Knight-Swift Transportation Holdings Inc.

Good afternoon. My name is JP and I'll be your conference operator today. At this time, I would like to welcome everyone to the NYSWIFT Transportation Second Quarter 2023 Earnings Call. All lights have been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press star zero for the operator. Speakers from today's call will be Dave Jackson, President and CEO, Adam Miller, CFO. Mr. Miller, the meeting is now yours.

Thank you, JP. Good afternoon, everyone, and thank you for joining our second quarter 2023 earnings call. Today, we plan to discuss topics related to the results of the quarter, provide an update on current market conditions, and update our full year 2023 guidance. We have slides to accompany this call that are posted on our investor websites. Our call is scheduled to go until 5 30 p.m. Eastern time. Following our commentary, we'll answer questions related to these topics. In order to get to as many participants as possible, we're going to limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we're not able to get to your question due to time restrictions, you may call 602-606-6349. So to begin, I'll first refer you to the disclosures on slide two of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in item 1A, Risk Factors, or part one of the company's annual report on Form 10-K filed with the United States SEC on for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Before we get into the slides, I want to turn the call over to Dave for a few opening remarks.

Thanks, Adam, and we appreciate you joining us today. We're now over a year into a freight down cycle with an unusual combination of dynamics at work to create a particularly difficult operating environment. I don't know that we've ever seen freight demand fall this far so fast and for so long without an accompanying economic recession. I'm not suggesting that truckload demand softness is an automatic read-through or predictive indicator of broader economic weakness. In fact, we're very encouraged with how consumers and the economy have digested interest rate increases and their positive impact on inflation. But the truckload market was severely impacted by the reduction in from the unusual and enormous growth in inventories that built in the latter part of 2021 and into 2022, the worst of those adjustments appear to be behind us, and we expect further normalization in the flow of goods and supply chains. This normalization is now being met with less truckload capacity as carriers have not survived with the harsh truckload freight environment. One of the reasons is the lack of cost reprieve that would normally be associated with such a decline in truckload freight demand that this inventory destocking catch-up is created. Ordinarily, a broader economic recession would have matched those soft freight volumes with significantly lower fuel prices, very low equipment costs, and a loose labor market, with drivers more plentiful than any other time. None of those cost concessions have been present this time. leading to margin pressure, business failures for others. These prolonged challenges are setting up for an eventual strong recovery. Such recoveries often come from an unlikely catalyst and can be difficult to predict with precision. We are positioned to grind in the current environment and thrive as conditions improve. This includes our newly acquired U.S. Express. Additionally, we have significant opportunities unique to Knight Swift such as the build-out of our LTL network and doing for US Express what we have done with SWIFT in achieving new levels of profitability. We are seeing the benefits of diversification with our LTL segment in their continued growth and performance. Now I'll turn to slide three. Slide three compares our consolidated second quarter revenue and earnings results on a year-over-year basis. Revenue, excluding fuel surcharge, declined by 17.9%, while our adjusted operating income declined by 66.3%. Gap earnings per diluted share for the second quarter of 2023 were 39 cents per share, and our adjusted earnings per share came in at 49 cents. These results were negatively impacted by a $10.2 million increase, or 5 cents per diluted share, in interest expense. and the $15 million operating loss, or 7 cents per diluted share, in our third-party insurance business within the non-reportable segments, primarily as a result of ongoing claims development during the quarter as we work to realign the performance of this business. The operating loss was reduced from the $22.8 million loss in the first quarter, and we anticipate that the operating loss will moderate further to approximately $10 million for the second half of the year. Now on to slide four. This slide illustrates the revenue and adjusted operating income for each of our segments. Freight demand in the second quarter was below expectations and has largely lacked the typical seasonal patterns of support for the fourth consecutive quarter. The depressed spot market and weak demand caused pressure on contractual pricing to intensify in the truckload, intermodal, and logistics segments. This caused acute pressure on margins in our truckload and intermodal segments. Our LTL segment weathered the soft environment well, operating in the mid-'80s. Logistics navigated significant declines in volume and revenue per load year over year to produce a 91.6% adjusted operating ratio. I'll now turn it to Adam to discuss each segment's operating performance, starting with truckload on slide five.