UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SeptemberJune 30, 20182019
Commission File Number 001-34734
 
 
ROADRUNNER TRANSPORTATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware 20-2454942
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
  
1431 Opus Place, Suite 530
Downers Grove, Illinois
 60515
(Address of Principal Executive Offices) (Zip Code)
(414) 615-1500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per shareRRTSThe 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  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):
Large accelerated filer o  Accelerated filer x
Non-accelerated filer 
o 
  Smaller reporting company ox
    Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of October 31, 2018,August 1, 2019, there were outstanding 38,515,60037,637,122 shares of the registrant’s Common Stock, par value $.01 per share.



ROADRUNNER TRANSPORTATION SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20182019
TABLE OF CONTENTS
 
  
  


Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

ROADRUNNER TRANSPORTATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)September 30,
2018
 December 31, 2017June 30,
2019
 December 31,
2018
ASSETS      
Current assets:      
Cash and cash equivalents$10,019
 $25,702
$4,896
 $11,179
Accounts receivable, net of allowances of $9,745 and $10,891, respectively285,393
 321,629
Accounts receivable, net of allowances of $8,260 and $9,980, respectively243,457
 274,843
Income tax receivable11,192
 14,749
2,366
 3,910
Prepaid expenses and other current assets50,661
 36,306
50,103
 61,106
Total current assets357,265
 398,386
300,822
 351,038
Property and equipment, net of accumulated depreciation of $122,383 and $107,037, respectively
175,322
 159,547
Property and equipment, net of accumulated depreciation of $153,335 and $130,077, respectively
212,945
 188,706
Other assets:      
Operating lease right-of-use asset114,523
 
Goodwill264,826
 264,826
171,900
 264,826
Intangible assets, net44,276
 49,648
37,144
 42,526
Other noncurrent assets5,607
 3,636
5,987
 6,361
Total other assets314,709
 318,110
329,554
 313,713
Total assets$847,296
 $876,043
$843,321
 $853,457
LIABILITIES AND STOCKHOLDERS’ INVESTMENT   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT (DEFICIT)   
Current liabilities:      
Current maturities of debt$10,088
 $9,950
$2,566
 $13,171
Current maturities of indebtedness to related party9,133
 
Current finance lease liability21,799
 13,229
Current operating lease liability35,373
 
Accounts payable161,329
 171,905
132,549
 160,242
Accrued expenses and other current liabilities120,207
 105,409
89,889
 110,943
Total current liabilities291,624
 287,264
291,309
 297,585
Deferred tax liabilities5,536
 14,282
3,225
 3,953
Other long-term liabilities26,243
 10,873
3,339
 7,857
Long-term finance lease liability72,150
 37,737
Long-term operating lease liability85,223
 
Long-term debt, net of current maturities149,241
 189,460
134,830
 155,596
Long-term indebtedness to related party31,848
 
Preferred stock368,767
 263,317

 402,884
Total liabilities841,411
 765,196
621,924
 905,612
Commitments and contingencies (Note 11)
 
Stockholders’ investment:   
Common stock $.01 par value; 105,000 shares authorized; 38,514 and 38,423 shares issued and outstanding385
 384
Commitments and contingencies (Note 12)
 
Stockholders’ investment (deficit):   
Common stock $.01 par value; 44,000 and 4,200 shares authorized, respectively; 37,637 and 1,556 shares issued and outstanding, respectively376
 16
Additional paid-in capital404,476
 403,166
847,383
 405,243
Retained deficit(398,976) (292,703)(626,362) (457,414)
Total stockholders’ investment5,885
 110,847
Total liabilities and stockholders’ investment$847,296
 $876,043
Total stockholders’ investment (deficit)221,397
 (52,155)
Total liabilities and stockholders’ investment (deficit)$843,321
 $853,457
See accompanying notes to unaudited condensed consolidated financial statements.

1

Table of Contents


ROADRUNNER TRANSPORTATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
(In thousands, except per share amounts)Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 30, September 30,June 30, June 30,
2018 2017 2018 20172019 2018 2019 2018
Revenues$536,584
 $521,433
 $1,664,594
 $1,530,932
$480,688
 $558,026
 $987,836
 $1,128,010
Operating expenses:              
Purchased transportation costs365,678
 358,480
 1,146,713
 1,033,197
317,785
 380,072
 660,560
 781,035
Personnel and related benefits78,118
 73,263
 229,843
 223,345
81,686
 75,838
 160,901
 151,725
Other operating expenses93,995
 100,123
 291,206
 291,711
95,939
 99,712
 185,553
 197,211
Depreciation and amortization9,614
 9,319
 27,803
 27,834
14,788
 9,124
 30,330
 18,189
Operations restructuring costs
 
 4,655
 

 4,655
 
 4,655
Gain from sale of Unitrans
 (35,440) 
 (35,440)
Impairment charges
 4,402
 
 4,402
108,331
 
 109,109
 
Total operating expenses547,405
 510,147
 1,700,220
 1,545,049
618,529
 569,401
 1,146,453
 1,152,815
Operating (loss) income(10,821) 11,286
 (35,626) (14,117)
Operating loss(137,841) (11,375) (158,617) (24,805)
Interest expense:              
Interest expense - preferred stock32,847
 8,683
 71,571
 33,723

 31,609
 
 38,724
Interest expense - debt2,951
 1,819
 8,002
 11,659
4,632
 2,623
 8,514
 5,051
Total interest expense35,798
 10,502

79,573
 45,382
4,632
 34,232
 8,514
 43,775
Loss from debt extinguishment
 6,049
 
 15,876
Loss on debt restructuring
 
 2,270
 
Loss before income taxes(46,619) (5,265) (115,199) (75,375)(142,473) (45,607) (169,401) (68,580)
(Benefit from) provision for income taxes(5,058) 4,788
 (8,040) (7,516)
Benefit from income taxes(524) (3,652) (453) (2,982)
Net loss$(41,561) $(10,053) $(107,159) $(67,859)$(141,949) $(41,955) $(168,948) $(65,598)
Loss per share:              
Basic$(1.08) $(0.26) $(2.78) $(1.77)$(3.77) $(27.24) $(6.39) $(42.62)
Diluted$(1.08) $(0.26) $(2.78) $(1.77)$(3.77) $(27.24) $(6.39) $(42.62)
Weighted average common stock outstanding:              
Basic38,512
 38,420
 38,490
 38,399
37,603
 1,540
 26,442
 1,539
Diluted38,512
 38,420
 38,490
 38,399
37,603
 1,540
 26,442
 1,539
See accompanying notes to unaudited condensed consolidated financial statements.

2

Table of Contents


ROADRUNNER TRANSPORTATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ INVESTMENT (DEFICIT)
(Unaudited)

(In thousands)Nine Months Ended
 September 30,
 2018 2017
Cash flows from operating activities:   
Net loss$(107,159) $(67,859)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:   
Depreciation and amortization28,358
 28,780
Change in fair value of preferred stock70,451
 10,716
Amortization of preferred stock issuance costs1,120
 16,112
Loss on disposal of property and equipment1,853
 1,066
Gain on sale of Unitrans
 (35,440)
Share-based compensation1,392
 1,647
Loss from debt extinguishment
 15,876
Provision for bad debts2,275
 2,847
Deferred tax benefit(9,041) (10,193)
Impairment charges
 4,402
Changes in:   
Accounts receivable34,556
 (32,701)
Income tax receivable3,557
 3,599
Prepaid expenses and other assets(15,636) (768)
Accounts payable(12,453) (5,384)
Accrued expenses and other liabilities10,274
 17,329
Net cash provided by (used in) operating activities9,547
 (49,971)
Cash flows from investing activities:   
Proceeds from sale of business
 88,512
Capital expenditures(16,922) (11,212)
Proceeds from sale of property and equipment1,316
 2,689
Net cash (used in) provided by investing activities(15,606) 79,989
Cash flows from financing activities:   
Borrowings under revolving credit facilities60,746
 236,905
Payments under revolving credit facilities(85,655) (268,568)
Term debt payments(16,285) (278,819)
Term debt borrowings557
 56,780
Debt issuance costs and discount
 (4,672)
Cash collateralization of letters of credit
 (1,211)
Payments of debt extinguishment costs
 (10,960)
Preferred stock issuance costs(1,120) (16,112)
Proceeds from issuance of preferred stock and warrants34,999
 540,500
Preferred stock payments
 (293,000)
Issuance of restricted stock units, net of taxes paid(81) (230)
Payment of capital lease obligation(2,785) (3,078)
Net cash used in financing activities(9,624) (42,465)
Net decrease in cash and cash equivalents(15,683) (12,447)
Cash and cash equivalents:   
Beginning of period25,702
 29,513
End of period$10,019
 $17,066
Supplemental cash flow information:   
Cash paid for interest$7,436
 $24,625
Cash refunds from income taxes, net$(1,329) $(2,215)
Non-cash capital leases and other obligations to acquire assets$23,233
 $
Capital expenditures, not yet paid$1,877
 $
 Common Stock      
(In thousands, except shares)Shares Amount Additional Paid-In Capital Retained Deficit 
Total Stockholders'
Investment (Deficit)
          
BALANCE, December 31, 20181,555,868
 $16
 $405,243
 $(457,414) $(52,155)
Issuance of restricted stock units, net of taxes paid5,664
 
 (8) 
 (8)
Issuance of common stock36,000,000
 360
 449,640
 
 450,000
Common stock issuance costs
 
 (11,985) 
 (11,985)
Share-based compensation
 
 1,599
 
 1,599
Net loss
 
 
 (26,999) (26,999)
BALANCE, March 31, 201937,561,532
 $376
 $844,489
 $(484,413) $360,452
Issuance of restricted stock units, net of taxes paid75,590
 
 (175) 
 (175)
Share-based compensation
 
 3,069
 
 3,069
Net loss
 
 
 (141,949) (141,949)
BALANCE, June 30, 201937,637,122
 $376
 $847,383
 $(626,362) $221,397

 Common Stock      
(In thousands, except shares)Shares Amount Additional Paid-In Capital Retained Deficit 
Total Stockholders'
Investment (Deficit)
          
BALANCE, December 31, 20171,536,925
 $15
 $403,535
 $(292,703) $110,847
Issuance of restricted stock units, net of taxes paid3,272
 
 (75) 
 (75)
Share-based compensation
 
 523
 
 523
Cumulative effect of change in accounting principle
 
 
 886
 886
Net loss
 
 
 (23,643) (23,643)
BALANCE, March 31, 20181,540,197
 $15
 $403,983
 $(315,460) $88,538
Issuance of restricted stock units, net of taxes paid93
 
 (1) 
 (1)
Share-based compensation
 
 372
 
 372
Net loss
 
 
 (41,955) (41,955)
BALANCE, June 30, 20181,540,290
 $15
 $404,354
 $(357,415) $46,954

See accompanying notes to unaudited condensed consolidated financial statements.


3

Table of Contents


ROADRUNNER TRANSPORTATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)Six Months Ended
 June 30,
 2019 2018
Cash flows from operating activities:   
Net loss$(168,948) $(65,598)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation and amortization30,720
 18,552
Change in fair value of preferred stock
 37,663
Amortization of preferred stock issuance costs
 1,061
Loss on disposal of property and equipment355
 1,972
Share-based compensation4,668
 895
Loss on debt restructuring2,270
 
Provision for bad debts491
 2,030
Deferred tax benefit(729) (3,544)
Impairment charges109,109
 
Changes in:   
Accounts receivable30,895
 27,156
Income tax receivable1,544
 911
Prepaid expenses and other assets30,676
 6,900
Accounts payable(29,879) (23,852)
Accrued expenses and other liabilities(30,718) (5,052)
Net cash used in operating activities(19,546) (906)
Cash flows from investing activities:   
Capital expenditures(13,043) (11,391)
Proceeds from sale of property and equipment1,882
 927
Net cash used in investing activities(11,161) (10,464)
Cash flows from financing activities:   
Borrowings under revolving credit facilities523,478
 
Payments under revolving credit facilities(526,643) 
Term debt borrowings52,592
 557
Term debt payments(39,714) (11,846)
Debt issuance costs(2,005) 
Payments of debt extinguishment costs(693) 
Proceeds from issuance of common stock450,000
 
Common stock issuance costs(10,514) 
Proceeds from issuance of preferred stock
 34,999
Preferred stock issuance costs
 (1,061)
Preferred stock payments(402,884) 
Issuance of restricted stock units, net of taxes paid(183) (76)
Payments on insurance premium financing(9,957) 
Payment of capital lease obligation(9,053) (1,267)
Net cash provided by financing activities24,424
 21,306
Net (decrease) increase in cash and cash equivalents(6,283) 9,936
Cash and cash equivalents:   
Beginning of period11,179
 25,702
End of period$4,896
 $35,638

4

Table of Contents



ROADRUNNER TRANSPORTATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
 Six Months Ended
(In thousands)June 30,
 2019 2018
Supplemental cash flow information:   
Cash paid for interest$8,125
 $4,966
Cash (refunds from) paid for income taxes, net$(787) $144
Non-cash finance leases and other obligations to acquire assets$52,456
 $10,451
Capital expenditures, not yet paid$2,814
 $
See accompanying notes to unaudited condensed consolidated financial statements.


5

Table of Contents


Roadrunner Transportation Systems, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization, Nature of Business and Significant Accounting Policies
Nature of Business
Roadrunner Transportation Systems, Inc. (the “Company”) is headquartered in Downers Grove, Illinois with operations primarily in the United States and iswas organized ininto the following three segments: Truckload & Express Services (“TES”), Less-than-Truckload (“LTL”), andfour segments effective April 1, 2019: Ascent Global Logistics (“Ascent”). Within its TES segment, the Company serves customers throughout North America, Active On-Demand, Less-than-Truckload (“LTL”) and provides the following services: air and ground expedite; over-the-road operations, including dry van, temperature controlled and flatbed; intermodal drayage and chassis management; and local, warehousing and other logistics. Within its LTL segment, the Company delivers LTL shipments throughout the United States and parts of Canada and operates service centers, complemented by relationships with numerous pick-up and delivery agents.Truckload (“TL”). Within its Ascent segment, the Company provides third-party domestic freight management, international freight forwarding, customs brokerage and retail consolidation solutions. Within its Active On-Demand segment, the Company provides premium mission critical air and ground expedite and logistics operations. Within its LTL segment, the Company's services involve the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments. Within its TL segment, the Company provides the following services: scheduled and expedited dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing operations.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated in consolidation. In the Company's opinion, except as noted below with respect to the change in accounting principle, the change in segments, and the restructuring charges described in Note 14, these unaudited condensed consolidated interim financial statements includereflect all adjustments, consisting only of normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the operationsresults for the interim periods presented.periods. These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2018. Interim results are not necessarily indicative of results for a full year.
Reverse Stock Split
On April 4, 2019, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”), to effect a reverse stock split (the “Reverse Stock Split”), as described in its Definitive Information Statement on Schedule 14C filed with the SEC on March 15, 2019. As a result, the Reverse Stock Split took effect on April 4, 2019 and the Company’s common stock began trading on a split-adjusted basis when the market opened on April 5, 2019.
Pursuant to the Reverse Stock Split, shares of the Company’s common stock were automatically consolidated at the rate of 1-for-25 without any further action on the part of the Company’s stockholders. All fractional shares owned by each stockholder were aggregated and to the extent after aggregating all fractional shares any stockholder was entitled to a fraction of a share, such stockholder became entitled to receive, in lieu of the issuance of such fractional share, a cash payment based on a pre-split cash rate of $0.4235, which is the volume weighted average trading price per share on the New York Stock Exchange (“NYSE”) for the five consecutive trading days immediately preceding April 4, 2019.
Following the Reverse Stock Split, the number of outstanding shares of the Company’s common stock was reduced by a factor of 25 to approximately 37,561,532. The number of authorized shares of common stock was also reduced by a factor of 25 to 44,000,000.
All references to numbers of common shares and per common share data in these condensed consolidated financial statements and related notes have been retroactively adjusted to account for the effect of the reverse stock split for all periods presented.
Change in Accounting Principle
On January 1, 2018,2019, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, which was updated in August 2015 by 2016-02, Leases (Topic 842) (“ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606)2016-02”). The core principleCompany elected to adopt Topic 842 using an optional alternative method of adoption, referred to as the guidance is that an entity should recognize revenue“Comparatives Under ASC 840 Approach,” which allows companies to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-08 (“ASU 2016-08”), Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net). Under ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service (that is, the entity is a principal) or to arrange for that good or service to be provided by another party. When the principal entity satisfies a performance obligation, the entity recognizes revenue in the gross amount. When an entity that is an agent satisfies the performance obligation, that entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled.
The Company determined key factors from the five-step process to recognize revenue as prescribed byapply the new standardrequirements to only those leases that may be applicable to eachexisted as of January 1, 2019. Under the Company's operating businesses that roll up into its three segments. Significant customers and contracts from each business unit were identified and the Company reviewed these contracts. The Company completed the evaluation of the provisions of these contracts and compared the historical accounting policies and practices to the requirements of the new standard including the related qualitative disclosures regarding the potential impact of the effects of the accounting policies and a comparison to the Company's previous revenue recognition policies.
The Company determined that certain transactions with customers required a change in the timing of when revenue and related expense is recognized. The guidance was applied only to contracts that were not completed atComparatives Under ASC 840 Approach, the date of initial application is January 1, 2019 with no retrospective restatements. As such, there was no impact to historical comparative income statements and the balance sheet assets and liabilities have been recognized in 2019 in accordance with ASC 842. Upon adoption, the Company recognized a lease liability, initially measured at the present value of the lease payments, of $135 million with a corresponding right-of-use asset for operating leases. The Company's accounting for finance leases is essentially unchanged. As part of its adoption of Topic 842 the Company elected the “package of three” practical expedient, which, among other things, does not require the Company to reassess lease classification for expired or existing contracts upon adoption. The Company also elected to not use hindsight in assessing existing lease terms at the modified retrospective method which required a cumulative adjustment to retained earnings insteadtransition date. See Note 3 for more information.

6

Table of retrospectively adjusting prior periods. The Company recorded a $0.9 million benefit to opening retained earnings as of January 1, 2018 for the cumulative impact of adoption related to the recognition of in-transit revenue. Results for 2018 are presented under Topic 606, while prior periods were not adjusted. The adoption of Topic 606 did not have a material impact on the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2018. The disclosure requirements of Topic 606 are included within the Company's revised revenue recognition accounting policy below.Contents


Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

4

Table of Contents


Segment Reporting
The Company determines its segments based on the information utilized by the chief operating decision maker,Chief Operating Decision Maker (“CODM”), the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has threefour segments: TES,Ascent, Active On-Demand, LTL and Ascent.TL. The Company changed its segment reporting effective JanuaryApril 1, 20182019, when it integratedthe CODM began assessing the performance of the Active On-Demand air and ground expedite business separately from its truckload brokerage business into the Ascent domestic freight management business.businesses. Segment information for prior periods has been revised to align with the new segment structure.
Revenue Recognition (effective January 1, 2018)
The Company’s revenues are primarily derived from transportation services which includes providing freight and carrier services both domestically and internationally via land, air, and sea. The Company disaggregates revenue among its threefour segments, TES,Ascent, Active On-Demand, LTL and Ascent,TL, as presented in Note 13.14.
Performance Obligations - A performance obligation is created once a customer agreement with an agreed upon transaction price exists. The terms and conditions of the Company’s agreements with customers are generally consistent within each segment. The transaction price is typically fixed and determinable and is not contingent upon the occurrence or non-occurrence of any other event. The transaction price is generally due 30 to 60 days from the date of invoice. The Company’s transportation service is a promise to move freight to a customer’s destination, with the transit period typically being less than one week. The Company views the transportation services it provides to its customers as a single performance obligation. TheseThis performance obligations areobligation is satisfied and recognized in revenue over the requisite transit period as the customer’s goods move from origin to destination. The Company determines the period to recognize revenue in transit based upon the departure date and the delivery date, which may be estimated if delivery has not occurred as of the reporting date. Determining the transit period and the percentage of completion as of the reporting date requires management to make judgments that affect the timing of revenue recognized. The Company has determined that revenue recognition over the transit period provides a reasonable estimate of the transfer of goods and services to its customers as the Company’s obligation is performed over the transit period.
Principal vs. Agent Considerations - The Company utilizes independent contractors and third-party carriers in the performance of some transportation services. The Company evaluates whether its performance obligation is a promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent) using a control model. This evaluation determined that the Company is in control of establishing the transaction price, managing all aspects of the shipments process and taking the risk of loss for delivery, collection, and returns. Based on the Company’s evaluation of the control model, it determined that all of the Company’s major businesses act as the principal rather than the agent within their revenue arrangements and such revenues are reported on a gross basis.
Contract Balances and Costs - The Company applies the practical expedient in ASU No. 2015-14, Revenue from Contracts with Customers, (“Topic 606606”) that permits the Company to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the period as the Company's contracts have an expected length of one year or less. The Company also applies the practical expedient in Topic 606 that permits the recognition of incremental costs of obtaining contracts as an expense when incurred if the amortization period of such costs is one year or less. These costs are included in purchased transportation costs.
New Accounting Pronouncements
In February 2016,The Company's performance obligation represents the FASB issued ASU No. 2016-02, Leases (Topic 842), which will be effectivetransaction price allocated to future reporting periods for freight services started but not completed at the reporting date. This includes the unbilled amounts and accrued freight costs for freight shipments in transit. As of June 30, 2019 and December 31, 2018, the Company had $15.1 million and $7.8 million of unbilled amounts recorded in accounts receivable, respectively, and $10.3 million and $6.1 million of accrued freight costs recorded in accounts payable, respectively. Amounts recorded to revenue and purchased transportation costs are not material for the three and six months ended June 30, 2019 and 2018.
Leases
The Company in 2019.determines at inception whether a contract qualifies as a lease and whether the lease meets the classification criteria of an operating or finance lease. For financingoperating leases, a lessee is required to: (1) recognize a right-of-use asset andthe Company records a lease liability initially measuredand corresponding right-of-use asset at the lease commencement date, which are valued at the estimated present value of the lease payments; (2) recognize interest on the lease liability separately from amortization of the right-of-use asset; and (3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases, a lessee is required to: (1) recognize the right-to-use asset and a lease liability, initially measured at the present value of the lease payments; (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis; and (3) classify all cash payments within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying assets not to recognize lease assets and lease liabilities. In July 2018, the FASB issued an amendment to Topic 842 which provides an optional transition method that will give companies the option to use the effective date as the date of initial application upon transition. The Company plans to elect this transition method and, as a result, will not adjust comparative period financial information or make the new required lease disclosures for periods before the effective date. The Company has established an implementation team which is in the process of implementing Topic 842, including accumulating necessary information, assessing the current lease portfolio, and implementing software to meet the new reporting requirements. The Company is also evaluating current processes and controls and identifying necessary changes to support the adoption of the new standard. The Company anticipates it will exclude leases with a term of 12 months or less from accounting under Topic 842 and plans to elect the package of practical expedients upon transition that will retain lease classification and other accounting conclusions made in the assessment

57

Table of Contents


of existing lease contracts.term. The Company expectsuses its collateralized incremental borrowing rate at the lease commencement date in determining the present value of the lease payments. Finance leases are included within property and equipment. The Company does not recognize leases with an original lease term of 12 months or less on the condensed consolidated balance sheets but will disclose the related lease expense for these short-term leases. The Company does not separate non-lease components from lease components, which results in all payments being allocated to the lease and factored into the measurement of the right-of-use asset and lease liability. The Company includes options to extend the lease when it is reasonably certain that the Company will exercise that option.
Impairment Charges
The Company recorded a goodwill impairment charge of $92.9 million and an intangible asset impairment charge of $1.9 million for the three months ended June 30, 2019 within its TL segment. See Note 2 for more information.
In the fourth quarter of 2018, the Company recorded an asset impairment charge of $1.6 million related to tractors that were classified as "held for sale" within its TL segment. The fair value less cost to sell the long-lived assets is required to be assessed each reporting period it remains classified as held for sale. In the second quarter of 2019, the Company reassessed the carrying value of the remaining assets held for sale and recorded an additional asset impairment charge of $0.5 million.
The Company recorded an asset impairment charge of $13.0 million at Corporate as a reduction to property, plant and equipment, net for the three months ended June 30, 2019 related to software development that is being abandoned. The impairment costs are associated with the abandonment of current software development in favor of alternative customized software solutions. The Company also recorded an asset impairment charge of $0.8 million in the first quarter of 2019 related to software that is no longer useful following the integration of Ascent’s domestic freight management operations. Total asset impairment charges related to software was $13.8 million, which was recorded at Corporate as a reduction to property, plant and equipment, net for the six months ended June 30, 2019.
New Accounting Pronouncements
In August 2018, the Financial Accounting Standard Board (“FASB”) issued ASU 2018-15, Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is effective for the Company in 2020. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The Company does not expect the adoption of this guidance willASU 2018-15 to have a material impact on the Company's consolidated balance sheets given the Company will be required to record operating leases with lease terms greater than 12 months within assets and liabilities on the consolidated balance sheets; however, the impact on the consolidated statements of operations and cash flows is not expected to be material.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory (“ASU 2016-16”). Prior to ASU 2016-16, GAAP prohibited the recognition of current and deferred income taxes for intra-entity asset transfers other than inventory (e.g., property and equipment) until the asset had been sold to an outside party. Under ASU 2016-16, the FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs. ASU 2016-16 does not include any new disclosure requirements; however, existing disclosure around the rate reconciliations and types of temporary differences and/or carryforward that give rise to a significant portion of deferred income taxes may be applicable. The Company adopted ASU 2016-16 effective January 1, 2018 and it did not have a material impact on the Company’sits condensed consolidated financial statements.
2. Divestitures
On September 15, 2017, the Company completed the sale of its wholly-owned subsidiary Unitrans, Inc. (“Unitrans”). The Company received net proceeds of $88.5 million and recognized a gain of $35.4 million. The proceeds from the sale were used primarily to redeem a portion of the Series E Preferred Stock and to provide funding for operations.
The results of operations and financial condition of Unitrans have been included in the Company's condensed consolidated financial statements within the Company's Ascent segment until the date of sale. The divestiture of Unitrans did not meet the criteria for being classified as a discontinued operation and accordingly, its results are presented within continuing operations.
3. Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of all acquisitions over the estimated fair value of the net assets acquired. The Company evaluates goodwill and intangible assets for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the asset may be impaired, or in the case of goodwill, the fair value of the reporting unit is below its carrying amount. The analysis of potential impairment of goodwill requires the Company to compare the estimated fair value at each of its reporting units to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, a non-cash goodwill impairment loss is recognized as an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
For purposes of the impairment analysis, the fair value of the Company’s reporting units is estimated based upon an average of the market approach and the income approach, both of which incorporate numerous assumptions and estimates such as company forecasts, discount rates, and growth rates, among others. The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which the Company competes, the discount rate, terminal growth rates, and forecasts of revenue, operating income, and capital expenditures. The allocation requires several analyses to determine fair value of assets and liabilities, including, among others, customer relationships and property and equipment. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units.units, the amount of the goodwill impairment charge, or both. Future declines in the overall market value of the Company's stock may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.
The
8

Table of Contents


Prior to the change in segments, the Company hashad four reporting units for its three segments: one reporting unit for its TESTruckload and Express Services (“TES”) segment; one reporting unit for its LTL segment; and two reporting units for its Ascent segment, which are the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit. In connection with the change in segmentsThe Company conducts its goodwill impairment analysis for each of its four reporting units as indicated in Noteof July 1 the Company reallocated $5.8 million of goodwill between the TES and Ascent segments.each year.
In connection with the change in segments, the Company conducted an impairment analysis as of JanuaryApril 1, 2018 and2019. Due to the inability of the TES businesses to meet forecast results, the Company determined the carrying value exceeded the fair value for the TES reporting unit. Accordingly, the Company recorded a goodwill impairment charge of $92.9 million, which represents a write off of all the TES goodwill. Given the fact that all of the goodwill was impaired, there was no impairment.remaining TES goodwill to allocate to the TL and Active On-Demand segments. The Company conducted its annualfair value of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit exceeded their respective carrying values by 3.1% and 109.0%, respectively; thus no impairment was indicated for these reporting units. The goodwill impairmentbalances of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit as of June 30, 2019 were $98.5 million and $73.4 million, respectively. The LTL reporting unit had no remaining goodwill as of April 1, 2019.
The table below provides a sensitivity analysis for each of its four reporting units as of July 1, 2018 and determined that the fair values of the TES, Domestic and International Logistics and Warehousing & Consolidation reporting units, exceeded their respective carrying values by 5.1%, 12.8%,which shows the estimated fair value impacts related to a 50-basis point increase or decrease in the discount and 112.2%, respectively; thus no impairment was indicated for these reporting units.long-term growth rates used in the valuation as of April 1, 2019.
Approximate Percent Change in Estimated Fair Value
+/- 50 bps Discount Rate+/- 50bps Growth Rate
Domestic and International Logistics reporting unit(2.5%) / 2.5%1.5% / (1.8%)
Warehousing & Consolidation reporting unit(2.2%) / 2.2%1.6% / (1.9%)
The following is a breakdown of the Company's goodwill as of SeptemberJune 30, 20182019 by segment (in thousands):

6

Table of Contents


 TES LTL Ascent Total
Goodwill$92,926
 $
 $171,900
 $264,826
   Active 
    
 Ascent On-Demand LTL TL Total
Balance as of December 31, 2018$171,900
 $
 $
 $92,926
 $264,826
  Goodwill impairment charges
 
 
 (92,926) (92,926)
Balance as of June 30, 2019$171,900
 $
 $
 $
 $171,900
In connection with the change in segments as indicated in Note 1, the Company reallocated $25.1 million of accumulated goodwill impairment between the TES and Ascent segments. The following is a breakdown of the Company's accumulated goodwill impairment lossescharges as of SeptemberJune 30, 20182019 by segment (in thousands):
 TES LTL Ascent Total
Accumulated goodwill impairment charges$132,408
 $197,312
 $46,763
 $376,483
   Active      
 Ascent On-Demand LTL TL Total
Balance as of December 31, 2018$46,763
 $
 $197,312
 $132,408
 $376,483
  Goodwill impairment charges
 
 
 92,926
 92,926
Balance as of June 30, 2019$46,763
 $
 $197,312
 $225,334
 $469,409
Intangible assets consistconsisted primarily of customer relationships acquired from business acquisitions. In connection with the change in segments as indicated in Note 1, the Company reallocated net intangible assets of $0.3 million between the TES and
Ascent segments.
Intangible assets as of SeptemberJune 30, 20182019 and December 31, 20172018 were as follows (in thousands):
September 30, 2018 December 31, 2017June 30, 2019 December 31, 2018
Gross
Carrying
Amount
 Accumulated
Amortization
 Net Carrying
Value
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net Carrying
Value
Gross
Carrying
Amount
 Accumulated
Amortization
 Net Carrying
Value
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net Carrying
Value
TES$55,008
 $(21,863) $33,145
 $55,008
 $(18,470) $36,538
Ascent$27,152
 $(18,474) $8,678
 $27,152
 $(17,248) $9,904
Active On-Demand31,547
 (12,424) 19,123
 31,547
 (11,139) 20,408
LTL2,498
 (1,884) 614
 2,498
 (1,748) 750
2,498
 (2,008) 490
 2,498
 (1,925) 573
Ascent27,152
 (16,635) 10,517
 27,152
 (14,792) 12,360
TL20,261
 (11,408) 8,853
 23,461
 (11,820) 11,641
Total$84,658
 $(40,382) $44,276
 $84,658
 $(35,010) $49,648
$81,458
 $(44,314) $37,144
 $84,658
 $(42,132) $42,526

9

Table of Contents


The customer relationships intangible assets are amortized over their estimated useful lives, ranging from five to 12 years. Amortization expense was $1.8$1.7 million and $2.0$1.8 million for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Amortization expense was $5.4$3.4 million and $6.1$3.6 million for the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively. The Company evaluates its other intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and 2017, respectively. used may not be recoverable. Indicators of impairment were identified in connection with the declining operating performance of one of the Company's businesses within the TL segment and as a result, $1.9 million of non-cash impairment charges were recorded for the three months ended June 30, 2019.
Estimated amortization expense for each of the next five years based on intangible assets as of SeptemberJune 30, 20182019 is as follows (in thousands):
Remainder 2018$1,751
20196,819
Remainder 2019$3,193
20206,447
6,180
20216,265
5,998
20225,826
5,560
20235,195
Thereafter17,168
11,018
Total$44,276
$37,144
3. Leases
The Company leases terminals, office space, trucks, trailers, and other equipment under noncancelable operating leases expiring on various dates through 2042. The Company also leases trucks, trailers, office space and other equipment under finance leases. Certain of our lease agreements for trucks, trailers and other equipment contain residual value guarantees.
Amounts recognized in the condensed consolidated balance sheets related to the Company's lease portfolio are as follows (in thousands):
 June 30,
2019
Assets: 
Finance lease assets, net (included in property and equipment)$94,308
Operating lease right-of-use asset114,523
Total lease assets$208,831
Liabilities: 
Current finance lease liability$21,799
Current operating lease liability35,373
Long-term finance lease liability72,150
Long-term operating lease liability85,223
Total lease liabilities$214,545
Amounts recognized in the condensed consolidated income statement related to the Company's lease portfolio for the three and six months ended June 30, 2019 are as follows (in thousands):
    Three months ended Six months ended
Lease component Classification June 30,
2019
 June 30,
2019
       
Rent expense - operating leases Other operating expenses $16,833
 $33,771
Amortization of finance lease assets Depreciation expense $4,871
 $9,202
Interest on finance lease liabilities Interest expense $1,430
 $2,630

10

Table of Contents


Rent expense for operating leases relates primarily to long-term operating leases, but also includes amounts for variable leases and short-term leases. The Company also recognized rental income of $2.7 million and $5.2 million for the three and six months ended June 30, 2019, respectively, related to operating leases the Company entered into with its independent contractors (“IC”), of which $2.3 million and $4.1 million related to sublease income for the three and six months ended June 30, 2019, respectively. The Company records rental income from leases as a reduction to rent expense - operating leases.
Aggregate future minimum lease payments under noncancelable operating and finance leases with an initial term in excess of one year were as follows as of June 30, 2019 (in thousands):
Year Ending: Operating leases Finance leases Total
Remainder of 2019 $21,736
 $14,144
 $35,880
2020 34,676
 26,916
 61,592
2021 25,108
 30,292
 55,400
2022 20,831
 15,307
 36,138
2023 17,640
 12,854
 30,494
Thereafter 17,406
 11,156
 28,562
Total $137,397
 $110,669
 $248,066
Less: Interest (16,801) (16,720) (33,521)
Present value of lease liabilities $120,596
 $93,949
 $214,545
Aggregate future minimum lease payments under noncancelable operating leases with an initial term in excess of one year were as follows as of December 31, 2018 (in thousands):
Year Ending:  
2019 $45,713
2020 34,920
2021 25,536
2022 21,413
2023 17,920
Thereafter 17,556
Total $163,058
The weighted average remaining lease term and discount rate used in computing the lease liability as of June 30, 2019 were as follows:
Weighted average remaining lease term (in years)
Operating leases4.5
Finance leases3.5
Weighted average discount rate
Operating leases7.2%
Finance leases7.4%

11

Table of Contents


Supplemental cash flow information related to leases for the six months ended June 30, 2019 is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows for operating leases$23,812
Operating cash flows for finance leases2,630
Financing cash flows for finance leases9,071
  
ROU assets added for operating leases: 
Operating leases$4,776
Lease transactions with related parties are disclosed in Note 13, Related Party Transactions.
4. Debt
Debt as of SeptemberJune 30, 20182019 and December 31, 20172018 consisted of the following (in thousands):
September 30,
2018
 December 31,
2017
June 30,
2019
 December 31,
2018
   
ABL credit facility$131,367
 $
Term loan credit facility50,211
 
Prior ABL Facility:   
Revolving credit facility$122,128
 $147,037

 134,532
Term loans40,130
 55,858

 37,333
Total debt$162,258
 $202,895
$181,578
 $171,865
Less: Debt issuance costs and discount(2,929) (3,485)(3,201) (3,098)
Total debt, net of debt issuance costs and discount159,329
 199,410
178,377
 168,767
Less: Current maturities(10,088) (9,950)(11,699) (13,171)
Total debt, net of current maturities$149,241
 $189,460
$166,678
 $155,596
ABL Credit Facility
On February 28, 2019, the Company and its direct and indirect domestic subsidiaries entered into a credit agreement with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the Joint Lead Arrangers and Joint Book Runners party thereto (the “ABL Credit Facility”). The Company initially borrowed $141.4 million under the ABL Credit Facility. The ABL Credit Facility matures on February 28, 2024.
The ABL Credit Facility consists of a $200.0 million asset-based revolving line of credit, of which up to (i) $15.0 million may be used for First In, Last Out (“FILO”) Loans (as defined in the ABL Credit Facility), (ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL Credit Facility), and (iii) $30.0 million may be used for letters of credit. The ABL Credit Facility provides that the revolving line of credit may be increased by up to an additional $100.0 million under certain circumstances. The Company had adjusted excess availability under the ABL Credit Facility of $34.4 million as of June 30, 2019.
Advances under the Company’s ABL Credit Facility bear interest at either: (a) the LIBOR Rate (as defined in the ABL Credit Facility), plus an applicable margin ranging from 1.50% to 2.00% for the non-FILO Loans and 2.50% to 3.00% for the FILO Loans; or (b) the Base Rate (as defined in the ABL Credit Facility), plus an applicable margin ranging from 0.50% to 1.00% for the non-FILO Loans and 1.50% to 2.00% for the FILO Loans. The Company's average annualized interest rate for the ABL Credit Facility was 5.3% for the six months ended June 30, 2019.
The obligations under the Company’s ABL Credit Facility are guaranteed by each of its domestic subsidiaries pursuant to a guaranty included in the ABL Credit Facility. As security for the Company’s and its subsidiaries’ obligations under the ABL Credit Facility, each of the Company and its domestic subsidiaries have granted: (i) a first priority lien on substantially all its domestic subsidiaries’ tangible and intangible personal property (other than the assets described in the following clause (ii)), including the capital stock of certain of the Company’s direct and indirect subsidiaries; and (ii) a second-priority lien on the Company’s and its domestic subsidiaries’ equipment (including, without limitation, rolling stock, aircraft, aircraft engines and aircraft parts) and proceeds and accounts related thereto. The priority of the liens is described in an intercreditor agreement between BMO Harris Bank N.A. as ABL Agent and BMO Harris Bank N.A. as Term Loan Agent.

12

Table of Contents


The ABL Credit Facility contains a minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. In addition, the ABL Credit Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The ABL Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Credit Facility to be in full force and effect, and a change of control of the Company’s business. As of June 30, 2019, the Company's excess availability had not fallen below the amount specified and therefore the minimum fixed charge coverage ratio financial covenant was not applicable.
Term Loan Credit Facility
On February 28, 2019, the Company and its direct and indirect domestic subsidiaries entered into a credit agreement with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott Associates, L.P. and Elliott International, L.P, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner (the “Term Loan Credit Facility”). The Company initially borrowed $51.1 million under the Term Loan Credit Facility. The Term Loan Credit Facility matures on February 28, 2024.
The Term Loan Credit Facility consists of an approximately $61.1 million term loan facility, consisting of
approximately $40.3 million of Tranche A Term Loans (as defined in the Term Loan Credit Facility),
approximately $2.5 million of Tranche A FILO Term Loans (as defined in the Term Loan Credit Facility),
approximately $8.3 million of Tranche B Term Loans (as defined in the Term Loan Credit Facility), and
a $10.0 million asset-based facility available to finance future capital expenditures.
Principal on each of the Tranche A Term Loans and the Tranche B Term Loans is due in quarterly installments based upon a 4.5-year amortization schedule (i.e. each installment is 1/18th of the original principal amount of the Tranche A Term Loans and the Tranche B Term Loans), commencing on September 1, 2019. Principal on the Tranche A FILO Term Loans is due on the maturity date of the Term Loan Credit Facility, unless earlier accelerated thereunder. Principal on each draw under the capital expenditure facility is due in quarterly installments based upon a five-year amortization schedule (i.e. each installment shall be 1/20th of the original principal amount of any capital expenditure loan), commencing on the first day of the first full fiscal quarter immediately following the making of each such capital expenditure loan. The loans under the Term Loan Credit Facility bear interest at either: (a) the LIBOR rate (as defined in the Term Loan Credit Agreement), plus an applicable margin of 7.50% for Tranche A Term Loans, Tranche B Term Loans and capital expenditure loans, and 8.50% for Tranche A FILO Term Loans; or (b) the Base Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin of 6.50% for Tranche A Term Loans, Tranche B Term Loans and capital expenditure loans, and 7.50% for Tranche A FILO Term Loans. The Company's average annualized interest rate for the Term Loan Credit Facility was 10.7% for the six months ended June 30, 2019.
The obligations under the Company’s Term Loan Credit Facility are guaranteed by each of its domestic subsidiaries pursuant to a guaranty included in the Term Loan Credit Facility. As security for the Company’s and its subsidiaries’ obligations under the Term Loan Credit Facility, each of the Company and its domestic subsidiaries have granted: (i) a first priority lien on its equipment (including, without limitation, rolling stock, aircraft, aircraft engines and aircraft parts) and proceeds and accounts related thereto, and (ii) a second priority lien on substantially all of the Company’s and its domestic subsidiaries’ other tangible and intangible personal property, including the capital stock of certain of the Company’s direct and indirect subsidiaries. The priority of the liens is described in an intercreditor agreement between BMO Harris Bank N.A. as ABL Agent and BMO Harris Bank N.A. as Term Loan Agent.
The Term Loan Credit Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Term Loan Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Credit Facility to be in full force and effect, and a change of control of the Company’s business.


13

Table of Contents


Prior ABL Facility
On July 21, 2017, the Company entered into the Asset-Based Lending Facilityan asset-based lending facility with BMO Harris Bank, N.A. and certain other lenders (the “ABL“Prior ABL Facility”).
The Company used the initial proceeds from thePrior ABL Facility for working capital purposes and to redeem allconsisted of the outstanding shares of its Series F Preferred Stock. The ABL Facility matures on July 21, 2022.
The ABL Facility consists of a:

7

Table of Contents


$200.0 million asset-based revolving line of credit, of which $20.0 million maycould be used for swing line loans and $30.0 million maycould be used for letters of credit;
$56.8 million term loan facility; and
$35.0 million asset-based facility available to finance future capital expenditures, which was subsequently terminated before being utilized.
Principal on the term loan facility iswas due in quarterly installments commencing on March 31, 2018. Borrowings under the Prior ABL Facility arewere secured by substantially all of the assets of the Company. Borrowings under the Prior ABL Facility bearbore interest at either the (a) LIBOR Rate (as defined in the credit agreement)Prior ABL Facility) plus an applicable margin in the range of 1.5% to 2.25%, or (b) the Base Rate (as defined in the credit agreement) plus an applicable margin in the range of 0.5% to 1.25%. The Prior ABL Facility containscontained a minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. The Prior ABL Facility also providesprovided for the issuance of up to $30.0 million in letters of credit. As of September 30, 2018, the Company had outstanding letters of credit totaling $14.4 million. As of September 30, 2018, total availability under the ABL Facility was $42.2 million but the Company could not draw more than $22.2 million as of that date to maintain at least $20.0 million of Adjusted Excess Availability in order to avoid the commencement of a Fixed Charge Trigger Period. In addition, the ABL Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted. The ABL Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the credit agreement to be in full force and effect, and a change of control of the Company's business.
On December 15, 2017,January 9, 2019, the Company entered into a FirstSeventh Amendment to the Prior ABL Facility. Pursuant to the FirstSeventh Amendment, the ABL Facility was amended to (i) reduce the maximum borrowing amount under the revolving line of credit by $15.0 million and (ii) terminate the asset-based facility available to finance future capital expenditures.
On January 30, 2018, the Company entered into a Second Amendment to the ABL Facility. Pursuant to the Second Amendment the ABL Facility was further amended to, among other things: (i) permit the Company to enter into an investment agreement with Elliott providing for the issuance of up to $52.5 million of preferred stock; and (ii) increase the applicable margin related to the term loan facility to LIBOR Rate plus 2.25% or Base Rate plus 1.25%.
On March 14, 2018, the Company entered into a Third Amendment to the ABL Facility. Pursuant to the Third Amendment the ABL Facility was further amended to, among other things: (i) extend the date for delivery of the Company's consolidated financial statements for the first three quarters of 2017 (unaudited) until April 30, 2018; (ii) extend the date for delivery of the Company's consolidated financial statements for fiscal year 2017 (audited) until June 30, 2018; (iii) expand the permitted amount of capital leases and purchase money indebtedness from $35.0 million to $60.0 million; (iv) require us to pay for a new appraisal to be conducted by the administrative agent for the equipment pledged for the term loan within 60 days; (v) establish an additional availability reserve; and (vi) impose certain collateral reporting requirements.
On August 3, 2018, the Company entered into a Fourth Amendment to the ABL Facility. Pursuant to the Fourth Amendment the ABL Facility was further amended to, among other things, reduce the amount of proceeds from the third tranche under the Series E-1 Investment Agreement (as defined herein) to be applied to the bank term loan from 30% to 10%.
On September 19, 2018, the Company entered into a Fifth Amendment to the ABL Facility. Pursuant to the Fifth Amendment the lenders waived: (i) an Event of Default that arose under Section 9.01(b) of the ABL Facility due to (a) a Fixed Charge Trigger Period commencing as of September 6, 2018, and (b) the Consolidated Fixed Charge Coverage Ratio, determined on a Pro Forma Basis as of July 31, 2018, which is the last day of the Measurement Period most recently ended prior to September 6th and 7th of 2018, being less than 1.00 to 1.00; and (ii) the Dominion Trigger Period and the Reporting Trigger Period for the period commencing on September 6, 2018 and ending on September 19, 2018. Pursuant to the Fifth Amendment, thePrior ABL Facility was further amended to, among other things: (i) extend the time period during which the Company is permitted to issue Series E-1 Preferred Stock (as defined herein) under the Series E-1 Investment Agreement (as amended) from November 30, 2018January 31, 2019 to December 31, 2018;the earlier of (a) March 1, 2019 and (b) the occurrence of the rights offering; and (ii) amendextend the definitionsdate by which the Company is required to consummate the rights offering from January 31, 2019 to March 1, 2019.
On January 11, 2019, the Company entered into an Eighth Amendment to the Prior ABL Facility. Pursuant to the Eighth Amendment, the Prior ABL Facility was further amended to, among other things, modify the definition of Dominion“Fixed Charge Trigger Period and Reporting Trigger PeriodPeriod” to confirm that a Dominion Trigger Period and a Reporting Trigger Period have each commenced on September 19, 2018 and will continuereduce the Adjusted Excess Availability requirements until (a)the earlier of (i) the date that during the previous thirty (30) consecutiveis 30 days (1) no Event of Default has existed, and (2) Adjusted Excess Availability has been equal to or greater than the greater of (x) ten percent (10%) of the Maximum Borrowing Amount at such time and (y) $17,500,000, and (b) the Company has received net cash proceeds from the issuance of Equity Interests (other than Disqualified Equity Interest) of at least $30,000,000.Eighth Amendment Effective Date; and (ii) the Rights Offering Effective Date.
The Prior to the ABL Facility the Company had senior debt that was comprised of a revolving line of credit and a term loan. The senior debt was paid off with the issuance of preferred stockproceeds from the ABL Credit Facility and the Term Loan Credit Facility. The Company recognized a $2.3 million loss on May 2, 2017. debt restructuring for the six months ended June 30, 2019 related to these transactions.
Insurance Premium Financing
In connection with the pay-off,June 2018, the Company executed an insurance premium financing agreement of $17.8 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on September 1, 2018, the financing agreement was payable in nine monthly installments of principal and interest of approximately $2.0 million. The agreement incurred interest at 4.75%. The balance of the insurance premium payable as of December 31, 2018 was $10.0 million and was recorded in accrued expenses and other current liabilities. The remaining balance was paid-in-full as of June 30, 2019.
In July 2019, the Company executed an insurance premium financing agreement of $20.7 million with a loss from debt extinguishmentpremium finance company in order to finance certain of $9.8 million inits annual insurance premiums. See Note 16 for further details.
5. Preferred Stock
Preferred stock as of December 31, 2018 consisted of the second quarter of 2017.following (in thousands):
 December 31,
2018
Preferred stock: 
Series B Preferred$205,972
Series C Preferred102,098
Series D Preferred900
Series E Preferred47,367
Series E-1 Preferred46,547
Total Preferred stock$402,884


814

Table of Contents


Rights Offering
On February 26, 2019, the Company closed a $450 million rights offering, pursuant to which the Company issued and sold an aggregate of 36 million new shares of its common stock at the subscription price of $12.50 per share. An aggregate of 7,107,049 shares of the Company's common stock were purchased pursuant to the exercise of basic subscription rights and over-subscription rights from stockholders of record during the subscription period, including from the exercise of basic subscription rights by stockholders who are funds affiliated with Elliott Management Corporation (“Elliott”). In addition, Elliott purchased an aggregate of 28,892,951 additional shares pursuant to the commitment from Elliott to purchase all unsubscribed shares of the Company's common stock in the rights offering pursuant to the Standby Purchase Agreement that the Company entered into with Elliott dated November 8, 2018, as amended. Overall, Elliott purchased a total of 33,745,308 shares of the Company's common stock in the rights offering between its basic subscription rights and the backstop commitment, and following the closing of the rights offering beneficially owned approximately 90.4% of the Company's common stock.
The net proceeds from the rights offering and backstop commitment were used to fully redeem the outstanding shares of the Company's preferred stock and to pay related accrued and unpaid dividends. Proceeds were also used to pay fees and expenses in connection with the rights offering and backstop commitment. The Company also has certain equipmentretained in excess of $30 million of funds to be used for general corporate purposes. The purpose of the rights offering was to improve and simplify the Company's capital structure in a building classified as capital leases. manner that gave the Company's existing stockholders the opportunity to participate on a pro rata basis.
The Company's obligation under these capital leases was $30.0Company incurred $12.0 million in common stock issuance costs in connection with the 36 million shares issued in the rights offering. The issuance costs are comprised of $10.5 million in costs paid during the six months ended June 30, 2019 and $9.6$1.5 million as of September 30, 2018 and December 31, 2017, respectively.
5. Preferred Stockcosts that were paid in prior periods.
Preferred stock as of as of September 30, 2018 and December 31, 2017 consisted of the following (in thousands):
 September 30,
2018
 December 31,
2017
Preferred stock:   
Series B Preferred$187,190
 $146,649
Series C Preferred94,358
 76,096
Series D Preferred1,159
 6,672
Series E Preferred43,387
 33,900
Series E-1 Preferred42,673
 
Total Preferred stock$368,767
 $263,317

Stock
The preferred stock iswas mandatorily redeemable and, as such, iswas presented as a liability on the condensed consolidated balance sheets. At each preferred stock dividend payment date, the Company hashad the option to pay the accrued dividends in cash or to defer them. Deferred dividends earnearned dividend income consistent with the underlying shares of preferred stock. The Company has elected to measure the value of itsthe preferred stock using the fair value method. Under the fair value method, issuance costs arewere expensed as incurred. The fair value of the preferred stock increased by $31.6 million and $37.7 million during the three and six months ended June 30, 2018, respectively, which was reflected in interest expense - preferred stock.
On March 1, 2018, the Company entered into the Series E-1 Preferred Stock Investment Agreement (the “Series E-1 Investment Agreement”) with affiliates of Elliott, Management Corporation (“Elliott”), pursuant to which the Company agreed to issue and sell to Elliott from time to time, until July 30, 2018 (the “Termination Date”), an aggregate of up to 54,750 shares of a newly created class of preferred stock designated as Series E-1 Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series E-1 Preferred Stock”), at a purchase price of $1,000 per share for the first 17,500 shares of Series E-1 Preferred Stock, $960 per share for the next 18,228 shares of Series E-1 Preferred Stock, and $920 per share for the final 19,022 shares of Series E-1 Preferred Stock. On March 1, 2018, the parties held an initial closing pursuant to which the Company issued and sold to Elliott 17,500 shares of Series E-1 Preferred Stock for an aggregate purchase price of $17.5 million. On April 24, 2018, the parties held a closing pursuant to the Series E-1 Investment Agreement, pursuant to which the Company issued and sold to Elliott 18,228 shares of Series E-1 Preferred Stock for an aggregate purchase price of approximately $17.5 million. The proceeds offrom the sale of such shares of Series E-1 Preferred Stock were used to provide working capital to support the Company’s current operations and future growth and to repay a portion of the indebtedness under the prior ABL Facility as required by the credit agreement governing that facility. On April 24, 2018, pursuant to the Series E-1 Investment Agreement with Elliott, the Company issued and sold to Elliott an additional 18,228The final 19,022 shares of Series E-1 Preferred Stock for an aggregate purchase price of $17.5 million. The proceeds of the sale of such shares of Series E-1 Preferred Stock were used to provide working capital to support the Company’s current operations and future growth and to repay a portion of the indebtedness under the ABL Facility as required by the credit agreement governing that facility. On August 3, 2018, in order to provide continued support to the Company's operating needs, the Company and Elliott entered into Amendment No. 1 toremained unissued when the Series E-1 Investment Agreement and Terminationwas terminated in connection with the closing of Equity Commitment Letter (the “Series E-1 Amendment”), which, among other things, extended the Termination Date from July 30, 2018 to November 30, 2018 forrights offering. The Company incurred $1.1 million of issuance costs associated with the remaining 19,022 shares available to issue and sell to Elliott for $17.5 million. On September 19, 2018, the Company and Elliott entered into Amendment No. 2 to the Series E-1 Investment Agreement which, among other things, further extended the Termination Date from November 30, 2018 to January 1, 2019 for the remaining 19,022 shares available to issue and sell to Elliott for $17.5 million.
Certain termsissuance of the Series E-1 Preferred Stock are as follows:
Rank. The Series E-1 Preferred Stock, with respect to payment of dividends, redemption payments, rights (including as tofor the distribution of assets) upon liquidation, dissolution or winding up of the affairs of the Company, or otherwise, ranks (i) senior and prior to the Company’s common stock and other junior securities, and (ii) on parity with the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock.
Liquidation Value. Each share of Series E-1 Preferred Stock has an initial liquidation preference equal to $1,000 per share, plus accrued and unpaid dividends on such share (the “Series E-1 Liquidation Value”).
Dividends. Dividends are cumulative from May 2, 2017,six months ended June 30, 2018, which was the date of the Company’s original issuance of shares ofreflected in interest expense - preferred stock to Elliott (such date, the “Original Issuance Date”), as a percentage of the Series E-1 Liquidation Value as and when declared by the Company’s Board of Directors and accrue and compound if not paid in cash. Dividends accrue daily andstock.

915

Table of Contents


compound quarterly, subject to any adjustments for Triggering Events (as defined in the Series E-1 Certificate of Designations). The annual dividend rate for the shares of Series E-1 Preferred Stock is equal to the sum of (i) Adjusted LIBOR (as defined in the Series E-1 Certificate of Designations), plus (ii) 5.25% per annum, plus (iii) an additional rate of 8.5%. The dividend rate increases by 3.0% per annum above the rates described in the preceding sentence upon and during any Triggering Events. Holders of shares of Series E-1 Preferred Stock are not entitled to participate in dividends or distributions of any nature paid on or in respect of the Common Stock.
Redemption at Maturity. On the sixth anniversary of the Original Issuance Date, the Company will have the obligation to redeem all outstanding shares of Series E-1 Preferred Stock for cash at the Series E-1 Liquidation Value.
Optional Redemption. The Company may redeem the shares of Series E-1 Preferred Stock at any time. The redemption of shares of Series E-1 Preferred Stock shall be at a purchase price per share, payable in cash, equal to (i) in the case of a an optional redemption effected on or after the 24 month anniversary of the Original Issuance Date, the Series E-1 Liquidation Value, (ii) in the case of an optional redemption effected on or after the 12 month anniversary of the Original Issuance Date and prior to the 24 month anniversary of the Original Issuance Date, 103.5% of the Series E-1 Liquidation Value and (iii) in the case of an optional redemption effected prior to the 12 month anniversary of the Original Issuance Closing Date, 106.5% of the Series E-1 Liquidation Value.
Change of Control. Upon the occurrence of a Change of Control (as defined in the Series E-1 Certificate of Designations), the holders of Series E-1 Preferred Stock may require redemption by the Company of the Series E-1 Preferred Stock at a purchase price per share, payable in cash, equal to either (i) 106.5% of the Series E-1 Liquidation Value if the Change of Control occurs prior to the 24 month anniversary of the Original Issuance Date, or (ii) the Series E-1 Liquidation Value if the Change of Control occurs after the 24 month anniversary of the Original Issuance Date.
Voting. The holders of Series E-1 Preferred Stock will generally not be entitled to vote on any matters submitted to a vote of the stockholders of the Company. So long as any shares of Series E-1 Preferred Stock are outstanding, the Company may not take certain actions without the prior approval of the Preferred Requisite Vote, voting as a separate class.
Certain Terms of the Preferred Stock as of December 31, 2018
Series BSeries CSeries DSeries ESeries E-1Series BSeries CSeries DSeries ESeries E-1
Shares at $0.01 Par Value at Issuance155,00055,00010090,00035,728155,00055,00010090,00035,728
Shares Outstanding at September 30, 2018155,00055,00010037,50035,728
Price per Share$1,000$1.00$1,000$1,000/$960
Shares Outstanding at December 31, 2018155,00055,00010037,50035,728
Price / Share$1,000$1.00$1,000$1,000/$960
Dividend RateAdjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Right to participate equally and ratably in all cash dividends paid on common stock.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.Adjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Right to participate equally and ratably in all cash dividends paid on common stock.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.
Dividend Rate at September 30, 201817.573%N/A15.823%
Dividend Rate at December 31, 201817.780%N/A16.030%
Redemption Term8 Years6 Years8 Years6 Years
Redemption Rights
From Closing Date:
12-24 months: 105%
24-36 months: 103%
65% premium (subject to stock movement) 
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%
From Closing Date:
12-24 months: 105%
24-36 months: 103%
65% premium (subject to stock movement) 
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%


10

Table of Contents


In connection with the repurchase of the Series F Preferred Stock and repurchase of a portion of the Series E Preferred Stock in the third quarter of 2017, the Company recorded a loss of $6.0 million reported in loss from debt extinguishment in the statement of operations.
The Company incurred $1.1 million of issuance costs for the nine months ended September 30, 2018, associated with the issuance of the Series E-1 Preferred Stock. The issuance costs are reflected in interest expense - preferred stock. The change in the fair value of the preferred stock, as indicated in Note 6, is reflected in interest expense - preferred stock.
6. Fair Value Measurement
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.
The classification of a financial asset or liability within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The Company has elected to measure its previously outstanding preferred stock using the fair value method. The fair value of the preferred stock iswas the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company calculatescalculated the fair value of:
the Series B Preferred Stock using a lattice model that takes into consideration the Company's call right on the instrument based on simulated future interest rates;
the Series C Preferred Stock using a lattice model that takes into consideration the future redemption value on the instrument, which is tied to the Company's stock price;

11

Table of Contents


the Series D Preferred Stock using a static discounted cash flow approach, where the expected redemption value of the instrument is based on the value of the Company's stock as of the measurement date grown at the risk-free rate; and
the Series E and E-1 Preferred Stock via application of both (i) a static discounted cash flow approach and (ii) a lattice model that takes into consideration the Company's call right on this instrument based on simulated future interest rates.

16

Table of Contents


These valuations arewere considered to be Level 3 fair value measurements as the significant inputs are unobservable and require significant management judgment or estimation. Considerable judgment iswas required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates arewere not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value models include: the estimates of the redemption dates; credit spreads; dividend payments; and the market price of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.
The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 preferred stock liability balance for the three and nine months ended Septemberas of June 30, 2018 and 2017.(in thousands).
Three Months Ended Nine Months Ended
September 30 September 30Three months ended Six months ended
2018 2017 2018 2017June 30,
2018
 June 30,
2018
Balance, beginning of period$335,979
 $546,858
 $263,317
 $
$286,874
 $263,317
Issuance of preferred stock at fair value
 
 34,999
 537,930
17,499
 34,999
Redemption of preferred stock
 (293,000) 
 (293,000)
Change in fair value of preferred stock (1)
32,788
 1,788
 70,451
 10,716
31,606
 37,663
Balance, end of period$368,767
 $255,646
 $368,767
 $255,646
$335,979
 $335,979
(1)Change in fair value of preferred stock is reported in interest expense - preferred stock.
7. Stockholders’ Investment (Deficit)
Changes in stockholders’ investmentOn March 7, 2019, the Company's board of directors and the holders of a majority of the issued and outstanding shares of the Company’s common stock approved a 1-for-25 reverse split of the Company’s issued and outstanding shares of common stock. The 1-for-25 reverse stock split was effective upon the filing and effectiveness of a Certificate of Amendment to the Company's Certificate of Incorporation after the market closed on April 4, 2019, and the Company’s common stock began trading on a split-adjusted basis on April 5, 2019. See Note 1 for more information on the reverse stock split.
On April 12, 2019, the Company received a notice from the NYSE that a calculation of the average stock price for the three30-trading days ended April 12, 2019 indicted that the Company was in compliance with the $1.00 continued listed criterion. The notice also noted that the Company remains non-compliant with the NYSE's $50 million average market capitalization and nine months ended September 30, 2018$50 million stockholders' equity requirements as it must remain above the $50 million average market capitalization or the $50 million total stockholders' investment requirements for two consecutive quarters (or six months) before the Company can be considered in compliance with this listing standard. On February 26, 2019, the Company closed its rights offering, pursuant to which the Company issued and 2017 consistedsold an aggregate of 36 million new shares of its common stock at the subscription price of $12.50 per share, which added approximately $450 million to the Company's total stockholder investment.

8. Share-Based Compensation
The Company's compensation committee granted to certain employees restricted stock units (“RSUs”) totaling 1,023,740 shares of the following (in thousands):
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
Beginning balance$46,954
 $143,286
 $111,733
 $197,468
Net loss(41,561) (10,053) (107,159) (67,859)
Share-based compensation497
 379
 1,392
 1,647
Issuance of warrants
 
 
 2,571
Issuance of restricted stock units, net of taxes paid(5) (15) (81) (230)
Ending balance$5,885
 $133,597
 $5,885
 $133,597
Company's common stock in the second quarter of 2019. Each RSU is equal in value to one share of common stock and vests ratably over a three or four-year service period. 

The retained earnings balance as of January 1, 2018 was adjusted by $0.9 million dueCompany's compensation committee granted to the modified retrospective applicationdirectors RSUs totaling 28,600 shares of the new revenue recognition principles.Company's common stock in the second quarter of 2019, of which 4,400 vested immediately and the remaining will vest in February 2020. Each RSU is equal in value to one share of common stock.

The Company’s compensation committee also granted to certain employees performance-based restricted stock units (“PRSUs”) totaling 1,256,740 shares of the Company's common stock in the second quarter of 2019.  The PRSUs may be earned based on the performance of the Company's common stock price over a three to four-year service period. The base price of the Company's common stock for purposes of the PRSUs is $12.50. 

In the second quarter of 2019, the Company's compensation committee granted to certain employees seven-year non-qualified stock options to purchase 294,932 shares of the Company's common stock with an exercise price equal to $12.50 per share, with one-third of such options vesting in each of 2020, 2021 and 2022.

17

Table of Contents



8.9. Earnings Per Share
Basic loss per common share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted average common stock outstanding plus stock equivalents that would arise from the assumed exercise of stock options, the conversion of warrants, and the delivery of stock underlying restricted stock units using the treasury stock method. There is no difference, for any of the periods presented, in the amount of net loss used in the computation of basic and diluted loss per share.
The Company had stock options and warrants outstanding of 1,535,771604,761 as of SeptemberJune 30, 20182019 and 1,903,46761,428 as of SeptemberJune 30, 20172018 that were not included in the computation of diluted loss per share because they were not assumed to be exercised under the treasury stock method or because they were anti-dilutive. All restricted stock units were anti-dilutive for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017.2018. Since the Company was in a net loss position for the three and nine

12

Table of Contents


six months ended SeptemberJune 30, 20182019 and 2017,2018, there is no difference between basic and dilutive weighted average common stock outstanding.
9.10. Income Taxes
The benefit from income taxes was $0.5 million for both the three and six months ended June 30, 2019. The benefit from income taxes was $3.7 million and $3.0 million for the three and six months ended June 30, 2018, respectively. The effective income tax rate was 10.8%0.4% and 0.3% for the three and six months ended SeptemberJune 30, 2018 and 7.0% for the nine months ended September 30, 2018.2019, respectively. In comparison, the effective income tax rate was (90.9)%8.0% and 4.3% for the three and six months ended SeptemberJune 30, 2017 and 10.0% for the nine months ended September 30, 2017. 2018, respectively.
The (benefit from) provision forbenefit from income taxes varies from the amount computed by applying the federal corporate income taxstatutory rate of 21.0% and 35.0% for 2018 and 2017, respectively, to the loss before income taxes primarily(and, therefore, the effective tax rate similarly varies from the federal statutory rate) due to state income taxes (net of federalincreases in the valuation allowance for deferred tax effect) andassets, adjustments for permanent differences, (primarilyand state income taxes. For the three and six months ended June 30, 2019, the variance is primarily due to adjustments to the valuation allowance for federal and state deferred tax assets, as well as the effect of the goodwill impairment charge, other permanent differences, and state income taxes. For the three and six months ended June 30, 2018, the variance is primarily due to adjustments for permanent differences related to the non-deductible interest expense associated with the Company's preferred stock). In determiningstock, as well as the (benefit from) provision foreffect of other permanent differences, state income taxes, and adjustments to the valuation allowance for certain state deferred tax assets.
For interim reporting periods, the Company appliedapplies an estimated annual effective tax rate to its ordinary operating results, and calculatedcalculates the tax benefit or provision, if any, of other discrete items individually as they occurred. The estimated annual effectiveoccur. Management also assesses whether sufficient future taxable income will be generated to permit the use of deferred tax rate was based onassets. This assessment includes consideration of the cumulative losses incurred over the three-year period ended December 31, 2018 and expected ordinary operating results, statutory tax rates, andover the three-year period ending December 31, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's best estimateprojections for future earnings. On the basis of non-deductible and non-taxable itemsthis evaluation, the Company has recorded a valuation allowance for deferred tax assets to the extent that they cannot be supported by reversals of ordinary income and expense.
No significant discrete items were recognized during the three and nine months ended September 30, 2018. Significant discrete items recognized during the three and nine months ended September 30, 2017 included loss from debt extinguishment (noexisting cumulative temporary differences. Any federal tax benefit generated from losses in 2019 is expected to require an offsetting adjustment to the valuation allowance for partial redemption of preferred stock), gaindeferred tax assets, and thus have no net effect on the sale of Unitrans (tax provision), and goodwill impairment charges (primarily non-deductible forincome tax purposes). Significant discrete items recognized duringprovision. State tax benefits generated from certain subsidiary losses may similarly require an offsetting adjustment to the nine months ended September 30, 2017 also included loss from debt extinguishment (tax benefit for senior debt payoff) and preferred stock issuance costs (no tax benefit).valuation allowance.
10.11. Guarantees
The Company provides a guarantee for a portion of the value of certain independent contractors' (“IC”)IC leased tractors.  The guarantees expire at various dates through 2022.2023.  The potential maximum exposure under these lease guarantees was approximately $7.9$6.2 million as of SeptemberJune 30, 2018.2019.  Upon an IC default, the Company has the option to purchase the tractor or return the tractor to the leasing company if the residual value is greater than the Company’s guarantee. Alternatively, the Company can contract another IC to assume the lease.  The Company estimated the fair value of its liability under this on-going guarantee to be $1.1 million and $1.4$1.0 million as of SeptemberJune 30, 20182019 and December 31, 2017, respectively,2018, which wasis recorded in accrued expenses and other current liabilities.
The Company began to offer a lease purchase program that did not include a guarantee, and offered newer equipment under factory warranty that was more cost effective. ICs began electing the newer lease purchase program over the legacy lease guarantee programs which led to an increase in unseated legacy tractors. In late 2016, management committed to a plan to divest these older assets and recorded a loss reserve. The loss reserve for the guarantee and reconditioning costs associated with the planned divestiture was $0.5$0.1 million and $1.8$0.4 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, which was recorded in accrued expenses and other current liabilities.
The Company paid $0.3$0.2 million and $0.9$0.8 million under these lease guarantees during the thirdsecond quarter of 20182019 and 2017,2018, respectively, and $1.8$0.6 million and $7.9$1.5 million during the first nine monthshalf of 2019 and 2018, and 2017, respectively.

18

Table of Contents



11.12. Commitments and Contingencies

Auto, Workers Compensation, and General Liability Reserves
In the ordinary course of business, the Company is a defendant in several legal proceedings arising out of the conduct of its business. These proceedings include claims for property damage or personal injury incurred in connection with the Company’s services. Although there can be no assurance as to the ultimate disposition of these proceedings, the Company does not believe, based upon the information available at this time, that these property damage or personal injury claims, in the aggregate, will have a material impact on its consolidated financial statements. The Company maintains insurance for auto liability, general liability, and cargo claims. The Company maintains an aggregate of $100 million of auto liability and general liability insurance. The Company maintains auto liability insurance coverage for claims in excess of $1.0 million per occurrence and cargo coverage for claims in excess of $100,000 per occurrence. The Company is self-insured up to $1.0 million per occurrence for workers compensation. The Company believes it has adequate insurance to cover losses in excess of the self-insured and deductible amounts. As of SeptemberJune 30, 2018,2019 and December 31, 2017,2018, the Company had reserves for estimated uninsured losses of $26.0$28.9 million and $28.4$26.8 million, respectively, included in accrued expenses and other current liabilities.
General Litigation Proceedings
Jeffrey Cox and David Chidester filed a Complaintcomplaint against certain of the Company’s subsidiaries in state court in California in a post-acquisition dispute (the “Central Cal Matter”). The Complaintcomplaint alleges contract, statutory and tort-based claims arising out of the Stock Purchase Agreement, dated November 2, 2012, between the defendants, as buyers, and the plaintiffs, as sellers, for the purchase of the shares of Central Cal Transportation, Inc. and Double C Transportation, Inc. (the “Central Cal Agreement”).

13

Table of Contents


The plaintiffs claim that a contingent purchase obligation payment is due and owing pursuant to the Central Cal Agreement, and that defendants have furnished fraudulent calculations to the plaintiffs to avoid payment. The plaintiffs also claim violations of California’s Labor Code related to the plaintiffs’ respective employment with Central Cal Transportation, LLC. On October 27, 2017, the state court granted the Company’s motion to compel arbitration of all non-employment claims alleged in the Complaint.complaint. The parties selected a settlement accountant to determine the contingent purchase obligation pursuant to the Central Cal Agreement. The settlement accountant provided a final determination that a contingent purchase obligation of $2.1 million is due to the plaintiffs. The Company's position is that this contingent purchase obligation is subject to offset for certain indemnification claims owed to the Company by the plaintiffs areranging from approximately $0.3 million to $1.0 million. Accordingly, the Company recorded a contingent purchase obligation liability of $1.8 million in accrued expenses and other current liabilities at December 31, 2018. In July 2019, the $2.1 million settlement was approved by the court. In light of the court order, the Company has offered to pay $2.2 million to the plaintiff to settle this matter. The Company's offer includes a reimbursement for legal fees incurred by the plaintiff. As such, the Company recorded an adjustment of $0.4 million in the processsecond quarter of submitting2019 to increase its contingent purchase obligation to $2.2 million, which is recorded in accrued expenses and other current liabilities at June 30, 2019. In July 2019, the disputeCompany paid the plaintiffs the $2.1 million settlement amount. The Company intends to a Settlement Accountantpursue indemnification and other claims as ordered, though on October 10, 2018, Plaintiffs filed a renewed motion requesting thatit relates to the Los Angeles Superior Court reconsider its ruling.Central Cal Matter and other related matters involving these plaintiffs. In February 2018, Plaintiff David Chidester agreed to dismiss his employment-related claims from the Los Angeles Superior Court matter, while Plaintiff Jeffrey Cox transferred his employment claims from Los Angeles Superior Court to the related employment case pending in the Eastern District of California. The parties are proceeding with discovery and the consolidated case is currently set for trial on November 5, 2019.
The Company received a letter dated April 17, 2018 from legal counsel representing Warren Communications News, Inc. (“Warren”) in which Warren made certain allegations against the Company of copyright infringement concerning an electronic newsletter published by Warren (the “Warren Matter”). Specifically, Warren alleged that an employee of the Company had, for several years, forwarded that electronic newsletter to third parties in violation of corresponding subscription agreements. After discussions with Warren,On June 14, 2019, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of liability, and the settlement amount was paid by the Company received a second letter datedin July 30, 2018 in which counsel for Warren offered to settle its claim for a monetary payment by the Company. The Company subsequently sent a counter-offer to Warren, which was rejected.2019.
In addition to the legal proceeding described above, the Company is a defendant in various purported class-action lawsuits alleging violations of various California labor laws and one purported class-action lawsuit alleging violations of the Illinois Wage Payment and Collection Act. Additionally, the California Division of Labor Standards and Enforcement has brought administrative actions against the Company alleging that the Company violated various California labor laws. In 2017 and 2018, the Company reached settlement agreements on a number of these labor related lawsuits and administrative actions. The Company paid approximately $9.2 million relating to these settlements during the six months ended June 30, 2019.
As of SeptemberJune 30, 2018,2019 and December 31, 2017,2018, the Company recordedhad a reserveliability for settlements, litigation, and defense costs related to these labor matters the Central Cal Matter, and the Warren Matter of $12.0$2.2 million and $13.2$10.8 million, respectively, which are included in accrued expenses and other current liabilities.

19

Table of Contents


In December 2018, a class action lawsuit was brought against the Company in the Superior Court of the State of California by Fernando Gomez, on behalf of himself and other similarly situated persons, alleging violation of California labor laws. The Company is currently determining the effects of this lawsuit and intends to vigorously defend against such claims; however, there can be no assurance that it will be able to prevail. In light of the relatively early stage of the proceedings, the Company is unable to predict the potential costs or range of costs at this time.
Securities Litigation Proceedings
Following the Company's press release on January 30,In 2017, three putative class actions were filed in the United States District Court for the Eastern District of Wisconsin against the Company and its former officers, Mark A. DiBlasi and Peter R. Armbruster. On May 19, 2017, the Court consolidated the actions under the caption In re Roadrunner Transportation Systems, Inc. Securities Litigation (Case(Case No. 17-cv-00144), and appointed Public Employees’ Retirement System as lead plaintiff. On March 12, 2018, the lead plaintiff filed athe Consolidated Amended Complaint (“CAC”) on behalf of a class of persons who purchased the Company’s common stock between March 14, 2013 and January 30, 2017, inclusive. The CAC alleges (i) the Company and Messrs. DiBlasi and Armbruster violated Section 10(b) of the Exchange Act and Rule 10b-5, and (ii) Messrs. DiBlasi and Armbruster, the Company’s former Chairman Scott Rued, HCI Equity Partners, L.L.C., and HCI Equity Management, L.P. violated Section 20(a) of the Exchange Act, by making or causing to be made materially false or misleading statements, or failing to disclose material facts, regarding (a) the accuracy of the Company’s financial statements; (b) the Company’s true earnings and expenses; (c) the effectiveness of the Company’s disclosure controls and controls over financial reporting; (d) the true nature and depth of financial risk associated with the Company’s tractor lease guaranty program; (e) the Company’s leverage ratios and compliance with its credit facilities; and (f) the value of the goodwill the Company carried on its balance sheet. The CAC seeks certification as a class action, compensatory damages, and attorney’s fees and costs. On July 23,November 19, 2018, the Company andparties entered into a binding term sheet agreeing to settle the individual defendants filed motions to dismiss toaction for $20 million, $17.9 million of which Plaintiff responded on September 21, 2018. Defendants’ time to file their reply has been extended pendingwill be funded by the parties’ mediation,Company's D&O carriers ($4.8 million of which is ongoing.by way of a pass through of the D&O carriers’ payment to the Company in connection with the settlement of the Federal Derivative Action described below). The settlement is conditioned on a settlement of the Federal Derivative Action described below, dismissal of the State Derivative Action described below, and final court approval of the settlements in this action and in the Federal Derivative Action. The parties have submitted a Stipulation of Settlement to the Court for preliminary approval.
On May 25, 2017, Richard Flanagan filed a complaint alleging derivative claims on the Company's behalf in the Circuit Court of Milwaukee County, State of Wisconsin (Case No. 17-cv-004401) against Scott Rued, Mark DiBlasi, Christopher Doerr, John Kennedy, III, Brian Murray, James Staley, Curtis Stoelting, William Urkiel, Judith Vijums, Michael Ward, Chad Utrup, Ivor Evans, Peter Armbruster, and Brian van Helden.Helden (the “State Derivative Action”). Count I of the Complaintcomplaint alleges the Director Defendants breached their fiduciary duties by “knowingly failing to ensure that the Company implemented and maintained adequate internal controls over its accounting and financial reporting functions,” and seeks unspecified damages. Count II of the Complaintcomplaint alleges the Officer Defendants DiBlasi, Armbruster, and van Helden received substantial performance-based compensation and bonuses for fiscal year 2014 that should be disgorged. The action has been stayed by agreement pending a decision on Defendants' motionsthe District Court’s approval of the proposed settlement of the Federal Derivative Action, following which the defendants would move to dismiss the Amended Complaint filed in the securities classthis action described above.as moot. While the case was stayed, Plaintiffthe plaintiff obtained permission to file an Amended Complaintamended complaint adding claims against two former Company employees: Bret Naggs and Mark Wogsland. The parties are currently engaged in mediation.
On June 28, 2017, Jesse Kent filed a complaint alleging derivative claims on the Company's behalf and class action claims in the United States District Court for the Eastern District of Wisconsin. On December 22, 2017, Chester County Employees

14

Table of Contents


Retirement Fund filed a Complaintcomplaint alleging derivative claims on the Company's behalf in the United States District Court for the Eastern District of Wisconsin. On March 21, 2018, the Court entered an order consolidating the Kent and Chester County actions under the caption In re Roadrunner Transportation Systems, Inc. Stockholder Derivative LitigationKent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative Action”). On March 28, 2018, Plaintiffsplaintiffs filed their Verified Consolidated Shareholder Derivative Complaint alleging claims on behalf of the Company against Peter Armbruster, Mark DiBlasi, Scott Dobak, Christopher Doerr, Ivor Evans, Brian van Helden, John Kennedy III, Ralph Kittle, Brian Murray, Scott Rued, James Staley, Curtis Stoelting, William Urkiel, Chad Utrup, Judith Vijums, and Michael Ward. Count I alleges that several of the Defendantsdefendants violated Section 14(a) of the Exchange Act and Rule 14a-9 based upon alleged misrepresentations and omissions in several of the Company’s proxy statements. Count II alleges that all the Defendantsdefendants breached their fiduciary duty. Count III alleges that all the Defendantsdefendants wasted corporate assets. Count IV alleges that certain of the Defendantsdefendants were unjustly enriched. The Complaint seeks monetary damages, improvements to the Company’s corporate governance and internal procedures, an accounting from Defendantsdefendants of the damages allegedly caused by them and the improper amounts the Defendantsdefendants allegedly obtained, and punitive damages. The parties are currently engaged in mediation.have submitted a Stipulation of Settlement to the Court for preliminary approval, which provides for certain corporate governance changes and a $6.9 million payment, $4.8 million of which will be paid by the Company’s D&O carriers into an escrow account to be used by the Company to settle the class action described above and $2.1 million of which will be paid by the Company’s D&O carriers to cover plaintiffs attorney’s fees and expenses.
Given the status of the matters above, the Company concluded in the third quarter of 2018 that a liability is probable and

20

Table of Contents


recorded the estimated loss of $22 million which is recorded within accrued expenses and other current liabilities and a corresponding insurance reimbursement receivable of $20 million as of September 30, 2018.which is recorded in prepaid expenses and other current assets for all periods presented.
In addition, subsequent to the Company's announcement that certain previously filed financial statements should not be relied upon, the Company was contacted by the SEC, Financial Industry Regulatory Authority (“FINRA”), and the Department of Justice (“DOJ”). The DOJ and Division of Enforcement of the SEC have commenced investigations into the events giving rise to the restatement. The Company has received formal requests for documents and other information. In addition, in June 2018, two of the Company's former employees were indicted on charges of conspiracy, securities fraud, and wire fraud as part of the ongoing DOJ investigation. In April 2019, the indictment was superseded with an indictment against those two former employees as well as the Company’s former Chief Financial Officer.  In the superseding indictment, Count I alleges that all defendants engaged in conspiracy to fraudulently influence accountants and make false entries in a public company’s books, records and accounts. Counts II-V allege specific acts by all defendants to fraudulently influence accountants. Counts VI through IX allege specific acts by all defendants to falsify entries in a public company’s books, records, and accounts. Count X alleges that all defendants engaged in conspiracy to commit securities fraud and wire fraud. Counts XI - XIII allege specific acts by all defendants of securities fraud. Counts XIV - XVII allege specific acts by all defendants of wire fraud. Count XVIII alleges bank fraud by the Company’s former Chief Financial Officer. Count XIX alleges securities fraud by one of the former employees.
Additionally, in April 2019, the SEC investigation. filed suit against the same three former employees. The SEC listed the Company as an uncharged related party. Counts I-V allege that all defendants engaged in a fraudulent scheme to manipulate the Company’s financial results. In particular, Count I alleges that all defendants violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5(a) and (c). Count II alleges that the Company’s former Chief Financial Officer and one of the former employees violated Section 17(a)(1) and (3) of the Securities Act. Count III alleges the Company’s former Chief Financial Officer violated Section 10(b) of the Exchange Act. And Exchange Act Rule 10b-5(b). Count IV alleges that the two former employees aided and abetted the Company’s violation of Section 10(b) of the Exchange Act and Exchange Act Rule 10-5(b). Count V alleges that the Company’s former Chief Financial Officer and one of the former employees violated Section 17(a)(2) of the Securities Act. Count VI alleges that one of the former employees engaged in insider trading in violation of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5(a) and (c). Counts VII alleges that all defendants engaged in aiding and abetting the Company’s reporting violations of Section 13(a) of the Exchange Act. Count VIII alleges that all defendants engaged in aiding and abetting the Company’s record-keeping violations of Section 13(b)(2)(A) of the Exchange Act. Count IX alleges that the Company’s former Chief Financial Officer engaged in aiding and abetting the Company’s record-keeping violations of Section 13(b)(2)(B) of the Exchange Act. Count X alleges that all defendants engaged in falsification of records and circumvention of controls in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1. Count XI alleges that all defendants engaged in false statements to accountants in violation of Rule 13b2-2 of the Exchange Act. Count XIII alleges that the Company’s former Chief Financial Officer engaged in certification violations of rule 3a-14 of the Exchange Act. Count XIII alleges that uncharged party the Company violated (i) Section 10(b) of the Exchange Act and Rule 10b-5; (ii) Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13; and (iii) Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. It further alleges that the Company’s former Chief Financial Officer acts subject him to control person liability for these violations. Count XIV alleges violation of Section 304 of the Sarbanes-Oxley Act of 2002 against the Company’s former Chief Financial Officer.
The Company is cooperating fully with the joint DOJ and SEC investigation. GivenEven though the Company is not named in this investigation, it has an obligation to indemnify the former employees and directors. However, given the status of this matter, the Company is unable to reasonably estimate the potential costs or range of costs at this time. Any costs will be the responsibility of the Company as it has exhausted all of its insurance coverage for costs related to legal actions as part of the restatement.
12.13. Related Party Transactions
The Company had an advisory agreement with HCI Equity Management L.P. (“HCI”) that required the Company to pay transaction fees and an annual advisory fee of $0.1 million. On May 2, 2017, the Company and HCI entered into a Termination Agreement in which HCI waived the Company’s payment of any and all unpaid fees and expenses accrued under the advisory agreement through May 2, 2017.
The Investment Agreement with Elliott required the Company to pay Elliott a daily payment in an amount equal to $33,333.33 per calendar day from the closing date until the Refinancing Date (which is the dateMarch 1, 2018, the Company entered into the ABL Facility)Series E-1 Preferred Stock Investment Agreement with Elliott, pursuant to which the Company agreed to issue and sell to Elliott from time to time an aggregate of up to 54,750 shares of a newly created class of preferred stock designated as Series E-1 Cumulative Redeemable Preferred Stock. On March 1, 2018, the parties held an initial closing pursuant to which the Company issued and sold to Elliott 17,500 shares of Series E-1 Preferred Stock for an aggregate purchase price of $17.5 million and paid Elliott $1.1 million of issuance costs. This agreement was terminated in connection with the closing of the rights offering described in the following paragraph.
On November 8, 2018, the Company entered into a Standby Purchase Agreement with Elliott, pursuant to which Elliott agreed to backstop the Company’s rights offering to raise $450 million. Pursuant to the Standby Purchase Agreement, Elliott agreed to exercise their basic subscription rights in full. In addition, Elliott agreed to purchase from the Company, at the Subscription Price, all unsubscribed shares of common stock in the Rights Offering (the “Backstop Commitment”). The Company did not pay Elliott a fee for providing the Backstop Commitment, but agreed to reimburse Elliott for all documented out-of-pocket costs and expenses in connection with the rights offering, the Backstop Commitment, and the transactions contemplated thereby, including fees for legal counsel to Elliott. Elliott agreed to waive all preferred stock dividends accrued and unpaid after November 30, 2018

21

Table of Contents


once the rights offering was consummated. On February 26, 2019, the Company closed the rights offering and Elliott purchased a total of 33,745,308 shares of the Company's common stock in the rights offering between its basic subscription rights and the backstop commitment, and following the closing of the rights offering beneficially owned approximately 90.4% of the Company's common stock.
On February 26, 2019, the Company entered into a New Stockholders’ Agreement with Elliott. The Company's execution and delivery of the Stockholders’ Agreement was a condition to Elliott’s backstop commitment. Pursuant to the Stockholders’ Agreement, the Company granted Elliott the right to designate nominees to Company's board of directors and access to available financial information.
On February 26, 2019, the Company entered into the A&R Registration Rights Agreement with Elliott and investment funds affiliated with HCI Equity Partners, which amended and restated the Registration Rights Agreement, dated as of May 2, 2017, between the Company and the parties thereto. The Company's execution and delivery of the A&R Registration Rights Agreement was a condition to Elliott’s backstop commitment. The A&R Registration Rights Agreement amended the Registration Rights Agreement to provide the Elliott Stockholders (as defined therein) and the HCI Stockholders (as defined therein) with unlimited Form S-1 registration rights in connection with Company securities owned by them.
On February 28, 2019, the Company entered into the Term Loan Credit Facility with BMO Harris Bank, N.A. and Elliott which consists of an approximately $61.1 million term loan facility. The Company paid $0.7Elliott $0.9 million in issuance costs and $2.7 million pursuant to this requirement forfees during the three and ninesix months ended SeptemberJune 30, 2017, respectively.
The2019. As of June 30, 2019, the Company as part ofowed Elliott $41.0 million under the $293.0 million redemption of its Series F Preferred Stock ($240.5 million)Term Loan Credit Facility. See Note 4 for more information on the Term Loan Credit Facility. On August 2, 2019, the Company entered into a First Amendment to the Term Loan Credit Facility with BMO Harris Bank, N.A and a portion of its Series E Preferred Stock ($52.5 million), paidElliott. See Note 16 for more information on the First Amendment to Elliott $6.9 million in accrued dividends and $6.0 million in early redemption premiums in the third quarter of 2017.Term Loan Credit Facility.
The Company's operating companies have contracts with certain purchased transportation providers that are considered related parties. The Company paid an aggregate of $5.8$9.2 million and $3.8$6.6 million to these purchased transportation providers during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company paid an aggregate of $19.0$15.8 million and $9.5$13.2 million to these purchased transportation providers during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
The Company has a number of facility leases with related parties and paid an aggregate of $0.3$0.1 million and $0.8$0.3 million under these leases during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company paid an aggregate of $1.0$0.1 million and $2.3$0.7 million under these leases during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
The Company owns 37.5% of Central Minnesota Logistics Inc. (“CML”), which operates as one of the Company's brokerage agents. The Company paid CML broker commissions of $0.8$0.9 million and $0.7 million during the three months ended SeptemberJune 30, 2019 and 2018, and 2017.respectively. The Company paid CML broker commissions of $2.2$1.7 million and $1.9$1.4 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
The Company has a jet fuel purchase agreement with a related party and paid an aggregate of $0.4 million and $0.3$0.6 million under this agreement during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company paid an aggregate of $1.6 million and $1.1$1.2 million under this agreement during the ninesix months ended SeptemberJune 30, 20182019 and 2017, respectively.

15

Table of Contents


2018.
The Company leases certain equipment through leasing companies owned by related parties and paid an aggregate of $1.2$0.4 million and $0.3$0.8 million during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company paid an aggregate of $2.7$2.0 million and $0.9$1.5 million for these leases during the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively.
On December 13, 2018, the Company entered into an agreement with HCI to resume the advancement of reasonable fees and 2017, respectively.expenses of up to $7.1 million pursuant to the advisory agreement. In addition, the Company and HCI agreed to contribute $1 million each to resolve the previously mentioned Securities Litigation Proceedings described in Note 11. The Company reserves all rights to seek reimbursement for any fees or expense advanced to HCI, while HCI reserves all rights to seek indemnification for amounts above the $7.1 million and the $1 million that HCI will contribute to resolve the Securities Litigation Proceedings. The Company paid HCI $3.5 million under this agreement during the six months ended June 30, 2019. The Company made no payments during the three months ended June 30, 2019.
On December 27, 2018, the Company filed a registration statement on Form S-1 with the SEC for the offer and sale of up to 312,065 shares of its common stock held by HCI and its affiliates. HCI has completed the sale of all the shares covered by the registration statement in open-market transactions to unaffiliated purchasers. The Company did not receive any cash proceeds from the offer and sale of the shares of common stock sold by HCI.

22

Table of Contents


On August 2, 2019, the Company entered into a letter agreement (the “Fee Letter”) with Elliott Associates, L.P. and Elliott International, L.P. Pursuant to the Fee Letter, Elliott agreed to arrange for standby letters of credit in an aggregate face amount of $20 million to support the Company's obligations under its ABL Credit Facility. See Note 16 for more information on the Fee Letter.
13.14. Segment Reporting
The Company determines its segments based on the information utilized by the chief operating decision maker,CODM, the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has threefour segments: TES,Ascent, Active On-Demand, LTL, and Ascent.TL. The Company changed its segment reporting effective JanuaryApril 1, 20182019, when it integratedthe CODM began assessing the performance of the Active On-Demand air and ground expedite business separately from its truckload brokerage business into the Ascent domestic freight management business.businesses. Segment information for prior periods has been revised to align with the new segment structure.
These segments are strategic business units through which the Company offers different services. The Company evaluates the performance of the segments primarily based on their respective revenues and operating income. Accordingly, interest expense and other non-operating items are not reported in segment results. In addition, the Company has disclosed corporate, which is not a segment and includes corporate salaries, insurance and administrative costs, and long-term incentive compensation expense.
Included within corporate are rolling stock assets that are purchased and leased by Roadrunner Equipment Leasing (“REL”).  REL, a wholly-ownedwholly owned subsidiary of the Company, is a centralized asset management company that purchases and leases equipment that is utilized by the Company's segments.segments for use by company drivers or ICs.



1623

Table of Contents


The following table reflects certain financial data of the Company’s segments for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 and as of SeptemberJune 30, 20182019 and December 31, 20172018 (in thousands):
 Three Months Ended Nine Months Ended Three Months Ended Six Months Ended
 September 30, September 30, June 30, June 30,
 2018 2017 2018 2017 2019 2018 2019 2018
Revenues:                
TES 280,335
 260,536
 $906,439
 $750,820
Ascent $130,160
 $144,630
 $261,853
 $279,573
Active On-Demand 101,492
 164,770
 244,263
 359,536
LTL 113,948
 117,618
 344,237
 348,362
 117,076
 117,164
 219,898
 230,289
Ascent 145,632
 145,296
 425,205
 438,856
TL 141,472
 145,761
 278,483
 290,318
Eliminations (3,331) (2,017) (11,287) (7,106) (9,512) (14,299) (16,661) (31,706)
Total $536,584
 $521,433
 $1,664,594
 $1,530,932
 $480,688
 $558,026
 $987,836
 $1,128,010
Operating (loss) income:                
TES(1)
 (787) (1,735) $2,863
 $
Ascent $5,880
 $7,314
 $11,252
 $14,021
Active On-Demand (2,614) 7,808
 583
 14,261
LTL (5,040) (8,169) (17,467) (14,154) (4,440) (3,743) (10,275) (12,427)
TL (103,506) (8,558) (110,422) (10,611)
Corporate (33,161) (14,196) (49,755) (30,049)
Total $(137,841) $(11,375) $(158,617) $(24,805)
Interest expense 4,632
 34,232
 8,514
 43,775
Loss on debt restructuring 
 
 2,270
 
Loss before income taxes $(142,473) $(45,607) $(169,401) $(68,580)
Depreciation and amortization:        
Ascent 7,474
 1,531
 21,495
 16,383
 $1,616
 $1,168
 $3,298
 $2,356
Active On-Demand 2,125
 2,036
 4,221
 4,030
LTL 1,085
 900
 1,723
 1,813
TL 7,030
 4,205
 16,121
 8,507
Corporate 2,932
 815
 4,967
 1,483
Total $14,788
 $9,124
 $30,330
 $18,189
Capital expenditures(1):
        
Ascent $213
 $355
 $2,050
 $709
Active On-Demand 1,167
 1,322
 2,315
 2,429
LTL 3,248
 55
 5,020
 255
TL 2,582
 1,618
 8,306
 3,508
Corporate(2)
 (12,468) 19,659
 (42,517) (16,346) 24,162
 12,510
 49,995
 14,934
Total $(10,821) $11,286
 $(35,626) $(14,117) $31,372
 $15,860
 $67,686
 $21,835
Interest expense 35,798
 10,502
 79,573
 45,382
Loss from debt extinguishment 
 6,049
 
 15,876
Loss before income taxes $(46,619) $(5,265) $(115,199) $(75,375)
Depreciation and amortization:        
TES 6,456
 6,484
 $18,993
 $18,957
LTL 876
 924
 2,689
 2,838
Ascent 1,183
 1,471
 3,539
 4,758
Corporate 1,099
 440
 2,582
 1,281
Total $9,614
 $9,319
 $27,803
 $27,834
Capital expenditures:(3)
        
TES 2,477
 1,924
 $8,414
 $7,315
LTL 505
 270
 760
 901
Ascent 496
 550
 1,205
 1,121
Corporate 16,719
 1,190
 31,653
 1,875
Total $20,197
 $3,934
 $42,032
 $11,212
 September 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
Assets:        
TES $403,575
 $458,945
Ascent $302,185
 $276,994
Active On-Demand 99,127
 136,795
LTL 78,410
 79,065
 123,494
 73,706
Ascent 273,298
 271,400
TL 176,929
 244,760
Corporate 93,730
 68,445
 143,967
 123,921
Eliminations(4)
 (1,717) (1,812)
Eliminations(3)
 (2,381) (2,719)
Total $847,296
 $876,043
 $843,321
 $853,457
(1) Operations restructuring charges of $4.7 million are included within TES for the nine months ended September 30, 2018. See Note 14 for additional information.
(2) Gain from sale of Unitrans of $35.4 million is included within Corporate for the three and nine months ended September 30, 2017.
(3) Includes non-cash capitalfinance leases and capital expenditures not yet paid.
(4)(2) The first half of 2019 included $42.5 million of rolling stock assets that were purchased and leased to operating units of the Company by REL, of which 64% was leased to the TL segment, 35% was leased to the LTL segment and 1% was leased to the Ascent segment.
(3) Eliminations represents intercompany trade receivable balances between the threefour segments.

1724

Table of Contents


14.15. Restructuring Costs
In the second quarter of 2018, the Company restructured its temperature controlledtemperature-controlled truckload business by completing the integration of multiple operating companies into one business unit. As part of this integration, the Company also right-sized its temperature controlledtemperature-controlled fleets, facilities, and support functions. As a result, in the second quarter of 2018, the Company recorded operations restructuring costs of $4.7 million related to fleet and facilities right-sizing and relocation costs, severance costs, and the write-down of assets held-for-sale to fair market value. The initial write-down of assets held-for-sale to fair market value totaled $1.3 million and was recorded to property and equipment, while the remaining $3.4 million was recorded in accrued expenses and other current liabilities. None of the remaining individual components are considered material to the overall cost. The Company paid $1.3 millionfollowing is a rollforward of the Company's restructuring reserve balance as of June 30, 2019 (in thousands).
 Restructuring reserves
Beginning balance at December 31, 2018$544
Charges
Adjustments(1)
(79)
Payments(327)
Ending balance at June 30, 2019$138
(1) The adjustment relates to the adoption of Topic 842 for lease terminations included in operationsthe restructuring costs for the three months ended September 30, 2018 which reduced the remaining reserve to $2.1 million.reserve.
The Company also incurred corporate restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, SEC and accounting compliance, and restructuring of $4.7$3.2 million and $6.8$3.9 million infor the third quarter ofthree months ended June 30, 2019 and 2018, and 2017, respectively, and costs of $15.5$6.7 million and $23.6$10.8 million infor the first ninesix months ofended June 30, 2019 and 2018, and 2017, respectively. These costs are included in other operating expenses.
15.16. Subsequent Events

ABL Facility Amendment
On October 4, 2018August 2, 2019, the Company receivedand its direct and indirect domestic subsidiaries entered into a notice fromFirst Amendment to Credit Agreement (the “ABL Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the New York Stock Exchange (the “NYSE”) thatJoint Lead Arrangers and Joint Book Runners party thereto with respect to the Company had fallen below the NYSE’s continued listing standards relating to minimum average global market capitalization and total stockholders’ investment, which require that either its average global market capitalization be not less than $50 million over a consecutive 30 trading day period, or its total stockholders’ investment be not less than $50 million.
ABL Credit Facility. Pursuant to the NYSE continued listing standards,ABL Facility Amendment, the ABL Credit Facility was amended to, among other things, add Acceptable Letters of Credit (as defined in the ABL Facility Amendment) to the Borrowing Base (as defined in the ABL Credit Facility as amended by the ABL Facility Amendment).

Term Loan Facility Amendment
On August 2, 2019, the Company timely notified the NYSE that it intendsand its direct and indirect domestic subsidiaries entered into a First Amendment to submit a planCredit Agreement (the “Term Loan Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott Associates, L.P. and Elliott International, L.P, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner, with respect to the NYSE demonstrating how it intends to regain compliance with the continued listing standards within the required 18-month timeframe. The Company has 45 days to submit its planTerm Loan Credit Facility. Pursuant to the NYSE. UponTerm Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things: (i) defer the September 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on August 2, 2019 and continuing until payment of the December 1, 2019 quarterly amortization payments.

Fee Letter
On August 2, 2019, the Company entered into the Fee Letter with Elliott. Pursuant to the Fee Letter, Elliott agreed to arrange for standby letters of credit (“Letters of Credit”) in an aggregate face amount of $20.0 million (the “Face Amount”) to support the Company's obligations under the ABL Credit Facility. As consideration for Elliott providing the Letters of Credit, the Company agreed to (i) pay Elliott a fee (the “Letter of Credit Fee”) on the LC Amount (as hereafter defined), accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by the Company of the LC Amount to Elliott), at a rate equal to the LIBOR Rate (as defined in the ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any draw on the Letters of Credit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the plan, the NYSE has 45 days to review and determine whether the Company has made a reasonable demonstrationLetters of its ability to come into conformity with the relevant continued listing standards within the 18-month cure period. During this process and during the 18-month cure period, the Company’s shares will continue to be listed and traded on the NYSE,Credit, in each case subject to the Company’s compliance with other listing standards. The NYSE notification does not affect the Company’s business operations or its SEC reporting requirements.terms and
The Company expects that the plan it will submit to the NYSE will include a discussion
25

Table of Contents


conditions of the previously announced rights offeringFee Letter. "LC Amount" means the Face Amount, as increased by the amount of payment in kind Letter of Credit Fee added to existing holders of the Company’s common stock, which the Company believes would bring it into compliance with the NYSE’s continued listing standards relating to minimum average global market capitalization and total stockholders’ investment.
On October 12, 2018, the Company received a notice from the NYSE that it had fallen below the NYSE’s continued listing standard related to price criteria for common stock, which requires the average closing price of the Company’s common stock to equal at least $1.00 per share over a 30 consecutive trading day period. Pursuant to the NYSE listing standards, the Company timely notified the NYSE that it intends to cure the deficiency and regain compliance with the continued listing standard.
The Company has six months from its receipt of the notice to regain compliance with this listing standard. The Company can regain compliance with the standard if,such amount on the last trading day of any calendar month duringeach interest period.
Insurance Premium Financing
In July 2019, the six-month period following receiptCompany executed an insurance premium financing agreement of $20.7 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on September 1, 2019, the notice or on April 12, 2019, which is the date that is six months following receiptfinancing agreement will be payable in nine monthly installments of the notice, the Company’s common stock has a closing priceprincipal and interest of approximately $2.4 million. The agreement will bear interest at least $1.00 per share and an average closing price of at least $1.00 per share over the previous 30 consecutive trading day period.5.25%.
During the six-month cure period, the Company’s shares of common stock will continue to be listed and traded on the NYSE, subject to the company’s compliance with other listing standards. The NYSE notification does not affect the company’s business operations or its SEC reporting requirements.



1826

Table of Contents


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Qdiscussion and analysis contains “forward-looking statements”forward-looking statements that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act, including, but not limited to, statements regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expressions or the negatives thereof are intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause ourOur actual results levels of activity, performance, or achievement to becould differ materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2017. Furthermore, such forward-looking statements speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
2018. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”,Operations,” set forth in our Annual Report on Form 10-K for the year ended December 31, 20172018.
Overview
We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions under the Roadrunner, Active On-Demand and Ascent Global Logistics brands. The Roadrunner brand offers less-than-truckload, temperature controlledover-the-road truckload and intermodal services. Active On-Demand offers premium mission critical air and ground transportation solutions. Ascent Global Logistics offers domestic freight management and brokerage, warehousing and retail consolidation, international freight forwarding, and customs brokerage. We serve a diverse customer base in terms of end-market focus and annual freight expenditures. We are headquartered in Downers Grove, Illinois with operations primarily in the United States.
Effective JanuaryApril 1, 2018,2019, we changed our segment reporting when we integratedseparated our Active On-Demand air and ground expedite business from our truckload brokerage business into our Ascent domestic freight management business.businesses. Segment information for prior periods has been revised to align with the new segment structure.
Our threefour segments are as follows:
Truckload & Express Services.Ascent Global Logistics. Within our TESAscent segment, we serve customers throughout North America. We provide airoffer a full portfolio of domestic and ground expedite services, scheduledinternational transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. Ascent provides domestic freight management solutions including asset-backed truckload services, intermodal services, temperature controlled truckloadbrokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate negotiations, access to our Transportation Management System and freight audit/payment services. Ascent also provides clients with international freight forwarding, customs brokerage, regulatory compliance services and other truckloadproject and logistics services.order management. We also specialize in the transportretail consolidation and full truckload consolidation to retailers to improve On Time in Full compliance. We serve our customers through either our direct sales force or through a network of automotiveindependent agents. Our customized Ascent offerings are designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. enhance customer service.
Active On-Demand. Our Active On-Demand segment provides ground and air expedited services business featuresfeaturing proprietary bid technology supported by our fleets of ground and air assets. Roadrunner Intermodal ServicesWe specialize in the transport of automotive and Roadrunner Temperature Controlled businesses provide specialized truckloadindustrial parts. On-demand air charter is the segment of the air cargo industry focused on the time critical movement of goods that requires the timely launch of an aircraft to move freight. These critical movements of freight are typically necessary to prevent a disruption in the supply chain due to lack of components. The primary users of on-demand air charter services to beneficial cargo ownersare auto manufacturers, component manufacturers, and freight management partners and brokers. We believe this array of technology, services, and specialization best serves our customers and provides us with more consistent shipping volumes in any given year.other heavy equipment makers or just-in-time manufacturers.
Less-than-Truckload. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and parts of Canada. With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of lower incidence of damage and reduced fuel consumption.
Ascent Global Logistics.Truckload. Within our AscentTL segment we offer a full portfolioserve customers throughout North America. We provide the following services: scheduled and expedited dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing operations. We specialize in the transport of domesticautomotive and international transportationindustrial parts, frozen and logistics solutions,refrigerated foods including accessdairy, poultry and meat, and consumer products including foods and beverages. Roadrunner Dry Van, Temperature Controlled, Intermodal Services and Flatbed businesses provide specialized truckload services to cost-effective and time-sensitive modes of transportation within our broad network.  Ascent provides domesticbeneficial cargo owners, freight management solutions including asset-backed truckload brokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate negotiations, access to our transportation management systempartners and freight audit/payment. Ascent also provides clients with international freight forwarding, customs brokerage, regulatory compliancebrokers. We believe this array of technology, services, and project management. We also specializespecialization best serves our customers and provides us with more consistent shipping volumes in retail consolidation, with 2.5 million square feet of our own food-grade warehousing space (both dry and temperature controlled) and full truckload consolidation to retailers to improve On Time In Full compliance.  Ascent serves its customers through either its direct sales force or through a network of independent agents. Our customized Ascentany given year.


19
27

Table of Contents


offerings are designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service.
Factors Important to Our Business
Our success principally depends on our ability to generate revenues through our dedicated sales personnel, long-standing companyCompany relationships, and independent agent network and to deliver freight in all modes safely, on time, and cost-effectively through a suite of solutions tailored to the needs of each customer. Customer shipping demand, over-the-road freight tonnage levels, events leading to expedited shipping requirements, and equipment capacity ultimately drive increases or decreases in our revenues. Our ability to operate profitably and generate cash is also impacted by purchased transportation costs, personnel and related benefits costs, fuel costs, pricing dynamics, customer mix, and our ability to manage costs effectively.
Sales Personnel and Agent Network.  In our TES business, we arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives. In our LTL business, we market and sell our LTL services through a sales force of approximately 80 people, consisting of account executives, sales managers, inside sales representatives, and commissioned sales representatives. In our Ascent business, we have approximately 60150 direct salespeople and sales representatives located in 2524 company offices, commissioned sales representatives, and a network of approximately 60 independent agents. Agents complement our Company sales force by bringing pre-existing customer relationships, new customer prospects, and/or access to new geographic markets. Furthermore, agents typically provide immediate revenue and do not require us to invest in incremental overhead. Agents own or lease their own office space and pay for other costs associated with running their operations. In our Active On-Demand business, we market and sell our air and ground expedite services through a direct sales team of eight individuals in the United States and Mexico as well as other company relationships such as management and customer service representatives. In our LTL business, we market and sell our LTL services through a sales force of approximately 70 people, consisting of account executives, sales managers, and commissioned sales representatives. In our TL business, we arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives.
Tonnage Levels and Capacity.Capacity. Competition intensifies in the transportation industry as tonnage levels decrease and equipment capacity increases. Our ability to maintain or grow existing tonnage levels is impacted by overall economic conditions, shipping demand, over-the-road freight capacity in North America, and capacity in domestic air freight, as well as by our ability to compete effectively in terms of pricing, safety, and on-time delivery. We do business with a broad base of third-party carriers, including ICsindependent contractors (“ICs”) and purchased power providers, together with a blend of our own ground and air capacity, which reduces the impact of tightening capacity on our business.
Purchased Transportation Costs.Costs. Purchased transportation costs within our TES business are generally based either on negotiated rates for each load hauled or spot market rates for ground and air services. Purchased transportation costs within our LTL business represent payments to independent contractors' (“IC”), over-the-road purchased power providers, intermodal service providers, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Within our Ascent business, purchased transportation costs represent payments made to ground, ocean, and air carriers, IC's,ICs, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Purchased transportation costs are the largest component of our cost structure. Our purchased transportation costs typically increase or decrease in proportion to revenues. Purchased transportation costs within our Active On-Demand business are spot market rates generated from our proprietary bid technology for ground and air services. Purchased transportation costs within our LTL business represent payments to ICs, over-the-road purchased power providers, intermodal service providers, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Purchased transportation costs within our TL business are generally based either on negotiated rates for each load hauled or spot market rates.
Personnel and Related Benefits. Personnel and related benefits costs are a large component of our overall cost structure. We employ approximately 1,400 company drivers who are paid either per mile or at an hourly rate. In addition, we employ approximatelyover 900 dock and warehouse workers and approximately 2,200over 2,400 operations and other administrative personnel to support our day-to-day business activities. Personnel and related benefits costs could vary significantly as we may be required to adjust staffing levels to match our business needs.
Fuel.Fuel. The transportation industry is dependent upon the availability of adequate fuel supplies and the price of fuel. Fuel prices have fluctuated dramatically over recent years. Within our TESAscent, Active On-Demand, and AscentTL businesses, we generally pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by risesincreases in fuel prices. Within our LTL business, our ICs and purchased power providers pass along the cost of diesel fuel to us, and we in turn attempt to pass along some or all of these costs to our customers through fuel surcharge revenue programs. Although revenues from fuel surcharges generally offset increases in fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses is difficult to ascertain. We cannot predict future fuel price fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher fuel costs through fuel surcharges, and the effect of fuel surcharges on our overall rate structure or the total price that we will receive from our customers. Depending on the changes in the fuel rates and the impact on costs in other fuel- and energy-related areas, our operating margins could be impacted.

20

Table of Contents


Pricing.Pricing. The pricing environment in the transportation industry also impacts our operating performance. Within our TESAscent business, we typically charge a flatvariable rate negotiated on each load hauled. Pricingshipment in addition to transaction or service fees appropriate for the solution we have provided to meet a specific customer’s needs. Since we offer both truckload and LTL shipping as part of our Ascent offering, pricing within our TESAscent business is impacted by similar factors. The pricing environment for all of our operations

28

Table of Contents


generally becomes more competitive during periods of lower industry tonnage levels and/or increased capacity within the over-the-road freight sector. In addition, when we provide international freight forwarding services in our Ascent business, we also contract with airlines, ocean carriers, and agents as needed. The international shipping markets are very dynamic and we must therefore adjust rates regularly based on market conditions. Within our Active On-Demand business, our pricing engine is a spot-based proprietary bid technology, which is typically driven by market demand and shipment characteristics such as frequency and consistency, length of haul, and customer and geographic mix, but generally has fewer influential factors than pricing within our LTL business.mix. Within our LTL business, we typically generate revenues by charging our customers a rate based on shipment weight, distance hauled, and commodity type. This amount is comprised of a base rate, a fuel surcharge, and any applicable accessorial fees and surcharges. Our LTL pricing is dictated primarily by factors such as shipment size, shipment frequency, length of haul, freight density, customer requirements and geographical location. Within our AscentTL business, we typically charge a variableflat rate negotiated on each load hauled. Pricing within our TL business is typically driven by shipment in addition to transaction or service fees appropriate for the solution we have provided to meet a specific customer’s needs. Since we offer both TLfrequency and LTL shipping as partconsistency, length of our Ascent offering,haul, and customer and geographic mix, but generally has fewer influential factors than pricing within our Ascent business is impacted by similar factors. The pricing environment for all of our operations generally becomes more competitive during periods of lower industry tonnage levels and/or increased capacity within the over-the-road freight sector. In addition, when we provide international freight forwarding services in our Ascent business, we also contract with airlines, ocean carriers, and agents as needed. The international shipping markets are very dynamic and we must therefore adjust rates regularly based on market conditions.
Sale of Unitrans
On September 15, 2017, we completed the sale of our wholly-owned subsidiary Unitrans, Inc. (“Unitrans”). The results of operations of Unitrans are included in our condensed consolidated financial statements within our Ascent segment through the date of completion of the sale.LTL business.

2129

Table of Contents


Results of Operations
The following tables set forth, for the periods indicated, summary TES,Ascent, Active On-Demand, LTL, Ascent,TL, corporate, and consolidated statement of operations data. Such revenue data for our TES, LTL, and Ascent segments are expressed as a percentage
(In thousands)Three Months Ended June 30, 2019
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Revenues$130,160
 $101,492
 $117,076
 $141,472
 $(9,512) $480,688
Operating expenses:          
Purchased transportation costs93,182
 87,849
 80,859
 65,407
 (9,512) 317,785
Personnel and related benefits13,508
 9,166
 18,724
 30,273
 10,015
 81,686
Other operating expenses15,974
 4,966
 20,848
 46,932
 7,219
 95,939
Depreciation and amortization1,616
 2,125
 1,085
 7,030
 2,932
 14,788
Impairment charges
 
 
 95,336
 12,995
 108,331
Total operating expenses124,280
 104,106
 121,516
 244,978
 23,649
 618,529
Operating income (loss)5,880
 (2,614) (4,440) (103,506) (33,161) (137,841)
Total interest expense        

 4,632
Loss before income taxes

 

 

   

 (142,473)
Benefit from income taxes          (524)
Net loss        

 $(141,949)

(In thousands)Three Months Ended June 30, 2018
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Revenues$144,630
 $164,770
 $117,164
 $145,761
 $(14,299) $558,026
Operating expenses:          
Purchased transportation costs106,861
 141,021
 82,318
 64,175
 (14,303) 380,072
Personnel and related benefits12,465
 9,038
 17,428
 30,756
 6,151
 75,838
Other operating expenses16,822
 4,867
 20,261
 55,183
 7,234
 104,367
Depreciation and amortization1,168
 2,036
 900
 4,205
 815
 9,124
Total operating expenses137,316
 156,962
 120,907
 154,319
 (103) 569,401
Operating income (loss)7,314
 7,808
 (3,743) (8,558) (14,196) (11,375)
Total interest expense          34,232
Loss before income taxes          (45,607)
Benefit from income taxes          (3,652)
Net loss          $(41,955)


30

Table of consolidated revenues. Other statement of operations data for our TES, LTL, and Ascent segments are expressed as a percentage of segment revenues. We have also providedContents


The following table sets forth a reconciliation of net loss to Adjusted EBITDA and providedprovides Adjusted EBITDA for TES,Ascent, Active On-Demand, LTL, Ascent,TL, and corporate for the periods indicated.
(In thousands, except for %’s)Three Months Ended September 30, 2018
 TES% LTL% Ascent% Corporate/ Eliminations Total
Revenues$280,335
52.2 % $113,948
21.2 % $145,632
27.1% $(3,331) $536,584
Operating expenses:           
Purchased transportation costs180,440
64.4 % 81,422
71.5 % 107,146
73.6% (3,330) 365,678
Personnel and related benefits41,680
14.9 % 17,402
15.3 % 12,687
8.7% 6,349
 78,118
Other operating expenses (1)
52,546
18.7 % 19,288
16.9 % 17,142
11.8% 5,019
 93,995
Depreciation and amortization6,456
2.3 % 876
0.8 % 1,183
0.8% 1,099
 9,614
Total operating expenses281,122
100.3 % 118,988
104.4 % 138,158
94.9% 9,137
 547,405
Operating income (loss)(787)(0.3)% (5,040)(4.4)% 7,474
5.1% (12,468) (10,821)
Total interest expense         

 35,798
Loss before income taxes

  

  

  

 (46,619)
Benefit from income taxes           (5,058)
Net loss         

 $(41,561)
(In thousands)Three Months Ended June 30, 2019
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Net (loss) income$5,777
 $(2,614) $(4,494) $(104,278) $(36,340) $(141,949)
Plus: Total interest expense95
 
 54
 772
 3,711
 4,632
Plus: Provision (benefit) for income taxes8
 
 
 
 (532) (524)
Plus: Depreciation and amortization1,616
 2,125
 1,085
 7,030
 2,932
 14,788
Plus: Impairment charges
 
 
 95,336
 12,995
 108,331
Plus: Long-term incentive compensation expenses
 
 
 
 4,594
 4,594
Plus: Settlement of contingent purchase obligation
 
 
 
 360
 360
Plus: Corporate restructuring and restatement costs
 
 
 
 3,242
 3,242
Adjusted EBITDA(1)
$7,496
 $(489) $(3,355) $(1,140) $(9,038) $(6,526)

(In thousands)Three Months Ended June 30, 2018
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Net (loss) income$7,285
 $7,808
 $(3,763) $(8,566) $(44,719) $(41,955)
Plus: Total interest expense29
 
 20
 8
 34,175
 34,232
Plus: Benefit from income taxes
 
 
 
 (3,652) (3,652)
Plus: Depreciation and amortization1,168
 2,036
 900
 4,205
 815
 9,124
Plus: Long-term incentive compensation expenses
 
 
 
 426
 426
Plus: Operations restructuring costs
 
 
 4,655
 
 4,655
Plus: Corporate restructuring and restatement costs
 
 
 
 3,911
 3,911
Adjusted EBITDA(1)
$8,482

$9,844

$(2,843) $302

$(9,044)
$6,741


(In thousands, except for %’s)Three Months Ended September 30, 2017
 TES% LTL% Ascent% Corporate/ Eliminations Total
Revenues$260,536
50.0 % $117,618
22.6 % $145,296
27.9% $(2,017) $521,433
Operating expenses:           
Purchased transportation costs169,103
64.9 % 84,249
71.6 % 107,156
73.8% (2,028) 358,480
Personnel and related benefits37,279
14.3 % 17,597
15.0 % 14,832
10.2% 3,555
 73,263
Other operating expenses (2)
49,405
19.0 % 23,017
19.6 % 15,904
10.9% (23,643) 64,683
Depreciation and amortization6,484
2.5 % 924
0.8 % 1,471
1.0% 440
 9,319
Impairment charges
 % 
 % 4,402
3.0% 
 4,402
Total operating expenses262,271
100.7 % 125,787
106.9 % 143,765
98.9% (21,676) 510,147
Operating income (loss)(1,735)(0.7)% (8,169)(6.9)% 1,531
1.1% 19,659
 11,286
Total interest expense           10,502
Loss from debt extinguishment           6,049
Loss before income taxes           (5,265)
Provision for income taxes           4,788
Net loss           $(10,053)




2231

Table of Contents



(In thousands)Three Months Ended September 30, 2018
 TES LTL Ascent Corporate/ Eliminations Total
Net (loss) income$(921) $(5,072) $7,319
 $(42,887) $(41,561)
Plus: Total interest expense134
 32
 26
 35,606
 35,798
Plus: (Benefit from) provision for income taxes
 
 129
 (5,187) (5,058)
Plus: Depreciation and amortization6,456
 876
 1,183
 1,099
 9,614
Plus: Long-term incentive compensation expenses
 
 
 951
 951
Plus: Corporate restructuring and restatement costs
 
 
 4,713
 4,713
Adjusted EBITDA(3)
$5,669
 $(4,164) $8,657
 $(5,705) $4,457


(In thousands)Three Months Ended September 30, 2017
 TES LTL Ascent Corporate/ Eliminations Total Less: Unitrans Total w/o Unitrans
Net (loss) income$(1,720) $(8,206) $1,496
 $(1,623) $(10,053) $1,339
 $(11,392)
Plus: Total interest expense(15) 37
 35
 10,445
 10,502
 
 10,502
Plus: Provision for income taxes
 
 
 4,788
 4,788
 
 4,788
Plus: Depreciation and amortization6,484
 924
 1,471
 440
 9,319
 230
 9,089
Plus: Impairment charges
 
 4,402
 
 4,402
 
 4,402
Plus: Long-term incentive compensation expenses
 
 
 541
 541
 
 541
Plus: Gain on sale of Unitrans
 
 
 (35,440) (35,440) 
 (35,440)
Plus: Loss on debt extinguishments
 
 
 6,049
 6,049
 
 6,049
Plus: Corporate restructuring and restatement costs
 
 
 6,841
 6,841
 
 6,841
Adjusted EBITDA(3)
$4,749
 $(7,245) $7,404
 $(7,959) $(3,051) $1,569
 $(4,620)
Note: Adjusted EBITDA for the Ascent segment in the third quarter of 2017, excluding Unitrans, was $5.8 million.
(In thousands)Six Months Ended June 30, 2019
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Revenues$261,853
 $244,263
 $219,898
 $278,483
 $(16,661) $987,836
Operating expenses:           
Purchased transportation costs188,667
 210,007
 152,450
 126,097
 (16,661) 660,560
Personnel and related benefits27,252
 19,084
 36,280
 61,118
 17,167
 160,901
Other operating expenses (2)31,384
 10,368
 39,720
 90,233
 13,848
 185,553
Depreciation and amortization3,298
 4,221
 1,723
 16,121
 4,967
 30,330
Impairment charges
 
 
 95,336
 13,773
 109,109
Total operating expenses250,601
 243,680
 230,173
 388,905
 33,094
 1,146,453
Operating income (loss)11,252
 583
 (10,275) (110,422) (49,755) (158,617)
Total interest expense          8,514
Loss on debt restructuring          2,270
Loss before income taxes          (169,401)
Benefit from income taxes          (453)
Net loss          $(168,948)

(In thousands)Six Months Ended June 30, 2018
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Revenues$279,573
 $359,536
 $230,289
 $290,318
 $(31,706) $1,128,010
Operating expenses:           
Purchased transportation costs205,374
 313,630
 164,315
 129,423
 (31,707) 781,035
Personnel and related benefits24,606
 17,711
 35,563
 61,251
 12,594
 151,725
Other operating expenses (2)33,216
 9,904
 41,025
 101,748
 15,973
 201,866
Depreciation and amortization2,356
 4,030
 1,813
 8,507
 1,483
 18,189
Total operating expenses265,552
 345,275
 242,716
 300,929
 (1,657) 1,152,815
Operating income (loss)14,021
 14,261
 (12,427) (10,611) (30,049) (24,805)
Total interest expense          43,775
Loss before income taxes          (68,580)
Benefit from income taxes          (2,982)
Net loss          $(65,598)


2332

Table of Contents


(In thousands, except for %’s)Nine Months Ended September 30, 2018
 TES% LTL% Ascent% Corporate/ Eliminations Total
Revenues$906,439
54.5% $344,237
20.7 % $425,205
25.5% $(11,287) $1,664,594
Operating expenses:           
Purchased transportation costs599,743
66.2% 245,737
71.4 % 312,520
73.5% (11,287) 1,146,713
Personnel and related benefits120,642
13.3% 52,965
15.4 % 37,293
8.8% 18,943
 229,843
Other operating expenses (1)
164,198
18.1% 60,313
17.5 % 50,358
11.8% 20,992
 295,861
Depreciation and amortization18,993
2.1% 2,689
0.8 % 3,539
0.8% 2,582
 27,803
Total operating expenses903,576
99.7% 361,704
105.1 % 403,710
94.9% 31,230
 1,700,220
Operating income (loss)2,863
0.3% (17,467)(5.1)% 21,495
5.1% (42,517) (35,626)
Total interest expense         

 79,573
Loss before income taxes

  

  

  

 (115,199)
Benefit from income taxes           (8,040)
Net loss         

 $(107,159)

(In thousands)Six Months Ended June 30, 2019
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Net (loss) income$11,044
 $583
 $(10,363) $(111,886) $(58,326) $(168,948)
Plus: Total interest expense188
 
 88
 1,464
 6,774
 8,514
Plus: (Benefit from) provision for income taxes20
 
 
 
 (473) (453)
Plus: Depreciation and amortization3,298
 4,221
 1,723
 16,121
 4,967
 30,330
Plus: Long-term incentive compensation expenses
 
 
 
 6,325
 6,325
Plus: Settlement of contingent purchase obligation
 
 
 
 360
 360
Plus: Impairment charges
 
 
 95,336
 13,773
 109,109
Plus: Loss on debt restructuring
 
 
 
 2,270
 2,270
Plus: Corporate restructuring and restatement costs
 
 
 
 6,674
 6,674
Adjusted EBITDA(1)
$14,550
 $4,804
 $(8,552) $1,035
 $(17,656) $(5,819)

(In thousands, except for %’s)Nine Months Ended September 30, 2017
 TES% LTL% Ascent% Corporate/ Eliminations Total
Revenues$750,820
49.0% $348,362
22.8 % $438,856
28.7% $(7,106) $1,530,932
Operating expenses:           
Purchased transportation costs471,581
62.8% 246,960
70.9 % 321,751
73.3% (7,095) 1,033,197
Personnel and related benefits113,363
15.1% 52,334
15.0 % 45,841
10.4% 11,807
 223,345
Other operating expenses (2)
146,919
19.6% 60,384
17.3 % 45,721
10.4% 3,247
 256,271
Depreciation and amortization18,957
2.5% 2,838
0.8 % 4,758
1.1% 1,281
 27,834
Impairment charges
% 
 % 4,402
1.0% 
 4,402
Total operating expenses750,820
100.0% 362,516
104.1 % 422,473
96.3% 9,240
 1,545,049
Operating income (loss)
% (14,154)(4.1)% 16,383
3.7% (16,346) (14,117)
Total interest expense           45,382
Loss on debt extinguishment           15,876
Loss before income taxes           (75,375)
Benefit from income taxes           (7,516)
Net loss           $(67,859)


(In thousands)Six Months Ended June 30, 2018
            
 Ascent Active On-Demand LTL TL Corporate/ Eliminations Total
Net (loss) income$13,962
 $14,261
 $(12,483) $(10,630) $(70,708) $(65,598)
Plus: Total interest expense59
 
 56
 19
 43,641
 43,775
Plus: Benefit from income taxes
 
 
 
 (2,982) (2,982)
Plus: Depreciation and amortization2,356
 4,030
 1,813
 8,507
 1,483
 18,189
Plus: Long-term incentive compensation expenses
 
 
 
 1,003
 1,003
Plus: Operations restructuring costs
 
 
 4,655
 
 4,655
Plus: Corporate restructuring and restatement costs
 
 
 
 10,824
 10,824
Adjusted EBITDA(1)
$16,377
 $18,291
 $(10,614) $2,551
 $(16,739) $9,866



2433

Table of Contents


(In thousands)Nine Months Ended September 30, 2018
 TES LTL Ascent Corporate/ Eliminations Total
Net (loss) income$2,710
 $(17,555) $21,281
 $(113,595) $(107,159)
Plus: Total interest expense153
 88
 85
 79,247
 79,573
Plus: (Benefit from) provision for income taxes
 
 129
 (8,169) (8,040)
Plus: Depreciation and amortization18,993
 2,689
 3,539
 2,582
 27,803
Plus: Long-term incentive compensation expenses
 
 
 1,954
 1,954
Plus: Operations restructuring costs (1)
4,655
 
 
 
 4,655
Plus: Corporate restructuring and restatement costs
 
 
 15,537
 15,537
Adjusted EBITDA(3)
$26,511
 $(14,778) $25,034
 $(22,444) $14,323
(In thousands)Nine Months Ended September 30, 2017
 TES LTL Ascent Corporate/ Eliminations Total Less: Unitrans Total w/o Unitrans
Net (loss) income$51
 $(14,317) $16,273
 $(69,866) $(67,859) $5,792
 $(73,651)
Plus: Total interest expense(51) 163
 110
 45,160
 45,382
 
 45,382
Plus: Benefit from income taxes
 
 
 (7,516) (7,516) 
 (7,516)
Plus: Depreciation and amortization18,957
 2,838
 4,758
 1,281
 27,834
 819
 27,015
Plus: Impairment charges
 
 4,402
 
 4,402
 
 4,402
Plus: Long-term incentive compensation expenses
 
 
 1,810
 1,810
 
 1,810
Plus: Gain on sale of Unitrans
 
 
 (35,440) (35,440) 
 (35,440)
Plus: Loss on debt extinguishments
 
 
 15,876
 15,876
 
 15,876
Plus: Corporate restructuring and restatement costs
 
 
 23,591
 23,591
 
 23,591
Adjusted EBITDA(3)
$18,957
 $(11,316) $25,543
 $(25,104) $8,080

$6,611
 $1,469
Note: Adjusted EBITDA for the Ascent segment for the nine months ended September 30, 2017, excluding Unitrans, was $18.9 million.

(1) Operations restructuring costs of $4.7 million are included in other operating expenses within the TES segment. See Note 14 to our condensed consolidated financial statements for additional information.

(2) The gain from sale of Unitrans of $35.4 million is included in other operating expenses within Corporate. See Note 2 to our condensed consolidated financial statements for additional information.

(3)(1) EBITDA represents earnings before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as EBITDA excluding impairment and other non-cash gains and losses, other long-term incentive compensation expenses, losses fromloss on debt extinguishments,restructuring, settlements of contingent purchase obligations, operations restructuring costs, and corporate restructuring and restatement costs associated with legal, consulting and accounting matters, (including ourincluding internal investigation, SEC compliance, and debt restructuring costs), and adjustments to contingent purchase obligations.external investigations. We use Adjusted EBITDA as a supplemental measure in evaluating our operating performance and when determining executive incentive compensation. We believe Adjusted EBITDA is useful to investors in evaluating our performance compared to other companies in our industry because it assists in analyzing and benchmarking the performance and value of a business. The calculation of Adjusted EBITDA eliminates the effects of financing, income taxes, and the accounting effects of capital spending. These items may vary for different companies for reasons unrelated to the overall operating performance of a company’s business. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. Although our management uses Adjusted EBITDA as a financial measure to assess the performance of our business compared to that of others in our industry, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt or dividend payments on our previously outstanding preferred stock;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

25

Table of Contents


Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our results of operations under GAAP. See the condensed consolidated statements of operations included in our condensed consolidated financial statements included elsewhere in this Form 10-Q.
(2) Operations restructuring costs of $4.7 million are included in other operating expenses within the TL segment. See Note 14 to our condensed consolidated financial statements for additional information.

34

Table of Contents


A summary of operating statistics for our LTL segment for the three and ninesix months ended SeptemberJune 30 is shown below:
Three Months Ended Nine Months Ended
(In thousands, except for statistics)Three Months Ended Six Months Ended
September 30, September 30,June 30, June 30,
2018 2017 % Change 2018 2017 % Change2019 2018 % Change 2019 2018 % Change
Revenue$113,948
 $117,618
 (3.1)% $344,237
 $348,362
 (1.2)%$117,076
 $117,164
 (0.1)% $219,898
 $230,289
 (4.5)%
Less: Backhaul Revenue2,267
 
   5,401
 
  774
 3,133
   1,803
 3,133
  
Less: Eliminations(74) (62)   (220) (178)  (71) (69)   (140) (146)  
Adjusted Revenue(1)
111,755
 117,680
 (5.0%) 339,056
 348,540
 (2.7%)$116,373
 $114,100
 2.0 % $218,235
 $227,302
 (4.0%)
                      
Adjusted Revenue excluding fuel(1)
96,510
 104,376
 (7.5%) 293,330
 308,528
 (4.9%)101,727
 98,397
 3.4 % 191,027
 196,735
 (2.9%)
                      
Adjusted Revenue per hundredweight (incl. fuel)$21.89
 $20.34
 7.6% $21.48
 $19.81
 8.4%$21.53
 $21.03
 2.4% $21.49
 $21.00
 2.3%
Adjusted Revenue per hundredweight (excl. fuel)$18.96
 $18.04
 5.1% $18.63
 $17.54
 6.2%$18.82
 $18.13
 3.8% $18.81
 $18.17
 3.5%
Adjusted Revenue per shipment (incl. fuel)$254.53
 $218.58
 16.4% $244.48
 $213.95
 14.3%$248.06
 $240.77
 3.0% $247.22
 $236.54
 4.5%
Adjusted Revenue per shipment (excl. fuel)$220.50
 $193.87
 13.7% $211.97
 $189.39
 11.9%$216.84
 $207.63
 4.4% $216.40
 $204.73
 5.7%
Weight per shipment (lbs.)1,163
 1,075
 8.2% 1,138
 1,080
 5.4%1,152
 1,145
 0.6% 1,150
 1,127
 2.0%
Shipments per day7,111
 8,546
 (16.8%) 7,377
 8,529
 (13.5%)7,330
 7,405
 (1.0)% 6,951
 7,507
 (7.4%)

(1) The Company's Our management uses Adjusted Revenue and Adjusted Revenue excluding fuel to calculate the above statistics as they believe it is a more useful measure to investors since backhaul revenue and eliminations doare not have associatedincluded in our LTL standard pricing model, which is based on weights and shipments.


2635

Table of Contents


Three Months Ended SeptemberJune 30, 20182019 Compared to Three Months Ended SeptemberJune 30, 20172018
Consolidated Results
Our consolidatedConsolidated revenues increaseddecreased to $536.6$480.7 million in the thirdsecond quarter of 20182019 compared to $521.4$558.0 million in the thirdsecond quarter of 2017. Higher2018. Lower revenues in the TES and Ascentall of our segments contributed to the increase, partially offset by lower revenues in the LTL segment. Unitrans contributed $19.3 million of revenue within the Ascent segment in the third quarter of 2017.decrease.
Our consolidated operating loss was $10.8$137.8 million in the thirdsecond quarter of 20182019 compared to operating income of $11.3$11.4 million in the thirdsecond quarter of 2017. Consolidated2018. Lower consolidated operating results in the thirdsecond quarter of 2017 included2019 were attributable to a decrease in operating results within all of our segments. Also impacting consolidated operating loss in the gain onsecond quarter of 2019 were impairment charges of $108.3 million. Included in the saleimpairment charges were goodwill impairment charges of Unitrans of $35.4$92.9 million which was recorded within our Corporate results, and an intangible asset impairment charge of $4.4 million. Our TES, LTL$1.9 million within our TL segment. These impairment charges are discussed in further detail within Critical Accounting Policies and Ascent segments all experienced improved operating resultsEstimates later in this discussion. We also recorded an asset impairment charge of $0.5 million related to assets held for sale in our TL segment and software impairment charges of $13.0 million associated with the third quarterabandonment of 2018 compared to the third quartercurrent software development in favor of 2017. Included in the operating results for Ascent in the third quarter of 2017 was operating income from Unitrans of $1.3 million.alternative customized software solutions.
Our consolidated net loss was $41.6$141.9 million in the thirdsecond quarter of 2019 compared to $42.0 million in the second quarter of 2018. In addition to the explanations provided above for our consolidated operating loss, our consolidated net loss in the second quarter of 2019 was impacted by a decrease in interest expense.
Interest expense decreased to $4.6 million during the second quarter of 2019 from $34.2 million during the second quarter of 2018, comparedprimarily due to $10.1 millionthe absence of interest on the preferred stock (which was fully redeemed in the thirdfirst quarter of 2017. In addition to2019 after completion of the operating results within our segments and corporate, our net loss was also impacted by increased interest expense,rights offering), partially offset by an income tax benefit and the absence of a loss from debt extinguishment of $6.0 million that occurred in the third quarter of 2017.
Interest expense increased to $35.8 million during the third quarter of 2018 from $10.5 million during the third quarter of 2017, primarily as a result of higher interest associated with our preferred stock and higher interest expense on debt due tofrom finance leases.
The benefit from income taxes was $0.5 million for the ABL Facility commencing on July 21, 2017. Included in interest expense from preferred stock was higher expense of $31.0 million due to the change in the fair value of the preferred stock.
Income tax benefit was $5.1 million during the thirdsecond quarter of 20182019 compared to an income tax provision of $4.8$3.7 million duringfor the thirdsecond quarter of 2017.2018. The effective tax rate was 10.8%0.4% during the thirdsecond quarter of 20182019 and (90.9)%8.0% during the thirdsecond quarter of 2017.2018. The annual effective income tax rate varies from the federal statutory rate of 21.0% and 35.0%, respectively, primarily due to state income taxes (net of federaladjustments to the valuation allowance for deferred tax effect) andassets, adjustments for permanent differences, (primarilyand state income taxes. The federal tax benefit for 2019 was entirely offset by adjustments to the valuation allowance. Significant permanent differences include the non-deductible portion of the goodwill impairment charge in 2019 and non-deductible interest expense associated with our preferred stock). No significant discrete items were recognized during the third quarter ofstock in 2018. The tax effects of significant discrete items recognized during the third quarter of 2017 included loss from debt extinguishment (nostate tax benefit for partial redemption of preferred stock), gain onboth years was partially offset by adjustments to the sale of Unitrans (tax provision), and goodwill impairment charges (primarily non-deductible for tax purposes).valuation allowance.
The rest of our discussion will focus on the operating results of our threefour segments:
Truckload & Express Services
Operating results in our TES segment improved to an operating loss of $0.8 million in the third quarter of 2018 compared to an operating loss of $1.7 million in the third quarter of 2017. TES revenues increased $19.8 million while purchased transportation costs increased $11.3 million. Increases in TES revenue were due primarily to growth in ground and air expedited freight and related brokerage, coupled with a strong demand environment which drove higher rates across most of the segment. Purchase transportation costs and yield were negatively impacted by capacity reductions in intermodal services and over-the-road operations, including dry van and temperature controlled. TES personnel and related benefits increased $4.4 million due primarily to higher driver wages, while other operating expenses increased $3.1 million, due to increased equipment lease and maintenance costs of $2.9 million and higher IT costs of $1.6 million.
Less-than-Truckload
Operating results in our LTL segment improved to an operating loss of $5.0 million in the third quarter of 2018 compared to an operating loss of $8.2 million in the third quarter of 2017. LTL revenues decreased $3.7 million and purchased transportation costs decreased $2.8 million, both of which were driven by a decrease in shipping volumes. In addition to lower shipping volumes, LTL revenues were also impacted by a reduction in selected service areas in order to eliminate unprofitable freight and focus on key lanes, partially offset by higher rates and fuel surcharge revenue. LTL personnel and related benefits decreased $0.2 million while other operating expenses decreased $3.7 million. The decrease in LTL other operating expenses was primarily due to lower bad debt expense of $0.9 million, lower cargo claims expense of $0.9 million and lower equipment lease costs of $0.7 million.
Ascent Global Logistics
Operating results in our Ascent segment improveddeclined as operating income increased to $7.5was $5.9 million in the thirdsecond quarter of 2018 from $1.52019 compared to $7.3 million in the thirdsecond quarter of 2017. Operating results2018. Ascent revenues decreased $14.5 million and purchased transportation decreased $13.7 million primarily attributable to lower volumes and rates in the third quarter of 2017 included $1.3 million of operating income from Unitrans which was sold in the third quarter of 2017 and an impairment charge of $4.4 million which resulted from comparing the remaining carrying value of goodwill for the Ascent reporting unit after the sale of Unitrans. The improved operating results were driven by growth in retail consolidation business and our domestic freight management business, partially offset by improvements in our international freight forwarding (expanded volumes at new and existing customers) and our retail consolidation business (growth from new and existing customers). Ascent personnel and related benefits increased $1.0 million. Other operating expenses decreased $0.8 million primarily due to our focus on overall cost management.
Active On-Demand
Operating results in our Active On-Demand segment declined to an operating loss of $2.6 million in the second quarter of 2019 compared to operating income of $7.8 million in the second quarter of 2018. Active On-Demand revenues decreased $63.3 million and purchased transportation decreased $53.2 million primarily attributable to lower market demand for both air and ground expedite, which negatively impacted volumes and rates.
Less-than-Truckload
Operating results in our LTL segment declined to an operating loss of $4.4 million in the second quarter of 2019 compared to an operating loss of $3.7 million in the second quarter of 2018. LTL revenues were flat quarter over quarter, however, excluding backhaul and fuel surcharge revenue, revenues increased 3.4%. Purchased transportation decreased $1.5 million driven by lower pickup and delivery costs as well as lower purchased power and improved planning and efficiency. LTL personnel and related benefits increased $1.3 million, while other operating expenses increased $0.6 million. The increase in LTL other operating expenses was primarily due to higher equipment repair and maintenance costs of $1.7 million, partially offset by lower bad debt expense.
Truckload
Operating results in our TL segment declined to an operating loss of $103.5 million in the second quarter of 2019 compared to an operating loss of $8.6 million in the second quarter of 2018. TL operating results for the second quarter of 2019 were negatively impacted by the previously mentioned impairment charges of $95.3 million. TL operating results for the second quarter

2736

Table of Contents


a decline in international freight forwarding. Ascent revenues increased $0.3 million in the third quarter of 2018 when compared to the the third quarter of 2017. Unitrans contributed $19.3 million of revenue within the Ascent segment in the third quarter of 2017. Excluding Unitrans, Ascent revenues increased due to higher revenue from domestic freight management (truckload and LTL brokerage), retail consolidation (growth from existing and new customers) and international freight forwarding. Ascent personnel and related benefits decreased $2.1 million primarily due to the absence of Unitrans. Excluding the impact of Unitrans, personnel and related benefit increased $0.7 million. Other operating expenses increased $1.2 million due to increased IT costs of $0.9 million and higher commissions of $0.5 million.
Other Operating Expenses
Other operating expenses that were not allocated to our TES, LTL, or Ascent segments increased to $5.0 million in the third quarter of 2018 compared to operating income of $23.6 million in the third quarter of 2017, primarily due to a $35.4 million gain on the sale of Unitrans in September of 2017. Also included in other operating expenses are corporate restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, and SEC and accounting compliance of $4.7 million and $6.8 million in the third quarter of 2018 and 2017, respectively. Also impacting the third quarter of of 2018 were lower insurance claims reserves of $4.3 million.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Consolidated Results
Our consolidated revenues increased to $1,664.6 million in the first nine months of 2018 compared to $1,530.9 million in the first nine months of 2017. Higher revenues in the TES segment contributed to the increase, which were partially offset by lower revenues in the LTL and Ascent segments. Excluding the revenue from Unitrans of $67.6 million in the first nine months of 2017, revenue increased in the Ascent segment.
Our consolidated operating loss increased to $35.6 million in the first nine months of 2018 compared to $14.1 million in the first nine months of 2017. The operating loss for the first nine months of 2017 included a $35.4 million gain on the sale of Unitrans and impairment charges of $4.4 million. The operating loss for the first nine months of 2018 included operations restructuring costs of $4.7 million related to the restructuring of our temperature controlled truckload business. Lower consolidated operating results in the first nine months of 2018 were attributable to lower operating results in our LTL segment and higher corporate expenses, partially offset by an increase in operating results within our TES and Ascent segments. Excluding the operating income from Unitrans of $5.8 million in the first nine months of 2017, our Ascent segment operating performance improved in the first nine months of 2018.
Our consolidated net loss was $107.2 million in the first nine months of 2018 compared to $67.9 million in the first nine months of 2017. In addition to the operating results within our segments and corporate, our net loss was also impacted by increased interest expense, partially offset by the absence of a loss from debt extinguishment of $15.9 million that occurred in the first nine months of 2017.
Interest expense increased to $79.6 million during the first nine months of 2018 from $45.4 million during the first nine months of 2017 due to higher interest expense from our preferred stock, partially offset by lower interest expense on debt attributable to a lower principal balance. Included in interest expense from preferred stock was higher expense of $59.7 million due to the change in the fair value of the preferred stock, partially offset by $15.0 million of lower interest expense from preferred stock issuance costs.
Income tax benefit was $8.0 million during the first nine months of 2018 compared to $7.5 million during the first nine months of 2017. The effective tax rate was 7.0% during first nine months of 2018 and 10.0% during the first nine months of 2017. The annual effective income tax rate varies from the federal statutory rate of 21.0% and 35.0%, respectively, primarily due to state income taxes (net of federal tax effect) and adjustments for permanent differences (primarily the non-deductible interest expense associated with our preferred stock). No significant discrete items were recognized during the first nine months of 2018. The tax effects of significant discrete items recognized during the first nine months of 2017 included loss from debt extinguishment (tax benefit for senior debt payoff; no tax benefit for partial redemption of preferred stock), preferred stock issuance costs (no tax benefit), gain on the sale of Unitrans (tax provision), and goodwill impairment charges (primarily non-deductible for tax purposes).
The rest of our discussion will focus on the operating results of our three segments:
Truckload & Express Services
Operating results in our TES segment improved to operating income of $2.9 million in the first nine months of 2018 compared to a flat first nine months of 2017. TES revenues increased $155.6 million while purchased transportation costs increased $128.2 million. TES revenues were higher due primarily to increased ground and air expedited freight and related brokerage coupled with a strong demand environment which drove higher rates across most of the segment. Purchased transportation costs and yield

28

Table of Contents


were negatively impacted by capacity reductions in intermodal services and over-the-road operations, including dry van and temperature controlled. Operating results in the first nine months of 2018 included the restructuring of our temperature controlled truckload business, which resulted in operations restructuring costs of $4.7 million related to fleet and facilities right-sizing and relocation costs, severance costs, and the write-down of assets held-for-sale to fair market value. TESvalue in our temperature controlled and intermodal businesses. TL revenues decreased $4.3 million while purchased transportation costs increased $1.2 million. The decline in TL revenues was primarily attributable to revenue declines at our temperature controlled and intermodal businesses, partially offset by higher revenues in our dry van business. TL depreciation expense increased $2.8 million due to higher property and equipment balances attributable to finance leases. TL personnel and related benefits decreased $0.5 million, while other operating expenses decreased $8.3 million. The decrease in TL operating expenses was primarily due to the previously mentioned operations restructuring costs of $4.7 million that impacted the second quarter of 2018. Also contributing to lower operating expenses was lower equipment operating lease costs of $2.6 million and lower fuel costs of $2.1 million.
Other Operating Expenses
Other operating expenses that were not allocated to our Ascent, Active On-Demand, LTL or TL segments were flat as we incurred $7.2 million in the second quarter of 2019 compared to $7.2 million in the second quarter of 2018. Restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, SEC and accounting compliance, and restructuring were $3.2 million and $3.9 million in the second quarter of 2019 and 2018, respectively. Also impacting other operating expenses was higher rental income from equipment leased to ICs, partially offset by higher insurance costs and higher legal settlements.
Additionally, software impairment charges of $13.0 million in the second quarter of 2019 associated with the abandonment of current software development in favor of alternative customized software solutions were not allocated to our segments.
Six Months EndedJune 30, 2019 Compared to Six Months Ended June 30, 2018
Consolidated Results
Consolidated revenues decreased to $987.8 million in the first half of 2019 compared to $1,128.0 million in the first half of 2018. Lower revenues in all of our segments contributed to the decrease.
Our consolidated operating loss was $158.6 million in the first half of 2019 compared to $24.8 million in the first half of 2018. Lower consolidated operating results in the first half of 2019 were attributable to a decrease in operating results within our TL, Active On-Demand and Ascent segments, partially offset by improved operating results in our LTL segment. Also impacting consolidated operating loss in the first half of 2019 were impairment charges of $109.1 million. Included in the impairment charges were goodwill impairment charges of $92.9 million and an intangible asset impairment charge of $1.9 million within our TL segment. These impairment charges are discussed in further detail within Critical Accounting Policies and Estimates later in this discussion. We also recorded an asset impairment charge of $0.5 million related to assets held for sale in our TL segment and software impairment charges of $13.8 million associated with the abandonment of current software development in favor of alternative customized software solutions.
Our consolidated net loss was $168.9 million in the first half of 2019 compared to $65.6 million in the first half of 2018. In addition to the explanations provided above for our consolidated operating loss, our consolidated net loss in the first half of 2019 was impacted by a decrease in interest expense, partially offset by a loss on debt restructuring of $2.3 million.
Interest expense decreased to $8.5 million during the first half of 2019 from $43.8 million during the first half of 2018, primarily due to the waiver of interest on the preferred stock until it was fully redeemed in the first quarter of 2019 after completion of the rights offering, partially offset by higher interest expense from finance leases.
The benefit from income taxes was $0.5 million for the first half of 2019 compared to $3.0 million for the first half of 2018. The effective tax rate was 0.3% during the first half of 2019 and 4.3% during the first half of 2018. The effective tax rate varies from the federal statutory rate of 21.0% primarily due to adjustments to the valuation allowance for deferred tax assets, adjustments for permanent differences, and state income taxes. The federal tax benefit for 2019 was entirely offset by adjustments to the valuation allowance. Significant permanent differences include the non-deductible portion of the goodwill impairment charge in 2019 and non-deductible interest expense associated with our preferred stock in 2018. The state tax benefit for both years was partially offset by adjustments to the valuation allowance.
The rest of our discussion will focus on the operating results of our four segments:
Ascent Global Logistics
Operating results in our Ascent segment declined as operating income was $11.3 million in the first half of 2019 compared to $14.0 million in the first half of 2018. Ascent revenues decreased $17.7 million and purchased transportation decreased $16.7 million primarily attributable to lower volumes and rates in our domestic freight management business, partially offset by improvements in our international freight forwarding (expanded volumes at new and existing customers) and our retail consolidation

37

Table of Contents


business (growth from new and existing customers). Ascent personnel and related benefits increased $7.3$2.6 million. Other operating expenses decreased $1.8 million primarily due primarily to higher driver wages, whileour focus on overall cost management.
Active On-Demand
Operating results in our Active On-Demand segment declined as operating income was $0.6 million in the first half of 2019 compared to $14.3 million in the first half of 2018. Active On-Demand revenues decreased $115.3 million and purchased transportation decreased $103.6 million, attributable to lower market demand for both air and ground expedite, which negatively impacted volumes and rates. Also impacting revenue was a reduced capture rate on our fleets due to reduced aircraft availability. Active On-Demand personnel and related benefits increased $1.4 million and other operating expenses increased $17.3 million. The increase in TES operating expenses was$0.5 million primarily due to increased equipment lease andhigher aircraft maintenance costs of $8.6 million, the previously mentioned operating restructuring costs of $4.7 million and higher IT costs of $4.4 million.costs.
Less-than-Truckload
Operating results in our LTL segment declinedimproved to an operating loss of $17.5$10.3 million in the first nine monthshalf of 20182019 compared to an operating loss of $14.2$12.4 million in the first nine monthshalf of 2017.2018. LTL revenues decreased $4.1$10.4 million due to a decrease in shipping volumes andrelated to a reduction in selected service areas in order to eliminatereduce unprofitable freight and focus on key lanes, partially offset by higher rates and fuel surcharge revenue.freight. Purchased transportation costs decreased $1.2$11.9 million which were driven by a decrease in shippinglower volumes partially offset by market conditions resulting in rate increases from purchaseand lower pickup and delivery costs as well as lower purchased power providers and higher spot prices paid to brokersimproved planning and efficiency, which negativelypositively impacted linehaul expense. LTL personnel and related benefits increased $0.6$0.7 million, while other operating expenses were essentially flat.decreased $1.3 million. The decrease in LTL other operating expenses was primarily due to our focus on overall cost management.
Ascent Global LogisticsTruckload
Operating results improved in our AscentTL segment asdeclined to an operating income was $21.5loss of $110.4 million in the first nine monthshalf of 20182019 compared to $16.4an operating loss of $10.6 million in the first nine monthshalf of 2017. Operating2018. TL operating results infor the first nine monthshalf of 2017 included $5.8 million2019 were negatively impacted by the previously mentioned impairment charges of $95.3 million. TL operating income from Unitrans which was sold in the third quarter of 2017 and an impairment charge of $4.4 million which resulted from comparing the remaining carrying value of goodwillresults for the Ascent reporting unit afterfirst half of 2018 included the salepreviously mentioned operations restructuring costs of Unitrans. Excluding Unitrans and the impact of the impairment charge, improved operating results were driven by growth in our retail consolidation business and our domestic freight management business, partially offset by a$4.7 million. TL revenues decreased $11.8 million while purchased transportation costs decreased $3.3 million. The decline in international freight forwarding. AscentTL revenues decreased $13.7was primarily attributable to revenue declines at our temperature controlled and intermodal businesses. TL depreciation expense increased $7.6 million in the first nine months of 2018 compared to the first nine months of 2017 due to the divestiture of Unitrans, which generated $67.6 million of revenue in the first nine months of 2017. Excluding Unitrans, Ascent revenues increased due to higher revenue from domestic freight management (truckloadproperty and LTL brokerage) and retail consolidation (growth from existing and new customers). Ascentequipment balances attributable to finance leases. TL personnel and related benefits decreased $8.5$0.1 million, while other operating expenses decreased $11.5 million. The decrease in TL operating expenses was primarily due to the absencepreviously mentioned operations restructuring costs of Unitrans in$4.7 million that impacted the first nine monthshalf of 2018. Excluding the impact of Unitrans, personnel and related benefit increased $1.2 million. OtherAlso contributing to lower operating expenses increased $4.6 million due to increased ITwas lower equipment operating lease costs of $3.0$4.4 million and higher commissionslower fuel costs of $1.8$3.2 million.
Other Operating Expenses
Other operating expenses that were not allocated to our TES,Ascent, Active On-Demand, LTL or AscentTL segments increaseddecreased to $21.0$13.8 million in the first nine monthshalf of 20182019 compared to $3.2$16.0 million in the first nine monthshalf of 2017,2018 primarily due to a $35.4 million gain on the sale of Unitrans in September of 2017. Also included in other operating expenses are corporatelower restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, and SEC and accounting compliance, and restructuring of $15.5$6.7 million and $23.6$10.8 million in the first nine monthshalf of 20182019 and 2017,2018, respectively. Also impactingcontributing to the decrease was higher rental income from equipment leased to ICs, partially offset by higher insurance costs and higher legal settlements.
Additionally, software impairment charges of $13.8 million in the first nine monthshalf of 20182019 associated with the abandonment of current software development in favor of alternative customized software solutions were lower insurance claims reserves of $7.4 million and lower legal settlements of $5.2 million.not allocated to our segments.

Liquidity and Capital Resources
Our primary sources of cash have been borrowings under our credit facilities, the issuance of common stock, the issuance of preferred stock, and cash flows from operations. Our primary cash needs are and have been to fund normal working capital requirements, repay our indebtedness, and finance capital expenditures. As of SeptemberJune 30, 2018,2019, we had $10.04.9 million in cash and cash equivalents. Our ability to access our cash may be limited from time to time if doing so would result in a default under our credit facilities. As we have experienced negative operating cash flows, we may also decide to divest business units; issue new equity or debt, in private or public offerings; or obtain other financial support to to further reduce our indebtedness and/or reinvest in our business, finance acquisitions, strengthen our balance sheet, reduce our cost of capital, or fund capital expenditures.
Rights Offering and Preferred Stock
On May 1, 2017,February 26, 2019, we entered into an Investment Agreement with Elliott,closed our $450 million rights offering, pursuant to which we issued and sold an aggregate of 36 million new shares of our preferredcommon stock and issued warrants for an aggregate purchaseat the subscription price of $540.5 million. The proceeds from the sale$12.50 per share. An aggregate of the preferred7,107,049 shares of our common stock were used to pay off and terminate our prior senior credit facility and to provide working capital to support our current operations and future growth.
On March 1, 2018, we entered into the Series E-1 Preferred Stock Investment Agreement (the “Series E-1 Investment Agreement”) with Elliott,purchased pursuant to which we agreed to issuethe exercise of basic subscription rights and sell to Elliottover-subscription rights from time to time until July 30, 2018, an aggregate of up to 54,750 shares of Series E-1 Preferred Stock at a purchase price of $1,000 per share for the first 17,500 shares of Series E-1 Preferred Stock, $960 per share for the next 18,228 shares of Series E-1 Preferred Stock, and $920 per share for the final 19,022 shares of Series E-1 Preferred Stock. On March 1, 2018, the parties held an initial closing pursuant to which we issued and sold to Elliott 17,500 shares of Series E-1 Preferred Stock for an aggregate purchase price of $17.5 million.stockholders

2938

Table of Contents


On April 24, 2018,of record during the parties held a closingsubscription period, including from the exercise of basic subscription rights by stockholders who are funds affiliated with Elliott. In addition, Elliott purchased an aggregate of 28,892,951 additional shares pursuant to the Series E-1 Investment Agreement,commitment from Elliott to purchase all unsubscribed shares of our common stock in the rights offering pursuant to whichthe Standby Purchase Agreement that we issued and sold toentered into with Elliott 18,228dated November 8, 2018, as amended. Overall, Elliott purchased a total of 33,745,308 shares of Series E-1 Preferred Stock for an aggregate purchase price of approximately $17.5 million. The proceedsour common stock in the rights offering between its basic subscription rights and the backstop commitment, and following the closing of the salerights offering beneficially owned approximately 90.4% of such shares of Series E-1 Preferred Stockour common stock.
The net proceeds from the rights offering and backstop commitment were used to provide working capital to support our current operations and future growthfully redeem the outstanding shares of the Company's preferred stock and to repay a portionpay related accrued and unpaid dividends. Proceeds were also used to pay fees and expenses in connection with the rights offering and backstop commitment. The Company retained in excess of $30 million of funds to be used for general corporate purposes. The purpose of the indebtedness underrights offering was to improve and simplify our capital structure in a manner that gave the ABL Facility as required byCompany's existing stockholders the credit agreement governing that facility.opportunity to participate on a pro rata basis.

On August 3, 2018, in order to provide continued support to our operating needs, we entered into Amendment No. 1 to the Series E-1 Investment Agreement and Termination of Equity Commitment Letter with Elliott, which, among other things, extended the Termination Date from July 30, 2018 to November 30, 2018 for the remaining 19,022 shares available to issue and sell to Elliott for $17.5 million.
On September 19, 2018, the Company and Elliott entered into Amendment No. 2 to the Series E-1 Investment Agreement which, among other things, further extended the Termination Date from November 30, 2018 to January 1, 2019 for the remaining 19,022 shares available to issue and sell to Elliott for $17.5 million.
Certain terms of the outstandingThe preferred stock arewas mandatorily redeemable and, as follows:
 Series BSeries CSeries DSeries ESeries E-1
Shares at $0.01 Par Value at Issuance155,00055,00010090,00035,728
Shares Outstanding at September 30, 2018155,00055,00010037,50035,728
Price per Share$1,000$1,000$1.00$1,000$1,000/$960
Dividend RateAdjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Adjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Right to participate equally and ratably in all cash dividends paid on common stock.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.
Dividend Rate at September 30, 201817.573%17.573%N/A15.823%15.823%
Redemption Term8 Years8 Years8 Years6 Years6 Years
Redemption Rights
From Closing Date:
12-24 months: 105%
24-36 months: 103%
65% premium (subject to stock movement) 
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%
Redemption rights are at our option or, uponsuch, was presented as a change in control, atliability on the option of the holder. The holders of Series C Preferred Stock and Series D Preferred Stock have the right to participate equally and ratably with holders of common stock in all cash dividends paid on shares of common stock.
condensed consolidated balance sheets. At each preferred stock dividend payment date, we havehad the option to pay the accrued dividends in cash or to defer them. Deferred dividends accrueearned dividend expenseincome consistent with the underlying shares of preferred stock. We elected to measure the value of the preferred stock using the fair value method. Under the fair value method, issuance costs were expensed as incurred. The fair value of the preferred stock increased by $31.6 million and $37.7 million during the three and six months ended June 30, 2018, respectively, which was reflected in interest expense - preferred stock.
Certain Terms of the Preferred Stock as of December 31, 2018
 Series BSeries CSeries DSeries ESeries E-1
Shares at $0.01 Par Value at Issuance155,00055,00010090,00035,728
Shares Outstanding at December 31, 2018155,00055,00010037,50035,728
Price / Share$1,000$1,000$1.00$1,000$1,000/$960
Dividend RateAdjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Adjusted LIBOR + 3.00% + Additional Rate (4.75-12.50%) based on leverage. Additional 3.00% upon certain triggering events.Right to participate equally and ratably in all cash dividends paid on common stock.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.Adjusted LIBOR + 5.25% + Additional Rate (8.50%). Additional 3.00% upon certain triggering events.
Dividend Rate at December 31, 201817.780%17.780%N/A16.030%16.030%
Redemption Term8 Years8 Years8 Years6 Years6 Years
Redemption Rights
From Closing Date:
12-24 months: 105%
24-36 months: 103%
65% premium (subject to stock movement) 
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%
From Closing Date:
0-12 months: 106.5%
12-24 months: 103.5%

39

Table of Contents


Credit Facilities
ABL Credit Facility
On July 21, 2017,February 28, 2019, we and our direct and indirect domestic subsidiaries entered into the ABL Credit Facility. The ABL Credit Facility consists of a $200.0 million asset-based revolving line of credit, of which up to (i) $15.0 million may be used for FILO Loans (as defined in the ABL Credit Facility), (ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL Credit Facility), and (iii) $30.0 million may be used for letters of credit. The ABL Credit Facility provides that the revolving line of credit may be increased by up to an additional $100.0 million under certain circumstances. We initially borrowed $141.4 million under the ABL Credit Facility and used the initial proceeds from the ABL Facility for working capital purposes and to redeem all of the outstanding shares ofrepay our previously issued Series F Preferred Stock.Prior ABL Facility. The ABL Credit Facility matures on July 21, 2022.February 28, 2024.
On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into the ABL Facility Amendment. Pursuant to the ABL Facility Amendment, the ABL Credit Facility was amended to, among other things, add Acceptable Letters of Credit (as defined in the ABL Facility Amendment) to the Borrowing Base (as defined in the ABL Credit Facility as amended by the ABL Facility Amendment).
Term Loan Credit Facility
On February 28, 2019, we and our direct and indirect domestic subsidiaries entered into the Term Loan Credit Facility. The Term Loan Credit Facility consists of an approximately $61.1 million term loan facility, consisting of (i) approximately $40.3 million of Tranche A Term Loans (as defined in the Term Loan Credit Facility), (ii) approximately $2.5 million of Tranche A FILO Term Loans (as defined in the Term Loan Credit Facility), (iii) approximately $8.3 million of Tranche B Term Loans (as defined in the Term Loan Credit Facility), and (iv) a $10.0 million asset-based facility available to finance future capital expenditures. We initially borrowed $51.1 million under the Term Loan Credit Facility and used the proceeds for working capital purposes and to repay our Prior ABL Facility. The Term Loan Credit Facility matures on February 28, 2024.
On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into the Term Loan Facility Amendment. Pursuant to the Term Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things: (i) defer the September 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on August 2, 2019 and continuing until payment of the December 1, 2019 quarterly amortization payments.
The Prior ABL Facility consistsconsisted of a:
$200.0 million asset-based revolving line of credit, of which $20.0 million may be used for swing line loans and $30.0 million may be used for letters of credit;

30

Table of Contents


$56.8 million term loan facility; and
$35.0 million asset-based facility available to finance future capital expenditures, which was subsequently terminated before utilized.
We initially borrowed $141.7 million underAs previously mentioned, the revolving line of credit and $56.8 million under the term loan facility. As of September 30, 2018, total availability under thePrior ABL Facility was $42.2paid off with the proceeds from the ABL Credit Facility and the Term Loan Credit Facility.

Fee Letter
On August 2, 2019, we entered into the Fee Letter. Pursuant to the Fee Letter, Elliott agreed to arrange for Letters of Credit in an aggregate face amount of $20 million butto support our obligations under our ABL Credit Facility. As consideration for Elliott providing the Letters of Credit, we could notagreed to (i) pay Elliott a fee on the LC Amount, accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by us of the LC Amount to Elliott), at a rate equal to the LIBOR Rate (as defined in the ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any draw more than $22.2 million ason the Letters of that dateCredit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the Letters of Credit, in each case subject to maintain at least $20.0 millionthe terms and conditions of Adjusted Excess Availability in order to avoid the commencement of a Fixed Charge Trigger Period.Fee Letter.
See Note 4, Debt, and Note 5, Preferred Stock, to our condensed consolidated financial statements in this Form 10-Q for additional information regarding the ABL Facilityand Term Loan Credit Facilities and preferred stock, respectively. We do not believe that the limitations imposed by the terms of our debt agreement or preferred stock investment agreements have any significant impact on our liquidity, financial condition, or results of operations. We believe that these resources will be sufficient to meet our working capital, debt service, and capital investment obligations for the foreseeable future.
Rights Offering
On September 19, 2018, we filed a registration statement on Form S-1 with the SEC for a rights offering to raise $450 million. The purpose
40

Table of the rights offering is to deleverage our balance sheet and provide us with additional liquidity to fund our operations. In the rights offering, we will distribute at no charge to the holders of our common stock on a record date to be set transferrable rights to purchase an aggregate of 900,000,000 new shares of our common stock. In connection with the rights offering, we are currently negotiating and expect to enter into a standby purchase agreement (the “Standby Purchase Agreement”) with funds affiliated with Elliott, pursuant to which we expect Elliott to agree to purchase all unsubscribed shares of common stock in the rights offering (the “backstop commitment”) to ensure that the rights offering is fully subscribed and that we raise the $450 million.Contents

Assuming we enter into the Standby Purchase Agreement with Elliott and consummate the rights offering, we intend to use the net proceeds received from the exercise of the rights and the backstop commitment to pay in cash all accrued and unpaid dividends on the outstanding shares of our preferred stock, other than dividends accrued after November 30, 2018 (which Elliott has agreed to waive if the rights offering is consummated on or prior to December 31, 2018), to redeem all of the outstanding shares of our preferred stock, at liquidation value together with all redemption premiums, other than redemption premiums on the accrued and unpaid dividends, to pay all expenses incurred by Elliott in connection with any backstop commitment, and to pay all of our fees and expenses in connection with the rights offering. We intend to use any remaining net proceeds for general corporate purposes, which amount will vary based upon the amount of rights exercised by stockholders other than Elliott because our transaction fees are structured such that we pay an additional fee for rights exercised and shares of common stock purchased by stockholders other than Elliott.
There can be no guarantee that we will receive stockholder approval or consummate the rights offering.
Consummation of the rights offering is, among other things, conditioned on the receipt of stockholder approval of (i) an amendment to our Amended and Restated Certificate of Incorporation authorizing additional shares for issuance in the rights offering, (ii) the rights offering, (iii) the Standby Purchase Agreement and potential change of control that may result from the purchase of shares of our common stock by Elliott, and (iv) amendments to our Amended and Restated Certificate of Incorporation to implement certain corporate governance changes requested by Elliott in connection with providing the backstop commitment. We intend to hold an annual meeting of stockholders in the fourth quarter of 2018 to approve these matters, among other things.
Trading of the Company's common stockCommon Stock on the New York Stock Exchange
On October 4, 2018 we received a notice from the New York Stock Exchange (the “NYSE”)NYSE that we had fallen below the NYSE’s continued listing standards relating to minimum average global market capitalization and total stockholders’ investment, which require that either our average global market capitalization be not less than $50 million over a consecutive 30 trading day period, or our total stockholders’ investment be not less than $50 million.
Pursuant to the NYSE continued listing standards, we timely notified the NYSE that we intendintended to submit a plan to the NYSE demonstrating how we intend to regain compliance with the continued listing standards within the required 18-month timeframe. We have 45 days to submit itstimely submitted our plan, towhich was subsequently accepted by the NYSE. Upon receipt of the plan, the NYSE has 45 days to review and determine whether we have made a reasonable demonstration of its ability to come into conformity with the relevant continued listing standards within the 18-month cure period. During this process and during the 18-month cure period, our shares will continue to be listed and traded on the NYSE, subject to our compliance with other listing standards. The NYSE notification does not affect our business operations or our SEC reporting requirements.

31



We expect that the plan we will submit to the NYSE will include As a discussionresult of the previously mentionedcompletion of the rights offering, to existing holders of our common stock, which we believe would bring us intowe have taken the necessary steps to regain compliance with this listing standard, however, we must remain above the NYSE’s continued listing standards relating to minimum$50 million average global market capitalization andor the $50 million total stockholders’ investment.stockholders' investment requirements for two consecutive quarters (or six months) before we can be considered in compliance with this listing standard.
On October 12, 2018, we received a notice from the NYSE that we had fallen below the NYSE’s continued listing standard related to price criteria for common stock, which requires the average closing price of our common stock to equal at least $1.00 per share over a 30 consecutive trading day period. Pursuant to the NYSE listing standards, we timely notified the NYSE that we intend to cure the deficiency and regain compliance with the continued listing standard.
We have six months from our receipt of the notice to regain compliance with the listing standard. We can regain compliance with the standard if, on the last trading day of any calendar month during the six-month period following receipt of the notice or on April 12, 2019, which is the date that is six months following receipt of the notice, our common stock has a closing price of at least $1.00 per share and an average closing price of at least $1.00 per share over the previous 30 consecutive trading day period.
During the six-month cure period, our shares of common stock will continue to be listed and traded on the NYSE, subject to our compliance with other listing standards. The NYSE notification doesdid not affect our business operations or our SEC reporting requirements. As a result of the Company's 1-for- 25 Reverse Stock Split that took effect on April 4, 2019, we received a notice from the NYSE on April 12, 2019 that a calculation of our average stock price for the 30-trading days ended April 12, 2019, indicated that our stock price was above the NYSE's minimum requirements of $1.00 based on a 30-trading day average. Accordingly, we are now in compliance with the $1.00 continued listed criterion.
Cash Flows
A summary of operating, investing, and financing activities are shown in the following table (in thousands):
Nine Months EndedSix Months Ended
September 30,June 30,
2018 20172019 2018
Net cash (used in) provided by:      
Operating activities$9,547
 (49,971)$(19,546) $(906)
Investing activities(15,606) 79,989
(11,161) (10,464)
Financing activities(9,624) (42,465)24,424
 21,306
Net change in cash and cash equivalents$(15,683) $(12,447)$(6,283) $9,936
Cash Flows from Operating Activities
Cash used in operating activities primarily consists of net loss adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, provision for bad debts, deferred taxes, and the effect of changes in working capital and other activities.
The difference between our $107.2$168.9 million of net loss and the $9.5$19.5 million of cash provided byused in operating activities during the ninesix months ended SeptemberJune 30, 2019 was primarily attributable to $109.1 million of non-cash impairment charges, $30.7 million of depreciation and amortization expense, $4.7 million of share-based compensation expense and a loss on debt restructuring of $2.3 million with the remainder attributable to changes in working capital.
The difference between our $65.6 million of net loss and the $0.9 million of cash used in operating activities during the six months ended June 30, 2018 was primarily attributable to the change in the value of our preferred stock of $70.5$37.7 million and $28.4$18.6 million of depreciation and amortization expense, with the remainder attributable to changes in working capital.
The difference between our $67.9 million
41

Table of net loss and the $50.0 million of cash used in operating activities during the nine months ended September 30, 2017 was primarily attributable to $15.9 million of loss from debt extinguishment and $28.8 million of depreciation and amortization expense, partially offset by a $35.4 million gain from the sale of Unitrans with the remainder attributable to changes in working capital.Contents


Cash Flows from Investing Activities
Cash used in investing activities was $15.6$11.2 million during the ninesix months ended SeptemberJune 30, 2018,2019, which was attributable to $16.9$13.0 million of capital expenditures used to support our operations, partially offset by the proceeds from the sale of equipment of $1.3$1.9 million. We expect total capital expenditures to be in a range of $95 to $105 million, excluding conversions of operating leases to finance leases. A majority of our 2019 capital expenditures are expected to be funded with finance leases as opposed to up-front cash, however, we expect to spend approximately $20 million of cash in 2019.
Cash provided byused in investing activities was $80.0$10.5 million during the ninesix months ended SeptemberJune 30, 2017, which reflects $88.5 million of proceeds from the sale of Unitrans,2018, which was partially offset by $11.2attributable to $11.4 million of capital expenditures used to support our operations. These capital expenditures wereoperations, partially offset by the proceeds from the sale of property and equipment of $2.7$0.9 million.
Cash Flows from Financing Activities
Cash used inprovided by financing activities was $9.6$24.4 million during the ninesix months ended SeptemberJune 30, 2019, which primarily reflects the issuance of common stock from the rights offering of $450.0 million, partially offset by the repayments of the preferred stock and related accrued and unpaid dividends of $402.9 million, common stock issuance costs of $10.5 million, payments on insurance premium financing of $10.0 million, a reduction in borrowings of $9.7 million, and payments on finance lease obligations of $9.1 million.
Cash provided by financing activities was $21.3 million during the six months ended June 30, 2018, which primarily reflects the issuance of Series E-1 Preferred Stock of $35.0 million, partially offset by a reduction in borrowings of $24.4 million.

32

Table of Contents


Cash used in financing activities was $42.5 million during the nine months ended September 30, 2017, which primarily reflects issuance costs from debt and preferred stock of $20.8 million, debt extinguishment costs of $11.0 million, a net reduction of borrowings of $6.2 million, and a reduction in our capital lease obligation of $3.1$11.8 million.

33

Table of Contents


Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 20172018 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.
Leases
In accordance with the adoption of the new accounting standards Revenue from Contracts with Customersstandard for Leases (Topic 606)842), we have revised our accounting policy for revenue recognitionleases. We determine whether a contract qualifies as follows:
Revenue Recognition (effective January 1, 2018)
Our revenuesa lease at inception and whether the lease meets the classification criteria of an operating or finance lease. For operating leases, we record a lease liability and corresponding right-of-use asset at the lease commencement date and are primarily derived from transportation services which includes providing freightvalued at the estimated present value of the lease payments over the lease term. We use our collateralized incremental borrowing rate at the lease commencement date in determining the present value of the lease payments. Finance leases are included within property and carrier services both domestically and internationally via land, air, and sea.equipment. We disaggregate revenue among our three segments, TES, LTL and Ascent, as presented in Note 13, Segment Reporting, to ourdo not recognize leases with an original lease term of 12 months or less on the condensed consolidated financial statements.balance sheets but will disclose the related lease expense for these short-term leases. We do not separate non-lease components from lease components for leases, which results in all payments being allocated to the lease and factored into the measurement of the right-of-use asset and lease liability. We include options to extend the lease when it is reasonably certain that we will exercise that option.
Performance Obligations - A performance obligation is created once a customer agreement with an agreed upon transactionGoodwill and Other Intangibles
Goodwill represents the excess of the purchase price exists. The terms and conditions of our agreements with customers are generally consistent within each segment. The transaction price is typically fixed and determinable and is not contingent upon the occurrence or non-occurrence of any other event. The transaction price is generally due 30 to 60 days from the date of invoice. Our transportation service is a promise to move freight to a customer’s destination, with the transit period typically being less than one week. We view the transportation service we provide to our customers as a single performance obligation. These performance obligations are satisfied and recognized in revenueall acquisitions over the requisite transit period asestimated fair value of the customer’s goods move from origin to destination.net assets acquired. We determineevaluate goodwill and intangible assets for impairment at least annually on July 1st or more frequently whenever events or changes in circumstances indicate that the period to recognize revenue in transit based upon the departure date and the delivery date, whichasset may be estimated if delivery has not occurred asimpaired, or in the case of goodwill, the fair value of the reporting date. Determiningunit is below its carrying amount. The analysis of potential impairment of goodwill requires us to compare the transit period andestimated fair value at each of its reporting units to its carrying amount, including goodwill. If the percentage of completion ascarrying amount of the reporting dateunit exceeds the estimated fair value of the reporting unit, a non-cash goodwill impairment loss is recognized as an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
For purposes of the impairment analysis, the fair value of our reporting units is estimated based upon an average of the market approach and the income approach, both of which incorporate numerous assumptions and estimates such as company forecasts, discount rates, and growth rates, among others. The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires managementus to make judgments that affectsignificant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the timingselection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which we compete, the discount rate, terminal growth rates, and forecasts of revenue, recognized. Weoperating income, and capital expenditures. The allocation requires several analyses to determine fair value of assets and liabilities, including, among others, customer relationships and property and equipment. Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions

42

Table of Contents


could have determined that revenue recognition overa significant impact on either the transit period provides a reasonable estimatefair value of the transferreporting units, the amount of goods and services to our customers as our obligation is performed over the transit period.
Principal vs. Agent Considerations - We utilize independent contractors and third-party carriersgoodwill impairment charge, or both. Future declines in the performanceoverall market value of some transportation services. We evaluate whether our performance obligation isstock may also result in a promise to transfer servicesconclusion that the fair value of one or more reporting units has declined below its carrying value.
Prior to the customer (aschange in segments, we had four reporting units for our three segments: one reporting unit for our TES segment; one reporting unit for our LTL segment; and two reporting units for our Ascent segment, which are the principal) orDomestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit.
In connection with the change in segments, we conducted an impairment analysis as of April 1, 2019. Due to arrange for services to be provided by another party (as the agent) using a control model. Our evaluation determined that we are in control of establishing the transaction price, managing all aspectsinability of the shipments process and takingTES businesses to meet forecast results, we determined the riskcarrying value exceeded the fair value for the TES reporting unit. Accordingly, we recorded a goodwill impairment charge of loss for delivery, collection, and returns. Based on our evaluation$92.9 million which represents a write off of all the control model, we determinedTES goodwill. Given the fact that all of our major businesses act as the principal rather thangoodwill was impaired, there was no remaining TES goodwill to allocate to the agent withinTL and Active On-Demand segments. The fair value of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit exceeded their revenue arrangementsrespective carrying values by 3.1%, and such revenues are reported on a gross basis.
Contract Balances109.0%, respectively; thus no impairment was indicated for these reporting units. The goodwill balances of the Domestic and Costs - We applyInternational Logistics reporting unit and the practical expedient in Topic 606 that permits us to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfiedWarehousing & Consolidation reporting unit as of June 30, 2019 were $98.5 million and $73.4 million, respectively. The LTL reporting unit had no remaining goodwill as of April 1, 2019.
The table below provides a sensitivity analysis for the endDomestic and International Logistics and Warehousing & Consolidation reporting units, which shows the estimated fair value impacts related to a 50-basis point increase or decrease in the discount and long-term growth rates used in the valuation as of April 1, 2019.
Approximate Percent Change in Estimated Fair Value
+/- 50 bps Discount Rate+/- 50bps Growth Rate
Domestic and International Logistics reporting unit(2.5%) / 2.5%1.5% / (1.8%)
Warehousing & Consolidation reporting unit(2.2%) / 2.2%1.6% / (1.9%)
Other intangible assets recorded consisted primarily of definite lived customer relationships. We evaluate our other intangible assets for impairment when current facts or circumstances indicate that the carrying value of the period as our contracts have an expected lengthassets to be held and used may not be recoverable. Indicators of impairment were identified in connection with the operating performance of one year or less. We also applyof our business operations within the practical expedient in Topic 606 that permits the recognitionTL segment, and as a result, $1.9 million of incremental costs of obtaining contracts as an expense when incurred if the amortization period of such costs is one year or less. These costs are included purchased transportation costsnon-cash impairment charges were recorded in the condensed consolidated financial statements.second quarter of 2019. We identified indicators of impairment with certain other business operations and performed the required impairment analysis, but no impairment was identified.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Commodity Risk
Our primary market risk centers on fluctuations in fuel prices, which can affect our profitability. Diesel fuel prices fluctuate significantly due to economic, political, and other factors beyond our control. Our ICs and purchased power providers pass along the cost of diesel fuel to us, and we in turn attempt to pass along some or all of these costs to our customers through fuel surcharge revenue programs. There can be no assurance that our fuel surcharge revenue programs will be effective in the future. Market pressures may limit our ability to pass along our fuel surcharges. We do not use derivative financial instruments for speculative trading purposes.
Interest Rate Risk
We have exposure to changes in interest rates on our preferred stock and ABL Facility. The interest rates on our preferred stock and ABL Facility fluctuate based on LIBOR plus an applicable margin. A 1.0% increase in the borrowing rate would increase our annual interest expense by $5.3 million. We do not use derivative financial instruments for speculative trading purposes and are not engaged in any interest rate swap agreements.Not applicable.

3443

Table of Contents


ITEM 4.CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
In connection with the filing of this Form 10-Q for the quarter ended SeptemberJune 30, 2018,2019, our Chief Executive Officer (“CEO”, serving as our Principal Executive Officer) and our Chief Financial Officer (“CFO”, serving as our Principal Financial Officer and Principal Accounting Officer) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). As a result of this evaluation, our CEO and CFO concluded that those material weaknesses previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 20172018 were still present as of SeptemberJune 30, 20182019 (“the Evaluation Date”). Based on those material weaknesses, and the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.
Notwithstanding the identified material weaknesses, management believes that the unaudited condensed consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations, and cash flows as of SeptemberJune 30, 20182019 based on a number of factors including, but not limited to, (a) substantial resources expended (including the use of internal audit personnel and external consultants) in response to the findings of material weaknesses, (b) internal reviews to identify material accounting errors, and (c) the remediation actions as discussed in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Changes in Internal Control Over Financial Reporting
There were no changes during the quarter ended SeptemberJune 30, 20182019 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Plan and Status
Our remediation efforts previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 20172018 are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. Remediation of the identified material weaknessesThis remediation effort will be a multi-year process, continuing in 2019 and strengthening our internal control environment will require a substantial effort throughout 2018 and beyond,subsequent years as necessary. We will test the ongoing operating effectiveness of certainthe new and existing controls in connection with our annual evaluation of the effectiveness of internal control over financial reporting; however, thefuture periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
While we believe the steps taken to date and those planned for implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts.efforts identified herein. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses, we have and will continue to perform additional procedures prescribed by management, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary, to ensure that our consolidated financial statements are fairly stated in all material respects. The planned remediation activities described in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 20172018 highlight our commitment to remediating our identified material weaknesses and remain largely unchanged through the date of filing this Quarterly Report on Form 10-Q.

3544

Table of Contents


PART II – OTHER INFORMATION 
ITEM 1.LEGAL PROCEEDINGS.

Auto, Workers Compensation and General Liability Reserves    
In the ordinary course of business, we are a defendant in several legal proceedings arising out of the conduct of our business. These proceedings include claims for property damage or personal injury incurred in connection with our services. Although there can be no assurance as to the ultimate disposition of these proceedings, we do not believe, based upon the information available at this time, that these property damage or personal injury claims, in the aggregate, will have a material impact on our consolidated financial statements. We maintain insurance for auto liability, general liability, and cargo damage claims. We maintain an aggregate of $100 million of auto liability and general liability insurance. We maintain auto liability insurance coverage for claims in excess of $1.0 million per occurrence and cargo coverage for claims in excess of $100,000 per occurrence. We are self-insured up to $1.0 million per occurrence for workers compensation. We believe we have adequate insurance to cover losses in excess of our self-insured and deductible amount. As of SeptemberJune 30, 2018,2019 and December 31, 2017,2018, we had reserves for estimated uninsured losses of $26.0$28.9 million and $28.4$26.8 million, respectively, included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
General Litigation Proceedings
Jeffrey Cox and David Chidester filed a Complaintcomplaint against certain of our subsidiaries in state court in California in a post-acquisition dispute (the “Central Cal Matter”).dispute. The Complaintcomplaint alleges contract, statutory and tort-based claims arising out of the Stock Purchase Agreement, dated November 2, 2012, between the defendants, as buyers, and the plaintiffs, as sellers, for the purchase of the shares of Central Cal Transportation, Inc. and Double C Transportation, Inc. (the “Central Cal Agreement”).Agreement. The plaintiffs claim that a contingent purchase obligation payment is due and owing pursuant to the Central Cal Agreement, and that defendants have furnished fraudulent calculations to the plaintiffs to avoid payment. The plaintiffs also claim violations of California’s Labor Code related to the plaintiffs’ respective employment with Central Cal Transportation, LLC. On October 27, 2017, the state court granted our motion to compel arbitration of all non-employment claims alleged in the Complaint.complaint. The parties selected a settlement accountant to determine the contingent purchase obligation pursuant to the Central Cal Agreement. The settlement accountant provided a final determination that a contingent purchase obligation of $2.1 million is due to the plaintiffs. It is our position that this contingent purchase obligation is subject to offset for certain indemnification claims owed to us by the plaintiffs areranging from approximately $0.3 million to $1.0 million. Accordingly, we recorded a contingent purchase obligation liability of $1.8 million in accrued expenses and other current liabilities at December 31, 2018. In July 2019, the $2.1 million settlement was approved by the court. In light of the court order, we have offered to pay $2.2 million to the plaintiff to settle this matter. Our offer includes a reimbursement for legal fees incurred by the plaintiff. As such, the Company recorded an adjustment of $0.4 million in the processsecond quarter of submitting2019 to increase its contingent purchase obligation to $2.2 million, which is recorded in accrued expenses and other current liabilities at June 30, 2019. In July 2019, we paid the disputeplaintiffs the $2.1 million settlement amount. We intend to a Settlement Accountantpursue indemnification and other claims as ordered, though on October 10, 2018, Plaintiffs filed a renewed motion requesting thatit relates to the Los Angeles Superior Court reconsider its ruling.Central Cal Matter and other related matters involving these plaintiffs. In February 2018, Plaintiff David Chidester agreed to dismiss his employment-related claims from the Los Angeles Superior Court matter, while Plaintiff Jeffrey Cox transferred his employment claims from Los Angeles Superior Court to the related employment case pending in the Eastern District of California. The parties are proceeding with discovery and the consolidated case is currently set for trial on November 5, 2019.
We received a letter dated April 17, 2018 from legal counsel representing Warren Communications News, Inc. (“Warren”) in which Warren made certain allegations against us of copyright infringement concerning an electronic newsletter published by Warren (the “Warren Matter”). Specifically, Warren alleged that an employee of ours had, for several years, forwarded that electronic newsletter to third parties in violation of corresponding subscription agreements. After discussions with Warren, we receivedOn June 14, 2019, the parties reached a second letter datedsettlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of liability and the settlement amount was paid by us in July 30, 2018 in which counsel for Warren offered to settle its claim for a monetary payment by us. We subsequently sent a counter-offer to Warren, which was rejected.2019.
In addition to the legal proceeding described above, we are a defendant in various purported class-action lawsuits alleging violations of various California labor laws and one purported class-action lawsuit alleging violations of the Illinois Wage Payment and Collection Act. Additionally, the California Division of Labor Standards and Enforcement has brought administrative actions against us alleging that we violated various California labor laws. In 2017 and 2018, we reached settlement agreements on a number of these labor related lawsuits and administrative actions. We paid approximately $9.2 million relating to these settlements during the six months ended June 30, 2019. As of SeptemberJune 30, 2018,2019 and December 31, 2017,2018, we recordedhave a reserveliability for settlements, litigation, and defense costs related to these labor matters the Central Cal Matter, and the Warren Matter of $12.0$2.2 million and $13.2$10.8 million, respectively, which are includedrecorded in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
In December 2018, a class action lawsuit was brought against us in the Superior Court of the State of California by Fernando Gomez, on behalf of himself and other similarly situated persons, alleging violation of California labor laws. This is a new lawsuit and we are currently determining its effects. We intend to vigorously defend against such claims; however, there can be no assurance

45

Table of Contents


that we will be able to prevail. In light of the relatively early stage of the proceedings, we are unable to predict the potential costs or range of costs at this time.
Securities Litigation Proceedings
Following our press release on January 30,In 2017, three putative class actions were filed in the United States District Court for the Eastern District of Wisconsin against us and our former officers, Mark A. DiBlasi and Peter R. Armbruster. On May 19, 2017, the Court consolidated the actions under the caption In re Roadrunner Transportation Systems, Inc. Securities Litigation (Case No. 17-cv-00144), and appointed Public Employees’ Retirement System as lead plaintiff. On March 12, 2018, the lead plaintiff filed a Consolidated Amended Complaint (“CAC”)the CAC on behalf of a class of persons who purchased our common stock between March 14, 2013 and January 30, 2017, inclusive. The CAC alleges (i) we and Messrs. DiBlasi and Armbruster violated Section 10(b) of the Exchange Act and Rule 10b-5, and (ii) Messrs. DiBlasi and Armbruster, our former Chairman Scott Rued, HCI Equity Partners, L.L.C., and HCI Equity Management, L.P. violated Section 20(a) of the Exchange Act, by making or causing

36

Table of Contents


to be made materially false or misleading statements, or failing to disclose material facts, regarding (a) the accuracy of our financial statements; (b) our true earnings and expenses; (c) the effectiveness of our disclosure controls and controls over financial reporting; (d) the true nature and depth of financial risk associated with our tractor lease guaranty program; (e) our leverage ratios and compliance with itsour credit facilities; and (f) the value of the goodwill we carried on our balance sheet. The CAC seeks certification as a class action, compensatory damages, and attorney’s fees and costs. On July 23,November 19, 2018, we and the individual defendants filed motionsparties entered into a binding term sheet agreeing to dismiss tosettle the action for $20 million, $17.9 million of which Plaintiff responded on September 21, 2018. Defendants’ time to file their reply has been extended pending the parties’ mediation,will be funded by our D&O carriers ($4.8 million of which is ongoing.by way of a pass through of the D&O carriers’ payment to us in connection with the settlement of the Federal Derivative Action described below). The parties are finalizing the Stipulation of Settlement. The settlement is conditioned on a settlement of the Federal Derivative Action described below, dismissal of the State Derivative Action described below, and final court approval of the settlements in this action and in the Federal Derivative Action.
On May 25, 2017, Richard Flanagan filed a complaint alleging derivative claims on our behalf in the Circuit Court of Milwaukee County, State of Wisconsin (Case No. 17-cv-004401) against Scott Rued, Mark DiBlasi, Christopher Doerr, John Kennedy, III, Brian Murray, James Staley, Curtis Stoelting, William Urkiel, Judith Vijums, Michael Ward, Chad Utrup, Ivor Evans, Peter Armbruster, and Brian van Helden.Helden (the “State Derivative Action”). Count I of the Complaintcomplaint alleges the Director Defendants breached their fiduciary duties by “knowingly failing to ensure that wethe Company implemented and maintained adequate internal controls over its accounting and financial reporting functions,” and seeks unspecified damages. Count II of the Complaintcomplaint alleges the Officer Defendants DiBlasi, Armbruster, and van Helden received substantial performance-based compensation and bonuses for fiscal year 2014 that should be disgorged. The action has been stayed by agreement pending a decision on Defendants' motionsthe District Court’s approval of the proposed settlement of the Federal Derivative Action, following which the defendants would move to dismiss the Amended Complaint filed in the securities classthis action described above.as moot. While the case was stayed, Plaintiffthe plaintiff obtained permission to file an Amended Complaintamended complaint adding claims against two former Company employees: Bret Naggs and Mark Wogsland. The parties are currently engaged in mediation.
On June 28, 2017, Jesse Kent filed a complaint alleging derivative claims on our behalf and class action claims in the United States District Court for the Eastern District of Wisconsin. On December 22, 2017, Chester County Employees Retirement Fund filed a Complaintcomplaint alleging derivative claims on our behalf in the United States District Court for the Eastern District of Wisconsin. On March 21, 2018, the Court entered an order consolidating the Kent and Chester County actions under the caption In re Roadrunner Transportation Systems, Inc. StockholderKent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative Litigation (Case No. 17-cv-00893)Action”). On March 28, 2018, Plaintiffsplaintiffs filed their Verified Consolidated Shareholder Derivative Complaint alleging claims on our behalf against Peter Armbruster, Mark DiBlasi, Scott Dobak, Christopher Doerr, Ivor Evans, Brian van Helden, John Kennedy III, Ralph Kittle, Brian Murray, Scott Rued, James Staley, Curtis Stoelting, William Urkiel, Chad Utrup, Judith Vijums, and Michael Ward. Count I alleges that several of the Defendantsdefendants violated Section 14(a) of the Exchange Act and Rule 14a-9 based upon alleged misrepresentations and omissions in several of our proxy statements. Count II alleges that all the Defendantsdefendants breached their fiduciary duty. Count III alleges that all the Defendantsdefendants wasted corporate assets. Count IV alleges that certain of the Defendantsdefendants were unjustly enriched. The Complaintcomplaint seeks monetary damages, improvements to our corporate governance and internal procedures, an accounting from Defendantsdefendants of the damages allegedly caused by them and the improper amounts the Defendants allegedly obtained, and punitive damages. The parties are currently engaged in mediation.finalizing the terms of a Stipulation of Settlement, which provides for certain corporate governance changes and a $6.9 million payment, $4.8 million of which will be paid by our D&O carriers into an escrow account to be used by us to settle the class action described above and $2.1 million of which will be paid by our D&O carriers to cover plaintiffs attorney’s fees and expenses, subject to court approval.
Given the status of the matters above, we concluded in the third quarter of 2018 that a liability is probable and recorded the estimateestimated loss of $22 million which is recorded within accrued expenses and other current liabilities and a corresponding insurance reimbursement receivable of $20 million as of September 30, 2018.which is recorded in prepaid expenses and other current assets for all periods presented.
In addition, subsequent to our announcement that certain previously filed financial statements should not be relied upon,we were contacted by the SEC, FINRA,Financial Industry Regulatory Authority (“FINRA”), and the Department of Justice. The Department of Justice (“DOJ”). The

46

Table of Contents


DOJ and Division of Enforcement of the SEC have commenced investigations into the events giving rise to the restatement. We have received formal requests for documents and other information. In addition, in June 2018, two of our former employees were indicted on charges of conspiracy, securities fraud, and wire fraud as part of the ongoing DOJ investigation. In April 2019, the indictment was superseded with an indictment against those two former employees as well as our former Chief Financial Officer.  In the superseding indictment, Count I alleges that all defendants engaged in conspiracy to fraudulently influence accountants and make false entries in a public company’s books, records and accounts. Counts II-V allege specific acts by all defendants to fraudulently influence accountants. Counts VI through IX allege specific acts by all defendants to falsify entries in a public company’s books, records, and accounts. Count X alleges that all defendants engaged in conspiracy to commit securities fraud and wire fraud. Counts XI - XIII allege specific acts by all defendants of securities fraud. Counts XIV - XVII allege specific acts by all defendants of wire fraud. Count XVIII alleges bank fraud by our former Chief Financial Officer. Count XIX alleges securities fraud by one of the former employees.
Additionally, in April 2019, the SEC investigation. filed suit against the same three former employees. The SEC listed us as an uncharged related party. Counts I-V allege that all defendants engaged in a fraudulent scheme to manipulate our financial results. In particular, Count I alleges that all defendants violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5(a) and (c). Count II alleges that our former Chief Financial Officer and one of the former employees violated Section 17(a)(1) and (3) of the Securities Act. Count III alleges our former Chief Financial Officer violated Section 10(b) of the Exchange Act. And Exchange Act Rule 10b-5(b). Count IV alleges that the two former employees aided and abetted our violation of Section 10(b) of the Exchange Act and Exchange Act Rule 10-5(b). Count V alleges that our former Chief Financial Officer and one of the former employees violated Section 17(a)(2) of the Securities Act. Count VI alleges that one of the former employees engaged in insider trading in violation of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5(a) and (c). Counts VII alleges that all defendants engaged in aiding and abetting our reporting violations of Section 13(a) of the Exchange Act. Count VIII alleges that all defendants engaged in aiding and abetting our record-keeping violations of Section 13(b)(2)(A) of the Exchange Act. Count IX alleges that our former Chief Financial Officer engaged in aiding and abetting our record-keeping violations of Section 13(b)(2)(B) of the Exchange Act. Count X alleges that all defendants engaged in falsification of records and circumvention of controls in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1. Count XI alleges that all defendants engaged in false statements to accountants in violation of Rule 13b2-2 of the Exchange Act. Count XIII alleges that our former Chief Financial Officer engaged in certification violations of rule 3a-14 of the Exchange Act. Count XIII alleges that we, as an uncharged party, violated (i) Section 10(b) of the Exchange Act and Rule 10b-5; (ii) Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13; and (iii) Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. It further alleges that our former Chief Financial Officer acts subject him to control person liability for these violations. Count XIV alleges violation of Section 304 of the Sarbanes-Oxley Act of 2002 against our former Chief Financial Officer.
We are cooperating fully with the joint DOJ and SEC investigation. GivenEven though we are not named in this investigation, we have an obligation to indemnify former employees and directors. However, given the status of this matter, we arethe Company is unable to reasonably estimate the potential costs or range of costs at this time. Any costs will be our responsibility as we have exhausted all of our insurance coverage for these costs.
ITEM 1A.RISK FACTORS.
An investment in our common stock involves a high degree of risk. You should carefully consider the factors described in our Annual Report on Form 10-K for the year ended December 31, 20172018 and the risk factors described belowour condensed consolidated financial statements and related notes contained in this Form 10-Q in analyzing an investment in our common stock. If any such risks occur, our business, financial condition, and results of operations would likely suffer, the trading price of our common stock would decline, and you could lose all or part of the money you paid for our common stock.your investment. In addition, the risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this report or other documents we file with the SEC, or our annual report to stockholders, future press releases, or orally, whether in presentations, responses to questions, or otherwise. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially adversely affect our business, financial condition, or results of operations.
Other than as set forth below, thereThere have been no material changes to the Risk Factors described under “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.2018, except as noted below.

We may be unable to generate sufficient cash flow from operating activities to satisfy our operational needs and to service our debt.

We may incur additional indebtedness in the future, including any additional borrowings available under the ABL Credit Facility and Term Loan Credit Facility. Additionally, we have relied on cash flow from financing activities to help finance our operational needs. The fact that a substantial portion of our cash flow has been, and could continue to be, needed to make payments on our debt could have adverse consequences, including the following:

3747

Table of Contents


The NYSE could commence procedures
reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities, and other purposes;

limiting our flexibility in planning for, or reacting to, delistchanges in our common stock,business and the industries in which case the market price of our shares might decline and become more volatile and our stockholders’ ability to trade in our stock could be adversely affected.we operate, which would place us at a competitive disadvantage;
The continued listing of our common stock on the NYSE is subject to our compliance with a number of quantitative listing standards, including market capitalization criteria and price per share criteria. On October 4, 2018, we received notice from the NYSE that we were not in compliance with respect to the applicable listing standard set forth in Section 802.01B of the NYSE Listed Company Manual (“Section 802.01B”) because our average global market capitalization over a consecutive 30 trading-day period was less than $50,000,000, and at the same time stockholders’ investment was less than $50,000,000. The Company timely notified the NYSE that the Company will submit a plan within 45 calendar days from receipt of the notice, advising the NYSE of definitive action the Company is taking that will bring it into compliance with Section 802.01B within 18 months from receipt of the notice. There can be no guarantee that the NYSE will accept the plan or that the Company will regain compliance within the 18-month cure period. If the NYSE does not accept the plan or we are unable to regain compliance within the 18-month cure period, the Company will be subject to suspension and delisting procedures.
On October 12, 2018, the Company receive an additional notice from the NYSE that we were not in compliance with respect to the listing standard set forth in Section 802.01C of the NYSE Listed Company Manual (“Section 802.01C”) because the average closing price of the Company’s common stock over the previous 30 consecutive trading-day period had fallen below $1.00 per share. The Company timely notified the NYSE that the Company intends to cure the deficiency and regain compliance with Section 802.01C within the 6-month cure period. There can be no guarantee that the Company will be able to regain compliance with the 6-month cure period. If the Company does not regain compliance with Section 802.01C, the Company will be subject to suspension and delisting procedures.
In addition to the above continued listing standards, if our average global market capitalization over any consecutive 30 trading-day period is less than $15 million, the NYSE may promptly initiate procedures to suspend and delist our common stock from trading on the NYSE. As of October 31, 2018, our global market capitalization was approximately $17.7 million.
If our common stock were delisted, there could be no assurance whether or when it would again be listed for trading on NYSE or any other exchange. A delisting of our common stock could negatively impact us by, among other things: reducing the liquidity and market price and increasing the volatility of our common stock, which may adversely affect the ability of stockholders to trade in our common stock; reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, including institutions whose charters do not allow them to hold securities in unlisted companies, which might sell our shares, perhaps very promptly, which could negatively impact our ability to raise equity financing and have a further adverse effect on the price of our stock; decreasing the amount of news and analyst coverage of us; limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; impairingcapital; and

increasing our vulnerability to general adverse economic and industry conditions.

Our ability to borrow any additional funds needed to operate and expand our business will depend, in part, on our ability to providegenerate cash. Our ability to generate cash is subject to the performance of our business as well as general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operating activities or if future sources of capital are not available to us in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition, and ability to maintain or expand our business may be adversely affected. Moreover, our inability to make scheduled payments on our debt obligations in the future may require us to divest business units; issue new equity incentivesor debt, in private or public offerings; obtain other financial support; or delay capital expenditures.
ITEM 5.OTHER INFORMATION

ABL Facility Amendment
On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into a First Amendment to Credit Agreement (the “ABL Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the Joint Lead Arrangers and Joint Book Runners party thereto with respect to our employees; and impacting our reputation and,Credit Agreement, dated as a consequence, our abilityof February 28, 2019 (the “ABL Credit Facility”). Pursuant to attract new business.
In addition, if our common stock were delisted and we were unablethe ABL Facility Amendment, the ABL Credit Facility was amended to, get our common stock listed for trading within one year, a Triggering Eventamong other things, add Acceptable Letters of Credit (as defined in the CertificatesABL Facility Amendment) to the Borrowing Base (as defined in the ABL Credit Facility as amended by the ABL Facility Amendment).
The foregoing description of Designations forthe terms of the ABL Facility Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the ABL Facility Amendment, a copy of which is attached hereto as Exhibit 10.52(A).

Term Loan Facility Amendment
On August 2, 2019, we and our Preferred Stock) would occurdirect and indirect domestic subsidiaries entered into a First Amendment to Credit Agreement (the “Term Loan Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner, with respect to our Credit Agreement, dated as of February 28, 2019 (the “Term Loan Credit Facility”). Pursuant to the Term Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things,things: (i) defer the dividend rateSeptember 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on certain series of our Preferred Stock would increase by 3.0%. However, if we redeem allAugust 2, 2019 and continuing until payment of the preferred stock pursuant to this rights offering, this would no longer be a concern.
A failure of our information technology infrastructure or a breach of our information security systems, networks or processes may materially adversely affect our business.December 1, 2019 quarterly amortization payments.
The efficient operationforegoing description of our business depends on our information technology systems. We rely on our information technology systemsthe terms of the Term Loan Facility Amendment does not purport to effectively manage our salesbe complete and marketing, accountingis subject to, and financialqualified in its entirety by, the full text of the Term Loan Facility Amendment, a copy of which is attached hereto as Exhibit 10.53(A).

Fee Letter
On August 2, 2019, we entered into a letter agreement (the “Fee Letter”) with Elliott Associates, L.P. and legal and compliance functions, communications, supply chain, order entry, and fulfillment and other business processes. We also rely on third parties and virtualized infrastructureElliott International, L.P. Pursuant to operate andthe Fee Letter, Elliott agreed to arrange for standby letters of credit (“Letters of Credit”) in an aggregate face amount of $20 million (the “Face Amount”) to support our information technology systems. Despite testing, external and internal risks, such as malware, code anomalies, “Actsobligations under our ABL Credit Facility. As consideration for Elliott providing the Letters of God,” data leakage, and human error poseCredit, we agreed to (i) pay Elliott a direct threatfee (the “Letter of Credit Fee”) on the LC Amount (as hereafter defined), accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by us of the LC Amount to Elliott), at a rate equal to the stability or effectiveness of our information technology systems and operations. The failure of our information technology systems to perform as we anticipate hasLIBOR Rate (as defined in the past,ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and could(ii) reimburse Elliott for any draw on the Letters of Credit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the future, adversely affect our business through transaction errors, billing and invoicing errors, internal recordkeeping and reporting errors, processing inefficiencies and lossLetters of sales, receivables collection and customers,Credit, in each case which could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failures have been remedied.
We have been, and in the future may be, subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation and increased service and maintenance costs. On May 30, 2018, we became aware of unauthorized access into our information technology systems, and on July 2, 2018, we became aware of additional unauthorized access, each as a result of a phishing campaign attack upon our employees. After an investigation conducted by third party forensic investigators, we discovered a significant breach

3848

Table of Contents


to the terms and lossconditions of information regarding a substantial portionthe Fee Letter. "LC Amount" means the Face Amount, as increased by the amount of our ICs and employees, including, butpayment in kind Letter of Credit Fee added to such amount on the last day of each interest period.
The foregoing description of the terms of the Fee Letter does not limited to, their names, addresses, Social Security numbers, financial account information, medical information, insurance information, and other types of identifying or sensitive information. On other occasions, we have experienced other phishing attacks, social engineering and wire fraud affecting our employees and suppliers, which has resulted in leakage of personally identifiable information and loss of funds. Addressing such issues could provepurport to be impossible or very costlycomplete and respondingis subject to, resulting claims or liability could similarly involve substantial cost. In addition, recently, there has also been heightened regulatory and enforcement focus on data protectionqualified in its entirety by, the United States and abroad, and failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties,full text of the Fee Letter, a copy of which could harm our reputation and adversely impact our business, results of operations and financial condition.
We have invested and continue to invest in technology security initiatives, employee trainings, information technology risk management and disaster recovery plans. The development and maintenance of these measures is costly and requires ongoing monitoring and updatingattached hereto as technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts, we are not fully insulated from data breaches, technology disruptions or data loss, which could adversely impact our competitiveness and results of operations.Exhibit 10.58.

39

Table of Contents


ITEM 6.EXHIBITS
 
Exhibit Number  Exhibit
   
10.33(D)3.1 
   
10.33(E)10.52(A)+ 
   
10.35(A)10.53(A)+ 
10.57*+
10.58+
10.35(B)
10.43
10.44
10.45
10.46
10.47
   
31.1  
  
31.2 
   
32.1  
  
32.2 
   
101.INS  XBRL Instance Document
  
101.SCH  XBRL Taxonomy Extension Schema Document
  
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB  XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document
   

(1) Incorporated by reference to the registrant'sregistrant’s Current Report on Form 8-K filed with the SEC on July 11, 2018.
(2) Incorporated by reference to the registrant's Current Report on Form 8-K filed with the SEC on July 19, 2018.
(3) Incorporated by reference to the registrant's Current Report on Form 8-K filed with the SEC on August 6, 2018.
(4) Incorporated by reference to the registrant's Current Report on Form 8-K filed with the SEC on September 20, 2018.April 5, 2019.


* Indicates management contract or compensation plan or agreement


+ Filed herewith

4049

Table of Contents


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   ROADRUNNER TRANSPORTATION SYSTEMS, INC.
    
Date: NovemberAugust 6, 20182019By: /s/ Terence R. Rogers
   Terence R. Rogers
   
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)                         


4150