EVO Transportation & Energy Services (EVOA) Risk Analysis

The CSA program includes compliance and enforcement initiatives designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. The FMCSA issues three categories of safety ratings: satisfactory, conditional and unsatisfactory. As of December 31, 2022, all DOT operating authority numbers operated by us currently have a "satisfactory" FMCSA rating. Our CSA scores are dependent upon our safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in the CSA program or the underlying methodology used by the FMCSA to determine a carrier's safety rating could change and, as a result, our ability to maintain an acceptable score could be adversely impacted. If the FMCSA adopts rulemakings in the future that revise the methodology used to determine a carrier's safety rating in a manner that incorporates more stringent standards, then our CSA scores could be adversely affected. If we receive an unacceptable CSA score, our relationships with customers could be damaged, which could result in a loss of business or otherwise adversely affect our business. The CSA program affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier's safety record. The methodology for determining a carrier's DOT safety rating relies upon implementation of Behavioral Analysis and Safety Improvement Categories ("BASIC") applicable to the on-road safety performance of the carrier's drivers and certain of those rating results are provided on the FMCSA's Carrier Safety Measurement System website. As a result, certain current and potential drivers may no longer be eligible to drive for us, our fleet could be ranked poorly as compared to our peers, and our safety rating could be adversely impacted. The occurrence of future deficiencies could affect driver recruiting and retention by causing high-quality drivers to seek employment (in the case of company drivers) or contracts (in the case of third-party drivers) with other carriers, or could cause our customers to direct their business away from us and to carriers with better fleet safety rankings, either of which would adversely affect our results of operations and productivity. Additionally, we may incur greater than expected expenses in our attempts to improve our scores as a result of poor rankings. Those carriers and drivers identified under the CSA program as exhibiting poor BASIC scores are prioritized for interventions, such as warning letters and roadside investigations, either of which may adversely affect our results of operations. The requirements of CSA could also shrink the trucking industry's pool of drivers if drivers with unfavorable scores leave the industry. As a result, the costs to attract, train and retain qualified drivers could increase. A shortage of qualified drivers could also increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations and profitability.

We rely, in part, upon independent subcontractors to perform the services for which we contract with customers. Our reliance on subcontractors creates numerous risks for our business. If our subcontractors fail to meet our contractual obligations or otherwise fail to perform in a manner consistent with our requirements, we may be required to utilize alternative service providers at potentially higher prices or with some degree of disruption of the services that we provide to customers. If we fail to deliver on time, if our contractual obligations are not otherwise met, or if the costs of our services increase, then our profitability and customer relationships could be harmed. The financial condition and operating costs of our subcontractors are affected by conditions and events that are beyond our control and may also be beyond their control. Adverse changes in the financial condition of the subcontractors or increases in their equipment or operating costs could cause them to seek higher revenues or to cease their business relationships with us. The prices we charge our customers could be impacted by such issues, which may in turn limit pricing flexibility with customers, resulting in fewer customer contracts and decreasing our revenues. If one of our subcontractors is subject to negative publicity, it could reflect on us and have a material adverse effect on our business, brand and financial performance. Under certain laws, we could also be subject to allegations of liability for the activities of our subcontractors. Subcontractors are third-party service providers, as compared to company drivers who are employed by us. As independent business owners, the subcontractors may make business or personnel decisions that conflict with our best interests. For example, if a load is unprofitable, route distance is too far from home or personal scheduling conflicts arise, a subcontractor may deny loads of freight from time to time. In these circumstances, we must be able to timely deliver the freight in order to maintain relationships with our customers.

We operate in the United States pursuant to operating authority granted by the DOT. We, along with our leased labor drivers, must also comply with governmental regulations regarding safety, equipment, environmental protection and operating methods. Examples include regulation of equipment weight, equipment dimensions, fuel emissions, driver hours-of-service, driver eligibility requirements and on-board reporting of operations. We may become subject to new or more restrictive regulations relating to such matters that may require changes in our operating practices, influence the demand for transportation services or require us to incur significant additional costs. Possible changes to laws and regulations include: - increasingly stringent environmental laws and regulations, including changes intended to address fuel efficiency and greenhouse gas emissions that are attributed to climate change;- restrictions, taxes or other controls on emissions;- regulation specific to the energy market and logistics providers to the industry;- changes in the hours-of-service regulations, which govern the amount of time a driver may drive in any specific period;- driver and vehicle electronic logging device requirements;- requirements leading to accelerated purchases of new tractors, trucks or trailers;- mandatory limits on vehicle weight and size;- driver hiring restrictions;- increased bonding or insurance requirements; and - security requirements imposed by the DHS. From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels and emissions, which may increase our or our subcontracted providers' operating costs, require capital expenditures or adversely impact the recruitment of drivers. In addition, we could lose revenue if our customers divert business from us because we have not complied with their sustainability guidelines or requirements.

We are subject to stringent and comprehensive federal, state and local environmental and worker health and safety laws and regulations governing, among other matters, the operation of fuel storage tanks, release of emissions from our vehicles (including engine idling) and facilities, the health and safety of our workers in conducting operations and adverse impacts to the environment. Under certain environmental laws, we could be subject to strict liability, without regard to fault or legality of conduct, for costs relating to contamination at we own or operate or previously owned or operated and at third-party sites where we disposed of waste, as well as costs associated with the clean-up of releases arising from accidents involving our vehicles. We often operate in industrial areas, where truck terminals and other industrial activities are located, and where soil, groundwater or other forms of environmental contamination have occurred from historical or recent releases and for which we may incur remedial or other environmental liabilities. We also maintain aboveground fuel storage tanks at some of our facilities and vehicle maintenance operations at certain of our facilities. Our operations involve the risks of fuel spillage or seepage into the environment, environmental damage and unauthorized hazardous material spills, releases or disposal actions, among others. Increasing efforts to control air emissions, including greenhouse gases, may have an adverse effect on us. Federal and state lawmakers have implemented various climate change initiatives and greenhouse gas regulations and may implement additional initiatives in the future, all of which could increase the cost of new tractors, impair productivity and increase our operating expenses. Compliance with environmental laws and regulations may also increase the price of our equipment and otherwise affect the economics of our business by requiring changes in operating practices or by influencing the demand for, or the costs of providing, transportation services. For example, regulations issued by the EPA and various state agencies that require progressive reductions in exhaust emissions from diesel engines have resulted in higher prices for tractors and diesel engines and increased operating and maintenance costs. Also, in order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle. These restrictions could require us to alter our drivers' behavior, purchase on-board power units that do not require the engine to idle or face a decrease in productivity. We are also subject to potentially stringent rulemaking related to sustainability practices, including conservation of resources by decreasing fuel consumption. This increased focus on sustainability practices may result in new regulations and/or customer requirements that could adversely impact our business. Historically, our environmental compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that future compliance will not have a material adverse effect on our business and operating results. If we have operational spills or accidents or if we are found to be in violation of, or otherwise liable under, environmental or worker health or safety laws or regulations, we could incur significant costs and liabilities. Those costs and liabilities may include the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the occurrence of delays in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of our operations in a particular area. The occurrence of any one or more of these developments could have a material adverse effect on our results of operations, competitive position and financial condition. Environmental and worker health and safety laws are becoming increasingly more stringent and there can be no assurances that compliance with, or liabilities under, existing or future environmental and worker health or safety laws or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.

We have, and will continue to have, a portion of our employee population that works from home full-time or under flexible work arrangements, and we have provided associates with expanded remote network access options which enable them to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks. Our employees working remotely may expose us to cybersecurity risks through: (i) unauthorized access to sensitive information as a result of increased remote access, including our employees' use of Company-owned and personal devices and videoconferencing functions and applications to remotely handle, access, discuss, or transmit confidential information, (ii) increased exposure to phishing and other scams as cybercriminals may, among other things, install malicious software on our systems and equipment and access sensitive information, and (iii) violation of international, federal or state-specific privacy laws. We believe that the increased number of employees working remotely has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time. A significant disruption of our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from our violation of privacy laws could each have a material adverse effect on our business.

We rely on information technology throughout all areas of our business to initiate, track and complete deliveries; process financial and nonfinancial data; compile results of operations for internal and external reporting; and achieve operating efficiencies and growth. Each of our information technology systems may be susceptible to various interruptions, including equipment or network failures, failed upgrades or replacement of software, user error, power outages, natural disasters, cyber-attacks, theft or misuse of data, terrorist attacks, computer viruses, hackers, or other security breaches. We may in the future experience security breaches and other interruptions of our information technology systems despite our best efforts to prevent them. Our efforts to mitigate exposure to these risks through the establishment and maintenance of technology security programs and disaster recovery plans may not be sufficient. A significant disruption, failure or security breach in our information technology systems, or those of our technology and communications services vendors, could have a material adverse effect on our business, which could include operational disruptions, loss of confidential information, external reporting delays or errors, legal claims or damage to our business reputation. We also could experience an inability to keep pace with technological advances, resulting in our information technology platforms becoming obsolete or our competitors developing related or similar service offerings more effective than ours. Furthermore, we make strategic investments in technology that naturally entail risks and uncertainties, some of which are beyond our control. For example, we may not be able to derive value from strategic investments or we may incur higher than expected costs in realizing a return on such investments or overestimate the benefits that we receive or realize from such investments. Therefore, we cannot provide assurance that any of our strategic investments will generate anticipated financial returns. If our strategic investments fail to meet our expectations, our business and results of operations may be adversely impacted. In addition, we are currently dependent on a single vendor platform to support certain information technology functions. If the stability or capability of such vendor is compromised and we were forced to migrate to a new platform, it could materially adversely affect our business, financial condition and results of operations.

We compete with many truckload carriers of varying sizes, including some that may have greater access to equipment, a wider range of services, greater capital resources, less indebtedness or other competitive advantages. We also compete with smaller, regional service providers that cover specific shipping lanes or that offer niche services. Numerous competitive factors could impair our ability to maintain or improve profitability. These factors include the following: - many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit our ability to maintain or increase freight rates, may require us to reduce our freight rates or may limit our ability to maintain or expand our business;- some shippers, including the USPS, have reduced or may reduce the number of carriers they use by selecting core carriers as approved service providers and in some instances we may not be selected;- many customers, including the USPS, solicit bids from multiple carriers for their shipping needs, which may depress freight rates or result in a loss of business to competitors;- the continuing trend toward consolidation in the trucking industry may result in more large carriers with greater financial resources and other competitive advantages, and we may have difficulty competing with them;- advances in technology may require us to increase investments in our equipment and systems in order to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments;- we may have higher exposure to litigation risks as compared to smaller carriers; and - smaller carriers may build economies of scale with procurement aggregation providers, which may improve the smaller carriers' abilities to compete with us.

Approximately 90% of our 2022 revenue was generated from the USPS. The loss or reduction of business from this customer would have a material adverse effect on our business. Economic conditions may adversely affect the USPS and its ability to remain solvent. The United States Government Accountability Office has in the past described the USPS's financial condition as "deteriorating and unsustainable." The USPS's financial difficulties can negatively impact our results of operations and financial condition and our ability to comply with the covenants in our debt agreements, especially if the USPS were to delay or default on payments to us. There can be no assurance that our relationship with the USPS will continue as presently in effect. In 2021, the USPS announced its "Delivering for America" plan to transform the USPS. If we are not able to achieve its business objectives while adhering to the USPS's initiatives under that plan, there would likely be a material adverse effect on our business, operating results and financial condition. Additionally, our contracts with the USPS are terminable for convenience by the USPS upon advance notice ranging from 60 days for some contracts to 180 days for DRO contracts. A default in performance by us under one USPS contract can constitute a cross-default allowing the USPS to terminate some or all of our other contracts with the USPS. A reduction in, or termination of, our services by the USPS would have a material adverse effect on our business, operating results and financial condition.