Knight-Swift Transportation Holdings Inc 10-Q for FY2022 Q1
Knight-Swift Transportation Holdings Inc. (KNX)
10-Q
2022-05-04
For: 2022-03-31
View Original
Added on
April 08, 2026
About this 10-Q
Knight-Swift Transportation Holdings Inc filed this 10-Q on May 4, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.83B
- up 49.4% from $1.22B a year earlier
- Net income
- $208.34M
- up 60.5% from net income of $129.79M a year earlier
- Diluted EPS
- $1.25
- up 62.3% from $0.77 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________________________________________________________________________________
For the quarterly period ended March 31, 2022
or
For the transition period from to
Commission File Number: 001-35007
_________________________________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and zip code)
(602 ) 269-2000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
_________________________________________________________________________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | ||||||||||||||||||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company | ||||||||||||||||||||||||
| Emerging Growth Company | ☐ | |||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 163,568,435 shares of the registrant's common stock outstanding as of April 27, 2022.
| QUARTERLY REPORT ON FORM 10-Q | |||||
| TABLE OF CONTENTS | |||||
| PART I FINANCIAL INFORMATION | PAGE | ||||
| PART II OTHER INFORMATION | |||||
2
| QUARTERLY REPORT ON FORM 10-Q | ||||||||
GLOSSARY OF TERMS | ||||||||
The following glossary defines certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. | ||||||||
| Term | Definition | |||||||
| Knight-Swift/the Company/Management/We/Us/Our | Unless otherwise indicated or the context otherwise requires, these terms represent Knight-Swift Transportation Holdings Inc. and its subsidiaries. | |||||||
| 2017 Merger | The September 8, 2017 merger of Knight Transportation, Inc. and its subsidiaries and Swift Transportation Company and its subsidiaries, pursuant to which we became Knight-Swift Transportation Holdings Inc. | |||||||
| 2017 Debt Agreement | The Company's unsecured credit agreement, entered into on September 29, 2017, as amended on October 2, 2020 | |||||||
| 2021 Debt Agreement | The Company's unsecured credit agreement, entered into on September 3, 2021, consisting of the 2021 Revolver and 2021 Term Loans, which are defined below | |||||||
| 2021 Prudential Notes | Third amended and restated note purchase and private shelf agreement, entered into on September 3, 2021 by ACT with unrelated financial entities | |||||||
| 2021 Revolver | Revolving line of credit under the 2021 Debt Agreement | |||||||
| 2021 Term Loans | The Company's term loans under the 2021 Debt Agreement, collectively consisting of the 2021 Term Loan A-1, 2021 Term Loan A-2 and 2021 Term Loan A-3 | |||||||
| 2021 Term Loan A-1 | The Company's term loan under the 2021 Debt Agreement, maturing on December 3, 2022 | |||||||
| 2021 Term Loan A-2 | The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2024 | |||||||
| 2021 Term Loan A-3 | The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2026 | |||||||
| 2021 RSA | Fifth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on April 23, 2021 by Swift Receivables Company II, LLC with unrelated financial entities. | |||||||
| July 2021 Term Loan | The Company's term loan entered into on July 6, 2021 | |||||||
| ACT | AAA Cooper Transportation, and its affiliated entity | |||||||
| ACT Acquisition | The Company's acquisition of 100% of the securities of ACT on July 5, 2021 | |||||||
| Annual Report | Annual Report on Form 10-K | |||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| Board | Knight-Swift's Board of Directors | |||||||
| BSBY | Bloomberg Short-Term Bank Yield Index | |||||||
| DOE | United States Department of Energy | |||||||
| EPS | Earnings Per Share | |||||||
| Embark | Embark Trucks Inc. and its related entities | |||||||
| ESPP | Knight-Swift Transportation Holdings Inc. Amended and Restated 2012 Employee Stock Purchase Plan | |||||||
| GAAP | United States Generally Accepted Accounting Principles | |||||||
| LIBOR | London InterBank Offered Rate | |||||||
| NYSE | New York Stock Exchange | |||||||
| LTL | Less-than-truckload | |||||||
| MME | RAC MME Holdings, LLC. and its subsidiaries, MME, Inc., Midwest Motor Express, Inc., and Midnite Express Inc. | |||||||
| Quarterly Report | Quarterly Report on Form 10-Q | |||||||
| RSU | Restricted Stock Unit | |||||||
3
GLOSSARY OF TERMS | ||||||||
The following glossary defines certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. | ||||||||
| Term | Definition | |||||||
| SEC | United States Securities and Exchange Commission | |||||||
| TRP | Transportation Resource Partners | |||||||
| US | The United States of America | |||||||
| UTXL | UTXL Enterprises, Inc. | |||||||
4
| PART I FINANCIAL INFORMATION | ||||||||||||||
| ITEM 1. | FINANCIAL STATEMENTS | ||||
Condensed Consolidated Balance Sheets (Unaudited) | ||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Cash and cash equivalents – restricted | |||||||||||
| Restricted investments, held-to-maturity, amortized cost | |||||||||||
Trade receivables, net of allowance for doubtful accounts of $ | |||||||||||
| Contract balance – revenue in transit | |||||||||||
| Prepaid expenses | |||||||||||
| Assets held for sale | |||||||||||
| Income tax receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Gross property and equipment | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use-assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payroll and purchased transportation | |||||||||||
| Accrued liabilities | |||||||||||
| Claims accruals – current portion | |||||||||||
| Finance lease liabilities and long-term debt – current portion | |||||||||||
| Operating lease liabilities – current portion | |||||||||||
| Total current liabilities | |||||||||||
| Revolving line of credit | |||||||||||
| Long-term debt – less current portion | |||||||||||
| Finance lease liabilities – less current portion | |||||||||||
| Operating lease liabilities – less current portion | |||||||||||
| Accounts receivable securitization – less current portion | |||||||||||
| Claims accruals – less current portion | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Notes 3, 7, 8, and 9) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total Knight-Swift stockholders' equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
5
Condensed Consolidated Statements of Comprehensive Income (Unaudited) | ||
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Revenue, excluding truckload and LTL fuel surcharge | $ | $ | |||||||||||||||||||||
| Truckload and LTL fuel surcharge | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Salaries, wages, and benefits | |||||||||||||||||||||||
| Fuel | |||||||||||||||||||||||
| Operations and maintenance | |||||||||||||||||||||||
| Insurance and claims | |||||||||||||||||||||||
| Operating taxes and licenses | |||||||||||||||||||||||
| Communications | |||||||||||||||||||||||
| Depreciation and amortization of property and equipment | |||||||||||||||||||||||
| Amortization of intangibles | |||||||||||||||||||||||
| Rental expense | |||||||||||||||||||||||
| Purchased transportation | |||||||||||||||||||||||
| Impairments | |||||||||||||||||||||||
| Miscellaneous operating expenses | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other (expenses) income: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Other (expense) income, net | ( | ||||||||||||||||||||||
| Total other (expenses) income, net | ( | ||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interest | ( | ||||||||||||||||||||||
| Net income attributable to Knight-Swift | |||||||||||||||||||||||
| Other comprehensive loss | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | |||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Dividends declared per share: | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
6
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||
| Quarter Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization of property, equipment, and intangibles | |||||||||||
| Gain on sale of property and equipment | ( | ( | |||||||||
| Impairments | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Other adjustments to reconcile net income to net cash provided by operating activities | ( | ||||||||||
| Increase (decrease) in cash resulting from changes in: | |||||||||||
| Trade receivables | ( | ( | |||||||||
| Income tax receivable | |||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities and claims accrual | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other assets and liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from maturities of held-to-maturity investments | |||||||||||
| Purchases of held-to-maturity investments | ( | ( | |||||||||
| Proceeds from sale of property and equipment, including assets held for sale | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Expenditures on assets held for sale | ( | ( | |||||||||
| Net cash, restricted cash, and equivalents invested in acquisitions | ( | ( | |||||||||
| Other cash flows from investing activities | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayment of finance leases and long-term debt | ( | ( | |||||||||
| Repayments on revolving lines of credit, net | ( | ( | |||||||||
| Repayment of accounts receivable securitization | ( | ||||||||||
| Proceeds from common stock issued | |||||||||||
| Repurchases of the Company's common stock | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Other cash flows from financing activities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash, restricted cash, and equivalents | |||||||||||
| Cash, restricted cash, and equivalents at beginning of period | |||||||||||
| Cash, restricted cash, and equivalents at end of period | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
7
Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued | ||
| Quarter Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In thousands) | |||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Equipment acquired included in accounts payable | $ | $ | |||||||||
| Financing provided to independent contractors for equipment sold | |||||||||||
| Transfers from property and equipment to assets held for sale | |||||||||||
| Noncontrolling interest associated with acquisition | |||||||||||
| Purchase price adjustment on acquisition | |||||||||||
| Right-of-use assets obtained (forfeited) in exchange for operating lease liabilities | ( | ||||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions | |||||||||||
| Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities | |||||||||||
| Reconciliation of Cash, Restricted Cash, and Equivalents: | March 31, 2022 | December 31, 2021 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
Cash and cash equivalents – restricted 1 | |||||||||||||||||||||||
Other long-term assets 1 | |||||||||||||||||||||||
| Condensed Consolidated Statements of Cash Flows | |||||||||||||||||||||||
| Cash, restricted cash, and equivalents | $ | $ | $ | $ | |||||||||||||||||||
________
1 Reflects cash and cash equivalents that are primarily restricted for claims payments.
See accompanying notes to condensed consolidated financial statements (unaudited).
8
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | ||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Knight-Swift Stockholders' Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances – December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued under ESPP | |||||||||||||||||||||||||||||||||||||||||||||||
| Company shares repurchased | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld – RSU settlement | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Employee stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid and dividends accrued ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Knight-Swift | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balances – March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Knight-Swift Stockholders' Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances – December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued under ESPP | |||||||||||||||||||||||||||||||||||||||||||||||
| Company shares repurchased | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld – RSU settlement | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Employee stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid and dividends accrued ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Knight-Swift | |||||||||||||||||||||||||||||||||||||||||||||||
| Investment in noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances – March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
9
Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
Note 1 — Introduction and Basis of Presentation
Certain acronyms and terms used throughout this Quarterly Report are specific to the Company, commonly used in the trucking industry, or are otherwise frequently used throughout this document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document.
Description of Business
Knight-Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. During the first quarter of 2022, the Company operated an average of 17,965 tractors (comprised of 16,159 company tractors and 1,806 independent contractor tractors) and 71,310 trailers within the Truckload segment and leasing activities within the non-reportable segments. The LTL segment operated an average of 3,091 tractors and 8,302 trailers. Additionally, the Intermodal segment operated an average of 584 tractors and 11,027 intermodal containers. As of March 31, 2022, the Company's four reportable segments were Truckload, Logistics, LTL, and Intermodal.
Basis of Presentation
The condensed consolidated financial statements and footnotes included in this Quarterly Report include the accounts of Knight-Swift Transportation Holdings Inc. and its subsidiaries and should be read in conjunction with the consolidated financial statements and footnotes included in Knight-Swift's 2021 Annual Report. In management's opinion, these condensed consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary (consisting of normal recurring adjustments) for the fair statement of the periods presented.
With respect to transactional/durational data, references to years pertain to calendar years. Similarly, references to quarters pertain to calendar quarters.
2021 Acquisitions
The Company recently acquired the following entities:
•100.0 % of MME on December 6, 2021 . The results are included within the LTL segment.
•100.0 % of ACT on July 5, 2021 . The results are included within the LTL segment.
•100.0 % of UTXL on June 1, 2021 . The results are included within the Logistics segment.
•79.44 % of Eleos on February 1, 2021 . The results are included within the non-reportable segments. The noncontrolling interest is presented as a separate component of the condensed consolidated financial statements.
Note regarding comparability: In accordance with the accounting treatment applicable to the transactions, the Company's consolidated results, as reported, do not include the operating results of its ownership interest in the acquired entities prior to the respective acquisition dates. Accordingly, comparisons between the Company's current and prior period results may not be meaningful.
Additional information regarding the Company's recent acquisitions is included in Note 3.
Seasonality
In the truckload transportation industry, results of operations generally follow a seasonal pattern. Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather, while operating expenses generally increase. Tractor productivity of the Company's Truckload fleet, third-party carriers, and independent contractors decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs attributed to higher accident frequency from harsh weather. These factors typically lead to lower operating profitability, as compared to other parts of the year. Additionally, beginning in the latter half of the
10
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 2 — Recently Issued Accounting Pronouncements
| Date Issued | Reference | Description | Expected Adoption Date and Method | Financial Statement Impact | ||||||||||||||||||||||
| March 2022 | ASU No. 2022-02: Financial Instruments – Credit Losses (ASC 326), Troubled Debt Restructurings and Vintage Disclosures | |||||||||||||||||||||||||
Note 3 — Acquisitions
First quarter 2022 developments related to the Company's recent acquisitions are discussed below.
MME
On December 6, 2021 , the Company, through a wholly owned subsidiary, acquired 100.0 % of Bismarck, North Dakota-based MME. MME provides LTL, full truckload, and specialized and other logistics transportation services to a diverse customer base in its service territory in the upper Midwestern and great Northwestern regions of the US.
During the measurement period, the net working capital adjustment increased by $1.3 million based on the actual versus estimated net working capital adjustment as of the transaction date. This adjustment resulted in increasing the total purchase price consideration to $165.7 million. The Company reduced the deferred tax liabilities on MME's opening balance sheet by $2.2 million based on valuation of the Company's intangible assets. These measurement period adjustments resulted a $3.5 million increase in goodwill related to the MME acquisition.
ACT
On July 5, 2021 , the Company acquired 100 % of Dothan, Alabama-based ACT. ACT is a leading LTL carrier that also offers dedicated contract carriage and ancillary services.
During the quarter ended March 31, 2022, the Company's condensed consolidated operating results included ACT's total revenue of $217.7 16.1 3.5
11
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Pro Forma Information (Unaudited)— The following unaudited pro forma information combines the historical operations of the Company and ACT giving effect to the ACT Acquisition, and related transactions as if consummated on January 1, 2020.
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Total revenue | $ | ||||||||||||||||||||||
| Net income attributable to Knight-Swift | |||||||||||||||||||||||
| Earnings per share – diluted | |||||||||||||||||||||||
The unaudited pro forma condensed combined financial information has been presented for comparative purposes only and includes certain adjustments such as recognition of assets acquired at estimated fair values and related depreciation and amortization, elimination of transaction costs incurred by Knight-Swift and ACT during the periods presented that were directly related to the ACT Acquisition, and related income tax effects of these items.
The unaudited pro forma condensed combined financial information does not purport to represent the actual results of operations that Knight-Swift and ACT would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the identified transactions. The unaudited pro forma condensed combined financial information does not reflect any cost savings that may be realized as a result of the ACT Acquisition and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.
UTXL
On June 1, 2021 , pursuant to a stock purchase agreement, the Company, through a wholly owned subsidiary, acquired 100.0 % of the equity interests of UTXL, a premier third-party logistics company which specializes in over-the-road full truckload and multi-stop loads.
As of March 31, 2022, contingent consideration associated with the transaction was $2.5 million included in "Accrued liabilities" and $2.5 million included in "Other long-term liabilities" in the Company's condensed consolidated balance sheets, depending on the expected payment dates.
Eleos
On February 1, 2021 , pursuant to a membership interest purchase agreement ("MIPA"), the Company, through a wholly owned subsidiary, acquired 79.44 % of the issued and outstanding membership interests of Eleos Technologies, LLC ("Eleos"), a Greenville, South Carolina-based software provider, specializing in mobile driving platforms, which complement the Company's suite of services. The purchase price was allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The purchase price allocation was open for adjustments through the end of the measurement period, which closed one year from the February 1, 2021 acquisition date.
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Purchase Price Allocations
Unless otherwise stated, the purchase price allocations for the above acquisitions are preliminary and have been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date, and among other things may be pending the completion of the valuation of acquired tangible assets, an independent valuation of certain acquired intangible assets, assessment of lease agreements, assessment of certain liabilities, the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed, and assessment of other tax related items as applicable. As the Company obtains more information, the preliminary purchase price allocations disclosed below are subject to change. Any future adjustments to the preliminary purchase price allocations, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement periods, which is not to exceed one year from the respective acquisition dates.
Note 4 — Income Taxes
Effective Tax Rate — The quarter-to-date March 31, 2022 and March 31, 2021 effective tax rates were 24.9 % and 25.9 %, respectively.
Valuation Allowance — The Company has no t established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
Unrecognized Tax Benefits — Management believes it is reasonably possible that a decrease of up to $0.3 million in unrecognized tax benefits relating to federal deductions may be necessary within the next twelve months.
Interest and Penalties — Accrued interest and penalties related to unrecognized tax benefits were approximately $0.1
Tax Examinations — Certain of the Company's subsidiaries are currently under examination by Federal and various state jurisdictions for tax years ranging from 2014 to 2020 . At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company's effective tax rate. Years subsequent to 2017 remain subject to examination.
Note 5 — Accounts Receivable Securitization
As of March 31, 2022, the Company's eligible receivables related to the 2021 RSA generally have high credit quality, as determined by the obligor's corporate credit rating.
The 2021 RSA is subject to fees, various affirmative and negative covenants, representations and warranties, and default and termination provisions customary for facilities of this type. The Company was in compliance with these covenants as of March 31, 2022. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries.
The following table summarizes the key terms of the 2021 RSA (dollars in thousands):
| Effective date | |||||||||||
| Final maturity date | |||||||||||
| Borrowing capacity | $ | ||||||||||
Accordion option 1 | $ | ||||||||||
Unused commitment fee rate 2 | |||||||||||
Program fees on outstanding balances 3 | |||||||||||
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1The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.
2The 2021 RSA commitment fees rate are based on the percentage of the maximum borrowing capacity utilized.
3As identified within the 2021 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for LIBOR.
Availability under the 2021 RSA is calculated as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Borrowing base, based on eligible receivables | $ | $ | |||||||||
Less: outstanding borrowings 1 | ( | ( | |||||||||
| Less: outstanding letters of credit, net | ( | ( | |||||||||
| Availability under accounts receivable securitization facilities | $ | $ | |||||||||
1As of March 31, 2022 and December 31, 2021, outstanding borrowings are included in "Accounts receivable securitization – less current portion" in the condensed consolidated balance sheets and are offset by $0.5 1.1 % and 0.9 % as of March 31, 2022 and December 31, 2021, respectively.
Note 6 — Debt and Financing
Other than the Company's accounts receivable securitization as discussed in Note 5, the Company's long-term debt consisted of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In thousands) | |||||||||||
2021 Term Loan A-1, due December 3, 2022, net 1 2 | $ | $ | |||||||||
2021 Term Loan A-2, due September 3, 2024, net 1 2 | |||||||||||
2021 Term Loan A-3, due September 3, 2026, net 1 2 | |||||||||||
2021 Prudential Notes, net 1 | |||||||||||
| Other | |||||||||||
| Total long-term debt, including current portion | |||||||||||
| Less: current portion of long-term debt | ( | ( | |||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Total long-term debt, including current portion | $ | $ | |||||||||
2021 Revolver, due September 3, 2026 1 3 | |||||||||||
| Long-term debt, including revolving line of credit | $ | $ | |||||||||
1Refer to Note 12 for information regarding the fair value of debt.
2The carrying amounts of the 2021 Term Loan A-1, 2021 Term Loan A-2, and 2021 Term Loan A-3 are net of $0.2 million, $0.4 million, and $1.6 million in deferred loan costs as of March 31, 2022, respectively. The carrying amounts of the 2021 Term Loan A-1, 2021 Term Loan A-2, and 2021 Term Loan A-3 are net of $0.3 million, $0.4 million, and $1.6 million in deferred loan costs as of December 31, 2021, respectively.
3The Company also had outstanding letters of credit of $64.4 million and $64.0 million under the 2021 Revolver, primarily related to workers' compensation and self-insurance liabilities at March 31, 2022 and December 31, 2021, respectively.
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Credit Agreements
2021 Debt Agreement — On September 3, 2021, the Company entered into the $2.3 billion 2021 Debt Agreement (an unsecured credit facility), with a group of banks, replacing the 2017 Debt Agreement and the July 2021 Term Loan. The following table presents the key terms of the 2021 Debt Agreement:
| 2021 Term Loan A-1 | 2021 Term Loan A-2 | 2021 Term Loan A-3 | 2021 Revolver 2 | ||||||||||||||||||||
| 2021 Debt Agreement Terms | (Dollars in thousands) | ||||||||||||||||||||||
| Maximum borrowing capacity | $ | $ | $ | $ | |||||||||||||||||||
| Final maturity date | |||||||||||||||||||||||
| Interest rate minimum margin | |||||||||||||||||||||||
Interest rate minimum margin 1 | |||||||||||||||||||||||
Interest rate maximum margin 1 | |||||||||||||||||||||||
| Minimum principal payment — amount | $ | $ | $ | $ | |||||||||||||||||||
| Minimum principal payment — frequency | |||||||||||||||||||||||
| Minimum principal payment — commencement date | |||||||||||||||||||||||
1The interest rate margin for the 2021 Term Loans and 2021 Revolver is based on the Company's consolidated leverage ratio. As of March 31, 2022, interest accrued at 1.08 % on the 2021 Term Loans and 1.13 % on the 2021 Revolver.
2The commitment fee for the unused portion of the 2021 Revolver is based on the Company's consolidated leverage ratio, and ranges from 0.1 % to 0.2 %. As of March 31, 2022, commitment fees on the unused portion of the 2021 Revolver accrued at 0.1 % and outstanding letter of credit fees accrued at 1.0 %.
Pursuant to the 2021 Debt Agreement, the 2021 Revolver and the 2021 Term Loans contain certain financial covenants with respect to a maximum net leverage ratio and a minimum consolidated interest coverage ratio. The 2021 Debt Agreement provides flexibility regarding the use of proceeds from asset sales, payment of dividends, stock repurchases, and equipment financing. In addition to the financial covenants, the 2021 Debt Agreement includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the 2021 Debt Agreement may be accelerated, and the lenders' commitments may be terminated. The 2021 Debt Agreement contains certain usual and customary restrictions and covenants relating to, among other things, dividends (which are restricted only if a default or event of default occurs and is continuing or would result therefrom), liens, affiliate transactions, and other indebtedness. As of March 31, 2022, the Company was in compliance with the covenants under the 2021 Debt Agreement.
Borrowings under the 2021 Debt Agreement, are made by Knight-Swift Transportation Holdings Inc., and are guaranteed by certain of the Company's domestic subsidiaries (other than its captive insurance subsidiaries, driving academy subsidiary, and bankruptcy-remote special purpose subsidiary).
ACT Credit Agreement
Prudential Notes — The 2021 Prudential Notes allow ACT to borrow up to $125.0 million, less amounts then currently outstanding with Prudential Capital Group, provided that certain financial ratios are maintained. The 2021 Prudential Notes have interest rates ranging from 4.05 % to 4.40 % and various maturity dates ranging from October 2023 through January 2028. The 2021 Prudential Notes are unsecured and contain usual and customary restrictions on, among other things, the ability to make certain payments to stockholders, similar to the provisions of the Company's 2021 Debt Agreement. As of March 31, 2022, ACT had $87.9 million available under the agreement.
See Note 12 for fair value disclosures regarding the Company's debt instruments.
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Note 7 — Defined Benefit Pension Plan
Net periodic pension income and benefits paid during the first quarter of 2022 were immaterial.
Assumptions
A weighted-average discount rate of 3.38 % was used to determine benefit obligations as of March 31, 2022.
The following weighted-average assumptions were used to determine net periodic pension cost:
| Quarter Ended March 31, | |||||||||||
| 2022 | |||||||||||
| Discount rate | % | ||||||||||
| Expected long-term rate of return on pension plan assets | % | ||||||||||
Refer to Note 12 for additional information regarding fair value measurements of the Company's investments.
Note 8 — Commitments
Purchase Commitments
As of March 31, 2022, the Company had outstanding commitments to purchase revenue equipment of $682.2 million in the remainder of 2022 ($479.3 million of which were tractor commitments), $58.6 million in 2023 ($50.4 million of which were tractor commitments), and no
As of March 31, 2022, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $52.0 million in the remainder of 2022, $6.4 million from 2023 through 2024, $1.2 million from 2025 through 2026, and no ne thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
Note 9 — Contingencies and Legal Proceedings
Legal Proceedings
Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with the Company's pending legal matters. There are inherent uncertainties in these legal matters, some of which are beyond management's control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop.
The Company has made accruals with respect to its legal matters where appropriate, which are included in "Accrued liabilities" in the condensed consolidated balance sheets. The Company has recorded an aggregate accrual of approximately $18.6 million, relating to the Company's outstanding legal proceedings as of March 31, 2022.
Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
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EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS | ||||||||||||||||||||
| California Wage, Meal, and Rest Class Actions | ||||||||||||||||||||
| Plaintiff(s) | Defendant(s) | Date instituted | Court or agency currently pending in | |||||||||||||||||
| Recent Developments and Current Status | ||||||||||||||||||||
INDEPENDENT CONTRACTOR MATTERS | ||||||||||||||||||||
| Ninth Circuit Independent Contractor Misclassification Class Action | ||||||||||||||||||||
| Plaintiff(s) | Defendant(s) | Date instituted | Court or agency currently pending in | |||||||||||||||||
| Recent Developments and Current Status | ||||||||||||||||||||
1 Individually and on behalf of all others similarly situated.
Self Insurance
Effective March 1, 2022, ACT retains a $10.0 million self-insured retention per occurrence, as compared to $2.0 million per occurrence with a $5.0 million annual corridor deductible subject to a $10.0 million three-year policy term aggregate cap during the previous policy period. This was the only material change related to our self insurance policies during the first quarter of 2022.
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Note 10 — Share Repurchase Plans
2020 Knight-Swift Share Repurchase Plan
On November 30, 2020, the Company announced that the Board approved the repurchase of up to $250.0 million worth of the Company's outstanding common stock (the "2020 Knight-Swift Share Repurchase Plan").
The following table presents the Company's repurchases of its common stock under the respective share repurchase plans, excluding advisory fees:
| Share Repurchase Plan | Quarter Ended March 31, 2022 | Quarter Ended March 31, 2021 | ||||||||||||||||||||||||||||||
| Board Approval Date | Authorized Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
| (shares and dollars in thousands) | ||||||||||||||||||||||||||||||||
November 24, 2020 1 | $ | $ | $ | |||||||||||||||||||||||||||||
1$47.9 million and $192.8 million remained available under the 2020 Knight-Swift Share Repurchase Plan as of March 31, 2022 and December 31, 2021, respectively.
Subsequent to March 31, 2022, the Company repurchased 0.1 million shares for $5.1 million under the 2020 Knight-Swift Share Repurchase Plan.
2022 Knight-Swift Share Repurchase Plan
On April 25, 2022, the Company announced that the Board approved the repurchase of up to $350.0 million of the Company's outstanding common stock (the "2022 Knight-Swift Share Repurchase Plan"). With the adoption of the 2022 Knight-Swift Share Repurchase Plan, the Company terminated the 2020 Knight-Swift Share Repurchase Plan, which had approximately $42.8 million of authorized purchases remaining upon termination.
Subsequent to March 31, 2022, the Company repurchased 0.4 million shares for $17.3 million under the 2022 Knight-Swift Share Repurchase Plan, leaving $332.7 million available as of May 4, 2022.
Note 11 — Weighted Average Shares Outstanding
Earnings per share, basic and diluted, as presented in the condensed consolidated statements of comprehensive income, are calculated by dividing net income attributable to Knight-Swift by the respective weighted average common shares outstanding during the period.
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Dilutive effect of equity awards | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
Anti-dilutive shares excluded from diluted earnings per share 1 | |||||||||||||||||||||||
1 Shares were excluded from the dilutive-effect calculation because the outstanding awards' exercise prices were greater than the average market price of the Company's common stock for the periods presented.
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Note 12 — Fair Value Measurement
The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
| Condensed Consolidated Balance Sheets Caption | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||
| Equity method investments | Other long-term assets | ||||||||||||||||||||||||||||
| Investments in equity securities | Other long-term assets | ||||||||||||||||||||||||||||
| Convertible note | Other current assets | ||||||||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||||||||
2021 Term Loan A-1, due December 2022 1 | Finance lease liabilities and long-term debt – current portion, Long-term debt – less current portion | ||||||||||||||||||||||||||||
2021 Term Loan A-2, due September 2024 1 | Long-term debt – less current portion | ||||||||||||||||||||||||||||
2021 Term Loan A-3, due September 2026 1 | Long-term debt – less current portion | ||||||||||||||||||||||||||||
| 2021 Revolver, due September 2026 | Revolving line of credit | ||||||||||||||||||||||||||||
2021 Prudential Notes 2 | Finance lease liabilities and long-term debt – current portion, Long-term debt – less current portion | ||||||||||||||||||||||||||||
2021 RSA, due April 2024 3 | Accounts receivable securitization – less current portion | ||||||||||||||||||||||||||||
| Contingent consideration, acquisitions | Accrued liabilities, Other long-term liabilities | ||||||||||||||||||||||||||||
1The carrying amounts of the 2021 Term Loan A-1, 2021 Term Loan A-2, and 2021 Term Loan A-3 are net of $0.2 million, $0.4 million, and $1.6 million in deferred loan costs as of March 31, 2022, respectively. The carrying amounts of the 2021 Term Loan A-1, 2021 Term Loan A-2, and 2021 Term Loan A-3 are net of $0.3 million, $0.4 million, and $1.6 million in deferred loan costs as of December 31, 2021, respectively.
2The carrying amount of the 2021 Prudential Notes is net of $0.1 2.2 million and $2.4 million in fair value adjustments as of March 31, 2022 and December 31, 2021, respectively.
3The carrying amount of the 2021 RSA is net of $0.5
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Recurring Fair Value Measurements (Assets) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of assets measured on a recurring basis as of March 31, 2022 and December 31, 2021:
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||||||||
| Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Unrealized Gain (Loss) Position | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||||||||
Convertible note 1 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Investments in equity securities 2 | ( | ||||||||||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
Convertible note 1 | |||||||||||||||||||||||||||||
Investments in equity securities 2 | |||||||||||||||||||||||||||||
1The Company recognized $0.3 million of unrealized gains on the convertible note for the quarter ended March 31, 2022, which is included within "Other (expense) income, net" within the condensed consolidated statement of comprehensive income. No gain was recognized on the convertible note for the quarter ended March 31, 2021. The fair value of the note was determined using a discounted cash flow analysis based on the probability of exit event options and exit event dates.
2Fair value activity from the investments in equity securities is recorded in "Other (expense) income, net" within the condensed consolidated statement of comprehensive income. During the quarter ended March 31, 2022, the Company recognized $20.8 million in losses on these investments in equity securities, consisting of $20.8 million in unrealized losses and no realized loss. During the quarter ended March 31, 2021, the Company recognized $10.4 million in gains, consisting of $6.9 million in unrealized gains and $3.5 million in realized gains.
Embark Investment — As of March 31, 2022, the fair value of the combined investment in Embark was $37.0 million, resulting in a net unrealized loss of $17.5 million recognized during the quarter ended March 31, 2022 in "Operating (expense) income, net" in the condensed consolidated statements of comprehensive income.
Recurring Fair Value Measurements (Liabilities) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of liabilities measured on a recurring basis as of March 31, 2022 and December 31, 2021:
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||||||||
| Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Gain (Loss) | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||||||||
Contingent consideration associated with acquisitions 1 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
Contingent consideration associated with acquisition 1 | |||||||||||||||||||||||||||||
1The Company did no
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Nonrecurring Fair Value Measurements (Assets) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of March 31, 2022 and December 31, 2021:
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||||||||
| Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Loss | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||||||||
Buildings 1 | $ | $ | $ | $ | $ | ( | |||||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
Equipment 2 | ( | ||||||||||||||||||||||||||||
1 Reflects the non-cash impairment of building improvements (within the non-reportable segments).
Gain on Sale of Revenue Equipment — Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income, were $34.8 million and $10.5 million for the quarters ended March 31, 2022 and 2021, respectively. The increase in net gains on disposals was primarily due to a stronger market for used revenue equipment during the quarter ended March 31, 2022, as compared to the same period in 2021.
Nonrecurring Fair Value Measurements (Liabilities) — As of March 31, 2022 and December 31, 2021, the Company had no
Fair Value of Pension Plan Assets — The following table sets forth by level the fair value hierarchy of ACT's pension plan financial assets accounted for at fair value on a recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ACT's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and their placement within the fair value hierarchy levels.
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||
| Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||
| US equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Fixed income funds | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Total pension plan assets | $ | $ | $ | $ | |||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||
| US equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Fixed income funds | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Total pension plan assets | $ | $ | $ | $ | |||||||||||||||||||
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Note 13 — Related Party Transactions
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Provided by Knight-Swift | Received by Knight-Swift | Provided by Knight-Swift | Received by Knight-Swift | ||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Facility and Equipment Leases: | |||||||||||||||||||||||||||||||||||||||||||||||
Certain affiliates 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Other Services: | |||||||||||||||||||||||||||||||||||||||||||||||
Certain affiliates 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Receivable | Payable | Receivable | Payable | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
Certain affiliates 1 | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
1"Certain affiliates" includes entities that are associated with various board members and executives and require approval by the Board prior to completing transactions. Transactions with these entities generally include freight services, facility and equipment leases, equipment sales, and other services.
Note 14 — Financial Information by Segment and Geography
Segment Information
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenue: | (In thousands) | ||||||||||||||||||||||
| Truckload | $ | $ | |||||||||||||||||||||
| Logistics | |||||||||||||||||||||||
| LTL | |||||||||||||||||||||||
| Intermodal | |||||||||||||||||||||||
| Subtotal | $ | $ | |||||||||||||||||||||
| Non-reportable segments | |||||||||||||||||||||||
| Intersegment eliminations | ( | ( | |||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
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| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Operating income (loss): | (In thousands) | ||||||||||||||||||||||
| Truckload | $ | $ | |||||||||||||||||||||
| Logistics | |||||||||||||||||||||||
| LTL | |||||||||||||||||||||||
| Intermodal | |||||||||||||||||||||||
| Subtotal | $ | $ | |||||||||||||||||||||
| Non-reportable segments | ( | ||||||||||||||||||||||
| Operating income | $ | $ | |||||||||||||||||||||
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Depreciation and amortization of property and equipment: | (In thousands) | ||||||||||||||||||||||
| Truckload | $ | $ | |||||||||||||||||||||
| Logistics | |||||||||||||||||||||||
| LTL | |||||||||||||||||||||||
| Intermodal | |||||||||||||||||||||||
| Subtotal | $ | $ | |||||||||||||||||||||
| Non-reportable segments | |||||||||||||||||||||||
| Depreciation and amortization of property and equipment | $ | $ | |||||||||||||||||||||
Geographical Information
In the aggregate, total revenue from the Company's international operations was less than 5.0 5.0
23
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||||
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,
24
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 the SEC.
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.
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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 | ||||||||||||||||||||||
| GAAP financial data: | (Dollars in thousands, 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 March 31, 2022 and 2021, respectively.
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 March 31, 2022 and 2021, respectively.
4Our LTL tractor fleet had a weighted average age of 4.5 years as of March 31, 2022, and includes 695 tractors from ACT's and MME's dedicated and other businesses for the first quarter of 2022.
5Our LTL trailer fleet had a weighted average age of 8.0 years as of March 31, 2022, and includes 907 trailers from ACT's and MME's dedicated and other businesses for the first quarter of 2022.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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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 $352.4 million of Free Cash Flow1.
Market Trends and Outlook — The national unemployment rate was 3.6%2 as of March 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 on China lockdowns, significant inflation, war overseas, and consumer confidence
________
1Refer to "Non-GAAP Financial Measures" below.
2Source: bls.gov
3Source: bea.gov
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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 — $46.6 million increase in operating income within our Truckload segment, driven by a 7.9% increase in revenue, excluding fuel surcharge and intersegment transactions.
•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 — $26.4 million of operating income from our LTL segment in the first quarter of 2022.
•Contributor — $11.7 million improvement in operating income within our Intermodal segment. Revenue per load increased 35.9%, as rail congestion and allocations reduced load counts by 24.9%.
•Offset — $30.5 million reduction in "Other (expense) income, net," primarily driven by current quarter net losses within our portfolio of investments, including the unrealized loss from the mark-to-market adjustment of our investment in Embark.
•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 $242.9 million in unrestricted cash and cash equivalents, $165.0 million outstanding on the 2021 Revolver, $1.0 billion face value outstanding on the 2021 Term Loans, and $6.6 billion of stockholders' equity.
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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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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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 | |||||||||||||||||||
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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, Logistics, LTL, Intermodal | Measures operating efficiency and is widely used 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 Ratio | Truckload, Logistics, LTL, Intermodal | Measures operating efficiency and is widely used 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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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per tractor data) | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | 1,080,531 | $ | 962,947 | 12.2 | % | |||||||||||||||||||||||||||||
| Revenue, excluding fuel surcharge and intersegment transactions | $ | 941,534 | $ | 872,814 | 7.9 | % | |||||||||||||||||||||||||||||
| 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 March 31, 2022 and 2021 — Our Truckload segment operated at a 78.2% Adjusted Operating Ratio, which improved by 360 basis points year-over-year. This, along with a 7.9% growth in revenue, excluding fuel surcharge and intersegment transactions, led to a 29.4% improvement in Adjusted Operating Income.
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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (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 Ended March 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.
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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 | |||||||||||||||||||||||
Average trailers 2 4 | |||||||||||||||||||||||
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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (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 Ended March 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.
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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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (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 $19.1 million.
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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 surcharge | 32.5 | % | 32.7 | % | (20 | bps) | |||||||||||||||||||||||||||||
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 surcharge | 11.6 | % | 10.4 | % | 120 | bps | |||||||||||||||||||||||||||||
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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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 surcharge | 5.8 | % | 6.0 | % | (20 | bps) | |||||||||||||||||||||||||||||
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 $27.8 million for the first quarter of 2022 includes $12.4 million in operations and maintenance expense from ACT's and MME's first quarter 2022 results. The remaining increase was attributed to higher port per diem expenses as we navigate a backlog of shipping containers at ports where we operate, and higher maintenance expense due to inflation.
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| 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 surcharge | 6.0 | % | 4.9 | % | 110 | bps | |||||||||||||||||||||||||||||
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 surcharge | 1.8 | % | 1.9 | % | (10 | bps) | |||||||||||||||||||||||||||||
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 surcharge | 0.4 | % | 0.4 | % | — | bps | |||||||||||||||||||||||||||||
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 $0.8 million is primarily composed of $1.1 million of communications expense from ACT's and MME's first quarter 2022 results.
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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 equipment | $ | 145,044 | $ | 119,915 | 21.0 | % | |||||||||||||||||||||||||||||
| % of total revenue | 7.9 | % | 9.8 | % | (190 | bps) | |||||||||||||||||||||||||||||
| % of revenue, excluding truckload and LTL fuel surcharge | 8.8 | % | 10.6 | % | (180 | bps) | |||||||||||||||||||||||||||||
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 surcharge | 1.0 | % | 1.0 | % | — | bps | |||||||||||||||||||||||||||||
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 surcharge | 0.8 | % | 1.5 | % | (70 | bps) | |||||||||||||||||||||||||||||
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 $3.5 million was primarily due to an increase in our owned versus leased equipment.
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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 surcharge | 23.5 | % | 22.8 | % | 70 | bps | |||||||||||||||||||||||||||||
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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (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, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (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.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Consolidated Other Expenses, net
| Quarter Ended March 31, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Interest expense | $ | 6,680 | $ | 3,486 | 91.6 | % | |||||||||||||||||||||||||||||
| Other expense (income), net | 14,405 | (16,105) | (189.4 | %) | |||||||||||||||||||||||||||||||
| Income tax expense | 69,174 | 45,329 | 52.6 | % | |||||||||||||||||||||||||||||||
Interest expense — Interest expense is comprised of debt and finance lease interest expense as well as amortization of deferred loan costs. Interest expense increased during the first quarter of 2022 due to higher overall debt balances from the 2021 Debt Agreement which was entered into on September 3, 2021 and replaced the July 2021 Term Loan and 2017 Debt Agreement. Additional details are discussed in Note 6 in Part I, Item 1 of this Quarterly Report.
Other expense (income), net — Other expense (income), net is primarily comprised of losses and (gains) from our various equity investments, including our TRP investments accounted for under the equity method, as well as certain other non-operating income and expense items that may arise outside of the normal course of business.
We incurred $14.4 million of expense in the condensed consolidated statement of comprehensive income in the first quarter of 2022, representing an unfavorable change of $30.5 million, as compared to income of $16.1 million in the first quarter of 2021. The change was primarily driven by current quarter net losses within our portfolio of investments, including the unrealized loss from the mark-to-market adjustment of our investment in Embark.
Income tax expense — In addition to the discussion below, Note 4 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes.
The $23.8 million increase in consolidated income tax expense was primarily due to an increase in income before income taxes. The effective tax rate was 24.9% for the first quarter of 2022 compared to 25.9% for the first quarter of 2021.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Non-GAAP Financial Measures | ||
The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted EPS," "Adjusted Operating Income," and "Adjusted Operating Ratio," as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the Board focus on Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, Adjusted Operating Income, and Adjusted Operating Ratio as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance.
Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, Adjusted Operating Income, and Adjusted Operating Ratio are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating income, or other measures prescribed by GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Pursuant to the requirements of Regulation G, the following tables reconcile GAAP consolidated net income attributable to Knight-Swift to non-GAAP consolidated Adjusted Net Income attributable to Knight-Swift, GAAP consolidated earnings per diluted share to non-GAAP consolidated Adjusted EPS, GAAP consolidated operating ratio to non-GAAP consolidated Adjusted Operating Ratio, GAAP reportable segment operating income to non-GAAP reportable segment Adjusted Operating Income, and GAAP reportable segment operating ratio to non-GAAP reportable segment Adjusted Operating Ratio.
Non-GAAP Reconciliation:
Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| GAAP: Net income attributable to Knight-Swift | $ | 208,337 | $ | 129,790 | |||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Income tax expense attributable to Knight-Swift | 69,174 | 45,329 | |||||||||||||||||||||
| Income before income taxes attributable to Knight-Swift | 277,511 | 175,119 | |||||||||||||||||||||
Amortization of intangibles 1 | 16,166 | 11,749 | |||||||||||||||||||||
Impairments 2 | 810 | — | |||||||||||||||||||||
Legal accruals 3 | 5,055 | 1,242 | |||||||||||||||||||||
| Adjusted income before income taxes | 299,542 | 188,110 | |||||||||||||||||||||
| Provision for income tax expense at effective rate | (74,679) | (48,677) | |||||||||||||||||||||
| Non-GAAP: Adjusted Net Income Attributable to Knight-Swift | $ | 224,863 | $ | 139,433 | |||||||||||||||||||
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| GAAP: Earnings per diluted share | $ | 1.25 | $ | 0.77 | |||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Income tax expense attributable to Knight-Swift | 0.42 | 0.27 | |||||||||||||||||||||
| Income before income taxes attributable to Knight-Swift | 1.67 | 1.04 | |||||||||||||||||||||
Amortization of intangibles 1 | 0.10 | 0.07 | |||||||||||||||||||||
Impairments 2 | — | — | |||||||||||||||||||||
Legal accruals 3 | 0.03 | 0.01 | |||||||||||||||||||||
| Adjusted income before income taxes | 1.80 | 1.12 | |||||||||||||||||||||
| Provision for income tax expense at effective rate | (0.45) | (0.29) | |||||||||||||||||||||
| Non-GAAP: Adjusted EPS | $ | 1.35 | $ | 0.83 | |||||||||||||||||||
1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, the ACT Acquisition, and other acquisitions. Refer to Note 3 in Part I, Item 1 of this Quarterly Report for additional details regarding our acquisitions.
2 "Impairments" reflects the non-cash impairment of building improvements (within our non-reportable segments).
3 "Legal accruals" are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income and reflect the following:
•First quarter 2022 legal expense reflects costs related to certain settlements and class action lawsuits arising from employee and contract related matters.
•First quarter 2021 legal expense reflects costs related to certain class action lawsuits arising from employee and contract related matters.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Non-GAAP Reconciliation: Consolidated Adjusted Operating Income and Adjusted Operating Ratio
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| GAAP Presentation | (Dollars in thousands) | ||||||||||||||||||||||
| Total revenue | $ | 1,826,989 | $ | 1,223,014 | |||||||||||||||||||
| Total operating expenses | (1,528,903) | (1,060,755) | |||||||||||||||||||||
| Operating income | $ | 298,086 | $ | 162,259 | |||||||||||||||||||
| Operating ratio | 83.7 | % | 86.7 | % | |||||||||||||||||||
| Non-GAAP Presentation | |||||||||||||||||||||||
| Total revenue | $ | 1,826,989 | $ | 1,223,014 | |||||||||||||||||||
| Truckload and LTL fuel surcharge | (179,111) | (89,909) | |||||||||||||||||||||
| Revenue, excluding truckload and LTL fuel surcharge | 1,647,878 | 1,133,105 | |||||||||||||||||||||
| Total operating expenses | 1,528,903 | 1,060,755 | |||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Truckload and LTL fuel surcharge | (179,111) | (89,909) | |||||||||||||||||||||
Amortization of intangibles 1 | (16,166) | (11,749) | |||||||||||||||||||||
Impairments 2 | (810) | — | |||||||||||||||||||||
Legal accruals 3 | (5,055) | (1,242) | |||||||||||||||||||||
| Adjusted Operating Expenses | 1,327,761 | 957,855 | |||||||||||||||||||||
| Adjusted Operating Income | $ | 320,117 | $ | 175,250 | |||||||||||||||||||
| Adjusted Operating Ratio | 80.6 | % | 84.5 | % | |||||||||||||||||||
1 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 1.
2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 2.
3 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 3.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Non-GAAP Reconciliation: Reportable Segment Adjusted Operating Income and Adjusted Operating Ratio
Truckload Segment
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| GAAP Presentation | (Dollars in thousands) | ||||||||||||||||||||||
| Total revenue | $ | 1,080,531 | $ | 962,947 | |||||||||||||||||||
| Total operating expenses | (875,414) | (804,464) | |||||||||||||||||||||
| Operating income | $ | 205,117 | $ | 158,483 | |||||||||||||||||||
| Operating ratio | 81.0 | % | 83.5 | % | |||||||||||||||||||
| Non-GAAP Presentation | |||||||||||||||||||||||
| Total revenue | $ | 1,080,531 | $ | 962,947 | |||||||||||||||||||
| Fuel surcharge | (138,661) | (89,909) | |||||||||||||||||||||
| Intersegment transactions | (336) | (224) | |||||||||||||||||||||
| Revenue, excluding fuel surcharge and intersegment transactions | 941,534 | 872,814 | |||||||||||||||||||||
| Total operating expenses | 875,414 | 804,464 | |||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Fuel surcharge | (138,661) | (89,909) | |||||||||||||||||||||
| Intersegment transactions | (336) | (224) | |||||||||||||||||||||
Amortization of intangibles 1 | (324) | (324) | |||||||||||||||||||||
| Adjusted Operating Expenses | 736,093 | 714,007 | |||||||||||||||||||||
| Adjusted Operating Income | $ | 205,441 | $ | 158,807 | |||||||||||||||||||
| Adjusted Operating Ratio | 78.2 | % | 81.8 | % | |||||||||||||||||||
1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight acquisitions.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Logistics Segment
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| GAAP Presentation | (Dollars in thousands) | ||||||||||||||||||||||
| Total revenue | $ | 282,039 | $ | 118,887 | |||||||||||||||||||
| Total operating expenses | (242,438) | (111,310) | |||||||||||||||||||||
| Operating income | $ | 39,601 | $ | 7,577 | |||||||||||||||||||
| Operating ratio | 86.0 | % | 93.6 | % | |||||||||||||||||||
| Non-GAAP Presentation | |||||||||||||||||||||||
| Total revenue | $ | 282,039 | $ | 118,887 | |||||||||||||||||||
| Intersegment transactions | (1,868) | (3,165) | |||||||||||||||||||||
| Revenue, excluding intersegment transactions | 280,171 | 115,722 | |||||||||||||||||||||
| Total operating expenses | 242,438 | 111,310 | |||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Intersegment transactions | (1,868) | (3,165) | |||||||||||||||||||||
Amortization of intangibles 1 | (334) | — | |||||||||||||||||||||
| Adjusted Operating Expenses | 240,236 | 108,145 | |||||||||||||||||||||
| Adjusted Operating Income | $ | 39,935 | $ | 7,577 | |||||||||||||||||||
| Adjusted Operating Ratio | 85.7 | % | 93.5 | % | |||||||||||||||||||
1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the UTXL acquisition.
LTL Segment
| Quarter Ended March 31, 2022 | |||||||||||||||||||||||
| GAAP Presentation | (Dollars in thousands) | ||||||||||||||||||||||
| Total revenue | $ | 255,125 | |||||||||||||||||||||
| Total operating expenses | (228,748) | ||||||||||||||||||||||
| Operating income | $ | 26,377 | |||||||||||||||||||||
| Operating ratio | 89.7 | % | |||||||||||||||||||||
| Non-GAAP Presentation | |||||||||||||||||||||||
| Total revenue | $ | 255,125 | |||||||||||||||||||||
| Fuel surcharge | (40,450) | ||||||||||||||||||||||
| Revenue, excluding fuel surcharge and intersegment transactions | 214,675 | ||||||||||||||||||||||
| Total operating expenses | 228,748 | ||||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Fuel surcharge | (40,450) | ||||||||||||||||||||||
Amortization of intangibles 1 | (3,945) | ||||||||||||||||||||||
| Adjusted Operating Expenses | 184,353 | ||||||||||||||||||||||
| Adjusted Operating Income | $ | 30,322 | |||||||||||||||||||||
| Adjusted Operating Ratio | 85.9 | % | |||||||||||||||||||||
1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified with the ACT and MME acquisitions.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Intermodal Segment
| Quarter Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| GAAP Presentation | (Dollars in thousands) | ||||||||||||||||||||||
| Total revenue | $ | 109,222 | $ | 107,066 | |||||||||||||||||||
| Total operating expenses | (94,052) | (103,609) | |||||||||||||||||||||
| Operating income | $ | 15,170 | $ | 3,457 | |||||||||||||||||||
| Operating ratio | 86.1 | % | 96.8 | % | |||||||||||||||||||
| Non-GAAP Presentation | |||||||||||||||||||||||
| Total revenue | $ | 109,222 | $ | 107,066 | |||||||||||||||||||
| Intersegment transactions | (30) | (95) | |||||||||||||||||||||
| Revenue, excluding intersegment transactions | 109,192 | 106,971 | |||||||||||||||||||||
| Total operating expenses | 94,052 | 103,609 | |||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Intersegment transactions | (30) | (95) | |||||||||||||||||||||
| Adjusted Operating Expenses | 94,022 | 103,514 | |||||||||||||||||||||
| Adjusted Operating Income | $ | 15,170 | $ | 3,457 | |||||||||||||||||||
| Adjusted Operating Ratio | 86.1 | % | 96.8 | % | |||||||||||||||||||
Non-GAAP Reconciliation: Free Cash Flow
| Quarter Ended March 31, 2022 | |||||
| GAAP: Cash flows from operations | $ | 456,860 | |||
| Adjusted for: | |||||
| Proceeds from sale of property and equipment, including assets held for sale | 60,532 | ||||
| Purchases of property and equipment | (164,974) | ||||
| Non-GAAP: Free Cash Flow | $ | 352,418 | |||
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Liquidity and Capital Resources | ||
Sources of Liquidity
Our primary sources of liquidity are funds provided by operations and the following:
| Source | March 31, 2022 | |||||||
| (In thousands) | ||||||||
| Cash and cash equivalents, excluding restricted cash | $ | 242,860 | ||||||
Availability under 2021 Revolver, due September 2026 1 | 870,569 | |||||||
Availability under 2021 RSA, due April 2024 2 | 55,700 | |||||||
Availability under 2021 Prudential Notes, issuance ending October 2023 3 | 87,857 | |||||||
| Total unrestricted liquidity | $ | 1,256,986 | ||||||
Cash and cash equivalents – restricted 4 | 130,587 | |||||||
Restricted investments, held-to-maturity, amortized cost 4 | 8,302 | |||||||
| Total liquidity, including restricted cash and restricted investments | $ | 1,395,875 | ||||||
1 As of March 31, 2022, we had $165.0 million in borrowings under our $1.1 billion 2021 Revolver. We additionally had $64.4 million in outstanding letters of credit (discussed below), leaving $870.6 million available under the Revolver.
2 Based on eligible receivables at March 31, 2022, our borrowing base for the 2021 RSA was $400.0 million, while outstanding borrowings were $279.0 million. We additionally had $65.3 million in outstanding letters of credit (discussed below), leaving $55.7 million available under the 2021 RSA. Refer to Note 5 in Part I, Item 1 of this Quarterly Report for more information regarding the 2021 RSA.
3 As of March 31, 2022, we had $37.1 million outstanding principal on our shelf notes issued under our $125.0 million 2021 Prudential Notes, leaving $87.9 million available for issuance under the 2021 Prudential Notes.
4 Restricted cash and restricted investments are primarily held by our captive insurance companies for claims payments. "Cash and cash equivalents – restricted" consists of $128.8 million, included in "Cash and cash equivalents — restricted" in the condensed consolidated balance sheet and held by Mohave and Red Rock for claims payments. The remaining $1.8 million is included in "Other long-term assets" and is held in escrow accounts to meet statutory requirements.
Uses of Liquidity
Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. We also use large amounts of cash and credit for the following activities:
Capital Expenditures — When justified by customer demand, as well as our liquidity and our ability to generate acceptable returns, we make substantial cash capital expenditures to maintain a modern company tractor fleet, refresh and expand our trailer fleet, expand our network of LTL service centers, and, to a lesser extent, fund upgrades to our terminals and technology in our various service offerings. In connection with our business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We expect net cash capital expenditures, including net cash capital expenditures of our LTL segment, will be in the range of $550.0 – $600.0 million for full-year 2022. This range excludes cash outlays for potential acquisitions. We believe we have ample flexibility in our trade cycle and purchase agreements to alter our current plans if economic and other conditions warrant.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Over the long-term, we will continue to have significant capital requirements, which may require us to seek additional borrowing, lease financing, or equity capital. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowing, lease financing, or equity capital is not available at the time we need it, then we may need to borrow more under the 2021 Revolver (if not then fully drawn), extend the maturity of then-outstanding debt, rely on alternative financing arrangements, engage in asset sales, limit our fleet size, or operate our revenue equipment for longer periods.
There can be no assurance that we will be able to obtain additional debt under our existing financial arrangements to satisfy our ongoing capital requirements. However, we believe the combination of our expected cash flows, financing available through operating and finance leases, available funds under our accounts receivable securitization, and availability under the 2021 Revolver will be sufficient to fund our expected capital expenditures for at least the next twelve months.
Principal and Interest Payments — As of March 31, 2022, we had debt, accounts receivable securitization, and finance lease obligations of $2.0 billion, which are discussed under "Material Debt Agreements," below. Certain cash flows from operations are committed to minimum payments of principal and interest on our debt and lease obligations. Additionally, when our financial position allows, we periodically make voluntary prepayments on our outstanding debt balances.
Letters of Credit — Pursuant to the terms of the 2021 Debt Agreement and the 2021 RSA, our lenders may issue standby letters of credit on our behalf. When we have letters of credit outstanding, the availability under the 2021 Revolver or 2021 RSA is reduced accordingly. Standby letters of credit are typically issued for the benefit of regulatory authorities, insurance companies and state departments of insurance for the purpose of satisfying certain collateral requirements, primarily related to our automobile, workers' compensation, and general insurance liabilities.
Share Repurchases — From time to time, and depending on free cash flow availability, debt levels, common stock prices, general economic and market conditions, as well as internal approval requirements, we may repurchase shares of our outstanding common stock. As of March 31, 2022, the Company had $47.9 million remaining under the 2020 Knight-Swift Share Repurchase Plan. Subsequently, on April 25, 2022, the Board authorized $350.0 million in share repurchases, replacing the 2020 Knight-Swift Share Repurchase Plan, which had approximately $42.8 million of authorized purchases remaining upon termination. Additional details are discussed in Note 10 in Part I, Item 1 of this Quarterly Report.
Working Capital
We had a working capital surplus of $300.2 million as of March 31, 2022 and $339.5 million as of December 31, 2021.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Material Debt Agreements
As of March 31, 2022, we had $2.0 billion in material debt obligations at the following carrying values:
•$169.8 million: 2021 Term Loan A-1, due December 2022, net of $0.2 million in deferred loan costs
•$199.6 million: 2021 Term Loan A-2, due September 2024, net of $0.4 million in deferred loan costs
•$798.4 million: 2021 Term Loan A-3, due September 2026, net of $1.6 million in deferred loan costs
•$278.5 million: 2021 RSA outstanding borrowings, net of $0.5 million in deferred loan costs
•$329.5 million: Finance lease obligations
•$165.0 million: 2021 Revolver, due September 2026
•$43.8 million: Other, net of $0.1 million in deferred loan costs
As of December 31, 2021, we had $2.1 billion in material debt obligations at the following carrying values:
•$199.7 million: 2021 Term Loan A-1, due December 2022, net of $0.3 million in deferred loan costs
•$199.6 million: 2021 Term Loan A-2, due September 2024, net of $0.4 million in deferred loan costs
•$798.4 million: 2021 Term Loan A-3, due September 2026, net of $1.6 million in deferred loan costs
•$278.5 million: 2021 RSA outstanding borrowings, net of $0.5 million in deferred loan costs
•$306.2 million: Finance lease obligations
•$260.0 million: 2021 Revolver, due September 2026
•$52.3 million: Other, net of $0.1 million in deferred loan costs
Cash Flow Analysis | ||
| Quarter Ended March 31, | Change | ||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| (In thousands) | |||||||||||||||||
| Net cash provided by operating activities | $ | 456,860 | $ | 306,113 | $ | 150,747 | |||||||||||
| Net cash used in investing activities | (110,187) | (74,141) | (36,046) | ||||||||||||||
| Net cash used in financing activities | (323,249) | (185,366) | (137,883) | ||||||||||||||
Net Cash Provided by Operating Activities
Comparison Between Quarter Ended March 31, 2022 and 2021 — The $150.7 million increase in net cash provided by operating activities was primarily due to a $135.8 million increase in operating income, due to the factors discussed in "Results of Operations — Consolidated Operating and Other Expenses" above. The remaining difference is attributed to various changes in working capital.
Net Cash Used in Investing Activities
Comparison Between Quarter Ended March 31, 2022 and 2021 — The $36.0 million increase in net cash used in investing activities was primarily due to a $60.6 million increase in net cash capital expenditures, including the first quarter 2022 investing activities of ACT and MME, and was partially offset by a $38.0 million decrease in net cash invested in acquisitions.
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Net Cash Used in Financing Activities
Comparison Between Quarter Ended March 31, 2022 and 2021 — Net cash used in financing activities increased by $137.9 million, primarily due to an increase in repurchases of our common stock of $91.2 million and a $42.2 million increase in repayments of finance leases and long-term debt, including the first quarter 2022 financing activities from ACT and MME.
Seasonality | ||
Discussion regarding the impact of seasonality on our business is included in Note 1 in the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report, incorporated by reference herein.
Inflation | ||
Most of our operating expenses are inflation-sensitive, with inflation generally leading to increased costs of operations. Price increases in manufacturer revenue equipment has impacted the cost for us to acquire new equipment. Cost increases have also impacted the cost of parts for equipment repairs and maintenance. The qualified driver shortage experienced by the trucking industry overall has had the effect of increasing compensation paid to our driving associates. We have also experienced inflation in insurance and claims cost related to health insurance and claims as well as auto liability insurance and claims. Prolonged periods of inflation could cause interest rates, fuel, wages, and other costs to increase as well. Any of these factors could adversely affect our results of operations unless freight rates correspondingly increase.
Recently Issued Accounting Pronouncements | ||
See Note 2 in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference, for the impact of recently issued accounting pronouncements on the Company's condensed consolidated financial statements.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
Interest Rate Risk
We have exposure from variable interest rates, primarily related to our 2021 Debt Agreement and 2021 RSA. These variable interest rates are impacted by changes in short-term interest rates. We primarily manage interest rate exposure through a mix of variable rate debt (weighted average rate of 1.1% as of March 31, 2022) and fixed rate equipment lease financing. Assuming the level of borrowings as of March 31, 2022, a hypothetical one percentage point increase in interest rates would increase our annual interest expense by $16.6 million.
Commodity Price Risk
We have commodity exposure with respect to fuel used in company-owned tractors. Increases in fuel prices would continue to raise our operating costs, even after applying fuel surcharge revenue. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. The weekly average of diesel price per gallon in the US increased to $4.36 for the first quarter of 2022 from an average of $2.91 in the first quarter of 2021. We cannot predict the extent or speed of potential changes in fuel price levels in the future, the degree to which the lag effect of our fuel surcharge programs will impact us as a result of the timing and magnitude of such changes, or the extent to which effective fuel surcharges can be maintained and collected to offset such increases. We generally have not used derivative financial instruments to hedge our fuel price exposure in the past, but continue to evaluate this possibility. To mitigate the impact of rising fuel costs, we contract with some of our fuel suppliers to buy fuel at a fixed price or within banded pricing for a specified period, usually not exceeding twelve months. However, these purchase commitments only cover a small portion of our fuel consumption. Accordingly, fuel price fluctuations may still negatively impact us.
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| ITEM 4. | CONTROLS AND PROCEDURES | ||||
Disclosure Controls and Procedures
We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board. Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (2) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We base our internal control over financial reporting on the criteria set forth in the 2013 COSO Internal Control: Integrated Framework.
We have confidence in our disclosure controls and procedures and internal control over financial reporting. Nevertheless, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors, misstatements, or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
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| PART II OTHER INFORMATION | ||||||||||||||
| ITEM 1. | LEGAL PROCEEDINGS | ||||
Information about our legal proceedings is included in Note 9 of the notes to our condensed consolidated financial statements, included in Part I, Item 1, of this Quarterly Report for the period ended March 31, 2022, and is incorporated by reference herein. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
| ITEM 1A. | RISK FACTORS | ||||
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our 2021 Annual Report in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value that May Yet be Purchased Under the Plans or Programs 1 | |||||||||||||||||||
| January 1, 2022 to January 31, 2022 | — | $ | — | — | $ | 192,825,135 | |||||||||||||||||
| February 1, 2022 to February 28, 2022 | 1,434,998 | $ | 53.61 | 1,434,998 | $ | 115,895,786 | |||||||||||||||||
| March 1, 2022 to March 31, 2022 | 1,288,494 | $ | 52.74 | 1,288,494 | $ | 47,943,813 | |||||||||||||||||
| Total | 2,723,492 | $ | 53.20 | 2,723,492 | $ | 47,943,813 | |||||||||||||||||
1On April 25, 2022, we announced that the Board had approved the $350.0 million 2022 Knight-Swift Share Repurchase Plan, replacing the 2020 Knight-Swift Share Repurchase Plan. There is no expiration date associated with the 2022 Knight-Swift Share Repurchase Plan. See Note 10 in Part I, Item 1 of this Quarterly Report.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | ||||
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES | ||||
Not applicable.
| ITEM 5. | OTHER INFORMATION | ||||
None.
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| ITEM 6. | EXHIBITS | ||||
| Exhibit Number | Description | Page or Method of Filing | ||||||||||||
101.INS | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | Filed herewith | ||||||||||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document | Filed herewith | ||||||||||||
101.LAB | XBRL Taxonomy Label Linkbase Document | Filed herewith | ||||||||||||
101.PRE | XBRL Taxonomy Presentation Linkbase Document | Filed herewith | ||||||||||||
101.DEF | XBRL Taxonomy Extension Definition Document | Filed herewith | ||||||||||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | Filed herewith | ||||||||||||
* Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to supplementally furnish to the SEC a copy of any omitted schedule upon request by the SEC.
** Management contract or compensatory plan, contract, or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. | |||||||||||||||||
| Date: | May 4, 2022 | /s/ David A. Jackson | |||||||||||||||
| David A. Jackson | |||||||||||||||||
| Chief Executive Officer and President, in his capacity as | |||||||||||||||||
| such and on behalf of the registrant | |||||||||||||||||
| Date: | May 4, 2022 | /s/ Adam W. Miller | |||||||||||||||
| Adam W. Miller | |||||||||||||||||
| Chief Financial Officer, in his capacity as such and on | |||||||||||||||||
| behalf of the registrant | |||||||||||||||||
56
Exhibit 10.1
Knight-Swift Transportation Holdings Inc.
20002 North 19th Avenue
Phoenix, Arizona 85027
Re: Knight-Swift Transportation Holdings Inc.: Restricted Stock Unit (Time Vested) Officer Grant Agreement
Dear :
The Compensation Committee (the “Committee”) of the Board of Directors of Knight-Swift Transportation Holdings Inc. (the “Company”) has awarded you, as of the date of this letter (the “Grant Date”), a Restricted Stock Unit grant (the “Grant”). The Grant entitles you to receive a maximum of shares of the Company’s voting Class A common stock (the “Stock”), par value $0.01 per share (the “Stock Award”), to be issued when and as provided by this Restricted Stock Unit Grant Agreement (this “Agreement”). This Grant is made pursuant to the authority of the Company’s Amended and Restated 2014 Omnibus Incentive Plan, as amended (the “Plan”). This Grant is made subject to the terms and conditions of this Agreement and the Plan. In this Agreement, the Company is sometimes referred to as “we” or “us,” and includes any subsidiaries of the Company in which the Company holds an equity or voting interest of fifty percent (50%) or more. Terms used in this Agreement that are defined in the Plan have the same meaning as stated in the Plan.
1.Grant of Restricted Stock Units. The Grant is made to you as part of your compensation and is payable to you in accordance with this Agreement, and in the expectation that until such time as this Grant is fully vested, you will continue to perform services for the Company as its director, employee, or consultant. You will receive no fractional shares. Under this Grant you will be issued that number of shares of Stock, not to exceed the total Stock Award, that is determined by the vesting schedule set forth below in Section 2. Stock will be issued to you within 30 days of your Vesting Date, as reflected in the schedule set forth below. No shares of Stock will be issued to you for any portion of the Stock Award that is not vested. Except as set forth in this Agreement, this Grant may not be settled in cash. In no event will you be issued more shares than your Stock Award, but the number of shares of your Stock Award is subject to automatic adjustment for stock dividends, stock splits, reverse stock splits, reorganizations, or reclassifications, as provided in Section 6.2 of the Plan.
2.Vesting Schedule. Below is the vesting schedule for this Grant. Your Stock Award will become vested and nonforfeitable as of the Vesting Date in the quantities set forth in
the following schedule (“Vested Amount”) for any vesting year you complete while you are associated with the Company as an employee, director, or under a consulting contract with the Company as of the Vesting Date. You will not be credited with any fractional vesting years.
Your Stock Award will become fully vested and nonforfeitable upon your death or disability (as such term is defined in the Plan), or at such time as your Vested Amount equals the amount of the Stock Award specified in the introductory paragraph.
If you experience a Separation from Service from the Company for any reason, the portion of your Stock Award that is not vested, and any related declared and accrued but undistributed Dividend Equivalent (as defined in Section 5, below), will be automatically forfeited. For purposes of this Agreement, “Separation from Service” means (i) the termination of your employment with the Company with or without cause by you or the Company; or (ii) a permanent reduction in the level of bona fide services you provide to the Company to an amount less than fifty percent (50%) of the average level of bona fide services you provided to the Company in the preceding thirty-six months (calculated in accordance with Treas. Reg. § 1.409A1-(h)(1)(ii)).
3.Book Entry Form. The Stock will be issued to you in book entry form (non-certificated). Stock will be treated as issued and outstanding only as it is actually issued. No Stock will be issued to you until you have accrued a Vested Amount on the respective Vesting Date. Any Stock issued may be subject to other limitations as either the Plan or the law may require.
4.No Voting Rights. You have no voting rights until your Stock is issued to you. A Restricted Stock Unit has no voting rights.
5.Dividend Equivalents. Until Stock is issued to you, you will receive no dividends. However, you will accrue a Dividend Equivalent for the number of shares of Stock that constitutes your Stock Award. For each share of Stock subject to your Stock Award, the Company will accrue on its books, from the Grant Date until paid, an amount equal to the dividends that would have been paid on those shares of Stock, if the Stock had been issued and outstanding from the Grant Date (the “Dividend Equivalent”). As your Stock Award vests, you will be paid by the Company, simultaneously, cash in an amount equal to the Dividend Equivalent you have accrued through the date the vested Stock is issued to you. Any Dividend Equivalent attributable to any portion of a Stock Award that is forfeited will also be forfeited, when your Stock is forfeited. Your Dividend Equivalent will be paid to you not later than the date your Stock is issued to you. You have no right to elect to defer payment of any Dividend Equivalent.
6.Termination Date of Grant. Subject to the limitations of Section 15 and except as otherwise provided herein, this Grant shall terminate upon the earlier of the date of your Separation from Service or the date your Vested Amount is issued to you as Stock.
7.Tax Treatment. As the Stock Award vests, you will recognize ordinary income for the value of the Stock issued to you. The value of the Stock is the fair market value, which is based on the closing market price the day the Stock vests. If the day of vesting falls on a
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weekend or on a holiday, the fair market value will be based on the closing market price of the business day immediately prior to the day of vesting. By accepting the Grant, you accept responsibility for any income tax withholding or other taxes imposed on you by virtue of the issuance of the Grant. The Company has the right to reduce the total number of shares of Stock and the Dividend Equivalent distributed to you by the amount of any federal or state taxes (including, without limitation, FICA, FUTA, and Medicare) the Company is obligated to withhold and pay, and you hereby authorize the Company to reduce the number of shares of Stock and of Dividend Equivalent payable to you by the amount of any federal or state tax the Company is required to withhold and pay. The Committee through a resolution adopted on the Grant Date has authorized the Company to withhold a portion of your Stock to pay the taxes attributable to your vested Stock Award.
8.Noncompete and Non-Solicitation Agreement.
(a) This Grant has been made to you because you have been retained by the Company in a position of trust and confidence and to induce you to continue to contribute to the results of the Company’s operations. In consideration for the issuance of this Grant (and the Company’s agreement to allow you to become a shareholder of the Company), you agree that you will not directly compete with the Company for six (6) months after your Separation from Service (the “Noncompete Period”), without first obtaining the Company’s prior written consent, which consent the Company may, in its reasonable discretion, withhold. For this purpose, you will be considered to be directly competing with the Company if you are engaged in any of the activities described in clauses (b)(i), (ii) or (iii) below. The consideration for this six (6) month noncompete agreement is the issuance of this Grant.
(b) You will be considered as directly competing with the Company if at any time during the Noncompete Period you: (i) are employed by, contract with, or obtain an interest as an owner, shareholder, partner, limited partner or member in, any business or corporation that competes directly with the Company (as such direct competition is defined below), but excluding an investment of one percent (1%) or less in any publicly traded company; (ii) on your own behalf, or on behalf of any other person with whom you may be employed, you solicit or divert from the Company the business of any person who is either a customer of the Company during your employment or is identified in the Company’s confidential business records as a potential customer of the Company; or (iii) solicit, divert or encourage any person who is an employee of the Company to leave employment and to become employed by a person who directly competes with the Company. For purposes of this Section 8, you (x) will be considered to be in direct competition with the Company and (y) a person, business or corporation will be considered a direct competitor of the Company, if either you or it is engaged in a truckload business (dry van, refrigerated, brokerage, drayage, intermodal, logistics, or any combination thereof) that conducts significant operations in the same traffic lanes in which the Company operates, or in which the Company has internally identified as a planned area of operation or expansion of its business as of the date of your Separation from Service.
(c) By accepting this Grant, you agree that the foregoing non-competition provisions are reasonable and that you are being compensated for your agreement not to compete.
3
(d) The Company shall have the right to extend the Noncompete Period for up to an additional twelve (12) months beyond the completion of your initial Noncompete Period (the “Extended Noncompete Period”). If the Company elects to extend the Noncompete Period, it will notify you in writing of such fact not later than the thirtieth (30th) day prior to the expiration of the initial Noncompete Period. By accepting this Grant, you agree to accept and abide by the Company’s election. If the Company elects to extend the Noncompete Period, you agree not to work for any direct competitor of the Company (as defined in Section 8(b)) during the Extended Noncompete Period, and the Company agrees to pay you, during the Extended Noncompete Period, an amount equal to your monthly base salary or monthly base consulting fee, as applicable, in effect as of the date of your Separation from Service. Payment for any partial month will be prorated. Payment of your base salary or consulting fee during the Extended Noncompete Period will be made at the same times and in the same amounts that such amounts were paid to you while you were in the service of the Company. If the Company elects to extend the Noncompete Period, any monies you earn from any other work, whether as an employee or as an independent contractor, will reduce, dollar for dollar, the amount that the Company is obligated to pay you. Payments made by the Company under this Section 8(d) are made for the extension of the noncompete covenant and do not render you either an employee of, or a consultant to, the Company.
9.Compliance with Securities Laws; Share Restrictions.
(a) So long as you are serving as an employee of the Company, you may not sell any shares of the Stock except in accordance with all applicable federal and state securities laws and the applicable policies of the Company regarding the sale, ownership and retention of the Company’s securities by insiders, executives, and employees. The Company has filed a registration statement with the United States Securities and Exchange Commission (the “SEC”) covering the Grant (and the Stock subject to the Grant) issued pursuant to the Plan. So long as that registration statement is in effect, Stock issued pursuant to the Plan will not be restricted as to transfer. The Company does not provide any assurance that any registration statement will continue to be maintained in effect with respect to the Stock. If for any reason, a registration statement is not in effect with respect to the Stock, the Stock may not be sold or transferred except in compliance with applicable securities laws.
(b) This Grant is subject to any claw-back policy adopted by the Company for incentive-based compensation (the “Clawback Policy”), as required by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Clawback Policy, as it exists from time to time, is incorporated by reference into this Agreement. If there is any conflict between the provisions of this Agreement and the Clawback Policy, the Clawback Policy shall control.
10.Risks. By accepting this Grant, you acknowledge that the value of the Stock may be adversely affected by changes in the United States’ economy; changes in the Company’s profitability, financial condition, business or properties; a reduction in the Company’s growth rate; competition from other truckload carriers; and other risk factors that are described more particularly in the Company’s most recent Annual Report on Form 10-K and in its reports on Forms 10-Q and 8-K. The Company does not promise you that the value of the Stock will rise or that the Company will continue to grow or be profitable.
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11.Access to Information. With respect to this Grant, you acknowledge that you have reviewed a copy of the Plan available at http://investor.knight-swift.com/corporate-governance/equity, and that the Company has delivered to you, or has provided to you through on-line access, for your examination copies of its reports filed on Forms 8-K, 10-Q and 10-K and any proxy or shareholder information materials filed with the SEC and available through EDGAR. These materials may also be accessed on the Company’s website at http://investor.knight-swiftinc.com. A copy of these materials will be provided to you if you request them in writing from the Company.
12.Successors. This Agreement is binding on you, your spouse and any successors or assigns.
13.Arbitration of Disputes. We agree that the Federal Arbitration Act shall apply to and govern the arbitration provisions of this Agreement. Any disputes between or among us with respect to the terms of this Agreement or the rights of either of us under this Agreement, shall be subject to the arbitration procedures specified in the Revised Arizona Arbitration Act (“RAAA”), but only to the extent not inconsistent with the Federal Arbitration Act. Arbitration will occur in Phoenix, Arizona. Judgment on any arbitration award may be entered in any court having jurisdiction. A single arbitrator shall have the power to render a maximum award of $500,000. If you or we assert a claim in excess of $500,000, the matter may be heard by a single arbitrator, but either of us may request that the arbitration be heard by a panel of three arbitrators and, if so requested, the arbitration decision shall be made by a majority of the three arbitrators. In the event that the selected arbitrator(s) finds any term or clause in this Agreement to be invalid, unenforceable, or illegal, the same will not have any impact, whatsoever, on other terms or clauses in the Agreement or the entire Agreement. The Company shall pay the costs of arbitration, but if the Company is the prevailing party in the arbitration, the Company shall have the right to recover from you all costs of arbitration. EACH OF THE PARTIES EXPRESSLY AGREES TO ARBITRATION AND WAIVES ANY RIGHT TO TRIAL BY JURY ANY PARTY MAY HAVE. In consideration of this Grant, you agree not to bring any class action or any arbitration class action against the Company. Nothing in this Agreement limits or restricts any self-help remedy, including, without limitation, any right of offset a party may have. The person prevailing in any arbitration is entitled to payment of all legal fees and costs and all costs of arbitration, regardless of whether such costs are recoverable under applicable law. In the event of any conflict between the arbitration procedures specified in this Agreement and the RAAA, this Agreement shall control.
14.WAIVER OF CERTAIN CLAIMS. BY EXECUTING THIS AGREEMENT AND ACCEPTING THIS GRANT, YOU AGREE THAT ANY CLAIM YOU MAY HAVE AGAINST THE COMPANY WITH RESPECT TO THIS GRANT OR THE STOCK SUBJECT TO THE GRANT (OTHER THAN A CLAIM FOR THE CONTRACTUAL BREACH OF THIS AGREEMENT OR THE PLAN, WHICH MUST BE BROUGHT WITHIN ONE YEAR OF THE DATE SUCH BREACH OCCURS) MUST BE ASSERTED NOT LATER THAN ONE YEAR FOLLOWING THE DATE OF THIS GRANT, AND THAT NO CLAIMS (OTHER THAN FOR BREACH OF CONTRACT) MAY BE BROUGHT AFTER THAT PERIOD. YOU VOLUNTARILY AND KNOWINGLY WAIVE ANY LONGER STATUTE OF
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LIMITATIONS IN CONSIDERATION OF THIS GRANT. IN ADDITION, YOU AND THE COMPANY AGREE THAT ANY CLAIM MADE UNDER THIS AGREEMENT OR THE PLAN, OR ARISING FROM OR IN CONNECTION WITH ANY STOCK GRANTED PURSUANT TO THIS AGREEMENT OR THE PLAN, SHALL BE LIMITED TO ACTUAL ECONOMIC DAMAGES, AND THE RECOVERY OF ATTORNEYS’ FEES AND COSTS OF COURT. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO RESCISSION OR ANY RIGHT TO CLAIM OR RECOVER TREBLE DAMAGES, PUNITIVE DAMAGES, OR EXEMPLARY DAMAGES, WHETHER SUCH RIGHTS ARE GRANTED BY STATUTE OR UNDER COMMON LAW, IS HEREBY WAIVED AND RELEASED. EACH PARTY AGREES AND ACKNOWLEDGES THAT THE WAIVER AND RELEASE OF SUCH RIGHTS IS VOLUNTARY AND KNOWING AND THAT EACH PARTY HAS RECEIVED, UNDER THIS AGREEMENT, FULL AND ADEQUATE CONSIDERATION FOR SUCH WAIVER.
15.Survival. The provisions of Sections 8, 9, and 12 through 20 shall survive the termination of this Grant and of this Agreement.
16.Rights Non-Transferable. Neither this Agreement nor your rights hereunder are transferable, except by Last Will and Testament, Revocable Trust or Testamentary Trust, or by the law of descent and distribution.
17.Administration. The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon you, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Grant.
18.Construction. It is the intent of the Company and you that the Stock subject to this Grant is to be treated as “nonvested shares” within the meaning of Financial Accounting Standards Board ASC Topic 718, and the Stock is subject to being earned by you only if you continue to provide the Company with your services until this Grant terminates.
19.Governing Law. This Agreement is subject to, and is to be construed in accordance with, the laws of the State of Delaware.
20.Acceptance. You are required by the on-line system to accept or reject the Grant and this Agreement. If you fail to affirmatively accept or reject through the on-line system within five (5) business days after receipt of this Grant, then by continuing to serve as a director of, in employment with, or as a consultant for the Company, you will be deemed to have accepted and agreed to the terms and conditions set forth in this Agreement and deemed to have acknowledged receipt of a copy of the Plan.
Sincerely,
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KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC., a Delaware Corporation
By:
Adam Miller, CFO
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EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, David A. Jackson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Knight-Swift Transportation Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 4, 2022 | /s/ David A. Jackson | |||||||||||||||
| David A. Jackson | |||||||||||||||||
| Chief Executive Officer (principal executive officer) | |||||||||||||||||
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Adam W. Miller, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Knight-Swift Transportation Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 4, 2022 | /s/ Adam W. Miller | |||||||||||||||
| Adam W. Miller | |||||||||||||||||
| Chief Financial Officer | |||||||||||||||||
| (principal financial officer) | |||||||||||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Knight-Swift Transportation Holdings Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Jackson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. | |||||||||||||||||||||||
| a Delaware corporation | |||||||||||||||||||||||
| Date: | May 4, 2022 | By: | /s/ David A. Jackson | ||||||||||||||||||||
| David A. Jackson | |||||||||||||||||||||||
| Chief Executive Officer | |||||||||||||||||||||||
A signed original of this written statement required by Section 906 has been provided to Knight-Swift Transportation Holdings Inc. and will be retained by Knight-Swift Transportation Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Knight-Swift Transportation Holdings Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Adam W. Miller, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. | |||||||||||||||||||||||
| a Delaware corporation | |||||||||||||||||||||||
| Date: | May 4, 2022 | By: | /s/ Adam W. Miller | ||||||||||||||||||||
| Adam W. Miller | |||||||||||||||||||||||
| Chief Financial Officer | |||||||||||||||||||||||
A signed original of this written statement required by Section 906 has been provided to Knight-Swift Transportation Holdings Inc. and will be retained by Knight-Swift Transportation Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.