KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain statements that may be considered "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation:
•any projections of or guidance regarding earnings, earnings per share, revenues, cash flows, dividends, capital expenditures, or other financial items,
•any statement of plans, strategies, and objectives of management for future operations,
•any statements concerning proposed acquisition plans, new services, or developments,
•any statements regarding future economic conditions or performance, and
•any statements of belief and any statements of assumptions underlying any of the foregoing.
In this Quarterly Report, forward-looking statements include, but are not limited to, statements we make concerning:
•the ability of our infrastructure to support future growth, whether we grow organically or through potential acquisitions,
•the future impact of acquisitions, including achievement of anticipated synergies and the anticipated risks regarding our acquisition of ACT,
•the future performance of our LTL business, including revenue and margins,
•the flexibility of our model to adapt to market conditions,
•our ability to recruit and retain qualified driving associates,
•future safety performance,
•future performance of our segments or businesses,
•our ability to gain market share,
•the ability, desire, and effects of expanding our logistics, brokerage, LTL, and intermodal operations,
•future equipment prices, our equipment purchasing or leasing plans (including containers in our Intermodal segment), and our equipment turnover (including expected tractor trade-ins),
•our ability to sublease equipment to independent contractors,
•the impact of pending legal proceedings,
•future insurance claims, coverage, coverage limits, premiums, and retention limits,
•the expected freight environment, including freight demand, capacity, and volumes,
•economic conditions and growth, including future inflation, consumer spending, supply chain conditions, and US Gross Domestic Product ("GDP") changes,
•future pricing terms from vendors and suppliers,
•expected liquidity and methods for achieving sufficient liquidity,
•future fuel prices and the expected impact of fuel efficiency initiatives,
•future expenses and cost structure and our ability to control costs,
•future operating profitability and margin,
•future third-party service provider relationships and availability,
•future contracted pay rates with independent contractors and compensation arrangements with driving associates,
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
•our expected need or desire to incur indebtedness and our ability to comply with debt covenants,
•future capital expenditures and expected sources of liquidity, capital allocation, capital structure, capital requirements, and growth strategies and opportunities,
•expected capital expenditures,
•future mix of owned versus leased revenue equipment,
•future asset utilization,
•future return on capital,
•future share repurchases and dividends,
•future tax rates,
•future trucking industry capacity and balance between industry demand and capacity,
•future rates,
•future depreciation and amortization,
•expected tractor and trailer fleet age,
•future investment in and deployment of new or updated technology,
•political conditions and regulations, including trade regulation, quotas, duties, or tariffs, and any future changes to the foregoing,
•future purchased transportation expense, and
•others.
Such statements may be identified by their use of terms or phrases such as "believe," "may," "could," "will," "would," "should," "expects," "estimates," "designed," "likely," "foresee," "goals," "seek," "target," "forecast," "projects," "anticipates," "plans," "intends," "hopes," "strategy," "potential," "objective," "mission," "continue," "outlook," "feel," and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to materially differ from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A "Risk Factors" in our 2021 Annual Report, and various disclosures in our press releases, stockholder reports, and other filings with theSEC . All such forward-looking statements speak only as of the date of this Quarterly Report. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any change in the events, conditions, or circumstances on which any such statement is based.
Reference to Glossary of Terms
Certain acronyms and terms used throughout this Quarterly Report are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Reference to Annual Report
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements (unaudited) and footnotes included in this Quarterly
Report, as well as the consolidated financial statements and footnotes included
in our 2021 Annual Report.
25
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Executive Summary
Company Overview
Knight-Swift Transportation Holdings Inc. is one of North America's largest and
most diversified freight transportation companies, providing multiple full
truckload, LTL, intermodal, and logistics services. Knight-Swift uses a
nationwide network of business units and terminals in the US and Mexico to serve
customers throughout North America . In addition to operating the country's
largest truckload fleet, Knight-Swift also contracts with third-party equipment
providers to provide a broad range of transportation services to our customers
while creating quality driving jobs for our driving associates and successful
business opportunities for independent contractors. Our four reportable segments
are Truckload, Logistics, LTL, and Intermodal. Additionally, we have various
non-reportable segments. Refer to Note 14 in Part I, Item 1 of this Quarterly
Report for information regarding our segments.
Our objective is to operate our business with industry-leading margins and growth while providing safe, high-quality, cost-effective solutions for our customers.
We continue to grow our company organically and through acquisitions. Refer to Note 3 in Part I, Item 1 of this Quarterly Report for information about our recent acquisitions.
Revenue
•Our truckload services include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base with 13,249 irregular route and 4,716 dedicated tractors.
•Our Logistics and Intermodal segments provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics and freight management services. We continue to offer power-only services through our Logistics segment with our consolidated fleet of over 71,000 trailers.
•Our LTL business, which was initially established in 2021 through the ACT and
later the MME acquisition, provides our customers with regional LTL
transportation service through our growing network of approximately 100 service
centers within our geographical footprint. Our LTL segment operates
approximately 3,100 tractors and 8,300 trailers and also provides national
coverage to our customers by utilizing partner carriers for areas outside of our
direct network.
•Our non-reportable segments include support services provided to our
third-party carriers including insurance, equipment maintenance, equipment
leasing, warehousing, trailer parts manufacturing, and warranty services. Our
non-reportable segments also include certain corporate expenses (such as legal
settlements and accruals, certain impairments, and amortization of intangibles
related to the 2017 Merger and various acquisitions).
•In addition to the revenues earned from our customers for the trucking and
non-trucking services discussed above, we also earn fuel surcharge revenue from
our customers through our fuel surcharge programs, which serve to recover a
majority of our fuel costs. This applies only to loaded miles for our Truckload
segment and typically does not offset non-paid empty miles, idle time, and
out-of-route miles driven. Fuel surcharge programs involve a computation based
on the change in national or regional fuel prices. These programs may update as
often as weekly, but typically require a specified minimum change in fuel cost
to prompt a change in fuel surcharge revenue. Therefore, many of these programs
have a time lag between when fuel costs change and when the change is reflected
in fuel surcharge revenue for our Truckload and LTL segments.
Expenses - Our most significant expenses typically vary with miles traveled and
include fuel, driving associate-related expenses (such as wages and benefits),
and services purchased from third-party service providers (including other
trucking companies, railroad and drayage providers, and independent contractors.
Maintenance and tire expenses, as well as the cost of insurance and claims
generally vary with the miles we travel, but also have a controllable component
based on safety performance, fleet age, operating efficiency, and other factors.
Our primary fixed costs are depreciation and lease expense for revenue equipment
and terminals, non-driver employee compensation, amortization of intangible
assets, and interest expense.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Operating Statistics - We measure our consolidated and segment results through
certain operating statistics, which are discussed under "Results of Operations -
Segment Review - Operating Statistics," below. Our results are affected by
various economic, industry, operational, regulatory, and other factors, which
are set forth in Part I, Item 1A "Risk Factors" in our 2021 Annual Report, and
various disclosures in our press releases, stockholder reports, and other
filings with the SEC .
Consolidated Key Financial Highlights and Operating Metrics
Quarter Ended March
31,
2022 2021
(Dollars in thousands,
GAAP financial data: except per share data)
Total revenue $ 1,826,989 $ 1,223,014
Revenue, excluding truckload and LTL fuel surcharge $ 1,647,878 $ 1,133,105
Net income attributable to Knight-Swift $ 208,337 $ 129,790
Earnings per diluted share $ 1.25 $ 0.77
Operating ratio 83.7 % 86.7 %
Non-GAAP financial data:
Adjusted Net Income Attributable to Knight-Swift 1 $ 224,863 $ 139,433
Adjusted EPS 1 $ 1.35 $ 0.83
Adjusted Operating Ratio 1 80.6 % 84.5 %
Revenue equipment statistics by segment:
Truckload
Average tractors 2 17,965 18,224
Average trailers 3 71,310 59,797
LTL
Average tractors 4 3,091 N/A
Average trailers 5 8,302 N/A
Intermodal
Average tractors 584 597
Average containers 11,027 10,846
1Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted
Operating Ratio are non-GAAP financial measures and should not be considered
alternatives, or superior to, the most directly comparable GAAP financial
measures. However, management believes that presentation of these non-GAAP
financial measures provides useful information to investors regarding the
Company's results of operations. Adjusted Net Income Attributable to
Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the
most directly comparable GAAP financial measures under "Non-GAAP Financial
Measures," below.
2Our tractor fleet within the Truckload segment had a weighted average age of
2.6 years and 2.3 years as of
3Note that average trailers includes 7,561 trailers related to leasing
activities recorded within our non-reportable segments in 2022. Our trailer
fleet within the Truckload segment had a weighted average age of 8.4 years and
8.2 years as of
4Our LTL tractor fleet had a weighted average age of 4.5 years as of
5Our LTL trailer fleet had a weighted average age of 8.0 years as of
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Market Trends and Company Performance
Our Company Trends and Outlook - Each reportable segment grew revenue while improving margins, leading to consolidated revenue growth of 45.4%, excluding truckload and LTL fuel surcharge, and an improvement of 83.7% in consolidated operating income to$298.1 million in the first quarter of 2022, as compared to the same quarter last year. Net Income Attributable to Knight-Swift increased by 60.5% to$208.3 million .
•Truckload - 81.0% operating ratio during the first quarter of 2022. We generated a 78.2% Adjusted Operating Ratio during the quarter, a 360 basis point improvement, supported by continued year-over-year revenue growth. This represents our strongest performance in a first quarter since the 2017 Merger.
•Logistics - 86.0% operating ratio during the first quarter of 2022. The Adjusted Operating Ratio was 85.7% with operating income improvement of 422.6%. Load count grew by 76.9%, leading to a 142.1% increase in revenue, excluding intersegment transactions. Within our power-only service offering, revenue more than quadrupled as compared to the first quarter of 2021, and we expect this service offering will continue to grow as a percentage of our overall logistics revenue. •LTL - 89.7% operating ratio during the first quarter of 2022. An 85.9% Adjusted Operating Ratio was led by a 13.8% improvement in revenue, excluding fuel surcharge, per hundredweight, as well as cost synergies being realized, representing a sequential 440 basis point improvement. This was supported by a 24.8% sequential increase in total revenue, which includes the results of MME. •Intermodal - Operating ratio of 86.1% during the first quarter of 2022, a 1,070 basis point improvement leading to a 338.8% increase in operating income with year-over-year revenue growth of 2.1%. •Non-reportable - Revenue growth of 132.2% was supported by the activities within our diverse operating segments of insurance, equipment maintenance, equipment leasing, and warehousing, leading to a$19.1 million improvement in operating income within our non-reportable segments.
•Free Cash Flow1 - During the first quarter of 2022, we generated
Market Trends and Outlook - The national unemployment rate was 3.6%2 as ofMarch 31, 2022 , as compared to 6.0% this time last year. The US gross domestic product, which is the broadest measure of goods and services produced across the economy, decreased by 1.4%3 on a year-over-year basis, per preliminary third-party forecasts. The deceleration, compared to 2021, was driven by a reduction in private inventory investment and lower spending at all levels of government. Early estimates of the first quarter 2022 US employment cost index indicate a year-over-year increase of 4.5%2 and a sequential increase of 1.4%2. From a freight market perspective, we are encouraged by the continued strength in freight demand; however, demand may be difficult to predict for the rest of 2022. The 2022 market outlook includes the following:
•Strong contract rates lead to an increase in commitments with less spot exposure
•Trailer pool capacity remains at a premium
•Declining spot rates, historically high used equipment market, limited availability to new equipment and high fuel costs increase barriers to entry
•LTL demand remains strong with increases in revenue per hundredweight remaining in the double digits
•Sourcing and retaining drivers remains challenging
•Inflationary pressure on equipment, maintenance, labor and other cost items
•Used equipment market remains strong but begins to normalize late in the year
•Uncertainty in the market based onChina lockdowns, significant inflation, war overseas, and consumer confidence ________ 1Refer to "Non-GAAP Financial Measures" below. 2Source: bls.gov 3Source: bea.gov 28
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
The above factors should continue to support a favorable rate environment,
likely resulting in double-digit contract rate increases. In addition to the
above, we are seeing strong demand for power-only opportunities and strength in
the used equipment market.
We anticipate that depreciation and amortization expense will increase and
rental expense will correspondingly decrease, as a percentage of revenue
excluding truckload fuel surcharge, as we intend to purchase, rather than enter
into operating leases, for a majority of our revenue equipment in 2022. With
significant tightening in the insurance markets, we may also experience changes
in premiums, retention limits, and excess coverage limits in the remainder of
2022. While fuel expense is generally offset by fuel surcharge revenue, our fuel
expense, net of fuel surcharge revenue may increase in the future, particularly
during periods of sharply rising fuel prices.
We expect that our entry into the LTL market through our acquisitions of ACT and MME will continue to have a significant impact on our future consolidated financial results, including an overall increase in operating revenues and expenses.
Operating Results: First Quarter 2022 Compared to First Quarter 2021
Note: in accordance with the accounting treatment applicable to each of our recent acquisitions, Knight-Swift's reported results do not include the operating results of the acquired entities prior to the respective acquisition dates. Accordingly, comparisons between the Company's first quarter 2022 results and prior periods may not be meaningful. The$78.5 million increase in net income attributable to Knight-Swift to$208.3 million during the first quarter of 2022 from$129.8 million during the same period last year includes the following:
•Contributor -
•Contributor -$32.0 million increase in operating income within our Logistics segment. Revenue, excluding intersegment transactions, increased by 142.1%, as load volumes grew by 76.9% while revenue per load increased by 36.8%.
•Contributor -
•Contributor -
•Offset -
•Offset -$23.8 million increase in consolidated income tax expense primarily due to an increase in income before income taxes. That results in an effective tax rate of 24.9% for the first quarter of 2022 and 25.9% for the first quarter of 2021.
See additional discussion of our operating results within "Results of Operations - Consolidated Operating and Other Expenses" below.
Liquidity and Capital - During the first quarter of 2022, we generated$456.9 million in operating cash flows and paid down$133.3 million in long-term debt,$10.5 million in finance liabilities, and$9.3 million in cash on our operating lease liabilities. We also repurchased approximately$150 million of our shares, calculated based on the trade dates, and issued$20.1 million in dividends to our stockholders. Gain on sale of revenue equipment increased to$34.8 million in the first quarter of 2022, compared to$10.5 million in the same quarter of 2021.
We ended the quarter with
We do not foresee material liquidity constraints or any issues with our ongoing
ability to meet our debt covenants. See discussion under "Liquidity and Capital
Resources" for additional information.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Results of Operations - Segment Review
The Company has four reportable segments: Truckload, Logistics, Intermodal, and LTL, as well as certain non-reportable segments. Refer to Note 14 to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report for information regarding our segments.
Consolidating Tables for Total Revenue and Operating Income (Loss)
Quarter Ended March 31,
2022 2021
Revenue: (In thousands)
Truckload $ 1,080,531 $ 962,947
Logistics 282,039 118,887
LTL 255,125 -
Intermodal 109,222 107,066
Subtotal $ 1,726,917 $ 1,188,900
Non-reportable segments 117,639 50,669
Intersegment eliminations (17,567) (16,555)
Total revenue $ 1,826,989 $ 1,223,014
Quarter Ended March 31,
2022 2021
Operating income (loss): (In thousands)
Truckload $ 205,117 $ 158,483
Logistics 39,601 7,577
LTL 26,377 -
Intermodal 15,170 3,457
Subtotal $ 286,265 $ 169,517
Non-reportable segments 11,821 (7,258)
Operating income $ 298,086 $ 162,259
30
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Operating Statistics
Our chief operating decision makers monitor the GAAP results of our reportable
segments, as supplemented by certain non-GAAP information. Refer to "Non-GAAP
Financial Measures" below for more details. Additionally, we use a number of
primary indicators to monitor our revenue and expense performance and
efficiency.
Operating Statistic Relevant Segment(s) Description
Average Revenue per Tractor Truckload Measures productivity and represents revenue
(excluding fuel surcharge and intersegment
transactions) divided by average tractor count
Total Miles per Tractor Truckload Total miles (including loaded and empty miles) a
tractor travels on average
Average Length of Haul Truckload, LTL Average miles traveled with loaded trailer cargo
per order/shipment
Non-paid Empty Miles Percentage Truckload Percentage of miles without trailer cargo
Shipments per Day LTL Average number of shipments completed each
business day
Weight per Shipment LTL Total weight (in pounds) divided by total
shipments
Revenue per shipment LTL Total revenue divided by total shipments Revenue xFSR per shipment LTL
Total revenue, excluding fuel surcharge, divided
by total shipments
Revenue per hundredweight LTL Measures yield and is calculated as total revenue
divided by total weight (in pounds) times 100
Revenue xFSR per hundredweight LTL Total revenue, excluding fuel surcharge, divided
by total weight (in pounds) times 100
Average Tractors Truckload, LTL, Intermodal Average tractors in operation during the period
including company tractors and tractors provided
by independent contractors
Average Trailers Truckload, LTL Average trailers in operation during the period
Average Revenue per Load Logistics, Intermodal Total revenue (excluding intersegment
transactions) divided by load count
Gross Margin Percentage Logistics Logistics gross margin (revenue, excluding
intersegment transactions, less purchased
transportation expense, excluding intersegment
transactions) as a percentage of logistics
revenue, excluding intersegment transactions
Average Containers Intermodal Average containers in operation during the period
GAAP Operating Ratio Truckload, Measures operating efficiency and is widely used
Logistics, LTL, Intermodal in our industry as an assessment of management's
effectiveness in controlling all categories of
operating expenses. Calculated as operating
expenses as a percentage of total revenue, or the
inverse of operating margin.
Non-GAAP Adjusted Operating Truckload, Measures operating efficiency and is widely used
Ratio Logistics, LTL, Intermodal in our industry as an assessment of management's
effectiveness in controlling all categories of
operating expenses. Consolidated and segment
Adjusted Operating Ratios are reconciled to their
corresponding GAAP operating ratios under
"Non-GAAP Financial Measures," below.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Segment Review
Truckload Segment
We generate revenue in the Truckload segment primarily through irregular route,
dedicated, refrigerated, expedited, flatbed, and cross-border service operations
across our brands. We operated 13,249 irregular route tractors and 4,716
dedicated route tractors in use during the quarter-to-date period ended
March 31, 2022 . Generally, we are paid a predetermined rate per mile or per load
for our truckload services. Additional revenues are generated by charging for
tractor and trailer detention, loading and unloading activities, dedicated
services, and other specialized services, as well as through the collection of
fuel surcharge revenue to mitigate the impact of increases in the cost of fuel.
The main factors that affect the revenue generated by our Truckload segment are
rate per mile from our customers, the percentage of miles for which we are
compensated, and the number of loaded miles we generate with our equipment.
The most significant expenses in the Truckload segment are primarily variable
and include fuel and fuel taxes, driving associate-related expenses (such as
wages, benefits, training, and recruitment), and costs associated with
independent contractors primarily included in "Purchased transportation" in the
condensed consolidated statements of comprehensive income. Maintenance expense
(which includes costs for replacement tires for our revenue equipment) and
insurance and claims expenses have both fixed and variable components. These
expenses generally vary with the miles we travel, but also have a controllable
component based on safety, fleet age, efficiency, and other factors. The main
fixed costs in the Truckload segment are depreciation and rent expenses from
leasing and acquiring revenue equipment and terminals, as well as compensating
our non-driver employees.
Quarter Ended March 31,
2022 2021 Increase (Decrease)
(Dollars in thousands, except per
tractor data)
Total revenue $ 1,080,531 $ 962,947 12.2 %
Revenue, excluding fuel surcharge and intersegment $ 941,534 $ 872,814 7.9 %
transactions
GAAP: Operating income $ 205,117 $ 158,483 29.4 %
Non-GAAP: Adjusted Operating Income 1 $ 205,441 $ 158,807 29.4 %
Average revenue per tractor 2 $ 52,409 $ 47,894 9.4 %
GAAP: Operating ratio 2 81.0 % 83.5 % (250 bps)
Non-GAAP: Adjusted Operating Ratio 1 2 78.2 % 81.8 % (360 bps)
Non-paid empty miles percentage 2 14.1 % 12.8 % 130
bps
Average length of haul (miles) 2 394 412 (4.4 %) Total miles per tractor 2 18,916 20,928 (9.6 %) Average tractors 2 3 17,965 18,224 (1.4 %) Average trailers 2 4 71,310 59,797 19.3 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above.
3 Includes 16,159 and 16,305 average company-owned tractors for the first quarter of 2022 and 2021, respectively.
4 Includes 7,561 trailers related to leasing activities recorded within our non-reportable segments for the first quarter of 2022. Does not include 5,764 trailers related to leasing activities recorded within our non-reportable operating segments for the first quarter of 2021.
Comparison Between the Quarters Ended
Revenue per loaded mile, excluding fuel surcharge and intersegment transactions
increased 22.9%, while a 4.4% shorter length of haul contributed to a 9.6%
decrease in miles per tractor. These factors ultimately led to a 9.4% increase
in average revenue per tractor and improved margins.
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OPERATIONS - CONTINUED
We continue making modest progress with seating our tractors and operating them
productively. We continue to add scale by increasing our trailer count which has
increased by over 2,200 since the fourth quarter of 2021.
Logistics Segment
The Logistics segment is less asset-intensive than the Truckload and LTL
segments and is dependent upon capable non-driver employees, modern and
effective information technology, and third-party capacity providers. Logistics
revenue is generated by its brokerage operations. We generate additional revenue
by offering specialized logistics solutions (including, but not limited to,
trailing equipment, origin management, surge volume, disaster relief, special
projects, and other logistic needs). Logistics revenue is mainly affected by the
rates we obtain from customers, the freight volumes we ship through third-party
capacity providers, and our ability to secure third-party capacity providers to
transport customer freight.
The most significant expense in the Logistics segment is purchased
transportation that we pay to third-party capacity providers, which is primarily
a variable cost and is included in "Purchased transportation" in the condensed
consolidated statements of comprehensive income. Variability in this expense
depends on truckload capacity, availability of third-party capacity providers,
rates charged to customers, current freight demand, and customer shipping needs.
Fixed Logistics operating expenses primarily include non-driver employee
compensation and benefits recorded in "Salaries, wages, and benefits" and
depreciation and amortization expense recorded in "Depreciation and amortization
of property and equipment" in the condensed consolidated statements of
comprehensive income.
Quarter Ended March
31,
2022 2021 Increase (Decrease)
(Dollars in thousands, except per
load data)
Total revenue $ 282,039 $ 118,887 137.2 %
Revenue, excluding intersegment transactions $ 280,171 $ 115,722 142.1 %
GAAP: Operating income $ 39,601 $ 7,577 422.6 %
Non-GAAP: Adjusted Operating Income 1 $ 39,935 $ 7,577 427.1 %
Revenue per load 2 $ 2,697 $ 1,971 36.8 %
Gross margin percentage 2 20.2 % 14.4 % 580 bps
GAAP: Operating ratio 2 86.0 % 93.6 % (760 bps)
Non-GAAP: Adjusted Operating Ratio 1 2 85.7 % 93.5 % (780 bps)
1 Refer to "Non-GAAP Financial Measures" below.
2 Defined under "Operating Statistics," above.
Comparison Between the Quarters EndedMarch 31, 2022 and 2021 - Demand for our logistics service offering remained strong throughout the quarter, as we continue to leverage our consolidated fleet of approximately 71,000 trailers to support our power-only service offering. Logistics revenue, excluding intersegment transactions, increased 142.1% as we grew load count by 76.9%, while increasing revenue per load by 36.8%. The Adjusted Operating Ratio improved to 85.7%, resulting in a 427.1% increase in Adjusted Operating Income. Brokerage gross margin was 20.2% in the first quarter of 2022, compared to 14.4% in the first quarter of 2021. 33
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
LTL Segment
Dothan, Alabama -based ACT and Bismarck, North Dakota -based MME, both acquired in
2021, comprise our LTL segment. We provide regional direct service and serve our
customers' national transportation needs by utilizing key partner carriers for
coverage areas outside of our network. We primarily generate revenue by
transporting freight for our customers through our core LTL services.
Our revenues are impacted by shipment volume and tonnage levels that flow
through our network. Additional revenues are generated through fuel surcharges
and accessorial services provided during transit from shipment origin to
destination. We focus on the following multiple revenue generation factors when
reviewing revenue yield: revenue per hundredweight, revenue per shipment, weight
per shipment, and length of haul. Fluctuation within each of these metrics is
analyzed when determining the revenue quality of our customers' shipment
density.
Our most significant expense is related to direct costs associated with the
transportation of our freight moves including; direct salary, wage and benefit
costs, fuel expense, and depreciation expense associated with revenue equipment
costs. Other expenses associated with revenue generation that can fluctuate and
impact operating results are insurance and claims expenses as well as
maintenance costs of our revenue equipment. These expenses can be influenced by
multiple factors including our safety performance, equipment age, and other
factors. A key component of lowering our operating costs is labor efficiency
within our network. We continue to focus on technological advances to improve
the customer experience and reduce our operating costs.
Note: In accordance with the accounting treatment applicable to the ACT and MME
acquisitions, the LTL segment's reported results do not include the comparative
operating results of the acquired entities prior to the respective acquisition
dates.
Quarter Ended March 31, 2022
(Dollars in thousands, except per
tractor data)
Total revenue $ 255,125
Revenue, excluding fuel surcharge $ 214,675
GAAP: Operating income $
26,377
Non-GAAP: Adjusted Operating Income 1 $
30,322
GAAP: Operating ratio 2 89.7 % Non-GAAP: Adjusted Operating Ratio 1 2 85.9 % Shipments per day 2 18,783 Weight per shipment 2 1,098 Average length of haul (miles) 2 522 Revenue per shipment 2 $ 178.43 Revenue xFSR per shipment 2 $ 150.70 Revenue per hundredweight 2 $ 16.25 Revenue xFSR per hundredweight 2 $ 13.73 Average tractors 2 3 3,091 Average trailers 2 4 8,302
1Refer to "Non-GAAP Financial Measures" below.
2Defined under "Operating Statistics," above.
3Includes 695 tractors from ACT's and MME's dedicated and other businesses for 2022.
4Includes 907 trailers from ACT's and MME's dedicated and other businesses for 2022.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Our LTL segment operates approximately 3,100 tractors and 8,300 trailers across
approximately 100 facilities with a door count of approximately 4,300. We
generated $214.7 million in revenue, excluding fuel surcharge and an 85.9%
Adjusted Operating Ratio during the first quarter of 2022. Revenue, excluding
fuel surcharge, per hundredweight was $13.73 , while revenue per shipment,
excluding fuel surcharge was $150.70 . We anticipate continued strength in
revenue and margins within our LTL business in the coming quarters, as the ACT
and MME teams continue to successfully connect their complementary networks.
Additionally, we expanded our network during the quarter by adding six LTL
terminals, five in the Texas market and one in Las Vegas, Nevada .
Intermodal Segment
The Intermodal segment complements our regional operating model, allows us to
better serve customers in longer haul lanes, and reduces our investment in fixed
assets. Through the Intermodal segment, we generate revenue by moving freight
over the rail in our containers and other trailing equipment, combined with
revenue for drayage to transport loads between railheads and customer locations.
The most significant expense in the Intermodal segment is the cost of purchased
transportation that we pay to third-party capacity providers (including rail
providers), which is primarily variable and included in "Purchased
transportation" in the condensed consolidated statements of comprehensive
income. Purchased transportation varies as it relates to rail capacity, freight
demand, and customer shipping needs. The main fixed costs in the Intermodal
segment are depreciation of our company tractors related to drayage, containers,
and chassis, as well as non-driver employee compensation and benefits.
Quarter Ended March
31,
2022 2021 Increase (Decrease)
(Dollars in thousands, except per
load data)
Total revenue $ 109,222 $ 107,066 2.0 %
Revenue, excluding intersegment transactions $ 109,192 $ 106,971 2.1 %
GAAP: Operating income $ 15,170 $ 3,457 338.8 %
Average revenue per load 1 $ 3,465 $ 2,549 35.9 %
GAAP: Operating ratio 1 86.1 % 96.8 % (1,070 bps)
Load count 31,515 41,968 (24.9 %)
Average tractors 1 2 584 597 (2.2 %)
Average containers 1 11,027 10,846 1.7 %
1 Defined under "Operating Statistics," above.
2 Includes 533 and 542 company-owned tractors for the first quarter of 2022 and 2021, respectively.
Comparison Between the Quarters EndedMarch 31, 2022 and 2021 - Operating income increased by 338.8%, as operating ratio improved from 96.8% to 86.1%. Continued chassis allocations and network fluidity resulted in a reduction in load count, but contributed to a 35.9% increase in revenue per load. We transitioned to a new rail partner during the quarter, while continuing to improve our operations, cost structure, and network design. To position Intermodal for continued growth, we are growing our container count by 2,000 over the course of 2022. Intermodal continues to provide value to our customers and complements the many services we offer. As a result of our new network and improved service offering, we expect load volumes to inflect positive year-over-year in the back half of the year as we grow with new customers and expand with existing customers. 35
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Non-reportable Segments
Our non-reportable segments include support services provided to our third-party
carriers including insurance, equipment maintenance, equipment leasing,
warehousing, trailer parts manufacturing, and warranty services. Our
non-reportable segments also include certain corporate expenses (such as legal
settlements and accruals, certain impairments, and $11.6 million of amortization
of intangibles related to the 2017 Merger and various acquisitions).
Quarter Ended March 31,
2022 2021 Increase (Decrease)
(Dollars in thousands)
Total revenue $ 117,639 $ 50,669 132.2 %
Operating income (loss) $ 11,821 $ (7,258) 262.9 %
Activities within our diverse operating segments of insurance, equipment
maintenance, equipment leasing, and warehousing led to 132.2% revenue growth,
which resulted in operating income improving by
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Results of Operations - Consolidated Operating and Other Expenses
Consolidated Operating Expenses
The following tables present certain operating expenses from our condensed
consolidated statements of comprehensive income, including each operating
expense as a percentage of total revenue and as a percentage of revenue,
excluding truckload and LTL fuel surcharge. Truckload and LTL fuel surcharge
revenue can be volatile and is primarily dependent upon the cost of fuel, rather
than operating expenses unrelated to fuel. Therefore, we believe that revenue,
excluding truckload and LTL fuel surcharge is a better measure for analyzing
many of our expenses and operating metrics.
Note: In accordance with accounting treatment applicable to each of our recent
acquisitions, Knight-Swift's reported results do not include the comparative
operating results of the acquired entities prior to the respective acquisition
date. Accordingly, comparisons between the first quarter 2022 results and prior
periods may not be meaningful.
Quarter Ended March
31, Increase (Decrease)
2022 2021
(Dollars in thousands)
Salaries, wages, and benefits $ 536,056 $ 370,370 44.7 %
% of total revenue 29.3 % 30.3 % (100 bps)
% of revenue, excluding truckload and LTL fuel 32.5 % 32.7 % (20 bps)surcharge
Salaries, wages, and benefits expense is primarily affected by the total number of miles driven by company driving associates, the rates we pay our company driving associates, and employee benefits, including healthcare, workers' compensation, and other benefits. To a lesser extent, non-driver employee headcount, compensation, and benefits affect this expense. Driving associate wages represent the largest component of salaries, wages, and benefits expense. Several ongoing market factors have reduced the pool of available driving associates, contributing to a challenging driver sourcing market, which we believe will continue. Having a sufficient number of qualified driving associates is our biggest headwind, although we continue to seek ways to attract and retain qualified driving associates, including heavily investing in our recruiting efforts, our driving academies, technology, our equipment, and terminals that improve the experience of driving associates. We expect labor costs (related to both driving associates and non-driver employees) to remain inflationary, which we expect will result in additional pay increases in the future, thereby increasing our salaries, wages, and benefits expense. Consolidated salaries, wages, and benefits increased by$165.7 million for the first quarter of 2022, as compared to the first quarter of 2021. This increase includes$135.2 million from the first quarter 2022 results of ACT and MME. The remaining increase pertained to driving associate pay rates and non-driver salaries and wages, partially offset by an 11.9% decrease in miles driven by company driving associates, excluding ACT and MME. Quarter Ended March 31, Increase (Decrease) 2022 2021 (Dollars in thousands) Fuel$ 190,489 $ 118,236 61.1 % % of total revenue 10.4 % 9.7 % 70 bps % of revenue, excluding truckload and LTL fuel 11.6 % 10.4 % 120 bps
surcharge
Fuel expense consists primarily of diesel fuel expense for our company-owned
tractors and fuel taxes. The primary factors affecting our fuel expense are the
cost of diesel fuel, the fuel economy of our equipment, and the miles driven by
company driving associates.
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OPERATIONS - CONTINUED
Our fuel surcharge programs help to offset increases in fuel prices, but apply
only to loaded miles for our Truckload segment and typically do not offset
non-paid empty miles, idle time, or out-of-route miles driven. Typical fuel
surcharge programs involve a computation based on the change in national or
regional fuel prices. These programs may update as often as weekly, but
typically require a specified minimum change in fuel cost to prompt a change in
fuel surcharge revenue for our Truckload segment. Therefore, many of these
programs have a time lag between when fuel costs change and when the change is
reflected in fuel surcharge revenue. Due to this time lag, our fuel expense, net
of fuel surcharge, negatively impacts our operating income during periods of
sharply rising fuel costs and positively impacts our operating income during
periods of falling fuel costs. We continue to utilize our fuel efficiency
initiatives such as trailer blades, idle-control, management of tractor speeds,
fleet updates for more fuel-efficient engines, management of fuel procurement,
and driving associate training programs that we believe contribute to
controlling our fuel expense.
The $72.3 million increase in consolidated fuel expense for the first quarter,
includes $27.0 million of fuel expense from ACT's and MME's the first quarter of
2022 results. The remaining increase is attributable to higher average DOE fuel
prices when compared to the same period last year. Average DOE fuel prices were
$4.36 per gallon for the first quarter of 2022 and $2.91 per gallon for the
first quarter of 2021. This was partially offset by the decrease in total miles
driven by company driving associates, excluding ACT and MME, discussed above.
Quarter Ended March
31, Increase (Decrease)
2022 2021
(Dollars in thousands)
Operations and maintenance $ 95,883 $ 68,070 40.9 %
% of total revenue 5.2 % 5.6 % (40 bps)
% of revenue, excluding truckload and LTL fuel 5.8 % 6.0 % (20 bps)
surcharge
Operations and maintenance expense consists of direct operating expenses, such as driving associate hiring and recruiting expenses, equipment maintenance, and tire expense. Operations and maintenance expenses are primarily affected by the age of our company-owned fleet of tractors and trailers and the miles driven. We expect the driver market to remain competitive throughout 2022, which could increase future driving associate development and recruiting costs and negatively affect our operations and maintenance expense. We expect to continue refreshing our tractor and trailer fleet in the coming quarters, subject to availability of new revenue equipment, to maintain or improve the average age of our equipment.
The increase of
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Quarter Ended March
31, Increase (Decrease)
2022 2021
(Dollars in thousands)
Insurance and claims $ 98,192 $ 55,643 76.5 %
% of total revenue 5.4 % 4.5 % 90 bps
% of revenue, excluding truckload and LTL fuel 6.0 % 4.9 % 110 bps
surcharge
Insurance and claims expense consists of premiums for liability, physical damage, and cargo, and will vary based upon the frequency and severity of claims, our level of self-insurance, and premium expense. In recent years, insurance carriers have raised premiums for many businesses, including transportation companies, and as a result, our insurance and claims expense could increase in the future, or we could raise our self-insured retention limits or reduce excess coverage limits when our policies are renewed or replaced. In 2021, we expanded our insurance offerings to third-party carriers, earning additional premium revenues, which were partially offset by increased insurance reserves. Insurance and claims expense also varies based on the number of miles driven by company driving associates and independent contractors, the frequency and severity of accidents, trends in development factors used in actuarial accruals, and developments in large, prior-year claims. In future periods, our higher self-insured retention limits or lower excess coverage limits may cause increased volatility in our consolidated insurance and claims expense. Consolidated insurance and claims expense increased by$42.5 million for the first quarter of 2022, as compared to the first quarter of 2021. The increase was primarily due to an increase of insurance reserves incurred through our third-party carrier insurance program. The remaining increase is primarily due to the inclusion of$9.2 million of insurance and claims expense from ACT's and MME's first quarter 2022 results. Quarter Ended March 31, Increase (Decrease) 2022 2021 (Dollars in thousands) Operating taxes and licenses$ 29,037 $ 22,048 31.7 % % of total revenue 1.6 % 1.8 % (20 bps) % of revenue, excluding truckload and LTL fuel 1.8 % 1.9 % (10 bps)
surcharge
Operating taxes and licenses include state franchise taxes, state and federal highway use taxes, property taxes, vehicle license and registration fees, fuel and mileage taxes, among others. The expense is impacted by changes in the tax rates and registration fees associated with our tractor fleet and regional operating facilities. The quarter over quarter increase of$7.0 million is primarily composed of$8.2 million of operating taxes and licenses expense from ACT's and MME's first quarter 2022 results. Quarter Ended March 31, Increase (Decrease) 2022 2021 (Dollars in thousands) Communications$ 5,870 $ 5,037 16.5 % % of total revenue 0.3 % 0.4 % (10
bps)
% of revenue, excluding truckload and LTL fuel 0.4 % 0.4 % - bps surcharge
Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems.
The quarter over quarter increase of
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Quarter Ended March
31, Increase (Decrease)
2022 2021
(Dollars in thousands)
Depreciation and amortization of property and $ 145,044 $ 119,915 21.0 %
equipment
% of total revenue 7.9 % 9.8 % (190 bps) % of revenue, excluding truckload and LTL fuel 8.8 % 10.6 % (180 bps)
surcharge
Depreciation relates primarily to our owned tractors, trailers, buildings, electronic logging devices, other communication units, and other similar assets. Changes to this fixed cost are generally attributed to increases or decreases to company-owned equipment, the relative percentage of owned versus leased equipment, and fluctuations in new equipment purchase prices, which have historically been precipitated in part by new or proposed federal and state regulations. Depreciation can also be affected by the cost of used equipment that we sell or trade and the replacement of older used equipment. Management periodically reviews the condition, average age, and reasonableness of estimated useful lives and salvage values of our equipment and considers such factors in light of our experience with similar assets, used equipment market conditions, and prevailing industry practice. Consolidated depreciation and amortization of property and equipment increased by$25.1 million for the first quarter of 2022, as compared to the same period last year. This increase includes$15.3 million of expense from ACT's and MME's first quarter 2022 results. The remaining increase was primarily related to an increase in owned versus leased equipment. We expect consolidated depreciation and amortization of property and equipment to increase in total and as a percentage of consolidated revenue, excluding truckload and LTL fuel surcharge, as we currently do not plan to use operating leases as a primary means of funding our equipment purchases in 2022. Quarter Ended March 31, Increase (Decrease) 2022 2021 (Dollars in thousands) Amortization of intangibles$ 16,166 $ 11,749 37.6 % % of total revenue 0.9 % 1.0 % (10 bps) % of revenue, excluding truckload and LTL fuel 1.0 % 1.0 % - bps
surcharge
Amortization of intangibles relates to intangible assets identified with the 2017 Merger and various acquisitions. See Note 3 in Part I, Item 1, of this Quarterly Report for more details regarding details of our acquisitions.
The increase of$4.4 million for the first quarter 2022, as compared to the same period last year, was attributed to the ACT, MME, UTXL, and Eleos acquisitions during 2021. Quarter Ended March 31, Increase (Decrease) 2022 2021 (Dollars in thousands) Rental expense$ 13,401 $ 16,864 (20.5 %) % of total revenue 0.7 % 1.4 % (70 bps) % of revenue, excluding truckload and LTL fuel 0.8 % 1.5 % (70 bps)
surcharge
Rental expense consists primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting the expense are the size of our revenue equipment fleet and the relative percentage of owned versus leased equipment.
The quarter over quarter decrease of
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
We expect consolidated rental expense to continue to decrease both in total and as a percentage of consolidated revenue, excluding truckload and LTL fuel surcharge, as we currently do not plan to use operating leases as a primary means of funding our equipment purchases in the remainder of 2022.
Quarter Ended March
31, Increase (Decrease)
2022 2021
(Dollars in thousands)
Purchased transportation $ 386,446 $ 258,230 49.7 %
% of total revenue 21.2 % 21.1 % 10 bps
% of revenue, excluding truckload and LTL fuel 23.5 % 22.8 % 70 bps
surcharge
Purchased transportation expense is comprised of payments to independent contractors in our trucking operations, as well as payments to third-party capacity providers related to logistics, freight management, and non-trucking services in our logistics and intermodal businesses. Purchased transportation is generally affected by capacity in the market as well as changes in fuel prices. As capacity tightens, our payments to third-party capacity providers and to independent contractors tend to increase. Additionally, as fuel prices increase, payments to third-party capacity providers and independent contractors increase. Consolidated purchased transportation expense increased by$128.2 million for the first quarter of 2022, as compared to the same periods last year. This increase includes$4.6 million of expense from ACT's and MME's first quarter 2022 results. The comparative first quarter increases were primarily due to payments made to third-party carriers, partially offset by a decrease in miles driven by independent contractors of 2.5%. We expect purchased transportation will increase as a percentage of revenue if we grow our logistics and intermodal businesses faster than our full truckload and LTL businesses. The increase could be partially offset if independent contractors exit the market due to regulatory changes. Quarter Ended March 31, 2022 2021 Increase (Decrease) (Dollars in thousands) Impairments $ 810 $ - 100.0 %
In 2022, we incurred impairment charges associated with building improvements (within our non-reportable segments).
Quarter Ended March 31,
2022 2021 Increase (Decrease)
(Dollars in thousands)
Miscellaneous operating expenses $ 11,509 $ 14,593 (21.1 %)
Miscellaneous operating expenses primarily consist of legal and professional services fees, general and administrative expenses, other costs, as well as net gain on sales of equipment. Year-over-year consolidated miscellaneous operating expenses decreased during the first quarter primarily due to a$23.9 million increase in gain on sales of equipment, excluding ACT and MME. This was partially offset by$10.2 million in expenses from ACT's and MME's first quarter 2022 results and year-over-year increases from legal settlements and various administrative expenses classified as miscellaneous. 41
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