Knight Swift Transportation : Press Release (opens in new window)

July 21, 2021

Phoenix, Arizona

Knight-Swift Transportation Holdings Inc. Reports Second Quarter 2021 Revenue and Earnings

Knight-Swift Transportation Holdings Inc. (NYSE: KNX) ("Knight-Swift" or "the Company"), one of North America's largest and most diversified freight transportation companies, today reported second quarter 2021 net income attributable to Knight-Swift of $152.8 million and Adjusted Net Income Attributable to Knight-Swift of $163.0 million. We reported GAAP earnings per diluted share of $0.92 for the second quarter of 2021, compared to $0.47 for the second quarter of 2020. Our Adjusted EPS was $0.98 for the second quarter of 2021, compared to $0.57 for the second quarter of 2020.

Key Financial Highlights

Our consolidated revenue, excluding trucking fuel surcharge, grew by 21.6% during the second quarter of 2021, reflecting meaningful growth across all reportable segments. We generated consolidated Adjusted Net Income Attributable to Knight-Swift of $163.0 million, which represents a 68.9% increase from $96.5 million during the second quarter of 2020. Revenue per tractor was up 10.3% despite lower fleet utilization as a result of the difficult driver sourcing environment. Our Trucking segment increased revenue, excluding fuel surcharge and intersegment transactions, by 8.2%, resulting in a 460 basis point improvement in the Adjusted Operating Ratio to 80.9% in the second quarter of 2021 from 85.5% in the second quarter of 2020. Our Logistics segment more than doubled revenue and increased operating income by 372.5%. Our Intermodal segment grew revenue nearly 40% and improved its Adjusted Operating Ratio by over 1,000 basis points to 95.0% in the second quarter of 2021, compared to the same quarter last year. We anticipate ongoing improvement within the Intermodal segment in the coming quarters.

Dave Jackson, CEO of Knight-Swift, commented, "We believe truckload shippers are recognizing the value of our unique and unmatched terminal network and industry-leading trailer pool capacity. Our strong performance in recent quarters is the result of having invested significant capital and many years in developing a powerful combination of assets, technologies, people, and customer relationships toward producing distinctive value to our customers. We are energized by our recent results, including the growing adoption of our power-only services by small carriers, and even more excited about our plans already underway to drive further growth, meaningful returns, and less cyclicality in the future."

Knight-Swift Consolidated Results

			Quarter Ended June 30,
		2021				2020			Change
		(Dollars in		thousands, except per		share data)
Total revenue	$	1,315,701	$	1,060,698			24.0 %
Revenue, excluding trucking fuel surcharge	$	1,212,872	$	997,597			21.6 %
Operating income	$	191,115	$	102,167			87.1 %
Adjusted Operating Income 1	$	204,637	$	123,960			65.1 %
Net income attributable to Knight-Swift	$	152,804	$	80,189			90.6 %
Adjusted Net Income Attributable to Knight-Swift1	$	162,998	$	96,498			68.9 %
Earnings per diluted share	$	0.92	$	0.47			95.7 %
Adjusted EPS 1	$	0.98	$	0.57			71.9 %

• See GAAP to non-GAAP reconciliation in the schedules following this release.

Recent Acquisitions - On June 1, 2021, we acquired Kansas City, Missouri-based UTXL, Inc. ("UTXL"). UTXL is a premier third-party logistics company, specializing in expedited over-the-road full truckload and multi-stop loads throughout the United States, Canada, and Mexico. The June 2021 results of UTXL are included within the Logistics segment and within the consolidated results, below.

On July 5, 2021, we acquired Dothan, Alabama-based AAA Cooper Transportation ("ACT"). ACT is a leading less- than-truckload ("LTL") carrier that also offers dedicated contract carriage and ancillary services. The results of ACT will be included in our consolidated results beginning in the third quarter of 2021.

Other Income (Expenses), net - We earned $16.8 million of income within "Other income (expenses), net" in the condensed consolidated statements of comprehensive income in the second quarter of 2021, representing an $8.3 million improvement, compared to $8.5 million in the second quarter of 2020. The year-over-year improvement was primarily driven by unrealized gains recognized from our investment in Embark Trucks Inc., a tractor technology company.

Income Taxes - The effective tax rate was 25.3% for the second quarter of 2021, compared to 25.0% for the second quarter of 2020. We expect the full-year 2021 effective tax rate to be in the range of 25.0% to 27.0%.

Dividend - On April 16, 2021 our board of directors declared a quarterly cash dividend of $0.10 per share of common stock, which is a $0.02 increase from the Company's previously existing quarterly dividend of $0.08 per share of common stock. The dividend was payable to the Company's stockholders of record as of June 4, 2021 and was paid on June 28, 2021.

Segment Financial Performance

Trucking Segment

			Quarter Ended June 30,
		2021			2020			Change
			(Dollars in thousands)
Revenue, excluding fuel surcharge and intersegment transactions	$	882,560	$	816,033			8.2 %
Operating income	$	168,457	$	107,788			56.3 %
Adjusted Operating Income 1	$	168,781	$	118,166			42.8 %
Operating ratio		82.9 %			87.7 %			(480 bps)
Adjusted Operating Ratio 1		80.9 %			85.5 %			(460 bps)

• See GAAP to non-GAAP reconciliation in the schedules following this release.

Our Trucking segment includes our irregular route, dedicated, refrigerated, expedited, flatbed, and cross-border operations across our brands with 12,967 irregular route tractors and 5,067 dedicated route tractors. Operating income grew by 56.3% within the Trucking segment, overcoming inflationary pressures related to sourcing and retaining drivers. Year-over-year revenue, excluding fuel surcharge and intersegment transactions, grew by 8.2% in the second quarter. Average revenue per tractor increased by 10.3%, driven by an 18.8% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions. Consumer demand remained strong, while capacity remained constrained across our industry, which is driving up sourcing costs and corresponding rates. Our year-over-year rate improvement was partially offset by driver-related sourcing expenses, as well as an 8.0% decline in miles per tractor due to an increase in unseated tractors. On a sequential basis, miles per tractor remained relatively flat. In the second quarter of 2021, the Swift truckload operating segment generated an Adjusted Operating Ratio of 75.7%, while the Knight trucking operating segment generated an Adjusted Operating Ratio of 78.7%.

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Logistics Segment

			Quarter Ended June 30,
		2021			2020			Change
			(Dollars in thousands)
Revenue, excluding intersegment transactions	$	162,167	$	67,066			141.8 %
Operating income	$	14,356	$	3,038			372.5 %
Adjusted Operating Income 1	$	14,453	$	3,038			375.7 %
Operating ratio		91.4 %			95.7 %			(430 bps)
Adjusted Operating Ratio 1		91.1 %			95.5 %			(440 bps)

• See GAAP to non-GAAP reconciliation in the schedules following this release.

Revenue, excluding intersegment transactions, increased by 141.8% within our Logistics segment, as brokerage load volumes grew by 55.3% and revenue per load increased by 55.8% (including the results of UTXL beginning June 1, 2021). Excluding the results of UTXL, brokerage load volumes grew by 49.6% and revenue per load increased by 47.5%. Brokerage gross margin was 15.7% in the second quarters of 2021 and 2020, while Adjusted Operating Ratio improved by 440 basis points to 91.1% in the second quarter of 2021 from 95.5% in the second quarter of 2020.

Within our power-only service offering, revenue grew by 410.5% as a result of a 141.5% increase in load volumes. Power-only represented 26.9% of brokerage revenue and over 25% of our total second quarter 2021 brokerage load volumes. During 2020, we introduced our Select platform, which digitally matches shippers with available capacity across our brands through frictionless transactions. During the second quarter of 2021, more than 4,500 carriers were digitally matched with loads through our Select platform, achieving an 18.2% sequential increase in Select platform load volumes.

Intermodal Segment

			Quarter Ended June 30,
		2021			2020			Change
			(Dollars in thousands)
Revenue, excluding intersegment transactions	$	115,294		$	82,699			39.4 %
Operating income (loss)	$	5,812	$	(4,475)			229.9 %
Adjusted Operating Income (Loss) 1	$	5,812	$	(4,410)			231.8 %
Operating ratio		95.0 %			105.4 %			(1,040 bps)
Adjusted Operating Ratio 1		95.0 %			105.3 %			(1,030 bps)

• See GAAP to non-GAAP reconciliation in the schedules following this release.

Intermodal revenue, excluding intersegment transactions increased 39.4% year-over-year, as load counts increased 19.9% and revenue per load increased 16.3%. The Adjusted Operating Ratio improved to 95.0% in the second quarter of 2021, from 105.3% in the second quarter of 2020. Intermodal is exhibiting solid momentum, and we expect operational improvements in cost structure and network design in the coming quarters to lead to continued improvement.

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Non-reportable Segments

			Quarter Ended June 30,
		2021				2020			Change
				(Dollars in thousands)
Total revenue	$	66,795	$	45,289			47.5 %
Operating income (loss)	$	2,490	$	(4,184)			159.5 %

The non-reportable segments include support services provided to our customers, independent contractors, and third party carriers (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, certain warehousing activities, as well as certain corporate expenses (such as legal settlements and accruals and $10.3 million in quarterly amortization of intangibles related to the 2017 merger). Revenue growth and improved profitability within the non-reportable segments is related to revenue and margin improvement in our warehousing activities, expanded services to third-party carriers, and increased demand for our equipment leasing services.

Consolidated Liquidity, Capital Resources, and Earnings Guidance

Cash Flow Sources (Uses)

			Year-to-Date June 30,
		2021			2020			Change
					(In thousands)
Net cash provided by operating activities	$	459,504	$	383,360		$	76,144
Net cash used in investing activities		(196,916)			(253,066)			56,150
Net cash used in financing activities		(227,798)			(173,771)			(54,027)
Net increase (decrease) in cash, restricted cash, and equivalents 1	$	34,790		$	(43,477)		$	78,267
Net capital expenditures	$	(120,481)	$	(195,178)		$	74,697

• "Net increase (decrease) in cash, restricted cash, and equivalents" is derived from changes within "Cash and cash equivalents," "Cash and cash equivalents - restricted," and the long-term portion of restricted cash included in "Other long- term assets" in the condensed consolidated balance sheets.

Liquidity and Capitalization - As of June 30, 2021, we had a balance of $943.2 million of unrestricted cash and available liquidity and $6.1 billion of stockholders' equity. The face value of our debt, net of unrestricted cash ("Net Debt") was $693.0 million as of June 30, 2021, which is a $65.1 million decrease from December 31, 2020. Free cash flow2 for the first half of 2021 was $339.0 million (computed as net cash provided by operating activities, less net capital expenditures). During the first half of 2021, we generated $459.5 million in operating cash flows, reduced our operating lease liabilities by $28.3 million, spent $63.3 million on acquisitions, and returned $53.7 million in share repurchases and $30.3 million in dividends to our stockholders. Subsequent to June 30, 2021, we acquired ACT and borrowed $1.2 billion dollars to finance the transaction.

Equipment and Capital Expenditures - Gain on sale of revenue equipment increased to $15.1 million in the second quarter of 2021, compared to $1.7 million in the same quarter of 2020. The average age of our tractor fleet was 2.4 years in the second quarter of 2021, compared to 2.1 years in the same quarter of 2020. Capital expenditures, net of disposal proceeds, were $120.5 million for the first half of 2021. We expect net cash capital expenditures will be in the range of $500.0 million - $550.0 million for full-year 2021, including anticipated net cash capital expenditures of ACT. Our net cash capital expenditures primarily represent replacements of existing tractors and trailers, as well as investment in our terminal network and driver amenities. From time-to-time, our capital expenditures may include net cash outlays for acquisitions. The range provided excludes cash outlays for potential acquisitions.

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Guidance - We expect that Adjusted EPS3 for full-year 2021 will range from $3.90 to $4.05, which is an update from our previously-disclosed range of $3.45 to $3.60. Our revised expected Adjusted EPS3 range considers the expected future earnings of ACT and UTXL and is also based on the current truckload and general market conditions, recent trends, and the current beliefs, assumptions, and expectations of management (including those referenced in the second quarter 2021 earnings presentation posted on our website).

The factors described under "Forward-Looking Statements," among others, could cause actual results to materially vary from this guidance. Further, we cannot estimate on a forward-looking basis, the impact of certain income and expense items on our earnings per share, because these items, which could be significant, may be infrequent, are difficult to predict, and may be highly variable. As a result, we do not provide a corresponding GAAP measure for, or reconciliation to, our Adjusted EPS3 guidance.

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• Free cash flow is a non-GAAP measure.

• Our calculation of Adjusted EPS starts with GAAP diluted earnings per share and adds back the after-tax impact of intangible asset amortization (which is expected to be approximately $0.20 for full-year 2021), as well as noncash impairments and certain other unusual noncash items, if any.

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