain on disposal of terminals, net |  |  | 38,542 |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 38,542 |  |  |  |  |  |  |  | - |  |  |  |  |
Contingent consideration liability adjustment |  |  | (813 | ) |  |  |  |  |  |  | - |  |  |  |  |  |  |  | (813 | ) |  |  |  |  |  |  | - |  |  |  |  |
Adjusted operating expenses |  |  | 244,148 |  |  |  | 91.6 | % |  |  | 229,020 |  |  |  | 91.5 | % |  |  | 715,834 |  |  |  | 90.5 | % |  |  | 630,510 |  |  |  | 92.3 | %
Adjusted operating income |  | $ | 22,451 |  |  |  |  |  |  | $ | 21,235 |  |  |  |  |  |  | $ | 75,235 |  |  |  |  |  |  | $ | 52,381 |  |  |  |  |

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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 reportable segments, which include:

| ● | Expedited: The Expedited 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 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 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 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.

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. AAT’s results are reported within our Expedited reportable segment. The main factors that could affect our Expedited and Dedicated 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. 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 25 for the uses and limitations associated with adjusted operating ratio.

Revenue Equipment

At September 30, 2022, we operated 2,280 tractors and 5,420 trailers. Of such tractors, 1,604 were owned, 557 were financed under operating leases, and 119 were provided by independent contractors, who provide and drive their own tractors. Of such trailers, 5,090 were owned, 209 were financed under finance type leases, and 121 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, 2022, our fleet had an average tractor age of 2.4 years and an average trailer age of 5.9 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, 2022 TO three and nine months ended September 30, 2021

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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Freight revenue |  | $ | 266,599 |  |  | $ | 250,255 |  |  | $ | 791,069 |  |  | $ | 682,891 |
Fuel surcharge revenue |  |  | 45,240 |  |  |  | 24,306 |  |  |  | 129,732 |  |  |  | 68,884 |
Total revenue |  | $ | 311,839 |  |  | $ | 274,561 |  |  | $ | 920,801 |  |  | $ | 751,775 |

The increase in total revenue primarily resulted from a $18.7 million, $6.3 million, and $3.1 million, increase in Expedited, Warehousing, and Dedicated freight revenue and a $11.7 million decrease in Managed Freight revenue, respectively, for the three months ended September 30, 2022 and a $47.4 million, $31.7 million, $17.7 million, and $11.4 million increase in Expedited, Managed Freight, Dedicated, and Warehousing freight revenue, respectively, for the nine months ended September 30, 2022, in each case compared to the comparable 2021 periods.

See results of segment operations section for discussion of fluctuations.

For comparison purposes in the discussion below, we use total revenue and freight revenue (total revenue less fuel surcharge revenue) when discussing changes as a percentage of revenue.

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

Salaries, wages, and related expenses

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Salaries, wages, and related expenses |  | $ | 104,537 |  |  | $ | 87,547 |  |  | $ | 300,980 |  |  | $ | 258,609 |
% of total revenue |  |  | 33.5 | % |  |  | 31.9 | % |  |  | 32.7 | % |  |  | 34.4 | %
% of freight revenue |  |  | 39.2 | % |  |  | 35.0 | % |  |  | 38.0 | % |  |  | 37.9 | %

Salaries, wages, and related expenses for the three and nine months ended September 30, 2022, increased on a dollars basis primarily as the result of driver and non-driver, including shop technicians, pay and benefits increases since the same 2021 periods.

We believe salaries, wages, and related expenses will continue to increase going forward as a result of driver pay changes put in place in the tight freight market. We expect salaries, wages, and related expenses may continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. While driver pay remains stable at the present time, we have historically put driver pay increases in place as necessary to address driver market pressure and will continue to do so in the future as necessary. If freight market rates increase further, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers. Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight 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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Fuel expense |  | $ | 42,471 |  |  | $ | 26,174 |  |  | $ | 126,457 |  |  | $ | 75,368 |
% of total revenue |  |  | 13.6 | % |  |  | 9.5 | % |  |  | 13.7 | % |  |  | 10.0 | %
% of freight revenue |  |  | 15.9 | % |  |  | 10.5 | % |  |  | 16.0 | % |  |  | 11.0 | %

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 $1.74 per gallon, or 52%, higher for the quarter ended September 30, 2022 compared with the same quarter in 2021.

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.

Net fuel expense is shown below:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total fuel surcharge |  | $ | 45,240 |  |  | $ | 24,306 |  |  | $ | 129,732 |  |  | $ | 68,884 |
Less: Fuel surcharge revenue reimbursed to owner operators and other third parties |  |  | 2,852 |  |  |  | 1,852 |  |  |  | 8,442 |  |  |  | 5,638 |
Company fuel surcharge revenue |  | $ | 42,388 |  |  | $ | 22,454 |  |  | $ | 121,290 |  |  | $ | 63,246 |
Total fuel expense |  | $ | 42,471 |  |  | $ | 26,174 |  |  | $ | 126,457 |  |  | $ | 75,368 |
Less: Company fuel surcharge revenue |  |  | 42,388 |  |  |  | 22,454 |  |  |  | 121,290 |  |  |  | 63,246 |
Net fuel expense |  | $ | 83 |  |  | $ | 3,720 |  |  | $ | 5,167 |  |  | $ | 12,122 |
% of freight revenue |  |  | 0.0 | % |  |  | 1.5 | % |  |  | 0.7 | % |  |  | 1.8 | %

Net fuel expense for the three and nine months ended September 30, 2022, decreased primarily due to higher fuel surcharge recovery, partially offset by higher fuel prices and fewer total miles. There were no diesel fuel hedge gains or losses for the quarter ended September 30, 2022 or 2021 and $0.4 million of gains for the nine months ended September 30, 2021 compared to none for the same 2022 period. As of September 30, 2022, we had no remaining fuel hedging contracts.

We expect to continue managing our idle time and tractor speeds, investing in more fuel-efficient tractors and auxiliary power units to improve our miles per gallon, locking in fuel hedges when deemed appropriate, partnering with customers to adjust fuel surcharge programs that are inadequate to recover a fair portion of fuel costs, and testing the latest technologies that reduce fuel consumption. 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 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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Operations and maintenance |  | $ | 22,468 |  |  | $ | 14,933 |  |  | $ | 60,248 |  |  | $ | 43,946 |
% of total revenue |  |  | 7.2 | % |  |  | 5.4 | % |  |  | 6.5 | % |  |  | 5.8 | %
% of freight revenue |  |  | 8.4 | % |  |  | 6.0 | % |  |  | 7.6 | % |  |  | 6.4 | %

The increases in operations and maintenance for the three and nine months ended September 30, 2022 were primarily related to the increased maintenance costs as a result of an increase in the average age of equipment, inflationary increases in the costs of parts and labor, as well as increased overage, shortage, and damage expense, as compared to the prior year periods. These increases are partially offset by having a smaller fleet in 2022.

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, however, such increases may be offset by reductions in the age of our fleet due to our replacement plan between now and the end of 2023. For 2022, due to the age of our tractor fleet and remaining unexpired warranty coverage for most of our tractors, we do not expect the percentage of our equipment being operated outside of warranty coverage to increase in any material respect even if delays occur; however, operations and maintenance costs may increase regardless due to wage and parts inflation.

Revenue equipment rentals and purchased transportation

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue equipment rentals and purchased transportation |  | $ | 78,943 |  |  | $ | 92,636 |  |  | $ | 244,281 |  |  | $ | 225,328 |
% of total revenue |  |  | 25.3 | % |  |  | 33.7 | % |  |  | 26.5 | % |  |  | 30.0 | %
% of freight revenue |  |  | 29.6 | % |  |  | 37.0 | % |  |  | 30.9 | % |  |  | 33.0 | %

The decrease in revenue equipment rentals and purchased transportation on a dollar basis for the three months ended September 30, 2022 was primarily the result of a reduction in purchased transportation costs as a result of the softening freight market while for the nine months ended September 30, 2022, the increase on a dollars basis was primarily the result of a more competitive market for sourcing third-party capacity and growth in the Managed Freight reportable segment. Additionally, the percentage of the total miles run by independent contractors decreased from 7.8% for the three months ended September 30, 2021 to 6.4% for the same 2022 period and from 8.4% for the nine months ended September 30, 2021 to 6.6% for the same 2022 period.

We expect revenue equipment rentals to decrease going forward as we transition from tractors held under operating leases to a greater proportion of owned equipment in 2022 and 2023. However, we expect purchased transportation to fluctuate as volumes in our Managed Freight reportable segment may be volatile. 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 tightens 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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Operating taxes and licenses |  | $ | 3,238 |  |  | $ | 2,687 |  |  | $ | 8,718 |  |  | $ | 8,232 |
% of total revenue |  |  | 1.0 | % |  |  | 1.0 | % |  |  | 0.9 | % |  |  | 1.1 | %
% of freight revenue |  |  | 1.2 | % |  |  | 1.1 | % |  |  | 1.1 | % |  |  | 1.2 | %

For the period presented, the change in operating taxes and licenses is insignificant both as a percentage of total revenue and freight revenue.

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Insurance and claims

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Insurance and claims |  | $ | 12,947 |  |  | $ | 11,023 |  |  | $ | 35,752 |  |  | $ | 28,437 |
% of total revenue |  |  | 4.2 | % |  |  | 4.0 | % |  |  | 3.9 | % |  |  | 3.8 | %
% of freight revenue |  |  | 4.9 | % |  |  | 4.4 | % |  |  | 4.5 | % |  |  | 4.2 | %

Insurance and claims per mile cost increased to 19.2 cents per mile for the three months ended September 30, 2022 compared to 16.5 cents per mile for the same 2021 quarter and 17.7 cents per mile for the nine months ended September 30, 2022 compared to 13.6 cents per mile for the same 2021 period. These increases are primarily the result of unfavorable development of a small number of prior period claims, as well as claims experienced during the current quarter. On the safety side, our DOT accident rate was the lowest third quarter on record, 11% lower than third quarter of last year.

Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability coverage insurance at various levels of our insurance tower. For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were estimated to be fully eroded based on claims expense accruals. We replaced our $9.0 million in excess of $1.0 million layer with a new $7.0 million in excess of $3.0 million policy that 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, any adverse developments in claims filed between April 1, 2018 and March 31, 2021, could result in additional expense accruals. We have maintained our retention and limits set in place during the prior renewal cycle. 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.

We expect 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.

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Communications and utilities

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Communications and utilities |  | $ | 1,339 |  |  | $ | 947 |  |  | $ | 3,723 |  |  | $ | 3,325 |
% of total revenue |  |  | 0.4 | % |  |  | 0.3 | % |  |  | 0.4 | % |  |  | 0.4 | %
% of freight revenue |  |  | 0.5 | % |  |  | 0.4 | % |  |  | 0.5 | % |  |  | 0.5 | %

For the periods presented, the change in communications and utilities are insignificant both as a percentage of total revenue and freight revenue.

General supplies and expenses

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
General supplies and expenses |  | $ | 11,201 |  |  | $ | 6,037 |  |  | $ | 28,416 |  |  | $ | 21,972 |
% of total revenue |  |  | 3.6 | % |  |  | 2.2 | % |  |  | 3.1 | % |  |  | 2.9 | %
% of freight revenue |  |  | 4.2 | % |  |  | 2.4 | % |  |  | 3.6 | % |  |  | 3.2 | %

The increases in general supplies and expenses for the three and nine months ended September 30, 2022 were primarily the result of the prior year reversal of legal expense related to favorable mediations, as well as new leased spaces for our Warehousing reportable segment, increased travel expenses, and the increase in the contingent consideration liability since the 2021 periods.

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Depreciation and amortization

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Depreciation and amortization |  | $ | 14,357 |  |  | $ | 13,365 |  |  | $ | 41,734 |  |  | $ | 41,316 |
% of total revenue |  |  | 4.6 | % |  |  | 4.9 | % |  |  | 4.5 | % |  |  | 5.5 | %
% of freight revenue |  |  | 5.4 | % |  |  | 5.3 | % |  |  | 5.3 | % |  |  | 6.1 | %

Depreciation and amortization consists primarily of depreciation of tractors, trailers, and other capital assets, as well as amortization of intangible assets.

Depreciation expense increased $1.0 million and $0.7 million to $13.2 million and $38.6 million for the three and nine months ended September 30, 2022, respectively, compared to $12.2 million and $37.9 million in the same 2021 periods as a result of increased costs on new equipment partially offset by reduced total tractor count. Amortization of intangible assets was $1.1 million and $3.2 million for the three and nine months ended September 30, 2022, respectively, and $1.2 million and $3.5 million the same 2021 periods. The decrease for the three and nine months ended September 30, 2022 is due to the completion of the amortization of the Landair trade name to the $0.5 million residual value during the third quarter of 2021, partially offset by amortization of the intangible asset related to the AAT acquisition.

We expect depreciation and amortization to increase going forward due to the cost of new equipment increasing, our revenue equipment replacement plan between now and the end of 2023, and our transition from revenue equipment held under operating leases to a greater proportion of owned revenue equipment. Additionally, changes in the used tractor market could cause us to adjust residual values, increase depreciation, hold assets longer than planned, or experience increased losses on sale.

Gain on disposition of property and equipment, net

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Gain on disposition of property and equipment, net |  | $ | (38,721 | ) |  | $ | (871 | ) |  | $ | (39,287 | ) |  | $ | (3,683 | )
% of total revenue |  |  | (12.4 | %) |  |  | (0.3 | %) |  |  | (4.3 | %) |  |  | (0.5 | %)
% of freight revenue |  |  | (14.5 | %) |  |  | (0.3 | %) |  |  | (5.0 | %) |  |  | (0.5 | %)

The increases in gain on disposition of property and equipment, net for the three and nine months ended September 30, 2022 are primarily the result of the $38.5 million gain on sale of a California terminal in the third quarter of 2022.

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Interest expense, net

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Interest expense, net |  | $ | 935 |  |  | $ | 724 |  |  | $ | 2,256 |  |  | $ | 2,175 |
% of total revenue |  |  | 0.3 | % |  |  | 0.3 | % |  |  | 0.2 | % |  |  | 0.3 | %
% of freight revenue |  |  | 0.4 | % |  |  | 0.3 | % |  |  | 0.3 | % |  |  | 0.3 | %

For the period presented, the change in interest expense, net is insignificant both as a percentage of total revenue and freight revenue.

This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan between now and the end of 2023, increasing interest rates, and our ability to continue to generate profitable results and reduce our leverage.

Income from equity method investment

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Income from equity method investment |  | $ | 7,400 |  |  | $ | 3,230 |  |  | $ | 21,261 |  |  | $ | 9,572 |

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, 2022 is the result of a combination of a rapidly growing business and gains on sale of used equipment that resulted from a constricted used equipment capacity in the transportation market that increased income from both equipment sales and leasing. Due to TEL's business model, gains and losses on sale of equipment is a normal part of the business and can cause earnings to fluctuate from quarter to quarter and therefore our income from investment to similarly fluctuate. We expect TEL to continue to meet or exceed expectations as it continues on its current growth trajectory.

Income tax expense

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Income tax expense |  | $ | 15,563 |  |  | $ | 6,147 |  |  | $ | 32,130 |  |  | $ | 15,863 |
% of total revenue |  |  | 5.0 | % |  |  | 2.2 | % |  |  | 3.5 | % |  |  | 2.1 | %
% of freight revenue |  |  | 5.8 | % |  |  | 2.5 | % |  |  | 4.1 | % |  |  | 2.3 | %

The changes in income tax expense were primarily related to the $42.9 million and $72.5 million increase in pre-tax income in the three and nine months ended September 30, 2022, compared to the same 2021 periods, resulting from the increases in operating income and earnings on investment in TEL.

The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences, such as executive compensation disallowance in 2021. The nondeductible effect of the per diem payments is temporarily suspended for 2021 and 2022 in accordance with IRS guidance issued during the quarter ended December 31, 2021. The rate impact of these items will fluctuate in future periods as income fluctuates.

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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, 2022 TO three and nine months ended September 30, 2021

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

(in thousands) |  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expedited |  | $ | 117,793 |  |  | $ | 85,289 |  |  | $ | 338,234 |  |  | $ | 251,139 |
Dedicated |  |  | 93,423 |  |  |  | 83,477 |  |  |  | 279,136 |  |  |  | 240,791 |
Managed Freight |  |  | 78,382 |  |  |  | 90,072 |  |  |  | 244,814 |  |  |  | 213,104 |
Warehousing |  |  | 22,241 |  |  |  | 15,723 |  |  |  | 58,617 |  |  |  | 46,741 |
Total revenues |  | $ | 311,839 |  |  | $ | 274,561 |  |  | $ | 920,801 |  |  | $ | 751,775 |
Operating Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expedited |  | $ | 30,660 |  |  | $ | 11,064 |  |  | $ | 54,602 |  |  | $ | 27,479 |
Dedicated |  |  | 19,416 |  |  |  | (659 | ) |  |  | 24,937 |  |  |  | (2,629 | )
Managed Freight |  |  | 8,605 |  |  |  | 9,251 |  |  |  | 28,062 |  |  |  | 21,510 |
Warehousing |  |  | 378 |  |  |  | 427 |  |  |  | 2,178 |  |  |  | 2,565 |
Total operating income |  | $ | 59,059 |  |  | $ | 20,083 |  |  | $ | 109,779 |  |  | $ | 48,925 |

The increase in Expedited revenue for the three months ended September 30, 2022 relates to an increase in average freight revenue per tractor per week of 14.6%, a $13.8 million increase in fuel surcharge revenue compared to the 2021 quarter, and an 80 (or 9.6%) average tractor increase. The increase in average freight revenue per tractor per week for the quarter ended September 30, 2022 is the result of a 29.0 cents per mile (or 14.4%) increase in average rate per total mile as well as a 0.5% increase in average miles per unit compared to the 2021 quarter. Expedited team-driven tractors averaged 797 tractors in the third quarter of 2022, an increase of approximately 16.0% from the average of 687 tractors in the third quarter of 2021. The increase in tractors was attributable to the acquisition of AAT in the first quarter of the year and the increased ability to recruit and onboard qualified drivers.

For the nine months ended September 30, 2022, the change in Expedited revenue relates to a 134 (or 3.9%) average tractor increase as well as an increase in average freight revenue per tractor per week of 17.2% compared to the same 2021 period. The increase in average freight revenue per tractor per week for the nine months ended September 30, 2022 is the result of a 36.0 cents per mile (or 18.6%) increase in average rate per total mile partially offset by a 0.9% decrease in average miles per unit compared to the same 2021 period. Expedited team-driven tractors averaged 773 for the nine months ended September 30, 2022, an increase of approximately 7.9% from the average of 717 tractors for the same 2021 period. The increase in tractors was attributable to the acquisition of AAT in the first quarter of the year and the increased ability to recruit and onboard qualified drivers.

The increase in Dedicated revenue for the three months ended September 30, 2022 relates to an increase in average freight revenue per tractor per week compared to the 2021 quarter as the result of a 36.0 cents per mile (or 15.5%) increase in average rate per total mile compared to the 2021 quarter, a $6.9 million increase in fuel surcharge revenue partially offset by a 1.2% decrease in average miles per unit. Average tractors decreased 134 tractors, or 8.7% as compared to the three months ended September 30, 2021, as a result of not renewing underperforming contracts.

For the nine months ended September 30, 2022, the increase in Dedicated revenue relates to an increase in average freight revenue per tractor per week compared to the same 2021 period as the result of a 49.0 cents per mile (or 23.2%) increase in average rate per total mile, partially offset by a 2.3% decrease in average miles per unit as compared to the same 2021 period. Additionally, fuel surcharge revenue increased $20.7 million compared to the 2021 period. These increases were partially offset by a 152 (or 9.6%) average tractor decrease as a result of not renewing underperforming contracts.

Managed Freight total revenue decreased primarily as a result of reduced volumes of overflow freight from both Expedited and Dedicated truckload operations. With the softening freight market, we anticipate the revenue attributable to overflow freight to continue to decline.

Warehousing total revenue for the quarter and year-to-date periods increased as a result of period-over-period new customer business as well as rate increases with existing customers.

In addition to the changes in revenue described above for the three and nine months ended September 30, 2022, the change in operating income for the three months ended September 30, 2022, resulted from an $11.0 million and a $10.1 million decrease in Managed Freight and Dedicated operating expenses, respectively, partially offset by a $12.9 million and a $6.6 million increase in Expedited and Warehousing operating expenses, respectively. For the nine months ended September 30, 2022, the change in operating income resulted from a $60.0 million, $25.2 million, $12.3 million, and $10.8 million increase in Expedited, Managed Freight, Warehousing, and Dedicated operating expenses, respectively.

The increase in Expedited and Dedicated operating expenses for the three and nine months ended September 30, 2022, is primarily the result of driver and non-driver pay increases since the 2021 periods and increased maintenance costs as a result of an increase in the average age of equipment and increases in the costs of parts and labor. Additionally, we've experienced increased overage, shortage, and damage expenses and insurance related expense increased when compared to the prior year periods. The increased insurance expense is the result of unfavorable developments on a small number of prior period claims, as well as claims experience during the current periods.

The changes in Managed Freight operating expenses is the result of the changes in revenue driving changes in variable expenses, primarily purchased transportation. Additionally, increases in non-driver pay since the 2021 periods have increased Managed Freight operating expenses. The increase in Warehousing, operating expenses is a result of non-incurring temporary incremental costs associated with new startup business and the costs of securing additional unoccupied leased space in key locations, consistent with our longer-term growth strategy. We expect the startup and lease costs to decline in the fourth quarter of 2022, improving margins. In our asset-light segments, we are prioritizing growth, focusing on talent acquisition and technology enhancements.

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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 our Dedicated, Managed Freight, and Warehousing reportable segments to become the go-to partner for our customers’ most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $52.5 million and $45.8 million at September 30, 2022 and December 31, 2021, 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 2.4 years at September 30, 2022, 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.

As of September 30, 2022 and December 31, 2021 we had $135.0 million and $74.3 million in debt and lease obligations, respectively, consisting of the following:

| ● | No outstanding borrowings under the Credit Facility;
| ● | No outstanding borrowings under the Draw Note;
| ● | $64.7 million and $4.5 million in revenue equipment installment notes, respectively;
| ● | $20.6 million and $21.5 million in real estate notes, respectively;
| ● | No deferred loan costs (which reduce long-term debt) as of September 30, 2022 and December 31, 2021;
| ● | $6.1 million and $10.8 million of the principal portion of financing lease obligations, respectively; and
| ● | $43.5 million and $37.4 million of the operating lease obligations, respectively.

The increase in revenue equipment installment notes is primarily due to replacing our older equipment with new equipment as part of our trade cycle. The increase in operating lease obligations was primarily due to additional facilities for new Warehousing customers as well as new operating leases for revenue equipment as part of our trade cycle, partially offset by amortization of the operating lease liability.

As of September 30, 2022, we had $0.0 million borrowings outstanding, undrawn letters of credit outstanding of approximately $23.9 million, and available borrowing capacity of $86.1 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, 2022 totaled $49.8 million of expenditures, as compared to $22.0 million of proceeds for the prior year period. In addition to the February 2022 acquisition of AAT, during the nine months ended September 30, 2022, we took delivery of approximately 321 new tractors and no new trailers, while disposing of approximately 77 used tractors and 43 used trailers. Our current fleet plan for fiscal 2022 includes the delivery of an additional 328 new company replacement tractors and no additional new trailer deliveries. Net gains on disposal of equipment and real estate in the nine months ended September 30, 2022 were $39.3 million compared to $3.7 million in the same prior year period primarily due to the $38.5 million gain on a California terminal during the 2022 period. Global supply chain disruptions could impact the availability of tractors and trailers and lead to increased pricing.

We distributed a total of $3.2 million to stockholders in the first nine months of 2022 through dividends.

Our baseline expectation for the remainder of 2022 fleet net capital expenditures is a range of $10.0 million to $30.0 million, assuming scheduled deliveries and strong but moderating sale prices for used equipment. These assumptions are subject to risk.

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Cash Flows

Net cash flows provided by operating activities increased to $121.1 million for the nine months ended September 30, 2022, compared to $68.2 million for the same 2021 period, primarily due to a decrease in receivables and driver advances as a result of a decrease in our average receivable days outstanding and a $54.2 million increase in net income, including the $38.5 million gain on sale of a California terminal, partially offset by decreases to non-cash expenses compared to the prior year period.

Net cash flows used by investing activities were $49.8 million for the nine months ended September 30, 2022, compared to $22.0 million provided in the same 2021 period. The change in net cash flows used by investing activities was primarily the result of the February 2022 acquisition of AAT partially offset by the sale of a California terminal during the third quarter of 2022. The change is also due to the timing of our trade cycle whereby we took delivery of approximately 321 new company tractors and disposed of approximately 77 used tractors in the 2022 period compared to delivery and disposal of no new company tractors or used tractors, in the same 2021 period.

Net cash flows used by financing activities were approximately $20.4 million for the nine months ended September 30, 2022, compared to $76.4 million used in the same 2021 period. The change in net cash flows used by financing activities was primarily a function of the repurchase of $70.9 million of shares of our Class A common stock during the 2022 period compared to $10.3 million during the same 2021 period, as well as the payment of approximately $3.2 million in dividends during the 2022 period, and net proceeds relating to notes payable, the Draw Note, and our Credit Facility of $59.3 million in the 2022 period compared to net repayments of $60.7 million in the 2021 period.

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 $8.1 million during the three months ended March 31, 2021. On August 5, 2021, our Board increased such authorization to $40.0 million. As of January 1, 2022, there was approximately $38.0 million remaining under such authorization. On February 10, 2022, our Board of Directors adopted a 10b5-1 plan for the purchase of up to $30.0 million in shares subject to defined trading parameters, under our then current stock repurchase program. Under such authorization, we repurchased 1.4 million shares of our Class A common stock for $30.0 million completing the program in May 2022. On May 18, 2022 our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available. Under such authorization, we repurchased 1.6 million shares of our Class A common stock for $40.9 million through September 30, 2022. We repurchased an additional 0.4 million shares of our Class A common stock through November 2, 2022, for a total of 3.4 million shares repurchased since February 2022.

Our cash flows may fluctuate depending on capital expenditures, future stock repurchases, dividends, strategic investments or divestitures, any indemnification calls related to the TFS Settlement, and the extent of future income tax obligations and refunds.

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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, 2022, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2021.

ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks have not changed materially from the market risks reported in our Form 10-K for the year ended December 31, 2021.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

We have confidence in our internal controls and procedures. Nevertheless, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II | OTHER INFORMATION

ITEM 1. | LEGAL PROCEEDINGS

Information about our legal proceedings is included in Note 10, "Commitments and Contingencies" of the accompanying condensed consolidated financial statements and is incorporated by reference herein.

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ITEM 1A. | RISK FACTORS

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our Form 10-K for the year ended December 31, 2021, in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.

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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information with respect to purchases of our Class A common stock made by us during the quarter ended September 30, 2022:

Period |  | Total Number of Shares Purchased |  |  | Average Price Paid per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) |  |  | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1) |
July 1-31, 2022 |  |  | 451,034 |  |  | $ | 27.10 |  |  |  | 451,034 |  |  | $ | 49,412,920 |
August 1-31, 2022 |  |  | 47,892 |  |  |  | 28.74 |  |  |  | 47,892 |  |  |  | 48,036,286 |
September 1-30, 2022 |  |  | 485,419 |  |  |  | 28.68 |  |  |  | 485,419 |  |  |  | 34,112,417 |
Total |  |  | 984,345 |  |  |  |  |  |  |  | 984,345 |  |  | $ | 34,112,417 |

(1) | 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 $8.1 million during the three months ended March 31, 2021. On August 5, 2021, our Board increased such authorization to $40.0 million. As of January 1, 2022, there was approximately $38.0 million remaining under such authorization. On February 10, 2022, our Board of Directors adopted a 10b5-1 plan for the purchase of up to $30.0 million in shares subject to defined trading parameters, under our then current stock repurchase program. Under such authorization, we repurchased 1.4 million shares of our Class A common stock for $30.0 million completing the program in May 2022. On May 18, 2022, our Board approved a new stock repurchase authorization of up to $75.0 million of our Class A common stock, with any remaining amount available under prior authorizations being excluded and no longer available. Under such authorization, we repurchased 1.6 million shares of our Class A common stock for $40.9 million through September 30, 2022.

The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under our Credit Facility. We distributed a total of $3.2 million to stockholders in the first nine months of 2022 through dividends.

ITEM 3. | DEF AU LTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. | MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. | O THER I NFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit Number | Reference | Description
3.1 | (1) | Third Amended and Restated Articles of Incorporation
3.2 | (2) | Sixth Amended and Restated Bylaws
4.1 | (1) | Third Amended and Restated Articles of Incorporation
4.2 | (2) | Sixth Amended and Restated Bylaws
31.1 | # | Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Principal Executive Officer
31.2 | # | Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James S. Grant, the Company's Principal Financial Officer
32.1 | ## | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's Chief Executive Officer
32.2 | ## | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by James S. Grant, the Company's Principal Financial Officer
101.INS |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)
References: |  |
(1) | Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K, filed July 2, 2020.
(2) | Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K, filed August 9, 2021.
# | Filed herewith.
## | Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| COVENANT LOGISTICS GROUP, INC.
Date: November 4, 2022 | By: | /s/ James S. Grant
|  | James S. Grant
|  | Chief Financial Officer in his capacity as such and as a duly authorized officer on behalf of the issuer

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