Knight-Swift Transportation Holdings Inc.

Good afternoon. My name is John, and I'll be your conference operator today. At this time, welcome everyone to the Nightswift Transportation Second Quarter 2024 Earnings Call. All lines 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 Adam Miller, Chief Executive Officer, Andrew Hess, Chief Financial Officer, Brad Stewart, Treasurer and Senior Vice President of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, John. Good afternoon, everyone, and thank you for joining our second quarter 2024 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last one hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we're not able to get to your question due to time restrictions, you may call 602-606-6349. 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 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now I will turn to our overview on Slide 3. The charts on slide three compare our consolidated second quarter revenue and earnings results on a year-over-year basis. Revenue excluding fuel surcharge increased 18.1% due to the acquisition of U.S. Express in July of last year. Our adjusted operating income declined by 22.8%. Gap earnings per diluted share for the second quarter of 2024 was 13 cents, and our adjusted EPS was 24 cents. These results include a $12.5 million pre-tax charge for the settlement of a large auto liability claim from 2020. This settlement negatively impacted our adjusted EPS by $0.06 per share. Excluding the settlement, our adjusted EPS would have been $0.30 for the quarter. Our results were also negatively impacted on a year-over-year basis by a $17.8 million increase in net interest expense and the 11.3% increase in the effective tax rate on our gap results and 5.3% increase in the effective tax rate on our non-GAAP results year over year. Impairment, severance, and legal accruals totaling $6.5 million are also excluded from our non-GAAP results. Now on to the next slide. Slide 4 illustrates the revenue and adjusted operating income for each of our segments. In general, our truckload, logistics, and intermodal segments continue to navigate a challenging full truckload market, Domestic inland freight demand has yet to show the strength seen in the ocean container market, and the ongoing attrition of excess trucking capacity added during the upcycle still has further to go. Freight rates have largely stabilized, but at unsustainable levels. The LTL segment continues to experience a much more supportive market where rate increases remain consistent. The combination of seasonal demand improvement, stable pricing, and moderating cost inflation supported sequential improvement in operating results across our businesses during this quarter. The market is giving more and more signs of being balanced. Acute customer needs are increasingly noticeable. Trailer pools are starting to be valued again. And scale and service are becoming more of a differentiator. These are all signs that align with the unique value that we are positioned to create for our customers when the market strengthens. For now, we remain focused on disciplined pricing, cost control, operational excellence, and collaborating across our unique suite of brands to create distinctive solutions. Now I'll turn it over to Adam to discuss our truckload business, slide five.

Thank you, Brad, and good afternoon, everyone. For the truckload segment, Demand has yet to truly break out, and further attrition of excess capacity is still needed. We have a long way to go to return to our target levels of performance, but it is starting to feel like the bottom is behind us for this cycle. In short, I think the story on our truckload business for the second quarter is one of stabilization and a seasonal build in demand. We saw steady demand that has generally followed seasonal patterns since March develop into an uptick in June. This was fairly broad-based as a number of customers looked to secure additional capacity to support elevated volumes. This helped to support a stabilization in revenue per mile a quarter earlier than we had anticipated, as well as an improvement in utilization. It's too early to call this a trend and for it to be a material driving force around our earnings, but in prior cycles, this would indicate the early signs of a market setting up to change. There has been some moderation in demand in the two weeks since the 4th of July holiday, which is in line with the typical seasonal pattern. If the trends over the past few months continue, we should see demand building as we exit the third quarter and some return of seasonal activity for the fourth quarter for the first time in years. On a year-over-year basis, our truckload revenue excluding fuel surcharge for the second quarter increased 33%. reflecting a 5.7% decline in the legacy truckload business prior to the inclusion of U.S. Express. The year-over-year decline in revenue per loaded mile, excluding fuel surcharge, narrowed to 5.5% in the current quarter, as rate held stable with the first quarter. Further, our spot exposure remained relatively consistent with where we entered the second quarter. Miles per tractor increased 8.5%, largely driven by our earlier decision to reduce the number of unseated tractors in our legacy businesses to reduce cost. Excluding U.S. Express, revenue per tractor, excluding fuel surcharge, increased 3.5% year-over-year, which was the first year-over-year increase in six quarters as we improved miles per tractor while the decline in pricing decelerates. U.S. Express experienced modest sequential declines in revenue in miles for the quarter as a result of some churn in its freight portfolio. However, sequential progress on revenue per mile and stable costs help offset these challenges to hold the operating ratio flat with the first quarter. We are preparing our businesses in the trough to maximize the benefits of operating leverage when the cycle turns. When considering the sequential progression from the first quarter into the second quarter, our truckload segment was able to turn flat cost per mile, flat revenue per mile, and a 1% improvement in total miles into a 7% improvement in adjusted operating income. And this includes the $12.5 million second quarter charge for the claim settlement discussed earlier. If not for the claim settlements, the sequential improvement in adjusted operating income would have been 50%. Now on to slide six, where we cover our LTL segment. Market conditions in the LTL industry remain much more supportive than in truckload, allowing for steady rate increases through the first half of the year. Our LTL business grew revenue, excluding fuel surcharge, 15.1% year-over-year, as shipments per day increased 8.4%, and revenue per hundredweight, excluding fuel surcharge, increased 13.4% year-over-year. While weight per shipment was down 4.7% year-over-year in the second quarter, it was flat with the first quarter. Adjusted operating income grew 8.2% year-over-year, as the adjusted operating ratio of 85-9 was fairly in line year-over-year. Since acquiring AAA Cooper and MME in 2021, we have acquired or assumed the leases on 56 additional properties. We opened 11 new locations during the second quarter and expect to open another 20 terminals by the end of 2024. Overall, the 38 locations planned to open in 2024 will add over 1,000 doors to our network, representing a 22% increase to our door count from the beginning of the year which we believe will meaningfully impact the reach of our service offering and increase the density of our network. We expect these investments will bring opportunities to service additional freight and customers. While these new locations initially bring margin headwinds in the form of setup costs and operational inefficiencies, we expect that as the locations continue to scale, and particularly as they participate in the next bid cycle, They will help drive growth and margin expansion in the business. We remain encouraged by the strong performance within our LTL segment, and we continue to look for both organic and inorganic opportunities to geographically expand our footprint within the LTL market. Filling out a super regional network in the short term and ultimately creating a national network will allow us to participate in more freight, and enable us to find opportunities to further support our existing truckload customers with LTL capacity. Now moving to slide seven, the logistic market continues to be difficult as volumes, which are already soft, are now further challenged by a number of shippers allocating more of their business to asset-based providers. Gross margins have been under pressure for a few quarters as purchase transportation costs offered little room for relief. Beyond these general market dynamics, our logistics business can face additional challenges in a down market because we divert some volume to support our asset business. However, this headwind should flip to a tailwind when the market turns as the asset division will overflow freight to the logistics business, particularly for our power-only services. This relationship with our asset division can create more volatility through a cycle for the logistics business, but it means there is a significant amount of runway ahead for our logistics business at this point in the cycle. We remain disciplined on price, which is a headwind to volumes, but allowed our logistics business to sequentially improve profitability in the second quarter while load count remains stable. Revenue increased 11.8% year-over-year, driven by an increase in revenue per load as low count was flat, reflecting the inclusion of U.S. Express in the current quarter, which offsets the 25% year-over-year decline in low count in the legacy business. After first turning modestly positive last quarter, revenue per load increased 10.8% year-over-year in the second quarter, representing a 4.6% increase from the previous quarter. The year-over-year increase in revenue per load is largely driven by the inclusion of U.S. Express Logistics in the current quarter as it has a different business mix. We continue to leverage our power-rolling capabilities to complement our asset businesses, build a broader and more diversified freight portfolio, and to enhance the returns on our capital assets. I'll now turn it over to Andrew Hess for slide eight.