HEARTLAND EXPRESS INC

Previous wording

This Item 2 contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by such sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings (losses), 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 statement of assumptions underlying any of the foregoing. Such statements may be identified by their use of terms or phrases such as “seeks,” “expects,” “estimates,” “anticipates,” "ensure," “projects,” “believes,” “hopes,” “plans,” “goals,” “intends,” “may,” “might,” “likely,” “will,” “should,” “would,” “could,” “potential,” “predict,” “continue,” “strategy,” “future,” “outlook,” and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. In this Form 10-Q, statements relating to general trucking industry trends, including future freight demand and capacity, freight rates, operating ratio goals, anticipated revenue equipment sales and purchases, including revenue equipment gains, the used equipment market, and the availability of revenue equipment, future customer relationships, future growth and acquisitions, including the anticipated impact of our acquisitions of Smith Transport and CFI, our ability to attract and retain drivers, future driver compensation, including possible driver compensation increases, future insurance and claims expense, including the impact of our insurance renewal, the impact of changes in interest rates and tire prices, future liquidity, expected fuel costs, including strategies for managing fuel costs, the potential impact of pending litigation, our dividend policy, future capital spending, future depreciation expense, our future repurchases of our shares, future cost reduction and implementation of freight optimization strategies, including at Millis Transfer, CFI, and Smith Transport, our ability to react to and capitalize on changing market conditions, and the expected impact of operational improvements and strategic changes, among others, are forward-looking statements. 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 contri…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Item 2 contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by such sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings (losses), 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 statement of assumptions underlying any of the foregoing. Such statements may be identified by their use of terms or phrases such as “seeks,” “expects,” “estimates,” “anticipates,” "ensure," “projects,” “believes,” “hopes,” “plans,” “goals,” “intends,” “may,” “might,” “likely,” “will,” “should,” “would,” “could,” “potential,” “predict,” “continue,” “strategy,” “future,” “outlook,” and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. In this Form 10-Q, statements relating to general trucking industry trends, including future freight demand and capacity, freight rates, operating ratio goals, anticipated revenue equipment sales and purchases, including revenue equipment gains, the used equipment market, and the availability of revenue equipment, future customer relationships, future growth and acquisitions, including the anticipated impact of our acquisitions of Smith Transport and CFI, our ability to attract and retain drivers, future driver compensation, including possible driver compensation increases, future insurance and claims expense, including the impact of our insurance renewal, the impact of changes in interest rates and tire prices, future liquidity, expected fuel costs, including strategies for managing fuel costs, the potential impact of pending litigation, our dividend policy, future capital spending, future depreciation expense, our future repurchases of our shares, future cost reduction and implementation of freight optimization strategies, including at Millis Transfer, CFI, and Smith Transport, our ability to react to and capitalize on changing market conditions, and the expected impact of operational improvements and strategic changes, among others, are forward-looking statements. 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 contri…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We operate in a cyclical industry. Freight demand began to soften in the back half of 2022 and continued to degrade throughout all of 2023. We expect freight demand to remain challenged at lower demand levels in at least the first half of 2024 based upon the freight demand experienced in the first quarter of 2024. We expect the strategic changes that we have implemented during 2023 and into 2024 will improve our operational readiness ahead of future expected freight demand growth, which could happen as soon as mid to late 2024. However, supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, the political landscape, foreign wars, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during 2024.

Current wording

We operate in a cyclical industry. Freight demand began to soften in the back half of 2022 and continued to degrade throughout all of 2023. Truck capacity has continued to exceed freight demand in the first half of 2024. We expect freight demand to remain challenged at lower demand levels throughout most of 2024 based upon the freight demand experienced in the first half of 2024. We expect the strategic changes that we have implemented during 2023 and into 2024 will improve our operational readiness ahead of future expected freight demand growth, which could happen as soon as late 2024 but more likely 2025. However, supply chain issues for tractors, trailers and related parts, general consumer product output and inventory volatility, consumer demand, the political landscape, foreign wars, and disruption in oil and diesel markets all could create additional volatility regarding freight demand during the second half of 2024.

Previous wording

We continue to focus on providing quality service to targeted customers with a high density of freight in our regional operating areas. Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets. We have completed two recent strategic acquisitions to combat these industry challenges. In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings at Heartland Express, Millis Transfer, Smith Transport, and CFI.

Current wording

We continue to focus on providing quality service to targeted customers with a high density of freight in our regional operating areas. Organic growth has become increasingly difficult for traditional over-the-road truckload carriers given a shortage of qualified drivers in the industry and availability of revenue equipment assets. In 2022 we completed two strategic acquisitions to combat these industry challenges. In addition, we continue to evaluate and explore different driving options and offerings for our existing and potential new drivers across our unique mix of driver offerings at Heartland Express, Millis Transfer, Smith Transport, and CFI.

Previous wording

The trucking industry has been faced with a qualified driver shortage. During the COVID-19 pandemic, increased freight demand intensified an already challenging qualified driver market. Competition for qualified drivers continued to be challenging into 2024 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry. However, driver availability challenges were reduced in 2023 and into 2024, as a result of the declining freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers. Although there has been some increased movement of drivers between companies in our industry, the issue of a decreasing amount of qualified CDL drivers in our industry continues. We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands. We hire the majority of our drivers with at least six months of over-the-road experience and safe driving records. As discussed below, the Company's driver training program provides an additional source of future potential professional drivers. In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers. Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance. Certain driver pay packages include minimum pay protection provisions, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time associated with circumstances outside of their control, such as inclement weather, equipment breakdowns, and customer issues. As a result of the freight environment during the second half of 2023 and into 2024, we have paid more through these programs, resulting in an increase of driver pay per mile and as a percentage of revenue. This has allowed us to maintain driver turnover rates lower than the industry average as a result. We believe that our driver compensation and benefits package is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance. Currently over 10% of our driver employees, individually, have achieved 1.0 million safe miles.

Current wording

The trucking industry has been faced with a qualified driver shortage. During the COVID-19 pandemic, increased freight demand intensified an already challenging qualified driver market. Competition for qualified drivers continued to be challenging into 2024 and is expected to be a challenge going forward due to the decreasing numbers of qualified drivers in our industry. However, driver availability challenges were reduced in 2023 and into 2024, as a result of the declining freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers and from independent contractors to company drivers. Although there has been some increased movement of drivers between companies in our industry, the issue of a decreasing amount of qualified CDL drivers in our industry continues. We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands. We hire the majority of our drivers with at least six months of over-the-road experience and safe driving records. As discussed below, the Company's driver training program provides an additional source of future potential professional drivers. In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets and for the services we provide. We have continued to get more creative in providing better pay, benefits, equipment, and facilities for our drivers. Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance. Certain driver pay packages include minimum pay protection provisions, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time associated with circumstances outside of their control, such as inclement weather, equipment breakdowns, and customer issues. As a result of the freight environment during the second half of 2023 and first half of 2024, we have paid more through these programs, resulting in an increase of driver pay per mile and as a percentage of revenue. This has allowed us to maintain driver turnover rates lower than the industry average as a result. We believe that our driver compensation and benefits package is consistently among the best in the industry. We are committed to investing in our drivers and compensating them for safety as both are key to our operational and financial performance. Currently over 10% of our driver employees, individually, have achieved 1.0 million safe miles.

Previous wording

Managing fuel cost continues to be one of management's top priorities given the volatility in the price of diesel fuel. The Department of Energy ("DOE") average diesel fuel prices per gallon for the three months ended March 31, 2024 and 2023 were $3.96 and $4.41 (a 10.2% decrease), respectively. Average DOE prices have been $3.94, $4.24, and $4.26 for the three months ended June 30, 2023, September 30, 2023, and December 31, 2023, respectively. We cannot predict what fuel prices will be for the remainder of 2024, but fuel expense has become the second highest expense behind salaries, wages, and benefits, and we expect volatile pricing for the remainder of 2024. We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles. Therefore, our operating income is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment. Specifically, during the first quarter of 2024 fuel prices were lower at the same time we were incurring higher empty mile moves with our drivers as a result of slower freight demand. During the first quarter of 2023, fuel prices were declining and empty mile moves were not as high because of better freight demand and more options for freight moves. Therefore, our net fuel cost per mile (gross fuel expense net of fuel surcharge revenues) was significantly higher in the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023 although the gross price was higher in 2023 as compared to 2024. We expect to continue to manage and implement fuel initiative strategies that we believe will effectively manage fuel costs. These initiatives include strategic fueling of our trucks, whether it be terminal fuel or over-the-road fuel, bulk fuel purchases, controlling out-of-route miles, controlling empty miles, utilizing idle management programming and battery power and diesel power units to minimize idling, educating drivers to save energy, trailer skirting and rear fairings, and increasing fuel economy through the purchase of newer, more fuel-efficient tractors. Given the reduction in demand for freight services throughout the first three months of 2024 the company incurred a higher amount of empty miles. At March 31, 2024, the Company’s tractor fleet had an average age of 2.4 years and the Company's trailer fleet had an average age of 6.7 years compared to March 31, 2023 when the Company’s tractor fleet had an average age of 2.1 years and the Company's trailer fleet had an average age of 6.2 years.

Current wording

We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles. Therefore, our operating income is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment. Specifically, during the first half of 2024 fuel prices were lower at the same time we were incurring higher empty mile moves with our drivers as a result of slower freight demand. During the first half of 2023, fuel prices were declining and empty mile moves were not as high because of better freight demand and more options for freight moves. Therefore, our net fuel cost per mile (gross fuel expense net of fuel surcharge revenues) was significantly higher in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 although the gross price was higher in 2023 as compared to 2024. We expect to continue to manage and implement fuel initiative strategies that we believe will effectively manage fuel costs. These initiatives include strategic fueling of our trucks, whether it be terminal fuel or over-the-road fuel, bulk fuel purchases, controlling out-of-route miles, controlling empty miles, utilizing idle management programming and battery power and diesel power units to minimize idling, educating drivers to save energy, trailer skirting and rear fairings, and increasing fuel economy through the purchase of newer, more fuel-efficient tractors. Given the reduction in demand for freight services throughout the first six months of 2024 the company incurred a higher amount of empty miles. At June 30, 2024, the Company’s tractor fleet had an average age of 2.6 years and the Company's trailer fleet had an average age of 6.9 years compared to June 30, 2023 when the Company’s tractor fleet had an average age of 2.1 years and the Company's trailer fleet had an average age of 6.1 years.

Previous wording

We ended the first three months of 2024 with operating revenues of $270.3 million, including fuel surcharges, net loss of $15.1 million, and basic net loss per share of $0.19 on basic weighted average outstanding shares of 79.0 million compared to operating revenues of $330.9 million, including fuel surcharges, net income of $12.6 million, and basic net income per share of $0.16 on basic weighted average shares of 79.0 million in the first three months of 2023. We posted a 105.3% operating ratio (operating expenses as a percentage of operating revenues) for the three months ended March 31, 2024 compared to 93.1% for the same period of 2023. We posted a 105.6% non-GAAP adjusted operating ratio(1) for the three months ended March 31, 2024 compared to 91.4% for the same period of 2023. We had total assets of $1.5 billion at March 31, 2024. We had a loss on assets of (0.8)% and a loss on equity of (1.5)% over the immediate past four quarters ended March 31, 2024, compared to return on assets of 8.5% and return on equity of 15.3% for the immediate past four quarters ended March 31, 2023.

Current wording

We ended the first six months of 2024 with operating revenues of $545.1 million, including fuel surcharges, net loss of $18.6 million, and basic net loss per share of $0.24 on basic weighted average outstanding shares of 79.0 million compared to operating revenues of $637.1 million, including fuel surcharges, net income of $20.4 million, and basic net income per share of $0.26 on basic weighted average shares of 79.0 million in the first six months of 2023. We posted a 102.6% operating ratio (operating expenses as a percentage of operating revenues) for the six months ended June 30, 2024 compared to 93.9% for the same period of 2023. We posted a 102.5% non-GAAP adjusted operating ratio(1) for the six months ended June 30, 2024 compared to 92.4% for the same period of 2023. We had total assets of $1.4 billion at June 30, 2024. We had a loss on assets of (1.6)% and a loss on equity of (2.8)% over the immediate past four quarters ended June 30, 2024, compared to return on assets of 3.7% and return on equity of 7.0% for the immediate past four quarters ended June 30, 2023.

Previous wording

Our cash flow from operating activities for the three months ended March 31, 2024 of $31.0 million was 11.5% of operating revenues, compared to $66.4 million and 20.1% of operating revenues in the same period of 2023. During 2024, we had net cash provided by investing activities of $2.0 million resulting from net property and equipment transactions. Net cash provided by property and equipment was primarily the result of a low volume of normal tractor and trailer fleet replacement activity. We had net cash used in financing activities of $36.7 million resulting primarily from debt repayments associated with debt taken on with our 2022 acquisitions. Our cash, cash equivalents and restricted cash decreased $3.8 million during the three months ended March 31, 2024. We ended the first quarter of 2024 with cash, cash equivalents and restricted cash of $37.4 million. Cash and cash equivalents, excluding restricted cash was $23.8 million at March 31, 2024.

Current wording

Our cash flow from operating activities for the six months ended June 30, 2024 of $71.0 million was 13.0% of operating revenues, compared to $97.3 million and 15.3% of operating revenues in the same period of 2023. During 2024, we had net cash used in investing activities of $2.6 million resulting from net property and equipment transactions. Net cash used by property and equipment was primarily the result of a low volume of normal tractor and trailer fleet replacement activity. We had net cash used in financing activities of $72.4 million resulting primarily from debt repayments associated with debt taken on with our 2022 acquisitions along with repurchases of common stock. Our cash, cash equivalents and restricted cash decreased $4.0 million during the six months ended June 30, 2024. We ended the second quarter of 2024 with cash, cash equivalents and restricted cash of $37.1 million. Cash and cash equivalents, excluding restricted cash was $23.9 million at June 30, 2024.

Previous wording

Operating revenue decreased $60.6 million (18.3%), to $270.3 million for the three months ended March 31, 2024 from $330.9 million for the three months ended March 31, 2023. The decrease in revenue was the result of a weak freight environment leading to a decline in total miles resulting in the decrease in trucking and other revenues of $47.2 million (16.8%) along with a decrease to fuel surcharge revenue of $13.4 million (27.1%) from $49.6 million in 2023 to $36.2 million in 2024. Operating revenues (the total of trucking and fuel surcharge revenue) are primarily earned based on loaded miles driven in providing truckload services. The number of loaded miles is affected by general freight supply and demand trends and the number of revenue earning equipment vehicles (tractors). The number of tractors is directly affected by the number of available drivers providing capacity to us. Our operating revenues are reviewed regularly by our CODM on a combined basis across the U.S. due to the similar nature of our services offerings and related similar base pricing structure.

Current wording

Operating revenue decreased $31.4 million (10.3%), to $274.8 million for the three months ended June 30, 2024 from $306.2 million for the three months ended June 30, 2023. The decrease in revenue was the result of a weak freight environment leading to a decline in total miles resulting in the decrease in trucking and other revenues of $26.7 million (10.1%) along with a decrease to fuel surcharge revenue of $4.7 million (11.3%) from $41.5 million in 2023 to $36.8 million in 2024. Operating revenues (the total of trucking and fuel surcharge revenue) are primarily earned based on loaded miles driven in providing truckload services. The number of loaded miles is affected by general freight supply and demand trends and the number of revenue earning equipment vehicles (tractors). The number of tractors is directly affected by the number of available drivers providing capacity to us. Our operating revenues are reviewed regularly by our CODM on a combined basis across the U.S. due to the similar nature of our services offerings and related similar base pricing structure.

Previous wording

Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles. Fuel surcharge revenues decreased due to lower average DOE diesel fuel prices (10.2%), as reported by the DOE, along with a decrease in loaded miles during the three months ended March 31, 2024 compared to March 31, 2023.

Current wording

Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles. Fuel surcharge revenues decreased due to lower average DOE diesel fuel prices (1.9%), as reported by the DOE, along with a decrease in loaded miles during the three months ended June 30, 2024 compared to June 30, 2023.

Previous wording

Rent and purchased transportation decreased $9.2 million, to $23.9 million for the three months ended March 31, 2024 from $33.1 million for the same period of 2023. The decrease resulted from reduced purchased transportation and lower contractor miles associated with the CFI business integration, along with a reduction of leased equipment, partially offset by an increase in property leases.

Current wording

Rent and purchased transportation decreased $6.8 million, to $21.7 million for the three months ended June 30, 2024 from $28.5 million for the same period of 2023. The decrease resulted from reduced purchased transportation and lower contractor miles associated with the CFI business integration, along with a reduction of leased equipment. This decrease was partially offset by an increase in property leases due to terminals sold in late 2023 that are now under short term leases.

Previous wording

Fuel decreased $10.2 million (17.7%), to $47.3 million for the three months ended March 31, 2024 from $57.5 million for the same period of 2023. The decrease was primarily due to lower average diesel price per gallon (10.2%) as reported by the DOE along with less miles driven. We expect to see fuel price volatility through the remainder of 2024.

Current wording

Fuel decreased $2.9 million (5.7%), to $47.0 million for the three months ended June 30, 2024 from $49.9 million for the same period of 2023. The decrease was primarily due to lower average diesel price per gallon (1.9%) as reported by the DOE along with less miles driven. We expect to see fuel price volatility through the remainder of 2024.

Previous wording

Operations and maintenance expense increased $1.3 million (8.3%), to $16.3 million during the three months ended March 31, 2024 from $15.0 million in the same period of 2023. The net increase is mainly attributable to higher equipment maintenance costs. At March 31, 2024, the Company’s tractor fleet had an average age of 2.4 years and the Company's trailer fleet had an average age of 6.7 years compared to March 31, 2023 when the Company’s tractor fleet had an average age of 2.1 years and the Company's trailer fleet had an average age of 6.2 years. Based upon current agreements for new revenue equipment we anticipate that the average age of our fleet of tractors and trailers will increase by December 31, 2024, although due to warranties in place on our equipment we do not believe the increased age will significantly impact operations and maintenance expense.

Current wording

Operations and maintenance expense increased $0.7 million (4.3%), to $16.7 million during the three months ended June 30, 2024 from $16.0 million in the same period of 2023. The net increase is mainly attributable to higher equipment maintenance costs. At June 30, 2024, the Company’s tractor fleet had an average age of 2.6 years and the Company's trailer fleet had an average age of 6.9 years compared to June 30, 2023 when the Company’s tractor fleet had an average age of 2.1 years and the Company's trailer fleet had an average age of 6.1 years. Based upon current agreements for new revenue equipment we anticipate that the average age of our fleet of tractors and trailers will increase by December 31, 2024, although we do not believe the increased age will significantly impact operations and maintenance expense.

Previous wording

Operating taxes and licenses decreased $0.2 million (4.1%), to $5.3 million during the three months ended March 31, 2024 from $5.5 million in the same period of 2023. The decrease resulted from a reduction of operating units as a result of the soft freight environment.

Current wording

Operating taxes and licenses decreased $0.2 million (3.7%), to $5.3 million during the three months ended June 30, 2024 from $5.5 million in the same period of 2023. The decrease resulted from a reduction of operating units as a result of the soft freight environment.

Previous wording

Insurance and claims expense was $14.6 million during the three months ended March 31, 2024 compared to $11.0 million in 2023. The increase is due to unfavorable claim severity and frequency. In April 2023, we renewed our primary auto liability insurance with a three year program. Under the April 2023 renewal, our auto liability retention limit across all operating entities was increased to $3.0 million for any individual claim, subject to a $3.5 million corridor for any one accident or combination of accidents that exceed $3.0 million, based on the insured party, accident date, and circumstances of the loss event. In April 2024, an additional corridor was added, where we retain liability of $5.0 million for any one accident or combination of accidents that exceed $10.0 million. Liabilities in excess of the $3.0 million deductible, the $3.5 million corridor, and the $5.0 million corridor are covered by insurance up to $80.0 million. We retain any liability in excess of $80.0 million. Furthermore, under the April 2023 renewal, our premiums are subject to upward or downward adjustments based on claims experience in the $3.0 million to $10.0 million policy during the three year program. The elevated retention limit and the premium adjustment feature could lead to increased volatility in our insurance and claims expense, depending on the frequency and magnitude of claims. We believe these insurance program features better meet the needs of our consolidated risk profile.

Current wording

Insurance and claims expense was $13.0 million during the three months ended June 30, 2024 compared to $10.4 million in 2023. The increase is due to unfavorable claim severity and frequency. In April 2023, we renewed our primary auto liability insurance with a three year program. Under the April 2023 renewal, our auto liability retention limit across all operating entities was increased to $3.0 million for any individual claim, subject to a $3.5 million corridor for any one accident or combination of accidents that exceed $3.0 million, based on the insured party, accident date, and circumstances of the loss event. In April 2024, an additional corridor was added, where we retain liability of $5.0 million for any one accident or combination of accidents that exceed $10.0 million. Liabilities in excess of the $3.0 million deductible, the $3.5 million corridor, and the $5.0 million corridor are covered by insurance up to $80.0 million. We retain any liability in excess of $80.0 million. Furthermore, under the April 2023 renewal, our premiums are subject to upward or downward adjustments based on claims experience in the $3.0 million to $10.0 million policy during the three year program. The elevated retention limit and the premium adjustment feature could lead to increased volatility in our insurance and claims expense, depending on the frequency and magnitude of claims. We believe these insurance program features better meet the needs of our consolidated risk profile.

Previous wording

Communications and utilities decreased $0.5 million (15.6%), to $2.4 million during the three months ended March 31, 2024 from $2.9 million in the same period of 2023. The decrease resulted from the consolidation of terminal locations in overlapping markets.

Current wording

Communications and utilities decreased $0.4 million (15.3%), to $2.3 million during the three months ended June 30, 2024 from $2.7 million in the same period of 2023. The decrease resulted from the consolidation of terminal locations in overlapping markets.

Previous wording

Depreciation and amortization decreased $2.0 million (4.1%), to $46.5 million during the three months ended March 31, 2024 from $48.5 million in the same period of 2023 as a result of ongoing fleet replacement strategies. We expect depreciation expense in 2024 to be approximately $180 million to $185 million.

Current wording

Depreciation and amortization decreased $2.2 million (4.5%), to $46.1 million during the three months ended June 30, 2024 from $48.3 million in the same period of 2023 as a result of ongoing fleet replacement strategies. We expect depreciation expense in 2024 to be approximately $170 million to $175 million.

Previous wording

Gains (loss) on the disposal of property and equipment decreased $6.9 million, to a loss on disposal of $0.1 million during the three months ended March 31, 2024 compared to $6.8 million gain on disposal in the same period of 2023. The decrease was primarily due to a significant decrease of equipment sales volume. We do not expect gains on disposition of equipment to be significant during the calendar year of 2024.

Current wording

Gains on the disposal of property and equipment decreased $6.9 million, to a gain on disposal of $1.1 million during the three months ended June 30, 2024 compared to an $8.0 million gain on disposal in the same period of 2023. The decrease is primarily due to a significant decrease of equipment sales volume. We do not expect gains on disposition of equipment to be significant during the calendar year of 2024.

Previous wording

Interest expense decreased $0.8 million, to $5.3 million during the three months ended March 31, 2024 from $6.1 million in the same period of 2023. The interest expense is made up of $5.0 million from the Credit Facilities coinciding with the acquisition of CFI while the remaining $0.3 million is the result of debt and financing leases assumed through the Smith Transport acquisition. We expect further reductions to interest expense as we pay down the debt.

Current wording

Interest expense decreased $1.5 million, to $4.6 million during the three months ended June 30, 2024 from $6.1 million in the same period of 2023. The decrease was mainly due to debt repayments and a corresponding decrease to average outstanding debt balances partially offset by higher average interest rates. The interest expense is made up of $4.3 million from the Credit Facilities coinciding with the acquisition of CFI while the remaining $0.2 million is the result of debt and financing leases assumed through the Smith Transport acquisition. We expect further reductions to interest expense as we pay down the debt.

Previous wording

Our effective tax rate was 21.8% and 27.1% for the three months ended March 31, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily the result of permanent differences during the quarter offsetting the loss in 2024 while increasing the tax rate calculated on income in 2023.

Current wording

Our effective tax rate was 13.5% and 27.4% for the three months ended June 30, 2024 and 2023, respectively. The decrease in the effective tax rate is the result of permanent differences offsetting the tax benefit generated during 2024 on a net loss for the quarter while increasing the tax rate calculated on income in 2023.

Previous wording

Our quarterly operating ratio was 105.3% and 105.6% non-GAAP adjusted operating ratio as compared to the prior year 93.1% and 91.4%. See the “GAAP to Non-GAAP Reconciliation Schedule” above for a reconciliation of our non-GAAP adjusted operating ratio. Our net loss was $15.1 million for the three months ended March 31, 2024 compared to net income of $12.6 million during the period ended March 31, 2023. The worsening operating ratio and net income are the result of a combination of an extended and significant period of weak freight demand, driven by excess capacity in the industry, unfavorable weather early in the quarter, and ongoing operating cost inflation. Further, we have implemented strategic changes which targeted unprofitable customers and lanes of freight that were not acceptable for the long term profitability of our organization. These decisions, while difficult, were made to set a course to ensure that we are prepared to capitalize on stronger freight demand with more efficient operations in the future. Consistent with past acquisitions, we continue to implement cost reduction and freight optimization strategies at Millis Transfer, Smith Transport, and CFI, focused on improving the consolidated operating ratio.

Current wording

Our operating ratio was 102.6% and 102.5% non-GAAP adjusted operating ratio as compared to the prior year 93.9% and 92.4%. See the “GAAP to Non-GAAP Reconciliation Schedule” above for a reconciliation of our non-GAAP adjusted operating ratio. Our net loss was $18.6 million for the six months ended June 30, 2024 compared to net income of $20.4 million during the period ended June 30, 2023. The worsening operating ratio and net income are the result of a combination of an extended and significant period of weak freight demand, driven by excess capacity in the industry, unfavorable weather early in the year, and ongoing operating cost inflation. Further, we have implemented strategic changes which targeted unprofitable customers and lanes of freight that were not acceptable for the long term profitability of our organization. These decisions, while difficult, were made to set a course to ensure that we are prepared to capitalize on stronger freight demand with more efficient operations in the future. Consistent with past acquisitions, we continue to implement cost reduction and freight optimization strategies at Millis Transfer, Smith Transport, and CFI, focused on improving the consolidated operating ratio.

Previous wording

Salaries, wages, and benefits decreased $10.6 million (8.6%), to $112.7 million for the three months ended March 31, 2024 from $123.3 million in the 2023 period. Salaries, wages, and benefits decreased primarily due to the reduction of driver payroll as a result of lower company miles, along with a reduction of office and shop employees. Offsetting this decrease was an increase in driver pay for non-productive time associated with weather shut downs, layovers, and other factors associated with a slower freight environment. As a result, salaries, wages, and benefits as a percentage of gross revenues was higher in 2024 compared to 2023. We have continued to get more creative in providing better pay, driving opportunities, benefits, equipment, and facilities for our drivers. We expect the qualified driver shortage within the trucking industry to continue to be a challenge in the foreseeable future. However, driver availability improved in 2023 and to date in 2024, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers.

Current wording

Salaries, wages, and benefits decreased $20.8 million (8.5%), to $222.8 million for the six months ended June 30, 2024 from $243.6 million in the 2023 period. Salaries, wages, and benefits decreased primarily due to the reduction of driver payroll as a result of lower company miles, along with a reduction of office and shop employees. Offsetting this decrease was an increase in driver pay for non-productive time associated with weather shut downs, layovers, and other factors associated with a slower freight environment. As a result, salaries, wages, and benefits as a percentage of gross revenues was higher in 2024 compared to 2023. We have continued to get more creative in providing better pay, driving opportunities, benefits, equipment, and facilities for our drivers. We expect the qualified driver shortage within the trucking industry to continue to be a challenge in the foreseeable future. However, driver availability improved in 2023 and to date in 2024, as a result of the changing freight and economic environments and we believe certain drivers have moved from smaller less financially stable carriers to more financially stable carriers.

Previous wording

Other operating expenses decreased $2.3 million, to $15.6 million during the three months ended March 31, 2024 from $17.9 million in the same period of 2023. The decrease resulted from a reduction of miles as a result of the soft freight environment.

Current wording

Operating taxes and licenses decreased $0.4 million (3.9%), to $10.6 million during the six months ended June 30, 2024 from $11.0 million in the same period of 2023. The decrease resulted from a reduction of operating units as a result of the soft freight environment.

Previous wording

The full amount of the Term Facility was made in a single draw on August 31, 2022 and amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed. The Term Facility amortizes in quarterly installments beginning in September 2023, at 5% per annum through June 2025 and 10% per annum from September 2025 through June 2027, with the balance due on the date that is five years from the CFI Closing Date. Based on debt repayments made through March 31, 2024, required minimum payments have been covered until the term loan maturity on August 31, 2027.

Current wording

The full amount of the Term Facility was made in a single draw on August 31, 2022 and amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed. The Term Facility amortizes in quarterly installments which began in September 2023, at 5% per annum through June 2025 and 10% per annum from September 2025 through June 2027, with the balance due on the date that is five years from the CFI Closing Date. Based on debt repayments made through June 30, 2024, required minimum payments have been covered until the term loan maturity on August 31, 2027.

Previous wording

The indebtedness, obligations, and liabilities under the Credit Facilities are unconditionally guaranteed, jointly and severally, on an unsecured basis by the Company, Borrower, and certain other subsidiaries of the Company. The Borrower may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case of SOFR rate loans.

Current wording

The indebtedness, obligations, and liabilities under the Credit Facilities are unconditionally guaranteed, jointly and severally, on an unsecured basis by the Company, Borrower, and certain other subsidiaries of the Company. The Borrower may voluntarily prepay outstanding loans under the Credit Facilities in whole or in part at any time without premium or penalty, subject to payment of customary breakage costs in the case of Secured Overnight Financing Rate (“SOFR”) rate loans.

Previous wording

We had $240.0 million outstanding on the Term Facility and nothing outstanding under the Revolving Facility at March 31, 2024. Outstanding letters of credit associated with the Revolving Facility at March 31, 2024 were $12.0 million. As of March 31, 2024, the Revolving Facility available for future borrowing was $88.0 million. As of March 31, 2024 the weighted average interest rate on outstanding borrowings under the Credit Facilities was 7.0%. Unamortized loan origination fees of $1.0 million at March 31, 2024 are included in long-term debt and finance lease liabilities.

Current wording

We had $215.0 million outstanding on the Term Facility and nothing outstanding under the Revolving Facility at June 30, 2024. Outstanding letters of credit associated with the Revolving Facility at June 30, 2024 were $11.7 million. As of June 30, 2024, the Revolving Facility available for future borrowing was $88.3 million. As of June 30, 2024 the weighted average interest rate on outstanding borrowings under the Credit Facilities was 7.0%. Unamortized loan origination fees of $0.7 million at June 30, 2024 are included in long-term debt and finance lease liabilities.

Previous wording

The May 31, 2022 acquisition of Smith Transport included the assumption of $46.8 million of debt and financing lease obligations associated with the fleet of revenue equipment of which $24.6 million was outstanding at March 31, 2024, (the "Smith Debt"). The Smith Debt has $7.3 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at March 31, 2024, due in monthly installments with final maturities at various dates ranging from February 2027 to January 2029, secured by related revenue equipment. The remaining Smith Debt of $17.3 million are finance lease obligations with a weighted average interest rate of 3.9% at March 31, 2024, due in monthly installments with final maturities at various dates ranging from October 2024 to April 2026 with the weighted average remaining lease term of 1.5 years.

Current wording

The May 31, 2022 acquisition of Smith Transport included the assumption of $46.8 million of debt and financing lease obligations associated with the fleet of revenue equipment of which $22.9 million was outstanding at June 30, 2024, (the "Smith Debt"). The Smith Debt has $6.8 million of outstanding principal and is made up of installment notes with a weighted average interest rate of 4.4% at June 30, 2024, due in monthly installments with final maturities at various dates ranging from February 2027 to January 2029, secured by related revenue equipment. The remaining Smith Debt of $16.1 million are finance lease obligations with a weighted average interest rate of 3.9% at June 30, 2024, due in monthly installments with final maturities at various dates ranging from October 2024 to April 2026 with the weighted average remaining lease term of 1.3 years.

Previous wording

At March 31, 2024, we had $23.8 million in cash and cash equivalents, $246.3 million in net outstanding debt, $17.3 million in finance lease liabilities, $14.1 million in operating lease obligations, and $88.0 million available borrowing capacity on the Revolving Facility.

Current wording

At June 30, 2024, we had $23.9 million in cash and cash equivalents, $221.1 million in net outstanding debt, $16.1 million in finance lease liabilities, $11.5 million in operating lease obligations, and $88.3 million available borrowing capacity on the Revolving Facility.

Previous wording

The total estimated purchase commitments for tractors (net of tractor sale commitments) and trailer equipment as of March 31, 2024 was $4.8 million. These commitments extend through the remainder of 2024. We anticipate continued disposition of older tractors and trailers in the Smith Transport and CFI fleets throughout 2024 and beyond. During the calendar year of 2024, we currently expect net capital expenditures, including terminal projects, of approximately $15 to $20 million and do not expect gains on disposition of equipment to be significant during the calendar year of 2024.

Current wording

The total estimated purchase commitments for tractors (net of tractor sale commitments) and trailer equipment as of June 30, 2024 was $4.5 million. These commitments extend through the remainder of 2024. We anticipate continued disposition of older tractors and trailers in the Smith Transport and CFI fleets throughout 2024 and beyond. During the calendar year of 2024, we currently expect net capital expenditures, including terminal projects, of approximately $15 to $20 million and do not expect gains on disposition of equipment to be significant during the calendar year of 2024.

Previous wording

Cash flow provided by operating activities during the three months ended March 31, 2024 was $31.0 million as compared to $66.4 million during the same period of 2023. This decrease was due to a $23.2 million reduction in net income net of non-working capital items and a decrease of $12.3 million less cash provided by working capital items. Cash flows provided by operating activities was 11.5% of operating revenues for the three months ended March 31, 2024 compared with 20.1% for the same period of 2023.

Current wording

Cash flow provided by operating activities during the six months ended June 30, 2024 was $71.0 million as compared to $97.3 million during the same period of 2023. This decrease was due to a $31.4 million reduction in net income net of non-working capital items and partially offset by an increase of $5.1 million more cash provided by working capital items. Cash flows provided by operating activities was 13.0% of operating revenues for the six months ended June 30, 2024 compared with 15.3% for the same period of 2023.

Previous wording

Cash provided by investing activities was $2.0 million during the three months ended March 31, 2024 compared to cash used in investing activities of $12.8 million during the comparative 2023 period. The increase in cash provided by investing activities is due to $15.2 million decrease in net property and equipment activity.

Current wording

Cash used in investing activities was $2.6 million during the six months ended June 30, 2024 compared to cash used in investing activities of $33.8 million during the comparative 2023 period. The decrease in cash used by investing activities is primarily due to the $31.5 million decrease in net property and equipment cash used.

Previous wording

Cash used in financing activities decreased $10.6 million during the three months ended March 31, 2024 compared to the same period of 2023 due mainly to a decrease of $10.7 million of repayments of finance leases and debt during the three months ended March 31, 2024.

Current wording

Cash used in financing activities increased $5.9 million during the six months ended June 30, 2024 compared to the same period of 2023 due mainly to $7.3 million more cash used for repurchases of common stock partially offset by a decrease of $1.4 million of repayments of finance leases and debt during the six months ended June 30, 2024. During the six months ended June 30, 2024 we repurchased 0.6 million shares compared to no shares repurchased during the same period of 2023.

Previous wording

We have a stock repurchase program with 6.6 million shares remaining authorized for repurchase under the program as of March 31, 2024 and the program has no expiration date. There were no shares repurchased in the open market during the three months ended March 31, 2024 and 2023. Shares repurchased are accounted for as treasury stock. We expect to evaluate the potential of share repurchases in addition to paying down the debt. The specific timing and amount of future repurchases will be determined by market conditions, cash flow requirements, securities law limitations, and other factors. We continue to remain flexible to ensure the best deployment of our capital given market conditions and the needs of the Company.

Current wording

We have a stock repurchase program with 6.0 million shares remaining authorized for repurchase under the program as of June 30, 2024 and the program has no expiration date. There were 0.6 million shares repurchased in the open market during the six months ended June 30, 2024 while no shares were repurchased during the six months ended June 30, 2023. Shares repurchased are accounted for as treasury stock. We expect to evaluate the potential of share repurchases in addition to paying down the debt. The specific timing and amount of future repurchases will be determined by market conditions, cash flow requirements, securities law limitations, and other factors. We continue to remain flexible to ensure the best deployment of our capital given market conditions and the needs of the Company.