Knight-Swift Transportation Holdings Inc.

Good morning, my name is Chloe and I will be your conference operator today at this time, I would like to welcome everyone to the night swift transportation third 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, and Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you. Good afternoon, everyone, and thank you for joining our third 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 are not able to get to your question due to time restrictions, you may call 602-606-6349. To begin, I will 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, part one 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 three. The charts on slide three compare our consolidated third quarter revenue and earnings results on a year-over-year basis. Revenue excluding fuel surcharge decreased 5.3% and our adjusted operating income declined by 7.1% year-over-year as we lapped the acquisition of US Express at the beginning of the quarter. GAAP earnings per diluted share for the third quarter of 2024 was 19 cents, and our adjusted EPS was 34 cents. Our consolidated adjusted operating ratio was 93.9%, which was flat with the prior year, while representing a modest sequential improvement over the second quarter. This was the first sequential improvement in third quarter consolidated adjusted operating ratio since 2021. Our results were negatively impacted on a year-over-year basis by a $6.6 million increase in net interest expense and the 34.1 percentage point increase in the effective tax rate on our GAAP results and the 6.1 percentage point increase in the effective tax rate on our non-GAAP results year-over-year. Impairment charges and an investment write-off totaling $13.1 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, but as we noted last quarter, we believe the worst of this truckload cycle may be behind us. This view has been further supported by several sequential trends in the third quarter. Revenue excluding fuel surcharge, adjusted operating income, and adjusted operating ratio were at least stable and in most cases improving over the second quarter results for each of these three segments. The ongoing attrition of excess truckload capacity added during the upcycle still has further to go. Trade rates have largely stabilized and are showing modest improvement but remain at unsustainable levels. The LTL segment continues to experience a much more supportive market than truckload, where our business continues to achieve steady rate improvement as we extend the reach of our network and capture new volumes. At the same time, startup costs and early stage operations at so many new facilities that have yet to go through a bid cycle are a drag on margins in the near term. The market in the third quarter largely played out as expected prior to Hurricane Helene and the impending port strike, curtailing volumes across our asset-based businesses in the last week of the quarter. The arrival of Hurricane Milton in the early days of October extended the market disruption into October, particularly for our US Express and AAA Cooper brands based in the Southeast. Aside from these events, the truckload market is giving signs of being balanced, and scale, service, and freight security are becoming more of a differentiator. These are 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 discipline pricing, cost control, and operational excellence. As we see opportunities across our enterprise, we leverage our unique suite of brands, intentionally driving collaboration to create distinctive solutions for customers. This allows us to offer solutions across different services and to retain more volumes than any single brand could execute. As the market improves and shippers have acute needs, we expect this to become a more valuable advantage. Now I will turn it over to Adam to discuss our truck lift slide five.

Thanks, Brad, and good afternoon, everyone. Although we remain cautious in an environment that remains challenging, where further attrition of excess capacity is still needed, we continue to observe positive signs, including a continuation of seasonal patterns with some project activity underway in the fourth quarter, achieving rate increases in more recent truckload bid awards, sequentially improving our average truckload revenue per mile over the second quarter, and seeing customers reducing their usage of brokers in efforts to improve cargo security as well as the ongoing stability of their supply chain. Our average spot rate remains higher than our average contract rate, as we believe we are seeing opportunities to address acute needs for our customers that may not be reflective of the broader market. This is where our scale and unique suite of diversified brands offer distinct value to our customers. On a year-over-year basis, our truckload revenue excluding fuel surcharge for the third quarter decreased 6.1%, reflecting a similar decrease in loaded miles as we lapped the acquisition of U.S. Express at the beginning of the quarter. Revenue per loaded mile excluding fuel surcharge was essentially flat year-over-year. Miles per tractor were also flat year-over-year as improvements in the legacy truckbook trucking business were offset by a decline at U.S. Express. reflecting a turn in the freight portfolio as well as we redefined the freight network over the past year for U.S. Express. Similarly, revenue excluding fuel surcharge per tractor declined slightly by 0.6% year-over-year as improvements in the legacy business were offset by a decline at U.S. Express. On a sequential basis, revenue per loaded mile excluding fuel surcharge increased slightly over the second quarter. Miles and truck count were stable, producing a modest improvement in revenue, excluding fuel surcharge. Our spot exposure remained relatively consistent with the second quarter. The adjusted operating ratio for the legacy trucking businesses sequentially improved by 250 basis points, driven by improvements in cost per mile and revenue per tractor. The US Express adjusted operating ratio was fairly flat sequentially, as modest declines in its total miles and utilization were offset by improvement in revenue per mile. Now on to slide six, where we cover the LTL. Market conditions in the LTL industry remain much more supportive than in truckload, though the pace of year-over-year rate increases appears to be slowing a bit as comparisons get increasingly more difficult while industrial production is stuck in neutral. We are still experiencing solid demand and steady rate increases in our business, partly aided by our expanding network that allows us to offer our services on more lanes to new and existing customers. Our LTL business grew revenue, excluding fuel surcharge, 16.7% year-over-year, as shipments per day increased 11.1%. Our acquisition of DHE, the LTL division of Dependable Highway Express, on July 30th, contributed approximately 7.5% to each of those improvements. Revenue per hundredweight excluding fuel surcharge increased 9.2% year-over-year. The year-over-year trend of declining weight per shipment slowed to 3.9% in the third quarter. The adjusted operating ratio was 89.6, and adjusted operating income declined 19.5% year-over-year due to startup costs, and early stage operations at our recently opened facilities. Now on to slide seven, where we summarize the recent progress on our LTL expansion strategy. During the quarter, we opened 16 additional service centers following 18 openings in the first half of the year. We expect to open four more service centers by the end of 2024. Also, our acquisition of DHE represents approximately 10% growth in both service centers and door count and adds the key southwest markets of California, Arizona, and Nevada to our network. Overall, our organic and inorganic expansion activities in 2024 should add nearly 1,500 doors this year, representing a 32.2% increase in our door count from the beginning of the year. We have been hard at work integrating the systems and business of DHE into our network and expect to complete the integration during November. Customer responses to this acquisition and adding the Southwest to our service offering have been very strong. We expect meaningful opportunities for growth following the integration and are excited about the value this adds to our existing business as well. Over the past year, we have chosen to invest capitalizing on opportunities to significantly expand our LTL capabilities and service territory. The associated startup costs and operational inefficiencies are initially headwinds to improving operating margins. Moving beyond 2024, our focus is on continuing to capture volume with new and existing customers, particularly as we go through our first bid cycle with the expanded network. Our relative pricing position allows us to pursue incremental volume with less risk of diluting our yield. Our approach here will not be unlike our approach in truckload, where a cohesive network strategy, disciplined pricing, and intentional capacity deployment support better market density, operational efficiency, and service quality. Progress in this strategy should allow us to unlock new levels of operating performance and margin in the long run. We remain encouraged by the growth and opportunities for our LTL segment, and we continue to look for both organic and inorganic plans to geographically expand our footprint within the LTL market. Filling out our 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 let's move to logistics on slide eight. The logistics market continued to deal with the soft truckload environment as most public spot rate indicators faded throughout the quarter. Our disciplined approach to pricing has allowed our business to maintain profitability with our adjusted operating ratio of 94.5%, improving 100 basis points over the second quarter. We also increased revenue per load 3.7% over the second quarter. Gross margin percent was stable both sequentially and year-over-year. As discussed last quarter, the logistics market is further challenged by a number of shippers allocating more of their business to asset-based providers. Also, we continue to divert a portion of our logistics volumes to support our asset business in certain markets. 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 service. This relationship with our asset division can create more volatility through a cycle for our logistics business, but it means there is a significant amount of runway ahead of it at this point in the cycle. Revenue decreased 9.5% year-over-year as we lapped the acquisition of the US Express at the beginning of the quarter. Load count was down 21.1% year over year, but was partially offset by a 13.6% increase in revenue per load. We continue to leverage our power-only capabilities to complement our asset business, build a broader and more diversified freight portfolio, and to enhance the returns on our capital. Now I'll turn it over to Andrew on slide nine. Thanks, Adam.