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 ~~June 30, 2018~~March 31, 2019

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)

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 ~~and posted on its corporate Web site, if any,~~ 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):

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 ~~August~~May 1, ~~2018,~~2019, there were outstanding ~~38,507,498~~37,568,738 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 ~~JUNE 30, 2018~~MARCH 31, 2019

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)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	35,638		$	25,702		$	4,612		$	11,179
Accounts receivable, net of allowances of $10,404 and $10,891, respectively	293,038			321,629
Accounts receivable, net of allowances of $8,522 and $9,980, respectively							273,634			274,843
Income tax receivable	13,838			14,749			3,180			3,910
Prepaid expenses and other current assets	27,819			36,306			56,612			61,106
Total current assets	370,333			398,386			338,038			351,038
Property and equipment, net of accumulated depreciation of $118,064 and $107,037, respectively	163,440			159,547
Property and equipment, net of accumulated depreciation of $143,271 and $130,077, respectively							209,652			188,706
Other assets:
Operating lease right-of-use asset							122,701			—
Goodwill	264,826			264,826			264,826			264,826
Intangible assets, net	46,062			49,648			40,779			42,526
Other noncurrent assets	5,737			3,636			6,283			6,361
Total other assets	316,625			318,110			434,589			313,713
Total assets	$	850,398		$	876,043		$	982,279		$	853,457
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND STOCKHOLDERS’ INVESTMENT (DEFICIT)
Current liabilities:
Current maturities of debt	$	10,012		$	9,950		$	8,812		$	13,171
Current finance lease liability							17,658			13,229
Current operating lease liability							36,797			—
Accounts payable	148,053			171,905			147,765			160,242
Accrued expenses and other current liabilities	101,105			105,409			105,672			110,943
Total current liabilities	259,170			287,264			316,704			297,585
Deferred tax liabilities	11,033			14,282			3,938			3,953
Other long-term liabilities	18,790			10,873			3,228			7,857
Long-term finance lease liability							56,334			37,737
Long-term operating lease liability							90,767			—
Long-term debt, net of current maturities	178,472			189,460			150,856			155,596
Preferred stock	335,979			263,317			—			402,884
Total liabilities	803,444			765,196			621,827			905,612
Commitments and contingencies (Note 10)
Stockholders’ investment:
Common stock $.01 par value; 105,000 shares authorized; 38,507 and 38,423 shares issued and outstanding	385			384
Commitments and contingencies (Note 12)
Stockholders’ investment (deficit):
Common stock $.01 par value; 44,000 and 4,200 shares authorized; 37,562 and 1,556 shares issued and outstanding							376			16
Additional paid-in capital	403,984			403,166			844,489			405,243
Retained deficit	(357,415		)	(292,703		)	(484,413		)	(457,414		)
Total stockholders’ investment	46,954			110,847
Total liabilities and stockholders’ investment	$	850,398		$	876,043
Total stockholders’ investment (deficit)							360,452			(52,155		)
Total liabilities and stockholders’ investment (deficit)							$	982,279		$	853,457

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(In thousands, except per share amounts)	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Revenues	$	558,026		$	530,579		$	1,128,010		$	1,009,499		$	507,148		$	569,984
Operating expenses:
Purchased transportation costs	380,072			358,432			781,035			674,717			342,775			400,963
Personnel and related benefits	75,838			75,672			151,725			150,082			79,215			75,887
Other operating expenses	99,712			94,758			197,211			191,588			89,614			97,499
Depreciation and amortization	9,124			9,210			18,189			18,515			15,542			9,065
Operations restructuring costs	4,655			—			4,655			—
Impairment charges													778			—
Total operating expenses	569,401			538,072			1,152,815			1,034,902			527,924			583,414
Operating loss	(11,375		)	(7,493		)	(24,805		)	(25,403		)	(20,776		)	(13,430		)
Interest expense:
Interest expense - preferred stock	31,609			25,040			38,724			25,040			—			7,115
Interest expense - debt	2,623			3,315			5,051			9,840			3,882			2,428
Total interest expense	34,232			28,355			43,775			34,880			3,882			9,543
Loss from debt extinguishment	—			9,827			—			9,827
Loss on debt restructuring													2,270			—
Loss before income taxes	(45,607		)	(45,675		)	(68,580		)	(70,110		)	(26,928		)	(22,973		)
Benefit from income taxes	(3,652		)	(7,812		)	(2,982		)	(12,304		)
Provision for income taxes													71			670
Net loss	$	(41,955	)	$	(37,863	)	$	(65,598	)	$	(57,806	)	$	(26,999	)	$	(23,643	)
Loss per share:
Basic	$	(1.09	)	$	(0.99	)	$	(1.70	)	$	(1.51	)	$	(1.78	)	$	(15.37	)
Diluted	$	(1.09	)	$	(0.99	)	$	(1.70	)	$	(1.51	)	$	(1.78	)	$	(15.37	)
Weighted average common stock outstanding:
Basic	38,507			38,412			38,479			38,389			15,158			1,538
Diluted	38,507			38,412			38,479			38,389			15,158			1,538

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ INVESTMENT (DEFICIT)

(Unaudited)

(In thousands) Six Months Ended
June 30,
2018 2017
Cash flows from operating activities:
Net loss $ (65,598 ) $ (57,806 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 18,552
19,302
Change in fair value of preferred stock 37,663
8,928
Amortization of preferred stock issuance costs 1,061
16,112
Loss on disposal of property and equipment 1,972
492
Share-based compensation 895
1,268
Loss from debt extinguishment —
9,827
Provision for bad debts 2,030
1,601
Deferred tax benefit (3,544 ) (13,904 )
Changes in:
Accounts receivable 27,156
(12,271 )
Income tax receivable 911
3,551
Prepaid expenses and other assets 6,900
3,438
Accounts payable (23,852 ) (20,883 )
Accrued expenses and other liabilities (5,052 ) 988
Net cash used in operating activities (906 ) (39,357 )
Cash flows from investing activities:
Capital expenditures (11,391 ) (7,278 )
Proceeds from sale of property and equipment 927
1,970
Net cash used in investing activities (10,464 ) (5,308 )
Cash flows from financing activities:
Borrowings under revolving credit facilities —
63,368
Payments under revolving credit facilities —
(236,068 )
Debt borrowings 557
—
Debt payments (11,846 ) (277,750 )
Debt issuance cost —
(842 )
Cash collateralization of letters of credit —
(20,737 )
Payments of debt extinguishment costs —
(4,911 )
Preferred stock issuance costs (1,061 ) (16,112 )
Proceeds from issuance of preferred stock and warrants 34,999
540,500
Issuance of restricted stock units, net of taxes paid (76 ) (215 )
Payment of capital lease obligation (1,267 ) (2,415 )
Net cash provided by financing activities 21,306
44,818
Net increase in cash and cash equivalents 9,936
153
Cash and cash equivalents:
Beginning of period 25,702
29,513
End of period $ 35,638
$ 29,666
Supplemental cash flow information:
Cash paid for interest $ 4,966
$ 9,727
Cash paid for (refunds from) income taxes, net $ 144
$ (2,426 )
Non-cash capital leases and other obligations to acquire assets $ 10,451
$ —



	Common Stock
(In thousands, except shares)	Shares	Amount		Additional Paid-In Capital			Retained Deficit			Total Stockholders' Investment (Deficit)

BALANCE, December 31, 2018	1,555,868	$	16	$	405,243		$	(457,414	)	$	(52,155	)
Issuance of restricted stock units, net of taxes paid	5,664	—		(8		)	—			(8		)
Issuance of common stock	36,000,000	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, 2019	37,561,532	$	376	$	844,489		$	(484,413	)	$	360,452



	Common Stock
(In thousands, except shares)	Shares	Amount		Additional Paid-In Capital			Retained Deficit			Total Stockholders' Investment (Deficit)

BALANCE, December 31, 2017	1,536,925	$	15	$	403,535		$	(292,703	)	$	110,847
Issuance of restricted stock units, net of taxes paid	3,272	—		(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, 2018	1,540,197	$	15	$	403,983		$	(315,460	)	$	88,538

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



(In thousands)	Three Months Ended
	March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(26,999	)	$	(23,643	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	15,756			9,262
Change in fair value of preferred stock	—			6,057
Amortization of preferred stock issuance costs	—			1,058
Loss on disposal of property and equipment	37			135
Share-based compensation	1,599			523
Loss on debt restructuring	2,270			—
(Recovery of) provision for bad debts	(19		)	1,459
Deferred tax (benefit) provision	(15		)	568
Impairment charges	778			—
Changes in:
Accounts receivable	1,228			(15,269		)
Income tax receivable	730			653
Prepaid expenses and other assets	12,879			(2,817		)
Accounts payable	(12,811		)	9,642
Accrued expenses and other liabilities	(9,355		)	2,174
Net cash used in operating activities	(13,922		)	(10,198		)
Cash flows from investing activities:
Capital expenditures	(8,553		)	(5,699		)
Proceeds from sale of property and equipment	768			37
Net cash used in investing activities	(7,785		)	(5,662		)
Cash flows from financing activities:
Borrowings under revolving credit facilities	504,478			—
Payments under revolving credit facilities	(526,643		)	—
Term debt borrowings	52,218			557
Term debt payments	(38,878		)	(5,427		)
Debt issuance costs	(2,005		)	—
Payments of debt restructuring costs	(693		)	—
Proceeds from issuance of common stock	450,000			—
Common stock issuance costs	(10,514		)	—
Proceeds from issuance of preferred stock	—			17,500
Preferred stock issuance costs	—			(1,058		)
Preferred stock payments	(402,884		)	—
Issuance of restricted stock units, net of taxes paid	(8		)	(75		)
Payments on insurance premium financing	(5,951		)	—
Payments of finance lease obligation	(3,980		)	(570		)
Net cash provided by financing activities	15,140			10,927
Net decrease in cash and cash equivalents	(6,567		)	(4,933		)
Cash and cash equivalents:
Beginning of period	11,179			25,702
End of period	$	4,612		$	20,769

Table of Contents

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)



	Three Months Ended
(In thousands)	March 31,
	2019			2018
Supplemental cash flow information:
Cash paid for interest	$	3,567		$	2,154
Cash refunds from income taxes, net	$	(698	)	$	(562	)
Non-cash finance leases and other obligations to acquire assets	$	27,428		$	276
Capital expenditures, not yet paid	$	962		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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 is organized in the following three segments: Truckload & Express Services (“TES”), Less-than-Truckload (“LTL”), and Ascent Global Logistics (“Ascent”). Within its TES segment, the Company ~~serves customers throughout North America and~~ provides the following services: air and ground ~~expedite; over-the-road operations, including~~expedite, scheduled dry van truckload, temperature controlled ~~and flatbed;~~truckload, flatbed, intermodal drayage and ~~chassis management;~~other warehousing, equipment and ~~local, warehousing and other logistics.~~logistics operations. 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. Within its Ascent segment, the Company provides third-party domestic freight management, international freight forwarding, customs brokerage and retail consolidation solutions.

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 13,~~ these unaudited condensed consolidated interim financial statements ~~include~~reflect all ~~adjustments, consisting only of~~ normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the ~~operations~~results 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 Securities and Exchange Commission 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~~2016-02, Leases (Topic 842) (“ASU ~~2014-09”~~2016-02”)~~, which was updated in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606)~~. The ~~core principle~~Company 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 by~~apply the new ~~standard~~requirements to only those leases that ~~may be applicable to each~~existed 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 instead of retrospectively adjusting prior periods. The Company recorded a $0.9 million benefit to opening retained earnings as of January 1, 2018transition date. See Note 3 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 six months ended June 30, 2018. The disclosure requirements of Topic 606 are included within the Company's revised revenue recognition accounting policy below.more information.

Use of Estimates

Table of Contents

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.

~~Table of Contents~~

Segment Reporting

The Company determines its segments based on the information utilized by the chief operating decision maker, the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has three segments: TES, LTL, and Ascent. The Company changed its segment reporting effective January 1, 2018 when it integrated its truckload brokerage business into the Ascent domestic freight management business. 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 three segments, TES, LTL and Ascent, as presented in Note ~~12.~~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. ~~These~~This performance ~~obligations are~~obligation 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 Topic 606 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) (“ASU 2016-02”), which will be effective~~transaction 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 March 31, 2019 and December 31, 2018, the Company had $13.7 million and $7.8 million of unbilled amounts recorded in accounts receivable, respectively, and $9.0 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 months ended March 31, 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 ~~financing~~operating leases, ~~a lessee is required to: (1) recognize a right-of-use asset and~~the Company records a lease liability ~~initially measured~~and corresponding right-of-use asset at the lease commencement date, which are valued at the estimated present value of the lease payments over the lease term. The Company uses its collateralized incremental borrowing rate at the lease commencement date in determining the present value of the lease ~~payments; (2)~~payments. Finance leases are included within property and equipment. The Company does not 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 aan original lease 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. If a lessee makes this election, it should recognize~~on the condensed consolidated balance sheets but will disclose the related lease expense for ~~such leases generally on a straight-line basis over~~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 ~~term.~~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 ~~in the process of evaluating the guidance in ASU 2016-02 and will determine the total impact of the new guidance based on the current lease arrangements~~reasonably certain that ~~are expected to remain in place. The Company expects adoption of this guidance will 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. The Company has not yet determined how it will handle lease terms of 12 months or less.

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”), which will be effective for the Company in 2018. GAAP currently prohibits the recognitionexercise that option.

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of current and deferred income taxes for intra-entity asset transfers other than inventory (e.g. property and equipment) until the asset has 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 ofImpairment Charges

The Company recorded an asset ~~when~~impairment charge of $0.8 million for the ~~transfer occurs.~~three months ended March 31, 2019 related to software that is no longer useful following the integration of Ascent’s domestic freight management operations.

New Accounting Pronouncements

In August 2018, the Financial Accounting Standard Board (“FASB”) issued ASU ~~2016-16~~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 ~~include any new disclosure requirements; however, existing disclosure around~~expect the ~~rate reconciliations and types~~adoption of ~~temporary differences and/or carryforward that give rise~~ASU 2018-15 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’s~~its condensed consolidated financial statements.

2. 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, 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 Company has four reporting units for its three segments: one reporting unit for its 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 segments as indicated in Note 1, the Company reallocated $5.8 million of goodwill between the TES and Ascent segments.~~

The Company conducts its goodwill impairment analysis for each of its four reporting units as of July 1 of each year. ~~However, in connection with the change in segments, the~~The Company conducted anits annual goodwill impairment analysis for each of its four reporting units as of ~~January~~July 1, 2018 and determined ~~there~~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%, and 112.2%, respectively; thus no impairment was indicated for these reporting units. The LTL reporting unit had no ~~impairment.~~remaining goodwill as of July 1, 2018.

There were no changes to total goodwill during the first ~~half~~quarter of ~~2018.~~2019. The following is a breakdown of the Company's goodwill as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 by segment (in thousands):



	TES		LTL		Ascent		Total
Goodwill	$	92,926	$	—	$	171,900	$	264,826

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There were no changes to the accumulated goodwill impairment during the first ~~half~~quarter of ~~2018. 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.~~2019. The following is a breakdown of the Company's accumulated goodwill impairment ~~losses~~charges as of ~~June 30, 2018~~March 31, 2019 by segment (in thousands):



	TES		LTL		Ascent		Total
Accumulated goodwill impairment charges	$	132,408	$	197,312	$	46,763	$	376,483

Intangible assets consist 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.~~

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Intangible assets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows (in thousands):


	June 30, 2018							December 31, 2017							March 31, 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	$	(20,735	)	$	34,273	$	55,008	$	(18,470	)	$	36,538	$	55,008	$	(24,051	)	$	30,957	$	55,008	$	(22,959	)	$	32,049
LTL	2,498		(1,839		)	659		2,498		(1,748		)	750		2,498		(1,967		)	531		2,498		(1,925		)	573
Ascent	27,152		(16,022		)	11,130		27,152		(14,792		)	12,360		27,152		(17,861		)	9,291		27,152		(17,248		)	9,904
Total	$	84,658	$	(38,596	)	$	46,062	$	84,658	$	(35,010	)	$	49,648	$	84,658	$	(43,879	)	$	40,779	$	84,658	$	(42,132	)	$	42,526

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 ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. Amortization expense was $3.6 million and $4.1 million for the six months ended June 30, 2018 and 2017,~~ respectively. Estimated amortization expense for each of the next five years based on intangible assets as of ~~June 30, 2018~~March 31, 2019 is as follows (in thousands):


Remainder 2018	$	3,537
2019	6,819
Remainder 2019			$	5,072
2020	6,447		6,447
2021	6,265		6,265
2022	5,826		5,826
2023			5,462
Thereafter	17,168		11,707
Total	$	46,062	$	40,779

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):



	March 31, 2019
Assets:
Finance lease assets, net (included in property and equipment)	$	74,154
Operating lease right-of-use asset	122,701
Total lease assets	$	196,855
Liabilities:
Current finance lease liability	$	17,658
Current operating lease liability	36,797
Long-term finance lease liability	56,334
Long-term operating lease liability	90,767
Total lease liabilities	$	201,556

Amounts recognized in the condensed consolidated income statement related to the Company's lease portfolio for the three months ended March 31, 2019 are as follows (in thousands):

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Lease component	Classification

Rent expense - operating leases	Other operating expenses	$	16,510
Amortization of finance lease assets	Depreciation expense	$	4,331
Interest on finance lease liabilities	Interest expense	$	1,200

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 $2.5 million for the three months ended March 31, 2019 related to operating leases the Company entered into with its independent contractors (“IC”), of which $1.8 million relates to sublease income. The Company records rental income from leases 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 March 31, 2019 (in thousands):



Year Ending:	Operating leases			Finance leases			Total
Remainder of 2019	$	34,178		$	16,666		$	50,844
2020	35,278			20,606			55,884
2021	25,499			24,081			49,580
2022	21,220			9,421			30,641
2023	18,041			8,986			27,027
Thereafter	17,924			6,550			24,474
Total	$	152,140		$	86,310		$	238,450
Less: Interest	(24,576		)	(12,318		)	(36,894		)
Present value of lease liabilities	$	127,564		$	73,992		$	201,556

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 March 31, 2019 are as follows:



Weighted average remaining lease term (in years)
Operating leases	4.5
Finance leases	3.6

Weighted average discount rate
Operating leases	7.2	%
Finance leases	7.2	%

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Supplemental cash flow information related to leases for the three months ended March 31, 2019 is as follows (in thousands):



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	12,149
Operating cash flows from finance leases	1,200
Financing cash flows from finance leases	3,980

ROU assets obtained in exchange or lease liabilities:
Operating leases	$	2,030

Lease transactions with related parties are disclosed in Note 13, Related Party Transactions.

4. Debt

Debt as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 consisted of the following (in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018

ABL credit facility							$	112,367		$	—
Term loan credit facility							50,673			—
Prior ABL Facility:
Revolving credit facility	$	147,037		$	147,037		—			134,532
Term loans	44,570			55,858			—			37,333
Total debt	$	191,607		$	202,895		$	163,040		$	171,865
Less: Debt issuance costs and discount	(3,123		)	(3,485		)	(3,372		)	(3,098		)
Total debt, net of debt issuance costs and discount	188,484			199,410			159,668			168,767
Less: Current maturities	(10,012		)	(9,950		)	(8,812		)	(13,171		)
Total debt, net of current maturities	$	178,472		$	189,460		$	150,856		$	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 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 total availability under the ABL Credit Facility of $64.5 million as of March 31, 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 5.1% for the three months ended March 31, 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

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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.

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 March 31, 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 10.0% for the three months ended March 31, 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, the each of 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.

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Prior ABL Facility

On July 21, 2017, the Company entered into ~~the Asset-Based Lending (“ABL”) Facility~~an 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 the~~Prior ABL Facility ~~for working capital purposes and to redeem all of the outstanding shares of its Series F Preferred Stock. The ABL Facility matures on July 21, 2022.~~

~~The ABL Facility consists~~consisted of a:

$200.0 million asset-based revolving line of credit, of which $20.0 million ~~may~~could be used for swing line loans and $30.0 million ~~may~~could 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.

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Principal on the term loan facility iswas due in quarterly installments commencing on March 31, 2018. Borrowings under the Prior ABL Facility ~~are~~were secured by substantially all of the assets of the Company. Borrowings under the Prior ABL Facility ~~bear~~bore 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 ~~contains~~contained 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 ~~provides~~provided for the issuance of up to $30.0 million in letters of credit. As of June 30, 2018, the Company had outstanding letters of credit totaling $16.4 million. Availability under the ABL Facility was $21.6 million as of June 30, 2018. 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 ~~First~~Seventh Amendment to the Prior ABL Facility. Pursuant to the ~~First~~Seventh 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 December 31, 2017 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~~Prior ABL Facility was further amended to, among other things: (i) extend the ~~date for delivery~~time period during which the Company is permitted to issue Series E-1 Preferred Stock under the Investment Agreement (as amended) from January 31, 2019 to the earlier of (a) March 1, 2019 and (b) the occurrence of the ~~Company's consolidated financial statements for the first three quarters of 2017 (unaudited) until April 30, 2018;~~rights offering; and (ii) extend the date ~~for delivery of~~by which the ~~Company's consolidated financial statements for fiscal year 2017 (audited) until June 30, 2018; (iii) expand~~Company is required to consummate the ~~permitted amount of capital leases and purchase money indebtedness~~rights offering from ~~$35.0 million~~January 31, 2019 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.March 1, 2019.

On ~~August 3, 2018,~~January 11, 2019, the Company entered into ~~a Fourth~~an Eighth Amendment to the Prior ABL Facility. ~~See Note 14 for additional information.~~

~~Prior~~Pursuant to the Eighth Amendment, the Prior ABL Facility was further amended to, among other things, modify the ~~Company had senior debt~~definition of “Fixed Charge Trigger Period” to reduce the Adjusted Excess Availability requirements until the earlier of (i) the date that ~~was comprised of a revolving line of credit~~is 30 days from the Eighth Amendment Effective Date; and ~~a term loan.~~ (ii) the Rights Offering Effective Date.

The ~~senior debt~~Prior ABL Facility was paid off with the ~~issuance of preferred stock~~proceeds 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 three months ended March 31, 2019 related to these transactions.

Insurance Premium Financing

In ~~connection with the pay-off,~~June 2018, the Company ~~recorded~~executed an insurance premium financing agreement of $17.8 million with a ~~loss from debt extinguishment~~premium finance company in order to finance certain of ~~$9.8~~its annual insurance premiums. Beginning on September 1, 2018, the financing agreement is payable in nine monthly installments of principal and interest of approximately $2.0 million.

The ~~Company also has a building and certain equipment classified as capital leases.~~agreement bears interest at 4.75%. The ~~Company's obligation under these capital leases was $18.8 million and $9.6 million~~balance of the insurance premium payable as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, respectively.~~2018 was $4.0 million and $10.0 million, respectively, and is recorded in accrued expenses and other current liabilities.

4.5. Preferred Stock

Preferred stock as of ~~as of June 30, 2018 and~~ December 31, ~~2017~~2018 consisted of the following (in thousands):


	June 30, 2018		December 31, 2017		December 31, 2018
Preferred stock:
Series B Preferred	$	171,917	$	146,649	$	205,972
Series C Preferred	83,541		76,096		102,098
Series D Preferred	2,258		6,672		900
Series E Preferred	39,456		33,900		47,367
Series E-1 Preferred	38,807		—		46,547
Total Preferred stock	$	335,979	$	263,317	$	402,884

Rights Offering

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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 retained 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 manner that gave the Company's existing stockholders the opportunity to participate on a pro rata basis.

The Company 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 three months ended March 31, 2019 and $1.5 million of costs that were paid in prior periods.

Preferred 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 ~~has~~had the option to pay the accrued dividends in cash or to defer them. Deferred dividends ~~earn~~earned dividend income consistent with the underlying shares of preferred stock. The Company ~~has~~ elected to measure the value of ~~its~~the preferred stock using the fair value method. Under the fair value method, issuance costs ~~are~~were expensed as incurred.

~~Table~~ The fair value of ~~Contents~~

the preferred stock increased by $6.1 million during the three months ended March 31, 2018, 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 tto 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 18,228~~The 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 to the Investment Agreement and Termination 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 for the remaining 19,022 shares available to issue and sell to Elliott for $17.5 million. See Note 14 for additional information. Certain terms ofremained unissued when the Series E-1 ~~Preferred Stock are as follows:~~

~~Rank. The Series E-1 Preferred Stock,~~Investment Agreement was terminated in connection with ~~respect to payment of dividends, redemption payments, rights (including as to~~ the ~~distribution of assets) upon liquidation, dissolution or winding up~~closing 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, which was the date of the Company’s original issuance of shares of 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 and 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.

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~~Certain Terms of the Preferred Stock~~

Series B Series C Series D Series E Series E-1
Shares at $0.01 Par Value at Issuance 155,000 55,000 100 90,000 35,728
Shares Outstanding at June 30, 2018 155,000 55,000 100 37,500 35,728
Price per Share $1,000 $1,000 $1.00 $1,000 $1,000/$960
Dividend Rate Adjusted 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 June 30, 2018 17.396% 17.396% N/A 15.646% 15.646%
Redemption Term 8 Years 8 Years 8 Years 6 Years 6 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%

rights offering. The Company incurred $1.1 million of issuance costs associated with the issuance of the Series E-1 Preferred Stock for the ~~six~~three months ended ~~June 30,~~March 31, 2018, which ~~are reflected in interest expense - preferred stock. The change in the fair value of the preferred stock, as indicated in Note 5, is~~was reflected in interest expense - preferred stock.

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Certain Terms of the Preferred Stock as of December 31, 2018



	Series B	Series C	Series D	Series E	Series E-1
Shares at $0.01 Par Value at Issuance	155,000	55,000	100	90,000	35,728
Shares Outstanding at December 31, 2018	155,000	55,000	100	37,500	35,728
Price / Share	$1,000	$1,000	$1.00	$1,000	$1,000/$960
Dividend Rate	Adjusted 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, 2018	17.780%	17.780%	N/A	16.030%	16.030%
Redemption Term	8 Years	8 Years	8 Years	6 Years	6 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%

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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 ~~calculates~~calculated 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;

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.

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These valuations ~~are~~were 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 ~~are~~were 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 six months ended June 30,~~as of March 31, 2018 ~~and 2017.~~(in thousands).


	Three Months Ended				Six Months Ended
	June 30				June 30
	2018		2017		2018		2017		March 31, 2018
Balance, beginning of period	$	286,874	$	—	$	263,317	$	—	$	263,317
Issuance of preferred stock at fair value	17,499		537,930		34,999		537,930		17,500
Redemption of preferred stock									—
Change in fair value of preferred stock ⁽¹⁾	31,606		8,928		37,663		8,928		6,057
Balance, end of period	$	335,979	$	546,858	$	335,979	$	546,858	$	286,874

(1)Change in fair value of preferred stock is reported in interest expense - preferred stock.

7. Stockholders’ Investment (Deficit)

At the Company's annual meeting of stockholders held on December 19, 2018, the Company's stockholders approved certain amendments to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”). The amendments to the Company's Certificate of Incorporation were as follows:

•An Amendment to increase the number of authorized shares of its common stock from 4,200,000 shares to 44,000,000 shares and to increase its total authorized shares of capital stock from 4,800,200 shares to 44,600,200 shares.

•An amendment to permit stockholder action by written consent.

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•An amendment to permit a majority of its stockholders to request that the Company call a special meeting of stockholders. The Certificate of Incorporation previously only permitted the chairman of the Company's board of directors or the board of directors to call a special meeting of stockholders.

•An amendment to permit a majority of its stockholders to remove directors with or without cause. The Certificate of Incorporation previously provided that directors could only be removed for cause and by a vote of stockholders holding at least 66 2/3% of its common stock.

•An amendment to permit a majority of its stockholders to amend or repeal its Certificate of Incorporation or any provision thereof. The Certificate of Incorporation previously provided that certain provisions of the Certificate of Incorporation could only be amended or repealed with the affirmative vote of stockholders holding 80% of its common stock, unless such amendment or repeal was declared advisable by its board of directors by the affirmative vote of at least 75% of the entire board of directors, notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law.

•An amendment to permit a majority of its stockholders to amend or repeal its Second Amended and Restated Bylaws or any provision thereof. The Certificate of Incorporation previously provided that the Second Amended and Restated Bylaws could only be amended or repealed with the affirmative vote of the stockholders holding 66 2/3% of the Company's common stock.

•An amendment to designate the courts in the state of Delaware as the exclusive forum for all legal actions unless otherwise consented to by the Company.

•An amendment to expressly opt-out of Section 203 of the Delaware General Corporation Law. The Certificate of Incorporation did not previously opt-out of Section 203 of the Delaware General Corporation Law. Section 203 is an anti-takeover provision that generally prohibits a person or entity who acquires 15% or more in voting power from engaging in certain transactions with a corporation for a period of three years following the date such person or entity acquired the 15% or more in voting power.

•An amendment to renounce any interest or expectancy it may have in, or being offered an opportunity to participate in, any business opportunity that is presented to Elliott, or funds affiliated with Elliott, or any of its or their directors, officers, stockholders, or employees.

On January 8, 2019, the Company filed Certificates of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware and the amendments to its Certificate of Incorporation became effective.

On February 26, 2019, the Company entered into a Stockholders’ Agreement with Elliott (the “New Stockholders’ Agreement”). The Company's execution and delivery of the New Stockholders’ Agreement was a condition to Elliott’s backstop commitment. Pursuant to the New 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 an Amended and Restated Registration Rights Agreement with Elliott and investment funds affiliated with HCI Equity Partners (the “A&R Registration Rights Agreement”), 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 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.

~~6. Stockholders’ Investment~~8. Share-Based Compensation

~~Changes in stockholders’ investment for~~On March 21, 2019, the ~~three and six~~ ~~months ended June 30, 2018 and~~ ~~2017~~ ~~consisted~~Company's compensation committee granted to certain employees seven-year non-qualified stock options to purchase a total of 274,075 shares of its common stock with an exercise price equal to $12.50 per share (which was above the closing price of the ~~following (in thousands):~~

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Beginning balance $ 88,538
$ 177,940
$ 111,733
$ 197,468
Net loss (41,955 ) (37,863 ) (65,598 ) (57,806 )
Share-based compensation 372
658
895
1,268
Issuance of warrants —
2,571
—
2,571
Issuance of restricted stock units, net of taxes paid (1 ) (20 ) (76 ) (215 )
Ending balance $ 46,954
$ 143,286
$ 46,954
$ 143,286
Company's common stock of $11.25 per share on the grant date) with one-third of such options vesting on each of May 15, 2019, 2020 and 2021.

~~The retained earnings balance as~~

Table of ~~January 1, 2018 was adjusted by $0.9 million due~~Contents

On March 21, 2019, the Company's compensation committee granted to ~~the modified retrospective application~~certain employees restricted stock units (“RSUs”) totaling 74,000 shares of the ~~new revenue recognition principles.~~Company's common stock. Each RSU is equal in value to one share of common stock, and one-third of the RSUs vest on each of May 15, 2019, 2020 and 2021.

7.9. 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 ~~1,535,771~~377,632 as of ~~June 30, 2018~~March 31, 2019 and ~~1,903,467~~65,165 as of ~~June 30, 2017~~March 31, 2018 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 six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. Since the Company was in a net loss position for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ there is no difference between basic and dilutive weighted average common stock outstanding.

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8.10. Income Taxes

The provision for income taxes was $0.1 million for the first quarter of 2019 and $0.7 million for the first quarter of 2018. The effective ~~income~~ tax rate was ~~8.0%~~(0.3)% during the first quarter of 2019 and (2.9)% during the first quarter of 2018.

The provision for the three months ended June 30, 2018 and 4.3% for the six months ended June 30, 2018. In comparison, the effective income tax rate was 17.1% for the three months ended June 30, 2017 and 17.5% for the six months ended ~~June 30, 2017. The benefit from~~ income taxes varies from the amount computed by applying the federal ~~corporate income tax~~statutory rate of 21.0% ~~and 35.0% for 2018 and 2017, respectively,~~ to the loss before income taxes (and, therefore, the effective tax rate similarly varies from the federal statutory rate) due to increases in the valuation allowance for deferred tax assets, adjustments for permanent differences, and state income taxes. For the three months ended March 31, 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 state income taxes ~~(net of federal tax effect)~~ and adjustments for permanent differences. For the three months ended March 31, 2018, the variance is primarily due to adjustments for permanent differences ~~(primarily~~related to the non-deductible interest expense associated with the Company's preferred ~~stock). In determining~~stock, as well as the ~~benefit from~~effect 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 ~~applied~~applies an estimated annual effective tax rate to its ordinary operating results, and ~~calculated~~calculates the tax benefit or provision, if any, of other discrete items individually as they ~~occurred. The estimated annual effective~~occur. Management also assesses whether sufficient future taxable income will be generated to permit the use of deferred tax ~~rate was based on~~assets. 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, and~~over 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 estimate~~projections for future earnings. On the basis of ~~non-deductible~~this evaluation, the Company has recorded a valuation allowance for deferred tax assets to the extent that they cannot be supported by reversals of existing cumulative temporary differences. Any federal tax benefit generated from losses in 2019 is expected to require an offsetting adjustment to the valuation allowance for deferred tax assets, and ~~non-taxable items of ordinary~~thus have no net effect on the income ~~and expense.~~tax provision. State tax benefits generated from certain subsidiary losses may similarly require an offsetting adjustment to the valuation allowance.

9.11. 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.~~2021. The potential maximum exposure under these lease guarantees was approximately ~~$9.4~~$6.5 million as of ~~June 30, 2018.~~March 31, 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 ~~$1.3 million and $1.4~~$1.0 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, respectively,~~2018, which ~~was~~is 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 ~~$1.1 million and $1.8~~$0.4 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, which was recorded in accrued expenses and other current liabilities.

The Company paid ~~$0.8~~$0.4 million and ~~$3.0~~$0.7 million under these lease guarantees during the ~~second~~first quarter of 2019 and 2018, ~~and 2017, respectively, and $1.5 million and $6.9 million during the first half of 2018 and 2017,~~ respectively.

~~10.~~

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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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had reserves for estimated uninsured losses of ~~$29.6~~$28.0 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 ~~Complaint~~complaint against certain of the Company’s subsidiaries in state court in California in a post-acquisition dispute (the “Central Cal Matter”). The ~~Complaint~~complaint alleges contract, statutory and ~~tort based~~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”). 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 ~~are~~ranging from approximately $0.3 million to $1.0 million. Accordingly, the Company has recorded a contingent purchase obligation liability of $1.8 million in accrued expenses and other current liabilities. The Company intends to pursue indemnification and other claims as it relates to the ~~process of submitting the dispute to a Settlement Accountant.~~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

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several years, forwarded that electronic newsletter to third parties in violation of corresponding subscription agreements. After discussions with Warren, the Company received a second letter dated 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.~~Warren, which was rejected. Mediation is set for June 17, 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 three months ended March 31, 2019. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company ~~recorded~~had a ~~reserve~~liability for settlements, litigation, and defense costs related to these labor matters, the Central Cal Matter and the Warren Matter of ~~$13.9~~$1.6 million and ~~$13.2~~$10.8 million, respectively, which are included in accrued expenses and other current liabilities.

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.

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Securities Litigation Proceedings

Following the Company's press release on January 30, 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 parties entered into a binding term sheet agreeing to settle the action for $20 million, $17.9 million of which will be funded by the Company's D&O carriers ($4.8 million of which is 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 ~~individual defendants filed motions~~settlements in this action and in the Federal Derivative Action.The parties have submitted a Stipulation of Settlement to ~~dismiss. The parties are currently engaged in mediation.~~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 ~~Complaint~~complaint 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 ~~Complaint~~complaint 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 an anticipated motion~~the District Court’s approval of the proposed settlement of the Federal Derivative Action, following which the defendants would move to dismiss this action as moot. While the ~~Amended Complaint filed in~~case was stayed, the ~~securities class action described above. The parties are currently engaged in mediation.~~plaintiff obtained permission to file an amended complaint adding claims against two former Company employees: Bret Naggs and Mark Wogsland.

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 Retirement Fund filed a ~~Complaint~~complaint 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 Litigation~~Kent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative Action”). On March 28, 2018, ~~Plaintiffs~~plaintiffs 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 ~~Defendants~~defendants 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 ~~Defendants~~defendants breached their fiduciary duty. Count III alleges that all the ~~Defendants~~defendants wasted corporate assets. Count IV alleges that certain of the ~~Defendants~~defendants were unjustly enriched. The Complaint seeks monetary damages, improvements to the Company’s corporate governance and internal procedures, an accounting from ~~Defendants~~defendants of the damages allegedly caused by them and the improper amounts the ~~Defendants~~defendants allegedly obtained, and punitive damages. The parties ~~are currently engaged~~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 ~~mediation.~~the third quarter of 2018 that a liability is probable and 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 which is recorded in prepaid expenses and other current assets for all periods presented.

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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, ~~FINRA,~~Financial Industry Regulatory Authority (“FINRA”), and the Department of ~~Justice. 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

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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.

~~Given~~ Even 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 ~~the matters above,~~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.

~~11.~~13. Related Party Transactions

On March 1, 2018, the Company entered into the 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 ~~had an advisory agreement~~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 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

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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 ~~Management L.P. (“HCI”) that required~~Partners, which amended and restated the ~~Company to pay transaction fees and an annual advisory fee~~Registration Rights Agreement, dated as of ~~$0.1 million. On~~ 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 ~~a Termination Agreement~~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 Elliott $0.9 million in ~~which HCI waived~~issuance costs and fees during the ~~Company’s payment~~three months ended March 31, 2019. As of ~~any and all unpaid fees and expenses accrued~~March 31, 2019, the Company owed Elliott $41.5 million under the ~~advisory agreement through May 2, 2017.~~Term Loan Credit Facility. See Note 4 for more information on the 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 ~~$6.6~~$6.5 million and ~~$3.1~~$6.6 million to these purchased transportation providers during the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. The Company paid an aggregate of $13.2 million and $5.7 million to these purchased transportation providers during the six months ended June 30, 2018 and 2017,~~ respectively.

The Company has a number of facility leases with related parties and paid an aggregate ~~of $0.3 million and $0.8~~$0.4 million under these leases during the three months ended ~~June 30, 2018 and 2017, respectively. The Company paid an aggregate of $0.7 million and $1.5 million under these leases during the six months ended June 30, 2018 and 2017, respectively.~~March 31, 2018.

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 $0.9 million and $0.7 million during ~~each of~~ the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017. The Company paid CML broker commissions of $1.4 million and $1.3 million during the six months ended June 30, 2018 and 2017,~~ respectively.

The Company has a jet fuel purchase agreement with a related party and paid an aggregate of ~~$0.6~~$0.8 million and ~~$0.3~~$0.6 million under this agreement during the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. The Company paid an aggregate of $1.2 million and $0.8 million under this agreement during the six months ended June 30, 2018 and 2017,~~ respectively.

The Company leases certain equipment through leasing companies owned by related parties and paid an aggregate of ~~$0.8~~$1.5 million and ~~$0.3~~$0.7 million during the three months ended ~~June 30,~~March 31, 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 ~~an aggregate of $1.5~~HCI $3.5 million ~~and $0.6 million for these leases~~under this agreement during the ~~six~~three months ended ~~June 30,~~March 31, 2019.

On December 27, 2018, the Company filed a registration statement on Form S-1 with the SEC for the offer and ~~2017, respectively.~~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.

~~12.~~

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14. Segment Reporting

The Company determines its segments based on the information utilized by the chief operating decision maker, the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has three segments: TES, LTL, and Ascent. The Company changed its segment reporting in 2018 when it integrated its truckload brokerage business into the Ascent domestic freight management business. 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 owned subsidiary of the Company, is a centralized asset management company that purchases and leases equipment that is utilized by the Company's segments for use by company drivers or ICs.

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The following table reflects certain financial data of the Company’s segments for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ and as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
TES	300,037			262,797			$	626,104		$	490,284		$	274,857		$	326,067
LTL	117,164			121,968			230,289			230,744			102,823			113,125
Ascent	144,630			148,088			279,573			293,560			131,692			134,943
Eliminations	(3,805		)	(2,274		)	(7,956		)	(5,089		)	(2,224		)	(4,151		)
Total	$	558,026		$	530,579		$	1,128,010		$	1,009,499		$	507,148		$	569,984
Impairment charges:
TES													—			—
LTL													—			—
Ascent													—			—
Corporate													778			—
Total													$	778		$	—
Operating (loss) income:
TES⁽¹⁾	(750		)	3,456			$	3,650		$	1,735
TES													$	(3,721	)	$	4,400
LTL	(3,743		)	(3,264		)	(12,427		)	(5,985		)	(5,834		)	(8,684		)
Ascent	7,314			7,217			14,021			14,852			5,372			6,707
Corporate	(14,196		)	(14,902		)	(30,049		)	(36,005		)	(16,593		)	(15,853		)
Total	$	(11,375	)	$	(7,493	)	$	(24,805	)	$	(25,403	)	$	(20,776	)	$	(13,430	)
Interest expense	34,232			28,355			43,775			34,880			3,882			9,543
Loss from debt extinguishment	—			9,827			$	—		$	9,827
Loss on debt restructuring													2,270			—
Loss before income taxes	$	(45,607	)	$	(45,675	)	$	(68,580	)	$	(70,110	)	$	(26,928	)	$	(22,973	)
Depreciation and amortization:
TES	6,241			6,197			$	12,537		$	12,473		$	11,187		$	6,296
LTL	900			953			1,813			1,914			638			913
Ascent	1,168			1,631			2,356			3,287			1,682			1,188
Corporate	815			429			1,483			841			2,035			668
Total	$	9,124		$	9,210		$	18,189		$	18,515		$	15,542		$	9,065
Capital expenditures:⁽²⁾
Capital expenditures⁽¹⁾:
TES	2,940			2,047			$	5,937		$	5,391		$	6,872		$	2,997
LTL	55			387			255			631			1,772			200
Ascent	355			289			709			571			1,837			354
Corporate	12,510			625			14,934			685
Corporate⁽²⁾													25,833			2,424
Total	$	15,860		$	3,348		$	21,835		$	7,278		$	36,314		$	5,975


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Assets:
TES	$	417,144		$	458,945		$	422,432		$	379,956
LTL	80,354			79,065			121,364			73,706
Ascent	271,620			271,400			304,956			276,994
Corporate	83,316			68,445			134,535			123,921
Eliminations ⁽³⁾	(2,036		)	(1,812		)	(1,008		)	(1,120		)
Total	$	850,398		$	876,043		$	982,279		$	853,457

(1) ~~Operations restructuring charges of $4.7 million are included within TES for the three~~Includes non-cash finance leases and ~~six months ended June 30, 2018. See Note 13 for additional information.~~capital expenditures not yet paid.

(2) ~~Includes non-cash capital leases.~~The first quarter of 2019 includes $22.1 million of rolling stock assets that were purchased and leased to operating units of the Company by REL of which 100% was leased to the TES segment.

(3) Eliminations represents intercompany trade receivable balances between the three segments.

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~~13.~~15. Restructuring Costs

In the second quarter of 2018, the Company restructured its ~~temperature controlled~~temperature-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 controlled~~temperature-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 ~~cots,~~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 following is a rollforward of the Company's restructuring reserve balance as of March 31, 2019 (in thousands).



	Restructuring reserves
Beginning balance at December 31, 2018	$	544
Charges	—
Adjustments⁽¹⁾	(79		)
Payments	(112		)
Ending balance at March 31, 2019	$	353

(1) The adjustment relates to the adoption of Topic 842 for lease terminations included in the restructuring 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 ~~$3.9~~$3.4 million and ~~$9.1~~$6.9 million infor the ~~second quarter of~~three months ended March 31, 2019 and 2018, ~~and 2017, respectively, and costs of $10.8 million and $16.8 million in the first half of 2018 and 2017,~~ respectively. These costs are included in other operating expenses.

~~14.~~16. Subsequent Events

Compliance with NYSE Listing Standard

On ~~August 3, 2018,~~April 12, 2019 the Company received a notice from the NYSE that a calculation of the average stock price for the 30-trading days ended April 12, 2019, indicted that the Company is now in ~~order~~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 $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 ~~provide continued support~~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, which added approximately $450 million to the Company's ~~operating needs,~~total stockholder investment.

DOJ and Division of Enforcement of the ~~Company~~SEC investigations

In April 2019, the June 2018 indictment of two former employees as part of the ongoing DOJ investigation was superseded with an indictment against those two former employees as well as the Company’s former Chief Financial Officer on charges which include conspiracy, securities fraud, wire fraud, and ~~Elliott entered into~~bank fraud. Additionally, in April 2019, the ~~Series E-1 Amendment, which, among other things, extended~~SEC filed suit against the ~~Termination Date from July 30, 2018 to November 30, 2018~~same three former employees for various violations of the ~~remaining 19,022 shares available to issue~~securities laws. See Note 12 for further information on both the DOJ and ~~sell to Elliott for $17.5 million.~~SEC investigations.

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 to be applied to the bank term loan from 30% to 10%.

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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 discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from 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~~2018. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

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 controlled~~over-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 January 1, 2018, we changed our segment reporting when we integrated our truckload brokerage business into our Ascent domestic freight management business. Segment information for prior periods has been revised to align with the new segment structure. Our three segments are as follows:

Truckload & Express Services. Within our TES segment we serve customers throughout North ~~America and~~America. We provide the following services: air and ground ~~expedite; over-the-road operations, including~~expedite, scheduled dry van truckload, temperature controlled ~~and flatbed;~~truckload, flatbed, intermodal drayage and ~~chassis management;~~other warehousing, equipment and ~~local, warehousing and other logistics.~~logistics operations. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. Our Active On-Demand ground and air expedited services business features proprietary bid technology supported by our fleets of ground and air assets. Roadrunner Dry Van, Temperature Controlled, Intermodal Services and ~~Roadrunner Temperature Controlled~~Flatbed businesses provide specialized truckload services to beneficial cargo owners, ~~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.

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.Within our Ascent segment, we offer a full portfolio of domestic and international transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. ~~Specifically, our~~ Ascent ~~offering includes pricing, contract~~provides domestic freight management ~~transportation mode and carrier selection,~~solutions including asset-backed truckload brokerage, ~~freight tracking, freight bill payment and audit, cost reporting and analysis,~~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 project and order management. We also specialize in retail consolidation and ~~warehousing.~~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 independent 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 enhance customer service. ~~Our Ascent segment also includes domestic and international air and ocean transportation services and customs brokerage.~~

Factors Important to Our Business

Our success principally depends on our ability to generate revenues through our dedicated sales personnel, long-standing ~~company~~Company 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 ~~company relationships.~~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

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~~representatives. In our Ascent business, we have~~ approximately 60 direct salespeople located in 25 company offices, commissioned sales representatives, and a network of approximately 7060 independent agents. Agents complement our ~~company~~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.

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 ~~ICs~~independent 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”),~~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. 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.

Personnel and Related Benefits. Personnel and related benefits costs are a large component of our overall cost structure. We employ approximately ~~1,500~~1,400 company drivers who are paid either per mile or at an hourly rate. In addition, we employ ~~approximately 900~~over 800 dock and warehouse workers and ~~approximately 2,200~~over 2,300 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 TES and Ascent businesses, we generally pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by ~~rises~~increases 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.

~~Pricing.~~Pricing. The pricing environment in the transportation industry also impacts our operating performance. Within our TES business, we typically charge a flat rate negotiated on each load hauled. Pricing within our TES business is typically driven by shipment frequency and consistency, length of haul, and customer and geographic mix, but generally has fewer influential factors than pricing within our LTL business. 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 Ascent business, we typically charge a variable rate on each 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 TLtruckload and LTL shipping as part of our Ascent offering, 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 and financial condition of Unitrans are included in our condensed consolidated financial statements for the first half of 2017 within our Ascent segment.

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Results of Operations

The following tables set forth, for the periods indicated, summary TES, LTL, Ascent, corporate, and consolidated statement of operations data. Such revenue data for our TES, LTL, and Ascent segments are expressed as a percentage 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 provided~~



(In thousands, except for %'s)	Three Months Ended March 31, 2019
	TES			%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	274,857		54.2	%	$	102,823		20.3	%	$	131,692	26.0	%	$	(2,224	)	$	507,148
Operating expenses:
Purchased transportation costs	177,923			64.7	%	71,591			69.6	%	95,485		72.5	%	(2,224		)	342,775
Personnel and related benefits	40,763			14.8	%	17,556			17.1	%	13,743		10.4	%	7,153			79,215
Other operating expenses	48,705			17.7	%	18,872			18.4	%	15,410		11.7	%	6,627			89,614
Depreciation and amortization	11,187			4.1	%	638			0.6	%	1,682		1.3	%	2,035			15,542
Impairment charges	—			—	%	—			—	%	—		—	%	778			778
Total operating expenses	278,578			101.4	%	108,657			105.7	%	126,320		95.9	%	14,369			527,924
Operating income (loss)	(3,721		)	(1.4	)%	(5,834		)	(5.7	)%	5,372		4.1	%	(16,593		)	(20,776		)
Total interest expense																		3,882
Debt restructuring costs																		2,270
Loss before income taxes																		(26,928		)
Provision for income taxes																		71
Net loss																		$	(26,999	)



(In thousands, except for %'s)	Three Months Ended March 31, 2018
	TES		%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	326,067	57.2	%	$	113,125		19.8	%	$	134,943	23.7	%	$	(4,151	)	$	569,984
Operating expenses:
Purchased transportation costs	224,601		68.9	%	81,997			72.5	%	98,513		73.0	%	(4,148		)	400,963
Personnel and related benefits	39,168		12.0	%	18,135			16.0	%	12,141		9.0	%	6,443			75,887
Other operating expenses	51,602		15.8	%	20,764			18.4	%	16,394		12.1	%	8,739			97,499
Depreciation and amortization	6,296		1.9	%	913			0.8	%	1,188		0.9	%	668			9,065
Total operating expenses	321,667		98.7	%	121,809			107.7	%	128,236		95.0	%	11,702			583,414
Operating income (loss)	4,400		1.3	%	(8,684		)	(7.7	)%	6,707		5.0	%	(15,853		)	(13,430		)
Total interest expense																	9,543
Loss before income taxes																	(22,973		)
Provision for income taxes																	670
Net loss																	$	(23,643	)

Table of Contents

The following table sets forth a reconciliation of net loss to Adjusted EBITDA and ~~provided~~provides Adjusted EBITDA for TES, LTL, Ascent, and corporate for the periods indicated.

(In thousands, except for %’s) Three Months Ended June 30, 2018
TES % LTL % Ascent % Corporate/ Eliminations Total
Revenues $ 300,037
53.8 % $ 117,164
21.0 % $ 144,630
25.9 % $ (3,805 ) $ 558,026
Operating expenses:
Purchased transportation costs 194,702
64.9 % 82,318
70.3 % 106,861
73.9 % (3,809 ) 380,072
Personnel and related benefits 39,794
13.3 % 17,428
14.9 % 12,465
8.6 % 6,151
75,838
Other operating expenses ⁽¹⁾
60,050
20.0 % 20,261
17.3 % 16,822
11.6 % 7,234
104,367
Depreciation and amortization 6,241
2.1 % 900
0.8 % 1,168
0.8 % 815
9,124
Total operating expenses 300,787
100.2 % 120,907
103.2 % 137,316
94.9 % 10,391
569,401
Operating income (loss) (750 ) (0.2 )% (3,743 ) (3.2 )% 7,314
5.1 % (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 )



(In thousands)	Three Months Ended March 31, 2019
	TES			LTL			Ascent		Corporate/ Eliminations			Total
Net (loss) income	$	(4,413	)	$	(5,868	)	$	5,267	$	(21,985	)	$	(26,999	)
Plus: Total interest expense	692			34			92		3,064			3,882
Plus: Provision for income taxes	—			—			13		58			71
Plus: Depreciation and amortization	11,187			638			1,682		2,035			15,542
Plus: Impairment charges	—			—			—		778			778
Plus: Long-term incentive compensation expenses	—			—			—		1,731			1,731
Plus: Loss on debt restructuring	—			—			—		2,270			2,270
Plus: Corporate restructuring and restatement costs	—			—			—		3,432			3,432
Adjusted EBITDA⁽¹⁾	$	7,466		$	(5,196	)	$	7,054	$	(8,617	)	$	707

(In thousands, except for %’s) Three Months Ended June 30, 2017
TES % LTL % Ascent % Corporate/ Eliminations Total
Revenues $ 262,797
49.5 % $ 121,968
23.0 % $ 148,088
27.9 % $ (2,274 ) $ 530,579
Operating expenses:
Purchased transportation costs 165,544
63.0 % 86,792
71.2 % 108,370
73.2 % (2,274 ) 358,432
Personnel and related benefits 38,029
14.5 % 17,922
14.7 % 15,635
10.6 % 4,086
75,672
Other operating expenses 49,571
18.9 % 19,565
16.0 % 15,235
10.3 % 10,387
94,758
Depreciation and amortization 6,197
2.4 % 953
0.8 % 1,631
1.1 % 429
9,210
Total operating expenses 259,341
98.7 % 125,232
102.7 % 140,871
95.1 % 12,628
538,072
Operating income (loss) 3,456
1.3 % (3,264 ) (2.7 )% 7,217
4.9 % (14,902 ) (7,493 )
Total interest expense 28,355
Loss from debt extinguishment 9,827
Loss before income taxes (45,675 )
Benefit from income taxes (7,812 )
Net loss $ (37,863 )

~~Table of Contents~~

(In thousands) Three Months Ended June 30, 2018
TES LTL Ascent Corporate/ Eliminations Total
Net (loss) income $ (758 ) $ (3,763 ) $ 7,285
$ (44,719 ) $ (41,955 )
Plus: Total interest expense 8
20
29
34,175
34,232
Plus: Benefit from income taxes —
—
—
(3,652 ) (3,652 )
Plus: Depreciation and amortization 6,241
900
1,168
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⁽²⁾
$ 10,146
$ (2,843 ) $ 8,482
$ (9,044 ) $ 6,741

(In thousands) Three Months Ended June 30, 2017
TES LTL Ascent Corporate/ Eliminations Total Less: Unitrans Total w/o Unitrans
Net (loss) income $ 3,475
$ (3,312 ) $ 7,181
$ (45,207 ) $ (37,863 ) $ 2,026
$ (39,889 )
Plus: Total interest expense (19 ) 48
36
28,290
28,355
—
28,355
Plus: Benefit from income taxes —
—
—
(7,812 ) (7,812 ) —
(7,812 )
Plus: Depreciation and amortization 6,197
953
1,631
429
9,210
295
8,915
Plus: Long-term incentive compensation expenses —
—
—
659
659
—
659
Plus: Loss on debt extinguishments —
—
—
9,827
9,827
—
9,827
Plus: Corporate restructuring and restatement costs —
—
—
9,052
9,052
—
9,052
Adjusted EBITDA⁽²⁾
$ 9,653
$ (2,311 ) $ 8,848
$ (4,762 ) $ 11,428
$ 2,321
$ 9,107

~~Note: Adjusted EBITDA for the Ascent segment in the second quarter of 2017, excluding Unitrans, was $6.5 million.~~

~~Table of Contents~~

(In thousands, except for %’s) Six Months Ended June 30, 2018
TES % LTL % Ascent % Corporate/ Eliminations Total
Revenues $ 626,104
55.5 % $ 230,289
20.4 % $ 279,573
24.8 % $ (7,956 ) $ 1,128,010
Operating expenses:
Purchased transportation costs 419,303
67.0 % 164,315
71.4 % 205,374
73.5 % (7,957 ) 781,035
Personnel and related benefits 78,962
12.6 % 35,563
15.4 % 24,606
8.8 % 12,594
151,725
Other operating expenses⁽¹⁾
111,652
17.8 % 41,025
17.8 % 33,216
11.9 % 15,973
201,866
Depreciation and amortization 12,537
2.0 % 1,813
0.8 % 2,356
0.8 % 1,483
18,189
Total operating expenses 622,454
99.4 % 242,716
105.4 % 265,552
95.0 % 22,093
1,152,815
Operating income (loss) 3,650
0.6 % (12,427 ) (5.4 )% 14,021
5.0 % (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 )

(In thousands, except for %’s) Six Months Ended June 30, 2017
TES % LTL % Ascent % Corporate/ Eliminations Total
Revenues $ 490,284
48.6 % $ 230,744
22.9 % $ 293,560
29.1 % $ (5,089 ) $ 1,009,499
Operating expenses:
Purchased transportation costs 302,478
61.7 % 162,711
70.5 % 214,595
73.1 % (5,067 ) 674,717
Personnel and related benefits 76,084
15.5 % 34,737
15.1 % 31,009
10.6 % 8,252
150,082
Other operating expenses 97,514
19.9 % 37,367
16.2 % 29,817
10.2 % 26,890
191,588
Depreciation and amortization 12,473
2.5 % 1,914
0.8 % 3,287
1.1 % 841
18,515
Total operating expenses 488,549
99.6 % 236,729
102.6 % 278,708
94.9 % 30,916
1,034,902
Operating income (loss) 1,735
0.4 % (5,985 ) (2.6 )% 14,852
5.1 % (36,005 ) (25,403 )
Total interest expense 34,880
Loss on debt extinguishment 9,827
Loss before income taxes (70,110 )
Benefit from income taxes (12,304 )
Net loss $ (57,806 )

~~Table of Contents~~

(In thousands) Six Months Ended June 30, 2018
TES LTL Ascent Corporate/ Eliminations Total
Net (loss) income $ 3,631
$ (12,483 ) $ 13,962
$ (70,708 ) $ (65,598 )
Plus: Total interest expense 19
56
59
43,641
43,775
Plus: Benefit from income taxes —
—
—
(2,982 ) (2,982 )
Plus: Depreciation and amortization 12,537
1,813
2,356
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⁽²⁾
$ 20,842
$ (10,614 ) $ 16,377
$ (16,739 ) $ 9,866

(In thousands) Six Months Ended June 30, 2017
TES LTL Ascent Corporate/ Eliminations Total Less: Unitrans Total w/o Unitrans
Net (loss) income $ 1,771
$ (6,111 ) $ 14,777
$ (68,243 ) $ (57,806 ) $ 4,453
$ (62,259 )
Plus: Total interest expense (36 ) 126
75
34,715
34,880
—
34,880
Plus: Benefit from income taxes —
—
—
(12,304 ) (12,304 ) —
(12,304 )
Plus: Depreciation and amortization 12,473
1,914
3,287
841
18,515
589
17,926
Plus: Long-term incentive compensation expenses —
—
—
1,268
1,268
—
1,268
Plus: Loss on debt extinguishments —
—
—
9,827
9,827
—
9,827
Plus: Corporate restructuring and restatement costs —
—
—
16,750
16,750
—
16,750
Adjusted EBITDA⁽²⁾
$ 14,208
$ (4,071 ) $ 18,139
$ (17,146 ) $ 11,130

$ 5,042
$ 6,088

~~Note: Adjusted EBITDA for the Ascent segment for the six months ended June 30, 2017, excluding Unitrans, was $13.1 million.~~

(1) Operations restructuring costs of $4.7 million are included in other operating expenses within the TES segment. See Note 13 to our condensed consolidated financial statements for additional information.



(In thousands)	Three Months Ended March 31, 2018
	TES		LTL			Ascent		Corporate/ Eliminations			Total
Net (loss) income	$	4,389	$	(8,720	)	$	6,677	$	(25,989	)	$	(23,643	)
Plus: Total interest expense	11		36			30		9,466			9,543
Plus: Provision for income taxes	—		—			—		670			670
Plus: Depreciation and amortization	6,296		913			1,188		668			9,065
Plus: Long-term incentive compensation expenses	—		—			—		577			577
Plus: Corporate restructuring and restatement costs	—		—			—		6,913			6,913
Adjusted EBITDA⁽¹⁾	$	10,696	$	(7,771	)	$	7,895	$	(7,695	)	$	3,125

⁽²⁾⁽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 from~~loss on debt ~~extinguishments, operations~~ restructuring, ~~costs,~~and corporate restructuring and restatement costs associated with legal, consulting and accounting matters, ~~(including our~~including 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

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.

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A summary of operating statistics for our LTL segment for the three ~~and six~~ months ended ~~June 30~~March 31 is shown below:


	Three Months Ended								Six Months Ended
(In thousands, except for statistics)																	Three Months Ended
	June 30,								June 30,								March 31,
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
Revenue	$	117,164		$	121,968		(3.9	)%	$	230,289		$	230,744		(0.2	)%	$	102,823		$	113,125		(9.1	)%
Less: Backhaul Revenue	3,133			—					3,133			—					1,029			—
Less: Eliminations	(69		)	(64		)			(146		)	(116		)			(68		)	(77		)
Adjusted Revenue(1)	114,100			122,032			(6.5	%)	227,302			230,860			(1.5	%)	101,862			113,202			(10.0	)%

Adjusted Revenue excluding fuel(1)	98,397			108,191			(9.1	%)	196,735			204,152			(3.6	%)	89,300			98,338			(9.2	)%

Adjusted Revenue per hundredweight (incl. fuel)	$	21.03		$	19.73		6.6	%	$	21.00		$	19.56		7.4	%	$	21.44		$	20.97		2.3	%
Adjusted Revenue per hundredweight (excl. fuel)	$	18.13		$	17.49		3.7	%	$	18.17		$	17.29		5.1	%	$	18.80		$	18.21		3.2	%
Adjusted Revenue per shipment (incl. fuel)	$	240.77		$	212.86		13.1	%	$	236.54		$	211.66		11.8	%	$	246.27		$	232.43		6.0	%
Adjusted Revenue per shipment (excl. fuel)	$	207.63		$	188.72		10.0	%	$	204.73		$	187.17		9.4	%	$	215.90		$	201.91		6.9	%
Weight per shipment (lbs.)	1,145			1,079			6.1	%	1,127			1,082			4.2	%	1,148			1,109			3.6	%
Shipments per day	7,405			8,958			(17.3	%)	7,507			8,521			(11.9	)%	6,565			7,610			(13.7	)%

(1) 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 are not included in our LTL standard pricing model, which is based on weights and shipments.

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Three Months Ended ~~June 30, 2018~~March 31, 2019 Compared to Three Months Ended ~~June 30, 2017~~March 31, 2018

Consolidated Results

~~Our consolidated~~Consolidated revenues ~~increased~~decreased to ~~$558.0~~$507.1 million in the ~~second~~first quarter of ~~2018~~2019 compared to ~~$530.6~~$570.0 million in the ~~second~~first quarter of ~~2017. Higher~~2018. Lower revenues in ~~the TES segment~~all of our segments contributed to the increase, partially offset by lower revenues in the LTL and Ascent segments. Excluding the revenue from Unitrans of $23.1 million in the second quarter of 2017, revenue increased in the Ascent segment.decrease.

Our consolidated operating loss was ~~$11.4~~$20.8 million in the ~~second~~first quarter of ~~2018~~2019 compared to ~~$7.5~~$13.4 million in the ~~second~~first quarter of ~~2017.~~2018. Lower consolidated operating results in the ~~second~~first quarter of ~~2018~~2019 were attributable to a ~~decline~~decrease in operating results within our TES and ~~LTL~~Ascent segments, partially offset by improved operating results in our ~~Ascent segment and lower corporate expenses. Included in the~~LTL segment. Also impacting consolidated operating ~~results for the second quarter~~loss was a software impairment charge of ~~2017 was operating income from Unitrans of $2.0~~$0.8 million.

Our consolidated net loss was ~~$42.0~~$27.0 million in the ~~second~~first quarter of 2019 compared to $23.6 million in the first quarter of 2018. In addition to the explanations provided above for our consolidated operating loss, our consolidated net loss in the first quarter of 2019 was impacted by a loss on debt restructuring of $2.3 million pretax, partially offset by a decrease in interest expense.

Interest expense decreased to $3.9 million during the first quarter of 2019 from $9.5 million during the first quarter of 2018, ~~compared to $37.9 million in the~~ ~~second~~ ~~quarter of 2017. In addition~~primarily due to the ~~operating results within our segments and corporate, our net loss~~waiver of interest on the preferred stock until it was ~~also impacted by increased interest expense and a lower income tax benefit,~~fully redeemed after completion of the rights offering, partially offset by ~~the absence of a loss from debt extinguishment of $9.8 million that occurred in the~~ ~~second~~ ~~quarter of 2017.~~

~~Interest expense increased to $34.2 million during the~~ ~~second~~ ~~quarter of 2018 from $28.4 million during the~~ ~~second~~ ~~quarter of 2017, primarily as a result of~~ higher ~~interest associated with our preferred stock, partially offset by lower~~ interest expense on debt due to ~~a lower principal balance. Included in~~higher interest ~~expense from preferred stock~~rates.

The provision for income taxes was ~~higher expense of $22.7~~$0.1 million ~~due to~~for the ~~change in the fair value of the preferred stock, partially offset by $15.1 million of lower expense from preferred stock issuance costs.~~

~~Income tax benefit was $3.7 million during the second~~first quarter of ~~2018 compared to income tax benefit of $7.8~~2019 and $0.7 million ~~during~~for the ~~second~~first quarter of ~~2017.~~2018. The effective tax rate was ~~8.0%~~(0.3)% during ~~second~~the first quarter of ~~2018~~2019 and ~~17.1%~~(2.9)% during the ~~second~~first 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 adjustments to the valuation allowance for deferred tax assets, adjustments for permanent differences, and state income ~~taxes as well as~~taxes. The federal tax benefit for 2019 was entirely offset by adjustments to the ~~impact of items causing permanent differences.~~valuation allowance. Significant permanent differences in 2018 include non-deductible interest expense associated with our preferred stock. The state tax benefit for both years was partially offset by adjustments to the ~~preferred stock that was issued and sold on May 2, 2017.~~valuation allowance.

The rest of our discussion will focus on the operating results of our three segments:

Truckload & Express Services

Operating results in our TES segment declined to an operating loss of ~~$0.8~~$3.7 million in the ~~second~~first quarter of ~~2018~~2019 compared to operating income of ~~$3.5~~$4.4 million in the ~~second~~first quarter of ~~2017.~~2018. TES revenues ~~increased $37.2~~decreased $51.2 million while purchased transportation costs ~~increased $29.2~~decreased $46.7 million. ~~Increases~~The decline in TES revenues was primarily attributable to revenue ~~were due primarily to increased~~declines in our ground ~~and air~~ expedited freight business. TES depreciation expense increased $4.9 million partially due to higher property and related brokerage, coupled with a strong demand environment which drove higher volumes and rates across most of the segment. Purchase transportation costs and yield were negatively impact by capacity reductions in intermodal services and over-the-road operations, including dry van and temperature controlled. Lower operating results in the second quarter of 2018 are directly relatedequipment balances attributable to 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.finance leases. TES personnel and related benefits increased ~~$1.8~~$1.6 million due primarily to higher driver wages, while other operating expenses ~~increased $10.5 million, primarily~~decreased $2.9 million. The decrease in TES operating expenses was due to ~~the previously mentioned operations restructuring costs, increased~~decreased equipment operating lease ~~and maintenance~~ costs of ~~$3.3~~$1.7 million and ~~higher IT~~lower fuel costs of ~~$1.6~~$1.3 million.

Less-than-Truckload

Operating results in our LTL segment ~~declined~~improved to an operating loss of ~~$3.7~~$5.8 million in the ~~second~~first quarter of ~~2018~~2019 compared to an operating loss of ~~$3.3~~$8.7 million in the ~~second~~first quarter of ~~2017.~~2018. LTL revenues decreased $4.8 million and purchased transportation costs decreased $4.5 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 $0.5 million while other operating expenses increased $0.7 million. The increase in LTL other operating expenses was primarily due to higher IT costs of $0.5 million.

~~Ascent Global Logistics~~

~~Operating results in our Ascent segment improved as operating income increased to $7.3 million in the~~ ~~second~~ ~~quarter of 2018 compared to $7.2 million in the~~ ~~second~~ ~~quarter of 2017. Operating results in the~~ ~~second~~ quarter of 2017 included $2.0 million of operating income from Unitrans which was sold in the third quarter of 2017. The improved operating results were driven by growth in retail consolidation business and our domestic freight management business, partially offset by decline in international

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~~freight forwarding. Ascent revenues decreased $3.5 million in the~~ ~~second~~ ~~quarter of 2018 when compared to the the~~ ~~second~~ quarter of 2017 due to the divestiture of Unitrans, which generated $23.1 million of revenue in the second quarter of 2017. Excluding Unitrans, Ascent revenues increased due to higher revenue from domestic freight management (truckload and LTL brokerage) and retail consolidation (growth from existing and new customers). Ascent personnel and related benefits decreased $3.2 million primarily due to the absence of Unitrans. Excluding the impact of Unitrans, personnel and related benefit increased $0.2 million. Other operating expenses increased $1.6 million primarily due to increased IT costs of $1.0 million and higher broker commissions of $0.5 million.

~~Other Operating Expenses~~

~~Other operating expenses that were not allocated to our TES, LTL, or Ascent segments decreased to $7.2 million in the~~ ~~second~~ ~~quarter of 2018 compared to $10.4 million in the~~ ~~second~~ quarter of 2017. 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 $3.9 million and $9.1 million in the ~~second~~ ~~quarter of 2018 and 2017, respectively. Also impacting other operating expenses were higher professional fees of $1.5 million related to the audit of our 2017 financial statements.~~

~~Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

~~Consolidated Results~~

Our consolidated revenues increased to $1,128.0 million in the first half of 2018 compared to $1,009.5 million in the first half 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 $48.3 million in the first half of 2017, revenue increased in the Ascent segment.

Our consolidated operating loss decreased to $24.8 million in the first half of 2018 compared to $25.4 million in the first half of 2017. Lower consolidated operating results in the first half of 2018 were attributable to lower operating results in our LTL and Ascent segments, partially offset by an increase in operating income within our TES segment and lower corporate expenses. Excluding the operating income from Unitrans of $4.5 million in the first half of 2017, our Ascent segment operating performance improved in the first half of 2018.

Our consolidated net loss was $65.6 million in the first half of 2018 compared to $57.8 million in the first half of 2017. In addition to the operating results within our segments and corporate, our net loss was also impacted by increased interest expense and a lower income tax benefit, partially offset by the absence of a loss from debt extinguishment of $9.8 million that occurred in the first half of 2017.

Interest expense increased to $43.8 million during the first half of 2018 from $34.9 million during the first half 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 $28.7 million due to the change in the fair value of the preferred stock, partially offset by $15.1 million of lower interest expense from preferred stock issuance costs.

Income tax benefit was $3.0 million during the first half of 2018 compared to income tax benefit of $12.3 million during the first half of 2017. The effective tax rate was 4.3% during first half of 2018 and 17.5% during the first half 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 as well as the impact of items causing permanent differences. Significant permanent differences include non-deductible interest expense associated with the preferred stock that was issued and sold on May 2, 2017.

~~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 $3.7 million in the first half of 2018 compared to $1.7 million in the first half of 2017. TES revenues increased $135.8 million while purchased transportation costs increased $116.8 million. TES revenues increased due primarily to increased ground and air expedited freight and related brokerage coupled with a strong demand environment which drove higher volumes and rates across most of the segment. Purchased transportation costs and yield 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 half 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. TES personnel and related benefits increased $2.9 million due primarily to higher driver wages, while other operating expenses increased $14.1 million. The increase in TES operating expenses was primarily due to the previously mentioned operating restructuring costs of $4.7 million. Also

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~~impacting TES other operating expenses were increased equipment lease and maintenance costs of $6.0 million and higher IT costs of $2.8 million.~~

~~Less-than-Truckload~~

Operating results in our LTL segment declined to an operating loss of $12.4 million in the first half of 2018 compared to an operating loss of $6.0 million in the first half of 2017. LTL revenues decreased $0.5$10.3 million due to a decrease in shipping volumes and 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.~~lanes. Purchased transportation ~~costs increased $1.6~~decreased $10.4 million ~~which were~~ driven by ~~market conditions resulting in rate increases from purchase~~lower pickup and delivery costs as well as lower purchased power ~~providers~~ and ~~higher spot prices paid to brokers~~improved planning and efficiency which ~~negatively~~positively impacted linehaul expense. LTL personnel and related benefits ~~increased $0.8~~decreased $0.6 million while other operating expenses ~~increased $3.7~~decreased $1.9 million. The ~~increase~~decrease in LTL other operating expenses was primarily due to ~~increased equipment lease costs of $1.4 million, higher facility-related costs of $0.9 million, and increased bad debt expense of $0.7 million.~~our focus on overall cost management.

Ascent Global Logistics

Operating results in our Ascent segment were lower as operating income was ~~$14.0~~$5.4 million in the first ~~half~~ quarter of ~~2018~~2019 compared to ~~$14.9~~$6.7 million in the first ~~half of 2017. Operating results in the first half of 2017 included $4.5 million of operating income from Unitrans which was sold in the third~~ quarter of ~~2017. Excluding Unitrans, improved operating results were driven by growth~~2018. Ascent revenues decreased $3.3 million and purchased transportation decreased $3.0 million primarily attributable to lower volumes in ~~our retail consolidation business and~~ our domestic freight management business, partially offset by ~~a decline~~improvements in our international freight forwarding. Ascent revenues decreased $14.0 million in the first half of 2018 compared to the first half of 2017 due to the divestiture of Unitrans, which generated $48.3 million of revenue in the first half of 2017. Excluding Unitrans, Ascent revenues increased due to higher revenue from domestic freight management (truckloadforwarding (expanded volumes at new and ~~LTL brokerage)~~existing customers) and our retail consolidation business (growth from ~~existing~~new and ~~new~~existing customers). Ascent personnel and related benefits increased $1.6 million and other operating expenses decreased ~~$6.4~~$1.0 million primarily due to the absence of Unitrans in the first half of 2018. Excluding the impact of Unitrans, personnel and related benefit increased $0.2 million. Other operating expenses increased $3.4 million primarily due to increased IT costs of $2.1 million and higher broker commissions of $1.3 million.lower cargo claims expense.

Other Operating Expenses

Other operating expenses that were not allocated to our TES, LTL, or Ascent segments decreased to ~~$16.0~~$6.6 million in the first ~~half~~ quarter of ~~2018~~2019 compared to ~~$26.9~~$8.7 million in the first ~~half~~ quarter of ~~2017~~2018 primarily due to lower ~~legal settlements of $5.2 million. 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

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compliance, and restructuring of ~~$10.8~~$3.4 million and ~~$16.8~~$6.9 million in the first ~~half~~ quarter of 2019 and 2018, ~~and 2017,~~ respectively. Also contributing to the decrease was higher rental income from equipment leased to ICs, partially offset by higher professional fees.

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 ~~June 30, 2018,~~March 31, 2019, we had $~~35.6~~4.6 million in cash and cash equivalents.

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 common stock at the subscription price of $12.50 per share. An aggregate of 7,107,049 shares of our 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. In addition, Elliott purchased an aggregate of 28,892,951 additional shares pursuant to the commitment from Elliott to purchase all unsubscribed shares of our common stock in the rights offering pursuant to the Standby Purchase Agreement that we entered into with Elliott dated November 8, 2018, as amended. Overall, Elliott purchased a total of 33,745,308 shares of our 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 our 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 ~~issued warrants for an aggregate purchase price of $540.5 million. The proceeds from the sale of the preferred stock~~to pay related accrued and unpaid dividends. Proceeds were also used to pay ~~off~~fees and ~~terminate our prior senior credit facility~~expenses in connection with the rights offering and backstop commitment. The Company retained in excess of $30 million of funds to ~~provide working capital to support our current operations and future growth.~~

On March 1, 2018, we entered into the Series E-1 Investment Agreement with Elliott, pursuant to which we agreed to issue and sell to Elliott 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 sharebe used 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.

On April 24, 2018, the parties held a closing pursuant to the Series E-1 Investment Agreement, pursuant to which we issued and sold to Elliott 18,228 shares of Series E-1 Preferred Stock for an aggregate purchase price of approximately $17.5 million.general corporate purposes. The ~~proceeds~~purpose of the ~~sale of such shares of Series E-1 Preferred Stock were used~~rights offering was to ~~provide working~~improve and simplify our capital structure in a manner that gave the Company's existing stockholders the opportunity to ~~support our current operations and future growth and to repay~~participate on a ~~portion of the indebtedness under the ABL Facility as required by the credit agreement governing that facility.~~pro rata basis.

On August 3, 2018, in order to provide continued support to our operating needs, we entered into the Series E-1 Amendment with Elliot, 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.

~~Certain terms of the outstanding~~The preferred stock ~~are~~was mandatorily redeemable and, as ~~follows:~~

~~Redemption rights are at our option or, upon~~such, was presented as a ~~change in control, at~~liability 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 ~~have~~had the option to pay the accrued dividends in cash or to defer them. Deferred dividends ~~accrue~~earned dividend ~~expense~~income 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 $6.1 million during the three months ended March 31, 2018, which was reflected in interest expense - preferred stock.

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Certain Terms of the Preferred Stock as of December 31, 2018



	Series B	Series C	Series D	Series E	Series E-1
Shares at $0.01 Par Value at Issuance	155,000	55,000	100	90,000	35,728
Shares Outstanding at December 31, 2018	155,000	55,000	100	37,500	35,728
Price / Share	$1,000	$1,000	$1.00	$1,000	$1,000/$960
Dividend Rate	Adjusted 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, 2018	17.780%	17.780%	N/A	16.030%	16.030%
Redemption Term	8 Years	8 Years	8 Years	6 Years	6 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%

Credit Facilities

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 Agreement), (ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL Credit Agreement), and (iii) $30.0 million may be used for letters of credit. The ABL Credit Agreement 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 of~~repay our ~~previously issued Series F Preferred Stock.~~Prior ABL Facility. The ABL Credit Facility matures on ~~July 21, 2022.~~February 28, 2024.

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 Agreement), (ii) approximately $2.5 million of Tranche A FILO Term Loans (as defined in the Term Loan Credit Agreement), (iii) approximately $8.3 million of Tranche B Term Loans (as defined in the Term Loan Credit Agreement), 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.

The Prior ABL Facility ~~consists~~consisted 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;

$56.8 million term loan facility; and

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$35.0 million asset-based facility available to finance future capital expenditures, which was subsequently terminated before utilized.

~~We initially borrowed $141.7 million under~~As previously mentioned, the ~~revolving line of credit and $56.8 million under the term loan facility. Availability under the~~Prior ABL Facility was ~~$21.6 million million as of June 30, 2018.~~paid off with the proceeds from the ABL Credit Facility and the Term Loan Credit Facility.

See Note 3,4, Debt, and Note 4,5, Preferred Stock, to our condensed consolidated financial statements in this Form 10-Q for additional information regarding the ABL ~~Facility~~and Term Loan Credit Facilities and preferred stock, respectively. We do not believe that the limitations imposed

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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.

Trading of the Company's common stock on the New York Stock Exchange

On October 4, 2018 we received a notice from the 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 intended 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 timely submitted our plan, which was subsequently accepted by the NYSE. 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. As a result of the completion of the rights offering, we believe we have taken the necessary steps to regain compliance with this listing standard, however, we 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 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. The NYSE notification did 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, indicted 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):


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2018			2017			2019			2018
Net cash (used in) provided by:
Operating activities	$	(906	)	(39,357		)	$	(13,922	)	$	(10,198	)
Investing activities	(10,464		)	(5,308		)	(7,785		)	(5,662		)
Financing activities	21,306			44,818			15,140			10,927
Net change in cash and cash equivalents	$	9,936		$	153		$	(6,567	)	$	(4,933	)

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 ~~$65.6~~$27.0 million of net loss and the ~~$0.9~~$13.9 million of cash used in operating activities during the ~~six~~three months ended ~~June 30,~~March 31, 2019 was primarily attributable to $15.8 million of depreciation and amortization expense, a loss on debt restructuring of $2.3 million and $1.6 million of share-based compensation expense with the remainder attributable to changes in working capital.

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The difference between our $23.6 million of net loss and the $10.2 million of cash used in operating activities during the three months ended March 31, 2018 was primarily attributable to $9.3 million of depreciation and amortization expense and the change in the value of our preferred stock of ~~$37.7~~$6.1 million ~~and $18.6 million of depreciation and amortization expense,~~ with the remainder attributable to changes in working capital.

Cash Flows from Investing Activities

Cash used in investing activities was $~~10.5~~7.8 million during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, which was attributable to $~~11.4~~8.6 million of capital expenditures used to support our operations, partially offset by the proceeds from the sale of equipment of ~~$0.9~~$0.8 million. We expect to use approximately $20 million of cash in 2019 to fund expected total capital expenditures 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.

Cash used in investing activities was $5.7 million during the three months ended March 31, 2018, which was attributable to $5.7 million of capital expenditures used to support our operations.

Cash Flows from Financing Activities

Cash provided by financing activities was $~~21.3~~15.1 million during the ~~six~~three months ended ~~June 30,~~March 31, 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, a reduction in borrowings of $8.8 million, payments on insurance premium financing of $6.0 million, and payments on finance lease obligations of $4.0 million.

Cash provided by financing activities was $10.9 million during the three months ended March 31, 2018, which primarily reflects the issuance of Series E-1 ~~Preferred Stock~~preferred stock of ~~$35.0~~$17.5 million, partially offset by a reduction in borrowings of ~~$11.8~~$5.4 million.

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, ~~2017~~2018 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses. In accordance with the adoption of the new accounting ~~standards Revenue from Contracts with Customers~~standard for Leases (Topic ~~606)~~842), we have revised our accounting policy for ~~revenue recognition~~leases as follows:

~~Revenue Recognition (effective January 1, 2018)~~Leases

~~Our revenues~~We determine whether a contract qualifies as a 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 freight~~valued 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 12, Segment Reporting, to our condensed consolidated financial statements.~~

~~Performance Obligations - A performance obligation is created once a customer agreement~~do not recognize leases with an ~~agreed upon transaction price exists. The terms and conditions~~original lease term 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~~12 months 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 revenue over the requisite transit period as the customer’s goods move from origin to destination. We determine 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. We have determined that revenue recognition over the transit period provides a reasonable estimate of the transfer 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 carriers in the performance of some transportation services. We evaluate whether our 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. Our evaluation determined that we are 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 ~~our evaluation of the control model, we determined that all of our major~~

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~~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 - We apply the practical expedient in Topic 606 that permits us to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the period as our contracts have an expected length of one year or less. We also apply 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 purchased transportation costs in 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.



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 $5.2 million. We do not use derivative financial instruments for speculative trading purposes and are not engaged in any interest rate swap agreements.Not applicable.

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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 ~~June 30, 2018,~~March 31, 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, ~~2017~~2018 were still present as of ~~June 30, 2018~~March 31, 2019 (“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 ~~June 30, 2018~~March 31, 2019 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 ~~June 30, 2018~~March 31, 2019 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, ~~2017~~2018 are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. ~~Remediation of the identified material weaknesses~~This 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 ~~certain~~the new and existing controls in ~~connection with our annual evaluation of the effectiveness of internal control over financial reporting; however, the~~future 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, ~~2017~~2018 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.

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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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had reserves for estimated uninsured losses of ~~$29.6~~$28.0 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 ~~Complaint~~complaint against certain of our subsidiaries in state court in California in a post-acquisition ~~dispute (the “Central Cal Matter”).~~dispute. The ~~Complaint~~complaint alleges contract, statutory and ~~tort based~~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 ~~are~~ranging from approximately $0.3 million to $1.0 million. Accordingly, we have recorded a contingent purchase obligation liability of $1.8 million in accrued expenses and other current liabilities. We intend to pursue indemnification and other claims as it relates to the ~~process of submitting the dispute to a Settlement Accountant.~~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 received a second letter dated 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.~~Warren, which was rejected. Mediation is set for June 17, 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 three months ended March 31, 2019. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we ~~recorded~~have a ~~reserve~~liability for settlements, litigation, and defense costs related to these labor matters, the Central Cal Matter and the Warren Matter of ~~$13.9~~$1.6 million and ~~$13.2~~$10.8 million, respectively, which are ~~included~~recorded 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 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

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Following our press release on January 30, 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 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 ~~its~~our 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 motions~~parties entered into a binding term sheet agreeing to ~~dismiss.~~settle the action for $20 million, $17.9 million of which will be funded by our D&O carriers ($4.8 million of which is 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 ~~currently engaged~~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 ~~mediation.~~

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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 ~~Complaint~~complaint 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 ~~Complaint~~complaint 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 an anticipated motion~~the District Court’s approval of the proposed settlement of the Federal Derivative Action, following which the defendants would move to dismiss this action as moot. While the ~~Amended Complaint filed in~~case was stayed, the ~~securities class action described above. The parties are currently engaged in mediation.~~plaintiff obtained permission to file an amended complaint adding claims against two former Company employees: Bret Naggs and Mark Wogsland.

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 ~~Complaint~~complaint 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. Stockholder~~Kent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative ~~Litigation (Case No. 17-cv-00893)~~Action”). On March 28, 2018, ~~Plaintiffs~~plaintiffs 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 ~~Defendants~~defendants 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 ~~Defendants~~defendants breached their fiduciary duty. Count III alleges that all the ~~Defendants~~defendants wasted corporate assets. Count IV alleges that certain of the ~~Defendants~~defendants were unjustly enriched. The ~~Complaint~~complaint seeks monetary damages, improvements to our corporate governance and internal procedures, an accounting from ~~Defendants~~defendants of the damages allegedly caused by them and the improper amounts the Defendants allegedly obtained, and punitive damages. The parties are currently ~~engaged~~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 ~~mediation.~~the third quarter of 2018 that a liability is probable and 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 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 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

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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.

~~Given~~ Even 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, the ~~matters above, we are~~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, ~~2017~~2018 and our 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.

There 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.

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ITEM 6.	EXHIBITS



Exhibit Number		Exhibit

3.1		Amended and Restated Certificate of Incorporation of Roadrunner Transportation Systems, Inc., as amended (1)

4.4		Amended and Restated Registration Rights Agreement, dated as of February 26, 2019, by and among Roadrunner Transportation Systems, Inc., Elliott Associates, L.P., Elliott International, L.P., Brockdale Investments LP, Thayer Equity Investors V, L.P., TC Roadrunner-Dawes Holdings, L.L.C., TC Sargent Holdings, L.L.C., HCI Equity Partners III, L.P., and HCI Co-Investors III, L.P. (2)

10.33(G)		Seventh Amendment to Credit Agreement, dated January 9, 2019, among Roadrunner Transportation Systems, Inc., BMO Harris Bank N.A., the Lenders (as defined therein) and the other parties thereto. (3)

10.33 (H)		Eighth Amendment to Credit Agreement, dated January 11, 2019, among Roadrunner Transportation Systems, Inc., BMO Harris Bank N.A., the Lenders (as defined therein) and the other parties thereto. (3)

10.35 (D)		Amendment No. 4 to Investment Agreement, dated as of January 9, 2019, by and among Roadrunner Transportation Systems, Inc., Elliott Associates, L.P., and Brockdale Investments LP. (3)

10.48 (A)		Standby Purchase Agreement Amendment, dated as of January 10, 2019, by and among Roadrunner Transportation Systems, Inc., Elliott Associates, L.P., and Elliott International, L.P. (3)

10.50 *		2018 Incentive Compensation Plan (4)

10.51		Stockholders' Agreement dated as of February 26, 2019, by and among Roadrunner Transportation Systems, Inc., Elliott Associates, L.P., and Elliott International, L.P. (2)

10.52		Credit Agreement, entered into as of February 28, 2019, among Roadrunner Transportation Systems, Inc., the Lenders (as defined therein), BMO Harris Bank N.A., and the other parties thereto. (2)

10.53		Credit Agreement, entered into as of February 28, 2019, among Roadrunner Transportation Systems, Inc., the Lenders (as defined therein), BMO Harris Bank N.A., and the other parties thereto. (2)

10.54*+		Form of Stock Option Agreement

10.55*+		Form of Restricted Stock Unit Agreement

10.56*+		Form of Performance Restricted Stock Unit Agreement

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

31.2		Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

32.1		Section 1350 Certification of Principal Executive Officer

32.2		Section 1350 Certification of Principal Financial Officer

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’s Current Report on Form 8-K filed with the SEC on January 9, 2019.

(2) Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on March 4, 2019.

(3) Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on January 11, 2019.

(4) Incorporated by reference to the registrant’s Annual Report on Form 10-K filed with the SEC on March 11, 2019.

* Indicates management contract or compensation plan or agreement

+ Filed herewith

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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: ~~August 7, 2018~~May 6, 2019	By:	/s/ Terence R. Rogers
		Terence R. Rogers
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements (Unaudited)	1
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations	2
Condensed Consolidated Statements of Stockholders' Investment (Deficit)	3
Condensed Consolidated Statements of Cash Flows	34
Notes to Unaudited Condensed Consolidated Financial Statements	46
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1726
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2835
Item 4. Controls and Procedures	2936

PART II. OTHER INFORMATION	3037
Item 1. Legal Proceedings	3037
Item 1A. Risk Factors	3139
Item 6. Exhibits	3240

Signatures	3341



(In thousands, except for %’s)	Three Months Ended June 30, 2018
	TES			%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	300,037		53.8	%	$	117,164		21.0	%	$	144,630	25.9	%	$	(3,805	)	$	558,026
Operating expenses:
Purchased transportation costs	194,702			64.9	%	82,318			70.3	%	106,861		73.9	%	(3,809		)	380,072
Personnel and related benefits	39,794			13.3	%	17,428			14.9	%	12,465		8.6	%	6,151			75,838
Other operating expenses ⁽¹⁾	60,050			20.0	%	20,261			17.3	%	16,822		11.6	%	7,234			104,367
Depreciation and amortization	6,241			2.1	%	900			0.8	%	1,168		0.8	%	815			9,124
Total operating expenses	300,787			100.2	%	120,907			103.2	%	137,316		94.9	%	10,391			569,401
Operating income (loss)	(750		)	(0.2	)%	(3,743		)	(3.2	)%	7,314		5.1	%	(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	)



(In thousands, except for %’s)	Three Months Ended June 30, 2017
	TES		%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	262,797	49.5	%	$	121,968		23.0	%	$	148,088	27.9	%	$	(2,274	)	$	530,579
Operating expenses:
Purchased transportation costs	165,544		63.0	%	86,792			71.2	%	108,370		73.2	%	(2,274		)	358,432
Personnel and related benefits	38,029		14.5	%	17,922			14.7	%	15,635		10.6	%	4,086			75,672
Other operating expenses	49,571		18.9	%	19,565			16.0	%	15,235		10.3	%	10,387			94,758
Depreciation and amortization	6,197		2.4	%	953			0.8	%	1,631		1.1	%	429			9,210
Total operating expenses	259,341		98.7	%	125,232			102.7	%	140,871		95.1	%	12,628			538,072
Operating income (loss)	3,456		1.3	%	(3,264		)	(2.7	)%	7,217		4.9	%	(14,902		)	(7,493		)
Total interest expense																	28,355
Loss from debt extinguishment																	9,827
Loss before income taxes																	(45,675		)
Benefit from income taxes																	(7,812		)
Net loss																	$	(37,863	)



(In thousands, except for %’s)	Six Months Ended June 30, 2018
	TES		%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	626,104	55.5	%	$	230,289		20.4	%	$	279,573	24.8	%	$	(7,956	)	$	1,128,010
Operating expenses:
Purchased transportation costs	419,303		67.0	%	164,315			71.4	%	205,374		73.5	%	(7,957		)	781,035
Personnel and related benefits	78,962		12.6	%	35,563			15.4	%	24,606		8.8	%	12,594			151,725
Other operating expenses⁽¹⁾	111,652		17.8	%	41,025			17.8	%	33,216		11.9	%	15,973			201,866
Depreciation and amortization	12,537		2.0	%	1,813			0.8	%	2,356		0.8	%	1,483			18,189
Total operating expenses	622,454		99.4	%	242,716			105.4	%	265,552		95.0	%	22,093			1,152,815
Operating income (loss)	3,650		0.6	%	(12,427		)	(5.4	)%	14,021		5.0	%	(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	)



(In thousands, except for %’s)	Six Months Ended June 30, 2017
	TES		%		LTL			%		Ascent		%		Corporate/ Eliminations			Total
Revenues	$	490,284	48.6	%	$	230,744		22.9	%	$	293,560	29.1	%	$	(5,089	)	$	1,009,499
Operating expenses:
Purchased transportation costs	302,478		61.7	%	162,711			70.5	%	214,595		73.1	%	(5,067		)	674,717
Personnel and related benefits	76,084		15.5	%	34,737			15.1	%	31,009		10.6	%	8,252			150,082
Other operating expenses	97,514		19.9	%	37,367			16.2	%	29,817		10.2	%	26,890			191,588
Depreciation and amortization	12,473		2.5	%	1,914			0.8	%	3,287		1.1	%	841			18,515
Total operating expenses	488,549		99.6	%	236,729			102.6	%	278,708		94.9	%	30,916			1,034,902
Operating income (loss)	1,735		0.4	%	(5,985		)	(2.6	)%	14,852		5.1	%	(36,005		)	(25,403		)
Total interest expense																	34,880
Loss on debt extinguishment																	9,827
Loss before income taxes																	(70,110		)
Benefit from income taxes																	(12,304		)
Net loss																	$	(57,806	)

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