Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

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

This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statements of assumptions underlying any of the foregoing. In this Form 10-Q, statements relating to future impact of accounting standards, future third-party transportation provider expenses, future tax rates, expenses, and deductions, expected freight demand, capacity, and volumes and trucking industry conditions, potential defaults and results of a default and testing of our fixed charge covenant under the Credit Facility or other debt agreements, expected sources, as well as adequacy, of working capital and liquidity (including our mix of debt, finance leases, and operating leases as means of financing revenue equipment), future inflation, future stock repurchases and dividends, if any, expected capital expenditures, allocations, and requirements, future customer relationships, future interest expense, future driver market conditions, including driver satisfaction, future use of independent contractors, expected cash flows, future investments in and growth of our reportable segments and services, future margins of our reportable segments, future rates and prices, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, expected net fuel costs, strategies for managing fuel costs, the effectiveness and impact of, and cash flows relating to, our fuel surcharge programs, future fluctuations in operations and maintenance expenses, expected effects and mix of our solo and team operations, future fleet size, management, utilization, upgrades, and age, availability and usage of tractors and trailers, the market value of used equipment, the anticipated impact of our investment in TEL, the future impact of our business model, service standards, strategic plan and other strategic initiatives, changes to and deviations from our business model, strategic plan, and other strategic initiatives, claims and litigation, anticipated levels of and fluctuations relating to insurance and claims expenses, including the erosion of available limits in our aggregate insurance policies and insurance and claims accruals, contingent consideration related to our prior acquisitions, and the future impact of our prior acquisitions, among others, are forward-looking statements. Forward-looking statements may be identified by the use of terms or phrases such as "believe," "may," "could," "would," "will," "expects," "estimates," "projects," "appears," "mission," "anticipates," "plans," " outlook," "focus," "seek," "potential," "continue," "goal," "target," "objective," "optimistic," "intends," "improve," "remain," derivations thereof, and similar terms and phrases. Such statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2025. Readers should review and consider the factors discussed in "Item 1A. Risk Factors," set forth in our Form 10-K for the year ended December 31, 2025, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

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

Executive Overview

Our first quarter earnings were $0.17 per diluted share, falling short of our expectations, largely as a result of severe weather shutdowns and fuel cost headwinds in January and February. However, freight volumes and rates improved in March, and we are encouraged by our positive operating performance and the momentum we are carrying into the second quarter, such as an expanding pipeline of new customers seeking committed capacity, rate increases with select existing customers, and the traditional seasonal improvement in freight volumes.

Additional items of note for the first quarter of 2026 include the following:

	●	Total revenue of $307.2 million, an increase of 14.0% compared with the first quarter of 2025, and freight revenue (which excludes revenue from fuel surcharges) of $281.9 million, an increase of 15.9% compared with the first quarter of 2025;
	●	Operating income of $6.3 million, compared with $7.6 million in the first quarter of 2025;
	●	Net income of $4.4 million, or $0.17 per diluted share, compared with $6.6 million, or $0.24 per diluted share, in the first quarter of 2025;
	●	Our equity investment in TEL provided $3.7 million of pre-tax earnings in the first quarter of 2026 compared to $3.8 million in the first quarter of 2025;
	●	We distributed a total of $1.8 million to stockholders through cash dividends;
	●	Since December 31, 2025, total indebtedness, comprised of total debt and finance leases, net of cash, decreased by $51.0 million to $245.3 million, primarily due to selling a large amount of unproductive used equipment and buying very little new equipment. With available borrowing capacity of $57.5 million under our Credit Facility at March 31, 2026 we do not expect to be required to test our fixed charge covenant in the foreseeable future;
	●	Leverage ratio (ending total indebtedness, comprised of debt and finance leases, net of cash, divided by the sum of operating income, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) as of March 31, 2026 was 2.37;
	●	Stockholders' equity at March 31, 2026, was $407.6 million; and
	●	Tangible book value at March 31, 2026, was $224.6 million.

Outlook

Solid economic demand and shrinking industry-wide driver capacity are creating a favorable environment for building project pipelines and improving yield and revenue per tractor. With most of our revenue under contracts ranging from one to three years in duration, we expect to see gradual improvement beginning with the second quarter of 2026 and extending for several quarters to come. As contracts become available, we intend to be nimble in allocating our equipment and people toward the relationships that produce long-term value through adequate margin and returns. Our momentum continues to build this year, and our team who are running the business have palpable energy and enthusiasm.

Our plan for the remainder of 2026 is to improve yields and reallocate assets to operations that improve our margins and returns. Based on a rapidly growing pipeline of customer demand, we expect to make significant progress assuming the current market momentum continues.

Non-GAAP Reconciliation

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

Operating Ratio

		Three Months Ended March 31,
GAAP Operating Ratio:		2026				OR %				2025				OR %
Total revenue		$	307,161							$	269,355
Total operating expenses			300,879				98.0	%			261,728				97.2	%
Operating income		$	6,282							$	7,627
Adjusted Operating Ratio:		2026				Adj. OR %				2025				Adj. OR %
Total revenue		$	307,161							$	269,355
Fuel surcharge revenue			(25,236	)							(26,136	)
Freight revenue (total revenue, excluding fuel surcharge)			281,925								243,219
Total operating income			6,282								7,627
Adjusted for:
Amortization of intangibles			3,000								2,371
Contingent consideration liability adjustment			328								710
Transaction costs			-								149
Adjusted operating income		$	9,610				96.6	%		$	10,857				95.5	%

Revenue and Expenses

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

We have four reportable segments, which include:

●

Expedited: The Expedited reportable segment primarily provides truckload services to customers with high service freight and delivery standards, such as 1,000 miles in 22 hours, or 15-minute delivery windows. Expedited services generally require two-person driver teams on equipment either owned or leased by the Company.

●

Dedicated: The Dedicated reportable segment provides customers with committed truckload capacity over contracted periods with the goal of three to five years in length. Equipment is either owned or leased by the Company. The Dedicated reportable segment also provides shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses for Dedicated customers.

●

Managed Freight: The Managed Freight reportable segment includes our brokerage and transport management services ("TMS"). Brokerage services provide logistics capacity by outsourcing the carriage of customers' freight to third parties. TMS provides comprehensive logistics services on a contractual basis to customers who prefer to outsource their logistics needs.

●

Warehousing: The Warehousing reportable segment provides day-to-day warehouse management services to customers who have chosen to outsource this function. The Warehousing reportable segment also provides shuttle and switching services related to shuttling containers and trailers in or around freight yards and to/from warehouses for Warehousing customers.

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

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

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

Within our Managed Freight reportable segment, we derive revenue from Brokerage and TMS services, particularly, for arranging transportation services for customers, directly and through relationships with third-party providers and integration with our Expedited reportable segment. Additionally, utilizing technology and process management, we provide detailed visibility into a customer's movement of freight - inbound and outbound - throughout the customer's network and focused customer support through multiyear contracts. The main factors that impact profitability in terms of expenses are the variable costs of outsourcing the transportation freight for our customers and managing fixed costs, including purchased transportation, facility warehousing costs, salaries, and selling, general, and administrative expenses.

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

Our main measures of profitability are operating ratio and adjusted operating ratio. We define adjusted operating ratio as operating expenses, net of fuel surcharge revenue, excluding amortization of intangibles, and significant unusual items, divided by total revenue, less fuel surcharge revenue. See page 23 for the uses and limitations associated with adjusted operating ratio.

Revenue Equipment

At March 31, 2026, we operated 2,234 tractors and 7,265 trailers. Of such tractors, 2,140 were owned, 14 were financed under finance or operating leases, and 80 tractors were provided by independent contractors, who own and drive their own tractors. Of such trailers, 6,406 were owned and 859 were held under finance or operating leases. At March 31, 2026, our fleet had an average tractor age of 2.2 years and an average trailer age of 5.9 years.

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

RESULTS OF CONSOLIDATED OPERATIONS

COMPARISON OF three months ended March 31, 2026 TO three months ended March 31, 2025

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

Revenue

		Three Months Ended
		March 31,
		2026				2025
Revenue:
Freight revenue		$	281,925			$	243,219
Fuel surcharge revenue			25,236				26,136
Total revenue		$	307,161			$	269,355

The increase in total revenue for the three months ended March 31, 2026 compared to 2025 primarily resulted from a $33.9 million, $9.0 million, and $3.5 million increase in freight revenue for Managed Freight, Dedicated, and Warehousing, respectively, partially offset by an $8.3 million decrease in freight revenue for Expedited, as well as a $0.9 million decrease in fuel surcharge revenue.

See results of reportable segment operations section for discussion of fluctuations.

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

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

Salaries, wages, and related expenses

		Three Months Ended
		March 31,
		2026				2025
Salaries, wages, and related expenses		$	109,268			$	104,952
% of total revenue			35.6	%			39.0	%
% of freight revenue			38.8	%			43.2	%

Salaries, wages, and related expenses increased on a dollars basis for the three months ended March 31, 2026 compared to the same 2025 period primarily as a result of growth in our Dedicated and Warehousing reportable segments, pay increases since the prior period, and group health expenses. As a percentage of freight revenue for the three months ended March 31, 2026, salaries, wages, and related expenses decreased as the foregoing factors increasing these expenses were offset by a lower percentage of revenue from Expedited, where we incur driver pay for team-driven tractors, and a higher percentage of revenue from Managed Freight, where we don't incur driver pay.

We believe driver and non-driver, including shop technicians, pay and benefits will continue to increase as the result of wage inflation, higher healthcare costs, and, in certain periods, increased incentive compensation due to better performance. Driver pay may also fluctuate based on the number of miles driven. While driver pay remains stable at the present time, we have historically put driver pay increases in place as necessary to address driver market pressure and will continue to do so in the future as necessary. If freight market rates increase, we would expect to, as we have historically, pass a portion of those rate increases on to our professional drivers. Salaries, wages, and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our Managed Freight reportable segment, for which payments are reflected in the purchased transportation line item, as well as the mix of specialized freight (which requires higher driver pay) and commoditized freight.

Fuel expense

		Three Months Ended
		March 31,
		2026				2025
Fuel expense		$	28,297			$	28,168
% of total revenue			9.2	%			10.5	%
% of freight revenue			10.0	%			11.6	%

Total fuel expense the three months ended March 31, 2026 remained relatively even on a dollars basis primarily due to an 8.0% decrease in total miles offset by higher fuel prices compared to the 2025 period. As a percentage of freight revenue for the three months ended March 31, 2026, total fuel expense decreased as the foregoing factors were offset by a lower percentage of revenue from Expedited, where we incur fuel expense, and a higher percentage of revenue from Managed Freight, where we don't incur fuel expense.

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

The rate of fuel price changes also can have an impact on results. Most fuel surcharges are based on the average fuel price as published by the Department of Energy ("DOE") for the week prior to the shipment, meaning we typically bill customers in the current week based on the previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true. Fuel prices as measured by the DOE were $1.34 per gallon, or 37.3%, higher for the quarter ended March 31, 2026 compared with the same quarter in 2025.

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

Net fuel expense is shown below:

		Three Months Ended
		March 31,
		2026				2025
Total fuel surcharge		$	25,236			$	26,136
Less: Fuel surcharge revenue reimbursed to independent contractors and other third parties			1,507				1,659
Company fuel surcharge revenue		$	23,729			$	24,477
Total fuel expense		$	28,297			$	28,168
Less: Company fuel surcharge revenue			23,729				24,477
Net fuel expense		$	4,568			$	3,691
% of freight revenue			1.6	%			1.5	%

For the periods presented, net fuel expense remained relatively even as a percentage of freight revenue.

We expect to continue managing our idle time and tractor speeds, investing in more fuel-efficient tractors and auxiliary power units to improve our miles per gallon, partnering with customers to adjust fuel surcharge programs that are inadequate to recover a fair portion of fuel costs, and testing the latest technologies that reduce fuel consumption. Going forward, our net fuel expense is expected to fluctuate as a percentage of revenue based on factors such as diesel fuel prices, percentage recovered from fuel surcharge programs, percentage of uncompensated miles, percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue), percentage of revenue generated from independent contractors, and the success of fuel efficiency initiatives.

Operations and maintenance

		Three Months Ended
		March 31,
		2026				2025
Operations and maintenance		$	17,914			$	15,750
% of total revenue			5.8	%			5.8	%
% of freight revenue			6.4	%			6.5	%

The increase in operations and maintenance for the three months ended March 31, 2026 was primarily the result of the increased average age of tractors, high demands on equipment as we grow our fleet in niche service areas, and increased recruiting costs.

Going forward, we believe this category will fluctuate based on several factors, including the condition of the driver market and our ability to hire and retain drivers, the average age of our tractor fleet, accident severity and frequency, weather, the reliability of new and untested revenue equipment models, our mix of specialty and commoditized freight, and any disruption of the supply chain. Additionally, operations and maintenance costs may increase if we experience wage and parts inflation.

Revenue equipment rentals and purchased transportation

		Three Months Ended
		March 31,
		2026				2025
Revenue equipment rentals and purchased transportation		$	89,218			$	56,805
% of total revenue			29.0	%			21.1	%
% of freight revenue			31.6	%			23.4	%

The increases in revenue equipment rentals and purchased transportation for the three months ended March 31, 2026 were primarily the result of the 2025 Star Acquisition within the Managed Freight reportable segment. Additionally, total miles run by independent contractors decreased from 7.0% for the three months ended March 31, 2025, to 6.7% for the same 2026 period, respectively.

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

Operating taxes and licenses

		Three Months Ended
		March 31,
		2026				2025
Operating taxes and licenses		$	2,989			$	3,586
% of total revenue			1.0	%			1.3	%
% of freight revenue			1.1	%			1.5	%

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

Insurance and claims

		Three Months Ended
		March 31,
		2026				2025
Insurance and claims		$	12,646			$	15,283
% of total revenue			4.1	%			5.7	%
% of freight revenue			4.5	%			6.3	%

On a cents per mile basis, insurance and claims decreased to 21.4 cents per mile for the three months ended March 31, 2026 compared to 23.8 cents per mile for the 2025 period primarily due to reduced insurance and claims expense partially offset by decreased miles compared to the same 2025 period. Miles decreased primarily due to weather during the 2026 period.

Our insurance program includes multi-year policies with specific insurance limits that may be eroded over the course of the policy term. If that occurs, we will be operating with less liability insurance coverage at various levels of our insurance tower and may incur additional premiums. For the policy period that ran from April 1, 2018 to March 31, 2021, the aggregate limits available in the coverage layer $9.0 million in excess of $1.0 million were fully eroded based on claims expense. We replaced our $9.0 million in excess of $1.0 million layer with a new $7.0 million in excess of $3.0 million policy that we continue to maintain. Due to the erosion of the $9.0 million in excess of $1.0 million layer, any adverse developments in claims filed between April 1, 2018 and March 31, 2021, could result in additional expense accruals. As of March 31, 2026, there were no outstanding claims in this layer. We have maintained our retention and limits set in place during the prior renewal cycle. Due to these developments, we may experience additional expense accruals, increased insurance and claims expenses, and greater volatility in our insurance and claims expenses, which could have a materially adverse effect on our business, results of operations, financial condition, or liquidity.

We expect insurance and claims expense to continue to be volatile over the long-term. To the extent damages awarded against us for any claims exceed our coverage limits, involve significant aggregate use of our self-insured retention amounts, or cause increases in our insurance premiums, our insurance and claims expense would be volatile and increase. Any resulting increases in such expenses could have a materially adverse effect on our business, results of operations, financial condition, or liquidity. For additional details regarding our claims accruals, see Note 9, "Commitments and Contingencies" of the accompanying condensed consolidated financial statements.

Communications and utilities

		Three Months Ended
		March 31,
		2026				2025
Communications and utilities		$	2,034			$	1,468
% of total revenue			0.7	%			0.5	%
% of freight revenue			0.7	%			0.6	%

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

General supplies and expenses

		Three Months Ended
		March 31,
		2026				2025
General supplies and expenses		$	14,199			$	13,595
% of total revenue			4.6	%			5.0	%
% of freight revenue			5.0	%			5.6	%

Depreciation and amortization

		Three Months Ended
		March 31,
		2026				2025
Depreciation and amortization		$	23,976			$	21,795
% of total revenue			7.8	%			8.1	%
% of freight revenue			8.5	%			9.0	%

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

Depreciation expense increased $1.6 million to $21.0 million for the three months ended March 31, 2026 compared to $19.4 million in the same 2025 period. Amortization of intangible assets was $3.0 million for the three months ended March 31, 2026 compared to $2.4 million for the same 2025 period. The increase for the three months ended March 31, 2026 is due to the amortization of the intangible asset related to the Star Acquisition.

We expect depreciation and amortization to increase going forward as the cost of new equipment increases. Additionally, changes in the used tractor market have caused us to adjust residual values and increase depreciation, and further adjustments may be necessary in the future. These changes may also cause us to hold assets longer than planned, or experience increased losses on sale. If we were to grow our Expedited or Dedicated reportable segments we may face additional increases in depreciation and amortization.

Loss on disposition of property and equipment, net

		Three Months Ended
		March 31,
		2026				2025
Loss on disposition of property and equipment, net		$	338			$	326
% of total revenue			0.1	%			0.1	%
% of freight revenue			0.1	%			0.1	%

For the period presented, the change in loss on disposition of property and equipment, net was insignificant both as a percentage of total revenue and freight revenue.

Interestexpense, net

		Three Months Ended
		March 31,
		2026				2025
Interest expense, net		$	3,886			$	2,857
% of total revenue			1.3	%			1.1	%
% of freight revenue			1.4	%			1.2	%

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

This line item will fluctuate based on our decision with respect to purchasing revenue equipment with balance sheet debt versus operating leases, our revenue equipment replacement plan, and changing interest rates.

Income from equity method investment

		Three Months Ended
		March 31,
		2026				2025
Income from equity method investment		$	3,687			$	3,776

We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income or loss. The change in TEL's contribution to our results for the three months ended March 31, 2026 was insignificant for the periods presented. For the remainder of 2026, we expect TEL's earnings to remain relatively similar to those of the current period. However, due to TEL's business model, gains and losses on sale of equipment is a normal part of the business and can cause earnings to fluctuate from period to period and therefore our income from investment to similarly fluctuate.

Income tax expense

		Three Months Ended
		March 31,
		2026				2025
Income tax expense		$	1,663			$	1,983
% of total revenue			0.5	%			0.7	%
% of freight revenue			0.6	%			0.8	%

The decrease in income tax expense for the three months ended March 31, 2026 was the result of a $2.5 million decrease in pre-tax income compared to the same 2025 period. The changes in pre-tax income resulted from the aforementioned changes in operating income.

The effective tax rate is different from the expected combined tax rate due primarily to state tax expense and permanent differences. The rate impact of items such as executive compensation disallowance and the deductibility of per diem payments will fluctuate in future periods as income fluctuates.

RESULTS OF SEGMENT OPERATIONS

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

COMPARISON OF three months ended March 31, 2026TO three months ended March 31, 2025

The following table summarizes revenue and segment operating income data by reportable segment:

(in thousands)		Three Months Ended
		March 31,
		2026				2025
Revenues:
Expedited		$	84,671			$	94,693
Dedicated			103,423				93,609
Managed Freight			90,731				56,850
Warehousing			27,707				24,203
Other			629				-
Total revenues		$	307,161			$	269,355
Segment Operating Income(1):
Expedited		$	2,821			$	5,590
Dedicated			5,587				2,149
Managed Freight			3,703				3,540
Warehousing			1,778				1,843

(1)	Segment operating income excludes indirect costs not directly attributable to any one reportable segment, amortization of intangible assets, and contingent consideration liability adjustments to match the information our CODM uses to evaluate the operating results of our reportable segments.

The decrease in Expedited revenue for the three months ended March 31, 2026 relates to a 10.4% decrease in average total tractors compared to the 2025 quarter and a $1.7 million decrease in fuel surcharge revenue. Average freight revenue per tractor per week was comparable to the 2025 quarter as a result of a 3.4% decrease in average miles per unit largely offset by a 7.0 cents per mile (or 3.3%) increase in average rate per total mile as compared to the 2025 quarter. Expedited team-driven tractors averaged 709 and 796 tractors in the first quarter of 2026 and 2025, respectively.

The increase in Dedicated revenue for the three months ended March 31, 2026 relates to a 31, or 2.1%, average tractor increase and an increase in average freight revenue per tractor per week of 8.7% compared to the 2025 quarter. The increase in average freight revenue per tractor per week was the result of a 35.0 cents per mile (or 11.3%) increase in average rate per total mile partially offset by a 2.3% decrease in average miles per unit compared to the 2025 quarter.

For the three months ended March 31, 2026, Managed Freight total revenue increased primarily as a result of the fourth quarter 2025 Star Acquisition.

For the three months ended March 31, 2026, Warehousing total revenue increased $3.5 million compared to the 2025 period primarily due to onboarding a significant customer in the fourth quarter of 2025.

The decrease in Expedited segment operating income for the three months ended March 31, 2026 was primarily the result of the aforementioned decrease in revenue, partially offset by a decrease in Expedited segment operating expenses. The decrease in Expedited segment operating expenses for the three months ended March 31, 2026 was primarily the result of decreases in salaries, wages, and benefits for our professional drivers, operations and maintenance, and purchased transportation as compared to the same 2025 period as a result of fewer average miles per unit and a decrease in the average number of Expedited team-driven tractors. Going forward, our focus in Expedited will be on improving margins through rate increases, exiting less profitable business, and adding more profitable business.

The increase in Dedicated segment operating income for the three months ended March 31, 2026 was primarily the result of aforementioned increase in revenue, partially offset by an increase in Dedicated segment operating expenses. The increase in Dedicated segment operating expenses for the three months ended March 31, 2026, was primarily the result of increased salaries, wages, and benefits for our professional drivers, fuel expenses, and operations and maintenance costs since the 2025 period as a result of productivity from our agricultural protein related fleet which was negatively impacted by avian influenza during the prior year period. Going forward, we remain focused on our strategy of growing our dedicated fleet, specifically in areas that provide value-added services for customers. We believe that if we are successful in providing best in class service and controlling our costs, growth and improved profitability will result.

The increase in segment operating income for Managed Freight for the three months ended March 31, 2026 was primarily the result of the aforementioned increase in Managed Freight revenue partially offset by an increase in Managed Freight segment operating expenses. The increase in Managed Freight segment operating expenses for the three months ended March 31, 2026 was primarily the result of the increases in revenue driving increases in variable expenses, primarily purchased transportation. Going forward, we seek to grow Managed Freight with profitable revenue from new customers from organic initiatives and the Star Acquisition, working closely with our asset-based segments to capitalize on overflow opportunities when available, and optimizing costs to yield longer-term margin goals in the mid-single digits, which would generate an acceptable return on capital given the asset light nature of the business.

The decrease in segment operating income for Warehousing for the three months ended March 31, 2026 is primarily due to startup-related costs and inefficiencies for a significant customer onboarded during the fourth quarter of 2025 that more than offset the aforementioned increase in revenue. Going forward, as activities within this startup normalize, our goal is to have operating income margins in the high-single digit range.

LIQUIDITY AND CAPITAL RESOURCES

Our business requires significant capital investments over the short-term and the long-term. Historically, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operations, long-term operating leases, finance leases, secured installment notes with finance companies, and proceeds from the sale of our used revenue equipment. Going forward, we expect revenue equipment acquisitions to primarily be through purchases and finance leases. Further, we expect to increase our capital allocation toward our Dedicated, Managed Freight, and Warehousing reportable segments to become the go-to partner for our customers' most critical transportation and logistics needs. We had working capital (total current assets less total current liabilities) of $9.0 million and $22.8 million at March 31, 2026 and December 31, 2025, respectively. Our working capital on any particular day can vary significantly due to the timing of collections and cash disbursements. Based on our expected financial condition, net capital expenditures, results of operations, related net cash flows, installment notes, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs, and we do not expect to experience material liquidity constraints in the foreseeable future.

With an average tractor fleet age of 2.2 years at March 31, 2026, we believe we have flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle, new tractor purchase requirements, and purchase options. If we were to grow our independent contractor fleet, our capital requirements would be reduced.

As of March 31, 2026 and December 31, 2025 we had $291.8 million and $338.7 million in debt and lease obligations, respectively, consisting of the following:

	●	$29.0 million and $30.0 million outstanding borrowings under the Credit Facility;
	●	$208.4 million and $251.7 million in revenue equipment installment notes, respectively;
	●	$16.1 million and $16.3 million in real estate notes, respectively;
	●	$3.0 million and $3.2 million of the principal portion of financing lease obligations, respectively; and
	●	$35.3 million and $37.5 million of the operating lease obligations, respectively.

The decrease in revenue equipment installment notes is primarily due to selling a large amount of unproductive used revenue equipment and buying very little new equipment.

As of March 31, 2026, we had $29.0 million borrowings outstanding, undrawn letters of credit outstanding of approximately $19.9 million, and available borrowing capacity of $57.5 million under the Credit Facility. Fluctuations in the outstanding balance and related availability under our Credit Facility are driven primarily by cash flows from operations and the nature and timing of property and equipment additions that are not funded through notes payable, as well as the nature and timing of collection of accounts receivable, payments of accrued expenses, and receipt of proceeds from disposals of property and equipment.

Our net capital expenditures for the three months ended March 31, 2026 totaled $24.2 million of proceeds, as compared to $23.9 million of expenditures for the three months ended March 31, 2025. During the three months ended March 31, 2026, we took delivery of approximately 53 new tractors and 15 new trailers, while disposing of approximately 422 used tractors and 29 used trailers. Net losses on disposal of equipment and real estate in the three months ended March 31, 2026 and 2025 were $0.3 million, respectively. Our current fleet plan for the remainder of 2026 ranges from $40.0 million to $50.0 million, which is a significant reduction compared to 2025. Our expected capital expenditures are subject to change based on growth opportunities in our Dedicated fleet and the potential impacts of tariffs during the year. Our equipment plan reflects our priorities of maintaining the average age of our fleet in a manner that allows us to optimize operational uptime and related operating costs and offer a fleet of equipment that our professional drivers are proud to operate. We expect the benefits of improved utilization, fuel economy and maintenance costs to produce acceptable returns despite increased prices of new equipment and potentially lower values of used equipment. Given the mix change between our high mileage Expedited fleet and lower mileage Dedicated fleets, going forward, we anticipate the average age of our equipment to range from 25 to 28 months.

We distributed a total of $1.8 million to stockholders in the first three months of 2026 through dividends.

We believe we have sufficient liquidity to satisfy our cash needs, and we will continue to evaluate the nature and extent of potential short-term and long-term impacts to our business.

Cash Flows

Net cash flows provided by operating activities increased to $29.0 million for the three months ended March 31, 2026, compared to $24.8 million for the same 2025 period. Changes in operating assets and liabilities provided $2.1 million and $1.7 million during the three months ended March 31, 2026 and 2025, respectively, while non-cash expenses such as deferred income tax expense and depreciation and amortization increased during the 2026 period. These increases were partially offset by a decrease in net income to $4.4 million for the three months ended March 31, 2026, compared to $6.6 million for the same 2025 period.

Net cash flows provided by investing activities were $24.2 million for the three months ended March 31, 2026, compared to $24.1 million used in the same 2025 period. The increase in net cash flows provided by investing activities was primarily due to disposing of a large amount of unproductive used revenue equipment and buying very little new equipment, whereby we took delivery of approximately 53 new tractors and 15 new trailers, while disposing of approximately 422 used tractors and 29 used trailers during the 2026 period compared to delivery of 163 new tractors and 201 new trailers, while disposing of approximately 100 used tractors and 76 used trailers in the same 2025 period.

Net cash flows used by financing activities were $46.9 million for the three months ended March 31, 2026, compared to $25.1 million provided in the same 2025 period. The increase in net cash flows used in financing activities was primarily a function of net repayments relating to our notes payable and our Credit Facility of $44.5 million in the 2026 period compared to net repayments of $18.4 million in the 2025 period.

Net cash flows provided by operating activities also included payment of $8.0 million for the 2025 period related to the acquisition of LTST and net cash flows used by financing activities in the 2026 and 2025 periods also included payment of contingent consideration liabilities $0.3 million related to the Asset Acquisition and $4.5 million related to the acquisition of LTST.

On April 23, 2025, the Board approved a stock repurchase program authorizing the purchase of up to $50 million of the Company's Class A common stock from time-to-time based upon market conditions and other factors. The stock may be repurchased on the open market, in privately negotiated transactions, or other legally permissible means, including pursuant to Rule 10b5-1 trading plans. The Company did not place a limit on the duration of the repurchase program. The stock repurchase program does not obligate the Company to repurchase any specific number of shares, and the Company may suspend or terminate the program at any time without prior notice. There were no shares repurchased during three months ended March 31, 2026 or 2025. During the year ended December 31 2025, we repurchased approximately 1.6 million shares of our Class A common stock for $36.2 million (excluding excise tax).

Our cash flows may fluctuate depending on capital expenditures, future stock repurchases, dividends, strategic investments or divestitures, and the extent of future income tax obligations and refunds.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated. There have been no material changes to our most critical accounting policies and estimates during the three months ended March 31, 2026, compared to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2025.