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 ~~March 31,~~June 30, 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)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	RRTS	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 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 ~~May~~August 1, 2019, there were outstanding ~~37,568,738~~37,637,122 shares of the registrant’s Common Stock, par value $.01 per share.

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~MARCH 31,~~JUNE 30, 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)	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	4,612		$	11,179		$	4,896		$	11,179
Accounts receivable, net of allowances of $8,522 and $9,980, respectively	273,634			274,843
Accounts receivable, net of allowances of $8,260 and $9,980, respectively							243,457			274,843
Income tax receivable	3,180			3,910			2,366			3,910
Prepaid expenses and other current assets	56,612			61,106			50,103			61,106
Total current assets	338,038			351,038			300,822			351,038
Property and equipment, net of accumulated depreciation of $143,271 and $130,077, respectively	209,652			188,706
Property and equipment, net of accumulated depreciation of $153,335 and $130,077, respectively							212,945			188,706
Other assets:
Operating lease right-of-use asset	122,701			—			114,523			—
Goodwill	264,826			264,826			171,900			264,826
Intangible assets, net	40,779			42,526			37,144			42,526
Other noncurrent assets	6,283			6,361			5,987			6,361
Total other assets	434,589			313,713			329,554			313,713
Total assets	$	982,279		$	853,457		$	843,321		$	853,457
LIABILITIES AND STOCKHOLDERS’ INVESTMENT (DEFICIT)
Current liabilities:
Current maturities of debt	$	8,812		$	13,171		$	2,566		$	13,171
Current maturities of indebtedness to related party							9,133			—
Current finance lease liability	17,658			13,229			21,799			13,229
Current operating lease liability	36,797			—			35,373			—
Accounts payable	147,765			160,242			132,549			160,242
Accrued expenses and other current liabilities	105,672			110,943			89,889			110,943
Total current liabilities	316,704			297,585			291,309			297,585
Deferred tax liabilities	3,938			3,953			3,225			3,953
Other long-term liabilities	3,228			7,857			3,339			7,857
Long-term finance lease liability	56,334			37,737			72,150			37,737
Long-term operating lease liability	90,767			—			85,223			—
Long-term debt, net of current maturities	150,856			155,596			134,830			155,596
Long-term indebtedness to related party							31,848			—
Preferred stock	—			402,884			—			402,884
Total liabilities	621,827			905,612			621,924			905,612
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
Common stock $.01 par value; 44,000 and 4,200 shares authorized, respectively; 37,637 and 1,556 shares issued and outstanding, respectively							376			16
Additional paid-in capital	844,489			405,243			847,383			405,243
Retained deficit	(484,413		)	(457,414		)	(626,362		)	(457,414		)
Total stockholders’ investment (deficit)	360,452			(52,155		)	221,397			(52,155		)
Total liabilities and stockholders’ investment (deficit)	$	982,279		$	853,457		$	843,321		$	853,457

See accompanying notes to unaudited condensed consolidated financial statements.

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ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(In thousands, except per share amounts)	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2019			2018			2019			2018			2019			2018
Revenues	$	507,148		$	569,984		$	480,688		$	558,026		$	987,836		$	1,128,010
Operating expenses:
Purchased transportation costs	342,775			400,963			317,785			380,072			660,560			781,035
Personnel and related benefits	79,215			75,887			81,686			75,838			160,901			151,725
Other operating expenses	89,614			97,499			95,939			99,712			185,553			197,211
Depreciation and amortization	15,542			9,065			14,788			9,124			30,330			18,189
Operations restructuring costs							—			4,655			—			4,655
Impairment charges	778			—			108,331			—			109,109			—
Total operating expenses	527,924			583,414			618,529			569,401			1,146,453			1,152,815
Operating loss	(20,776		)	(13,430		)	(137,841		)	(11,375		)	(158,617		)	(24,805		)
Interest expense:
Interest expense - preferred stock	—			7,115			—			31,609			—			38,724
Interest expense - debt	3,882			2,428			4,632			2,623			8,514			5,051
Total interest expense	3,882			9,543			4,632			34,232			8,514			43,775
Loss on debt restructuring	2,270			—			—			—			2,270			—
Loss before income taxes	(26,928		)	(22,973		)	(142,473		)	(45,607		)	(169,401		)	(68,580		)
Provision for income taxes	71			670
Benefit from income taxes							(524		)	(3,652		)	(453		)	(2,982		)
Net loss	$	(26,999	)	$	(23,643	)	$	(141,949	)	$	(41,955	)	$	(168,948	)	$	(65,598	)
Loss per share:
Basic	$	(1.78	)	$	(15.37	)	$	(3.77	)	$	(27.24	)	$	(6.39	)	$	(42.62	)
Diluted	$	(1.78	)	$	(15.37	)	$	(3.77	)	$	(27.24	)	$	(6.39	)	$	(42.62	)
Weighted average common stock outstanding:
Basic	15,158			1,538			37,603			1,540			26,442			1,539
Diluted	15,158			1,538			37,603			1,540			26,442			1,539

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENT (DEFICIT)

(Unaudited)


	Common Stock												Common Stock
(In thousands, except shares)	Shares	Amount		Additional Paid-In Capital			Retained Deficit			Total Stockholders' Investment (Deficit)			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	)	1,555,868	$	16	$	405,243		$	(457,414	)	$	(52,155	)
Issuance of restricted stock units, net of taxes paid	5,664	—		(8		)	—			(8		)	5,664	—		(8		)	—			(8		)
Issuance of common stock	36,000,000	360		449,640			—			450,000			36,000,000	360		449,640			—			450,000
Common stock issuance costs	—	—		(11,985		)	—			(11,985		)	—	—		(11,985		)	—			(11,985		)
Share-based compensation	—	—		1,599			—			1,599			—	—		1,599			—			1,599
Net loss	—	—		—			(26,999		)	(26,999		)	—	—		—			(26,999		)	(26,999		)
BALANCE, March 31, 2019	37,561,532	$	376	$	844,489		$	(484,413	)	$	360,452		37,561,532	$	376	$	844,489		$	(484,413	)	$	360,452
Issuance of restricted stock units, net of taxes paid													75,590	—		(175		)	—			(175		)
Share-based compensation													—	—		3,069			—			3,069
Net loss													—	—		—			(141,949		)	(141,949		)
BALANCE, June 30, 2019													37,637,122	$	376	$	847,383		$	(626,362	)	$	221,397


	Common Stock												Common Stock
(In thousands, except shares)	Shares	Amount		Additional Paid-In Capital			Retained Deficit			Total Stockholders' Investment (Deficit)			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		1,536,925	$	15	$	403,535		$	(292,703	)	$	110,847
Issuance of restricted stock units, net of taxes paid	3,272	—		(75		)	—			(75		)	3,272	—		(75		)	—			(75		)
Share-based compensation	—	—		523			—			523			—	—		523			—			523
Cumulative effect of change in accounting principle	—	—		—			886			886			—	—		—			886			886
Net loss	—	—		—			(23,643		)	(23,643		)	—	—		—			(23,643		)	(23,643		)
BALANCE, March 31, 2018	1,540,197	$	15	$	403,983		$	(315,460	)	$	88,538		1,540,197	$	15	$	403,983		$	(315,460	)	$	88,538
Issuance of restricted stock units, net of taxes paid													93	—		(1		)	—			(1		)
Share-based compensation													—	—		372			—			372
Net loss													—	—		—			(41,955		)	(41,955		)
BALANCE, June 30, 2018													1,540,290	$	15	$	404,354		$	(357,415	)	$	46,954

See accompanying notes to unaudited condensed consolidated financial statements.

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ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(In thousands)	Three Months Ended						Six Months Ended
	March 31,						June 30,
	2019			2018			2019			2018
Cash flows from operating activities:
Net loss	$	(26,999	)	$	(23,643	)	$	(168,948	)	$	(65,598	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	15,756			9,262			30,720			18,552
Change in fair value of preferred stock	—			6,057			—			37,663
Amortization of preferred stock issuance costs	—			1,058			—			1,061
Loss on disposal of property and equipment	37			135			355			1,972
Share-based compensation	1,599			523			4,668			895
Loss on debt restructuring	2,270			—			2,270			—
(Recovery of) provision for bad debts	(19		)	1,459
Deferred tax (benefit) provision	(15		)	568
Provision for bad debts							491			2,030
Deferred tax benefit							(729		)	(3,544		)
Impairment charges	778			—			109,109			—
Changes in:
Accounts receivable	1,228			(15,269		)	30,895			27,156
Income tax receivable	730			653			1,544			911
Prepaid expenses and other assets	12,879			(2,817		)	30,676			6,900
Accounts payable	(12,811		)	9,642			(29,879		)	(23,852		)
Accrued expenses and other liabilities	(9,355		)	2,174			(30,718		)	(5,052		)
Net cash used in operating activities	(13,922		)	(10,198		)	(19,546		)	(906		)
Cash flows from investing activities:
Capital expenditures	(8,553		)	(5,699		)	(13,043		)	(11,391		)
Proceeds from sale of property and equipment	768			37			1,882			927
Net cash used in investing activities	(7,785		)	(5,662		)	(11,161		)	(10,464		)
Cash flows from financing activities:
Borrowings under revolving credit facilities	504,478			—			523,478			—
Payments under revolving credit facilities	(526,643		)	—			(526,643		)	—
Term debt borrowings	52,218			557			52,592			557
Term debt payments	(38,878		)	(5,427		)	(39,714		)	(11,846		)
Debt issuance costs	(2,005		)	—			(2,005		)	—
Payments of debt restructuring costs	(693		)	—
Payments of debt extinguishment costs							(693		)	—
Proceeds from issuance of common stock	450,000			—			450,000			—
Common stock issuance costs	(10,514		)	—			(10,514		)	—
Proceeds from issuance of preferred stock	—			17,500			—			34,999
Preferred stock issuance costs	—			(1,058		)	—			(1,061		)
Preferred stock payments	(402,884		)	—			(402,884		)	—
Issuance of restricted stock units, net of taxes paid	(8		)	(75		)	(183		)	(76		)
Payments on insurance premium financing	(5,951		)	—			(9,957		)	—
Payments of finance lease obligation	(3,980		)	(570		)
Payment of capital lease obligation							(9,053		)	(1,267		)
Net cash provided by financing activities	15,140			10,927			24,424			21,306
Net decrease in cash and cash equivalents	(6,567		)	(4,933		)
Net (decrease) increase in cash and cash equivalents							(6,283		)	9,936
Cash and cash equivalents:
Beginning of period	11,179			25,702			11,179			25,702
End of period	$	4,612		$	20,769		$	4,896		$	35,638

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ROADRUNNER TRANSPORTATION SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


	Three Months Ended						Six Months Ended
(In thousands)	March 31,						June 30,
	2019			2018			2019			2018
Supplemental cash flow information:
Cash paid for interest	$	3,567		$	2,154		$	8,125		$	4,966
Cash refunds from income taxes, net	$	(698	)	$	(562	)
Cash (refunds from) paid for income taxes, net							$	(787	)	$	144
Non-cash finance leases and other obligations to acquire assets	$	27,428		$	276		$	52,456		$	10,451
Capital expenditures, not yet paid	$	962		$	—		$	2,814		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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Roadrunner Transportation Systems, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization, Nature of Business and Significant Accounting Policies

Nature of Business

Roadrunner Transportation Systems, Inc. (the “Company”) is headquartered in Downers Grove, Illinois with operations primarily in the United States and iswas organized ininto the following ~~three segments: Truckload & Express Services (“TES”), Less-than-Truckload (“LTL”), and~~four segments effective April 1, 2019: Ascent Global Logistics (“Ascent”)~~. Within its TES segment, the Company provides the following services: air~~, Active On-Demand, Less-than-Truckload (“LTL”) and ground expedite, scheduled dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing, equipment and logistics operations. Within its LTL segment, the Company operates service centers, complemented by relationships with numerous pick-up and delivery agents.Truckload (“TL”). Within its Ascent segment, the Company provides third-party domestic freight management, international freight forwarding, customs brokerage and retail consolidation solutions. Within its Active On-Demand segment, the Company provides premium mission critical air and ground expedite and logistics operations. Within its LTL segment, the Company's services involve the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments. Within its TL segment, the Company provides the following services: scheduled and expedited dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing operations.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated in consolidation. In the Company's opinion, these unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim 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~~SEC on March 15, 2019. As a result, the Reverse Stock Split took effect on April 4, 2019 and the Company’s common stock began trading on a split-adjusted basis when the market opened on April 5, 2019.

Pursuant to the Reverse Stock Split, shares of the Company’s common stock were automatically consolidated at the rate of 1-for-25 without any further action on the part of the Company’s stockholders. All fractional shares owned by each stockholder were aggregated and to the extent after aggregating all fractional shares any stockholder was entitled to a fraction of a share, such stockholder became entitled to receive, in lieu of the issuance of such fractional share, a cash payment based on a pre-split cash rate of $0.4235, which is the volume weighted average trading price per share on the New York Stock Exchange (“NYSE”) for the five consecutive trading days immediately preceding April 4, 2019.

Following the Reverse Stock Split, the number of outstanding shares of the Company’s common stock was reduced by a factor of 25 to approximately 37,561,532. The number of authorized shares of common stock was also reduced by a factor of 25 to 44,000,000.

All references to numbers of common shares and per common share data in these condensed consolidated financial statements and related notes have been retroactively adjusted to account for the effect of the reverse stock split for all periods presented.

Change in Accounting Principle

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The Company elected to adopt Topic 842 using an optional alternative method of adoption, referred to as the “Comparatives Under ASC 840 ~~Approach”~~Approach,” which allows companies to apply the new requirements to only those leases that existed as of January 1, 2019. Under the Comparatives 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 transition date. See Note 3 for more information.

~~Use of Estimates~~

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Use of Estimates

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

Segment Reporting

The Company determines its segments based on the information utilized by the ~~chief operating decision maker,~~Chief Operating Decision Maker (“CODM”), the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has ~~three~~four segments: ~~TES,~~Ascent, Active On-Demand, LTL and ~~Ascent.~~TL. The Company changed its segment reporting effective April 1, 2019, when the CODM began assessing the performance of the Active On-Demand air and ground expedite business separately from its truckload businesses. Segment information for prior periods has been revised to align with the new segment structure.

Revenue Recognition

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~~four segments, ~~TES,~~Ascent, Active On-Demand, LTL and ~~Ascent,~~TL, as presented in Note 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. This performance 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 ASU No. 2015-14, Revenue from Contracts with Customers, (“Topic ~~606~~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.

The Company's performance obligation represents the 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,~~June 30, 2019 and December 31, 2018, the Company had ~~$13.7~~$15.1 million and $7.8 million of unbilled amounts recorded in accounts receivable, respectively, and ~~$9.0~~$10.3 million and $6.1 million of accrued freight costs recorded in accounts payable, respectively. Amounts recorded to revenue and purchased transportation costs are not material for the three and six months ended ~~March 31,~~June 30, 2019 and 2018.

Leases

The Company 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 operating leases, the Company records a lease liability 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

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term. The Company uses its collateralized incremental borrowing rate at the lease commencement date in determining the present value of the lease payments. Finance leases are included within property and equipment. The Company does not recognize leases with an original lease term of 12 months or less on the condensed consolidated balance sheets but will disclose the related lease expense for these short-term leases. The Company does not separate non-lease components from lease components, which results in all payments being allocated to the lease and factored into the measurement of the right-of-use asset and lease liability. The Company includes options to extend the lease when it is reasonably certain that the Company will exercise that option.

~~Table of Contents~~

Impairment Charges

The Company recorded a goodwill impairment charge of $92.9 million and an intangible asset impairment charge of $1.9 million for the three months ended June 30, 2019 within its TL segment. See Note 2 for more information.

In the fourth quarter of 2018, the Company recorded an asset impairment charge of $1.6 million related to tractors that were classified as "held for sale" within its TL segment. The fair value less cost to sell the long-lived assets is required to be assessed each reporting period it remains classified as held for sale. In the second quarter of 2019, the Company reassessed the carrying value of the remaining assets held for sale and recorded an additional asset impairment charge of $0.5 million.

The Company recorded an asset impairment charge of ~~$0.8~~$13.0 million at Corporate as a reduction to property, plant and equipment, net for the three months ended ~~March 31,~~June 30, 2019 related to software development that is being abandoned. The impairment costs are associated with the abandonment of current software development in favor of alternative customized software solutions. The Company also recorded an asset impairment charge of $0.8 million in the first quarter of 2019 related to software that is no longer useful following the integration of Ascent’s domestic freight management operations. Total asset impairment charges related to software was $13.8 million, which was recorded at Corporate as a reduction to property, plant and equipment, net for the six months ended June 30, 2019.

New Accounting Pronouncements

In August 2018, the Financial Accounting Standard Board (“FASB”) issued ASU 2018-15, Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is effective for the Company in 2020. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The Company does not expect the adoption of ASU 2018-15 to have a material impact on 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~~

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Prior to the change in segments, the Company ~~has~~had four reporting units for its three segments: one reporting unit for its ~~TES~~Truckload and Express Services (“TES”) segment; one reporting unit for its LTL segment; and two reporting units for its Ascent segment, which are the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit. The Company conducts its goodwill impairment analysis for each of its four reporting units as of July 1 of each year. ~~The~~

In connection with the change in segments, the Company conducted ~~its annual~~an impairment analysis as of April 1, 2019. Due to the inability of the TES businesses to meet forecast results, the Company determined the carrying value exceeded the fair value for the TES reporting unit. Accordingly, the Company recorded a goodwill impairment ~~analysis for each~~charge of ~~its four reporting units as~~$92.9 million, which represents a write off of ~~July 1, 2018 and determined~~all the TES goodwill. Given the fact that ~~the fair values~~all of the goodwill was impaired, there was no remaining TES goodwill to allocate to the TL and Active On-Demand segments. The fair value of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting ~~units~~unit exceeded their respective carrying values by ~~5.1%, 12.8%,~~3.1% and ~~112.2%~~109.0%, respectively; thus no impairment was indicated for these reporting units. The goodwill balances of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit as of June 30, 2019 were $98.5 million and $73.4 million, respectively. The LTL reporting unit had no remaining goodwill as of ~~July~~April 1, ~~2018.~~2019.

~~There were no changes~~The table below provides a sensitivity analysis for the Domestic and International Logistics and Warehousing & Consolidation reporting units, which shows the estimated fair value impacts related to ~~total goodwill during~~a 50-basis point increase or decrease in the ~~first quarter~~discount and long-term growth rates used in the valuation as of April 1, 2019.



	Approximate Percent Change in Estimated Fair Value
	+/- 50 bps Discount Rate	+/- 50bps Growth Rate

Domestic and International Logistics reporting unit	(2.5%) / 2.5%	1.5% / (1.8%)
Warehousing & Consolidation reporting unit	(2.2%) / 2.2%	1.6% / (1.9%)

The following is a breakdown of the Company's goodwill as of ~~March 31,~~June 30, 2019 ~~and December 31, 2018~~ by segment (in thousands):

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



			Active
	Ascent		On-Demand		LTL		TL			Total
Balance as of December 31, 2018	$	171,900	$	—	$	—	$	92,926		$	264,826
Goodwill impairment charges	—		—		—		(92,926		)	(92,926		)
Balance as of June 30, 2019	$	171,900	$	—	$	—	$	—		$	171,900

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

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



			Active
	Ascent		On-Demand		LTL		TL		Total
Balance as of December 31, 2018	$	46,763	$	—	$	197,312	$	132,408	$	376,483
Goodwill impairment charges	—		—		—		92,926		92,926
Balance as of June 30, 2019	$	46,763	$	—	$	197,312	$	225,334	$	469,409

Intangible assets ~~consist~~consisted primarily of customer relationships acquired from business acquisitions. Intangible assets as of ~~March 31,~~June 30, 2019 and December 31, 2018 were as follows (in thousands):


	March 31, 2019							December 31, 2018							June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
TES	$	55,008	$	(24,051	)	$	30,957	$	55,008	$	(22,959	)	$	32,049
Ascent															$	27,152	$	(18,474	)	$	8,678	$	27,152	$	(17,248	)	$	9,904
Active On-Demand															31,547		(12,424		)	19,123		31,547		(11,139		)	20,408
LTL	2,498		(1,967		)	531		2,498		(1,925		)	573		2,498		(2,008		)	490		2,498		(1,925		)	573
Ascent	27,152		(17,861		)	9,291		27,152		(17,248		)	9,904
TL															20,261		(11,408		)	8,853		23,461		(11,820		)	11,641
Total	$	84,658	$	(43,879	)	$	40,779	$	84,658	$	(42,132	)	$	42,526	$	81,458	$	(44,314	)	$	37,144	$	84,658	$	(42,132	)	$	42,526

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The customer relationships intangible assets are amortized over their estimated useful lives, ranging from five to 12 years. Amortization expense was $1.7 million and $1.8 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. Amortization expense was $3.4 million and $3.6 million for the six months ended June 30, 2019 and 2018, respectively. The Company evaluates its other intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and used may not be recoverable. Indicators of impairment were identified in connection with the declining operating performance of one of the Company's businesses within the TL segment and as a result, $1.9 million of non-cash impairment charges were recorded for the three months ended June 30, 2019.

Estimated amortization expense for each of the next five years based on intangible assets as of ~~March 31,~~June 30, 2019 is as follows (in thousands):


Remainder 2019	$	5,072	$	3,193
2020	6,447		6,180
2021	6,265		5,998
2022	5,826		5,560
2023	5,462		5,195
Thereafter	11,707		11,018
Total	$	40,779	$	37,144

3. Leases

The Company leases terminals, office space, trucks, trailers, and other equipment under noncancelable operating leases expiring on various dates through 2042. The Company also leases trucks, trailers, office space and other equipment under finance leases. Certain of our lease agreements for trucks, trailers and other equipment contain residual value guarantees.

Amounts recognized in the condensed consolidated balance sheets related to the Company's lease portfolio are as follows (in thousands):


	March 31, 2019		June 30, 2019
Assets:
Finance lease assets, net (included in property and equipment)	$	74,154	$	94,308
Operating lease right-of-use asset	122,701		114,523
Total lease assets	$	196,855	$	208,831
Liabilities:
Current finance lease liability	$	17,658	$	21,799
Current operating lease liability	36,797		35,373
Long-term finance lease liability	56,334		72,150
Long-term operating lease liability	90,767		85,223
Total lease liabilities	$	201,556	$	214,545

Amounts recognized in the condensed consolidated income statement related to the Company's lease portfolio for the three and six months ended ~~March 31,~~June 30, 2019 are as follows (in thousands):



		Three months ended		Six months ended
Lease component	Classification	June 30, 2019		June 30, 2019

Rent expense - operating leases	Other operating expenses	$	16,833	$	33,771
Amortization of finance lease assets	Depreciation expense	$	4,871	$	9,202
Interest on finance lease liabilities	Interest expense	$	1,430	$	2,630

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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~~$2.7 million and $5.2 million for the three and six months ended ~~March 31,~~June 30, 2019, respectively, related to operating leases the Company entered into with its independent contractors (“IC”), of which ~~$1.8~~$2.3 million ~~relates~~and $4.1 million related to sublease ~~income.~~income for the three and six months ended June 30, 2019, respectively. The Company records rental income from leases as a reduction to rent expense - operating leases.

Aggregate future minimum lease payments under noncancelable operating and finance leases with an initial term in excess of one year were as follows as of ~~March 31,~~June 30, 2019 (in thousands):


Year Ending:	Operating leases			Finance leases			Total			Operating leases			Finance leases			Total
Remainder of 2019	$	34,178		$	16,666		$	50,844		$	21,736		$	14,144		$	35,880
2020	35,278			20,606			55,884			34,676			26,916			61,592
2021	25,499			24,081			49,580			25,108			30,292			55,400
2022	21,220			9,421			30,641			20,831			15,307			36,138
2023	18,041			8,986			27,027			17,640			12,854			30,494
Thereafter	17,924			6,550			24,474			17,406			11,156			28,562
Total	$	152,140		$	86,310		$	238,450		$	137,397		$	110,669		$	248,066
Less: Interest	(24,576		)	(12,318		)	(36,894		)	(16,801		)	(16,720		)	(33,521		)
Present value of lease liabilities	$	127,564		$	73,992		$	201,556		$	120,596		$	93,949		$	214,545

Aggregate future minimum lease payments under noncancelable operating leases with an initial term in excess of one year were as follows as of December 31, 2018 (in thousands):



Year Ending:
2019	$	45,713
2020	34,920
2021	25,536
2022	21,413
2023	17,920
Thereafter	17,556
Total	$	163,058

The weighted average remaining lease term and discount rate used in computing the lease liability as of ~~March 31,~~June 30, 2019 ~~are~~were as follows:



Weighted average remaining lease term (in years)
Operating leases	4.5
Finance leases	~~3.6~~3.5

Weighted average discount rate
Operating leases	7.2	%
Finance leases	~~7.2~~7.4	%

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Supplemental cash flow information related to leases for the ~~three~~six months ended ~~March 31,~~June 30, 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



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	23,812
Operating cash flows for finance leases	2,630
Financing cash flows for finance leases	9,071

ROU assets added for operating leases:
Operating leases	$	4,776

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

4. Debt

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


	March 31, 2019			December 31, 2018
							June 30, 2019			December 31, 2018
ABL credit facility	$	112,367		$	—		$	131,367		$	—
Term loan credit facility	50,673			—			50,211			—
Prior ABL Facility:
Revolving credit facility	—			134,532			—			134,532
Term loans	—			37,333			—			37,333
Total debt	$	163,040		$	171,865		$	181,578		$	171,865
Less: Debt issuance costs and discount	(3,372		)	(3,098		)	(3,201		)	(3,098		)
Total debt, net of debt issuance costs and discount	159,668			168,767			178,377			168,767
Less: Current maturities	(8,812		)	(13,171		)	(11,699		)	(13,171		)
Total debt, net of current maturities	$	150,856		$	155,596		$	166,678		$	155,596

ABL Credit Facility

On February 28, 2019, the Company and its direct and indirect domestic subsidiaries entered into a credit agreement with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the Joint Lead Arrangers and Joint Book Runners party thereto (the “ABL Credit Facility”). The Company initially borrowed $141.4 million under the ABL Credit Facility. The ABL Credit Facility matures on February 28, 2024.

The ABL Credit Facility consists of a $200.0 million asset-based revolving line of credit, of which up to (i) $15.0 million may be used for ~~FILO~~First In, Last Out (“FILO”) Loans (as defined in the ABL Credit Facility), (ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL Credit Facility), and (iii) $30.0 million may be used for letters of credit. The ABL Credit Facility provides that the revolving line of credit may be increased by up to an additional $100.0 million under certain circumstances. The Company had ~~total~~adjusted excess availability under the ABL Credit Facility of ~~$64.5~~$34.4 million as of ~~March 31,~~June 30, 2019.

Advances under the Company’s ABL Credit Facility bear interest at either: (a) the LIBOR Rate (as defined in the ABL Credit Facility), plus an applicable margin ranging from 1.50% to 2.00% for the non-FILO Loans and 2.50% to 3.00% for the FILO Loans; or (b) the Base Rate (as defined in the ABL Credit Facility), plus an applicable margin ranging from 0.50% to 1.00% for the non-FILO Loans and 1.50% to 2.00% for the FILO Loans. The Company's average annualized interest rate for the ABL Credit Facility was ~~5.1%~~5.3% for the ~~three~~six months ended ~~March 31,~~June 30, 2019.

The obligations under the Company’s ABL Credit Facility are guaranteed by each of its domestic subsidiaries pursuant to a guaranty included in the ABL Credit Facility. As security for the Company’s and its subsidiaries’ obligations under the ABL Credit Facility, each of the Company and its domestic subsidiaries have granted: (i) a first priority lien on substantially all its domestic subsidiaries’ tangible and intangible personal property (other than the assets described in the following clause (ii)), including the capital stock of certain of the Company’s direct and indirect subsidiaries; and (ii) a second-priority lien on the Company’s and its domestic subsidiaries’ equipment (including, without limitation, rolling stock, aircraft, aircraft engines and aircraft parts) and

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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.

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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,~~June 30, 2019, the Company's excess availability had not fallen below the amount specified and therefore the minimum fixed charge coverage ratio financial covenant was not applicable.

Term Loan Credit Facility

On February 28, 2019, the Company and its direct and indirect domestic subsidiaries entered into a credit agreement with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott Associates, L.P. and Elliott International, L.P, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner (the “Term Loan Credit Facility”). The Company initially borrowed $51.1 million under the Term Loan Credit Facility. The Term Loan Credit Facility matures on February 28, 2024.

The Term Loan Credit Facility consists of an approximately $61.1 million term loan facility, consisting of

•approximately $40.3 million of Tranche A Term Loans (as defined in the Term Loan Credit Facility),

•approximately $2.5 million of Tranche A FILO Term Loans (as defined in the Term Loan Credit Facility),

•approximately $8.3 million of Tranche B Term Loans (as defined in the Term Loan Credit Facility), and

•a $10.0 million asset-based facility available to finance future capital expenditures.

Principal on each of the Tranche A Term Loans and the Tranche B Term Loans is due in quarterly installments based upon a 4.5-year amortization schedule (i.e. each installment is 1/18th of the original principal amount of the Tranche A Term Loans and the Tranche B Term Loans), commencing on September 1, 2019. Principal on the Tranche A FILO Term Loans is due on the maturity date of the Term Loan Credit Facility, unless earlier accelerated thereunder. Principal on each draw under the capital expenditure facility is due in quarterly installments based upon a five-year amortization schedule (i.e. each installment shall be 1/20th of the original principal amount of any capital expenditure loan), commencing on the first day of the first full fiscal quarter immediately following the making of each such capital expenditure loan. The loans under the Term Loan Credit Facility bear interest at either: (a) the LIBOR rate (as defined in the Term Loan Credit Agreement), plus an applicable margin of 7.50% for Tranche A Term Loans, Tranche B Term Loans and capital expenditure loans, and 8.50% for Tranche A FILO Term Loans; or (b) the Base Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin of 6.50% for Tranche A Term Loans, Tranche B Term Loans and capital expenditure loans, and 7.50% for Tranche A FILO Term Loans. The Company's average annualized interest rate for the Term Loan Credit Facility was ~~10.0%~~10.7% for the ~~three~~six months ended ~~March 31,~~June 30, 2019.

The obligations under the Company’s Term Loan Credit Facility are guaranteed by each of its domestic subsidiaries pursuant to a guaranty included in the Term Loan Credit Facility. As security for the Company’s and its subsidiaries’ obligations under the Term Loan Credit Facility, ~~the~~ each of the Company and its domestic subsidiaries have granted: (i) a first priority lien on its equipment (including, without limitation, rolling stock, aircraft, aircraft engines and aircraft parts) and proceeds and accounts related thereto, and (ii) a second priority lien on substantially all of the Company’s and its domestic subsidiaries’ other tangible and intangible personal property, including the capital stock of certain of the Company’s direct and indirect subsidiaries. The priority of the liens is described in an intercreditor agreement between BMO Harris Bank N.A. as ABL Agent and BMO Harris Bank N.A. as Term Loan Agent.

The Term Loan Credit Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Term Loan Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Credit Facility to be in full force and effect, and a change of control of the Company’s business.

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Prior ABL Facility

On July 21, 2017, the Company entered into an asset-based lending facility with BMO Harris Bank, N.A. and certain other lenders (the “Prior ABL Facility”).

The Prior ABL Facility consisted of a:

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

Principal on the term loan facility was due in quarterly installments commencing on March 31, 2018. Borrowings under the Prior ABL Facility were secured by substantially all of the assets of the Company. Borrowings under the Prior ABL Facility bore interest at either the (a) LIBOR Rate (as defined in the 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 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 provided for the issuance of up to $30.0 million in letters of credit.

On January 9, 2019, the Company entered into a Seventh Amendment to the Prior ABL Facility. Pursuant to the Seventh Amendment, the Prior ABL Facility was further amended to, among other things: (i) extend the time period during which the Company is permitted to issue Series E-1 Preferred Stock under the Investment Agreement (as amended) from January 31, 2019 to the earlier of (a) March 1, 2019 and (b) the occurrence of the rights offering; and (ii) extend the date by which the Company is required to consummate the rights offering from January 31, 2019 to March 1, 2019.

On January 11, 2019, the Company entered into an Eighth Amendment to the Prior ABL Facility. Pursuant to the Eighth Amendment, the Prior ABL Facility was further amended to, among other things, modify the definition of “Fixed Charge Trigger Period” to reduce the Adjusted Excess Availability requirements until the earlier of (i) the date that is 30 days from the Eighth Amendment Effective Date; and (ii) the Rights Offering Effective Date.

The Prior ABL Facility was paid off with the proceeds from the ABL Credit Facility and the Term Loan Credit Facility. The Company recognized a $2.3 million loss on debt restructuring for the ~~three~~six months ended ~~March 31,~~June 30, 2019 related to these transactions.

Insurance Premium Financing

In June 2018, the Company executed an insurance premium financing agreement of $17.8 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on September 1, 2018, the financing agreement iswas payable in nine monthly installments of principal and interest of approximately $2.0 million. The agreement ~~bears~~incurred interest at 4.75%. The balance of the insurance premium payable as of ~~March 31, 2019 and~~ December 31, 2018 was ~~$4.0~~$10.0 million and ~~$10.0 million, respectively, and is~~was recorded in accrued expenses and other current liabilities. The remaining balance was paid-in-full as of June 30, 2019.

In July 2019, the Company executed an insurance premium financing agreement of $20.7 million with a premium finance company in order to finance certain of its annual insurance premiums. See Note 16 for further details.

5. Preferred Stock

Preferred stock as of December 31, 2018 consisted of the following (in thousands):



	December 31, 2018
Preferred stock:
Series B Preferred	$	205,972
Series C Preferred	102,098
Series D Preferred	900
Series E Preferred	47,367
Series E-1 Preferred	46,547
Total Preferred stock	$	402,884

~~Rights Offering~~

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Rights Offering

On February 26, 2019, the Company closed a $450 million rights offering, pursuant to which the Company issued and sold an aggregate of 36 million new shares of its common stock at the subscription price of $12.50 per share. An aggregate of 7,107,049 shares of the Company's common stock were purchased pursuant to the exercise of basic subscription rights and over-subscription rights from stockholders of record during the subscription period, including from the exercise of basic subscription rights by stockholders who are funds affiliated with Elliott Management Corporation (“Elliott”). In addition, Elliott purchased an aggregate of 28,892,951 additional shares pursuant to the commitment from Elliott to purchase all unsubscribed shares of the Company's common stock in the rights offering pursuant to the Standby Purchase Agreement that the Company entered into with Elliott dated November 8, 2018, as amended. Overall, Elliott purchased a total of 33,745,308 shares of the Company's common stock in the rights offering between its basic subscription rights and the backstop commitment, and following the closing of the rights offering beneficially owned approximately 90.4% of the Company's common stock.

The net proceeds from the rights offering and backstop commitment were used to fully redeem the outstanding shares of the Company's preferred stock and to pay related accrued and unpaid dividends. Proceeds were also used to pay fees and expenses in connection with the rights offering and backstop commitment. The Company 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~~six months ended ~~March 31,~~June 30, 2019 and $1.5 million of costs that were paid in prior periods.

Preferred Stock

The preferred stock was mandatorily redeemable and, as such, was presented as a liability on the condensed consolidated balance sheets. At each preferred stock dividend payment date, the Company had the option to pay the accrued dividends in cash or to defer them. Deferred dividends earned dividend income consistent with the underlying shares of preferred stock. The Company 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~~$31.6 million and $37.7 million during the three and six months ended ~~March 31,~~June 30, 2018, respectively, which was reflected in interest expense - preferred stock.

On March 1, 2018, the Company entered into the Series E-1 Preferred Stock Investment Agreement (the “Series E-1 Investment Agreement”) with affiliates of Elliott, ~~Management Corporation (“Elliott”),~~ pursuant to which the Company agreed to issue and sell to Elliott from time to time, 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 from 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. The final 19,022 shares of Series E-1 Preferred Stock remained unissued when the Series E-1 Investment Agreement was terminated in connection with the closing of the rights offering. The Company incurred $1.1 million of issuance costs associated with the issuance of the Series E-1 Preferred Stock for the ~~three~~six months ended ~~March 31,~~June 30, 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%

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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 elected to measure its previously outstanding preferred stock using the fair value method. The fair value of the preferred stock was the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company 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 were considered to be Level 3 fair value measurements as the significant inputs are unobservable and require significant management judgment or estimation. Considerable judgment was required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates 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 as of ~~March 31,~~June 30, 2018 (in thousands).


			Three months ended		Six months ended
	March 31, 2018		June 30, 2018		June 30, 2018
Balance, beginning of period	$	263,317	$	286,874	$	263,317
Issuance of preferred stock at fair value	17,500		17,499		34,999
Redemption of preferred stock	—
Change in fair value of preferred stock ⁽¹⁾	6,057		31,606		37,663
Balance, end of period	$	286,874	$	335,979	$	335,979

(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~~Company’s issued and outstanding shares of common stock. The 1-for-25 reverse stock split was effective upon the filing and effectiveness of a Certificate of Amendment to the Company's Certificate of Incorporation after the market closed on April 4, 2019, and the Company’s common stock began trading on a split-adjusted basis on April 5, 2019. See Note 1 for more information on the reverse stock split.

On April 12, 2019, the Company received a notice from the NYSE that a calculation of the average stock price for the 30-trading days ended April 12, 2019 indicted that the Company was in compliance with the $1.00 continued listed criterion. The notice also noted that the Company remains non-compliant with the NYSE's $50 million average market capitalization and $50 million stockholders' equity requirements as it must remain above the $50 million average market capitalization or the $50 million total stockholders' investment requirements for two consecutive quarters (or six months) before the Company can be considered in compliance with this listing standard. On February 26, 2019, the Company closed its rights offering, pursuant to which the Company issued and 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 total stockholder investment.

8. Share-Based Compensation

~~On March 21,~~The Company's compensation committee granted to certain employees restricted stock units (“RSUs”) totaling 1,023,740 shares of the Company's common stock in the second quarter of 2019. Each RSU is equal in value to one share of common stock and vests ratably over a three or four-year service period.

The Company's compensation committee granted to directors RSUs totaling 28,600 shares of the Company's common stock in the second quarter of 2019, of which 4,400 vested immediately and the remaining will vest in February 2020. Each RSU is equal in value to one share of common stock.

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

In the second quarter of 2019, the Company's compensation committee granted to certain employees seven-year non-qualified stock options to purchase ~~a total of 274,075~~294,932 shares of ~~its~~the Company's common stock with an exercise price equal to $12.50 per share, ~~(which was above the closing price of the Company's common stock of $11.25 per share on the grant date)~~ with one-third of such options vesting onin each of ~~May 15, 2019,~~ 2020, 2021 and ~~2021.~~2022.

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On March 21, 2019, the Company's compensation committee granted to certain employees restricted stock units (“RSUs”) totaling 74,000 shares of the 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.

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 ~~377,632~~604,761 as of ~~March 31,~~June 30, 2019 and ~~65,165~~61,428 as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2019 and 2018. Since the Company was in a net loss position for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, there is no difference between basic and dilutive weighted average common stock outstanding.

10. Income Taxes

The ~~provision for~~benefit from income taxes was ~~$0.1~~$0.5 million for both the three and six months ended June 30, 2019. The benefit from income taxes was $3.7 million and $3.0 million for the ~~first quarter of 2019~~three and ~~$0.7 million for the first quarter of 2018.~~six months ended June 30, 2018, respectively. The effective tax rate was ~~(0.3)% during~~0.4% and 0.3% for the ~~first quarter of~~three and six months ended June 30, 2019, respectively. In comparison, the effective rate was 8.0% and ~~(2.9)% during~~4.3% for the ~~first quarter of 2018.~~three and six months ended June 30, 2018, respectively.

The ~~provision for~~benefit from income taxes varies from the amount computed by applying the federal statutory rate of 21.0% 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 and six months ended ~~March 31,~~June 30, 2019, the variance is primarily due to adjustments to the valuation allowance for federal and state deferred tax assets, as well as the effect of the goodwill impairment charge, other permanent differences, and state income ~~taxes and adjustments for permanent differences.~~taxes. For the three and six months ended ~~March 31,~~June 30, 2018, the variance is primarily due to adjustments for permanent differences related to the non-deductible interest expense associated with the Company's preferred stock, as well as the 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 applies an estimated annual effective tax rate to its ordinary operating results, and calculates the tax benefit or provision, if any, of other discrete items individually as they occur. Management also assesses whether sufficient future taxable income will be generated to permit the use of deferred tax assets. This assessment includes consideration of the cumulative losses incurred over the three-year period ended December 31, 2018 and expected 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 projections for future earnings. On the basis of 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 thus have no net effect on the income tax provision. State tax benefits generated from certain subsidiary losses may similarly require an offsetting adjustment to the valuation allowance.

11. Guarantees

The Company provides a guarantee for a portion of the value of certain IC leased tractors. The guarantees expire at various dates through ~~2021.~~2023. The potential maximum exposure under these lease guarantees was approximately ~~$6.5~~$6.2 million as of ~~March 31,~~June 30, 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 $1.0 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, which 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 2016, management committed to a plan to divest these older assets and recorded a loss reserve. The loss reserve for the guarantee and reconditioning costs associated with the planned divestiture was $0.1 million and $0.4 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, which was recorded in accrued expenses and other current liabilities.

The Company paid ~~$0.4~~$0.2 million and ~~$0.7~~$0.8 million under these lease guarantees during the second quarter of 2019 and 2018, respectively, and $0.6 million and $1.5 million during the first ~~quarter~~half of 2019 and 2018, respectively.

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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 ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had reserves for estimated uninsured losses of ~~$28.0~~$28.9 million and $26.8 million, respectively, included in accrued expenses and other current liabilities.

General Litigation Proceedings

Jeffrey Cox and David Chidester filed a complaint against certain of the Company’s subsidiaries in state court in California in a post-acquisition dispute (the “Central Cal Matter”). The complaint alleges contract, statutory and tort-based claims arising out of the Stock Purchase Agreement, dated November 2, 2012, between the defendants, as buyers, and the plaintiffs, as sellers, for the purchase of the shares of Central Cal Transportation, Inc. and Double C Transportation, Inc. (the “Central Cal Agreement”). 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. 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 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.~~liabilities at December 31, 2018. In July 2019, the $2.1 million settlement was approved by the court. In light of the court order, the Company has offered to pay $2.2 million to the plaintiff to settle this matter. The Company's offer includes a reimbursement for legal fees incurred by the plaintiff. As such, the Company recorded an adjustment of $0.4 million in the second quarter of 2019 to increase its contingent purchase obligation to $2.2 million, which is recorded in accrued expenses and other current liabilities at June 30, 2019. In July 2019, the Company paid the plaintiffs the $2.1 million settlement amount. The Company intends to pursue indemnification and other claims as it relates to the Central Cal Matter and other related matters involving these plaintiffs. In February 2018, Plaintiff David Chidester agreed to dismiss his employment-related claims from the Los Angeles Superior Court matter, while Plaintiff Jeffrey Cox transferred his employment claims from Los Angeles Superior Court to the related employment case pending in the Eastern District of California. The parties are proceeding with discovery and the consolidated case is currently set for trial on November 5, 2019.

The Company received a letter dated April 17, 2018 from legal counsel representing Warren Communications News, Inc. (“Warren”) in which Warren made certain allegations against the Company of copyright infringement concerning an electronic newsletter published by Warren (the “Warren Matter”). Specifically, Warren alleged that an employee of the Company had, for several years, forwarded that electronic newsletter to third parties in violation of corresponding subscription agreements. ~~After discussions with Warren,~~On June 14, 2019, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of liability, and the settlement amount was paid by the Company ~~received a second letter dated~~in July 30, 2018 in which counsel for Warren offered to settle its claim for a monetary payment by the Company. The Company subsequently sent a counter-offer to Warren, which was rejected. 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~~six months ended ~~March 31,~~June 30, 2019.

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had a liability for settlements, litigation, and defense costs related to these labor matters ~~the Central Cal Matter~~ and the Warren Matter of ~~$1.6~~$2.2 million and $10.8 million, respectively, which are included in accrued expenses and other current liabilities.

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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,~~In 2017, three putative class actions were filed in the United States District Court for the Eastern District of Wisconsin against the Company and its former officers, Mark A. DiBlasi and Peter R. Armbruster. On May 19, 2017, the Court consolidated the actions under the caption In re Roadrunner Transportation Systems, Inc. Securities Litigation (Case No. 17-cv-00144), and appointed Public Employees’ Retirement System as lead plaintiff. On March 12, 2018, the lead plaintiff filed the 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 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 settlements in this action and in the Federal Derivative ~~Action.The~~Action. The parties have submitted a Stipulation of Settlement to the Court for preliminary approval.

On May 25, 2017, Richard Flanagan filed a complaint alleging derivative claims on the Company's behalf in the Circuit Court of Milwaukee County, State of Wisconsin (Case No. 17-cv-004401) against Scott Rued, Mark DiBlasi, Christopher Doerr, John Kennedy, III, Brian Murray, James Staley, Curtis Stoelting, William Urkiel, Judith Vijums, Michael Ward, Chad Utrup, Ivor Evans, Peter Armbruster, and Brian van Helden (the “State Derivative Action”). Count I of the 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 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 pending 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 case was stayed, the 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 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 Kent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative Action”). On March 28, 2018, 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 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 breached their fiduciary duty. Count III alleges that all the defendants wasted corporate assets. Count IV alleges that certain of the defendants were unjustly enriched. The Complaint seeks monetary damages, improvements to the Company’s corporate governance and internal procedures, an accounting from defendants of the damages allegedly caused by them and the improper amounts the defendants allegedly obtained, and punitive damages. The parties have submitted a Stipulation of Settlement to the Court for preliminary approval, which provides for certain corporate governance changes and a $6.9 million payment, $4.8 million of which will be paid by the Company’s D&O carriers into an escrow account to be used by the Company to settle the class action described above and $2.1 million of which will be paid by the Company’s D&O carriers to cover plaintiffs attorney’s fees and expenses.

Given the status of the matters above, the Company concluded in the third quarter of 2018 that a liability is probable and

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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, Financial Industry Regulatory Authority (“FINRA”), and the Department of Justice (“DOJ”). The DOJ and Division of Enforcement of the SEC have commenced investigations into the events giving rise to the restatement. The Company has received formal requests for documents and other information. In June 2018, two of the Company's former employees were indicted on charges of conspiracy, securities fraud, and wire fraud as part of the ongoing DOJ investigation. In April 2019, the indictment was superseded with an indictment against those two former employees as well as the Company’s former Chief Financial Officer. In the superseding indictment, Count I alleges that all defendants engaged in conspiracy to fraudulently influence accountants and make false entries in a public company’s books, records and accounts. Counts II-V allege specific acts by all defendants to fraudulently influence accountants. Counts VI through IX allege specific acts by all defendants to falsify entries in a public company’s books, records, and accounts. Count X alleges that all defendants engaged in conspiracy to commit securities fraud and wire fraud. Counts XI - XIII allege specific acts by all defendants of securities fraud. Counts XIV - XVII allege specific acts by all defendants of wire fraud. Count XVIII alleges bank fraud by the Company’s former Chief Financial Officer. Count XIX alleges securities fraud by one of the former employees.

Additionally, in April 2019, the SEC 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. 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 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.

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 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

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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 Partners, which amended and restated the Registration Rights Agreement, dated as of May 2, 2017, between the Company and the parties thereto. The Company's execution and delivery of the A&R Registration Rights Agreement was a condition to Elliott’s backstop commitment. The A&R Registration Rights Agreement amended the Registration Rights Agreement to provide the Elliott Stockholders (as defined therein) and the HCI Stockholders (as defined therein) with unlimited Form S-1 registration rights in connection with Company securities owned by them.

On February 28, 2019, the Company entered into the Term Loan Credit Facility with BMO Harris Bank, N.A. and Elliott which consists of an approximately $61.1 million term loan facility. The Company paid Elliott $0.9 million in issuance costs and fees during the ~~three~~six months ended ~~March 31,~~June 30, 2019. As of ~~March 31,~~June 30, 2019, the Company owed Elliott ~~$41.5~~$41.0 million under the Term Loan Credit Facility. See Note 4 for more information on the Term Loan Credit Facility. On August 2, 2019, the Company entered into a First Amendment to the Term Loan Credit Facility with BMO Harris Bank, N.A and Elliott. See Note 16 for more information on the First Amendment to 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 ~~$6.5~~$9.2 million and $6.6 million to these purchased transportation providers during the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The Company paid an aggregate of $15.8 million and $13.2 million to these purchased transportation providers during the six months ended June 30, 2019 and 2018, respectively.

The Company has a number of facility leases with related parties and paid an aggregate ~~$0.4~~of $0.1 million and $0.3 million under these leases during the three months ended ~~March 31, 2018.~~June 30, 2019 and 2018, respectively. The Company paid an aggregate of $0.1 million and $0.7 million under these leases during the six months ended June 30, 2019 and 2018, respectively.

The Company owns 37.5% of Central Minnesota Logistics (“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 the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The Company paid CML broker commissions of $1.7 million and $1.4 million during the six months ended June 30, 2019 and 2018, respectively.

The Company has a jet fuel purchase agreement with a related party and paid an aggregate of ~~$0.8~~$0.4 million and $0.6 million during the three months ended June 30, 2019 and 2018, respectively. The Company paid an aggregate of $1.2 million under this agreement during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~2018, respectively.~~2018.

The Company leases certain equipment through leasing companies owned by related parties and paid an aggregate of ~~$1.5~~$0.4 million and ~~$0.7~~$0.8 million during the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The Company paid an aggregate of $2.0 million and $1.5 million during the six months ended June 30, 2019 and 2018, respectively.

On December 13, 2018, the Company entered into an agreement with HCI to resume the advancement of reasonable fees and expenses of up to $7.1 million pursuant to the advisory agreement. In addition, the Company and HCI agreed to contribute $1 million each to resolve the previously mentioned Securities Litigation Proceedings described in Note 11. The Company reserves all rights to seek reimbursement for any fees or expense advanced to HCI, while HCI reserves all rights to seek indemnification for amounts above the $7.1 million and the $1 million that HCI will contribute to resolve the Securities Litigation Proceedings. The Company paid HCI $3.5 million under this agreement during the six months ended June 30, 2019. The Company made no payments during the three months ended ~~March 31,~~June 30, 2019.

On December 27, 2018, the Company filed a registration statement on Form S-1 with the SEC for the offer and sale of up to 312,065 shares of its common stock held by HCI and its affiliates. HCI has completed the sale of all the shares covered by the registration statement in open-market transactions to unaffiliated purchasers. The Company did not receive any cash proceeds from the offer and sale of the shares of common stock sold by HCI.

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On August 2, 2019, the Company entered into a letter agreement (the “Fee Letter”) with Elliott Associates, L.P. and Elliott International, L.P. Pursuant to the Fee Letter, Elliott agreed to arrange for standby letters of credit in an aggregate face amount of $20 million to support the Company's obligations under its ABL Credit Facility. See Note 16 for more information on the Fee Letter.

14. Segment Reporting

The Company determines its segments based on the information utilized by the ~~chief operating decision maker,~~CODM, the Company’s Chief Executive Officer, to allocate resources and assess performance. Based on this information, the Company has determined that it has ~~three~~four segments: ~~TES,~~Ascent, Active On-Demand, LTL, and ~~Ascent.~~TL. The Company changed its segment reporting effective April 1, 2019, when the CODM began assessing the performance of the Active On-Demand air and ground expedite business separately from its truckload businesses. Segment information for prior periods has been revised to align with the new segment structure.

These segments are strategic business units through which the Company offers different services. The Company evaluates the performance of the segments primarily based on their respective revenues and operating income. Accordingly, interest expense and other non-operating items are not reported in segment results. In addition, the Company has disclosed corporate, which is not a segment and includes corporate salaries, insurance and administrative costs, and long-term incentive compensation expense.

Included within corporate are rolling stock assets that are purchased and leased by Roadrunner Equipment Leasing (“REL”). REL, a wholly 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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 and as of ~~March 31,~~June 30, 2019 and December 31, 2018 (in thousands):


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2019			2018			2019			2018			2019			2018
Revenues:
TES	$	274,857		$	326,067
Ascent							$	130,160		$	144,630		$	261,853		$	279,573
Active On-Demand							101,492			164,770			244,263			359,536
LTL	102,823			113,125			117,076			117,164			219,898			230,289
Ascent	131,692			134,943
TL							141,472			145,761			278,483			290,318
Eliminations	(2,224		)	(4,151		)	(9,512		)	(14,299		)	(16,661		)	(31,706		)
Total	$	507,148		$	569,984		$	480,688		$	558,026		$	987,836		$	1,128,010
Impairment charges:
TES	—			—
Operating (loss) income:
Ascent							$	5,880		$	7,314		$	11,252		$	14,021
Active On-Demand							(2,614		)	7,808			583			14,261
LTL	—			—			(4,440		)	(3,743		)	(10,275		)	(12,427		)
Ascent	—			—
Corporate	778			—
Total	$	778		$	—
Operating (loss) income:
TES	$	(3,721	)	$	4,400
LTL	(5,834		)	(8,684		)
Ascent	5,372			6,707
TL							(103,506		)	(8,558		)	(110,422		)	(10,611		)
Corporate	(16,593		)	(15,853		)	(33,161		)	(14,196		)	(49,755		)	(30,049		)
Total	$	(20,776	)	$	(13,430	)	$	(137,841	)	$	(11,375	)	$	(158,617	)	$	(24,805	)
Interest expense	3,882			9,543			4,632			34,232			8,514			43,775
Loss on debt restructuring	2,270			—			—			—			2,270			—
Loss before income taxes	$	(26,928	)	$	(22,973	)	$	(142,473	)	$	(45,607	)	$	(169,401	)	$	(68,580	)
Depreciation and amortization:
TES	$	11,187		$	6,296
Ascent							$	1,616		$	1,168		$	3,298		$	2,356
Active On-Demand							2,125			2,036			4,221			4,030
LTL	638			913			1,085			900			1,723			1,813
Ascent	1,682			1,188
TL							7,030			4,205			16,121			8,507
Corporate	2,035			668			2,932			815			4,967			1,483
Total	$	15,542		$	9,065		$	14,788		$	9,124		$	30,330		$	18,189
Capital expenditures⁽¹⁾:
TES	$	6,872		$	2,997
Ascent							$	213		$	355		$	2,050		$	709
Active On-Demand							1,167			1,322			2,315			2,429
LTL	1,772			200			3,248			55			5,020			255
Ascent	1,837			354
TL							2,582			1,618			8,306			3,508
Corporate⁽²⁾	25,833			2,424			24,162			12,510			49,995			14,934
Total	$	36,314		$	5,975		$	31,372		$	15,860		$	67,686		$	21,835


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Assets:
TES	$	422,432		$	379,956
Ascent							$	302,185		$	276,994
Active On-Demand							99,127			136,795
LTL	121,364			73,706			123,494			73,706
Ascent	304,956			276,994
TL							176,929			244,760
Corporate	134,535			123,921			143,967			123,921
Eliminations⁽³⁾	(1,008		)	(1,120		)	(2,381		)	(2,719		)
Total	$	982,279		$	853,457		$	843,321		$	853,457

(1) Includes non-cash finance leases and capital expenditures not yet paid.

(2) The first ~~quarter~~half of 2019 ~~includes $22.1~~included $42.5 million of rolling stock assets that were purchased and leased to operating units of the Company by REL, of which ~~100%~~64% was leased to the ~~TES~~TL segment, 35% was leased to the LTL segment and 1% was leased to the Ascent segment.

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

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15. Restructuring Costs

In the second quarter of 2018, the Company restructured its 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 fleets, facilities, and support functions. As a result, in the second quarter of 2018, the Company recorded operations restructuring costs of $4.7 million related to fleet and facilities right-sizing and relocation costs, severance costs, and the write-down of assets to fair market value. The initial write-down of assets 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,~~June 30, 2019 (in thousands).


	Restructuring reserves			Restructuring reserves
Beginning balance at December 31, 2018	$	544		$	544
Charges	—			—
Adjustments⁽¹⁾	(79		)	(79		)
Payments	(112		)	(327		)
Ending balance at March 31, 2019	$	353
Ending balance at June 30, 2019				$	138

(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 ~~$3.4~~$3.2 million and ~~$6.9~~$3.9 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $6.7 million and $10.8 million for the six months ended June 30, 2019 and 2018, respectively. These costs are included in other operating expenses.

16. Subsequent Events

~~Compliance with NYSE Listing Standard~~

ABL Facility Amendment

On ~~April 12,~~August 2, 2019, the Company ~~received~~and its direct and indirect domestic subsidiaries entered into a ~~notice from~~First Amendment to Credit Agreement (the “ABL Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the ~~NYSE that a calculation~~Joint Lead Arrangers and Joint Book Runners party thereto with respect to the ABL Credit Facility. Pursuant to the ABL Facility Amendment, the ABL Credit Facility was amended to, among other things, add Acceptable Letters of Credit (as defined in the ~~average stock price for~~ABL Facility Amendment) to the ~~30-trading days ended April 12, 2019, indicted that~~Borrowing Base (as defined in the ~~Company is now in compliance with~~ABL Credit Facility as amended by 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. ABL Facility Amendment).

Term Loan Facility Amendment

On ~~February 26,~~August 2, 2019, the Company ~~closed~~and its ~~rights offering, pursuant~~direct and indirect domestic subsidiaries entered into a First Amendment to ~~which~~Credit Agreement (the “Term Loan Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott Associates, L.P. and Elliott International, L.P, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner, with respect to the Term Loan Credit Facility. Pursuant to the Term Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things: (i) defer the September 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on August 2, 2019 and continuing until payment of the December 1, 2019 quarterly amortization payments.

Fee Letter

On August 2, 2019, the Company ~~issued and sold~~entered into the Fee Letter with Elliott. Pursuant to the Fee Letter, Elliott agreed to arrange for standby letters of credit (“Letters of Credit”) in an aggregate face amount of 36$20.0 million ~~new shares~~(the “Face Amount”) to support the Company's obligations under the ABL Credit Facility. As consideration for Elliott providing the Letters of Credit, the Company agreed to (i) pay Elliott a fee (the “Letter of Credit Fee”) on the LC Amount (as hereafter defined), accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by the Company of the LC Amount to Elliott), at a rate equal to the LIBOR Rate (as defined in the ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any draw on the Letters of Credit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the Letters of Credit, in each case subject to the terms and

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conditions of the Fee Letter. "LC Amount" means the Face Amount, as increased by the amount of payment in kind Letter of Credit Fee added to such amount on the last day of each interest period.

Insurance Premium Financing

In July 2019, the Company executed an insurance premium financing agreement of $20.7 million with a premium finance company in order to finance certain of its ~~common stock at the subscription price of $12.50 per share, which added approximately $450 million to the Company's total stockholder investment.~~

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

~~In April~~annual insurance premiums. Beginning on September 1, 2019, the ~~June 2018 indictment~~financing agreement will be payable in nine monthly installments of ~~two former employees as part~~principal and interest 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 bank fraud. Additionally, in April 2019, the SEC filed suit against the same three former employees for various violations of the securities laws. See Note 12 for further information on both the DOJ and SEC investigations.approximately $2.4 million. The agreement will bear interest at 5.25%.

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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, 2018. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”,~~Operations,” set forth in our Annual Report on Form 10-K for the year ended December 31, 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, 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 April 1, 2019, we changed our segment reporting when we separated our Active On-Demand air and ground expedite business from our truckload businesses. Segment information for prior periods has been revised to align with the new segment structure.

Our ~~three~~four segments are as follows:

~~Truckload & Express Services.~~ Within our TES segment we serve customers throughout North America. We provide the following services: air and ground expedite, scheduled dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing, equipment and 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 Flatbed businesses provide specialized truckload services to beneficial cargo owners, 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. Ascent provides domestic freight management solutions including asset-backed truckload brokerage, 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 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.

Active On-Demand. Our Active On-Demand segment provides ground and air expedited services featuring proprietary bid technology supported by our fleets of ground and air assets. We specialize in the transport of automotive and industrial parts. On-demand air charter is the segment of the air cargo industry focused on the time critical movement of goods that requires the timely launch of an aircraft to move freight. These critical movements of freight are typically necessary to prevent a disruption in the supply chain due to lack of components. The primary users of on-demand air charter services are auto manufacturers, component manufacturers, and other heavy equipment makers or just-in-time manufacturers.

Less-than-Truckload. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and parts of Canada. With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of lower incidence of damage and reduced fuel consumption.

Truckload. Within our TL segment we serve customers throughout North America. We provide the following services: scheduled and expedited dry van truckload, temperature controlled truckload, flatbed, intermodal drayage and other warehousing operations. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods including dairy, poultry and meat, and consumer products including foods and beverages. Roadrunner Dry Van, Temperature Controlled, Intermodal Services and Flatbed businesses provide specialized truckload services to beneficial cargo owners, 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.

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Factors Important to Our Business

Our success principally depends on our ability to generate revenues through our dedicated sales personnel, long-standing 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 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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approximately 60 150 direct salespeople and sales representatives located in 2524 company offices, ~~commissioned sales representatives,~~ and a network of approximately 60 independent agents. Agents complement our Company sales force by bringing pre-existing customer relationships, new customer prospects, and/or access to new geographic markets. Furthermore, agents typically provide immediate revenue and do not require us to invest in incremental overhead. Agents own or lease their own office space and pay for other costs associated with running their operations. In our Active On-Demand business, we market and sell our air and ground expedite services through a direct sales team of eight individuals in the United States and Mexico as well as other company relationships such as management and customer service representatives. In our LTL business, we market and sell our LTL services through a sales force of approximately 70 people, consisting of account executives, sales managers, and commissioned sales representatives. In our TL business, we arrange the pickup and delivery of freight either through our direct sales force or other Company relationships including management, dispatchers, or customer service representatives.

Tonnage Levels and Capacity. 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 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. Purchased transportation costs within our ~~TES~~Ascent business, purchased transportation costs represent payments made to ground, ocean, and air carriers, ICs, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. Purchased transportation costs are the largest component of our cost structure. Our purchased transportation costs typically increase or decrease in proportion to revenues. Purchased transportation costs within our Active On-Demand business are ~~generally based either on negotiated rates for each load hauled or~~ spot market rates generated from our proprietary bid technology for ground and air services. Purchased transportation costs within our LTL business represent payments to ICs, over-the-road purchased power providers, intermodal service providers, brokers and agents, based on a combination of contractually agreed-upon and spot market rates. ~~Within our Ascent business, purchased transportation costs represent payments made to ground, ocean, and air carriers,~~ ~~ICs, brokers and agents, based on a combination of contractually agreed-upon and spot market rates.~~ Purchased transportation costs within our TL business are ~~the largest component of our cost structure. Our purchased transportation costs typically increase~~generally based either on negotiated rates for each load hauled or ~~decrease in proportion to revenues.~~spot market rates.

Personnel and Related Benefits. Personnel and related benefits costs are a large component of our overall cost structure. We employ approximately 1,400 company drivers who are paid either per mile or at an hourly rate. In addition, we employ over ~~800~~900 dock and warehouse workers and over ~~2,300~~2,400 operations and other administrative personnel to support our day-to-day business activities. Personnel and related benefits costs could vary significantly as we may be required to adjust staffing levels to match our business needs.

Fuel. 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~~Ascent, Active On-Demand, and ~~Ascent~~TL businesses, we generally pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by 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. The pricing environment in the transportation industry also impacts our operating performance. Within our ~~TES~~Ascent business, we typically charge a ~~flat~~variable rate ~~negotiated~~ on each ~~load hauled. Pricing~~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 truckload and LTL shipping as part of our Ascent offering, pricing within our ~~TES~~Ascent business is impacted by similar factors. The pricing environment for all of our operations

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

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Results of Operations

The following tables set forth, for the periods indicated, summary ~~TES,~~Ascent, Active On-Demand, LTL, ~~Ascent,~~TL, corporate, and consolidated statement of operations data. Such revenue data for our TES, LTL, and Ascent segments are expressed as a percentage of consolidated revenues. Other statement of operations data for our TES, LTL, and Ascent segments are expressed as a percentage of segment revenues.


(In thousands, except for %'s)	Three Months Ended March 31, 2019
(In thousands)																					Three Months Ended June 30, 2019

	TES			%		LTL			%		Ascent		%		Corporate/ Eliminations			Total			Ascent		Active On-Demand			LTL			TL			Corporate/ Eliminations			Total
Revenues	$	274,857		54.2	%	$	102,823		20.3	%	$	131,692	26.0	%	$	(2,224	)	$	507,148		$	130,160	$	101,492		$	117,076		$	141,472		$	(9,512	)	$	480,688
Operating expenses:
Purchased transportation costs	177,923			64.7	%	71,591			69.6	%	95,485		72.5	%	(2,224		)	342,775			93,182		87,849			80,859			65,407			(9,512		)	317,785
Personnel and related benefits	40,763			14.8	%	17,556			17.1	%	13,743		10.4	%	7,153			79,215			13,508		9,166			18,724			30,273			10,015			81,686
Other operating expenses	48,705			17.7	%	18,872			18.4	%	15,410		11.7	%	6,627			89,614			15,974		4,966			20,848			46,932			7,219			95,939
Depreciation and amortization	11,187			4.1	%	638			0.6	%	1,682		1.3	%	2,035			15,542			1,616		2,125			1,085			7,030			2,932			14,788
Impairment charges	—			—	%	—			—	%	—		—	%	778			778			—		—			—			95,336			12,995			108,331
Total operating expenses	278,578			101.4	%	108,657			105.7	%	126,320		95.9	%	14,369			527,924			124,280		104,106			121,516			244,978			23,649			618,529
Operating income (loss)	(3,721		)	(1.4	)%	(5,834		)	(5.7	)%	5,372		4.1	%	(16,593		)	(20,776		)	5,880		(2,614		)	(4,440		)	(103,506		)	(33,161		)	(137,841		)
Total interest expense																		3,882																	4,632
Debt restructuring costs																		2,270
Loss before income taxes																		(26,928		)															(142,473		)
Provision for income taxes																		71
Benefit from income taxes																																			(524		)
Net loss																		$	(26,999	)															$	(141,949	)


(In thousands, except for %'s)	Three Months Ended March 31, 2018
(In thousands)																				Three Months Ended June 30, 2018

	TES		%		LTL			%		Ascent		%		Corporate/ Eliminations			Total			Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Revenues	$	326,067	57.2	%	$	113,125		19.8	%	$	134,943	23.7	%	$	(4,151	)	$	569,984		$	144,630	$	164,770	$	117,164		$	145,761		$	(14,299	)	$	558,026
Operating expenses:
Purchased transportation costs	224,601		68.9	%	81,997			72.5	%	98,513		73.0	%	(4,148		)	400,963			106,861		141,021		82,318			64,175			(14,303		)	380,072
Personnel and related benefits	39,168		12.0	%	18,135			16.0	%	12,141		9.0	%	6,443			75,887			12,465		9,038		17,428			30,756			6,151			75,838
Other operating expenses	51,602		15.8	%	20,764			18.4	%	16,394		12.1	%	8,739			97,499			16,822		4,867		20,261			55,183			7,234			104,367
Depreciation and amortization	6,296		1.9	%	913			0.8	%	1,188		0.9	%	668			9,065			1,168		2,036		900			4,205			815			9,124
Total operating expenses	321,667		98.7	%	121,809			107.7	%	128,236		95.0	%	11,702			583,414			137,316		156,962		120,907			154,319			(103		)	569,401
Operating income (loss)	4,400		1.3	%	(8,684		)	(7.7	)%	6,707		5.0	%	(15,853		)	(13,430		)	7,314		7,808		(3,743		)	(8,558		)	(14,196		)	(11,375		)
Total interest expense																	9,543																34,232
Loss before income taxes																	(22,973		)														(45,607		)
Provision for income taxes																	670
Benefit from income taxes																																	(3,652		)
Net loss																	$	(23,643	)														$	(41,955	)

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


(In thousands)	Three Months Ended March 31, 2019														Three Months Ended June 30, 2019
	TES			LTL			Ascent		Corporate/ Eliminations			Total
															Ascent		Active On-Demand			LTL			TL			Corporate/ Eliminations			Total
Net (loss) income	$	(4,413	)	$	(5,868	)	$	5,267	$	(21,985	)	$	(26,999	)	$	5,777	$	(2,614	)	$	(4,494	)	$	(104,278	)	$	(36,340	)	$	(141,949	)
Plus: Total interest expense	692			34			92		3,064			3,882			95		—			54			772			3,711			4,632
Plus: Provision for income taxes	—			—			13		58			71
Plus: Provision (benefit) for income taxes															8		—			—			—			(532		)	(524		)
Plus: Depreciation and amortization	11,187			638			1,682		2,035			15,542			1,616		2,125			1,085			7,030			2,932			14,788
Plus: Impairment charges	—			—			—		778			778			—		—			—			95,336			12,995			108,331
Plus: Long-term incentive compensation expenses	—			—			—		1,731			1,731			—		—			—			—			4,594			4,594
Plus: Loss on debt restructuring	—			—			—		2,270			2,270
Plus: Settlement of contingent purchase obligation															—		—			—			—			360			360
Plus: Corporate restructuring and restatement costs	—			—			—		3,432			3,432			—		—			—			—			3,242			3,242
Adjusted EBITDA⁽¹⁾	$	7,466		$	(5,196	)	$	7,054	$	(8,617	)	$	707		$	7,496	$	(489	)	$	(3,355	)	$	(1,140	)	$	(9,038	)	$	(6,526	)


(In thousands)	Three Months Ended March 31, 2018													Three Months Ended June 30, 2018
	TES		LTL			Ascent		Corporate/ Eliminations			Total
														Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Net (loss) income	$	4,389	$	(8,720	)	$	6,677	$	(25,989	)	$	(23,643	)	$	7,285	$	7,808	$	(3,763	)	$	(8,566	)	$	(44,719	)	$	(41,955	)
Plus: Total interest expense	11		36			30		9,466			9,543			29		—		20			8			34,175			34,232
Plus: Provision for income taxes	—		—			—		670			670
Plus: Benefit from income taxes														—		—		—			—			(3,652		)	(3,652		)
Plus: Depreciation and amortization	6,296		913			1,188		668			9,065			1,168		2,036		900			4,205			815			9,124
Plus: Long-term incentive compensation expenses	—		—			—		577			577			—		—		—			—			426			426
Plus: Operations restructuring costs														—		—		—			4,655			—			4,655
Plus: Corporate restructuring and restatement costs	—		—			—		6,913			6,913			—		—		—			—			3,911			3,911
Adjusted EBITDA⁽¹⁾	$	10,696	$	(7,771	)	$	7,895	$	(7,695	)	$	3,125		$	8,482	$	9,844	$	(2,843	)	$	302		$	(9,044	)	$	6,741

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(In thousands)	Six Months Ended June 30, 2019

	Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Revenues	$	261,853	$	244,263	$	219,898		$	278,483		$	(16,661	)	$	987,836
Operating expenses:
Purchased transportation costs	188,667		210,007		152,450			126,097			(16,661		)	660,560
Personnel and related benefits	27,252		19,084		36,280			61,118			17,167			160,901
Other operating expenses (2)	31,384		10,368		39,720			90,233			13,848			185,553
Depreciation and amortization	3,298		4,221		1,723			16,121			4,967			30,330
Impairment charges	—		—		—			95,336			13,773			109,109
Total operating expenses	250,601		243,680		230,173			388,905			33,094			1,146,453
Operating income (loss)	11,252		583		(10,275		)	(110,422		)	(49,755		)	(158,617		)
Total interest expense														8,514
Loss on debt restructuring														2,270
Loss before income taxes														(169,401		)
Benefit from income taxes														(453		)
Net loss														$	(168,948	)



(In thousands)	Six Months Ended June 30, 2018

	Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Revenues	$	279,573	$	359,536	$	230,289		$	290,318		$	(31,706	)	$	1,128,010
Operating expenses:
Purchased transportation costs	205,374		313,630		164,315			129,423			(31,707		)	781,035
Personnel and related benefits	24,606		17,711		35,563			61,251			12,594			151,725
Other operating expenses (2)	33,216		9,904		41,025			101,748			15,973			201,866
Depreciation and amortization	2,356		4,030		1,813			8,507			1,483			18,189
Total operating expenses	265,552		345,275		242,716			300,929			(1,657		)	1,152,815
Operating income (loss)	14,021		14,261		(12,427		)	(10,611		)	(30,049		)	(24,805		)
Total interest expense														43,775
Loss before income taxes														(68,580		)
Benefit from income taxes														(2,982		)
Net loss														$	(65,598	)

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(In thousands)	Six Months Ended June 30, 2019

	Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Net (loss) income	$	11,044	$	583	$	(10,363	)	$	(111,886	)	$	(58,326	)	$	(168,948	)
Plus: Total interest expense	188		—		88			1,464			6,774			8,514
Plus: (Benefit from) provision for income taxes	20		—		—			—			(473		)	(453		)
Plus: Depreciation and amortization	3,298		4,221		1,723			16,121			4,967			30,330
Plus: Long-term incentive compensation expenses	—		—		—			—			6,325			6,325
Plus: Settlement of contingent purchase obligation	—		—		—			—			360			360
Plus: Impairment charges	—		—		—			95,336			13,773			109,109
Plus: Loss on debt restructuring	—		—		—			—			2,270			2,270
Plus: Corporate restructuring and restatement costs	—		—		—			—			6,674			6,674
Adjusted EBITDA⁽¹⁾	$	14,550	$	4,804	$	(8,552	)	$	1,035		$	(17,656	)	$	(5,819	)



(In thousands)	Six Months Ended June 30, 2018

	Ascent		Active On-Demand		LTL			TL			Corporate/ Eliminations			Total
Net (loss) income	$	13,962	$	14,261	$	(12,483	)	$	(10,630	)	$	(70,708	)	$	(65,598	)
Plus: Total interest expense	59		—		56			19			43,641			43,775
Plus: Benefit from income taxes	—		—		—			—			(2,982		)	(2,982		)
Plus: Depreciation and amortization	2,356		4,030		1,813			8,507			1,483			18,189
Plus: Long-term incentive compensation expenses	—		—		—			—			1,003			1,003
Plus: Operations restructuring costs	—		—		—			4,655			—			4,655
Plus: Corporate restructuring and restatement costs	—		—		—			—			10,824			10,824
Adjusted EBITDA⁽¹⁾	$	16,377	$	18,291	$	(10,614	)	$	2,551		$	(16,739	)	$	9,866

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⁽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, loss on debt restructuring, settlements of contingent purchase obligations, operations restructuring costs, and corporate restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and 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.

⁽²⁾Operations restructuring costs of $4.7 million are included in other operating expenses within the TL segment. See Note 14 to our condensed consolidated financial statements for additional information.

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


(In thousands, except for statistics)	Three Months Ended								Three Months Ended								Six Months Ended
	March 31,								June 30,								June 30,
	2019			2018			% Change		2019			2018			% Change		2019			2018			% Change
Revenue	$	102,823		$	113,125		(9.1	)%	$	117,076		$	117,164		(0.1	)%	$	219,898		$	230,289		(4.5	)%
Less: Backhaul Revenue	1,029			—					774			3,133					1,803			3,133
Less: Eliminations	(68		)	(77		)			(71		)	(69		)			(140		)	(146		)
Adjusted Revenue⁽¹⁾	101,862			113,202			(10.0	)%	$	116,373		$	114,100		2.0	%	$	218,235		$	227,302		(4.0	%)

Adjusted Revenue excluding fuel⁽¹⁾	89,300			98,338			(9.2	)%	101,727			98,397			3.4	%	191,027			196,735			(2.9	%)

Adjusted Revenue per hundredweight (incl. fuel)	$	21.44		$	20.97		2.3	%	$	21.53		$	21.03		2.4	%	$	21.49		$	21.00		2.3	%
Adjusted Revenue per hundredweight (excl. fuel)	$	18.80		$	18.21		3.2	%	$	18.82		$	18.13		3.8	%	$	18.81		$	18.17		3.5	%
Adjusted Revenue per shipment (incl. fuel)	$	246.27		$	232.43		6.0	%	$	248.06		$	240.77		3.0	%	$	247.22		$	236.54		4.5	%
Adjusted Revenue per shipment (excl. fuel)	$	215.90		$	201.91		6.9	%	$	216.84		$	207.63		4.4	%	$	216.40		$	204.73		5.7	%
Weight per shipment (lbs.)	1,148			1,109			3.6	%	1,152			1,145			0.6	%	1,150			1,127			2.0	%
Shipments per day	6,565			7,610			(13.7	)%	7,330			7,405			(1.0	)%	6,951			7,507			(7.4	%)

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

Consolidated Results

Consolidated revenues decreased to ~~$507.1~~$480.7 million in the ~~first~~second quarter of 2019 compared to ~~$570.0~~$558.0 million in the ~~first~~second quarter of 2018. Lower revenues in all of our segments contributed to the decrease.

Our consolidated operating loss was ~~$20.8~~$137.8 million in the ~~first~~second quarter of 2019 compared to ~~$13.4~~$11.4 million in the ~~first~~second quarter of 2018. Lower consolidated operating results in the ~~first~~second quarter of 2019 were attributable to a decrease in operating results within all of our ~~TES and Ascent segments, partially offset by improved operating results in our LTL segment.~~segments. Also impacting consolidated operating loss ~~was a software~~in the second quarter of 2019 were impairment charges of $108.3 million. Included in the impairment charges were goodwill impairment charges of $92.9 million and an intangible asset impairment charge of ~~$0.8 million.~~$1.9 million within our TL segment. These impairment charges are discussed in further detail within Critical Accounting Policies and Estimates later in this discussion. We also recorded an asset impairment charge of $0.5 million related to assets held for sale in our TL segment and software impairment charges of $13.0 million associated with the abandonment of current software development in favor of alternative customized software solutions.

Our consolidated net loss was ~~$27.0~~$141.9 million in the ~~first~~second quarter of 2019 compared to ~~$23.6~~$42.0 million in the ~~first~~second quarter of 2018. In addition to the explanations provided above for our consolidated operating loss, our consolidated net loss in the ~~first~~second 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~~$4.6 million during the ~~first~~second quarter of 2019 from ~~$9.5~~$34.2 million during the ~~first~~second quarter of 2018, primarily due to the ~~waiver~~absence of interest on the preferred stock ~~until it~~(which was fully redeemed in the first quarter of 2019 after completion of the rights ~~offering,~~offering), partially offset by higher interest expense ~~on debt due to higher interest rates.~~from finance leases.

The ~~provision for~~benefit from income taxes was ~~$0.1~~$0.5 million for the ~~first~~second quarter of 2019 ~~and $0.7~~compared to $3.7 million for the ~~first~~second quarter of 2018. The effective tax rate was ~~(0.3)%~~0.4% during the ~~first~~second quarter of 2019 and ~~(2.9)%~~8.0% during the ~~first~~second quarter of 2018. The effective tax rate varies from the federal statutory rate of 21.0% primarily due to adjustments to the valuation allowance for deferred tax assets, adjustments for permanent differences, and state income taxes. The federal tax benefit for 2019 was entirely offset by adjustments to the valuation allowance. Significant permanent differences include the non-deductible portion of the goodwill impairment charge in ~~2018 include~~2019 and non-deductible interest expense associated with our preferred ~~stock.~~stock in 2018. The state tax benefit for both years was partially offset by adjustments to the valuation allowance.

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

~~Truckload & Express Services~~

~~Operating results in our TES segment declined to an operating loss of $3.7 million in the~~ ~~first~~ ~~quarter of 2019 compared to operating income of $4.4 million in the~~ ~~first~~ quarter of 2018. TES revenues decreased $51.2 million while purchased transportation costs decreased $46.7 million. The decline in TES revenues was primarily attributable to revenue declines in our ground expedited freight business. TES depreciation expense increased $4.9 million partially due to higher property and equipment balances attributable to finance leases. TES personnel and related benefits increased $1.6 million due primarily to higher driver wages, while other operating expenses decreased $2.9 million. The decrease in TES operating expenses was due to decreased equipment operating lease costs of $1.7 million and lower fuel costs of $1.3 million.

~~Less-than-Truckload~~

~~Operating results in our LTL segment improved to an operating loss of $5.8 million in the~~ ~~first~~ ~~quarter of 2019 compared to an operating loss of $8.7 million in the~~ ~~first~~ quarter of 2018. LTL revenues decreased $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. Purchased transportation decreased $10.4 million driven by lower pickup and delivery costs as well as lower purchased power and improved planning and efficiency which positively impacted linehaul expense. LTL personnel and related benefits decreased $0.6 million while other operating expenses decreased $1.9 million. The decrease in LTL other operating expenses was primarily due to our focus on overall cost management.

Ascent Global Logistics

Operating results in our Ascent segment ~~were lower~~declined as operating income was ~~$5.4~~$5.9 million in the ~~first~~second quarter of 2019 compared to ~~$6.7~~$7.3 million in the ~~first~~second quarter of 2018. Ascent revenues decreased ~~$3.3~~$14.5 million and purchased transportation decreased ~~$3.0~~$13.7 million primarily attributable to lower volumes and rates in our domestic freight management business, partially offset by improvements in our international freight forwarding (expanded volumes at new and existing customers) and our retail consolidation business (growth from new and existing customers). Ascent personnel and related benefits increased ~~$1.6~~$1.0 million. Other operating expenses decreased $0.8 million primarily due to our focus on overall cost management.

Active On-Demand

Operating results in our Active On-Demand segment declined to an operating loss of $2.6 million in the second quarter of 2019 compared to operating income of $7.8 million in the second quarter of 2018. Active On-Demand revenues decreased $63.3 million and purchased transportation decreased $53.2 million primarily attributable to lower market demand for both air and ground expedite, which negatively impacted volumes and rates.

Less-than-Truckload

Operating results in our LTL segment declined to an operating loss of $4.4 million in the second quarter of 2019 compared to an operating loss of $3.7 million in the second quarter of 2018. LTL revenues were flat quarter over quarter, however, excluding backhaul and fuel surcharge revenue, revenues increased 3.4%. Purchased transportation decreased $1.5 million driven by lower pickup and delivery costs as well as lower purchased power and improved planning and efficiency. LTL personnel and related benefits increased $1.3 million, while other operating expenses increased $0.6 million. The increase in LTL other operating expenses was primarily due to higher equipment repair and maintenance costs of $1.7 million, partially offset by lower bad debt expense.

Truckload

Operating results in our TL segment declined to an operating loss of $103.5 million in the second quarter of 2019 compared to an operating loss of $8.6 million in the second quarter of 2018. TL operating results for the second quarter of 2019 were negatively impacted by the previously mentioned impairment charges of $95.3 million. TL operating results for the second quarter

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of 2018 included 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 in our temperature controlled and intermodal businesses. TL revenues decreased $4.3 million while purchased transportation costs increased $1.2 million. The decline in TL revenues was primarily attributable to revenue declines at our temperature controlled and intermodal businesses, partially offset by higher revenues in our dry van business. TL depreciation expense increased $2.8 million due to higher property and equipment balances attributable to finance leases. TL personnel and related benefits decreased $0.5 million, while other operating expenses decreased ~~$1.0 million~~$8.3 million. The decrease in TL operating expenses was primarily due to the previously mentioned operations restructuring costs of $4.7 million that impacted the second quarter of 2018. Also contributing to lower ~~cargo claims expense.~~operating expenses was lower equipment operating lease costs of $2.6 million and lower fuel costs of $2.1 million.

Other Operating Expenses

Other operating expenses that were not allocated to our ~~TES,~~Ascent, Active On-Demand, LTL or ~~Ascent~~TL segments ~~decreased to $6.6~~were flat as we incurred $7.2 million in the ~~first~~second quarter of 2019 compared to ~~$8.7~~$7.2 million in the ~~first~~second quarter of 2018. Restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, SEC and accounting compliance, and restructuring were $3.2 million and $3.9 million in the second quarter of 2019 and 2018, respectively. Also impacting other operating expenses was higher rental income from equipment leased to ICs, partially offset by higher insurance costs and higher legal settlements.

Additionally, software impairment charges of $13.0 million in the second quarter of 2019 associated with the abandonment of current software development in favor of alternative customized software solutions were not allocated to our segments.

Six Months EndedJune 30, 2019 Compared to Six Months Ended June 30, 2018

Consolidated Results

Consolidated revenues decreased to $987.8 million in the first half of 2019 compared to $1,128.0 million in the first half of 2018. Lower revenues in all of our segments contributed to the decrease.

Our consolidated operating loss was $158.6 million in the first half of 2019 compared to $24.8 million in the first half of 2018. Lower consolidated operating results in the first half of 2019 were attributable to a decrease in operating results within our TL, Active On-Demand and Ascent segments, partially offset by improved operating results in our LTL segment. Also impacting consolidated operating loss in the first half of 2019 were impairment charges of $109.1 million. Included in the impairment charges were goodwill impairment charges of $92.9 million and an intangible asset impairment charge of $1.9 million within our TL segment. These impairment charges are discussed in further detail within Critical Accounting Policies and Estimates later in this discussion. We also recorded an asset impairment charge of $0.5 million related to assets held for sale in our TL segment and software impairment charges of $13.8 million associated with the abandonment of current software development in favor of alternative customized software solutions.

Our consolidated net loss was $168.9 million in the first half of 2019 compared to $65.6 million in the first half of 2018. In addition to the explanations provided above for our consolidated operating loss, our consolidated net loss in the first half of 2019 was impacted by a decrease in interest expense, partially offset by a loss on debt restructuring of $2.3 million.

Interest expense decreased to $8.5 million during the first half of 2019 from $43.8 million during the first half of 2018, primarily due to the waiver of interest on the preferred stock until it was fully redeemed in the first quarter of 2019 after completion of the rights offering, partially offset by higher interest expense from finance leases.

The benefit from income taxes was $0.5 million for the first half of 2019 compared to $3.0 million for the first half of 2018. The effective tax rate was 0.3% during the first half of 2019 and 4.3% during the first half of 2018. The effective tax rate varies from the federal statutory rate of 21.0% primarily due to adjustments to the valuation allowance for deferred tax assets, adjustments for permanent differences, and state income taxes. The federal tax benefit for 2019 was entirely offset by adjustments to the valuation allowance. Significant permanent differences include the non-deductible portion of the goodwill impairment charge in 2019 and non-deductible interest expense associated with our preferred stock in 2018. The state tax benefit for both years was partially offset by adjustments to the valuation allowance.

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

Ascent Global Logistics

Operating results in our Ascent segment declined as operating income was $11.3 million in the first half of 2019 compared to $14.0 million in the first half of 2018. Ascent revenues decreased $17.7 million and purchased transportation decreased $16.7 million primarily attributable to lower volumes and rates in our domestic freight management business, partially offset by improvements in our international freight forwarding (expanded volumes at new and existing customers) and our retail consolidation

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business (growth from new and existing customers). Ascent personnel and related benefits increased $2.6 million. Other operating expenses decreased $1.8 million primarily due to our focus on overall cost management.

Active On-Demand

Operating results in our Active On-Demand segment declined as operating income was $0.6 million in the first half of 2019 compared to $14.3 million in the first half of 2018. Active On-Demand revenues decreased $115.3 million and purchased transportation decreased $103.6 million, attributable to lower market demand for both air and ground expedite, which negatively impacted volumes and rates. Also impacting revenue was a reduced capture rate on our fleets due to reduced aircraft availability. Active On-Demand personnel and related benefits increased $1.4 million and other operating expenses increased $0.5 million primarily due to higher aircraft maintenance costs.

Less-than-Truckload

Operating results in our LTL segment improved to an operating loss of $10.3 million in the first half of 2019 compared to an operating loss of $12.4 million in the first half of 2018. LTL revenues decreased $10.4 million due to a decrease in shipping volumes related to a reduction in selected service areas in order to reduce unprofitable freight. Purchased transportation decreased $11.9 million driven by lower volumes and lower pickup and delivery costs as well as lower purchased power and improved planning and efficiency, which positively impacted linehaul expense. LTL personnel and related benefits increased $0.7 million, while other operating expenses decreased $1.3 million. The decrease in LTL other operating expenses was primarily due to our focus on overall cost management.

Truckload

Operating results in our TL segment declined to an operating loss of $110.4 million in the first half of 2019 compared to an operating loss of $10.6 million in the first half of 2018. TL operating results for the first half of 2019 were negatively impacted by the previously mentioned impairment charges of $95.3 million. TL operating results for the first half of 2018 included the previously mentioned operations restructuring costs of $4.7 million. TL revenues decreased $11.8 million while purchased transportation costs decreased $3.3 million. The decline in TL revenues was primarily attributable to revenue declines at our temperature controlled and intermodal businesses. TL depreciation expense increased $7.6 million due to higher property and equipment balances attributable to finance leases. TL personnel and related benefits decreased $0.1 million, while other operating expenses decreased $11.5 million. The decrease in TL operating expenses was primarily due to the previously mentioned operations restructuring costs of $4.7 million that impacted the first half of 2018. Also contributing to lower operating expenses was lower equipment operating lease costs of $4.4 million and lower fuel costs of $3.2 million.

Other Operating Expenses

Other operating expenses that were not allocated to our Ascent, Active On-Demand, LTL or TL segments decreased to $13.8 million in the first half of 2019 compared to $16.0 million in the first half of 2018 primarily due to lower restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, SEC and accounting

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compliance, and restructuring of ~~$3.4~~$6.7 million and ~~$6.9~~$10.8 million in the first ~~quarter~~ half of 2019 and 2018, respectively. Also contributing to the decrease was higher rental income from equipment leased to ICs, partially offset by higher ~~professional fees.~~insurance costs and higher legal settlements.

Additionally, software impairment charges of $13.8 million in the first half of 2019 associated with the abandonment of current software development in favor of alternative customized software solutions were not allocated to our segments.

Liquidity and Capital Resources

Our primary sources of cash have been borrowings under our credit facilities, the issuance of common stock, the issuance of preferred stock, and cash flows from operations. Our primary cash needs are and have been to fund normal working capital requirements, repay our indebtedness, and finance capital expenditures. As of ~~March 31,~~June 30, 2019, we had $~~4.6~~4.9 million in cash and cash equivalents. Our ability to access our cash may be limited from time to time if doing so would result in a default under our credit facilities. As we have experienced negative operating cash flows, we may also decide to divest business units; issue new equity or debt, in private or public offerings; or obtain other financial support to to further reduce our indebtedness and/or reinvest in our business, finance acquisitions, strengthen our balance sheet, reduce our cost of capital, or fund capital expenditures.

Rights Offering and Preferred Stock

On February 26, 2019, we 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

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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 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 our capital structure in a manner that gave the Company's existing stockholders the opportunity to participate on a pro rata basis.

The preferred stock was mandatorily redeemable and, as such, was presented as a liability on the condensed consolidated balance sheets. At each preferred stock dividend payment date, we had the option to pay the accrued dividends in cash or to defer them. Deferred dividends earned dividend 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~~$31.6 million and $37.7 million during the three and six months ended ~~March 31,~~June 30, 2018, respectively, 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%

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Credit Facilities

ABL Credit Facility

On 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)~~Facility), (ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL Credit ~~Agreement)~~Facility), and (iii) $30.0 million may be used for letters of credit. The ABL Credit ~~Agreement~~Facility provides that the revolving line of credit may be increased by up to an additional $100.0 million under certain circumstances. We initially borrowed $141.4 million under the ABL Credit Facility and used the initial proceeds for working capital purposes and to repay our Prior ABL Facility. The ABL Credit Facility matures on February 28, 2024.

On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into the ABL Facility Amendment. Pursuant to the ABL Facility Amendment, the ABL Credit Facility was amended to, among other things, add Acceptable Letters of Credit (as defined in the ABL Facility Amendment) to the Borrowing Base (as defined in the ABL Credit Facility as amended by the ABL Facility Amendment).

Term Loan Credit Facility

On February 28, 2019, we and our direct and indirect domestic subsidiaries entered into the Term Loan Credit Facility. The Term Loan Credit Facility consists of an approximately $61.1 million term loan facility, consisting of (i) approximately $40.3 million of Tranche A Term Loans (as defined in the Term Loan Credit ~~Agreement)~~Facility), (ii) approximately $2.5 million of Tranche A FILO Term Loans (as defined in the Term Loan Credit ~~Agreement)~~Facility), (iii) approximately $8.3 million of Tranche B Term Loans (as defined in the Term Loan Credit ~~Agreement)~~Facility), and (iv) a $10.0 million asset-based facility available to finance future capital expenditures. We initially borrowed $51.1 million under the Term Loan Credit Facility and used the proceeds for working capital purposes and to repay our Prior ABL Facility. The Term Loan Credit Facility matures on February 28, 2024.

On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into the Term Loan Facility Amendment. Pursuant to the Term Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things: (i) defer the September 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on August 2, 2019 and continuing until payment of the December 1, 2019 quarterly amortization payments.

The Prior ABL Facility 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.

As previously mentioned, the Prior ABL Facility was paid off with the proceeds from the ABL Credit Facility and the Term Loan Credit Facility.

Fee Letter

On August 2, 2019, we entered into the Fee Letter. Pursuant to the Fee Letter, Elliott agreed to arrange for Letters of Credit in an aggregate face amount of $20 million to support our obligations under our ABL Credit Facility. As consideration for Elliott providing the Letters of Credit, we agreed to (i) pay Elliott a fee on the LC Amount, accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by us of the LC Amount to Elliott), at a rate equal to the LIBOR Rate (as defined in the ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any draw on the Letters of Credit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the Letters of Credit, in each case subject to the terms and conditions of the Fee Letter.

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

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Trading of the Company's ~~common stock~~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.~~12, 2019 that a calculation of our average stock price for the 30-trading days ended April 12, 2019, ~~indicted~~indicated that our stock price was above the NYSE's minimum requirements of $1.00 based on a 30-trading day average. Accordingly, we are now in compliance with the $1.00 continued listed criterion.

Cash Flows

A summary of operating, investing, and financing activities are shown in the following table (in thousands):


	Three Months Ended						Six Months Ended
	March 31,						June 30,
	2019			2018			2019			2018
Net cash (used in) provided by:
Operating activities	$	(13,922	)	$	(10,198	)	$	(19,546	)	$	(906	)
Investing activities	(7,785		)	(5,662		)	(11,161		)	(10,464		)
Financing activities	15,140			10,927			24,424			21,306
Net change in cash and cash equivalents	$	(6,567	)	$	(4,933	)	$	(6,283	)	$	9,936

Cash Flows from Operating Activities

Cash used in operating activities primarily consists of net loss adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, provision for bad debts, deferred taxes, and the effect of changes in working capital and other activities.

The difference between our ~~$27.0~~$168.9 million of net loss and the ~~$13.9~~$19.5 million of cash used in operating activities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 was primarily attributable to ~~$15.8~~$109.1 million of non-cash impairment charges, $30.7 million of depreciation and amortization expense, $4.7 million of share-based compensation expense and a loss on debt restructuring of $2.3 million ~~and $1.6~~with the remainder attributable to changes in working capital.

The difference between our $65.6 million of ~~share-based compensation~~net loss and the $0.9 million of cash used in operating activities during the six months ended June 30, 2018 was primarily attributable to the change in the value of our preferred stock of $37.7 million and $18.6 million of depreciation and amortization 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 $6.1 million with the remainder attributable to changes in working capital.

Cash Flows from Investing Activities

Cash used in investing activities was ~~$7.8~~$11.2 million during the ~~three~~six months ended ~~March 31,~~June 30, 2019, which was attributable to ~~$8.6~~$13.0 million of capital expenditures used to support our operations, partially offset by the proceeds from the sale of equipment of ~~$0.8~~$1.9 million. We expect ~~to use approximately $20 million of cash in 2019 to fund expected~~ total capital expenditures to be in a range of $95 to $105 million, excluding conversions of operating leases to finance leases. A majority of our 2019 capital expenditures are expected to be funded with finance leases as opposed to up-front ~~cash.~~cash, however, we expect to spend approximately $20 million of cash in 2019.

Cash used in investing activities was ~~$5.7~~$10.5 million during the ~~three~~six months ended ~~March 31,~~June 30, 2018, which was attributable to ~~$5.7~~$11.4 million of capital expenditures used to support our ~~operations.~~operations, partially offset by the proceeds from the sale of equipment of $0.9 million.

Cash Flows from Financing Activities

Cash provided by financing activities was ~~$15.1~~$24.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2019, which primarily reflects the issuance of common stock from the rights offering of $450.0 million, partially offset by the repayments of the preferred stock and related accrued and unpaid dividends of $402.9 million, common stock issuance costs of $10.5 million, ~~a reduction in borrowings of $8.8 million,~~ payments on insurance premium financing of ~~$6.0~~$10.0 million, a reduction in borrowings of $9.7 million, and payments on finance lease obligations of ~~$4.0~~$9.1 million.

Cash provided by financing activities was ~~$10.9~~$21.3 million during the ~~three~~six months ended ~~March 31,~~June 30, 2018, which primarily reflects the issuance of Series E-1 ~~preferred stock~~Preferred Stock of ~~$17.5~~$35.0 million, partially offset by a reduction in borrowings of ~~$5.4~~$11.8 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, 2018 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.

Leases

In accordance with the adoption of the new accounting standard for Leases (Topic 842), we have revised our accounting policy for ~~leases as follows:~~

~~Leases~~

leases. 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 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 equipment. We do not recognize leases with an original lease term of 12 months or less on the condensed consolidated balance sheets but will disclose the related lease expense for these short-term leases. 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.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price of all acquisitions over the estimated fair value of the net assets acquired. We evaluate goodwill and intangible assets for impairment at least annually on July 1st 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 us 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 our reporting units is estimated based upon an average of the market approach and the income approach, both of which incorporate numerous assumptions and estimates such as company forecasts, discount rates, and growth rates, among others. The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires us 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 we compete, 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 we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions

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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 our stock may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.

Prior to the change in segments, we had four reporting units for our three segments: one reporting unit for our TES segment; one reporting unit for our LTL segment; and two reporting units for our Ascent segment, which are the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit.

In connection with the change in segments, we conducted an impairment analysis as of April 1, 2019. Due to the inability of the TES businesses to meet forecast results, we determined the carrying value exceeded the fair value for the TES reporting unit. Accordingly, we recorded a goodwill impairment charge of $92.9 million which represents a write off of all the TES goodwill. Given the fact that all of the goodwill was impaired, there was no remaining TES goodwill to allocate to the TL and Active On-Demand segments. The fair value of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit exceeded their respective carrying values by 3.1%, and 109.0%, respectively; thus no impairment was indicated for these reporting units. The goodwill balances of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit as of June 30, 2019 were $98.5 million and $73.4 million, respectively. The LTL reporting unit had no remaining goodwill as of April 1, 2019.

The table below provides a sensitivity analysis for the Domestic and International Logistics and Warehousing & Consolidation reporting units, which shows the estimated fair value impacts related to a 50-basis point increase or decrease in the discount and long-term growth rates used in the valuation as of April 1, 2019.



	Approximate Percent Change in Estimated Fair Value
	+/- 50 bps Discount Rate	+/- 50bps Growth Rate

Domestic and International Logistics reporting unit	(2.5%) / 2.5%	1.5% / (1.8%)
Warehousing & Consolidation reporting unit	(2.2%) / 2.2%	1.6% / (1.9%)

Other intangible assets recorded consisted primarily of definite lived customer relationships. We evaluate our other intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and used may not be recoverable. Indicators of impairment were identified in connection with the operating performance of one of our business operations within the TL segment, and as a result, $1.9 million of non-cash impairment charges were recorded in the second quarter of 2019. We identified indicators of impairment with certain other business operations and performed the required impairment analysis, but no impairment was identified.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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 ~~March 31,~~June 30, 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, 2018 were still present as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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, 2018.

Changes in Internal Control Over Financial Reporting

There were no changes during the quarter ended ~~March 31,~~June 30, 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, 2018 are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. This remediation effort will be a multi-year process, continuing in 2019 and subsequent years as necessary. We will test the ongoing operating effectiveness of the new and existing controls in 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 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, 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 ~~March 31,~~June 30, 2019 and December 31, 2018, we had reserves for estimated uninsured losses of ~~$28.0~~$28.9 million and $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 against certain of our subsidiaries in state court in California in a post-acquisition dispute. The complaint alleges contract, statutory and tort-based claims arising out of 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 our motion to compel arbitration of all non-employment claims alleged in the 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 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.~~liabilities at December 31, 2018. In July 2019, the $2.1 million settlement was approved by the court. In light of the court order, we have offered to pay $2.2 million to the plaintiff to settle this matter. Our offer includes a reimbursement for legal fees incurred by the plaintiff. As such, the Company recorded an adjustment of $0.4 million in the second quarter of 2019 to increase its contingent purchase obligation to $2.2 million, which is recorded in accrued expenses and other current liabilities at June 30, 2019. In July 2019, we paid the plaintiffs the $2.1 million settlement amount. We intend to pursue indemnification and other claims as it relates to the 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~~On June 14, 2019, the parties reached a ~~second letter dated~~settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of liability and the settlement amount was paid by us in July ~~30, 2018 in which counsel for Warren offered to settle its claim for a monetary payment by us. We subsequently sent a counter-offer to Warren, which was rejected. 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~~six months ended ~~March 31,~~June 30, 2019. As of ~~March 31,~~June 30, 2019 and December 31, 2018, we have a liability for settlements, litigation, and defense costs related to these labor matters ~~the Central Cal Matter~~ and the Warren Matter of ~~$1.6~~$2.2 million and $10.8 million, respectively, which are recorded in accrued expenses and other current liabilities on the 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

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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,~~In 2017, three putative class actions were filed in the United States District Court for the Eastern District of Wisconsin against us and our former officers, Mark A. DiBlasi and Peter R. Armbruster. On May 19, 2017, the Court consolidated the actions under the caption In re Roadrunner Transportation Systems, Inc. Securities Litigation (Case No. 17-cv-00144), and appointed Public Employees’ Retirement System as lead plaintiff. On March 12, 2018, the lead plaintiff filed 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 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 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 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 finalizing the Stipulation of Settlement. The settlement is conditioned on a settlement of the Federal Derivative Action described below, dismissal of the State Derivative Action described below, and final court approval of the settlements in this action and in the Federal Derivative Action.

On May 25, 2017, Richard Flanagan filed a complaint alleging derivative claims on our behalf in the Circuit Court of Milwaukee County, State of Wisconsin (Case No. 17-cv-004401) against Scott Rued, Mark DiBlasi, Christopher Doerr, John Kennedy, III, Brian Murray, James Staley, Curtis Stoelting, William Urkiel, Judith Vijums, Michael Ward, Chad Utrup, Ivor Evans, Peter Armbruster, and Brian van Helden (the “State Derivative Action”). Count I of the 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 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 pending 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 case was stayed, the 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 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 Kent v. Stoelting et al (Case No. 17-cv-00893) (the “Federal Derivative Action”). On March 28, 2018, 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 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 breached their fiduciary duty. Count III alleges that all the defendants wasted corporate assets. Count IV alleges that certain of the defendants were unjustly enriched. The complaint seeks monetary damages, improvements to our corporate governance and internal procedures, an accounting from defendants of the damages allegedly caused by them and the improper amounts the Defendants allegedly obtained, and punitive damages. The parties are currently finalizing the terms of a Stipulation of Settlement, which provides for certain corporate governance changes and a $6.9 million payment, $4.8 million of which will be paid by our D&O carriers into an escrow account to be used by us to settle the class action described above and $2.1 million of which will be paid by our D&O carriers to cover plaintiffs attorney’s fees and expenses, subject to court approval.

Given the status of the matters above, we concluded in the third quarter of 2018 that a liability is probable and recorded the 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, Financial Industry Regulatory Authority (“FINRA”), and the Department of Justice (“DOJ”). The

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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 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 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. 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 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, 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 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, ~~2018.~~2018, except as noted below.

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

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

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• reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities, and other purposes;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which would place us at a competitive disadvantage;

• limiting our ability to obtain additional capital; and

• increasing our vulnerability to general adverse economic and industry conditions.

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



ITEM 5.	OTHER INFORMATION

ABL Facility Amendment

On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into a First Amendment to Credit Agreement (the “ABL Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent, Lender, Letter of Credit Issuer and Swing Line Lender, Wells Fargo Bank, National Association and Bank of America, National Association, as Lenders, and the Joint Lead Arrangers and Joint Book Runners party thereto with respect to our Credit Agreement, dated as of February 28, 2019 (the “ABL Credit Facility”). Pursuant to the ABL Facility Amendment, the ABL Credit Facility was amended to, among other things, add Acceptable Letters of Credit (as defined in the ABL Facility Amendment) to the Borrowing Base (as defined in the ABL Credit Facility as amended by the ABL Facility Amendment).

The foregoing description of the terms of the ABL Facility Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the ABL Facility Amendment, a copy of which is attached hereto as Exhibit 10.52(A).

Term Loan Facility Amendment

On August 2, 2019, we and our direct and indirect domestic subsidiaries entered into a First Amendment to Credit Agreement (the “Term Loan Facility Amendment”) with BMO Harris Bank N.A., as Administrative Agent and Lender, Elliott, as Lenders, and BMO Capital Markets Corp., as Lead Arranger and Book Runner, with respect to our Credit Agreement, dated as of February 28, 2019 (the “Term Loan Credit Facility”). Pursuant to the Term Loan Facility Amendment, the Term Loan Credit Facility was amended to, among other things: (i) defer the September 1, 2019 quarterly amortization payments otherwise due thereunder to December 1, 2019, and (ii) provide that CapX Loans (as defined in the Term Loan Credit Facility) shall not be available during the period commencing on August 2, 2019 and continuing until payment of the December 1, 2019 quarterly amortization payments.

The foregoing description of the terms of the Term Loan Facility Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Term Loan Facility Amendment, a copy of which is attached hereto as Exhibit 10.53(A).

Fee Letter

On August 2, 2019, we entered into a letter agreement (the “Fee Letter”) with Elliott Associates, L.P. and Elliott International, L.P. Pursuant to the Fee Letter, Elliott agreed to arrange for standby letters of credit (“Letters of Credit”) in an aggregate face amount of $20 million (the “Face Amount”) to support our obligations under our ABL Credit Facility. As consideration for Elliott providing the Letters of Credit, we agreed to (i) pay Elliott a fee (the “Letter of Credit Fee”) on the LC Amount (as hereafter defined), accruing from the date of issuance through the date of expiration (or if drawn, the date of reimbursement by us of the LC Amount to Elliott), at a rate equal to the LIBOR Rate (as defined in the ABL Credit Facility) plus 7.50%, which will be payable in kind by adding the amount then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any draw on the Letters of Credit, including the amount of such draw and any taxes, fees, charges, or other costs or expenses reasonably incurred by Elliot in connection with such draw, promptly after receipt of notice of any such drawing under the Letters of Credit, in each case subject

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to the terms and conditions of the Fee Letter. "LC Amount" means the Face Amount, as increased by the amount of payment in kind Letter of Credit Fee added to such amount on the last day of each interest period.

The foregoing description of the terms of the Fee Letter does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Fee Letter, a copy of which is attached hereto as Exhibit 10.58.



ITEM 6.	EXHIBITS



Exhibit Number		Exhibit

3.1		Certificate of Amendment of Amended and Restated Certificate of Incorporation of Roadrunner Transportation Systems, Inc., ~~as amended~~filed with the Secretary of State of the State of Delaware on April 4, 2019 (1)

~~4.4~~10.52(A)+		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~~First 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,~~August 2, 2019, among Roadrunner Transportation Systems, Inc., the Lenders (as defined therein), BMO Harris Bank, N.A., and the other parties ~~thereto.~~thereto ~~(2)~~

~~10.53~~10.53(A)+		First Amendment to Credit Agreement, entered into as of ~~February 28,~~August 2, 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~~thereto

10.5510.57+		Form of Performance Restricted Stock Unit Agreement

~~10.56*+~~10.58+		~~Form~~Fee Letter, entered into as of ~~Performance Restricted Stock Unit Agreement~~August 2, 2019, among Roadrunner Transportation Systems, Inc., Elliott Associates, L.P., and Elliott International, L.P.

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,~~April 5, 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: ~~May~~August 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	4
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2627
Item 3. Quantitative and Qualitative Disclosures about Market Risk	3543
Item 4. Controls and Procedures	3644

PART II. OTHER INFORMATION	3745
Item 1. Legal Proceedings	3745
Item 1A. Risk Factors	3947
Item 5. Other Information	48
Item 6. Exhibits	4049

Signatures	4150



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



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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company