US XPRESS ENTERPRISES INC - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


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

For the transition period from to

Commission File Number: 001-38528

U.S. Xpress Enterprises, Inc.

(Exact name of registrant as specified in its charter)


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)

(423) 510-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value	USX	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes ☒	No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes ☒	No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes ☐	No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date October 28, 2022.

Class A Common Stock, $0.01 par value: 35,698,009

Class B Common Stock, $0.01 par value: 15,777,083

Table of Contents

TABLE OF CONTENTS


	PART I FINANCIAL INFORMATION
		Page Number

Item 1.	Unaudited Condensed Consolidated Financial Statements Three and Nine Months Ended September 30, 2022 and 2021

	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 Stockholders’ Equity	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

Item 4.	Controls and Procedures	34


	PART II OTHER INFORMATION
		Page Number

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

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U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Balance Sheets

September 30, 2022 and December 31, 2021


	September 30,		December 31,
(in thousands, except share amounts)	2022		2021
Assets
Current assets
Cash and cash equivalents	$	1,371	$	5,695
Customer receivables, net of allowance of $1,019 and $11 at September 30, 2022 and December 31, 2021, respectively		241,130		231,687
Other receivables		20,756		18,046
Prepaid insurance and licenses		21,808		13,867
Operating supplies		10,277		9,550
Assets held for sale		20,466		11,831
Other current assets		26,047		32,020
Total current assets		341,855		322,696
Property and equipment, at cost		961,179		890,933
Less accumulated depreciation and amortization		(390,645)		(370,112)
Net property and equipment		570,534		520,821
Other assets
Operating lease right of use assets		317,530		292,347
Goodwill		59,221		59,221
Intangible assets, net		23,870		24,129
Other		49,590		50,829
Total other assets		450,211		426,526
Total assets	$	1,362,600	$	1,270,043
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	132,328	$	126,910
Book overdraft		3,936		7,096
Accrued wages and benefits		41,912		45,011
Claims and insurance accruals, current		55,335		44,309
Other accrued liabilities		6,192		5,962
Current portion of operating lease liabilities		101,213		88,375
Current maturities of long-term debt and finance leases		115,941		85,117
Total current liabilities		456,857		402,780
Long-term debt and finance leases, net of current maturities		346,496		290,392
Less unamortized discount and debt issuance costs		(322)		(357)
Net long-term debt and finance leases		346,174		290,035
Deferred income taxes		13,631		24,301
Other long-term liabilities		21,634		14,457
Claims and insurance accruals, long-term		51,386		54,819
Noncurrent operating lease liabilities		218,070		205,362
Commitments and contingencies (Note 7)		—		—
Stockholders' equity
Common stock Class A, $.01 par value, 140,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively, 35,698,009 and 34,831,118 issued and outstanding at September 30, 2022 and December 31, 2021, respectively		357		348
Common stock Class B, $.01 par value, 35,000,000 authorized at September 30, 2022 and December 31, 2021, respectively, 15,777,083 and 15,657,089 issued and outstanding at September 30, 2022 and December 31, 2021, respectively		158		157
Additional paid-in capital		272,508		267,621
Retained earnings (deficit)		(20,806)		8,440
Stockholders' equity		252,217		276,566
Noncontrolling interest		2,631		1,723
Total stockholders' equity		254,848		278,289
Total liabilities and stockholders' equity	$	1,362,600	$	1,270,043

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2022 and 2021


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Operating revenue
Revenue, before fuel surcharge	$	477,428	$	451,824	$	1,420,940	$	1,306,998
Fuel surcharge		70,400		39,316		197,779		109,923
Total operating revenue		547,828		491,140		1,618,719		1,416,921
Operating expenses
Salaries, wages, and benefits		188,430		158,942		538,876		445,445
Fuel and fuel taxes		86,406		46,715		240,702		130,902
Vehicle rents		26,237		22,700		74,867		65,710
Depreciation and amortization, net of (gain) loss on sale of property		23,187		19,509		56,833		65,096
Purchased transportation		123,535		159,152		414,304		458,302
Operating expenses and supplies		51,339		38,683		143,832		105,641
Insurance premiums and claims		43,912		18,242		87,452		58,952
Operating taxes and licenses		4,112		3,677		11,780		10,193
Communications and utilities		3,707		2,677		11,115		8,029
General and other operating expenses		19,703		14,208		55,440		45,112
Total operating expenses		570,568		484,505		1,635,201		1,393,382
Operating income (loss)		(22,740)		6,635		(16,482)		23,539
Other expense
Interest expense, net		4,588		3,572		12,981		10,816
Other expense (income)		(131)		12,062		8,731		(8,129)
		4,457		15,634		21,712		2,687
Income (loss) before income tax provision		(27,197)		(8,999)		(38,194)		20,852
Income tax provision (benefit)		(7,786)		(3,361)		(9,856)		4,732
Net total and comprehensive income (loss)		(19,411)		(5,638)		(28,338)		16,120
Net total and comprehensive income (loss) attributable to noncontrolling interest		379		(160)		908		(36)
Net total and comprehensive income (loss) attributable to controlling interest	$	(19,790)	$	(5,478)	$	(29,246)	$	16,156
Earnings (loss) per share
Basic earnings (loss) per share	$	(0.38)	$	(0.11)	$	(0.57)	$	0.32
Basic weighted average shares outstanding		51,562		50,563		51,213		50,293
Diluted earnings (loss) per share	$	(0.38)	$	(0.11)	$	(0.57)	$	0.31
Diluted weighted average shares outstanding		51,562		50,563		51,213		51,839

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 and 2021


	Nine Months Ended
	September 30,
(in thousands)	2022		2021
Operating activities
Net income (loss)	$	(28,338)	$	16,120
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income tax provision (benefit)		(10,670)		3,764
Depreciation and amortization		60,174		62,049
(Gains) losses on sale of equipment		(3,341)		3,047
Share based compensation		3,998		5,294
Other		203		546
Unrealized loss (gain) on equity investment		9,989		(8,129)
Changes in operating assets and liabilities:
Receivables		(14,154)		(38,064)
Prepaid insurance and licenses		(7,838)		(7,486)
Operating supplies		(648)		(3,420)
Other assets		(3,677)		(8,284)
Accounts payable and other accrued liabilities		22,811		36,762
Accrued wages and benefits		(3,099)		8,105
Net cash provided by operating activities		25,410		70,304
Investing activities
Payments for purchases of property and equipment		(147,643)		(141,068)
Proceeds from sales of property and equipment		33,877		70,016
Net cash used in investing activities		(113,766)		(71,052)
Financing activities
Borrowings under lines of credit		382,307		235,612
Payments under lines of credit		(314,241)		(210,612)
Borrowings under long-term debt		85,674		83,959
Payments of long-term debt and finance leases		(67,930)		(110,759)
Payments of financing costs		—		(100)
Tax withholding related to net share settlement of restricted stock awards		(431)		(1,211)
Proceeds from issuance of common stock under ESPP		1,330		1,285
Proceeds from long-term consideration for sale of subsidiary		483		460
Book overdraft		(3,160)		2,604
Net cash provided by financing activities		84,032		1,238
Net change in cash and cash equivalents		(4,324)		490
Cash and cash equivalents
Beginning of year		5,695		5,505
End of period	$	1,371	$	5,995
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	12,344	$	10,281
Cash paid during the year for income taxes		1,214		1,213
Supplemental disclosure of significant noncash investing and financing activities
Uncollected proceeds from asset sales	$	333	$	—
Property and equipment amounts accrued in accounts payable		1,541		3,887
Finance lease additions		1,118		5,572

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statement of Stockholders' Equity

Three and Nine months ended September 30, 2022 and 2021


					Additional				Non		Total
	Class A		Class B		Paid		Retained		Controlling		Stockholders'
(in thousands, except share amounts)	Stock		Stock		In Capital		Earnings (Deficit)		Interest		Equity
Balances at December 31, 2021	$	348	$	157	$	267,621	$	8,440	$	1,723	$	278,289
Share based compensation		—		—		1,456		—		—		1,456
Vesting of restricted stock		4		1		(413)		—		—		(408)
Issuance of common stock under ESPP		1		—		724		—		—		725
Net loss		—		—		—		(8,902)		(71)		(8,973)
Balances at March 31, 2022		353		158		269,388		(462)		1,652		271,089
Share based compensation		—		—		1,509		—		—		1,509
Vesting of restricted stock		1		—		(24)		—		—		(23)
Net income (loss)		—		—		—		(554)		600		46
Balances at June 30, 2022		354		158		270,873		(1,016)		2,252		272,621
Share based compensation		—		—		1,033		—		—		1,033
Vesting of restricted stock		—		—		—		—		—		—
Issuance of common stock under ESPP		3		—		602		—		—		605
Net income (loss)		—		—		—		(19,790)		379		(19,411)
Balances at September 30, 2022	$	357	$	158	$	272,508	$	(20,806)	$	2,631	$	254,848


					Additional				Non		Total
	Class A		Class B		Paid		Retained		Controlling		Stockholders'
(in thousands, except share amounts)	Stock		Stock		In Capital		Earnings (Deficit)		Interest		Equity
Balances at December 31, 2020	$	340	$	157	$	261,338	$	(2,430)	$	1,452	$	260,857
Share based compensation		—		—		2,134		—		—		2,134
Vesting of restricted stock		3		1		(919)		—		—		(915)
Issuance of common stock under ESPP		1		—		537		—		—		538
Conversion of Class B stock to Class A stock		1		(1)		—		—		—		—
Net income		—		—		—		2,538		123		2,661
Balances at March 31, 2021		345		157		263,090		108		1,575		265,275
Share based compensation		—		—		1,657		—		—		1,657
Vesting of restricted stock		1		—		(297)		—		—		(296)
Conversion of Class B stock to Class A stock		1		(1)		—		—		—		—
Net income		—		—		—		19,096		1		19,097
Balances at June 30, 2021		347		156		264,450		19,204		1,576		285,733
Share based compensation		—		—		1,503		—		—		1,503
Vesting of restricted stock		—		—		—		—		—		—
Issuance of common stock under ESPP		2		—		745		—		—		747
Net loss		—		—		—		(5,478)		(160)		(5,638)
Balances at September 30, 2021	$	349	$	156	$	266,698	$	13,726	$	1,416	$	282,345

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2022

1. Organization and Operations

U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries (collectively, the “Company”, “we”, “us”, “our”, and similar expressions) provide transportation services throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. The Company offers its customers a broad portfolio of services using its own asset-based truckload fleet and third-party carriers through our non-asset-based freight brokerage network. The Company has two reportable segments, Truckload and Brokerage. Our Truckload segment offers asset-based truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our Brokerage segment is principally engaged in non-asset-based freight brokerage services, where loads are contracted to third-party carriers.

Under our Articles of Incorporation, our authorized capital stock consists of 140,000,000 shares of Class A common stock, par value $0.01 per share, 35,000,000 shares of Class B common stock, par value $0.01 per share, and 9,333,333 shares of preferred stock, the rights and preferences of which may be designated by the Board of Directors.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair statement of the results of the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2021 balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021.

Impairment of Long Lived Assets

The Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Expected future cash flows are used to analyze whether an impairment has occurred. If the sum of the expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate. During the three and nine months

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ended September 30, 2022, we incurred a non-cash adjustment of $1.1 million and $3.3 million, respectively, due to an obsolete technology write off which was recognized in amortization expense.

3. Income Taxes

The Company’s provision for income taxes for the three and nine months ended September 30, 2022 and 2021 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, 2022 and 2021 (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Income (loss) before income tax provision (benefit)	$	(27,197)		$	(8,999)		$	(38,194)		$	20,852
Income tax provision (benefit)		(7,786)			(3,361)			(9,856)			4,732
Effective tax rate		28.6	%		37.3	%		25.8	%		22.7	%

The difference between the Company’s effective tax rate for the three and nine months ended September 30, 2022 and 2021 and the US statutory rate of 21% primarily relates to nondeductible expenses, federal income tax credits, state income taxes (net of federal benefit), adjustments to valuation allowances, and certain discrete items.

4. Investments

At March 31, 2021, we held a $5.0 million investment consisting of 353,604 shares in TuSimple, a self-driving technology company. Effective April 15, 2021, TuSimple completed their initial public offering at a closing price of $40.00 per share. As we have a readily determinable fair value based on quoted market prices, which makes this a Level 1 fair value measurement, we adjust the investment to fair value at each reporting period. We recognized an unrealized loss (gain) of $(0.1) million and $12.1 million during the three months ended September 30, 2022 and 2021, respectively, and $10.0 million and ($8.1) million during the nine months ended September 30, 2022, and 2021, respectively, in other expense (income) within the unaudited condensed consolidated statements of comprehensive income (loss). The fair value of the investment is $2.7 million and is included in other noncurrent assets on the accompanying unaudited consolidated balance sheets.

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5. Long-Term Debt

Long-term debt at September 30, 2022 and December 31, 2021 consists of the following (in thousands):


	September 30, 2022		December 31, 2021
Line of credit, maturing January 2025	$	91,966	$	23,900
Revenue equipment installment notes with finance companies, weighted average interest rate of 3.9% and 3.7% at September 30, 2022 and December 31, 2021, due in monthly installments with final maturities at various dates through March 2027, secured by related revenue equipment with a net book value of $354.6 million and $316.9 million at September 30, 2022 and December 31, 2021		338,923		310,420
Mortgage note payables, interest rates ranging from 4.17% to 6.99% at September 30, 2022 and December 31, 2021 due in monthly installments with final maturities at various dates through September 2031, secured by real estate with a net book value of $32.4 million and $33.0 million at September 30, 2022 and December 31, 2021		23,487		24,587
Other		—		8,444
		454,376		367,351
Less: Debt issuance costs		(322)		(357)
Less: Current maturities of long-term debt		(113,952)		(83,584)
	$	340,102	$	283,410

Credit Facility

On January 28, 2020, we entered into a new credit facility (the “Credit Facility”) and contemporaneously with the funding of the Credit Facility paid off obligations under our then existing credit facility and terminated such facility. The Credit Facility is a $250.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $75.0 million.

The Credit Facility is a five-year facility scheduled to terminate on January 28, 2025. 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 highest of (A) the Federal Funds Rate plus 0.50%, (B) the Agent’s prime rate, and (C) LIBOR plus 1.00% plus an applicable margin that was set at 0.50% through June 30, 2020 and adjusted quarterly thereafter between 0.25% and 0.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility. Eurodollar rate loans accrue interest at LIBOR plus an applicable margin that was set at 1.50% through June 30, 2020 and adjusted quarterly thereafter between 1.25% and 1.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility. The Credit Facility includes, within its $250.0 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 $25.0 million. An unused line fee of 0.25% is applied to the average daily amount by which the lenders’ aggregate revolving commitments exceed the outstanding principal amount of revolver loans and aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The Credit Facility is secured by a pledge of substantially all of the Company’s assets, excluding, among other things, any real estate or revenue equipment financed outside the Credit Facility.

Borrowings under the new Credit Facility are subject to a borrowing base limited to the lesser of (A) $250.0 million; or (B) the sum of (i) 87.5% of eligible billed accounts receivable, plus (ii) 85.0% of eligible unbilled accounts receivable (less than 30 days), plus (iii) 85.0% of the net orderly liquidation value percentage applied to the net book value of eligible revenue equipment, plus (iv) the lesser of (a) 80.0% the fair market value of eligible real estate or (b) $25.0 million. The Credit Facility contains a single springing financial covenant, which requires a consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant is tested only in the event excess availability under the Credit Facility is less than the greater of (A) 10.0% of the lesser of the borrowing base

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or revolving credit facility or (B) $20.0 million. Based on excess availability as of September 30, 2022, there was no fixed charge coverage ratio requirement.

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. The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate transactions, and other indebtedness.

6. Leases

We have operating and finance leases with terms of 1 year to 16 years for certain revenue and service equipment and office and terminal facilities.

The table below presents the lease-related assets and liabilities recorded on the balance sheet (in thousands):


Leases	Classification	September 30, 2022
Assets
Operating	Operating lease right-of-use assets	$	317,530
Finance	Property and equipment, net		7,343
Total leased assets		$	324,873

Liabilities
Current
Operating	Current portion of operating lease liabilities	$	101,213
Finance	Current maturities of long-term debt and finance leases		1,989
Noncurrent
Operating	Noncurrent operating lease liabilities		218,070
Finance	Long-term debt and finance leases, net of current maturities		6,072
Total lease liabilities		$	327,344

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The table below presents certain information related to the lease costs for finance and operating leases (in thousands):


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Lease Cost	Classification	2022		2021		2022		2021
Operating lease cost	Vehicle rents and General and other operating	$	27,437	$	23,255	$	79,707	$	69,518
Finance lease cost:
Amortization of finance lease assets	Depreciation and amortization		430		355		1,101		1,326
Interest on lease liabilities	Interest expense		109		117		336		388
Short-term lease cost	Vehicle rents and General and other operating		553		1,399		1,336		3,962
Total lease cost		$	28,529	$	25,126	$	82,480	$	75,194


	Nine Months Ended
	September 30,
Cash Flow Information	2022		2021
Cash paid for operating leases included in operating activities	$	79,707	$	69,518
Cash paid for finance leases included in operating activities	$	335	$	388
Cash paid for finance leases included in financing activities	$	554	$	1,538

Operating lease right-of-use assets obtained in exchange for lease obligations	$	108,855	$	48,959

Noncash lease expense was $80.2 million and $70.6 million during the nine months ended September 30, 2022 and 2021, respectively.


	September 30, 2022
	Weighted‑Average	Weighted-
	Remaining Lease	Average
Lease Term and Discount Rate	Term (years)	Discount Rate
Operating leases	4.6	4.2	%
Finance leases	7.3	5.4	%

	September 30, 2021
	Weighted‑Average	Weighted-
	Remaining Lease	Average
Lease Term and Discount Rate	Term (years)	Discount Rate
Operating leases	4.8	3.9	%
Finance leases	8.1	4.7	%

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As of September 30, 2022, future maturities of lease liabilities were as follows (in thousands):


	September 30, 2022
	Finance		Operating
2022	$	2,315	$	28,787
2023		1,606		106,139
2024		881		76,167
2025		580		56,214
2026		596		34,596
Thereafter		3,595		53,923
		9,573		355,826
Less: Amount representing interest		(1,512)		(36,543)
Total	$	8,061	$	319,283

We lease tractors to independent contractors under operating leases and recognized lease income under these leases of $4.6 million and $5.7 million for the three months ended September 30, 2022 and 2021, respectively and $13.9 million and $20.4 million for the nine months ended September 30, 2022 and 2021, respectively.

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 the proceedings, including 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

On December 23, 2015, a former driver filed a class action lawsuit against the Company and its subsidiary U.S. Xpress, Inc. in the Superior Court of California, County of San Bernardino. The Company removed the case from state court to the U.S. District Court for the Central District of California. The district court denied plaintiff’s initial motion for class certification of a class comprised of any employee driver who has driven in California at any time since December 23, 2011, without prejudice, under Rule 23 due to lack of commonality amongst the putative class members. The Court granted the plaintiff’s revised Motion for Class Certification, and the certified class consists of all employee drivers who resided in California and who have driven in the State of California on behalf of U.S. Xpress, Inc. at any time since December 23, 2011. The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or rest breaks, and were not paid premium pay in their absence, were not paid the California minimum wage for all hours worked in that state, were not provided accurate and complete itemized wage statements 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, penalties, injunctive relief, attorney fees, costs and pre- and post-judgment interest. On May 2, 2019, the district court dismissed the claims alleging failure to provide duty free meal and rest breaks or premium pay for failure to provide such breaks under California law on grounds of preemption. The Ninth Circuit Court of Appeals upheld the administrative ruling that formed the basis for the district court’s ruling. The parties filed cross-motions for summary judgment on the remaining claims, and the Company filed a motion to decertify the class. The court issued its ruling on the pending cross-motions: (1) the court denied the Company’s motion to decertify the class; (2) the court granted the Company’s motion for summary judgment on the plaintiff’s minimum wage claim for non-driving duties such as pre-trip and post-trip

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inspection, fueling, receiving dispatches, waiting to load or unload, and handling paperwork for the loads for January 1, 2013 forward (leaving the minimum wage claim only for the approximate one-year time period from December 23, 2011 to December 31, 2012); (3) the court granted the plaintiff’s motion for summary judgment for the time spent taking U.S. Department of Transportation-required 10-hour breaks while hauling high value loads in California for solo drivers and for the designated team driver responsible for the load during those breaks; and (4) the court denied the balance of cross-motions. The plaintiff filed a petition for permission to file an interlocutory appeal of the court’s decision on the minimum wage claim, which the district court and the Ninth Circuit both granted. On June 22, 2021, the Ninth Circuit issued its memorandum decision upholding the district court’s ruling in favor of the Company on the plaintiff’s claim for payment of the minimum wage for certain non-driving work they claim was left uncompensated by the Company’s piece rate pay plan after January 1, 2013. The district court held a status conference on June 15, 2021 and set a trial date for March 1, 2022, but subsequtnely removed from the calendar. Discovery has been completed. The trial is currently set to begin on December 6, 2022. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. The Company intends to vigorously defend the merits of these claims.

Stockholder Claims

As set forth below, between November 2018 and April 2019, eight substantially similar putative securities class action complaints were filed against the Company and certain other defendants: five in the Circuit Court of Hamilton County, Tennessee (“Tennessee State Court Cases”), two in the U.S. District Court for the Eastern District of Tennessee (“Federal Court Cases”), and one in the Supreme Court of the State of New York (“New York State Court Case”). We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any for these matters. We believe the allegations made in the complaints are without merit and intend to defend ourselves vigorously in these matters.

As to the Tennessee State Court Cases, two of five complaints were voluntarily dismissed and the remaining three were consolidated with a Consolidated Amended Class Action Complaint (the “Consolidated State Court Complaint”) filed on May 10, 2019 in the Circuit Court of Hamilton County, Tennessee against the Company, five of our current and former officers or directors, and the seven underwriters who participated in our June 2018 initial public offering (“IPO”), alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”). The putative class action lawsuit is based on allegations that the Company made false and/or misleading statements in the registration statement and prospectus filed with the Securities and Exchange Commission (“SEC”) in connection with the IPO. The lawsuit is purportedly brought on behalf of a putative class of all persons or entities who purchased or otherwise acquired the Company’s Class A common stock pursuant and/or traceable to the IPO, and seeks, among other things, compensatory damages, costs and expenses (including attorneys’ fees) on behalf of the putative class.

On June 28, 2019, the defendants filed a Motion to Dismiss the Tennessee State Court Cases for failure to allege facts sufficient to support a violation of Section 11, 12 or 15 of the Securities Act. On November 13, 2020, the court presiding over the Tennessee State Court Cases entered an order, granting in part and denying in part the defendants’ Motions to Dismiss the Consolidated State Court Complaint. The court held that the plaintiffs failed to state a claim for violation of the Securities Act with respect to the majority of statements challenged as false or misleading in the Consolidated State Court Complaint. The court, however, held that the Consolidated State Court Complaint sufficiently alleged violations of the Securities Act with respect to one statement from the June 2018 IPO registration statement and prospectus that the plaintiffs alleged to be false or misleading, both on theories of alleged misrepresentations and material omissions. Accordingly, the court allowed this action to proceed beyond the pleading stage, but only with respect to the statement deemed sufficient to support a Securities Act claim when assuming the truth of the plaintiffs’ allegations. On April 29, 2021, plaintiffs filed a Motion for Class Certification, which is currently pending. The Tennessee State Court Cases are currently in discovery.

As to the Federal Court Cases, the operative amended complaint was filed on October 8, 2019 (“Amended Federal Complaint”), which named the same defendants as the Tennessee State Court Cases. The Amended Federal Complaint is made on behalf of a putative class. In addition to claims for alleged violations of Section 11 and 15 of the Securities Act, the Amended Federal Complaint alleges violations of Section 10(b) and 20(a) of the Securities

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Exchange Act of 1934 (“Exchange Act”) against the Company, its Chief Executive Officer and its Chief Financial Officer. On December 23, 2019, the defendants filed a Motion to Dismiss the Amended Federal Complaint in its entirety for failure to allege facts sufficient to state a claim under either the Securities Act or the Exchange Act. The plaintiffs filed their Opposition to that Motion on March 9, 2020, and the defendants filed their Reply brief on April 23, 2020.

On June 30, 2020, the court presiding over the Federal Court Cases issued its ruling granting in part and denying in part the defendants’ Motions to Dismiss the Amended Federal Complaint. The court dismissed entirely the plaintiffs’ claims for alleged violations of the Exchange Act and further held that the plaintiffs failed to state a claim for violation of the Securities Act with respect to the majority of statements challenged as false or misleading in the Amended Federal Complaint. The court, however, held that the Federal Amended Complaint sufficiently alleged violations of the Securities Act with respect to two statements from the June 2018 IPO registration statement and prospectus that the plaintiffs alleged to be false or misleading, both on theories of alleged misrepresentations and material omissions. Accordingly, the court allowed this action to proceed beyond the pleading stage, but only with respect to the statements deemed sufficient to support a Securities Act claim when assuming the truth of the plaintiffs’ allegations. On February 12, 2021, the Court granted plaintiffs’ Motion for Class Certification and certified a class consisting of all persons or entities who purchased or otherwise acquired USX stock pursuant to and/or traceable to the IPO and who were damaged thereby. The Federal Court Cases are currently in discovery.

As to the New York State Case, on March 14, 2019, a substantially similar putative class action complaint was filed in the Supreme Court of the State of New York, County of New York, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the Tennessee State Court Cases. On December 18, 2020, defendants filed a Motion to Dismiss or Stay the New York State Case both on the merits and in deference to the pending actions in Tennessee. On March 5, 2021, the court presiding over the New York State Case dismissed the case, and on January 13, 2022, the court entered a motion denying plaintiff’s motion for reconsideration.

Stockholder Derivative Action

On June 7, 2019, a stockholder derivative lawsuit was filed in the District Court for Clark County, Nevada against five of our executives and all five of our independent board members (collectively, the “Individual Defendants”), and naming the Company as a nominal defendant. The complaint alleges that the Company made false and/or misleading statements in the registration statement and prospectus filed with the SEC in connection with the IPO and that the Individual Defendants breached their fiduciary duties by causing or allowing the Company to make such statements. The complaint alleges that the Company has been damaged by the alleged wrongful conduct as a result of, among other things, being subjected to the time and expense of the securities class action lawsuits that have been filed relating to the IPO. In addition to a claim for alleged breach of fiduciary duties, the lawsuit alleges claims against the Individual Defendants for unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The parties have stipulated to a stay of this proceeding pending entry of a final judgment in the Tennessee State Court Cases, Federal Court Case, and the New York State Case. This matter is in the preliminary stages of litigation. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We believe the allegations made in the complaint are without merit and intend to defend ourselves vigorously in this matter.

Other

The Company had letters of credit of $28.3 million outstanding as of September 30, 2022. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company had cancelable commitments outstanding at September 30, 2022 to acquire revenue equipment and other equipment and terminal improvements for approximately $218.3 million during the remainder of 2022 and $8.9 million during 2023. These purchase commitments are expected to be financed by operating leases, long-term debt and proceeds from sales of existing equipment.

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8. Share-based Compensation

2018 Omnibus Incentive Plan

In June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the initial public offering. The Company had reserved an aggregate of 3.2 million shares of its Class A common stock for issuance of awards under the Incentive Plan. In May 2020, the stockholders approved the Amended and Restated Omnibus Plan which, among other things, increased the number of shares remaining to issue to 5.8 million shares. 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 for the nine months ended September 30, 2022:


		Weighted
	Number of	Average Grant
	Units	Date Fair Value
Unvested at December 31, 2021	1,790,769	$	7.91
Granted	2,263,224		3.76
Vested	(531,365)		8.45
Forfeited	(981,797)		5.63
Unvested at September 30, 2022	2,540,831	$	4.98

Service based restricted stock grants vest over periods of one to five years and account for 2,376,174 of the unvested shares. Performance based awards account for 164,657 the unvested shares and vest based upon achievement of certain performance and shareholder return goals, as defined by the Company. The Company recognized compensation expense related to performance based awards of ($0.1) million and ($0.2) million during the three and nine months ended September 30, 2022 and $0.1 million and $0.6 million during the three and nine months ended September 30, 2021, respectively. The Company recognized compensation expense related to service based awards of $0.8 million and $3.2 million during the three and nine months ended September 30, 2022 and $1.1 million and $3.8 million during the three and nine months ended September 30, 2021, respectively. At September 30, 2022, the Company had $9.2 million in unrecognized compensation expense related to the service based restricted stock awards which is expected to be recognized over a weighted average period of approximately 2.8 years.

The following is a summary of the Incentive Plan stock option activity from December 31, 2021 to September 30, 2022:


		Weighted
	Number of	Average Grant
	Units	Date Fair Value
Unvested at December 31, 2021	124,783	$	4.86
Vested	(78,976)		5.12
Unvested at September 30, 2022	45,807	$	4.41

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 $0.0 million and $0.2 million during the three and nine months ended September 30, 2022 and $0.1 million and $0.3 million during the three and nine months ended September 30, 2021, respectively. The fair value of the stock options granted was estimated using the Black-Scholes method as of the grant date.

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At September 30, 2022, the Company had $0.1 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a period of approximately 4 months. As of September 30, 2022, 270,092 options were exercisable with a weighted average exercise price of $12.64 and a weighted average remaining contractual life of 6.3 years.

Pre-IPO Restricted Stock Units

The following is a summary of the activity related to restricted stock units issued prior to the IPO for nine months ended September 30, 2022:


	Number of	Weighted
	Units	Average
Unvested at December 31, 2021	460,040	$	2.15
Vested	(153,323)		2.15
Unvested at September 30, 2022	306,717	$	2.15

The vesting schedule for these restricted unit grants is 7 years. The Company recognized compensation expense of $0.1 million and $0.3 million during the three and nine months ended September 30, 2022 and $0.1 million and $0.3 million during the three and nine months ended September 30, 2021, respectively. At September 30, 2022, the Company had approximately $0.5 million in unrecognized compensation expense related to restricted units, which is expected to be recognized over a period of approximately 1.4 years. The fair value of the restricted units and corresponding compensation expense was determined using the income approach.

Employee Stock Purchase Plan

In June 2018, our Employee Stock Purchase Plan (the “ESPP”) became effective. The Company has reserved an aggregate of 2.3 million shares of its Class A common stock for issuance under the ESPP. Eligible employees may elect to purchase shares of our Class A common stock through payroll deductions up to 15% of eligible compensation. The purchase price of the shares during each offering period will be 85% of the lower of the fair market value of our Class A common stock on the first trading day of each offering period or the last trading day of the offering period. The common stock will be purchased in January and July of each year. The Company recognized compensation expense of $0.1 million and $0.5 million for the three and nine months ended September 30, 2022 and $0.1 million and $0.3 million during the three and nine months ended September 30, 2021, respectively, associated with the plan.

9. Earnings per Share

Basic earnings per share is calculated by dividing net income (loss) attributable to controlling interest by the weighted average shares of common stock outstanding during the period, without consideration for common stock equivalents. The Company excluded 5,664,870 equity awards for the three and nine months ended September 30, 2022 and 3,070,665 and 440,737 for the three and nine months ended September 30, 2021, respectively, as inclusion would be anti-dilutive.

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The basic and diluted earnings per share calculations for the three and nine months ended September 30, 2022 and 2021, respectively, are presented below (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Numerator - Basic
Net income (loss)	$	(19,411)	$	(5,638)	$	(28,338)	$	16,120
Net income attributable to noncontrolling interest		379		(160)		908		(36)
Net income (loss) attributable to common stockholder	$	(19,790)	$	(5,478)	$	(29,246)	$	16,156

Numerator - Dilutive
Net income (loss)	$	(19,411)	$	(5,638)	$	(28,338)	$	16,120
Net loss attributable to noncontrolling interest		379		(160)		908		(34)
Net income (loss) attributable to common stockholder	$	(19,790)	$	(5,478)	$	(29,246)	$	16,154


Basic weighted average of outstanding shares of common stock		51,562		50,563		51,213		50,293
Dilutive effect of equity awards		—		—		—		954
Dilutive effect of assumed subsidiary share conversion		—		—		—		592
Diluted weighted average of outstanding shares of common stock		51,562		50,563		51,213		51,839

Basic earnings (loss) per share	$	(0.38)	$	(0.11)	$	(0.57)	$	0.32
Diluted earnings (loss) per share	$	(0.38)	$	(0.11)	$	(0.57)	$	0.31

10. 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. 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.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues
Truckload	$	472,341	$	400,320	$	1,360,778	$	1,147,773
Brokerage		75,487		90,820		257,941		269,148
Total Operating Revenue	$	547,828	$	491,140	$	1,618,719	$	1,416,921

Operating Income
Truckload	$	(26,604)	$	8,081	$	(25,421)	$	23,553
Brokerage		3,864		(1,446)		8,939		(14)
Total Operating Income	$	(22,740)	$	6,635	$	(16,482)	$	23,539

A measure of assets is not applicable, as segment assets are not regularly reviewed by the Chief Operating Decision Maker for evaluating performance or allocating resources.

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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.

This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues or other financial items; any statement of plans, strategies, outlook, growth prospects or objectives of management for future operations; our operational and financial targets; general economic trends, performance or conditions and trends in the industry and markets; the competitive environment in which we operate; any statements concerning proposed new services, technologies or developments; and any statement of belief and any statements of assumptions underlying any of the foregoing. In this Form 10-Q, statements relating to the impact of new accounting standards, expected freight demand, capacity, and volumes, potential results of a default under our Credit Facility or other debt agreements, expected sources of working capital and liquidity (including our mix of debt, finance leases, and operating leases as means of financing revenue equipment), as well as the adequacy of working capital and liquidity, expected capital expenditures, expected fleet age and mix of owned versus leased equipment, our Realignment Plan, our ability to profitably scale and achieve operational efficiencies in our Brokerage segment, future performance of our Dedicated division, including pricing and margins, future customer relationships, future interest expense, future utilization of independent contractors, future fluctuations in purchased transportation expense and fuel surcharge reimbursement, future driver market conditions and driver turnover and retention rates, any projections of earnings, revenues, cash flows, dividends, capital expenditures, operating ratio, margins, or other financial items, expected cash flows, expected operating improvements, any statements regarding future economic conditions or performance, any statement of plans, strategies, programs and objectives of management for future operations, including the anticipated impact of such plans, strategies, programs and objectives, future rates and prices, future utilization, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, future insurance and claims expense, future fluctuations in fuel costs and fuel surcharge revenue, including the future effectiveness of our fuel surcharge program, strategies for managing fuel costs, future fleet size and management, any statements concerning proposed acquisition plans, new services or developments, and the anticipated impact of legal proceedings on our financial position and results of operations, among others, are forward-looking statements. Such statements may be identified by their use of terms or phrases such as “believe,” “may,” “could,” “should,” “expects,” “estimates,” “projects,” “anticipates,” “plans,” “intends,” “outlook,” “strategy,” “target,” “optimistic,” “focus,” “seek,” “potential,” “goal,” “continue,” “will,” derivations thereof, and similar terms and phrases. Such statements are based on currently available operating, financial and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Item 1A. Risk Factors,” set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. Readers should review and consider the factors discussed in “Item 1A. Risk Factors,” set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, along with various disclosures in our press releases, stockholder reports, and other filings with the SEC.

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

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Overview

We are one of the largest asset-based truckload carriers in the United States by revenue, generating over $1.9 billion in total operating revenue in 2021. 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 freight brokerage network. As of September 30, 2022, our fleet consisted of approximately 7,000 tractors and approximately 14,000 trailers, including approximately 1,000 tractors provided by independent contractors. Our terminal network is established and capable of handling significantly larger volumes without meaningful additional investment.

Executive Summary

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. We believe we have the strategy, management team, revenue base, modern fleet, and capital structure that position us to execute upon our initiatives, drive further operational gains, and deliver long term value for our stockholders, but acknowledge that our performance has fallen below our expectations.

On September 7, 2022, we announced a Realignment Plan focused on improving operating profitability and cash flow as well as reducing balance sheet leverage. The Realignment Plan is intended to focus primarily on improving our Over-the-Road (“OTR”) division with limited anticipated impact to both our Dedicated division and Brokerage segment.

We expect that the Realignment Plan will allow our OTR division to focus on improving capacity, cost and service levels for our customers while gaining benefits from improved network planning as well as more effectively allocating freight between Company and third-party assets. These improvements should contribute to improved utilization within the OTR division in the coming quarters. Finally, we do not anticipate that the Realignment Plan will impact our professional drivers’ ability to service our customers.

In addition, we identified significant personnel efficiencies as a result of eliminating organization overlaps and, in certain circumstances, duplicative functions. As of September 30, 2022, we believe that these efficiency gains can reduce annualized wage costs by $21.5 million beginning in the fourth quarter of 2022. We have identified approximately $6.5 million in annualized cost savings from an ongoing real estate footprint rationalization initiative and other miscellaneous cost savings.

In the immediate term, we expect to use proceeds from the divestiture of non-core real estate holdings as well as a more conservative trade cycle management program to positively benefit capital expenditures, net of proceeds, free cash flow and overall debt levels. We have also taken steps to reduce annualized capitalized wages, which primarily relate to internal use software development by over $10 million beginning in the fourth quarter. Further out, we expect the benefits from our Realignment Plan to generate increased operating income and net earnings, a portion of which could be used to pay down outstanding debt.

Total revenue for the third quarter of 2022 increased by $56.7 million to $547.8 million as compared to the third quarter of 2021. The increase was primarily the result of a $40.9 million increase in Truckload revenue, a $31.1 million increase in fuel surcharge revenue offset by a $15.3 million decrease in Brokerage revenue. Excluding the impact of fuel surcharge revenue, third quarter revenue increased $25.6 million to $477.4 million, an increase of 5.7% as compared to the prior year quarter.

Operating loss for the third quarter of 2022 was $22.7 million compared to operating income of $6.6 million in the third quarter of 2021. Our profitability decreased primarily due to increased insurance claims and premiums of $25.7 million, increased technology and personnel expenses and higher net fuel costs, partially offset by a 9.0% increase in our average revenue per mile, a 12.1% increase in our available tractors and a 52.3% increase in our Brokerage gross margin.

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We are continuing to focus on our driver centric initiatives throughout our fleet, while at the same time driving more accountability through our OTR fleet operations with the goal of increasing revenue miles and ultimately lowering driver turnover. We believe these initiatives will aid us in retaining our current professional drivers and attracting new professional drivers to our team. We will continue to focus on implementing and executing our initiatives that we expect will drive sustainable improved fleet performance over time. In the past, we spoke about the importance of growing our overall fleet size to improve our financial performance; however, with our Realignment Plan and associated cost takeout initiatives, we will be focused on improving the mix and profitability at our current fleet size.

In our Dedicated division, our team successfully addressed pricing in certain Dedicated accounts as a result of driver and capacity cost inflation. As a result, our overall Dedicated rates increased 18.1% in the third quarter of 2022 compared to the third quarter in 2021. We see incremental opportunity to improve margins in Dedicated through responsible growth, modest improvement in utilization, and lower turnover.

During 2020, we purchased a small business with a technology platform and an experienced and talented team. Their approach to the brokerage business is to utilize a digital framework for handling transactions which we expect to be scalable. Importantly, we believe this platform will enable our team to continue scaling the business and drive a high level of growth in the years to come. We continue to actively attempt to expand our Brokerage segment in a profitable manner.

In terms of the overall market, we are expecting a muted peak season compared to the last two years as overall end market demand continues to moderate.

Investment in TuSimple

On April 15, 2021, TuSimple completed its initial public offering at a price of $40.00 per share. Our $5.0 million investment consisted of 353,604 shares of TuSimple and at September 30, 2022, the fair value of our investment was $2.7 million and we recorded an unrealized gain on investment of $0.1 million during the quarter ended September 30, 2022 in other expense (income) within the unaudited condensed consolidated statements of comprehensive income (loss).

Reportable Segments

Our business is organized into two reportable segments, Truckload and Brokerage. Our Truckload segment offers truckload services, including 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 to 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. 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

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changes in freight demand and trucking capacity. In our dedicated contract service offering, which comprised approximately 42.9% of our Truckload operating revenue, and approximately 43.3% of our Truckload revenue, before fuel surcharge, for 2021, 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 or load 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.

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 record an operating lease right of use asset and an operating lease liability on our condensed consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our condensed 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 condensed 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 finance 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 and interest expense will be impacted by changes in the percentage of our revenue equipment acquired through operating leases versus equipment owned or acquired through finance leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.

Approximately 13.1% of our total tractor fleet was operated by independent contractors at September 30, 2022. 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.

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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 Brokerage 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.

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.

A summary of our revenue generated for the three and nine months ended September 30, 2022 and 2021 is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021

	(dollars in thousands)				(dollars in thousands)
Revenue, before fuel surcharge	$	477,428	$	451,824	$	1,420,940	$	1,306,998
Fuel surcharge		70,400		39,316		197,779		109,923
Total operating revenue	$	547,828	$	491,140	$	1,618,719	$	1,416,921

For the three and nine months ended September 30, 2022, the primary factors driving the increases in total operating revenue and revenue, before fuel surcharge, were increased pricing in both our Truckload and Brokerage

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segment, increased available tractors, and increased fuel surcharge revenues partially offset by lower average revenue miles per tractor per week, decreased Brokerage loads and decreased miscellaneous revenues.

A summary of our revenue generated by segment for the three and nine months ended September 30, 2022 and 2021 is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021

	(dollars in thousands)				(dollars in thousands)
Truckload revenue, before fuel surcharge	$	401,941	$	361,004	$	1,162,999	$	1,037,850
Fuel surcharge		70,400		39,316		197,779		109,923
Total Truckload operating revenue		472,341		400,320		1,360,778		1,147,773
Brokerage operating revenue		75,487		90,820		257,941		269,148
Total operating revenue	$	547,828	$	491,140	$	1,618,719	$	1,416,921

The following is a summary of our key Truckload segment performance indicators, before fuel surcharge for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Over the road
Average revenue per tractor per week	$	3,857	$	3,770	$	3,870	$	3,776
Average revenue per mile	$	2.475	$	2.421	$	2.519	$	2.286
Average revenue miles per tractor per week		1,558		1,558		1,536		1,651
Average tractors		3,918		3,413		3,757		3,384
Dedicated
Average revenue per tractor per week	$	4,870	$	4,340	$	4,834	$	4,274
Average revenue per mile	$	2.983	$	2.527	$	2.894	$	2.455
Average revenue miles per tractor per week		1,632		1,717		1,670		1,741
Average tractors		2,730		2,520		2,657		2,575
Consolidated
Average revenue per tractor per week	$	4,273	$	4,012	$	4,269	$	3,991
Average revenue per mile	$	2.689	$	2.468	$	2.682	$	2.361
Average revenue miles per tractor per week		1,589		1,625		1,592		1,690
Average tractors		6,648		5,933		6,414		5,959

For the quarter ended September 30, 2022, the primary factors driving the increases in Truckload revenue were a 9.0% increase in average revenue per mile, a 12.1% increase in available tractors partially offset by a 2.2% decrease in average revenue miles per tractor per week and a $19.6 million decrease in miscellaneous revenues. The increase in average revenue per mile was primarily due to a 16.6% increase in contractual rates partially offset by 23.5% decreases in spot rates. Fuel surcharge revenue increased by $31.1 million, or 79.1%, to $70.4 million, compared with $39.3 million in the third quarter of 2021. The increase in fuel surcharge revenue primarily relates to increased fuel prices compared to the same quarter in 2021. The DOE national weekly average fuel price per gallon averaged approximately $1.84 per gallon higher for the third quarter of 2022 compared to the same quarter of 2021.

For the nine months ended September 30, 2022, the primary factors driving the increases in Truckload revenue were a 13.6% increase in average revenue per mile, a 7.6% increase in available tractors partially offset by a 5.8% decrease in average revenue miles per tractor per week and a $15.2 million decrease in miscellaneous revenues. The increase in average revenue per mile was primarily due to a 18.0% increase in contractual rates partially offset by 5.8% decrease in spot rates. Fuel surcharge revenue increased by $87.9 million, or 79.9%, to $197.8 million, compared with $109.9 million in the same period of 2021. The increase in fuel surcharge revenue primarily relates to increased fuel prices compared to

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the same period in 2021. The DOE national weekly average fuel price per gallon averaged approximately $1.80 per gallon higher for the nine months ended September 30, 2022 compared to the same period of 2021.

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

The following table lists the gross margin percentage for our Brokerage segment for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Gross margin percentage	20.5	%	11.2	%	17.9	%	12.3	%

For the quarter ended September 30, 2022, the primary factors driving the decrease in Brokerage revenue were a 33.6% decrease in load count offset by a 25.3% increase in average revenue per load. The increase in gross margin was due to the increase in average revenue per load of 25.3% exceeding the 12.2% increase in average cost per load as compared to the same quarter in 2021.

For the nine months ended September 30, 2022, the primary factors driving the decrease in Brokerage revenue were a 19.9% decrease in load count offset by a 19.6% increase in average revenue per load. The increase in gross margin was due to the increase in average revenue per load of 19.6% exceeding the 11.9% increase in average cost per load as compared to the same period in 2021.

Operating Expenses

For comparison purposes in the discussion below, we use total operating revenue and revenue, before fuel surcharge when discussing changes as a percentage of revenue. As it relates to the comparison of expenses to revenue, before fuel surcharge, we believe that removing fuel surcharge revenue, which is sometimes a volatile source of revenue affords a more consistent basis for comparing the results of operations from period-to-period.

Individual expense line items as a percentage of total operating revenue also are affected by fluctuations in the percentage of our revenue generated by independent contractor and brokerage loads.

Salaries, Wages and Benefits

Salaries, wages and benefits consist primarily of compensation for all employees. Salaries, wages and benefits are primarily affected by the total number of miles driven by company drivers, the rate per mile we pay our company drivers, employee benefits such as health care and workers’ compensation, and to a lesser extent by the number of, and compensation and benefits paid to, non-driver employees.

The following is a summary of our salaries, wages and benefits for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Salaries, wages and benefits	$	188,430		$	158,942		$	538,876		$	445,445
% of total operating revenue		34.4	%		32.4	%		33.3	%		31.4	%
% of revenue, before fuel surcharge		39.5	%		35.2	%		37.9	%		34.1	%

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For the quarter ended September 30, 2022, the increase in salaries, wages and benefits was due primarily to $23.6 million in higher driver wages due primarily to a 7.7% increase in driver pay per mile combined with increased company driver miles of 18.5 million, an increase of $6.8 million in office wages due in part to a 4.6% increase in average headcount combined with an approximate 6.2% increase in average wages per employee from our digital and strategic initiatives. Our group health and workers’ compensation expense decreased 4.7% primarily due to decreased group health claims expense partially offset by increased workers compensation claims expense as compared to the same quarter in 2021. During the third quarter of 2022, we incurred approximately $0.6 million in severance related expenses in conjunction with our Realignment Plan.

For the nine months ended September 30, 2022, the increase in salaries, wages and benefits was due primarily to $58.8 million in higher driver wages due primarily to a 11.3% increase in driver pay per mile combined with increased company driver miles of 34.5 million, an increase of $30.8 million in office wages due in part to a 10.9% increase in average headcount combined with an approximate 13.6% increase in average wages per employee from our digital and strategic initiatives. Our group health and workers’ compensation expense increased 14.0% primarily due to increased group health claims expense combined with a slight increase in workers compensation premiums and claims as compared to the same period in 2021.

While the driver market remains tight, we have seen an improvement in the ability of large fleets to source drivers. In the near term, we believe driver salaries, wages and benefits will remain constant as professional drivers availability is increasing due to the softening of current market conditions, while we believe our overall office wages will decline as a result of recent actions taken in conjunction with our Realignment Plan. As a percentage of revenue, we expect salaries, wages and benefits will fluctuate based on our ability to generate offsetting increases in average revenue per total mile and the percentage of revenue generated by independent contractors and brokerage operations, for which payments are reflected in the “Purchased transportation” line item.

Fuel and Fuel Taxes

Fuel and fuel taxes consist primarily of diesel fuel expense and fuel taxes for our company-owned and leased tractors. The primary factors affecting our fuel and fuel taxes expense are the cost of diesel fuel, the miles per gallon we realize with our equipment and the number of miles driven by company drivers.

We believe that the most effective protection against net fuel cost increases in the near term is to maintain an effective fuel surcharge program and to operate a fuel-efficient fleet by incorporating fuel efficiency measures, such as auxiliary heating units, installation of aerodynamic devices on tractors and trailers and low-rolling resistance tires on our tractors, engine idle limitations and computer-optimized fuel-efficient routing of our fleet.

The following is a summary of our fuel and fuel taxes for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Fuel and fuel taxes	$	86,406		$	46,715		$	240,702		$	130,902
% of total operating revenue		15.8	%		9.5	%		14.9	%		9.2	%
% of revenue, before fuel surcharge		18.1	%		10.3	%		16.9	%		10.0	%

To measure the effectiveness of our fuel surcharge program, we calculate “net fuel expense” by subtracting fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors, which is included in purchased transportation) from our fuel expense. Our net fuel expense as a percentage of revenue, before fuel surcharge, is affected by the cost of diesel fuel net of surcharge collection, the percentage of miles driven by company tractors and

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our percentage of non-revenue generating miles, for which we do not receive fuel surcharge revenues. Net fuel expense as a percentage of revenue, before fuel surcharge, is shown below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Total fuel surcharge revenue	$	70,400		$	39,316		$	197,779		$	109,923
Less: fuel surcharge revenue reimbursed to independent contractors		11,539			8,001			34,173			24,083
Company fuel surcharge revenue		58,861			31,315			163,606			85,840
Total fuel and fuel taxes	$	86,406		$	46,715		$	240,702		$	130,902
Less: company fuel surcharge revenue		58,861			31,315			163,606			85,840
Net fuel expense	$	27,545		$	15,400		$	77,096		$	45,062
% of total operating revenue		5.0	%		3.1	%		4.8	%		3.2	%
% of revenue, before fuel surcharge		5.8	%		3.4	%		5.4	%		3.4	%

For the quarter ended September 30, 2022, the increase in net fuel expenses was primarily the result of a 53.4% increase in the average company fuel price per gallon combined with a 16.5% increase in company miles partially offset by a $27.5 million increase in company fuel surcharge revenue compared to the same quarter in 2021.

For the nine months ended September 30, 2022, the increase in net fuel expenses was primarily the result of a 62.3% increase in the average company fuel price per gallon combined with a 10.3% increase in company miles partially offset by a $77.8 million increase in company fuel surcharge revenue compared to the same period in 2021. During the first nine months of 2022, we experienced a significant increase in fuel prices which led to higher net fuel expense as our increased fuel surcharges to our customers were lagging behind the rising costs throughout the period.

In the near term, our net fuel expense is expected to fluctuate as a percentage of total operating revenue and revenue, before fuel surcharge, based on factors such as diesel fuel prices, the percentage recovered from fuel surcharge programs, the percentage of uncompensated miles, the percentage of revenue generated by independent contractors, and the percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue).

Vehicle Rents and Depreciation and Amortization

Vehicle rents consist primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting this expense item include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned versus leased equipment.

Depreciation and amortization consists primarily of depreciation for owned tractors and trailers and to a lesser extent computer software amortization. The primary factors affecting these expense items include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned equipment and equipment acquired through debt or finance leases versus equipment leased through operating leases. We use a mix of finance leases and operating leases to finance our revenue equipment with individual decisions being based on competitive bids and tax projections. Gains or losses realized on the sale of owned revenue equipment are included in depreciation and amortization for reporting purposes.

Vehicle rents and depreciation and amortization are closely related because both line items fluctuate depending on the relative percentage of owned equipment and equipment acquired through finance leases versus equipment leased through operating leases. Vehicle rents increase with greater amounts of equipment acquired through operating leases, while depreciation and amortization increases with greater amounts of owned equipment and equipment acquired through

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finance leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.

The following is a summary of our vehicle rents and depreciation and amortization for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Vehicle rents	$	26,237		$	22,700		$	74,867		$	65,710
Depreciation and amortization, net of (gains) losses on sale of property		23,187			19,509			56,833			65,096
Vehicle rents and depreciation and amortization of property and equipment	$	49,424		$	42,209		$	131,700		$	130,806
% of total operating revenue		9.0	%		8.6	%		8.1	%		9.2	%
% of revenue, before fuel surcharge		10.4	%		9.3	%		9.3	%		10.0	%

For the quarter ended September 30, 2022, the increase in vehicle rents in absolute dollar terms was primarily due to increased tractors and trailers financed under operating leases compared to the same quarter in 2021. The increase in depreciation and amortization, net of (gains) losses on sale of property, is primarily due to a loss on sale of property and equipment of $2.0 million compared to a gain of $1.5 million. During the third quarter of 2022, we exited an office lease along with the leasehold improvements and office furniture for a loss of $1.3 million combined with software impairment of $1.1 million.

For the nine months ended September 30, 2022, the increase in vehicle rents in absolute dollar terms was primarily due to increased tractors and trailers financed under operating leases compared to the same period in 2021. The decrease in depreciation and amortization, net of (gains) losses on sale of property, is primarily due to a gain on sale of equipment of $4.0 million compared to a loss of $3.0 million and a $4.0 million gain on the sale of a terminal facility which was being leased by a former subsidiary partially offset by $1.3 million loss on the above mentioned office lease and software impairment of $3.3 million, a decrease in the number of owned trailers and a decrease in average depreciation per tractor as compared to the same period in 2021. The decrease in loss on sale is due in part to the equipment mix sold and the favorable used tractor and trailer market combined with decreased sales as compared to the same period in 2021.

For calendar year 2022, excluding any change in our percentage allocation of owned versus leased equipment due to available financing terms, we expect to spend approximately $150.0 million in net capital expenditures which will keep the average age of our equipment relatively constant.

Purchased Transportation

Purchased transportation consists of the payments we make to independent contractors, including fuel surcharge reimbursements paid to independent contractors, in our Truckload segment, and payments to third-party carriers in our Brokerage segment.

The following is a summary of our purchased transportation for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Purchased transportation	$	123,535		$	159,152		$	414,304		$	458,302
% of total operating revenue		22.5	%		32.4	%		25.6	%		32.3	%
% of revenue, before fuel surcharge		25.9	%		35.2	%		29.2	%		35.1	%

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Because we reimburse independent contractors for fuel surcharges we receive, we subtract fuel surcharge revenue reimbursed to them from our purchased transportation. The result, referred to as purchased transportation, net of fuel surcharge reimbursements, is evaluated as a percentage of total operating revenue and as a percentage of revenue, before fuel surcharge, as shown below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Purchased transportation	$	123,535		$	159,152		$	414,304		$	458,302
Less: fuel surcharge revenue reimbursed to independent contractors		11,539			8,001			34,173			24,083
Purchased transportation, net of fuel surcharge reimbursement	$	111,996		$	151,151		$	380,131		$	434,219
% of total operating revenue		20.4	%		30.8	%		23.5	%		30.6	%
% of revenue, before fuel surcharge		23.5	%		33.5	%		26.8	%		33.2	%

For the quarter ended September 30, 2022, the decrease in purchased transportation, net of fuel surcharge reimbursement reflected a 33.6% decrease in Brokerage loads combined with a 22.7% decrease in independent contractor miles partially offset by a 12.2% increase in average cost per Brokerage load as compared to the same quarter in 2021.

For the nine months ended September 30, 2022, the decrease in purchased transportation, net of fuel surcharge reimbursement reflected a 19.9% decrease in Brokerage loads combined with a 29.1% decrease in independent contractor miles partially offset by a 11.9% increase in average cost per Brokerage load as compared to the same period in 2021. This expense category will fluctuate with the number and percentage of loads hauled by independent contractors and third-party carriers, as well as the amount of fuel surcharge revenue passed through to independent contractors.

If industry-wide trucking capacity tightens in relation to freight demand, we may need to increase the amounts we pay to third-party carriers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of total operating revenue and revenue, before fuel surcharge, absent an offsetting increase in revenue. Currently, we are experiencing a softer market which has resulted in lower amounts paid to third party carriers on a per load basis excluding the impact of fuel. We continue to actively attempt to expand our Brokerage segment in a profitable manner.

Operating Expenses and Supplies

Operating expenses and supplies consist primarily of ordinary vehicle repairs and maintenance costs, driver on-the-road expenses, tolls and driver recruiting and training costs. Operating expenses and supplies are primarily affected by the age of our company-owned and leased fleet of tractors and trailers, the number of miles driven in a period and driver turnover.

The following is a summary of our operating expenses and supplies expense for the three and nine months ended September 30, 2022 and 2021:

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Operating expenses and supplies	$	51,339		$	38,683		$	143,832		$	105,641
% of total operating revenue		9.4	%		7.9	%		8.9	%		7.5	%
% of revenue, before fuel surcharge		10.8	%		8.6	%		10.1	%		8.1	%

For the quarter ended September 30, 2022, the primary factors driving the increase in operating expenses and supplies were increased tractor and trailer maintenance and tires due in part to increased company tractors and miles, increased driver hiring costs combined with increased tolls and other operating expenses as compared to the same quarter in 2021.

For the nine months ended September 30, 2022, the primary factors driving the increase in operating expenses and supplies were increased driver hiring costs combined with increased tractor and trailer maintenance and tires due in part to increased company tractors and miles as compared to the same period in 2021.

Insurance Premiums and Claims

Insurance premiums and claims consists primarily of retained amounts for liability (personal injury and property damage), physical damage and cargo damage, as well as insurance premiums. The primary factors affecting our insurance premiums and claims are the frequency and severity of accidents, trends in the development factors used in our actuarial accruals and developments in large, prior year claims. The number of accidents tends to increase with the miles we travel. With our significant retained amounts, insurance claims expense may fluctuate significantly and impact the cost of insurance premiums and claims from period-to-period, and any increase in frequency or severity of claims or adverse loss development of prior period claims would adversely affect our financial condition and results of operations.

The following is a summary of our insurance premiums and claims expense for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
Insurance premiums and claims	$	43,912		$	18,242		$	87,452		$	58,952
% of total operating revenue		8.0	%		3.7	%		5.4	%		4.2	%
% of revenue, before fuel surcharge		9.2	%		4.0	%		6.2	%		4.5	%

For the three months ended September 30, 2022, the primary factor driving the increase in insurance premiums and claims was increased auto liability claims and premium expense as compared to the same quarter in 2021 due primarily to the adverse developments in prior year claims of approximately $20.0 million.

For the nine months ended September 30, 2022, the primary factor driving the increase in insurance premiums and claims was increased auto liability claims and premium expense as compared to the same quarter and period in 2021 due primarily to the adverse developments in prior year claims of approximately $23.0 million combined with increased physical damage claims.

General and Other Operating Expenses

General and other operating expenses consist primarily of legal and professional services fees, general and administrative expenses and other costs.

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The following is a summary of our general and other operating expenses for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

	(dollars in thousands)						(dollars in thousands)
General and other operating expenses	$	19,703		$	14,208		$	55,440		$	45,112
% of total operating revenue		3.6	%		2.9	%		3.4	%		3.2	%
% of revenue, before fuel surcharge		4.1	%		3.1	%		3.9	%		3.5	%

For the three and nine months ended September 30, 2022, general and other expenses increased primarily due to computer software services along with increased other expenses as compared to the same quarter and period in 2021.

Interest Expense

Interest expense consists of cash interest and amortization of deferred financing fees.

The following is a summary of our interest expense for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021

	(dollars in thousands)				(dollars in thousands)
Interest expense, excluding non-cash items	$	4,437	$	3,421	$	12,529	$	10,354
Deferred financing amortization		151		151		452		462
Interest expense, net	$	4,588	$	3,572	$	12,981	$	10,816

For the three and nine months ended September 30, 2022, interest expense increased primarily due to increased borrowing as compared to the same quarter and period in 2021. We expect our interest expense to increase sequentially as a result of rising interest rates and to be approximately $18.0 million for calendar year 2022.

Other

During the third quarter of 2022, we recorded an unrealized gain of $0.1 million related to our investment in TuSimple compared to a $12.1 million loss in the same quarter in 2021. For the nine months ended September 30, 2022, we recorded an unrealized loss of $10.0 million related to our investment in TuSimple partially offset by a gain of $1.3 million related to contingent consideration received during 2022 from the sale of Arnold Transportation, Inc. in 2020 compared to an unrealized gain of $8.1 million in the same period of 2021.

Liquidity and Capital Resources

Overview

Our business requires substantial amounts of cash to cover operating expenses as well as to fund capital expenditures, working capital changes, principal and interest payments on our obligations, lease payments, letters of credit to support insurance requirements and tax payments when we generate taxable income. Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operating activities, direct equipment financing, finance leases, operating leases and proceeds from equipment sales.

We believe we can fund our expected cash needs, including debt repayment, in the short-term with projected cash flows from operating activities, borrowings under our Credit Facility and direct debt and lease financing we believe to be

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available for at least the next 12 months. Over the long-term, we expect that we will continue to have significant capital requirements, which may require us to seek additional borrowings, lease financing or equity capital. We have obtained a significant portion of our revenue equipment under operating leases, which are not reflected as net capital expenditures, but are recorded as operating lease liabilities on our balance sheet. The availability of financing and equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions.

Sources of Liquidity

Credit Facility

On January 28, 2020, we entered into the Credit Facility and contemporaneously with the funding of the Credit Facility paid off obligations under our then existing credit facility and terminated such facility. The Credit Facility is a $250.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $75.0 million.

Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $250.0 million; or (B) the sum of (i) 87.5% of eligible billed accounts receivable, plus (ii) 85.0% of eligible unbilled accounts receivable (less than 30 days), plus (iii) 85.0% of the net orderly liquidation value percentage applied to the net book value of eligible revenue equipment, plus (iv) the lesser of (a) 80.0% the fair market value of eligible real estate or (b) $25.0 million. The Credit Facility contains a single springing financial covenant, which requires a consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant is tested only in the event excess availability under the Credit Facility is less than the greater of (A) 10.0% of the lesser of the borrowing base or revolving credit facility or (B) $20.0 million. Based on excess availability as of September 30, 2022, there was no fixed charge coverage ratio requirement.

At September 30, 2022, the Credit Facility had issued collateralized letters of credit in the face amount of $28.3 million, with $92.0 million in borrowings outstanding and $129.7 million available to borrow. We do not anticipate material liquidity constraints or any issues with our ongoing ability to remain in compliance with our Credit Facility in the foreseeable future.

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Cash Flows

Our summary statements of cash flows for the nine months ended September 30, 2022 and 2021 are set forth in the table below:


	Nine Months Ended
	September 30,
	2022		2021

	(dollars in thousands)
Net cash provided by (used in) operating activities	$	25,410	$	70,304
Net cash used in investing activities	$	(113,766)	$	(71,052)
Net cash provided by (used in) financing activities	$	84,032	$	1,238

Operating Activities

The decrease in cash flows from operating activities was due primarily to a $50.7 million decrease in our net income adjusted for noncash items combined with a $25.2 million decrease in operating liabilities offset by a $31.0 million decrease in operating assets as compared to the same period in 2021. Our operating assets increased $26.3 million in 2022 compared to $57.3 million in the prior period. The lower increase in operating assets is primarily due to decreased growth in Brokerage receivables in 2022 compared to 2021 partially offset by an increase in Truckload receivables. Our operating liabilities increased $19.7 million in 2022 compared to $44.9 million in the prior period. The lower increase was due in part to decreased Brokerage purchase transportation due to fewer loads combined with decreased accrued wages and benefits due to timing of payments offset by increased insurance reserves. Our decrease in net income adjusted for noncash items was due in part to increased insurance and claims expense, increased fuel costs per mile and increased driver and office payroll per mile, decreased average revenue miles per tractor per week, partially offset by increased gross margin at Brokerage, increased revenue per mile of 13.6% and increased available tractors.

Investing Activities

For the nine months ended September 30, 2022, net cash flows used in investing activities increased primarily as a result of increased tractor purchases combined with decreased proceeds from sales of used equipment compared to 2021. During 2022, our miscellaneous capital expenditures increased $3.1 million primarily due to increased computer software and terminal renovations offset by increased proceeds of $8.2 million related to the sale of a terminal as compared to 2021. We expect our net capital expenditures for calendar year 2022 will approximate $150.0 million to execute our equipment replacement strategy and miscellaneous capital expenditures and will be financed with cash from operations, borrowings on the Credit Facility and secured debt financing.

Financing Activities

The increase in net cash flows provided by financing activities is due in part to increased borrowings under our Credit Facility along with decreased payments of long-term debt as compared to the same period in 2021.

Working Capital

As of September 30, 2022, we had a working capital deficit of $115.2 million, representing a $48.6 million decrease in our working capital from September 30, 2021. The decrease in working capital was primarily the result of increased current maturities of long-term debt and the current portion of operating lease liabilities. When we analyze our working capital, we typically exclude balloon payments in the current maturities of long-term debt and current portion of operating lease liabilities as these payments are typically either funded with the proceeds from equipment sales or addressed by extending the maturity of such payments. We believe this facilitates a more meaningful analysis of our changes in working capital from period-to-period. Excluding balloon payments included in current maturities of long-term debt and current portion of operating lease liabilities as of September 30, 2022, we had a working capital deficit of $23.2 million, compared with a working capital deficit of $30.7 million at September 30, 2021. The increase in working capital was primarily the result of increased accounts receivable.

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Working capital deficits are common to many trucking companies that operate by financing revenue equipment purchases through borrowing, or lease arrangements. When we finance revenue equipment through borrowing or lease arrangements, the principal amortization or, in the case of operating leases, the present value of the lease payments scheduled for the next twelve months, is categorized as a current liability, although the revenue equipment and operating lease right of use assets are classified as long-term assets. Consequently, each acquisition of revenue equipment financed with borrowing, or lease arrangements decreases working capital. We believe a working capital deficit has little impact on our liquidity. Based on our expected financial condition, net capital expenditures, results of operations, related net cash flows, borrowings under our Credit Facility, direct debt and lease financing, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs and we do not expect to experience material liquidity constraints in the foreseeable future.

Seasonality

In the trucking industry, revenue has historically decreased as customers reduce shipments following the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses have generally increased, with fuel efficiency declining because of engine idling and weather, causing more physical damage equipment repairs and insurance claims and costs. For the reasons stated, first quarter results historically have been lower than results in each of the other three quarters of the year. However, cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry. Over the past several years, we have seen increases in demand at varying times, including surges between Thanksgiving and the year-end holiday season.

Contractual Obligations

During the nine months ended September 30, 2022, there were no material changes in our commitments or contractual obligations.

Critical Accounting Policies

We have reviewed our critical accounting policies and considered whether any new critical accounting estimates or other significant changes to our accounting policies require any additional disclosures. There have been no significant changes to our accounting policies since the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022. This evaluation is performed to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. The CEO and CFO have concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of September 30, 2022.

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Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended September 30, 2022, there were no material changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various other litigation and claims primarily arising in the normal course of business, which include claims for personal injury or property damage incurred in the transportation of freight. Our insurance program for liability, physical damage and cargo damage involves varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts that management considers to be adequate. Based on its knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a materially adverse effect on us. Information relating to legal proceedings is included in Note 7 to our unaudited condensed consolidated financial statements, and is incorporated herein by reference.

ITEM 1A. RISK FACTORS

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

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

During the quarter ended September 30, 2022, we did not engage in unregistered sales of securities or any other transactions required to be reported under this Item 2 of Part II on Form 10-Q.

The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under the Credit Facility.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS


Exhibit Number	Description
3.1	Third Amended and Restated Articles of Incorporation of U.S. Xpress Enterprises, Inc. (incorporated by reference to Exhibit 3.1 filed with the Company’s Current Report on Form 8-K filed on June 2, 2020).
3.2	Third Amended and Restated Bylaws of U.S. Xpress Enterprises, Inc. (incorporated by reference to Exhibit 3.2 filed with the Company’s Current Report on Form 8-K filed on filed on June 2, 2020).
31.1#	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Eric Fuller, the Company’s Principal Executive Officer
31.2#	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Eric Peterson, the Company’s Principal Financial Officer
32.1##	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eric Fuller, the Company’s Chief Executive Officer
32.2##	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eric Peterson, the Company’s Chief Financial Officer
101.INS#	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH#	Inline XBRL Taxonomy Extension Schema Document
101.CAL#	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB#	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE#	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104#	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

# Filed herewith.

## Furnished herewith.

SIGNATURE

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


	U.S. XPRESS ENTERPRISES, INC.

Date: November 3, 2022	By:	/s/ Eric Peterson
		Eric Peterson
		Chief Financial Officer

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