Good afternoon. My name is Ina, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. Speakers for today's call will be Dave Jackson, President and CEO, and Adam Miller, CFO. Mr. Miller, the meeting is now yours. Thank you.

Thank you, Ina, and good afternoon, everyone, and thank you for joining our fourth quarter 2023 earnings call. Today, we plan to discuss topics related to the results for the quarter, an update on current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last one hour. And following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If you're not able to get to your question due to time restrictions, you may call (602) 606-6349. So to begin, I'll first refer you to the disclosures on Slide 2 of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now I'll turn the call over to Dave Jackson for our overview on Slide 3.

Thank you, Adam, and good afternoon, good evening, everyone. The charts on Slide 3 compare our consolidated fourth quarter revenue and earnings results on a year-over-year basis. Market conditions in the LTL business were strong, while soft demand continues in the truckload space. Revenue, excluding fuel surcharge, increased 11.6%, while our adjusted operating income declined by 78.6%. GAAP earnings per diluted share for the fourth quarter of 2023 was a loss of $0.07, and our adjusted EPS was $0.09 per share. These results include a $71.7 million operating loss in our third-party insurance business, which we've decided to exit as we will discuss later on the call. The insurance loss negatively impacted our adjusted EPS by $0.30. Excluding the loss on the insurance business, our adjusted EPS would have been $0.39 per share. Our results were also negatively impacted on a year-over-year basis by a $17.8 million increase in net interest expense, approximately $0.08 per share. Now on to the next slide. Slide 4 illustrates the revenue and adjusted operating income for each of our segments. Truckload freight demand saw a modest seasonal lift in November before slowing more than anticipated in December. The seasonal lift in November was not enough to offset the productivity disruption we typically experience during the holidays. This not only impacted our truckload business but logistics and intermodal as well. Freight demand in LTL was strong and led to an 11.9% increase in shipments per day in the quarter. U.S. Xpress made further progress and achieved positive adjusted operating income in each month of the quarter as revenue and cost per mile both improved over the third quarter. Our existing logistics business navigated significant declines in volume and revenue per load year-over-year to maintain a low 90s adjusted operating ratio, and U.S. Xpress Logistics continues to close the gap posting an adjusted operating ratio that was only 150 basis points behind our existing logistics business. I will now turn it to Adam to discuss each segment's operating performance, starting with truckload on Slide 5.

Thanks, Dave. For the Truckload segment, we saw modest seasonal activity as expected, but as noted on the last slide, the drop in demand in December was greater than anticipated. There were a few seasonal projects for truckload, and the projects that did exist were smaller in scale than what we see in a typical peak season. Loose capacity prevented any premium pricing opportunities as well. Revenue per mile was up 1.4% sequentially, reflecting stability in the existing businesses while U.S. Xpress saw positive progress as we continue working on the business mix. The adjusted operating ratio for our existing truckload business was flat sequentially, and U.S. Xpress improved 280 basis points. The inclusion of U.S. Xpress negatively impacted the adjusted operating ratio for this segment by 250 basis points. On a year-over-year basis, our truckload revenue, excluding fuel surcharge, increased 25.5%, reflecting a 12.5% decline in the existing truckload business prior to the inclusion of U.S. Xpress. Revenue per loaded mile fell 11.6% year-over-year or 11% before including U.S. Xpress. Miles per tractor increased 8.4% overall, or 6.4% before including U.S. Xpress, largely driven by the disposal of roughly 1300 unseated tractors over the past year in order to reduce costs. Now we’ll move to Slide 6. The benefits of our diversification into LTL really stand out as this segment continues to perform well. Our LTL business grew revenue excluding fuel surcharge nearly 40% year-over-year, an acceleration versus the 6.9% growth in the previous quarter. This business delivered an 85.5 adjusted operating ratio and grew adjusted operating income 14% year-over-year. Pricing growth remained solid as revenue per hundredweight, excluding fuel surcharge, increased 9.5% year-over-year. As of the end of the year, we have brought 14 new service centers online since entering the business in late 2021, and efforts are underway with 25 more properties in various stages of procurement, development, or reconditioning. Filling out a super-regional network in the short term and creating a national network in the long term will allow us to participate in more freight and enable us to find opportunities to further support our existing truckload customers with LTL capacity. This remains a key strategic priority for us. Now we'll move to Slide 7. The logistics market continues to be a challenge as many brokers have struggled to find enough volume and margins have been compressed. Being an asset-based logistics provider allows us to provide our customers with seamless service regardless of whether it's on our own assets or one of our partner carriers. This allows us to provide both committed and surge capacity and drop and hook trailer pool services at scale. Because of this, our logistics business remains disciplined and nimble maintaining a low 90s adjusted operating ratio despite a challenging market. The U.S. Xpress Logistics business continues to improve both the cost structure and pricing disciplines and made further sequential improvement in adjusted operating ratio, again, closing to within approximately 150 basis points of our existing logistics business. Overall revenue was down 5% year-over-year as revenue per load declined 7.4% and load count improved 2.6%. Excluding the U.S. Xpress logistics volumes, load count was down 22.7% year-over-year in the existing business. Now on to Slide 8. In our Intermodal business, revenue decreased 16.4% driven by a 19.7% decrease in revenue per load, partially offset by a 4.2% increase in load count. The operating ratio was essentially flat with the previous quarter. Our intermodal business didn't perform as well as expected as volume during the quarter was negatively impacted by several service-sensitive customers temporarily converting intermodal volume to truckload during peak season to take advantage of improved transit times and the competitive truckload pricing. This conversion not only impacted volume but negatively impacted our revenue per load. Many of these customers have now begun to return volume back to intermodal, and we expect to build volume in the second quarter as we work through the current bid season. Now we'll move to Slide 9. Slide 9 illustrates our all other segments formerly referred to as non-reportable segments. This category includes insurance, maintenance and equipment, and sales and rentals under the iron truck services brand, as well as equipment leasing and warehousing activities. For the quarter, revenue declined 46.6% year-over-year, largely as a result of our actions to address the challenges within our third-party insurance program, including significantly reducing the exposure basis. The $83.5 million operating loss within the all other segments is primarily driven by the $71.7 million operating loss in the third-party insurance business. Based on recent results, including the continued negative development of claims reserves, we decided to initiate exiting this business during the quarter. We have begun canceling policies and expect to have that completed by the end of the first quarter of 2024, at which point, all third-party insurance operations will cease, and we'll still have the outstanding claims to administer until ultimate settlement. We have already reduced the number of trucks under coverage by nearly 75% from its peak in the fourth quarter of the prior year, and we do not expect this business to have a material impact on our results in 2024. Now I'll provide an update on the progress of U.S. Xpress on Slide 10. U.S. Xpress continues to run ahead of plan on our projected path to improving results. As noted in the previous slides, the U.S. Xpress Truckload and Logistics businesses have already made meaningful progress and achieved a combined 99% adjusted operating ratio for the quarter. We highlight some of the progress on this slide. You'll notice these are fundamental areas of the business, including driver support and development, a decentralized operating model characterized by empowerment and financial accountability, a cohesive strategy for the network and freight selection, and a fanatical focus on cost. As the team covers ground on these initiatives, it is yielding improvement in the operating ratio. The progress on revenue per mile is noteworthy as this has been accomplished in a difficult market and in between bid seasons given the timing of the acquisition. Further improvement can be made through the bid season as we expand our pursuit of more lanes for the network. We continue to be pleased with the early progress and how this consequential truckload business is positioning for the future, reaching positive adjusted operating income before an improvement in the market. We are glad to see the efforts of the U.S. Xpress team already paying off, and we appreciate their hard work. Now I'll turn it to Dave to provide an outlook on the market.

Thank you. Slide 11 contains our outlook on market conditions for the first half of 2024. The LTL market should continue to see solid demand as the recent capacity disruption in the industry continues to be sorted out. This should support further yield improvement as the new business is increasingly repriced through bid activity. In the truckload space, we believe that retail inventory is at a relatively low level, though shippers caution about the direction of the U.S. consumer behavior is governing freight demand for the time being. We expect current soft conditions to continue in the first quarter with modest seasonality in the second quarter. The weather disruptions early in the year only increase the degree of difficulty for operators. On contract rates, we do not believe asset-based carriers can afford for rates to go down any further from current levels. The pace of cost inflation should ease though plentiful work alternatives in the broader economy will continue to drive retention and utilization until freight conditions improve. We expect the used equipment market will weaken further as small carriers struggle and capacity exits. Now on to Slide 12 for our earnings guidance. Given the unusual degree of uncertainty regarding the direction and magnitude of outcomes from bid season, the timing and degree of an inflection in market conditions, and the difficulty assessing prevailing levels of demand as a result of weather disruptions in January, we are adjusting our approach to earnings guidance to provide two quarters of forward visibility as opposed to the full year. We will reassess this approach as market conditions develop. We expect the adjusted EPS range or the EPS will range from $0.37 to $0.41 for the first quarter of 2024 and will range from $0.53 to $0.57 for the second quarter of 2024. A more detailed thought on the assumptions supporting these earnings expectations are provided in the earnings release available at our investor website alongside this slide deck at investor.knight-swift.com. That concludes our prepared remarks. Ina, we'd like to open the line to entertain questions.

Your first question comes from Thomas Wadewitz from UBS. Your line is now open.

Hey, Dave and Adam. It's Michael Demeter for Tom. I just wondered if you could provide a little bit more color in terms of customer activity, freight volumes over the course of December and into January. And looking at the guide for 1Q, how much weather impact is in there. Thank you.

Okay. Well, Mike, as we mentioned, we experienced a decline in activity in December. The project activity we anticipated was minimal, and in November we saw some modest activity, but December was even lower. This drop led to a month that did not generate the earnings we expected or that we were on track for in the first two months of the quarter. As we look at January so far, the last two weeks have been significantly affected by weather. Notably, we have had LTL terminals closed, especially in the Southeast, which has impacted our productivity on the truckload side. I won't specify exactly how much the weather will affect the quarter's earnings per share, but it has definitely reduced our typical earnings expectations for January. Hopefully, we might see some recovery due to lower activity, but it won't be enough to make up for what was lost. Overall, these weeks have likely had a negative double-digit impact on revenue generation for each of those fleets.

Yes. I would say you always have some weather in the first quarter. It just depends on when it hits, right? And so I don't think this is materially different than other periods. And again, we expect that we'll have some freight that our customers have gotten behind on that will have to pick up and move. It's more of a question of do we see kind of that seasonality as it builds into March. And so right now, we're just cautious on really trying to estimate that there's an inflection early in the first half of the year. And so I think the first quarter, we've remained relatively conservative.

That’s great. Thank you.

Thank you. And your next question comes from the line of Jack Atkins from Stephens. Your line is now open.

Okay, great. Thanks for taking my questions, guys. So I guess, Dave, I would love to get your thoughts on the early part of bid season so far. Obviously, we haven't seen a recovery in freight fundamentals to this point, but we're also seeing some signs that this freight market has stabilized and to your point, inventory levels are getting lower. How are shippers treating bid season? Are they trying to get the last sort of pound of flesh they can out of you? Or are they understanding that we're kind of reaching a point where you could see a turn in the market this year, and they're preparing for that?

Yes. Well, Jack, it's a good question. It's a valid question. I will acknowledge we are still very early in the bid season. We are grateful for customers who have recognized the fact that the rate concessions we've given have come directly out of margin because there hasn't been any cost reprieve for us during this timeframe where we're able to pass on efficiencies, if you will. So it's simply come out of margin. And if you look at the industry, the publicly traded truckload carriers, it's a common theme for all of us. And so customers who recognize that and recognize where we are in the cycle have worked with us, not to the degree where we get an increase that helps us get back to where we want to be, but also shows a sign of trying to provide some consistency in the network and allowing us to move forward. Now there are some situations where I think we do have some customers who, perhaps operating under a mandate, maybe a little bit of a more short-term focus might be a little more aggressive in pushing. The reality is there is a limit to what you can do. And I think if you look at certainly our truckload model and others we compete with based on their public reports, we've hit that limit. It feels like this go-around the freight market has worked in an extraordinarily efficient way where we've discovered the bottom. That happened some time ago, around the middle of last year, it appears. And that's where we are. You've seen small carrier rates. They've hit a bottom. And so it doesn't take a lot of creativity to understand where this can go from here. A theme I would tell you that we have seen through this process from many, if not most customers has been a very definite preference towards moving their commitments to an asset-based provider as opposed to a non-asset-based broker. I don't believe we've ever seen extreme commitments to the extremely high level of contractual commitments from brokers. And so they sit here today with this super high committed percentage of their business at incredibly low loads or low rates, which really you could say are unsustainable, as we see small carrier capacity leaving, as we see the bottom of spot rates not keep dropping. And as we see margins evaporate in the truckload space. And so we're at a level that's not sustainable. And so we have non-asset broker capacity that is committed at these very, very low rates and certainly seems to be setting up for a squeeze there. And so some of our customers, I think, are able to read the writing on that wall. What none of us know is exactly when that's going to happen. Every day that goes by, we're a day closer to an inflection. We've written out the longest trough that, certainly, I've seen in almost 24 years of being here. That's a little bit of the lay of the land, Jack. I'm not sure if I adequately answered your question. Do you have a follow-up to that?

No, you did, Dave. I guess I'm just trying to get a feel for are some shippers really trying to get that last push or are they willing to work with you? That sounds like the answer is they're willing to work with you a little bit here by and large. And is that the right way to kind of think about it?

These are negotiations, and I could appreciate at our customers on the other side, they're trying to do the best they can for their interest. And I will tell you, there is a place, the Clint Eastwood line, a man's got to know his limitations, there is a place where we simply cannot concede anymore. We often get to these in cycles. But we've never been pushed this far from how high the OR gets here. But we are definitely in that place where the alternative to accepting rate decreases is we have less commitments. We're more exposed to the spot and we have to rely on our diversified model. The way I would answer your question, Jack, is I would say there are some customers that I believe through this process will lead us to have a little more exposure to the spot because of perhaps a short-term objective that they have. Now that seems to be the minority so far. But again, it's only January. We're early on in the process. We hope that doesn't happen because that only leads to disruption for us and for them. We think it costs more in the end. I think we could demonstrate that with data. So we hope that's not the case, but we are not in a position to lower our rates through bids right now.

Okay. Thanks, very helpful, Dave. Thank you for the time. Really appreciate that answer.

And your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.

Great. Good afternoon, gentlemen. Dave and Adam, I would like to pick your brain on your extensive cycle knowledge, if you will. Again, we've seen spot rates come up quite meaningfully in the last few weeks. Our in-house indices are also looking a little bit better. I'm a little surprised that you still had late December drop-off with this improvement and doesn't look like you're pointing to much better for January. Why do you think there is this disconnect between the data point and what you're seeing on the ground? If there is a disconnect, is it weather? Is it something else? And if you can just kind of elaborate a little bit more on what happened late in the fourth quarter that we missed? Thank you.

Yes. We need to be cautious because while some data is more readily available and can be accessed almost in real-time, we should avoid making broad generalizations based on smaller data points. I want to share an anecdote that our logistics team has heard repeatedly from small carriers, which is that they plan to observe the next four to six weeks before making decisions about their business. There's a trend where some are saying that if it doesn’t pay off, they won’t proceed. The market is under pressure. An interesting data point to monitor is the net revocations of authority on the last business day of the month. We witnessed spikes on the last business day of November and again in December, although December's spike was smaller. Generally, few would renew their insurance at the end of the calendar year. We anticipate that we may observe another spike at the end of January because it's linked to carriers struggling to find insurance. The rising insurance premiums have been challenging, although some are willing to finance these at high rates, which adds further pressure on the business but allows for survival. The difficulty arises when no one is willing to underwrite these risks. We are acutely aware of the risks small carriers face, and we understand why this market is shrinking and why many small carriers will have trouble finding anyone willing to accept that risk. We are noticing these signs, especially in that particular data point. The market is indeed under significant stress. So it's worth noting that while one data point might suggest something different in December, it does not necessarily reflect the broader trends we’re observing over time; not all data carries the same weight.

What I'd also note, Ravi, is over the period, if you look at the last four weeks, you've had the holidays where you have a lot of small carriers and independent contractors who, when freight is plentiful, will take time off in the market. So that puts a little pressure on finding capacity. You may see a blip in spot. Then you have the same issue as you go through weather where you have a lot of trucks, especially the safe ones, that are shutting down, and that puts pressure on the market. I mean, we see it in our own markets today, but it's not necessarily because demand is there; it's because you just don't have supply readily available. So I think as we watch as the weather starts to clear up, and we watch those trends over the next few weeks, I think that will be a little bit more telling than just looking at the last four throughput data points.

And your next question comes from the line of Ken Hoexter from Bank of America. Please go ahead.

Hi, this is Nathan Ho dialing in for Ken Hoexter. Just wanted to focus a little bit on the encouraging signs coming out of the U.S. Xpress integration with a 99% operating ratio and the 100 basis points of sequential improvement. Now that the segment is contributing a little bit of operating profits, I'd love to understand a little more about what's next for further alignment of its business structure. And within your first quarter and second quarter targets, what are you expecting in terms of further cost and growth synergy gains? Thanks.

Nathan, thanks for the question. Maybe I'll start off and Adam, you can certainly chime in. First, I use this as an opportunity to just acknowledge the wonderful people we have at U.S. Xpress. I can't say enough good things about how they have gone to work and worked together with us, the degree to which they've been open to collaborate. We're just excited for them. I think they're excited to be part of the group. To answer your question about structure and how that changes, this is a brand, an independent brand that we support. We have two leaders that have moved to Chattanooga. They did this several months ago in anticipation of the transaction. They are there; they are taxpayers and residents of Chattanooga and have assimilated with the team. So that business will continue to perform independently. I'd say that thus far in these first six months, the progress has probably been two-thirds cost, one-third rate. That likely flips here as we go into the next two quarters where rate continues to grow as cost doesn't grow at the same kind of pace, but there still are cost opportunities. As was mentioned, Adam highlighted a few key things. One of those was doing directly with our customers, not going through a broker intermediary. The sales group and operations group have worked very hard to deal directly when they had an abrupt change. That's been a positive to the rate per mile. If we look at the overall approach in the network and their approach to bids, we've been able to bring a different mindset in terms of how they can go about building the network, and they've been very receptive to that. We're receiving a steady diet, I would say, kind of across our business of about 110 bids a week. Some of those can be mini-bids, and some of those are much larger network bids. That’s feeding into this decentralized operation that U.S. Xpress is well on their way towards, and we believe will lead to lower driver turnover, better operating costs with a high level of service and good returns, good revenue generated on our trucks with ORs that over time, we believe, will be in that low 80 range, similar to what we would expect over time in our Swift and Knight brands. Adam, anything else?

I mean, I think you hit it well. Again, I'd just highlight being more active in the bid season, probably having more opportunities with customers that have relationships with our other asset-based brands that will open doors for U.S. Xpress. And then continued progress on closing the rate gap between U.S. Xpress and our other asset-based brands. We'll expect to make progress. It's tougher to do that on rate in an environment where you don't have much wind at your back. They've been able to make sequential progress despite that, and when there is a more favorable environment, we'd expect that progress to ramp up very quickly.

And your next question comes from the line of Bruce Chan from Stifel. Please go ahead.

Thank you, operator. Afternoon, gentlemen. Just on the insurance side, it was good to see the progress with growth in the LTL segment. Maybe just wanted to get your thoughts on the timeline for how those new terminals are going to come online, especially as you start to think about the potential for maybe any margin drag as you spool that network up, anything that we should be watching there as we model out the OR?

Let me take a moment to discuss the cadence of our operations. Since 2021, we have opened 14 locations and have seen our operating ratio improve annually, consistently reaching the mid-80s. This is something we appreciate as we integrated the MME and AAA Cooper networks, which are now operating under a single framework. Although we are functioning as one LTL company from a technology standpoint, we maintain two brands in different regions. We expect to continue exploring new markets through both organic growth and acquisitions. Currently, we have 25 locations in the pipeline, with five that just opened this week and 20 more to roll out over the remaining year. We anticipate that about half of these will open in the first half of the year and the rest in the latter half. During the first 60 days, we aim to achieve enough volume to reach break-even, primarily by introducing new service ZIP codes to 3PLs and gradually building our business through nationwide bids, along with local business opportunities. We are also looking into additional locations resulting from the yellow bankruptcy, which we expect will increase our total. This growth is measured and conservative. For instance, the five locations we recently opened are in smaller markets such as West Burlington, Iowa; Cherryville, Kansas; Rock Island, Illinois; Forest City, Arkansas; and Wichita Falls, Texas. We managed to obtain these locations at favorable rates per door, but we will face some pressure in these areas.

Yes. I think as you mentioned, it does take 60 to 90 days to build up volume to breakeven. So it does put a little pressure on the business. You may see a sequential change from Q4 to Q1 that's a little higher than normal seasonality. But I do feel like once we get our legs under us, at least with the first kind of batch of them, that revenue generation will more than offset the costs that we experienced from ramping up in the back half. I don't see a material impact, but maybe earlier in the year, we would feel that, and then we would be ramping that in the back half. Thanks for the question, Bruce.

And your next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is now open.

Yes. To elaborate on the previous question, it's important to consider this year's growth. According to your projections, you've discussed the transition from super-regional to national LTL carrier, and there are some gaps in the calculations currently. I'm interested in understanding how long it will take to expand into more regions where you currently operate. Does your current plan for this year include new areas, or will that expansion need to be approached through larger acquisitions?

I appreciate the question, Jordan. Realistically, we would anticipate over the next two years being able to consider ourselves as having nationwide coverage that was in-house. So, of course, today, with interline partners, we can service the whole nation, but we'll get access to nationwide network bids when we can do that all in-house together in a system. We expect for that map to look less super-regional and more nationwide over the next two years. A lot of these locations that we just referred to, that are the 25, plus perhaps we may add another 10, let’s say, lease type facilities on top of that. Those are largely gap fillers. Those fill in spaces as part of a very intentional effort so that we can acquire some chunks, as you will. I think you referred to it in other regions that we don't currently service. This is a multi-year plan, but it's not as far out as you might think. We're well on our way. I would say that the yellow terminals, I would say, we purchased LTL terminals from two other businesses that no longer use them or who also went through a bankruptcy or liquidation process. Those have been wonderful gifts for us. What it would have cost us to go acquire the land and build these facilities would have required a much more significant capital investment. We're grateful that these have come. We've taken a very conservative approach here. But we're on our way. Hopefully, by the end of 2025, we're able to show you a map that makes it very clear we're a nationwide LTL network.

And your next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead.

Hey guys. This is James on for Allison. Just wanted to ask about TL capacity and just the amount that it's oversupplied. Do you expect sort of a clearing event to push out some of the capacity and drive exit? Or do you kind of see more of a gradual process? And kind of trying to get at realistically is without a clearing event, could you realistically see contract rates up in the second half versus the first half? Or do you really need a clearing event and not the gradual to see positive rates in the second half?

It’s difficult to predict exactly how things will unfold. Historically, there have been various challenges that acted as catalysts, like spikes in fuel prices or significant weather events impacting demand. Presently, we are not anticipating any major changes in demand. Inventory levels have been significantly reduced, and we hope for a shift towards a growth mindset. However, retailers seem to have a more conservative outlook, prioritizing profits over revenue growth, which would benefit us in a revenue-focused environment. In our capital-intensive industry, delaying necessary investments can have serious repercussions. The cost of new equipment remains high due to inflation, and prices for used equipment have declined after previously reaching record highs. The useful life of existing assets is limited, and while they can function for a while, issues will eventually accumulate. Insurance might act as a catalyst, pushing some to their limits. From past cycles, we know that issues can snowball; once we see a reduction in capacity, it's just the start. As capacity decreases, financing becomes scarce, risks rise, and smaller carriers may cut corners, making them uninsurable. The timing of this process is uncertain. We believe the first quarter will be particularly tough for small carriers, and it seems unlikely that they will see a profit over almost two years. We are monitoring indicators that reflect the various factors at play to see if there's an avalanche effect.

Got it. And but without that avalanche effect, there would still be incremental rate pressure in the second half? Or is it sort of trending where it could actually still improve without the avalanche sort of happening? Thank you.

Yes, we're not getting a read on broader economic demand that says that could be a catalyst. So we think this will be supply-driven. As we feel that most, if not all, trucking cycles have really come on the undersupply side. Maybe '04, '05, '06, those were some banner economic years that might have been the exception to that. But outside of '04, '05, and '06, sure feels like every other cycle has been supply-induced. Every other recovery, I should say, has been due to a pretty meaningful reduction in supply. This one, our economic outlook on the freight side is that yes, the inflection has to come from supply. There's simply not enough to make us think that the demand is going to be enough lift on its own.

And your next question comes from the line of Jason Seidl from TD Cowen. Please go ahead.

Thank you, operator. Hey gentlemen, how are you?

Good. Doing well.

So I know you weren't giving exact guidance for the remainder of the year. But I guess, given some of the gains that you guys have seen with U.S. X and I guess a gradual improvement in the marketplace, how confident are you that you're going to be able to grow earnings in the back half of the year, excluding insurance? And then I guess just real quick, what percent of your book of business gets repriced in the truckload section on a quarterly basis?

Yes. Well, Jason, I appreciate the question. If we really felt like we had a good read to speak on the second half, we would have done that through our guidance. So for now, we're just going to stop with what we've given for the first two quarters in terms of guidance. Now clearly, you see a range in the second quarter that's better than the first quarter. It would be safe to assume that we don't see we're not expecting a big drop-off. We think the worst is behind us, but that's as far as I think we would feel comfortable to talk about right now. As for what percentage of our business might turn over, I think with technology, it's rather easy for many of our customers to do what we call mini-bids, which is in essence, they fire off an electronic request for us to bid on a handful of lanes. We are bidding on freight every single week of the year. The majority of the network bids, if you will, is, call it, mid to late November through call it, April, with these awards largely materializing before the end of the second quarter. It used to be like everybody fit in a pretty tight window there. Today, again, I think technology is a factor in that. It's not such an undertaking for them. It's kind of spread out. So I hope that helps. I hope that gives you a bit of a sense. The majority of our incumbent business will be repriced over the first six months of the year.

No, no, that's helpful. And has the duration of the contracts changed any? Or have the shippers been pushing for longer contracts?

It depends on who feels like they have leverage in the market. Usually, they’re agreed to for a certain amount of time. I will tell you that there are some shippers that are pulling forward bids that they normally would do later in the year, and they're pulling them from, call it, June to February. You can guess maybe what their motivation might be to do that, which might drive that. It sure seems like our customers expect that rates are going to be up in the second half of the year. That's what the behavior is showing us.

Understood. Appreciate the time, as always.

And your next question comes from the line of Jeff Kauffman from Vertical Research. Please go ahead.

Thank you very much. Two quick questions. A little more number detail, big jump in insurance costs this quarter. Could you talk a little bit about what went on, on the insurance? Is this related to what happened in non-reportable? Is this something different? But it looks like that was up something in the neighborhood of almost $36 million, $40 million this quarter.

Yes, Jeff, you're correct. This is tied to the insurance business and our decision to exit that area. We aim to fully account for the outstanding claims in this business so we can manage them without significantly affecting the 2024 results. That is the main factor at play.

All right. Can you help us understand that? I know you said you're going to be exited from the business at the end of 1Q. So was this $71 million really a bit of a forward-looking charge where we're accruing liabilities, and after 1Q, is that going to be all we're going to hear from the insurance business? Or are there going to be some legs that occur after that even though you've exited the business and have kind of closed that out?

Yes, we cannot account for future liabilities. We analyzed the development of claims and observed its growth over time. Consequently, we adopted a more cautious stance regarding the potential growth and management of our business book, resulting in a higher accrual that we believe accurately reflects our current exposure. Due to the requirement of notifying insurers before canceling policies, there is a transition period. We have significantly reduced our exposure already, and we anticipate minimal financial impact in the first quarter. Essentially, we will be processing the claims and resolving the outstanding liabilities over the next year or two.

Okay. And then just one last clarification on that. So if I look at this as an unusual event, making a decision to exit a business, and I want to try to segregate that from the operating activities of the business in the fourth quarter. What would that split of the $71.7 million be?

Maybe I didn't understand the question.

How much would have been tied to maybe a receivable or insurance or software versus the claims? Is that what you're asking, Jeff?

Is that what you're asking, Jeff?

I'm asking if we did not exit the business, what would that $71.7 million would look like operating-wise in the quarter?

Yes. We don't have that. We haven't differentiated.

All right. Gentlemen, thank you.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.