EVO TRANSPORTATION & ENERGY SERVICES, INC. Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in Item 1
of Part I of this report and the audited consolidated financial statements and
related notes thereto and the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in our
Annual Report on Form 10-K for the fiscal year ended
Forward-looking statements are based on information available to management at
the time the statements are made and involve known and unknown risks,
uncertainties and other factors that may cause our results, levels of activity,
performance or achievements to be materially different from the information
expressed or implied by the forward-looking statements. Such statements reflect
the current view of management with respect to future events and are subject to
risks, uncertainties, assumptions and other factors (including the risks
contained in the section entitled "Risk Factors" of our Annual Report on Form
10-K for the fiscal year ended
• Our ability to recruit and retain qualified drivers;
• Future equipment (including tractor and box truck) prices, our equipment
purchasing plans, and our equipment turnover (including expected tractor
trade-ins);
• The expected freight environment, including freight demand and volumes;
• Future third-party service provider relationships and availability;
• Future contracted pay rates with independent contractors and compensation
arrangements with drivers;
• Future supply, demand, use and prices of crude oil, gasoline, diesel,
natural gas and other vehicle fuels, such as electricity, hydrogen,
renewable diesel, biodiesel and ethanol;
• Our expectations regarding the market's perception of the benefits of
conventional and renewable natural gas relative to gasoline and diesel and
other alternative vehicle fuels and electronically powered vehicles,
including with respect to factors such as supply, cost savings,
environmental benefits and safety;
• The competitive environment in which we operate, and the nature and impact
of competitive developments in our industry;
• Potential adoption of government policies or programs that favor vehicles or
vehicle fuels other than natural gas, including long-standing support for
gasoline and diesel-powered vehicles and growing support for electric and
hydrogen-powered vehicles;
• The impact of, or potential for changes to, emissions requirements
applicable to vehicles powered by gasoline, diesel, natural gas or other
vehicle fuels, as well as emissions and other environmental regulations and
pressures on crude oil and natural gas drilling, production, importing or
transportation methods and fueling stations for these fuels;
• Developments in our products and services offering, including any new
business activities we may pursue in the future;
• The success and importance of any acquisitions, divestitures, investments or
other strategic relationships or transactions;
• The general strategies adopted by the USPS with respect to its third party
surface transportation suppliers;
• The impacts of the COVID-19 global pandemic;
• General political, regulatory, economic and market conditions;
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• Our need for and access to additional capital to fund our business or repay
our debt, through selling assets or pursuing equity, debt or other types of
financing; and
• The flexibility of our model to adapt to market conditions.
Although management believes that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of
Background and Recent Developments
We have grown primarily through acquisitions, and we have completed six
acquisitions since our initial business combination in 2016. We have also grown
organically by obtaining new contracts from the
Sources of Revenue
Our
Our freight trucking operations generates revenue for our trucking segment by providing both irregular and dedicated route and cross-border transportation services of various products, goods, and materials for a diverse customer base.
Our CNG station revenue is derived predominately pursuant to contractual fuel purchase commitments. These contracts typically include a stand-ready obligation to supply natural gas daily. The CNG stations are also open to individual consumers. In addition to revenue earned from our customers, we may also earn alternative fuel tax credits through certain federal programs. These programs are generally short-term in nature and require legislation to be passed extending the term.
Results from Operations
Three months ended
Trucking Segment
Substantially all of the increases in Trucking revenue and operating expenses
from the three months ended
Trucking revenue: The Company earned trucking revenue for the first time in 2018
as a result of the
Payroll, benefits and related: Of the Company's 1,324 employees at
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Purchased transportation: Purchased transportation represents payments to
subcontracted third party companies. These contracts are negotiated on a rate
per mile basis and the subcontracting company is responsible for supplying all
resources to perform the service including, but not limited to, labor,
equipment, fuel and associated expenses. The Company utilized purchased
transportation for less than 10% of the Company's total miles for the three
months ended
Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors.
Equipment rent: The Company rents and leases the majority of its trucks and trailers through a combination of short and long-term arrangements. Efforts are currently underway to rebalance the fleet towards having more company-owned assets to achieve the expected returns, subject to financing availability.
Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet.
Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the trucking segment.
Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers comp expense related to the trucking segment of the business.
CNG Fueling Stations Segment
CNG revenue: Revenue for the CNG stations was
CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees.
EVO Consolidated
General and administrative: General and administrative expense was
Depreciation and amortization: Depreciation and amortization expense was
Interest expense: Interest expense increased to
Nine months ended
Trucking Segment
Substantially all of the increases in Trucking revenue and operating expenses
from the nine months ended
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Trucking revenue: The Company earned trucking revenue for the first time in 2018
as a result of the
Payroll, benefits and related: Of the Company's 1,324 employees at
Purchased transportation: Purchased transportation represents payments to
subcontracted third party companies. These contracts are negotiated on a rate
per mile basis and the subcontracting company is responsible for supplying all
resources to perform the service including, but not limited to, equipment, fuel
and associated expenses. The Company utilized purchased transportation for less
than 10% of the Company's total miles for the nine months ended
Fuel: Fuel expense is comprised of diesel and CNG fuel required to operate the truck fleet. The Company manages fuel cost by negotiating volume discounts from rack fuel rates with select vendors.
Equipment rent: The Company rents and leases a portion of its trucks and trailers through a combination of short and long-term arrangements. Efforts are currently underway to rebalance the fleet towards having more company-owned assets to achieve the expected returns, subject to financing availability.
Maintenance and Supplies: Maintenance and supplies expense primarily includes the costs to maintain the fleet.
Operating supplies and expenses: Operating and supplies expense includes all other direct costs in the trucking segment.
Insurance and claims: Insurance and claims is comprised of auto liability and physical damage and workers comp expense related to the trucking segment of the business.
CNG Fueling Stations Segment
CNG revenue: Revenue for the CNG stations was
CNG operating expenses: CNG operating expense is comprised of natural gas, electricity, federal excise tax, vendor use fuel tax and credit card fees.
EVO Consolidated
General and administrative: General and administrative expense was
Depreciation and amortization: Depreciation and amortization expense was
Interest expense: Interest expense increased to
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Liquidity and Capital Resources
Nine Months Ended
Changes in Liquidity
Cash and Cash Equivalents. Cash and cash equivalents were
Operating Activities. Net cash used in operations was
For the nine months ended
Investing Activities. Net cash used in investing activities was
Financing Activities. Net cash provided by financing activities was
Sources of Liquidity
Our primary historical and future sources of liquidity are cash on hand (
Uses of Liquidity
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, and payments for fuel, maintenance and supplies, and other expenses. We also use large amounts of cash and credit for principal and interest payments, as well as operating and finance lease liabilities and capital expenditures to fund the replacement and/or growth in our tractor and trailer fleet.
Going Concern
As of
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The following significant transactions and events affecting the Company's
liquidity occurred following the nine months ended
• During the fourth quarter of 2019, the Company borrowed the remaining $2.1
million available under the Financing Agreement.
• During the first quarter of 2020, the Company entered into Forbearance
Agreements and Incremental Amendments to the Financing Agreement with
Antara Capital and obtained an additional $6.3 million in term loan
commitments and the lenders agreed to forbear from exercising certain
rights, remedies, powers, privileges, and defenses under the Financing
Agreement during the forbearance period. These incremental borrowings were
subject to the same terms as the Company's existing term loan commitments
with Antara Capital . During the fourth quarter of 2020, in connection with
the Company's borrowing under the Main Street Priority Loan Program (as
subsequently discussed), the Company paid down the aggregate principal
amount due to Antara, including capitalized interest, from $22.5 million
at September 30, 2019 (and $31.7 million after the fourth quarter 2019 and
first quarter 2020 borrowings) to $16.7 million , the forbearance period
related to the remaining Antara debt was terminated and all existing
defaults and events of defaults were waived, and the maturity date of the
remaining outstanding term loan balance under the Antara Financing
Agreement was extended from September 16, 2022 to the earlier of the date
that is ninety-one days after the fifth anniversary of the closing date of
the Main Street Loan or the date that is ninety-one days after the date
the Main Street Loan is paid in full.
• During the first quarter of 2020, the Company sold a total of 1,260,000
shares of its common stock and 1,000,000 shares of its Series B preferred
stock to related parties for aggregate gross proceeds of $6.2 million
pursuant to the terms of subscription agreements.
• During the second quarter of 2020, the Company obtained a loan in the
amount of $10.0 million under the Paycheck Protection Program (the "PPP")
of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The
principal amount of the loan and accrued interest are eligible for
forgiveness, and the Company has submitted a request for such forgiveness.
• During the fourth quarter of 2020, the Company borrowed $17.0 million
under the Main Street Priority Loan Program authorized by Section 13(3) of
the Federal Reserve Act (the "Main Street Loan") and used all of the net
proceeds to refinance a portion of the amount outstanding under the Antara
Financing Agreement and to pay related prepayment premiums. The entire
outstanding principal balance of the Main Street Loan, together with all
accrued and unpaid interest, is due and payable in full on December 14,
2025 .
• During the first quarter of 2021, the Company entered into agreements with
the USPS to settle claims submitted by the Company seeking additional
compensation for work performed under Dynamic Route Optimization ("DRO")
contracts since 2018. The Company received a total of $28.4 million
related to this historical work performed and also renegotiated the
contractual rates per mile for some of its DRO contracts on a prospective
basis.
• During the first quarter of 2021, the Company entered into an agreement
with its factoring lender ("Triumph") related to the application of $17.5
million of proceeds received from the USPS arising out of prior
underpayments on certain DRO contracts. Pursuant to the agreement, the
parties agreed that Triumph would remit $11.0 million of net proceeds to
the Company and that Triumph would retain approximately $6.9 million of
net proceeds and apply that amount to reduce the outstanding principal
amount of the Company's factoring advances. The parties further agreed
that the Company will repay the remaining balance of approximately $6.9
million due under the factoring arrangement in 48 equal monthly
installments beginning January 1, 2022 , and that Triumph will apply funds
held in reserve against the approximately $0.8 million remaining balance
for advances that Triumph made to the Company in September 2020 . The
parties also agreed to work together to wind down their factoring
relationship, including waiver of any applicable termination fees.
• During the first and second quarters of 2021, the Company entered into
agreements with certain noteholders to purchase promissory notes
previously issued by the Company in the principal amount of $0.6 million
by paying $0.1 million in cash and issuing warrants to purchase an
aggregate of up to 231,453 shares of the Company's common stock at a price
of $0.01 per share.
While these transactions and events resulted in an overall increase in the
Company's cash balance as of
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In evaluating the Company's ability to continue as a going concern and its potential need to seek additional financing from outside sources, management also considered the following conditions:
• The counterparty to the Company's accounts receivable factoring
arrangement is not obligated to purchase the Company's accounts receivable
or make advances to the Company under such arrangement;
• The Company is currently in default on certain of its debt obligations; and
• There can be no assurance that the Company will be able to obtain
additional financing in the future via the incurrence of additional
indebtedness or via the sale of the Company's common stock or preferred
stock
As a result of the circumstances described above, the Company may not have sufficient liquidity to make the required payments on its debt, factoring or leasing obligations; to satisfy future operating expenses; to make capital expenditures; or to provide for other cash needs.
Management's plans to mitigate the Company's current conditions include:
• Negotiating with related parties and 3rd parties to refinance existing
debt and lease obligations;
• Potential future public or private debt or equity offerings;
• Acquiring new profitable contracts and negotiating revised pricing for
existing contracts;
• Profitably expanding trucking revenue
• Cost reduction efforts, including eliminating redundant costs across the
companies acquired during 2019 and 2018;
• Improvements to operations to gain driver efficiencies;
• Purchases of trucks and trailers to reduce purchased transportation; and
• Replacement of older trucks with newer trucks to lower the overall cost of
ownership and improve cash flow through reduced maintenance and fuel
costs.
Notwithstanding management's plans, there can be no assurance that the Company will be successful in its efforts to address its current liquidity and capital resource constraints. These conditions raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these condensed consolidated financial statements within the Company's Form 10-Q. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result if the Company is unable to continue as a going concern.
Refer to Notes 1, 6, 7 and 11 to the condensed consolidated financial statements
for further information regarding the Company's debt, factoring, and lease
obligations, including the future maturities of such obligations. Refer to Note
14 to the condensed consolidated financial statements for further information
regarding changes in the Company's debt obligations and liquidity subsequent to
Off-Balance Sheet Arrangements
Refer to Note 12, Commitments and Contingencies -
Critical Accounting Policies
Our critical accounting policies have not changed from the information reported
in our Annual Report on Form 10-K for the year ended
Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards
See Note 1 of the notes of the condensed consolidated financial statements, included in Part 1, Item 1 of this Quarterly Report, incorporated by reference herein.
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Seasonality
Discussion regarding the impact of seasonality on our business is included in Note 1 of the notes of the condensed consolidated financial statements, included in Part 1, Item 1 of this Quarterly Report, incorporated by reference herein.
Inflation
Inflation can have an impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages, and other costs to increase, which would adversely affect our results of operations unless freight and rates correspondingly increased.
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