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

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

Nevada		62-1378182
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)
4080 Jenkins Road
Chattanooga, Tennessee		37421
(Address of principal executive offices)		(Zip Code)

Yes [   ]

No [X]

Yes [X]

No [   ]

	Large accelerated filer [   ]		Accelerated filer [   ]
	Non-accelerated filer   [X]		Smaller reporting company [   ]
			Emerging growth company [   ]

Yes [   ]

No [X]

PART I FINANCIAL INFORMATION
		Page Number
Item 1.	Unaudited Condensed Consolidated Financial Statements Three and Nine Months Ended September 30, 2018 and 2017
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Unaudited Condensed Consolidated Statement of Stockholder’s Equity (Deficit)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
	PART II OTHER INFORMATION
		Page Number
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

		As Reported				Adjustments Due to ASC 606				Under ASC 605				As Reported								Under ASC 605
		for the Three								For the Three				for the Nine				Adjustments Due to ASC 606				For the Nine
		Months Ended								Months Ended				Months Ended								Months Ended
		September 30, 2018								September 30, 2018				September 30, 2018								September 30, 2018
Consolidated Statement of Comprehensive Income (Loss)
Operating revenues			460,227				(708	)			459,519				1,335,693				(859	)			1,334,834
Total operating expenses			437,335				(658	)			436,677				1,277,929				883				1,278,812
Operating income			22,892				(50	)			22,842				57,764				(1,742	)			56,022
Income (loss) before income tax benefit			18,137				(50	)			18,087				19,956				(1,742	)			18,214
Income tax provision (benefit)			1,679				(15	)			1,665				1,081				(505	)			576
Net income (loss)			16,458				(36	)			16,423				18,875				(1,237	)			17,638
Net income (loss) attributable to controlling interest			16,129				(36	)			16,094				17,903				(1,237	)			16,666
Basic earnings (loss) per share			0.33				(0.00	)			0.33				0.77				(0.05	)			0.72
Basic weighted average shares outstanding			48,296				48,296				48,296				23,118				23,118				23,118
Diluted earnings (loss) per share			0.33				(0.00	)			0.32				0.76				(0.05	)			0.71
Diluted weighted average shares outstanding			49,597				49,597				49,597				23,638				23,638				23,638

														Reported				Adjustments Due to ASC 606				Under ASC 605
														Balance at								Balance at
														September 30, 2018								September 30, 2018
Consolidated Balance Sheet
Customer receivables														$	216,814			$	(4,711	)		$	212,103
Other current assets															16,462				(2,036	)			14,426
Total current assets															299,992				(6,747	)			293,245
Total assets															882,607				(6,747	)			875,860
Accounts payable															80,019				(3,079	)			76,940
Other accrued liabilities															5,993				(349	)			5,644
Deferred income taxes															19,204				(622	)			18,582
Accumulated deficit															(24,331	)			(2,697	)			(27,028	)
Stockholders' equity (deficit)															227,072				(2,697	)			224,375
Total stockholders' equity (deficit)															230,333				(2,697	)			227,636
Total liabilities, redeemable restricted units and stockholders' equity (deficit)															882,607				(6,746	)			875,861
														As Reported								Under ASC 605
														for the Nine				Adjustments Due to ASC 606				For the Nine
														Months Ended								Months Ended
														September 30, 2018								September 30, 2018
Operating Cash Flows
Net income (loss)															18,875				(1,237	)			17,638
Receivables															(30,102	)			(859	)			(30,961	)
Other assets															(4,190	)			(1,571	)			(5,761	)
Accounts payable and other accrued liabilities															(11,531	)			688				(10,843	)
Deferred income tax provision															3,458				506				3,964

Recently Adopted Accounting Standards

In March 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The standard adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the SEC Staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Act was signed into law. The application of this guidance did not have a material impact on the condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable. The provisions of this update are effective for fiscal years beginning after December 15, 2017. The Company adopted ASU 2016-15 effective January 1, 2018. The application of this guidance did not have a material impact on the condensed consolidated financial statements.

In April 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09. The new standard introduces a five-step model to determine when and how revenue is recognized. The premise of the new model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. The Company adopted ASU 2014-09 effective January 1, 2018 by using the modified retrospective transition approach and recognizing the cumulative effect of the change in retained earnings. The primary impact of adopting ASC 606 is the earlier recognition of revenue for loads that are in route as of the balance sheet date. Prior to adopting ASC 606, the Company recognized revenue and direct costs when shipments were delivered. Under ASC 606, the Company is required to recognize revenue and related direct costs over time as the shipment is being delivered. ASC 606 also requires substantial new disclosures regarding the nature, amount, timing and uncertainty of recognized revenue, which are provided under the heading “Recognition of Revenue” above. The adoption of ASC 606 resulted in a cumulative positive adjustment to opening equity at December 31, 2017 of approximately $1.5 million.

3.	Income Taxes

The Company’s provision for income taxes for the nine months ended September 30, 2018 and 2017 is based on the estimated annual effective tax rate, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three and nine months ended September 30, 2018 and 2017 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Income (loss) before Income Taxes		$	18,137			$	(1,668	)		$	19,956			$	(20,667	)
Income tax provision (benefit)			1,679				(1,008	)			1,081				(7,203	)
Effective tax rate			9.3	%			60.4	%			5.4	%			34.9	%

The difference between the Company’s effective tax rate for the three and nine months ended September 30, 2018 and 2017 and the US statutory rates of 21% and 35%, respectively, primarily relates to nondeductible expenses, nontaxable insurance benefits, federal income tax credits, state income taxes (net of federal benefit), and the effect of taxes on foreign earnings and certain discrete items. At September 30, 2018, the Company’s estimated annual effective tax rate also includes the impact of the new Global Intangible Low-Taxed Income (“GILTI”) tax, which is effective in 2018 as a result of the Act enacted on December 22, 2017. See further discussion below on our accounting policy associated with GILTI.

The following table presents the material discrete tax items recorded for the three and nine months ended September 30, 2018 (in thousands):

 

 

The discrete tax items recorded for the three and nine months ended September 30, 2017 were immaterial. At September 30, 2018, our analysis is still incomplete for provisional amounts recorded for the Act at December 31, 2017, however, we have reflected a $0.7 million adjustment related to our updated estimate of the transition tax. The provisional amounts that continue to be evaluated include the estimation of the transition tax and state tax conformity issues of federal law changes. The reduction to unrecognized tax benefits and related interest is from our previously unrecognized tax benefit related to prior tax credits. The Company believes it to be reasonably possible that the amount of unrecognized tax benefits may change materially within the next 12 months, if this audit closes during that time period. The resolution of this uncertain tax position would impact the income tax provision (benefit) between $0 and $(2.4) million.

For the periods ended September 30, 2018 and December 31, 2017, the Company had a balance of unrecognized tax benefits of $2.7 million and $5.5 million respectively, which is a component of other long-term liabilities.

Interest and penalties related to uncertain tax positions are classified as income tax provision (benefit) in the unaudited condensed consolidated statement of comprehensive income. This amounted to $(0.5) million and $(0.4) million for the three and nine months ended September 30, 2018.

Global Intangible Low-Taxed Income:

The Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. At September 30, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have included GILTI related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.

 

4.	Long-Term Debt

Long-term debt at September 30, 2018 and December 31, 2017 consists of the following (in thousands):

New Credit Facility

In June 2018, we entered into a new credit facility (the “Credit Facility”) that contains a $150.0 million revolving component (the “Revolving Facility”) and a $200.0 million term loan component (the “Term Facility”). The Credit Facility contains an accordion feature that, so long as no event of default exists, allows us to request an increase in the borrowing amounts under the Revolving Facility or the Term Facility by a combined maximum amount of $75.0 million. Borrowings under the Credit Facility are classified as either “base rate loans” or “Eurodollar rate loans.” Base rate loans accrue interest at a base rate equal to the agent’s prime rate plus an applicable margin that was set at 1.25% through September 30, 2018 and adjusted quarterly thereafter between 0.75% and 1.50% based on our consolidated net leverage ratio. Eurodollar rate loans will accrue interest at London Interbank Offered Rate, or a comparable or successor rate approved by the administrative agent, plus an applicable margin that was set at 2.25% through September 30, 2018 and adjusted quarterly thereafter between 1.75% and 2.50% based on our consolidated net leverage ratio. The Credit Facility requires payment of a commitment fee on the unused portion of the Revolving Facility commitment of between 0.25% and 0.35% based on our consolidated net leverage ratio. In addition, the Revolving Facility includes, within its $150.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $75.0 million and a swingline sub facility in an aggregate amount of $15.0 million. The Term Facility has scheduled quarterly principal payments between 1.25% and 2.50% of the original face amount of the Term Facility plus any additional amount borrowed pursuant to the accordion feature of the Term Facility, with the first such payment occurring on the last day of our fiscal quarter ending September 30, 2018.  The Credit Facility will mature on June 18, 2023.

Borrowings under the Credit Facility are prepayable at any time without premium and are subject to mandatory prepayment from the net proceeds of certain asset sales and other borrowings. The Credit Facility is secured by a pledge of substantially all of our assets, excluding, among other things, certain real estate and revenue equipment financed outside the Credit Facility.

The Credit Facility contains restrictive covenants including, among other things, restrictions on our ability to incur additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on or redeem equity interests, to make investments, to transfer or sell properties or other assets and to engage in mergers, consolidations, or acquisitions. In addition, the Credit Facility requires us to meet specified financial ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio.

At September 30, 2018, the Revolving Facility had issued collateralized letters of credit in the face amount of $37.5 million, with $0 borrowings outstanding and $112.5 million available to borrow.

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. At September 30, 2018, the Company was in compliance with all financial covenants prescribed by the Credit Facility.

Old Term Loan Agreement

In June 2018, as a result of the offering, the Company repaid its then existing term loan and incurred a loss on early extinguishment of debt. The loss resulted from the write-off of unamortized discount and debt issuance costs of $0.6 million and $5.3 million, respectively, payment of fees to lenders of $1.4 million and third party fees of $0.1 million. The effective interest rate for the term loan at December 31, 2017 was 12.2%, including the effect of original issue discount as discussed below.

Original issue discount was recorded as an offset to long-term debt and was amortized over the term of the respective obligation using the effective interest method.  Unamortized original issue discount was $0.8 million as of December 31, 2017.

Old Line of Credit

In June 2018, as a result of the offering, the Company repaid and terminated its then existing revolving credit facility and incurred a loss on early extinguishment of debt. The loss resulted from the write-off of debt issuance costs of $0.2 million and payment of fees to lenders of $0.1 million.

5.

Leases

The Company leases certain revenue and service equipment and office and terminal facilities under long-term noncancelable operating lease agreements expiring at various dates through October 2027. Rental expense under noncancelable operating leases was approximately $19.4 million and $15.5 million for the three months ended September 30, 2018 and 2017, respectively, and $59.3 million and $55.7 million for the nine months ended September 30, 2018 and 2017, respectively. Revenue equipment lease terms for new equipment are generally three to five years for tractors and five to eight years for trailers.  The lease terms generally represent the estimated usage period of the equipment, which is generally substantially less than the economic lives. The Company leases certain of its revenue equipment under capital lease agreements.  The terms of the capital leases expire at various dates through April 2024. Certain revenue equipment leases provide for guarantees by the Company of a portion of the specified residual value at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $28.3 million at September 30, 2018.  The residual value of a portion of the related leased revenue equipment is covered by repurchase or trade agreements between the Company and the equipment manufacturer.

6.	Related-Party Transactions

The Company had a $25.5 million note payable to a limited liability company controlled by certain officers of the Company as of December 31, 2017. The Company repaid the note in the amount of $26.6 million which included paid in kind interest of $8.6 million as of the payoff date.

The Company leased a terminal facility from entities owned by the two principal stockholders of New Mountain Lake and their respective family trusts. The lease agreement was set to expire in 2020.  Rent expense of approximately $0.5 million and $0.8 million was recognized in connection with this lease during the nine months ended September 30, 2018 and 2017, respectively. In June 2018, the Company purchased the terminal facility with proceeds from the offering for $7.5 million.

7.	Commitments and Contingencies

The Company is party to certain legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the advice of legal counsel, is not expected to have a materially adverse effect on the Company’s financial position or results of operations.

For the cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (1) the proceedings are in various stages; (2) damages have not been sought; (3) damages are unsupported and/or exaggerated; (4) there is uncertainty as to the outcome of pending appeals; and/or (5) there are significant factual issues to be resolved.  For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

California Wage and Hour Class Action Litigation

In December 2015, a class action lawsuit was filed against us in the Superior Court of California, County of San Bernardino.  The case was transferred to the U.S. District Court for the Central District of California.  The putative class includes current and former truck drivers employed by us who worked or work in California after the completion of their training while residing in California since December 23, 2011 to present.  The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or break times, and were not paid premium pay in their absence, were not paid minimum wage for all hours worked, were not provided accurate and complete time and pay records and were not paid all accrued wages at the end of their employment, all in violation of California law.  The class seeks a judgment for compensatory damages and penalties, injunctive relief, attorney fees and costs and pre- and post-judgment interest. The matter is currently in discovery, and a jury trial is set for February 5, 2019.  We are currently unable to determine the possible loss or range of loss.  We intend to vigorously defend the merits of these claims.

Telephone Consumer Protection Act Claim

A class action was filed against us in the U.S. District Court for the Western District of Virginia in December 2017 and amended in March 2018, alleging violations of the Telephone Consumer Protection Act, for two separate proposed classes. The putative classes include all persons within the United States to whom the Company either initiated a telephone call to a cellular telephone number using an automatic telephone dialing system or initiated a call to a residential telephone number using an artificial or pre-recorded voice at any time from December 11, 2013 to present.  The lawsuit seeks statutory damages for each violation, injunctive relief and attorneys’ fees and costs.  The Company successfully moved to dismiss the claims related to calls made to residential lines on grounds that the plaintiff lacked standing to assert such claims. The Court denied the Company’s Motion to Dismiss claims for all purported class members residing outside the State of Virginia for lack of personal jurisdiction. The matter is currently in discovery and is set for trial beginning January 13, 2020.  We intend to vigorously defend the merits of these claims.

The Company had letters of credit of $37.5 million and $34.5 million outstanding as of September 30, 2018 and December 31, 2017, respectively. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company had cancelable commitments outstanding at September 30, 2018 to acquire revenue and other equipment for approximately $140.9 million during the remainder of 2018 and $39.4 million during 2019. These purchase commitments are expected to be financed by long-term debt, operating leases, proceeds from sales of existing equipment, and cash flows from operations.

8.	Share-based Compensation

Stock Appreciation Rights

 

In conjunction with the offering, the Company vested all remaining stock appreciation rights (“SARS”) and settled the resulting liabilities related thereto. As a result, the Company recorded additional compensation expense in the amount of $3.2 million in the second quarter of 2018.

The total intrinsic value of SARS outstanding was $0.5 million as of December 31, 2017.

Restricted Stock Units

As part of the Reorganization, all of the redeemable restricted units of New Mountain Lake were converted into restricted stock units of the Company, with the same vesting schedules. Therefore, we refer to redeemable restricted units issued prior to the Reorganization as restricted stock units. At the time of conversion, the restricted stock unit amounts were reclassified to additional paid in capital. The following is a summary of the Company’s restricted stock unit activity for the nine months ended September 30, 2018:

 

These restricted stock unit grants vest over periods ranging from three to seven years. The Company recognized compensation expense of $0.8 million and $0.4 million during the nine months ended September 30, 2018 and 2017, respectively. At September 30, 2018 and December 31, 2017, the Company had $2.3 million and $3.2 million in unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a period of approximately 5.0 and 5.4 years, respectively.

 

Incentive Plan

In June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the offering. The Company has reserved an aggregate of 3,200,000 shares of its Class A common stock for issuance of awards under the Incentive Plan. Participants in the Incentive Plan will be selected by the Compensation Committee from the executive officers, directors, employees and consultants of the Company. Awards under the Incentive Plan may be made in the form of stock options, stock appreciation rights, stock awards, restricted stock units, performance awards, performance units, and any other form established by the Compensation Committee pursuant to the Incentive Plan.

The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity from June 13, 2018 to September 30, 2018:

 

The restricted stock grants vest over periods of one to four years. The Company recognized compensation expense of $0.4 million during the nine months ended September 30, 2018. At September 30, 2018, the Company had $3.3 million in unrecognized compensation expense related to the above restricted stock awards which is expected to be recognized over a period of approximately 3.2 years.

The following is a summary of the Incentive Plan stock option activity from June 13, 2018 to September 30, 2018:

 

The stock options vest over a period of four years and expire ten years from the date of grant. The Company recognized compensation expense of $0.1 million during the nine months ended September 30, 2018. The fair value of the stock option grant was estimated using the Black-Scholes method as of the grant date using the following assumptions:

 

 

At September 30, 2018, the Company had $1.0 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a period of approximately 3.8 years.

 

9.	Fair Value Measurements

Accounting standards, among other things, define fair value, establish a framework for measuring fair value and expand disclosure about such fair value measurements. Assets and liabilities measured at fair value are based on one or more of three valuation techniques provided for in the standards.

The standards clarify that fair value is an exit price, representing the amount that would be received to sell an asset, based on the highest and best use of the asset, or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for evaluating such assumptions, the standards establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value as follows:

Level 1

Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.  An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2

Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

Level 3

Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

The following table summarizes liabilities measured at fair value at September 30, 2018 and December 31, 2017 (in thousands):

		2018
		Fair Value				Input Level
Liabilities
Forward Contract		$	1,993				3
			2017
		Fair Value				Input Level
Liabilities
Forward Contract		$	1,985				3

The following table summarizes the changes in the fair value of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018 and 2017 (in thousands):

 

The Company has a commitment to purchase the remaining 5% of Xpress Internacional no later than 2020, based on an earnings calculation. The obligation is considered a physically settled forward contract and the commitment liability is included in other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets. This liability is classified as Level 3 under the fair value hierarchy and is accreted through interest to equal the settlement amount at each reporting date.

 

10.	Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares of common stock outstanding during the period, without consideration for common stock equivalents. Prior to the offering, there were no common stock equivalents which could have had a dilutive effect on earnings (loss) per share. The Company excluded 398,260 equity awards for the three and nine months ended September 30, 2018 as inclusion would be anti-dilutive.

The basic and diluted earnings (loss) per share calculations for the three and nine months ended September 30, 2018 and 2017, respectively, are presented below (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Net income (loss)		$	16,458			$	(660	)		$	18,875			$	(13,464	)
Net income attributable to noncontrolling interest			329				15				972				95
Net income (loss) attributable to common stockholders		$	16,129			$	(675	)		$	17,903			$	(13,559	)
Basic weighted average of outstanding shares of common stock			48,296				6,385				23,118				6,385
Dilutive effect of equity awards			1,301				-				520				-
Diluted weighted average of outstanding shares of common stock			49,597				6,385				23,638				6,385
Basic earnings (loss) per share		$	0.33			$	(0.11	)		$	0.77			$	(2.12	)
Diluted earnings (loss) per share		$	0.33			$	(0.11	)		$	0.76			$	(2.12	)

 

 

11.	Segment Information

The Company’s business is organized into two reportable segments, Truckload and Brokerage. The Truckload segment offers asset-based truckload services, including OTR trucking and dedicated contract services. These services are aggregated because they have similar economic characteristics and meet the aggregation criteria described in the accounting guidance for segment reporting. The Company’s OTR service offering provides solo and expedited team services through one-way movements of freight over routes throughout the United States and cross-border into and out of Mexico. The Company’s dedicated contract service offering devotes the use of equipment to specific customers and provides services through long-term contracts. The Company’s dedicated contract service offering provides similar freight transportation services, but does so pursuant to agreements where it makes equipment, drivers and on-site personnel available to a specific customer to address needs for committed capacity and service levels.

The Company’s Brokerage segment is principally engaged in non-asset-based freight brokerage services, where it outsources the transportation of loads to third-party carriers. For this segment, the Company relies on brokerage employees to procure third-party carriers, as well as information systems to match loads and carriers.

The following table summarizes our segment information (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Revenues
Truckload		$	395,167			$	347,871			$	1,157,731			$	1,006,747
Brokerage			65,060				42,255				177,962				117,405
Total Operating Revenue		$	460,227			$	390,126			$	1,335,693			$	1,124,152
Operating Income
Truckload		$	19,857			$	10,496			$	50,950			$	15,493
Brokerage			3,035				1,038				6,814				658
Total Operating Income		$	22,892			$	11,534			$	57,764			$	16,151

 

A measure of assets is not applicable, as we do not prepare balance sheets by segment.

Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Information about the geographic areas in which the Company conducts business is summarized below as of and for the three and nine months ended September 30, 2018 and 2017 (in thousands):

 

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Revenues
United States		$	446,822			$	377,458			$	1,295,900			$	1,086,351
Foreign countries
Mexico			13,405				12,668				39,793				37,801
Total		$	460,227			$	390,126			$	1,335,693			$	1,124,152

 

		As of				As of
		September 30,				December 31,
		2018				2017
Long-lived Assets
United States		$	466,133			$	459,021
Foreign countries
Mexico			8,595				4,884
Total		$	474,728			$	463,905

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The unaudited condensed consolidated financial statements include the accounts of U.S. Xpress Enterprises, Inc., a Nevada corporation, and its consolidated subsidiaries. References in this report to “we,” “us,” “our,” the “Company,” and similar expressions refer to U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Overview

 

We are the fifth largest asset‑based truckload carrier in the United States by revenue, generating over $1.5 billion in total operating revenue in 2017. We provide services primarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. We offer customers a broad portfolio of services using our own truckload fleet and third‑party carriers through our non‑asset‑based truck brokerage network. As of September 30, 2018, our fleet consisted of approximately 6,900 tractors and approximately 16,000 trailers, including approximately 1,700 tractors provided by independent contractors. All of our tractors have been equipped with electronic logs since 2012, and our systems and network are engineered for compliance with the recent federal electronic log mandate. Our terminal network and information technology infrastructure are established and capable of handling significantly larger volumes without meaningful additional investment.

 

For much of our history, we focused primarily on scaling our fleet and expanding our service offerings to support sustainable, multi-faceted relationships with customers. More recently, we have focused on our core service offerings and refined our network to focus on shorter, more profitable lanes with more density, which we believe are more attractive to drivers. Over the last three years, we have recruited and developed new executive and operational management teams with significant industry experience and instilled a new culture of professional management. These changes, which are ongoing, helped us to maintain relatively stable profitability during the weak truckload market of 2016 and early 2017, and drive significant improvements to profitability during the strong truckload market beginning in the second half of 2017. This momentum was reflected in our third quarter of 2018, which produced a 200 basis point improvement in our operating ratio, compared to our third quarter of 2017, and a 230 basis point improvement in our Adjusted Operating Ratio for the same period. For the definition of Adjusted Operating Ratio and a reconciliation to the most directly comparable GAAP measure, see “Use of Non-GAAP Financial Information.” We expect to see year-over-year quarterly operating ratio improvement through 2019, absent changes in macroeconomic conditions.

 

Total revenue for the third quarter of 2018 increased by $70.1 million to $460.2 million as compared to the third quarter of 2017. The increase was primarily a result of an 11.2% increase in our average revenue per loaded mile (excluding fuel surcharge revenue), a 54.0% increase in brokerage revenue to $65.1 million, and a $12.6 million increase in fuel surcharge revenue. Excluding the impact of fuel surcharge revenue, third quarter revenue increased $57.5 million to $413.9 million, an increase of 16.1% as compared to the prior year quarter.

Operating income for the third quarter of 2018 was $22.9 million which compares favorably to the $11.5 million achieved in the third quarter of 2017. Our net income attributable to controlling interest of $16.1 million in the third quarter of 2018 represents our highest net income earned in a single quarter in the Company’s history.

We continue to see an erosion of professional driver availability. As a result, we are continuing to focus on our driver centric initiatives, such as increased miles and modern equipment, to both retain the professional drivers who have chosen to partner with us and attract new professional drivers to our team. Our tractor count decreased slightly during the third quarter of 2018 as compared to the second quarter of 2018, primarily due to a deceleration in the pace of hiring through the first half of the quarter, but has shown improvement in the fourth quarter to date, as our tractor count as of October 31, 2018 is higher than any point in the third quarter. We will continue to focus on implementing and executing our initiatives that we expect will continue to drive sustainable improved performance over time.

Reportable Segments

Our business is organized into two reportable segments, Truckload and Brokerage. Our Truckload segment offers truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our OTR service offering transports a full trailer of freight for a single customer from origin to destination, typically without intermediate stops or handling pursuant to short‑term contracts and spot moves that include irregular route moves without volume and capacity commitments. Tractors are operated with a solo driver or, when handling more time‑sensitive, higher‑margin freight, a team of two drivers. Our dedicated contract service offering provides similar freight transportation services, but with contractually assigned equipment, drivers and on‑site personnel to address customers’ needs for committed capacity and service levels pursuant to multi‑year contracts with guaranteed volumes and pricing. Our Brokerage segment is principally engaged in non‑asset‑based freight brokerage services, where loads are contracted third‑party carriers.

Truckload Segment

In our Truckload segment, we generate revenue by transporting freight for our customers in our OTR and dedicated contract service offerings. Our OTR service offering provides solo and expedited team services through one way movements of freight over routes throughout the United States and cross border into and out of Mexico. Our dedicated contract service offering devotes the use of equipment to specific customers and provides services through long term contracts. Our Truckload segment provides services that are geographically diversified but have similar economic and other relevant characteristics, as they all provide truckload carrier services of general commodities and durable goods to similar classes of customers.

We are typically paid a predetermined rate per load or per mile for our Truckload services. We enhance our revenue by charging for tractor and trailer detention, loading and unloading activities and other specialized services. Consistent with industry practice, our typical customer contracts (other than those contracts in which we have agreed to dedicate certain tractor and trailer capacity for use by specific customers) do not guarantee load levels or tractor availability. This gives us and our customers a certain degree of flexibility to negotiate rates up or down in response to changes in freight demand and trucking capacity. In our dedicated contract service offering, which comprised approximately 36.2% of our Truckload operating revenue, and approximately 36.8% of our Truckload revenue, before fuel surcharge, for 2017, we provide service under contracts with fixed terms, volumes and rates. Dedicated contracts are often used by our customers with high service and high priority freight, sometimes to replace private fleets previously operated by them.

Generally, in our Truckload segment, we receive fuel surcharges on the miles for which we are compensated by customers. Fuel surcharge revenue mitigates the effect of price increases over a negotiated base rate per gallon of fuel; however, these revenues may not fully protect us from all fuel price increases. Our fuel surcharges to customers may not fully recover all fuel increases due to engine idle time, out of route miles and non revenue generating miles that are not generally billable to the customer, as well as to the extent the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of revenue miles we generate. Although our surcharge programs vary by customer, we generally attempt to negotiate an additional penny per mile charge for every five cent increase in the U.S. Department of Energy’s (the “DOE”) national average diesel fuel index over an agreed baseline price. Our fuel surcharges are billed on a lagging basis, meaning we typically bill customers in the current week based on a 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. Based on the current status of our empty miles percentage and the fuel efficiency of our tractors, we believe that our fuel surcharge recovery is effective.

The main factors that affect our operating revenue in our Truckload segment are the average 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. Our primary measures of revenue generation for our Truckload segment are average revenue per loaded mile and average revenue per tractor per period, in each case excluding fuel surcharge revenue and revenue and miles from services in Mexico.

In our Truckload segment, our most significant operating expenses vary with miles traveled and include (i) fuel, (ii) driver related expenses, such as wages, benefits, training and recruitment and (iii) costs associated with independent contractors (which are primarily included in the “Purchased transportation” line item). 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, fleet age, efficiency and other factors. Our main fixed costs include vehicle rent and depreciation of long term assets, such as revenue equipment and service center facilities, the compensation of non driver personnel and other general and administrative expenses.

Our Truckload segment requires substantial capital expenditures for purchase of new revenue equipment. We use a combination of operating leases and secured financing to acquire tractors and trailers, which we refer to as revenue equipment. When we finance revenue equipment acquisitions with operating leases, we do not record an asset or liability on our consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our consolidated statement of comprehensive income (loss) in the line item “Vehicle rents.” When we finance revenue equipment acquisitions with secured financing, the asset and liability are recorded on our consolidated balance sheet, and we record expense under “Depreciation and amortization” and “Interest expense.” Typically, the aggregate monthly payments are similar under operating lease financing and secured financing. We use a mix of capital leases and operating leases with individual decisions being based on competitive bids, tax projections and contractual restrictions. We expect our vehicle rents, depreciation and amortization, interest expense and amount of on balance sheet versus off balance sheet financing will be impacted by changes in the percentage of our revenue equipment acquired through operating leases versus equipment owned or acquired through capital leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.

Approximately 24.6% of our total tractor fleet was operated by independent contractors at September 30, 2018. Independent contractors provide a tractor and a driver and are responsible for all of the costs of operating their equipment and drivers, including interest and depreciation, vehicle rents, driver compensation, fuel and other expenses, in exchange for a fixed payment per mile or percentage of revenue per invoice plus a fuel surcharge pass through. Payments to independent contractors are recorded in the “Purchased transportation” line item. When independent contractors increase as a percentage of our total tractor fleet, our “Purchased transportation” line item typically will increase, with offsetting reductions in employee driver wages and related expenses, net of fuel (assuming all other factors remain equal). The reverse is true when the percentage of our total fleet operated by company drivers increases.

Brokerage Segment

In our Brokerage segment, we retain the customer relationship, including billing and collection, and we outsource the transportation of the loads to third‑party carriers. For this segment, we rely on brokerage employees to procure third‑party carriers, as well as information systems to match loads and carriers.

Our Brokerage segment revenue is mainly affected by the rates we obtain from customers, the freight volumes we ship through our third‑party carriers and our ability to secure third‑party carriers to transport customer freight. We generally do not have contracted long‑term rates for the cost of third‑party carriers, and we cannot assure that our results of operations will not be adversely impacted in the future if our ability to obtain third‑party carriers changes or the rates of such providers increase.

The most significant expense of our Brokerage segment, which is primarily variable, is the cost of purchased transportation that we pay to third‑party carriers, and is included in the “Purchased transportation” line item. This expense generally varies depending upon truckload capacity, availability of third‑party carriers, rates charged to customers and current freight demand and customer shipping needs. Other operating expenses are generally fixed and primarily include the compensation and benefits of non‑driver personnel (which are recorded in the “Salaries, wages and benefits” line item) and depreciation and amortization expense.

The key performance indicator in our Brokerage segment is gross margin percentage (which is calculated as brokerage revenue less purchased transportation expense expressed as a percentage of total operating revenue). Gross margin percentage can be impacted by the rates charged to customers and the costs of securing third‑party carriers.

Our Brokerage segment does not require significant capital expenditures and is not asset intensive like our Truckload segment.

Use of Non‑GAAP Financial Information

In addition to our net income and operating ratio determined in accordance with GAAP, we evaluate operating performance using certain non-GAAP measures, including Adjusted Operating Ratio We define Adjusted Operating Ratio as operating expenses, net of fuel surcharge revenue, IPO related costs and gain or loss on fuel purchase arrangements, expressed as a percentage of revenue before 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 (including with respect to our fuel purchase arrangements in prior years). We 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.

The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating Adjusted Operating Ratio. The non-GAAP measures used herein have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for these limitations by relying primarily on GAAP results and using non-GAAP financial measures on a supplemental basis.

The table below compares our GAAP operating ratio to our non‑GAAP Adjusted Operating Ratio.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Consolidated GAAP Presentation		(Dollars in thousands)
Total operating revenue		$	460,227			$	390,126			$	1,335,693			$	1,124,152
Total operating expenses			437,335				378,592				1,277,929				1,108,001
Operating Income		$	22,892			$	11,534			$	57,764			$	16,151
Operating ratio			95.0	%			97.0	%			95.7	%			98.6	%
Truckload GAAP Presentation
Total Truckload operating revenue		$	395,167			$	347,871			$	1,157,731			$	1,006,747
Total Truckload operating expenses			375,310				337,375				1,106,781				991,254
Truckload Operating Income		$	19,857			$	10,496			$	50,950			$	15,493
Truckload operating ratio			95.0	%			97.0	%			95.6	%			98.5	%
Consolidated Non-GAAP Presentation
Total operating revenue		$	460,227			$	390,126			$	1,335,693			$	1,124,152
Fuel Surcharge			(46,340	)			(33,747	)			(136,140	)			(97,468	)
Revenue, before fuel surcharge			413,887				356,379				1,199,553				1,026,684
Total operating expenses			437,335				378,592				1,277,929				1,108,001
Adjusted for:
Fuel Surcharge			(46,340	)			(33,747	)			(136,140	)			(97,468	)
IPO related costs			–				–				(6,437	)			–
Fuel purchase arrangements			–				–				–				(2,361	)
Adjusted total operating expenses			390,995				344,845				1,135,352				1,008,172
Adjusted Operating Income		$	22,892			$	11,534			$	64,201			$	18,512
Adjusted Operating Ratio			94.5	%			96.8	%			94.6	%			98.2	%
Truckload Non-GAAP Presentation
Total Truckload operating revenue		$	395,167			$	347,871			$	1,157,731			$	1,006,747
Fuel Surcharge			(46,340	)			(33,747	)			(136,140	)			(97,468	)
Truckload revenue, before fuel surcharge			348,827				314,124				1,021,591				909,279
Total operating expenses			375,310				337,375				1,106,781				991,254
Adjusted for:
Fuel Surcharge			(46,340	)			(33,747	)			(136,140	)			(97,468	)
IPO related costs			–				–				(6,437	)			–
Fuel purchase arrangements			–				–				–				(2,361	)
Adjusted total Truckload operating expenses			328,970				303,628				964,204				891,425
Adjusted Truckload Operating Income		$	19,857			$	10,496			$	57,387			$	17,854
Truckload Adjusted Operating Ratio			94.3	%			96.7	%			94.4	%			98.0	%

Results of Operations

Revenue

We generate revenue from two primary sources: transporting freight for our customers (including related fuel surcharge revenue) and arranging for the transportation of customer freight by third‑party carriers. We have two reportable segments: our Truckload segment and our Brokerage segment. Truckload revenue, before fuel surcharge and truckload fuel surcharge are primarily generated through trucking services provided by our two Truckload service offerings (OTR and dedicated contract). Brokerage revenue is primarily generated through brokering freight to third‑party carriers.

Our total operating revenue is affected by certain factors that relate to, among other things, the general level of economic activity in the United States, customer inventory levels, specific customer demand, the level of capacity in the truckload and brokerage industry, the success of our marketing and sales efforts and the availability of drivers, independent contractors and third‑party carriers.